International Business unit III essay and DQ question

Unit III Essay

For this assignment, write an essay that addresses each of the following points:

1. Choose five U.S. government policies that affect trade with foreign nations. Identify three factors of production, and describe how their mobility is good or bad for U.S. trade

2. Distinguish between absolute advantage and comparative advantage trade theories and give examples

3. Choose either the TPP or the T-TIP free trade agreement and describe which other countries have signed on and why the U.S. Senate should ratify or not ratify the agreement. Also, explain how regional trading groups influence organizations.

Your essay submission should be a minimum of three pages in length in APA style; however, a title page, a running head, and an abstract are not required. You are required to use at least two scholarly sources for this essay. Your responses to the three prompts must be in paragraph form. Be sure to cite and reference all quoted or paraphrased material appropriately in APA style.

DQ Question

Recently, there has been much criticism about the Trans-Pacific Partnership free trade agreement. Discuss three issues that may seem questionable in relation to the agreement. Given that eight other nations have already signed their participation, would you recommend to the U.S. Senate that it should be ratified?

MBA 6601, International Business 1

Course Learning Outcomes for Unit III

Upon completion of this unit, students should be able to:

3. Evaluate policies and factors affecting international trade patterns.

4. Distinguish between absolute advantage and comparative advantage trade theories.

5. Explore the influence of regional trading groups on an organization.

Reading Assignment

In order to access the following resource(s), click the link(s) below:

Burnson, P. (2016). Shape up or ship not. Logistics Management, 55(1), 40–43. Retrieved from

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bth&AN=112308215&site=ehost-live&scope=site

Dwyer, R. (2015). TPP to the rescue. Euromoney, 46(559), 73–76. Retrieved from

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bth&AN=110602247&site=ehost-live&scope=site

Knowler, G. (2015). The good, bad and ugly of the TPP. The Journal of Commerce, 16(22), 36.Retrieved from

https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bth&AN=110580564&site=ehost-live&scope=site

Ozgen, E. (2011). Porter’s diamond model and opportunity recognition: A cognitive perspective. Academy of

Entrepreneurship Journal, 17(2), 61–76. Retrieved from
https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bth&AN=64876451&site=ehost-live&scope=site

Click here to view the Unit III Presentation. Click here to access a PDF slide view and transcript of the
presentation.

Unit Lesson

Searching for a Trade Theory

We all know that some international trade is beneficial. For example, Greenland does not grow bananas, and
should it want any, it would have to purchase them from a country that does grow them for export such as
Costa Rica or Honduras. The benefits of trade are not limited to tangible goods. International migration and
international borrowing and lending are also forms of trade. While nations may gain from international trade,
some groups within these nations may be economically hurt. For example, the money spent for bananas in
Greenland would not be spent to buy fish from the country’s fishermen. The Greenland fishing industry would
have less income unless they found an export market, say, to Costa Rica or Honduras.

Since we know that international trade can be beneficial to some constituents and harmful to others,
politicians are looking to implement trade policies that benefit their country. Consequently, international
economists study the patterns of trade to help explain how trade policies can manipulate the different
variables to achieve maximum economic advantage. Multiple theories have emerged to help explain who sells
what to whom. Some aspects of trade are easy to understand, such as Greenland buying bananas from
Costa Rica. Climate and resource availability clearly explain why certain countries can or cannot produce

UNIT III STUDY GUIDE

Trade Theories and
Trading Institutions

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https://online.columbiasouthern.edu/CSU_Content/Courses/Business/MBA/MBA6601/15L/UnitIII/UnitIII_Presentation.htm

https://online.columbiasouthern.edu/CSU_Content/Courses/Business/MBA/MBA6601/15L/UnitIII_SlideView_Transcript

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certain products. Brazil exports coffee, and Saudi Arabia exports oil. Trade theories also take into account
other variables like capital, labor, land, and technical expertise into understanding and predicting trade
policies.

Classical Theories That Help Explain Why Countries Trade

The gravity model: This is a very simple theory with some credibility. Countries with large economies trade
with other countries with large economies. For example, the top four U.S. trade partners are Canada, Mexico,
China, and Japan. One reason is that other large economies seek out countries that have trading
infrastructure in place and that produce a large variety of products not found in the other countries.

Country similarity: This is a theory that compliments the gravity model. Companies create new products in
response to market conditions in their home countries. They then turn to markets they see as most similar to
what they are accustomed. That may explain why Canada is the largest trading partner of the United States.

Absolute advantage: In this theory, some countries produce some goods more efficiently than other
countries because of climate and resource availability. Advantages separate into two categories: natural
(climate and location) and acquired advantages. We are familiar with natural advantage. Acquired advantage
infers that a country has incentivized firms to develop sophisticated technologies that yield valuable products
and services. An example would be a country rich in computer technology, such as the United States or India.
In either natural or acquired advantage, the bottom line is that a country has achieved the lowest cost to
produce a product. Earlier, we mentioned that Saudi Arabia produces oil. Because the Saudis have so much
oil, and their oil is easy to get to, their breakeven cost is, at this time, less than $30 per barrel—lower than
almost any other country in the world. The United States is also rich in oil if you include the shale oil
formations in the Northwest. However, the U.S. breakeven costs run from around $50 to $75 (Tverberg,
2016). Saudi Arabia has the absolute advantage in oil production.

The Ricardian model (aka the comparative advantage): This theory works if a country has a lower
opportunity cost of producing a product than other countries (Holden, 2008). Each country has limited
resources, so if they devote their resources to producing one product, they are foregoing the production of
other products. The opportunity cost is what the country gives up when it produces a product. If it is less than
what another country gives up to make a product, the first country has a comparative advantage. (Please see
the Unit III Presentation for more examples.)

The Heckscher-Ohlin model (aka the factor proportions theory): This theory builds on the Ricardian
theory by predicting that countries will export products that use their abundant and cheap factors of
production and import products that use the countries’ scarce factors. The theory emphasizes the interplay
between the proportions in which different factors of production are available in different countries and the
proportions in which they produce different goods.

The standard trade model: While very complex because of supply and demand factors in other countries as
well as the host country, a basic explanation is that a country maximizes its well-being if it can sell exports for
more money than they cost to produce or buy imports for less than it would cost to produce them. The key
process is supply and demand for the products, as well as the factors of production as the price of goods on
the world stage is a determinate in the marginal cost (Krugman & Obstfeld, 2008).

A Contemporary Theory That Helps Explain How Nations Enhance Competitive Advantage

Porter’s diamond of national competitive advantage: While economists look for reasons to explain how
international trade works, politicians look for ways to improve economic performance. The diamond theory
works on four features as being relevant in determining how to structure your country’s trade policy.

 Demand conditions: Demand usually starts in the host country and continues to grow into other
similar countries.

 Factor conditions: The factors of production have to be readily available at affordable prices.

 Related and supportive industries: Logistics, transportation, and educational/training facilities must be
available and assessable.

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 Firm strategy, structure, and rivalry: In the beginning, barriers to entry must be low, but as production
becomes stable, barriers to entry become high. Usually, there is a high capital requirement followed
by a high skill set that is difficult to copy.

Given the plan, a nation can create new advanced factor endowments such as skilled labor, a strong
technology and knowledge base, government support, and culture to develop a strong international trading
base (Porter, 1990).

The Impact of Mobile Production Factors

The mobility of capital and people affect trade and relative competitive positions. Politicians look for ways to
maximize the economic impact of trade. Since production factors also affect trade, politicians also try to
control the economic forces that govern the movement of production factors.

People: At present rates, 24 countries estimate that they have smaller populations now than they had five
years ago. The trend seems to be getting worse with the developed countries. Compare world population
growth at 1.18% to the population growth for the United States at .75% or Germany at .06% (United Nations,
Department of Economic and Social Affairs, 2015). Lower fertility rates and an aging demographic leave
fewer people in the workforce.

GDP relates to a country’s output and standard of living. If the output is smaller, the standard of living
declines. Many of the world’s leaders recognize this problem and are proactive in their positions. U.S.
President Obama and German Chancellor Merkel are taking stands to allow large numbers of migrants into
their countries. However, while small numbers of migrants easily assimilate into standing populations, large
numbers create problems in meeting national values and acceptable levels of education.

Heads of state are quickly learning that migration is good if it is controlled, and assimilation is necessary for a
trained and educated labor force to emerge out of the chaos. Given that it takes almost a decade to change a
migrant into a productive citizen, it is obvious that the European Union, by accepting millions of migrants from
the Middle East, is planning long-term action to replenish their aging and declining workforce.

Capital: Long-term capital in the form of foreign direct investment (FDI) and short-term capital in the form of
financial transactions and bank loans are the most fluid types of mobile production factors. Investors of both
long-term and short-term capital are primarily seeking greater financial returns on their investment than they
can get domestically.

Companies invest abroad for the long term to tap markets, improve quality, and achieve lower operating
costs. Governments give foreign aid to achieve political and economic goals. Individuals send money to their
families still living in foreign countries.

Technology: To some extent, capital can replace people with the use of technology. Going further, capital
can make people more effective and productive, again with the aid of technology. Technology is the use of
specialized knowledge to manipulate production output gains.

In some cases, vendors take their technology to countries to make their factories more productive. In other
cases, technology is stolen or copied. For example, China has a colorful history of securing technology by
forcing vendors to build their factories in China, by hacking foreign governments, and by buying products for
reverse engineering (Carey, 2014). In any case, technology can offset reliance on other production factors by
substituting productivity for people and by providing expertise in materials and processes.

Government Influence on Trade

Governments can and often do alter and change trade policies to fit their political goals. Usually, the best
trade policies follow the concept of free trade. Free trade is trade without government intervention of imports
or exports. However, when the microscope is applied to see how trade is governed, free trade is difficult to
achieve. Here are some examples:

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Keeping people employed: The government of China maintains a full employment policy—despite the cost.
The idea is to keep people employed and off the street, thus, keeping them from demonstrating against the
government.

Protecting selective industries: Some industries like the defense and aeronautics industries have special
needs that the government protects. In the United States, defense industry companies have heavy restrictions
against trading on the international markets without approval from the government. Consequently, the
industries receive lucrative grants and contracts to make up for those limitations.

Protecting the environment and national culture: The recent disapproval of the Keystone XL pipeline was
mainly in response to environmental concerns. The prohibition of the sale of ivory is a direct effort to prevent
poachers from killing elephants in Africa.

Responding to other countries: Many countries may employ a tariff or a quota to restrict outside products
from interfering with domestic production. Trade theories recommend that if a country produces a product,
they should be the low-cost producer. If the low-cost producer brings that low-cost product into another
country, that country’s industry cannot compete effectively. The government will sometimes attach a tariff or a
quota to that low-cost product making the cost somewhat higher or making it unavailable. In either case, one
government takes action, and the reciprocal government takes action—one in response to the other.

Extending spheres of influence: Governments in developed countries use trade as part of their foreign aid
policy. It is common for the United States to give aid and preferential trade relations to countries that join a
political alliance or that vote a preferred way within political bodies. NATO is a direct offshoot of Western Bloc
countries forming a trading alliance at the end of World War II.

Embargoes: Embargoes and sanctions fall under Article 41 of the United Nations Charter, allowing the
Security Council a broad range of enforcement options that do not involve the use of armed force. Since
1966, the Security Council has established 26 sanctions.

Global and Regional Trading Organizations

Governments often cooperate with each other to remove trade barriers. The two ways to look at trading
groups are by location (global or regional) or type (such as FTA or OPEC). There are numerous trading
groups, and it would be difficult to cover every group in every region, so we will cover just a few of the major
groups.

The World Trade Organization (WTO) is the only international organization dealing with the global rules of
trade between nations. Its main function is to ensure that trade flows as smoothly, predictably, and freely as
possible. The World Trade Organization came into being in 1995 and has about 160 members, accounting for
about 95% of world trade. Around 25 others are negotiating membership (World Trade Organization, 2016).

The North American Free Trade Agreement (NAFTA) is a comprehensive trade agreement that sets the rules
of trade and investment between Canada, the United States, and Mexico. Created in 1994, NAFTA has
systematically eliminated most tariff and non-tariff barriers to free trade and investment between the three
countries (NAFTA, 2012).

The European Union (EU) represents not only economic and trade relations but political ties between 28
European countries. Created in 1958, the EU operates on the rule of law: Everything that it does is founded
on treaties, voluntarily and democratically agreed by all member countries (European Union, n.d.).

The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental
organization, created in 1960, by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. Nine other members later
joined the five founding members. OPEC’s objective is to coordinate and unify petroleum policies among
member countries in order to secure fair and stable prices for petroleum producers. It is worth noting that two
of the largest oil producers, the Russian Federation and the United States are not members. (Organization of
the Petroleum Exporting Countries, n.d.).

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Free Trade Agreements

Free trade agreements (FTAs) have proven to be one of the best ways to open up foreign markets. In the
United States, trade agreements reduce export barriers, protect U.S. interests, and enhance the rule of law in
participating countries. The reduction of trade barriers and the creation of a more stable and transparent
trading and investment environment make it easier and cheaper for U.S. companies to export their products
and services to trading partner markets. As of January 1, 2015, the United States has 14 FTAs in force with
20 countries (International Trade Administration, n.d.).

 Pacific FTA Partners (the TPP): The United States is negotiating a regional FTA, the Trans-Pacific
Partnership (TPP), with Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New
Zealand, Peru, Singapore, and Vietnam.

 Atlantic FTA Partners (the T-TIP): The United States and the European Union launched negotiations
on the Transatlantic Trade and Investment Partnership (T-TIP) in June 2013. (International Trade
Administration, n.d.).

References

Carey, B. (2014). Study: Foreign partners wary of technology theft in China. Retrieved from

http://www.ainonline.com/aviation-news/aerospace/2014-04-04/study-foreign-partners-wary-
technology-theft-china

European Union. (n.d.). The EU in brief. Retrieved from http://europa.eu/about-eu/basic-

information/about/index_en.htm

Holden, P. [pajholden]. (2008, August 22). Absolute and comparative advantage [Video file]. Retrieved from

https://www.youtube.com/watch?v=Pd_qs8ueIWw

International Trade Administration. (n.d.). Free trade agreements. Retrieved from http://trade.gov/fta/

Krugman, P.R., & Obstfeld, M. (2008). International economics: Theory & policy (8th ed.). Boston, MA:

Pearson.

North American Free Trade Agreement. (2012). Frequently asked questions: What Is NAFTA. Retrieved from

http://www.naftanow.org/faq_en.asp#faq-1

Organization of the Petroleum Exporting Countries. (n.d.). Brief history. Retrieved from

http://www.opec.org/opec_web/en/about_us/24.htm

Porter, M. E. (1990). The competitive advantage of nations. New York, NY: Free Press.

Tverberg, G. (2016). Why oil under $30 per barrel is a major problem. Retrieved from

https://ourfiniteworld.com/2016/01/19/why-oil-under-30-per-barrel-is-a-major-problem/

United Nations, Department of Economic and Social Affairs. (2015). World population prospects, the 2015

revision. Retrieved from http://esa.un.org/unpd/wpp/Download/Standard/Population/

United Nations Security Council. (2015). Sanctions. Retrieved from

https://www.un.org/sc/suborg/en/sanctions/information

World Trade Organization. (2016). The WTO in brief: Part 1. Retrieved from

https://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr01_e.htm

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Suggested Reading

The video below takes a look at absolute advantage and comparative advantage from a different perspective.
Please copy and paste the web address into your web browser to navigate to the video and learn more.

Holden, P. [pajholden]. (2008). Absolute and comparative advantage [Video file]. Retrieved from

https://www.youtube.com/watch?v=Pd_qs8ueIWw

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Academy of Entrepreneurship Journal, Volume 17, Number 2, 2011

PORTER’S DIAMOND MODEL AND OPPORTUNITY
RECOGNITION: A COGNITIVE PERSPECTIVE

Eren Ozgen, Troy University, Dothan Campus

ABSTRACT

Opportunity recognition is widely accepted as a crucial step in entrepreneurship process.

Previous studies revealed that there is a need to examine opportunity recognition as a joint
function of the environment and the individual under various theoretical approaches drawn from
other fields. This research applies a multidisciplinary approach and examines Porter’s diamond
theory of the competitive advantage of nations drawn from the strategy field and investigates
how these four determinants trigger entrepreneurial mindset in recognizing opportunities. To
date “how” industry competitiveness influences entrepreneurs synthesize and organize
information and identify opportunities has not, as yet, been investigated. The paper analyzes the
cognitive framework that exists behind Porter’s diamond model and how it relates to potential
entrepreneurs in recognition of opportunities and offers a few propositions for future research.

INTRODUCTION

Opportunity recognition has been accepted as a crucial element in entrepreneurship.
Although past research has investigated opportunity recognition focusing on various factors in
the external environment and the individual to date a numerous body of opportunity recognition
research revealed that there is a need to examine opportunity recognition under different
theoretical approaches drawn from other fields (Short, Ketchen, Shook and Ireland, 2010;
Corbett and Mcmullen, 2010).

This research applies a multidisciplinary approach and examines the Porter’s diamond
theory of the competitive advantage of nations drawn from the strategy field and investigates
how these four determinants influence entrepreneurs in recognizing opportunities. Although a
numerous body of early research investigated opportunity recognition as a joint function of the
external environment and individual to date limited attention is provided on the interplay
between certain factors in the external environment and cognitive underpinnings in this process.
Previous research pointed out the importance of cognitive characteristics in opportunity
recognition research (Koen, Markman, Baron and Reilly, 2001, Julien and Vaghely, 2001,
Corbett, 2005; Corbett, Mcmullen, 2010) and suggested further exploration of the cognitive
underpinnings in the opportunity recognition process. In other words, extensive studies are
required to understand “why” and “how” the mental mechanism is triggered in mobilizing
external resources in recognition of opportunities. Further early studies have in common that

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although there were some entrepreneurial theory developments opportunity recognition research
on entrepreneurship cognition still lacks a substantial theoretical foundation (Corbett and
Mcmullen, 2010).
In this study by drawing a theoretical model from the strategy field we attempt to
examine “how” industry competitiveness triggers entrepreneurial mindset and influences
entrepreneurs acquire and transform information and identify opportunities. This paper attempts
to advance the existing research by providing a multidisciplinary approach and studies the
Porter’s diamond model drawn from the strategy field and investigates the cognitive
underpinnings in the opportunity recognition process. We suggest that the analysis of cognitive
context that exists behind the Porter’s diamond model and how it relates to potential
entrepreneurs will help us underpin the opportunity recognition process.

We now present the literature review on opportunity recognition to provide the
foundation of the conceptual connection of the study and next we investigate the relationship
between the Porter’s diamond model and the entrepreneurial mindset. Finally we discuss
implications of the study and future research agenda.

OPPORTUNITY RECOGNITION

A numerous body of research increased investigated opportunity recognition and
explained opportunity recognition through various approaches (Schumpeter, 1934; Kirzner,
1973; Drucker, 1985; Stevensen et al., 1998; McMullan and Long, 1990; Bhave 1994; Baron and
Shane, 2008, Ozgen and Baron, 2007). A stream of research found that the external environment
plays a crucial factor in creating opportunities as opportunity recognition is a process influenced
by many contextual factors in the external environment (Gaglio and Taub, 1992; Singh, 1998),
most importantly the availability of resources (Timmons, 1994) and assorted technologies
(Zahra, 2008). Based on this reasoning, environmental contexts and technology, consumer
economics, social values and governmental regulations (Stevensen and Gumpert, 1985) and
changing trends in the present, i.e. social behavior patterns, market circumstances and
technology (McMullan and Long, 1990), networks, demand and supply gaps, price differences,
technology substitution and innovation ( Thakur, 1999) , technological change (Shane, 2000);
environmental dynamism (Wiklund and Shepherd, 2003); industry deregulation (Jennings and
Seaman, 1990); industry characteristics and geographic dispersion (Davidsson, 1991) play a
crucial role in opportunity recognition (Short, Ketchen, Shook and Ireland, 2010). .

In other words entrepreneurs identify opportunities by using different types of
information about the environment (Busenitz and Barney, 1997). They make a habit of scanning
their environments for information that may lead to entrepreneurial opportunities ( S t e w a r t ,
M a y a n d K a l i a , 2 0 0 8 ). Focusing on markets and changes in industry structure (Kuratko and
Welsch, 2001); market inefficiencies (Denrell et all, 2003); and transaction cost and property
rights (Foss and Foss, 2008) increase the probability of recognizing opportunities.

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A stream of research focused on the role of an individual in the opportunity recognition
process. An entrepreneurial opportunity is a market imperfection that can be exploited by
bringing market to equilibrium (Kirzner, 1973). This implies that opportunities exist all around
us yet only those who are “alert” to possibilities that the market presents have the ability to
recognize them. (West and Myer, 1997). A body of research found opportunity recognition
highly associated with the cognitive skills of certain individuals (Baron, 2006; Shane 2009) as
entrepreneurs use cognitive insights and spend more time than non-entrepreneurs in searching
information that lead new opportunities (Kaish and Gilad, 1991; Gaglio, 2004). In sum the
understanding of the cognitive aspects of entrepreneurship (i.e. the way entrepreneurs perceive
information and process knowledge) is required to articulate the techniques that help
entrepreneurs recognize opportunities. Therefore from the theoretical perspective, to be able to
explore opportunity recognition early studies draw attention to the entrepreneurs’ cognitive skills
(Koen, et al, 2001, Julien and Vaghely, 2001, Corbett, 2005). It was found that opportunity
recognition is highly associated with the entrepreneurial alertness (Archvili, Carozo and Ray,
2003; Chiles et al, 2007); prior knowledge of a particular field (Shane, 2000); mental stimulation
(Gaglio, 2004); behavioral, cognitive and action learning (Lumpkin and Lichstenstein, 2005);
social capital and cognitive biases (De Carolis and Saparito, 2006). Applying the experiential
learning theory Corbett (2005) found the importance of different learning modes in opportunity
recognition. Corbett (2005) suggested that experiential learning facilitates the recognition of
opportunities and argued that future research should focus on the cognitive insights and how
individuals use and store information to exploit opportunities drawing other theories from other
fields. Applying the social cognitive theory Gaglio (2004) studied a few selected cognitive
mechanism and found that mental stimulation and counterfactual thinking play an important role
in recognizing opportunities. Lumpkin and Lichstenstein (2005) also examined the link between
the cognitive learning and opportunity recognition and found that tacit knowledge is crucial in
recognizing market opportunities and suggested to further expand the cognitive insights into
opportunity recognition research. Based on the inductive theory building and network theory
(Dyer, Geregersen and Christensen, 2008) found that the cognitive mechanism that involves
observing, experimenting, idea networking and “questioning” provide the mechanisms by which
opportunities are recognized.

A growing body of research suggested that examining opportunity recognition as a joint
function of individual and the environment (Singh, 2000; Shane and Ventakaraman, 2000;
Baron, 2002; Ozgen and Baron, 2007) will help us better understand the opportunity recognition
process. Previous research found the relation between the market changes and the entrepreneur
(Eckerd and Shane, 2003); interaction between social systems and entrepreneur (Sarason, et al,
2006) and a combination of cognitive skills and information (Gregoire, Barr and Shepherd,
2010) will play a crucial role in opportunity recognition. De Carolis and Saparito (2006) applied
social cognitive theory in understanding entrepreneurial behavior and confirmed that the
interaction between the environments and cognitive factors play an important role in

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entrepreneurial behavior. De Carolis and Saparito (2006) focused on social networks and
individual cognition and suggested that future research should extend the interplay between
environments and individual cognition and look into various factors that might influence
entrepreneurial behavior and new venture success.

In sum although various approaches were applied in the early opportunity recognition
research most research is in common that information is central in the process and various
sources of information and the interplay between entrepreneur and a range of factors in the
environments need to be examined to better understand the process.

Previous studies also revealed that there is a need to study entrepreneurial behavior under
different theoretical lenses or in a multidisciplinary approach. To date “how” industry
competitiveness influences entrepreneurs synthesize and organize information and identify
opportunities has not, as yet, been investigated. Extending previous research this study examines
the Porter’s diamond model (the competitive advantage of nations) drawn from the strategy field
and studies how it influences the way entrepreneurs think and recognize opportunities.

THE PORTER’S DIAMOND THEORY OF THE
COMPETITIVE ADVANTAGE OF NATIONS

The competitive advantage of a nation or a region is partly attributed to the competitive

advantage in particular industries (Porter, 1990). The Porter’s “diamond of advantages” model
(1990) includes four determinants of industry competitiveness or national advantage i.e. factor
(input) conditions, home demand conditions, related and supporting industries and industry
strategy structure and competitiveness. The model suggests causes of productivity with which
companies compete in different country and regional setting. Early research examined industry
clusters originated from the Porter’s diamond model in opportunity recognition and found that
geographic concentration of industry clusters helps ease technology transfer and innovation (Tan,
2006). (Lehtinen, Poikela and Pongracz (2006) confirmed that the determinants of the Porter’s
diamond model create industry clusters and impact new business ventures. Although previous
research investigated the impact of industry clusters on entrepreneurial ventures early studies did
not specifically inspect the relation between each of the determinants (i.e. contexts) of the
Porter’s diamond model and the opportunity recognition. In fact early studies suggested that
when examining the opportunity recognition process efforts need to be made to include the key
contextual characteristics in the environment as moderators of opportunities (Short, Ketchen,
Shook and Ireland, 2010). Therefore extending previous research we suggest that further
investigating the role of each determinant of the Porter’s diamond model on opportunity
recognition and how it triggers entrepreneurial mindset will be of value. The analysis of
cognitive context that exists behind the Porter’s diamond model and how it relates to potential
entrepreneurs will help us underpin the opportunity recognition process. We now turn to the
determinants of the Porter’s diamond model.

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Factor Conditions

Factor conditions refer to home country production factors including human, material,
knowledge and capital resources and infrastructure (Porter, 1990). Human resources include
skilled workforce; material resources include availability of raw materials; knowledge resources
include the education level, quality of research; capital resources refer to the availability of assets
and social capital (network connections) and infrastructure include both physical and legal
regulatory infrastructure and refer to the basic foundation, facilities or services, needed for the
functioning of society, such as sewer, transportation, communications and school systems, water
and power lines etc and government policies and programs.

Porter suggests that each country or region has certain factor conditions and develop
competitive advantages for industries in which these factor conditions are considered optimal.
We also think that the extent of factor conditions in a country or region drive opportunity
recognition in certain industries triggering entrepreneurial mindset due to the speed of
knowledge transfer and access to specific resources. In other words the entrepreneurial behavior
is guided in choice of market or industry by the availability of resources in the environment.

For instance, let’s take infrastructure. Although it is widely accepted that basic physical
and legal infrastructure development, availability of financing (Kulawczuk, 1998) and spending
on infrastructure improvements (Bruinsma, Nijkamp, & Rietwald, 1992; Van de Ven, 1993) are
correlated with the level of entrepreneurial activities across different countries (Zacharakis,
Reynolds & Bygrave, 1999) to date there is limited research on “how” the level of infrastructure
influences opportunity recognition. We think that heavy regulations, bureaucratic rules on
obtaining business license, or lack of funding in some regions or countries may limit access to
some markets, financial services and credit, and thereby creates barriers in seizing opportunities.
For instance, the overall institutional environment for the development of entrepreneurship was
found as less than favorable in Bulgaria, Hungary, and Latvia and infrastructure difficulties ( the
regulatory infrastructure scored the highest in Hungary) play a significant role in that (Manolova,
Eunni and Gyoshev , 2008). On the other hand access to a well developed infrastructure such as
transportation, communications, water, legal system, etc. and a good communications network in
any region or country could facilitate responding to potential demand, ease technology and
the speed of information exchange, and knowledge transfer and assist recognition of
entrepreneurial opportunities. Spending on infrastructure development leads to a change in the
industry structure thus creating a new demand and supply curve for new ideas and resources,
which in turn impacts the availability of opportunities.

Also let’s take the human and social capital. The availability of human and social capital
in any industry in a region or country influences the recognition of opportunities. For instance,
India’s master weavers in the handloom industry were researched and it was found that access to
social and human capital of entrepreneurs influenced their ability to recognize opportunities in

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Academy of Entrepreneurship Journal, Volume 17, Number 2, 2011

this industry (Bhagavatula, Elfring, Van Tilburg, Van de Bunt, 2010). Also the success of the
many industry clusters (for instance, Silicon Valley (Saxenian, 1994); insurance industry cluster
in Hartford, Connecticut; banking in New York and San Francisco; electronics industry in
Penang, Malaysia; furniture and palm oil in Johor, Malaysia (Arif, 2008)) are credited to the
social infrastructure in these regions. In other words the accessibility to social capital and
networks create favorable conditions for the exchange of knowledge and creation of new
knowledge which help in recognition of opportunities.

The social capital theory basically suggests that network ties provide potential or
possibilities of access to resources and information that is critical to recognition of opportunities
(Nahapiet and Ghoskal,1998). Social networks facilitate information exchange, knowledge
spillover. Social network contacts of a potential entrepreneur create access to knowledge to an
individual exposing him to new venture ideas. Social networking provides potential
entrepreneurs access to critical resources by enlarging the knowledge that leads them to pursue a
set of ideas (Floyd and Woolridge, 1999). An entrepreneur’s social network contacts can expand
the “bounded rationality” of the individual by offering access to knowledge (Simon, 1976).
Therefore entrepreneurs use information generated from their social capital and networks and
enlarge their knowledge of opportunities.

Also based on the pattern recognition theory and prototype model, Baron (2006)
suggested that knowledge and learning shape individuals’ mental frameworks, which influence
their perception of external world. Thus, it might be easier to notice and identify opportunities
through information relevant to individuals’ existing mental frame. In other words knowledge
embedded in individual shapes the capacity to create new knowledge ( Knudsen, Dalum and
Villumsen, 2001). We think that in industries where the factor conditions are “optimal”
entrepreneur’s continuous access to particular resources and social capital networks generates
certain knowledge framework and prepares entrepreneur’s mindset. Thus, entrepreneurs based on
their knowledge could have increased ability to “comprehend” and synthesize new information
and be alert to exploit the opportunities in that industry.

Proposition # 1a: Home country factor conditions are positively related to opportunity

recognition.

Proposition # 1b: The more entrepreneurs engage in the “optimal” home country factor

conditions the more effective they will be in the discovery of opportunities for new
ventures (i.e., the more alert they will be to such opportunities).

Demand conditions

Demand conditions refer to the home demand for products/services produced in a
country. The Porter’s model suggests if the local demand for a product or service is larger than

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foreign markets then local firms put more emphasize developing certain products/services than
foreign firms and it creates competitive advantage for the home markets. For instance due to
increasing local demand for the IT the entrepreneurial activities in Europe are moving away from
traditional industries towards knowledge based industries (Acs, Desai and Hessels, 2008). The
growing market demand in the IT industry leads entrepreneurs shift their focus towards the IT
industry and come up with innovative ideas and new ventures in the IT industry. Extending
previous literature we think that demanding home market triggers entrepreneurial mindset in
recognition of opportunities. We note that customer demand is an important factor for
opportunity recognition (Choi and Shephers, 2004) yet having information and knowledge
related with a specific market and industry speeds up entrepreneurs noticing and predicting
trends and analyzing the nature of demand and recognizing opportunities (Singh, 2000).

The German-Austrian school of thought emphasizes that opportunities are not exclusively
accidental events but active search and experimentation of new ideas lead to new possibilities
and opportunities (Schumpeter, 1942). Therefore informed entrepreneurs scan their
environments for information (Kaish and Gilad, 1991; Fiet, Clouse & Norton, 2004; Fiet,
Piskounov & Patel, 2005), and focus on specific markets, industry and the customers (in this
case demanding buyers and their needs) (Bhave, 1994). Systematic search on markets where
entrepreneurs are knowledgeable and informed (Patel and Fiet, 2009; Fiet, Norton and Clouse,
2007) enables entrepreneurs better understand the needs and demands of the customers and
thereby facilitates recognition of opportunities. In the light of the available market information
potential entrepreneur’s mindset is fashioned and adapted to the existing market demand and
thereby more likely to explore novel ideas related with that demand. Thus, focusing on existing
market demand knowledgeable entrepreneurs can introduce new products, services, sources of
input or advances that lead to increased entrepreneurial behavior. In sum, individuals with
information on certain market demands or industries may recognize more entrepreneurial
opportunities in these industries and markets than those who have no knowledge on these
industries.

Proposition # 2a: Country demand conditions are positively related to opportunity recognition.

Proposition# 2b: The more entrepreneurs engage in the country demand conditions the more

effective they will be in the discovery of opportunities for new ventures (i.e., the
more alert they will be to such opportunities).

Related and Supporting Industries

Related and supporting industries refer to the availability of competitive supplying and
supporting industries. When industries coordinate activities and form clusters of supporting
industries within the value chain they achieve a competitive advantage (Porter, 1991). We also

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Academy of Entrepreneurship Journal, Volume 17, Number 2, 2011

think that the strength and competitiveness of related and supporting industries in a
region/country triggers entrepreneurial mindset in recognizing opportunities. When local
supporting industries are competitive new entrants continue to grow in both related and
supportive industries and form clusters. Due to the ease of information flow and transactions
between buyers and sellers firms can better come up with cost effective and innovative products.
Clusters of related and supporting industries play a significant role in technology transfer and
innovation (Tan, 2006) and facilitate coordination, efficiency and effectiveness and flexibility
(Porter, 1990), lower transportation and transaction costs in the production process (Doeringer
and Terkla, 1995).

The strength of the related and supporting industries in a region/country enables
horizontal and vertical connections within industries (Walzer, Shumway, Gruidl, 2005) and
facilitates social interaction, interchange and information flow (Saxenian, 1994; Doeringer &
Terkla,1995; Jacobs and De Man, 1996; Rosenfeld,1996). Social infrastructure within the value
chain of related and supporting industries eases technology and knowledge transfer (Rosenfeld
1997). We also suggest that access to social infrastructure within these industries will encourage
thinking open mindedly and generate novel ideas. Applying the inductive theory building and
network theory it was found that recognizing an creating an opportunity and starting an
innovative entrepreneurial venture is a function of cognitive mechanism that involves observing,
experimenting, idea networking and “questioning” (Dyer, Geregersen and Christensen, 2008).
Experiential learning influences recognition of opportunities (Denrell and Corbett, 2005).
Therefore we think that possible continuous access to particular industrial, commercial and
research partners, consultants, investors, suppliers, customers, etc within the related and
supported industries in a region will link entrepreneur to information sources and also improves
experience related with these industries. Access to unique information will invite
experimentation, enhance potential entrepreneur’s critical thinking, intuition and insights and
help interpretation of evaluation of information which leads to recognition of opportunities.

Proposition # 3a: Related and supporting industries are positively related to opportunity

recognition.

Proposition # 3b: The more entrepreneurs engage in the related and supporting industries the

more effective they will be in the discovery of opportunities for new ventures (i.e.,
the more alert they will be to such opportunities).

Firm Strategy, Structure, and Rivalry

The organization structure and management systems of firms in various countries
influence national competitiveness (Porter, 1990). Companies build their capabilities on the
fields/ industries in which they are competitive. For instance, companies in Germany have

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Academy of Entrepreneurship Journal, Volume 17, Number 2, 2011

usually very systematic, highly technical, process oriented and hierarchical organization structure
and as a result they build up strengths in engineering related fields. Also rivalry increases home
demand.

Based on the dynamic capabilities we suggest that the firm structure, strategy and rivalry
triggers entrepreneurial mindset in recognition of opportunities. Dynamic capabilities are firm
specific processes,( i.e. product development, strategy, structure) and allow organizations to
continuously improve the performance within the firms market position (Molin, 2001). Dynamic
capabilities (Teece, Pisano & Shuen, 1997) focus on the creation of firm specific capabilities
arising from their organizational structure that link its capabilities to changing circumstances. In
a changing environment, firms must continuously improve their capabilities to maintain
competitive advantage. Organizations often respond to challenging conditions found in instable
environments by adopting an entrepreneurial behavior (Khandwalla, 1987) through dynamic
capabilities. Capabilities are difficult to imitate as they are a function of organization and
technology and are built over time in a path dependent process (Dierickx and Cool, 1989; Reed
and De Fillippi, 1990).

Dynamic capabilities induce entrepreneurial mindset in shifting away from outdated
processes to effective ones and tend to create opportunities in a firm’s markets (Zahra, 1991).
Based on the dynamic capabilities perspective we suggest that the more entrepreneurs rely on
firm specific capabilities, such as strategy and structure that a firm has developed and perfected
over time, the more likely they discover opportunities for new ventures.

Proposition # 4a: Firm strategy, structure, and rivalry are positively related to opportunity

recognition.

Proposition # 4b: The more entrepreneurs engage in the firm strategy, structure, and rivalry

the more effective they will be in the discovery of opportunities for new ventures
(i.e., the more alert they will be to such opportunities).

We now turn to a cognitive process and examine how the Porter’s diamond model may
trigger entrepreneurs’ pattern recognition.

Pattern recognition

A growing body of research reveals that opportunity recognition is partially a cognitive
process (Baron, 2007). The pattern recognition, a crucial cognitive process, was found related to
recognizing opportunities (Baron, 2006 ). The pattern recognition is taking in raw data and
classifying data based on the category of data patterns that have already been classified in the
memory (Gobet, 1997; Hayes, 2000; Duda and Stork, 2001). The pattern recognition involves
taking in outside information matching with the existing information in the memory and

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indentifying the data category the information belongs to (Gobet, 1997; Hayes, 2000). Various
pattern recognition models (i.e. prototype model, examplar model) were introduced to help us
understand the pattern recognition process (Duda and Stork, 2001; Baron and Ensley, 2006). The
theory of Prototype Model suggests that memory matches outside patterns with prototypes stored
in the memory (Hayes, 2000).

Prototype is the “idealized representation” of a combination of certain characteristics
associated with an object in one certain category (Matlin, 2002; Baron, 2004b). Information
obtained from “outside sources” or “seemingly random events” is compared with the existing
prototypes stored in the memory and organized in the category of a certain prototype (Hayes,
2000). Cognitive psychology suggests that people understand the meaning of the outside stimuli
based on one’s prototype which acquired through knowledge (Baron, 2004b; Baron and Ensley,
2006). Therefore prototypes provide a cognitive frame of reference to individuals to help them
recognize, or notice links between random events in the environment (Baron, 2004b, Matlin,
2002). The exemplar model refers the storage of specific examples (i.e. exemplars) of relevant
concepts in the memory (Hahn and Chatler, 1997). The exemplar model suggests that new events
are evaluated based on how closely they resemble to the specific examples a person has
encountered (Baron, 2004b). Exemplars are constructed as individuals develop experience and
expertise in a given field. In sum the pattern recognition theory suggests that entrepreneurs
recognize opportunities and come up with novel ideas for new ventures as they employ either
prototypes or exemplars or both prototypes and exemplars to detect for patterns (Baron, 2004b;
Baron and Ensley, 2006).

We suggest that the more a potential entrepreneur engages in any of the determinants in
the Porter’s theory of diamond model the more his/her pattern recognition will be stimulated in
opportunity recognition. For instance, a person having number of years of job experience in a
related or supportive industry has an extensive familiarity with this industry. Due to his/her
extensive knowledge with this industry the person develops a prototype for a certain “know-
how” or “idealized representation” for that industry. Therefore through repeated contacts in the
industry when this person learns about new trends, demands, developments or changes the
individual may notice a potential link or connection between the random event(s) and the
prototype that he developed for the industry. The existing prototype that the individual has may
help him notice the emergent pattern for the apparently independent and different developments
or advances and may lead him/her connect the patterns of the new information with the existing
one (prototype(s) stored in the memory) and develop new ideas. Also due to a number of years
of expertise in a certain industry the individual may develop certain exemplars in the memory
that will help him/her recognize multifaceted patterns in the environment. It was found that to
identify an idea and recognize an opportunity in a specific industry it is crucial to be
knowledgeable about the domain with a solid understanding of the knowledge base (Shepherd
and DeTienne, 2001). Therefore perceiving and identifying emergent patterns in the environment

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Academy of Entrepreneurship Journal, Volume 17, Number 2, 2011

may help individual recognize opportunities and come up with novel ideas for new ventures.
Based on this reasoning we suggest the following proposition.

P r o p o s i t i o n # 5 : The more entrepreneurs engage in any of the determinants in the Porter’s

diamond model the more their pattern recognition will be stimulated in
opportunity recognition.

DISCUSSION

Opportunity recognition is a multidimensional process in nature. As it was found in early

research entrepreneur and information are central in the process. Information obtained from
numerous sources in the environment is assimilated by the entrepreneur’s cognitive mechanism.
Therefore zooming in the cognitive process will help us to understand how entrepreneurs
incorporate information in the external environment to recognize opportunities.

To date early work did valuable contributions in our understanding of the opportunity
recognition process by highlighting various “elements” in the external environment such as
networks, demand and supply gaps, price differences, technology substitution and innovation
(Thakur, 1999), technology context (Zahra, 2008), technological change (Shane, 2000);
environmental dynamism (Wiklund and Shepherd, 2003); customer demand (Choi and Shephers,
2004); industry deregulation (Jennings and Seaman, 1990); industry characteristics, geographic
dispersion (Davidsson, 1991). Extending previous research we suggest that the Porter’s diamond
model (determinants of industry competitiveness) could also play a role in the opportunity
recognition process and trigger entrepreneurial mindset (i.e., the cognitive processes).In other
words information generated by these determinants prepares entrepreneur’s mindset to be alert to
opportunities. Therefore informed entrepreneurs more likely recognize opportunities related with
the industries in which Porter’s determinants are “optimal”.

The ideas presented in this paper are a step towards future entrepreneurship research in
opportunity recognition. We suggest further empirical investigation of the propositions presented
in this paper. Yet we hope the propositions we raised in this paper have promising fruitful
implications for the policy makers. Policymakers may want to promote entrepreneurship in
industries where Porter’s determinants are “optimal”. Therefore subsidized loans or regulatory
exemptions can be applied to such these industries.

In the future there is still need to investigate various other contexts to underpin the
opportunity recognition process. Therefore future entrepreneurship researchers need to examine
the interaction of entrepreneur with various other environmental contexts, industries or
economies and apply different theories to advance opportunity recognition research further.

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Academy of Entrepreneurship Journal, Volume 17, Number 2, 2011

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Entrepreneurship Journal, 2, 243-257.

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40 L O G I S T I C S M A N A G E M E N T | JANUARY 2016 L O G I S T I C S M G M T. C O M

New developments in global trade (TTP, T-TIP, ACE) will play a
significant role in 2016, making an impact on a wide spectrum
of U.S. shippers. Analysts contend that those who are properly
prepared can make substantial gains this year—while those
who lag behind may run into unanticipated grief.

BY PATRICK BURNSON,
EXECUTIVE EDITOR

The North American Trade Agreement (NAFTA)
has arguably been the surest way for domestic ship-
pers to “go global” in recent years. But high on the
radar for many companies moving perishable goods
within NAFTA is a new federal law that requires
meat sold in grocery stores to indicate the country
or countries where the animal was born, raised, and
slaughtered.

The World Trade Organization (WTO) intro-
duced the so-called Country of Origin Label-
ing (COOL) last year after it found that COOL
requirements put Canadian and Mexican livestock
at an unfair disadvantage against U.S. animals.

“Canada requested authorization from the WTO
to impose over $3 billion in retaliatory measures
against U.S. exports to Canada,” explains Candace
Sider, vice president of regulatory affairs, Canada,
at trade compliance firm Livingston International.
“This includes increased tariffs on 30 U.S. prod-
ucts ranging from beef, pork, cereals, baked goods,
and fruit.”

Global Logistics

Shape up
or ship not

T
his will be the year of opportunity and risk for shippers ramping up their
global aspirations, say analysts. Regulatory agencies are introducing a whole
host of new compliance initiatives, and for anxious global logistics mangers
“being forewarned is to be forearmed.”

According to Sider, cross-border shippers must
also be aware of changes in IMMEX (Maquila-
dora) Program. This trade agreement allows com-
panies to import raw goods and services to Mexico
to be manufactured and re-exported, without pay-
ing customs duties. “And this is just one of sev-
eral trade agreements that should be considered by
North American shippers,” says Sider.

Although more than 6,000 companies may
believe that they’re participating in IMMEX trade
compliance, Sider adds that they may not under-
stand or be receiving the full benefits of the pro-
gram. Becoming familiar with the current versions
of tax laws, for example, will be key.

“Changes in 2014 eliminated the value-added
tax [VAT] exemption for temporary imports of
goods performed by factories, resulting in a VAT of
up to 16 percent unless companies obtain a certifi-
cation,” Sider explains.

Pending international agreements contain simi-
lar nuances, and while shippers wait for them to
come to final fruition, becoming familiar with the
details now can pay big dividends, compliance
experts contend.

L O G I S T I C S M G M T. C O M JANUARY 2016 | L O G I S T I C S M A N A G E M E N T 41

Daniel Vasconcellos

42 L O G I S T I C S M A N A G E M E N T | JANUARY 2016 L O G I S T I C S M G M T. C O M

Global Logistics: Compliance

ITA/TPP/T-TIP: “Mega-trade deals”
Near and dear to many enterprises is the Informa-
tion Technology Agreement (ITA) that will eliminate
tariffs on roughly 200 IT products—a sector that’s
valued at approximately $1.3 trillion in annual trade.
Trade analysts say that this is just one of several
“mega-trade deals” shippers should study.

ITA is the first tariff-cutting agreement in the WTO
in 18 years. More than 80 countries, including the
U.S., Canada, and China, representing 97 percent of

world trade in informa-
tion technology products,
have agreed to participate
in the agreement. “The
ITA could offer trade
opportunities that weren’t
originally available,” says
Michael Froman, a U.S.
trade representative. “It
could also increase com-

petition for U.S. tech manufacturers by opening the
U.S. market to similar products from other countries.”

Then there are the two other mega-trade deals
that may not surface this year without some heady
political wrangling. The Trans-Pacific Partnership
(TPP) is the biggest free trade deal in history. The
12 countries participating in the TPP finally reached
an agreement in October 2015 after seven years of
negotiations.

Collectively, the countries—Australia, Brunei,
Canada, Chile, Japan, Malaysia, Mexico, New Zea-
land, Peru, Singapore, Vietnam, and U.S.—represent
40 percent of the global GDP, which equals more than
$27.5 trillion combined and a third of world trade.

“The agreement must now be ratified by the govern-
ment of each country, a process that could start in the
U.S. in 2016,” observes Froman. “With the passing of
TPP, multi-national businesses would have more intel-
lectual property protection and overall consistency as
investors and traders in the region. TPP would also
lower or eliminate tariffs on a variety of products.”

Then there’s another political hot potato that’s still
waiting approval: the Transatlantic Trade and Invest-
ment Partnership (T-TIP).

T-TIP is a trade and investment agreement being
negotiated between the U.S. and the 28 European
Union (EU) member countries that has the potential
to increase access to both European and U.S. mar-
kets for goods and services.

Froman explains, for example, that T-TIP aims to
coordinate on product testing, inspection, and certifi-
cation procedures; resolve pest and pathogen sanitary
issues with a single approval process; standardize forms
filed at the border; and align fees and charges. Further-
more, U.S. businesses whose products are highly regu-
lated should find navigating EU trade easier and incur
lower costs for obtaining approvals and permits.

Both of the global agreements have the provisional

endorsement of the American Association of Exports
and Importers (AAEI). Marianne Rowden, president
and CEO of the AAEI, says, however, that the associ-
ation “needs time to consider offering its full support
of the agreement until its members have an opportu-
nity to examine the details.”

Customs on high alert
While a number of issues have gained the attention
of U.S. shippers early this year, the most urgent con-
cern revolves around Customs and Border Protection
(CBP) compliance, as it replaces the Automated Cus-
toms System (ACS) with the Automated Customs
Environment (ACE) on February 28.

“By the end of next month, freight intermediaries
are required to transmit cargo release and entry sum-
mary for U.S. imports, as well as the first three Part-
ner Government Agency data sets, following ACE
processes and technical requirements,” explains Liv-
ingston’s Sider.

The so-called “modernization initiative” aims to
streamline and leverage more current technolo-
gies and process changes, improving the exchange
of information between trade, GBP, and 47 differ-
ent federal agencies through a single government
window. “Importers, especially those with products
regulated by one or more of the partner government
agencies, should understand the new requirements
the ACE environment presents,” adds Sider.

At the same time, however, prominent stakehold-
ers are urging the U.S. government to “exercise cau-
tion” when implementation begins. According to the
National Customs Brokers & Forwarders Association
of America (NCBFAA), the rollout of new technology
is always “fraught with uncertainty.” Furthermore,
says Geoffrey Powell, NCBFAA president, when
international commerce is concerned, extra steps
must be taken to minimize risk.

Powell points to CBP’s recently released func-
tionality that allows air carriers to file their import
manifests with CBP in ACE. “It didn’t work properly
and created havoc with air shipments, resulting in an
inability to move shipments, lost business for import-
ers, and added significant additional costs for every-
one in the supply chain,” he adds.

Shippers say “Get ACE right”
To avoid such a recurrence on an even larger scale
with the switch over to ACE, the NCBFAA is telling
Customs that any final implementation should con-
sider, at a minimum, the following criteria:

• The average time of release in ACE, from the
time of data transmission to full cargo release by
CBP, must be equal to or better than the average
time of release in ACS today. It must not take ACE
longer to perform these functions. At minimum, the
communications with all trade partners should not
be affected when the transition to ACE occurs. Opti-

“With the passing of TPP, multi-
national businesses would have more

intellectual property protection and
overall consistency as investors and

traders in the region.”

— Michael Froman, U.S. trade representative

L O G I S T I C S M G M T. C O M JANUARY 2016 | L O G I S T I C S M A N A G E M E N T 43

mally, it will be further facilitated in ACE.
• Government exam reasons and results must

clearly communicate who is requiring additional
action; what actions are required to adjudicate the
finding, what the results of the adjudication are; and
what actions are required from the trade.

• All data elements must be established, published,
successfully tested, and finalized a minimum of 90
days before any piece of functionality is required to be
put in production. Functionality has already changed
multiple times, and as it continues to change, it is mak-
ing software programming difficult and more expensive
to finalize.

• Any information collected at the time of cargo
release (admissibility) must be for the purpose of estab-
lishing the risk of allowing the good to proceed into the
U.S. commerce for health, safety, or other risks to the
U.S. consumer.

• Data requirements must not add costs to the sup-
ply chain in a way that places an artificial trade barrier
to the effective flow of the import and export of goods.

• A stable and available CBP and Partner Govern-
ment Agencies (PGA) testing and live operating envi-
ronment is established for all automated interactions
without the need for weekly “fixes” to address critical
problems.

• CBP and PGA software must be thoroughly
tested for all issues including software coding prob-
lems, process flaws, and capacity, and pass at an
industry-accepted level. CBP and PGA personnel in
the field that are required to interact with ACE must
be thoroughly trained.

“CBP has too few technical resources available
to support the ACE transition, which in turn affects
the trade’s ability to implement the system,” says Jon
Kent, the NCBFAA’s legislative representative. He
also contends that the rollout schedule—instead of
being driven by the completion of software func-
tionality—is heavily influenced by “arbitrary” White
House deadlines.

“Finally, the PGAs
are including new data
elements and data sub-
mission requirements
that transfer costs from
the PGAs to brokers and
importers,” says Kent.

Members of the
Airforwarders Association (AfA), another power-
ful Washington lobbying group, are also adamant
about getting ACE right. “The implementation
of ACE must make life easier for all of us with-
out undue hardship in the process,” says AfA’s
executive director, Brandon Fried. “This can only
be accomplished by thoroughly testing the plat-
form before release, minimizing time-consuming
updates, limiting PGA changes, and not clamoring
to meet unrealistic deadlines that may result in an
inferior product.”

When Logistics Management went to press, how-
ever, that deadline was fast approaching.

—Patrick Burnson is Executive Editor of
Logistics Management

“CBP has too few technical resources
available to support the ACE transition,
which in turn affects the trade’s ability
to implement the system.”

—Jon Kent, NCBFAA

Nelson Cabrera, who leads global business development efforts within
Lilly & Associates in Miami, maintains
that there’s one common thread running
through all these changes in trade trea-
ties and compliance standards: Atten-
tion to detail.

“The real budget breakers are im-
port violations,” says Cabrera. “Import-
ers are responsible for an incredible
amount of paperwork related to their
shipments, and to many shippers, filling
out the forms might feel like decoding
another language.”

He maintains that shippers should
remain especially vigilant when it
comes to drafting an Import Security
Filing (ISF). An ISF is required for any
shipment coming into the U.S. via sea
freight, and shippers must file all ISF in-

formation prior to releasing their goods
from their origin point, which requires
proactive thinking. Shippers failing to
file these documents promptly or cor-
rectly could be subject to as much as
$5,000 in charges.

“Improper documentation is another
concern,” says Cabrera. “In addition to
the problems shippers could have with
appropriate valuation and classifica-
tion of goods, CBP could assess fees
if shippers neglect to declare goods
entirely. If your documents don’t ac-
curately report all your imports—or if
you attempt to import an inadmissible
product—expect a fine of substantial
proportions.”

Finally, Cabrera points out that im-
properly filing other shipment paper-
work, not following set importation

procedures, and not promptly bringing
requested goods into Customs’ cus-
tody will incur another fine.

–Patrick Burnson, Executive Editor

2016 Customs/Trade Update: Add ISF to list of concerns

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be copied or emailed to multiple sites or posted to a listserv without the copyright holder’s
express written permission. However, users may print, download, or email articles for
individual use.

INTERNATIONAL MARITIME
………………………………………………………………………….

mi mi ii mi in mi iiiiiiiiiii in in i in mi limn i mi mi i ii mi in i mi ii i mi i ii i in i in mi i ii i in mi hi mi mi mi mi mi i in i ii 11 ii 11 ii i in i in mi i ii i mi in Hum mi mi mi m mi i ii i mi min i in mi i mi mi i ii i m i m in i min in i nn

By Greg Knowler

THE GOOD, BAD
AND UGLY OF THE TPP
If ra tifie d , the Trans-P acific P a rtn e rs h ip will h u rt C h in a,
b u t h e lp c o n ta in e r s h ip p in g , an a ly s ts say

W H EN 12 PACIFIC Rim nations finalized nego
tiations and signed off on th e Trans-Pacific
P artn ersh ip free trad e agreem ent in early
October, th e reaction and analysis was both
rapid and mixed. T hat analysis continues to
p o u r in, w ith M a Fun, chief econom ist for
the People’s Bank of China’s research bureau,
predicting the agreem ent—w hich excludes
China — will slash 2.2 percent off th a t coun
tr y ’s GDP, an d m a ritim e an aly st D rew ry
saying th e deal would lead to an increase in
containerized trade volumes.

“S im ulation re su lts sh o w th a t, w ith
China’s accession com pared to th e scenario
of China not joining, China will lose 2.2 p er
cent of GDP,” M a w rote in a research paper
compiled jointly w ith th e Shanghai Securi
ties News.

I t’s not th e kind of free trad e agreem ent
a co u n try w ould w a n t to be outside. The
W ashington-led deal covers 40 p ercen t of
th e global economy and is th e largest free
tra d e deal since th e N o rth A m erican Free
Trade Agreem ent betw een the U.S., Canada
and Mexico w as established in 1994.

The TPP covers a range of industries and
prom ises to reduce or elim inate tariffs and
quotas on m any pro d u cts trad e d betw een
the mem ber countries. The agreement, esti
mates say, will result in the reduction to zero
of more th an 18,000 tariffs on U.S. products.

T he deal com prises th e U.S., A u stra
lia, Brunei, Canada, Chile, Japan, Malaysia,
Mexico, N ew Zealand, Peru, Singapore and
Vietnam.

Strong economic incentives exist among
the TPP p artn ers to finalize th e accord, said
Kevin Gaynor, head of fixed income research
for E urope, th e M iddle E a st an d Asia at
Nomura. “The participating states represent
40 percent of the world’s GDP, w hich is why

removal of trad e barriers will m ean a lot in
economic term s,” he said.

W hether China eventually would join the
TPP is an open question. “China is currently
busy settingup its ow n trade arrangements,
like the Regional Comprehensive Economic
Partnership,” Gaynor said. “But in a couple of
years’ time, who knows?”

Ma’s estimate of th e GDP loss comes at a
difficult tim e for China, w hich is in th e grip
of a slowdown in economic and trade growth.
Many China experts fear the TPP will hasten
the migration of factories from the mainland
to Vietnam, as manufacturers take advantage
of tariff cuts on raw materials.

Still, even as the 12 nations were agreeing
on final terms after five years of negotiations,
the World Bank announced in a report that it
was cutting its grow th forecast for the Asia-
Pacific region for this year and 2016 because of
the risks posed by China’s economic slowdown
and the looming rise in U.S. interest rates.

Christine Lagarde, head of th e In tern a
tional M onetary Fund, also issued g row th
warnings, saying there could be an economic
“vicious cycle” caused by higher U.S. inter
est rates and th e Chinese slowdown. These
th re a ts could jeo p ard ize recent economic
gains in Asia and Latin America, she said.

The TPP n o w m u stb e ratified by th e leg
islatures of all th e m em ber countries and is
expected to face strong resistance, not least
in th e U.S., w h ere D em o cratic p resid e n
tia l h o p efu l H illa ry C linton alre ad y h as
expressed h er opposition.

A lthough th e re is u n ce rtain ty over th e
politics o f th e deal, London-based D rew ry
believes th e TPP w ill provide in creasin g
co n tain e r volum e g ro w th for th e p a rtic i
pating nations. In a recent Container Insight
Weekly, D rew ry said it had found evidence

s u p p o rtin g th e a rg u m e n t th a t fre e tra d e
deals encouraged heightened trade grow th,
specifically in the container shipping arena.

One o f th e m o st sig n ific a n t FTA s in
rec en t years w as th e p ac t b etw een th e 10
m em ber states of th e Association o f South
e a s t A sian N atio n s an d C h in a in 2005,
D rew ry said. In th e 10 years before th e deal,
th e annual grow th rate for China’s m erchan
dise exports to ASEAN w as broadly in line
w ith the rest of th e world at 17 percent. “Fol-
low ingthe deal, the 10-year CAGR increased
to 19 percent. Not such a significant gain you
m ight th in k , b u t consider th a t th e annual
rate to th e rest o f th e w orld had dipped in
th a t period to 13 percent,” D rew ry said.

ASEAN started to accelerate beyond the
overall trend beginning in 2009, suggesting
it takes a few years after implementation for
th e trade benefits to really kick in.

This was the case when Drewry looked at
the impact on trade, m easured in U.S. dollar
value, w hich has been less im m ediate th an
seen w ith China-ASEAN. Since 2005, U.S.
trad e w ith non-FTA partners, such as w ith
its second-largest trading partner China, has
grown faster than it has w ith its FTA partners.

B etw een 2005 and 2014, U.S. e x p o rts
to non-FTA p artn e rs increased 85 percent
versus 74 percent for FTAs, w hile im ports
w ere up 42 percent com pared w ith 40 p er
cent, respectively.

Drewry, however, found th a t as w ith
th e China-ASEAN pact, U.S. trad e g ro w th
w ith its FTA p artn ers appears to be gaining
momentum, and if the comparison period is
narrowed, U.S. exports and im ports to FTA
partners are expected to increase at a faster
clip.

FTA p a r tn e rs , D re w ry n o ted , h ad a
m uch sm aller, b u t grow ing, sh a re o f th e
containerized trad e w ith th e U.S. th a n they
did w ith total m erchandise trade, control
ling about 19 p ercen t of th e tw o-w ay trad e
in 2014, as m easured in tons, up from 18 per
cent in 2013. China accounted for 30 percent,
w hile other non-FTA trading p artn ers took
the rem aining 51 percent, ioc
l l l l l l l l l l l l l l l l l l l l l l l l l i l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l

Contact Greg K now ler a t greg.l

fo llo w him on Twitter: @greg_l

3 6 T H E JO U R N A L O F C O M M E R C E w w w . jo c . c o m N O V E M B E R 2 .2015

http://www.joc.com

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content may not be copied or emailed to multiple sites or posted to a listserv without the
copyright holder’s express written permission. However, users may print, download, or email
articles for individual use.

Latin America

73www.euromoney.com November 201

Latin America’s economies are suffering a rapid
and severe shift in their terms of trade. The
development of free trade areas may provide a
way forward and global initiatives, such as the
Trans Pacific Partnership, could transform the
region’s future

TPP to the rescue

I
n late September Daniel Tenengau-

zer, RBC’s head of emerging market

and global FX strategy, was taking a

step back to explain to Euromoney

why he believed the widening spreads

of emerging market credit default swaps,

which had risen close to their post-crisis

highs, would keep going higher. “The key

question is, are we at the top of the range we

have had for the past three years or are we

going to break through? And my opinion is

that we are at the bottom of a new range,”

he explains.

Tenengauzer outlined three reasons for his

hypothesis, and they were all related to physi-

cal, real-economy factors. First, the decline of

economic growth in Europe – important for

trade because the European economy is more

integrated into global trade flows than the

US. The second was China’s slowdown and

the drag that is having on commodity prices.

“And last but not least – and one that won’t

be resolved in the near term – is a lack of new

trade agreements,” he argued. “We shouldn’t

forget that the [commodity] super cycle began

around 2001 after China officially joined the

WTO (World Trade Organization). Prior to

that we had Mexico joining Nafta and so

these major global agreements of the 1990s

and early 2000s were the backdrop to the

super cycle.”

The data support Tenengauzer’s argument.

Global trade has been sluggish in recent years

and unlike previous economic recoveries.

Global trade is falling in dollar terms and is

also weak in volume terms. Economists now

worry that recent EM weakness will affect

developed markets (DMs) through trade and

financial channels, through weak manufac-

turing activity and stronger DM currencies,

all of which points to further deflation.

Unlike in previous recoveries the world

lacks a dominant consumer and investor.

This time the US current account deficit is not

widening rapidly and China’s surplus has fall-

en from 10.1% of GDP following the global

financial crisis to just 2% last year. With no

large engines for trade growth, achieving

momentum becomes more difficult.

But two weeks after Tenengauzer’s down-

beat assessment, the Trans Pacific Partnership

(TPP) was announced. The deal has generated

genuine excitement among trade economists

who see the potential for very large welfare

gains – around $300 billion per year among

the Pacific Rim countries that have signed up

to what HSBC has called a “mega-regional

accord”. The 12 countries represent more

than 25% of current world trade and about

40% of global GDP. The countries involved

still need to ratify and many of the details are

yet to be published, so evaluating the precise

impact is impossible.

Douglas Lippoldt, a senior trade economist

at HSBC in London, who joined the bank last

year from the OECD, is upbeat: “It’s a bit of

positive news in a pretty gloomy period for

the global economy. We are talking about a

trade agreement encompassing something like

40% of global GDP, and the scope of this ac-

cord goes beyond traditional trade measures,

such as reducing import tariffs. It’s a ‘living

deal’, capable to address new trade issues

that arise. It ensures transparency in the

formation of future regulations for example,

and so it requires systemic reforms among

signatory countries. And if you look at the

types of things it will address, in terms of

processes and rule of law, it will have positive

effects beyond trade. When you have trade

liberalization combined with such systemic

reforms, this can lead to greater cross-border

ties – whether that’s through FDI (foreign

direct investment), licensing or trading – and

the TPP may lead to a significant uptick in all

these areas.”

IN LATIN AMERICA THE TPP THROWS

the region’s two trading blocs, the Pacific

Alliance and Mercosur, into even sharper

relief. The former is new and based on free

trade, monetary and fiscal orthodoxy and is

committed to harmonizing financial systems

and regulations to encourage greater capital

flows within and into its members. It consists

Chile

, Colombia, Mexico and Peru, all of

which, with the exception of Colombia, are

now also signed up to the TPP. In contrast

Mercosur, which is dominated by the large

economies of Brazil and Argentina – and

includes Paraguay, Uruguay and Venezuela

– seems to be going backwards in terms of

creating a single trading area.

In 2010 Mercosur announced that each

country could create 100 exceptions to the

common entry tariff. Argentina and Brazil

immediately imposed higher national tariffs

on various products. For example, Brazil

increased tariffs on communications products

and services, making these more expensive

for Brazilian companies and therefore the

national industry less competitive. There

are often complaints, especially among the

smaller nations, that the grouping is more a

political organization than an economic one

– and an ineffective one at that. Mercosur

has been negotiating a trade agreement with

the European Union since 2001 and the

most recent meeting, which was intended to

create a list of 10,000 items for further free

trade discussions with EU trade officials,

broke down with parties blaming Argentina’s

intransigence on opening its highly regulated

economy to European competition.

With Argentina predicted to enter reces-

sion next year and Brazil already in a severe

downturn, politicians in those countries

are beginning to talk again about develop-

ing Mercosur in a bid to increase economic

growth. However, East Capital’s chief econo-

mist Marcus Svedberg says the countries’

By: Rob Dwyer

November 2015 www.euromoney.com74

Latin America

all reliable – keep investing in the Pacifi c

Alliance.”

Although Colombia is absent from the

TPP, it has secured a free trade agreement

with the US – already its biggest trading

partner – and its pursuit of OECD status

means that it will be closely aligned with

the standards required to join at a later

date.

Unusually, the Pacifi c Alliance origi-

nated in the private sector. The Mercardo

Integrado Latinoamericano (Mila) stock

exchange initiative aimed to create a

single investment platform across Chile,

Peru and Colombia. This was later

extended to Mexico. However, while

the volumes of trades on Mila remain

low, the idea of pan-Andean develop-

ment struck a chord among banks and

businesses resulting in a fl ow of private

capital into these countries.

“The Pacifi c Alliance is an example

of government following business,”

admits Cárdenas. “Business was saying

that it was very comfortable investing

among the four countries and there was a

convergence of views, helped by the fact

that the macroeconomic framework is

very similar. Business has taken the lead,

but now the governments have come

and launched different initiatives. First

was free trade and now we are pursuing

problems are all domestic and developing

Mercosur is a peripheral issue: “I am not

convinced that free trade agreements have

a major impact. I’m a little bit doubtful

about how much it adds [to economic

growth].”

He explains: “However, while I am

sceptical, the beauty of trade deals is that

they don’t exclude the others – countries

can be part of multiple agreements. At the

end of the day, even though they don’t

add all that much, it’s still a net positive.”

However, Svedberg says the danger of

these groups is the negative association

that can touch all member countries. He

uses the example of Mercosur, which he

says is perceived to be struggling: “It’s

very tempting to dismiss an entire sub-

regional group and say that is less inter-

esting. That might be true for some of the

countries, but it’s not necessarily for all of

the individual members of group.”

W
hile there may

be negative

connotations

with Mercosur,

policymakers in

the Pacifi c Alliance say that the indi-

vidual countries benefi t from the positive

impression that investors and businesses

have of the whole. The Pacifi c Alliance

countries are all still registering strong

positive growth and are benefi ting in the

main from structural reforms carried out

in recent years and from a commitment

to infrastructure development that is

limiting the impact of these economies’

exposure to commodities.

Rodrigo Valdes, Chile’s minister of

fi nance, told attendees of the Institute

of International Finance’s conference in

Lima in October that the good reputation

of the Pacifi c Alliance is a benefi t as inves-

tors increasingly differentiate between

emerging market countries.

“It’s easy to say that EMs are the same

but they are not,” says Valdes. “Some are

better managed, and the macro policies

that matter most are those that were

implemented in the good times. I think

[the Pacifi c Alliance countries] have been

very careful. We saved and we prepared

and therefore we are in much better

shape to withstand the headwinds that

are coming from abroad. We have all

developed a middle class, have evolved

[market-friendly] policies and are very

strong democracies with very competitive

markets. We are still very good countries

for foreign investors.”

Colombia’s minister of fi nance Mau-

ricio Cárdenas agrees: “Investors look at

countries for their macro indicators and,

in this case, the Pacifi c Alliance has the

upside that it is a region of four countries

that will become more integrated. This is

good because it will lead to the con-

vergence of best practice and common

standards as well as creating a large

[single] market.”

Cárdenas also points out that two

members – Chile and Mexico – are

already OECD countries and he says

Colombia is close and Peru wants to

join. “If you are looking where to keep

investing in EM – where the countries are

“We saved and we prepared

and therefore we are in much

better shape to withstand the

headwinds that are coming

from abroad”

Rodrigo Valdes,

Chile

November 2015 www.euromoney.com76

Latin America

fi nancial markets. The next stage is to make

sure that [the four countries] are even more

comparable, with tax convergence, so that

investors can invest in any of these countries

and it having the same treatment as if it were

a domestic investment.”

Cárdenas says the increasing alignment of

the four countries has had tangible effects on

policy making: “We four fi nance ministers

are communicating all the time and in a way

that helps decision making. We are in the

budget cycle and we discuss that and it’s very

helpful – we are very busy in WhatsApp!”

Chile’s Valdes says the TPP will be comple-

mentary to the Pacifi c Alliance. “The TPP is

a different story because it is a global treaty

with many different countries converging

on a set of free trade rules. These are very

different countries, while the Pacifi c Alliance

has something different in terms of bringing

together a view about how policy making

should be done. I think the Pacifi c Alliance

is more of a process. We work together on

many different aspects – trade, foreign affairs

and fi nance.”

However, while Valdes hints that the

Pacifi c Alliance is forging the stronger

opportunities, HSBC’s Lippoldt believes

the TPP will create greater possibilities for

growth: “The benefi ts from trade liberaliza-

tion come from having economies of scale,

from having market scale. So I am thinking

that the members of the Pacifi c Alliance that

are engaged in the TPP will have signifi cant

benefi ts accruing from the latter. If the Pacifi c

Alliance members wish to go beyond the TPP

and have a deeper regional integration among

themselves then there could be additional

gains to be had. For example, diminishing

the importance of borders will create new

economic opportunities that business will be

able to seize upon. It will be useful to have

this forum for discussion and we have to see

how it evolves – especially once the TPP is up

and running.”

Lippoldt is also excited about the parallel

free trade initiative in Asia – the Regional

Comprehensive Economic Partnership

(RCEP) between the ten Asean countries plus

India, China, Japan, Australia, New Zealand

and South Korea. The conclusion of the TPP

is likely to speed-up the RCEP negotiations

and Lippoldt believes the development of

these two regional agreements offers big

benefi ts and potentially a massive boost from

their subsequent integration. He argues that

the TPP is not an anti-China initiative, as it

has been portrayed in some quarters, and

instead offers a path to regional agreements

turning global. This is easier than trying to

create purely global agreements in one step;

with Kazakhstan’s entry, the WTO now has

162 members, an unwieldy number of coun-

tries with which to secure agreements.

“This has real potential. The Chinese

authorities have kept in touch with US offi –

cials about the TPP and they have gone out

of their way to stress they are not ruling out

potential engagement with the TPP in the

future,” says Lippoldt. “The welfare gains

from the TPP could be about $300 billion

per year for the group and I think it would

be a similar number for RCEP, the other

regional group. But if you merge the two

you get huge economies of scale and welfare

gains could mushroom to $1.9 trillion per

year. So that’s why the TPP should be seen

as a fi rst step in what could be a much

larger process.”

-4

–

0
10
20
30

0.5

1.5

2.5

3.5

G
lo

b
a
l
tr

a
d
e

($
tl

n)
G

lob

a
l tra

d
e (y/

y %
)

1
9

9
3

1
9

9
5

1
9

9
7

1
9

9
9

2
0

0
1

2
0

0
3

2
0

0
5

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0

0
7

2
0

0
9

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1

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0

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3

2
0

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5

-20

–

-10

-5

0
5
10
15
20
40
1
9
9
3
1
9
9
5
1
9
9
7
1
9
9
9
2
0
0
1
2
0
0
3
2
0
0
5
2
0
0
7
2
0
0
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2
0
1
1
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0
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100

120

140

160

G
lo
b
a
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tr
a
d
e

vo
lu

m
e

(S
A

) G
lob

a
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d
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m
e (y/

y %
)

Global trade is collapsing in value terms…

…and also looks weak in volume terms
(2005 =100)

Source: IMF, Bloomberg, HSBC

Source: CPB Netherlands Bureau for Economic Policy

Analysis, HSBC

Trade groups – from Latin
America to the world

Mercosur

Who: Argentina, Bolivia, Brazil, Paraguay,

Uruguay and Venezuela.

Size: Population 260 million. GDP $2.9

trillion. Total trade: $635 billion.

When: 1991 (although origin traced to

1985 bilateral free trade agreement be-

tween Argentina and Brazil)

Latest: The establishment of common

external tariff was watered down in 2010

when countries were allowed to create ex-

ceptions. Currently in negotiations for free

trade agreement with the EU but progress

slow.

Who: Chile, Colombia, Mexico and Peru

Size: Population of 216 million. Equivalent

to ninth largest global economy and 50%

of Latin America’s global trade. GDP $2.1

trillion. Global trade: $1.2 trillion.

When: June 2012

Latest: Finance Ministers are targeting

Who: in Latin America Chile, Mexico and

Peru. Plus Australia, Brunei, Canada,

Japan, Malaysia, New Zealand, Singapore,

the US and Vietnam.

Size: Population of 870 million. GDP $28

trillion. 25% of global trade.

When: Agreement announced in October

12 months.

Who: in Latin America none. Asean 10

(Brunei, Cambodia, Indonesia, Laos,

Malaysia, Myanmar, Philippines, Thailand,

Singapore, Vietnam) plus Australia, China,

India, Japan, New Zealand, South Korea.

Size: Population 3.4 billion. Trade volume:

30% of global.

When: Origins in 2013 no public target

date for conclusion.

©Euromoney Institutional Investor PLC. This material must be used for the customer’s
internal business use only and a maximum of ten (10) hard copy print-outs may be made. No
further copying or transmission of this material is allowed without the express permission of
Euromoney Institutional Investor PLC. Source: Euromoney and http://info.euromoney.com.

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