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The internationalisation of firms, from the traditional to the Born Global

 

November 3, 2020


By Henrik G.S. Arvidsson & Ruslana Arvidsson


The process of internationalisation of firms is an area which before 1975 and1977 was not widely covered in research and the studies made on the topic was focused on internal issues and fragmented at best. In the 1970s research teams in both Sweden and Finland were studying the process of internationalisation. The Swedish research team led by Johanson & Vahlne from the University of Uppsala presented a theory that suggests that the internationalisation of business occurs in sequential steps.


The Swedish researchers developed their model as an independent and complete model to explain the sequential steps in the direction of increased foreign dedication to a market. The model was based on empirical observations of Swedish manufacturers and it was also to a certain extent influenced by the works of Penrose Cyert & March, Aharoni, Vernon and other researchers. The Uppsala Internationalisation model distinguishes between four different steps or phases of market entry. Step 1: No regular export activities (sporadic export). Step 2: Export via an independent representative (export mode). Step 3: Establishment of a foreign sales subsidiary. Step 4: Foreign production/manufacturing, the direct establishment of a subsidiary in the host country.

 From the observations, they concluded that companies normally initiate their expansion in a psychically and culturally nearby market. There, they have greater knowledge of the market and a controll of resources, thereafter gradually as the company become more experienced and acquired better resources, they expand to the more distant market.


Secondly, most often companies entered a new market through export before the establishment of foreign sales subsidiary or opening up foreign production facilities. In their research Johanson & Vahlne in part, refer to fellow researcher Aharoni, and the discussion about the interdependence of market knowledge and market commitment and they developed a matrix model to illustrate the positive correlation between market knowledge and the commitment decisions, as well to emphasise the sequential development of market activities and its positive correlation to market commitment.

The core explanation of the model is that increased market knowledge will lead to increased market commitment and vice versa. The Uppsala model is based on the relationship between knowledge about the market the company seeks to penetrate, managerial decisions regarding commitment and the outcome of initial activities as a determinant for future commitment. Johanson & Wahlne described the process and the interrelation between these factors as “Market knowledge and market commitment are assumed to affect decisions regarding the commitment of resources to foreign markets and the way current activities are performed. Market knowledge and market commitment are in turn affected by current activities and commitment decisions”.

The underlying assumptions of the 1977 model are uncertainty and bounded rationality. It also has two change mechanisms. First, firms change by learning from their experience of current activities, in foreign markets. The firm also augment their activities through the commitment decisions that they make to strengthen their position in the foreign market. They defined commitment as the product of the size of the investment times its degree of inflexibility.

Whilst a large investment does not necessarily indicate a strong commitment, unwavering dedication to meeting the needs of customers does. Experience builds a firm's knowledge of a market, and that body of knowledge influences decisions about the level of commitment and the activities that subsequently grow out of them, this leads to the next level of commitment.


Hence, we must take in to account the model is dynamic. It does not specify the form that increased commitment might take. Indeed, commitment may decline, or even cease, if performance and prospects are not sufficiently promising. Contrary to the views expressed by some researchers, the process is by no means deterministic. Johanson & Vahlne assumed nonetheless that the process of internationalising will continue as long as the performance and prospects are favourable, an assumption that is challenged by other researchers who claim companies do not always act in a rational manner and despite intel telling them to withdraw or reduce their commitment they tend to carry on with their original strategy despite the fact most or all intelligence point to the need to a change in strategy.


 Johanson & Vahlne also assumed that learning and commitment building takes time. This explains why moves into riskier, but potentially rewarding, modes and moves into markets that are more distant in terms of psychic distance are made incrementally. The model is considered to be descriptive, largely because it is based on the theories of Cyert and March even though the latter focused more on the internal processes in the firm.

The behavioural approach puts the firm in the position as the basic unit of analysis. It attempts to predict behaviour with respect to price, output and resource allocation decisions. It emphasizes the decision-making process. In general, one can state that larger firms have a tendency to skip the first steps in the model and go directly to stage 3 and 4. Whilst small and medium-sized companies tend to be mare careful and the process of penetrating the foreign market tends to be to some extent a more extended process of learning and avoiding uncertainty. Larger companies therefore to a larger extent tend to expand into a foreign market as follows: Step 3: Establishment of a foreign sales subsidiary. Step 4: Foreign production/manufacturing, the direct establishment of a subsidiary in the host country.

This, whilst smaller companies according to Johansson & Vahlne tend to follow the model more precise. This is maybe not surprising since the model originally was adapted to gain an understanding of how small and mid-sized companies behaved in the process of internationalisation. The initial model created in 1975 and 1977 failed to take into account factors such as the importance of networks, The Uppsala model was from the beginning a rudimentary attempt to describe the basic process behind internationalisation but it failed to take into account factors such as the importance of networks.

Johanson & Vahlne continued in steps to adapt their model to an increasingly complex business environment and challenges from other researchers. 2009 they wrote a paper titled “ The Uppsala internationalisation process model revisited: From liability of foreignness to the liability of outsidership” where they focused more on the network aspects of the internationalisation process of the firm.


A number of scientific studies have proven the role of networks and their importance in the internationalisation of firms. Coviello and Munro conducted empirical studies of the internationalisation of small software firms. They found that network relationships have an impact on foreign market selection as well as on the mode of entry in the context of ongoing network processes. Their findings led them to develop a model that combines the process model such as the Uppsala Model with a more network-oriented approach. Many researchers have looked at networks and their importance in studies of internationalisation.

Johanson & Vahlne in time also understood that their original model had a need to be developed further in light of such clear evidence of the importance of networks in the internationalisation of firms. The research that has been done to date generally has studied the ways in which networks influence internationalisation, without discussing how those networks have been created, and without considering the network structure in the country or countries firms entered.


 The original Uppsala model focused on the process in which firms spread their business activities abroad whilst  other researchers like Coviello, Porter among others, focus more on the network and cluster aspects of the internationalisation process. On the other end of the spectrum, we have, Cyert and March  as well as the legendary researcher Edith Penrose which had a more introspective approach where they focus on the different stakeholders within the firm as well as the processes that leads to a certain decision


Todays business environment has changed and the question is how well the model of Johansson & Vahlne has aged. Many firms today due to globalisation and the digital economy internationalise much more rapidly or in many cases instantaneously. One theory that takes notice of this is the theory of Born Global.  The born global firm internationalise in a way that is very different from what we see in the model created by Johansson& Vahlne.

The definition of a born global firm is “a business organisation that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries.” Many companies go global, but that does not make them born global firms.

 What distinguishes born global firms from the rest of international organisations is that they originate internationally. Born global firms, from their beginnings, have a global focus and commit their resources to international ventures.

The Born global theory is also complemented by the theory of the Born Regional, where the firm acts in a way similar to the Born Global but is restricted by certain boundaries. Some firms within the EU can be seen as Born Regionals since the EU with its freedom of trade with goods and services as well as the freedom of movement of people and capital provides the growing grounds for the firm. One Such firm is the IT recruitment firm JoBs4U OÜ (www.jobs4u.fi).

 

 

Firms like this can operate within a certain area but due to formal ( Laws, constitutions etc.)  or informal institutions ( Culture, values etc.) the firm can not operate outside a certain region.  One can say that the Uppsala model of internationalisation was the first real attempt to describe a process whilst the theory was rudimentary. During the course of the last 60 years, the view regarding the internationalisation of firms has gone from an introspective view of the firm and its actions via the works of Johansson & Vahlne to a more network-based approach to the born global and borderless firms.  

 

At the moment we find our self caught up in a battle, the battle between those who seek to continue on the path to globalisation and those who oppose it. This battle will not just affect us on a personal level but it will also have an effect on businesses and how they internationalise. How this will end? No one knows but if the outcome leads us to a less integrated world, perhaps the theories of Johansson & Vahlne will be revived.

 

By

 

Henrik G.S. Arvidsson & Ruslana Arvidsson

 

www.economist.org.uk


Syndicated news article.

 

 

 



How will the world be affected by the US election and the winner?


October 30, 2020


By Henrik G.S. Arvidsson & Ruslana Arvidsson

 


The US election is something that will have an effect on all of us whether we know it or not. the candidates have a different approach to world matters and the global economy.


Traditionally the Democrats in the US have held a more protectionist position than their republican counterparts, however, this is something that changed in 2016 when Donald Trump became the president of the USA. President Trump had a different view than his predecessors and openly stated that the USA comes first. His nationalistic approach has led to trade wars with China and others over tariffs and the alienation of traditional allies such as the EU, Australia and Canada. The trade wars also led to collateral damage for the US economy since the tariffs had a negative effect on businesses. President Trump however often claims that the pre-Covid 19 economy flourished because of him and his policies, something that most economist hold as at least partly true.


If we look forward we can see two candidates on opposite sides of the political spectrum. The centrist Joe Biden with more than 40 years of political experience and also experience, serving as vice president under President Obama. Trump is a businessman and TV personality turned politician and a man who often seeks to have a different approach to both domestic and international matters such as the Middle East.


Trump however as previously stated can claim successes in the field of economics but also as of lately in the international arena with the peace deals signed with Arab states, something few, including the former secretary of state John Kerry thought was possible. The question now is how will the election and the outcome affect our lives?


If Joe Biden wins the presidential election in November, he will change course in a number of issues, including climate and the NATO alliance. However, he, like incumbent President Donald Trump, will continue to be tough on China, according to most researchers and analysts. The US is entrenched in a battle of hegemony against China, an economy that has steadily grown and made China a force to be reckoned with in the international arena, not only as an economy but also politically.


Since Donald Trump became the 45th president of the United States, the country has been characterized by an "America first" policy that has led to trade wars with both China and the EU. In addition, the United States has also withdrawn from the Paris Agreement, the international climate agreement that entered into force in 2016.


Should Democratic candidate Joe Biden win the presidential election in November, the world can count on a change of course, especially in environmental issues. A lot will change, including in the environmental area. The United States, for example, will re-join the Paris Agreement. Trump has been very negative about climate and environmental issues and I think they will be very much on the agenda if Joe Biden wins, something the Biden campaign stated over and over again.


If the Democrats take over the White House, migration policy will probably be more generous since they made a point out of criticising the stricter policies of President Trump in the last 4 years.


If Biden wins the idea of building walls towards Mexico will probably never be realised fully, even if a large part of the border already is either fenced or protected by a wall. The

United States will also emphasise the traditional alliances with, for example, NATO in a completely different way than the sometimes hostile approach of Donald Trump.

Biden will probably also refrain from withdrawing troops from Europe, something that Donald Trump threatened to do numerous times.


Biden will probably not withdraw as many troops as Trump wants to do, absolutely not. He believes in alliances. Then it develops all the time. That Europeans should pay more is an old discussion Biden will be very tough against Russia, which he sees as the United States biggest opponent, not least because they are according to him and the security apparatus in the US meddling in the American election. The relationship with China will also be at the centre, and there Biden is critical of how American industry is losing to China, just as Trump has been so we can probably count on more trade wars to come regardless who wins the election.


How about Africa and the Middle East? If Biden wins we can probably expect a more traditional US policy, more engaging and traditional in nature. The risk here is that over the last 20 years not much happened since the signing of the peace accord between Israel and Jordan. Donald Trump is seeking to build alliances against Iran and other actors deemed to be a threat to the security of the United States by bringing former enemies together, a strategy that so far probed to be successful. If Joe Biden wins the approach will probably be of more traditional nature but the question is how this will impact the region?


In respect of Africa, the longstanding US goals have been to advance democracy, governance, security and peace. The development has also been high on the agenda for the United States. Under Donald Trump, however, we have seen a shift from the softer values of the past to an approach more focused on the recourses of Africa and countering Chinas increasing dominance in the region.


The election on November 3 will probably have an impact on all our lives in one way or the other. As of now, Joe Biden leads in the national polls by on average 7 to 10 points, this means a steady lead but do not let this mislead you. The US electoral system means that instead of looking at the national polls, the polls on the state level are more interesting if you want to predict the outcome. Each state has its own poll and the system is that the person who wins the most votes in a state gets all the electoral votes in a winner takes it all system. Some states are traditionally Democrats and others are Republican like Texas. Those states will probably not determine the outcome of the election.


The outcome will most likely be determined by who wins the so-called swing states, states that are traditionally not leaning heavily to either side but their candidates from both sides can win. At the end of the race, both candidates focus on those states where they can actually change the outcome and reach the desired 270 electoral votes needed to become the next president of the United States.


This time the risk is also that we will not know who wins the election on the night between November 3 and November 4 due to the fact that some absentee ballots and other early votes has not been counted. Many analysts say that we might end up in a situation where Donald Trump leads on the night of November 3 but will see his lead diminishing over time as the early votes are counted, this since democrats tend to go to the ballots earlier than republicans due to a different view on Covid 19. There is also a risk that this election will be settled in court instead of the traditional way. This since Donald Trump signalled that he might call the election unfair.


November 3 is soon here and much is at stake, perhaps all we can do is sit and wait for the outcome and see how the outcome will shape our lives. The United States is despite the rise of China the worlds only superpower and its importance can not be underestimated. Africa and the Middle East are areas that will most definitely feel the consequences regardless who in the end stands as the winner.



Henrik G.S. Arvidsson & Ruslana Arvidsson


www.economist.org.uk



New scientific paper out now.


7 October, 2020.


Visit


https://www.abacademies.org/articles/The-Shift-from-Causation-to-Effectuation-for-International-Entrepreneurs:-Attitudes-and-Attitude-Change-versus-Social-Representations.pdf


for full text.




The economy and the pandemic: the future after COVID 19


26 September 2020


Originally published in the Swedish newspaper Nya Wermlandsidningen.


By Henrik G.S. Arvidsson


The year 2020 is a year that many Swedes will probably remember for a long time, 2020 was the year when we suddenly realized how vulnerable our society was. Health care crisis, bankruptcies, dismissals and general uncertainty and fear are some of the things that have characterized this year.

As an economist, my perhaps main interest has been to analyze how the Swedish handling of the pandemic has affected the economy, especially in comparison with other countries. Most surveys show that Sweden has done relatively well, perhaps precisely because Swedish society was not shut down in the same way as many other countries, such as Finland. If we ignore the handling of the Covid-19 pandemic, however, Sweden is in terms of important economic indicators in the EU bottom line and has done so for a long time.


The handling of Covid-19 has been extremely diverse. At some levels, Sweden can be said to be a role model from an economic aspect, while at other levels, Swedish management has been catastrophic. Of course, different industries have been hit differently, such as the travel industry, hotels, restaurants and the entertainment industry are among the worst affected. The problem is that the Swedish regulations are anything but logical.


It was obviously possible to arrange a dinner while maintaining the social distance, but if the artist Danny goes up on stage, it was forbidden and the gathering was dissolved. The same goes for theme parks, theatres and many other businesses that are forced to close. This clear injustice and ignorance of the current government threaten entire industries and ultimately risk hundreds of thousands of people who are directly or indirectly dependent on these activities being thrown into unemployment and exclusion.

The Swedish business climate leaves a lot to be desired with some of the world's highest taxes and special rules that knock out companies. The worst is perhaps the previously mentioned deep injustice in dealing with the current pandemic that risks not only knocking out entire industries but also creating terrible side effects on the individual level. Research has established the link between unemployment and isolation with well-being and mortality. People in isolation feel worse and also risk premature death, not only through illness


but by suicide. The human cost of a failed economic policy can thus not be measured in money. The Swedish handling of the Covid-19 pandemic has been a single protracted experiment in which some government officials have achieved what can almost be compared to idol status. The voices that doubted the Swedish strategy have been effectively silenced. During the time that this experiment is allowed to continue, thousands of people have died, many of them unnecessarily and others are now at risk of being thrown into exclusion.

Perhaps it is time for the Swedish people to question not only their elected representatives to a greater degree but also the authorities that largely govern our lives. A young Fredrik Reinfeldt once wrote a book entitled "The sleeping people", the question now is whether the Swedish people should continue to sleep on or whether they should, as in many other countries, begin to question and take responsibility for their own future.


https://www.nwt.se/2020/09/14/ekonomin-och-framtiden-i-sparen-av-pandemin/


Swedish economist Assar Lindbeck dies.


By Henrik G.S. Arvidsson


29 August 2020



One of Sweden's most influential economists during the last century, Assar Lindbeck, has died at the age of 90.  Assar Lindbeck who gave his name to the so-called Lindbeck Commission in connection with the economic crisis in Sweden during the early 1990s.

Assar Lindbeck was born in 1930 in Umeå and did research mainly at Stockholm University, where he became a professor at the Institute of International Economics in 1971. For many years Lindbeck was close to the Social Democratic Party in Sweden, but the relationship came to an abrupt end in 1982 when he left the party during the election campaign due to his opposition to increased state ownership of businesses. A political idea that was never implemented.


Budget ceiling deregulation of the housing market and  the  call for an independent central bank


To the public, he is perhaps best known for leading the State Economic Commission in connection with the crisis in the early 1990s. It was even named the Lindbeck Commission and resulted in a vast number of proposals on how to improve Sweden's competitiveness and economy.

Many of the proposals were implemented and are still of great importance today. Among other things, four-year election periods (previously it was three years between elections), an independent Riksbank free from political influence and expenditure ceilings in the state budget. 


Research and work for the Nobel foundation


Lindbeck also worked for many years in parallel for IFN, the Institute for Business Research. In connection with his 90th birthday last winter, IFN wrote that one of the heart issues he was never heard about was the abolition of the rent regulation, a highly contested idea in Sweden. From 1969 Assar Lindbeck was involved in the work of nominating the economics laureates in connection with the Nobel celebrations and in the years 1980-1994 he was chairman of the "Committee for the Riksbank of Sweden's Prize in Economic Science in Memory of Alfred Nobel", as it is officially called.



Assar Lindbeck will be truly missed by many, this economist included.


With a heavy heart Henrik G.S. Arvidsson




Russian opposition leader Aleksei Navalny hospitalised for suspected poisoning: the future of Russian democracy.


By Ruslana Arvidsson & Henrik G.S. Arvidsson


August 21 2020


Syndicated news article ( Copyright).


The Russian opposition leader Alexei Navalny is unconscious and in intensive care after showing symptoms of suspected poisoning according to his spokeswoman Kira Yarmysh . Doctors confirm that he is in a critical state according to the Russian news agency Tass.

Navalny was on a flight from the Siberian city of Tomsk to Moscow when his plane had to make an urgent and unscheduled landing, after he became ill, according to Yarmysh.


Navalny is a leading opposition figure and former presidential candidate who was barred from running.  He frequently calls President Putin's ruling United Russia party "the party of villains and thieves" and has previously been detained in connection with demonstrations and protests. The referendum held this summer to give Putin the right to remain president until 2036,he equated with a coup. 


The controversial vote to amend the constitution and change president Putin’s term limits, potentially allowing him to serve as president until 2036 resulted in a change in the constitution. Critics, among them Navalny have challenged the result, saying that the voting was rigged.

The vote, which did not according to some fulfil the legal standards to be classed as a referendum, saw 77.92% of voters endorse constitutional amendments, and 21.26% voted against after all the ballots were counted. 


Hospitalised for suspected poisoning


What has happened to Navalny now is not entirely clear. It could be that he became seriously ill out of natural reasons, but his spokeswoman, who was with him on the plane when he collapsed, says she is sure he was poisoned. According to the Russian news agency Tass, a source at the hospital number one in Omsk says that he is currently being treated for poisoning.

Also last year, Navalny was treated for suspected poisoning. Then he had become suddenly ill during a period of imprisonment.  Officials said at the time that he had received an allergic shock, something that Navalny and other opposition leaders strongly dismissed.

A couple of years earlier, back in 2017, he was physically attacked, and with this in mind, many in the opposition deem it as likely that what happened to him now is actually an assassination attempt.


Those who criticise live dangerously


It is well known that people who openly criticize President Putin and the circle around him live dangerously. The famous journalist Anna Politkovskaya and several other journalists critical of the regime have been murdered and others who had a chance of challenging the regime have been accused of a crime, making them ineligible to run for office or make them less legitimate in the eyes of the public. One of the most vocal Putin critics,  the former chess world champion Kasparov, went into exile, whilst many other oppositional figures had their property seized and sentenced to prison for various crimes that according to human rights organisations are fabricated.


Navalny might not at the moment be a direct threat to Putin and the political elite, however, he still has enough influence to inspire others and arranging protests that might grow in strengths. Perhaps the events currently unfolding in neighboring Belarus is something the Russian regime is trying to avoid. With Navalny out of the way that risk might be seriously reduced.


The reign of Putin, press freedom and the future of Russian democracy


The Russian president Vladimir Putin has been in office, alternating both as president and prime minister due to constitutional issues since 1999. His grip on power seems to have increased with time and those seeking to oppose him face an uphill battle, a battle that is in no way fought on equal terms. With the new law passed earlier this year Putin can in theory stay in power for another 15 years, in effect making him president for life given his age.

So far the opposition in Russia has been able to muster only limited support and the possibility for the opposition to get positive media coverage in a country where press freedom is almost non-existing. In 2020 Russia ranked number 149 out of 179 countries in the Press Freedom Index compiled by the organisation Reporters Without Borders. In another report, by the organisation Freedom House,  Russia scored 83 in terms of press freedom (100 being the worst), mostly because of new laws introduced in 2014 that further extended the government control over mass media in the country.

In this climate, the opposition finds it hard to gain any momentum, and with the fear of consequences in terms of persecution and even murder, many who holds divergent views might find the risk of voicing them a risk not worth taking. To assume a leading role in the Russian opposition has so far for anyone who managed to develop any form of platform led to consequences most of us would be hesitant to risk. As of now, Putin seems to have a strong grip on power, but as we seen before things can quickly change. Right now the Russian leadership is watching events unfold in Belarus, events that have the possibility to also influence the future of Russia.





Belarus, a contested election and the response of the people.


By Henrik G.S. Arvidsson & Ruslana Arvidsson


19 August 2020


Syndicated news article published in amongst other outlets www.somalilandsun.com (copyright!)


After the heavily criticised and internationally condemned election in Belarus where the incumbent president who has been in office for the last 25 years “won” a landslide victory the protests against the suspected election fraud and lack of transparency has led to mass protests with hundreds of thousands of people taking to the streets, hoping for a long-overdue change.

Over 7,000 Belarusians have been arrested and at least two have died since protests against President Alexander Lukashenko began over a week ago. Following several testimonies of violence and serious misconduct by police and in the country’s prisons, the EU demands that the actions of the police must be investigated. On Monday, after testimonies leaked videos of protesters being shot and abused by police and security forces, the EU announced that it wants to see an investigation into how arrested protesters in Belarus have been treated.

– Due to shocking reports of inhumane conditions in prisons, the EU expects a thorough and transparent investigation so that those responsible can be held accountable, says Josep Borrell, the Union’s Foreign Minister.


However, the Belarusian regime continues to dismiss the allegations, claiming they are fabricated and trying to divert attention away from the counties’ internal problems. The riot police are among those heavily criticised. The Belarusian ambassador to Slovakia has published a video in which he claims that his daughter’s classmate is one of those who has been severely beaten by the police.

“I stand in solidarity with those who have taken to the streets in Belarusian cities for peaceful protests”, he says.

The Belarusian election was deemed unfair and illegitimate by international observers who to a large extent were not able to carry out their duties. The incumbent president got 80,1 percent of the votes whilst the opposition candidate Svaitlana Tsikhanouskava got 10,12 percent of the votes. After the election, she later fled to Lithuania where she continues to lead the opposition against the incumbent president.


The EU, US, and other democracies sided with the opposition and demanded that the government respects the democratic freedoms of the Belarusian people whilst Russia and other less democratic countries support the Belarusian regime. Amongst those countries most worried about the events in Belarus are its neighbours, primarily the Baltic countries, Ukraine and the EU as well as Australia and the Vatican, all calling for an end to violence and the respect of democratic and human rights. Pope Francis in his Sunday address expressed the need for dialogue, to refuse violence, and to respect justice and rights.

The Belarusian situation also highlights the rising level of conflict between the western democracies on one side and Russia and its allies on the other. A conflict that will also most likely lead to a standoff in the UN security council, leaving it incapacitated to act.

Belarus is often seen as the last dictatorship in Europe even if Russia and Turkey are often regarded as undemocratic or flawed democracies. The question now is whether or not Belarus will join the family of democracies in Europe or if it will continue to be a closed dictatorship with close ties to Russia.

The incumbent president has been in office since 1994 and has since then formed very close ties with Russia who also expressed the possibility that Russia will intervene militarily to protect the current regime.


One fact that is hopeful, is the fact that even if there have been protests before. None of them have reached the strength and momentum as the current. A protester wrote on his twitter account that it is now or never, perhaps that is a partly accurate analysis. If the democracy movement is crushed it will most likely take a long time before it can regain its strength and momentum and if that will be the result the incumbent president might even be boldened by his victory and what will then happen is most likely something that goes against the dreams and aspirations of many Belarusians.

The next days and weeks will give an indication of which way things will evolve. For the Belarusian protesters, much is at stake. More than most of us can ever imagine.


The author Henrik G.S. Arvidsson is an award-winning researcher and lecturer in international business and marketing. He has over 25 years of experience as a business consultant and currently owns businesses in the fields of Consultancy, fiduciary, and transport.

Ruslana Arvidsson is a political scientist and consultant, specialised in innovative governance and innovation.

Both are active at the Henrik G.S. Arvidsson institute of international business research.





The Swedish economy slows down but doing better than its European counterparts.


By Henrik G.S. Arvidsson


5 August 2020


On Wednesday morning, Statistics Sweden (SCB) presented its figures regarding the financial impact of the COVID 19 pandemic.
Sweden's economy shrank by 8.6 percent in the second quarter of 2020, seasonally adjusted and compared with the first quarter. Calendar-adjusted and compared with the second quarter of 2019, the GDP decreased by 8.2 percent.

Behind the decline is, among other things, a real drop in household consumption.
The figures can be compared to the historic decline in GDP that hit Europe as a result of the corona crisis. Last week, Eurostat reported figures for EU countries that economies shrank by 12.1 percent compared to the first quarter and 15 percent compared to 2019.


 It has been an extremely tough quarter and now we get figures on it. However, the figure is not really, really as gloomy as in other regions, in the eurozone the corresponding figure is -15 percent. This is partly due to our slightly more open corona strategy, but also because we have a large service sector that has been able to keep going because it has worked for large parts of the workforce to work from home, 


The effects of the corona crisis during the first quarter were relatively modest in Sweden, when GDP rose by 0.1 per cent, seasonally adjusted and compared with the fourth quarter of 2019.



We wish you a wonderful summer!


By Henrik G.S. Arvidsson & Ruslana arvidsson


26 July 2020


We will now take a 2-week vacation and we wish all our readers a wonderful summer. We will soon be back so stay tuned for more insight from the world of business. Best wishes from the economist.org.uk team



Sweden comes out on top after the peak of COVID 19.


By Ruslana Arvidsson, Nazar Diadiun and Henrik G.S. Arvidsson


25 July 2020


Financially, Sweden has coped the best of all the EU countries with the effects of the COVID 19 pandemic, writes the British analysis company Capital Economics, which concludes that Sweden's handling of the pandemic has been the most efficient  way of handling the pandemic for the economy

In the  report, they state that all the Nordic countries' economies have weathered the storm relatively well and that Sweden tops the list.

One explanation for Sweden's performance is that the schools have been kept open, which has meant that the parents have been able to work, as usual, minimising the effects on the economy.




The EU, COVID 19 and the long term budget


By Henrik G.S. Arvidsson & Ruslana Arvidsson

 

July 24, 2020



EU leaders met to negotiate a support package and a long term budget in the wake of the COVID 19 pandemic and after hard negotiations, they succeed to reach a compromise. The joy might however be short-lived since the parliament shows no sign of letting the compromise pass. 



Hard negotiations and jubilant reactions



After four days and two nights of negotiations, the leaders of the EU countries earlier agreed on the long-term budget and the corona support package that was later presented to the parliament. We did it! The EU is strong, the EU is united, says EU Council President Charles Michel at a joint press conference together with the president of the EU Commission President Ursula von der Leyen.

 

This is a good deal and a strong deal. And most importantly, it is the right deal for the EU right now. We have shown confidence in our common future, said  Charles Michel. French President Emmanuel Macron and Belgian Prime Minister Sophie Wilmès were also jubilant about the new deal. 

 

Resistance from parliament



However, a large number of parliamentarians are not satisfied. The European Parliament have now voted in favour of a resolution calling for changes in the Union's long - term budget. If the 'proposal does not improve', the parliament threatens to vote down the budget later this year. With 465 votes in favour and 150 against, the European Parliament adopted a resolution calling for extensive changes to the EU's long-term budget. The resolution calls for negotiations to improve the proposal - and at the same time warns that Parliament may vote down the long-term budget if this does not happen. Manfred Weber, group leader of the conservative Christian Democratic EPP, believes, just like the leaders of some other groups in the parliament, that more money is needed to develop a stronger  European coastguard, health protection, research and development, defence and aid. We believe that the long-term budget does not provide proper answers to the challenges of the next seven years. It must become more future-oriented, he says.

 

Earlier, EU Permanent Council President Charles Michel spoke warmly about both the long-term budget and the corona support package - both results of the tough summit negotiations - as he visited Parliament. My conviction is that this moment is central to European history. We acted quickly and immediately, said Michel. According to Charles Michel, the money earmarked for corona support in the long-term budget for the years 2021–2027  will go a long way in dealing with the economic consequences of the pandemic in Europe. The European Parliament is expected to vote on the long-term budget at the end of the year. On the other hand, Parliament has no say in the Corona aid package, even though it is linked to the budget.


The debate we are starting now is really about the meaning and direction we want to give to this European project in the coming years, said Michel. European Commission President Ursula von der Leyen also visited Parliament, lamenting that even if the negotiated package will lead to budget cuts for the EU, the union still managed to avoid the further cuts that some Member States wanted, but this long-term budget is difficult to digest. I know that this House feels the same way, said von der Leyen.

 


Increased tensions



The turmoil comes in the wake of the intense negotiations between the EU leaders where the core issue was the proportions between direct support to individual countries that don’t need to be paid back and the part that is given to countries as a loan. Sweden, Austria, the Nederlands and Denmark and later Finland called for restraint and opposed a support package that was not based on loans and instead called for a greater level of austerity. , this made the tensions within the EU reach critical levels. Even if the EU leaders managed to agree on a deal it is less than certain it will pass trough parliament without extensive augmentations. The latest developments show a deepening rift within the EU, a rift that threatens the long term survival of the union unless something is done to bridge the gaps that appear on an increasing number of fronts.


The author Henrik G.S. Arvidsson is an award-winning researcher and lecturer in international business and marketing. He has over 25 years of experience as a business consultant and currently owns businesses in the fields of business consultancy, fiduciary, recruitment, and logistics.


The co-author Ruslana Arvidsson is a political scientist and business consultant, specialised in innovative governance and innovation.


Syndicated article.




Poland, the Presidential Election, and the EU: Is Democracy Dying in Poland?


By Henrik G.S. Arvidsson & Ruslana Arvidsson


17 July 2020


Originally published in the newspaper The Somaliland Sun and  also Syndicated  in Middle Eastern & African outlets: www.somalilandsun.com , (copyright!) menafn.com etc.


The Incumbent president Andrzej Duda has won the Polish presidential election by a narrow margin it was announced on Monday even if overseas votes have not yet been counted in full.

He narrowly beat the pro-European liberal Warsaw mayor Rafal Trzaskowski with ca 51.2% of the vote, the country’s election commission said on Monday.

The turnout for the second round of the Polish election was reported to be 68.2%, the highest rate of voter participation of any presidential election since the first free election in post-communist Poland in 1989.


The electoral commission stated on Monday morning that they were unsure when the final and official results would be announced, with some polling stations yet to submit their results but with over 99% of the votes accounted for, the final result was not expected to change in terms of who will be the victor.

The incumbent president Andrzej Duda is backed by the ruling right-wing Law and Justice party and his political agenda is one of the traditional values and social spending in the mostly-Catholic Poland.



When Duda Declared victory overnight on Sunday he stated in his victory speech the importance of his followers’ turn out to the ballot. He stated “all my compatriots who voted in this election, those who made a lot of effort to be able to cast their ballots.”

The result of the vote is of great importance for the Eastern European country, which has become increasingly polarised under the current government led by Duda’s political allies, the nationalistic and conservative Law and Justice party, (PiS).


The ruling party has been gained support by many Poles for their social policies which have lifted many in the population out of poverty, particularly those living in rural communities in poorer regions. Critics, however, have accused the government of exacerbating social rifts by targeting minorities, like Jews and the LGBT community, as well as eroding democratic norms since it took power in the 2015 elections, a grip that has tightened by the passing of time.

The policies of PIS has brought Poland into a deepening conflict with the European Union, over controversial judicial reforms that have put the court system under political control and a deepening infringement in rights such as press freedom. If elected, the pro-EU candidate Trzaskowski vowed to repair the relationship between Warsaw and the EU, a promise that will not become reality.


Instead, strengthened by their latest victory PIS will be less likely to fold to the demands of the European Union and a deepening rift is a high probability.

The EU has previously mulled sanctions against Poland and Hungary if they do not respect the core values of the EU. A scenario that has become more likely after the latest election. Poles are increasingly divided, a division that can be seen across Europe with liberal pro-EU forces on one side and nationalistic right-wing parties on the other, a conflict that almost mirrors the deepening rift in the US between the democrats and the republicans.


The political battle no longer stands just between the left and the right and the liberals and the conservatives but also between those who want a more open world and those who drive a more nationalistic agenda. This is mirrored by the so-called GAL-TAN scale, The capital letters here indicate the endpoints of the “scale” they stand for Green-Alternative-Libertarian and Traditional-Authoritarian-Nationalist respectively.


Whatever will happen in the wake of this election, one thing is for sure and that is that the rift between the EU and Poland will by no accounts be healed.  With anti-EU forces gaining momentum in some parts of the EU, Perhaps Britain will not be the last country to leave the union?

Leaving the EU will come at a price, not being part of the inner market will come at a heavy price for those who leave. However, the populist message and the promise of a quick fix is often more appealing than addressing the actual issue, an issue that in most EU countries have little or nothing to do with the EU but rather with internal problems or conflict. Blaming someone or something else, however, has often proven to be a successful strategy. Division on the other hand or breaking up a larger unit have however during the course of history seldom proven to be a successful strategy.


In the case of Poland and other East European countries, however, the move towards authoritarian rule might be the end of the democracy so many fought for, and at the same time, Poland risks losing their place in the European family of nations.  A fight so many not only fought for but also died for during the course of history.

Perhaps the words of writer and philosopher George Santayana, who wrote “Those who cannot remember the past are condemned to repeat it.” is something we as humans should read and repeat to our self’s over and over and over again.


The author Henrik G.S. Arvidsson is an award-winning researcher and lecturer in international business and marketing. He has over 25 years of experience as a business consultant and currently owns businesses in the fields of business consultancy, fiduciary, recruitment, and logistics.


The co-author Ruslana Arvidsson is a political scientist and business consultant, specialised in innovative governance and innovation.


www.economist.org.uk




The Future of Somaliland Businesses: From Shareholder Value to Consumer Value and the Digitalisation of Business


By Henrik G.S. Arvidsson and Ruslana Arvidsson


June 25, 2020


This article was published in the African newspaper " The Somaliland Sun" and can be found and read here: 


https://www.somalilandsun.com/the-future-of-somaliland-businesses-from-shareholder-value-to-consumer-value-and-the-digitalisation-of-business/





The Asian economies after 2021, the outlook after COVID 19



By Ruslana Arvidsson & Henrik G.S. Arvidsson


June 23, 2020


The growth in the Asian region is expected to drop sharply to an area average of  2.2% in 2020 under the effects of the current health emergency and then rebound to 6.2% in 2021 according to ABD.


With the exception of  Asia’s high-income newly industrialised economies formally known as the tiger economies, the growth will drop from an estimated 5.7% to a projected 2.4% this year before recovering to 6.7% during 2021. The rate of inflation accelerated in 2019 as food prices edged up but remained low by historical standards. The Inflation will rise further to approximately  3.2% in 2020, but declining food and commodity prices in the latter half of the year are projected to set the stage for easing inflation in 2021.


The downside risks to the outlook for the Asian economies are severe, most notably from coronavirus disease 2019 (COVID-19). In these difficult times, when challenges to growth abound, innovation is critical to inclusive and environmentally sustainable growth. While some economies in developing Asia are near or at the global innovation frontier, many others lag behind. The projections, however, are still associated with a high degree of uncertainty due to the COVID 19 pandemic and the possibility of a second wave, as we now can observe in China and other Areas. Another indicator that remains in flux is the unemployment that is highly related to the longevity of the pandemic.



European car sales slowing down


By Henrik G.S. Arvidsson, Ruslana Arvidsson & Nazar Diadiun


June 18, 2020


The Sales of new cars in  Europe are not as good as last year. Furthermore, the full-year target of a two per cent decrease in sales will be very difficult to achieve given the COVID 19 pandemic that has now hit the world economy.


When the industry organization ACEA (European Automobile Manufacturers' Association) now presents its second-quarter figures for 2020 the figures in Europe (EU, EFTA and the UK), we see that new car sales continue to drop - for the 5th consecutive month. In January, sales declined by 7.4 percent compared to the same month last year and in February by 7.2 percent. The first half of 2020 is described as the weakest since 2013, and according to ACEA, it is due to new tax rules in most countries (including Sweden), weaker global economic development and greater consumer uncertainty due to the current pandemic. What the ACEA does not highlight enough in their analysis is the outbreak and spread of the coronavirus (COVID-19) that began in Europe in February. This has probably had some impact, but it will only be when the  figures for the third quarter are presented the virus's progress will be clearly visible in the sales statistics.




Trump, the economy and the possibility of re-election


By Henrik G.S. Arvidsson


June 11. 2020


The US president Donald J Trump has by all accounts had a turbulent presidency so far. Impeachment,  a successful economic policy, Covid19 and riots are just a few of the words that come to mind when one is asked to describe his presidency. One factor that will determine his possibility to be re-elected is the outlook of the US economy. Those indicators have often, but not always proven to be an important factor when it comes to the possibility of an incumbent president to be given a second term.


As of now, the American public is highly divided regarding Trump and this polarisation is nothing new but something that was brewing even before the emergence of Trump on the political arena. The two main political parties in the US, the Republicans and the Democrats have each turned more to their respective flank. The Democrats have moved from being a moderate liberal party, or by European standards, even right-wing towards becoming more and more socially liberal and some fractions are even openly socialistic. The Republicans on the other hand have moved significantly to the right and in some respect also more to the extreme when it comes to the lib- con scale. This is not something new but something that was initiated over ten years ago with the Tea Party movement, a movement that sought to transform the republican party. The advent of Trump led to yet another shift, in some ways mirrored by the rise of Bernie Sanders in the 2015 elections where the differences between the two parties became more extreme than ever.


With a clear drop in approval rating and events out of his control, the frustration in the White House is rising. Before February the US economy was booming but COVID 19, as well as trade wars and turmoil, led to a situation where the US economy is what can be described as free fall. However some indicators show a slight recovery but the question is: Will it be enough for Trump to claim victory in an area where he has invested a lot of prestige and has the divisions in the US society risen to a level where the motivation to vote is stronger on the democratic side than on the republican? The question is also how the average voter will react to recent events. Trump's approval rating even among registered republicans is dropping and still remains relatively low amongst independents. Perhaps Trumps dilemma is that he has taken credit for a booming economy, something that is not entirely his doing and now when the tide has shifted he finds himself left without control over the same things he claimed control over.


How can he explain this to the average voter? His electoral base remains steadfast by his side but for those not yet convinced of his greatness, in order to win them over Mr Trump is in need of a large portion of luck and a discourse that shifts as far as possible from the current that focuses on softer values. At the moment all Trump can do is try to unite a people that is more divided than ever and that is something he has failed to do so far and hope Covid19 and riots are long forgotten before November, and yes I almost forgot. He needs to show that the economic indicators are pointing in a positive direction and that the sentiment changes from depression to a more positive mood. As it seems now Trump is between that rock and that other hard place.




Star Trek, existence and science: send us your thoughts!


By Henrik G.S. Arvidsson


June 12.  2027


It is not often I think about something deeply but today a miracle happened. I watched the end of Star Trek DS9 and Benjamin Sisko who is also the emissary to the prophets ends up in a fight to the death with Gul Dukat A Cardassian who turned away from the right path and who in the end became the leader of an evil (Satanic) Cult. In the end, the Emissary (Sisko ) won this epic fight between good and evil, after falling down the fire caves the screen turned white ( If you read Jung you might get references to what he calls the collective unconscious which leads us to believe that Sisko just died. However, he did not and the prophets, ( God) told him he still has a great task ahead of him and he must stay and learn. Regarding the question when the answer is "Time is not linear". Meaning he might return in a year or, yesterday,


Again Jung and more importantly the bible talking about the second coming of, you know who. So what do you think? Is time linear? Or does it have any meaning at all? The collective unconscious or social representations are two theories that describe similar questions, why do cultures that never been in contact have the same perception about a higher being called God/Allah or whatever you chose to call him or it? Is it something that is programmed in us? We are all corporeal beings but is there something more? Do we live and just die or do we, or does a part of us also exist in a non-corporeal dimension?I


Is there a right answer and is the world something that can be seen through the lens of black and white or good and evil? You can take Sisko and Gul Dukat for example, did have their sides and neither was purely good or evil but Sisko grew and became a better man whilst Dukat did not and in the end his anger consumed him. In one way thew where bipolar but in another way a mirror image of each other.


Then the question is, what is evil? And even people who are considered evil, are they purely evil or do they also have some good in them? so in addition to my initial question, you can also add the question if the world is black and white and if there is such a thing as pure evil or pure goodness. Maybe all we can do is to aspire to be our best, the answer to the rest is something philosophers have argued over for thousands of years and the perception of time even varies between cultures and as a consequence between individuals...the more spiritual aspects, however, are the interesting ones, are we just flesh and blood or are we also something else? And I guess the author of the last episode of Star Trek Deep Space Nine had the same question, is time linear and if there is a God who is above time and space..maybe Jesus will return yesterday since if you are omnipotent why would you care about the same laws that apply to the rest of us. If you created the laws you also know how to break them?! When it comes to DS9 there are many outstanding questions, the same one's philosophers and laymen alike struggle all their lives with.


I have always been interested in psychology and philosophy so give me your thoughts on the subject. Maybe you can also find a connection or two to economics and business...


Send us your thoughts regarding this, at least for this site unusual question. Contact info can be found under "Contact". 





The consequences of the corona pandemic: The issue of unemployment.


By Henrik G.S. Arvidsson and Ruslana Arvidsson


June 1  2020


The corona pandemic has significantly increased the risk of a global recession and also thrown many business sectors and individual business into financial hardship. One of the sectors most affected is tourism, where some hotels, cruise and ferry lines as well as airlines more or less came to a standstill within the course of one or two weeks.


The closing of borders in the EU also caused disruptions in supply chains and many businesses are running at reduced capacity and the unemployment rate has risen significantly even in countries such as Sweden who did not impose a full shutdown on businesses in stark contrast to countries like Italy and Finland.


In Sweden, the open unemployment rate has now reached 8,4 % but the full effect of the COVID 19 pandemic can still not be seen in the statistics, given the regulated nature of the Swedish labour market. If we also include those who have been told their employment will be terminated the figure is much higher or to be specific 18% spread over the available workforce, according to the central statistics office of Sweden. The sectors that have suffered the worst are those connected with tourism and hospitality such as hotels, airlines and restaurants. Despite the fact that Sweden has not fully closed down the rules regarding social distancing and the maximum number of people who are allowed to gather ( 50) has made it hard for some businesses to function. This together with the advice from the Swedish health authority to abstain from unnecessary travel has made it difficult for businesses to operate.


We can now see that the economical effects of the pandemics are spreading to a wider range of sectors such as the traditionally important export sector where firms such as the Truck and bus manufacturer Scania today announced the cut of 5000 jobs due to reduced demand amid the global crisis.


A similar situation can be seen in Finland, however different legal frameworks tend to statistically generate slightly different outcomes. Where in Sweden firms tend to lay off their workforce on a "permanent" basis, in Finland the regulations for a temporary solution is in place whilst the nature of the Swedish labour market states that all such agreements have to be negotiated locally between the union and a specific firm. In this respect, the Finnish system tends to avoid layoffs and they are yet to be seen clearly in the statistics.


If we compare Sweden with Finland we can see that the unemployment rate developed similarly with an 8% unemployment rate as pr today in Finland but according to the Finnish statistical office, the unemployment rate will continue to rise in the following years due to a slower spread of the COVID 19 virus which is projected to lead to a longer, more drawn-out process. The labour markets in Sweden and Finland are both regulated in nature with high entry barriers for job seekers which will lead to difficulties for younger jobseekers and those with lower education to find jobs in the near future. What differs between those countries is that Finland has applied a more extensive policy of temporary layoffs which might lead to a lower unemployment rate short term but a higher unemployment rate than Sweden in the end unless the COVID 19 pandemic can be controlled.


Finland has also a more rigorous approach to travel which will lead to a higher COVID 19 related impact for some sectors such as Shipping and the self-governing islands of Åland that is seen as the shipping centre of Finland that houses market leaders in the ferry industry such as Viking Line and Eckerö Line, the fiscal impact for this region of Finland is projected to be high due to the extensive loss of tax income as well as if the pandemic is not soon foiled costs in the form of unemployment and related costs.


Worth noting is also that according to Eurostat the unemployment in the EU as a whole is currently as of May, 6.6 percent even if the figures are a month old and there still to be seen to which extent the COVID 19 pandemic affected the labour market as of now. The countries worst hit are Greece with an unemployment rate of 16,1 %, Spain with 14,8 and Latvia with 9%. The economy that suffered the least in terms of unemployment so far is the

The Czech Republic with an open unemployment rate of just 2 %.


If we again look at neighbouring countries Sweden and Finland, we can still not fully determine the best COVID 19 strategy since Sweden and Finland are in different stages when it comes to the spread of the virus, one thing is for sure and that is that the economic outfall of the COVID 19 crisis will keep economists busy for years to come, and the most interesting question might be what is better for the economy, a slower more controlled spread of the virus such as in Finland or a more rapid spread like in Sweden. However in today's globalised world the policies of individual states might as well be less important than one might think at a first glance and one thing is for sure, China as a global superpower will strengthen its position on the global economic scene and countries like the US and the EU with its divergent policies towards the virus risks being left behind. Still, the question will be, what was the best course of action and the countries that will be in focus are without a doubt Sweden and Finland. Similar but still very different in approach to a situation not just lethal for human life but also for our economies.





Corona and the world economy:


By Henrik  G.S. Arvidsson * Ruslana Arvidsson


April 13, 2020


There have been signs that the world economy was slowing down for the last year and a half but ever since the news broke of virus emanating from China that later became known as the COVID 19 pandemic that process has accelerated in an alarming pace. After the infection spread from China throughout the rest of the world sector after the sector has been affected and in many cases, production has come to a standstill. The European economy has been hit hard and the crisis led to spats between national governments on how to best cope with the crisis, something that can also be seen in the US with a rise in tension between the federal and the state authorities.


Since the outbreak of COVID 19 the European (EU) economy in many sectors such as the tourism industry and the small and medium-sized businesses, in general, has been hit hard, not only by the direct impact of the pandemic but maybe to a greater degree by the measures taken by the governments to foil it.

Many governments have announced extensive relief packages in order to help business in crisis but in reality, those Keynesian measures such as tax reliefs and sometimes direct support to entire business sectors have had little or no effect.


This fact has been highlighted by the fact that Shipping lines such as the Swedish operator Stena Line announced its plans to lay off, in a first stage 950 employees and in a second stage a still-unannounced number of workers.

This is nothing unique since the ferry industry, in general, is dependent on Freight, Passenger related income such as tickets and onboard sales. Depending on the traffic area and company between 50 to 90% of the turnover has now been lost meaning that most companies operate with a highly limited income. Closed borders and travel restrictions not only swept the rug from under their feet but it also affected peoples purchasing patterns so demands for some commodities has decreased to a level where factories are closing down and the need for transport services has decreased significantly. A sub subtractor to a large chain of furniture stores I interviews last week stated that he predicts a 20 to 30 % decline in production that will take effect in the next few months. As of now, their production is unaffected with the exception that some materials are hard to get by but new contracts and orders are running scares, which means consequences for both production and workforce.


The long term effects of the pandemic are off course difficult to prognosis but most economists agree that the effects will last for a long period of time and that many business and sectors are fighting for their survival.

There are also different approaches taken by different governments, countries such as Germany, Sweden and Finland has started to act in order to support their businesses, whilst countries Such as Bosnia lack the financial resources to do so. The risk of businesses failing and people losing their jobs will, in the end, jeopardise whole states and their economy since the tax base upon which they rest in getting eroded whilst their costs in terms of support for those affected by the crisis will increase.



The Lockdown measures decided across the globe to fight the spread of the COVID-19 pandemic, are having “devastating” consequences on labour markets, affecting around 81% of the world’s workforce, the International Labour Organisation (ILO) warned on Tuesday the 7 April.

“This is the greatest test for international cooperation in more than 75 years,” ILO’s Director-General Guy Ryder said in a statement.

The question for the world economy is if the measures that have been taken to prevent the spread of the COVID 19 pandemic, in the end, risks doing more harm to the society than the pandemic itself. With unemployment comes a higher mortality rate and fewer resources to provide for our most basic needs. What has taken years to build up will now be torn down in a matter of months and the consequences can, in the end, be worse because of the measures taken by governments and not by the pandemic itself


The world now stands in front of a moral dilemma, a crossroad that whichever path we chose will lead to negative consequences.

Pandemics usually last between a few months up to 2 years but if the measures taken by various governments are kept in place, the consequences for our society might actually be worse than if we did nothing. We are now standing in front of that crossroad, which way will we chose. And most of all, how will history judge us. It is up to us to make up our minds and time is running out.




Bankruptcies up 200 % in Sweden


By Ruslana Arvidsson & Henrik G.S. Arvidsson


April 12, 2020


So far in April, the Swedish public broadcaster SVT reports an increase in bankruptcies by 197 % compared to the same period 2019. The worst affected areas are the hotel, restaurant and travel industry. Despite a vast effort to support businesses in difficulties, the number of insolvencies increased as well as the statistics over people registering as unemployed.



Borders are closing in the EU


by Henrik G.S. Arvidsson


March 27, 2020.


Because of the current Corona pandemic, many EU countries are now closing their borders, the impact on trade and the economy of the EU is estimated to be great. Many countries are restricting travel for non-essential purposes, something that risks hitting the travel industry hard. Also, many ferry companies are running at reduced capacity, something that will also have a negative effect on the supply chain of many firms.




From shareholder value to consumer value


By Henrik G.S. Arvidsson & Ruslana Arvidsson


February 15, 2020


The notion that shareholder value is the primary focus of the firm is something deeply rooted in our business culture. This is an idea stemming from the advent of accounting and that was cemented in our consciousness in the 1970s with Milton Friedman and his legendary works. This rather short-sighted doctrine has been the dominating idea for the last half-century but this is something that is increasingly challenged as more and more firms realise that long term profitability can only be achieved through long term consumer focus.


Many firms in the west run their business according to the idea of maximising shareholder value by providing the shareholders with short term profit but with little or no effort in building long term profitability.  There has been a debate within the accounting community that more variables than shareholder value should be taken into account and other stakeholders such as employees and customers should also be taken in to account.


Companies can destroy consumer value in many ways, to boost short term revenue, cutting of costs and overpricing are among the most common.


Today in the new economy firms must find new ways to create competitive advantages and at the centre lies the idea of superior consumer value. Firms must create strategies in order to create robust consumer value management processes and tools. This means a to endeavour into a process where employees and investors must be engaged in the process of developing processes where the consumer is in focus.


Firms must also combine consumer-friendly and attractive design with loyalty earning technologies and also build the organisation around the needs of the consumer. This means that the firm must utilise its capability when it comes to understanding the consumer and to carry out every process in a way so it is centred around the consumer and to maximise the value for the user.


The final dimension is to lead for loyalty, the primary focus of the management is to articulate an inspiring vision and to lay out a path where the consumer is the primary focus. This means that every employee and every division of the firm must understand what the goal is: to create consumer value.


Corporate cultures are sometimes hard to change and the habits and practises of the past can be more difficult to change than we imagine. Corporate culture is often formed throughout the firm's life and to achieve a change in the organisational culture can be difficult and often a process that entails a high level of resistance from different parts of the organisation and its stakeholders. The drive for short term profit is a powerful one and a dream most shareholders do not abandon in the first instance.


This difficult task means that first of all the shareholders must give up their stake when it comes to short term profit and exchange it for long term profitability, something that goes against the core beliefs of many in the investment community. It also entails selling the idea and to implement it throughout the organisation, something that might often be better said than done. This means changing the way of doing business and a change in the corporate culture that for some organisations might be difficult to achieve.


What we can tell is that the firms that are the most successful today are the firms that primarily focus on creating consumer value. Among those firms are Amazon and Apple. In today's economy, consumer value is becoming a determinant for success. The question is however which of the firms of the old economy that will be able to transform themself into a force for success in the new economy and who will be left behind.


The future is up for grabs and time is running scarce.





Managerial coaching and the GROW model.


By Henrik G.S. Arvidsson & Ruslana Arvidsson


January 16, 2020


Coaching is something that in most organisations occur on a regular basis. Sometimes it is a highly structured process and sometimes it is something that happens spontaneously. One of the most known models of coaching was developed in the 1980s by Sir John Withmore. It takes its aim in four different dimensions, Goal, Reality, Options and Will. Those can also be regarded as four distinct steps of action. If we start with goals.


According to Withmore people don't often have a clear understanding about their goals and when you engage in a discussion with someone whom you are coaching you should first try to determine what the person want to accomplish, what are the tangible goals, both in the near future but also long term. If you are working on a project it is also important to understand what goals the person want to reach, not only in terms of the project itself but also at a deeper and personal level. Also in a relation and in interaction it is important to determine what the person wants to get out of the exchange. How can I as a manager help the person reach his or her goals regarding a project or at a personal level because the two are often deeply connected?


The second dimension has to do with Reality. Once you have established the goals the next aspect to touch upon is the reality aspect of what is at hand. Questions like, what, where and when makes the conversation more tangible and real. In this step, you can sort out the practical aspects like with whom you need to cooperate, when do you have to initiate a process and what should it look like. People often tend to overlook parts of the picture. Sometimes they are focusing on the operational but forget about the human aspects and the other way around. It is important that the person you are coaching develops a holistic picture so he and she can be more efficient and take the right decisions.


Options are the third dimensions and it has to do with clarifying the options at hand, often people feel stuck and the options identified by an outsider might not be as easily identified for someone who is deep inside a process. I think we all been in a place where we don't know how to move forward so in this step the coach needs to help the person they are coaching to identify the different options and their respective up and downside.


The last step of the process is Will. It deals with two different senses of the word will. The first you should do is ask the person, what will you do, a question that encourages the person to look at the more specific course of action, stemming from your talks. If successful the person has a clear sense of what he or she will do, in other words, a clear path or course of action. If this has not happened you need to trek back to the earlier steps in your conversation to sort out what is not clear. In the second step, if all is clear, you should ask the person how likely it is that they will act in the way they stated. If you use a scale of one to ten and they answered 8 or above they are most likely motivated to follow the course of action laid out. If the answer is 7 or less you also need to go back to the earlier steps in the process.


The GROW model is one of the more famous models of coaching but as always when it comes to humans there are no easy ways. Sometimes, research has shown that people simply give us the answers they want to hear or that they are simply not in the process. Coaching others is a difficult process with many pitfalls but coaching, if successful is a good tool when it comes to improving both employee satisfaction and effectiveness.




The deepening Middle East conflict


By Henrik G.S. Arvidsson


January 8, 2020


The deepening conflict in the middle east has consequences, not only military and geopolitical but also consequences for the world economy. A potential war between the US and Iran not only risks setting the Middle East ablaze but there is also the potential risk of pushing the global economy further towards the brink of recession. War will create further instability on the oil market and that in turn in combination with an already heightened tension both on the political scene but also in the wider economy has a potential of leading the world economy even closer to a recession. What we saw during the late autumn after the attack against the Saudi oil installation was perhaps just a prelude to what might come. Directly after the attack, there was an immediate increase in oil price even if the Saudis minimised the damage due to a fast restoration of capacity. What a wider conflict in the Middle East might mean for the world economy isn´t difficult to deduct, at this moment in time the level of risk is high, not only for the world economy but also in terms of geopolitics and beyond. One thing is for sure, that is that 2020 will be an interesting year, both in terms of economics and politics.


Happy Hanukkah, Merry Christmas &  Happy New Year


By Henrik G.S. Arvidsson & Ruslana Arvidsson


17 December 2019


We wish all our readers a Happy Hanukkah, Merry Christmas and a Happy new year, We will take a few weeks break but we will be back at the beginning of January.



The Uppsala model of internationalisation and beyond.


By Henrik G.S. Arvidsson


December  12  2019



The process of internationalization of firms is an area which before 1975 and1977 was not widely covered and the research made on the topic was focused on internal issues and fragmented at best. 1977 Johanson & Vahlne presented a theory that suggests that the internationalization of business occurs in sequential steps.

Swedish researchers (Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977) from Uppsala University in Sweden had presented vast criticisms of the theories at the time, which explained international involvement and focused mainly on the domestic arena. They believed most existing theories at that time ignored or down the problems of cultural differences and ignored the internal foundations needed so that companies could handle international activities.

As a result, Swedish researchers developed their own model as a more independent and complete model to explain the sequential steps in the direction of increased foreign dedication (Johanson & Vahlne, 1977, with modifications, 1990 etc). The model was based on empirical observation from four Swedish manufacturers and it was also to a certain extent influenced by the works of Penrose (1959), Cyert & March (1963), Aharoni (1966) Vernon (1966) and others.

The Uppsala Internationalization Model distinguishes between four different steps or phases of entering an international market, which cannot be viewed independently of a company’s situation, market and market knowledge.



  • Step 1: No regular export activities (sporadic export).

  • Step 2: Export via an independent representative (export mode).

  • Step 3: Establishment of a foreign sales subsidiary.

  • Step 4: Foreign production/manufacturing, the direct establishment of a subsidiary in the host

    country.
    (Johanson & Vahlne 1977)

    From the observation, they find out that companies normally start their expansion in a psychically and culturally nearby market. There, they have enhanced knowledge of the market and more control of resources, thereafter gradually when the companies have become more experienced and acquired better resources, they expand to the more distance market. (By distance market, they refer both to the cultural distance; as well the differences in language, politics, geographical and the difficulty to acquire knowledge and information from the market).

    Secondly, most often companies entered a new market through export before the establishment of foreign sales subsidiary or foreign production.


In their research Forsgren & Johanson and later Johanson & Vahlne in part, refer to (Aharoni, 1966) about the interdependence of market knowledge and market commitment and they develop a matrix model to illustrate the positive correlation between market knowledge and the commitment decisions, as well to emphasize the sequential development of market activities and its positive correlation to market commitment. The core explanation of the model is that increased market knowledge will lead to increased market commitment and vice versa. (Andersen, 1993)

The Uppsala model is based on the relationship between knowledge about the market the company seeks to penetrate, managerial decisions regarding commitment and the outcome of initial activities as a determinant for future commitment.


Johanson & Wahlne (1990) described the process and the interrelation between these factors as

“Market knowledge and market commitment are assumed to affect decisions regarding the commitment of resources to foreign markets and the way current activities are performed. Market knowledge and market commitment are in turn affected by current activities and commitment decisions”

The underlying assumptions of the 1977 model are uncertainty and bounded rationality. It also has two change mechanisms. First, firms change by learning from their experience of operations, current activities, in foreign markets. Second, they change through the commitment decisions that they make to strengthen their position in the foreign market. The authors define commitment as the product of the size of the investment times its degree of inflexibility.

Whilst a large investment in for example saleable equipment does not necessarily indicate a strong commitment, unwavering dedication to meeting the needs of customers does. 


Experience builds a firm's knowledge of a market, and that body of knowledge influences decisions about the level of commitment and the activities that subsequently grow out of them: this leads to the next level of commitment, which engenders more learning still. Hence, we must take in to account the model is dynamic. It does not specify the form that increased commitment might take. Indeed, commitment may decline, or even cease, if performance and prospects are not sufficiently promising. Contrary to the views expressed by some researchers, the process is by no means deterministic.

Johanson & Vahlne assumed nonetheless that the process of internationalizing will continue as long as the performance and prospects are favourable, an assumption that is also challenged by other researchers who claim companies do not always act in a rational manner and despite intel telling them to withdraw or reduce their commitment they tend to carry on with their original strategy despite the fact most or all intelligence point to the need to a change in strategy. Johanson & Vahlne also assumed that learning and commitment building takes time. This explains why moves into riskier, but potentially rewarding, modes and moves into markets that are more distant in terms of psychic distance are made incrementally.


The model is considered to be descriptive, largely because it is based on the theories of Cyert and March (1963) even though the latter focused more on the internal processes in the firm. The behavioural approach takes the firm as the basic unit of analysis. It attempts to predict behaviour with respect to price, output and resource allocation decisions. It emphasizes the decision-making process.

In general, today one can state that larger firms have a tendency to skip the first steps in the model and go directly to stage 3 and 4. Whilst small and medium-sized companies tend to be mare careful and the process of penetrating the foreign market tends to be to some extent a more extended process of learning and avoiding uncertainty. Larger companies therefore to a larger extent tend to expand into a foreign market as follows:

  • Step 3: Establishment of a foreign sales subsidiary.

  • Step 4: Foreign production/manufacturing, the direct establishment of a subsidiary in the host

    country. 

    Whilst smaller companies tend to follow the model more precise. This is maybe not surprising since the model originally was adapted to gain an understanding of how small and mid-size companies behaved in the process of internationalization.

    The initial model created in 1975 and 1977 failed to take into account factors such as the importance of networks,

    The Uppsala model was from the beginning a rudimentary attempt to describe the basic process behind internationalization but it failed to take into account factors such as the importance of networks. Johanson & Vahlne continued in steps to adapt their model to an increasingly complex business environment and challenges from other researchers. 2009 they wrote a paper titled “ The Uppsala internationalization process model revisited: From liability of foreignness to liability of outsider -ship where they focused more on the network aspects of the internationalization process of the firm.




    A number of scientific studies have proven the role of networks and their importance in the internationalization of firms. Coviello and Munro (1995, 1997) conducted empirical studies of the internationalization of small software firms. They found that network relationships have an impact on foreign market selection as well as on the mode of entry in the context of ongoing network processes. Their findings led them to develop a model that combines the process model such as the Uppsala Model with a more

network-oriented approach.


Many researchers have looked at networks and their importance in studies of internationalization strategy (Welch & Welch, 1996), the location of foreign direct investment (Chen & Chen, 1998), the first step abroad (Ellis, 2000), SME internationalization (Chetty & Blankenburg Holm, 2000, and also the different works of Michael Porter, to name but a few.

Johanson & Vahlne in time also understood that their original model had a need to be developed further in light of such clear evidence of the importance of networks in the internationalization of firms. The research that has been done to date generally has studied the ways in which networks influence internationalization, without discussing how those networks have been created, and without considering the network structure in the country or countries firms entered.


Based on case analyses, Coviello (2006) developed a model of "how international new venture networks evolve" during the early phase of internalization. According to Nicole E Coviello there are three stages in the evolution of the firm’s network in the process of internationalization:

Stage 1: the network increased in range and decreased in density.

Stage 2: non-redundant aspects of the network grew larger while constraints on the venture decreased:

Stage 3: although each INV's closeness to other network actors was consistently high through the evolution process, its centrality increased in terms of the extent to which it was positioned between other actors.

All these models can be seen as complements to each other but to say there is a model that covers all aspects of internationalization is an overstatement to say the least. The original Uppsala model focused on the process in which firms spread their business abroad whilst Coviello, Porter among others focus more on the network and cluster aspects of the internationalization process.

On the other end of the spectrum, we have, Cyert and March 1963 as well as Penrose, 1959 which had a more introspective approach where they focus on the different stakeholders within the firm as well as the processes that leads to a certain decision.

In their 1963 work, A Behavioural Theory of the Firm (BTF), Cyert and March review "developments in economic theories of the firm”. They focus on team theories, control theories, transaction costs, and agency and evolutionary theories.


There is no mention of Edith Penrose's (1959) classic The Theory of the Growth of the Firm (TGF), or subsequent developments in the resource-based view (RBV) and it is now numerous extensions (dynamic capabilities, knowledge-based). In the years post-1992, Penrose's contribution and the RBV have acquired significant recognition, arguably challenging transaction costs as the leading economics-based theory of the firm. While updating Cyert and March's account could itself motivate this paper, Pitelis (2007) claim here is that, despite important differences (and in part because of them), Penrose's theory of the growth of the firm can be integrated with Cyert and March's contribution, serving to bridge behavioural and (other) economic theories of the firm.

According to Penrose (1959), however, one cannot even start to analyse the external environment of the firm (to include the market and yet alone foreign markets) without a prior understanding of the nature of the firm, which is its human and nonhuman resources and their interaction. In Penrose’s theory, the emphasis is on the internal resources of the firm and it is within the organization as a whole that we must look to discover the reasons for its growth and its possibilities to proceed with the process of internationalization.


Cyert and March summarize the three core ideas of BTF's contribution to be those of bounded rationality, imperfect environmental matching, and unresolved conflict. Bounded rationality refers to what they perceive as limitations of information and calculation. It implies that there is a need to formulate and to set targets and try to fulfil these targets, as opposed to optimizing the best imaginable solution. According to Cyert and March, firms attend to their respective goals sequentially and follow certain rules when it comes to the implementation.

Imperfect environmental matching suggests that human agency is not uniquely determined by an exogenously given structure or environment. Accordingly, history matters, pointing to the importance of organizational adaptation or isomorphism.

The issue Unresolved conflicts within the organization is based on the assumption that in organizations, multiple actors, with potentially conflicting interests exist that are not entirely alleviated by contracts. Instead, individual and subgroup interests are continuously renegotiated, and consistency is hard to obtain and sustain due to the constant struggle for influence and control between individuals, subgroups or other stakeholders within the firm A practical impact

of these ideas is that the process of internationalization, in general, is a long process due to the negotiation between the different stakeholders of the organization.


There are also the theories of Born Global the born global firm,

The definition of a born global firm is “a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries.” Many companies go global, but that does not make them born global firms. What distinguishes born global firms from the rest of international organizations is that they originate internationally. Born global firms, from their beginnings, have a global focus and commit their resources to international ventures. (Freeman,2006, 2008, 2009,2011, among others) With that in mind, I will use the above-described models as a framework for my study.

There are also theories that describe the target (and of course that of the firm) market and it's set of rules both formal and informal that can have an impact on the firm’s performance. Even if the Uppsala model of internationalization states that companies tend to start their internationalization process in countries geographically and culturally close to the home market of the firm. 


This issue still bears importance on the performance and acceptance of the firm. Douglass North(1991) summarizes much of his earlier research relating to economic and institutional change.

In this paper, North defines institutions as "humanly devised constraints that structure political, economic and social interactions". Constraints, as North describes, are constructed as formal rules (constitutions, laws, property rights etc) and informal restraints (sanctions, taboos, customs, traditions, codes of conduct that can vary from country to country and also within a country), which usually contribute to the perpetuation of order and safety within a market or society. The degree to which they are effective is subject to varying circumstances, such as a government's limited coercive force, a lack of organized state, or the presence of strong religious precept.

As a theory of a more sociological nature, the New institutionalism theory that takes aim at the firms strive to be accepted. Hence we can deduct that firms will try to adapt to their target

market, their success depends on how they trough isomorphism find acceptance within a given market.(North 1991).


Here we can see a connection with the Uppsala model of internationalization although Johanson och Vahlne more focused on the process itself than the actual cultural aspects. Acceptance according to North is more easily gained if your own institutional context is similar to that of the target market. The aspects of cultural management have also been described by Hofstede ( 1980,1987,1990, 2011 etc ) even if the approach of Hofstede is of a more psychological nature and have implications on both the personal, organizational and gender level.

There are both external and internal factors that influence a firm’s ability to penetrate a new market. In the case of international firms internationalizing to Estonia both the geographical and cultural distance vary.

Do cultural differences make it harder to join a network or cluster? Clear is that the process of internationalization can not be explained using one or two variables as a basis. It is a complex process where determinants within the context of, the firms home and target country play into effect as well as the firm itself with its set of characteristics both in terms of financial and managerial/knowledge factors.

One can say that the Uppsala model of internationalization was the first real attempt to describe a process whilst the theory was rudimentary. During the course of the last 60 years, the view regarding the internationalization of firms has gone from an introspective view of the firm and its actions (Penrose 1959, Cyert & March 1962) via the works of Johansson & Vahlne to a more network-based approach to the born global and borderless firms.


Henrik G.S. Arvidsson is a business consultant,  lecturer and award-winning researcher in business studies.


Ruslana Diadiun is a managing director of the Institute of Innovative Governance in Estonia. Holds a master's degree in Democracy and Governance. 


Henrik G.S. Arvidsson is a business consultant,  lecturer and award-winning researcher in business studies.


Ruslana Diadiun is a managing director of the Institute of Innovative Governance in Estonia. Holds a master's degree in Democracy and Governance. 




European Growth rates, are we heading down the road of recession?


By Henrik Arvidsson & Ruslana Arvidsson


November 27, 2019



Europes economy shows signs of slowing down. As we have previously reported, the Europe 2020 vision aims for a 2% annual GDP growth rate but the latest estimates by the European Commission and the IMF shows a European economy trailing the main competitors.

On the one hand, the European (EU) economy is in its seventh consecutive year of growth and every individual EU country is set to grow. But on the other hand in some cases, such as Italy, this growth in terms of GDP is expected to be a modest 0.1% during 2019.


The EU Commissioner for Economic and Financial Affairs Pierre Moscovici recently stated that the block is currently in a rather moderate growth phase: "This is perhaps the most important feature of our forecasts of this quarter: this lack of rebound marks a change from our previous forecasts. This reflects the shocks suffered by the euro area and we know that the impact of these shocks will take time to fade away so we will enter into a new, more moderate growth regime."

This year the European Commission expects the euro area to grow by 1.1% - a slight downgrade compared to its summer and spring forecasts.

The IMF is a little bit more optimistic, forecasting a 1.2% growth this year.


The IMF says it is mostly due to anaemic growth in the Eurozone largest economy – Germany. The full consequences for the European economy of a possible BREXIT, no deal or deal are yet unknown. The risk for recession is not only driven by the fears of BREXIT but by cyclical variations in the world economy as well as political uncertainty with ongoing trade wars between the US and China as well as a potential tit for tat game between the EU and the US, a process that has escalated during the presidency of Donald Trump.


There are also signs that the US economy is heading for a recession, something that also risks harming the European Economy. At the moment we live in a time of uncertainty where the world economy is heading but this is also driven by a heightened political uncertainty not only in regards to tensions between the worlds largest economies but also by regional conflicts such as the one between Iran and Saudi Arabia, a conflict that is fought not directly but across the region by various proxies. This leads to fear regarding the future development of the oil price and actions such as the recent attack on a Saudi oil facility only increases the risk. At the moment it seems like the European economy is heading down the road of recession but multiple factors make the future hard to predict.


The outcome of the UK election in December, as well as the trade talks between the US and China, are events that in the near future can determine the outlook for the near future.


Henrik G.S. Arvidsson is a business consultant,  lecturer and award-winning researcher in business studies.


Ruslana Diadiun is a managing director of the Institute of Innovative Governance in Estonia. Holds a master's degree in Democracy and Governance. 






The European Single Market: why it is important for the future of the EU economy?


By Henrik G.S. Arvidsson & Ruslana Diadiun


Nov 19. 2019


The European Single Market is one of the greatest achievements of the European Union, which was vigorously planned and strived for since the creation of the European Economic Community with the signature of the Treaty of Rome in 1957. With no more barriers or internal borders in the EU, the common market finally became a reality on January 1, 1993.


The European Union, however, has a complex way of decision-making and is often plagued by painful compromises instead of steadfast political will and foresight. Every five years a new team of leaders is elected to the European Commission, one of the most powerful EU institutions.


The EU has traditionally been torn by those on the left, seeking an increased level of the regulation when it comes to labour, capital movement and environmental issues, and those on the right seeking to create a liberal economy, similar to the one in the United States. The structure of the EU and the need for consensus often hampers decision-making and the result is often watered-down policies with little or no impact on the economy.


Since its creation, the European Single Market has not integrated the economies of its member states but rather patched them together without fully creating the once sought after effects of agglomeration and synergy.


Europe’s economy today is not a rival to one of the US or China, even if the combined GDP makes it one of the largest, if not the largest economic zones in the world. Ten years ago, ten of the world’s largest firms were based in the EU, but according to Forbes, today only two are left, ranking number 32 and 36. The problem doesn’t end there as relatively few of the world’s start-ups are based in the EU, leaving the EU trailing its international rivals.


On the political level, the voices have been raised to force the merger of the European firms in order to create viable competitors to the American and Chinese rivals such as Microsoft, Google and Huawei. They often argue that the European Single Market and deregulation is the answer since regulated markets and smaller domestic markets are obstacles to firm growth.


A larger and functional inner market not only creates the effects of synergy and agglomeration but also helps firms to grow because there is potentially a lesser degree of regulation to adapt to. This is one of the reasons why the EU creates its own union-wide regulation, something often disliked because of ideological reasons.


In a Europe where nationalism is on the rise, interestingly enough those forces might hinder growth as the firms must, if the nationalists get their way, adapt not only to one set of rules and regulation but potentially to one for each member state.


Europe is now at the crossroads: the choice is between further integration, which, if handled properly, might lead to an increase in prosperity, and a cooling down of the integration within the EU, something that will most likely lead to lower growth and an increase in economic hardship for many citizens.


A common capital market, a single common currency, a strong energy sector and a deregulated economy where national borders are erased is by all accounts what the EU needs. But the question is, however, if there is a political will? With an increasingly polarized union, finding consensus on the way forward seems hard, if not impossible. Also, at the very top level, there has not been any attempt to lay the foundations of a plan that can actually deal with these issues. The inner market could potentially make or break the EU economy, but why is there no political will?


Ursula von der Leyen, a newly appointed head of the European Commission, hardly mentioned the inner market when speaking on the future of Europe. One of the reasons can be that she understands that there are difficulties uniting the leaders of Europe behind a common goal that reduces the influence of their respective member state. In Europe, where nationalism is on the rise, it might be a hard deal to sell. The European Union is also made up by a flurry of nations with their own special characteristics. There are traditional West European states such as Germany, France as well as Sweden, led by the government that mainly focuses on the values that are not connected to the enhancement of growth as well as the states that used to be the part of the East Block. And the later is still trailing when it comes to the standard of living and the creation of high-tech businesses.


Tax reform, deregulation, liberalisation of services as well as a stronger euro are reforms needed but also reforms that might cause resistance from individual member states and their voters. This is despite the fact that there is much to gain from these well-needed reforms. The EU needs a vision after the departure of Britain from the Union. BREXIT causes not only political uncertainty but also the prospects of harder times to come. Britain has traditionally been the Single Market’s greatest proponent in Brussels, but also, often, a brake on ambitious projects. BREXIT constitutes a grave risk when it comes to the common economy but interestingly enough also a possibility if it can lead to the relative strengthening of the forces that seek further integration and a strengthening of the Single Market project.

So where do we go from here? The tax reform is strongly needed to lower the tax level of the EU in order to give firms the possibility to better compete with its foreign rivals, a stronger euro, a reform of the banking sector to create a union-wide capital market, an increase in the energy supply, deregulation and liberalisation of the service market and a single market resembling that of the US and not a market where countries despite the existence of a common market are able to set up their own special protectionist rules.


The future is up for grabs, the question is just if there is a will to move towards the light?


Henrik G.S. Arvidsson is a lecturer and award-winning researcher in business studies.


Ruslana Diadiun is a managing director of the Institute of Innovative Governance in Estonia. Holds a master's degree in Democracy and Governance. 




By Ruslana Arvidsson & Henrik Arvidsson


Nov 17 2019


Continuing negotiations between the US and China amid trade war.


The ongoing trade war is having an effect on both the US and Chinese economy. The damage the spat is having is felt on both sides and now threatens to send the world economy into a recession.


U.S. and Chinese trade negotiators held “constructive discussions” in a phone call on Saturday to address each side’s core concerns of phase one of the trade deal.

China’s Vice Premier Liu He, the Chinese negotiator in the trade talks with the U.S., spoke Saturday with Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer, according to the Chinese Commerce Ministry. The call was held at the request of the U.S. negotiators, and the two sides agreed to remain in close communication, it said in a statement. Both sides stand to lose long term if this conflict will go on for much longer. Both sides have imposed tariffs on specified categories of goods from the other side.





BY HENRIK ARVIDSSON, RUSLANA ARVIDSSON

 

Nov 17 2019


The EU and economic growth: will Europe 2020 work out?


On the 3rd of  March  2010,  José  Manuel  Barroso,  President of the  European  Commission,  presented the long-awaited  “EU  2020  Strategy”, the roadmap for 2010-2020  which was described as a strategy for greener growth and jobs in  Europe.

By raising Europe’s employment rate, the EU aims to expand the creation of jobs, particularly for women and young EU citizens. This was meant as a way to increase the human capitalization rate of the EU through investment in skills- and training-related measures. By inclusive growth, the  EU  can ensure that the benefits of growth reach all parts of the  EU. 


According to President Barroso.

The strategy was said to aim at a 2% GDP growth rate. In June 2010, the  European  Parliament formally adopted this strategy. The strategy consists of five targets at  EU level: employment, research and development (R&D), climate, education, and the fight against poverty. At the same time, it gives some freedom to member states to set their own national goals, like raising the employment rate of the population aged 20-64 from the current (2010)  69% to 75% in the year 2020. This also included a decision to increase the investment in Research and Development to 3% of the GDP of the European Union and other measures relating to ensuring that the level of education within the Union is increased. This should be seen in the light of the fact that the EU is one of the largest economies in the world, ranking as number one in 2019 but has for long been plagued by structural problems and a slow growth ratio. Europe’s challenge is not just to foster innovation among its own businesses but to attract foreign investment. Its goal is to provide a solid ground for R&D and as a part of that strategy, its goal is to invest 3% of its GDP into research and development. The problem with this initiative is that the growth rates regarding GDP as well as the investment in R&D are low in an international context.


China in June 2019 reported a growth rate of 6.2 % with a projected 6.3% for the whole year, the lowest in decades with a projected GDP increase of 5.5% in 2024 whilst the European Union in 2018 almost reached the target with a 1.98 % growth. The United States at the same time reported a growth rate of 3,2%. This should put the EU in the same category as the troubled economies of Japan and South Korea.


If we compare China and the European Union from a historical perspective, we can in fact see that not since the 1970s has the EU outperformed China. This has to some extent to do with the policies of the Chinese regime to open up the Chinese economy but also with structural problems within the EU economy as well as the fact that China until the 1960s was a relatively poor country, something that during the last 5 or 6 decades has changed.

The problems don’t end there since Europe 2020 is not just a strategy to foster innovation and create job opportunities but also a broader strategy to deal with climate change and poverty. This showcases the fundamental problems that the EU face - its complex decision-making processes where a wide array of parties and institutions has to weigh in until a decision is made which often results in watered-down decisions and strategies that come under heavy criticism. Most of all, an increase in regulation doesn’t lead to growth. It might long-term lead to an increase in R&D but if the rest of the world has divergent regulations, the potential for EU businesses to gain from this simultaneous increase in the level of regulation leads to an increase in uncertainty. Nowadays the EU project is also questioned at a political level and with an increasing number of voices asking to either have their country leaving the union or begging for deeper integration.

The uncertainty regarding the future economy of the EU, its regulatory measures and the looming international recession leave business sailing a sea of uncertainty.


In general, larger firms try to avoid uncertainty which makes it harder in theory for the EU to attract businesses who want to use the EU as a platform for their innovative business. One problem is that countries like China, Japan and South Korea still have an advantage when it comes to the potential to find well-educated people that fit the need of the firm operating in a high-tech environment. China spends 2,7 % of its GDP on research which puts it at the same level as the target goal of Europe 2020. The difference, however, is the cost advantage of the Chinese firms.

The EU has long been an area where trade unions had a strong influence and many of the EU countries have been ruled by socialist governments whose aim was to strengthen the rights of the worker. The question now, however, is that if the high taxes of the EU and its strong urge for regulation have left Europe trailing in the global race for growth and investment? One of the talking points of the American president Donald Trump is that much of the manufacturing industry of the United States has left the country leaving many Americans unemployed. 


In today’s globalized world, competition from countries such as China, South Korea, Japan and India has caused many jobs to disappear from EU countries. The question is that if these modestly set goals will help advance the economy of the European Union? There has been a long-standing debate between those who view regulation as something that hindering growth and those who believe that regulation sometimes can spur growth and lead to more prosperous societies?

The problem with the latter argument is that the ones paying for the regulation are the firm that faces it. This is one of the reasons why firms in unregulated economies often tend to grow large and achieve a dominating position on the world market, take Google, Microsoft and other tech giants, whilst firms stemming from regulated markets such as those of many European countries often fail to do the same.


The unregulated market often provides a greenhouse where the firm can grow and later on internationalize, whilst the regulated market generally fails to do the same. Michael Pettus in 2001 studied firms originating in both regulated and unregulated markets and the results clearly showed that firms originating in countries with a higher degree of regulation did not grow large enough to be successful in the same way as firms originating in market-liberal, unregulated markets. For economists this relationship is clear but as often in society, the general understanding among the public and their representative does not correspond with reality.

The question now is that which path the EU wants to walk. One thing is for sure: the current path will by all estimates not make the EU a global leader in innovation.  Perhaps the only way left to walk is that towards the unregulated market? The question now is also that if there is a political will to take this, perhaps necessary step? And perhaps the greatest question of all is what the future EU will look like?


Henrik G.S. Arvidsson is a lecturer and award-winning researcher in business studies.

Ruslana Arvidsson is a managing director of the Institute of Innovative Governance in Estonia. Holds a master's degree in Democracy and Governance. 

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