Perestroika, the Soviet version of economic restructuring announced by President Mikhail Gorbachev in 1988, called for a gradual end to central economic coordination for the Soviet Union. When the Soviets showed an interest in embracing foreign investments, European, Japanese, and American companies were quick to respond. A consortium of top notch US companies – including Chevron, RJR Nabisco, Eastman Kodak, Johnson & Johnson, and Archer Daniels Midland—was formed to invest $5 billion to $10 billion in the former USSR over a 15 year period through a number of joint ventures. McDonald’s has already opened its doors in Moscow, and Pepsi has become a favorite Soviet beverage. Taken together, the 700 plus joint ventures exceed the $500 million mark.
The collapse of the Soviet Union and Gorbachev’s departure from office – hastened by a coup attempt in August 1991 have cast considerable uncertainty over global business opportunities in that part of the world. Boris Yeltsin, a rival of Gorbachev and the President of the new Russian Republic, has vowed to continue with democratic reform and promotion of a freer market economy.
Formerly under Soviet influence, Eastern European countries also hold opportunities and the tearing down of the Berlin Wall has come to symbolize the bold moves toward democracy. German reunification has assured the restructuring of the economy in what was East Germany, and investments by General Electric and General Motors in Hungary and other projects in Poland have the entire Eastern Bloc in a flurry of economic activity. An issue facing many businesses attempting to work in the newly opened countries is human resources and staffing. Beyond the language and cultural barriers lie some of the biggest challenges, including an absence of an efficient business and communication infrastructure; a lack of employees with the combination skills limited local knowledge of the human resources profession as it is understood in the West because most hiring decisions were previously made by the government); and difficulty in finding managers willing to relocate.
The North American free Trade Agreement:
The Northern American Free Trade Agreement (called NAFTA) was negotiated in the early 1990s by officials representing United States President George Bush, Canadian Prime Minister Brain Mulroney, and Mexican President Carlos Salinas de Gortari. NAFTA provides for the phased removal of tariffs and other barriers to trade among companies and individuals in the United States, Canada, and Mexico. There is already a longstanding history of trade among the three nations: in 1992 alone, Mexican purchases of US goods totaled $40.6 billion.
In fact, some people consider NAFTA merely a formal christening of a trade relationship that has existed already for some time. One example is provided by Buckman Laboratories. Based in Memphis, Tennessee, Buckman Laboratories manufactures micro-biocides used to control corrosion, scale, and slime for the paper, leather, and paint making industries. The privately held company has found a global niche. Buckman derives 50 percent of its $200 million in annual sales from outside the United States and maintains more than 50 percent of its company assets outside the United States as well. The company’s international expansion began there years after its founding, when it formed a Canadian subsidiary in 1948, long before NAFTA’s arrival. Moreover, Robert H Buckman, President and CEO believes that his company’s trade with Mexico will increase regardless of NAFTA’s success. I see tremendous expansion in trade with Mexico with or without NAFTA and Latin America, said Buckman. In fact, it’s already started. NAFTA is simply recognition of reality.
Still, NAFTA was a subject of controversy in Canada and the United States throughout the Congressional debate that led to its passage in the Fall of 1993. Both new United States President Bill Clinton and new Canadian Prime Minister Jean Chretien had to defend NAFTA to their own constituencies.
The controversy over NAFTA is an object lesson in the effects of government policy and regulation, part of the second concern about competitiveness discussed earlier. Recall Michael Porter’s observation that government officials and managers are now more conscious than ever of the fact that economic and political conditions can support ‘winning’ industries in the world markets. NAFTA has raised consciousness about such differences in conditions among the three nations involved. Of particular concern in the United States and Canada was the possibility that companies based in either of the other countries might seek competitive advantage by following more relaxed labor relations or environmental practices. Accordingly so called ‘side agreements’ on these two issues were negotiated in 1993.