Country brands: A paradigm change towards development

By: Carolina Herrera Cano (caroherca@gmail.com)

Universidad EAFIT

The promotion of countries through marketing strategies has become an important awareness of national governments; vital economic interests depend on the effectiveness of these initiatives. It is notable that commercial concerns of promoting products, places, and institutions are nowadays greater. In this sense, the creation of a country brand is an increasing practice within governments; it is undeniable that the use of commercial diplomacy is well established. The evaluation of country brands performance has always been from a commercial approach; it is easily identifiable in how country brands have been evaluated thorough the years. Although, there has been a paradigm change in how country brands are perceived (and evaluated), they are becoming a useful tool to promote a better quality of life within the country, and not only a way to increase tourism, investment, and exports.

The country brands are defined as governmental strategies implemented to capitalize the nation reputation of a given country in the international markets. Many authors recognize the importance of the country brands as a soft power tool used by governmental institutions to increase their influence in the international context, and consequently, to develop higher levels of competitiveness, institutional stability, and legal certainty (Lacouture, 2009). Since decades, this strategy has been used by many countries with the main purpose of economic growth, and international trade promotion (Echeverri, Estay-Niculcar, & Rosker, 2012). Nowadays, these objectives are usually undertaken through three specific dimensions, usually supported by the Ministries of Commerce: tourism attraction, foreign direct investment improvement, and exports promotion (Colombia Marca País, 2013). This results in a deliberate objective of communicating a country positive image abroad. Consequently, country brands work as a marketing strategy that serves fundamentally to the national commercial interests.

In order to determine the real advantages that the creation of a nation brand strategy has had in the international presence of a country, its position in the international markets is examined. The Country Brand Index, developed by Future Brand, the strategic consultant from Interpublic Group, analyzes the performance of the country brands around the world. The Country Brand Index uses quantitative research, opinions from experts, and massive digital surveys in order to create a ranking of the most effective strategies, and to identify which are the main challenges that each country brand has. Country brands have been evaluated only under almost the same indexes of any other commercial brand: levels of knowledge, familiarity, preference, considerations, number of recommendations, and active decisions to actually interact or visit the given country (Future Brand, 2013a).

The current commercial approach that governments have implemented regarding their relations with other countries responds to the necessity of guaranteeing certain levels of investment, tourism, and exports. Competition between country brands reflects competition between countries; in an increasing globalized world, with a constant danger of economic crisis, a strong nation brand strategy could represent the difference between visiting, investing or buying in a given country; despite competition between commercial brands does not have to be a zero-sum game (Frost, 2004). The question here is that despite the importance of commercial interests that every country has, country brands are not longer sources of capital flows.

The awareness over the use of country brands not only as promoters of tourism, invest, and exports, but as a way to improve quality of life, represents a change in the paradigm of how country brands were perceived. This perspective has also been promoted by the evaluation process developed by Future Brand. To this index, in terms of country brands performance, the most important aspect that should be taken into account today is their ability to improve the quality of life of its citizens (Future Brand, 2013b). In this way, figures regarding products’ demand abroad, number of foreign visitors, and money invested are not an end in its self, but a strategy to create better social conditions within the country.

That is why this index also takes into account the impact of country brands in aspects like: values system, quality of life, business culture, heritage and culture, and tourism which are not only fundamental to the commercial interests of the country, but also to the social conditions of nationals. As a matter of fact, the Country Brand Index measures the strength of a country brand base on its capacity to foster open discussion, individual rights, civil liberties, and social values. In this order of ideas, country brands increasingly pursue better social conditions, and not only commercial interests (Future Brand, 2013b).

This internal concern can also be seen in how country image is perceived today. Country reputation is a key concept that determines the strategies that implemented in the nation brand strategy. Although, during the last years, countries have noticed that reputation is not only a foreign. In this sense, the country brands are becoming increasingly important for national governments as a way to promote products, institutions, and even citizens both nationally, and internationally. Today, countries are conscious about the importance of making the country brand not only an international communication strategy, but a national effort towards an internal sense of belonging. These types of strategies improve security (which ultimately promotes also internal tourism), increase internal demand, and create institutional trust, also resulting in better social conditions concern (Echeverri, Estay-Niculcar,  & Rosker, 2012).

The effectiveness of country brands has eminently been a commercial concern; economic conditions make country relations a constant competition over tourism, investment, and exports. In this way, countries have understood that the effectiveness of country brands can be used to increase international capital flows. Nevertheless, during the last years governments have seen this strategy as a way to foster social and economic development within their countries. Through this strategy, and thanks to the new paradigms in country brands evaluations, governmental institutions can now access to the benefits of having a better position of their nation brand strategy in the international market, promoting an internal sense of belonging, and consequently improving development.

References

Colombia Marca País. (2013). Available online: http://www.colombia.co/. Accessed: May 5th, 2014.

Echeverri, L., Estay-Niculcar, C. A., & Rosker, E. (2012). Estrategias y experiencias en la construcción de marca país en América del Sur. Estudios Y Perspectivas En Turismo, 21(2), 288-305.

Frost, R. (2004). Maping a Country’s Future. BrandChannel.com. Available online: http://www.brandchannel.com/features_effect.asp?pf_id=206 . Retrieved: May 28th, 2014.

Future Brand. (2013a). Country Brand Index 2012-13. Available online: http://mouriz.files.wordpress.com/2013/02/cbi-futurebrand-2012-13.pdf. Accessed: May 5th, 2014.

Future Brand. (2013b). Country Brand Index Latinoamérica 2013. Available online: http://www.futurebrand.com/images/uploads/studies/cbi/CBI_Latinoamerica_2013.pdf. Accessed: May 5th, 2014.

Lacouture, M. C. (2009). Colombia es pasión, porque la mejor materia prima que tiene el país es la pasión de los colombianos. Latin Trade (Spanish), 17(2), 59-60.

A view on UNCTAD's World Investment Report 2014

By: Veronica Velásquez Zuluaga* vvelasq5@eafit.edu.co

Law student at Universidad EAFIT, Colombia

According to the UNCTAD, the foreign direct investment (FDI) has increased all types of economic groups, developed, developing and transition. One of the points of the agenda of the countries is to create or elaborate policies to attract investment in their own country regardless of their economic group.

Recently, an investment promotion agency mentioned that the main objective of investment incentives is job creation, followed by technology transfer and export promotion. To achieve this objective, it has to take into account four key challenges: The first one is leadership, this key propose setting guiding principles ensuring policy coherence; the second is mobilization and propose to reorient markets towards investment in SDGs; the third is channeling and pose the promoting and facilitating investment into SDGs sector; and the last one is impact and express the maximization of the development benefits and minimizing risks.

There is an important aspect and is related to the investment of the private sector in all countries. The private sector cannot supplant the big public sector push needed to move investment in the SDGs in the right direction. But an associated big push in private investment can build on the complementarity and potential synergies in the two sectors to accelerate the pace in realizing the SDGs and meeting crucial targets. Private sector contributions often depend on facilitating investments by the public sector. In some sectors such as food security, health or energy sustainability, publicly supported research and technological development (R&D) investments are needed as a prelude to large-scale SDG-related investments.

SDG investment has some approach: the first is economic infrastructure in developing countries, included power, transport, telecommunications and water and sanitation, we can say private sector has a good participation in these topics; another approach is food security and the corporate sector contribution in the agricultural sector as a whole is already high at 75 per cent in developing countries, and is likely to be higher in the future; the third one is Social infrastructure is related to education and health, is a prerequisite for effective sustainable development, and therefore an important component of the SDGs; and the last one is environmental sustainability, including stewardship of global commons, the investment gap is largely captured through estimates for climate change, especially mitigation, and under ecosystems/biodiversity (including forests, oceans, etc.).

We can say private sector intervenes so much in the economy and all their movements can change other sectors such as economy, environment, infrastructure, transport etc.

Reference

UNCTAD (2014) World Investment Report 2014. Available online at: http://unctad.org/en/PublicationsLibrary/wir2014_en.pdf

UNCTAD World Investment Report 2014 Review

Opinion Article by Juan Gonzalo Perez* (jperezg@eafit.edu.co)
* International Business Student, Universidad EAFIT, Medellin, Colombia

As the world’s Foreign Direct Investment (FDI) flows have shifted in recent years from developed to developing economies due to economic downturns, in 2013 global investment inflows rose significantly and the signs of recovery are expected to continue in the upcoming years. Developing economies are attracting the largest share of investments and are also becoming more prominent in terms of capital outflows. In spite of the fact that in previous years a lot of the FDI growth was driven by South American Countries, in 2013 flows to this sub region declined.

According to the 2014 World Investment Report released by the United Nations Conference on Trade and Development (UNCTAD), global FDI inflows increased by 9% in 2013 reaching a total of U$1,4 trillion with an expected steady increase for the next 3 years. These expectations are based on the signs of recovery of the world's 36 developed economies, which accounted for 61% of the total outflows but only 39 percent of the inflows of FDI.

On the other hand developing economies are maintaining a dominant share of the FDI inflows with 54% of the overall global investment. As stated in the report, this represents the equivalent to U$778 billion, with Asia being the major recipient. As positive economic news appear to be spreading in developed countries and as the weight of developing ones increases in the global economy, transnational corporations’ executives are more confident in readjusting their focus to answer the growing potential of emerging markets.

As for Latin America and the Caribbean the report shows an uneven growth in terms of FDI inflows. Overall investment in the region had an increased of 6% in 2013 in relation to 2012, however, the report reveals that Central America and the Caribbean had a positive increase but with a 6% decline in South America.

Decline of FDI into the mining sector was the major reason for investments to decrease, especially in Chile, Argentina, Peru and Brazil. Yet, investments in the primary sector presented an important increase as well as industries like automobiles, electronics and beverages. In contrast, FDI inflows into Colombia increased by 8%, mainly to investment in the electricity and banking industries through Mergers and Acquisitions (M&A).

In conclusion, the global investment trends presented in the 2014 World Investment Report shows a positive sign of economic recovery in the developed economies and an important increase of FDI flows to all major developing regions. As for Latin America and the Caribbean prospects are optimistic caused by new opportunities arising in oil and gas, and Transnational Corporations investment plans in manufacturing.

Reference

UNCTAD. (2013).World Investment Report 2103. Ginebra y Nueva York: Naciones Unidas.

The Status Quo of Chaos in Colombia: An opportunity for development

Opinion Article by: Juan Gonzalo Perez* (jperezg@eafit.edu.co)

* International Business Student, Universidad EAFIT, Medellin, Colombia

A year later after the implementation of the Free Trade Agreement (FTA) between Colombia and the United Sates, as a result of the lack of development policies for rural areas, several agricultural sectors are on strike. The status quo of chaos in Colombia has led to a serious economic and political crises.  Protesters are blocking main roads of transportation, causing a shortage of agricultural goods and, consequently, food prices are increasing. Also, according to some government officials, political opposition movements are taking advantage of the urban and rural riots to gain popularity for the upcoming elections.

Protesters are asking the government for subsidies, elimination of import tariffs on agricultural supplies and adjustments in the FTAs already signed. Let’s try to analyze the causes and possible solutions to this problem.

According to Dhanraj Harrypersad from the Export Market Research Centre in Trinidad and Tobago, the reality is that in most cases there is a disconnect between those negotiating FTAs and those which stand to be affected. He also argues that FTAs are often more politically than economically motivated. They are negotiated quickly and do not give sufficient thought to the impact they will have on some of the smaller producers in a country. Usually it is the larger companies, groups and conglomerates which have the say in negotiations because they may have funded the political campaigns of the governments.

It is true that as Colombia becomes more open to international markets it is necessary for local industries and small farmers to become more competitive. The challenge is to develop a higher value added agricultural industry that creates quality jobs and increases the salaries of farmers. To accomplish this task the government should implement clear development policies and take advantage of the benefits from the large amounts of Foreign Direct Investments (FDI) coming into the country as well as the royalties from the extracting industries. 

Although subsidies can solve the farmer’s problems in the short term, the fact is that it affects the country’s welfare. Also, they cannot rely on the government to give subsidies and preferential treatment indefinitely. At some point in time farmers need to be able to stand on their own and compete in international markets. For instance a more feasible solution could be to implement programs to transform the agricultural sector from one of primary goods, like potatoes, raw coffee beans and bananas, which are low cost but also low profit, to one of value added products that can be incorporated in global value chains. For example, Chilean pineapple exporters have recently determined that exporting pineapple juice, a value added product, is more profitable than exporting the pineapple itself. The role of the government should be to get farmers to that state rather than offering subsidies and reducing import duties on inputs.

Furthermore, there is little chance that the government will accept to negotiate the terms of the FTAs because it is a risky political and diplomatic decision, even though it is legal for the Colombian government to establish consultations with the US claiming that the FTA is causing internal social conflicts.

In conclusion, the status quo of crisis in Colombia can be seen as an opportunity to develop the agricultural sectors. But, most important is to establish a clear plan to improve the technology to transform the basic production of agricultural goods into value added products that will allow small farmers to become more competitive in international markets and even become part of global value chains. For now, let’s hope that the protests stop and the parties can come to some sort of agreement soon because the fact that people are using it as an excuse to gain political benefits and damage property just shifts the focus away from the true reasons behind the protest.

FDI’s real transfer of value: Fundamental challenge for developing countries

Opinion article by: Estefania Tirado-Ramirez* (etirado2@eafit.edu.co)

*International Business and Economics Student, Universidad EAFIT, Medellin, Colombia.

During the last couple of years the world has witnessed an increase in the amount of FDI flows that has been absorbed by developing countries, which has been reflected in the 52% of global FDI that went directly to the developing economies in 2012 (UNCTAD, 2013).

Though this high percentage of FDI can represent a progress opportunity for the receiving economies, as jobs, national income, productive capacity and skill building are supposed to be increased, what governments and policy makers are constantly forgetting is the global pattern of just one-third of FDI income remaining in the host economy, and two-thirds of it being repatriated.

When there is such a small portion of income staying in the developing world, the economic sector or activity in which FDI is being directed to takes major importance, as it can become the breaking point between remaining locked into low value added activities, and therefore into underdevelopment, and truly building economic capacity. As developing countries tend to attract more flows into low value-added activities, especially into natural extractive industries, they raise the risks of external shocks as they become dependent on foreign demand and limit FDI’s contributions to skill building and technology dissemination.

In this context the fundamental challenge is not to attract as much as FDI as possible, like some countries do, but to carefully analyze each country’s trade profile and industrial capabilities, so the necessary legal framework and infrastructure prerequisites can be put in place to focus on a determined activity that would generate economic value and would create a commercial relation between countries and individuals, that in the context of liberalization, can lead to a win-win sustainable economic development.

References:

UNCTAD (2013).World Investment Report 2103. Ginebra y Nueva York: Naciones Unidas.

La falta de transparencia y la evasión de impuestos, un creciente problema para el sistema financiero mundial

Artículo de Opinión por: Juan Gonzalo Perez* (jperezg@eafit.edu.co)

* Estudiante de Negocios Internacionales, Universidad EAFIT, Medellín, Colombia.

El incremento en el uso de mecanismos de financiación en el extranjero ha comenzado a generar preocupación en el ámbito internacional. La evasión de impuestos por medio de Inversión Extranjera Directa (IED) es un fenómeno que según el World Investment Report 2013 (WIR 2013, Reporte Mundial de Inversiones de la UNCTAD 2013) se ha incrementado en el sistema financiero mundial y es un tema que debe ser atendido por entes internacionales.

Una de las modalidades más comunes son los Centros de Financiación en el Extranjero (OFCs por sus iniciales en inglés), de acuerdo con WIR 2013 es el flujo de capitales que se canalizan por entidades como OFCs equivale a un 6% de los flujos de capital a nivel global. Si bien este mecanismo es el más conocido y está regulado por algunas entidades internacionales, existe otra modalidad que cada año juega un papel más importante en el flujo de capitales extranjeros y hasta el momento carece de regulación internacional.  

Las Entidades para Propósitos Específicos (SPEs),  por sus siglas en inglés, permiten la flexibilidad a los inversionistas de adaptar estrategias con estructuras legales que cumplan con las necesidades específicas de los capitalistas. Con base en los últimos datos del WIR 2013, en el año 2012 esta modalidad significo un flujo de inversión que supero la suma de $600 billones de dólares, esta cifra representa siete veces el flujo de capital captado por medio de los Centros de Financiación en el Extranjero (OFCs).

Los flujos financieros que manejan ambos mecanismos de inversión podrían representar un avance importante en materia de desarrollo, no obstante, estas inversiones de capital, en la mayoría de los casos, se hacen en países en vía de desarrollo que carecen de políticas claras para el aprovechamiento de la inversión en programas que ayuden al desarrollo de estos países.

El gran incremento de flujos de capital en búsqueda de incentivos tributarios por fuera del país de origen y que se están canalizando por las entidades previamente mencionadas ya ha comenzado a llamar la atención de países y organismos internacionales. Según se exhibe en el informe presentado por la OCDE al G20 en Moscú, las reglas tributarias internacionales no han cambiado desde la creación de la liga de las naciones, en consecuencia,  las empresas transnacionales están aprovechando  esta situación para no pagar lo justo en materia de impuestos.

Para resumir, las nuevas tendencias en materia de inversión requieren  de un esfuerzo  multilateral que permita establecer medidas claras ante la falta de transparencia en las transferencias financieras internacionales y la evasión de impuestos. Por otra parte, el sistema tributario internacional debe ser reformado  puesto que todavía se usan regulaciones de hace cien años.  

Referencias

OECD (2013), Action Plan on Base Erosion and Profit Shifting, OECD Publishing. 

UNCTAD (2013).World Investment Report 2103. Ginebra y Nueva York: Naciones Unidas.

Changes in the international economy. 2013 Perspectives from UNCTAD's World Investment Report 2013)

By: Carolina Herrera Cano* (caroherca@gmail.com )

International Business student, Universidad EAFIT, Colombia

The differences between the way in which the international economy works nowadays, and how it seemed to work few years ago, creates a scenario in which it is possible to think about the actual cyclical process of the macroeconomic indexes.  In this way, the coexistence of contraction in the FDI flows in developed countries, and its expansion in developing and transition economies should not be surprising. But the current dynamics should be analyzed in a deeper way: the improvements in the transition and developing countries exist maybe just because of its comparison with what it is happening in the rest of the world.

UNCTAD's WIR 2013, highlights some problems that keep on surviving in the less developed countries, and are also appearing in developed countries like the levels of unemployment, and the stagnation in the value added. What I would like to mention after this hypothesis is: the weak conditions that emerged after the global economic crisis are not just part of the “recession stage” of some economies, but a generalized situation that is being worse because of the interconnection between countries (internationalization). In this sense, one way to perceive the policy-making is by making it a possible global effort to the sustainable development’s reach. The transfer of the international best practices thanks to the Global Value Chains (GVC) and the international agreements are some evidence about how the world can be transformed by trade, and development.