Panjiva Blog: Blogging Global Trade

Toyota made headlines today by announcing its first loss in 70 years.  Check out the New York Times and Wall Street Journal stories.

Certainly this is a remarkable story that demonstrates just how pervasive the effects of the economic downturn really are.  But this story reminded me of the brighter side of global trade.  Global trade, at its best, can enable people to climb the ladder of economic development.  The story usually goes something like this…  People connect with the global marketplace by producing low value goods.  They then accumulate skills that enable them to produce higher value goods.

Indeed, this is the story of Toyota which, about 70 years ago, spun off from Toyoda Automatic Loom Works.  It never ceases to amaze me that Toyota began as a textile company.

Certainly, yesterday was a tough day for Toyota.  But the company itself is a remarkable success story that highlights the possibilities of global trade.

In the months ahead, we’ll be featuring guest bloggers on the Panjiva Blog.  First up is Daniel Tunkelang, a member of Panjiva’s Technology Advisory Board.  Daniel is the Chief Scientist and a co-founder of Endeca. Daniel studied computer science and math, obtaining undergraduate degrees from MIT, and a Ph.D. from Carnegie Mellon University. Daniel is an expert in information retrieval and information science, and was recently appointed industry chair for Special Interest Group on Information Retrieval (SIGIR) ’09.
Daniel’s post (below) is the first of a series of posts which can be found at Daniel’s popular blog, The Noisy Channel.

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By Daniel Tunkelang: While I’m a neophyte on matters of global trade (fortunately fellow MIT alum and Panjiva investor Larry Summers is a bit more qualified on those matters), I do know a thing or to about how people interact with information. So it’s my delight to share a short series of posts on the macroeconomics of information and attention.In Brief Principles of Macroeconomics, Greg Mankiw lists ten principles of economics that he divides into three groups:How People Make Decisions

• People Face Tradeoffs.
• The Cost of Something is What You Give Up to Get It.
• Rational People Think at the Margin.
• People Respond to Incentives.

How the Economy Works as A Whole

• Trade Can Make Everyone Better Off.
• Markets Are Usually a Good Way to Organize Economic Activity.
• Governments Can Sometimes Improve Market Outcomes.

How People Interact

• A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services.
• Prices Rise When the Government Prints Too Much Money.
• Society Faces a Short-Run Tradeoff Between Inflation and Unemployment. .

Nobel Laureate Herb Simon articulated the concept of an attention economy in his 1971 article, “Designing Organizations for an Information-Rich World”:

in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.

In the next few posts, I’ll try to apply Mankiw’s principles to Simon’s conception of an attention economy to establish a macroeconomics of information and attention.

A week ago, Panjiva released data showing that the economic downturn is decimating suppliers around the world, and we introduced new tools to help companies cope with the associated risk.  We appreciate the interest so many people have shown (see links to some of the coverage below).  We’ll be back with much more in Q1.  In the meantime, stay tuned for guest posts from a member of Panjiva’s technical advisory board.

Financial Times:

http://www.ft.com/cms/s/o/30c89a2e-c620-11dd-a741-000077bo7658.html

New York Times:

http://www.nytimes.com/external/gigaom/2008/12/08/08gigaom-panjiva-31244.html

Wall Street Journal:

http://blogs.wsj.com/runway/2008/12/08/the-daily-thread-abercrombies-sales-down-luxury-brands-modify-focus-uk-retail-sales-expected-to-drop/

CNN/Fortune:

http://money.cnn.com/news/newsfeeds/gigaom/startups/2008_12_08_panjiva.html

Forbes:

http://www.forbes.com/global/2008/1222/007.html

Gartner:

http://blogs.gartner.com/andrew_white/2008/12/10/%E2%80%9Cthere-is-information-gold-in-them-there-data-hills%E2%80%9D/

ARC Advisory Group:

http://www.arcweb.com/Domains/SCM/Lists/Posts/Post.aspx?List=7ae600da%2D7f89%2D41bb%2D8e5d%2D9838766ca24a&ID=154&RootFolder=%2FDomains%2FSCM%2FLists%2FPosts

About.com:

http://logistics.about.com/b/2008/12/05/finding-the-right-supplier-for-your-business.htm

GigaOm:

http://gigaom.com/2008/12/08/panjiva/

Ars Technica:

http://arstechnica.com/news.ars/post/20081210-downturn-hitting-tech-semiconductor-sector-hard.html

WWD:

http://www.wwd.com/business-news/us-apparel-suppliers-dwindling-1880152?justin=1880152

InformationWeek:

http://www.informationweek.com/news/internet/ebusiness/showArticle.jhtml?articleID=212300220

CIO:

http://www.cio.com/article/469565/Big_Supply_Chain_Troubles_in_China

SpendMatters:

http://www.spendmatters.com/index.cfm/2008/12/11/Supplier-Insight-That-Counts-Panjiva-Aims-High-Part-1

SupplyChainDigest:

http://www.scdigest.com/assets/On_Target/08-12-10-3.php?cid=2135

Logistics Management:

http://www.logisticsmgmt.com/blog/930000493/post/1790037779.html

Supply & Demand Chain Executive:

http://www.sdcexec.com/web/online/SourcingProcurement-News/Panjiva-Analysis-Shows-Economic-Downturn-Decimating-Global-Suppliers/27$10872

SupplyChainNetwork:

http://www.supplychainnetwork.com/?p=419

IT Governance, Risk, and Compliance:

http://itgrc.wordpress.com/2008/12/11/how-risk-management-tools-may-revert-decline-of-global-suppliers/

Enterprise Irregulars:

http://www.enterpriseirregulars.com/EI/34167

Alibaba:

http://news.alibaba.com/article/detail/apparel-news/100028342-1-apparel-industry%2527s-global-supply-chain.html

Home Textiles Today:

http://www.hometextilestoday.com/article/CA6621622.html

IT Professionals Database:

http://www.itpd.eu/panjiva-panning-for-gold-in-numbers

Sea Cargo Air Cargo Logistics:

http://scacli.blogspot.com/2008/12/apparel-industrys-global-supply-chain.html

The entire Panjiva team would like to congratulate Dr. Larry Summers on the announcement that he will join the Obama administration as Director of the National Economic Council.

As most know, Dr. Summers served as Treasury Secretary under President Clinton and, more recently, was President of Harvard University.

Dr. Summers was also an early investor in Panjiva and has served as a member of Panjiva’s advisory board.  We have appreciated his support and wish him the best of luck in his new role.

Now that CNN has called the race for Senator Barack Obama, it’s time to ask — Will President Obama be good for global trade? My prediction: yes.

Over the last several months, I’ve been asked this question by a lot of people who care about global trade. Indeed, Candidate Obama generated a fair amount of concern with statements that suggested he’d put the brakes on trade. For instance, he called the North American Free Trade Agreement (NAFTA) a “bad” trade deal, criticized the U.S.-South Korea Free Trade Agreement, and opposed the Central American Free Trade Agreement (CAFTA). For a detailed accounting of Candidate Obama’s statements on the subject of trade, visit the Council on Foreign Relations website.

Candidate Obama’s statements notwithstanding, I predict President Obama will be good for trade. Some more specific predictions:

1) President Obama will be far more pro-trade than his campaign statements would suggest

Because of the electoral college system, U.S. presidential campaigns are all about swing states — states where the electorate is evenly divided between Democrats and Republicans. For some reason, the most evenly divided states (Ohio, Pennsylvania, Michigan) are states that have been particularly hard hit by globalization. Therefore, it’s not surprising that a candidate for president would employ anti-trade rhetoric. (Indeed, I’m surprised when candidates don’t employ anti-trade rhetoric!) With the campaign over, President Obama will be intensely focused on enacting policies that can jump-start America’s economy. Will these policies be pro-trade or anti-trade? To answer this question, I look at the economic advisers that Obama has surrounded himself with. At the top of this list: Robert Rubin, the former Goldman Sachs executive turned Clinton Treasury Secretary, who is decidedly pro-trade. In the months ahead, look at who President Obama appoints to key economic posts in order to assess whether my prediction is likely to be right or wrong.

2) President Obama will be more effective than his predecessor at facilitating new trade agreements

Over the last eight years, America’s unilateralist stance — in a number of arenas — has diminished its ability to play a constructive role on issues of concern to the global community. President Obama will put an end to America’s unilateralist stance which will likely enhance America’s ability to lead on, among other things, trade. And leadership is needed. The failure of the Doha round and the failure of governments to effectively coordinate on consumer safety issues are just two examples.

But let’s say President Obama proves effective at facilitating new trade agreements; will he be able to get them passed here in the U.S.? My prediction: yes. Republicans tend to support free trade, while Democrats need some convincing. A Democratic president is far more likely to succeed in bringing enough Democrats along to ensure passage — either by including “fair trade” provisions, or via old-fashioned arm-twisting. It’s no accident that NAFTA was passed while a Democrat was in the White House.

Your thoughts?

As David Barboza reported over the weekend in The New York Times, Chinese authorities are expanding their melamine investigation.  Melamine is the toxic chemical that should not be making its way into the food supply chain — but that nevertheless has been.  By now, some may be tuning out news about food (and product) safety scandals.  Not sourcing executives…  Managing risk — particularly food and product safety risk — has risen to the top of the agenda of most sourcing executives.  The same is true for government regulators, both here in the U.S. and abroad.

What is perhaps most interesting, though, is that there really aren’t a lot of good ideas on how to effectively manage this category of risk.  I was struck by this comment from a professor at NYU, who was quoted in Barboza’s article:
“’A year ago, everybody should have been in a complete panic about it and done something then,’ said Marion Nestle, a professor of food studies and public health at New York University and the author of ‘Pet Food Politics: The Chihuahua in the Coal Mine.’ ‘Someone should have required that melamine not be in any food product.’”

Professor Nestle seems to be assuming that simply requiring that melamine be excluded from the supply chain would have solved the problem.  Not so — and particularly not so in China.  The number of participants in the food supply chain — just in China — is huge.  How would you communicate new requirements to all these participants, let alone enforce these requirements?

Putting the right regulations on the books is perhaps a necessary step, but a much more comprehensive approach to solving the problem is required.  As noted above, regulation must be coupled with communication and enforcement.  In addition, key players (government regulators, inspection agencies, private sector leaders) must agree on standards and provide for transparency about who is abiding by these standards.  This last piece creates positive incentives for good behavior — an important complement to punishments for bad behavior.

Your thoughts?

I’m hearing a lot of anxiety from our customers about the possibility that their factories might fold. This anxiety is justified. The economic slowdown is causing lots of buyers to reduce and delay orders. For suppliers with high fixed costs, this behavior could prove fatal. How do you find out if your supplier falls into this category — before the supplier goes under and leaves you hanging? Some ideas:

1) Buy a credit report on your supplier

Credit reports will tell you if your supplier is paying *its* suppliers on time. If it’s not, chances are good that your supplier is in trouble. D&B is a good place to start for this kind of information.

2) Look at your supplier’s export activity

Is your supplier’s export activity dropping precipitously? Definitely a sign that you should be preparing a back-up plan. (Full disclosure — Panjiva sells this kind of data, so obviously I think this is a particularly effective approach.)

3) Ask your supplier contact

Simple enough, but most people overlook this approach. Ask your supplier contact if he or she is worried. Chances are good that your contact will put a positive spin on trouble at the supplier — but you never know what you might learn until you ask.

Figuring out if your suppliers are about to fold is really important… Gives you a bit of time to come up with a back-up plan, and minimize the disruption to your business. Have other ideas on how to figure out if your suppliers are about to fold? I’d love to read about your ideas here — and of course via email (josh@panjiva.com).

Just want to take a moment to welcome those of you who are new to Panjiva’s blog. Panjiva’s mission is to make it easier for companies of all sizes to do business across borders. With this in mind, we’ll be discussing issues affecting the global trade community — those of us doing business across borders. This is a HUGE topic, so we’ll cover a lot of ground. Here, though, are a few themes you can expect to see popping up on a regular basis:

• Risk

Choosing to do business across borders opens up a world of opportunity, but it also comes with quite a bit of risk. What are these risks, and how can you mitigate them? This is a favorite topic of discussion within Panjiva, and in conversations with our customers. We’ll share what we’ve learned — and are learning.

• Transparency

“Transparent” is not a word we’ve heard used to describe global trade. This is too bad, because transparency promotes cost savings and helps mitigate risk. In the course of Panjiva’s work, we seek to provide a new level of transparency to those doing business globally. On this blog, we’ll highlight other efforts to promote transparency, and point to areas where more transparency is urgently needed.

• Simplicity

Doing business across borders is an incredibly complicated activity. We’ll do our best to help you cut through the complexity — and identify ways to simplify the process of doing business across borders.

Members of the Panjiva team will be regulars, and we’ll also feature a variety of guest contributors. If you’re interested in guest-contributing — or just want to vent — e-mail blog@panjiva.com.

Thanks for joining us!

If 2007 was the Year of the Recall, 2008 was the Year of Regulation. This past year, some of the nation’s biggest industries pushed for new federal regulations to cope with consumer concerns about product safety — breaking from a tendency to block regulatory measures. They got what they wanted. This August, the U.S. enacted the Consumer Product Safety Improvement Act of 2008 (CPSIA), one of the most comprehensive overhauls of consumer-product safety regulations since the 1970s. The Act aims to provide “new safety safeguards that emphasize resources, accountability, disclosure and testing…from the factory floor to the store shelves.” What does this mean for those of us in the manufacturing world? First, it means that there are new hoops to jump through. Second, it means that it’s really important to jump through these hoops – because the CPSIA provides for increased civil and criminal penalties for those who fail to abide by the new regulations.

Clearly, familiarizing yourself with the CPSIA and its implications is essential. Some suggestions on how to go about this:

• * Sandler Travis, one of the leading law firms focused on trade, provides a very nice overview of the new requirements. Visit their site, and click on the link entitled “New Mandatory CPSC Import Documentation Requirements Effective November 12.” At the bottom of the summary, you’ll also find the names of a few different lawyers you can call to get more info.
• * The big inspection agencies are very focused on the CPSIA and can provide a lot of helpful information. SGS has a bunch of web-based seminars; check out the schedule here. You’ll see that there’s a seminar on toy safety tomorrow (Wednesday, 10/29) at 1 pm Eastern.
• * And, if you’re feeling really ambitious, you can read the entire CPSIA. (Have fun.)

What’s Panjiva’s take on efforts to improve the safety of consumer products through regulation? Some thoughts:

First, there’s no doubt that more needs to be done to improve the safety of consumer products. Last year, we advised President Bush’s Working Group on Import Safety that much more could be done with existing resources. Specifically, the government could be using data it’s already collecting to more effectively focus inspection resources on goods that are potentially unsafe.

But there’s more to the story than just using data to effectively allocate scarce government inspection resources – undoubtedly, new regulations were needed to protect American consumers and the businesses that will fail in the absence of consumer confidence in product safety. The CPSIA would seem to be a step in the right direction then. Nevertheless, there are some in the business community who worry the CPSIA will simply create another set of bureaucratic hurdles that increase the cost of doing business, without actually helping consumers and the businesses that sell to them.

So will the CPSIA succeed in protecting consumers or simply create more bureaucracy? At this point, it’s hard to know – because much depends on implementation. Our take is that the CPSIA will succeed if those implementing it put particular emphasis on two concepts: harmonization and transparency. More on this in future posts.

Given the amount of attention being devoted to environmental issues nowadays, green sourcing has become an invariable topic of interest in the apparel world. Panjiva CEO, Josh Green, shared some of his thoughts in a recent article on Forbes.com. 

“In a good economy, overhead associated with sustainability and ethics isn’t such a big problem because you can charge a price premium. But when the economy gets tough, that desire to feel like you made a difference by making a purchase is one of the first things sacrificed by consumers.”   

So how do companies find solutions to staying green despite rising costs? Read more…