The Kimchi Matters in the News

The Kimchi Matters, a New Book on Emerging Markets Investing

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GREG CLARKIN, CNNfn ANCHOR, CNN MONEY MORNING: What's the key to doing globalization right? My next guest has some ideas. I'm joins now by Marvin Zonis. He's a political economist at the University of Chicago and the author of "The Kimchi Matters."

Marvin, good morning.

MARVIN ZONIS, POLITICAL ECONOMIST, UNIVERSITY OF CHICAGO: Good morning, Greg.

CLARKIN: Welcome.

ZONIS: Thank you.

CLARKIN: Let's get right to it. I mean, what really is the key for corporate America to do globalization right?

ZONIS: The key to doing globalization right is to realize that while the world is open to American business by and large, the secret to success of global business is pay attention to local politics and understand the local realities in which you're going to do business.

CLARKIN: Now how do you go about doing that? I mean, how much lead time is necessary for a company to kind of get a feel for what's happening?

ZONIS: Well, we have 15 rules in this book; 15 principles for how companies should pay attention to local politics, how they can analyze them and make predictions on political stability or economic development in those countries.

CLARKIN: When you see a situation like we see in Iraq today, is it still way too early for corporations to start thinking, outside of the ones rebuilding or hoping to rebuilding, is it still to early for corporations to start thinking about potential there?

ZONIS: I think it's certainly still too early for corporations to worry about the prospects for Iraq. And, by the way, I think Iraq is a brilliant example of what we try to set out in this book, which is, if we had paid as a country more attention to the local realities of Iraq, we wouldn't have invaded in the way we did.

CLARKIN: What about China?

ZONIS: China's a very important case for this because certainly for the foreseeable future, China's economy is going to grow robustly. Its political stability is going to be there. And, therefore, Americans companies can feel pretty safe about staying. But when you look at the underlying principle of China, our own view is, it was very difficult to see them getting through several years from now without a major blowup.

CLARKIN: So a major upheaval is what you're saying?

ZONIS: Well, I would say certainly major political instability. The party may survive, the country may remain under the present system but there's going to be massive changes in currency values and instability, a la 1989 and Tiananmen Square.

CLARKIN: Does that potentially jeopardize some of the inroads made by some of the corporations there? I know GE ( http://www.ge.com) has big presence, Microsoft ( http://www.microsoft.com) General Electric, and the like.

ZONIS: Well, there are two major kinds of entries into China. One is those companies which are entering China in order to produce and use it as an export base to ship abroad. And the other kinds of companies are there to commit to the domestic market in China, which is growing rapidly. I think the export base production in China is pretty secure. Those who are hoping to prosper off selling to the local market are going to have more trouble down the road.

CLARKIN: And, let's face it, as you mentioned, I mean developing nations are unstable to the very definition to some degree. All the research you can do, can it prepare you for something that is likely to happen there?

ZONIS: Well, I think what you can do is, you can try to get the risk-reward ratio right. So if you know you're entering a place with a very high risk, you better be sure that there's a reasonable chance of a very high return on your investment in order for you to incur the risk. So that's the point, Greg. It's not that you shouldn't enter these countries, but you better understand what you're getting yourself into, so the prospects for reward are going to be all that much higher.

CLARKIN: Who does it well?

ZONIS: Well, I think you mentioned General Electric. They do it extraordinarily well. Interestingly enough, Microsoft, which did it very bad at the beginning, has been learning in a much more sophisticated way.

CLARKIN: How did they do it bad at the beginning? Just through arrogance or . . .

ZONIS: Well, I would say arrogance. But the central story in our book, "The Kimchi Matters," is the story of Microsoft's entry into Korea, which in 1998 bought the largest Korean word processing program and incurred a tremendous local political rebellion against Microsoft because Microsoft decided to get rid of the local language in their word processing program and replace it with Microsoft Word.

And Koreans got so angry because of the nationalist association between their word processing and Word language and nationalism in Korea that they stopped buying Microsoft and Microsoft ended up selling the company back to the Koreans.

CLARKIN: So a good example of how not to do it, I guess.

ZONIS: How not to do it then but they've learned a lot since.

CLARKIN: OK. Is resentment always part and parcel of an entry into a developing country?

ZONIS: That's a very important issue. And one of the things we urge trying to investigate is, what is the degree of local resentment against foreign businesses, and particularly against American business. Because as we know, American businesses really bear the brunt for American foreign policy.

So if countries are opposed to the United States and its policies, it's going to be American businesses who are on the front line. And so that's a very important thing to try to think through.

CLARKIN: And local political dynamics, obviously, in these places are very fluid. I mean, again, you can make inroads, I guess, with whoever in power at the time, and see that all kind of go away.

ZONIS: See, that's a marvelously important issue because we decide that people who are dictators and run countries have a lot of control tend to produce stable countries. And what we see, for example, a specific story, Freeport-McMoRan ( http://www.fcx.com) of New Orleans, had a massive contracts with the former dictator of Indonesia, General Suharto, and ran the world's, what, second largest copper mine, the world's largest gold mine out there in Herionjia (ph), hours east of Jakarta.

And, of course, when Suharto fell, everybody said, wait a minute, all this money is going to Jakarta, what about us local guys. We're not getting anything. And Freeport was under attack by the local people.

CLARKIN: What about -- we talked about Iraq. We touched on China. You mentioned some other Asian locals. What other countries should Americans kind of keep an eye on as opportunities?

ZONIS: Well, there's no question that as countries adopt market reforms and move in the right direction, the prospects for American companies are all that great. Keen on countries, for example, like Brazil where President Lula has demonstrated a commitment to market economics, surprising us all. Mexico is a winner, obviously, here in the Western Hemisphere.

And then when we turn the new countries that are joining the European Union, particularly Hungry, Czech Republic, and Poland and the countries in the Baltics, very impressive. All the way then, I would go to Asia. We talk about India. We know about China. And, by the way, Vietnam is going to be an interesting success story.

CLARKIN: Really? We'll watch that one.

Well, Marvin, thanks so much for joining us.

ZONIS: Thanks, Greg. Thank you.

CLARKIN: Marvin Zonis, author of "The Kimchi Matters."

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