Simon Evenett on the Impact of Public Policy on Business

The following article is sponsored by the University of St. Gallen, a leading European business school based in Eastern Switzerland. Check out their international MBA program

Simon Evenett (UK) is the academic director of the St. Gallen MBA and professor of International Trade and Economic Development. His research – which is taught at business schools worldwide –  focuses on the factors determining the intensity of competition in emerging markets, on the effects of competition law and policy on firms behaviour, and on the analysis of existing and proposed agreements at the World Trade Organisation. In this interview,  he discusses why MBAs need to have an understanding of public policy and international trade.

1. Why is it important for global managers to have an understanding of international trade?

A 21st century manager who knows nothing about trade is a liability to their shareholders, employees, and customers. Not every market faces competition from imports, but many more face rivalry from foreign subsidiaries. You can't know your competition without contemplating foreign entry.

2. How can an MBA help a global manager develop a better understanding of international trade?

Managers can grasp the essence of what drives international competition by reading a decent textbook on international economics or business. There are no hidden secrets here. For the past 200 years analysts have developed the principles that govern international commerce. Here are some examples of recent textbooks:

•    David A. Moss. Macroeconomics: A Concise Guide for Managers. Harvard Business School Press. 2007.
•    August Swanenberg. Macroeconomics Demystified. McGraw Hill. 2005.
•    Pankaj Ghemawat. Managing Differences. Harvard Business Review. 2010.

3. What are some recent economic developments that MBAs should be aware of?

MBAs should be aware of the unbundling of value chains, the rise and vulnerability of cross-border outsourcing, and the changing demand and supply conditions in emerging markets. Ultimately, MBAs must learn the ways in which overseas operations support long term profitability.

4. Why is it important for MBAs to have an understanding of business law and policy?

Most managers want to compete the 'honest' way: cutting costs, designing better products, and meeting customer needs. Often that's how they see it. Governments can side with some firms and those firms fight to keep states on their side. MBAs need to know about law and policy at least for defensive reasons. There is no guarantee that a rival won't try to get the state to tilt the playing field.

5. How can an understanding of international trade help MBAs advance their management careers?

Managers must choose between investment locations. Understanding the factors that alter the profitability of trade is useful here. Burundi has far lower wages than China but gets much less foreign investment. Why? Productivity levels are much lower in Burundi and must be taken into account. A second example: how long will China remain a preferred outsourcing destination given the fast growth of wages in the coastal provinces? Again, understanding the trade off between proximity to customers and production costs is key.

6. What can MBA students learn from the current economic crisis in the Eurozone?

The Eurozone crisis shows that a benign macro environment cannot be taken for granted. Every MBA needs to take a macroeconomics course.

7. Is there anything you would like to add?

There is a common thread to all of these questions that I hope you bring out in your article. Whether its trade, law, or the Eurozone crisis, the impact of public policy on business is back with a vengeance. MBAs may hate politicians, but only a dumb MBA ignores the effects of policies on business.

This article is sponsored by the University of St. Gallen, a leading European business school based in Eastern Switzerland.