On The Subject of Historical Trade Treaties

Today is the 200th anniversary of the Anglo-Dutch Treaty of 1814!

This historic treaty, also known as the Convention of London, was signed between Great Britain and the Netherlands 200 years ago today and it returned to the Dutch the colonial possessions that they controlled in the Americas, Africa, and Asia (with the exceptions of the Cape of Good Hope and British Guiana, where they still retained trading rights) before the outbreak of the Napoleonic Wars.

During the Napoleonic Wars, which pitted France against a series of coalition forces, France, under the leadership of Napoleon, conquered a significant amount of mainland Western Europe. By 1811, after the defeat of three consecutive coalition forces (in the Wars of the Third, Fourth, and Fifth Coalitions), the French Empire occupied much of what is modern France, Beligum, and the Netherlands and controlled, or occupied, satellite states that included large territories that are now part of Germany, Italy, Poland, Spain, and Portugal. (Check out this Wikipedia Map to see how far Napoleon’s armies were able to advance in a mere eight years.) As Napoleon conquered states and countries, he also took control of their territories and colonial possessions around the globe. The third coalition saw France defeat aligned British, Russian, Austrian, and Swedish forces and the withdraw of Austria from the coalition. The fourth coalition saw France defeat aligned British, Prussian, Russian, Saxon, and Swedish forces and the withdrawal of Saxony. The fifth coalition saw France defeat aligned British and Austrian forces. And then, in 1810, Napoleon married Marie Louise, an Austrian Archduchess, and formed a stable alliance with Austria. At this point, in addition to the French Empire, France controlled the Swiss Confederation, the confederation of the Rhine, the Duchy of Warsaw, and the Kingdom of Italy and its allies included the Kingdom of Spain (ruled by Joseph Bonaparte, Napoleon’s brother), the Kindgom of Westphalia (ruled by Jerome Bonaparte, Napoleon’s brother), the Kingdom of Naples (ruled by Joachim Murat, Napoleon’s brother in law), the Principality of Lucca and Piombino (under Elisa Bonaparte, Napoleon’s sister), Prussia and Austria.

At this point France effectively controlled most of mainland Europe, a number of it’s colonies (including those that Britain restored to the Dutch under the treaty of 1814), and the majority of trade in and out of mainland Europe, which it regulated under the Berlin Decree of 1806 that ushered in the Continental System. Under this decree, the importation of British goods into European countries allied with or dependent upon France was forbidden and required all connections with Britain to be cut, including mail! In addition, the French Empire, under the leadership of Napoleon, threatened Russia with invasion if they did not comply.

This was an early example of large-scale economic warfare, undertaken because France didn’t have the resources to invade the United Kingdom or to take on the Royal Navy at sea. Since Great Britain was emerging as Europe’s manufacturing and industrial center, Napoleon believed the trade embargo would result in inflation and great debt in the UK.

However, even though Britain took a hit to its trade, especially in 1808 and 1811, the effects of the embargo were mitigated by Britain’s control of the oceans, as Britain could pretty much sail where it wanted and trade with who it wanted. Moreover, the embargo ended up hurting France more in the end than it hurt Britain. It hit the economies of France’s allies hard and these allies were eventually forced to ignore the Continental System. This ended up weakening France’s coalition, as the French and Dutch economies were hit hard, Portugal and Sweden refused to comply with the demands, and Russia, chafed under the embargo, eventually re-opened trade with Britain in 1810. (Then Napoleon kept his word, invaded Russia, and this was the undoing of Napoleon and the last great French empire.)

So what’s the lesson here?

Russian (Border) Trade Agreements Are Nothing New

So why is everyone fretting about the $20 Billion Oil Deal between Iran and Russia? Yes, it delivers another blow to the US-based petro-dollar, but is it really any worse than China and it’s efforts to not only reign in the value of the western dollar but control the valuation of its yen at the same time? We should not forget that the GDP of China is more than FOUR times that of Russia and that Russia and Iran used to be neighbours. Even though Russia is now two countries away from Iran border-wise — as it now borders Kazakhstan which borders Turkmenistan which borders Iran — it wasn’t always this way. The Russian Empire began to expand into what is present day Kazakhstan back in 1813 and essentially all of present day Kazakhstan was annexed by 1907. Similarly, Turkmenistan was annexed by the Russian Empire in 1881 and became a constituent republic of the Soviet Union in 1924, only regaining its independence upon the dissolution of the Soviet Union in 1991.

And Russia has a long history of either conquering, annexing, trading, or negotiating with its neighbours. For example, 691 years ago today, the Treaty of Noteborg was signed between Sweden and Novgorod (present day Russia, more or less), and for the first time the border between the two countries was regulated. The conclusion of the Swedish-Novgorodian Wars, the treaty awarded three Karelian parishes to Sweden who, in return, would stay out of the conflict between Novgorod and Narva (present day Estonia, more or less). In addition, both sides would refrain from building castles on the new border. So it should be no surprise that, given the opportunity to reclaim Crimea — and to do so relatively peacefully — that Russia took it or that they took the opportunity to trade with Iran on local terms.

But it’s not worth fretting about. One has to look at the bigger picture. When it comes to the BRIC, Russia is essentially the weakest player. India has considerably more population and a long-term outlook of becoming a top 5 GDP player. Brazil has a larger GDP (by as much as 20%) and very bright prospects as the new near-shoring destination for North America. And China has 4 times the GDP, 9 times the population, and a heck of a lot more clout when it comes to global trade!

So don’t fret about a 20 Billion Oil deal, the return of what is essentially a small province to Russia, or the fact that Russia has agreed to pay China in domestic currency. It’s a drop in the bucket. The real shocks to global trade will come from China and the new Silk Road they are building.

Don’t get caught up in the meaningless media frenzy focused on Russia. Just because the media has forgotten that the cold war is over doesn’t mean we should.

Have You Mastered the 4th T of Tracery?

Regular readers will know that the time of PPT — People, Process, Technology — has long passed. In today’s fast paced world where product life-cycles are sometimes over as soon as they hit the market, and where your competitors are constantly striving to outpace you in both sales and supply management, you can’t live on processes anymore — they go stale almost as soon as you’ve got them figured out. And in a knowledge economy, just having a butt in a seat or a worker at an assembly line isn’t enough to succeed — you need a worker who, at the very least, is smarter than the average worker and, preferably, smarter than the worker employed by your competitor. And your technology cannot get out of date.

That’s why SI has been promoting the 3 T’s for years — Technology, Talent, and Transition. You need a solid, regularly updated, technology foundation upon which to build your modern Supply Management Organization. You need talent to put together good operating procedures, properly use the technology, and to constantly identify new opportunities for cost reduction or value generation. And you need great transition management as even best six sigma process today won’t cut it tomorrow when you need to upgrade your product offering, switch suppliers, change distribution methods, and make sure your product is Designed for Recycling from the get-go as new regulations are forcing you to take back your product at end of life and recycle it as you are using chemicals and / or rare earth minerals that are heavily regulated.

But while these are necessary conditions for Supply Management success, they are not necessarily sufficient. While it is true you will not succeed without a mastery of technology, talent, and transition management, as per our first post on Project Assurance, organizational success also depends on selecting a superior strategy and seeing it through until the desired results are achieved (or the organization changes its strategy, which hopefully wasn’t done arbitrarily on the whim of a CXO after talking to a buddy on the golf course). However, in order to properly implement a strategy, you have to not only see it through from start to finish, but you have to make sure all of the process streams necessary for success are both completed and properly synched. Just like the key to a good weave, as one might find in Egyptian Cotton, is a skillful interleaving of the thread, the key to a good strategy, is a skillful interleaving of the process strands into an effective transition plan from where you are to where you need to be.

And this, dear readers, is Tracery — the “delicate, interlacing, work of lines as in an embroidery”, or, more modernly, “a network” — the glue that not only binds the Technology, Talent, and Transition Management that your Supply Management organization needs to succeed, but that interleaves these threads in a way that causes each of them to reinforce each other and make a stronger whole.

Only 5 More Years …

Until the 500th anniversary of the sail date of the first Voyage of Circumnavigation!  Four Hundred and Ninety Five Years ago today, five ships (the Trinidad, San Antonio, Concepcion, Santiago, and Victoria) under the command of Ferdinand Magellan left Seville, Spain, in an expedition that, even after the death of Magellan in the Philippines on 27 April 1521, would be the first to circumnavigate the globe under the command of Juan Sebastian Elcano (who was Magellan’s second in command) when the Victoria returned to Spain on 6 September 1522.  This voyage took the fleet to the Canary Islands, the Cape Verde Islands, Santa Lucia Bay, Rio de Solis, Cabo Virgenes, around the tip of South America, to the Sharks’ Islands, San Pablo Island, the Ladrones Islands, Palawan, Brunei, Tidore, Ambon Iasland, Timor, The Cape of Good Hope, and then back to Spain.

Considering that there is no record of anyone completing the feat prior to this voyage, that the voyage was finished in 3 years in a time when you were sailing by sail alone, and that, even today, circumnavigation efforts take amateur sailors a year and half, this was no small feat*.  (For example, Laura Dekker, whose voyage was interrupted at several points, took 518 days to circumnavigate the globe in her 38 foot yacht.)

It was a historic day as Magellan, and Elcano, discovered new trade routes that would be utilized for centuries to come!

* Although it would have been faster had Magellan not tried to convert the Lapu-Lapu of the Philippines to Christianity, which not only cost the voyage time, but Magellan his life.