Eric Kingsbury Business, Innovation, Marketing, Strategy and More.

The Chinese government announced over the weekend that it will take steps to make its currency exchange rates more flexible. For the past two years, the yuan, or renminbi, has been pegged to the dollar at a fixed exchange rate. The move toward a more flexible currency regime will be gradual, as Chinese officials cautioned, but the change was welcomed by foreign leaders and the financial community.

You can read Andrew Batson’s report from the Wall Street Journal here.

The Chinese announcement comes prior to the June 26-27 meeting of G20 leaders in Toronto, where the unbalanced state of the global economy will likely dominate the agenda. Many perceive Beijing’s move as both a contribution to the global recovery and a recognition that China shares (and should exercise) increasing responsibility for the global economy.

Specifically, the unpegging of the renminbi is expected to achieve several economic objectives. First of all, there will be some rebalancing of current accounts between China and its key trading partners, an outcome that will certainly build international goodwill (and, no doubt, some political capital). Secondly, the move is expected to increase the spending power of Chinese consumers, an outcome expected to ease some of the recent labor tensions in China. As many news outlets have reported, China has witnessed a wave of strikes in the past few months, as workers demand significant increases in pay.

So the news sounds great, but how will it all shake out?

The renminbi is unlikely to float free any time soon, and observers caution against expecting a sudden revaluation of the currency. It might be possible that some form of currency band strategy might be employed, or an adjusted peg of some sort. We simply won’t know until the Chinese plan emerges.

I have scratched my head for years at the insistence of US business leaders that deep engagement with China is the key to opening the next great consumer market for American products. It was a dream that didn’t unfold the way many in the US had hoped. China became a source of cheap labor, and a consumer market for its nascent domestic businesses, but the mass market for foreign consumer products didn’t quite materialize.

China’s currency regime supported an export-centric model that brought wealth, knowledge and technology into China, but kept its consumers under wraps. The news of the currency unpegging, coupled with the increasing empowerment of Chinese citizens, might be a sign that China is finally changing. Perhaps soon, US and other western companies might get a shot at the more than 1 billion Chinese consumers they have always dreamed of. If I were a US brand with unfulfilled Chinese market aspirations, I’d be paying close attention to developments in China over the next 12 months. This could be the moment.

But again, we’ll just have to see how it shakes out.

I love the image above because it says so much about global brands and the global political economy. The implication is clear — Coca-Cola is a global brand that has penetrated every national market in the world, except, well, a few problematic ones. The image and its meaning suggest to us, first of all, the overwhelming power of the quintessential American consumer brand. The implication is somewhat glossy, if you think about it — a world of carbonated bounty, equal in refreshment, equal in opportunity. In Coke, we somehow commune, we somehow get along, we somehow share the same values. Ignoring for the moment the fact that having a Coke and a smile in Malibu is nothing like having same in Monrovia.

More importantly, the image above isolates a few distinct global problem children, standing out in the sea of red, almost like those disaffected kids in school who, some for class reasons, others out of stubbornness, never seemed able to bow at the altar of the majority. Well, we know what’s up with the global outcasts — Cuba, Sudan, Iran, Burma, North Korea. Failed or totalitarian states. Bush’s “Axis of Evil.” Insofar as Coke represents the American way of life, and more specifically American global capitalism, the product is likely to be resisted by those who resist America.

I see all these things in this image, and note as well how the map looks like a military segregation of territory won from territory yet to conquer, but I see also issues of economic development, brand equity, and ultimately global trade. It may seem tangential, but the map above makes me think of the English economist David Ricardo and his theory of comparative advantage.

Simplistically, the theory of comparative advantage says that in trade between countries, all parties are better served by specializing in producing what they are best at producing and trading with other countries for everything else. Those other countries, of course, will follow the same tact and all will prosper. Even if a country is more efficient at several things than another, it should still specialize and trade; the assumption being that it will become even more efficient at its specialty, as will all nations. Everyone wins.

It sounds fairly logical, but the application of comparative advantage has had mixed results in the real world. On one hand, the Scandinavian countries have had tremendous economic success by focusing on a few key industries, such as communications technology (Nokia), and trading for most everything else. On the other hand, many developing countries have been encouraged to pursue a specialization in one or another agricultural industries, with disastrous results. As one example, Guatemalan farmers historically grew a wide variety of crops for domestic trade, but liberal economic policy by the 1980s had converted most of the land to coffee-growing for export. When the global coffee market eventually collapsed, disaster ensued.

So the theory of comparative advantage works for technology, but not for agriculture? Perhaps so. It occurred to me, however, that perhaps it works best with branded products, not commodities and/or raw materials. If you think of the world of brands, each reasonably successful country has a few — Germany its car marques, France its wines, Japan its cars and electronics, Korea its electronics. If you own the brand, inevitably, you own more of the value, and thus you are better off economically. It’s even safe to say that the closer you are to the consumer in the value chain, the better off you are. Thus, a manufacturing company such as China is better off than countries who mine or farm commodities that are processed, assembled and brought to market elsewhere.

Alas, if you are growing coffee or cacao or tea, you’re working way too early in the value chain to profit from the benefits of comparative advantage. If possible, it would be better to move up the value chain or diversify to the point, if infrastructure and capital allow, that you can develop a global brand or two. In a way, as Ricardo promised, everyone might benefit from economic development of this nature in developing countries, because retaining more value in a developing country could very well lead to the development of a domestic consumer market for the global brands of other nations. The challenge for developing countries, of course, is making such an economic shift possible.

And as for the developed but Coke-less countries of the world, like Iran — perhaps a day will come when the oil runs out and they too will need the comparative advantage of a global brand. It will be interesting to see what happens then.