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June 30, 2005
Latin American Companies Set to Launch a "Rash of Takeovers" in the U.S.
Chinese acquirers in the United States may be getting all the press currently, but Latin American companies are also actively shopping for deals here. Hispanic Business reports that these companies are naturally looking for a bigger platform with which to capitalize on the burgeoning U.S. Hispanic market.
One investment banker quoted in the article expects a ‘rash of takeovers in the $300 to $400 million range’ in industries like banking, media, and food.
Double Digit Increases for Hispanic Ad Expenditures in 2005
TNS Media Intelligence estimates that ad spending in Hispanic TV, consumer magazines, and newspapers will grow by 10.5% this year. Among all media categories, only cable network ad revenue will grow faster (11.6%), according to TNS. Hispanic ad spending this year will even outpace Internet advertising (up 7.6%).
For reference, overall advertising expenditures are expected to rise 3.4%.
Posted by John at 5:12 AM | Comments (0) | TrackBackQuote of the Day for Thursday, June 30, 2005
Today's quote is from Polish poet Czeslaw Milosz, born on this date in 1911: "To undertake a project, as the word's derivation indicates, means to cast an idea out ahead of oneself so that it gains autonomy and is fulfilled not only by the efforts of its originator but, indeed, independently of him as well."
June 29, 2005
The Citigroup/Legg Mason Swap: More "Independence" in Brokerage and Wealth Management?
As widely reported in the press, Citigroup and Legg Mason have agreed to swap their brokerage and asset management businesses in a $3.7 billion deal. Citigroup assumes all of Legg Mason’s brokerage business, while Citigroup transfers their asset management business to Legg Mason.
The Baltimore Sun recently observed that while the deal was primarily financial, regulatory concerns were also a consideration:
. . . By swapping their brokerage and money management units, Legg and Citigroup will be more able to avoid the sorts of real and perceived conflicts of interest that have tarnished the financial industry's image. Though Legg has had few regulatory scrapes, both companies are among dozens that have been caught up in the sweeping investigation, which has resulted in new regulations and tens of millions of dollars in fines since 2003. . . .
"This might be the real point of departure for the industry and the sunset, if you will, for proprietary products being sold to a captive audience," said Burton Greenwald, founder of B.J. Greenwald Associates, a mutual fund industry consulting firm in Philadelphia.
The deal announced yesterday will transfer Legg's 1,540 brokers to Citigroup, transforming Legg into a pure money manager with no in-house brokers to sell its funds. Citigroup will turn its $437 billion money management group over to Legg, getting the banking conglomerate out of the mutual fund business. . . .
"I think avoiding conflicts of interest has become an increasing theme among the very largest firms," said Frederick C. Lane, chairman and chief executive officer of Lane, Berry & Co., an industry advisory firm in Boston.
Lane said separating brokers from asset managers makes sense from a marketing standpoint. It's tough for brokers to keep customers unless they sell them the best-managed funds, and that means sometimes recommending funds managed by their employers' competitors.
Greenwald, the industry consultant, said more insurance and banking institutions will get out of the asset management business to avoid inherent conflicts of interest challenged by Spitzer and the SEC.
Some press reports are heralding this deal as the end of the “financial supermarket.” Such is hardly the case. It’s about like the supermarket cutting the meat department. Sure, it’s a sizeable cut, but a big part of the store is still left intact.
For example, one notable, inherent conflict this deal doesn’t resolve for Smith Barney and Citigroup: the conflict which often exists between brokerage clients and the investment banking department.
In fact, when it comes to scandal, Citigroup and Smith Barney are much more associated to the investment banking conflict than problems related to mutual funds.
Clients, particularly those that are wealthier and more sophisticated, have gotten an intense education on conflicts from the scandals and prosecutions of the past few years. They’re smarter—-and more cynical—-than to believe that deals like this one remove enough conflicts to make a difference to them.
By the way, this deal will inevitably cause turmoil among the ranks of brokers at both Smith Barney and Legg Mason. Some major office consolidation is inevitable in those cities where substantial overlap exists, and I suspect a number of Legg Mason financial consultants have no interest in carrying a Smith Barney business card.
Posted by John at 5:55 PM | Comments (0) | TrackBackDampers for China's Oil Demand: Rising Income and Companies Like GE
China’s unquenchable demand for oil will keep energy prices high indefinitely, or so the popular thinking goes.
In a very interesting commentary, UC San Diego economics professor James D. Hamilton (whose specialty is oil shocks and their economic impact) writes that such an outcome is unlikely, based on past history.
Hamilton compared GDP per capita in 1960 with the rate of petroleum demand for the following four decades. He finds that the richer a country was in 1960, the lower its increase in oil consumption. The richest country in 1960 as measured by GDP per capita, the United States, has one of the slowest growth rates in petroleum use.
Moreover, as he looks at individual countries like France, Germany, and Japan over that time frame, it’s very clear that those countries experienced falling rates of petroleum demand as GDP per capita grew. Hamilton presents a graph of these three countries smoothed for cyclical factors:
Based on this analysis, the rate of growth in China’s demand for oil is likely to decline over time. Anecdotally, we see such evidence of the behavior of individual Chinese firms, whose costs are being driven higher by fuel prices, seeking more efficient, petroleum-saving ways to manufacture their products.
One other dampening effect for the rise in petroleum demand over the coming years comes from companies like GE Power. GE is staking a major part of its future growth rate on developing ways for its customers to save energy (and reduce emissions). GE CEO Jeffrey Immelt has an editorial in today’s Financial Times ($) on just this subject, in which he remarks:
. . . Since the 1990s, innovations in dramatically cleaner energy have emerged, not just in the US and Europe but in China, India and elsewhere. Their common denominator has been a target of higher efficiency, lower cost and fewer emissions - such as that found in cleaner coal applications that could shave millions of tonnes of carbon dioxide from emissions levels. . .
General Electric is putting its money where its mouth is. We have committed to doubling annual investment in clean energy technology research and development to Euros 1.25bn. Instead of a top-down approach that could potentially stifle creativity and innovation, we are investing most new funding at the research level, making sure that these new funds go directly into those innovation engines that offer the most promise. We also plan to double energy-efficient product revenues over the next five years and will make big cuts in our greenhouse gas emissions. If GE were to continue to grow as we project, by 2012 our emissions would have gone up more than 40 per cent. Instead, we are committing to reduce them by 1 per cent. . . .
Around the world, billions of both public and private research dollars are aimed at not only reducing energy consumption but developing “greener” sources of energy. As these efforts bear fruit and make their way to the market, the rate of growth in petroleum consumption face further headwinds.
By the way, I find Hamilton’s economic commentary very interesting, by the way, and his blog is a favorite of mine.
U.S. "Tribute" from China: Low Interest Loans and Underpriced Exports
Approximately three-fourths of the U.S. budget deficit is being funded by foreign investors, mostly Asian central banks. In a piece of commentary worth your close attention, Niall Ferguson, a senior fellow at the Hoover Institution and the author of Colossus: The Price of American’s Empire, explains why China’s central bank specifically is willing to be a U.S. creditor:
. . . Why are the Chinese monetary authorities so willing to underwrite American profligacy? Not out of altruism. The principal reason is that if they don’t keep on buying dollars and dollar-based securities as fast as the Federal Reserve and the U.S. Treasury can print them, the dollar could slide substantially against the Chinese renminbi, much as it has declined against the euro over the past three years. Knowing the importance of the U.S. market to their export industries, the Chinese authorities dread such a dollar slide. The effect would be to raise the price, and hence reduce the appeal, of Chinese goods to American consumers. . . A fall in exports would almost certainly translate into job losses in China at a time when millions of migrants from the countryside are pouring into the country’s manufacturing sector.
So when Treasury Secretary John Snow insists that the United States has a "strong dollar" policy, what he really means is that the People’s Republic of China has a "weak renminbi" policy. Sure, this is bad news if you happen to be an American toy manufacturer. But there are three good reasons that the administration is tacitly delighted by the Asian central banks’ support. (1) It is keeping the lid on the price of American imports from Asia (a potential source of inflationary pressure). (2) It is also propping up the price of U.S. Treasury bonds, which in turn depresses the yield on those bonds, allowing the federal government to borrow at historically very low rates of interest. (3) Low long-term interest rates keep the Bush recovery jogging along. . .
Ferguson argues that today’s Sino-American relationship has an "imperial character," as the U.S. collects "tribute" in the form of "underpriced exports and low-interest, high-risk loans."
Posted by John at 5:45 AM | Comments (0) | TrackBackHispanic Television Stations Consistently Beating the Industry
According to media advisory firm BIA Financial Network, local television stations affiliated with Hispanic networks have consistently outperformed the industry over the last five years.
Their local audience share and advertising revenues are outpacing the growth of the entire local television market by 2 to 4 percent.
The graph below, courtesy of BIA Financial, reveals that local Hispanic stations have outperformed the overall industry—sometimes by very wide margins—for five years running.
You can read more by going to BIA's archived press releases and following the appropriate link.
Posted by John at 5:03 AM | Comments (0) | TrackBackQuote of the Day for Wednesday, June 29, 2005
Today's quote is from Antoine de Saint-Exupéry, born on this date in 1900: "A rock pile ceases to be a rock pile the moment a single man contemplates it, bearing within him the image of a cathedral."
June 28, 2005
Hispanic Formats the “Only Positive” in Broadcasting
Hispanic radio and TV are the "only positive" reported by Bank of America Securities analyst Jonathan Jacoby in his latest "Broadcast Beat" report, according to Inside Radio.
Otherwise, says Jacoby, "radio and TV are looking lackluster."
Posted by John at 5:25 AM | Comments (0) | TrackBackCAFTA Countries: A Major U.S. Export Market
The National Association of Manufacturers points out (pdf) that the six CAFTA countries, taken together, represent the tenth largest U.S. export market. These countries imported almost $16 billion of U.S. goods last year, making this market more important than Australia ($14.2 billion, and with whom the U.S. has a free trade agreement) and Brazil ($13.9 million).
Posted by John at 5:11 AM | Comments (1) | TrackBackQuote of the Day for Tuesday, June 28, 2005
Today's quote is from Gilda Radner, born on this date in 1946: "I wanted a perfect ending. Now I've learned, the hard way, that some poems don't rhyme, and some stories don't have a clear beginning, middle, and end. Life is about not knowing, having to change, taking the moment and making the best of it, without knowing what's going to happen next."
Posted by John at 12:02 AM | Comments (0) | TrackBackJune 27, 2005
Impending Oil Glut?
A new report by Cambridge Energy Research Associates finds that an oil supply glut is likely to occur later this decade. Supply could exceed demand by as much as 6 to 7.5 million barrels per day, based on a field by field analysis by CERA.
Their research indicates that roughly 20-30 new major projects (defined as production capacity of greater than 75,000 barrels per day) will be coming onstream every year between now and 2010. These projects will add three to four million barrels per day of capcity annually.
Consequently, says CERA:
The balance of supply over demand has the potential to expand significantly over the next five years, and this could drive oil prices to the downside. If demand growth averages a relatively strong 2.2% through 2010, prices could weaken from recent record highs and slip well below $40/bbl as 2007-08 nears. If demand growth were notably weaker, a steeper price fall would be conceivable; however such a fall would likely slow capacity expansion and bring a market rebalance within two to three years.
The major risk to their analysis, they acknowledge, are political or operating factors which delay this capacity expansion.
Posted by John at 5:56 AM | Comments (0) | TrackBackCement Silliness
The Austin Business Journal reports that the possible effect of the cement shortage on building activity both in the Austin area and in Texas, may lead to "major economic disruptions." Texas is one of ten states which have experienced "cement rationing, construction delays, and possible layoffs."
Just a reminder: the U.S. still maintains "anti-dumping" duties on Mexican cement, originally imposed by the Bush "41" administration in 1990. Moreover, these duties were not lifted even during the crush of rebuilding activity which occurred after the Florida hurricanes last year.
According to the Portland Cement Association, an industry trade group, 81% of the cement capacity in the United States is owned by foreign companies. The largest cement producer in this country is Lafarge North America, a subsidiary of the French company Lafarge SA.
If anyone can make any sense of this, please let me know.
Posted by John at 4:57 AM | Comments (0) | TrackBackQuote of the Day for Monday, June 27, 2005
Today's quote is from H. Ross Perot, born on this date in 1930: "Business is not just doing deals; business is having great products, doing great engineering, and providing tremendous service to customers. Finally, business is a cobweb of human relationships."
June 26, 2005
Chinese Consumer Aspirations: Suspicious or Peace-Enhancing?
LiAnne Yu of marketing and design research firm Cheskin comments on the Time magazine’s recent "China issue":
Articles focus on questions like "What does China want?" as though the country were a petulant child or indecipherable woman. Why are the consumer longings of the Chinese always cast in a suspicious tone? For some reason, the media seems to need to portray Chinese consumerism as a political practice with the goal of toppling the U.S. That's not only inaccurate, it's inflamatory and completely undervalues the immense opportunity that China represents to the U.S.
Let’s face it: "inflammatory" sells magazines better than "informing" does.
Moreover, Chinese consumers aren’t the only group whose aspirations are minimized or distrusted by some quarters in the United States; it’s true for Indians and Nicargaguans, too. Just wait until you read what’s written about the Vietnamese when the the debate over allowing Vietnam into the WTO heats up.
Working to increase the prosperity of the consumer class around the world is wonderfully beneficial for U.S. prosperity and peace. Protectionism and isolation is both impossible and potentially disastrous.
Ms. Yu goes to make an important point:
We have the opportunity to do more than just localize products and brands for China. We have the chance to innovate for a market that is growing at an unprecedented rate and increasingly demanding that the things that they buy satisfy emotional, intellectual, and social needs. We can choose to fear China or benefit from it. At Cheskin, we've already made our decision.
Unfortunately, some in the press, such as the crowd at Time magazine, have made their decision too.
Posted by John at 2:20 PM | Comments (0) | TrackBackCongress Learning to Speak French
New York Times foreign affairs correspondent Thomas Friedman wonders—with good reason--if "we are all French now":
Lordy, it is fun poking fun at France. But wait. What is that noise I hear coming from the U.S. Congress? Is that members of the U.S. Congress - many of them Democrats - threatening to reject Cafta, the Central American Free Trade Agreement? Is that members of the U.S. Congress afraid to endorse a free-trade agreement, signed over a year ago, with El Salvador, Costa Rica, Guatemala, Honduras, Nicaragua and the Dominican Republic? Mon Dieu! I am afraid it is. And for many of the same reasons France has resisted more integration: a protectionist fear of competition in a world without walls.
For the record, Democrats don’t have a monopoly on mimicking French-style demagoguery on trade; some Republicans are mastering the lingo as well.
Opposition to CAFTA is rooted in zero-sum economic thinking that is at best, naïve; at worst, it’s cynical. The worldwide textile industry is much more complicated than one country wins while another loses. In the case of the U.S. and Central America, these two regions are complementary to each other to the gain of both, as Friedman effectively notes:
Cafta is critical for enabling U.S. and Central American textile firms to compete with China. U.S. firms specialize in the more sophisticated work of making dyes, designing patterns and manufacturing specialized yarns, threads and fabrics, and the Cafta countries specialize in the labor-intensive sewing. Because the Cafta countries are right next door, U.S. retailers can respond quickly to changes in the marketplace, which far-off Chinese factories cannot do as easily.
That's also why, explains Deputy Secretary of State Robert Zoellick, that a shirt that says "Made in Honduras" might contain 60 percent U.S. content, while a similar shirt that says "Made in China" most likely would have none. [Emphasis mine]
As we’ve noted in an earlier post on this trade deal, last year the United States exported $2.6 billion of textiles to the CAFTA countries, some of which is assembled and returned in the form of imports back to this country. There are real U.S. jobs behind those $2.6 billion in exports, and passage of CAFTA will help strengthen the companies creating those jobs.
June 25, 2005
Mushrooming Numbers for Latina-Owned Businesses
The Sacramento Bee reports that in 2004, about 550,000 businesses were owned by Hispanic women. Latina-owned businesses generated sales of $44.4 billion in 2004, up 62% from $27 billion in 1997.
Lumped together, Latina businesses would rank number 26 on the 2004 Fortune 500 list ($), in a virtual tie with J.P. Morgan Chase and just ahead of Time Warner and Proctor & Gamble.
Posted by John at 3:49 PM | Comments (0) | TrackBackJune 24, 2005
Chinese Domination of the U.S. Textile Market Virtually Inevitable in Four Years
Unless the United State decides to abrogate its signed commitments with the World Trade Organization and risks a worldwide trade war, China’s domination of the textile market in the U.S. is virtually inevitable after 2008.
Three trade attorneys from Washington law firm Miller & Chevalier Chartered explain why in this Forbes commentary which is worth your close attention.
The bottom line? The decision by the U.S. to invoke quotas on Chinese textile imports to prevent "market disruption" is based on a provision in the agreement covering China’s acceptance to the WTO which will expire at the end of 2008. Any U.S. effort to impose quotas on Chinese textile imports after 2008, therefore, will have no basis in any WTO agreement.
Posted by John at 6:42 AM | Comments (0) | TrackBackBenefits for Both India and Singapore in the Free Trade of Labor
Bloomberg columnist Andy Mukherjee reports that in the first nine months of 2004, India received $16 billion in “private transfers” from abroad. This amount is 24% more, Mukherjee reports, than the revenue the country received from exported software.
Such a disparity has a great deal to do with Indian professionals such as engineers, physicians, accountants working in other countries and sending cash home. The flow of such remittances from Singapore to India is about to take a jump, reports Mukherjee, thanks to an agreement reached by the two countries to recognize each other’s educational standards in medicine, architecture, and accountancy.
Singapore needs the imported expertise; it can’t internally supply its own population with enough doctors, for instance.
India certainly benefits from capital coming back to its economy. Its immeasurable yet unquestionably substantial benefit, however, is what it receives as those professionals come back home to bring the expertise and experience earned abroad to start companies, invest in their native country, and train the next generation.
Posted by John at 5:23 AM | Comments (0) | TrackBackQuote of the Day for Friday, June 24, 2005
Today's quote is from Norman Cousins, born on this date in 1915: "Death is not the greatest loss in life. The greatest loss is what dies inside us while we live."
Posted by John at 12:39 AM | Comments (0) | TrackBackJune 23, 2005
The Inexorable Rise in the Demand for Authenticity
The Christian Science Monitor examined the growing appeal of The Crooked Road, a heritage music trail which snakes its way through the southwest Virginia mountains. The appeal of this region’s music gives some economic development hope:
. . . With coal mostly gone and factories closing, local officials are hoping the old-time music that invokes so much of the hope and healing of the American experiment will help lift the local economies of Appalachia. And it just might.
Today, American and foreign tourists are turning their ears to a number of new music trails that wend through the misty mountains, where small towns like Floyd have become repositories of living history. . . .
Hardly Dollywood or the Grand Ole Opry, spots like the Hillbilly Opry, front-porch "pickin' parlors," and the Saturday morning bluegrass get-together at the Dairy Queen in Rocky Mount, Va., remain largely untouched by tourism. But now, the growth of music trails - from New Orleans to the Natchez Trace - is tapping a growing demand for "authentic" cultural experiences. Sixty thousand visitors to the Crooked Road are expected this year; in contrast, attendance at the 18th- century living-history village of Colonial Williamsburg has stayed flat for the past three years. . .
The appeal for the "authentic" in our society is very strong. It’s more than just music.
People want authenticity from their news, which helps explain the popularity of blogs. Blogs represent direct communication written by "real people," without p.r. agents or handlers inserting any gloss. Biases are meant to be plainly on display and transparent.
Incidentally, we’re not just talking about blogs about politics—-which have gotten most of the mainstream media attention. Sun Micro’s President and Chief Operating Officer Jonathan Swartz, who maintains his own blog, recently told a conference that "authenticity is paramount."
"If you want to be a leader," he said, "I can't see surviving without a blog." Whether all leaders need a blog is debatable, but the need for authenticity in leadership, however, is indisputable.
The craving for genuineness is why people consult Amazon.com reader ratings instead of the New York Times Book Review.
Investors seek authenticity from their financial advisors, which is one explanation for the need Citigroup feels to focus entirely on investment brokerage and get out of asset management.
Voters have been asking for genuineness in their politicians for some time, which helps explain the rise of individuals perceived as "straight shooters" on all points of the political spectrum.
The desire for authenticity even helps explain the exponential rise in bottled water sales. It may be plain, but it’s real; you seemingly don’t have to worry about ingredients.
As society goes relentlessly more complex, fast-paced, and technologically oriented, the desire for authenticity will grow in lockstep. It’s a theme which is important for business executives and investors to be vigilantly aware of.
Posted by John at 6:27 AM | Comments (1) | TrackBackQuote of the Day for Thursday, June 23, 2005
Today's quote is from David Ogilvy, born on this date in 1911: "If each of us hires people who are smaller than we are, we shall become a company of dwarves. But if each of us hires people who are bigger than we are, we shall become a company of giants."
Posted by John at 12:37 AM | Comments (0) | TrackBackJune 22, 2005
Haier an Indicator of the Sophistication Level of Many Chinese Companies
Almost two years ago, a principal of McKinsey’s Beijing office conducted an interview with Zhang Ruimin, CEO of the Haier Group. The interview ($) was published in the McKinsey Quarterly ($) (which I highly recommend, by the way).
What it reveals about Haier’s strategy is important to understand, because I believe it is reflective of many Chinese companies seeking to enter U.S. and European markets. Haier clearly intends to compete globally with a more nuanced strategy than just "low cost labor" and undercutting the rest of the competition on price.
I just reread this interview, and given Haier’s recent bid for Maytag, I thought it would be of interest to many of you. The actual printed interview is worth your time—and money, since McKinsey’s site is a pay site.
A few key ideas from the interview follow:
The Quarterly: How have you set out to establish the Haier brand in Western markets?
Zhang Ruimin: All success relies on one thing in overseas markets—creating a localized brand name. We have to make Americans feel that Haier is a localized US brand instead of an imported Chinese brand. The same goes for the European market.
We have been successful in China because we are focused on meeting customer needs. We are organized to understand what customers want and to meet those needs, which are sometimes quite differentiated. We are following the same strategy in Western markets. Consumers in the United States are used to popular brands like GE and Whirlpool, so they’ll wonder why they should choose a brand they’ve never heard of. But large companies are established and slow moving, and we see an opportunity to compete against them in their home markets by being more customer focused than they are. [Emphasis mine] To win over those consumers we have two approaches: speed and differentiation—speed, of course, to satisfy the consumers’ needs as quickly as possible, differentiation to introduce brand-new products or products with features to meet different needs.
Let me explain the second of those two issues—differentiation—first. Total sales of compact refrigerators in the United States last year reached 1,500,000 units. Haier sold 670,000, nearly half of the market. We could win such a big market share because of our thorough market analysis; we understand customer needs and meet them. Most users of these compact refrigerators are college students. Because they usually have very small apartments and also use computers, we introduced a new compact refrigerator with two wooden flaps on the sides that can be folded out to make a computer table. You can put your computer on the refrigerator. The flaps can be folded back down when you need the extra space in the apartment. Consumers like the features we provide. Large manufacturers aren’t paying attention to such minor details. . . .
The Quarterly: What issue do you spend the most time thinking about?
Zhang Ruimin: The question I think about almost every day is how to avoid the disadvantages of a large enterprise. In large companies, sometimes people don’t notice a problem until it has gone beyond being solvable. [Emphasis mine] To avoid this, we have to consider how to make every person respond very quickly to the market. We are trying to make each employee at Haier work like an SBU, a strategic business unit. . .
Haier’s global strategy involves many of the same elements you’d expect from Western companies: differentiating the brand, balancing low margin products with higher margin lines, diversification, innovation, speed to market, and understanding customer needs.
Haier, quite simply, is a major company with a sophisticated strategy. Moreover, Haier is not just an isolated example. Many other Chinese companies have a similar level of advanced thinking about their industry and their markets.
To emphasize: for the best managed Chinese companies, it’s not just about low cost labor and undercutting on price.
Haier’s competitors underestimate them at their peril. The same is true for many other Chinese companies we’ve visited with that are headed to the West for expansion and acquisition.
Posted by John at 1:54 PM | Comments (0) | TrackBackAnd Then There Were Four: Vote for John O’Hurley Tonight
OK, Heritage family, it’s time to fire up the computers, pull out the telephones, and get ready to vote during this evening’s installment of "Dancing With the Stars" for our pal John O’Hurley. The show will air on ABC this evening at 9 pm ET/PT.
John has survived several cuts, and his competition is down to three other celebrities. He’s done a terrific job so far; I’m particularly impressed with his (and everyone else’s) ability to do so well, with compressed training, given the pressure of live television.
Incidentally, this morning’s USA Today has a great background article on John and the effort he’s put into the show. I hope my wife doesn’t find out John’s lost 15 pounds training for this show, otherwise I'll have five day a week appointments at Arthur Murray!
Let’s show John our support!
Posted by John at 11:50 AM | Comments (0) | TrackBackDumb Questions: Destroyers and Creators
FORTUNE devotes a major portion of a recent issue to decision-making, both making the right calls and avoiding stupid ones. Most of the articles on this subject are aimed at business managers, but the subject is vitally important for investors in those companies.
In "The Wisdom of Dumb Questions," FORTUNE Senior Editor-at-Large Geoffrey Colvin observes that "dumb questions lead to smart decisions":
. . . [a dumb question] can cut to the heart of the matter, posing a blunt challenge to someone or something—an authority, a policy, the established order. It can make people uncomfortable. Go there, and you're asking for trouble. When the organization strikes back, it doesn't condemn you as a threat but rolls its eyes and suggests you don't know the basic facts or are too dim to see what everyone else can see. Employees instinctively understand the danger. . .
A couple of the most recent dumb questions, Colvin notes, were at the beginning of a now famous email from then-Enron accountant Sherron Watkins to CEO Ken Lay:
Has Enron become a risky place to work? For those of us who didn't get rich over the last few years, can we afford to stay?
Questions like these don’t just challenge the established order and then leave it alone. Ms. Watkins’s questions played a key role in destroying the status quo.
Dumb questions, though, are not just destroyers, but enablers. They include "why not?" questions that help create brand new companies and entire industries. eBay, for example, was created because founder Pierre Omidyar asked: "why shouldn’t people have an online marketplace for used goods?"
The answer to that question is a company with a market capitalization of $50 billion, built in spite of skepticism over how much of a market could there be in 'people trading their junk with each other.'
Dumb questions can smash mental boundaries. They can liberate.
It’s a lesson I’m constantly learning.
Posted by John at 8:18 AM
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Quote of the Day for Wednesday, June 22, 2005
Today's quote is from Anne Morrow Lindbergh, born on this date in 1906: "Only in growth, reform and change, paradoxically enough, is true security to be found."
June 21, 2005
Fred Smith's Reading List Culled From History
USA Today talked to FedEx CEO and voracious reader Fred Smith about his history-dominated reading list. "History lessons are fairly clear and proven," says Smith, while "most business successes have a short duration."
A few lessons Smith sees from history:
Posted by John at 7:57 AM | Comments (1) | TrackBackThere are only about six business books worth reading. For enduring lessons, read history.
The great conquerors of the past treated the conquered well. Remember that next time your company makes an acquisition.
The most risky course is often inaction.
When things go wrong, take responsibility.
Haier Makes Its Bid for Maytag--With a Model Others Will Follow
Not surprisingly, the rumors of Haier’s interest in Maytag have become reality. Subject to due diligence, Haier has offered a price 14% higher than that made by a group of private equity investors led by Ripplewood Holdings. Haier has enlisted its own U.S. private equity partners, Bain Capital and The Blackstone Group, to join them in the Maytag bid.
We expect that many Chinese acquirers, even major ones like Haier, will take equity partners as they come to the United States, for many of the same reasons U.S. companies seek local partners as they enter new global markets.
The advantage Chinese companies have over their U.S. counterparts, however, is that U.S. buyout funds are flush with cash and looking for opportunities. U.S. companies going to developing economies like China typically don't have local partners able or willing to contribute cash to the partnership.
Posted by John at 7:12 AM | Comments (0) | TrackBackQuote of the Day for Tuesday, June 21, 2005
Today's quote is from H.M. Tomlinson, born on this date in 1873: "We see things not as they are, but as we are."
Posted by John at 12:31 AM | Comments (0) | TrackBackJune 20, 2005
"Pay As You Drive" Auto Insurance
U.K. insurer Norwich Union is conducting a pilot for "Pay As You Drive" auto insurance. The program, aimed at young drivers seeking to lower their premiums, involves the installation of a global positioning device which monitors the operation and location of the vehicle.
For example, Norwich Union's research reveals that drivers age 18-21 are much more likely to have accidents from 11 p.m. to 6 a.m., with a much higher chance of serious injury or fatality. On the other hand, this age group has markedly fewer accidents in daytime hours.
This pilot, which started with 5,000 volunteers, has been expanded by Norwich Union due to high demand, according to Springwise.com.
Norwich Union doesn't appear to offer the inevitable next step quite yet: a GPS device which also monitors speed of the vehicle. Conservative drivers (who don't mind their insurance company monitoring where they're going) will likely welcome a device that better proves their safe driving habits, therefore lowering premiums.
Here's a great example of applied technology potentially overhauling an "old economy" industry. Insurers could more efficiently price risks where potential loss actually resides, allowing them to lower prices for their best customers, low-risk drivers. Underwriters would be able to lower their risk profile and increase loss predictability, likely causing, in turn, more stable earnings and possibly a higher stock market multiple.
Posted by John at 6:52 AM | Comments (0) | TrackBackQuote of the Day for Monday, June 20, 2005
Today's quote is from one of the all-time great guitarists, Chet Atkins, born on this date in 1924: "Do it again on the next verse, and people think you meant it."
June 19, 2005
A Looming Labor Shortage in U.S. Manufacturing
Manufacturers will face a shortage of skilled labor in as few as half a decade, according to a survey of senior manufacturing executives reported by IndustryWeek.
Two-thirds of those surveyed believe this looming labor shortfall will cost their companies $50 million, on average. Over half of respondents with revenues over $1 billion estimate their costs will be more than $100 million over the next five years.
I'm sure the New York Times reported this story, but I must have missed it.
Posted by John at 8:37 PM | Comments (0) | TrackBackObesity Problem Growing in China
Today’s People’s Daily reports that in ten years, 200 million Chinese are expected to suffer from obesity. China currently has over 90 million people that are obese.
Moreover, about 10% of all children are considered obese and that number is growing 8% a year, according to a doctor with the Second Hospital of the Zhongshan University.
This factor, along with an aging population, are vitually certain to engender a significant rise in health care expenditures in China over coming years.
Posted by John at 8:03 PM | Comments (0) | TrackBackJune 17, 2005
Jumping In with Imperfect Timing
Doug Sundheim, writing on the Fast Company blog, draws the lesson from a friend of his, who, after four years of talking about it, left her job to start a jewelry line. When he asked her 'why now," she told him that the timing was just as bad four years ago, so she might as well jump in and get going.
The message is clear:
Success doesn't come from having all the right tools. It comes from using whatever tools you've got right now. Don't get bogged down by the idea of perfection. It's an illusion. Take action now. You'll learn your most valuable lessons on the road.
You can’t learn to swim unless you’re in the water. Small companies have to get in the water to make it; they can't afford to lounge on shore. That’s why reason why "small" is winning over "big."
Large companies can justify hiring consultants to study a problem to death, which can result the old cliché, "paralysis by analysis." Smaller companies can’t pay for such luxuries; they often simply have to jump in and try, even if only on a small scale at first.
And as Yoda says, "Try not! Do or do not, there is no try." Trying, for successful small companies, means doing what it takes to succeed.
While bigger companies are studying, smaller companies are doing.
"Perfect timing," moreover, is more than just an fantasy. It is, in fact, a dangerously attractive Siren calling from a perilously rocky shore.
Starting an Internet business in late 1999 or early 2000 seemed like a perfect time. The "new economy" was just starting, and vast stretches of the "old economy" were just waiting to be overhauled or run out of business.
At this very same point in time, getting a group of investors together to start a community bank was as difficult as collecting for the Saddam Hussein legal defense fund might be today. Investing in a bank (unless, of course, it was an internet bank) was widely regarded as a gigantic waste of capital. Bankers trying to solicit investors were told, again and again, "what are you doing this for?; banks are boring!"
Those bank managements and boards able to endure such difficulty in raising capital have generally succeeded even beyond their wildest expectations. Such success occurred despite the fact that their timing wasn’t "perfect."
Five years later, start-ups and even profitable early stage companies go begging to be funded. I know several would-be entrepreneurs who have given up and gone to work for some large company, waiting for a better time.
The timing couldn’t be better, on the other hand, to start a community bank. Investors, prodded by articles like this one, are throwing money at de novo banks almost indiscriminately, in some cases.
Listen closely and you’ll hear a melodious voice echoing across the water.
Posted by John at 8:10 AM | Comments (0) | TrackBackQuote of the Day for Friday, June 17, 2005
Today's quote is from artist M.C. Escher, born on this date in 1898: "Only those who attempt the absurd will achieve the impossible. I think it's in my basement. . .let me go upstairs and check."
June 16, 2005
Further Press for Georgia TeVe
We’re pleased by the favorable press our Georgia TeVe venture is receiving. Yesterday’s Atlanta Journal-Constitution featured a good overview of the locally-oriented channel and its business rationale.
That said, nobody around here is confusing good publicity with execution.
Posted by John at 7:56 AM | Comments (0) | TrackBackEnvironmental Awareness of Chinese Companies
Chinese companies are more environmentally conscious than commonly believed, according to recent survey results.
Not surprisingly, all 61 companies which participated in the survey indicated safeguarding the environment is important. Of greater interest, however, is the fact that over half of these companies said that environmental protection is part of their "core values."
Importantly, this survey was conducted by the World Wildlife Fund, an organization not inclined to give false praise on such issues where unwarranted.
These results are consistent with my experience in China. Chinese companies, and the government itself, are much more environmentally sensitive than is commonly perceived around the world, certainly much more so than I perceived.
On one of our trips to China we visited Guangzhou and Guangdong Province, anchors for the Pearl River Delta, one of China’s fastest growing regions. When asked about the biggest economic challenge facing the area, one senior government representative told us with no hesitation: "the environment."
"The Pearl River is the lifeblood of our region," he said. "We must treat it that way."
Posted by John at 5:40 AM | Comments (0) | TrackBackQuote of the Day for Thursday, June 16, 2005
Today's quote is from Joyce Carol Oates, born on this date in 1938: "We inhabit ourselves without valuing ourselves, unable to see that here, now, this very moment is sacred; but once it's gone--its value is incontestable."
Posted by John at 5:17 AM | Comments (0) | TrackBackJune 15, 2005
A Special Birthday Message
Patty Stringer, our CFO at Heritage, is celebrating her birthday today. Patty is an extremely vital enabler of everything we do, and that's particularly true for me personally. All that, and she's always pleasant to be with. What a great combination!
Patty, you're appreciated more than me or the rest of the Heritage team can tell you. Have a great birthday!
Posted by John at 7:11 PM | Comments (0) | TrackBackEncouraging Nicaragua--and Helping Ourselves at the Same Time
In my recent comments on CAFTA, I noted the favorable changes brought on by the embrace of economic liberalization in the countries this agreement would cover.
In a compelling essay written for The Globalist, David C. Wyld, professor of management at Southeastern Louisiana University, looks at the changes in Nicaragua over the last 15 or so years since the end of Sandinista rule.
Wyld estimates that roughly 300,000 to 500,000 Nicaraguans have returned home, both from neighboring countries and from the United States. These individuals often come home fluently bilingual, with an excellent eduction, and tremendous business skills and experience. In other words, just the sort of individuals that foreign investors delight in investing in.
He cites one individual, Bernardo Callejas, who left Nicaragua with his family when he was eight years old. Callejas ultimately received a Food Engineering degree from the Unitersity of Florida and an MBA from McGill University in Montreal. He’s returned to Nicaragua to work for ProNicaragua, a public-private institution created by President Enrique Bolaños in 2002 to encourage foreign investment in the country.
As Wyld notes:
. . . [CAFTA] is far more than a free trade agreement, opening markets and stimulating investment.
CAFTA has the potential to serve as the foundation for the strengthening of democracy, the rule of law, legal accountability and the modernization of public institutions.
Such an institutional transformation is essential to speed up the remarkable economic and political progress achieved in the region over the last decade. For most of these nations, the agreement will signify the close of a troubled past and serve as the underpinning for closer economic ties with the United States. . . .
For example, Nicaragua for its part has gone through enormous transformations in the last decade — major improvements in infrastructure, political stability and ample government incentives.
These measures resulted in the establishment of an export-oriented manufacturing base, directly employing 40% of the country’s labor force. Even without a free trade agreement, trade has been growing at a rapid rate between the United States and the CAFTA region.
The ratification of CAFTA would solidify such growth and guarantee additional job creation in the region. That would help improve living conditions in these nations — and thus curtail illegal immigration into the United States as well as promote repatriation of Central Americans to their native lands.
What a crucially important point. Emigrants like Bernardo Callejas should be encouraged. The work they are doing is good for Nicaragua and it is good for the United States.
If Congress wants to promote the embrace of free market capitalism and democracy, increase regional stability, encourage the rule of law, and reduce the economic incentives of illegal immigration, all in one broad stroke, they will vote for CAFTA.
Posted by John at 7:42 AM | Comments (0) | TrackBackQuote of the Day for Wednesday, June 15, 2005
Today's quote is from "Small Packages," a song written for children (both small and large) by "outlaw" country singer Waylon Jennings, born on this date in 1937 in Littlefield, Texas:
Tall don't always mean bigger, short don't ever mean small
If you make up your mind you never can tell
You could be the biggest and the bestest of all
Cause some things come in small packages, sometimes heroes do too
If you have the courage and you have the heart, that hero just might be you
June 14, 2005
Heritage Capital Backs the Launch of a Local Hispanic Television Channel in Atlanta
This week’s Atlanta Business Chronicle has a feature article on Georgia TeVe, a locally produced, 24/7 channel available on Comcast channel 150 here in Atlanta. Georgia TeVe is the operating business for Hispanic American Broadcasting Company, the most recent private investment for our firm.
This article is an excellent overview of the channel’s mission, which is to maintain a local, community-oriented approach. Such an objective is in marked contrast to Atlanta’s other Hispanic viewing alternatives, mostly beamed in from hundreds of miles away.
Our firm is proud to support CEO Rafael Ortiz-Guzman and the rest of his team. They’re doing a great job, and we believe they will make a major splash in the Atlanta television industry.
Posted by John at 8:31 AM | Comments (0) | TrackBackHaier to Bid for Maytag?
According to this morning’s Financial Times ($), China’s appliance making giant Haier is considering a bid for Maytag. Last month, Maytag had agreed to be taken bought by a group of private equity firms led by Ripplewood Holdings.
The only surprise in this news, in my mind, is that it hasn’t happened before now. Haier’s presence in the United States, anchored by a $40 million manufacturing facility in Camden, South Carolina and a recently purchased New York City headquarters building, is destined to increase dramatically as the company attempts to make further inroads into the U.S. market. Purchasing Maytag or Whirlpool would accelerate Haier’s effort to not only increase worldwide market share but to increase its product sophistication.
By the way, I was in Lowe’s this weekend on a mission with my wife and I sneaked away for a few moments to look at the Haier product offerings. In air conditioners for the budget-conscious, Lowe’s was offering a 5,000 BTU Haier-made window air conditioner for $74, marked down a few dollars from the website price. The equivalent Whirlpool product, although it looked a little better constructed, was priced almost twice as high. I have no idea about the reliability of either product.
The top end unit was a Whirlpool 24,000 BTU model, priced at about $420. Haier’s best product in this particular store was at 6,000 BTUs.
It’s an object lesson on why Maytag made the decision to sell, and why Whirlpool could be next. It’s also an illustration of why Haier might want to be the buyer in either instance.
The Rising "Tide" of Hispanic Females
Following up on our recent observations on the latest Census Bureau estimates of the Hispanic population, Hispanic Business notes that Hispanic females make up a much larger proportion of the younger population than ever before. While Hispanic women make up just over 13% of the total female population, they represent 21% of the under 5 age group. This higher than average representation of Hispanic women to the country’s total exists through all age groups up to age 39.
Yesterday the Wall Street Journal reported ($) that Proctor & Gamble, the maker of brand icons such as Crest toothpaste and Tide detergent, is sharply curtailing advertising expenditures. According to the WSJ, P&G will cut spending on some cable networks by as much as 25%, while commitments to the major broadcast networks will drop by about 5%. The company will even cut spending on daytime talk shows very popular with women, including "The Oprah Winfrey Show" and "Ellen."
This move is no doubt a reflection of increasing doubts regarding the effectiveness of traditional television advertising, but there’s more to it than that pat explanation.
P&G is a very savvy marketing organization, and I can’t help but believe that part of the rationale for their move has something to do with the statistics I’ve cited above. Reaching Hispanic females requires a different tack than simply throwing up ads on mainstream female-oriented shows and channels, and P&G knows it.
Posted by John at 6:55 AM | Comments (0) | TrackBackIf You Want to Be Informed, Here’s a Book for You
My pal John Daly has written a book I highly recommend: The ROIL System: How to Be Well-Informed in a Media-Biased World. If you’re trying to figure out, in the media blitz in which we live, how to be informed without becoming inflamed, you will enjoy and profit from John’s book.
John’s experience in the news business helps give you a new way to assess the value of news stories you read. His book is an encouragement to be an active and questioning consumer of news.
Moreover, John offers a system to help filter and navigate the media blizzard which we all confront. Technology, as he points out, is a valuable tool in this effort which we can harness for our benefit. I’ve gained from several from several of his recommendations, and I think you will, too.
Posted by John at 6:05 AM | Comments (0) | TrackBackQuote of the Day for Tuesday, June 14, 2005
Today's quote is from the head women's basketball coach of the University of Tennessee, Pat Summitt, who celebrates her birthday today: "Teamwork is what makes common people capable of uncommon results."
Posted by John at 4:51 AM | Comments (0) | TrackBackJune 13, 2005
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