Archive for February, 2008

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morningstar grows internationally

Friday 29 February, 2008

I interviewed Morningstar’s CEO Joe Mansueto last year (part 1, part 2, part 3) & now it looks like their focus on their international operations is paying off. James Miller wrote this Overseas growth lifts Morningstar in the Chicago Tribune. I’m always glad to see Chicago area firms do well internationally, especially when I’ve interviewed the CEO, but I’d appreciate more detail. I realize in earnings reports companies only divulge as much as they’re required by the SEC, but I’d really like more information on how they did it. If they weren’t doing well, I could understand why they wouldn’t want to give anything away, but since they’re doing well, I just wish they’d share a bit more.

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U.S.-India SME Summit

Wednesday 27 February, 2008

I attended the U.S.-India SME Summit on 20 Feb. @ the Intercontinental Hotel on Michigan Ave. in Chicago.  It was sponsored by the US-India Business Council, Chicago Council on Global Affairs, Federation of Indian Chambers of Commerce & Industry, National Assn. of Manufacturers, U.S. Commercial Service of U.S. Dept of Commerce, Small Business Exporters Assn., Illinois Dept. of Commerce & Economic Opportunity, Navistar, Wal-Mart, Boeing, Caterpillar, Baker & McKenzie, FedEx.   US Trade Representative & Ambassador Susan Schwab spoke.  Kamal Nath, Minister of Commerce & Industry in India had to cancel & was replaced by his undersecretary. 1 of Chicago’s most prominent Indians, Dr. Dipak Jain, Dean of Kellogg School of Management @ Northwestern University, moderated the panel on SME partnerships.

Michael Moskau informed us Illinois exports $614M to India, 50 IL companies have operations in India, 15 Indian companies are located in Illinois & 150,000 Indians reside in Illinois.

Susan Schwab let us know, this conference is not in Delhi or D.C., it’s in Chicago because it’s home to so many SME’s.

Undersecretary Pilay brought us up to date, in that 2 years ago, the U.S. sent 200 SME’s to India.  This is the reciprocal trip.

The room was filled with about 160 people in the morning, but only about 40 remained @ the end of the day.  There seemed to be some concern about the interest of American SME’s in meeting their Indian counterparts.  1 Indian delegate even posed the question to a panel “Where are the American SME’s?”

The Indian SME’s seeking partners here in the U.S. can be found here.  I requested copies of the powerpoint presentations given from the organizers to post here, but haven’t heard back from them.  There’s no way I can cover this day-long event in 1 blog entry, so if you’d like more info, just let me know.

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lufthansa buying into United?

Tuesday 26 February, 2008

I saw this article by Julie Johnsson in the Chicago Tribune German carrier circling UAL deal  This is absolutely no surprise, given the strength of the Euro/weakness of the US$.  We should expect to see more of this direction of acquisition.

What is a surprise is that this M&A dance is so public.  Many times discretion keeps prices in line, but in this case, speculation could be fueling price swings.

What’s curious about all this is that Lufthansa, which is still partially owned by the German government, is calling for the U.S. to relax its restrictions on foreign investment in airlines.  Both governments have maintained that keeping their airlines locally-owned, (at least majority stakes), is important to protect “the national interest.”   I guess the underlying assumption is that when going to war, there may be a need to move lots of people great distances quickly, & that domestic governments want to maintain control over those decisions & their implementations.  That American airlines were targeted on Sept. 11, 2001, says to me there may be big advantages to globally-owned airlines.  There certainly didn’t seem to be any advantage to nationality of airlines in the days following that event.  I think there may be great opportunity in freeing airlines in the capital markets to open up their funding sources.  Alternatively, I will also say Europeans should open up ownership of their airlines as well.  I was in Europe the month after 9/11 & flew Swiss Air, which went into bankruptcy while I was there.  I made if back home fine, but it was a bit harrowing not knowing whether or not I’d be flying with that airline or how I’d get home.  Governments sitting on boards of directors & exerting their bureaucracies on the management of companies in very competitive industries can’t help them compete better.

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Should the US OK Free Trade Agreements with the Middle East and North Africa?

Monday 25 February, 2008

I attended a lecture by Ralph Folsom, a law professor from the University of San Diego earlier this month, who spoke on the potential of a Middle Eastern Free Trade Agreement at the John Marshall Center for International Business & Trade law. He trudged through the snow for the 1st time in 10 years to speak with us.

Here are the main points I pulled out of his talk:

-MEFTA would contain 14 countries, including 4 in North Africa

-the FTA & relations with Israel are a major stumbling block

-“Qualifying Industrial Zones” QIZ’s would enable free trade with the US

-there were no free trade agreements in the Middle East 1985-2001

-unions in Jordan complain about workers from Bangladesh

-MEFTA would include possibilities with Iran & Syria, & exclude Turkey because it would be bad for Turkey’s application to the European Union

-Morocco was the 1st country in the world to recognize the US in 1776 & 1st MEFTA agreement with the European Union, & then US.

-Bahrain was the 2nd MEFTA agreement (driven by the US’ Iraq strategy), which is a copy of the agreement with Morocco, but trade with Bahrain is miniscule.

-Oman signed the 3rd MEFTA agreement-fyi, by signing, members cannot follow the Arab League’s boycott of Israel

-the United Arab Emirates is important because it has lots of gas & is the 3rd largest trading partner in the Middle East, but is a problem because there are many Iranian ex-pats there.

-It might have been advantageous to negotiate with the Gulf Cooperation Council, a customs union of 6 countries, rather than negotiate with each individually.

I tried to capture what Prof. Folsom said. If you’d like a copy of his more comprehensive paper “Trading for National Security? United States Free Trade Agreements in the Middle East & North Africa,” to see what he wrote, send him an e-mail message @ rfolsom@sandiego.edu or give him a call @ 619-260-2325 to request a copy. I contacted him both ways to ask to post it here, but never heard back from him.

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Chinese interested in Motorola’s cell phone’s?

Friday 22 February, 2008

I checked out this in the Chicago Tribune Motorola’s cell phone unit may draw looks from Chinese firms by Wailin Wong.

Like IBM selling its hardware business to Lenovo, this makes a lot of sense.  Motorola is failing in this business & needs a respectable way out.  The Chinese have lots of dollars because of all we import from them. Despite their fall, Motorola is still a widely recognized brand.  The Chinese competitors are not well-known outside of China & acquiring Motorola would bring them a global presence fast.

The consequences for the remains of Motorola’s cell-phone business could be bleak.  I believe with Lenovo, much of the manufacturing already took place in China.  I’m sure with Motorola, that’s mostly the case.  However, there are still many design & development functions which take place outside of China which would be relocated there, & that would mean lots of lost tech jobs elsewhere if that happens.  Even if these jobs stay in the U.S, they’d likely move to Texas, a growing hub & the US HQ’s of the Chinese  telcos in the southwest.

Also, like anything techy these days, Google also could be involved.  They’ve bid on the  spectrum allocation.  Motorola needs more resources in software development, so that’s another potential hook-up.

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malls in Brazil & Turkey

Tuesday 19 February, 2008

I read this article in the Chicago Tribune General Growth to focus on expansion in Brazil
the other day.

General Growth Properties, Inc. (NYSE GGP) is the 2nd largest owner of malls in the U.S., but looking south to Latin America & east to Eurasia for growth. GGP has 16 properties in Brazil, 6 in Rio de Janiero, 2 in Sao Paulo, & single locations in Boca do Rio, Campina Grande, Feira de Santana, Itabuna, Minas Gerais, Porto Alegre, Salvador, & Santa Catarina. 6 are owned & managed, only 1 is simply owned, & 9 are managed centers together with its local partner Aliansce.

With a gross domestic product (GDP) of approximately US$700 billion, Brazil represents roughly half of the South American territory and economy, so I can certainly see Brazil as a growth region. I visited Sao Paulo & Rio in 2003 & was impressed with the degree of urbanization in those cities & saw many urban malls on my visit. It was eye-opening for me to realize Sao Paulo is more than double the population of Chicago. What also surprised me is the lack of history there-it seems like they mirror Americans in tearing down old buildings & simply replacing them quickly with new ones rather than preserving the past as they do in Europe.

GGP’s footprint in Turkey isn’t quite as big as it is in Brazil, but perhaps more dispersed, with 1 mall in the capital of Ankara, 2 in Istambul, & others in Antalya, Beylikduzu, Eskisehir, Maltepe. All except the 1 in Eskisehir, which is owned & managed, are managed centers. Their partners there ECE Turkiye and Cura/GGP. With annual real GDP growth rate in 2007 of 4.6%, Turkey is definitely a growth region as well. I visited Turkey when I lived in Europe 20 years ago, but only visited Cesme on a day trip when I was cruising the islands of Greece, so I can’t comment on real estate in bigger cities I wasn’t able to visit.

It looks like GGP’s strategy is to manage properties with local partners before taking ownership positions, which is a good way to enter the market with low risk & little cash outlay.  There are risks though in how the relationship develops with the partners & how deeply relationships are developed with tenants.  Depending on how those relationships develop, it can be less or more expensive to transition from management to  ownership positions over time, which ultimately determines the ROI on those investments.

an old building in Sao Paulo

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marketing consumer goods in the Middle East

Monday 18 February, 2008

I read this article by Raed Refei in the Chicago Tribune Arab pop stars at heart of Coke, Pepsi battle

Pepsi had the lead in many other international markets throughout the world in addition to the Middle East.  When I spent 7 months in Poland a few years after the Soviet Union dissolved, it was still pretty much a Pepsi country.  Coke invested heavily to build the brand & was successful, but Pepsi had a huge advantage being the entrenched brand, against which Coke had an uphill battle to climb.

There are increasing similarities with western marketing:  “Middle East retailing has gone through a tremendous amount of change over the past 10 years.  It has been fascinating to witness and participate in the rapid evolution of retailing in the Middle East.  The region has always had a rich heritage of shop keeping, starting from the original traditional souqs, through to the development shopping on the main high streets, to shopping malls to the current large-scale shopping malls that are being developed in every city across the region usually with a unique offering like a skiing slope to a themed concept to ensure that footfall to the mall is ensured.”-from a US Dept. of Commerce report.

However, there are still great differences.  I’m not sure that their full product range is sold throughout the Middle East.  Distribution can still be a real pain because the logistics infrastructure is not fully comprehensive.  People in the region can afford to pay the going rate for a can of soda, but despite the promotional push, there are still plenty of restrictions on what can & cannot be advertised & how. Given rising incomes, there is plenty of opportunity in this part of the world, but it’s not as simple to build a brand as the article suggests.