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.

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fugitive denim

Friday 15 February, 2008

I attended this event sponsored by the Chicago Council Global Affairs on this book (with this review) written by Rachel Louse Snyder (podcast) The premise is fairly simple. Rachel explores the supply chain of a pair of jeans from its beginning to end, from the cotton from which they’re made to the retailers that stock them on the shelves. You can read the book, review, & listen to the podcast. Here’s what came out of the discussion (moderated by Melissa Gamble, dir. of fashion arts & events, dept. of cultural affairs of the city of chicago):

sweatshops in Cambodia have been eradicated in return for access to US market (since expired)

Horses are equated with husbands in Azerbaijan, sometimes kept in the house.

Chinese women factory workers are not all that different from women of other countries-their employer brought in trainers to teach them ultimately how to talk to boys

poor women working to support men & their children now should result in empowering the next generations.

textiles are 85% of Cambodia’s exports, but world-wide quotas have been lifted & the Cambodian economy has not readjusted yet. Due to competition from China, 30 countries may remain in textile production in the best case-in the worst case only 8-10 countries will remain.

Bono’s Eden line pays workers $300/month, much more than any others, which explains why they’re so expensive.

the word fair means different things in different countries-should there be subsidies for cotton-growers or not? We need 3rd party monitors if we seriously want things to improve.

Things are not all rosy in China. Employment there is losing 1 million workers per month to technology, just like us. Labor costs are up, & there are demonstrations about which we never hear a word.

Despite all this, Rachel remains optimistic. Change creates opportunity.

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restitution in Poland?

Thursday 14 February, 2008

I read this article by Greg Burns in the Chicago Tribune Holocaust restitution sought for Kraft plant
which brings up some interesting issues. Kraft bought a candy plant in Poland in 1993 from the Polish government. The plant had been owned by the Schramek family until it was confiscated by the Germans in 1939 as Jewish-owned property, & then nationalized by the then-communist Polish government in 1948. 1 family member wrote a book, “They stole our chocolate factory” in 2001 & now want restitution. Poland is 1 of the few countries with no special legal framework for addressing holocaust claims. Before he died in 2006, founder Hans Schramek said “It would come to millions of dollars. Poland does not have that money.”

Kraft bought the plant from the then-owners in good faith. I would bet they did do their due diligence & knew that the Schramek family was a former owner. They are damned by referring references to the seller, the government, & damned as callous by ignoring the requests of the family. I interviewed with the Treuhandanstalt, the organization which privatized businesses formerly owned by the East German (DDR) government. I didn’t get the job, but recognized the issues & structure created to deal with them. I also spent 7 months in Poland & know that the Poles aren’t as organized & don’t have the $ to deal with these issues as the Germans have & they are paying for it now. Was the family fairly compensated @ the time of nationalization? I doubt it. I can certainly understand Kraft not wanting to pay anything more on a previous purchase. I can also understand if the Polish government fines Kraft to make a payment they are not in a position to make. I put the responsibility on the Polish government to broker some kind of agreement that’s amenable to all.

me on the road in Poland

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MacPlace reaching out internationally

Wednesday 13 February, 2008

Kathy Bergen wrote this short article in the Chicago Tribune “City expands its marketing web.” Well it’s about time. The Chicago Convention & Tourism Bureau, the organization which is responsible for booking trade shows @ McCormick Place & Navy Pier, will be sending representatives abroad to hustle up business for trade shows in Chicago. Imagine that. I just assumed this was being done all along, but I guess I assume too much.

My impression is trade shows are dying a slow death, faster in technology industries. People can get information much quicker & easier online. Trade shows can be good places to initiate & maintain personal relationships, but people are getting more comfortable in the digital world, so I’m not sure how much this will expand their business.

Alternatively, I think trade shows are still more important in the Old World, or at least other countries where local cultural norms dictate that personal relationships are still the best way to facilitate business. I question the focus on RIC-Russia, India, & China. Costs of exhibiting & attending will be harder to bear for companies from these poor countries. I’d look more towards the developed world which won’t quibble over Western costs of doing business. I don’t see any foreign language content on their website yet-maybe that will be coming soon.

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outsourcing personal assistance

Monday 11 February, 2008

I read Laurie Goering’s (1 of my favorite Trib columnists) article “Your personal assistant, half a world away” in the Chicago Tribune last week, which brought to my attention the breadth, if not the depth, of the offshore outsourcing phenomenon. Services such as Get Friday and Ask Sunday (why they have names of days of the week, I don’t know), provide personal assistance services online & over the phone. These services are being marketed to small & medium-sized businesses, & in some cases, it just might work. There are some tasks that could be gladly offloaded on someone 1/2 a world away who can complete some mundane chores more cost effectively, depending on how much your time is worth. From a businessperson’s perspective, it seems as if this is cheap & usable, but I wouldn’t trust them for personal interactions with customers no matter how good their English is. If I were a secretary/administrative assistant, I might be worried, because these services can do some of my job. It’s a bit scary that offshoring is now even imposing on services, which I thought were fairly bulletproof. What’s missing is the personal element, in other words, the opportunity for a boss to bond with a co-worker, & a customer (the organizer) to form a relationship with a local service provider. So I guess that begs the question, “Is it really PERSONAL assistance?”

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internet disruptions abroad

Friday 8 February, 2008

I caught this article by Jon Van in the Chicago Tribune Apparently a fishing trawler dragged its anchor across the bottom of the Mediterranean & severed a cable that was part of the backbone between the Middle East & Europe. To quote the article: “Anything that interrupts international connections is a big deal,” said Tom Weekland, a managing partner at the Chicago-based Diamond Management and Technology consultancy. “Hospitals get imaging diagnostics from Asian radiologists. Even small companies have payrolls prepared in India. If connections are broken, or even degraded, it impacts business here.”

It blows my mind that something as innocuous as an old fishing boat can screw up the international digital network. It paints a pretty surreal picture of an incredibly antiquated old schooler sabotaging all of the crack/blackberry-heads. I’m surprised we haven’t seen more terrorist attempts at these kinds of disruptions. If they really want to mess with the developed world, they should disrupt the money flow, & bringing down the internet does that. If they do, Chicago will be a target, as 1 of the biggest internet connection points in the world. Obviously, redundancy is the solution, but with varied routes rather than just along the same track.

international internet cable

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Abbott builds in Singapore

Thursday 7 February, 2008

I saw this tidbit by Bruce Japsen in the Chicago Tribune

Abbott is apending $280 million to build a plant to manufacture nutritional products in Singapore to serve southeast Asia. By way of background, Singapore is trying to establish itself as the “Biopolis of Asia” as a biomedical services hub for Asia. It already claims to be the hub for southeast Asia. This appears to fit within the specific clusters the local government is seeking to develop. Why Asia? Asia’s population is expected to grow from 3.2 billion people now to 5.6 billion in 2050.

I visited Singapore for a localization conference a few months before 9/11. It certainly is a high-tech society. I was surprised at how tropical the weather is. It didn’t even cool down at night. I understand the government is loosening up a little bit-you might even be able to chew gum on the subway now.

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U.S. International and European Union Tax Update

Tuesday 5 February, 2008

I attended this event on 24 January, sponsored by True Partners Consulting The presentation is attached below. Here are a few notes:

Transfer pricing is of strategic importance to the IRS & will be an emphasis in the future.

We need limitations on benefits articles of tax treaties to prevent people from “treaty shopping.”

Despite our reduction in the corporate tax rate from 35% down to 30.5%, we still now have the 2nd highest tax rate only after Japan.

A visitor from France, Herve Bidaud of Artem Tax International, made a presentation on recent changes in French taxation, whose presentation is included as well. Notably, SarBox costs allocated to French subsidiaries it not deductible until the income is distributed, & R&D tax credits of 30% are available up to 100M.

I’m not an international tax expert, but True Partners can help you where I can’t.

true-partners-consulting-jan-24-2008-intl-seminar-presentation.pdf