Archive for November, 2012

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trucking turnarounds

Friday 30 November, 2012

The Turnaround Management Association of the Midwest in Chicago held an event titled Planes, Trains, & Automobiles: The Outlook for the Transportation, Shipping, and Logistics Industries which I attended, although the discussion centered around trucking in the US more than anything.  While aviation gets the headlines, trucking flies under the radar.  It’s a mature industry with low growth, is capital intensive, fuel sensitive, highly regulated, has low margins, & has labor & other legacy issues.  The 2008-9 recession was worse for trucking than the overall economy & 15-20% of the industry’s capacity was removed during that time. Diesel fuel is 1/3 of all costs as is the cost for drivers, which are both problems.  Trucking is actually a complex industry & all macroeconomic drivers affect it.

YRC became too leveraged with $2B worth of acquisitions 2003-6 & many were poorly integrated.  Revenues dropped from $10B in 2006 to $6B in 2010 as the # of drivers fell 50% & the fleet shrank 40%.  Capital expenditures sank from $300M to $26M as the fleet aged.  Rising maintenance costs + falling mileage led to a downward spiral.  Reinvestment is required, but limited structural EBITDA leads to maintenance being deferred.  The Teamsters didn’t help, but they did come to the table, although with unrealistic expectations about restructuring.  The Teamsters is an intensely political organization that advocates aggressively, but does not necessarily represent the interests of all employees.  Ultimately the unions did deliver cost reductions as drivers wages declined from $37.05/hour to $28.70/hour.  Drivers control the cost structure as their driving habits/behaviors determine fuel costs.  Driver turnover is 100% in some cases, which obviously leads to shortages of drivers.  As baby boomers retire, young people simply don’t want to drive a truck.  The median age of a driver is 47 & rising.

Restructuring multi-employer pension plans is an emotionally-charged issue.  Cutting pension benefits cannot be considered because drivers are old dudes.  There are different grades of plans & participation levels.  There is no 1 company or even group of companies that can solve the problem, so a government solution may be required.

Many reasons have kept YRC out of bankruptcy.  They’ve been able to retain customers.  They have little intellectual property.  Lenders have not pushed Chapter 11 because they don’t want equipment back because the values for used equipment are too low.

Q&A

Fortune 500 companies order by the truckload & pay on time.  Trucking is a quick turnover industry, so some truckers took parts & equipment rather than their last paycheck when they were let go.

There don’t appear to be any viable solutions to pension problems.  There are no other alternatives & nowhere else to go.

Private equity firms & hedge funds have gotten involved in the industry & have been willing to put their money where their mouth is, if only to protect their investments.  Some wish they hadn’t invested, thinking the trucking industry looks simple.   EBITDA of 6-9% 5-6 years ago worked, but lack of investment in maintenance hurt their investments.

Shipping coal via rail has already surpassed shipping via truck because it’s far more fuel efficient.

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education in Turkey

Wednesday 28 November, 2012

Batuhan Aydagul was invited to speak @ the 6th annual Patricia Blunt Koldyke lecture  about TURKISH EDUCATION: INNOVATION AND PARTICIPATION.  Aydagul is the coordinator & a board member of the Education Reform Initiative in Istanbul, Turkey.  He earned a master’s degree in international education administration & policy analysis from Stanford University.  He also learned best practices @ Arthur Andersen’s training center in St. Charles years ago.  His experience @ Stanford led him to work in educational development in Africa, in Liberia specifically.

Batuhan’s view of education is to liberate your imagination.  Education is in his blood-his grandfather & mother worked in education as well.  After graduating from Stanford, he wanted to open a think-tank.  Turkey has a demographic gift that can be enabled by education, but it needs western quality.  The problem is education, as it was set-up in 2003, is in the domain of the public sector.  There are numerous legislative & party issues as the people question decision-makers/politicians intentions.  They’ve started curriculum reform with more engagement from stakeholders.  Now critical thinkers are questioning their dogma & are opposed to working together.  Some have formed coalitions for advocacy & have partnered with business for technical education.  A strong bureaucratic culture gives the public a voice in education.  Policy advocacy is not a 0-sum game because with objective information, it’s not a win or lose situation.

Turkey has a number of challenges, including health, transportation, & education.  There is much inequality between schools, geographies, and a rural/urban divide.  There are quality issues-thank goodness for Mexico, keeping Turkey from the bottom.  Parliment passed & implemented 1 of the worst laws in the best manner possible & Batuhan took it personally.  He organized a Best Practices Conference to which groups drove all night to attend so that they could learn from & learn to  trust their peers.  International recognition helps, provides motivation & encouragement, & is humbling.  He received warm welcomes @ public schools.  Turks need to create a dialogue about these topics, but they aren’t taught to discuss such things.  They don’t know how to express disagreement-teachers must moderate these discussions.  They need innovation to try to live up the the expectations of his predecessors.

Q&A

  • In rural areas, girls only have a 1% chance of attending high school, while boys have only a 17% chance.
  • Differences in languages, incomes, & many others must be resolved.  If students start in 1st grade without Turkish, it creates big problems later on.  It should be a bilingual system, but design varies.
  • Politicians want to remove private courses for entrance exams so that there are opportunities for those who don’t qualify for a university education.
  • They are trying to enhance opportunities for women to attend school by promoting vocational schools, building dorms for women so some can study away from home, expanding cash transfer systems, & changing prevailing attitudes against women, particularly by conservative fathers.
  • Although Turkish schools use many international benchmarks & indicators to measure critical thinking, they have little impact because they have neglected teacher development.
  • There are many barriers to dialogue on educational issues:  the constitution is very strict on language, religion plays a role too, many side with ideology rather than enter into a discussion, & differences have been disregarded after 90 years as a republic.
  • The EU has left the countries autonomous regarding education, while bringing up the issues of certifications & rights.
  • The focus in Turkey is on the teachers & developing public/private partnerships which provide feedback, engage principals, lessen curricula that are too demanding, & encourage investment in sustainable peer learning.
  • Private schools in Turkey are funded by & for the 3% most wealthy, & there is little transfer between public & private schools.

I had an opportunity to teach in Turkey, but had to turn it down because the bureaucracy slowed things down so much that they were only able to arrange the paperwork for work visas etc. for the 2nd semester rather than the whole school year.  Their slowness cost me, but I still hope to teach there @ some point in the future.

Sorry this is too late for Turkey Day.

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US Foreign Commercial Service on doing business in Nordics/Norway

Wednesday 21 November, 2012

The Norwegian & Swedish Chambers of Commerce hosted Jeffrey Graber of the US Dept. of Commerce Foreign Commercial Service (FCS) in Chicago who talked about DOING BUSINESS IN THE NORDIC REGIONS.  Jeff spent his junior year of high school abroad studying in Norway & has kept a deep affection for the country ever since then.  From a business perspective, he highlighted the National Export Initiative, the goal of which is to double exports & create 2M jobs by 2015.

Jeff 1st summarized the Foreign Commercial Service, which was founded in 1980 & promotes American exports in 74 countries.  Exports support 12M jobs & 1 in 5 manufacturing jobs is supported by exports, & employees who work for these firms earn 13-18% higher wages.  Typically $1 invested in the FCS services yields $235 in export sales.  FCS employees work together with the Export/Import Bank & international group of the Small Business Administration out of Export Assistance Centers in the US, of which there are 8 in Illinois, & embassies & consulates throughout the world.  Illinois is the #6 exporting state in the US with export sales of $65B, up 29% over 2010.  In 2010 the FCS in Illinois claims 1162 export success stories.   He’s currently working with about 40-50 clients.

Moving on the the Nordic region, there are a number of advantages to doing business there:

  • low inflation
  • stability
  • wide English-speaking ability
  • early adopters
  • environmentally conscious

The area encompasses a population of 25M in an area 2X the size of Texas.  Governments are run by 3 constitutional monarchies & 1 parliamentary republic (Finland).  This region has a GDP of about the size of Canada or India @ $1622B & is a good market for US imports @ $14.7B.  These countries export $30.1B to the US.  All of these countries rank highly in the global competitiveness rankings.  The FCS recommends seeking local distribution & notes they:

  • will pay for quality
  • are not tactical negotiators, so do not try a hard sell
  • are predictable, stable, ethical, & avoid corruption
  • have high standards,  service levels, & taxes

In discussing opportunities in each country, Jeff highlighted Norway:

  • they submit their income tax returns via mobile phone
  • ranked as the #1 country to live
  • 3rd largest exporter of natural gas & #5 exporter of crude oil in the world
  • 99% of their electrical power is generated by renewable/hydro-power

Graber based his presentation on a webinar given by the US Dept of Commerce, for which I searched but could not find.  We were told we would receive a copy of his presentation, but I haven’t received it yet.

After spending 6 months in Sweden 15 years ago, I’m a huge fan of doing business in Scandinavia.  They are very high tech, surprisingly entrepreneurial, very practical to do business with.  They are expensive & competitive, but good markets for American products that offer high quality.

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Greece=Icarus?

Monday 19 November, 2012

The Chicago Council on Global Affairs invited Nick Malkoutzis, deputy editor of Greece’s only English language daily newspaper, Kathimerini English Edition,to speak about Greece and the Euro: The Flight of Icarus.  He led off by putting in perspective the fact that Greece is less than 4% of the GDP & debt of the European Union.  Icarus is the Greek god who had wax wings which melted when he got too close to the sun.  He is likened to the Euro, which when embedded as an anchor in the European economy, was expected to solve many economic problems.  Prior to the advent of the Euro, Greek per capita incomes tripled from 1981-2001.  During that time there were many fiscal danger signs which were not heeded.  After the introduction of the Euro, currency devaluation was no longer an option, so it became more difficult for the Greeks to compete.

Politically, the 2 main parties in Greece were rife with rigidity & cronyism, which led to little reform & an ineffective public sector & hence uncompetitive economy.  Inequalities went unchallenged & cheap money covered cracks in the system.  4% growth masked false prosperity.  Rising prices & wage increases eroded economic competitiveness & boosted consumerism, which inflated a housing bubble & boom.  Imports doubled to €3B while exports remained stagnant, which caused balance of payments in Greece to destabilize.  In 2004, Greece won the EuroCup & hosted the Olympics as debt rose to 7% of GDP, twice the rate of the rest of the EU.  2004-2007 Greece took on €56B in debt.  By 2009, the deficit had risen to 9% of GDP that  led to the bailouts in 2010, which were front-loaded & only postponed austerity measures.  The IMF underestimated the fiscal deficit by 100% as the economy shrunk 20% & will shrink by 5% next year.  Unemployment stands @ 25% as salaries have fallen by 19% & taxes rise. & prices remain constant.  This is not sustainable as Greeks feel trapped by the EU.  The IMF is pushing sustainable debt, which is now 170% of GDP. restructuring, & extending maturities.

This situation has developed into a morality play which avoids the structural problems with the Euro & pits fiscal policy vs. growth.  The ESM, European Stability Mechanism, has been given the green light as a banking union is coming, but this doesn’t change reality.  Mistrust still leads to resentment.  The political situation is now more balanced-the Greeks should suffer through austerity for another 2 years as they make inroads on their deficits.  They’ve had current account surpluses for the last 2 months.  Greece has risen in the “Doing business in…” rankings from 100+ to 78.  The potential return of the drachma has spooked investors, so they must continue structural reforms, break down cartels to increase competitiveness, develop tourism opportunities, encourage agriculture to come back, & invest in technology with well-educated youth who have fluency in multiple languages.  Although the future lies with the youth, the power still lies with the old.  Greece needs a new generation of politicians & entrepreneurs.

Q&A

The extreme & nationalistic Golden Doom movement is shocking-civil society is required to combat it.

Although there is no light @ the end of the tunnel, the path laid out by the troika of the ECB, IMF, & EU for the next few years is clear:  austerity, & turning deficits into surpluses, but there are many if’s, such as if all the austerity plans are accepted

There is still much friction slowing down European integration, which hinges on elections in Germany next year.  The result may be a 2-tiered Euro zone, & if Italy falls, the Euro would collapse.

Many Europeans are antagonistic towards the Germans.  Germany has profited since the introduction of the Euro.  As the value of the Euro declines, German exports go up & Germany’s borrowing costs go down.

Politicians are reluctant to take the issue of whether or not there is a “democratic deficit” to the public.

For Greece to leave the Eurozone is not mainstream thought & the politicians have not bought into that.  It would not happen immediately, & the problems are structural:

  • leaving the Euro won’t fix the problems
  • there is yet no coherent tourism strategy
  • the drachma is creating political havoc
  • mainstream parties are pro-Euro
  • to be the 1st to drop out would be disastrous

The architecture of the Euro should be changed to create a level playing field.  Eurobonds would help.  Like the saying “Put water in your wine,” it must be a gradual process.

Greece is targeting solar & wind power on the islands, but they require a stable environment & investment.  They are exploring for oil & gas, & found some on Cyprus.

Ireland’s banking crisis was different & the Irish are borrowing again.  Portugal follows Greece & the ESM is helping.  The world must nurture the periphery of Europe.

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sharkonomics

Friday 16 November, 2012

The Swedish American Chamber of Commerce hosted consultant Stefan Engeseth, who recently came out with a new book, Sharkonomics & made a presentation based on his book.  By way of introduction, when Stefan started off in the corporate world, he didn’t last long because he proposed many changes too quickly.  He was then hired as a consultant & they listened more intently to him than when he was an employee.  His experience is that corporations want to change, but not too quickly.  They want to attack like sharks, but need firewalls for their business models.  His premise is that nature works @ a higher level than strategy.  The problem with reading books & implementing what you read is that they require deep dives into research, which takes a lot of time.  When you finally see a sign that there’s a shark behind you, it’s too late to do anything about it & it eats you up.

Delving into the presentation which you can see yourself here Sharkonomics_online, he started off with a commercial featuring a shark.   A little history reveals that sharks have been evolving for 420M years, to there’s lots of flesh to bite into.  Here’s what Stefan said that’s not included in the presentation:  Engeseth thinks business evolution is stuck & that there’s more that belongs in a museum than in the marketplace.  Why make a change?  Now we’re like goldfish in an aquarium, waiting to be fished out.  Most people swim in a pool because it’s safest, & because you can’t own the ocean.  Nature’s change management is shark bait.  You can usually see the shadow of a shark before you see the shark itself.  For example, Apple’s 1st phone was simply a Motorola phone + iTunes.  Like a shark, Apple then struck unpredictably in stealth mode, & the market leader @ the time, Nokia, did not see Apple coming.  A shark’s g-spot enables them to find blind spots to bite, & then they eat their prey.  All market leaders will fall, or at least most eventually do, according to Jim Collins.  Another example is IKEA, which preys on old furniture businesses.  Nudie Foods in Australia preys on the gap between junk & organic foods.  Richard Branson advocates that the demand for innovation has never been greater.  Again, why change?  Many firms cannot afford not to change.

I posed the question of where this fits relative to Blue Ocean Strategies (BOS) & his response was sharkonomics was the opposite of BOS.  In other words, rather than seek new virgin markets where the sharks don’t swim as BOS advocates, acknowledge the real world & swim like a shark to devour your competitors where possible.

Stefan’s resident expert on shark behavior is Chris Fallows of Apex Predators.

Stefan seems to be a sharp guy & there is something to be learned from shark behavior, while BOS have their place for some firms as well.

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German mid-size companies examples of growth

Tuesday 13 November, 2012

The German American Chamber of Commerce held an event highlighting the backbone of the German economy, the “mittelstand”, mid-sized firms, in Success Strategies from the “Mittelstand.”  This was a fairly big event, as Dr. Juergen Friedrich, CEO of Germany Trade & Invest was flown in from Germany, who noted that American firms are the biggest investors in Germany & that transatlantic commerce comprises 2/3 of the world’s economy.  In Germany, mechanical & electronic technologies contribute to 50% of all exports & 34% of Foreign Direct Investment (FDI).

Ken Bremer, Director of Germany Trade & Invest in Chicago, provided a little background about German mid-sized firms.  95.3% of Germany’s 3.7M companies are family-owned, & 85% are managed by the owners.  24.7% are focused on manufacturing, vs. 13% in the US.  Mid-sized firms train 83% of all trainees, employ 13.9M workers or 61% of all employees, & generate 39.1% of total turnover of German companies.  1300 firms are named as market leaders in electronics, engineering, & industrial products, compared with 366 in the US.  Export revenues have risen from €144B in 2000 to €186B in 2010.  German mid-sized firms use these strategies for success:

  • long-term approach
  • stable client relationships
  • human resources continuity
  • close ties to the local region
  • innovation-54% of firms brought new products to market vs. 34% average for EU firms
  • sound finances-48% with their own equity, 31% debt, 13% public assistance
  • government support

The 1st panel discussion topic was Advanced Manufacturing, which included panelists from Fraunhofer IWS, Rocklin Manufacturing Co., Trebing & Himstedt Prozessautomation GmbH & co. KG.  Orders are down since the onset of the crisis & there is a decline in the knowledge & experience in manufacturing as well.  The US suffers from a herd mentality as they transition from NAFTA-induced macquiladoras in Mexico to manufacturing in China & reshoring back again.  It’s a challenge to find the right person to help in global expansion.  In many cases a local presence is required for support.  Monitor transfer prices on a daily, weekly, & monthly basis.  Follow your customers or other partners to foreign markets-for example 1 firm simple dove-tailed on Siemens distribution network, which got them access to off-the-radar prospects.  It’s also important to create an American website to increase visibility in the US.  To overcome some of these barriers, build personal relationships & do what you say you’re going to do, all of which requires commitments of time & money.  Do your due diligence, be patient, & have realistic expectations.

Panel discussion #2 centered around Green Tech, featuring speakers from Berghof Systems, SIGA Development LLC, & WEMA Glauchau.  1 German firm survived state ownership, but when it was sold to a Soviet firm, they were no longer able to track where their machines were.  They found the Koreans are more reasonable than the Chinese.  Once you learn to export, replicate the process.  Products are developed in Germany to solve specific problems, then standardized for other markets.  Another firm used specific strategies to expand from, for example, Grand Rapids, MI, to Detroit, to Chicago.  Energy policy should establish renewable portfolio standards, determine where we can recycle energy, & provide other incentives to work more efficiently.  Scarce resources are always limited for small firms, but small firms typically have more time than money.  It’s especially difficult to build a business without training, so firms are looking abroad to hire.  Germany’s dual training programs with 1 week in school & 1 week @ work for 3 1/2 years creates well-trained apprentices who don’t just work machines, they learn the systems.  “If you want to sell smart products, you can’t hire dumb people.”  Solving customer problems, finding solutions for customer needs, & simplification by integrating processes all drive German innovation.  Developing products & processes faster & better than competitors is the best way to assure intellectual property protection.  Many countries have banks similar to America’s Export-Import Bank which provide guarantees for sales to high-risk countries.  Knowledge transfer is a problem-German firms bring employees to Germany to expressly deal with the problem.  Learn by doing.  Go there.  Only the paranoid survive.

Other contributors came from LEM Software/Engineering Consultancy for load & energy management, Luri Watersystems GmbH, & Photon AG

While you’ll rarely see meteoric rising firms like Google or Facebook come from Germany, you almost always count on 2-3% productivity improvement every year.  It’s a different mentality, but 1 that works for them. American firms would do well to learn from Mittelstand firms strategies for success.

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Polish ICT presentations in Chicago

Thursday 8 November, 2012

The Polish American Chamber of Commerce in Chicago hosted a delegation of ICT companies visiting from Gdansk, Poland @ the IIT Technology Center.  Over a dozen companies came over to make presentations along with almost the same number of representatives from Invest in Gdansk.  The presentations were streamed live @ AR TV Chicago . Here are the presenters & their bios gdanskoct2012 The organizer said he would send me the presentations, but I have yet to receive them.

The Polish Trade Minister-Counselor based in Washington, D.C. made a brief presentation on their role in trade & investment.  They have 50 offices world-wide, & in the US encourage Polish companies to export more to the US than the US imports from Poland, which is the case today .  Polish firms invested about $500M in foreign direct investment in America in 2011 to widen their footprints in the US.  These companies employ at least 6K workers in the US.  America foreign direct investment in Poland has been up & down, but comes in all over Poland, for R&D centers & other uses.  Poland’s GDP reached $.5TR with 2-4% growth & a population the size of California (38M).  Poland hopes to create 50 Tech Parks in the next decade.  It took a generation or 20-25 years, for Europe to recover from World War II.  Polish leaders believe that they are @ such an inflection point after the fall of the Berlin Wall.