Intellectual Property Issues Within the Supply Chain

Intellectual Property Rights (IPR) are of the utmost importance in today’s capital markets. Not only do they provide protection for innovations which have been developed, but they now offer revenue generating opportunities for proactive companies looking to license or sell their products into new markets.

Unfortunately, there is an oft overlooked aspect of IPR. This is the impact to a company’s supply chain. Specifically what happens if a third party hits you with an infringement claim for technology which is in a vendor supplied component? Or what happens if a vendor goes out of business or decides to get out of a line of business which manufactures a key part for your product? Will your business be hamstrung by someone else’s decision?

Let’s examine how to mitigate the risks associated with those scenarios so that you can keep selling your products.

Build to Spec vs. Build to Print

First some definitions which you should already be aware of, but are worth refreshing. “Build to spec” is when a company literally instructs a vendor to build something that is a certain size and has specific operational parameters. The degree to which the component is specified may vary, but ultimately the vendor is free to use their own design expertise and manufacturing know-how to produce the parts they will supply to you. The benefit is that the vendor retains the responsibility and liability for design and part quality, which may reduce your overhead since you do not need to maintain in-house expertise in an area of subject matter that is not a core competency for your company. The definitive drawback is that the vendor owns the IPR on that part, which may be a key component to your product. More on the impact of this later.

“Build to print” is when a company not only specifies the functional requirements of the part, but they produce assembly drawings, work instructions and call out specific manufacturing practices to be used in producing the parts. This method requires more work and development cost on the part of the company, but the advantage lies in maintaining control of the IPR and having the ability to select any appropriate vendor to produce parts for you. This approach is more costly since you would likely be responsible for design and quality liability issues. Nevertheless, if you possess the subject matter expertise it is always better from the perspective of IPR to design “in-house.” This approach also makes subsequent vertical integration of your business easier.

Clearance Search / Non-Infringement Assessment

When introducing a new product, a patent clearance search is an essential part of business risk mitigation. A clear path to non-infringement of existing patents and applications provides confidence to launch your new ideas.

While most companies work with their legal counsel to ensure their own intellectual property position is secured and they have freedom to operate, most neglect to consider the risk mitigation needs within their vendor base.

All companies need to work with their vendors to ensure a clear path to non-infringement exists. If not, the company may be subject to a claim of direct or contributory infringement resulting from an issue with a vendor supplied component.

These claims can damage the company’s brand and reputation and could even lead to monetary damages to the third party, even though the infringement was on the part of the vendor.

There is a way to mitigate this risk, but there is more than just simply requesting indemnification. Protocols such as a patent clearance search and non-infringement analysis by your vendors should be mandated as part of the qualification process.

Be wary of someone who tells you they’ve looked into third party IPR and it “doesn’t matter” or “won’t be a problem” without sufficient supporting material.

Indemnification Clauses in Supply Agreements

Beyond mandating that a patent clearance search be completed for vendor supplied parts, as the buyer/licensee, you should require explicit language in the supply agreement(s) to cover indemnification from third-party infringement lawsuits.

“The use of [product] by [the buyer/licensee] shall not infringe or otherwise violate the industrial or intellectual property rights of any third party of which [the seller/licensor] has knowledge. If any third party shall assert that [the buyer’s/licensee’s] practice of the Licensed Rights under [the Supply Agreement], whether resultant from explicit knowledge [the buyer/licensee] had or should have had through reasonable due diligence, shall constitute an infringement or misappropriation of that party’s industrial or intellectual property rights, [the seller/licensor] shall in accordance with this Article defend, indemnify and hold [the buyer/licensee] harmless against any and all such claims.”

A request for the licensor to carry insurance in regards to this matter may also be inserted into the supply agreement depending on how much negotiating leverage the buyer maintains. Additionally, most supply agreements provide a use license to the buyer, which is typically transferrable to the end consumer in the case of OEMs and system integrators. Therefore, your customers should be at ease that they will not be subject to a “stop-use” injunction as a result of their purchase of your product.

However, this indemnification requires the additional work of the patent clearance. The language used above necessitates that you are explicitly aware or you should have known about third party patents. At the very least, the language above helps to mitigate any claims of gross negligence, but if a patent clearance initiative is not conducted your company may still be subject to misconduct and damage awards. This misconduct would not be covered by the indemnity, so mitigating this risk requires appropriate steps in the vendor qualification process.

It should be the responsibility of the vendor to convince you that the product they are offering for sale does not infringe on a third party’s IPR. Additionally, you may be aware of certain patents as a result of your own product clearance search or landscaping efforts. You should make it a point to maintain a catalogue or “watch-list” of patents which refer to sub-component items that are sourced from vendors. This watch list should be communicated to the vendor during the qualification process to provide them the opportunity to address these issues if they have not already.

In conducting the patent clearance search the vendor should have legal opinions from their counsel if necessary to demonstrate non-infringement position or a reasonably comprehensive approach to invalidation. Much like your own efforts those opinions should address 1) literal infringement, 2) infringement via the doctrine of equivalents, 3) prosecution history and/or file wrapper estoppel, 4) inequitable conduct, and 5) means for invalidation (if necessary).

Second Source – Another Potential IPR Impediment

For manufacturers who have parts “built to spec” instead of “built to print” another issue arises when it comes to second sourcing and spare parts.

Imagine a scenario in which one of your vendors is providing you a key component of your product, but they subsequently discover a quality issue which leads to a massive recall of that part. The financial and PR cost of an extensive warranty claim may put them out of business, but it can also damage your business if you have numerous units of your own product sold and no way to repair/replace the vendor supplied parts.

If you have something built to spec, then you must have a clause in your supply agreements that refers to your ability to take the vendor’s drawings, manuals, and manufacturing know-how to a second source in the event that they are unable or choose to not provide you with sufficient supply of parts for use or replacement in your product(s).

Also, the more highly you specify the parts to be supplied the more you are in control of the supply scenarios. If you have more than one vendor of a part and these parts are not “interchangeable” then the question should be asked about the risk exposure in case one of those vendors is unable or unwilling to supply you for whatever reason.

Taking precautions to protect your company when it comes to counter-party IPR is not just a good idea… it is a must!

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The Importance of Encoders Product in Your Company

In general, an encoder is a process that converts data from one format to another. An encoder can also be defined as a device that can be used to detect and convert mechanical movements into analogue or digital coded output signals. Encoders are very useful in the industrial world to drive a system in industrial equipment, such as a crane, an encoder mounted on the motor shaft to provide position feedback so that the crane knows when to pick up or release the load. Encoders are also used on observatories, railroad tracks, escalators, etc. Therefore, industrial companies need to work with the best Encoder Manufacturers to ensure their control devices are capable of sending commands for a particular function.

Encoders play a very important role in industrial equipment; these powerful tools are capable of converting digital signals into mechanical commands. It’s no wonder that encoders can be found on almost any industrial machine. As an electro-mechanical device, the encoder can provide information to the motion control system user regarding position, speed, and direction. Based on several references, the encoder is divided into several types such as linear encoder which response to motion along the path, and rotary encoder which response to rotational motion. In addition to linear and rotary encoders, based on their signal, encoders consist of incremental encoders and absolute encoders.

Encoders use a variety of technologies to generate electrical signals; one of the most commonly used by Encoder Manufacturers are optical technology. These signals can be read by several types of control devices in motion control systems. An encoder is a device that can send feedback signals that can be used to determine position, number, speed, and direction. The motion control system translates the signals into commands on industrial machines. For example, in an automatic cutting equipment application, an encoder with a measuring wheel can tell the control device how much material has been fed, so that the control device knows when to cut. In a printing application, feedback from the encoder activates the print head to make a mark at a certain location so that we can print documents perfectly.

All industries need encoder products to perform various functions in their industry. Encoder Manufacturers professionally manufacture encoders and their accessories. All products produced are of high quality and are capable of producing high-precision feedback. Professional industrial companies need encoders that produce high-precision feedback, such as in the industry of aerospace, printing, mobile equipment, textiles, packaging, metal forming, and many more industries.

Make sure your industrial company buys encoder products only at the best Encoder Manufacturers who provide complete services ranging from providing quality products and accessories, the best purchasing service, professional technical support, easily accessible sites, and most importantly an affordable price.

Ignorance in Marketing – Is Poor Grammar Making You Look Stupid?

The scary thing about ignorance is that you don’t know you are ignorant about something until you are made aware of it. And at that point, not only do you realize you were ignorant, but now you are also ashamed and embarrassed, to make matters worse. While everyone is capable of making mistakes whether through ignorance or forgetfulness, I have found that there is no better way to learn something than through the humiliation of being caught in an error, no matter how inadvertent. While ignorance may be bliss, its ramifications are truly mortifying!

As marketing professionals, it is our job to mastermind brilliant ways to bring success to the clients we represent. A marketer’s tools include effective use of language, visuals and sounds, all of which should work together to create a memorable and powerful symbol of appeal.

Unfortunately, this is easier said than done, (should be “more easily said than done” but the original is an idiomatic expression and is acceptable in its cruder form). If a marketer suffers from a lack of knowledge about any of the components within his repertoire, the work he produces may suffer as well.

Grammatical errors seem to take predominance. Examples can be found both in written and spoken form, published and broadcast in news, commentary and advertising formats, as well as weather and traffic reports. No one seems immune these days and the more such errors proliferate through the media, the more the population seems to adopt them as proper form. Often these errors are difficult to trace, whether originating as gang-speak on the street or trickling down from the most reputable icons of our sources of cultural information.

One of the most prevalent of these errors involves the addition of the preposition “of” where it does not belong, as in “not too big ‘of’ a deal,” or “not too bad ‘of’ a ride,” which more correctly should be “not too big a deal” and “not too bad a ride.” I understand where the confusion comes from since it is correct to say “not too much of a problem.” Why is one correct and not the other? It is all based on whether the word before the word “of” is a noun or an adjective. If it is a noun, following it with the word “of” is correct. If it is an adjective, following it with the word “of” is incorrect. Here is a very helpful explanation from wiki.answers:

“The word ‘of’ only belongs with words like ‘much,’ so ‘too much of a problem’ would be correct, but ‘too big of a task’ should instead be ‘too big a task.’ This goes for most adjectives, for instance: ‘too blue a shirt’, ‘too tall a building’, ‘too deep an ocean’, etc.”

The word “much,” which can be an adjective, an adverb or a noun depending on the context, is used as a noun in this instance, according to Merriam Webster dictionary, unlike the words “big,” “blue,” “tall” and “deep” which are used as adjectives. A simple formula to apply for clarification could be:

Too (adjective) a (noun) or…

That (adjective) a (noun) or…

Quite (adjective) a (noun) or…

How (adjective) a (noun)…

…as in “too sassy an attitude” or “that high an elevation” or “quite boring a speech” or “how wonderful an occasion.” The consensus seems to be that interjection of the word “of” in this context seems to be indigenous to North America and is largely informal in use. If this is true, I predict that its current prevalence in language (particularly within the media), no matter how incorrect it may be, will eventually creep into our cultural lexicon to become the permanent rule as opposed to the exception – something I find disheartening after all the effort it takes to remember, understand and apply correct usage.

This reminds me of something my mother taught me many years ago which continues to make me feel like someone from a different planet when I still obey her today, though she’s been dead for more than twenty years. When the phone rings and I am asked, “Is Marilyn there?”, the proper response according to my mother and proper English usage is “This is she” or “I am she.” I am probably the only person on earth who feels compelled to reply in this way leaving the inquirer to think I am putting on airs to elevate my social status, when in fact I am only trying to avoid the guilt of motherly disobedience. The reason it is correct is that there must be agreement between “This” or “I” and “she,” all of which must be in the nominative case. If I were to say, “This is me” or “This is her,” the words “me” and “her” would be in the objective case and would not agree with the subject “This” in the nominative case. But I digress.

What really gets me is that when errors like this are so flagrantly repeated day after day, week after week, within radio traffic reports, for instance, no one of any authority makes an effort to correct them, comment about them, apologize for them or otherwise address them as incorrect. Am I the only one to notice these things?

And why is it important, anyway? Some people feel nitpicking about usage of the English language is pointless since the meaning is clear regardless of such minuscule aberrations. Anyone complaining about these seemingly archaic grammatical rules should “man up” and “get a life!” In today’s world, slang seems to be the universally acceptable format du jour.

Someone like me who is paid to write a wide variety of business marketing items such as letters of introduction, ad copy, website content, press releases, etc., must do so as professionally as possible which includes adhering to proper grammatical usage of the English language. To do anything less than that would be a disservice to my clients who hire me because they cannot do it themselves. Therefore, it is my responsibility to know the rules of syntax thoroughly to be able to defend whatever I write.

But more importantly, having command of the English language in its proper form differentiates a writer or a speaker from those who do not, elevating one’s skills to a more sophisticated level and defining one’s style as eloquent, articulate and expert. Absence of grammatical errors is not something which normally attracts any attention. But subliminally, it evokes respect for what is being presented as authoritative, trustworthy and believable. Interject even a typographical error and suddenly the source of the document is suspect as a charlatan!

I find that if using proper grammar makes you feel pretentious as per my phone retort example above, there is always another way to express oneself and such an exercise actually improves your skills as a writer or speaker since you are constantly challenging yourself to be the best you can be. For instance, instead of struggling with the horrendous “This is she” reply, why not just say, “This is Marilyn” or “I am Marilyn”? Better yet, identify yourself upon answering the phone so there is no need to beg the question.

Need more proof of ignorance run rampant? Among the huge numbers of errors which include misuse of such words as it’s/its, utilization of double negatives, and many others, here are a few examples of common usage issues I encounter frequently in the media:

Of all the accidents reviewed, none were considered serious. (WRONG!)

Of all the accidents reviewed, none was considered serious. (RIGHT!)

Why? Because none implies “not one” which is singular and must be followed by a verb which agrees.

What about use of the Latin abbreviations: i.e. and e.g.? What do they mean, and when and how do you use them? The Latin abbreviation i.e. literally translates as id est which means “that is,” or, “in other words.” The Latin abbreviation e.g. literally translates as exempli gratia, which means “for example.” Therefore, i.e. is used to specify exactly what you mean while e.g. is used to merely provide some examples of what you mean. A comma always follows either abbreviation.

The lecture focused on war, i.e., World War I and World War II.

Soldiers injured during war was part of the discussion, e.g., spinal cord injuries, traumatic brain injuries, etc.

Often in songwriting, grammatical errors occur for the sake of rhyme or rhythm and is apologetically referred to as poetic license. (One example from Jim Morrison and the Doors: “Till the stars fall from the sky, for you and I” This comes to mind because of a common error with objects of the preposition.

With confidentiality as a concern, the investment advisor revealed financial losses only to my wife and I. (WRONG!)

With confidentiality as a concern, the investment advisor revealed financial losses only to my wife and me. (RIGHT!)

In discussions between Bob and I, we agree there is only one correct investment strategy. (WRONG!)

In discussions between Bob and me, we agree there is only one correct investment strategy. (RIGHT!)

Why? Prepositions are followed by the objective case.

And errors pertaining to disagreement of singulars and plurals are extremely common:

Those kind of things. (WRONG!)

That kind of thing or those kinds of things! (RIGHT!)

Errors using the words Fewer and Less: The following are correct examples.

We need fewer problems and less strife in the world.

With fewer hours to work, we accomplish less.

Less milk, fewer bowls of cereal.

But “I want to pay less taxes” is incorrect. While the intention is to convey the idea that you want to pay less money toward your taxes, and the correct “I want to pay fewer taxes” does not truly communicate that meaning, the way to say it correctly could be:

“I want to pay less in tax.” Or, just rephrase completely to say, “I pay thousands in taxes and I want to pay less!”

Errors with the words “Amount of” and “Number of” These examples are correct:

She drank a large amount of milk with her cake.

She passed a great number of lakes on her trip.

A large amount of oil has spilled in the gulf.

Often an additional error occurs in these instances with lack of agreement of verbs with preceding subject (singular or plural)

A large number of fishermen have been impacted. (WRONG!)

A large number…HAS been impacted. (RIGHT!)

Let’s look at the word “lay” which is so commonly misused everywhere. Conversationally, professionally, musically. Ah, yes. Back to the musical violations. Bob Dylan leads the way with “Lay, Lady, Lay” followed closely by Eric Clapton’s “Lay Down, Sally”

In Bob’s case, unless he is referring to laying eggs and Lady is a chicken, he’s way off base. Eric doesn’t have a prayer. He’s just dead wrong, as they say.

How do I remember what is correct? I don’t always but I am not too proud to do some research… in fact, a lot of research. Even though I’ve always had a very good memory for these things, what I remember most is what sounds correct because of my upbringing. My mother was obsessed with teaching me proper English perhaps because her mother only spoke Hungarian. So she hammered exercises like the following into my young brain, day in and day out. Maybe it was her pet peeve but I thank her for her tedium today. Of all the things my parents gave me as a child, I would have to say that their efforts to expose me to proper use of the English language was their greatest gift of all!

Lie, Lay, Lain; Lay, Laid, Laid

I lie down today.

I lay down after supper last night.

I have lain down after eating quite a bit lately.

The dog has been lying there for hours! Lie down, Fido!

Think: recline.

———————————-

I lay the book on the table.

I laid it on the table about an hour ago.

I have laid it on the table many times.

Just lay the book on the table, Melissa.

She is now laying the book on the table.

Think: put or place.

As a marketing professional, I have a natural interest in mainstream marketing. Lately, I have noticed a couple of grammatical infractions in radio advertising for extremely popular brands. Not that this is so uncommon, I just find it unfortunate because our culture, particularly the younger members of our population, mainline the media’s message through sound, often more than through print, ingesting such errors as acceptable forms of speech. While I can understand the use of less-than-perfect English to represent a fictitious character rather than a true person, (the way snarky Popeye had to eat “me spinach,” true to the sailor-man that he was), deliberately saying “This is one of them cases” when the word “those” could easily have sufficed makes no sense to me. Likewise, saying “It worked pretty good” instead of “…pretty well” may have been for the purpose of appealing to a more blue-collar market but hardly can be justified as responsible advertising if it is teaching our children to speak like street urchins.

Often clients complain if I add a hyphen where it belongs when they send me a slogan to use verbatim. I regard it as my duty to explain why I added the hyphen but give them the option of omitting it if that is their preference. After all, how many years did we listen to the defiantly improper, Madison-Avenue-produced branding: “Winston tastes good like a cigarette should”?

So, while it may be acceptable in some contexts to regard proper grammar flippantly, doing so on a professional level may result in a blow to your reputation, doubt about your expertise, and ultimately loss of business. If you compromise the language knowingly, that’s one thing. But if you do so out of ignorance, you do so at your own risk.

Overview of Zimbabwean Banking Sector (Part One)

Entrepreneurs build their business within the context of an environment which they sometimes may not be able to control. The robustness of an entrepreneurial venture is tried and tested by the vicissitudes of the environment. Within the environment are forces that may serve as great opportunities or menacing threats to the survival of the entrepreneurial venture. Entrepreneurs need to understand the environment within which they operate so as to exploit emerging opportunities and mitigate against potential threats.

This article serves to create an understanding of the forces at play and their effect on banking entrepreneurs in Zimbabwe. A brief historical overview of banking in Zimbabwe is carried out. The impact of the regulatory and economic environment on the sector is assessed. An analysis of the structure of the banking sector facilitates an appreciation of the underlying forces in the industry.

Historical Background

At independence (1980) Zimbabwe had a sophisticated banking and financial market, with commercial banks mostly foreign owned. The country had a central bank inherited from the Central Bank of Rhodesia and Nyasaland at the winding up of the Federation.

For the first few years of independence, the government of Zimbabwe did not interfere with the banking industry. There was neither nationalisation of foreign banks nor restrictive legislative interference on which sectors to fund or the interest rates to charge, despite the socialistic national ideology. However, the government purchased some shareholding in two banks. It acquired Nedbank’s 62% of Rhobank at a fair price when the bank withdrew from the country. The decision may have been motivated by the desire to stabilise the banking system. The bank was re-branded as Zimbank. The state did not interfere much in the operations of the bank. The State in 1981 also partnered with Bank of Credit and Commerce International (BCCI) as a 49% shareholder in a new commercial bank, Bank of Credit and Commerce Zimbabwe (BCCZ). This was taken over and converted to Commercial Bank of Zimbabwe (CBZ) when BCCI collapsed in 1991 over allegations of unethical business practices.

This should not be viewed as nationalisation but in line with state policy to prevent company closures. The shareholdings in both Zimbank and CBZ were later diluted to below 25% each.

In the first decade, no indigenous bank was licensed and there is no evidence that the government had any financial reform plan. Harvey (n.d., page 6) cites the following as evidence of lack of a coherent financial reform plan in those years:

– In 1981 the government stated that it would encourage rural banking services, but the plan was not implemented.

– In 1982 and 1983 a Money and Finance Commission was proposed but never constituted.

– By 1986 there was no mention of any financial reform agenda in the Five Year National Development Plan.

Harvey argues that the reticence of government to intervene in the financial sector could be explained by the fact that it did not want to jeopardise the interests of the white population, of which banking was an integral part. The country was vulnerable to this sector of the population as it controlled agriculture and manufacturing, which were the mainstay of the economy. The State adopted a conservative approach to indigenisation as it had learnt a lesson from other African countries, whose economies nearly collapsed due to forceful eviction of the white community without first developing a mechanism of skills transfer and capacity building into the black community. The economic cost of inappropriate intervention was deemed to be too high. Another plausible reason for the non- intervention policy was that the State, at independence, inherited a highly controlled economic policy, with tight exchange control mechanisms, from its predecessor. Since control of foreign currency affected control of credit, the government by default, had a strong control of the sector for both economic and political purposes; hence it did not need to interfere.

Financial Reforms

However, after 1987 the government, at the behest of multilateral lenders, embarked on an Economic and Structural Adjustment Programme (ESAP). As part of this programme the Reserve Bank of Zimbabwe (RBZ) started advocating financial reforms through liberalisation and deregulation. It contended that the oligopoly in banking and lack of competition, deprived the sector of choice and quality in service, innovation and efficiency. Consequently, as early as 1994 the RBZ Annual Report indicates the desire for greater competition and efficiency in the banking sector, leading to banking reforms and new legislation that would:

– allow for the conduct of prudential supervision of banks along international best practice

– allow for both off-and on-site bank inspections to increase RBZ’s Banking Supervision function and

– enhance competition, innovation and improve service to the public from banks.

Subsequently the Registrar of Banks in the Ministry of Finance, in liaison with the RBZ, started issuing licences to new players as the financial sector opened up. From the mid-1990s up to December 2003, there was a flurry of entrepreneurial activity in the financial sector as indigenous owned banks were set up. The graph below depicts the trend in the numbers of financial institutions by category, operating since 1994. The trend shows an initial increase in merchant banks and discount houses, followed by decline. The increase in commercial banks was initially slow, gathering momentum around 1999. The decline in merchant banks and discount houses was due to their conversion, mostly into commercial banks.

Source: RBZ Reports

Different entrepreneurs used varied methods to penetrate the financial services sector. Some started advisory services and then upgraded into merchant banks, while others started stockbroking firms, which were elevated into discount houses.

From the beginning of the liberalisation of the financial services up to about 1997 there was a notable absence of locally owned commercial banks. Some of the reasons for this were:

– Conservative licensing policy by the Registrar of Financial Institutions since it was risky to licence indigenous owned commercial banks without an enabling legislature and banking supervision experience.

– Banking entrepreneurs opted for non-banking financial institutions as these were less costly in terms of both initial capital requirements and working capital. For example a merchant bank would require less staff, would not need banking halls, and would have no need to deal in costly small retail deposits, which would reduce overheads and reduce the time to register profits. There was thus a rapid increase in non-banking financial institutions at this time, e.g. by 1995 five of the ten merchant banks had commenced within the previous two years. This became an entry route of choice into commercial banking for some, e.g. Kingdom Bank, NMB Bank and Trust Bank.

It was expected that some foreign banks would also enter the market after the financial reforms but this did not occur, probably due to the restriction of having a minimum 30% local shareholding. The stringent foreign currency controls could also have played a part, as well as the cautious approach adopted by the licensing authorities. Existing foreign banks were not required to shed part of their shareholding although Barclay’s Bank did, through listing on the local stock exchange.

Harvey argues that financial liberalisation assumes that removing direction on lending presupposes that banks would automatically be able to lend on commercial grounds. But he contends that banks may not have this capacity as they are affected by the borrowers’ inability to service loans due to foreign exchange or price control restrictions. Similarly, having positive real interest rates would normally increase bank deposits and increase financial intermediation but this logic falsely assumes that banks will always lend more efficiently. He further argues that licensing new banks does not imply increased competition as it assumes that the new banks will be able to attract competent management and that legislation and bank supervision will be adequate to prevent fraud and thus prevent bank collapse and the resultant financial crisis. Sadly his concerns do not seem to have been addressed within the Zimbabwean financial sector reform, to the detriment of the national economy.

The Operating Environment

Any entrepreneurial activity is constrained or aided by its operating environment. This section analyses the prevailing environment in Zimbabwe that could have an effect on the banking sector.

Politico-legislative

The political environment in the 1990s was stable but turned volatile after 1998, mainly due to the following factors:

– an unbudgeted pay out to war veterans after they mounted an assault on the State in November 1997. This exerted a heavy strain on the economy, resulting in a run on the dollar. Resultantly the Zimbabwean dollar depreciated by 75% as the market foresaw the consequences of the government’s decision. That day has been recognised as the beginning of severe decline of the country’s economy and has been dubbed “Black Friday”. This depreciation became a catalyst for further inflation. It was followed a month later by violent food riots.

– a poorly planned Agrarian Land Reform launched in 1998, where white commercial farmers were ostensibly evicted and replaced by blacks without due regard to land rights or compensation systems. This resulted in a significant reduction in the productivity of the country, which is mostly dependent on agriculture. The way the land redistribution was handled angered the international community, that alleges it is racially and politically motivated. International donors withdrew support for the programme.

– an ill- advised military incursion, named Operation Sovereign Legitimacy, to defend the Democratic Republic of Congo in 1998, saw the country incur massive costs with no apparent benefit to itself and

– elections which the international community alleged were rigged in 2000,2003 and 2008.

These factors led to international isolation, significantly reducing foreign currency and foreign direct investment flow into the country. Investor confidence was severely eroded. Agriculture and tourism, which traditionally, are huge foreign currency earners crumbled.

For the first post independence decade the Banking Act (1965) was the main legislative framework. Since this was enacted when most commercial banks where foreign owned, there were no directions on prudential lending, insider loans, proportion of shareholder funds that could be lent to one borrower, definition of risk assets, and no provision for bank inspection.

The Banking Act (24:01), which came into effect in September 1999, was the culmination of the RBZ’s desire to liberalise and deregulate the financial services. This Act regulates commercial banks, merchant banks, and discount houses. Entry barriers were removed leading to increased competition. The deregulation also allowed banks some latitude to operate in non-core services. It appears that this latitude was not well delimited and hence presented opportunities for risk taking entrepreneurs. The RBZ advocated this deregulation as a way to de-segment the financial sector as well as improve efficiencies. (RBZ, 2000:4.) These two factors presented opportunities to enterprising indigenous bankers to establish their own businesses in the industry. The Act was further revised and reissued as Chapter 24:20 in August 2000. The increased competition resulted in the introduction of new products and services e.g. e-banking and in-store banking. This entrepreneurial activity resulted in the “deepening and sophistication of the financial sector” (RBZ, 2000:5).

As part of the financial reforms drive, the Reserve Bank Act (22:15) was enacted in September 1999.

Its main purpose was to strengthen the supervisory role of the Bank through:

– setting prudential standards within which banks operate

– conducting both on and off-site surveillance of banks

– enforcing sanctions and where necessary placement under curatorship and

– investigating banking institutions wherever necessary.

This Act still had deficiencies as Dr Tsumba, the then RBZ governor, argued that there was need for the RBZ to be responsible for both licensing and supervision as “the ultimate sanction available to a banking supervisor is the knowledge by the banking sector that the license issued will be cancelled for flagrant violation of operating rules”. However the government seemed to have resisted this until January 2004. It can be argued that this deficiency could have given some bankers the impression that nothing would happen to their licences. Dr Tsumba, in observing the role of the RBZ in holding bank management, directors and shareholders responsible for banks viability, stated that it was neither the role nor intention of the RBZ to “micromanage banks and direct their day to day operations. “

It appears though as if the view of his successor differed significantly from this orthodox view, hence the evidence of micromanaging that has been observed in the sector since December 2003.

In November 2001 the Troubled and Insolvent Banks Policy, which had been drafted over the previous few years, became operational. One of its intended goals was that, “the policy enhances regulatory transparency, accountability and ensures that regulatory responses will be applied in a fair and consistent manner” The prevailing view on the market is that this policy when it was implemented post 2003 is definitely deficient as measured against these ideals. It is contestable how transparent the inclusion and exclusion of vulnerable banks into ZABG was.

A new governor of the RBZ was appointed in December 2003 when the economy was on a free-fall. He made significant changes to the monetary policy, which caused tremors in the banking sector. The RBZ was finally authorised to act as both the licensing and regulatory authority for financial institutions in January 2004. The regulatory environment was reviewed and significant amendments were made to the laws governing the financial sector.

The Troubled Financial Institutions Resolution Act, (2004) was enacted. As a result of the new regulatory environment, a number of financial institutions were distressed. The RBZ placed seven institutions under curatorship while one was closed and another was placed under liquidation.

In January 2005 three of the distressed banks were amalgamated on the authority of the Troubled Financial Institutions Act to form a new institution, Zimbabwe Allied Banking Group (ZABG). These banks allegedly failed to repay funds advanced to them by the RBZ. The affected institutions were Trust Bank, Royal Bank and Barbican Bank. The shareholders appealed and won the appeal against the seizure of their assets with the Supreme Court ruling that ZABG was trading in illegally acquired assets. These bankers appealed to the Minister of Finance and lost their appeal. Subsequently in late 2006 they appealed to the Courts as provided by the law. Finally as at April 2010 the RBZ finally agreed to return the “stolen assets”.

Another measure taken by the new governor was to force management changes in the financial sector, which resulted in most entrepreneurial bank founders being forced out of their own companies under varying pretexts. Some eventually fled the country under threat of arrest. Boards of Directors of banks were restructured.

Economic Environment

Economically, the country was stable up to the mid 1990s, but a downturn started around 1997-1998, mostly due to political decisions taken at that time, as already discussed. Economic policy was driven by political considerations. Consequently, there was a withdrawal of multi- national donors and the country was isolated. At the same time, a drought hit the country in the season 2001-2002, exacerbating the injurious effect of farm evictions on crop production. This reduced production had an adverse impact on banks that funded agriculture. The interruptions in commercial farming and the concomitant reduction in food production resulted in a precarious food security position. In the last twelve years the country has been forced to import maize, further straining the tenuous foreign currency resources of the country.

Another impact of the agrarian reform programme was that most farmers who had borrowed money from banks could not service the loans yet the government, which took over their businesses, refused to assume responsibility for the loans. By concurrently failing to recompense the farmers promptly and fairly, it became impractical for the farmers to service the loans. Banks were thus exposed to these bad loans.

The net result was spiralling inflation, company closures resulting in high unemployment, foreign currency shortages as international sources of funds dried up, and food shortages. The foreign currency shortages led to fuel shortages, which in turn reduced industrial production. Consequently, the Gross Domestic Product (GDP) has been on the decline since 1997. This negative economic environment meant reduced banking activity as industrial activity declined and banking services were driven onto the parallel rather than the formal market.

As depicted in the graph below, inflation spiralled and reached a peak of 630% in January 2003. After a brief reprieve the upward trend continued rising to 1729% by February 2007. Thereafter the country entered a period of hyperinflation unheard of in a peace time period. Inflation stresses banks. Some argue that the rate of inflation rose because the devaluation of the currency had not been accompanied by a reduction in the budget deficit. Hyperinflation causes interest rates to soar while the value of collateral security falls, resulting in asset-liability mismatches. It also increases non-performing loans as more people fail to service their loans.

Effectively, by 2001 most banks had adopted a conservative lending strategy e.g. with total advances for the banking sector being only 21.7% of total industry assets compared to 31.1% in the previous year. Banks resorted to volatile non- interest income. Some began to trade in the parallel foreign currency market, at times colluding with the RBZ.

In the last half of 2003 there was a severe cash shortage. People stopped using banks as intermediaries as they were not sure they would be able to access their cash whenever they needed it. This reduced the deposit base for banks. Due to the short term maturity profile of the deposit base, banks are normally not able to invest significant portions of their funds in longer term assets and thus were highly liquid up to mid-2003. However in 2003, because of the demand by clients to have returns matching inflation, most indigenous banks resorted to speculative investments, which yielded higher returns.

These speculative activities, mostly on non-core banking activities, drove an exponential growth within the financial sector. For example one bank had its asset base grow from Z$200 billion (USD50 million) to Z$800 billion (USD200 million) within one year.

However bankers have argued that what the governor calls speculative non-core business is considered best practice in most advanced banking systems worldwide. They argue that it is not unusual for banks to take equity positions in non-banking institutions they have loaned money to safeguard their investments. Examples were given of banks like Nedbank (RSA) and J P Morgan (USA) which control vast real estate investments in their portfolios. Bankers argue convincingly that these investments are sometimes used to hedge against inflation.

The instruction by the new governor of the RBZ for banks to unwind their positions overnight, and the immediate withdrawal of an overnight accommodation support for banks by the RBZ, stimulated a crisis which led to significant asset-liability mismatches and a liquidity crunch for most banks. The prices of properties and the Zimbabwe Stock Exchange collapsed simultaneously, due to the massive selling by banks that were trying to cover their positions. The loss of value on the equities market meant loss of value of the collateral, which most banks held in lieu of the loans they had advanced.

During this period Zimbabwe remained in a debt crunch as most of its foreign debts were either un-serviced or under-serviced. The consequent worsening of the balance of payments (BOP) put pressure on the foreign exchange reserves and the overvalued currency. Total government domestic debt rose from Z$7.2 billion (1990) to Z$2.8 trillion (2004). This growth in domestic debt emanates from high budgetary deficits and decline in international funding.

Socio-cultural

Due to the volatile economy after the 1990s, the population became fairly mobile with a significant number of professionals emigrating for economic reasons. The Internet and Satellite television made the world truly a global village. Customers demanded the same level of service excellence they were exposed to globally. This made service quality a differential advantage. There was also a demand for banks to invest heavily in technological systems.

The increasing cost of doing business in a hyperinflationary environment led to high unemployment and a concomitant collapse of real income. As the Zimbabwe Independent (2005:B14) so keenly observed, a direct outcome of hyperinflationary environment is, “that currency substitution is rife, implying that the Zimbabwe dollar is relinquishing its function as a store of value, unit of account and medium of exchange” to more stable foreign currencies.

During this period an affluent indigenous segment of society emerged, which was cash rich but avoided patronising banks. The emerging parallel market for foreign currency and for cash during the cash crisis reinforced this. Effectively, this reduced the customer base for banks while more banks were coming onto the market. There was thus aggressive competition within a dwindling market.

Socio-economic costs associated with hyperinflation include: erosion of purchasing power parity, increased uncertainty in business planning and budgeting, reduced disposable income, speculative activities that divert resources from productive activities, pressure on the domestic exchange rate due to increased import demand and poor returns on savings. During this period, to augment income there was increased cross border trading as well as commodity broking by people who imported from China, Malaysia and Dubai. This effectively meant that imported substitutes for local products intensified competition, adversely affecting local industries.

As more banks entered the market, which had suffered a major brain drain for economic reasons, it stood to reason that many inexperienced bankers were thrown into the deep end. For example the founding directors of ENG Asset Management had less than five years experience in financial services and yet ENG was the fastest growing financial institution by 2003. It has been suggested that its failure in December 2003 was due to youthful zeal, greed and lack of experience. The collapse of ENG affected some financial institutions that were financially exposed to it, as well as eliciting depositor flight leading to the collapse of some indigenous banks.

Trade, Jobs and Growth: Facts Before Folly

Trade.

Our new President rails against it, unions denigrate it, and unemployed blame it. And not without reason. On trade, jobs and economic growth, the US has performed less than stellar.

Let’s look at the data, but then drill down a bit to the nuances. Undirected bluster to reduce trade deficits and grow jobs will likely stumble on those nuances. Rather, an appreciation of economic intricacies must go hand-in-hand with bold action.

So let’s dive in.

The US Performance – Trade, Jobs and Growth

For authenticity, we turn to (by all appearances) unbiased and authoritative sources. For trade balances, we use the ITC, International Trade Commission, in Switzerland; for US employment, we use the US BLS, Bureau of Labor Statistics; and for overall economic data across countries we drawn on the World Bank.

Per the ITC, the United State amassed a merchandise trade deficit of $802 billion in 2015, the largest such deficit of any country. This deficit exceeds the sum of the deficits for the next 18 countries. The deficit does not represent an aberration; the US merchandise trade deficit averaged $780 billion over the last 5 years, and we have run a deficit for all the last 15 years.

The merchandise trade deficit hits key sectors. In 2015, consumer electronics ran a deficit of $167 billion; apparel $115 billion; appliances and furniture $74 billion; and autos $153 billion. Some of these deficits have increased noticeably since 2001: Consumer electronics up 427%, furniture and appliances up 311%. In terms of imports to exports, apparel imports run 10 times exports, consumer electronics 3 times; furniture and appliances 4 times.

Autos has a small silver lining, the deficit up a relatively moderate 56% in 15 years, about equal to inflation plus growth. Imports exceed exports by a disturbing but, in relative terms, modest 2.3 times.

On jobs, the BLS reports a loss of 5.4 million US manufacturing jobs from 1990 to 2015, a 30% drop. No other major employment category lost jobs. Four states, in the “Belt” region, dropped 1.3 million jobs collectively.

The US economy has only stumbled forward. Real growth for the past 25 years has averaged only just above two percent. Income and wealth gains in that period have landed mostly in the upper income groups, leaving the larger swath of America feeling stagnant and anguished.

The data paint a distressing picture: the US economy, beset by persistent trade deficits, hemorrhages manufacturing jobs and flounders in low growth. This picture points – at least at first look – to one element of the solution. Fight back against the flood of imports.

The Added Perspectives – Unfortunate Complexity

Unfortunately, economics rarely succumbs to simple explanations; complex interactions often underlie the dynamics.

So let’s take some added perspectives.

While the US amasses the largest merchandise trade deficit, that deficit does not rank the largest as a percent of Gross Domestic Product (GDP.) Our country hits about 4.5% on that basis. The United Kingdom hits a 5.7% merchandise trade deficit as a percent of GDP; India a 6.1%, Hong Kong a 15% and United Arab Emirates an 18%. India has grown over 6% per year on average over the last quarter century, and Hong Kong and UAE a bit better than 4%. Turkey, Egypt, Morocco, Ethiopia, Pakistan, in all about 50 countries run merchandise trade deficits as a group averaging 9% of GDP, but grow 3.5% a year or better.

Note the term “merchandise” trade deficit. Merchandise involves tangible goods – autos, Smartphones, apparel, steel. Services – legal, financial, copyright, patent, computing – represent a different group of goods, intangible, i.e. hard to hold or touch. The US achieves here a trade surplus, $220 billion, the largest of any country, a notable partial offset to the merchandise trade deficit.

The trade deficit also masks the gross dollar value of trade. The trade balance equals exports minus imports. Certainly imports represent goods not produced in a country, and to some extent lost employment. On the other hand, exports represent the dollar value of what must be produced or offered, and thus employment which occurs. In exports, the US ranks first in services and second in merchandise, with a combined export value of $2.25 trillion per year.

Now, we seek here not to prove our trade deficit benevolent, or without adverse impact. But the data do temper our perspective.

First, with India as one example, we see that trade deficits do not inherently restrict growth. Countries with deficits on a GDP basis larger than the US have grown faster than the US. And further below, we will see examples of countries with trade surpluses, but which did not grow rapidly, again tempering a conclusion that growth depends directly on trade balances.

Second, given the importance of exports to US employment, we do not want action to reduce our trade deficit to secondarily restrict or hamper exports. This applies most critically where imports exceed exports by smaller margins; efforts here to reduce a trade deficit, and garner jobs, could trigger greater job losses in exports.

Job Loss Nuances

As note earlier, manufacturing has endured significant job losses over the last quarter century, a 30% reduction, 5.4 million jobs lost. Key industries took even greater losses, on a proportional basis. Apparel lost 1.3 million jobs or 77% of its US job base; electronics employment dropped 540 thousand or 47%, and paper lost 270 thousand jobs, or 42%.

A state-by-state look, though, reveals some twists. While the manufacturing belt receives attention, no individual state in that belt – Pennsylvania, Ohio, Illinois, Indiana and Michigan – suffered the greatest manufacturing loss for a state. Rather, California lost more manufacturing jobs than any state, 673 thousand. And on a proportional basis, North Carolina, at a manufacturing loss equal to 8.6% of its total job base, lost a greater percent than any of the five belt states.

Why then do California and North Carolina not generally arise in discussions of manufacturing decline? Possibly due to their generating large numbers of new jobs.

The five belts states under discussion lost 1.41 million manufacturing jobs in the last quarter century. During that period, those five states offset those loses and grew the job base 2.7 million new jobs, a strong response.

Similarly, four non-belt states – California and North Carolina, mentioned above, plus Virginia and Tennessee – lost 1.35 million manufacturing jobs. Those states, however, offset those loses and generated a net of 6.2 million new jobs.

The belt states thus grew 1.9 jobs per manufacturing job lost, while the four states grew 4.6 jobs per manufacturing job lost.

Other states mimic this disparity. New York and New Jersey ran a job growth to manufacturing job lost ratio of under two (1.3 and 2.0 respectively), Rhode Island less than one (at .57), and Massachusetts just over two (at 2.2). Overall, the 8 states of the Northeast (New England plus New York and New Jersey) lost 1.3 million manufacturing jobs, equal to 6.5% of the job base, but grew the job base by only 1.7 jobs per manufacturing job loss.

In contrast, seven states that possess heavy manufacturing employment, and losses, but lie outside the belt, the Northeast, and the CA/VA/TN/NC group, grew 4.6 jobs per manufacturing job lost. These seven are Maryland, Georgia, South Carolina. Mississippi, Alabama, Missouri, and Arizona.

For the four groups, here are the job growth percentages, over the last quarter century.

Northeast                        12.6%                      8 States

Belt 12.3% 5 States

VA/TN/CA/NC 30.2% 4 States

Group of Seven 27.3% 7 States

Imports definitely triggered manufacturing job loss. But states in the last two groups rebounded more strongly. In a particularly good recovery, North Carolina, once heavy in furniture and apparel, lost 44% of its manufacturing jobs, but did not see stagnation of its economic base.

Why? Manufacturing loss due to imports stands as only one determinant of overall job growth. Other factors – climate, taxes, cost of living, unionization (or lack of), congestion (or lack of), government policies, educational base, population trends – impact job creation equally or more. North Carolina for example, features universities and research centers; moderately sized and relatively uncongested cities (Charlotte and Raleigh); low unionization; temperate winters; and so on.

This does not downplay the hardships that individuals, families and communities experience from manufacturing job loss. And job growth in other sectors does not offer a direct cure for manufacturing declines. The higher paying jobs in other sectors often require college or advanced degrees, something those losing a manufacturing job may not possess.

A note of caution though. Even absent trade, technology and automation drive growing requirements for college education. Manufacturing workers directly build less; rather workers control machines, complex computer-controlled machines, which build. Operating those machines, designing those machines, programming those machines, that type work increasingly involves advanced degrees.

Think historically. Automation reduced farm employment, and all but made extinct elevator operators, ice deliverers and telephone switchboard cord workers. Similarly, automation today has and will continue to impact manufacturing employment.

Trade Deficits and National Growth

Let’s return now to country-to-country comparisons, to search for added insights. Earlier we saw that countries with trade deficits had achieved strong economic growth. So a deficit does not inherently create economic stagnation.

Let’s now look at the flip side – do trade surpluses trigger growth. China certainly has achieved both. They have grown, on average, an amazing 9-10% per year for the last quarter century, and have amazed a trade surplus with the world of $325 billion per year over the last five years.

Other countries have achieved the same dual success, of trade surpluses and strong growth. Korea, Ireland, Singapore, Nigeria, are among a list of ten major countries with consistent trade surpluses and strong growth.

A wider scan though, across approximately 140 countries for which the World Bank/ITC report data on both GDP growth and trade, shows more complexity. In particular, another group of 18 countries achieved trade surpluses, but did not growth appreciably more than the US.

Germany, Denmark, Sweden, Switzerland, and Brazil, among others, populate this group. Overall, this group attains trade surpluses at five percent of GDP, but has grown on average only about 1.5% in real terms over the last quarter century. This growth underperforms the US.

In a further look, three countries with apparel imports to the US – Vietnam, Pakistan and Bangladesh – have extraordinary growth, but have trade deficits. Overall, across the 140 countries, no detectable relation exists between trade surpluses/deficits and growth.

Productivity

What does show a relation to growth, in the World Bank data? Per capita GDP, in a counter intuitive way. Countries with lower per capital GDP have grown faster, while those with the highest per capita have averaged a meager 2% growth over the last 15-25 years.

This reverse relation, higher per capita aligned with lower growth, highlights a major, if not the major, determinant of growth, productivity. GDP represents that total of what a country produces. And for a given worker base, GDP can grow only if the workers produce more per worker, i.e. improve productivity.

Now compare the opportunity to apply efficiency gains in low per capita verses high per capita countries. Though not universally true, in many parts of low per capita countries good opportunities exist due to the limited adoption of the best available means. Efficiency gains in farming, and in manufacturing, and in distribution, basically in almost all facets of the economy, can be achieved by adopting efficiency measures already available from and proven by other countries.

Not so in high per capita countries. Such countries, in achieving high per capita GDP, their high output per worker, have likely already deployed available efficiency techniques. Efficiency gains cannot simply be pulled “off-the-shelf” or brought in from other countries or firms. Rather such gains must arise from, often complex and pain-taking, research, trial and analysis.

Productivity alone certainly does not determine economic growth. Population trends, labor force participation, education infrastructure, capacity utilization, these and other items also enable or retard economic growth. But productivity provides the base upon which those other factors build.

North America

We should study a region receiving strong attention, the North American market. Much discussion has been directed at the trade in that market and the impact of trade agreements.

In the last 15 years, rather than increase, the US combined trade deficit with Mexico and Canada has decreased $5 billion per year, from $87 billion to $82 billion. This decline consists of a $35 billion decrease in the deficit with Canada and a $30 billion increase with Mexico. At a product level, the US trade deficit with Mexico/Canada combined increased for autos ($23 billion a year increase), oil ($11 billion), and electronics ($5 billion); and decreased for chemicals ($14 Billion), aircraft/ships/trains ($7 billion) and apparel ($6 billion). The deficit also decreased for paper products, lumber, and metals, and increased for furniture, agriculture and pharmaceuticals.

The $5 billion shift in the deficit masks the rather enormous growth on a gross basis of trade. Imports to the US from Canada and Mexico increased $245 billion between 2001 and 2015, and exports increased $251 billion in the same period. Note the balance between the increases, with export growth matching, actually exceeding, import growth. This speaks of a relative balance in employment impacts.

For example, North American trade can involve US sending medical equipment to Mexico, equipment not available from a Mexican producer, and Mexico sending agricultural goods to the US, goods out of season for US farms. Both countries benefit with added products, and both benefit from added employment. Even if imports from Mexico substitute for goods that could have been produced in the US (i.e. the imports hurt American workers), the relative balance of import/export growth in North America means this substitution offsets.

That relative balance is important. We will see later a lack of such balance with China.

North American trade also builds efficient supply chains. We can picture that US efficiently produced chemicals feed into low cost production of auto parts in Mexico, while American engineers in Michigan design cars which will use engines from Canada and plastic parts from Mexico for assembly in Ohio. Certainly we would like the parts made in Mexico to rather be made in America, and same with the engines, but the US competes with the world in the auto market. Absent efficient supply chains, US autos will become increasingly non-competitive in the world market. China has yet to significantly penetrate the American auto market, and efficient North American supply chains will provide a defense against the Chinese juggernaut.

Trade also lowers prices. While lower prices lack the visceral impact of a closing plant, we can picture that American sub-compact cars, made lower in cost through production across North America, remaining competitive with imports. Thus a US college graduate buys a Ford, Dodge, or Chevy, rather than a Korean import.

Further, North American trade gives American export producers greater economies of scale. So a Canadian or Mexican outdoor enthusiast buys an American made high-tech hiking boot, rather than one made in Asia because the American producer gained efficiencies by selling into the larger North American market.

What do we make of this? On balance, neutral. Some pluses, some minuses. Mexico has taken manufacturing jobs, but exports to Mexico offer job opportunities. We compete with Mexican and Canadian products, but American producers sell to a larger market. We run a deficit, but the deficit has stabilized. Imports have risen, but exports more so. And all involved obtain lower prices and integrated supply chains.

Can trade agreements in North America be improved? Certainly. Can American companies bring a finer pencil to cost reduction to keep manufacturing in America? Certainly. Should harsh publicity and government review of plant closings bring counter pressure on corporations driven by Wall Street interests? Certainly.

But on balance North American trade impacts America in a neutral way.

But this pertains to North America. Next, Asian Pacific. The impact reigns not so neutral, at least with respect to one country.

Asian Pacific

One country, China.

China dominates.

China dominates the trade dollars with the US, with the whole word for that matter.

China ranks as the number one merchandise export country, with $2.2 billion in 2015. Since 2001, China has grown its exports by 750%. China has the highest trade surplus of any country, with an average surplus of $325 billion over the last five years, and $600 billion in 2015 as dropping oil prices trimmed the value of Chinese oil imports.

As for the US, China accumulated a 2015 trade surplus of $386 billion. That Chinese trade surplus with the US (aka US trade deficit with China) represents 48% of the total US merchandise trade deficit for that year. Japan, which in 2001 garnered 16% of the US trade deficit, dropped to 9% by 2015. Mexico hit 7.0% of our deficit in 2001, and despite rhetoric took only 7.6% in 2015. Canada dropped from 12.6% to 2.6%. The Chinese portion of our trade deficit dwarfs that of any other country.

Between 2001 and 2015 the US deficit with China increased by $296 billion. That represents a mind-numbing 84% of the total increase in the US deficit in that period. That means the remaining 16% was spread across our almost 225 other trading partners.

A key feature of trade involves the ratio of imports to exports. We discussed that in the North American trade section. If that ratio, of imports to exports, stands near one, i.e. our imports do not radically exceed exports, then the trade export flow to that country nominally generates employment in the US offsetting lost employment opportunity of the imports. With Canada we run 1.1, and Mexico 1.25 (and 0.7 and 1.22 on the increase since 2001), so that as explained above, our trade flows with those countries balance, and the employment impacts stays approximately neutral.

China does not fit that mold. We run an import to exports ratio with China of 4.3, or $4.30 of imports to every $1.00 of exports. Thus Chinese imports reduce employment potential with no offsetting employment generated by exports to China.

Removal of China from our trade statistics further highlights the singular impact of China. Removing China, and adding in services, the US exported $2.1 trillion in products and services in 2015, against imports of $2.3 trillion. The ratio of imports to exports, on this basis, drops to a favorable 1.1, and the $200 billion deficit runs at only a bit bigger than 1% of GDP. With China removed, the countries with which the US runs the largest trade deficits are Germany and Japan. We should be able to compete with those two developed countries, without concern about low wage labor.

We can compare the Chinese trade dominance in the US with the lack of dominance of other Asian and Asian Pacific countries. India provides a critical example, as it parallels China as a large developing rapidly growing Asian country. China, as noted before, achieved a world trade surplus of $325 billion per year over five years; India a trade deficit of $78 billion a year (5 year average). With respect to the US, India garnered a 2015 surplus of $25 billion, a positive, but quite small compared to $386 billion mentioned above of China.

A wider look across Asia shows the same. Combined, the 13 major Asian countries outside China and India (for example Japan, Australia, Indonesia, Philippines, Pakistan) run a world trade deficit, as a last five year average, of $45 billion. The combined GDP of these countries equals China’s, but the US trade deficit with the 13 amounts to about a third of China’s, and importantly the increase in the deficit since 2001 hits a modest $29 billion, one-tenth China’s increase. The key US import/export ratio with the 15 stands at 1.6, not outstanding, but less than the 4.3 with China.

China then has unmistakably outpaced it Asian neighbors in trade success, both with the world and with the US.

While many factors contributed to Chinese success, unique trade deals do not appear among them. True China entered the World Trade Organization in 2001, but essentially every major country belongs. China just managed trade and economic growth better. Other countries, India, Korea and Indonesia mentioned above, performed much less spectacularly, facing nominally the same opportunities and constraints as China.

China’s dominance centers on four key areas: electronics, furniture/appliance, apparel and consumer products. (Call these the “four key groups”). In these four key groups they ran a trade surplus with the world of over $750 billion (2015 year). Astounding.

Can the US, or any non-Asian country take over Chinese dominance in the four key groups? The train has likely left the station for now. China has created an intricate supply chain, an extensive distribution infrastructure, and a large manufacturing base, in the four key areas. These strengths are buttressed by their possession of a large, low cost labor pool. To the degree China falters (for example with rising labor costs), other Asian countries appear ready to take up slack.

The US can certainly grow its capabilities in these four key groups, and forestall and even roll back parts of the Chinese incursion. But overtaking China would likely involve years of steep tariffs to protect the American turnaround in the four key areas. We can imagine trade wars, likely ugly. And we can certainly imagine significantly higher prices, both from what would initially and maybe ultimately be high costs in US production, and from the price impact of tariffs on imports.

But China does not dominate everywhere. They rate as minor players in a number of key sectors – autos, aircraft, chemicals, agriculture, pharmaceuticals and importantly fuel. China runs deficits in these areas.

Conclusions – at the Point

What can we conclude so far?

A singular focus on trade deficit reduction will not assuredly stimulate economic growth or job creation. Rather, economic growth depends heavily on productivity; and high per capita countries on average grow slower since productivity increases must arise via innovation and not adoption. And state-by-state data show that job growth depends not just on manufacturing and exports but many factors.

The data also show complex, intertwined trade flows in North America, and a lack of devastatingly large deficits. Rather, the net deficit has remained essentially level since 2001, and the integration of the North American markets likely helps North America remain competitive, for example in autos, in the world market. Further, given the close balance of imports to exports in that market for the US, an all-out focus on reducing the trade deficits in North America will likely decrease export employment to the same extent that reduced deficits improve that employment.

But a clear finding involves China. China has built a dominance in four key sectors, a dominance that rests now on several decades of integration and investment. A frontal assault on the Chinese juggernaut in those areas likely wastes resources. Also after China, Japan and Germany, having no wage advantage, still hold the next largest trade deficits with the US.

Oil, Auto, Areas of Strength, Divergence of Interest, and Export Deficiency

Within the US trade deficit hides an amazing story, oil. In 2008 our trade deficit in oil and related soared to over $400 billion. In 2015 that deficit shrank to under $100 billion.

This story shows petroleum clearly represents an area where the US possesses strong resources, advanced technology and deep infrastructure. Currently the US runs a net trade deficit in oil. However, the amazing performance since 2008 points to petroleum as an area for further reduction in imports, and for actual net export growth.

Add to petroleum, the sectors chemicals, agriculture, pharmaceuticals, and even advance industrial and medical equipment. Thus US runs surpluses. And of course services. The US has tripled it trade surplus in services in the last 10 years.

Autos represents another success. Recall earlier that, unlike apparel, or electronics, or furniture, or paper, where imports devastated manufacturing employment and trade deficits increase by large multiples, auto trade deficits grew modestly. Auto manufacturing lost only 14% of its employment in the last 25 years.

And critically the integrated North America market arguably assists in the US capabilities. As for China, they run a trade deficit in autos. And US brands received wide acceptance and high sales in China. Autos, unlike say socks, or even Smartphones, involve complex manufacturing and components, thus China can not immediately close its manufacturing gap in autos.

Realize, though, a divergence of interest. Global corporations seeks financial goals, regardless of geography. Workers, and governments, seek jobs, with specific regard to geography. A divergence ensues. American workers desire the US auto makers to produce Chinese bound cars in America, while the auto makers, seeking financial goals, produce those Chinese cars in China.

We also have another, surprising, divergence. While the US in dollar terms ranks high in imports and exports, as a percent of GDP the US stand apart in how low it ranks. US imports comprise but 12% of GDP, among the lowest percentage of all countries. On the export side, US exports comprise but 8% of GDP, not just among the lowest but just about the lowest of any country.

This perspective points to a different approach to manufacturing jobs in trade intensive industries.

Compete, not Confrontation with Trade Wars

What now emerges for our look at trade flows, jobs and economic growth?

First, if we desire overall American economic growth, do not focus first on trade. Trade can, but will not assuredly, stimulate overall growth. Rather, for general growth, take action on productivity (i.e. to jump start more output per worker), or stimulate demand (to pull more workers into the labor force and/or increase work hours per worker.)

But overall growth can leave groups of workers behind, including those employed in traditional manufacturing jobs in trade sensitive industries. True, workers can move to a state which has seen job growth, and can get the necessary training and education to transition to a non-manufacturing job. We should, however, do better than just expect the workers themselves to deal with globalization and automation.

We all, in the form of our government, should help, with appropriate action to stimulate manufacturing employment.

What action? Well, do not pick a trade fight with Mexico. We export about as much as we import, so a fight risks as much as it might gain. And we need a unified North America market to build the supply chains and achieve the economies of scale needed to complete globally.

This does not preclude blunt, frank discussions, and even measures, but with the realization we want Mexico as a partner.

Do not mount a frontal assault on Chinese imports. Certainly, the US can sustain and even expand our apparel production, or furniture making, and electronics assembly, even with Chinese strength here. We can not though, beat back or overtake the well-developed, low wage cost, integrated production base of China and Southeast Asia.

What can we do? Boost exports. America ranks terribly low in export percentage of GDP. And America generates products other countries desire. China values American car brands, the world needs geopolitically neutral oil, our industrial equipment and medical technology vie world-wide, American designer furniture and custom apparel can still compete, and our natural gas feedstocks allow low cost, high value chemical production.

How can public policy boost exports, i.e. align corporate and national interest? In a way that might be an unusual twist. Allow corporations to bring back – untaxed – the billions in un-repatriated profits parked in foreign countries. But only if they invest the profits in manufacturing and similar job creation.

We must proceed with caution here as WTO rules restrict direct subsidization of exports. This special tax-free incentive thus would focus on jobs, with exports a means by which corporations could generate sales to support jobs.

Software companies hold the most un-repatriated profits, you might say. And software development provides only a poor opportunity for displaced manufacturing workers.

However, software will drive (literally) future self-driving cars. Unlike Smartphones, where China beat the US, and the world, in production, America appears at or near the fore front in development of self-driving cars, and then hopefully production. Partnerships between software and auto corporations makes sense, and thus a repatriation incentive can advance such partnerships.

What else to spur exports? Publicize corporate performance. A rather obscure provision, Part 583, provides an example. That rule requires auto manufacturers to publicize the American and Canadian content of cars. For example, Mitsubishi, Audi, Volkswagen, Volvo, Mazda, Kia, among others, perform horribly in this metric, less than 10%. Honda, in contrast, reaches over 50%.

But I sense few follow these statistics. Thus, Part 583 requires supercharging.

Very simply, expand the rule, dramatically. Specify that all major companies, Walmart, GE, Exxon/Mobil, automakers, and on and on, report key metrics like local content percentages, percent of foreign sales produced in the US, and similar items.

These two proposals, one for repatriation incentives and one for Part 583 expansion, are offered as real candidates for action. But any equivalent action can be taken. The key lies in the strategy. Do not start confrontations with Mexico and China over imports. Certainly stem the tide, and aggressively negotiate.

But do not retaliate. Do not start trade wars. Rather, especially given the export deficient stature of the US, focus on expanding exports to Mexico, China, and other countries, from sectors of American strength.

Look forward more, and backward less. We can not go back and become the electronics assembler of the world. We can go forward to excel in design and production of self-driving cars, of advanced aircraft and rockets, of both high volume and specialty chemicals, and in services, like software, architecture, law, environmental control.

Final words? Mexico provides a partner, not a foe. China offers a market, not an enemy. For plant closings, certainly bring scrutiny. On corporations, publicize export/import data. Negotiate hard. Compete aggressively. Boost exports with wise incentives.

But don’t pick fights. And don’t start trade wars. Be tough. But also wise.

Formulation of Coaching Themes

Life and Personality Development can be the most complex coaching theme because each person is unique. Life is an evolving project. We must make it happen. Coaching assists people in making choices that make them happy. There are no right or wrong answers, though. There are only choices but the coach does not make choices for the client. He/she facilitates the process. Each person is unique, and requires coaching intervention that responds to such uniqueness. The coach assists clients in reflecting on their personal values, health, life styles, etc. He/she may use tools like Emotional Intelligence (EQ) to help the client develops self awareness, self management, social awareness, and relationship management, etc. The coach may also facilitate the insights into personal branding and image building.

Youth Development: Coaching the youth does not mean taking over and running their lives. It is about creating the opportunity for them to engage with themselves and their peers. They are helped to make sense of all the pressures of life. The coach is there to challenge and interest them in their development journey.

The youth are the leaders of the future. They deserve to be treated like we would treat any candidate of a succession planning in any organization, institution, and company. Their leadership programmes could take a specialist dimension, for example entrepreneurship development. The majority of the youth respond positively to the coaching programmes dedicated to the entrepreneurship development. Today entrepreneurship opportunities for the youth are mostly in the technology sector. The fourth industrial revolution is the cause of this. Entrepreneurship is the most direct option to employment for the youth. It is important for the youth to make a shift and consider it not as a means of survival but an opportunity to innovate solutions that mitigate the challenges in the society. The coaches must challenge the youth to explore many options about their future. We do not expect them to jump certain stages of their development and become adults too soon. They must enjoy their life journey. However the business case for early youth leadership and entrepreneurship development is very strong. We are laying foundation for their future responsibilities as entrepreneurs and leaders in the society.

Entrepreneurship coaching is a kind of a business coaching but it focuses on the unique businessperson called an entrepreneur. An entrepreneur identifies challenges, sources solutions, products, services and create value.

Whereas the coach does not have to have practiced entrepreneurship, he/she must understand the context in which an entrepreneurship coaching takes place. The clear objective is to produce or facilitate the development of an entrepreneur and enterprise through coaching. That is what Entrepreneurship Development Coaching is all about. The proof of a successful entrepreneurship development coaching is a functioning enterprise and a highly capable entrepreneur. The approach and tools that the coach uses are informed by the stage at which the entrepreneur and the enterprise are in their life cycles.

Coaching a start-up is not the same as coaching a seasoned entrepreneur who is looking at growing the market share, renewal and diversification of the product or service offerings. The coaching methods may be the same, but the approach must respond to the circumstances facing the client (coachee). The entrepreneur is challenged to master the logical steps in exploring and resolving the problems.

Celebrity Status Management: Someone is referred to as a celebrity because he/she is being celebrated by the society. There is something unique or particular that distinguishes this person from the society. People do not necessarily know why they are celebrities. They have not interrogated their distinguishing factor and whether they would like to be associated with it or not. So, being referred to as a celebrity is subjective. It depends on the standard the society applies. It is important to know that you can choose to be a normal person irrespective of how the society sees you. You choose to remain who you are. It is a choice you must make. Being a celebrity has its own pressures and risks. You give away your privacy; have personal safety and security risks to cope with; loses touch with reality; removing oneself from ordinary people; temptation to looking down at people; being aloof; misplaced self-worth; attracting wrong friends (and attention); developing fake identity, etc.

Diversity Management & Inclusion: We are different by birth and acquired characteristics. However, that does not justify rejecting each other on the basis of our differences. Human beings are able to unite around their differences. In fact we are attracted to each other because of our differences. This is what makes us pleasant species. We are adaptable to differences. The Diversity Management & Inclusion Coaching helps the clients in learning to value each other and their differences. The understanding and accommodating of each other’s differences is not the end of it. We must learn to appreciate our diversity. This is crucial, especially at the workplaces where we are given the opportunity to gain value from our differences. It is only when there is harmony at the workplace that we reach our highest potential, become productive, and increase our levels of performance. Diversity Management & Inclusion is not a nice to have intervention. It must be part of the company’s change management, transformation, and strategy. For the first time in human history we have all the generations at the workplace at the same time.

Management and Leadership: The management and leadership layers in an organization are the traditional recipients of coaching intervention. But it has never been more necessary like it is today to coach them in coping with the complexity they face. Whereas traditionally coaching was offered for their professional development, today they are offered coaching to support the business growth. Their styles have direct impact on the talent they manage and lead. Hence the saying that talent does not leave the company, it leaves the managers (and of course the leaders). The manner in which people are managed and led in organizations determines the success or failure of such organizations. The management and leadership is coached to successfully give the organization its future strategic direction, cope with the business complexity, lead, and guide the implementation of the corporate strategy. They are also responsible to equip the organization in the implementation of its business strategy. They are assisted, through coaching, in carrying out the mandate of the shareholders. This is done in partnership with all the internal and external stakeholders.

Change Management and Transformation is one of the most common themes in the coaching space. The only thing constant in our lives and in business is change. Change Management is the strategic intervention that ensures that the process of transformation delivers the desired outcomes. The society and organizations are assisted by coaching to maintain the highest level of readiness in embracing and driving change management. By so doing, they enable a shift from the Current State of Being (CSoB) to the Future State of Being (FSoB). People and organizations that reject change run a risk of becoming irrelevant in the future.

Executive Business Coaching: This is the fastest growing branch of professional coaching. Whereas we apply the same models, processes, tools, and frameworks, the main focus is on making business executives succeed in the delivery of their strategic, functional, and operational plans. It is often aimed at the Chief Executive Officers, Managing Directors, Executive Committees, and other executive functionaries to whom the executive responsibilities have been delegated. The executives are fully dedicated to the running of the business and deliver on their shareholders promises. Executive Business Coaching is a serious intervention. The executives are coached to master the markets and grow their market share. They are expected to counter competition, grow their companies’ brands, deliver return on investment, reinvest resources responsibly and grow the share price of the enterprise.

Sport Personality Development: There are many arguments for a dedicated coaching programme for sport personalities (amateur and professionals). The moment a young athlete is identified to have an outstanding talent and potential to make it to the professional level or chooses to make a career in sport, he/she will need a coaching programme. Such a programme is more than the technical sport coaching. Here we are talking about life and career management coaching. One of the challenges athletes face is achieving a balance between sport, education, normal and sport life (and later celebrity sport personality life). The demands of development phase are put on such athletes by development academies and trainers. This is often the beginning of hectic and high pressure life. However, this need not be a punishment in life. The development of emotional capacity to deal with this is an absolute necessity early in their lives.The athletes always have a desire to live normal lives but this does not always become a reality. They are exposed to demands of high expectations from the society, pushed by circumstances to display behaviours of a professional athlete too early in their lives. From the beginning, at junior clubs, they experience pressures from fans, parents, friends, club supporters, and club sponsors. Sport clubs expose them to extensive travel to participate in sport tournaments in the country, continent, and the world. Sport agents may pick the athletes very young, tracks their performance, sign them, and expose them to bigger sporting markets. This is how performance expectations are raised high. The interests of the athlete take secondary position. Athletes are separated from their parents and family members too soon. If they are not exposed to life coaching, the chances are that the impact will be negative. At club levels the athletes are exposed to league and cup games pressures, which have their own kind of demands. The athletes’ education programme, if not well integrated into their sport programme, tends to suffer.

In today’s world education and sport are seen as one. The athlete must do well in both. The United States is known for recruiting athletes and giving them sport scholarships to study at their best universities and play in the college sport leagues. This is actually the dream of most talented athletes. Such universities and colleges have many years experience in balancing sport and education. Once the athletes reach the professional level they become big personal brands. Personal brand management becomes the necessary theme of their life coaching programme. These personal brands may either add to the growth of their club brands or be in conflict with their club brands. They become celebrity sport personalities with own dedicated sponsors. The complexity grows. At this stage we are also concerned with their post stardom life. So, sport personality coaching is not a luxury, but a necessity.

Community Development: Most community workers started their careers as volunteers in community projects and programmes. Volunteerism requires specific qualities in people, because it has its own challenges. Those who choose to become community workers and volunteers should seek professional coaching interventions as well. This will assist them in coping with the demands of community work and volunteerism. Community work is about developing others by offering oneself. By doing community work and volunteerism, one benefits from such roles. Volunteerism, especially in the community, is a form of social responsibility at the individual level. It is seen as service beyond self. It puts commercial interests at the sideline. The closest to commercial interest are the social entrepreneurship initiatives. They are often aimed at the empowerment of vulnerable individuals and communities. There are academic programmes offered by institutions of learning wherein knowledge on social entrepreneurship is offered. Such programmes integrate coaching into their portfolio of modules. Anyone intending to make a career in community work and volunteerism, or just to lay the career foundation, they will do well to find a community development coach. Communities are unique and different. They are dynamic, have challenging issues, and demand one to have passion for who they are.

Relationship Management (Private and Professional): It is actually difficult to regulate any relationship (private or professional). However, two or more people can work out the best approach, and manage their relationship accordingly. Relationship Management Coaching facilitates such process of coming up with working relationship between individuals and groups (private or professional). There is no such a thing as a perfect relationship. People gravitate towards each other and this result in some form of relationship. In professional relationships like in business the common objectives and interests are the bases of such relationship. However, the differences and preferences between people continue to exist and must be managed in the interest of such relationship. The coach’s aim is to facilitate the client’s understanding of the value of their differences in their relationship, and build the capacity to deal with any challenges in their relationship. The individuals retain their unique identities and uniqueness. They however accept others for who they are. Over time they will develop common interests and preferences. This becomes the reason for a strong bond between individuals and groups. There will always be conflicts. We must allow conflict resolution and coaching interventions to take place.

It’s Time To Rethink Leadership Development: Building Momentum For A Leadership Culture

Leadership excellence is fundamental to the health and performance of an organisation. Leadership development, however, in most cases is a costly affair. It therefore warrants careful consideration of what organisations hope to achieve when they invest in leadership development. If the point of departure is to help people excel as highly competent individuals, then the criteria for a development programme would be different from one where the goal is to grow people in order to achieve more with and through others – in other words true leadership and teamwork.

Changing perceptions and expectations of leadership

Times change and so do the perceptions and expectations of leadership. If we lived in ancient times when progress meant territorial dominance and hard, hand-fought victories on the battlefield, we would be looking for strong, brave and imposing men with some ability to out-think the enemy. If we lived in the industrial age we would be looking for superior scientific minds. As the world became more ordered, specialised and hierarchically structured in governments, institutions, business and many others types of organisations; technical or functional ability and political astuteness (skilful in tactics and power play) allowed many to rise to the top and thus be recognised as leaders. In this scenario, leadership is typically exercised through command and control complimented by concomitant tactics of intimidation and manipulation. Unfortunately, there are far too many examples with this type of leadership and organisations may be stuck in this old mindset.

Instruments of power

Where command and control still delivers results, the people have resigned themselves to the idea that they are fundamentally either stronger or weaker instruments of power – in some cases they paint themselves powerless for life, in others they believe they are untouchable and as a result often ruin their personal relationships. They fear or respect power for the sake of power. Where those at the top embrace the culture — and why would they not if they were successful in and beneficiaries of it — they will more likely than not, consciously or unconsciously, further entrench this culture through the choices they make on training and development. It does not bode well for the future in a world where optimum learning, flexibility and responsiveness are such important factors for success.

The cost

The cost for organisations, and more specifically, when the leadership are poorly aligned with societal changes is immeasurably high. Today’s knowledge worker commits themselves when they experience the freedom to be creative and enterprising. In a command and control environment they feel inhibited and frustrated; the result being untapped potential. Moreover, people in such an environment often withhold critical information which ultimately comes at a cost to the organisation.

Another cost factor is that employees who are not intrinsically motivated but prepared to submissively and passively ‘sit out’ their careers for the sake of a salary cheque, are nowadays difficult and expensive to get rid of. The longer we have command and control environments (as it is experienced by the common worker, since it is seldom acknowledged by the leadership), the more disengaged people will become. Progressive organisations, understand what is required of a modern-day leader, and are quickly pulling away from their counterparts who continue to practice the archaic command and control tactics.

The key shift

Who do we regard as good leaders? Who is climbing the ladder to higher positions of authority and power? Who gets the benefit of the doubt when it comes to filling leadership positions? Is it not those with a strong knowledge base as reflected in their academic qualifications and other certificates? Is it not those with technical know-how and management experience? And is it not those who have demonstrated the ability to use their positional power to get quick results? We believe these are the three criteria most people have in mind when they consider candidates for leadership positions. Whoever fits the bill, can be forgiven if he or she feels superior to the rest. The combination of high intellect, know-how, tactical skill and a robust ego is a powerful one. It is almost inevitable that the leadership challenge ends up to be no more than a battle of wits and ego’s in budget, planning and strategy sessions. Teamwork, the key to success, suffers as a result.

How would leadership development programmes be of any use for the above? If it means another qualification to go on the manager’s CV, more ideas, theories, models and arguments for the meeting room, and perhaps some insights that could improve personal effectiveness, then it will fit the requirement well. But the question that needs to be asked above all is: what is the value for the organisation as a whole? What is the positive influence on those who work with the leader, their morale, energy, focus, productivity, willingness to take responsibility, innovativeness, and own leadership development? Furthermore, what are the ethical and governance values being driven by the organisation and its leaders, and do management support these? And then, what are the positive changes that others see in terms of the manager’s willingness to sacrifice for the cause, openness to feedback, team-orientation, his/her courage to name the real issues that prevent growth in the organisation, and work towards much needed transformation?

i. Culture eats strategy for lunch

The observation is widespread that in spite of various leadership development initiatives, the change that matters most, invariably does not take place. In others words, a change of leadership culture is required and is not being done. More sophisticated strategies, better designs, and the latest performance management tools or tactics to out-maneuver the opposition, can never achieve what a strong leadership culture can. What most people in ‘unhealthy organisations’ secretly or openly hope to see, is a change of heart in their leadership.

The reason for poor or inadequate performance in organisations very seldom is lack of knowledge, skills or experience. Rather, it is to be found in the leader’s lack of attention to behavioural aspects, the general climate, and the alignment in the organisation. When leaders really concern themselves with the character of their organisation, they forget about their ego concerns and personal agendas. To use an analogy from the sports world, we know that when we are in agreement that the team showed character it also means they gave their hearts for the team and the greater cause. Poor character is when a team member puts his own interests before those of the team.

Leadership development for our times need to be in the areas of awareness, ‘inner work’ (self-mastery) and context-sensitive leadership responses.

ii. Awareness

It is to state the obvious that heightened levels of awareness is needed for real change in mindset, attitude and behaviour. As the emotional intelligence expert Daniel Goleman points out, self-awareness forms the cornerstone for awareness of others, self-regulation and regulation of inter-personal relationships. As obvious and simple as it seems, it is not a given. As a starting point it requires openness, vulnerability and humility to grow in self-awareness. With the ‘chips’ of knowledge, experience and positional power on one’s shoulder, the tendency is very high to filter out signals that might be damaging to the ego.

The three main areas for awareness are personal disposition and discipline, adaption to and need for change, and relationships. The defining, breakthrough moment that leads to heightened awareness and sets ‘inner work’ in motion, often is the understanding that the use of outside help — typically from family members to friends, colleagues, books, coaches and mentors — is not a sign of weakness, but of becoming more authentic and mature.

iii. Inner work (self-mastery)

Awareness is one thing, but challenging conversations with oneself is another. As all exemplary leaders will testify, the ‘make or break’ in their growth as leaders were the challenges they put to themselves in response to the challenges they experienced from the outside; be they tragedies, major disappointments, lack of results, personal attacks on them, honest but hurtful feedback or overwhelming responsibility. Sometimes ‘inner work’ demands nothing short of a deep and painful ‘inner journey’ – going back to unresolved issues and unhealed pain of the past. But most of the time it is nothing as dramatic as that, but being intentional and committed to grow as a person and a leader in all the many wonderful facets of being human.

iv. Context-sensitive leadership responses (use of inner wisdom)

Key to leadership and leadership development is the ability to respond appropriately and more wisely to all kinds of situations. That is why awareness and inner work is so important. To think that reading textbooks will help the leader to do the right thing or minimise damage is shortsighted. Leadership in its proper sense is authentic, spontaneous and from within. Whatever knowledge the leader comes across, it needs to be internalised to make any real and meaningful difference. A leader that has grown out of the command and control style learns the critical importance of adjustment. For instance, to be forceful, courageous and bold is important in leadership. But the context determines when it is appropriate and most effective. Bright ideas at the wrong time or with an insensitive presentation in a particular context can be totally counter-productive. The key to becoming wiser is to consciously and intentionally keep all channels of feedback and learning op en. When we are open and receptive to our environment and to others, our eyes ‘open’ to the wisdom that we have within but never allowed to guide us. It is at the point where we allow ourselves to be vulnerable, not all- knowing and self-important, that we rise to new levels of understanding and insight.

From a leadership development perspective, it is much more effective to explore leadership responses in conversation with others who share the same context (facing their ‘real world’) than listening to leadership theory in a lecture room. It is a common complaint that the good and lofty ideas in the lecture room come to nothing the moment a person is back at the office facing ‘the real world’. It is different when leaders in a development programme support each other by sharing their leadership thoughts and questions as they face the challenges before them.

For healthy workplace and social structures to thrive, leadership development should facilitate growth in the areas of awareness, ‘inner work’ and context-sensitive leadership responses. As illustrated below, in many cases a shift in thinking about leadership development from an outdated paradigm needs to take place.

Old Criteria And Development Focus

Knowledge

Experience

Strategic and tactical skills

Strategy before culture

Change of processes and tools

Advocacy

Good for transactional environment

Development Focus For Organisational Health

Awareness

Inner work (reflection and self-challenge)

Context-sensitive leadership responses (use of inner wisdom)

Culture before strategy

Change of heart and attitude

Questioning and shared learning

Needed for transformational environment

Less is more

The best way to grow a leadership culture is to further develop those who already have a positive influence in the organisation. The questions to ask in order to identify them are the following:

– Is the person clearly passionate about the cause and values of the organisation?

– Is it evident that he does not need and does not have to rely on the power of his position to be able to have

significant influence?

– Does he genuinely want to become a better leader?

– Would he be keen to play a part in building a strong leadership culture in the organisation?

– Is he loyal to the organisation, and will he be part of the organisation for at least for the next two to three years?

Such a group of leaders will have an enormous impact if they purposefully support each other and grow their leadership according to the above-stated development principles for organisational health. A wholesale approach where everyone at a certain level is included in a development programme can at times disappoint in terms of its impact for the organisation. Half-motivated people who participate under some form of internal or external pressure dilute the value. As a strategy to grow a leadership culture, a focused approach with a core of motivated people delivers far better and more sustainable results for the organisation..

The example of Nelson Mandela

Late last year, the world appeared to stand still and reflect on the remarkable life and example of Nelson Mandela. One of the most striking and powerful illustrations of his leadership influence is that so many people recalled that nobody could turn down his requests – a manager’s dream! It is the best possible illustration of the truth of John Maxwell’s axiom: a leader first gives his heart then asks for a hand. The belief that, particularly business leaders, need to hide their hearts from others (and themselves) in order to take hard, calculated decisions and remain resolute in negotiation, is wrong and in truth undermining of their leadership. Passion for and dedication to the cause, is a matter of the heart. And so respect for others, the will to serve — humility — the willingness to ask forgiveness, care, trust, compassion, moral conviction, resilience and perseverance are indeed matters of the heart.

Surely, if we recognise leadership excellence in the person of Nelson Mandela, we should endeavour to look for and grow the qualities he lived and demonstrated. For organisations it is not a call to become more ‘touchy or feely’, but to responsibly address the context within which business decisions are taken and to ensure that these decisions accurately reflect the organisation’s heart, mind and soul, be this in its strategy, finance, marketing, technology and corporate social values.

The Case of Thai Joint Venture With Japanese Partner in Construction Business

Literature Review

Business in the 21st century is increasingly conducted with shifting borders. International partnerships will become standard practice as the product life cycles shorten and immediate distribution become imperative. As business is increasing its globalization, alliances among multinational firms are becoming more popular. Cooperation between international firms can take many forms such as, cross-licensing of proprietary technology, sharing of production facilities, co-funding of research projects, and marketing of each other’s products using existing distribution networks (Griffin and Pustay, 2005). Such forms of cooperation are known as strategic alliances, business arrangements whereby two or more firms choose to cooperate for their mutual benefit. A joint venture is a specific and more formal type of strategic alliance.

2.1 Defining International Joint Venture (IJV)

An international joint venture (IJV) is a special type of strategic alliance in which two or more companies from different countries join together to create a new business entity that is legally separate and distinct from its parents. Joint ventures are normally established as corporations and are owned by the founding parents in whatever proportions they negotiate. Although unequal ownership is common, many are owned equally by the founding firms (Berger, 1999).

Here is also a definition adapted from Shenkar and Zeira (1987):

1 it is a separate legal organisational entity, and belongs entirely to neither/none of its parent;

2 it is jointly controlled by its parent;

3 these parents are legally independent of each other;

4 the headquarters of at least one parent is located outside the country in which the IJV operates.

As stated some IJVs are formed on an equity basis, more flexible arrangements may depend on contract cooperation without involving the legal commitments of equity. Some IJVs may have more than two parents. In general, the more parents the greater the administrative complexities and the greater the problem of managing the project. Sometimes, both (or all) parents are located outside the IJV country. For example, Coca Cola (Vietnam) was started as an IJV between Coca Cola (USA) and a Singaporean bottler; originally it did not employ any Vietnamese managers, as a result the company needed to deal with cultural difference (Beamish, 1985).

In terms of the construction industry, joint venture has been seen as a tool for improving the performance of the construction process and emphasizes the way it helps to create synergy and maximize the effectiveness of each participant’s resources (Barlow et al., 1997).

The Construction Industry Institute defines joint ventures as a long-term commitment between two or more organisations for the purpose of achieving specific business objectives by maximizing the effectiveness of each participant’s resources. This requires changing traditional relationships to a shared culture without regard to organisational boundaries. The relationship is based upon trust, dedication to common goals, and an understanding of each other’s individual expectations and values (Barlow et al. 1997). To date, joint venture is understood as a set of collaborative processes, which emphasizes the importance of common goals. The base of joint venture is a high level of interorganisational trust and the presence of mutually beneficial goals. Joint venture means a management process that helps the strategic planning to improve the efficiency of the enterprises, and forms a team with common objectives (Barlow et al. 1997). Participants of a project can improve performance in terms of cost, time, quality, build ability, fitness-to-purpose, and a whole of range of other criteria, if they adopt more collaborative ways of working (Bresnen and Marshall 2000). Barlow et al. (1997) mentions six successful factors of joint venture: building trust, teambuilding, the need for top level commitment, the importance of individuals, the strategic movement of key personnel, and the need for open and flexible communications. The same authors quote as common benefits in a joint venture relation: reduced costs, shortened delivery time, improvement in construction quality, better working atmosphere, and organisational learning. Joint venture classifications focus on the duration of cooperation between partners. This dissertation will be used as a case study to explore the extent and native of these benefits in practice.

Two main types of joint venture are found in literature: project joint venture and strategic joint venture or long-term joint venture. Project joint venture is a cooperative relationship between organisations for the duration of a specific project (Barlow et al. 1997). At the end of the project, the relationship is terminated and another joint venture may commence on the next project (Kumaraswamy and Matthews 2000). Welling and Kamann (2001) state that if these firms do not meet again in another project, the learning effect reached on the particular project will be eliminated. Strategic joint venture is a relationship with a high level of cooperation between partners (Barlow et al. 1997), which takes place when two or more firms use joint venture on a long term basis to undertake more than one construction project, or some continuing activity (Kumaraswamy and Matthews 2000). In this kind of joint venture, the learning achieved in a specific project is more likely to be used in future projects. In the context of a strategic joint venture, it becomes a management philosophy that is expected to work continuously for each and every project and there are more expectations from team members than for a project joint venture (Cheng and Li 2001). The type of TNC JV is the strategic joint venture where Thai and Japanese Partner are focusing on the long term goal.

2.2 Seeing Joint Ventures as a Foreign Market Entry and Development Strategy

Joint ventures are sometimes viewed as a second (or even third) best option for supplying a foreign market-being used only when government regulations (e.g. ownership and export controls, restrictions on royalty payments, etc.) prevent the establishment of wholly owned subsidiaries, exports, or licensing. Indeed, there are major problems that arise in the planning, negotiation, and management of international joint ventures. Despite such difficulties, it is widely recognised in the literature that there are important strategic and competitive advantages that may be derived from successful joint venture agreements, and such collaboration may be a first option in certain circumstances (Kenichi Ohmae, 1985). Connolly (1984), for example, argued that the assets of developed-country multinational enterprises (capital, foreign exchange, technology, management, and marketing skills, etc.) and developing-country firms (lower costs, greater familiarity with local markets, etc.) are complementary, and that the combination of these assets in a joint venture results in mutual benefits. This can be seen in the case of TNC. Similarly, Contractor (1984) argued that the loss of control and the sharing of profits inherent in equity joint ventures is more than compensated for by the expertise and capital contribution of the local partner; contacts with government officials; faster entry into the market; and risk reduction. Harrigan (1984, 1985) argued that joint ventures should not be seen as a hiding place or a sign of weakness. Rather, if organized properly, joint ventures would be a source of competitive advantage, a means of defending existing strategic positions against forces too strong for one firm to withstand itself or as a means of implementing changes in strategic postures (e.g. diversification access to technology). Joint ventures allow each partner to concentrate their resources in areas of expertise, while enabling diversification into attractive but unfamiliar business areas. Overall, Harrigan (1984, 1985) concludes that joint ventures are important strategic weapon in responding to the challenges of global competition.

2.3 Reasons for forming the IJV

The partners (Thai and Japanese) may have shared interests in forming an IJV which give both opportunities to

5 create greater market power by combining resources;(Bell, 1996)

6 reduce risk by sharing costs (costs of investment and production are shared);

7 reap economies of scale;

8 cooperate and avoid competition , which might incur greater costs than those incurred by agreeing to the IJV (the IJV is an alliance that restricts your own capacity for independent action, but also restricts that of your partner); (Contractor & Lorange, 1988).

In general, though, most IJVs offer parents different opportunities which arise from their different environments. A project might offer the foreign parent access to a local market, and the local parent access to the international market. According to (thailandoutlook.com), in 1997 two securities companies, the Premier Group of Thailand and SBC Warburg, formed a joint venture designed to provide Warburg with local expertise and Premier with international access.

Furthermore, the foreign parent needs to meet the host government’s requirements for doing business in the country (in this case the Thai Government). For instance, a foreign company is only permitted to operate in the country if ownership is shared with a local company. The IJV offers the foreign parent opportunities to learn about local marketing conditions and to gain access to local resources, including production facilities, labour, and materials. For the local parent these are opportunities to generate upstream and downstream industries. For instance, the development of an IJV pulp mill encourages local entrepreneurs to increase logging facilities and to invest in paper manufacture. The local government benefits by opportunities to encourage foreign investment. Also, the foreign parent may be allowed to take only minority ownership, and must fulfil conditions regarding local employment, technology transfer, purchase of local materials, etc (Chowdhury, 1992).

2.4 Factors influencing IJV success and failure

The more that the company depends upon the strategic alliance in order to achieve its strategic goal, the more it invests in the success of the alliance. In the case of TNCJV this means investing to find the ideal partner. Finding the ideal partner takes time and effort, and the greater the importance that the firm gives to this selection process, the greater the chances of success (Geringer 1991).

Hung’s (1992) study of Canadian companies operating in South-East Asia found that “the most often mentioned difficulty is to get the right partner company, one which has compatible objectives and is trustworthy”. Therefore, trust is one of the most important parts of forming the IJV. Trust factors then will be reviewed:

2.4.1 Trust between the parents

The project is more likely to succeed when each parent trusts that the other is genuinely committed to the project and will do its best to abide by all agreements between them (Demirbag & Mirza, 2000).

When more partners trust each other, the easier they find it to reach agreement on internal arrangements:

1 applying the same strategic priorities to planning;

2 management style, and systems;

3 systems for communicating between the parents, the IJV, and parents; within the IJV; and with the environment

4 factors associated with business interests, goals, impact of size, timescale

5 assessments of IJV success and failure: project evaluation, both ongoing and upon termination.

(Demirbag & Mirza, 2000)

2.4.2 Mistrust between parents, and the environment

Mistrust arises from

13 inadequate planning;

14 communication problems between parents (Thai and Japanese in this case)

15 wide differences in the national and organisational cultures of the parents;

16 one parent changing its attitude to the project in response to its own internal changes – e.g., a new strategy, a new CEO;

17 one parent changing its attitude to the project in response to changes in its business environment.

To take the final point: both parents operate in their own volatile business environment. Their local markets and competition differ. They are subject to different local political, social, and economic pressures. These environmental differences make any alliance inherently unstable (Geringer, 1988).

According to Mikio Kunisawa Representative Director of Nishimatsu Construction (HQ in Japan), TNC had a full order book including a heavy work load and the prospect of many new projects during year 2005-2006 period. However, the situation at year-end is somewhat different from his expectation, particularly for Nishimatsu’s Bangkok Office, and TNC now faces a challenge to maintain the business levels of the previous years (2006). The primary factor affecting business confidence is the continuing general political instability in Thailand, including an inconclusive general election and the resulting postponement of government decisions regarding infrastructure and development projects (thailandoutlook.com). In the light of this uncertain situation, the forecast indicator for economic growth in Thailand has been revised downward. A further effect has been a downturn in business confidence within the private sector, reducing planned investments in the industrial and real estate sectors (thainishimatsu.com). This situation could then establish uncertainty between the parent company and the environment they face.

These factors of environmental uncertainty might be the reason for focusing only on short-term alliances with highly specific goals. The partners might use an initial limited alliance in order to test the possibilities for a greater commitment and to build trust (Harrigan, 1985). This also has implications for communication. Each partner needs to communicate information about its own environment and to develop knowledge of the other’s.

2.4.3 Trust within the project

A project succeeds when project staff trusts each other and when persons posted from the two parents develop a synergetic relationship. Before project operations start, a shared project culture is fostered by mixing staff from the parents in groups, where they work together on project planning. They exchange non-critical technological and business data (Harrigan, 1985).

A lack of trust arises when

18 staff join the project ignorant of the needs and interests of their colleagues from the other parent;

19 local staff feel threatened by a stronger foreign parent;

20 conflict arise from human resource and technology transfer policies (one parent cannot supply the skills to which it is committed);

21 cultural differences are exploited.

2.4.4 Trust between the project staff and their parent

A project succeeds when staff posted to it feels confident of the support of their headquarters. Mistrust arises when promised support fails to materialize, or staff feel that their long-term career prospects with the company are in jeopardy. A project is also undermined when top management fails to communicate its goal effectively within the organisation. Subordinate levels perceive it as a drain on their resources, and give it a minimum of attention (Kachara & Hebert, 1999).

2.4.5 Similar business interests

The potential partners are more likely to work together effectively when they have related interests. The parents of successful IJVs have similar interests and belong to similar or complementary sectors. When both contribute and learn from the other, fruitful cooperation is possible. Companies in the same industry form alliances when they hope to benefit from discrepancies in technology, systems, and markets (Kogut, 1988). By 1993, joint ventures parented by the Swiss food firm, Nestle, included alliances with Coca Cola (canned coffee and tea drinks), General mills (cereals), and two companies in the people’s Republic of China (a coffee and creamer plant, an infant formula and milk powder plant).

2.4.6 Compatibility in size

Incompatibility in the size of the parents is important when one uses its greater resources to dominate the project in its own interests alone. However, the development of business by Internet and other electronic media means the business can expand (and contract) in a very short time, and the size of staffing complements and physical resources is no longer an accurate guide to a firm’s financial and knowledge power (Kachra & Hebert, 1999).

The research of a foreign direct investment in Japan discovered that the attitude taken by the Japanese bureaucracy was influenced by such factors as the investor’s care for its relationship with the government, the profitability of the IJV, the foreign parent’s commitment, timing and location, and technology transfer issues. However, “the size of the investor does not seem to matter much” (Thawley, 1996).

2.4.7 Compatibility in timescale

The parents need to share a timescale. Suppose that Parents A and B are both prepared to invest in five years’ development costs. The project is set fair. But contradictions arise when Parent A aims at reinvesting profits made during the initial period whereas Parent B wants a quick return from its investments (Li, 1995).

2.5 Culture influencing IJV success and failure

2.5.1 Cultural dimensions by Hofstede

Cultural distance between partners and its impact on IJV performance has so far been the most commonly reviewed variable. The distance has usually been expressed multi-dimensionally (based on Hofstedé (1980) four cultural dimensions and an index developed by Kogut and Singh (1988)). Cultural similarity decreases problems caused by cultural issues (e.g. different norms of behaviour and productivity, measurement and goals related to performance) and should facilitate trust and cooperation between partners. Barkema and Vermeulen (1997) tried to analyse in more detail the impact of culture on IJV performance. Using the five different cultural dimensions by Hofstede – power distance, uncertainty avoidance, individualism, masculinity, and long term orientation – the authors expected that there would be differences in the impact of various dimensions. Differences in uncertainty avoidance are difficult to cope with because they imply differences in how people perceive opportunities and threats in their environment and how they act upon them (Schneider & Meyer, 1991). In high uncertainty avoidance countries organisations tend to respond to uncertainty by building up a system of high formalization and hierarchy. In low uncertainty avoidance countries people are more attracted to flexible, ad hoc structures that leave more room for improvisation and negotiation. Differences in uncertainty avoidance lead to differences in how partners perceive and respond to events in the environment of the IJV, which will likely breed disagreement and disputes between the partners, and have a detrimental impact on the IJVs performance. Power distance and individualism directly bear on issues of internal integration and influence relationships with personnel, such as the choice of control forms, reward systems. Management of personnel is usually one of the first activities to be left to the local partner. There is also evidence that MNCs do not transfer cultural values related to power distance and individualism to their foreign subsidiaries (Soeters & Schreuder, 1988). Thus tensions between the partners with differences along these dimensions may be avoided. Shenkar and Zeira (1992) suggest that having partners from both “feminine” and “masculine” cultures may even benefit the IJV. The aggressive attitude of one partner and the relationship orientation of the other may complement each other rather than collide. The above discussion suggests that differences in uncertainty avoidance would be more important than the other three dimensions. The empirical results by Barkema and Vermeulen (1997) supported the expectations: uncertainty avoidance and long-term orientation had greater differential negative impact on IJV survival than masculinity, while the two other dimensions (individualism and power distance) had no impact. What concerns the Asian context it can be said that all potential Asian cultures have rather similar cultural profile. This profile includes rather few layers of decision-making, more risk taking, greater group emphasis, and higher concern for relationships (Swierczek & Hirsch, 1994). This can be applied to TNC where Thai and Japanese culture share some similarities.

One culture can influence how willing one is to trust a possible joint venture partner. In terms of culture, the Japanese tend to be somewhat introverted in their ways. They generally are not receptive to outsiders. When conducting business with Japanese, it is important to note that relationships and loyalty to the group is critical for success.

(http://www.geert-hofstede.com/hofstede_japan.shtml)

According to Hofsted Cultural Dimension Scores, the score of Japan is dramatically different from other Asian Countries. Masculinity in Japan is the highest characteristic. The lowest ranking factor is Individualism, which coincides with their high ranking in Uncertainty Avoidance. Japan is a more collectivist culture that avoids risks and shows little value for personal freedom.

(http://www.geert-hofstede.com/hofstede_thailand.shtml)

In contrast, Thailand’s lowest Dimension is Individualism (IDV). A low score, as Thailand has, indicates the society is Collectivist as compared to Individualist which this score is even lower than Japanese. It can be said that this is manifest in a close long-term commitment to the member ‘group’, is that a family, extended family, or extended relationships. Furthermore, the main different category compared to Japanese Dimension is Masculinity which ranks the lowest among the Asian Countries. This lower level is indicative of a society with less assertiveness and competitiveness, as compared to one where these values are considered more important and significant. This situation also reinforces more traditional male and female roles within the population.

2.5.2 Compatibility between national cultures

Ones culture also influences ones perception of the environmental factors discussed above; whether your business interests are similar (or in conflict), whether your goals are complementary, whether differences in size are important, what timescale should apply. In theory, partners are more likely to agree on these points when cultures are compatible. That is, joint ventures formed by parents of similar cultures stands a greater chance of succeeding than those based on between dissimilar cultures (Wille, 1988).

2.5.3 Different organisational cultures

If the organisational cultures of the two parents vary widely, a successful alliance might not be possible. However, this is not always the case. In the situation of TNC, the organisational culture of parent can be advantagous because the understanding of National Culture also affects the performance.

When talks designed to lead to strategic alliance between Mitsubishi of Japan and Daimler-Benz of Germany broke down, the following report was made:

“Analysts say the match has been strained from the beginning because the companies have fundamentally different structures. Daimler-Benz, a much smaller company than Mitsubishi, has traditionally had a close knit management structure that has tended to set out clear strategic goals and forge ahead. Mitsubishi, an amorphous conglomerate of several large companies, has moved much more cautiously with internal factions often disagreeing over broader policy.” (Yamawaki, 1995).

The companies were unable to overcome differences in their strategies, structures, and organisational cultures.

Staff posted to the project from the two parents is more likely to work well together when their organisational cultures are similar. This does not mean that they should be identical – an impossible condition. Rather, there must be a sense of comfort about how the other does the business, a willingness to work together and learn, and needs for shared solutions (Fedor & Werther, 1997).

2.5.4 How the IJV affects the parent organisational cultures

Parenting an IJV project can influence the culture of the parent headquarters by creating new spirit of “internationalism.” This is ADVANTAGOUS when headquarters staff benefit from an influx of new ideas and technologies, and develop new knowledge of the opportunities offered I the environment.

It is DISADVANTAGOUS when the outflow of staff to the IJV (and inflow of replacements) impairs internal cohesion. A positive culture is weakened when staff feels pressured by responsibilities for which they have no training and experience. Supporters of the project are isolated. Planning and operating the IJV influences the organisational culture of the parent headquarters. In order to respond to problems and opportunities arising from parenting the project, headquarters streamlines and reorganizes its structures (Siddall et al., 1992).

2.6 Motivational Perspectives between Thai and Japanese

One’s motives are major determinants of one’s behaviour. If the company can understand the employee’s motives, they can influence their employee’s behaviour. To motivate others is one of the most important management tasks. It comprises the abilities to understand what drives people, to communicate, to involve, to challenge, to encourage, to set an example, to develop and coach, to obtain feedback, and to provide a just reward. According to (Find Ref), “Motivation is about cultivating your human capital. The challenge lies not it the work itself, but in you, the person who creates and manages the work environment.” However, to motivate people in different culture might be difficult if the level of motivation is not the same. Ref describes how different culture might be perceived differently. Scandinavian cultures (Sweden, Norway, Finland, and Denmark) place a high value on quality of life and social needs. European and Anglo-American cultures place a high value on productivity, efficiency, and individual self-actualisation. Chinese culture values collectivism and community activity higher than individualism (Same Ref).

According to Maslow’s hierarchy of needs, he theorised that people have successive layers of needs, and that as each lower layer is satisfied, then the person moves on to the next layer up. The following diagram will explain how the model works:

(Maslow’s hierarchy of needs model from Maslow, 1943)

The lowest layer is that of physiological needs. It is the need to eat, sleep, stay warm, use the bathroom, etc. The second layer is safety (the need to have physical and psychological security, such as wanting the presence of law and keeping a job). The third layer is that of love and belonging (being the need to be part of a family, group, or gang). Some would say that this third layer is very much a Japanese domain, where belonging to a group seems to take priority over the achievement of higher layers. According to (Japanese Ref), he raises the question that “How many times have you seen very capable people like Japanese deny themselves a fuller career due to their desire to stay with some smaller company on the basis that it is their ‘family?'” The Japanese always put the top priority to their company. The fourth layer is that of self esteem and status. This is where high-achievers dwell, and are able to distinguish themselves commercially and professionally. The fifth layer is “Actualization.” According to Wikipedia.com, it gives the following description (extract): “Self actualized people embrace the facts and realities of the world rather than denying or avoiding them. They are spontaneous in their ideas and actions. They are creative. They are interested in solving problems, which often includes the problems of others.”

The interesting point to make here is whether Thai and Japanese have the same level in Maslow’s hierarchy of needs. At TNC, different level of needs might bring the conflict in interactive situations, for example, between Japanese employer and Thai employee, the model may need to be adopted in its applications among differing cultures. Even though the culture of Thailand and Japan might be similar, it does not mean that they would have the same desire or expectation.

Based on the literature review, the definition of IJV, and reasons for forming the JV have been illustrated. Factors including cultural differences between Thai and Japanese, and different motivational perspectives were explained. However, it is essential and vital to discover how these factors affect TNC employees based on their perception. In Chapter 4, findings and analysis from the interview will be examined.

Economic Relations Between the Western Balkan Six Countries

Regional cooperation between the western Balkan countries is the key factor that will lead those countries towards the EU perspective. Improving relations of the Western Balkan countries is a goal that should be fulfilled. The improvement of these relations is a commitment made by the countries themselves at the EU-Western Balkans Summit of Zagreb (2000) and Thessaloniki (2003). Regional cooperation is the way towards regional economic prosperity, social and economic stability.

It is very obvious nowadays that the responsibilities and benefits of the western Balkan countries are tied to the development and bilateral cooperation. Cooperation is an issue applied in different fields, the ones of cross-border nature, to political understanding, addressing to a social and socio-economic prosperity.

Regional cooperation is an important strategic approach of building positive relations. The Western Balkan countries should be opened to collaborate towards a sustainable economy, regional collaboration and partnership as factors of vital strategic importance of building positive relations among them.

I will do the analysis of the impact of such collaboration in in the economic cooperation, achieving economic stability and identifying the respective competitive advantages, strengthening regional market integration and mutual elimination of non-tariff trade barriers. In specific, in this paper I will focus on bilateral economic relations between Albania and Serbia in the frame of integration process.

INTRODUCTION

“We note increasingly stronger support among the countries of the region for the development of regional ties. It is very encouraging that the areas of trade, energy and transport are among those where regional cooperation is the most substantial. Economic development is crucial if the region is to produce the jobs needed for its people. Further efforts are needed to increase trust and cooperation between peoples and countries. In the area of justice and home affairs, the countries need to enhance regional cooperation to achieve results.

Extended regional cooperation in south-eastern Europe is essential, regardless of the different stage of integration of the various countries, and an important criterion for the European course of the western Balkan countries. The stability, prosperity and security of the region are of significant interest to the EU. The EU will continue to foster all endeavours to promote regional cooperation.”

Perhaps the most tangible achievement of all lies in the fact that most of the Western Balkan countries are on a path towards European Union accession, something that seemed far off in the 1990s. It is incumbent upon us not to understate the serious challenges that lie ahead, both in terms of macroeconomic stability and even more so with regard to longer-term development. A key contribution of this book is to underscore the incomplete reform process in the region. We should be worried about this, as without further reforms the lackluster growth of recent years could become the norm, imperiling the convergence of living standards towards Advanced European levels, and denying employment opportunities to many in the region.

ANALYSIS OF THE ECONOMIC RELATIONS BETWEEN THE WESTERN BALKAN COUNTRIES

According to David Lipton, IMF first deputy managing Director, he transition from socialism to capitalism and democracy was less smooth than in other parts of Emerging Europe. But once the war ended and peace returned, these countries did more than rebuild: they began a transformation into market economies, liberalizing prices, privatizing many state- and socially-owned enterprises, and building the institutions needed to support a market economy.

On his report analyses the main economic developments and achievements in the Western Balkan countries, and lays out the key macroeconomic policy challenges for the future. While the collapse of communism 25 years ago marked the start of the transition to market economies for all Emerging Europe, the economic transformation of the Western Balkans really got going only after the conflicts that engulfed the region in the 1990s subsided. Hence, the past 15 years are the main focus of this report. The report is structured as follows. The overview chapter surveys the key findings and policy recommendations. Individual analytical chapters then focus in depth on the following key thematic issues: growth and structural reforms, macroeconomic developments and policies and the role of the IMF in the economic transformation, and the financial sector. Each analytical chapter concludes by outlining the key challenges that the Western Balkans face and suggests possible policy responses. Given that the Western Balkan countries are following the path previously taken by New Member States to become members of the European Union, the analysis relies heavily on comparisons between these two subregions. In compressing the experience of more than 17 countries over 15 very eventful years, the report inevitably focuses on broad themes, and cannot do justice to the nuance and diversity of individual country narratives. While the report highlights the role of the IMF during the economic transition, the Fund is only one of a number of agencies that have supported these countries over the past 25 years. In particular, the IMF may have taken a lead role in the early phases of transition, but for some Western Balkan countries the prospect of accession to the European Union has also been an important catalyst for reform. Other key players include the European Bank for Reconstruction and Development, European Central Bank, European Investment Bank, and World Bank, as well as bilateral country donors and private and voluntary sector institutions. But whether external assistance comes from the IMF or others, its impact pales in significance to the importance of domestically-driven reform and development, which is the principal subject of the report. The report was prepared by a team from IMF headquarters in Washington DC, IMF offices in the region, and the IMF’s Joint Vienna Institute (JVI). The views presented are those of the authors.

REGIONAL COOPERATION

Regional cooperation is a principle of the highest importance for the political stability, the security and economic development of the western Balkan countries: Albania, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, and Serbia and Montenegro (including Kosovo, under the auspices of the United Nations, pursuant to UN Security Council Resolution 1244 of 10 June 1999). Many of the challenges facing the western Balkan countries are not only common to them but also have a cross-border dimension, which involves their regional neighbours.

Since the enlargement of 1 May 2004, the EU and the western Balkans have become even closer neighbours, and so the situation in the western Balkan countries, their progress on the road to European integration and their present and future relations with the EU really are of immediate concern to the EU itself. When Bulgaria and Romania become EU members, the entire western Balkan region will be surrounded by Member States of the European Union. This will have important repercussions for both the countries of the region and the EU in a number of areas, in particular where the free circulation of goods, services and persons are concerned. These challenges have to be addressed in the broader context of south-eastern Europe.

The different set of reasons – political, economic and security – for which regional cooperation in the western Balkans is crucial, are closely interlinked: for instance, regional stability and security are needed for economic development, which in turn favours stability and security in the region.

Since the Stability Pact was founded, the heads of state and government of the south-eastern European countries have met regularly for consultation. At the Bucharest Summit in February 2000, they adopted a ‘Charter on Good Neighbourliness, Stability, Security and Co-operation in South-eastern Europe.’ A range of co-operative relationships has replaced bilateralism. Most Stability Pact projects and activities were proposed and are carried out by two or more countries of the region.

Previously every country of south-eastern Europe had a big brother outside, and most of the countries of Europe had a preferred partner in the Balkans. That was the reason for many conflicts, sometimes even proxy-wars, or a reason why conflicts in the Balkans became wars in Europe. The Stability Pact is the political answer to this outdated political approach from the nineteenth century. The Pact has created an upward spiral of mutual trust and practical steps. But both sides are still mistrustful, watching to see that the other side delivers, gives indications of confidence-building and that the conditions are fair. Seems that the region is about to choose a positive and successful path: day by day, the Pact is building the new, wider Europe.

Why did the Western Balkans converge more slowly? One possible explanation is that the closer physical distance of the New Member States to advanced EU economies may have offered advantages in terms of access to markets and investments, and facilitated the transfer of knowledge. These relative advantages are only recently partially offset by improvements in infrastructure links between the Western Balkans and Advanced EU economies. Yet even after controlling for the physical distance, econometric evidence suggests that, except for the postwar recovery period, the pace of convergence in the Western Balkans has been slower than in the New Member States. This is partly due to the absence of convergence within the Western Balkan region, because poorer countries such as Albania and Bosnia and Herzegovina failed to grow significantly faster than the richer countries, such as Croatia. What other factors may have constrained faster convergence? There is a growing literature on the impact of structural factors on convergence, though mostly on larger panels of countries. Findings suggest that domestic financial development speeds up convergence and that human capital is more important to growth for countries that are less developed. Better institutional infrastructure and selected labor market reforms have been shown to facilitate convergence at the regional level (Che and Spilimbergo 2012). Reform priorities for sustaining convergence have been found to vary with income levels. Empirical evidence suggests that in lower-middle-income countries, priorities should be reforming banking and agricultural sectors, reducing barriers to FDI, increasing competition in product markets for a more vibrant services sector, improving the quality of secondary and tertiary education, and alleviating infrastructure bottlenecks. In upper-middle income countries, boosting productivity growth would require deepening capital markets, developing more competitive and flexible product and labor markets, fostering a more skilled labor force, and investing in research and development and new technologies (Dabla-Norris and others 2013). Finally, a survey of various studies that focus specifically on the transition process concludes that institutional quality and market liberalization policies to promote private sector growth have a positive impact on economic growth, despite their initially disruptive effect. In line with these findings, the analysis here shows that improving the quality of governance, and developing market-oriented institutions, a strong human capital base, and deeper financial systems help poorer countries catch up. In contrast, the dominance of the public sector in the economy hinders the catching-up process. And the Western Balkans have lagged behind the New Member States in these areas. In light of the critical importance of economic transformation, the next section explores progress to date.

The implementation of the economic collaboration is the way towards progress, standing for a multilateral agreement successfully applied in those countries. This framework should be assisted and monitored. This monitoration should include evaluation of the economic outcomes as far as provide a full vision of the potential benefits and on reducing the trade costs and increasing trade.

ADVANTAGES AND POTENTIAL DRIVERS TO REGIONAL MARKET INTEGRATION

Reforms are considered potential drivers to regional market development and integration.

1. Institutional Reforms.

The protection of property rights is a common problem in most of the Western Balkan countries, particularly relative to the EU average, though to a lesser extent in FYR Macedonia. Indicators related to corruption and government inefficiency also point to reform gaps in most countries. Compared to NMS, inefficient government spending appears to be an important constraint in Serbia, Albania, Croatia, and Bosnia and Herzegovina. In Serbia, and to a lesser extent in Croatia, Bosnia and Herzegovina, Albania, and Montenegro, reform needs are large in areas linked to corporate sector performance. Specifically, this includes the strength of reporting standards, efficacy of corporate boards, and protection of minority shareholders. Encouragingly, Albania, Bosnia and Herzegovina, FYR Macedonia, and Montenegro score relatively well in terms of burden of government regulation, even compared to the EU average. For Croatia and Serbia, however, the gaps in this area remain large.

2. Infrastructure.

The analysis of specific reform gaps within the broader infrastructure pillar suggests that the Western Balkan countries have had a mixed performance when assessed vis-à-vis their peers. In terms of overall quality of infrastructure, Croatia ranks better than its New Member State peers, while the largest overall quality gaps exist in Bosnia and Herzegovina and Serbia. All Western Balkan countries, except Croatia, lag behind the EU by a wide margin. The gap analysis points to important reform potential in railroad infrastructure in Albania, FYR Macedonia, and Serbia. Compared to the average EU country, road and air transport infrastructure gaps are large in all countries, though to a lesser extent in Croatia.

3. Goods Markets Efficiency.

The results of the analysis suggest that the Western Balkan countries impose a relatively low tax burden on businesses. Total tax rates are well below those of NMS and EU average in FYR Macedonia, Montenegro, and Bosnia and Herzegovina. Similarly, all countries but Bosnia and Herzegovina perform well or are broadly at par in terms of procedures and time to start a business. Gaps in competition policy, measured by the intensity of local competition and the effectiveness of anti-monopoly policy, point to potential reform needs in this area.

Gaps in trade barriers, tariffs, and impediments to foreign ownership and foreign direct investment (FDI) are relatively moderate in most Western Balkan countries, but almost always negative. Rules on FDI and foreign ownership seem to be stricter in Croatia and Serbia. Agricultural policy cost seems to be a significant burden for the economy in Croatia and Serbia, and to a lesser extent in Albania.

Labor Market Efficiency Performance of regional labor markets, when benchmarked against New Member State peers, is relatively mixed, as measured by indicators on the flexibility of setting wages, flexibility of hiring and firing, and redundancy costs. All of the Western Balkans lag behind their peers in at least one of these three areas. Croatia has relatively more inflexible hiring and firing rules, and stronger tax disincentives to work but relatively more flexible wage setting. The labor tax wedge is also relatively large in Serbia. In contrast, Albania and Bosnia and Herzegovina score lower in terms of flexibility of wage setting. Most of the Western Balkan countries (except Albania and Montenegro) compare less favorably to the New Member States in terms of retaining and attracting talent, contributing to skilled labor shortages. In these areas, as well as in professional management and cooperation on labor-employer relations, gaps tend to be larger vis-à-vis the EU. In other areas, differences with respect to the EU are less important, reflecting significant labor market rigidity in both sets of countries.

The economic development is certainly tied to the political stability which make the direct approach to the regional cooperation. This kind of approach builds strong relations between the western balkan countries. The non-tariff trade is a way of having a sustainable future not only for the country itself, but even for the region. Accompanying that to the other key factor of political stability, sees to be the right way of non forced, natural cooperation towards the bright economic future of these countries.

CHALLENGES AND PROSPECTS FOR A SYNCHRONIZED INVESTMENT AGENDA IN THE REGION

The event on February 24th – the first all-inclusive Western Balkans summit at the EBRD – will provide an ideal opportunity for business leaders and international companies to learn more about the countries and the Bank’s role in them.

“The idea is to present this region as a whole as an investment destination,” said the EBRD’s Senior Political Counsellor Oleg Levitin. “We hope that this conference, besides facilitating much needed foreign investment, will send a very strong political message about the maturity and stability of the region.”Regional integration through road corridors, gas pipelines, expansion in the manufacturing sector and other projects will be at the top of the agenda.”We believe that regional integration needs to be made a priority,” said Claudio Viezzoli, the EBRD’s Director, Western Balkans.

The EBRD sees supporting and promoting the Western Balkans as particularly important to foster the region’s development by strengthening its potential. The countries benefit from the IFI Joint Action which includes more than €30 billion of joint commitments for the period 2013-2014 in Central and South Eastern Europe as a whole.In the Western Balkans and Croatia alone the EBRD invested in more than 80 projects totaling more than €1.2 billion in 2013. This was a new record. Over the years, the total of EBRD investments in the region has reached €10.5 billion.

The Bank is active in all sectors of the economy but has a targeted approach in each country, based on the individual country’s needs and priorities as defined in the respective country strategies. A major goal of the EBRD’s increased engagement in the region in recent years has been to support the countries in their response to and overcoming the financial crisis which had hit the region hard.

After a protracted period of contraction, in 2013 the countries again registered growth of 2 per cent on average and prospects for growth in 2014 are similar. Particularly interesting for investors are the significant catch-up potential and the efficiencies of increased cross-border economic activity.

The attractiveness of the region for foreign investment has increased thanks to improved political stability and progress in the Euro-Atlantic integration in recent years. Croatia became a member of the European Union in 2013, and Montenegro and Serbia are in the process of membership negotiations. Other countries are continuing on the course of EU approximation. At the same time intensified regional cooperation has significantly brightened economic prospects and the region’s stability.

The EBRD sees itself as a supporter of these processes, a promoter of the interests of the Western Balkans and a door-opener for international and regional investors contemplating an engagement in the region.The countries have a lot to offer: from fertile soil to a strong industrial tradition, from vibrant entrepreneurship to a proud history of innovation, from rich natural resources to a skilled and educated labour force and to stunningly beautiful landscapes – the Western Balkans have it all. The Western Balkans investment forum offers a unique opportunity to learn more about the countries and the region and to get in touch with key decision-makers and business representatives.

Having a stability in politics and regional cooperation make the Western Balkan countries interesting to generate new employments as a result of positive impact in the economy. The gain in this case will be more collective than individual. Negotiations should be strengthened. There are lakes and rivers shared by these countries, therefore specific regional cooperation is needed.

DIRECTIONS AND AREAS OF ECONOMIC INTERACTION BETWEEN ALBANIA AND SERBIA IN THE LIGHT OF THE EUROPEAN INTEGRATION PROCESS

Free trade

Regional trade liberalisation is progressing. A network of bilateral free-trade agreements among the countries of the region, including Romania, Bulgaria and Moldova, has been established, thus creating a free-trade area of 55 million consumers. This sends an important signal to the investor community, which will find a market of high absorption potential for industrial and consumer goods. To reap the full benefits of trade liberalisation in the region, the free-trade agreements need to be fully and efficiently implemented. The countries of the region committed themselves to complete the network of free trade agreements. Regional trade across south-eastern Europe is fully in keeping with the EU perspectives of the different countries in the region, independently of where they stand on their way to membership. Trade liberalisation and facilitation is one of the pillars of the stabilisation and association process (SAP): a main instrument of the SAP is the autonomous trade measures that the western Balkan countries enjoy – free access, without quantitative limit, to the EU market for practically all products.

Energy and transport infrastructure

Significant progress is being made on forming a regional energy market and rebuilding infrastructure. The projected south-eastern Europe regional energy market, which should provide modern and liberalised gas and electricity systems, will be key to a regional energy market based on European standards, transparent rules and mutual trust, and it will set the right environment for the optimal development of the energy sector. The agreement governing energy trade will substantially contribute to attracting investment into this strategic sector. Where transport infrastructure is concerned, an integrated regional transport strategy, consistent with the trans-European networks and taking into account the pan-European corridors, is a high priority. The EU also supports projects of regional significance and regional initiatives in the areas of environmental protection, science and technology, information and communication technology, and statistics.

Fight against organised crime and corruption

Organised crime and corruption are threats to security and democratic stability, and obstacles to the rule of law and economic development in the region. Combating organised crime and corruption is a key priority for the governments of the region. Particular focus is being placed upon fighting all forms of trafficking, particularly of human beings, drugs and arms, as well as smuggling of goods. Strengthening the regional operational cooperation for police and prosecution is considered a key priority for the countries of the region.

EU assistance

To promote regional cooperation in priority areas, the EU is providing political support, practical/technical guidance and financial assistance through the CARDS programme (Community assistance for reconstruction, development and stabilisation), which is one of the main instruments of the stabilisation and association process.

Priority areas where regional CARDS assistance will be focused for 2005-06 are listed below.

• Institution building: this priority focuses primarily on strengthening the administrative capacity of the countries, and support to public administration reform, through instruments implemented regionally.

• Justice and home affairs: actions in this field have a special focus on the fight against organised crime and corruption, and include enhanced police regional cooperation and judicial regional cooperation.

• Cross-border cooperation: by promoting economic and social cooperation of border regions, including support to networking activities and the involvement of civil society. The EU supports the development of cross-border cooperation between the western Balkan countries, as well as between these countries and EU members, acceding and candidate countries.

• Private-sector development, by facilitating foreign direct investments in the region.

• Infrastructure development, through initiatives in the sectors of transport, energy, environment and information society.

Considering that in the Balkan countries exist multi-ethnic societies, should be a positive thing in terms of trade, because minority groups should be seen as an added value for the implementation of the non-tariff trade. The elimination of the barriers is an important factor that is representing the approach of positive relations between those countries.

Cross-border finance is the future of Western Balkan countries. Although traditional trade barriers such as tariffs have come down, and innovations in transportation and communications technology have shrunk the distance between nations, trade costs remain high, particularly in developing countries. High trade costs isolate developing countries from world markets, limiting their trade opportunities and impeding growth. High trade costs also appear to disproportionately affect small and medium-sized enterprises (SMEs), time sensitive products and goods produced in global value chains. Trade procedures that are more cumbersome than necessary and delay the movement, release and clearance of goods constitute a significant part of these trade costs. Trade facilitation is intended to relieve these bottlenecks at the border. The WTO’s Trade Facilitation Agreement (TFA) represents an important milestone by creating a multilateral framework for reducing trade costs. While changes in trade procedures can be implemented unilaterally, a multilateral agreement on trade facilitation brings added value. It provides greater legal certainty to the changes in measures. It helps reforming governments to marshal support from domestic constituents. Finally, it helps with the adoption of similar or compatible approaches to trade procedures and coordinates the provision of donor support for capacity-constrained developing countries.

Cooperation in the region represents a key element for the development of the Western Balkan in general, and a powerful collaboration towards an integrated market. Stability Pact has played an important role in the cooperation between the countries of Western Balkans. It is obvious that it many initiatives in order to promote democratic stabilization and economic development in the Western Balkan countries.

CONCLUSION

The Western Balkan financial systems need to deepen further and broaden access to financial services while preserving and enhancing financial system stability. Reforms are needed to reduce market imperfections and information asymmetries, and to allow for efficient intermediation of credit to finance investment. While Western Balkan countries have done relatively well in providing the infrastructure necessary for financial development more generally and credit deepening in particular, they have lagged their New Member State counterparts in strengthening the foundations of financial stability.

By intensifying cooperation between Balkan Countries,can turn into an element of integration, progress, stability and cooperation in the region. The European perspective of both countries will be a common good and cooperation factor for both countries. The two countries seem determined to cooperate in terms of economic exchange and cooperation as part of the new EU perspective on the Western Balkans (launched in Berlin by the German Chancellor in August 2014) and the South-East European Cooperation Process (SEECP).

They should have some common priorities that will guide them to a successful economic perspective besides the clear EU path that have towards. Strengthening their trade dynamics is an ambitious cooperation framework.

Emerging Business Opportunities in the Renewable Energy Sector in India

Introduction

The New and Renewable Energy sector has gained widespread attention in recent years. The renewable energy sources are crucial not only for achieving energy security but also for environmental sustainability. The globalization has lead to a rapid increase in the demand for the energy and there is an increased thrust on alteration of the existing energy mix. In India, the government has implemented various initiatives for the promotion and development of the renewable energy sources, such as, solar energy, wind energy, bioenergy, geothermal energy, etc. The aim is to promote the utilization of the renewable energy sources through the policy reforms, public-private partnership and development of the Ultra Mega Power Projects (UMPP). The current share of the potential renewable energy in the energy mix stands close to 15%. The estimated renewable energy potential from commercially exploitable sources for India is around 900 GW with a total installed capacity of around 310 GW. Thus, there is huge scope present in this sector. The government has implemented various projects in the renewable energy sector with an emphasis on research and development, technical and financial support, public awareness and public-private sector synergy. The Ministry of New and Renewable Energy (MNRE) focuses on the deployment of the projects and incentives through participation from the states and various administrative levels. Regulations have been specified at the state level for promoting renewable energy projects in the respective states. There are, however, constraints present in the realization of the renewable energy mission in terms of credit risk, technical risk, policy risk and social factors, which may lead to delays as per the anticipated results. The other important factor is to attract new entrants in this sector by ensuring credible and genuine returns, expansion opportunity and flexible regulatory norms. It is also crucial to ensure that the benefits are extendable to the community, in terms of job opportunities, increased standard of living and environmental sustainability.

Green Entrepreneurship

Green Entrepreneurship is essentially concerned with the innovative business aimed to address the issue of environmental concerns and offering solutions to mitigate the associated problems. These businesses leverage the opportunities that exist in the environmental sector and deploy measures for the sustainable development of the society. The recent upthrust by the government is enabling diverse opportunities for these entrepreneurs to gauge in the renewable energy sector.

Current Scenario

The renewable energy sector offers wide opportunity in terms of growth and environmental sustainability. There is however a need to consider the evaluation and bench-marking criteria for the businesses in this sector. There is also a lack of cost effective strategy for the same in the Indian scenario. The enterprises are marred by high initial costs and computation methods for the estimation of capacity. This is further exaggerated by the lack of domain expertise and limited awareness and motivation among the people. The government, although, has developed policies for supporting the green entrepreneurship and has provided different incentives, but this support seems to be limited in its reach. This allows for limited indulgence of the businesses in the sector.

Opportunities

The acceptance and credibility of the business is a critical factor for the success of a green entrepreneurship venture. There is plethora of opportunities in the various domains of the renewable energy sector. These domains include the solar energy technology and installation, bio-fuel generation, bio-fertilizers, consulting services, etc. The government has initiated various programs to support the entrepreneurship in the country, particularly in the renewable sector. The benefits are provided in terms of incubation centres and mentorship. There are also firms and investors available in the market, to lend support for the green business initiatives. The focus is not only on the generation of the renewable energy, but it also encompasses the storage and distribution of the energy. Thus, there is wide variety of options available in terms of market and finances.

Recommendations

The following recommendations aim to provide the guidelines to the entrepreneurs to identify the suitable domain in the renewable sector. These are based on the premises of selecting the business vertical as per the base location, energy source, government incentives, etc.

1. The entrepreneurs need to develop an understanding about the different types of sources together with an emphasis on the feasibility for realizing the potential of the different sources in their base state. The primary focus should be to evaluate the harness potential of the sources based on economic and technology front. The existing status of industrial area in the area should be determined to generate an overview of the industrial scenario of the state.

2. The available harnessing potential should be evaluated as per the different methodologies and technicalities. For instance, in case of solar energy utilization, there are different methods of solar energy usage, such as Grid-connected solar generation, Phase Change Materials (PCM), Rooftop solar power projects, etc. Also, the analysis of the resource potential of the region should be in terms of area availability, wind/sunny days, availability of biomass and its accumulation, suitability of land in terms of jatropha cultivation, etc. The implementation guidelines should be highlighted based on census data analysis.

3. The existing regulatory and infrastructure framework in the renewable energy sector should be studied. Also, the other crucial factors are the provision of the economic and administrative support.

4. The enterprises should study the project implementation examples in the sector from different states, to identify the existing gaps and developing solutions to bridge the same.

5. Identifying the technical, social and political barriers in the implementation of renewable energy projects is crucial, particularly in the initial stages. One important part is to enhance the knowledge about this sector among the masses. Also, it is critical to identify the possibility and plan for achieving the public and private sector synergy in this sector, particularly in the initial years of project development.

6. Generating an understanding the plausible impact of the Goods and Services Tax (GST) and other initiatives by the government, like ‘Make in India’ and ‘Stand-up India’ on this sector.

7. Estimating the potential for the generation of employment opportunities and enhanced standard of livelihood of the local population due to the promotion of this sector. It is imperative to identify the support of the local Self Help Groups (SHGs), NGOs and local societies in this regards.

8. Identifying the different specialization streams for the MSMEs in the sector. For instance, MSMEs may chose to focus on solar cookers, solar powered bulbs, contracting of wind turbines, etc.

Conclusion

This sector provides a productive opportunity in terms of profitability and environment sustainability. There are different incentives and policies by the government for the promotion and development of green entrepreneurship in the country. The entrepreneurs have an option to select the different domains in the sector based on the technical functionality and the sustainability as per the area of operations. The recommendations provided in the articles serve as a guideline, however, due caution should be taken while accounting for the external environment and the associated variability.

Ineffectiveness of Development Aid For Developing Countries

In 1945, the United Nations Organization (UNO) was established to avoid a new world war. Another goal of the UNO was to eradicate poverty in the developing countries. This goal was and is still is a very important reason for the existence of the UNO. The most important ‘instrument’ to fulfill was the creation of the International Bank for Reconstruction and Development (IBRD) or better known as the ‘World Bank’. In October 2005, the UNO celebrated its 60th anniversary. What has it accomplished in terms of eradicating poverty in developing countries? The sad truth is that 80% of the world population controls only 20% of the world’s resources; this means that 20% of the population controls 80% of the world’s resources. This is not some sort of ‘secret’ fact, but something that most people know. Why is this sad reality a fact?

The first problem is related to the policy process itself. This process is unfortunately not being done in a straightforward and rational way; on the contrary. It is full of ambiguities and conflict. The second problem I would like to discuss in this article can be found in the theories of development. I have never encountered a universal theory of development. This is not surprising because the strong impact of theories of development on policies for development is not fully realized. Consequently, policies of development are always incomplete because there is no universal strategy available to cope with the problem of development.

Development aid policy
In general, the literature concerned with the policy process is dominated by a particular view. This view is connected with the ‘rational-actor paradigm’. In this rational-comprehensive-policy model, the decision-making process is purely based on rational and objective criteria. The role of objectively acquired information forms the basis of policy in this model. This standardized model is assumed to be universally applicable in every policy ‘system’, sector, or problem.

The following aspects represent this model:

1. Clarification of values or objectives distinct from and usually a prerequisite to empirical analysis of alternative policies;
2. Policy formulation is therefore approached through means-end analysis. First the ends are isolated, then the means to achieve them are sought;
3. The test of a good policy is that it can be shown to be the most appropriate ‘tool’ to achieve certain ends;
4. Analysis is comprehensive; every important and relevant factor is taken into account;
5. Theory is often heavily relied upon.

The separation of policy preparation or planning and execution or implementation is a vital characteristic in the rational comprehensive methodology. Implementation is being seen as a logical outcome of a well-prepared and formulated plan. But in the implementation of the aid policy, numerous projects failed due to negligence of the execution of the goals formulated. This implementation problem is not only limited to development aid policies, but it has also been traced in numerous other policy fields.

A second property of the rational-comprehensive model is the consensus of the problem. It is being presumed that the development of a certain country is not problematic at all. All parties involved (donor and developing country) have reached an agreement and the strategy chosen is therefore the result of a consensus of all parties involved. None of these are true in reality. Development aid policy is the result of negotiations between the actors involved. Actors with business interests, actors from the developing countries self and last but not least, the actors with political interests are constantly engaged in negotiations. It is not difficult to imagine that the actor with the strongest bargaining position possesses the power to overwhelm the actor actors. It is not the objective scientific planner or other kind of specialist who has the final word. In most cases, it is the most powerful actor(s) who wins.

A final aspect related to this model is the role of objective knowledge as an important pillar in the decision-making process. It is being assumed that knowledge is the key to success. The more knowledge about the issue is available, the easier it is to solve the issue, in this case, the ‘development problem’. This knowledge does not come from a magic box. On the contrary, it comes from strict scientific research. So, scientific research is the source of knowledge and henceforth plays a crucial role in policy-making processes. The influence of the actors is neglected because they have reached a consensus. In reality, scientific research plays a very marginal and minor role in the policy-making process. Policy makers only use scientific findings when it is in accordance with their own ideas. Policy makers draw policies on the bases of their own good judgments and experience and not on scientific findings. Afterwards, they tend to seek objective findings which actually support their policy which has been formulated long before.

Theories of development

The reader should be warned because I cannot give a complete sketch of the existing theories of development, only a few important theories will be discussed. In the fifties, modernization theories dominated the foreign aid of the ‘developed to the underdeveloped countries’. Development is being seen as a linear progressive movement of a ‘traditional’ society into a state which can be perceived as being a ‘modern society’. The example of the emergence of the nations in the Northern hemisphere is being used to define the term ‘modern’. Furthermore, the development is being seen as a result of technological innovations. The World Bank can nowadays still be identified as the major producer of the modernization theory. Economic growth is the key concept in this theory. If the shortage of capital problem in the developing countries is solved, poverty will vanish and an autonomous process of development will come into motion. Economic dualism – the existence of, on the one hand, a modern export-oriented sector in the economy and a local sector producing domestic commodities on the other hand – is being seen as an obstacle. The traditional sector (or informal sector) must be eliminated in this view.

The developing countries in turn, reacted by introducing their own theories. In the years 1949-1950, Prebisch (the secretary of the Economic Commission for Latin America) posed a theory called the center-periphery vision. The economies of the Latin American countries are situated in the periphery, whereas the industrialized western countries are situated in the center. In order to change this situation, which only preserved underdevelopment, Prebisch proposed to introduce rapid industrialization by substitution. The dependencia school (advocated by Frank and Dos Santos) goes even further than the center-periphery school. In this school, the importance of the form and intensity of international relations are being stressed as a strong variable which affects economic progress in developing countries.

In the west, new thoughts arose as a reaction to the deficiencies of the ‘traditional’ views. The so-called unified approach emerged (advocated by Myrdal and Gamini Corea – secretary of UNCTAD and UNRISD). The most important argument of this approach is that aid must be directed towards the groups with lowest incomes or who are the poorest. But the developing countries did not accept this modified view because they experienced it as an intervention in their own internal affairs. In addition, the developing countries demanded a New International Economic Order. This New Economic Order should be based on justice, sovereign equality, mutual dependency, common interests and cooperation between all states. Unfortunately, the structural changes of the international system in favor of the third world have not happened. But the discussion around the New Economic Order resulted in the so-called Rio-project. The members of the Rio-project developed a new development strategy where the emphasis is laid on the self-reliance aspect of the developing countries. But the western nations have not stimulated this self-reliance concept.

Personal reflections

I have lived for more than 30 years in a developing country (Indonesia) and this country has received billions of dollars in terms of aid and loans. What is the end result? Tens of millions still live in poverty. With the exception of the lucky few, some have been able to improve their lives thanks to a combination of education and luck. A minority (mostly of Chinese descent) has been able to improve their situation due to their skills as traders. However, corruption is rampant and the new-born democracy has not been able to solve all these problems. It will take many years before so-called ‘sustainable development’ can be achieved. Even with educating more people, the situation will not improve in the short term. Despite the availability of abundant natural resources, the situation remains dim. If nothing is done against deforestation, all the tropical forests in this country will be gone in 2010; that is only four years from now. The situation might even get worse due to the inability of the majority to compete with other countries in terms of industry, trade, and services.

Better future?

Nowadays, everybody is talking about globalization as the ‘cure for all diseases’.
The developing countries, however, are still suffering from underdevelopment, poverty, and human rights violations. How can globalization solve all these problems? The dawn of the 21st century is not marked by a better global situation, but by more global instability with individual states scrambling for nuclear weapons, a senseless ‘war against terrorism’, destruction of the environment, and doubling of the population in the next 40 years. It will take a lot effort from all people in the developed and the developing world to solve all these problems and create a better world for our children and grandchildren.

9 TYPES OF MAINTENANCE

Across industry, many definitions are used when it comes to the different
types of maintenance. It can quickly get confusing when people talk about
preventive maintenance, condition based maintenance, predictive
maintenance but actually, have something else in mind than you do. Some
people get very excited about these definitions and can spend a lot of time
on for example disagreeing with what is and what isn’t preventive
maintenance. Let’s not do that, instead, I’ll offer you my view on the different types of maintenance.

9 TYPES OF MAINTENANCE

As far as I am concerned, terminology is not important. Other than making
sure we are talking about the same thing. If what I consider to be condition
based maintenance, you call predictive maintenance that doesn’t really
matter.

As long as we can sensibly talk about the underlying principles.

When to use condition-based maintenance. And how to use it.

However, as I’m often asked questions about the different types of maintenance I decided to put a quick overview together of the types of maintenance.

At least, the way I see it:

PREVENTIVE MAINTENANCE VS CORRECTIVE MAINTENANCE

At the top level, I see maintenance being either preventive or corrective:

When we do preventive maintenance we are doing a task before a failure
has occurred. That task can be aimed at preventing a failure, minimising
the consequence of the failure or assessing the risk of the failure occurring.

When we are conducting corrective maintenance the failure has now
occurred and we are basically reinstating equipment functionality. To be
clear, corrective maintenance can be the result of a deliberate run-tofailure
strategy.

PREVENTIVE MAINTENANCE

Preventive maintenance can be defined as “an equipment maintenance strategy based on replacing, or restoring, an asset at a fixed interval
regardless of its condition. Scheduled restoration tasks and replacement
tasks are examples of preventive maintenance tasks.”

Preventive maintenance (or preventative maintenance) is basically a type
of maintenance that is done at a regular interval while the equipment is
still functioning with the objective of preventing failure or reducing the likelihood of failure.

Preventive maintenance can be time-based i.e. every week, every month
or every three months. But preventive maintenance can also be based on
usage e.g. every 150 cycles, every 10,000hrs or like your car: service every
10,000km.

Apart from the regular interval approach (time based maintenance) there
are also other types of maintenance that fall within the category of preventive maintenance:

} Time Based Maintenance (TBM)
} Failure Finding Maintenance (FFM)
} Risk Based Maintenance (RBM)
} Condition Based Maintenance (CBM)
} Predictive Maintenance (PDM)

In the rest of this article I will explore each of these types of maintenance
in more detail including when you should consider using them.

TIME BASED MAINTENANCE (TBM)

Time Based Maintenance refers to replacing or renewing an item to
restore its reliability at a fixed time, interval or usage regardless of its
condition. This is what Moubray calls Scheduled Restoration or Scheduled
Discard tasks in his RCMII book.

I limit the use of that phrase, as for some reason people then jump to the conclusion that other maintenance is not scheduled. When in fact of
course all maintenance should be scheduled through our Weekly
Schedule. The only exception would be Emergency Maintenance, which
due to its very nature of requiring immediate attention cannot be
scheduled.

The purpose of Time Based Maintenance is to protect yourself against the
failure of known wearing parts which have predictable Mean Time
Between Failure (MTBF) i.e. Time Based Maintenance assumes that the
failure is age related and a clear service life can be determined. Or, that it’s simply not worth the effort to assess the condition and a time based replacement is more economical and still (reasonably) effective.

Time Based Maintenance can never effectively manage non-age related failure modes and therefore should only form a small part of your overall
maintenance program as >70% of the failure modes in your plant are not
age related (refer to the article 9 Principles of Modern Maintenance).

FAILURE FINDING MAINTENANCE (FFM)

Failure Finding Maintenance tasks are aimed at detecting hidden failures
typically associated with protective functions. Think pressure safety
valves, trip transmitters and the like.

This type of equipment won’t be required to function until something else
has failed. That means that under normal operating conditions you will not
know whether this equipment is still functional i.e. the failure modes are hidden.

And since these failures are hidden, you’ll need to find them before you
are relying on that equipment to protect you. Simple really.

It’s important to realise that failure finding maintenance tasks do not
prevent failure but simply detect it. And once detected you’ll have to
repair the failure you found. Failure Finding Maintenance is conducted at
fixed time intervals typically derived from legislation or risk based approaches.

RISK BASED MAINTENANCE (RBM)

Risk Based Maintenance (RBM) is when you use a risk assessment
methodology to assign your scarce maintenance resources to those assets that carry the most risk in case of a failure (remembering that risk =
likelihood x consequence).

As a result, equipment that has a higher risk and a very high consequence
of failure would be subject to more frequent maintenance and inspection.
Low risk equipment may be maintained at a much lower frequency and
possibly, with a much smaller scope of work.

When you implement a Risk Based Maintenance process effectively you
should have reduced the total risk of failure across your plant in the most
economical way.

Risk Based Maintenance is essentially preventive maintenance where the
frequency and scope of the maintenance activities is continuously
optimised based on the findings from testing or inspection and a thorough
risk assessment. Examples of Risk Based Maintenance would be Risk
Based Inspection (RBI) as applied to static equipment like vessels and
piping or even pressure relief valves.

CONDITION BASED MAINTENANCE (CBM)

Most failure modes are not age related. However, most failure modes do give some sort of warning that they are in the process of occurring or are about to occur.

If evidence can be found that something is in the early stages of failure, it
may be possible to take action to prevent it from failing completely and/or to avoid the consequences of failure. Condition Based Maintenance as a strategy, therefore, looks for physical evidence that a failure is occurring or is about to occur.

Thinking of CBM in this way shows its broader applications outside condition monitoring techniques often only associated with rotating equipment.

An important concept within Condition Based Maintenance is the P-F
curve shown in the figure below:

The curve shows that as a failure starts manifesting, the equipment
deteriorates to the point at which it can possibly be detected (point “P”).

If the failure is not detected and mitigated, it continues until a functional
failure occurs (point “F”).

The time range between P and F, commonly called the P-F interval, is the
window of opportunity during which an inspection can possibly detect the
imminent failure and give you time to address it.

It is important to realise that CBM as a maintenance strategy does not reduce the likelihood of a failure occurring through life-renewal, but
instead is aimed at intervening before the failure occurs, on the premise
that this is more economical and should have less of an impact on
availability. In other words: condition monitoring does not fix machines and condition monitoring does not stop failures. Condition monitoring only lets you find problems before they become a failure.

A common rule of thumb is that the interval between CBM tasks should
be one-half or one-third of the P-F interval.

How much more effective CBM is above breakdown maintenance depends on how long the P-F interval is. With plenty of warning the rectification can be planned, materials and resources can be mobilised and breakdown prevented (though production is still stopped for the maintenance duration). When the P-F interval is only a few days the resulting organisational and workplace actions are much like a breakdown and the value of CBM is largely lost.

For CBM to be effective as a strategy, early intervention is essential. This
requires an efficient and effective process for data gathering, data analysis, decision making and finally intervention.

For failure modes where the P-F interval shows a large variability, condition monitoring is not an effective strategy.

If you’re interested to find more about how to best manage failure modes
don’t forget to check out the article Reliability Centered Maintenance – 9 Principles of Modern Maintenance.

PREDICTIVE MAINTENANCE (PDM)

Up until recently when people spoke about Predictive Maintenance (PDM)
this was usually as a synonym for Condition Based Maintenance. But in my
view with the advent of Artificial Intelligence, much lower costs of
equipment sensors (IIoT – Industrial Internet of Things) and machine
learning there is clearly a difference appearing between Predictive Maintenance (PDM) and Condition Based Maintenance (CBM), at least in my view.

I see Predictive Maintenance as an extension, a more advanced approach
to CBM where we use potentially many process parameters gained from online sensors to determine if our equipment is moving away from stable
operating conditions and is heading towards failure. A condition assessment that is extrapolated to make a prediction when failure is
expected to occur.

There are a lot of (very large) companies actively moving into this space
and it is certainly a fast-moving and exciting part of our discipline as
Maintenance & Reliability Professionals. However, I do still believe that
even the most advanced Predictive Maintenance approaches need to be
underpinned by sound reliability principles and understanding.

CORRECTIVE MAINTENANCE (CM)

A Run to Failure or Corrective Maintenance strategy only restores the function of an item after it has been allowed to fail. It is based on the
the assumption that the failure is acceptable (i.e. no significant impact on
safety or the environment) and preventing failure is either not economical
or not possible.

Apart from being the outcome of a deliberate Run to Failure strategy
Corrective Maintenance is also the result of unplanned failures which
were not avoided through preventive maintenance.

A run to failure strategy can effectively be used for general area lighting, smart process instrumentation (without trip functionality) etc. where the consequence of failure is limited and would not necessitate a need for an urgent repair.

When opting for corrective maintenance as a strategy it is essential to ensure that the failure modes under consideration do not have the potential to become Emergency Maintenance.

You see, if you adopt run-to-failure for equipment that once it has failed
must be restored immediately to have doomed your organisation to a
reactive maintenance environment.

A reactive maintenance environment is not where you want to be. It is more expensive, less efficient, and less safe. So although a run-to-failure strategy can sometimes be a good option, make sure you decide wisely.

DEFERRED CORRECTIVE MAINTENANCE

In the chart of maintenance types I broke ‘corrective maintenance’ into
two sub-types:
> Deferred corrective maintenance
> Emergency maintenance

And that was very deliberate because it is so essential that we absolutely minimize the amount of Emergency Maintenance we allow into our organisations.

As I already pointed out above Emergency Maintenance is expensive, various sources have suggested that Emergency Maintenance is 3 to 5 times as expensive as ‘normal’ preventive maintenance. Emergency Maintenance typically leads to longer equipment outages and more production impact. And it is less safe.

So when a corrective maintenance work request is raised it is essential
that you prioritise it properly to make sure that where possible you defer
the work request and give your team the time to properly plan and
schedule the work.

If you want to read more about prioritisation of corrective maintenance
have a look at the article You Will Fail Without Planning & Scheduling.

EMERGENCY MAINTENANCE (EM)

Emergency Maintenance is corrective maintenance that is so urgent that it
breaks into your Frozen Weekly Schedule (you do have one don’t you?). It
upsets your plans and schedules and typically throws everything into
disarray. Some people thrive in this type of environment and often get
heralded as heroes when they’ve worked 16hrs non-stop to get
production back online. But when it comes to the Road to Reliability it is a dead end.

Emergency Maintenance is the one and only maintenance type that we
really want to avoid as much as possible. In fact, World-Class
organisations ensure that less than 2% of their total maintenance is Emergency Maintenance. How much Emergency Maintenance do you
have?

TYPES OF MAINTENANCE: A COMPARISON CHART

The table below shows a brief summary of:
> the different types of maintenance;
> what type of tasks are involved;
> the objective of the task;
> and how the interval between the tasks is determined.

An efficient and effective Preventive Maintenance Program will have a mix of all these different types of maintenance.

WHAT IS BREAKDOWN MAINTENANCE?

And frequently asked question is ‘what is breakdown maintenance’ and as
it’s not in my explanation I thought I’d just covered it here briefly. As far as I am concerned, breakdown maintenance is simply corrective maintenance
and not another type of maintenance in itself. In the case of breakdown
maintenance, you’ve had a failure and so now it needs to be fixed. And
depending on the risk associated with that breakdown it could be urgent
or less urgent.

But, in many people’s mind, breakdown maintenance is urgent maintenance, maintenance that needs to be done right now i.e. Emergency Maintenance. And if that’s the case for you, you know what to do: get rid of it!

WHAT IS THE DIFFERENCE BETWEEN PREVENTIVE MAINTENANCE AND PREDICTIVE MAINTENANCE?

I think I have covered this in the article, but as it’s such a frequently asked question I’ll just summarise the key differences here:

Preventive maintenance covers multiple types of maintenance that are
used before a failure has occurred. Predictive maintenance is a form of
preventive maintenance.

When most people talk about preventive maintenance they really mean Time Based Maintenance which is a repair or replacement on a fixed
interval irrespective of the condition of the equipment. The interval can be
time-based (days, weeks or months) or usage-based (operating hours, cycles or km).

AND WHAT ABOUT AUTONOMOUS MAINTENANCE?

The above table of types of maintenance does not include Autonomous
Maintenance or Autonomous Care (also referred to as Front Line
Maintenance in other organisations). The CLAIR (Clean, Lubricate, Adjust,
Inspect and Repair) activities conducted under Autonomous Care are
essentially a combination of the above strategies, but conducted on a
higher frequency by frontline staff.

ABOUT THE AUTHOR

Erik Hupjé is the founder of the Road to Reliability™ and has over 20 years’ experience in asset management, and specifically managing maintenance & reliability. He has worked in the Netherlands, the United Kingdom, the Philippines, the Sultanate of Oman, and Australia.

Erik has a passion for continuous improvement and keeping things simple. Through the Road to Reliability™, he helps Maintenance & Reliability professionals around the globe improve their plant’s reliability and their organisation’s bottom line.

REFERENCES

I wrote this article based on a number of key sources listed below (and throughout the article):

The Professional’s Guide to Maintenance and Reliability Terminology by Ramesh Gulati, Jerry Kahn and Robert Baldwin, accessed in June 2018 at https://reliabilityweb.com/tips/articl/definition_preventive_maintenance

The Challenges Faced by International Business

This article examines how the environment affects and creates conditions for either the success or failure of business organizations and how it operates to demand effective strategic thinking on the part of decision-makers if businesses are to survive and thrive.

Take the classic example of Mark & Spencer PLC, which began in 1894 as a single high street store owned by two men, selling all items said to be costing no more than a penny to the customer. Over the years it conquered the retail sector with branches in prime locations all over the UK, and in overseas territories, totalling more than 885 stores. Not only did Marks & Spencer evolve into the giant corporation which it is today by reading the changes in the environment well, and meeting the growing needs of more and more affluent consumers, it also influenced the shopping habits of its clients. The business firm is not a faceless entity; at best, it can be an icon of social and economic progress, and at worst become vanquished by its inability to read the environment, Woolworths and MFI being two recent examples of such failure.

How the environment impacts on the fortunes of the business firm is nowhere more evident than in the collapse of many business enterprises including financial institutions (e.g.banks) in the current worldwide economic downturn. Even starker is the effect of continuing bad weather either in the form of floods or snow on the viability of a whole range of firms in the UK. Had the environment represented by the UK government not provided a lifeline to some of the major banks in the form of taxpayer subsidies, or buy-outs, they would not have survived. Different political ideologies at different times affect the business enterprise in different ways. The collapse of communism and the breaking down of the Berlin wall in 1989, coupled with the Internet phenomenon resulted in the abolition of legislation preventing global communication and industrialisation. Since then there has been a plethora of international mergers, acquisitions and alliances which saw transnational corporations (TNCs) grow in size and economic power as never seen before. Denning (1993) has identified the interaction between ownership advantage (OA) brought by the TNC and the location advantage (LA) of the countries where TNCs seek to invest. Researchera identified synergies sought by TNCs in foreign direct investment (FDI) as being motivated by strategies for market seeking (MA), efficiency seeking (ES), and knowledge seeking (KS) respectively, depending on their reading of the business environment.

Before going any deeper, it is necessary to take stock of what is meant by the business firm, and what its objectives are, and proceed to analyse the process and effects of this rapid globalisation. A business firm is a legal entity. Unlike a sole trader, or partnership, it is required to be incorporated with rules and objectives that are documented. It may be capitalised with borrowings or by shareholder contributions. While the shareholders own the enterprise and have claims to sharing the profits, it may be managed day-to-day by paid employees. The objective of the firm is ‘to maximise its value to its shareholders’ (Van Horne, 1974). Historically, ‘maximisation of profits is regarded as the proper objective of the firm, but it is not as inclusive a goal as that of maximising shareholder wealth’ (op. cit.). There are difficulties even in this conceptualization where ‘maximising market price per share’ is preferred by some to ‘maximisation of earnings per share’ (op. cit.).

A business firm currently in the news is Blacks Leisure, which was on the verge of bankruptcy, when the current adverse weather conditions improved its fortunes by providing a market for its thermal wear products. Now it is planning to expand further. Meanwhile the adverse economic environment has encouraged Poundland offering cheap goods to fill the gap left by Woolworth’s demise. The British salt manufacturing firm Ineos Enterprises chose to cancel a 12, 000 ton shipment of industrial salt promised to Germany, diverting the stock to local authorities in the UK in dire need of supplies to grit roads covered by snow. It is a good example of the environment influencing decision makers of private firms to act in a socially responsible manner. This upholds Van Horne’s (1974) assertion that even at the risk of not maximising shareholder wealth in the short term, management of business firms ought not to ignore the need for ‘social responsibility’ which brings long term benefits although perhaps not immediately apparent.

As related to business firms, social responsibility concerns such things as protecting the consumer, paying fair wages to employees, maintaining fair hiring practices, supporting education, and becoming actively involved in environmental issues like clean air and water… However, the criteria for social responsibility are not clearly defined, making formulation of a consistent objective function difficult’ (op. cit.).

It is now generally understood that a business does not, and cannot function in a vacuum. It has to react to events occurring outside its factory and office walls. The very first concern should be a close awareness of competitors’ strengths and weaknesses vis-a-vis its products and services. Additionally, most analysts require awareness of the environment in terms of political, social, economic and technological factors which impinge on the business firm.

Other analysts have expanded these to: Political – how changes in government policy could affect decision making in the firm. For example, the UK government’s concern over clean energy has resulted in a decision to invite foreign firms to bid for the supply of offshore windmills over the next several years. Not only do the windmill suppliers but also a host of firms required to supply ancillary products and services could take advantage of this decision. Social – how consumers beliefs and interests change over time. An example is the changing demography of many more senior citizens being present in the population and concerns over their health. Economic – how taxation, (e.g. tax holidays), interest rates, exchange rates, and the ‘credit crunch’ affect individual firms. Technological – how product innovations, and new technology like the proliferation of mobile phones, (iPads), change consumer preferences. Legal – how changes in law, enforcing of minimum wages, and regulating working hours, affect business. Last, but not least are the Ethical concerns that underpin social responsibility issues. An example is the refusal to trade with regimes known to contravene human rights legislation. All these factors influence to change markets which businesses need to take into account and respond to, if they are not to lose market share and jeopardise their long term viability.

A business firm, although incorporated by law as an entity is by no means monolithic. More than its shareholders, it has other stakeholders with different, if not competing objectives and interests within its ambit. Starting with the managers, there are other employees who may, or may not be trades union members, along with the community where it is situated, and which it serves, having to take into account local authority strictures on waste disposal and other similar regulations.

Discussing foreign direct investment (FDI) of transnational corporations, Robert Pearce defines the global business environment as ‘the environment in different sovereign countries, with factors exogenous to the home environment of the organization, influencing decision making in resource use and capabilities. This includes social, political, economic, regulatory, tax, cultural, legal and technological environments’. Pearce accepts that business firms do not have any direct control over this environment, but that their success depends on how well they adapt to this environment. As seen earlier in the case of Blacks Leisure and Poundland, a firm’s ‘ability to design and adjust its internal variables to take advantage of opportunities offered by the external environment, and its ability to control threats posed by the same environment determine its success’ (op. cit.).

Firms also take advantage of savings offered by outsourcing. Careful consideration of the variables of communication networks, cultural compatibility and reliability, needs to be addressed. There are offshore development centres which offer call centre provision and other web related customised professional services with appropriate infrastructure support.

How an American firm adapted to cultural diversity in France is discussed by Daniel Workman (2008). He says that the Euro Disneyland, a ‘transplanted American theme park’ near Paris had lost $34 million over the first six months since it opened in April 1992. Even before it opened there was strong local opposition that it threatened French cultural sensitivities. A strict employee dress code and the outlawing of wine in the park, among other things, angered the Parisians. Eisner, the CEO of the parent company in Florida commented: “What we have created in France is the biggest private investment in a foreign country by an American company ever. And it’s going to pay off”. Workman avers that ‘Eisner has since learned to recognize French cultural traditions and quality of life, rather than focus exclusively on American business interests, revenues and earnings at the expense of the underlying French culture'(op. cit.).

Disney found that the first American CEO of Euro Disneyland even with the capacity to speak fluent French, with a French wife, and a recipient of awards from the French government was still unable to make it a going concern. It was only after Disney replaced him and 23 American-born senior managers with local staff, that Euro Disneyland began to make profits.

Banning wine in a country which believes that ‘a meal without wine is like a day without sunshine’, made Euro Disneyland an unwelcome proposition even before it started. American-style hot dog carts were not attractive to a populace famed for its culinary and gastronomic sophistication. Later deciding to use French language rather than English, was also a more than reasonable accommodation made by Disney. It was one of the essential components of its later success.

Cultural encoding also requires that the Americans respect the more feminine French culture’s dominant need for a friendly atmosphere, cooperation, low stress levels and group decision-making instead of focusing exclusively on money and materialistic success (Workman, 2008).

Another aspect of business life is the support (or its absence) from the state as an unavoidable component of the business environment. Like most developed countries, Canada provides government funding to business firms seeking to expand into international markets. The government body responsible is the Small Business Finance Centre (SBFC). The funding is in the form of grants and loans which could be between $1500 and $10 million. Success stories abound. A $34,500 grant enabled a Winnipeg firm, K9 Storm Limited to export body armour for police dogs to 12 countries, in North America and Europe. Another Winnipeg company, Airport Technologies received $12, 500 to develop a snow plough called ‘Snow Mauler’ now being exported to the USA. The most successful has been the Garrison Guitar Works of St. John’s, Newfoundland, which received a grant of $250,000 to develop five guitar prototypes, and now, as a multi-million dollar company exports 20,000 guitars a year to 29 countries. They also own 350 retail stores in North America.

An interest free loan of $8700 enabled Keith Longmire (Nova Scotia) to develop his hand-painted birdhouses enterprise to establish itself in the US marketplace, while Domaine Pinnacle (Quebec) received a $300,000 loan to fund equipment to ferment high-quality apple cider and achieve sales of over $1 million a year. Meanwhile, Agribiotics of Cambridge, Ontario, was awarded a $44,570 loan to develop a vaccine to protect corn from pests and win a contract from the University of Wisconsin. The Canadian government also helps individual firms with their business plans as a precursor to obtaining a grant or loan (Workman, 2008).

In an earlier paragraph this essay introduced the idea of foreign direct investment (FDI). This stood at $14 billion in 1970 ‘but increased over 140 times to almost $2,000 billion by 2007. A large part of the upsurge in global FDI has been due to mergers and acquisitions (M&As). It is these cross-border mergers and acquisitions which have deepened the economic integration of developing Asia with the global economy. Researchers investigating the increasing M&A activity in this region decided that financial variables in terms of liquidity in the source country and the perception of risk (environment) influenced the level of cross-border transactions. They also conclude that the ongoing global financial crisis is likely to sharply curtail the extent of cross-border M&A transactions although this is not entirely proven.

Analysts hypothesised five ‘waves’ of M&A activity in the past. These waves occurred during periods of economic downturn. Currently, a ‘sixth wave’ is recognised with China, India and Brazil emerging as global players in trade and industry. One of the main reasons for M&A activity to be at its height in a recession could be the rapid drop in the stock value of target companies. A major factor in the increase in global outward foreign direct investment (FDI) stock increasing from $150 million in the early 1990s to $1200 million in 2000 may have been due to the above factor. However, it is not possible to generalise when one saw the attempts at a hostile takeover of the UK firm Cadburys by the US firm Krafts and its final, more amicable outcome. Cadburys was far from being a struggling firm. Its share price was holding up and its asset value had not in any way decreased before the takeover attempt.

A recent United Nations Conference on Trade and Industry (UNCTAD) report stated that 29 of the world’s largest economic giants are transnational corporations (TNCs). The annual value-added business performance of the 100 biggest TNCs exceeded that of some nation states. How the rise of TNCs transformed world trade over the last 30 years can be seen from the following statistics. In 1970 there were about 7000 non-financial TNCs investing directly in other developed or developing countries. By 1992 there were 37,000 with 170,000 foreign affiliates. The latter accounted for $11 trillion worth of output. Against this, the total world trade amounted to only $7 trillion.

An important variable in the success of transnational corporations, mergers and acquisitions is the facility with which managers, employees and customers with differing linguistic backgrounds communicate with each other. The total number of languages spoken around the world has been estimated at 6913. This is the reality of the language environment. However, there are two ways by which the language problem has been addressed. One can establish a common language for business, the most widely spoken international language being English. Although numerically more people in the world speak Chinese (Mandarin), it is confined to the People’s Republic of China whereas English is used in countries as far apart as New Zealand, Australia, South Africa, USA, Canada, UK and almost all Commonwealth countries.

Increasingly however, there are language intermediaries who could be engaged to conduct business in the local language. The volume of the global language service industry is estimated to be somewhere around $12 billion and handling around 500 million pages of translation and localization every year. An example of a language services provider of this type is Lionbridge with ’50 offices, $375 million revenue and about 4000 people on its payroll’. Specialised software products such as ‘recycling the translators’ knowledge-base (called translation memory)’ are among many new developments in the language translation industry (op. cit.).

Another reason for keeping up to date with changes in the environment is that a business firm’s operational effectiveness can be jeopardised by not paying heed to such changes. ‘Due to the rapid diffusion of best practice, a productivity barrier is soon reached… Japanese car firms… dominated in the 1970s and 1980s… Lack of a strategic perspective has since held them back while other Japanese businesses like Sony and Cannon flourish (because they) did not sit back with a ready formulated strategy that worked in the past, but revised their strategic thinking taking into account the changing realities of world trade. Obviously, their resource base and mix would have had to alter, and continue to change in the light of changing circumstances.

Writing about mergers and acquisitions Robert Heller contends that buying another business is the easiest task for management in most businesses. However, more things can go wrong in hasty acquisitions as has been proved in the literature. Here too, it is strategy and continuous scanning of the environment and competition which can ensure success. Heller talks of the need to achieve ‘superior organic growth’ once the merger has been accomplished. His answer to how this is to be achieved is to have a ‘visionary’ at the helm. Neither the conservative who wants to retain the status quo, nor the pragmatist who wants change but relies only on those tried and tested somewhere else, can succeed. Only the visionary, often battling against the odds, (could) drive the company into the future.

Heller explains why the Silicon Valley companies have enjoyed acquisition success far beyond the norm.The buys, have been slotted into a receptive culture, in which new ideas are the currency and visionaries dominate -led by a visionary chief executive who has delegated all operating duties to others.

The permeability of the firm to the increasingly global business environment has been demonstrated with examples, throughout this essay. Vision and strategic choice determine the ever changing nature of viable and successful enterprises. A final example below should convince even the most sceptical of the truth of the above conclusion.

United Technologies Corporation is America’s 20th largest manufacturer and the 43rd largest US Corporation according to Fortune 500 list (2006) with 215,000 employees. UTC makes Otis lifts, Carrier heating and air conditioning, Hamilton Sunstrand aerospace and industrial systems, Sikorsky helicopters, Pratt and Whitney jet engines, and Chubb security systems. UTC has thousands of branch offices throughout the world. Internet and IT is the key to UTC’s success. It is obvious that the UTC chief executive’s command over the organization’s resources around the world accounts for its superior productivity and competitive advantage. But it is equally clear that his control over resources is the result of well-thought out strategic decision-making of someone in close touch with the realities of business in the 21st century.

References

Denning, J. (1993) Multinational Enterprises and the Global Economy. Wokingham, Addison-Wesley.

Van Horne J.C. (1974) Financial Management and Policy. Prentice-Hall.

Workman, D. (2008) Disneyland Resort Paris Lessons; American Management Adapts to Cultural Diversity in France.quoted in ‘Boss is the King of Cool’ (The Sunday Times, 18th March 2009).

Commodities Research Reports – An Opportunity to Enhance Your Financial Front

The economy of a country depends on the strength of the market that it has within it. India is steadily and rising to become one of the leading economies of the world with a number of different markets which have exponential growth such as the agricultural, industrial, stock exchange real estate and commodity market. These different markets contribute to the significant progress of the economy of the nation.

Commodity trading, in particular is very prominent in the country; where two-thirds of the country depend on agricultural products. An important component of the financial market, the commodity market comprises of a number of products such as precious metals, base metals, energy, crude oil, soft commodities.

Besides the national commodity exchanges in India – similar to the NSE and the BSE there are a number of commodity exchanges such as the Multi-Commodity Exchange (MCX) at Mumbai, the National Commodity and Derivatives Exchange Ltd. (NCDEX) at Mumbai, the National Multi Commodity Exchange (NMCE) at Ahmedabad and the National Board of Trade (NBOT) at Indore. This commodity market functions through two different forms; Over the Counter (OTC) market and the Exchange based market.

In order to make a trading decision in this market it is important to research commodities and require a deep knowledge so as to find out and understand the latest news.

Research is one of the main and essential activities of trading commodities. Usually the main techniques used are fundamental analysis and technical analysis to research commodities or futures market.

There are many commodity research firms which publish commodity research reports either daily or weekly. By going through such reports you can gain a deeper understanding and a clearer vision as to know which commodities to trade in. They may also give you market opinions from a commodity analyst/trader who writes such reports. They provide information regarding the constant fluctuations of the prices; which is very often guided by demand and supply issues.

The Multi-Commodity Exchange (MCX) publishes MCX commodity reports (Commodity Specific Reports) which are specially prepared by the research team to create market awareness and facilitate any further business development. It provides a broad overview of the status of the commodities which are traded at the MCX; what is affecting their supply and demand dynamics or any other market moving factor.

These research reports for the different commodities can be downloaded online.

Commodity reports can be used by traders to maximise their profits and to gain an edge. They however do not assure you of profits but they provide important data to improve risk-adjusted returns.

Understanding Commercial Real Estate Leases

When you list a property to sell or to lease you need to understand the type of lease that you are dealing with. There are definite differences in leases at all levels and hence a lease must be read fully before proceeding.

Leases are the foundation of property performance. The best salespeople understand the leasing process and the high value that it brings to the future sale. A good lease can enhance a sale price when the time comes.

As mentioned, there are many different types of leases, but there are some rules and common basic elements which will allow you to understand the lease or the potential lease that you can apply to a property. It’s all about interpretation of the lease document and that means that you must read the document.

Professional Property Services

After many years of working in the industry, I have seen the best people set the foundations of success around the leasing process. This means that they have grounded themselves with investment skills and knowledge by leasing property for a few years. So let’s now look at how you can move down this path of skill development regards leasing.

The better you negotiate and the more fully that you interpret a lease, the more professional you are and you appear to the people that you work with or serve.

You can and should add strategic value in the client in every lease that you negotiate. A lease is not just a document to allow a tenant to occupy premises; it is a tactical cash flow that can attract to or detract from the property.

The way that leases work for the property investor will solidly impact on the property and its performance for the duration of the lease. As you work with tenants or buyers for the property, the type of lease that applies will also impact on the negotiations. Let’s look at the main lease types and expand on some of the most relevant issues for you.

Gross Lease:

Under a gross lease the tenant pays a full rent that includes a component for outgoings and the building owner will pay all building operating costs (also known as outgoings). This means that the lease itself will have rent review provisions that escalate the gross rent only.

In a lease of this type the landlord needs to know that they can maintain the building outgoings to predictable levels over the lease term as the landlord holds all the risk of paying the outgoings. The levels of rent review escalations in the lease must be expected to cover or exceed the escalations in the level of outgoings over future years otherwise the landlord will loose money.

Gross leases are common in retail and office property. Your choice in using this rent and lease type should be balanced against the predicted levels of outgoings costs and future changes for the subject property.

Obviously an older building will have steady escalations in outgoings above that of a building that is younger. As a building ages and deteriorates, the gross lease method becomes less attractive and more risky for the landlord.

Semi Gross Lease:

In this type of lease the landlord is initially setting a gross rent which is paid by the tenant and is reviewed over the term of the lease, however the landlord also gets paid some regular money for outgoings that increase under a specific calculation. This is how it is done:

The landlord specifically recovers the escalation in outgoings above a nominated outgoings base year. This base year is selected at the start of the lease and is usually the last reconciled outgoings year prior to lease commencement, which is usually the previous financial year to the start of the lease (because it is fully reconciled and known as a set value).

As the new semi gross lease proceeds through its term, the tenant has to pay the escalation of the outgoings above the nominated base year. For example, if in a lease the base year for outgoings purposes was set as the financial year 08/09 and the known level of outgoings for that year was $85m2 pa, then in the financial year 09/10 when the outgoings escalate to $97m2, the tenant will have to pay outgoings of $12m2pa. As the lease ages and in the financial year 12/13, the outgoings could be $108m2, and in that case the tenant will need to pay $23m2.

In this type of lease the base year is set and the outgoings ‘gap’ will likely increase significantly as the lease gets older. This type of lease is good for the landlord with younger properties, in that it protects the landlord against the escalation of the outgoings above the base year yet still allowing the landlord to use a gross rent as the foundation for rent charge and collection.

It is common in this type of lease for the base year of outgoings to be updated at the time of any market rent review during the lease. Market reviews in this type of lease would be undertaken if the lease was lengthy (over 3 years) and so the market rent review would occur say each 3 or 4 years.

It is not necessary to do a market rent review at any particular time in a lease as the matter is negotiable at lease commencement, however be aware of the fact of re-setting the base for outgoings and the impact it will have on the landlord.

As a further interpretation of this type of lease you should look at the type of outgoings that are recovered in the calculation. It is not unusual for ‘lease savvy tenants’ such as the government or large corporations to nominate the type of outgoings to which the base year escalations will apply.

Naturally it is better for the landlord to recover the escalation in all outgoings in a building above the base year, however the government and corporate tenants are well known for limiting the calculation to rates and taxes escalations.

Clearly a lease is a product of a negotiation, but you need to understand what can be done and then get the best lease deal possible for your client.

Net leases:

The term net lease is firstly generic; hence you should be aware that there are 3 types of net leases within the category. So let’s look at them.

Net lease: In this lease the tenant pays some or all of the rates and taxes for the property or premises.

Net-Net lease: In this lease the tenant pays the rates and taxes as nominated in the ‘net lease’ method but they then also pay for insurance premiums for the property and premises.

Net-Net-Net lease: In this lease the tenant will pay for the rates and taxes, the insurance of the premises, and they will then also pay for repair and maintenance costs associated with the premises.

So what lease type is the best for the landlord? In most cases the Net-Net-Net Lease is the way to go, however it is a matter of if the tenant will accept and sign that type of lease.

As a point of negotiation it would be wise in any Net Lease, or a Net-Net Lease to have a higher start rent for the landlord and better rent review provisions that offset the lesser outgoings recovery for the landlord.

Net-Net-Net leases are common on properties that are fully occupied by one tenant. This is method of lease structure is widespread in industrial property and office property.

Percentage lease:

This type of lease is more commonly seen in retail property as the calculation of rent is linked to the trading figures for the tenant. In most leases of this type the tenant firstly pays a fixed base rent that is geared to some rent review method, and then the tenant also pays additional rent that is calculated from their turnover or sales. As the tenant improves its trading, then the rent escalates.

An essential part of this lease structure is to obligate the tenant to give you accurate and regular audited turnover figures. The lease has to support and enforce the audit process for the landlord. Monthly turnover figures are the best way to go in this, with the tenant providing the audited figures to the landlord by say the 7th of the next month. The landlord then charges the turnover rent to the tenant based on the audited figures.

This type of lease is also seen in new shopping centres as new tenants stabilize levels of custom and sales, in supermarkets for the same reasons, and in hotels or motels. The basic strategy with turnover rent is to give the landlord some cash flow from the establishment of a base rent from the start of the lease, and then to collect additional rent as the property and the tenancy becomes more successful in generating sales and customers.

Spell it out

In all leases, the recovery of rent and outgoings must be clearly set out to avoid debate and disagreement with the tenant. As you can now see, the selection of the lease type that you are to use on a property will significantly impact on the future for the landlord. It will also impact on any sales situation.

It pays to know what is going on in the market regards lease and rent types so that you do lease deals that are similar to or better than the rest of the market. The right lease structure, document, and rent will help sell properties at better prices.

Eleven Development Laws to Consider Prior to Purchasing Your Development Property

1. Strategy and planning

Before venturing out to look for a ‘development site’ it is important to do some homework. As we have seen you first need to decide which real property development market you’d like to try your hand at. This is to ensure you start looking for the right type of sites. You need to know the style of development you’d like to try, the size of the land you need, and in most cases, the general location of your proposed purchase and most importantly which criteria will dictate market value. These things need to form the outline of your strategy and plan. If you don’t, you will make the process of land procurement difficult.

2. Location & area attributes – amenities

I am often asked how I find a great development site. The answer to this very general question lies within the area itself. Rather than go looking for a development site, then seeing if it will work for me, as mentioned above, I firstly determine the market I’d like to develop in, then the general area in which I want to develop.

People are usually ready to buy expensive property in preferred superior regions in both favourable and unfavourable times. The fact is that properties in first-rate suburbs continually fetch higher prices, while properties in second-class areas weaken in bad times. Building property in pricey areas is easier due to the better prospects of profits in these localities.

The rest is entirely a numbers game, but let’s get back to what we need to consider in selecting our area. There are a number of variables to consider. Most people are under the wrong impression a development site has different criteria for selection than those of an investment property. This is simply not true. Yes, it is true, there are many more criteria to investigate for development sites but keep in mind the purchaser is, in most cases, either an investor or a home owner and their criteria will be the same. Just as real property investors and home owners look for the right positioning and local amenities, capital growth and rental returns, you, the developer, should also have this end in mind and find sites that your end users will look to purchase. Therefore, taking into consideration the points we have just mentioned, when it comes to selecting a property to purchase ask yourself the following questions.

I call them the ‘5km’ questions.

• Is the train station within 5kms from here?

• Is the closest bus or tram stop 5kms from here?

• Is the local school 5kms from here?

• Is the local shopping centre within 5kms from here?

• Are there plans for any of the above in the near future within 5kms from here?

If you answered ‘yes’ to three or more of these then you have found a great location. If however, you answered ‘no’ to more than three, then it is time to move on and look for a different location.

3. How to assess a prospective real property site

It is appropriate to look out for changing suburbs when selecting your site for your development. For instance in poorly maintained suburbs, it is possible to frequently spot cases of youthful population migrating to these localities to purchase and refurbish the attractive older residences and rejuvenating the area.

Traders are usually attracted to these localities using uptown cafes, boutique shops and eateries to provide products to the newly settled. Closely examine property prices to note suburbs where you are convinced there are chances of undervaluation and are ready for change. Most of the time such properties neighbour an exclusive suburb where youthful buyers have been priced out.

4. Gaining profits during a purchase

Finding an ideal piece of land may take weeks or even a couple of months. A suitable way to make sure you get the ideal land that will offer the highest gains is to consider the sites price as a fraction of the ultimate value of your project at the time of selling. To achieve maximum profits from your real property, you should make sure the site or land value does not exceed 25% to 30% of the final project value. So if your property’s predicted end value is $1 million, your plot’s cost should not exceed $250,000 to $300,000.

You should always steer away from emotions and only buy property on the feasibility of developing it. The site should pass stringent qualifying tests which include location and planning provisions, suitability of the venture and the attractiveness of its location.

5. Local Council

You should always look for an area which has an active council. Activity in an area can be measured by the number of new dwellings, so drive around and look around. Open your eyes to see what is happening in the particular area you’re looking at. Can you see any new developments? Another way to ascertain if a Council is active is by going to the council web site and looking at how many applications for new dwellings have been submitted and, more importantly, how many have been approved or rejected. If you find a Council has a high refusal rate – say 50% – and most of the refusals are later overturned in VCAT, it usually means the council is against development and you may find it hard to obtain planning permits. It may be wiser to move onto another area or council. On the other hand, if you find over 70% of the applications were approved in council this would suggest the Council is pro-development and a planning permit will most likely be granted if it complies with all regulatory requirements. The council websites will also show you where in any local government area the council is approving those new developments. There might be plans for new infrastructure and amenities in the area to cater for the residential growth. The number of new dwelling approvals also tells you how much demand there is for new dwellings in the area. This is a good indicator of how much further growth and profit there is to be made there.

6. How to find information on local council area plans

All councils have a master plan and as a developer you need to find, understand and asses them. To find such a plan years ago before the IT age was quite difficult and would require you to sift through files at the local council offices. This was time-consuming but now with the benefit of the internet it is much more easily achieved. Nowadays the council web site will tell all you require to assess the plans for the local area. However, I would suggest you look more deeply into the information you find as council by-laws and planning regulations are in a state of constant change. Don’t hesitate to either phone or call into the council office to make sure what you find on their site still stands. Some councils update their web sites regularly and some do not. Recently I was caught out with a heritage listing on a property which was not mentioned in the local council web site. Most of the time however you should find all you need on their site.

7. What should you be looking for in the master plan?

The first thing to look for on a master plan is infrastructure and zoning changes. Look at where new railway stations will be built or where are new roads planned for. These things will give you an idea of where new dwellings will be. Look at where the industrial zones are; where the council is proposing to build a new shopping centre; if there a new school zoned or planned. Even look out for park land. This information will tell you where you should be looking for your new development site and where you should not. Remember, it is vital to check with the council about anything you are unsure about. A visit or a phone call can save you from losing thousands of dollars.

8. Streetscape – now we have chosen our area let’s find our street

When I talk about streetscape I am referring to the entire street and surrounding streets. Streetscape is very important in understanding the psychology of the current home owners or perhaps tenants, who will – if you purchase here – become your temporary neighbours and/or possible objectors to your project. Take time to study the streets.

Looking at the homes and the way the street is laid out will tell you if you will have a problem with ‘busybody’ neighbours, or if they will not even know you have applied for a permit. Probably one of the most significant checks that you will do will be on the people in this locality. When you do your study of the area and movements of the people who live there, make sure you carry this out over at least a few days, if not a week. Drive through the area at different times of the day, on different days, and preferably over a weekend, to see what is happening. Do the housewives get together to chat? Do people chat in the street? Perhaps there are Sunday barbeques which everyone enjoys. Are the homes well maintained, with manicured with lawns in top condition? Or is it the type of place where you would feel less safe? If it is the latter then it is most likely the area has a high number of tenants and it is highly likely the council and property owners will welcome change. If, however, there are regular Sunday barbeques, mother’s club meetings and yards that look neat and basically clean, then it is likely you will face objection to your project.

Next – look up! Yes, you read correctly – look up! Everyone tends to look down and around but not many people look up. Look up to see how the roof line of the houses forms the streetscape. Scan up and down the street – look at the roof lines of all the homes in a street and you will notice they will, in most suburban areas all have the same ‘line of sight’. This means that it runs in one straight line. Most people don’t realise that in most cases councils will base their decision on whether to allow double storey (DS) or single storey (SS) development on this line. This line will tell you if a double storey building will be out of character or whether it will fit beautifully into the existing neighbourhood’s character.

9. Preceding property

One of the most common mistakes made by first time developers is using the precedence theory. For Say there is another property in the street in which you hope to develop, that has been granted approval for a development which is the same in nature as what you are looking to build. This encourages you base your application along the same lines. But while it is always important to look at what others have done and then do as they have, it doesn’t always work that way.

What matters to you if what has to be done differently. You need to look at any conditions on a piece of property that has been subdivided. There might be conditions on the title such as a covenant. It may not even be possible to subdivide the land. You should also investigate the DDO (the Council Design Overlays) before you commit to subdivision. It may be different and have condition attached such as vegetation or other forms of overlay that could limit or even prevent subdivision. It is important to consider each property on its own carefully as it could be misleading to the eye.

10. Line of Sight

While the line of sight for a streetscape carries great weight with a council you need to be careful about the topography of the area. Let’s say we have a 500 metre street with a slope of 5 metres from one end to the other. At the bottom end of the street there is a three storey dwelling (9 metres high) and your proposed development site is at the other end of the street, on the high end. Because you want to build a similar building, you make a decision based on ‘precedence’ alone, i.e. there is one in the street already and you believe council will have to acknowledge this. This is WRONG!

Let’s look up first. By looking up at the line of sight from your site and then down the street, you will see the roof lines pretty much have an even flow, so as the street falls the properties become higher and as the street gains height the properties become lower. This means if you were to place a three level townhouse (9 metres) on your site it would be 5 metres higher than the one at the bottom end of the street and it would look very out of place.

The council, in most cases will override the precedence and reduce your dwelling by 5 metres to ensure the skyline remains consistent. This rule of thumb for Council keeps the height for each dwelling at a constant level throughout neighbourhoods.

11. Neighbourhood character

We touched on this before. We mentioned that street character is made up of a few things; neighbours, homes, roads, signage, trees – and all of these things will tell you how and what type of dwelling will be in keeping with the character of your street.

Old Edwardian homes with tree lined streets usually attract a home owner, not an investor, with an appreciation of the area who will, in 99% of cases, be very vocal against any new development proposal within the area. They want to retain its integrity. So, if you are thinking you will be able to erect an ultra-modern home in an Edwardian tree-lined street, think again. You might as well go and burn your money, as you will end up in VCAT with most, if not all, of the neighbours and the Council against you.

Remember, the street’s character not only shows you what type of home you will need to build there but also what type of people you will be dealing with. If, for example, you have a street where there are broken down cars and scrap metal in the neighbours’ driveways and on their lawns, and if the homes are not well maintained, it is highly likely it is an area with a high rental component, and it is unlikely you will get many objections from your neighbours. You’ll find these homes are most likely owned by investors who will welcome the new proposal as a positive for the area in both clean-up value and monetary value.

This view will also be taken by the Council. The likelihood of new dwellings in a low income area increasing the prices for rent is inevitable and eventually the quality of the tenants and the homes will improve. This is probably, from an investment and development point of view, a great place to purchase property, develop and hold until the rest of the area catches up. I have seen property in areas like this double in price very quickly once developers start construction. On the down side though, it may take many years for this to happen.

The Role of Customers in Your Business Success

The primary purpose of a business is to create a customer because it is the customer that will determine the growth potential of a business. Though, it is imperative to create time and effort on how you are going to improve your business and services, it is still the customers that will dictate the success of your business. So, customer service is very vital if you want your business to succeed.

Customer service is a major factor in making sure you achieve business growth and success. It can affect your business positively or negatively. This is reason why the whole business plan, marketing strategies, sales and profit will largely depend on its impact on the customers. Primarily, you are in business to generate revenue through selling your products and services to people who are in need of the services. All these people want to know if your products and services will make impact in their lives and meet their needs.

To make sure that you generate income for your business, you must be willing to satisfy the desires and needs of your customers. Your whole business is resting on that foundation. Every decision making must take into cognisance how it is going to affect the customers. You should make it a point of duty ensure that you have an excellent customer service system.

All strategies you have put in place to ensure you have great marketing and sales will help in attracting new customers for your business but it is the excellent customer service that keeps the business going and makes customers wanting to come back. People will only want to do business with those they are comfortable with and can trust. As a business owner, you must make sure that you make your customers have that confidence, trust and satisfaction in you by giving them the best quality service.

This factor has created opportunities for large and small businesses. It affords every business to offer the best quality service which their organisation will be known for. By so doing, they have been able to distinguish themselves from all the rest in that sector of business.

In recent years, there has been continuing change in the demands of the customers because of the ”law of dynamism”. So it is your duty to know exactly what your customer’s needs and wants are. You can get hooked up to some customer support systems that offer quality incentives on how to give your customers the best quality services. It will assist you to expand your customer base and retain your customers. A recent survey reveals that using these systems has increased some company’s turnover by almost 50%.

All businesses must realise that customer service plays a major role in the success of any business. You must have the ability to focus on the need of your customers rather on your own selfish gains, and supporting them with all the abilities at your disposal to make sure that they are 99% satisfied with the services they are getting from you as this is the determinant of their coming back to patronise you. This will make your business much more cost effective and in turn increase the output you are getting in terms of profit because to make you succeed in business.

Ford Motor Company – Case Study

Background (General Facts)

Ford Motors is one of three leading automotive manufacturing companies in the United States. Based in Michigan in 1903 by Henry ford and grew to reach revenue of $150 billion and more than 370,000 employees by 1996 [1]. In the 1970’s, the automobile market for the major auto makers – General Motors (GM), Ford, and Chrysler- was crunched by competition from foreign manufactures such as Toyota and Honda. In 1999, Ford acquired the Swedish Volvo model in an attempt to compete in the foreign market and expand to other regions. Furthermore, Ford launched a full organization re-engineering business process plan called “Ford 2000” aiming at reestablishing the company’s infrastructure. The process meant reduction in their Vehicle Centers (VCs) to only five covering the operations that spanned 200 countries. It also meant cutting redundancies and requiring Information Technology (IT) to be the driving force and the link between Ford centers worldwide.

In building Ford’s IT infrastructure, the company focused on implementing a setup that supported the TCP/IP communication protocol based on the U.S. department of Defense requirements. At those days, Ford internal network was meant to serve files transfer unlike most companies that used the network mainly for email communications. Throughout the 1990’s, Ford developed a cost effective Global Enterprise Network Integration (GENI) process to link all its locations compromising on the type of the connection and the cabling in favor of full coverage. During the same time, Ford started building its Web Farm, which was basically a set of hardware and software managed by a team for building Ford’s public website. The work started by publishing documents for technical references and moved to more advanced images from a live auto show. As a result, the website received 1 million visits a day in less than 2 years after its official launch. Throughout the end of the 90’s, Ford established its web services by increasing the amount of information published, building more intelligent and standard web application in 12 weeks period, purchasing more Netscape browsers for setup on its users’ machines, and creating a B2B server to allow the suppliers secured access to Ford’s Intranet.

In the path towards service cost reduction and bringing more business through the web, Ford worked closely with its competitors in the U.S. market GM and Chrysler to establish what came to be known as “Automotive Network Exchange” (ANX) certificate. The protocols aimed at providing a unified communications standard through the Internet to enable suppliers to provide common technology for all manufacturers. Moreover, Ford focused on making information on its web site more accessible and useful by deploying a team to manage the process of adding and updating information based on an analysis of how humans deal with information. One final aspect of Fords endeavor was to try to build a model through its infrastructure that benefited from the model implemented by Dell computers to improve their supply chain and delivery process. The direct model would not work well for automotives as it would with computers, as a result Ford worked on its retailing network remodeling and identifying what would eventually give it the extra edge in delivery time.

Enterprise Architecture Issues

  • Ford’s regional expansion to address the competition for market shares demanded cost management for the infrastructure upgrades
  • IT infrastructure places limitations on the type of application development based on the platforms
  • Easy access to information and prompt delivery of vital data to key individuals requires proper knowledge managementOrganizations reengineering and process remodeling is necessary when adapting new technologies to maintain the cost and increase efficiency
  • Supply chain errors and delays can severely affect the progress of the business and the market value of the corporation

Analysis

Infrastructure Upgrade

Since the inception of the Internet in the 1960’s, much effort has been made in standardizing how computers connect to it. In 1982, the International Organization for Standards (ISO) realized that during that period many ad hoc networking systems were already using the TCP/IP protocol for communications and thus adapted it as a standard in its model for the Internet network [2]. The main driver for IP convergence, at that period, was the growth in data traffic through wide area networks (WANs) established by local companies. Furthermore, in 1991, the Internet was open for commercial use, and that demanded a reduction in the total cost of operating the network to cope with 1 million Internet hosts that materialized in only 1-year time. Telecommunications companies like AT&T understood the potential and worked on standardizing the network offering voice services over IP networks that managed the separation between voice and data transmission [3].

At the same time, Ford had launched its plan to update its infrastructure, and seized the opportunity brought by the global movement of integrating the voice, fax transmission network with data transmission and expanded its WAN to include its offices in Europe and elsewhere. The financial benefits also came from the fact that Ford adapted the TCP/IP protocol from the beginning and made sure that all its technical infrastructure upgrades adhere to the standards. This made the transition of its system to the Internet as cost effective as it could be.

Web Technologies

Intranets employ the hypertext and multimedia technology used on the Internet. Prior to 1989, when Tim burners-Lee invented the Web [4], most applications used standard development languages such as C and C++ to create desktop applications that were proprietary and dependent on the platform. For example, applications running on a command-based operating system such as UNIX would not run under Windows, and those working for PCs might not work on Apple computers and vice versa [5]. The invention of HTML (Hyper-Text Markup Language) introduced a new model for applications that conform to the standards provided by a single program, the “Web Browser”. Unlike standard applications, the browser brought a unified interface that had a very fast learning curve. Users seem to require no additional training to work with web browsers. Furthermore, system administrators did not have to spend time installing upgrades on users’ machines, since the Intranet client/server architecture facilitated all the updates through the connection with the web server [6].

Since Ford established its Intranet, it was aiming at building web applications through the initial analysis of “Mosaic”, the early form of web browsers. The technical department at Ford used web languages to create the first web site in 1995. In 1996, the team started building applications making use of the unified “Netscape” browser that was deployed on all machines at the company, and working on a standard template to cut on the development life cycle. There was a substantial cut in training cost due to the user-friendly interface of web applications. Furthermore, the speed of development made vital applications available to different individuals across the company. For example, the B2B site allowed suppliers remote and secured access to various sections of Ford’s Intranet. In addition, the development team created an application as a virtual teardown on Ford’s website where Ford’s engineers could examine parts of competitors’ cars and evaluate any new technologies. The alternative would have been an actual trip to a physical location where Ford tears down cars to examine the parts.

Knowledge Management

While there are many definitions for knowledge, each company might adapt its own based on how it analysis data and information to acquire knowledge. The University of Kentucky, for example, defines knowledge as “a vital organization resource. It is the raw material, work-in process, and finished good of decision-making. Distinct types of knowledge used by decision makers include information, procedures, and heuristics, among others… ” [7].

Organizations go through different activities to manage the amount of information they collect to form the knowledge base of the company. Activities include creating databases of best practices and market intelligence analysis, gathering filtering and classifying data, incorporating knowledge into business applications used by employees, and developing focal points for facilitating knowledge flow and building skills [8].

Ford was excited about the traffic it was receiving on the Web site and everyone was publishing all the material they have on desk on the Intranet. Nevertheless, there was a growing concern about the usability and usefulness of the material people were adding. As a result, Ford created a “Knowledge Domain Team” to build complete information in nine areas that were identified as vital to the business. The process Ford took was based on surveys and specialists input in how people perceive information, and what is considered vital and what is distracting in the structure of Ford’s website. The aim behind the initiative was to reduce the time individuals spent in searching for information through proper indexing of the website content, and making sure that what was important could be accessed in due time, and what is trivial did not overwhelm the researcher with thousands of results.

Business Re-engineering

In the area of organization’s re-engineering process innovation is the set of activities that achieve substantial business improvements. Companies seeking to benefit from process innovation go through the regime of identifying the processes, the factors for change, developing the vision, understanding the current process, and building a prototype for the new organization. History shows that organizations who define their processes properly will not have problems managing the issues and developing the change factors [9]. When introducing technology, business redesign is necessary. The industrial fields have been using Information Technology to remodel processes, control production, and manage material for generations. However, it is only recently that companies recognized that the fusion of IT and business would go beyond automation to fundamentally reshaping how business processes are undertaken [10].

When foreign companies were allowed to compete in the U.S. market, Ford understood that to succeed in business in a competitive arena it needed to implement strategies that competitors find difficult to imitate [11]. As a result, Ford bought Sweden Volvo to enter the European market, and partially owned Mazda to have a competitive edge with Japanese cars1 [12]. To achieve that it re-engineered its production development activities and global corporate organization and processes for dramatic cost reduction. Furthermore, it understood that expansion requires collaboration and alignment, and thus planned to establish the IT infrastructure through a WAN that connected all the offices. In the process of innovation and re-engineering, Ford has set policies to manage the cost of establishing the network, built models for continuous implementation, and organized global meetings to align all parties with the process. Adding to that, when it came to managing the website, Ford facilitated an awareness campaign for all the branches to understand that Ford is using the web to collaborate and research and adapting information technology as a way to maximize its business value. The goal for Ford was to maintain its leadership in the market and to do that in the most efficient and cost effective method that is there.

Supply chain management

Supply chain management (SCM) is about coordinating between suppliers, manufactures, distributors, retailers, and customers [13]. The basic idea that SCM applications revolve around is providing information to all those who are involved in making decisions about the product or goods to manage delivery from the supplier to the consumer [14]. Studies show that reducing errors in supply chain distribution, increases revenue, enhances productivity, and reduces the order-to-fulfillment period [15].

Ford often compared its supply chain process to that of Dell’s, in an attempt to close the gaps in its own process and reach the level of success Dell has reached. The difference in the distribution model between Dell and Ford lies in the middle link of using retail shops. Since Ford cannot skip retail as a focal distribution point, it worked on establishing a network of retail shops that it owned. Ford made sure shops are not affecting each other in terms of sales, and gave them all a standard look and feel to establish itself in the consumer’s market as a prestigious cars sales retail company. Furthermore, extensive re-engineering initiatives were undertaken to enhance Ford external network by eliminating the correlation with smaller suppliers. In that way, Ford made sure that key suppliers have access to forecasting data from customers’ purchasing trends and production information to enable a faster order-to-delivery cycle. Ford vision was to create a model that allowed flexibility, predicable processes and delivered the product at the right time to the right consumer.

Conclusions

Ford is an example of how traditional organizations can mature to adapt what is current and maximizes the business value. The process that Ford went through necessitated the continuous support from management. In addition, it depended on alignment between those involved as a key for success. The correlation was not restricted to internal staff; it extended to cover competitors to reach mutual benefits, to work with suppliers to maintain similar grounds and adequate infrastructure, and to create training programs to educate all on the vision and organization’s objectives.

Ford technical progress came at a time where the Internet was yet to reach its full potential. The introduction of Fiber-optic cables in the late 90’s and the substantial increase in bandwidth would have helped Ford and cut on the cost in endured connecting its own offices. Furthermore, the ISP services that provided hosting servers were limited to only few players, which explained why Ford preferred to manage its own web server and maintain the overhead of the 24 hours uptime and backup.

From this case study, I understood the level of commitment large firms have to maintaining their position in the market. These companies know the revolving nature of business in the sense of how easy it is to fall back if they did not keep up with the change. The Ford process also shows the need for quick and resourceful thinking when faced with situations that might seem to be unfavorable. The way Ford ventured into the foreign market by acquiring local manufacturers was a strategic decision that did not only enabled Ford to merge with different technologies, but it also saved it the additional cost of establishing production centers in Japan and Europe.

Recommendations

  • Maintaining leadership in the market requires innovative organizations willing to reengineer to succeed.
  • IT fusion with the business means restructuring and remodeling to understand the role IT would play to meet the business objectives
  • Planning and modeling is vital when coordinating work with large teams.
  • Constructing websites is not about content; it is about understanding what adds value and how humans interact with information.
  • Knowledge management is a plan that companies need to develop as part of their initial business process modeling
  • It is not wrong for large firms to try to adapt to successful processes implemented by other firms.

References

  1. Robert D. Austin and Mark Cotteleer,”Ford Motor Co.: Maximizing the Business Value of Web Technologies.” Harvard Business Publishing. July 10, 1997. harvardbusinessonline.hbsp.harvard.edu/b02/en/common/item_detail.jhtml;jsessionid=WDARNHINBSYKSAKRGWCB5VQBKE0YOISW?id=198006 (accessed July 30, 2008).
  2. Computer History Museum, Internet History 80’s. 2006. computerhistory.org/internet_history/internet_history_80s.shtml (accessed July 30, 2008).
  3. Darren Wilksch and Peter Shoubridge, “IP Convergence in Global Telecommunications.” Defense Science & Technology Organization. March 2001. http://www.dsto.defence.gov.au/publications/2400/DSTO-TR-1046.pdf (accessed July 30, 2008).
  4. Computer History Museum, Internet History 80’s.
  5. H. Joseph Wen, “From client/server to intranet.” Information Management & Computer Security (MCB UP Ltd) 6, no. 1 (1998): 15-20.
  6. R. Boutaba, K. El Guemioui, and P. Dini, “An outlook on intranet management.” Communications Magazine (IEEE), October 1997: 92-99.
  7. Joseph M. Firestone, Enterprise Information Portals and Knowledge Management (OXFORD: Butterworth-Heinemann, 2002), 169.
  8. David J. Skyrme, “Knowledge management solutions – the IT contribution.” ACM SIGGROUP Bulletin (ACM) 19, no. 1 (April 1998): 34 – 39, 34.
  9. Thomas H. Davenport, Process Innovation: Reengineering Work Through Information Technology (Watertown,MA: Harvard Business Press, 1993), 28.
  10. Thomas H. Davenport “The New Industrial Engineering: Information Technology and Business Process Redesign.” Sloan Management Review 31, no. 4 (Summer 1990): 11-28, 12
  11. Gary M. Erickson, Robert Jacobson, and Johny K. Johansson, “Competition for market share in the presence of strategic invisible assets: The US automobile market, 1971-1981.” International Journal of Research in Marketing (Elsevier Science) 9, no. 1 (March 1992): 23-37, 23.
  12. Austin and Cotteleer, “Ford Motor ” , 2.
  13. Henk A. Akkermans, et al. “The impact of ERP on supply chain management: Exploratory findings from a European Delphi study.” European Journal of Operational Research 146 (2003): 284-301, 286
  14. Thomas H. Davenport and Jeffrey D. Brooks, “Enterprise systems and the supply chain.” Journal of Enterprise Information Management 17, no. 1 (2004): 8-19, 9.
  15. Kevin B. Hendricks, Vinod R. Singhal, and Jeff K. Stratman. “The impact of enterprise systems on corporate performance:A study of ERP, SCM, and CRM system implementations.” Journal of Operations Management 25, no. 1 (January 2007): 65-82.

India – A Future Warehouse of the World

Abstract

India has the world’s second largest population and one of the fastest growing economies in the world. India has a promising future, given the unprecedented growth in economy and its clout in the global issues. India is now riding on the wave of a gigantic boom in computer driven new economy. Many developed countries of the world are seeking the huge pool of English speaking talented software professionals in India. As the world is transforming towards knowledge society, India too is moving proportionately competing with the world. With the increase of Internet users and the advancement of information and communication technology in India had boasted the development towards e-commerce in global economic society. In IT sector India is booming as a super power. In the last few years India has made rapid strides in the IT sector especially in the software services and IT enabled services. In this paper we analyses the picture of IT industry in a very near future in India & contribution of India in world’s Information Technology Sector.

Introduction

From the 1950s, IBM had a virtual monopoly of computers in India. The 360 series release in 1960s was the major workhouse of the large organizations. They even maintained a chain of programmers who could write down software’s for their machines. However in 1978, when George Fernandes, ministry of industries at that time, commanded IBM to take local shareholders into its subsidiary, the company refused strictly and went back after winding up its all operations in India. Its ex-employees then set up Computer Maintenance Corporation, with the primary object of maintaining IBM computers.

During the period of 1995-2000, the Indian IT Industry has recorded a C.A.G.R. (Compounded Annual Growth Rate) of more than 42.4 percent, which is almost double the growth rate of IT industries in many of the developed countries. For Details contact AMCHAM National Secretariat, New Delhi Foreign companies particularly American companies have played a vital role in making India an emerging IT super power in the world. These MNCs account for nearly 22 per cent of Indian software exports. According to the latest NASSCOM estimates, in 2001-02, multinational infotech companies exported software worth Rs. 6500 crore from India. Country’s total software export was pegged at Rs. 29400 crore. In terms of investment and growth, U.S. companies like Cognizant Technologies (largest export revenue earning MNC) IBM, Oracle, GE, Cisco, Compaq, Intel amongst others lead the MNCs in the Information Technology sector. Nine out of top 20 Indian IT firms are from United States. These account for over 37% of the turnover of the top 20 firms operating in India. Despite their significant contribution to the IT sector, these companies have to face a number of procedural and operational problems in India.

However, the volume of e-commerce, in India, is far below the levels achieved in USA, which was about 1 percent of the total GDP in 1999. Further, the expected volume of e-commerce in India in 2001 (US$ 255.3 million) is also below the levels expected to be achieved, which in comparison to Australia (US$ 3 billion), China (US$ 586 million), South Korea (US$ 876 million) and Hong Kong (US$685 million) is quite less.

Time has changed the way businesses are carried out. What was supposed to be known to few and limited to the home towns, appears to be an ancient methodology of carrying out the work. The present day brands work on world wide scale, that is they are successful in not just one particular region but have deepened their roots to all the corners in the globe that you can think of.

Information Technology is what constitutes the most important sector in the present day trend of carrying out business. It is because you can not be present everywhere to monitor the work, but with networking and communications, you can always stay in contact with the other business sites of yours.

ICT Approaches of India

A spate of reforms-post-1991 economic crisis-have given impetus to the Indian economy, particularly to the ICT sector. As part of the reform agenda, the Indian Government has taken major steps to promote ICT including the creation in 1988 of a World Market Policy, with a focus on software development for export; telecommunications policy reform; privatization of the national long-distance and mobile phone markets; and development of a more comprehensive approach to ICT. Although India’s success is commanding increasing attention and investment, it has yet to result in the distribution of social and economic benefits across a broader base of the population. Challenges-including the perception of an unfavorable regulatory climate, an overloaded judicial system, poor infrastructure and costly access, and limited use of ICT-remain. The emerging shift in government strategy, toward knowledge-intensive services, has created a climate more conducive to addressing enterprise, domestic infrastructure, education and the use of ICT to meet development needs.

Policy: India’s focus on self-reliant industrialization in the 1970s and 1980s has been replaced with reforms aimed at positioning India in the world economy: the foreign direct investment process has been streamlined, new sectors have been opened up to foreign direct investment and ownership, and the government has exempted the ICT industry from corporate income tax for five years. These reforms have helped India to become increasingly integrated into the global economy through growth in the export of software and skill-intensive software services, such as call-centers.

In 1986, the Indian government announced a new software policy designed to serve as a catalyst for the software industry. This was followed in 1988 with the World Market Policy and the establishment of the Software Technology Parks of India (STP) scheme. As a result, the Indian software industry grew from a mere US$150 million in 1991-1992 to a staggering US$5.7 billion (including over US$4 billion worth of software exports) in 1999-2000-representing an annual growth rate of over 50 percent.

The establishment of the Telecommunications Regulatory Authority of India (TRAI) was a key step towards effective implementation of telecommunications reforms. In 1992, the mobile phone market was opened up to private operators, in 1994 the fixed services market followed, and finally in 1999, national long distance operations were opened to private competition. Prior to these reforms, the Department of Telecommunications had been the sole provider of telecommunications services.

In addition, to attract foreign direct investment, the government permitted foreign equity of up to 100 percent and duty free import on all inputs. Government-created technology parks also offered professional labor services to clients, a cost-effective program for India since ICT labour is so inexpensive by global standards.

Infrastructure: Teledensity in India has reached 3.5 percent of the population. Approximately 1 percent of households have fixed line connections, compared to 10 percent in China. The mobile sector has approximately 3 million users, growing at 100 percent per annum, and is expected to outstrip the fixed line market in the near future. The number of Internet accounts is around 1.5 million, growing at 50 percent per annum. India also has very high penetration rates of terrestrial TV, cable and radio. Voice and data wireless solutions, for both domestic and export markets, are increasingly produced and used locally.

Access to telephones in Indian villages has improved in the last five to six years through the introduction of the Public Call Office (PCO) run by local shopkeepers. More than 60 percent of the villages in India have at least one phone. This also includes over 800,000 Village Public Telephones (VPTs). Worldtel is undertaking a pilot in four states to secure financing to upgrade the Village Public Telephones so they will soon be Internet-accessible.

In some urban locations, India’s Software Technology Parks (STPs) provide infrastructure, buildings, electricity, telecommunications facilities and high-speed satellite links to facilitate export processing of software.

India also has a number of progressive computerized networks in place, including a stock exchange, the Indian Railways Passenger Reservation System, and the National Informatics Centre Network (NICNET), which connects government agencies at the central, state and district levels.

Enterprise: India’s well-established framework for protecting intellectual property rights has been an important inducement to business investment: well-known international trademarks have been protected by Indian laws, even when they were not registered in India. In 1999, major legislation was passed to protect intellectual property rights in harmony with international practices and in compliance with India’s obligations under TRIPS.

Much of the initial domestic demand stimulus for ICT and ICT services industries in India has come from government: 28 percent of total IT spending to date can be attributed to government and public sector expenditure. Major areas of government expenditure include: financial services, taxation, customs, telecommunications, education, defense and public infrastructure. As a result of the growth in ICT use in India, the ICT industry itself has also increased its domestic economic activity, for example, a number of ICT companies have developed accounting and word processing packages in Indian languages. The potential impact of this growth on the domestic economy is much broader than developing software for export only.

Human Capacity: In spite of relatively low literacy rates among the general population, India has several key advantages in human capital: a large English-speaking population and world-class education, research and management institutions-a direct result of investment in self-reliance in science and technology. In addition to establishing Indian Institutes of Technology in various cities around India to create a large pool of technical skills, the government has a computer policy to encourage R&D in personal computers. The IT training sector continues to grow at a rapid rate: total training revenues in 1998 were estimated at US$225 million, 30 percent up on the previous year. However, one of the biggest challenges to the Indian software industry remains the difficulty in attracting and retaining talented professionals.

Content and Applications: India has a large population with great linguistic diversity. Creating and maintaining locally relevant content for a country with 418 languages is a challenge. Nevertheless, local language content is slowly making ICT more relevant and accessible to a broader cross-section of the population. For example, India’s Center for Development of Advanced Computing has recently launched a scheme called iLEAP-ISP to create a free multilingual word processor to be made available to all Internet subscribers. On other fronts, some states such as Tamil Nadu have launched their own initiatives to support the standardization of local language software through interface programs that can be adapted to word processors, dictionaries, and commercial keyboards for use in schools, colleges, government offices and homes.

An emphasis has also been placed on the development of relevant e-government applications in India. Some states such as Madhya Pradesh and Andhra Pradesh have started to introduce applications which allow citizens to have faster and more transparent access to government services-for example, the provision of information on laws and regulations, and the procuring of licenses and official documents online.

Strategic Compact: Public-private partnerships, catalyzed by the IT Ministry, have played a key role in India’s ICT-related development. One of the positive results of this effort has been the IT Act of 2000, which was based on the recommendation of the National IT Task Force, and aims to set the overall strategy for the IT sector. In addition, the government and the private sector are starting to come together to foster ICT development. For example, a joint effort by the Computer Science Automation Department at the Indian Institute of Science and a Bangalore-based private company have developed Simputer-a cheap micro-computer that enables illiterate users to browse the Internet.

India’s development and contribution in world’s information technology sector is of highest reputation. Cities like Bangalore have become the favorite(most preferred) destinations of all the big banners like HSBC, Dell, Microsoft, GE, Hewlett Packard, and several Indian multi national firms like Infosys Technologies, Wipro, and Microland who have set up their offices in the city. It is because the city offers good infrastructure, with large floor space and great telecom facilities. This can be judged on the basis of the high growth statistics of India and the changing outlook of the companies towards India .

It is because of this growth many popular brands that have not yet build up there rigid offices in the country are making it fast to have a destination in India too. For example, Sun Microsystems, a global IT major, announced in Bangalore to double the present workforce of the company’s Sun India Engineering Center (IEC) from the present 1000 to 2000 in the next two years time. IEC, which is the largest R&D center for Sun outside the US , would also focus on developing products in India to suit the needs of the Indian market, which would be benchmarked globally.

This speedy growth of IT Sector is undoubtedly due to the efforts of Indian government and the other developments that took in the other parts of the globe.

The country has seen an era when after the IBM shutted its shop in India in 1950, the mainframes that were imported into the country were all from Russia . Western computer could not be imported because of an American embargo on export of high-technology equipment to India , which was considered an ally of the Soviet Union .

Slowly, with the time the country could develop its first powerful parallel computer in 1991 known as CDAC, by connecting together a string of less powerful computers.

With time and the continuous growth across the world, the country continued struggling and came up as the world leader in Information Technology Sector.

The industry has grown up to US $ 5.7 billion (including over $4 billion worth of software exports) in 1999-2000, with the annual growth rate not sliding below 50 percent since 1991.

It exports software and services to nearly 95 countries around the world. The share of North America ( U.S. & Canada ) in India ‘s software exports is about 61 per cent.

The Indian labor is not only cheap but is technically skilled too to the world class level. It is due to the Indian Education System that includes in its course curriculum the practical knowledge of the latest technology that is developed in world along with the fluency in English Language that imparts compatibility in an Indian technician to communicate and work through out the world.

Further the geographical location of India serves it the advantage of being exactly halfway round the world from the US west coast, which is another reason why India is preferred destination of many big brands.

Also, The presence of a large number of Indians, especially engineers, in the US gave India an easy entry into the US software market.

What adds more to the dominance of India in Information Technology Sector is the government policies like the enactment of cyber laws to protect and safeguard the interest of software companies in India .

Setting up of the Software Technology Parks of India (STPI), by the Ministry of Information Technology, Government of India and the International Technology Park in a joint project by the State Government, the TATA Group and the Singapore Consortium to promote and facilitate the software exports is another major step towards the growth of Indian Information Technology Sector.

Similarly an industrial park, known as Electronic City , was set up in 1991 takes more than a hundred electronic industries including Motorola, Infosys, Siemens, ITI, and Wipro, in an area of around 330 acres.

The Export Promotion Industrial Park , built near International Technology Park , gives an exclusive 288 acres of area for export oriented business. GE has its India Technology Center located at this park and employs hundreds of multi disciplinary technology development activities.

The other promotional activities that brought up India to this position include the IT Corridor project. Conceptualized by Singapore ‘s Jurong Town Corporation Private Ltd, the IT corridor Project was initiated by the Department of IT and the Bangalore Development Authority in order to develop state of the art facilities for the development of knowledge based industries.

Thought’s of some World’s IT leaders about India

“Economic growth will force better governance, and better governance will feed more economic growth”

SV, NYC, USA

The people and communities at large feel that they don’t have the ability to make a difference

Juzar Singh Sangha, Bedford

India has to take more care of the village population who are still struggling to live properly

John Karondukadavil, India, Living in Poland, Jaslo

India can become a superpower if she concentrates on the technology market niche

Devyani Prabhat, Jersey City, USA

India must counter its skills and wage crisis

Pallavi, Sydney, Australia

Hopefully India will lead the world towards a more humane and tolerant future

Nilesh, Antwerp, Belgium

India needs to take strong and clear cut decisions to emerge as a global player

Nivedita Nadkarni, Madison, USA

India is a country gaining economic ground in the world

Justin, Bristol, UK

Indians now have to develop a sense of national pride

Leila, USA

India will never be a superpower, much less a global power

Jonathan, Boston, USA

India has had a sharp increase in the estimated number of HIV infections

Sezai, Eskisehir, Turkey

India’s economic success is built on the sacrifices of previous generations

Shekhar Scindia, Edison, NJ, USA

While India’s economic growth is encouraging, its sustainability is doubtful

Sigismond Wilson, Sierra Leonean in Michigan, USA

Conclusion

India is a perfect solution for all those companies, which seek for cheap, yet technically skilled labor who have innovative minds and state of art to work over a project. The ample of facilities provide in a perfect working conditions. For rest, cyber laws are there to monitor and safeguard everyone’s interest related to IT sector.

All these reasons contribute for India to be as the most adored destination to many companies. . So we can conclude:

•India poised for an explosive growth in ICT

•India emerging as a global R&D Hub

•From brain drain to brain gain

•Millions of jobs will be created in ICT & other emerging technology areas

•Quality issues will have to be addressed

•Private Sector world class institutions will emerge with global collaborations

•India will reclaim its ancient heritage of the world’s most advanced knowledge-based civilization called “Bharat”.

India will become Warehouse of IT in the world

.

References

1. Goodman, Seymour E.; Burkhart, Grey E.; Foster, William A.; Mittal, Arun; Press, Laurence I.; and Tan, Zixiang (Alex), The Global Diffusion of the Internet Project, Asian Giants On-Line, Chapter 3 (India) and Chapter 4 (China), The Global Information Technology Assessment Group, Fairfax, VA, November 1998.

2. Press, L., Developing Networks in Less Industrialized Nations, IEEE Computer, vol. 28, no. 6, June 1995, PP 66-71.

3. [http://www.stpn.soft.net]

4. An Indian Perspective on IT & Engineering Programs ,Vijay Bhatkar, International Institute of Information Technology, Pune, India

5. Nasscom

6. Anuranjan Misra ” Software outsourcing from India” National Seminar on Strategies in Business Process Outsourcing”, IIMS, Bareilly, INDIA, Dec. 08-09 2004.

7. Anuranjan Misra” India – An Emerging IT Super Power” International Seminar on India 25 Years and Hence, IIMS, Bareilly, INDIA, Fev. 08,2006.

Diversification in Agriculture Sector: A Catalyst For Sustainable Economic Development in Nigeria

Agriculture involves the cultivation of land, raising and rearing of animals, for the purpose of production of food for man, feed for animals and raw materials for industries. It involves forestry, fishing, processing and marketing of these agricultural products. Essentially, it is composed of crop production, livestock, forestry, and fishing.

Agriculture is the mainstay of many economies. All over the world, the development of an enduring economy goes hand in hand with agricultural development thus, there is a need for Nigeria to exploit her various agricultural resources to full potential in order to accelerate her quest and efforts to achieving sustainable economic development.

Agriculture is considered a catalyst for the overall development of any nation; development economists have always assigned the agriculture sector a central place in the development process, early development theorists though emphasized industrialization, they counted on agriculture to provide the necessary output of food and raw materials, along with the labour force that would gradually be absorbed by industry and services sector. Much later thinking moved agriculture to the forefront of the development process; the hopes for technical change in agriculture and “green revolution” suggested agriculture as the dynamo and magic wand for economic growth and development.

The industrial revolution of the Nineteenth century which catapulted the agrarian economies of most countries of Europe got their stimuli from agriculture; the sector in recent history has also worked a tremendous miracle in countries like Mexico, India, Brazil, Peru, Philippines and China where the Green Revolution was one of the great success stories. Indeed, the importance of agriculture in any nation’s economy cannot be over emphasized, for instance, in United States of America, agriculture contributes about 1. 1% of the country’s Gross Domestic Product.

The above statistic indicated that the more developed a country is the lower the contribution of agriculture to Gross Domestic Product. Economy diversification is an economic development strategy characterized by increasing the numbers of the revenue base of an economy. The Nigerian economy is a mono-cultural economy depending on crude oil as the main source of her revenue, it is crucial that government should not keep on believing that oil provides an endless source of revenue.

As a matter of priority, Nigeria government must encourage the rapid diversification of Nigeria’s economy as this is the only sustainable way to survive the current environment of global economic uncertainty of international oil price volatility and shocks, unfavourable quota system and depletion.

Diversification in the agriculture sector is therefore suggested for Nigeria as a developing economy to ensure food and nutritional security, income and employment generation, poverty alleviation and to encourage industrialization, ease pressure on balance of payment, reliable source of government revenue and overall economic development of the country.

Prior to the political crisis of 1967-1970, agriculture’s positive contributions to the economy were instrumental in sustaining economic growth and stability. The bulk of food demand was satisfied from domestic output, thereby obviating the need to utilize scarce foreign exchange resources on food importation.

Stable growth in agricultural exports constituted the backbone of a favorable balance of trade. Sustainable amounts of capital were derived from the agricultural sector through the imposition of several taxes and accumulation of marketing surpluses, which were used to finance many development projects such as the building and construction of Ahmadu Bello University (Zaria) and first Nigerian skyscraper-cocoa house in Ibadan. The sector, which employed 71% of the total labor force in 1960, employed only 56% in 1977, the number stood at 68% in 1980, falling to 55% in 1986, 1987 and 1988; and 57% annually from 1989 to 1992, and has continued to nosedive into 2000s as the result of the neglect of the sector.

To channel itself on the path to modern development, Nigeria should examine what factors hindered the development of its agricultural sector, which was the backbone of the Nigerian economy before the era of oil boom. It should rectify the mistakes it made in over 54 years by immediately putting these strategic plans into action. The people of Nigeria can uplift themselves from poverty and distress by eradicating corruption and devoting themselves to strive for progress.

The 2020:20 initiative will keep Nigeria focused on improving their economy and combined with a significant effort to reducing food imports and to increase food production within their own country, Nigeria can witness a timely turn around in their investment. Nigeria has the necessary components in place to return to an agricultural-based economy. Research has demonstrated that a return to an agricultural economy is not only possible, but will greatly benefit the entire country of Nigeria.

To achieve sustainable economic development and to lift the dormant and continuously dwindling contribution of the agriculture sector, Nigeria needs to have some recommended pre-requisites diversification policies such as provision of financial resources to sector to get it up and functioning; a combination of government provision of subsidies, improved and high yielding seedlings and breeds for private companies and small scale farmer producing as large as 85% of the sector’s agricultural output are needed to boost the agricultural market.

There also need to revise the current import and export regulations to make it more convincing for other countries to accept agricultural products from Nigeria. It is an established fact that with the population of over 170 million, vast cultivatable farmland, a conducive climate and soil, Nigeria has the necessary productive resources required to have a strong welcome back of the agriculture sector as an engine to achieving sustainable economic development.

It is therefore plausible for Nigeria to diversify into the agriculture market in their effort to become more self-sustainable and be recognized as one of the world economic power.

How to Increase the Lifespan of Your Conveyor: The Smart Tips

Correct tracking of the belt is important. Most conveyors are built with PVC or PU belts. These belts need to be installed and tracked correctly after first installation. A lot of people do this with every conveyor before it leaves the factory. Therefore no major adjustments should be needed after the conveyor is set up on-site. It is important that you double check the tracking of the belt before the conveyor starts the production. It is also a good idea to periodically check if the belt tracking is correct. This will greatly increase the serviceable lifespan of any conveyor belt.

Conveyors are designed with heavy-duty drive and idler rollers. These rollers are slightly crowned according to belt manufacturer’s specifications. All conveyors are delivered with belt stretch/tracking adjustment bolts on either side of the idler rollers. To adjust tracking, simply loosen the bolt that holds the idler side-plates in position and tighten the adjustment bolt on the side the belt is moving towards too. In other words, if the belt is to far on the left, tighten the left adjustment bolt. The amount of tension needed depends on the size and speed of the belt. In general, it can be said that only small adjustments will be needed. A quarter turn of the adjustment bolt can make a huge difference. So be careful not to over compensate. Give the belt a bit of time to settle in its place and make fine adjustments if necessary. After the belt has settled in, don’t forget to tighten the side-plates. Some conveyor experts observe a periodical check to make sure the tracking is still okay.

Tracking of a belt on a conveyor is normally done via slightly crowned rollers. This approach works really well in most applications and conveyors utilizes this approach on all standard conveyors. There are however, a few circumstances where this approach is not reliable and other solutions need to be implemented. Conveyors with a width to length ratio of less than 1:2 for instance will not track properly with crowned rollers. Conveyors where the direction of travel changes should also not rely on crowning.

The Smart Strategy – A Conveyor with a Tracking Strip

It is now possible to order belt conveyors online where the belts themselves are fully guided. This is done via a tracking strip joined onto the underside of the belt, which in turn runs in the base extrusion T-slot and a location groove machined into the rollers. This feature offers the opportunity to integrate standard belt conveyors into an automation solution, which up to now would have demanded the use of a modular belt conveyor. In most cases those would be substantially more expensive.

With clever and innovative solutions such as the fully tracked belt conveyors, several online conveyor shops are again able to help you save money. Fully guided conveyors can still be shipped within two working weeks, fully assembled!

Dyestuff Industry In India And China

World demand for dyes and organic pigments to touch $10.6 billion in 2008

According to a study on dyes & organic pigments, the worldwide demand for organic colourants (dyes and organic pigments) is projected to increase at $10.6 billion in 2008 form 4.9 per cent annually in 2003.

Generally, the dyestuff industry comprises three sub-segments, namely dyes, pigment and intermediates. The dye intermediates are petroleum downstream products which are further processed into finished dyes and pigments. These are important sources in major industries like textiles, plastics, paints, paper and printing inks, leather, packaging sector etc.

Leading players in dyes

Textile dyes have been used since the Bronze Age. They also constitute a prototype 21st-century specialty chemicals market. Three large manufacturers namely DyStar, Ciba Specialty Chemicals and Clariant are leaders in the dyes market. The biggest, DyStar, was established in a series of mergers of some of Europe’s leading textile dye businesses in the 1990s. Worldwide excess capacity and price burden, fueled by the immediate growth of Asian manufacturers, have shifted most dyestuff chemistries into commodities. Regulatory barriers have nearly stopped the progress of the opening of fundamentally new dyestuffs. Despite this DyStar, Ciba Specialty Chemicals and Clariant have grown over the past 10 years with innovative products and new chemistry is being set to endure reactive and dispersant dyes as well as in older dyestuffs such as sulfur dyes.

In 2001 the biggest individual company market shares in colourant production were DyStar (23%), Ciba (14%), Clariant (7%), Yorkshire Group (5%), Japanese (5%) and other traditional groups (3%)., and various dyestuff manufacturers comprise the largest group at 43%.

The only way to growth and to keep Asian bulk dyestuff manufacturers at bay, they say, comes straight out of specialty chemicals strategy to distinguish product offerings through collaborative work with customers and charge a premium price for particular products that gives a perfect solution. This is an effective method, provided that these suppliers produce in China, India, Pakistan, and Brazil as well as in the U.S. and Europe, and that most of the textile producers aim to maintain uniform quality and product performance across worldwide.

Europe is facing the problem of overcapacity of about 30 to 40 per cent in the market from Asia, especially China. But, experts believe, Asian manufacturers manufacture a limited number of low-cost, basic dyestuffs. Most of experts of this field believe that growth lies in innovation and differentiation. Though, of the 180,000-ton-per-year worldwide market for dispersed dyes, specialty dyes consist only about 5,000 tons.

DyStar is a major manufacturer of reactive dyes, which were developed 50 years ago at ICI. DyStar was recently purchased by Platinum Equity, is made up of the dyes business of the original ICI, as well as those of Bayer, BASF and Hoechst. DyStar has developed deep-shade dyes for polyesters. New chemistries are emerging for controlling staining from azo and anthraquinone dyes, including thiophene-based azo dyes. DyStar has also developed benzodifuranone dyes for heavy red shades. It modified azo dyes to keep up their performance when applied with the new detergents. The company also set up secrecy agreements with the leading detergent producers to test new detergent chemistry and do the required dye reformulation proactively. It has added the number of reactive groups in its fluoroaromatic Levafix CA reactive dyes. The company has also been functioning on strengthening the chromophore or color component of the dye for improved lightfastness.

Recently, DyStar has made new red dye for cellulosic fibers, Indanthren Deep Red C-FR Plus, is a new speciality dye for medium to heavy shades of red and Bordeaux, suitable for the coloration of cellulosics on continuous and yarn dyeing units as well as cellulosic/polyamide blends. DyStar Textilfarben GmbH has also introduced the classic cold pad batch dyeing process (cpb). Key developments in cold pad batch technology were started in 1957 and are still ongoing:

-Development of dosing pumps (Hoechst)

– Introduction of sodium silicate as a fixing alkali (Hoechst)

– Development of microwave and oven lab fixation method (Hoechst)

– Mathematical determination of pad liquor stability under practical conditions (Hoechst) —

Optidye CR (DyStar)

– Development of silicate free alkali systems (DyStar)

The dyestuffs industry of China

In the first half of 2005, China gained a growth of 4 per cent in dyes and 11 per cent in organic pigment output. A report stated that China’s demand for dyes and pigments is expected to increase at 12 per cent annually by 2008 and output of dyes and pigments will rise by 13 per cent annually by 2008.

According to statistics, in 2004, the production volume of dyeing stuffs and pigments in China reached 598,300 tons and 143,600 tons, an increment of 10.4 per cent and 13.3 per cent over that of the previous year. The total imports and exports of dyeing stuffs and pigments were projected to be 291,200 tons and 138,800 tons; an increase of 10.64 per cent and 16.15 per cent over the same time the previous year. Hence, China has developed to be a large manufacturer, consumer and dealer of dyeing materials, pigments and dyeing auxiliary.

China becomes top importer for Bangladesh

During July-September 2005 Bangladesh imported dyes and chemical (combined) worth 3.73 billion taka ($57.5 million) from China against 2.53 billion taka ($38.9 million) from India.

DyStar expands China facility

Recently DyStar has announced to invest around USD 55 million in a new textile dyes facility at Nanjing to extend its production base in China and step up its focus on this key growth market. Situated about 300 kilometres north-west of Shanghai, Nanjing is the capital of Jiangsu Province, a key area for textile production. It will be DyStar’s third production unit in China, alongside Wuxi, where the production capacity was tripled last year, and Qingdao. This new production site will increase their growth in China. At the same time it will strengthen their international competitiveness and boost market leadership. This investment is a clear sign that DyStar is continuing to invest in its core business and will remain a reliable partner for the textile industry in the long term.

At the new production complex in Nanjing, DyStar will produce dyes for cellulosic and synthetic fibres. In-built flexibility will permit the manufacture of other dyes and extension of the infrastructure in line with requirements. That means DyStar will be able to respond quickly to the rising demand in China. The inauguration of the first plant is scheduled in the first half of 2006.

Indian dyestuff industry

In India the dyestuff industry supplies its majority of the production to the textile industry. Huge of amounts exports of dyes and pigments from India are also done to the textile industry in Europe, South East Asia and Taiwan.

Currently, the Indian dyestuff industry is completely self-dependable for producing the products locally. India presently manufactures all kinds of synthetic dyestuffs and intermediates and has its strong holds in the natural dyestuff market. India has come up as a global supplier of dyestuffs and dye intermediates, mainly for reactive, acid, vat and direct dyes. India has a share of approximately 6 per cent of the world production in dyestuff products.

Structure of dyestuff industry in India

The Indian dyestuff industry has been in existence since about 40 years, though a few MNCs established dyestuff units in the pre independence era. Like the other chemical industry, the dyestuff industry is also widely scattered. The industry is functioning by the co-existence of a few manufacturers in the organised sector (around 50 units) and a large number of small producers (around 1,000 units) in the unorganised sector.

The spreading of these units is slanted towards the western region (Maharashtra and Gujarat) accounting to 90 per cent. In fact, about 80 per cent of the total capacity is in the state of Gujarat, where there are about 750 units.

There has been a huge development in the dyestuff industry during the last decade. This has happened due to the Government’s concessions (excise and tax concessions) to small-scale units and export opportunities generated by the closure of several units in countries like the USA and Europe (due to the implementation of strict pollution control norms). The duty concessions provided to small-scale producers had given in the large ones becoming uncompetitive to some extent. Price competition was strong in the lower segments of the market. Liberalisation of the economy and large-scale reduction of duties have given the decrement of margins for smaller producers. Closing of many small-scale units in Gujarat due to environmental reasons has also helped the organised sector players to grow further.

Over six hundred varieties of dyes and organic pigments are now being produced in India (both by the organised and the unorganised sector). But the per-capita consumption of dyestuffs is less than the world average. Dyes are soluble and basically applied textile products. Pigments, on the other hand, are insoluble and are main sources of products such as paints.

During the past few years, the dyestuff industry was overwhelmed by a series of fast changing upshots in the international platform. The largest market for dyestuffs has been the textile industry. The hold of polyester and cotton in the global markets has positively created the demand for some kinds of dyestuffs. Furthermore, the demand for polyamides, acrylics, cellulose and wool has been close to stagnant. Discrepancy in the regional growth rates of textile products too influences demand. The Asian region has seen the highest development in textile production, followed by North America, Latin America and Western Europe. This shows the change in the global textile industry towards Asia. Subsequently, Asia offers dyestuff production both in terms of volumes and value, with about a 42 per cent share of the global production; the US is next with 24 per cent and Europe has around 22 per cent. Due to a wide use of polyester and cotton-based fabrics, there has been a change towards reactive dyes, applied in cotton-based fabrics, and disperses dyes used in polyester. These two dyes have been leading in all the three regional global market, particularly Asia. Moreover, the change in textile application pattern and regional developments is the amount of over capacity in the global dyestuff industry.

Within India, the leading producers in the pigments industry are Colour Chem and Sudarshan Chemicals while in the dyestuff industry the major players in terms of market share are Atul, Clariant India, Dystar, Ciba Specialities and IDI. The Indian companies together account for nearly 6 per cent of the world production.

Almost 80 per cent of the dyestuffs are commodities. Since not much technology is used, copying of products is also easy as compared to specialties. Though in the recent past, there have been efforts by global producers, with some achievement, to shift to the specialty end of the product profile. Vat dyes have always performed as specialty products, with technology working as a vital function. Now companies are focusing on the higher end of the reactive dyes segment. The inclination is now changing from supplying mere products to colour package solutions. More importance is given to innovation, production range, quality and environmental friendly products. Manufacturers are collaborating with equipment producers to offer integrated solutions rather than products.

Fiscal policies and modification in the application pattern of the global dyestuff industry have revolutionized the market shares of Indian companies. Excise concessions for the small-scale sector in the mid and the late 1980s generated many units in Maharashtra and Gujarat. At one point of time, there were in the unorganised sector nearly 1,000 units, with most of them situated in Gujarat and Maharashtra.

Though, since the early 1990s, there has been seen an ongoing decrement in the excise duty rates applicable to the organised sector. From 25 per cent in 1993-94, the excise duty rates were decreased to 20 per cent in 1994-95, and 18 per cent in 1997-98 and further decreased these rates to 16 per cent.

This continuing decrement in the duty rates smoothened the competitive edge of the unorganised sector. The organised sector, with high product range, technology and marketing reach was capable to raise its market share. But more noteworthy changes have gained through the German ban on many dyestuffs, enforced to the local pollution control laws. While the organised sector has been capable to regulating the manufacturing of dyes based on the 20 banned amines by the German legislation, many in the unorganised sector were moved out. This was amalgam by the local pollution laws, which need to establish the effluent treatment plants, and drive out companies in the unorganised sector.

The capacity and production of dyes and dye stuff was 54,000 MT and 26,000 MT respectively in the year 2003-04. The capacity and production of dyes and dye stuff was 54,000 MT and 26,000 MT correspondingly in the year 2003-04. The small scale units offer major share in dyestuff production while large units focus producing dyestuff intermediates.

Disperse and Reactive dyes represent the greatest product segments in the country covering about 45 per cent of dyestuff consumption. In the coming time, both these segments will lead the dyestuff market with disperse dyes possibly to have the greatest contribution followed by reactive dyes. These two segments will hold a greatest share in order to lead textile and synthetic fibers in dyestuff consumption. Vat segment is also projected to prove healthy growth in future.

Exports and Import of Dyestuffs

In the year 2004-2005 the exports of dyestuff industry has touched 1109 million US dollar. Exports of dyestuffs in the year 2000-01 reached to about Rs. 2365 crores and accounted to about 5 per cent of the total world trade of dyestuffs. The main markets for Indian dyestuffs are the European Union, U.S.A., Indonesia, Hong Kong, South Korea and Egypt. The following table provides data export and import of dyestuff during last few years.

Technology

The technology for dyestuff production changes largely from relatively simple (direct azo) to sophisticated (disperse and vat) dyes. Despite the fact that technology is locally available, most of it is out dated. The setback is further compounded by the fact that the nature of the process differs from batch to batch and, hence, managing the process parameters becomes complex.

The dyestuff industry is one of the largely polluting industries and this has lead to them closing down internationally or changing the units to the emerging economies. Majority of the international producers have shifted the technology to developing nations like China, India, Indonesia, Korea, Taiwan and Thailand. This shift of manufacturing capacities is because the industry is supposed to work as a high-cost and low return one. The batch processing also formulates it to a labour- intensive industry. Hence, the competitiveness of developing economies gets a boosts.

Though, in the past decade the Indian industry has made considerable development in terms of technology and production.

Restructuring

Restructuring of the Indian dyestuff industry which started a couple of years ago is still in progress. The movement was initiated by the market leader Colour-Chem Ltd. It has also come into a toll manufacturing agreement with Dystar India Ltd. There have been other arrangements, which would give improving capacity utilisation at manufacturing facilities and also to have better exposure of export markets.

Ciba India and IDI have signed a deal to market polyester and cellulose dyes. IDI has also started work with Ciba for the production and marketing of dyes and pigments. Atul products has received the acquisition of Zeneca’s 50 per cent stake in Atic Industries Ltd and started work with BAS, Germany to market 50 per cent of its manufacturing of vat dyes.

Your Guide to Resin Flooring

There are many different flooring solutions on the market today, so choosing the best one for you can be a tough decision. If you are looking for a floor which is cost-effective, strong, and customisable then you should definitely consider resin flooring.

We’re going to explore the characteristics of two of the main types of resin flooring systems – epoxy resin flooring and polyurethane flooring to help you figure out which would be more appropriate for your space.

What is resin flooring?

Resin flooring is made up of a synthetic resin (a plastic) and a hardener. When this is applied to a surface it cures to leave a strong resin coating. There are a variety of resin products to pick, and each has a slightly different curing period.

You can get resin flooring in many different colours, and it is possible to add a flake finish for some extra decoration. The flake finish consists of adding small flakes of colored vinyl to the final layer of the resin. This is a popular customisation to floors you would see in commercial spaces, hospitals and schools.

A standard resin flooring system requires around 3 coats, depending on what it will be used for, what the floor will have to endure, and how thick you need the floor to be.

What makes resin flooring better than concrete?

A resin floor can be customised to suit your taste, whilst the customisation of a  concrete floor is limited. Also, resin floorings are resistant to chemicals which for many industries is a fundamental requirement for their flooring systems.

With resin floorings it is also simple to make them non-slip. This is done by adding an aggregate to the mix.

What types of resin flooring are there?

To help you choose the right resin flooring, we’re going to explain some of the properties associated with the two main types – epoxy resin and polyurethane. Different ones have different benefits that come with them.

Epoxy Resin Flooring:

  • Water based, solvent based, or can come solvent free
  • Strong and durable.
  • Has a high elasticity so it can withstand heavy loads.
  • Resistant to chemicals.
  • Customisable

Polyurethane Flooring:

  • Water or solvent based.
  • Strong and durable.
  • Very wide temperature resistance.
  • Customisable.
  • Quick installation.
  • Very high chemical resistance.
  • UV stable.

How To Boost Your Agency Profits With A SEO Reseller

Most SEO agencies find themselves engaged in a constant tug of war between innovation & expansion. Multiplying profits in this trade calls for expansions that are risk-free, credible & yet effective.

If you are a growing agency looking to multiply profits with minimal risks, perhaps it’s time to consider an SEO reseller. Ensuring that your new client SEO accounts are successful can become as taxing as plucking a goose.

A highly customized SEO package with an affordable price tag is not only rare but requires a “Midas touch”. Getting organic rankings for clients requires good understanding of Google Algorithms.

It is evident that, since its last update – Mobilegeddon – Google has taken up a more open approach of announcing its upcoming updates well in advance. Search engine optimization is an extremely dynamic niche & calls for staying in sync with the latest industrial shifts lead by Google.

Dissecting SEO Reseller strategies & making sure that your future partner adheres to the latest crawler tantrums is of paramount importance. However, the question arises how can you be sure that you are making a wise choice?

It’s not only about a website’s structure optimization, the quality and quantity of back links contributes to a winning SEO Strategy for your customers. Hence, it’s important that you evaluate what are you being offered as a package before you up sell it to your clientele.

Reselling is easy, delivering results is complex and results are all that matter when it comes to Search Engine Marketing. Though it’s a time taking process, organic SEO can be a tricky trade as it involves deep understanding of where the web is heading with each Google Update rolled out. Especially due to the fact that Google boasts of having a cracking 67% of Search Engine Market share.

So how exactly can an SEO Reseller service help your business?

More like a back-end office, most professional SEO reseller agencies offer NDA protected, white-labeled packages. They provide you the ability to expand your client base by making more sales & providing you a complete technical backing for your customers. So while you handle the report circulation & billing – your partner agency does all the execution.

White-labelled reporting reduces your in-house staffing requirements and brings down the management spending that your agency might otherwise incur on a day to day basis with each new account being acquired.

Benefits of a professional SEO reseller partner

• Expand your clientele

Search engine optimization is imperative to increasing the visibility of a website in the SERPs of popular search engines. Adding such an important aspect of internet marketing to your offered mix of online marketing services is bound to help you expand your customer-base.

• Lesser expense on providing SEO services

An SEO reseller program is sure to cost you considerably less than acquiring in-house professionals for handling the SEO requirements of your clients. The money you save can be invested in the growth of your business.

• Outwit your local business competitors

Not all internet marketing agencies have adept SEO professionals on board. Get an edge over local competitors with your comprehensive range of internet marketing services.

Outsourcing your clients’ SEO projects to competent SEO reseller agencies is one of the most smart business moves you can make in today’s thriving internet marketing industry. Several SEO agencies are known to offer an amalgamation of acute awareness of Google’s latest algorithm updates and meticulous SEO plans to support their knowledge. The affordable prices of these SEO reseller agencies only adds to the desirability of hiring one for your clients’ SEO requirements. For More info visit http://www.clixlogix.com/services/organic-SEO-services/SEO-reseller/

Indian B2B Clients – An Insight on Procurement Behavior

Although a common man might see consumer market much bigger than business-to-business market place. In fact, B2B is much more bigger than B2C markets. Whether we talk about commercial markets, trade industries, government organizations or institutions, all are involved in B2B transactions, either directly or indirectly.

Some firms focus entirely on business markets, while some sell both to consumer and business markets. Infosys, Satyam, TATA, IBM, WIPRO, Logitech, Epson, HP, Canon, LG, Samsung for example. Business-to-Business markets deal with business purchases of good & services to support or facilitate production of other goods & services, either to facilitate daily company operations or for resale.

According to Reeder et al (1991), all marketing strategies must begin with a thorough understanding of Organisation Buying Behaviour as this entails a different knowledge about the buying situation, process and criteria to apply when making purchasing decisions. Also, the understanding of Organisational Buying Behaviour is fundamental for the supplier of an industrial firm in order to perceive how to satisfy customer demand in an optimal way.(Baptista, Forsberg, 1997).

Further, Haas (1995) stated that organisational buying is not simply the action someone takes. It is actually the outcome of interactions between purchasing professionals. And those who are involved in the process may in one way or another influence what is being purchased and supplied. The evolution of technology has changed the traditional way of business purchases. New tools have opened a new era and new opportunities in every part of market. The arrival of internet as a multifaceted tool continues to change the performance of the organisations.(Smith, Berry & Pulford, 1998)

Rational Nature of Business Market

Like consumers, business purchase/ procurement is done to fill needs. However, its primary need i.e. meeting the demands of its own customer- is similar for all organizations.

Organizational buying differs largely from consumer buying. One of the salient features of organizational buying is that it is basically a rational buying process. i.e it is based purely on Utilitarian concept. There is nothing called hedonic buying. By, principle, organizational buyers do not bring emotions in their buying process and as such emotional appeals do not make any impact on their buying process.

Moreover, there are some other distinctions, which can be stated as:

  • Geographical concentration
  • Fewer, but larger buyers
  • Vertical or horizontal markets
  • Derived demand : derived from consumer demand
  • Price Inelasticity : Unaffected by price changes in short run
  • Fluctuating demand

Like a manufacturer buys raw material, machinery, etc. to create company’s product while a wholesaler or reseller buys products to resell. Similarly, institutional purchasers such as government agencies and non-profit organizations buy things to meet needs of their constituents.

As far as business market is concerned, it is completely rational by nature and there is no scope for impulse buying. This all is due to environmental, organizational, interpersonal & buying centre factors, which influence B2B markets. Moreover, budget, cost, profit considerations all play parts in business buying decisions. Also, business buying process typically involves complex interactions among many people.

Now, B2B markets are diverse, transactions ranging from order as small as box of paper clips to deals as large as parts for an automobile manufacturer.

For sake of simplicity business markets categories can be defined as:

1. Commercial Market

  • Sells raw material used in production
  • Sells product which aid in production
  • Sells maintenance supplies

2. Trade Industry

  • Wholesaler
  • Reseller

3. Government organization/ Public Sector Unit

  • Under Central government
  • Under State government
  • Under Foreign government

4. Institutions

  • Hospitals
  • Church/ Temple,etc
  • College/ university
  • Museum
  • Not-for-profit organisations

Commercial market: It is one of the largest segment of business market. It includes all individuals/ firms that acquire goods & services, either directly or indirectly.

When Air India buys aircraft, when IBM purchases software to produce new software or hardware products and when purchase manages orders light bulb for a factory. These all transactions take place in commercial markets.

Typically we can divide the products/ services as:

  • Used as raw material (like CD, DVD, etc.)
  • Help in production (like desktops, laptops, etc.).
  • Used for maintenance.

The commercial market includes farmers manufacturers & other members of resource producing industries, construction contractors & provides of such services as transportation, public utilities, financing, insurance & real-estate brokerage.

Trade industry: It includes retailers and wholesalers that purchase goods for resale to others. We can also term them as resellers. These markets include software, hardware, clothing, appliances, sports equipment, automobile, etc. products.

Government organizations/ Public Sector Units: It includes domestic units of government- central and state, as well as foreign governments. This is also one of the most important segment which purchases wide variety of products, ranging from highways development to social services.

Institutions: Both public and private, are the fourth component of business markets. This category includes wide range of organizations like hospital, temple, church, college, school, university, museum, not-for-profit organization, etc.

Some business follow standardized purchasing & selling procedures, while others may employ less formal buying practices. B2B marketers often have to set up separate divisions to sell to institutional buyers.

B2B Market Segmentation

B2B markets include a variety of customers optimal strategy can be made by applying market segmentation concepts to groups of business customers. The overall process of segmenting divides markets based on different criteria, usually organizational characteristics and products applications.

We can mainly segment the markets on basis of:

  • Demographics (size, geographic location).
  • Customer type.
  • End use application.
  • Purchasing situation.

Demographic segmentation

Based upon demographic, firms or business can be grouped by size (either sales revenue or number of employees). Even different strategies can be developed for Big and Small corporations with complex purchasing procedures and another strategy for small firms where decisions are made by one or two people. Now-a-days, small and medium businesses have caught the eye of business-to-business marketers. This fast growing segment offers tremendous potential according to business analysts like Microsoft, SAP, nucleus, etc.

Segmentation based on customer type

B2B organizations can group customers based on broad categories like manufacturer, service provider, government agency, not for profit organization, retail and much more, which can further be subdivided as per the need.

In fact, customer based segmentation is a related approach which is often used in B2B markets. Moreover, organizational buyers tend to detail much more precise product specifications than ultimate consumers do. This all is required to meet specific buyer requirements, creating a form of market segmentation.

Segmentation based on end use application

This approach focuses on a precise way in which a business purchases will use a product. For e.g. a mineral manufacturer may serve markets ranging from paints to cosmetics to inks to paper to government departments. Each end use of the product may dictate unique specifications for performance, quality and price. This can prove a good approach for small and medium enterprises, so as to concentrate on specific end use market segments.

Segmentation by purchasing situation

Purchasing procedures for Big organizations in fact structure their purchasing functions in specific ways. Some organizations have centralized purchasing departments while others have decentralized purchasing. Similarly, purchasing may be done by 2-3 persons in a small or medium enterprise while a big organization may involve more number of persons for taking purchasing decisions. A supplier may deal with one purchasing agent or several decision makers at various levels. All of these structures result in different buying behaviour. When buying situation is one of the criteria, one has to consider whether customer has made previous purchases or if this is clients first order. Like Birla soft might use a different marketing approach to sell to its existing customer than to a potential new customer who is unfamiliar with its offerings.

Today’s internet era has become a useful tool for businesses. Internet provides products and its information to potential buyers and gives marketers an opportunity to make available virtual catalogues, forms, product information, etc. Samli, Wills and Herbig (1997), stated that, in future the WWW is expected to offer a much broader range of benefits to both suppliers and customers, due to improved international communication generated by the Internet.

Unlike the traditional media, internet is characterised by interaction and it facilitates tow way communication as well. Though this interaction is not physically face to face, but diminishes the boundation of time or any geographic location. This means that people can, without any face to face contacts still be able to meet each other and manage their regular work such as communication, businesses and even negotiations.

Haas (1995), says that the way organisations purchase products is one of the most important questions to the business marketing managers of today. The buying of goods and services by organisations is complex and difficult to analyse. Over the years, many models have been developed in attempt to explain Organisational Buying Behaviour. Without the understanding of this, the marketing strategies and the tactical programs cannot be optimally developed. Moreover, Haas (1995) describes that it is the business marketing managers who are the one that are involved in this complex process with the following tasks:

  • Describe the process by which customer organisations buy goods and services.
  • Discover who in the customer organisations participates in this process and at what stage of the process each becomes involved.
  • Find out what each of those people is seeking from the purchase, i.e. what their buying motives are.
  • Discover what factors influence the interaction of the participants in the process.

Which means that one cannot simply focus his/her effort towards purchasing departments of businesses, but has to take care of the external factors along with whole decision makers web.

Each and every organisation has its own way of purchase procedure which can be better called as “organisational buying process”. There are many persons involved in the process and according to Haas (1995) – “a good definition of a buying influence is anyone within the purchasing firm who not only has the power to make a decision in favour of the product involved, but also may be able to cast a negative vote against that product”. Once, the composition of a buying centre is determined the business marketer faces the problem of determining the relative influence by each member. If marketing manager can determine what characteristics differentiate the key buying influences from the others, it may be possible to identify them and focus the marketing efforts in their direction to win the race.

Moreover, the purchase of new task products can involve significant investments of money, time and personnel without any guarantee of a successful outcome. But using the internet technology as tools in a certain way can provide new opportunities. In recent years access to new techniques is easier and cheaper.

More and more companies are adapting their system to this revolutionary superhighway communication system to the extent they can. The Internet provides opportunities for an organisation to enhance its business in a cost¬ effective and fruitful manner. That is, the Internet can be used to conduct research, reach new markets, serve customer problems, and communicate more efficiently with business partners. The Internet is a practical tool for gathering information concerning customers, competitors, and potential market. It is also useful when communicating information about companies and/or products. (Poon, & Jevons, 1997; Quelch, & Klein, 1996).

David Roberts (1999) stated in an article that the Internet could be used to “re-engineer” a company in a way that will have impact on revenue and cost, however, one that is difficult to measure. Moreover, several new opportunities appears for those who want to use this new opening to new markets where companies can reach selected customers with information that is of value. Kasper, van Helsdingen and de Vries (1999) discuss on one hand that the Internet has a communication and a distribution function and also the way companies offer their services via Internet. On the other hand they indicate the effect that the Internet has on the purchaser’s buying decisions, due to the fact that the Internet change the traditional way of communication.

Characteristics of B2B markets

Business must understand the needs of business i.e. vendor should put itself in place of buyer to better serve the latter. In order to do that, characteristics of B2B markets should also be understood which includes:

  • Geographic concentration.
  • Size & number of buyers.
  • Purchase decision process.
  • Buyer seller relationship.

Geographic concentration

Indian business market is more geographically concentrated than consumer markets. Industries are developed at places where either raw material is available or where finished product is sold or may be sometimes cheap facilities are available (like electricity, tax benefits, etc.).

Identifying geographical concentrations of customers enables business marketers to allocate resources effectively. A SME may choose to locate sales office or distribution centres in these areas to provide more attentive service.

Size & Number of buyers

Business markets feature a limited number of buyers with bigger sizes. Most of the business markets are large organizations served by small and medium enterprises. Segmenting markets based on size and number may help in development of strategies.

Purchase decision process

To market effectively and efficiently in business markets, one must understand the importance of organizational purchase process. In most of the organizations more than one decision makers are involved and at each and every level of purchase, they may influence upon. Also, purchase process is more formal and professional than consumers purchase. Even, time frame is much more longer in B2B buying with much more complex decisions. Based upon the technical requirements & specifications, proposals must be made. Also, decisions require more than one round of bidding & negotiation. So, is the need to take care of purchase decision process.

Buyer seller relationships

One of the most important characteristics of B2B markets is the relationship between buyers and sellers. Such relationships are more intense, require better communication and often long lasting.

Basic purpose of B2B relationships is to provide advantages that no other vendor can provide like lower price, quick delivery, better quality and reliability, customized product, service, etc.

Close relationships not only help in long run success of an enterprise but also provides a way to increase revenues through broad customer base.

Buying Process in B2B Markets

Further, according to Haas (1995), the conceptual model of the Organisational Buying Process is described as an eight stage model starting with “Using department” and ending with “Follow up”. However, this eight stage model is widely known as Buygrid Framework, which comprises three buy classes or buying situations, with eight progressive stages in buying or we can call them buy phases. The buy phases are an expression of thoughts and activities that a Buyer goes through in the sequence of activities leading to a purchase according to Robinson, Faris and Wind (1967).

The Buy phases consists of:

  • Anticipation or Recognition of a Problem (Need).
  • Determination of the Characteristics and Quantity of the Needed Item.
  • Description of Characteristics and Quantity of the Needed Item.
  • Search for and Qualification of Potential Sources.
  • Acquisition and Analysis of Proposals.
  • Evaluation of Proposals and Selection of Suppliers.
  • Selection of Order Routine
  • Performance Feedback and Evaluation.

While Buy classes consist of:

  1. Straight rebuy.
  2. Modified rebuy.
  3. New task buy.

Business buying behaviour responds to many purchasing influences like environmental, organizational, interpersonal and buying centre factors. The behaviour also involves the degree of effort that the purchase decision demands & the levels within the organization where it is made. B2B marketers can classify the buying situations into three general categories or buy classes, ranging from least complex to most as stated above.

Straight rebuy

It is the simplest buying situation, where purchaser are continuing or recurring and either little or no information is required. We can also say that, a recurring purchase is done in which an existing client places a new order for familiar product that has performed satisfactorily in the past. As delivery is prompt, quality is consistent and price reasonably competitive. So is the demand of situation.

Mostly purchaser of low cost items like paper clips, pencils for office are typical examples of straight rebuys. Even in industries with continuous need of raw materials, this option is exercised, but if the vendor concentrates on maintaining a good relationships with the buyer by providing excellent service & delivery performance, so that competitors find it difficult to offer better sales proposals to break the chain.

Modified rebuy

In modified rebuy, decision makers see some advantages in looking at attractive offerings like quality improvement or cost reduction. While, business marketers should induce current customers to make straight rebuys by responding to all of their needs but, competitors on the other hand should try to induce buyers to make modified rebuys.

New task buy

This is one of the most complex category which requires considerable efforts by decision makers due to first time or unique purchase situations.

Problem recognition may be triggered by internal/ external factors & new product line may require purchase of new equipments, parts or materials. Even, change in customer requirements may necessitate purchase of new machinery.

This situation often requires a purchase to carefully consider alternative offerings & vendors. The new task buying would require several stages, each yielding a decision and that decision would include development of product requirements, search of potential suppliers and evaluation of proposals, etc.

Even a fourth purchase category may be included i.e.

4. Reciprocity buy.

Reciprocity

A policy to extent the purchasing preference to suppliers that are also the customers. We can also say it as a type of barter system. Like a SME might supply raw material to paint manufacturer. But at times may need paint for its office refurnishing in that case reciprocity principle might be in use.

Stakeholders of Buying Centre

According to Webster and Wind (1972), members in buying centre may assume different roles throughout the organizational purchase process. The identification of the roles they play helps marketers to better understand the nature of interpersonal influences in the buying centre. These roles can be categorized as:

  • Users
  • Influencers
  • Buyers
  • Deciders
  • Gatekeepers

User, are the one who will actually use the purchased product/ service. Their influence may range from negligible to most important. They may at times initiate purchase actions, help develop specifications, etc.

Gatekeepers, control information that is reviewed by buying centre members. They may provide access to some and deny access to others.

Influencers, affect the buying decision by supplying information to guide evaluation of alternatives or by setting buying specification. They might be a technical staff such as engineers, quality control specialist, R&D personnel, etc.

Deciders, chooses a good or service. He/she might be the top authority or the person with authority to take purchase decision.

Buyer, is the formal authority to select supplier/vendor and to implement the procedures for procuring the product or service.

In order to develop an efficient procurement system, purchase department people should clearly identify the various roles in buying centre. They must also understand how these members interact with each other and outside the business.

How to Enhance Procurement / Purchase Decisions through Tools?

In today’s localized global markets purchase decisions are not just taken by Gut feelings but various tools support the decision making. Some of these are:

  • Value Analysis Tools
  • Vendor Analysis Tools

Value analysis examines each component of procurement in an attempt to either delete the item or replace it with more cost effective substitute.

Vendor analysis provides evaluation of supplier’s performance in categories like price, orders, delivery times, etc.

Factors that Influence Buying Behaviour in Businesses

Business buying occurs within a formal organization’s budget, cost and profit considerations. Moreover, B2B buying decisions usually involve many people with a number of complex interactions among individuals & organizational goals. In order to understand this, marketers require in depth knowledge of influences on the purchase decision process, the stages in organizational buying, types of buying situations, etc.

Lets have a look at influencing factors:

1. Environmental.

  • Economic : Price, cost, inventories, credit, etc.
  • Political : Tarrifs, quotas, defense spendings, lobbying, etc.
  • Legal : State, Central regulations, etc.
  • Cultural : Corporate as well as personal culture.
  • Physical : Climate, Geographic location, demographics, etc.
  • Technological : Procurement related to inventory, etc.
  • Ethical : Guidelines, norms, regulations, philanthropy, etc.

2. Organizational.

  • Tasks : Buying task performed to achieve corporate goals.
  • Structure
  • Technology
  • People

3. Interpersonal.

  • Buying Centre and its roles
  • Power Relationships
  • Differing evaluation criteria, rewards, responsive marketing strategy, information processing, memory, anticipation, individual / group decision making.

4. Individual.

  • Motivation of Buying Personal
  • Perception of Buying Personal
  • Learning of Buying Personal

5. Product Specific

  • Perceived risk
  • Type of purchase
  • Time pressure

6. Company Specific

  • Size
  • Degree of Centralisation

Business to Business Buying Process

  • Anticipate or recongnise Need/Problem/Opportunity along with a General Solution.
  • Identify the Characteristics and Quantity of Product /Service.
  • Describe those Characteristics and Quantity in detail.
  • Search for and qualify Potential Sources/Vendors.
  • Acquire Proposals, Analyse and Evaluate them.
  • Select Suppliers and Finalise the Specific Order Routine.
  • Obtain Feedback and Evaluate Performance.

A B2B buying situation requires a complex sequence of activities due to its rational nature. This model can be generalized to most of the B2B buying situations.

B2B Organisational Purchase Process starts with the anticipation/ identification of either need, problem or an opportunity based upon the circumstances ( may be either current or futuristic).

Now, Businesses are not just made to run but there is a rational benefit being sought in each and every business, which can be either:

  • Improvement in Efficiency/ Productivity
  • Improvement in Quantity
  • Improvement in Customer Service
  • Cost Reduction

Based upon the expectations of various stake holders involved, which can be a mix of:

  • Technical Committee Members
  • Users
  • Engineers
  • Influencers
  • Consultants

Also, as far as the match / mismatch between rational benefits and expectations of stake holders are concerned, alternative strategic solutions help to a great extent. The source of information for these solutions includes:

  • Company Websites and search engines
  • Marketing Executives
  • Word of Mouth Publicity
  • IETF/IITF Exhibitions
  • Seminars & Conferences
  • Industry References
  • New Employees from Rival Organisations
  • Business Magazines like Business India, Economic Times, Hindu, Hindustan Times, etc.

Further, specific company deciders i.e. R& D, Purchase, Finance Departments, etc., their strengths and preferences plays an important role along with their background and previous Vendor as well as customer experiences.

Now, once the exact expectations are decided, budgetary quotations and product literature from vendors are asked in order to draft specific tenders or RFP specifications and bid document. Also, any process is incomplete unless and until funding and budget is provided. So, is the next step in purchase process.

After this, Vendor Eligibility Criteria i.e.

  • Minimum Size/ Turnover
  • Past Experience
  • EMD/Purchase Receipt

And Product Specific Requirements i.e.

  • Inspection Requirements
  • DGS&D/NCCF
  • Quality Parameters

Are identified and described to the extent possible, along with the competitive market requirements and vendor/ proprietary purchase preferences.

Now, the process can be further divided into Govt./PSU purchases & Corporate/MNC Purchases.

In case of Govt./PSU purchases tender notice is published in leading newspapers / websites inviting technical bids and purchase bids, while in case of Corporate/ MNC purchases, RFP is prepared and sent to the prospects, inviting proposal from vendors.

Once, the bids or proposals are acquired, then their evaluation takes place, along with a demo/ presentation & reference verification. In all these processes, file movement should be properly monitored in order to get the best results. Further, T1 and L1 vendor/s is/are found out, where T1 is Technically acceptable and L1 is Lowest Acceptable Price.

Now, comes the stage of negotiation with T1 and L1 vendor/s. As far as negotiation is concerned, if differences occur, then they can be sort out by negotiation, arbitration and litigation, etc. also.

Once, negotiations are thorough, then comes the stage of B2B contract, which is further approved and signed by H.O.D or authorized signatory. Now, contract is accepted by vendor with the deposition of security as finalized in contract.

Further, vendor delivers the product/ service as per terms and conditions, which is then accepted by the user department or stores after a quality and quantity check along with feedback submission and which completes the B2B Purchase process.

Conclusion

Each and Every businesses should have a look at the way their B2B clients (like Satyam, Wipro, Tata, Inforsys, for eaxmple.) in Indian Industry. The rational nature of B2B markets in commercial, trade, PSU’s and institutional businesses needs to be worked upon. Further, businesses can concentrate on their markets based upon the segmentation like demographics, Customer type, End use application or purchasing situation., Even, the characteristics of B2B markets should be known to the vendors. Lastly, The Buying Process of B2B, the stake holders involved in purchase/procurement, the tools they use, the factors they consider and the process they follow, must be known to the all businesses for a healthy and long run relationship.

Wal-Mart – What Makes Them America’s Number One Company?

America, land of “free-enterprise” has millions of companies in its market. The metropolitan statistical area of Houston, Texas in fact has over 600,000 businesses, most employing from 2 to 10 employees. As companies grow in the number of people they employ, fewer and fewer companies surround them. Most companies never grow beyond the smallest group size for many reasons. Some companies grow to become the target of the competition or the “model” on which the smarter more savvy managers base their practices to achieve “best of class” status in their industry or market. Wal*Mart has certainly earned its position at the pinnacle of American business and global retail dominance.

Founded by a retailer named Sam Walton with his brother in 1962, Wal*Mart has become that company to watch and emulate in the twenty first century. Walton, a “Ben Franklin” franchisee between 1945 and 1962 collaborated with his brother Bud Walton to found the first Wal*Mart in 1962 in rural Arkansas. Their strategy was simple. They opened discount-merchandising stores in rural America where big business and big retailers typically ignored “fly over” territory. The strategy of mass buying power and passing on the savings to customers took flight as the company grew steadily into the seventies and eighties.

As Walton situated stores in small towns with populations between 5,000 and 25,000 he implemented his plan “To put good-sized stores into little one-horse towns which everybody else was ignoring.” He thought that if they offered, “Prices as good or better than stores in cities that were four hours away by car…people would shop at home.” David Glass, CEO, explained, “We are always pushing from the inside out. We never jump and then back fill.”

Walton successfully instilled a small town friendly caring atmosphere in America’s number one company by indoctrinating “associates” in the idea that Wal*Mart “Has its own way of doing things.” He habitually shopped the competitors like K-Mart and Target. He would count the number of vehicles in their parking lots and “measure their shelf space.”

Sam Walton believed the number one key to the company’s success lay in the way the company treated their “associates.” He felt that if he wanted his associates to care for the customers then the associates must know that the company was taking care of them. Do to his foresight in people management the company many associates became wealthy as the stock price continued to climb the value turned everyday individuals in to wealthy people. Walton discouraged such shows of wealth claiming that such behavior did not promote the company’s reason for existence, to take care of the customer.

Walton described his management style as “Management by walking around.” Walton said about managing people that, “You’ve got to give folks responsibility, you’ve got to trust them, and you’ve got to check up on them.” This philosophy required sharing information and the numbers. The target was to empower associates, maintain technological superiority, and build loyalty within associates, customers and suppliers.

Free flow of information to associates gave associates a true and actual sense of ownership of the organization and allowed them to exercise authority to continually improve their processes especially their main institutional profit driver, supply chain management and process improvement. One of their key tools to managing an element of their chain, inventory, is called “traiting.”

Traiting in the Wal*Mart sense is described by Bradley and Ghemawat in their article as “A process which indexed product movements in the store to over a thousand store and market traits. The local store manager, using inventory and sales data, chose which products to display based on customer preferences, and allocated shelf space for a product category according to the demand at his or her store. Pairing inventory to exact store market demand eliminated or at least mitigated the need for advertised sales or “fire sales” allowing the company to brand it as the customers’ preferred venue for “everyday-low-prices.” Walton and later Glass insisted on lower than market average expenditures for advertising complimented with a “satisfaction guaranteed” policy to instill customer-buying loyalty.

Cost containment caused customer loyalty. In store operations, Wal*Mart, in 1993 incurred rental space of an average of 30 basis points lower than competitors. Its new store erection costs were substantially lower than competitors K-Mart and Target. Wal*Mart dedicated 15% less inventory space than the industry average thus allowing for more dedicated square footage for sales inventory. Square footage sales ranked around $300 per foot compared to $209 and $147 for Target and K-Mart respectively. Stores tended to stay open more flexibly than competitors, which also contributed to higher per square footage sales numbers.

The company organized each store into 36 departments and a department manager as a store within a store ran each department. The company had outpaced K-Mart by installing uniform product codes (UPC) electronic scanning equipment in 1988. Labor expense for individually labeling inventory was eliminated by installing shelf tags instead. The company spent $700 million dollars to connect the stores with headquarters in Bentonville, Arkansas via satellite. Collecting and sharing such sales and inventory information allowed managers to pinpoint slow moving inventory and manage the supply chain by reducing purchased avoiding pileups and deep discounting.

The company manages the distribution chain. They instituted “cross-docking” to reduce and minimize inventory sitting in a warehouse. When an in-bound truck arrives at the warehouse, an out-bound truck is parked right next to it or close and shipments are offloaded from the inbound truck and moved directly to the out-bound truck thereby eliminating the need to sit in inventory. This method of moving it out as it arrived contributed to Wal*Mart’s almost one percentage point of sales less cost than the competition for like costs.

Wal*Mart treated its distribution chain as a profit center as well by strategically locating a warehouse or distribution point geographically where it could serve 150 stores and each truck leaving the warehouse can serve or deliver on the same route to four neighboring stores. Distribution gave store managers various delivery options as well as nighttime deliveries.

Wal*Mart manages its vendor relationships in a well-known “no-nonsense” manner. Unlike other retailers especially department stores, Wal*Mart buyers are not greeted and seated in a buyers’ office. Sam would not have preferred that haughty presentation and image. They are simply placed in a bare room with table and chairs. The company was sued administratively in 1992 when manufacturers’ representatives initiated unsuccessfully proceedings with the Federal Trade Commission. The company has not permitted a single vendor to account for greater than 3% of purchases further enhancing the leverage it exercises over companies.

Wal*Mart is a pioneer in information sharing and partnering with vendors. In its relationship with companies like GE and Proctor and Gamble, they interlinked computers to show real-time sales and inventory product specific data so that such firms could manage their own supply chain delivery. “They expanded their electronic data interchange to include forecasting, planning, and shipping applications.”

In 1992, Fortune magazine listed Wal*Mart as “one of the 100 best companies to work for in America.” David Glass, CEO, claims “There are no superstars at Wal*Mart” which could embellish the team environment. He said, “We’re a company of ordinary people overachieving.” The largest company in the United States is non-union. Associates are trusted and treated like owners and information is shared and entrusted to them. Vendors comment on the loyalty and dedication of their associates.

Associates are encouraged and rewarded for bright ideas, which in many other companies would go, unrecognized or stolen by owners or managers whom would steal credit. Stealing such credit and voiding the proper party to the credit only works to beat down associates and instill a feeling of worthlessness. Wal*Mart does just the opposite. Everyone is rewarded for profitability through contributions to the associates profit sharing account. In 1993 Sam instituted his “Yes we can Sam” program for ideas and then a “Shrink incentive plan” to reduce theft and inventory loss. The program allowed Wal*Mart to remain at least 3 tenths of a percent lower than the industry average in slippage.

Sam and David were smart enough to realize that they could not be in hundreds of stores all the time if at all so they decided to properly compensate each of the store managers who can earn in excess of a hundred thousand dollars annually. The company offers incentive pay on top for reaching and exceeding profitability and forecasting targets. The company offered health benefits to employee who work more than 28 hours weekly and also gives productivity and profitability bonuses to such hourly workers.

Tight fisted management names Sam Walton’s successors, David Glass and company. He instituted weekly Friday morning meetings where they shout and yell about individual items sold but before the meeting is adjourned, issues are resolved. Glass promotes the idea that “There is no hierarchy at Wal*Mart and that everyone’s ideas count and that no accomplishment is too small.”

The company began diversifying its store mixes in the early eighties by acquisition of other chains and opening Sam’s Clubs. The idea included offering only a limited number of stock-keeping units (SKUs). They financed inventory through accounts payable and generated net income principally by charging “members” for the annual privilege of entering and shopping at the “Club.”

Inventory costs at Sam’s Clubs was further reduced since only 30% of inventory was ever shipped from a Wal*Mart warehouse. 70% was sent directly from vendor. Since inventory was turned so frequently during the year, Sam’s Clubs really never paid for inventory until it was sold or even after.

Now, Glass has been quoted as telling managers “That if they didn’t think internationally, they were working for the wrong company,” Discount Store News, (June 1994). Furthermore, Glass mentioned to Business Week in 1992 that “You can’t replace Sam Walton, but he has prepared the company to run well whether he’s here or not.”

Essentially, Wal*Mart was founded by a man who was smart enough to realize that since he could not be everywhere to serve customers that he need to create and maintain an atmosphere where the people who worked for him wanted to make money and serve customers. As he grew the company he and his management staff continually assessed the supply chain and thought of and enacted pioneering ways many times considered unorthodox that created better and better customer value and lowered the cost of giving the customer what he wanted which was the purpose of the company to begin with not to mention why the company got paid. By encouraging idea cultivation from the grass roots of the organization, Wal*Mart has become the premier retailer at the bottom of the price pole.

This author recommends that Wal*Mart management look to diversify within the store by adding more of what it already does well, maximizing the life experience on the cheap within the store. Other ancillary services could be added to any unprofitable square footage like barber shop, dentists, etc…

The Latest Long Island MacArthur Airport Developments

1. Declining Figures:

Long Island MacArthur Airport, owned by the Town of Islip, has, since its inception, been caught in a vicious cycle. Airlines have long been reluctant to provide service because of a lack of passengers, while passengers have been reluctant to use the airport because airlines failed to provide the service they sought. During the last half decade, this phenomenon has virtually choked it into nonexistence.

Although 1.8 million passengers in its eastern Nassau and Suffolk County catchment area make an average of 3.7 annual trips, these favorable facts end here, since only 25 percent of them use MacArthur for their travel. Increasing to 50 percent if only nonstop service is considered, this statistic emphasizes the benefit to carriers if they would provide it.

Indeed, during the five-year period from 2007 to 2012, the number of annual departures declined from 14,784 to 7,930, the steepest reduction of all US mid-sized airfields, virtually reducing the Long Island facility to its 1999 status, the year Southwest Airlines sparked the latest growth cycle.

Aside from being victim to the recession and escalating fuel costs like these other terminals, it has been historically forced to operate in the shadow of the three major New York airports, thus drawing upon much of the same market base, yet it relies almost exclusively on a single carrier, Southwest, for its service. The increasing trend toward airline consolidation furthermore results in fewer potential air service providers, almost all of which have operated from the airport some time in the past, while current fuel prices have rendered their code share regional jet operations unprofitable, prompting the withdrawal of the carriers that had once provided vital hub feed, such as Atlantic Southeast (ASA) to Atlanta, Comair to Cincinnati, and Continental Express to Cleveland.

Electing to deviate from the philosophy of operating from underserved, overpriced, secondary airports upon which it had been founded, and responding to passenger demand for major market presence, Southwest has progressively rebalanced aircraft assets from smaller to larger cities to maximize revenues, but has dismantled much of the Islip market it itself created cultivated in the process.

Countering this assessment, Southwest indicated that this strategy reflected systemwide industry changes and not those restricted to MacArthur.

The Long Island market involves factors beyond systemwide industry trends, however. Spurred by the additional slots it obtained at La Guardia Airport after its AirTran acquisition, Southwest itself increased frequencies and destinations from the higher-yield and -load factor airport.

Having operated a peak of 34 daily departures from Long Island, it gradually reduced its presence, discontinuing service to two of its focus cities-namely, Nashville and Las Vegas–thus removing the flight connections they represented.

By the time its Chicago-Midway service had been discontinued and shifted to La Guardiia in June of 2012, its number of flights had been almost halved, to 18.

While it had been credited with resurrecting the airport, it had, in many ways, now become the obstacle to its growth. Because of its dominance and low fare structure, it served as a deterrent to other airlines contemplating service there, particularly on routes, such as those to Florida, on which it holds a monopoly. Yet, like walking a tightrope, Town of Islip officials have consistently made considerable efforts to maintain a close relationship with the airline, since the airport’s future hinges upon it.

However, that future depends upon more than flight and passenger figures. It also depends upon financial ones-and these have been anything but optimistic. During the three-year period from 2010 to 2012, for example, the airport has lost almost $4.2 million, forcing it to use funds collected from its $11 million sale of a land parcel to the Long Island Rail Road in 2009 to compensate for the deficit, as well as attract businesses to lease in-terminal storefronts; impose, for the first time, a general aviation landing fee; and reduce staff counts and overtime hours.

But what is needed are far more reaching strategies to turn the tide. Based upon prevailing conditions, are there any?

2. Infrastructure Improvements and Proposals:

As the economic engine of the region, Long Island MacArthur Airport can only be kept running if the Town of Islip seeks innovative ways to attract the airline service that fuels it and it has therefore implemented a series of infrastructure improvements to do so.

On the landside, a $10.6 million terminal roadway realignment, whose construction commenced in September of 2011, was undertaken to redirect and streamline vehicular traffic, and included the introduction of a building-fronted island and 750-foot canopy, to facilitate passenger drop-offs and pickups from both private and public transportation. The project also included lighting, drainage, and a vehicle security checkpoint.

Funded by passenger user fees collected through ticket sales, it was completed two years later, on January 10, and $300,000 under budget.

Another landside project occurred on the airport’s west side, along Smithtown Avenue. Entailing the demolition of 52,000 square feet of antiquated and unsightly wood, steel, and concrete block structures, it was intended to attract businesses and operators deterred by the existing blight.

Of its three fixed base operators, Sheltair agreed to invest $20 million over a seven-year period in exchange for a 40-year lease on 25 of its 36 acres, paving the way for construction of 29,000 square feet of office and 161,000 square feet of hangar space.

ExcelAire also signed a 40-year lease, similarly committing $4.5 million to upgrade its facilities. Recently acquired by Charleston, South Carolina-based Hawthorne Global Aviation, the corporate jet service company demolished an adjacent building and planned to add 32,000 square feet of office and hangar space in order to be able to accommodate the new generation of ultra-large business jets, such as the Bombardier Global Express, the Gulfstream 650, and the Falcon 7X.

Within the airport, Mid-Island Air Service followed suit with its own lease and refurbishment agreement.

Mirroring the landside roadway realignment was an airside taxiway reconfiguration. A $4.5 million grant awarded to the airport, of which 95 percent came from the FAA and the other five percent from the state’s and the town’s Department of Transportation, facilitated the streamlining of aircraft taxiing toward Runway 33L, reducing turns, times, and fuel consumption. The project entailed the extension of Taxiway B, the realignment of Taxiway E, and the installation of airfield signs, lights, and pavement markings.

Bids were awarded to Rosemar Contracting of Patchogue (taxiway construction), JKL Engineering of Maryland (taxiway design), and Savik and Murray of Ronkonkoma (runway obstruction removal and equipment supply).

Other projects, the result of the airport’s short-, medium-, and long-term master plans, included a light rail people-mover to connect the terminal with the Long Island Rail Road station and the extension, to 7,000 feet, of a second runway in order to increase the safety of existing operations and to attract new, longer-range ones.

Even transforming the airport into an international gateway was proposed. Initiating a public campaign toward this end, Senator Charles Schumer, long-time MacArthur advocate, held a press conference on June 10, 2013 to urge US Customs and Border Patrol to establish a single-gate facility so that carriers could begin flights to the Bahamas and Aruba, often-demanded sun-and-sand travel destinations.

The campaign, spurred by letters of interest sent by Interjet, a low-fare Mexican carrier, and FlyA, a similarly priced, but only proposed, long-range European operator, could greatly expand the airport’s realm of operation.

Although a Department of Homeland Security bureau regularly reviewed the need for such requests, its own resources were already stretched thin and it was unlikely that it would commit to potential, not actually-needed, facilities, the adequately-equipped New York airports themselves immediately able to accommodate such flights without infrastructure changes.

These ambitious proposals created their own Catch-22 situation, much like the airport’s vicious airline-passenger cycle. While they may have succeeded in attracting new carriers and routes, it was virtually impossible to justify their costs when declining traffic barely required the existing ones.

3. Airlines:

Although these infrastructure upgrades and promising proposals may have improved current carriers’ operational experiences, it was, in the end, the Town of Islip’s ability to attract the airlines that would pump the lifeblood into the Long Island regional airport. It therefore made several significant efforts to do so.

A. Existing Airlines:

Having repositioned its aircraft to La Guardia Airport, Southwest, whose latest presence was only a shadow of its peak one, was unlikely to increase frequencies or inaugurate service to new destinations under prevailing economic conditions.

Nevertheless, it emphasized its continued dedication to the regional airfield. Although a provision in its 25-year contract could theoretically have enabled it to discontinue all service after a decade, it had had no plans to do so.

Despite the considerable retrenchment to the contrary, the 68-percent load factors it had experienced two years ago had been intermittently increased to a present 92 as a result of its service reduction strategy. And, despite the fact that its simultaneous La Guardia and MacArthur presences seemed to dilute the same market, their respective business and leisure orientations dispelled this perception.

Nevertheless, the Town of Islip was successful in negotiating new service-with another existing carrier, US Airways.

As MacArthur’s original tenant-and hence its longest serving one-then-Allegheny, which was subsequently rebranded USAir-re-established nonstop service to Washington Reagan National after the 2001 terrorist attack-imposed flight restrictions forced the cancellation of its original one. The route itself, its second after that to Philadelphia, was facilitated by a slot swap with Delta at La Guardia.

Commemorating the first of two daily, 50-passenger CRJ-200 regional jets operated by Air Wisconsin on March 25, 2012, airport fire trucks christened it with a water curtain after its 12:50 p.m. landing.

According to Newsday, Islip Town Supervisor Tom Croci said, ‘”I look forward to working with our senators and congressmen to ensure the jewel of our town, Long Island MacArthur Airport, gets the resources and attention it requires to live up to its full potential.'”

Providing the vital, downtown link to the nation’s capital, and eliminating the need for the hour train ride from Southwest’s comparable Baltimore service, the aircraft redeparted at 1:28 p.m.

Senator Charles Schumer commented that the new connection only confirmed that Long Island was an untapped market. Although US Airways only carried between six and seven percent of its traffic, it was considered disproportionately important because of the business- and hub-oriented nature of its routes.

B. New Airlines:

Enticing existing carriers to inaugurate service constituted only one side of the town’s strategy coin. Attracting new ones was the other, and, toward this end, the Long Island Association, the largest business and civic organization, expressed interest in potential service by sending a letter to three carriers: the aforementioned US Airways, as well as to JetBlue and Air Canada.

Although the Southwest effect of stimulating demand and expansions at airports it served initially left its imprint on MacArthur for most of the past decade, its retrenchment reversed this trend, and JetBlue, a similar, originally single-aircraft type, low-fare, minimal frills carrier was envisioned as having the same positive influence.

Having already blanketed the New York area with presences at the three major New York airports and its two secondary ones, White Plains’ Westchester County and Newburgh’s Stewart International airports, Islip was one of three new destinations it had recently contemplated serving.

Schumer, instrumental in its original, late-1990s New York service by providing it with 75 slots in exchange for realistically-priced upstate routes, considered the Long Island airfield “the missing piece of the jigsaw” for JetBlue. He, along with previous Islip Town Supervisor, Phil Nolan, emphasized their support in working with the carrier and both state and local authorities to consummate a deal.

Escorted by Schumer himself, JetBlue CEO, Dave Barger, was given a three-hour tour of the airport, an integral part of the carrier’s evaluation process. Walking past some 30 departing passengers, Schumer introduced him and advised them that he was trying to persuade him to inaugurate service, prompting spontaneous applause.

Because of the combined, 2.9 million residents of Nassau and Suffolk counties, Barger considered the region “a decent-sized city,” and because the Caribbean constituted the airline’s targeted growth area, he found the airport’s Caribbean and Latin demographics favorable.

While JetBlue mirrored its Southwest competitor in many ways, those ways, at least relative to the Long Island facility, became the spitting image. Winning an auction for eight slots at La Guardia Airport, it committed aircraft capacity to its New York counterpart instead.

Despite the seemingly disappointing outcome, Barger emphasized that, given the optimum conditions, that service to Islip was not a matter of “if, but when.”

Another airline the town approached, which itself had already expressed interest in Islip service, was Air Canada.

Market studies had indicated that 58 percent of the passengers in the airport’s catchment area had reason to fly to Canada, while more than 30 industrial parks occupying 4,200 acres within the Town of Islip’s control further strengthened the need for such a route. In 2011, New York State’s two-way trade with the country amounted to $34.8 billion.

A Toronto link, specifically, was considered a win-win strategy. As the airline’s 60th transborder connection, it would afford it with an uncongested airport and airspace operation, minimizing fuel costs and delays, while passengers would have access to its principle hub, facilitating Canadian, European, and Asian flight connections. Since pre-clearance immigration and customs facilities were already existent in Canada, no changes were necessary at MacArthur.

But, once again, La Guardia’s dominance only reduced it to a footnote. Because WestJet, its strongest competitor, had just been awarded eight slots at the New York airport, it was more prudent to concentrate its assets there in an attempt to retain its market share than shift them to Long Island.

Alaska-based PenAir, the penultimate carrier with which the town explored new service, bore more fruit.

Achieved with the FAA’s Air Carrier Incentive Plan, which entailed reduced fees for either new entrants or existing ones establishing new routes, the agreement saved it $120,000 in office, rent, operational, and landing costs-or a two-year equivalent-provided it continued the service for two years after that.

Replacing the mulitple-daily Business Express and subsequent American Eagle Saab 340 service to Boston-Logan, but discontinued in 2008, PenAir inaugurated two daily round-trips with the same turboprop equipment on July 25, 2013 in a move it considered a logical extension of its growing northeast route system, which encompassed Bar Harbor, Plattsburgh, and Presque Isle.

Flights departed at 8:40 a.m. and 7:10 p.m. with originations in Boston at 7:00 a.m. and 5:30 p.m. One-way introductory fares were set at $119.

The final carrier contacted, Allegiant Air, equally brought its wings to Long Island.

“Las Vegas-based Allegiant Travel Company,” according to its press release, “is focused on linking travelers in small cities to world-class leisure destinations. The company operates a low-fare, high-efficiency, all-jet passenger airline through its subsidiary, Allegiant Air, while also offering other travel-related products, such as hotel rooms, rental cars, and attraction tickets.”

After market studies indicated the need for air service to Florida’s west coast, the Town of Islip wooed the carrier, which itself found the demographics favorable, announcing its intention on August 20, 2013. It would be its 99th US city that served one of 14 vacation destinations.

“We are pleased to add the beaches of southwest Florida as an affordable, convenient destination option for Long Island residents,” according to the press release. “We are confident the community will appreciate the convenience of flying nonstop to Punta Gorda.”

Offering $69 one-way and $99 round-trip introductory fares, Allegiant inaugurated Punta Gorda/Ft. Myers service four months later, on December 20, with a 166-passenger MD-80 operating as Flight 999 and departing at 7:20 p.m., a date considered the threshold to the traditional holiday and winter Florida season.

Based upon response, additional seasonal and year-round service to Myrtle Beach, St. Petersburg, Orlando, Ft. Lauderdale, and Las Vegas would be considered.

4. Current Service:

Before Long Island MacArthur Airport can make an economic impact on the region, it needs sufficient air service to do so. Yet, with 23 departures offered by January of 2014, two of which were not even daily, that goal has hardly been realized.

Southwest, still the dominant airline, offered five flights to Baltimore, three to Orlando, two to Ft. Lauderdale, two to West Palm Beach, and one to Tampa-or a total of 13-operated by 737-700 aircraft. This was only one more than it had offered in 1999, when it had sparked the airport’s latest growth period, having returned it to its origins.

US Airways, a stronghold since the Allegheny service days, offered four daily de Havilland DHC-8 turboprop flights through its Piedmont regional carrier to Philadelphia and two to Washington with Bombardier CRJ-200 regional jet equipment with Air Wisconsin.

PenAir linked Boston with two Saab 340 departures and Allegiant Air connected the Long Island field with two weekly MD-80 services to Ft. Myers/Punta Gorda.

Restoration of its important business connections to Boston and Washington, each with two flights accommodating 50 or fewer passengers, enabled travelers to avoid La Guardia-associated congestion and commute times, and constituted a step in the right direction. But it was only a baby one. If Long Island MacArthur is to once again mature into a regional provider, reaping its own economic sustainability through landing, operational, office, concession, and parking fees, it needs a much greater injection of air service.

How to Implement GPS Vehicle Tracking

Your business can increase productivity and reduce costs with GPS vehicle tracking. The first step in implementing GPS tracking in your company is to install tracking units in all your vehicles. The hardest part of implementing GPS tracking is how to inform your employees and modify their behavior and to increase productivity and reduce company costs. As challenging as it may be to implement GPS tracking the cost savings and increase in productivity are worth the effort. These are simple instruction on how implement GPS tracking within your company.

Set Up Baseline

The first step is to set up a base line and measure just how much your company is losing from unproductive employees who waste time, idle vehicles or any other activity. This step can show how inaccurate their time sheets can be. By tracking your employees for one month without telling them, the business will have a good base line of what your fleet employees are doing when they are out working in the field. Your company will have an accurate assessment of how much can be saved when GPS vehicle tracking and company policies are changed.

When following this strategy is when you notice employees who are taking excessive personal errands. Or employees will go home during the day early while writing on their time sheets they are working. If employees are allowed to take vehicles home they might use the vehicles for long trips during the weekend. If they have gas cards another thing to look for is how often gas cards are used as well miles driven in-between fill-ups.

GPS Vehicle Tracking Can Improve Employee Productivity

GPS tracking can put to an end all of these activities, helping to save money through behavior modification of your employees. The first step to save money is to inform your employees. When you tell your employees you have installed GPS tracking devices the vehicles. There will be question such “do you trust us?” “we already keep logs of our time why do we need it?”. Easy answers to such questions are if we did not trust you why would we allow you to drive a company truck with thousands of dollars of equipment on it? This new tracking system makes your jobs easier since employees will no longer need to keep time sheets.

Cost savings gained from behavior modification of employees’ use of time and driving habits. Enforcing of a company policy is the only way to achieve cost savings. If you have real time GPS tracking an easy way to enforce policies is to set up real time alerts. Real time alerts can notify you every time a driver idles a vehicle for more than 5 minutes, speeding or any programmable action that could indicate lost productivity.

Automate Employee Behavior Modification

The smart way to send out real time alerts is not just send alerts out to management but also the drivers. Constant text messages also remind the driver that management is monitoring their use of the company vehicle. You can define geographic areas, allowing you to be notified when a employees vehicle is that area. You will even know when employees just go home for the day by setting up a geographical boundary around employee’s houses, or your employee strays outside of an assigned area.

You can increase fleet productivity with GPS tracking. You can add last minutes jobs onto the schedule of an employee without calling all of your employees to figure out where they are. You can route the employee with the shortest travel time using live traffic maps to avoid heavy traffic, adjusting any other schedules as need based on real time traffic condition.

Textiles Exports: Post MFA Scenario Opportunities and Challenges

Introduction

The Multi-Fiber Arrangement (MFA) has governed international trade in textiles and clothing since 1974. The MFA enabled developed nations, mainly the USA, European Union and Canada to restrict imports from developing countries through a system of quotas.

The Agreement on Textiles and Clothing (ATC) to abolish MFA quotas marked a significant turnaround in the global textile trade. The ATC mandated progressive phase out of import quotas established under MFA, and the integration of textiles and clothing into the multilateral trading system before January 2005.

The Agreement on Textiles and Clothing

ATC is a transitory regime between the MFA and the integration of trading in textiles and clothing in the multilateral trading system. The ATC provided for a stage-wise integration process to be completed within a period of ten years (1995-2004), divided into four stages starting with the implementation of the agreement in 1995. The product groups from which products were to be integrated at each stage of the integration included (i) tops and yarns; (ii) fabrics; (iii) made-up textile products; and (iv) clothing.

The ATC mandated that importing countries must integrate a specified minimum portion of their textile and garment exports based on total volume of trade in 1990, at the start of each phase of integration. In the first stage, each country was required to integrate 16 percent of the total volume of imports of 1990, followed by a further 17 percent at the end of first three year and another 18 percent at the end of third stage. The fourth stage would see the final integration of the remaining 49 percent of trade.

Global Trade in Textile and Clothing

World trade in textiles and clothing amounted to US $ 385 billion in 2003, of which textiles accounted for 43 percent (US $ 169 bn) and the remaining 57 percent (US $ 226 bn) for clothing. Developed countries accounted for little over one-third of world exports in textiles and clothing. The shares of developed countries in textiles and clothing trade were estimated to be 47 percent (US $ 79 bn) and 29 percent, (US $ 61 bn) respectively.

Import Trends in USA

In 1990, restrained or MFA countries contributed as much as 87 percent (US $ 29.3 bn) of total US textile and clothing imports, whereas Caribbean Basin Initiative (CBI), North American Free Trade Area (NAFTA), Africa Growth and Opportunity Act (AGOA) and ANDEAN countries together contributed 13 percent (US $ 4.4 bn). Thereafter, there has been a decline in exports by restrained countries; the share of preferential regions more than doubled to reach 30 percent (US $ 26.9 bn) of total imports by USA.

The composition of imports of clothing and textiles by USA in 2003 was 80 percent (US $ 71 bn) and 20 percent (US $ 18 bn), respectively. Asia was the principal sourcing region for imports of both textiles and clothing by USA. Latin American region stood at second position with a share of 12 percent (US $ 2.2 bn) and 26 percent (US $ 18.5 bn), respectively, for textiles and clothing imports, by USA. In most of the quota products imported by USA, India was one of the leading suppliers of readymade garments in USA. Though China is a biggest competitor, the unit prices of China for most of these product groups were high and thus provide opportunities for Indian business.

Import Trends in EU

EU overtook USA as the world’s largest market for textiles and clothing. Intra-EU trade accounted for about 40 percent (US $ 40 bn) of total clothing imports and 62 percent (US $ 32.5 bn) of total textile imports by EU. Asia dominates EU market in both clothing and textiles, with 30 percent (US $ 30 bn) and 17 percent (US $ 8 bn) share, respectively. Central and East European countries hold a market share of 11 percent (US $ 11.3 bn) in clothing and 7.5 percent (US $ 4 bn) in textiles imports of EU.

As regards preferential suppliers, the growth of trade between EU and Mediterranean countries, especially Egypt and Turkey, was highest in 2003. As regards individual countries, China accounted for little over 5 percent (US $ 2.8 bn) of EU’s imports of textiles and over 12 percent (US $ 12.4 bn) of clothing imports.

In the EU market also, India is a leading supplier for many of the textile products. It is estimated that Turkey would emerge as a biggest competitor for both India and China. However, with regard to unit prices, India appears to be lower than both Turkey and China in many of the categories.

Import Trends in Canada

Amongst the leading suppliers of textiles and clothing to Canada, USA had the highest share of over 31 percent (US $ 8.4 bn), followed by China (21% – US $ 1.8 bn) and EU (8% – US $ 0.6 bn). India was ranked at fourth position and was ahead of other exporters like Mexico, Bangladesh and Turkey, with a market share of 5.2 percent (US $ 0.45 bn).

Potential Gains

It may be noted that clothing sector would offer higher gains than the textile sector, in the post MFA regime. Countries like Mexico, CBI countries, many of the African countries emerged as exporters of readymade garments without having much of textile base, utilizing the preferential tariff arrangement under the quota regime. Besides, countries like Bangladesh, Sri Lanka, and Cambodia emerged as garment exporters due to cost factors, in addition to the quota benefits.

It may be said that countries like China, USA, India, Pakistan, Uzbekistan and Turkey have resource based advantages in cotton; China, India, Vietnam and Brazil have resource based advantages in silk; Australia, China, New Zealand and India have resource based advantages in wool; China, India, Indonesia, Taiwan, Turkey, USA, Korea and few CIS countries have resource based advantages in manmade fibers. In addition, China, India, Pakistan, USA, Indonesia has capacity based advantages in the textile spinning and weaving.

China is cost competitive with regard to manufacture of textured yarn, knitted yarn fabric and woven textured fabric. Brazil is cost competitive with regard to manufacture of woven ring yarn. India is cost competitive with regard to manufacture of ring-yarn, O-E yarn, woven O-E yarn fabric, knitted ring yarn fabric and knitted O-E yarn fabric. According to Werner Management Consultants, USA, the hourly wage costs in textile industry is very high for many of the developed countries. Even in developing economies like Argentina, Brazil, Mexico, Turkey and Mauritius, the hourly wage is higher as compared to India, China, Pakistan and Indonesia.

From the above analysis, it may be concluded that China, India, Pakistan, Taiwan, Hong Kong, Brazil, Indonesia, Turkey and Egypt would emerge as winners in the post quota regime. The market losers in the short term (1-2 years) would include CBI countries, many of the sub-Saharan African countries, Asian countries like Bangladesh and Sri Lanka.

The market losers in the long term (by 2014) would include high cost producers, like EU, USA, Canada, Mexico, Japan and many east Asian countries. The determinants of increase / decrease in market share in the medium term would however depend upon the cost, quality and timely Review of Indian Textiles and Clothing Industry The textiles and garments industry is one of the largest and most prominent sectors of Indian economy, in terms of output, foreign exchange earnings and employment generation. Indian textile industry is multi-fiber based, using delivery. In the long run, there are possibilities of contraction in intra-EU trade in textile and garments, reduction of market share of Turkey in EU and market share of Mexico and Canada in USA, and thus provide more opportunities for developing countries like India.

It is estimated that in the short term, both China and India would gain additional market share proportionate to their current market share. In the medium term, however, India and China would have a cumulative market share of 50 percent, in both textiles and garment imports by USA. It is estimated that India would have a market share of 13.5 percent in textiles and 8 percent in garments in the USA market. With regard to EU, it is estimated that the benefits are mainly in the garments sector, with China taking a major share of 30 percent and India gaining a market share of 8 percent. The potential gain in the textile sector is limited in the EU market considering the proposed further enlargement of EU. It is estimated that India would have a market share of 8 percent in EU textiles market as against the China’s market share of 12 percent.

Review of Indian textiles and Clothing Industry

The textiles and garments industry is one of the largest and most prominent sectors of Indian economy, in terms of output, foreign exchange earnings and employment generation. Indian textile industry is multi-fiber based, using cotton, jute, wool, silk and mane made and synthetic fibers. In the spinning segment, India has an installed capacity of around 40 million spindles (23% of world), 0.5 million rotors (6% of world). In the weaving segment, India is equipped with 1.80 million shuttle looms (45% of world), 0.02 million shuttle less looms (3% of world) and 3.90 million handlooms (85% of world).

The organised mill (spinning) sector recorded a significant growth during the last decade, with the number of spinning mills increasing from 873 to 1564 by end March 2004. The organised sector accounts for production of almost all of spun yarn, but only around 4 percent of total fabric production. In other words, there are little over 200 composite mills in India leaving the production of fabric and processing to the decentralised small weaving and processing firms. The Indian apparel sector is estimated to have over 25000 domestic manufacturers, 48000 fabricators and around 4000 manufacturer-exporters. Cotton apparel accounts for the majority of Indian apparel exports.

Textiles and Garments Exports from India

The share of textiles and garments exports in India’s total exports in the year 2003-04 stood at about 20 percent, amounting to US $ 12.5 billion. The quota countries, USA, EU and Canada accounted for nearly 70 percent of India’s garments exports and 44 percent of India’s textile exports. Amongst non-quota countries, UAE is the largest market for Indian textiles and garments; UAE accounted for 7 percent of India’s total textile exports and 10 percent of India’s garments exports.

In terms of products, cotton yarn, fabrics and made-ups are the leading export items in the textile category. In the clothing category, the major item of exports was cotton readymade garments and accessories. However, in terms of share in total imports by EU and USA from India, these products hold relatively lesser share than products made of other fibers, thus showing the restrain in this category.

Critical Factors that Need Attention

Though India is one of the major producers of cotton yarn and fabric, the productivity of cotton as measured by yield has been found to be lower than many countries. The level of productivity in China, Turkey and Brazil is over 1 tonne / ha., while in India it is only about 0.3 tonne / ha. In the manmade fiber sector, India is ranked at fifth position in terms of capacity. However, the capacity and technology infusion in this sector need to be further enhanced in view of the changing fiber consumption in the world. It may be mentioned that the share of cotton in world fiber demand declined from around 50 percent (14.7 mn tons) in 1982 to around 38 percent (20.12 mn tons) in 2003, while the share of manmade fiber has increased from 44 percent (13.10 mn tons) to around 60 percent (31.76 mn tons) over the same period.

Apart from low cost labour, other factors that are having impact on final consumer cost are relative interest cost, power tariff, structural anomalies and productivity level (affected by technological obsolescence). A study by International Textile Manufacturers Federation revealed high power costs in India as compared to other countries like Brazil, China, Italy, Korea, Turkey and USA. Percentage share of power in total cost of production in spinning, weaving and knitting of ring and O-E yarn for India ranged from 10 percent to 17 percent, which is also higher than that of countries like Brazil, Korea and China. Percentage share of capital cost in total production cost in India was also higher ranging from 20 percent to 29 percent as compared to a range of 12 to 26 percent in China.

In India, very few exporters have gone in for integrated production facility. It is noted that countries that would emerge as globally competitive would have significantly consolidated supply chain. For instance, competitor countries like Korea, China, Turkey, Pakistan and Mexico have a consolidated supply chain. In contrast, apart from spinning, the rest of the activities like weaving, processing, made-ups and garmenting are all found to be fragmented in India. Besides, the level of technology in the Indian weaving sector is low compared to other countries of the world. The share of shuttle less looms to total loomage in India is 1.8% as compared to Indonesia (10%), Bangladesh (10%), Sri Lanka (12%), China (14%) and Mexico (29%).

The supply chain in this industry is not only highly fragmented but is beset with bottlenecks that could very well slow down the growth of this sector. As a result the average delivery lead times (from procurement to fabrication and shipment of garments) still takes about 45-60 days. With international lead delivery times coming down to 30-35 days, India needs to cut down the production cycle time substantially to stay in the market. Besides, erratic supply of power and water, availability of adequate road connectivity, inadequacies in port facilities and other export infrastructure have been adversely affecting the competitiveness of Indian textiles sector.

Conclusions

It is believed the quota regime has frozen the market share, providing export opportunities even for high cost producers. Thus, in the free trade regime, the pattern of imports in the quota countries would undergo changes. The issues that would govern the market share in the post quota regime would eventually be productivity, raw material base, quality, cost of inputs, including labour, design skills and operation of economies of scale.

It is believed that quotas, by limiting the supply of goods have kept export prices artificially high. Thus, it is estimated that there would be price war in the post quota regime, with competitive price cuts. The price and quantity effects would depend on the efficiency in production process, supply chain management and the price elasticity of demand.

Due to the expected fall in prices, developing countries with high production cost have little choice but to compete head-on with the biggest low cost suppliers. In this process, it is presumed that there would be better resource reallocation in these economies.

It is assumed that quota restrictions would continue beyond 2005 in various forms. It is also widely recognized that removal of quota may not directly provide easy and unrestricted access to developed country markets. There would be non-tariff barriers as well. Standards related to health, safety, environment, quality of work life and child labour would gain further momentum in international trade in textiles and clothing.

Strategies and Recommendations

Cost competitiveness in Indian garments sector has been restrained by limited scale operations, obsolete technology and reservation under SSI policies. While retaining its traditional cost advantages of home grown cotton and low cost labour, India needs to sharpen its competitive edge by lowering the cost of operations through efficient use of production inputs and scale operations. Besides, there are needs for rationalization of charges, levies related to usage of export logistics to remain cost competitive.

As fallout to the quota regime, there would be consolidation of production and restriction on supplying countries, which would necessarily mean improved scale operations. Indian players should also integrate to achieve operating leverage and demonstrate high bargaining power.

It is reported that Chinese textile firms have already invested heavily to expand and grab huge market share in the quota free world. In India, organised players in this sector would require huge investments to remain competitive in the quota free world. These players need to expand and integrate vertically to achieve scale operations and introduce new technologies. It is estimated that the industry would require Rs. 1.5 trillion (US $ 35 billion) new capital investment in the next ten years (by 2014) to lap the potential export opportunities of US $ 70 billion. It is estimated that USA and EU together would offer a market of US $ 42 billion for Indian textiles and garments in 2014.

Technology would play a lead role in the weaving and processing, which would improve quality and productivity levels. Innovations would also be happening in this sector, as many developed countries would innovate new generation machineries that are likely to have low manual interface and power cost. Indian textile industry should also turn into high technology mode to reap the benefits of scale operations and quality. Foreign investments coupled with foreign technology transfer would help the industry to turn into high-tech mode.

Internationally, trading in textile and garment sector is concentrated in the hands of large retail firms. Majority of them are looking for few vendors with bulk orders and hence opting for vertically integrated companies. Thus, there is need for integrating the operations in India also, from spinning to garment making, to gain their attention. This would also bring down the turn around time and improve quality. Indian players should also improve upon their soft skills, viz., design capabilities, textile technology, management and negotiating skills.

Garment manufacturing business is order driven. It would be difficult for the players to keep the workforce full time, even in lean season. This calls for changes in contract labour laws.

Logistics and supply chain would also play a crucial role as timely delivery would be an important requirement for success in international trade. The logistics and supply chain management of Indian textile firms are relatively weak and needs improvement and efficiency. China has already created a world class export infrastructure. Given the volume of projections for exports by India, it may be necessary to create additional export infrastructure, especially investment for modernization of ports. In addition, India needs to invest for creating brand equity, supply chain management and apparel industry education.

To sum up, the ability of Indian textile industry to take advantage of quota phase-out would depend upon their ability to enhance overall competitiveness through exploitation of economies of scale in manufacturing and supply chain. The need of the hour therefore is to evolve a well chalked out strategy, aimed at improvement in the levels of productivity and efficiency, quality control, faster product innovation, quick response to changes in consumer preferences and the ability to move up in the value chain by building brand names and acquiring channels of distribution so as to outweigh the advantages of competitors in the long run.

Source: Export-Import Bank of India, India.

Forex Trading -The Power of Round Numbers

We are constantly rounding off numbers in our day to day activities. It occurs when we go to the market, read the temperature, buy a piece of property or go to the gas station. We are immutably drawn to round numbers and numbers that end in zero. These round numbers play a major role in Forex trading.

Why The Interest In Round Numbers?

In 1999 the Dow Jones Industrial Average hit the 10,000 mark for the first time. Investors were testing this level for almost two weeks before it finally closed over the 10,000 mark. This even was cause for much celebration as it was considered a major milestone.

About seven years later the Dow was trading at only 11,000. The investors that were driven into a frenzy when it hit 10,000 had little to show for it some years later.

In 1999 the success of the Dow was one of the most publicized events of the year. Financial news channels were running four hour specials extolling the event as the second coming. The entire market was totally absorbed by this figure.

Theories abound that humans have developed a numeric systems called “base 10” because they have 10 fingers and toes. Humans also gravitate to numbers that are factors of 10.

The Round Number Effect

Investors and traders have a very strong tendency to enter orders that coincide with round numbers. For example a trader may place an order on a specific stock when and if it falls to a $40 level. If multiple traders also place buy orders at $40 because it appears that the stock is a good buy at that level, the stock will encounter a large pool of buy orders. This often causes a large amount of buying activity and because buyers are outnumbering the sellers the value of the stock will rise rapidly.

In essence, the traders have generated what is called a “support level” at the $40 mark because multiple buy orders have accumulated at that price. This is what is referred to psychological support because it is not based on any prior price activity.

This phenomenon is common to all trading markets but is especially prevalent in the currency market. The reasoning behind this round number phenomenon in commodity, stock and forex trading is that part of humans that is attracted to round numbers. As long as people are involved in trading this phenomenon will be present.

Round Numbers In Forex

The profound influence of round numbers in the Forex marketplace should not be underestimated. A good example of this occurred in early 2005 when the USD/CAD currency pair found support repeatedly at 1.2000. Another example occurred in the early part of 2006 when the EUR/USD found support at about 1.2700. Traders that specialized in round number entry points were able to gain some great rewards.

Banks enjoy substantial commissions when they implement customer orders around these round numbers as large pools of orders tend to accumulate. The fact that these orders do tend to congregate around numbers creates a major strategy for many traders and many traders lean on this as a major trading technique.

The First Bounce Is The Best

Round number support and resistance is extremely attractive to those utilizing a Day Trading strategy. The time frames involved in day trading are typically very short. This happens because of the fact that the first bounce off of the round number support or resistance is usually the one that is the best and most profitable bounce. Traders are constantly looking to make certain that they are seeing this first bounce. Longer trading time frames are ineffective because they can often hide multiple bounces within a single candle spike.

Every time the exchange rate achieves the round number support level orders are executed. As this occurs, the pool of orders that created the support or resistance level diminishes. Once the level of orders is insufficient to affect the support or resistance level that level will eventually break.

It is for this reason that it is vital for traders to take advantage of the first bounce off the round number since it is at this point that the number of orders is the greatest and produces the biggest value. An active trader can also trade the subsequent bounces although they tend to yield smaller profits. Trading requires constant vigilance for success unless you use an automated trading system.

You can learn lots more at http://www.MasteringForex.net/blog

Cosmetics Business in Uganda: Will the Real Black Beauty Come Forth

The beauty industry in the Middle East and Africa was estimated at about $20.4 billion in 2011. Of this figure, South Africa alone represented $3.9 billion, Nigeria was second and Kenya’s market totaling more than $260 million came third on the African continent.

Uganda in the last few years has seen considerable growth in the cosmetic industry with pioneers like Mukwano Group, Mwana Mugimu, Sleeping baby, Movit and the timeless Samona Jelly making progress and opening up the market space for other players.

The older reader might also remember Mekako, Jaribu and Sabuni kanga among the soaps.

The cosmetic and beauty industry is highly lucrative, but success is hinged on focus on target markets and categorizing of a particular product for sale.

What is required to venture into this sector

There are two options for venturing into this business in Uganda:

  • Option 1: Sell local and international brands( Acting as a middleman and agent)
  • Option 2: Create your own brand and product(the main emphasis of this article)

Being a highly competitive sector in the retail industry,you need to have a very succinct business strategy, particularly as you will also be competing with internally renown brands (like L’oreal, Mac and Clinique) that can be freely imported into the country.

There are two options for venturing into this business,

  • Option 1: Sell local and international brands( Acting as a middleman and agent)
  • Option 2: Create your own brand and product(the main emphasis of this article)

A strategic plan that addresses specific needs and an audience niche is the break or make of any product in this industry – anywhere in the world, and in Uganda in particular.

There must also be a strong emphasis on brand creation, distribution channel development and quality of the product as the competition is high from well established brands as already noted above.

It being a locally manufactured product, there are bound to be a number of challenges and consumer behavior perceptions that you will need to address first before reaping big.

One of the guarantees however is that once a niche has been created and a loyalty base formed, sales from customers are guaranteed to be continuous as cosmetic products belong to a specific category of goods that create a ‘ life long bond’ between the user and the product.

Once this is understood and placed into practice, like acquisition of a catchy name, use of exquisite packaging and advertising, marketing strategies, this should be enough to give you and the company a detailed understanding on how the Industry operates and the bottlenecks.

Critical considerations

1. Education base. A formal education in cosmetology and beautification will equip you (or staff you employ for the purpose) with the necessary knowledge on various skin types and how they relate with the different products that you will be making.

The last thing you would need is to create monsters with your products – read destroying people’s skins and beauties. There are local education institutions that offer relevant courses, but it is recommended that an international course is taken to give your product credibility. Unfortunately many of the courses in Uganda do not keep pace of international breakthroughs – which is critical in this cut throat industry.

One noteworthy institution however is the Uganda Industrial Research Institute (UIRI) which has a fully equipped laboratory and has free hands on training for start-up entrepreneurs.

2. Raw materials. It is critical to establish partnerships with raw material providers in advance. One key advantage of Uganda though is that products like Aloe Vera, Avocado, eggs and Shea butter which are used in many beauty regimens are readily and cheaply available in Uganda. There is therefore a real opportunity to set up a contract manufacturing plant here.

3. Quality assurance. Rigorous testing of the product to meet potentially international standards is crucial. Such testing should be regularly advertised as this assurance is critical for a product that will come into contact with the human skin and is being made in Uganda, where the reputation for quality control by the regulators is not perceived to be stringent. It is therefore suggested to voluntarily subscribe to an internationally recognised programme like the ISO requirements.

4. Cash cushion. Owing to the high marketing need combined with the working capital needs, having a cash cushion is critical in this industry.

5. Return on investment. On the basis of my estimates, from a share capital of Shs.39m a return of 1.11 years can be achieved.

Umeshu – The Wonderful Japanese Plumwine

Umeshu is the Japanese plumwine with more than 1000 years of history. It is made of ume-fruit, a base alcohol and sugar.

The alcohol typically is around 12%-14%, which is comparable to western wine. There are two large industrial makers of Umeshu as well as more than 300 private labels with a large variety of different Umeshu. In Japan it also is very popular to make Umeshu at home and many supermarkets offer ready-made kits around May and June during ume-apricot harvesting.

Umeshu is usually made based on one of these four alcohols:

1) Umeshu based on Sake (rice-wine)

Sake is a Japanese alcoholic drink made by brewing rice with water. Depending on the mash used for fermentation sake can be sour, dry or very flowery. It is very popular to make Umeshu based on sake. The sake base can therefore already determine the character of the Umeshu.

2) Umeshu based on Shochu

Shochu is a Japanese alcoholic drink made through distillation. It is made of rice, sweet potato, wheat and occasionally with other ingredients such as sweet chestnut. Whereas most rice shochu are neutral in their fragrance, those made of sweet potato or wheat have a very distinct taste. When Umeshu is made with one of the later it creates an entirely new flavor on ume-apricot and the shochu.

3) Umeshu based on brandy

Many sweet and heavy Umeshu include a little shot of Brandy for the flavor. They nevertheless usually do not exceed 14% alcohol, which is comparable to a heavy red wine.

4) Umeshu based on white liqueur

White liqueur is industrial alcohol with neutral flavor. It is most commonly used to make Umeshu at home. A lot of breweries also use it for Umeshu focussing on the flavor of ume-apricot only as well as for Umeshu with additional flavors such as shiso-mint, green tea or Japanese yuzu-lime.

The second most important ingredient is ume-apricot. There are various types of ume-apricot and it is said the the Shirakaga Ume is best to produce Umeshu due its large size and its ability to easily transfer flavor to the base alcohol.

Because the ume-apricot has a lot of acidity Umeshu gets sweetened. When the ume-apricot is put into alcohol rock-sugar is added. Sometime honey or brown sugar are added too or even entirely replace white sugar.

It recently became popular to add other flavors to Umeshu since the flavor of the ume-apricot also combines well with other ingredients. So far, Umeshu with ginger, shiso-mint, yuzu-lime, passion fruit, banana, green tea and black tea have been found among many others.

It this these many combinations that result a very large variety of different flavors that make Umeshu such a popular and fascinating drink.

Ten Important Lessons From the History of Mergers & Acquisitions

The history of mergers and acquisitions in the United States is comprised of a series of five distinct waves of activity. Each wave occurred at a different time, and each exhibited some unique characteristics related to the nature of the activity, the sources of funding for the activity, and to some extent, differing levels of success from wave to wave. When the volume, nature, mechanisms, and outcomes of these transactions are viewed in an objective historical context, important lessons emerge.

 

The First Wave

The first substantial wave of merger and acquisition activity in the United States occurred between 1898 and 1904. The normal level of about 70 mergers per year leaped to 303 in 1898, and crested at 1,208 in 1899. It remained at more than 300 every year until 1903, when it dropped to 142, and dropped back again into what had been a range of normalcy for the period, with 79 mergers, in 1904. Industries comprising the bulk of activity during this first wave of acquisition and merger activity included primary metals, fabricated metal products, transportation equipment, machinery, petroleum products, bituminous coal, chemicals, and food products. By far, the greatest motivation for these actions was the expansion of the business into adjacent markets. In fact, 78% of the mergers and acquisitions occurring during this period resulted in horizontal expansion, and another 9.7% involved both horizontal and vertical integration.

 

During this era in American history, the business environment related to mergers and acquisitions was much less regulated and much more dynamic than it is today. There was very little by way of antitrust impediments, with few laws and even less enforcement. 

 

The Second Wave

The second wave of merger and acquisition activity in American businesses occurred between 1916 and 1929. Having become more concerned about the rampant growth of mergers and acquisitions during the first wave, the United States Congress was much more wary about such activities by the time the second wave rolled around. Business monopolies resulting from the first wave produced some market abuses, and a set of business practices that were viewed as unfair by the American public. Even the Sherman Act proved to be relatively ineffective as a deterrent of monopolistic practices, and so Congress passed another piece of legislation entitled the Clayton Act to reinforce the Sherman Act in 1914. The Clayton Act was somewhat more effective, and proved to be particularly useful to the Federal Government in the late 1900s. However, during this second wave of activity in the years spanning 1926 to 1930, a total of 4,600 mergers and acquisitions occurred. The industries with greatest concentrations of these activities included primary metals, petroleum products, chemicals, transportation equipment, and food products. The upshot of all of these consolidations was that 12,000 companies disappeared, and more than $13 billion in assets were acquired (17.5% of the country’s total manufacturing assets).

 

The nature of the businesses formed was somewhat different in the second wave; there was a higher incidence of mergers and acquisitions to achieve vertical integration in the second wave, and a much higher percentage of the resulting businesses resulted in conglomerates that included previously unrelated businesses.  The second wave of acquisition and merger activity in the United States ended in the stock market crash on October 29, 1929, and this altered – perhaps forever – the perspective of investment bankers related to funding these transactions. Companies that grew to prominence through the second wave of mergers and acquisitions in the United States, and that still operate in this country today, include General Motors, IBM, John Deere (now Deere & Company), and Union Carbide. 

The Third Wave

The American economy during the last half of the 1960s (1965 through 1970) was booming, and the growth of corporate mergers and acquisitions, especially related to conglomeration, was unprecedented. It was this economic boom that painted the backdrop for the third wave of mergers and acquisitions in American history. A peculiar feature of this period was the relatively common practice of companies targeting acquisitions that were larger than themselves. This period is sometimes referred to as the conglomerate merger period, owing in large measure to the fact that acquisitions of companies with over $100 million in assets spiked so dramatically. Compared to the years preceding the third wave, mergers and acquisitions of companies this size occurred far less frequently. Between 1948 and 1960, for example, they averaged 1.3 per year. Between 1967 and 1969, however, there were 75 of them – averaging 25 per year.  During the third wave, the FTC reports, 80% of the mergers that occurred were conglomerate transactions. 

 

Although the most recognized conglomerate names from this period were huge corporations such as Litton Industries, ITT and LTV, many small and medium size companies attempted to pursue an avenue of diversification. The diversification involved here included not only product lines, but also the industries in which these companies chose to participate. As a result, most of the companies involved in these activities moved substantially outside of what had been regarded as their core businesses, very often with deleterious results. 

 

It is important to understand the difference between a diversified company, which is a company with some subsidiaries in other industries, but a majority of its production or services within one industry category, and a conglomerate, which conducts its business in multiple industries, without any real adherence to a single primary industry base. Boeing, which primarily produces aircraft and missiles, has diversified by moving into areas such as Exostar, an online exchange for Aerospace & Defense companies. However, ITT has conglomerated, with industry leadership positions in electronic components, defense electronics & services, fluid technology, and motion & flow control. While the bulk of companies merged or acquired in the long string of activity resulting in the current Boeing Company were almost all aerospace & defense companies, the acquisitions of ITT were far more diverse. In fact, just since becoming an independent company in 1995, ITT has acquired Goulds Pumps, Kaman Sciences, Stanford Telecom and C&K Components, among other companies.

 

Since the ascension of the third wave of mergers and acquisitions in the 1960s, there has been a great deal of pressure from stockholders for company growth. With the only comparatively easy path to that growth being the path of conglomeration, a lot of companies pursued it. That pursuit was funded differently in this third wave of activity, however. It was not financed by the investment bankers that had sponsored the two previous events. With the economy in expansion, interest rates were comparatively high and the criteria for obtaining credit also became more demanding. This wave of merger and acquisition activity, then, was executed by the issuance of stock. Financing the activities through the use of stock avoided tax liability in some cases, and the resulting acquisition pushed up earnings per share even though the acquiring company was paying a premium for the stock of the acquired firm, using its own stock as the currency.

The use of this mechanism to boost EPS, however, becomes unsustainable as larger and larger companies are involved, because the underlying assumption in the application of this mechanism is that the P/E ratio of the (larger) acquiring company will transfer to the entire base of stock of the newly combined enterprise. Larger acquisitions represent larger percentages of the combined enterprise, and the market is generally less willing to give the new enterprise the benefit of that doubt. Eventually, when a large number of merger and acquisition activities occur that are founded on this mechanism, the pool of suitable acquisition candidates is depleted, and the activity declines. That decline is largely responsible for the end of the third wave of merger and acquisition activity. 

One other mechanism that was used in a similar way, and with a similar result, in the third wave or merger and acquisition activity was the issue of convertible debentures (debt securities that are convertible into common stock), in order to gather in the earnings of the acquired firm without being required to reflect an increase in the number of shares of common stock outstanding. The resulting bump in visible EPS was known as the bootstrap effect. Over the course of my own career, I have often heard of similar tactics referred to as “creative accounting”. 

 

Almost certainly, the most conclusive evidence that the bulk of conglomeration activity achieved through mergers and acquisitions is harmful to overall company value is the fact that so many of them are later sold or divested. For example, more than 60% of cross-industry acquisitions that occurred between 1970 and 1982 were sold or divested in some other manner by 1989. The widespread failure of most conglomerations has certainly been partly the result of overpaying for acquired companies, but the fact is that overpaying is the unfortunate practice of many companies. In one recent interview I conducted with an extremely successful CEO in the healthcare industry, I asked him what actions he would most strongly recommend that others avoid when entering into a merger or acquisition. His response was immediate and emphatic: “Don’t become enamored with the acquisition target”, he replied. “Otherwise you will overpay. The acquisition has to make sense on several levels, including price.” 

 

The failure of conglomeration, then, springs largely from another root cause. Based on my own experience and the research I have conducted, I am reasonably certain that the most fundamental cause is the nature of conglomeration management. Implicit in the management of conglomerates is the notion that management can be done well in the absence of specialized industry knowledge, and that just isn’t usually the case. Regardless of the “professional management” business curricula offered by many institutions of higher learning these days, in most cases there is just no substitute for industry-specific experience. 

            

The Fourth Wave

The first indications that a fourth wave of merger and acquisition activity was imminent appeared in 1981, with a near doubling of the value of these transactions from the prior year. However, the surge receded a bit, and really regained serious momentum again in 1984.   According to Mergerstat Review (2001), just over $44 billion was paid in merger and acquisition transactions in 1980 (representing 1,889 transactions), compared to more than $82 billion (representing 2,395 transactions) in 1981. While activity fell back to between $50 billion and $75 billion in the ensuing two years, the 1984 activity represented over $122 billion and 2,543 transactions. In terms of peaks, the number of transactions peaked in 1986 at 3,336 transactions, and the dollar volume peaked in 1988 at more than $246 billion. The entire wave of activity, then, is regarded by analysts to have occurred between 1981 and 1990. 

 

There are a number of aspects of this fourth wave that distinguish it from prior activities. The first of those characteristics is the advent of the hostile takeover. While hostile takeovers have been around since the early 1900s, they truly proliferated (more in terms of dollars than in terms of percent of transactions) during this fourth wave of merger and acquisition activity. In 1989, for example, more than three times as many dollars were transacted as a result of contested tender offers than the dollars associated with uncontested offers. Some of this phenomenon was closely tied to another characteristic of the fourth wave of activity; the sheer size and industry prominence of acquisition targets during that period. Referring again to Mergerstat Review‘s numbers published in 2001, the average purchase price paid in merger and acquisition transactions in 1970, for example, was $9.8 million. By 1975, it had grown to $13.9 million, and by 1980 it was $49.8 million. At its peak in 1988, the average purchase price paid in mergers and acquisitions was $215.1 million.   Exacerbating the situation was the volume of large transactions. The number of transactions valued at more than $100 million increased by more than 23 times between 1974 and 1986, which was a stark contrast to the typically small-to-medium size company based activities of the 1960s.

 

Another factor that impacted this fourth wave of merger and acquisition activity in the United States was the advent of deregulation. Industries such as banking and petroleum were directly affected, as was the airline industry.   Between 1981 and 1989, five of the ten largest acquisitions involved a company in the petroleum industry – as an acquirer, an acquisition, or both. These included the 1984 acquisition of Gulf Oil by Chevron ($13.3 billion), the acquisition in that same year of Getty Oil by Texaco ($10.1 billion), the acquisition of Standard Oil of Ohio by British Petroleum in 1987 ($7.8 billion), and the acquisition of Marathon Oil by US Steel in 1981 ($6.6 billion).  Increased competition in the airline industry resulted in a severe deterioration in the financial performance of some carriers, as the airline industry became deregulated and air fares became exposed to competitive pricing.

 

An additional look at the ontology of the ten largest acquisitions between 1981 and 1989 reflects that relatively few of them were acquisitions that extended the acquiring company’s business into other industries than their core business. For example, among the five oil-related acquisitions, only two of them (DuPont’s acquisition of Conoco and US Steel’s acquisition of Marathon Oil) were out-of-industry expansions. Even in these cases, one might argue that they are “adjacent industry” expansions. Other acquisitions among the top ten were Bristol Meyers’ $12.5 billion acquisition of Squibb (same industry – Pharmaceuticals), and Campeau’s $6.5 billion acquisition of Federated Stores (same industry – Retail). 

 

The final noteworthy aspect of the “top 10” list from our fourth wave of acquisitions is the characteristic that is exemplified by the actions of Kohlberg Kravis. Kohlberg Kravis performed two of these ten acquisitions (both the largest – RJR Nabisco for $5.1 billion, and Beatrice for $6.2 billion). Kohlberg Kravis was representative of what came to be known during the fourth wave as the “corporate raider”. Corporate raiders such as Paul Bilzerian, who eventually acquired the Singer Corporation in 1988 after participating in numerous previous “raids”, made fortunes for themselves by attempting corporate takeovers. Oddly, the takeovers did not have to be ultimately successful for the raider to profit from it; they merely had to drive up the price of shares they acquired as a part of the takeover attempt. In many cases, the raiders were actually paid off (this was called “greenmail”) with corporate assets in exchange for the stock they had acquired in the attempted takeover. 

 

Another term that came into the lexicon of the business community during this fourth wave of acquisition and merger activity is the leveraged buy-out, or LBO. Kohlberg Kravis helped develop and popularize the LBO concept by creating a series of limited partnerships to acquire various corporations, which they deemed to be underperforming. In most cases, Kohlberg Kravis financed up to ten percent of the acquisition price with its own capital and borrowed the remainder through bank loans and by issuing high-yield bonds. Usually, the target company’s management was allowed to retain an equity interest, in order to provide a financial incentive for them to approve of the takeover.

 

The bank loans and bonds used the tangible and intangible assets of the target company as collateral. Because the bondholders only received their interest and principal payments after the banks were repaid, these bonds were riskier than investment grade bonds in the event of default or bankruptcy. As a result, these instruments became known as “junk bonds.” Investment banks such as Drexel Burnham Lambert, led by Michael Milken, helped raise money for leveraged buyouts. Following the acquisition, Kohlberg Kravis would help restructure the company, sell off underperforming assets, and implement cost-cutting measures. After achieving these efficiencies, the company was usually then resold at a significant profit.

 

Increasingly, as one reviews the waves of acquisition and merger activity that have occurred in the United States, this much seems clear: While it is possible to profit from the creative use of financial instruments and from the clever buying and selling of companies managed as an investment portfolio, the real and sustainable growth in company value that is available through acquisitions and mergers comes from improving the newly formed enterprise’s overall operating efficiency. Sustainable growth results from leveraging enterprise-wide assets after the merger or acquisition has occurred. That improvement in asset efficiency and leverage is most frequently achieved when management has a fundamental commitment to the ultimate success of the business, and is not motivated purely by a quick, temporary escalation in stock price. This is related, in my view, to the earlier observation that some industry-specific knowledge improves the likelihood of success as a new business is acquired. People who are committed to the long-term success of a company tend to pay more attention to the details of their business, and to broader scope of technologies and trends within their industry.  

 

There were a few other characteristics of the fourth wave of merger and acquisition activity that should be mentioned before moving on. First of all, the fourth wave saw the first significant effort by investment bankers and management consultants of various types to provide advice to acquisition and merger candidates, in order to earn professional fees. In the case of the investment bankers, there was an additional opportunity around financing these transactions. This opportunity gave rise, in large measure, to the junk bond market that raised capital for acquisitions and raids. Secondly, the nature of the acquisition – and especially the nature of takeovers – became more intricate and strategic in nature. Both the takeover mechanisms and paths and the defensive, anti-takeover methods and tools (eg: the “poison pill”) became increasingly sophisticated during the fourth wave. 

 

The third characteristic in this category of “other unique characteristics” in the fourth wave was the increased reliance on the part of acquiring companies on debt, and perhaps even more importantly, on large amounts of debt, to finance the acquisition. A significant rise in management team acquisition of their own firms using comparatively large quantities of debt gave rise to a new term – the leveraged buy-out (or LBO) – in the lexicon of the Wall Street analyst. 

 

The fourth characteristic was the advent of the international acquisition. Certainly, the acquisition of Standard Oil by British Petroleum for $7.8 billion in 1987 marked a change in the American business landscape, signaling a widening of the merger and acquisition landscape to encompass foreign buyers and foreign acquisition targets. This deal is significant not only because it involved foreign ownership of what had been considered a bedrock American company, but also because of the sheer dollar volume involved. A number of factors were involved in this event, such as the fall of the US dollar against foreign currencies (making US investments more attractive), and the evolution of the global marketplace where goods and services had become increasingly multinational in scope. 

 

The Fifth Wave

The fifth wave of acquisition and merger activity began immediately following the American economic recession of 1991 and 1992. The fifth wave is viewed by some observers as still ongoing, with the obvious interruption surrounding the tragic events September 11, 2001, and the recovery period immediately following those events. Others would say that it ended there, and after the couple of years ensuing, we are seeing the imminent rise of a sixth wave. Having no strong bias toward either view, for purposes of our discussion here I will adopt the first position. Based on the value of transactions announced over the course of the respective calendar years, the dollar volume of total mergers and acquisitions in the US in 1993 was $347.7 billion (an increase from $216.9 billion in 2002), continued to grow steadily to $734.6 billion in 1995, and expanded still further to $2,073.2 billion by 2000.    

 

This group of deals differed from the previous waves in several respects, but arguably the most important difference was that the acquisitions and mergers of the 1990s were more thoughtfully orchestrated than in any previous foray. They were more strategic in nature, and better aligned with what appeared to be relatively sophisticated strategic planning on the part of the acquiring company. This characteristic seems to have solidified as a primary feature of major merger and acquisition activity, at least in the US, which is encouraging for shareholders looking for sustainable growth rather than a quick – but temporary – bump in share price. 

 

A second characteristic of the fifth wave of acquisitions and mergers is that they were typically more equity-based than debt-based in terms of their funding. In many cases, this worked out well because it relied less on leverage that required near-term repayment, enabling the new enterprise to be more careful and deliberate about the sell-off of assets in order to service debt created by the acquisition.  

 

Even in cases where both of these features were prominent aspects of the deal, however, not all have been successful. In fact, some of the biggest acquisitions have been the biggest disappointments over recent years. For example, just before the announcement of the acquisition of Time Warner by AOL, a share of AOL common stock traded for about $94. In January of 2005, that share of stock was worth about $17.50. In the Spring of 2003, the average share price was more like $11.50. The AOL Time Warner merger was financed with AOL stock, and when the expected synergies did not materialize, market capitalization and shareholder value both tanked. What was not foreseen was the devaluation of the AOL shares used to finance the purchase. As analyst Frank Pellegrini reported in Time’s on-line edition on April 25, 2002: “Sticking out of AOL Time Warner’s rather humdrum earnings report Wednesday was a very gaudy number: A one-time loss of $54 billion. It’s the largest spill of red ink, dollar for dollar, in U.S. corporate history and nearly two-thirds of the company’s current stock-market value.” 

The fifth wave has also become known as the wave of the “roll-up”. A roll-up is a process that consolidates a fragmented industry through a series of acquisitions by comparatively large companies (typically already within that industry) called consolidators. While the most widely recognized of these roll-ups occurred in the funeral industry, office products retailers, and floral products, there were roll-ups of significant magnitude in other industries such as discrete segments of the aerospace & defense community. 

 

Finally, the fifth wave of acquisitions and mergers was the first one in which a very large percentage of the total global activity occurred outside of the United States. In 1990, the volume of transactions in the US was $301.3 billion, while the UK had $99.3 billion, Canada had $25.3 billion, and Japan represented $14.2 billion. By the year 2000, the tide was shifting. While the US still led with $2,073 billion, the UK had escalated to $473.7 billion, Canada had grown to $230.2 billion, and Japan had reached $108.8 billion. By 2005, it was clear that participation in global merger and acquisition activity was now anyone’s turf. According to barternews.com: “There was incredible growth globally in the M&A arena last year, with record-setting volume of $474.3 billion coming from the Asian-Pacific region, up 46% from $324.5 billion in 2004. In the U.S., M&A volume rose 30% from $886.2 billion in 2004. In Europe the figure was 49% higher than the $729.5 billion in 2004. Activity in Eastern Europe nearly doubled to a record $117.4 billion.” 

 

The Lessons of History

Many studies have been conducted that focus on historical mergers and acquisitions, and a great deal has been published on this topic. Most of the focus of these studies has been on more contemporary transactions, probably owing to factors such as the availability of detailed information, and a presumed increase in the relevance of more recent activity. However, before sifting through the collective wisdom of the legion of more contemporary studies, I think it’s important to look at least briefly to the patterns of history that are reflected earlier in this article.

 

Casting a view backward over this long history of mergers and acquisitions then, observing the relative successes and failures, and the distinctive characteristics of each wave of activity, what lessons can be learned that could improve the chances of success in future M&A activity?  Here are ten of my own observations:

  1. Silver bullets and statistics. The successes and failures that we have reviewed through the course of this chapter reveal that virtually any type of merger or acquisition is subject to incompetence of execution, and to ultimate failure. There is no combination of market segments, management approaches, financial backing, or environmental factors that can guarantee success. While there is no “silver bullet” that can guarantee success, there are approaches, tools, and circumstances that serve to heighten or diminish the statistical probability of achieving sustainable long-term growth through an acquisition or merger.
  2. The ACL Life Cycle is fundamental. The companies who achieve sustainable growth using acquisitions and mergers as a mainstay of their business strategy are those that move deliberately through the Acquisition / Commonization / Leverage (ACL) Life Cycle. We saw evidence of that activity in the case of US Steel, Allied Chemical, and others over the course of this review.
  3. Integration failure often spells disaster. Failure to achieve enterprise-wide leverage through the commonization of fundamental business processes and their supporting systems can leave even the largest and most established companies vulnerable to defeat in the marketplace over time. We saw a number of examples of this situation, with the American Sugar Refining Company perhaps the most representative of the group.
  4. Environmental factors are critical. As we saw in our review of the first wave, factors such as the emergence of a robust transportation system and strong, resilient manufacturing processes enabled the success of many industrial mergers and acquisitions. So it was more recently with the advent of information systems and the Internet. Effective strategic planning in general, and effective due diligence specifically, should always include a thorough understanding of the business environment and market trends. Often times, acquiring executives become enamored with the acquisition target (as mentioned in our review of third wave activity), and ignore contextual issues as well as fundamental business issues that should be warning signs.
  5. Conglomeration is challenging. There were repeated examples of the challenges associated with conglomeration in our review of the history of mergers and acquisitions in the United States. While it is possible to survive – and even thrive – as a conglomerate, the odds are substantially against it. Those acquisitions and mergers that most often succeed in achieving sustainable long-term growth are the ones involving management with significant industry-specific and process-specific expertise. Remember the observation, during the course of our review of fourth wave activity, that “the most conclusive evidence that the bulk of conglomeration activity achieved through mergers and acquisitions is harmful to overall company value is the fact that so many of them are later sold or divested.”
  6. Commonality holds value. Achieving significant commonality in fundamental business processes and the information systems that support them offers an opportunity for genuine synergy, and erects a substantive barrier against competitive forces in the marketplace. We saw this a number of times; Allied Chemical is especially illustrative. 
  7. Objectivity is important. As we saw in our review of the influence of investment bankers vetoing questionable deals during second wave activities, there is considerable value in the counsel of objective outsiders. A well-suited advisor will not only bring a clear head and fresh eyes to the table, but will often introduce important evaluative expertise as a result of experience with other similar transactions, both inside and outside of the industry involved.
  8. Clarity is critical. We saw the importance of clarity around the expected impacts of business decisions in our review of the application of the DuPont Model and similar tools that enabled the ascension of General Motors. Applying similar methods and tools can provide valuable insights about what financial results may be expected as the result of proposed acquisition or merger transactions.
  9. Creative accounting is a mirage. The kind of creative accounting described by another author as “finance gimmickry” in our review of third wave activity does not generate sustainable value in the enterprise, and in fact, can prove devastating to companies who use it as a basis for their merger or acquisition activity.
  10. Prudence is important when selecting financial instruments to fund M&A transactions. We observed a number of cases where inflated stock values, high-interest debt instruments, and other questionable choices resulted in tremendous devaluation in the resulting enterprise. Perhaps the most illustrative example was the recent AOL Time Warner merger described in the review of fifth wave activity.

Many of these lessons from history are closely related, and tend to reinforce one another. Together, they provide an important framework of understanding about what types of acquisitions and mergers are most likely to succeed, what methods and tools are likely to be most useful, and what actions are most likely to diminish the company’s capability for sustainable growth following the M&A transaction.

Warehouse Ownership Classification in the Interlining Industry

Facing with the fierce competition in the global market, each manufacturer is putting every effort to develop its own competitive edge. This is especially true in the interlining industry. One of the aspects for an interlining supplier to achieve competitive edge is to lowering costs while increasing efficiency. Whilst lowering the storage cost is a means for an interlining supplier to focus on. Before making a strategic planning to lower the storage cost, an interlining supplier is necessary to understand the basic concept of warehouse ownership classification.

Warehouses in the manufacturing industries are generally classified by the ownership. Under this idea, warehouses can be classified as private warehouses, public warehouses and contract warehouses.

1. Private Warehouse

A private warehouse, as a type of warehouse ownership classification, is operated by the firms or organization that owning the products stored in the facility. These firms or organizations may be factories, trading companies or wholesalers. The building of the warehouse can be owned or leased. The critical point for a firm to decide whether to own or lease the facility is the financial concern. Sometimes it is not possible to find a proper warehouse to lease. Take an interlining supplier for example; the storage racks or other physical nature in a leased building may not be suitable for the storage for interlining products like woven interlining, non-woven interlining and fusible interlining. Under this circumstance, design and arrangement need to be taken place for construction. On the other hand, at a particular connection for logistic purposes, a firm may have difficulties in finding a warehouse for ownership.

The major benefits of a private warehouse are flexibilities, control, cost and some intangible attributes. A private warehouse is more flexible than a public one, as the operating policies and process can be adjusted to meet the special needs of a customer or the product itself. Also, a suitable course of action can be taken to meet specific requirements for logistic purposes.

Private warehouse offer stable control since the firm has the sole authority on warehouse management to optimize activities. For example, the control on warehouse operations for an interlining product like woven interlining, non-woven interlining and fusible interlining can integrate with the logistic operations of an interlining supplier.

Usually a private warehouse is considered less costly. One of the reasons is that a private warehouse is built within the manufacturing base of a supplier; therefore, the fixed and variable components may be lower than a public warehouse. Furthermore, a private warehouse is not profitable to the owner of the facility.

A private warehouse may also have intangible benefits. For instance, a warehouse with the name of an interlining supplier for woven interlining, non-woven interlining and fusible interlining may provide marketing advantages. The customers may have the perceptions of stability and reliability towards the supplier.

2. Public Warehouse

In contrast with a private warehouse, a public warehouse as another type of warehouse ownership classification is operated independently by a business to offer wide range of for-hire services related to warehousing. Such warehouses are extensively used in the logistic systems to reduce the supply chain costs. A public warehouse can be hired for a short or long-term, based on the policies of the facility and the needs of the customers.

In a financial view, lower cost on warehousing may achieve by hiring a public warehouse than owning a private warehouse. The share resources and economic scale in a public facility may result in lower operational cost. Another benefit of public warehousing is that customers like interlining supplier for woven interlining, non-woven interlining and fusible interlining do not need to spend a huge investment on the facilities. Furthermore, a public warehouse allows the users to change the number and sizes of warehouses easily to meet special demands.

Users in a same public warehouse may share scale economies by the leverage of combined requirements from users. Such leverage ranges fixed cost from to operating cost. Transportation cost may also be leveraged in a public warehouse. For example, a public facility can arrange combined customer delivery consolidation, to deliver the woven interlining products of the first interlining supplier with the non-woven interlining products of the second interlining supplier to the same destinations.

Because of its flexibility, scalability, services and variable cost, public warehouses are popular by many firms. In general, a public warehouse as a type of warehouse ownership classification can design and perform special services to meet customers’ operational requirements.

3. Contract Warehouse

A contract warehouse, as a third type of warehouse ownership classification, has the attributes of both private and public warehouses. A contract warehouse can also be understood as a customized extension of a public warehouse, which is a long-term business arrangement to provide specific and customized logistic services to the customers. It is also thought that a contract warehouse is a form of business process outsourcing in a logistic perspective. In this relationship, the client and the service supplier share risks concerning the warehousing operations.

In general, many companies tend to utilize a combination of private, public and contract warehouses. Basic knowledge of the warehouse ownership classification will serve as a managerial guide on how to develop a warehouse deployment strategy. Such warehouse planning focuses on two aspects, namely, 1) the number of warehouses required and 2) the warehouse ownership used in specific markets. The focus on these two aspects will create warehouse segmentation for specific markets, which can provide more tailored and focused logistic capabilities to customers.

4 Ways for J Nuts Manufacturers to Boost Their Sales

The yearly sales quota contributes to the success of a company. The number of products manufactured depend on the amount they sell and vice versa. This follows the longstanding supply and demand principle.

The technological advancements and changes in the way consumers behave have brought about new developments in the industry’s sales strategies. Since it is efficient for the J nuts manufacturing process, it can also be right for sales.

It is relevant to welcome innovation, especially now at both production line and sales office. These are 4 ways to help manufacturers in their efforts to boost sales and stay competitive on the market:

Sales and Marketing Alignment

Sales and marketing alignment aims to let the two groups communicate more efficiently and create goals that depend on mutual accomplishments to succeed. “Smarketing” as this sales marketing tactic is called, relies on the marketing team to give a predetermined lead number that can be followed up by the sales department. In addition, sales and marketing alignment needs a modern CRM.

J nuts manufacturing companies can measure all goals and results, therefore it is easy to boost sales just by reassessing the performance, and finding out the number of leads that they need to make the amount of sales required. Also, it lets the manufacturer decide on the things to invest in and the channels to target to have more leads.

Focus Efforts on Current Accounts

An effective way to boost revenue is through customer retention, which is the ability of a J nuts manufacturer to keep its current customers. As an example, a 5% increase in customer retention can boost revenue to up to 95%.

Targeting existing customers gives a higher turnover rate since they have a tendency to buy more products than new visitors. Because the company has already established a business relationship with them, the marketing costs of the latest offers or one-time deals are lower.

Aim for New Accounts Rather than New Markets

All customers have their own reasons and pain points to consider buying various products. Their motives can range widely therefore it is critical to treat every potential buyer in a different way and create a pitch that targets them in particular.

A sales team can contact potential customers to start communication and ask questions to know their pain points. This information will be the basis on which the J nuts manufacturing company will draft a customized sales offer to be presented to the prospect.

This may take longer to prepare, but it is a more effective way to land sales as compared to sending a regular sales pitch out to the market.

Nurture and Develop Consumer Fans

80% of sales revenue comes from only 20% of their consumer base, as per Pareto’s law. To give it a try, they have to nurture high potential buyers and do the necessary steps to convert an additional 10% to 20% to join that group.

Using a solid content marketing strategy is a cost-effective way to achieve this. When offering free educational materials about products like blog posts, webinars, tutorials and guides, they care for these valuable accounts and lead them to the right direction.

Eventually, the J nuts manufacturing company will win real fans that have the capability to keep their business from falling.

Software As a Service (SaaS)

Software as a service, also known as SaaS, is generally considered to be a software application hosted by a vendor on the Internet that can be shared by different users on requirements on request. In some cases the package can also be downloaded by users who will run until the end of the period of time. As the underlying technology, SaaS developed into one of the most common delivery models that supports Web services and service-oriented architecture (SOA). With the growth of broadband services, SaaS is available for more users throughout the world.

The On Demand Computing software delivery models and ASP (application service provider) are closely related to software as service products. SaaS has been identified as two slightly different delivery modules, the first one being the hosted application management (hosted AM) model which is similar to ASP, which is a commercially hosted module available and delivered over the net to actual users. The other one is software on demand model, in which the service provider gives network-based access of a single copy of the software application to users. This application has been created specifically for SaaS distribution.

Software as a service has several benefits, and the few important ones are as follows:-

* Easier administration
* Automatic updates and patch management
* Compatibility: All users will have the same version of software
* Easier collaboration, for the same reason
* Global accessibility

What if you want to start developing SaaS?

If you are having an ambition to start a SaaS business you would need to have technical as well as marketing skills in the team. Even if you are considering in contracting out a large portion of the software to a third party, you would still be requiring a technically savvy director or manager with your company. Considering that you have outsourced your software development part, you would still need to have the supervision by one of your experienced manager to find out if the development is going on well.

Marketing your software as a service should start long before you take up development of the software. This would especially be directed towards your competitor research and into SaaS already in the market, and the traditional software that your prospective customers use. You need to do extensive customer research, looking into the demographics of these target users. The information out of these two researches done is the most important data to have before you launch your development program.

Concerns of SaaS customers:

Software as a service is not an answer to every type of application and is not applicable to every user. For hosted services, some customers have reservations. They are reluctant to store their data on a remote server via the Internet, which were being stored in their hard disks before. There are specific security risks involved for sensitive data, and these customers worry about the privacy as well. In order to convince the customers of your services, you should be prepared to answer to all the questions raised by them and also convince them about the security that your service offers.

A Guide to Transforming Your Software Product into a Service – Software as a Service

There is a growing market demand for more economical and efficient enterprise applications for a growing global market. The combination of the ubiquitous Internet and the availability and legitimacy of open source software creates substantial economic and opportunity for software vendors to provide Software as a Service (SaaS).

Software as a Service is a model in which the software vendor provides an Internet hosted version of their application (in house or at a managed 3rd party site) that is accessed by customers from the website and paid for on a per-use, per-project or subscription basis.

The SaaS model offers significant benefits to software vendors and their customers. The SaaS model offers customers cost-effective subscription-based or per-use pricing, eliminating the need for substantial capital outlays to purchase perpetual software licenses. It also eliminates the initial outlay and on-going costs and risks of installing, supporting and maintaining in-house hardware and the associated IT staff. In addition, user access and application performance can be dramatically improved with Internet-based, on-demand, 24×7 systems. The SaaS model opens new markets to software vendors. Established software companies can broaden their market reach by offering SaaS solutions to small and midsized enterprises. Other benefits include the financial advantages of predictable recurring revenue streams and strengthened relationships with customers. Software vendors migrating to or developing products from the outset as SaaS offerings will have a significant competitive advantage when competing with traditional license-model vendors.

Realizing the benefits of the SaaS model may require fundamental changes to a software vendor’s business model, software architecture and operational structure. This white paper provides an overview of the issues associated with the software application itself and the development considerations associated with moving to a SaaS model.

Time is of the essence. As with any new business model, the rewards often go to early market entrants. Accelerating the time-to-market of your software deployment is critical to your business success. Outsourcing product modifications to implement your SaaS offering, with the assistance of an expert services team, and engaging an optimal on-demand service delivery firm will accelerate your time-to-market and insure an on-time, on-budget, on-scope implementation.

The Challenge of Transforming Your Software

While there are a multitude of benefits in providing Software as a Service, traditional software companies may face challenges in moving to this model. First, your software must be web-enabled with all functions carried out by the user using a web browser. If you have a client-server application, you must replace the functionality implemented in the client with HTML, and possibly other technologies (XML, Java, etc.), that can be displayed by a web browser over the Internet. Next, in order to gain operational efficiency, your software needs to be multi-instance. You move from single-instance to multi-instance by loading multiple copies of your software on a single set of servers. Multi-instance enables you to share the cost of a server across multiple customers. Additional productivity enhancements and economies may be gained by moving to multi-tenant SaaS, or replacing proprietary commercial software with open source software. Web services provide an opportunity for integration with other applications and data flows.

Single Instance Applications

Traditional client/server applications are single instance. They require software to be installed on the user’s computer to carry out computations and provide functionality. Clients often implement highly interactive features and enable the user to manipulate large amounts of data. This can be very difficult to implement in a traditional HTML, request/reply web application interface that requires frequent page refreshes. Migrating from client/server to an Internet-based SaaS model is highly dependent on your specific application.

Today, new Rich Internet Application (RIA) technology is available from Macromedia, Laszlo Systems and others that give web applications the look-and-feel and functionality of a desktop application or client. RIA requires little or no software be installed on the user’s client computer. The most that is needed is a small browser plug-in or Java applet. This fundamental change to the user interface converts your client /server application to a single-tenant web application.

Web applications may be single instance or multi-instance. A single-instance web application is typically installed on dedicated servers in the customer’s data center and used only internally, behind the firewall. At installation time, your software is configured to consume whatever system resources are needed and available on the computers.

When a web application is offered as a service over the Internet, it should be hosted in a professional data center. This will minimize costs and delivery high quality service to your customers. If you have a single instance application and more than one customer, one approach is to install a new instance of your software on a dedicated server for each customer. This may work for a few customers or some big accounts, but it does not scale effectively for large numbers of customers. It also cannot be used for small and medium sized customers that cannot afford the set-up costs.

Moving from Single to Multiple Instances

An alternative to individual customer dedicated servers is to install multiple copies of your software on a single set of servers. This is called multi-instance. Multi-instance enables you to share the cost of a server across multiple customers. Most business applications use a database and each additional copy of the software installed requires a new database instance as well.

Installing multiple copies of your software on one set of servers may not be as easy as it sounds. Installation procedures need to be modified so that each instance is installed without disrupting resource allocation or the security of the other previously installed copies of the software.

There is a limit to the number of instances that can be installed and eventually system resources will be consumed. System resources include shared memory, process semaphores and other internal operating system parameters. So the question becomes, “How many copies of your software can you install on a server?”

Obviously, you can keep installing instances of your software until resources are exhausted. However, you must also consider the performance of the system under load by users. Typically there are a maximum number of simultaneous users your software must support and minimum performance or response time requirements that must be met to satisfy customer commitments.

An accurate answer to the “How many copies of your software can you install on a server?” question is derived by testing the software as you add additional instances. This is best done with automated testing software tools that can simulate the desired number of users placing a load on the system.

The testing process is to determine the optimal number of instances and the resulting performance. This is accomplished by installing additional instances of your application, and carefully monitoring system resources and running user load tests using variable traffic modeling to determine the point at which returns diminish.

This process of maximizing the number of instances on the servers can take one to three weeks depending on the size and complexity of your system, the quality of your installation process whether you have already created automated user load testing scripts and procedures.

Minor code changes may be needed to move to multi-instance. For example, if your application reads and writes a file with a hard-coded filename and location on the disk, then the file must be created in different locations for each instance to avoid conflicts between each instance. These problems will be discovered and changes will need to be made during the one to three weeks.

Next Steps – Improving Functionality and Reducing Costs

Once your software is running effectively as a multi-instance SaaS application, you may want to pursue a multi-tenant architecture. In a single instance, multi-tenant architecture, multiple customers share a single instance of your software. Migration from multi-instance to multi-tenant can be a significant project and may even require a rewrite of your application from the ground up. The efficiencies gained in moving to multi-tenancy need to be closely examined. You might find your resources better spent in other ways.

Another possible step would be to focus on driving costs out of your model. Many applications have dependencies on expensive proprietary databases and/or middleware. Significant savings can be realized by migrating to lower cost or open source alternatives. An investment here might provide significant savings in operating costs that would be transparent to your end users and very beneficial to your bottom line.

You might also consider adding web services for inter-process communications. This will be particularly appealing if your application is part of a workflow with information passing-to or gathering-from another application. Designing with web services in mind will minimize long-term integration requirements.

A Single Instance, Multi-Tenant Web Application

Software companies have created web applications for over ten years now. These are often installed on the Intranet of a customer and only used internally, behind the firewall. This single instance of the software is used by just one customer. This is both single-instance and single-tenant.

You saw above how you can install and test your software to make it multi-instance — having multiple copies running on one server. However, each copy is a single-tenant web application.

Single-tenant web applications can be modified to support multiple customer tenants on the same instance. Multi-tenant web applications minimize the amount of hardware needed to support multiple customers. Also, customers can self-provision their use of your software by signing up for an account and entering payment information. This minimizes, and often eliminates, the amount of support needed to set up a new customer.

One of the modifications to support multi-tenant is the creation of a user interface for user provisioning of accounts in the system. Another modification, depending on the requirements for integration with other enterprise systems, is an LDAP interface for convenient provisioning and administering of user accounts. Modern database technology can enable quick duplication of the data model so each customer has its own copy of each table in the database. This is an elegant way to keep customer data separate when stored in the single database instance used for the service.

Templates for configuration of the software should be provided to accelerate customization and adoption of the service by new customers. Templates support various scenarios of system usage by customers.

A system management dashboard showing system use by all tenants may be required. A mechanism must be available to measure system usage for purposes of billing as well as monitoring system load. Administrative accounts for customer support purposes may also need to be implemented.

It may be necessary to enhance the reliability of the back-end, using database technology to implement parallel servers at physically distant locations, to ensure constant up time during periods of natural or man-made disasters.

Maintaining Performance of Your Multi-Tenant Web Application

Multi-tenant applications must deal with several issues that are not as pronounced in single-tenant and client/server systems. Because multi-tenant systems are available over the public Internet, usage may be unpredictable. Therefore, demand planning must be done more carefully. The systems should be instrumented to detect increasing usage so additional hardware and bandwidth are provided to maintain service levels.

Driving Down Costs by Moving to Open Source

Many software developers are agnostic about the application server and database software used by their applications. The customer often dictates these choices. If your customers want to use Oracle as the database, then you must support this popular choice. Your software must have modules to support each database technically. Business-wise, you pass along the cost of the database license to the end customer, if they do not already own a license.

But what database should you choose for your software when it is offered as a service? There may not be a need for the technical features of an expensive commercial database. Moreover, the economics of offering your software as a service may preclude the expense of a commercial database license fee.

Therefore, many companies converting their software to a service will choose one of the low or no cost open source databases available today. These database choices are now widely used and robust. Advanced features such as redundant clustering and automated backup capabilities rival those of commercial databases.

If your application does not yet support one of these databases, a few technical issues need to be overcome. The format and syntax of most SQL used to access and manipulate data in a database is standard. However, almost every database vendor extends SQL and many applications use these extensions, such as special functions to modify and compare data. There can be many variations in how each database vendor treats cursors, triggers, data types and package variables. If you use SQL extensions in your application, you will need to recode these SQL statements to work with the target open source database.

Migration to on demand delivery models works cohesively with bootstrapped technology deployment and investment. Even if the open source database software does not have all the features you want to have or if they run a little slower, you may have no choice economically when you first start offering your software as a service. It may not make financial sense for you to invest tens of thousands of dollars in a commercial database license while you can only charge a few hundred dollars per subscriber. Over time, as your subscriber base grows, you may choose to switch to the commercial database. Until you can afford it or activity levels grow to high levels, open source database solutions may be your only practical solution.

Another relatively expensive part of your software is the license required for a commercial Java application server. This is another category of software where several open source options exist. Generally, conversion over to an open source application server is relatively straightforward. All must comply with the specification for Java 2 Enterprise Edition (J2EE) and your code should not need any modifications.

However, there are differences in how you install your code in the application server. The installation and set up process is well documented for all open source application servers. You must modify your installation process to accommodate the requirements of the application server you use.

Again, the business case is clear. A huge community of users has made open source application servers a safe choice. The cost of a commercial application server is difficult to justify when you are just starting out offering your software as a service. As with the conversion to-and-from an open source database, you can always switch back to a commercial application server as your subscriber base grows.

Web Services For Data Transfer and Integration

When customers install your software in their own data center, behind their firewall, they are able to integrate the software with other applications and data sources. When you make your software available as a service over the Internet, then integration is not as easy. Authentication and encryption must be provided to enable safe data transfers.

The most popular approach to data transfers and integration over the public Internet is with web services, the SOAP protocol and WSDL. If your application has an Application Programming Interface (API) in a native language like Java or C++, you will need to create a web services interface that uses the API to communicate with your software and enables bidirectional data flow with the external world using SOAP.

Time to Market

Time is of the essence. As the new SaaS model is adopted, early entrants will have a significant advantage. Evolving your application to web-enabled, multi-instance will allow you to become a SaaS player quickly. Time to market issues should be considered when deciding whether to partner with experts or pursue migration and infrastructure development in-house.

The Advantages of Outsourcing Software Development

Outsourced developers, who are experienced with SaaS, can help you move forward quickly in migrating to this new model. They can provide installation and load testing to determine the optimal set-up for your multi-instance configuration; adapt your software to migrate from multi-instance to multi-tenant; or develop a multi-instance or multi-tenant application from your client/server application.

Importantly, an outsourced developer can modify your existing software product without disrupting the flow of new features and enhancements that your present customers expect. With a managed outsourcing relationship, you can continue to focus on your current business while outsourced developers are creating software to support your new business model. Outsourced developers will provide you both a cost and time savings in reaching the SaaS model.

To take a competitive advantage in your space by utilizing SaaS, you should consider working with an experienced vendor to guide you through the process of transforming your application.

Who is Using Software-as-a-Service?

Software as a Service (SaaS) has been touted as the answer to I.T. Manager software administration’s nightmare. Simply stated, SaaS is a replacement for business software that is not available for a paid subscription model when you travel for software use. The use of subscription software is most often via the internet to software vendor websites that are hosted on their computers. For I.T. Manager, the benefits are many; no hardware to buy or maintain, no software patches and updates to apply, no complicated licenses to decipher, and no deployment of applications to corporate PCs and laptops.

So who is actually using SaaS? The frugal who understand value, of course.

This author has been actively selling software services to small and medium businesses and has noticed this interesting trend. While everyone has heard of the poster children of SaaS: Google Apps, SalesForce.com, RingCentral.com, and so on; the true success of SaaS will be the proliferation of many niche products that are migrating to the subscription payment model. This author has found that thrifty organizations are most open-minded to the value of membership software. Concentrating marketing and sales on these groups yields the most results.

Early Adopters
Being frugal does not mean being cheap. Quite the opposite, it’s knowing how to stretch a dollar the furthest and be willing to spend that dollar. It’s no surprise that the early adopters of SaaS are the small technology and start up companies. Entrepreneurs are never shy about trying new ideas and rewriting the book on how one should run a business. If there is a service that can stream line running a business, then it’s a no brainer. SaaS products often replace the need for a dedicated employee for routine business tasks. FreshBooks.com is a great example; a small company certainly can save time, money, and possibly a new hire when implementing this totally online invoicing system.

The Surprise Users
Industries that have been around for a long time, manufacturing, transportation, and so on, are embracing SaaS. One can not judge the tech savvy level of an organization by the size of its I.T. budget. Traditional companies often have small I.T. departments, but they understand and appreciate technology as much, if not more, as their larger I.T. department counterparts. They have been taught over the years, over the decades, the success to technology is evaluating the actual cost and benefit to any capital purchase. Let’s give them a star for following common sense.

Who’s Not a Fan
Self proclaimed sales experts often teach to pursue organizations with the largest budgets. This least cerebral approach dictates that if someone spends millions every year on software, they would have no problem parting with a mere few thousand on yet another software product. This is completely false within the real world. Large I.T. departments, relative to any size company, are often the least likely to pursue subscription software. There may be many reasons why, but essentially they boil down to two motives. Large I.T. departments are often mini software companies themselves. Teams of software developers, often with no decision making powers, easily dismiss reviews of software service products out of complacency for their own projects and desires to make the next cool app themselves. SaaS often leaves a sense of obsolescence for the team that should have already been providing this service.

Secondly, organizations with large technology infrastructures often fall under the I.T. black hole mentality. This is the paralysis of everyone else in the company to shut down common sense and channel all technology related thoughts to the I.T. Department. Bureaucracy here kills innovation.

Software-as-a-Service is many things. This is a new approach to software, as you might expect, with service as its main benefit. Services for managing software, and sometimes building it, have been handled by internal I.T. department. This is a service that can now be purchased as a subscription such as fees for your favorite country club. Why build and maintain your own golf course when you can play rounds whenever you want with your club membership?

Partners & Suppliers in the Oil & Gas Services Sector – Part 2

9. Prosafe ASA (Norway)

Prosafe operates globally and has about 340 employees. The company is headquartered in Larnaca, Cyprus and is listed on the Oslo Stock Exchange with ticker code PRS. Operating profit reached USD 222.2 million in 2007.

Prosafe comprises a parent company and the business division Offshore Support Services, the world’s leading owner and operator of semi-sumbersible accommodation/service rigs.

Prosafe has more than three decades of operational experience from the world’s largest oil and gas provinces. With an excellent uptime record, a solid financial performance and the ability to offer innovative in house technology and cost-efficient solutions, the company has positioned itself as a provider of high quality services.

Prosafe owns and operates 12 accommodation rigs (flotels).

10. Reservoir Exploration Technology (Norway)

Reservoir Exploration Technology ASA (RXT) is a marine geophysical company specialising in multi component seismic sea-floor acquisition.

Until May 2006 RXT has been operating one crew in the Gulf of Mexico, a dual vessel operation comprising a shooting vessel and a cable/buoy handler. Their GOM operations started in June 2004 and have demonstrated the superior imaging capabilities of the VSO sensors and cables.

RXT is planning a change according to the info on their site: “What we are going to do; Innovative business models to drive the marine multi-component business: In producing fields, For obstructed area long-offset applications, For time lapse 3D, Develop a “tool box” of acquisition methods (For deep water, For shallow water, For transition zone), Focus completely on what we do best: Marine acquisition.

Vision-statement: “to become the leading supplier of multi-component sea-floor acquisition.”

11. SBM Offshore (Netherlands)

SBM Offshore N.V. is a pioneer in the offshore oil and gas industry. Worldwide, we have over 4,000 employees representing 40 nationalities, and are present in 15 countries. Our activities include the engineering, supply, and offshore installation of most types of offshore terminals or related equipment. In addition, SBM Offshore owns and operates its own fleet of Floating (Production) Storage and Offloading units. SBM Offshore has a track record of developing innovative, cost-effective solutions for the ever-changing needs of its Clients. Each company of the group contributes its technical expertise, making SBM Offshore a market leader.



became a pioneer in Single Point Mooring (SPM) systems, dynamically positioned drilling vessels, jack-up drilling rigs, and heavy offshore cranes.

SBM Offshore’s present activities include the engineering, supply, and offshore installation of SPM systems for offshore loading and unloading of vessels or the permanent mooring of offshore oil production and/or storage vessels, as well as the turnkey supply of complete floating facilities for the production, storage, and export of crude oil and gas.

The latter comprise (FPSOs), (FSOs), (TLPs), (FPUs) and (MOPUs).

12. Sevan Marine (Norway)

Business Model

Sevan Marine ASA is listed on Oslo Børs (ticker SEVAN) and is specializing in building, owning and operating floating units for offshore applications. The Company has developed a cylinder shaped floater, suitable in all offshore environments. Presently Sevan Marine has four floating production, storage and offloading units (FPSOs) and three drilling units contracted to clients. The Company is also developing other application types for its cylindrical Sevan hull, including floating LNG production and power plants with CO2 capture.

The Company’s business strategy is based on a Build-Own-Operate model, which gives Sevan control over the value creation chain.

13. Saipem (Italy)

“The Group is now the largest, most powerful, most international and best balanced turnkey contractor in the oil and gas industry.” The organization has been rationalised into three global business units: Onshore, Offshore and Drilling. It enjoys a superior competitive position for the provision of EPIC/EPC services to the oil industry both onshore and offshore; with a particular focus on the toughest and most technologically challenging projects – activities in remote areas, deepwater, gas, difficult oil.

Along with its strong European content, the major part of its human resource base comes from developing countries. Saipem employs over 30,000 people comprising more than 100 nationalities… it employs large numbers of people from the most cost effective developing countries … and has sizeable service bases in India, Croatia, Romania and Indonesia.

Saipem has a distinctive Health & Safety Environment Management System and its Quality Management System has been granted ISO 9001:2000 certification by Lloyd’s Register Certification.

14. Subsea 7 (Norway)

Subsea 7 is one of the world’s leading engineering and construction companies offering all the expertise and assets that make Subsea Umbilical, Riser and Flowline (SURF) field development and operation possible.

With a multi-national workforce in excess of 5,000 personnel, the company’s offshore operations are supported out of the North Sea, Africa, Brazil, Gulf of Mexico and Asia Pacific.

Subsea 7’s experienced and skilled project managers and experienced engineers offer all the disciplines that make subsea oil & gas development and operation possible, including complete EPIC services, and life of field IRM services.

These services are supported by a modern fleet of pipelay, construction, diving and ROV support vessels. Global Operations include logistical and spool bases which are supported by dedicated in-house survey and positioning resources together with technology development, including robotic intervention services.

“Our deep-rooted health, safety, environmental and quality culture is inherent in all we have achieved to date and remains the pivotal foundations of performance.”

15. Technip (France)

Engineering, technologies and construction services for Oil and Gas, Petrochemical and other industries.

“Backed by 50 years of experience and thanks to the expertise and know-how of its teams, Technip is a key contributor to the development of technologies and sustainable solutions for the exploitation of the world’s energy resources.”

2007 key figures: 23,000 employees in 46 countries, Industrial assets on five continents, A fleet of 19 vessels by 2010, Operating income from recurring activities: EUR247 million, Revenues: close to EUR 7.9 billion.

Fields: subsea, offshore and onshore.

16. TGS Nopec (Norway)

TGS-NOPEC Geophysical Company (TGS) is a principal resource for global non-exclusive geoscientific data products and services in the oil and gas industry. Countries worldwide have entrusted TGS to assist with licensing rounds and the preparation of regional data programs. This global presence, which includes offshore surveys conducted in more than two dozen nations, is made possible by a diverse staff on three continents. Success in this competitive marketplace reflects a proud reputation for benchmark quality and personalized service.

1. Geophysical products & services. TGS specializes in the design, acquisition and processing of 2D and 3D multi-client seismic surveys worldwide.

2. Geological Data products & services. An industry-leading digital well log collection, well data management & services, multi-client interpretive products and subsurface consulting are also available from TGS.

3. Imaging Services. TGS delivers advanced high performance imaging and software solutions to support its geoscience data programs.

17. John Wood Group (GB Scotland)

Wood Group is an international energy services company with $4.4bn sales, employing approximately 25,000 people worldwide and operating in 46 countries.

Wood Group is an international energy services company with more than $4.4bn sales, employing approximately 25,000 people worldwide and operating in 46 countries.

The Group has three businesses – Engineering & Production Facilities, Well Support and Gas Turbine Services – providing a range of engineering, production support, maintenance management and industrial gas turbine overhaul and repair services to the oil & gas, and power generation industries worldwide.

Wood Group is among the global market leaders in: deepwater engineering, offshore pipelines, artificial lift using electric submersible pumps, enhancement of oil & gas production in mature fields, the repair and overhaul of industrial gas turbines.

Wood group focuses on three areas: 1.Engineering and production facilities. Greenfield, infield engeineering, production enhancement and maintenance. 2. Well support and 3. Gas Turbine services. (*)

(*) – Information gathered from the companies websites…

H.J.B.

Understanding Marketing – An Overview of Strategies, Costs, Dangers and Risks

What is Marketing?

Marketing is a business discipline through which the targeted consumer is influenced to react positively to an offer. This can relate to the purchase of a product or a service, the joining of an organization, the endorsement of a candidate or ideology, the contribution or investment in a cause or company, or a variety of other choices of response.

The marketer can use a number of techniques to reach the consumer which can be based on artistic or scientific strategies, or a combination of the two.

Usually, the consumer is identified as a member of a particular segment of the populace, known as a market. For example, markets can be defined by age, income, area of residence, home value, interest, buying habits, industry or profession, etc., which facilitates and simplifies the marketing process. Knowing to whom the marketing effort is appealing greatly assists the marketer in developing appropriate language, reasoning and incentives to find success in its marketing efforts.

Choosing to target a particular market as opposed to the entire universe also greatly controls marketing expenditures but also may limit response. If anyone anywhere can be a customer, sales expectations may be higher but marketing costs will certainly also need to be higher as well with such a huge target as its goal.

To address this dilemma, more creative means of marketing are sometimes utilized to assist with marketing message delivery. If what is being marketed is considered newsworthy and of public interest, editorial coverage in the media can greatly assist marketing efforts. Since this usually is not reliant on major marketing funds other than what is needed to support the development, distribution, and yes, marketing of press releases to editors and publishers, the advantages of such publicity can be priceless, albeit usually miraculous on such a large scale.

Marketing is everywhere!

Everywhere we turn, everything we do is somehow connected to marketing, whether we have been induced to participate in some activity because of it or develop an interest in some idea as a result of it. Whether we realize it or not, there are personal, political or commercial agendas cloaked as news we read in the paper, behind the books, movies and music we experience as part of our culture, and within the confines of our stores and supermarkets where we shop. Of course, we easily recognize the blatant marketing efforts that reach us through direct mail, media advertising, and all over the Internet including the spam we receive ad nauseum. Marketing has become one of the most all-pervasive elements of life and we are fools if we do not question the validity or innocence of everything we read, see and hear.

Marketing is communication and education!

In order to be successful in business marketing, the customer must be reached in a variety of ways. First of all, not every customer gets the daily paper or listens to local radio. We have limited knowledge of which TV station they may watch, where they shop, what roads they travel or where they dine. Depending on what we are marketing, we may have to utilize a whole assortment of avenues of marketing to get their attention. And, if we reach them just once, that is hardly enough to make a lasting impression. Marketing is necessary on a repeated basis in a diverse number of ways in an ever-changing presentation to assure that every customer can relate to it in some way, learn what we are offering and understand how it can benefit them. To achieve long-term customer loyalty, the targeted consumer needs to be coddled into familiarity with what we are selling so they feel it is something they truly want as opposed to having it forced upon them as something they desperately need, only to find out later they were tricked!

Marketing Sounds Expensive!

Yes, marketing can get pricey particularly if it is done on a consistent basis. But in today’s world, we have marketing options we never had even twenty or thirty years ago. Now, instead of paying for expensive printing and postage to mail a brochure or postcard to a targeted consumer, we can utilize email marketing, website presentations or online banner ads to reach the same market, usually at a fraction of the cost. Today, instead of buying expensive print advertising, we can work on improving our website’s SEO (search engine optimization) – (something we can do for free, if we are so inclined) so that people in need of what we offer can find us through Internet searches, rather than our trying to find them at an astronomical expense.

What About Social Media Marketing?

In addition to alternative marketing options already mentioned, there is the latest craze for Facebook, Twitter, LinkedIn, and other incredibly popular social media where people, young and old, spend hours developing relationships with “friends” they may never have met or ever will meet. Yet they share intense secrets of their deepest thoughts and desires as well as actual photographic representations of the same which sometimes land people in trouble with the law, or at the very least, their employer, school or parents.

Whether social media marketing is a worthwhile endeavor for businesses remains to be seen since businesses rarely accumulate millions of followers the way celebrities do. But as a way for customers to interact with a business for which they may have developed a fondness cannot be disputed. Can this translate into more sales for the business? We’ll have to wait and see, while continuing to devote precious time to composing meaningful 140-character tweets and building a Facebook “persona” for the business. From this writer’s standpoint, the only worthwhile social medium for business is that of LinkedIn since it provides a serious platform on which to create a business résumé where anyone interested in your professional stature can quickly summarize your capabilities, experience and accomplishments.

Marketing Can Be Intuitive

Much of what becomes marketing strategy is based more on common sense than on some mysterious scientific formula. As we see on a daily basis in stock market gyrations as well as political leanings, the herd mentality rules. On any particular day, if the Japanese or European stock or bond markets are selling off for one reason or another, you can safely bet that the U.S. markets will follow suit. And in any political race, as we are witnessing in the U.S. presidential primaries, the more one candidate gains ground, baby step by baby step, the more likely that candidate will become the Party nominee. Today’s world is governed by a minute-by-minute opinion survey measured by the endlessly publicized polls where people see what other people are thinking and use those results to form their own opinions. Monkey see, monkey do. The same holds true for marketing.

If we are told that a certain brand of coffee is the leading brand in America, we will probably believe what we are told, assume it tastes best, perhaps buy it ourselves regardless of cost, and perhaps adopt it as our own favorite. All because we were told everyone else was doing it. Safety in numbers, as they say.

It is ironic that those who become successful marketers usually dwell on the outskirts of the herd, have a more astute grasp of mass psychology, and approach business and life in a more innovative, creative and unique way, a mindset they use to formulate the next marketing phenomenon. The world is made up of leaders and followers: a few choice leaders and a glut of followers. It takes a lot more gumption to become a leader than it does to join the herd. That’s why marketing is a profession based in psychological control by a choice few over the mindless masses who have no initiative or courage to decide for themselves.

What is the difference between marketing and selling?

Selling is one aspect of the greater process of marketing. Marketing begins long before the product or service is even ready to sell. Marketing encompasses the concept, naming, branding and promoting of the offer while selling is the much more individualized effort to convince a lead who has possibly responded to the marketing offer to make the purchase. You can’t have one without the other, at least not easily. Marketing is a process by which we strive to reach the final goal of making the sale. Without marketing, the sales process is extremely difficult because the entire onus of educating the consumer about the offer is on the shoulders of the sales representative. On the other hand, if marketing has been successful, the sales rep can waltz in knowing the consumer is well apprised of the offer and can work his magic to convert the prospect into a satisfied customer.

What are some of the instruments of marketing?

There are many ways to market an offer, some of which are expensive, and others of which can be free. The methods we use that cost us dearly may not work as well as some of those we receive as a gift. Among the costly ways are media advertising, direct mail, conference presentations, distribution of printed literature, online advertising, email marketing, etc. Of those that are free are efforts referred to as guerrilla marketing, which are things we do ourselves to spread the word, network and publicize what we are offering. This can include posting flyers on bulletin boards in supermarkets, libraries, delis, small shops, and government offices, etc. Every time we add a tag to our emails where people can click to go to our website, we are using guerrilla marketing at no cost. Making sure we are easily found in Internet searches through search engine optimization of our website or other online presence, is an excellent way to achieve free marketing. One way to do this is to register your company or organization on every possible free online directory in your industry, region or interest group which translates into exponential growth as time passes.

What is viral marketing?

Viral marketing (as it relates to the word “virus,” meaning contagious and capable of spreading) is another means of free promotion facilitated by shrewd decisions we can make to further our cause. The easiest way to define viral marketing is that which is communicated via “word-of-mouth.” Related to the herd mentality discussed above, if a friend or business acquaintance mentions a product or service in a favorable light, we will be much more inclined to remember it and check it out. This can happen in a business meeting, at a mall, at a soccer game or over lunch. However, since most of us spend so much time on the Internet, it can happen practically everywhere we turn by clicking on the “like” buttons on Facebook or the “1” button on Google, among others. These are our personal endorsements where we give a “thumbs up” to something we have experienced and want to share with our friends so they too can enjoy it. Getting your offerings out with such buttons attached can result in viral marketing in your favor.

Viral marketing can have powerful repercussions as experienced by one client with an online auto accessories store. Many of his customers frequent online special interest forums related to the model of car they drive where members discuss products they have installed and the source of their purchase, followed by a link to his referenced website. Such referrals are repeated in other ensuing discussions, multiplying the number of links back to his site, increasing the power of his SEO and catapulting him to the tops of Internet searches for what he sells. He paid nothing for this phenomenon of parlayed good fortune except the daily effort he consistently expends to offer top quality merchandise and equally excellent customer service.

Do you need marketing?

If you are in business, of course you do. While you can attempt to do as much of it as you can on your own, it is advised that you begin with a reliable base of professional name, logo, website and search engine optimization to get started on the right foot. From there, you can work on promotion via guerrilla marketing and seek professional marketing services as needed for special needs, like a strong, effective ad to run, the development of professional sales literature to distribute at an upcoming show, or a direct mail promotion to your list of repeat customers, for example. Some business people choose to handle their own taxes to save on the cost of using an accountant for such critical functions at the risk of getting audited. Likewise, you can certainly attempt to produce marketing tools yourself but for long-term branding purposes and best return on investment, it is advisable to leave marketing development to the professionals.

Niches Lead to Riches

It doesn’t matter WHAT your niche is.

It only matters THAT you have one.

AFTER ALL: Niches lead to riches.

Now, there are two potential types of niches you can leverage:

1. Niche Expertise

2. Niche Market

Having a Niche Expertise means you know a LOT about a SPECIFIC TOPIC that applies to a WIDE AUDIENCE.

So, it’s the answer to the question:

1. What, specifically, are you known FOR?

2. What word do you want to OWN?

FOR EXAMPLE: Let’s say you’re a consultant whose expertise is on how to handle angry, pissed off or difficult customers.

Fantastic! That’s what you’re known FOR.

And the good news is, entrepreneurs with Niche Expertise have several advantages:

They become a big fish in a big pond.

They apply their knowledge cross industrial.

They open wide doors for expanding their businesses.

They diversify their client base, which leads to new business.

They become the obvious expert sought out by the mainstream media.

They allow new markets to add multiple dimensions to their single topic.

Dave Jackson is a good example of this. He’s “The Angry Customer Guy.”

That’s Niche Expertise.

On the other hand, having a Niche Market means you know a LOT about a SPECIFIC GROUP OF PEOPLE to whom you apply MANY TOPICS.

So, it’s the answer to the questions:

1. Whom, specifically, are you known BY?

2. What industry do you want to DOMINATE?

FOR EXAMPLE: Let’s say you’re a consultant who works solely in the Jewelry Retail Industry.

Awesome! That’s whom you’re known BY.

And the good news is, entrepreneurs with a Niche Market have several advantages:

They become a big fish in a small pond.

They apply their knowledge cross-topical.

They open deep doors for expanding their businesses.

They specialize their client base, which leads to repeat business.

They become the obvious expert sought out by industry and trade media.

They allow industry trends to add multiple dimensions to their various topics.

Shane Decker is a good example of this. He’s “The Jewelry Store Guy.”

That’s a Niche Market.

Now, occasionally you will run into entrepreneurs that have both a Niche Topic AND a Niche Market.

FOR EXAMPLE: How to handle angry, pissed off or difficult customers … who shop at retail jewelry stores.

That’s a SUPER Niche!

And although it’s rare, if you can pull it off … good on ya!

You get the best of both worlds.

Either way, you MUST remember this process:

1. Focus first; THEN spray. Either covering your topic or your industry.

2. Develop specialized knowledge. Either about your topic or about your industry.

3. Pick a lane. Either the topic lane or the industry lane.

4. Go with gusto! Either about your topic or about your industry.

5. Become That Guy. Either “for” the topic or “by” the market.

REMEMBER: People prefer specialists.

Turn your niches into riches.

LET ME ASK YA THIS…

Are you niching?

LET ME SUGGEST THIS…

For the list called, “46 Marketing Mistakes Your Company Is (Probably) Making,” send an email to me, and I’ll send you the list for free!

4Ps & 6Ps – Marketing Mix

Marketing mix is one of the major concepts of marketing. According to the traditional base, there are 4Ps of marketing. These are referred to as the marketing mix. But in the modern use of the term, many more Ps have been coined. People have found six, seven even eleven Ps of marketing. In this article we will talk about the 4Ps and 6Ps.

Four Ps

The four Ps of marketing mix consist of Product, Price, Place and Promotion. Product means the thing that you are selling. It can also be a service like the tourism industry.

Price means the rate at which the product is being sold. A number of factors are involved in determining the price of a product. These include competition, market share, product identity, material costs and the value customers perceive of a product. In fact prices are also determined by competitor’s products. If the competitors have the same product, then the price of a product will go down.

Place refers to the real or virtual place from where a product can be bought by a consumer. Another name used for place is called “distribution channel”. Promotion is the way that a product will be communicated to the general public. There are four distinct ways in which this might be done- ‘point of sale’, ‘word of mouth’, public relations and advertising.

Somewhere down the line people felt that four Ps were not enough for marketing mix. It had to face a lot of criticism mainly on the grounds that it was extremely product focused. This was not enough for the economy which is based a lot on services as well nowadays.

Another criticism that marketing mix has to face is that it does not have a ‘purpose’. So it should be looked upon as a tool that sets marketing strategy. Another criticism of marketing mix is that it does not discuss customers. This is why the concept of Six Ps of Marketing mix has achieved relevance.

Six Ps

The six Ps contain all the four Ps of marketing – product, price, place and promotion. In addition, it contains, two new Ps, namely People and Performance.

People include the potential and current customers of the business and how they make their purchase decisions. Market segmentation is also a part of this. It contains the features of market segmentation and the most attractive segments of this market.

The next P is Performance. This implies the performance of the business. The financial and strategic objectives of the business are dealt with here. It is also seen whether these objectives are achievable and realistic or not. The metrics of financial performance are also seen and appropriated in this division.

The six Ps of marketing mix help to overcome the criticisms of the four Ps. Hence the 6Ps serve to be a better alternative as compared to the 4Ps of marketing mix.

Strategy of Foreign Direct Investment (FDI)

Owing to globalization and removal of trade barriers between countries international business has expanded and National Companies have been able to widen their horizons and become a strong Multinational Companies (MNCs). However, a decision to enter a new market and undertake a foreign direct investment is risky therefore a decision to make this step must be started with a self assessment. What are the core motives of pursuing this strategy? Does the firm have a sustainable competitive advantage? Where to invest? How to invest? Use direct investment or joint ventures, franchising, licensing, acquisitions of existing operations, establishing new foreign subsidiaries or just exporting. What is country risk and how to benefit from it? Further we will try to answer these questions.

Companies consider Foreign Direct Investment (FDI) because it can improve their profitability and strengthen shareholders wealth. Mainly they have two motives to undertake FDI. Revenue related and cost related motives. One of revenue related motives is to attract new sources of demand.A Company often reaches a moment where growth limited in a local market so it searches for new sources of demand in foreign countries. Some MNCs perceived developing countries such as Chile, Mexico, China, and Hungary such as an attractive source of demand and gained considerable market share. Other revenue related motive is to enter profitable markets. If other companies in the industry have proved that superior earnings can be realized in certain markets, a National Company may also decide to sell in those markets.

Some Companies exploit monopolistic advantage. If a National Company possesses advanced technology and has taken an advantage of it in domestic market, the company can attempt to exploit it internationally as well. In fact, the company may have a more distinct advantage in markets that have less advanced technology. Apart from revenue motives companies engage in FDI in an effort to reduce costs. One of typical motives of Companies that are trying to cut costs is to use foreign factors of production. Some Companies often attempt to set up production facilities in locations where land and labor costs are cheap. Many U.S based MNCs such as, Ford Motor and General Motors established subsidiaries in Mexico to achieve lower labor costs. Also, a company can cut costs by economies of scale. In addition to above stated motives companies may decide to use foreign raw materials. Due to transportation costs, a company may exclude importing raw materials from a given country if it plans to sell the finished goods back to that country. Under such circumstances, a more attractive way is to produce a product in the country where the raw materials are located.

After defining their motives managers of National Companies need to examine their domestic competitive advantages that enabled them to remain in a home market. This competitive advantage must be unique and powerful enough to recompense for possible disadvantages of operating abroad. The first comparative advantage National Companies can have is of economies of scale. It can be developed in production, finance, marketing, transportation, research and development, and purchasing. All of these niches have a comparative advantage of being large in size due to domestic or foreign operations. Economies of production come from large-scale automated plant and equipment or rationalization of production through worldwide specializations.

For example, automobile manufacturers rationalize production of automobile parts in one country, assemble it in another and sell in the third country with the location being stated by comparative advantage. Marketing economies occur when companies are large enough to use most advanced media that can provide with worldwide identification. Financial economies can be derived from availability of diverse financial instruments and resources. Purchasing economies come from large scale discounts and market power. Apart from economies of scale flourishing Companies benefit from comparative advantage in managerial and marketing expertise. Managerial expertise is an ability to manage large scale industrial organizations in foreign markets. This expertise is practically acquired skill. Most MNCs develop managerial expertise through prior foreign experience. Before making investments they initially source raw materials and human capital in other countries and overcome the supposed superior local knowledge of host country companies.

The third comparative advantage can be a possession of advanced technology. Usually, companies located in developed countries have access to up-to-date technologies and effectively use them as superiority. The fourth advantage is developing differentiated products so other firms unable to copy. Such products originate from profound research based innovations or marketing expenditures. It is difficult and costly for competitors to duplicate such products as it takes time and resources. A National Company that created and marketed such products profitably in a home market can do so in a foreign market with substantial efforts. After examining their comparative advantages companies decide where to invest. The decision where to invest is influenced by behavioral and economic factors as well as of the company’s historical development. Their first investment decision is not the same as their subsequent decisions. The companies learn from their first few foreign experiences than what they learn will influence their following investments. This process is complex which includes analysis of several factors and following various steps. In theory after defining its comparative advantage a company searches worldwide for market imperfections and comparative advantage until it finds a country where it can gain large competitive advantage to generate risk adjusted return above company`s rate. Once choice is made National Company will choose mode of entry into foreign market. Companies use several modes of entry into other countries.

The most common ways are:

• International trade

• Licensing

• Franchising

• Joint ventures

• Acquisitions of existing operations

• Establishing new foreign subsidiaries

Each method is discussed in turn with risk and return characteristics. International trade is a traditional approach that can be used by firms to penetrate markets by exporting or importing goods. This approach causes minimal risk because firms do not place large amount of their capital at risk. If the firm experiences a decline in its exporting it can normally decrease or discontinue this part of its business at a low cost.

Licensing is a popular method for National Companies to profit from international business without investing sizable funds. It requires companies to provide their technology (copyrights, patents, trademarks, or trade names) in exchange for fees or some other particular benefits. Licensing enables them to use their technology in foreign markets without a major investment in foreign countries and without the transportation costs that result from exporting. As local producer is located domestically it allows minimizing political risks. A major disadvantage of licensing is that it is difficult for company providing the technology to ensure quality control in the foreign production process. Other disadvantages include: are lower licensee fees than FDI profits, high agency cost, risk that technology will be stolen, loss of opportunity to enter licensee`s market with FDI later.

A joint venture is defined as a foreign ownership that is jointly owned. Companies penetrate foreign markets by engaging in a joint venture with firms that reside in those markets. A business unit that is owned less than 50 percent is called a foreign affiliate and joint venture falls into this category. Joint Venture with a foreign company is effective method if National Company finds a right partner. Advantages of having such partner are as follows: local partner is familiar with business environment in his country, can provide competent management, can provide with a technology that can be used in production or worldwide and the public image of the firm that is partly locally owned can increase sales and reputation. The most important is joint ventures allow two companies to apply their comparative advantage in projects. Despite notable advantages this method has disadvantages too. MNCs may fear interference by local companies in certain important decision areas. Indeed what is optimal from the point of one partner can be suboptimal for the other. Also, partners may have different views concerning dividends and financing.

Acquisition of existing operations or cross border acquisition is a purchase of an existing foreign-based firm or affiliate. Because of large investment required an acquisition of an existing company is subject to the risk of large losses.

Because of the risks involved some firms involve in partial acquisitions instead of full acquisitions. This requires a smaller investment than full international acquisitions and therefore exposes the firm to less risk. On the other hand, the firm will not have complete control over foreign operations that are only partially acquired.

Companies can also penetrate foreign markets by establishing their subsidiaries on these markets. Like to foreign acquisitions, this method requires large investment. Establishing a subsidiary may be preferred over foreign acquisition because in a subsidiary procedures can be tailored exactly to company standards. Plus less investment may be required than buying full acquisition. Still company cannot benefit from operating a foreign subsidiary unless it builds a steady customer base.

Any method that requires a direct investment in foreign operations is referred to as a foreign direct investment. International trade and licensing is not considered to be FDI because it doesn`t require direct investment in foreign operations. Franchising and joint ventures involve some investment but to a limited degree. Acquisitions and new subsidiaries require large investment therefore represent a large proportion of FDI. Many International Companies use a combination of methods to increase international business. For example the evolution of Nike began in 1962 when a business student at Stanford`s business school, wrote a paper on how a U.S. firm could use Japanese technology to break the German dominance of the athletic shoe industry in the United States. After graduation, he visited the Unitsuka Tiger shoe company in Japan. He made a licensing agreement with that company to produce a shoe that he sold in the United States under name Blue Ribbon Sports (BRS). In 1972, he exported his shoes to Canada. In 1974, he expanded his operations into Australia. In 1977, the company licensed factories in Korea and Taiwan to produce athletic shoes and then sold them in Asia. In 1978, BRS became Nike, Inc., and began to export shoes to Europe and South America. As a result of its exporting and its direct foreign investment, Nike’s international sales reached $1billion by 1997 and more than $7 billion by 2010.

A decision of why companies undertake FDI compared to other modes of entry can be explained by OLI paradigm. The paradigm tries to explain why companies choose FDI compared to other modes of entry such as licensing, joint ventures, franchising. The OLI paradigm states that a company first must have “O”- owner specific competitive advantage in a home market that can be transferred into a foreign market. Then the company must be attracted by “L”- location specific characteristics of a foreign market. These characteristics might include low cost of raw materials and labor, a large domestic market, unique sources of raw materials, or advanced technological centers. Location is important because the company have different FDI motives. By relying to location characteristics it can pursue different FDIs. It can implement either horizontal or vertical FDIs. The horizontal FDI occurs when a company locates a plant abroad in order to improve its market access to foreign consumers. Vertical FDI, by contrast, is not mainly or even necessarily aimed at selling in a foreign country but to cutting costs by using lower production costs there. The “I” stands for internalization. According to the theory the company can maintain its competitive advantage if it fully controls the entire value chain in its industry. The fully owned MNC minimizes agency costs resulted from asymmetric information, lack of trust, monitoring partners, suppliers and financial institutions. Self financing eliminates monitoring of debt contracts on foreign subsidiaries that are financed locally or by joint ventures. If a company has a low global cost and high availability of capital why share it with joint ventures, suppliers, distributers, licensees, or local banks that probably have higher cost of capital.

Properly managed FDI can make high returns. However FDI requires an extensive research and investment therefore puts much of capital at risk. Moreover, if company will not perform as well as expected, it may have difficulty selling the foreign project it created. Given these return and risk characteristics of DFI, Companies need to conducts country risk analysis to determine whether to make investments to a particular country or not. Country risk analysis can be used to observe countries where the MNCs is currently doing or planning to do business. If the level of country risk of a certain country begins to increase, the MNC may consider divesting its subsidiaries located there. Country risk can be divided into country`s political and financial risk.

Common forms of political risk include:

• Attitude of consumers in the host country

• Actions of host country

• Blockage of fund transfers

• Currency inconvertibility

• War

• Bureaucracy

• Corruption

A severe form of political risk is the likelihood that the host country will take over a subsidiary. In some cases, some compensation will be paid by the host government. In the other cases, the assets will be confiscated without compensation. Expropriation can take place peacefully or by force.

Beside political factors, financial aspects need to be considered in assessing country risk. One of the most clear financial factors is the current and potential state of the country’s economy. An MNC that exports to a foreign country or operates a subsidiary in that country is highly influenced by that country’s demand for its products. This demand is, in turn, strongly influenced by the country’s economy. A recession in that country can reduce demand for MNC `s exports or goods produced by its subsidiary.

Economic growth indicators positively or negatively can have an effect on demand for products. For instance, a low interest rates boost economy ad increase demand for MNCs` goods. Inflation rate influence customers purchasing power therefore their demand for MNC`s goods. Furthermore exchange rates capable to press on the demand for the country’s exports, which then affects the country’s production and level of income. Strong currency might reduce demand for the country’s exports, increase the volume of products imported by the country, and therefore reduce the production of country and national income.

Assume that Papa and Sons plans to build a plant in Country A. It has used country risk analysis technique and quantitative analysis to derive ratings for various political and financial factors. The purpose is to consolidate the ratings to derive an overall country risk rating. The Exhibit illustrates Papa and Sons country risk assessment. Notice in Exhibit that two political factors and five financial factors contribute to the overall country risk rating in this example. Papa and Sons will consider projects only in countries that have a country risk rating of 3.5 or higher. Based on its country risk rating Papa and Sons will not build a plant in Country A.

If the country risk is too high, then the company does not need to investigate the achievability of the proposed project any further. But some companies may undertake their projects with country risk being high. Their reasoning is that if the potential return is high enough, the project is worth undertaking. When employee safety is a concern, however, the project may be rejected regardless of its potential return. Even after a project is accepted and implemented, the MNC must continue to monitor country risk. Since country risk can change dramatically over time, periodic reassessment is required, especially for less stable countries.

Nypro Case Study

Financials & Profits

Nypro’s financial statements display a growth in Net profit (before-taxes) of about 7.5-8% between 1992- 1995, whereas before-tax profits averaged only 4% in the industry. Nypro ranked 10th in size among the 40,000 firms in the plastic injection molding industry (Block, 1996).

If we now flip to 2006-2008, we see that Nypro’s net margin has dropped to around 3.5% of sales. Nypro was a pioneer in creating differentiating processes, technologies and culture in their organization. However, Nypro’s advancements did not constitute a truly unique and inimitable capability. Process improvements have been difficult to sustain competitive advantages against competitors beyond the short-term. Competitors are able to readily incorporate new production or process techniques shown to improve profit performance through cost, quality and customer satisfaction advantages. Over the last decade, it seems that Nypro has not been able to maintain it’s superior performance in the industry, which denotes the company’s inability to develop an inimitable competitive advantage.

The plastics molding industry possesses almost insignificant entry barriers, low differentiation, and several smaller producers serving a niche, and offering low value-add to the industry. With technological and process emulation, how then does a company excel and differentiate, especially considering the low entry barriers and the inability to significantly differentiate? The answer is to innovate; to become an industry leader, and to remain on the industry’s cutting edge. Nypro has taken this challenge to heart, empowering its employees to facilitate success and to continue stewardship and development of proprietary technology through efforts such as its revolutionary Nova-plast machine.

Market Power

Nypro is part of the Plastic Containers Industry, which is a fragmented competitive industry. In 1995, Nypro was the leader in the plastic injection molding industry among companies that did not focus on automobile industry. Nypro’s customer base is divided into three main categories – consumer/industrial (about 32.2 % of sales), health care (about 46.7% of sales) and electronics (about 21.1% of sales). Nypro needs to identify the profit margin associated with each of these market segments along with the technological advances in these consumer industries. This will help the company analyze which customers will benefit the most from their improved capability and be able to take advantage of the cost savings to counter market competition.

Strategically, in terms of organization structure, Nypro set up medium sized production plants geographically close to its major customers. This created some economies in terms of transportation costs and gave the customer a much more local interface with the company.

Nypro followed the model of an Operating Board in its plants which allowed for maximum participation and engagement. The Board consisted of operational managers from other plants which kept information flowing freely through the organization. Nypro encouraged competition and intrapreneurship among its own plants. This encouraged creativity and idea generation to increase competitiveness in the marketplace.

However, the decentralized innovation strategy precludes the derivation of profit enhancing efficiencies. Although management has sought a localized and client-centric plant strategy, the absence of standardized production approaches codified by Nypro’s industry groups limits scale economies, slows the economies of learning, and more importantly elevates overall cost of products sold and material costs given wide disparities in utilization and cost structures across the company’s various plant assets. As shown by the following table, management has yet to compress the range of material utilization and material costs, which lowers profits and the company’s market power.

Further, the incohesive production approaches has also revealed inconsistent product quality. The following table illustrates the wide disparities between production plants.

The sharing of high visibility innovation has seemingly foreshadowed the accomplishments of plant assets to satiate customers through delivery of high-quality products and the limited costs of product returns. Although post-installation customer satisfaction measurement was not apart of the company’s performance template, it does have real implications to the Nypro cost structure and customer perceptions concerning product quality both of which hold quantifiable impact on market power (i.e., lower client satisfaction and reduced future sales).

In 2008, Nypro is focusing on achieving balance in their three key market areas. Their strategy is to position themselves as a ‘Go To Strategic Partner’ among clients. They have increasing partnerships with esteemed companies like Estee Lauder and P&G’s – Flawless brand of Secret deodorant.

Growth / Innovation

Differentiation and innovation strategies require a strong integration with the environment, the customers, and the technology suppliers. In terms of the Miles & Snow Typology, Nypro played the role of a prospector, i.e. being innovation oriented exploiting new product and growth strategies.

The plastic injection molding industry was a fragmented industry characterized by perfect competition. There were no barriers to entry and many new potential entrants into the market. This meant that buyers had negotiating power over firms that provided similar products. Lankton realized that in order to sustain Nypro among its competitors, he had to introduce technological innovations that would provide the customers cost and quality advantage. He also consolidated Nypro’s business to focus on large companies that could provide bigger orders and were introducing product innovations themselves. This meant that Nypro would grow with their customers and be ahead of the technology innovation curve in the market.

Nypro operated in a team structure where a Development team developed product specs and was responsible through the production phase. Every project & product was then followed by the Continuous Improvement team that represented all the different aspects of the firm and concentrated on innovating the product and process for the customer. These teams worked closely with the customer to maintain quality standards or change processes or product specs based on any feedback from end consumers or competitors’ challenges. This ability to share internal processes with clients brought a close partnership and resulted in product and process efficiencies for both teams.

The NovaPlast could further expand the company’s penetration of customer accounts, providing additional value-added services to clients: low-volume, specialized moldings. NovaPlast permits Nypro to maintain the client relationship and the accompanying revenues without outsourcing low-volume jobs to potential competitors. The customized molding permits the company to set higher pricing and margins given the specialty moldings set to customer specifications. Lower volume levels could be offset with higher pricing to recoup research and development costs

The other innovations that Nypro implemented included clean plant design, visual factory design as their standard plant layout.

Resources

In determining its strategy, Nypro had more of a resource-based view of the firm where they evaluated how to make innovation a core competence in the organization. Lankton was perceptive to find the value creation zone in the plastic injection molding industry by combining his customer’s needs and competitor’s lack of differentiation.

Lankton also invested significantly in changing the culture and retaining talent resources at Nypro. Valuable employees received stock options and as shareholders received the opportunity to select the Board of Directors for Nypro. Performance measures were always comparisons between plants and teams i.e. more collective than individualistic. These performance measurements included evaluating customer’s end product success, customer’s strategic market goals, any improvement in cost and profit margins, cycle time and gaining additional contracts.

The company’s labor capital and decentralized innovation process serves as Nypro’s crucial resource and knowledge capital. In addition, the organizational culture is one of creative tension through internal competition with Lankton’s competitive culture the cohesive dynamic spurring innovation and propagating silos. The company’s culture feeds the knowledge system through the dispersion of process enhancements transmitted by organizational systems.

Despite the dispersion of innovation, the absence of standardized production approaches has prevented the realization of efficiency standards across company plants. This is evidenced by range of machine utilization and customer return incidence levels.

Although plant processes are customized to industry and customer standards, shareholder capital is not efficiently managed and deployed given the competitive tension preventing greater cross-unit collaboration.

Conclusion

In conclusion, Nypro implemented a number of differentiating activities in the industry like improved processes, using Continuous Improvement Teams, focusing on cycle time and precision and setting performance standards based on end customer success and team efforts. In addition, Stegmann provides that matrix and process organizational structures produce positive EVAs for corporate managers. These efforts and cultural changes did help Nypro create some long-term strategic alliances with their clients.

However, Nypro operates in a competitive market, they have to be flexible and continuously improve operations in order to stay ahead of competitors and retain or gain market share. Stegmann, further, offers, that organization strategies generating positive EVAs are task sharing and empowered employees, horizontal communication, teams, decentralized structures and decision-making, and cultural innovation.

Although the Nypro organization reflects a number of these positive EVA attributes, It is our concern that the competitive culture stymies horizontal communication. As noted earlier, plant efficiency is disparate across Nypro’s global system of plant assets. Given process innovation is limited in duration, the company would be better served to also facilitate the sharing of “less visible” production efficiencies to further derive profits, market power, and shareholder earnings. We would like to see management reduce and tighten the range of material costs as a percentage of sales, and increase machine utilization to employ idle capacity. We are not suggesting full capacity run-rates in lieu of the impact on equipment and labor, and the potential need for excess capacity for product ramp-ups by clients. However, production assets operating below 65 to 70 percent denotes more idle capacity than we would like to see.

In terms of the decision making process for implementing NovaPlast machines, Nypro operates in a constantly changing competitive environment. This means that Nypro has to be prepared to respond to changing industry and customer demands. In this scenario, it would be best for Nypro to implement NovaPlast machines in one of the plants and measure success levels and pros and cons before pushing these machines to all plants across the world.

In terms of the decision making process for implementing NovaPlast machines, Nypro operates in a constantly changing competitive environment. This means that Nypro has to be prepared to respond to changing industry and customer demands. Our Novaplast rollout plan would suggest the designation of top plants segmented by the three top industries: healthcare, consumer/industrials, and communication/electronics. This would permit a centralized innovation process predicated on industry specialization. From this basis, general industry specifications could be further specialized to incorporate the nuances featured within individual client blueprints. Although this decentralized approach may elevate costs and mitigate profits, the divisional learning could yield innovative processes and enhancements to offset development and improvement costs with higher sales.

Reference:

Block, M. (1996). An Inside Look at Nypro. American Journal of Engineering 15(2). Retrieved 05/01/2011 from the business source complete database.

Forces and Trends in Business

The corporate environment is characterized by a number of variables: competition, dynamism, turbulence, complexity and change. All organizations must develop ability to continuously and consciously transform themselves and their contexts. Such contexts include restructuring for optimum effectiveness, reengineering key processes and streamlining functions that are able to provide a source of competitive advantage. The aim is to adapt, regenerate and most important, survive. (McLean, 2006).

For a company to thrive today, strategists must find ways to increase the organization’s ability to read and react to industry and market changes. They must know their goal to boost the company’s strategic flexibility by recognizing disruptions earlier and responding faster.

Strategic flexibility or adaptability can be defined as the organization’s capacity to identify major changes in its external environments, quickly commit resources to new courses of action in response to such changes, and to recognize and act promptly when it is time to halt or reverse existing resource commitments. Being adaptable means leaders must not get stuck in a too-rigid way of looking at the world. The organization must view change as an inevitable and essential part of an organization’s growth, in order to achieve this adaptability.

When there is uncertainty or unpredictability in the environment, managers tend to focus almost all their energy on successfully executing the current strategy. What they also should be doing is preparing for an unknown future. Flexibility stems from the ability to learn; managers tend to overlook the negative and emphasize the positive. They need to understand not only what led to the positive outcomes but also what led to the negative ones. This will optimize their learning experience. According to Ford (2004) four points to foster and maintain adaptability include challenging complacency, giving all employees a voice, encouraging participative work and driving fear out of your group.

The companies chosen for this task vary by industry: a famous automobile manufacturer (Ford) a bank going through a merger (Compass) and a start-up software company (DawningStreams). Ford and Compass have been in business for a long time; it is likely they have changed their strategic plan based on changing forces and trends. DawningStreams is new (established in 2005 and incorporated in 2007). Even though they have not had their first sale and have no staff, the owners have devised several iterations of their strategy.

There is a diversity of stakeholders all that are interested in the activity of business organizations. Emphasis must be placed on their adaptability in strategic analysis and their adaptability in strategic management of business organizations. The organization must have a strategic management model.

Each company might scan the same areas, but for different reasons. Considering technological advances, Ford would prepare itself to lead the market by having various electronic equipment in their vehicles, as well as robotic equipment with which to build them and the supply chain technology to keep all in check. Compass Bank is going through a merge and expanding globally; therefore they will need to keep abreast of communication technology. DawningStreams is a software company; they will need to monitor those companies who would be their competition to ensure their product offers better functionality. All three companies would make sure potential customers would be able to get good information from internet websites and advertisement, which encompasses yet another area of technology the organizations may need/want to scan. In this instance, many members of the organization must be enrolled: upper management and finance, who will determine budgetary factors; the IT department, who will be responsible for the implementation and maintenance of some of the technology; the staff who must be trained to use the technology; a sales force who will sell the technology.

To the outside observer, it may seem unnecessary for any but Ford to scan the (actual) environment when it comes to issues such as emission control, fuel efficiency and hybrid cars. That is true however; Compass Bank and DawningStreams can plan a strategy to be friendlier to the environment (and their pocketbooks) by practicing paper reduction (through the aforementioned technology). Lastly, DawningStreams’ product may be useful as a file sharing service to environmental groups.

With regard to the legal environment, all three must be acutely aware of laws, which affect their respective industry among others. To Ford, legal applies, among other areas, to environmental protection laws and department of transportation safety laws. To Compass Bank, they would abide by the rules of the Federal Reserve (www.federalreserve.gov) and the Federal Insurance and Deposit Corporation (www.fdic.gov). DawningStreams must follow laws as they pertain to the transfer of files, which have intellectual property and also the export of products, which have algorithms. All three companies are global and will need to monitor those laws in other countries, which could effect the strategic planning.

At one company after another–from Sears to IBM to Hewlett-Packard to Searle, strategy is again a major focus in the quest for higher revenues and profits. With help from a new generation of business strategists, companies are pursuing novel ways to hatch new products, expand existing businesses, and create the markets of tomorrow. Some companies are even recreating full-fledged strategic-planning groups. United Parcel Service expects to spin out a new strategy group from its marketing department, where strategic plans are now hatched. Explains Chairman Kent C. Nelson: “Because we’re making bigger bets on investments in technology, we can’t afford to spend a whole lot of money in one direction and then find out five years later it was the wrong direction.”

In such a world we need a planning model that allows us to anticipate the future and to use this anticipation in conjunction with an analysis of our organization–its culture, mission, strengths and weaknesses–to define strategic issues, to chart our direction by developing strategic vision and plans, to define how we will implement these plans and to specify how we will evaluate how well we are implementing these plans. The fact that the world is changing as we move forward in the future demands that the process be an iterative one.

Ford Motor Company – Socio-cultural

Ford Motor Company embraces the socio-cultural changes taking place to allow the company to move in the right direction with respect to attitudes in the society. Two areas that stand out in terms of socio-cultural attitudes would be that of fuel economy and smaller cars. The growing concern by the public for better fuel economy has influenced the company’s introduction of the Ford Escape Hybrid and Mercury Mariner Hybrid. The organization is committed to the hybrid to improve fuel economy as a global strategy to meet customer demands. The increased demand in society for such environmentalism has assisted in the decision for Ford Motor Company to look forward to adding the hybrid feature to the Ford Fusion and Mercury Milan and continue in such a strategic planning direction.

The customers that use these vehicles get a substantial break on their insurance in many states and a tax credit as well while enjoying the increased mileage of a vehicle that runs on gasoline and capabilities for 100 percent electric power. The environmental scanning by Ford Motor Company has allowed the company to be knowledgeable of the fact that the people in the United States are buying more small cars today than any other type of vehicle segment. The lifestyles changes have been monitored and there is good data that shows that such a trend will continue in this direction and the expected growth in this segment will continue. The company has redesigned the inside and outside of the Ford Focus to set the car apart from the competitors in the small car segment while increasing upgrades and features to experience positive outcomes. The direction that the company is taking is based on a competitive advantage and being a leader in the industry. The vehicle line has both a sedan and a coupe to attract targeted markets including younger buyers at an entry level to build upon brand loyalty and customer retention. Ford Motor Company will continue to use the socio-cultural factors to drive the business and enjoy future success.

Ford Motor Company – Legal –

Ford Motor Company with regard to the Environmental Protection Agency adheres to the legal aspect of environmental scanning. Ford Motor Company accepted an award in March 2007 from the Environmental Protection Agency called the Energy Star 2007 Partner of the Year Award in Energy Management. The company is the first automaker to have ever been awarded the award two years in a row. The award has come to be presented due to the commitment made by the company to increase energy efficiency and to reduce the greenhouse gas emissions from all of the facilities in the company.

The organization is committed to the responsible use of resources and energy efficiency. The leadership realizes that the environmental protection laws are of great importance and use the environmental scanning to move in the right direction to obtain future success in the company. In 2006 alone the company has improved the energy efficiency in the United States operations by five percent and saving approximately $25 million with enough energy saved to equal 220,000 homes. The effective energy management protects the environment and reduces the greenhouse emissions. Some of the actions taken by the company include replacing lighting fixtures that use 40 percent less energy and using different low-energy, long-lasting compact fluorescent lamps in the properties to include the plants, corporate offices, distribution centers, and research and development campuses. Due to the environmental scanning that takes place at Ford Motor Company the company will use the information that is collected and continue in this direction. New projects for the company include Fumes-to-Fuel that is a system that converts paint fumes into electricity that is being performed with Detroit Edison along with attempting to consolidate the application of primer, base and clearcoat paint applications into a single application to eliminate the need for separate applications and ovens. In addition to the paint booth emissions Ford Motor Company will continue to rely on alternative energy sources such as landfill gas and wind and solar technologies to power their manufacturing facilities.

Ford Motor Company – Technology –

Another environmental scanning tool that Ford Motor Company monitors and uses would be the technological portion. The company has invested $1 billion in the latest technology for flexible manufacturing. The technology that is involved is in many forms to include wireless technology that is installed on the delivery trucks with supplies to the plant as a monitoring status and improved efficiency to reduce inventory. The flexibility of products in the same plant allows the organization to use the same machinery and process for all areas from body assembly, paint facility, and final assembly. The improved efficiency at the manufacturing facility allows for several vehicle platforms to be built on the same line to produce multiple models and quickly change the vehicle mix, the volume, and options based on customer demand.

The technological changes that are being embraced by Ford Motor Company through environmental scanning enables the company to experience huge cost savings through new product launches and 50 percent reductions in cycle changeovers along with waste reduction. Robots are among the technological changes that are being experienced within the organization to include the 400 from the project that are used to weld and assemble the metal body of the vehicle for stamping and assembly. Artificial intelligence in the form of advanced visions systems and laser tracking systems are used to ensure quality through accuracy and dimension abilities. A multi-million dollar training facility is used to ensure that the workforce has the knowledge, skills, and ability to reap the benefits from the new technology that is being used by the company. The training that is administered includes the new servo-electric weld gun system that identifies the perfect center for welding that has replaced the older and loud air-powered system that used a less sophisticated spring system. The environmental scanning of technology that is performed by Ford Motor Company has allowed the company to have positive outcomes in efficiency while remaining a competitive company in the industry through cost savings and continuous improvement.

Compass Bank- Political –

On February 16, 2007, Compass Bancshares, Inc., the parent company of Compass Bank, announced the signing of a definitive agreement under which Banco Bilbao Vizcaya Argentaria, S.A. (NYSE: BBV Madrid: BBVA) (“BBVA”) will acquire Compass for a combination of cash and stock. Compass will become a wholly owned U.S. subsidiary of BBVA and will continue to operate under the Compass name. The transaction is expected to close during the second half of 2007, pending customary closing conditions, including necessary bank regulatory approvals in the U.S. and Spain and the approval of the stockholders of both Compass and BBVA.

BBVA, which operates in 35 countries, is based in Spain and has substantial banking interests in the Americas. The transaction will facilitate BBVA’s continued growth in Texas and will create the largest regional bank across the Sunbelt. Upon completion of the transaction, Compass will rank among the top 25 banks in the United States with approximately $47 billion in total assets, $32 billion in total loans and $33 billion in total deposits. In addition, the combined company will rank fourth in deposit market share in Texas with $19.6 billion in total deposits and 326 full-service banking offices.

Compass is a $34 billion Southwestern financial holding company that operates 415 full-service banking centers in Alabama, Arizona, Colorado, Florida, New Mexico and Texas. Compass provides a broad array of products and services through three primary lines of business – Corporate Banking, Retail Banking and Wealth Management. Compass is among the top 30 U.S. bank holding companies by asset size and ranks among the top earners of its size based on return on equity.

Under the terms of the definitive agreement, which has been approved by the board of directors of Compass and the relevant bodies of BBVA, Compass will become a wholly owned subsidiary of BBVA. After closing, BBVA intends to merge its U.S. based banking affiliates – including the former operations of Texas Regional Bancshares, State National Bancshares and Laredo National Bancshares – with Compass.

The aggregate consideration is composed of a fixed number of approximately 196 million shares of BBVA common stock and approximately $4.6 billion in cash. The merger is subject to customary closing conditions, including necessary bank regulatory approvals in the U.S. and Spain and the approval of the stockholders of both Compass and BBVA. The transaction is expected to close in the second half of 2007.

The merger between both companies will be determined by the political factors ranging from implications of laws and regulations to the state of world politics including the consideration of wars which may be going on in different parts of the world. New laws, regulations, tax programs and public policy create forces and trends, which may provide challenges and barriers or opportunities for any company or organization.

Compass Bank – Technology –

Ford is in the process of implementing a laser marking system on its production line to ensure the highest standard on each transmission assembled. The system will be checking for quality on different points on the assembly line. Ford is teaming up with a company called MECCO to implement this process and a trial run of the new system will last for 3 months. MECCO is a leader in its industry when it comes to laser technology. The decision to implement this new laser marking system came because it is more cost- effective and safer than previous ways of marking checkpoints for quality.

Although this process at Ford has not officially been implemented yet, Compass Bank can learn a few different things. It may be a good idea for Compass Bank to do a short trial of online cell phone banking to see how popular it becomes and if it worth all the time and effort, being spent to get it launched. Compass Bank should also consider investing into a company who is the best at what they do, is in the same time zone, and can meet their demands in a timely manner, not simply because they may be cheaper. Finally, Compass Bank can learn that they need to consider what will be most cost-effective and in the best interest of the company over time. Organizing a time line and a list of costs and potential risks would also be beneficial to Compass Bank so they know what to expect and when with the implementation of online cell phone banking.

When completing the global scan one looks for emerging new technologies which may impact any business in any industry. At one time the emergence of the Internet was a technology that was becoming an emerging trend across all industries. Today very new technologies are used to develop information systems at a fraction of the cost and time of processes that were used five years ago. Wireless is a telecommunications technology that may have moved from a trend to a force in revolutionizing the way information is stored, accessed and used across all industries around the world. Some, if leveraged by a company within an industry before competitors use it, may even provide a competitive advantage.

Compass Bank – Competition –

Although mergers may be costly and rather difficult, the value it creates in the end is the desired outcome companies seek. The eagerness to merge is based on several beliefs, those beliefs are, that the performance gains are greater, expenses are reduced, market power is increased, and shareholder’s wealth is also greater than before. The value of a merger is enhanced when the overall benefit is more valuable than the aggregate of two separate pre-merger companies.

In the end, both John and Bernard should consider this before finalizing a decision. When Zion’s purchased Stockmans, there overall value increased by 43 branches. These branches will help performance and brings much more power to the financial market. In the Journal of Money article, Pilloff states “Companies are more willing to acquire others to avoid being acquired themselves.” Keeping this in mind, companies must figure out a cross border strategy.

As part of the broad environmental scan, it is important to identify the internal capabilities of the organization. There are various models for defining capabilities. Most focus on the broad set of intangible assets such as brand, human capital, organizational capital and even relationship capital. Others include the more concrete assets such as available capital, the organization structure, current technologies and information technology infrastructure. In addition to doing a broad environmental trend, Compass Bank needs to do a more detailed capability assessment using any of the models available.

DawningStreams – Competitors –

Business activities are becoming more and more complex to manage, because of distance, time zones, number of parties involved in projects, number of tasks to achieve, multiple prioritizations, lack of general synchronization, insufficient secure and confidential communication channels and growing complexity of IT infrastructures. The use of task list managers has become very common. It is becoming more difficult to keep teams synchronized, to follow and to implement new business processes and to exchange sensitive information confidentially. The DawningStreams software application is aiming at increasing the practicality of daily executive activities. The types of business, which will most probably be interested in our product, are construction (size of network), consulting (need for synchronization), pharmaceutical research (secure exchange of information) and the software industry (complexity of manufacturing).

Many companies have already developed software applications that enable secured communications and file sharing. However, most, if not all, are relying on Microsoft technologies, which prevent them from expanding to Mac or Unix users. DawningStreams is developed in Java, which can be used on any platform, including Mac and Unix. Microsoft has acquired the Groove Company and has released a new version of the product, which can perform many of the functionalities of DawningStreams, but not generic activities (http://office.microsoft.com/en-us/groove/default.aspx). This is our closest competitor by far. More recently, we found, merely by accident, a company called Shinkuro (www.shinkuro.com), which offers the file sharing aspects of DawningStreams but lacks other capacities.

Although DawningStreams will face competition from many existing players, the fact that it will combine a super-set of functionalities in one application, for a very reasonable price, will give it some leading edge over other competitors. If the US patent is granted, the position of DawningStreams will become a niche. Even if the patent were not granted, it would take a profound architectural redesign of Groove (or other competitors) to include generic activities and match the offer of DawningStreams. As a strategy we will monitor the activities of those companies’ websites and understand what they offer in terms of similar functionality and try to ensure we match or best those functionalities to the best of our ability and resources

DawningStreams – Political –

Maintaining the secrecy of information is the fundamental function of encryption items. Persons abroad may use such items to harm US law enforcement efforts, as well as US foreign policy and national security interests. The US Government has a critical interest in ensuring that persons opposed to the United States are not able to conceal hostile or criminal activities, and that the legitimate needs for protecting important and sensitive information of the public and private sectors are met. Since 2000, US encryption export policy has been directed by three fundamental practices: technical review of encryption products prior to sale, streamlined post-export reporting, and license reviews of proposed transactions involving strong encryption to certain foreign government end-users and countries of concern. US encryption policy also seeks to ensure that American companies are not disadvantaged by the European Union’s “license-free zone.” (Bureau of Industry and Security, 2007).

DawningStreams will contain cryptographic functions. Any reliable and efficient cryptographic system requires a central authority to avoid identity theft. Cryptography is a key functionality of DawningStreams. All specialists insist on designing systems using well-studied algorithms and fully tested protocols; novelty is considered a source of risk. The cryptographic layer of DawningStreams will rely on a dual public-private key system. The private key encryption system will implement Rijndael, the Advanced Encryption Standard (http://csrc.nist.gov/CryptoToolkit/aes/rijndael/), the public key system will implement RSA (www.rsa.com) and the hashing function will implement the 256 bits version of the Secure Hash Algorithm (http://secure-hash-algorithm-md5-sha-1.co.uk/ ).

Encryption products can be used to conceal the communications of terrorists, drug smugglers, and others intent on harming U.S. interests. Cryptographic products and software also have military and intelligence applications that, in the hands of hostile nations, could pose a threat to U.S. national security. The national security, foreign policy, and law enforcement interests of the United States are protected by encryption export controls. These controls are consistent with Executive Order (E.O.) 13026, which was issued on November 15, 1996, and the Presidential Memorandum of the same date. (Bureau of Industry and Security, 2007).

DawningStreams also plans to be an international company, as offices now exist in the Netherlands and the US. As part of the strategy, we will ensure we remain compliant by registering our product with any necessary agency and allowing those agencies access to the processes if they feel there is a threat. We will be responsible to monitor (as best as we can) our client base and to put the proper verbiage in our contracts that illegal activities will not be tolerated. We will continue to monitor the BIS site mentioned in previous paragraphs and also sites in the European Union such as the Crypto Law website of legal expert Bert-Jaap Koops (http://rechten.uvt.nl/koops/)

DawningStreams – Technology/Intellectual Property –

The management of organizational strategy requires a comprehensive assessment of the macro environment of the business. Intellectual Property (IP) refers to the original ideas and innovations evolved by an organization in order to haul up its systems and processes. Creation of ideas requires large investments. This necessitates the protection of IP. Benchmarking is the continuous process of measuring products, processes, and systems of an organization against those that are rated best in the industry. It helps in uncovering weaknesses and flaws in the organizational systems, processes, and products. (Watson, 2003)

The study of the global research conducted by McAfee Inc. and MessageLabs Ltd. on security threat in small businesses in the U.S. reveals that 80 percent of small-and-medium-sized businesses (SMB) believe that an information technology (IT) security failure would be damaging in attaining their business priorities. Yet, only few are courageously making steps to fight against infringements due to resource limitations from other business related priorities. The research implies that company size plays an essential part in the way senior management views security. Among the challenges that SMBs face include keeping up-to-date with security solutions and keeping costs low. Small-to-medium businesses’ behavior towards security is very tactical and meets only immediate requirements. (unknown, 2007)

DawningStreams’ relevance to these forces is two-fold. We are a software company—there is an opportunity for us to lose the intellectual property by those who would download and attempt to modify the code. We have competitors who offer functionality similar to ours, however we offer an additional functionality the others do not. It is this ‘specialty functionality’ for which we applied for a patent the United States Patent and Trademark Office. If the patent is granted, there is less likelihood of software piracy or the loss of our IP. Environmental scans should show us if there are other companies trying to do this.

The functionality, which most resembles our competitors’, is the ability to share files. That brings in a different concern with intellectual property- the possibility someone else’s IP could be sent from one of our users to another, as this could seriously damage our reputation, as what happened with Napster. (www.napster.com).

Conclusion

At one company after another–from Sears to IBM to Hewlett-Packard to Searle, strategy is again a major focus in the quest for higher revenues and profits. With help from a new generation of business strategists, companies are pursuing novel ways to hatch new products, expand existing businesses, and create the markets of tomorrow. Some companies are even recreating full-fledged strategic-planning groups. United Parcel Service expects to spin out a new strategy group from its marketing department, where strategic plans are now hatched. Explains Chairman Kent C. Nelson: “Because we’re making bigger bets on investments in technology, we can’t afford to spend a whole lot of money in one direction and then find out five years later it was the wrong direction.”

In such a world we need a planning model that allows us to anticipate the future and to use this anticipation in conjunction with an analysis of our organization–its culture, mission, strengths and weaknesses–to define strategic issues, to chart our direction by developing strategic vision and plans, to define how we will implement these plans and to specify how we will evaluate how well we are implementing these plans. The fact that the world is changing as we move forward in the future demands that the process be an iterative one.

References

Bilek, E. (n.d.) Compass Bankshares to be Acquired by Banco Bilbao Vizcaya Argentaria, S.A.,

Investor Relations. Retrieved from the Internet on March 31, 2007 at

http://media.corporate-ir.net/media_files/irol/77/77589/bbvarelease.pdf

Cole, Jim. Zions makes small deal, cites growing Arizona market. American Banker, 171(175), 1-1. Retrieved March 31, 2007 from Proquest Database.

Ford Motor Company (2006). Ford Motor Company. Retrieved March 2007,

from the World Wide Web, Web Site: [https://ford.com]

Ford, S. (2004) Adapted from 13 Skills Managers Need to Succeed, Harvard Business School

Press. Retrieved March 31, 2007 from EBSCOHost Database.

Hockenberry, Todd. (2006). Ford implements advanced laser marking. Industrial Laser Solutions, 21(4), 6-7. Retrieved March 31, 2007, from EBSCOhost database

Jacobs, P. (2005) Five Steps to Thriving in times of Uncertainty. Negotiation (p.3) Retrieved

April 1, 2007 from EBSCOHost Database.

McLean, J. (2006) We’re going through changes! British Journal of Administrative Management

54. Retrieved March 30, 2007 from EBSCOHost Database.

Pearce, J. & Robinson, R, (2004). Strategic Management: Formulation, Implementation, and Control. [University of Phoenix Custom Edition e-text]. The McGraw-Hill Companies. Retrieved March 2007, from the University of Phoenix, Resource, MBA 580-Strategies for Competitive Advantage Course Web Site: https://ecampus.phoenix.edu/secure/resource/resource.asp

Author Unknown, Strategic Planning, After a decade of gritty downsizing, Big Thinkers are back in corporate vogue. (2006) Retrieved from the Internet at http://www.businessweek.com/1996/35/b34901.htm

Unknown (2007) 80% of Small-to-Medium Sized Firms Fear a Security Threat. Computer Security Update 8 (4). Retrieved March 30, 2007 from EBSCOHost Database.

Unknown (2006) Strategic Planning, After a decade of gritty downsizing, Big Thinkers are back

in corporate vogue. Retrieved from the Internet at

http://www.businessweek.com/1996/35/b34901.htm

US Department of Commerce (2007), Encryption (ch.10, section 742.15). Retrieved March 27, 2007 from the Bureau of Industry and Security Website at http://www.bis.doc.gov/news/2007/foreignpolicyreport/fprchap10_encryption.html

Watson, G. (2003) Business Environmental Scans for Intellectual Property Strategy (PowerPoint Presentation). Retrieved March 28, 2007 from the Oklahoma State University website at http://www.okstate.edu/ceat/msetm/courses/etm5111/CourseMaterials/ETM5111Session3Part2.ppt#260,1,Business Environmental Scans for Intellectual Property Strategy

Mergers & Acquisitions Can Result from Strategic Alliances

Alliances frequently result in mergers and/or acquisitions. Partnering relationships, such as joint ventures or strategic alliances, can sometimes lead to a merger or acquisition situation. After companies work together for a period of time and get to know one another’s strengths, weaknesses, and synergistic possibilities, new relationship opportunities become apparent. One could argue that a joint venture or strategic alliance is simply the getting to know each other part of a courtship between companies and that the real marriage does not occur until the relationship has been consummated by a merger or acquisition.

To make the point, Dan McQueen, president, at Fluid Components International (FCI) built a Partnering relationship with Vortab, a small technology company. Vortab produced static mixers, a technology suitable for flow conditioning that complemented FCI’s product offering. While Vortab also had three other distribution partners in addition to FCI, FCI’s volume with Vortab continued to grow to the point that Vortab’s technology became an important part of FCI’s total sales volume. After about three years into the relationship, FCI acquired Vortab.

Because of the close relationship between Vortab and FCI, when the Vortab was put up for sale McQueen knew its true value. Resulting from his knowledge, FCI was able to purchase Vortab at a much more realistic price than Vortab’s asking price. The Vortab technology integrated well with FCI’s core competency technology and today FCI also distributes Vortab through some of its non-direct competitors.

The following list demonstrates some of the specific values created or developed from the various organizational blending methods:

· Operational resource sharing

· Functional skill transfer

· Management skill transfer

· Leverage (economies of scale)

· Capability increases

Mergers

Mergers occur when two or more organizations come together to blend or link their strengths. Also in the deal is a blending of their weaknesses. The hopeful result is a new more powerful organization that can better produce goods and services, access markets, and deliver the highest quality customer service. Mergers offer promise for synergistic possibilities. This is achieved by the blending of cultures and retaining the core strengths of each. In this scenario, a new and different organization generally emerges. The goal is a sharing of power, but usually the strongest rise to the top leadership.

Exxon – Mobil

The Federal Trade Commission gave Exxon and Mobil the green light On November 30, 1999 for their $80 billion merger. The next day the transaction was completed. The merged organization officially became Exxon Mobil Corp. The merger actually brings “the companies back to their roots when they were part of John Rockefeller’s Standard Oil empire. That company was the largest oil firm in the world before it was busted up by the government in 1911.”

At the 1998 announcement of their intention to merge, Mobil chairman, Lucio Noto made a comment about the need to merge. He said, “Today’s announcement combination does not mean rhat we could not survive on our own. This is not a combination based on desperation, it’s one based on opportunity. But we need to face some facts. The world has changed. The easy things are behind us. The easy oil, the easy cost savings, they’re done. Both organizations have pursued internal efficiencies to the extent that they could.”

While part of the deal was the selling of a Northern California refinery and almost 2,500 gas station locations, the divestiture represents only a fraction of their combined $138 billion in assets. Lee Raymond, Exxon chairman, now chairman and chief executive of the merged company said, “The merger will allow Exxon Mobil to compete more effectively with recently combined multinational oil companies and the large state-owned oil companies that are rapidly expanding outside their home areas.”

Exxon Mobil is now like a small oil-rich nation. They have almost 21 billion barrels of oil and gas reserves on hand, enough to satisfy the world’s entire energy needs for more than a year. Yet, there is still the opportunity to cut costs. The companies expect their merger’s economies of scale to cut about $2.8 billion in costs in the near term. They also plan to cut about 9,000 jobs out of the 123,000 worldwide.

AOL – Time Warner

On January 10, 2000, Steve Case, chairman and chief executive of America Online (AOL), sent an e-letter to his 20 million members. He said, “Less than two weeks ago, people all over the world came together in a global celebration of the new century, and the new millennium. As I said in my first Community Update of the 21st Century, all of us at AOL are extremely excited by the challenges and prospects of this new era, a time we think of as the Internet Century.

I believe we have only just begun to see clearly how the interactive medium will transform our economy, our society, and our lives. And we are determined to lead the way at AOL, as we have for 15 years–by bringing more people into the world of interactive services, and making the online experience an even more valuable part of our members’ lives.

That is why I am so pleased to tell you about an exciting major development at AOL. Today, America Online and Time Warner agreed to join forces, creating the world’s first media and communications company for the Internet Century. The new company, to be created by the end of this year, will be called AOL Time Warner, and we believe that it will quite literally change the landscape of media and communications in the new millennium.”

The next day newspaper headlines read, “America Online, Time Warner Propose $163-Billion Merger.” The Los Angeles Times said, “In an audacious deal bringing together traditional entertainment and the new world of the Internet, America Online and Time Warner Inc. on Monday announced they will merge in the largest business transaction in history.”

The story later revealed the value comparisons of the companies. While AOL earns less than Time Warner, the stock market thinks AOL’s shares are worth more. “America Online is valued by the stock market at nearly twice Time Warner–$173 billion, compared with $101 billion as of Friday’s [1/7/00] market close–even though it has one-third Time Warner’s annual revenues.” The article also stated “AOL earned $762 million on $4.8 billion in sales in the year ended Sept. 30 [1999].”

AOL chairman, Case wants to move fast. The Times article stated, “Case said the two chairman began discussing a combination this fall [1999], he has tried to impress upon Levin [Gerald Levin, chairman at Time Warner] the need to operate the new company at Internet speeds.” (We all know the rest of the story…nothing is forever.)

The prophets of gloom are always ready to point out the down side to deals. In UPSIDE magazine, Loren Fox reported some of the challenges to the marriage. They are:

· “The holy grail of strategic synergy has been elusive in the media world.”

· “In the offline world, it’s notable that Time and Warner Brothers have continued to run fairly independently despite a decade as Time Warner.”

· “‘From any standpoint, this has not been a success to date,’ says Yahoo President and COO Jeff Mallett.”

· “When you buy the company, you get things you don’t need.”

· “Warner might make these deals easier, but it might also bring new risks–even for AOL, a veteran of 25 acquisitions over the last six years. Employees might flee to pure dot-com companies, ego clashes could stymie plans or financial gains may never cover the large premium paid for Time Warner.”

· “You don’t need to own everything to do what AOL and Time Warner are doing.”

Warner-Lambert

Merger mania can make strange bedfellows, let alone promises unfulfilled. Alliances can lead to mergers. Warner-Lambert is an example of all the above. This is corporate soap opera at its best.

· June 16, 1999, Warner-Lambert Company announced that it has signed a letter of intent with Pfizer Inc. to continue and expand its highly successful co-promotion of the cholesterol-lowering agent Lipitor (atorvastatin calcium). The companies, which began co-promoting Lipitor in 1997, will continue their collaboration for a total of ten years. Further, with a goal of expanding their product collaborations, the companies plan to explore potential Lipitor line extensions and product combinations and other areas of mutual interest.

· November 4, 1999, newspapers across America report on “one of the biggest mergers of any kind, ever.” The Wall Street Journal said, “Now, American Home is set to merge with Warner-Lambert Co. in a stock deal that is valued at about $72 billion. It stands as the biggest deal in drug-industry history and one of on the biggest mergers of any kind, ever.” Also reported, “Warner-Lambert held talks with Pfizer Inc. at the same time it was negotiating with American Home.”

· November 4, 1999, The New York Times runs a story titled, “Can a Strong-Willed Chief Share Power in a Merger?” The article lead with, “The planned merger between American Home Products and Warner-Lambert once again raises the question of whether John R. Stafford, American Home’s famously strong-willed chairman and chief executive, is capable of sharing and, perhaps more important, letting go of power.”

· January 13, 2000, Warner-Lambert Company indicated that, as a result of changing events, it is exploring strategic alternatives, including meeting with Pfizer, following Pfizer’s recent approach. In that regard, Warner-Lambert said that its Board of Directors has authorized management to enter into discussions with Pfizer to explore a potential business combination. The Company stated that, in light of changing circumstances, its Board had concluded that there is a reasonable likelihood that Pfizer’s previously announced conditional proposal could lead to a transaction, reasonably capable of being completed, that is better financially for Warner-Lambert shareholders than the proposed merger with American Home Products.

Lodewijk J.R. de Vink, chairman, president and chief executive officer of Warner-Lambert, stated, “It has always been the Board’s objective to secure the best possible transaction for Warner-Lambert shareholders and we will now pursue discussions with Pfizer to determine if a combination with them to achieve that goal is possible.” The Company emphasized that there can be no assurance that any agreement on a transaction with Pfizer, or that any other transaction, will eventuate.

· January 24, 2000, in response to inquiries, Warner-Lambert Company said that it would continue to explore strategic alternatives, including discussions with Pfizer. The Company’s unwavering goal is to provide the greatest value to Warner-Lambert shareholders. Warner-Lambert officials emphasized that there can be no assurance that any transaction will be completed and offered no further comment.

Was American Home Products the bride left at the altar? The Wall Street Journal didn’t think so, in fact they called American Home the Runaway Bride in their November article. Additionally they listed several companies that American Home has them selves left at the altar.

· Early November 1997, American Home Products and SmithKline Beecham begin merger talks.

· January 30, 1999, Talks break off.

· June 1, 1998, American Home and Monsanto announce agreement to merge.

· October 13, 1998, American Home and Monsanto cancel plans to merge.

· November 3, 1999, American Home and Warner-Lambert Co. in talks to merge.

Acquisitions

An acquisition is basically the function of one company consuming and digesting another. The result is that the acquiring company shores up core weaknesses or adds a new capability without giving up control, as might occur in a merger. Added capabilities, rather than synergy is usually the reasoning behind acquisitions. In this situation, the acquiring company’s culture prevails. Frequently one company will acquire another for their intellectual property, their employees or to increase market share. There are numerous strategies and reasons why one company acquires another, as you will soon discover.

Guardian Protection Services has been acquiring alarm companies within its northeast region of operation to supplement its internal growth. Russ Cersosimo, president says, “This is just another way for us to satisfy our appetite for growth. Our desire is to expand our opportunities in the other offices. That is another reason why it is attractive for us to look to acquire companies, to get their commercial base and commercial sales force that is in place in those offices. We wanted to make sure that we can digest the new accounts without putting strain on our paper flow and the systems we have in place.”

Who does R&D acquisitions well? Electronics Business recently answered, “Cisco Systems Inc., San Jose, the networking equipment company, which boasts many success stories among its 40 acquisitions of the past six years.” None of their acquisitions were in mature markets, rather all were leading edge, allowing Cisco to broaden its product offering. Cisco hedges its acquisition bets through volume. Ammar Hanafi, director of the business development group at Cisco says it counts on two out of three acquisitions succeeding and the remaining third doing just okay. Acquiring people, intellectual properties and specialized skills is important to companies like Cisco. They think that even if the acquired technology does not pan out, they have the engineers. Generally, any fast growing company like Cisco cannot hire people fast enough and the acquired personnel are a boon to the company’s progress. Retention of acquired employees is at the heart of their acquisition strategy. “If we’re going to lose the people who are important to the success of the target company, we’re probably not going to have an interest,” says Cisco controller Dennis Powell.

“Cisco doesn’t do big acquisitions, the cultural issues are too huge,” Hanafi says. Cisco buys early stage companies with little or no revenues. While they often have paid extremely high prices for the acquisition, they seem to do better than most with their selection. Between 1993 and 1996, Cisco bought cutting edge LAN switching technologies for a total of $666 million in stock. More than half was spent on Grand Junction Networks Inc., which developed fast Ethernet switchers. At the time of purchase, it is estimated that Grand Junction’s annual revenues were $30 million. “Today, the four LAN switching acquisitions account for $5 billion of Cisco’s $12 billion in annual revenues.” “We acquire companies because we believe they will be successful. If we didn’t believe in their success, we would not acquire them,” says Powell.

Little known West Coast Texas Pacific Group (TPG) has been acquiring at a feverish pace. Their semiconductor and telecom buying spree includes, GT Com in 1995, AT&T Paradyne (from Lucent Technologies Inc.) in 1996, Zilog Inc. in 1997, Landis & Gyr Communications SA in 1998, ON Semiconductor (from Motorola Inc.), Zhone Technologies Inc., MVX.COM and Advanced TelCom Group Inc. in 1999.

TPG banks heavily on intellectual capital. Many believe that by being part of TPG, their single biggest advantage is access to broad pool of talented and well-connected people. CEOs can take advantage of TPG’s contacts in other industries around the world. “TPG has this ability to build a virtual advisory board…that they don’t even have to pay for,” says Armando Geday, president and CEO of GlobeSpan Inc.

Lucent Technologies, Inc. has also been rampaging through the same market as Cisco. Lucent’s 1999 (January to August) acquisitions as listed in CFO magazine include:

· Kenan Systems for $1 billion

· Ascend Communications for $24 billion

· Sybarus for $37 million

· Enable Semiconductor for $50 million

· Mosaix for $145 million

· Zetax Tecnologia, $ N/A

· Batik Equipamentos, $ N/A

· Nexabit Networks for $900 million

· CCOM, Edisin, $ N/A

· SpecTran for $99 million

· International Network Services for $3.7 billion.

An advantage that Lucent has over its competitors is access to its 25,000-employee Bell Labs idea factory. As such, they are more likely to purchase technology rather than R&D. Still, Lucent continually reviews the comparative advantages of technology and R&D in relationship to its own projects in reviewing acquisition possibilities. Lucent executive vice president and CFO Donald Peterson says, “In every space in which we have acquired, we have had simultaneous research projects inside. It makes us knowledgeable, and lets us have a build-versus-buy option.”

Lucent wants their units as a hole to do well and if acquisition helps that cause, they acquire. Peterson also says, “We view acquisition as a tool among many that our business units can use to advance their business plans. We evaluate acquisitions one by one, in the context of the business strategy of the unit.”

Tyco International Ltd. is a diversified global manufacturer and supplier of industrial products and systems with leadership positions in each of its four business segments: Disposable and Specialty Products, Fire and Security Services, Flow Control, and Electrical and Electronic Components. Through its corporate strategies of high-value production, decentralized operations, growth through synergistic and strategic acquisitions, and expansion through product/market globalization, Tyco has evolved. From Tyco’s beginnings in 1960 as a privately held research laboratory, it has transformed into today’s multinational industrial corporation that is listed on the New York Stock Exchange. The Company operates in more than 80 countries around the world and had fiscal 1999 revenues in excess of $22 billion.

In the mid-1980s, Tyco returned its focus to sharply accelerating growth. During this period, it reorganized its subsidiaries into the current business segments listed above. The Company’s name was changed from Tyco Laboratories, Inc. to Tyco International Ltd. in 1993, to reflect Tyco’s global operations more accurately. Furthermore, it became, and remains, Tyco’s policy to focus on adding high-quality, cost-competitive, low-tech industrial/commercial products to its product lines that can be marketed globally.

In addition, the Company adopted synergistic and strategic acquisition guidelines that established three base-line standards for potential acquisitions, including:

1. A company to be acquired must be in a business related to one of Tyco’s four business segments.

2. A company to be acquired must be able to expand the product line and/or improve product distribution in at least one of Tyco’s business segments.

3. A company to be acquired that will introduce a new product or product line must be using a manufacturing and/or processing technology already familiar to one of Tyco’s business segments.

Tyco also developed a highly disciplined approach to acquisitions based on three key criteria that the Company continues to use today to gauge potential acquisitions:

1. Post-acquisition results will have an immediate positive impact on earnings;

2. Opportunities to enhance operating profits must be substantial;

3. All acquisitions must be non-dilutive to shareholders.

FASB Accounting Rule Change

The rules of the game are changing. Some of the accounting benefits of acquisition will soon disappear. Spending some extra time with your accounting and legal departments could prove beneficial in the long-term.

George Donnelly, in his article in CFO magazine writes, “The current state of accounting rules is clearly a factor in the frenetic acquisition activity at Cisco Systems and Lucent Technologies Inc. Like many high-tech companies, the two giants can acquire with little drag on their finances, because pooling-of-interest accounting enables them to avoid onerous goodwill charges that otherwise would ravage earnings.

But because of the death sentence the Financial Accounting Standards Board has levied on pooling, companies must use straight-purchase accounting after January 1, 2001. Then buyers will have to amortize goodwill for no more than 20 years.”

Consolidations and Rollups

Bill Wade in Industrial Distribution said: “The basic premise couldn’t be any simpler. Take a highly fragmented industry–like distribution–facing technological change, customer upheaval or chronic financing difficulties. Add in a few well-healed foreign firms or, worse, a couple of previously unknown competitors from outside the business. Since the industry leaders are probably family-run businesses with limited succession strategies, the next step to protect profit and continue growth is clear: consolidate.”

A consolidation or rollup, as it’s frequently called, generally occurs when an organization or individual with deep pockets sets out to buy several small companies in a fragmented industry and rein them in under a new or collective pennant. In 1997 the National Association of Wholesale-Distributors reported that 42 of the 54 industries they studied had been significantly affected by consolidation. Frequently a professional management and buying strength create economies of scale that allows the consolidator to pluck the low hanging fruit in the industry. They will invest significantly in systems to eliminate the duplication of effort and inefficiencies that exist within the industry being consolidated.

While some call it smoke and mirrors, many consolidators are yielding outstanding results. In 1997, at 39 years old, financial whiz Jonathan Ledecky pulled off a bold deal. As reported in CFO magazine, He went to the public equity markets and raised half a billion dollars for his company, Consolidation Capital Corp., in a brazen initial public offering. Without revenues, assets, operating history or identity (name or industry), he raised the capital in a blind pool on the strength of his reputation alone.

U.S. Office Products (USOP) is the result of 220 acquisitions. Sharp Pencil was one of six privately owned office-supply companies that Ledecky put together. But he didn’t stop, after two years, and 220 acquisitions later, USOP was a member of the Fortune 500, with $3.8 in revenues. “It was crazy,” says Donald Platt, senior vice president and CFO at USOP. Platt did rely highly on outside resources, including a team of lawyers and accountants to get the job done (the 220 acquisitions). “We restricted then to well-managed, profitable companies. At worst, we would still be making money,” says Platt.

H. Wayne Huizenga is the owner of the Florida Marlins baseball team. He is also the king of consolidators. He pioneered his technique by rolling-up trash-truck businesses to create Waste Management Inc., the nation’s largest waste company. He went on to create the largest video chain, Blockbuster Video. With AutoNation, Huizenga, now struggling, is attacking the retail automobile industry. In mid-December 1999 AutoNation had 409 retail franchises but announced the closing of 23 of their used-car superstores.

Michael Riley learned about consolidations while serving as personal attorney for Huizenga. In July 1999, Riley’s company, Atlas Recreational Holdings Inc., paid $14 million to purchase controlling interest in the only publicly traded RV dealership chain in the United States, Holiday RV Superstores Inc., in Orlando, Florida. Riley’s avowed intention is to grow the company from $74 in annual sales in 1998 to $1 billion by 2003 by acquiring other dealerships.

Riley says, “Consolidations really will help. We can bring advantages to sales and service. We can make a difference in warranty. There is a real value added when you put these companies together.”

Same Industry, Different Strategies

In mid-1997, roll-ups, United Rentals and NationsRent were formed. They are in a race, but are using different strategies to achieve their results. After two years of ravenously gobbling up companies, United had 482 locations while NationsRent had accumulated only 138 stores. NationsRent has been developing a nationwide identity with stores that look-alike and have the same signage and layout. United Rentals presence is virtually unknown since the stores retain their previous appearance.

Motivations for Consolidators

There are several good reasons why consolidators attack a particular industry. The following list provides some of the rational that assist them in their decision making process. As you look to profit from the trend, keep these elements in mind as you make your selection on whom to acquire.

· Confidence by the players that they can capture significant and highly profitable additional market share by implementing the cutting edge management, procurement, distribution and service practices that will give them a competitive edge over smaller players.

· Gain national customers through increased capabilities in delivering the highest levels of standardized service and national geographical coverage.

· Larger customers of independent distribution channels are seeking broader geographic coverage and networks of locations that allow for greater service capabilities, and the smaller customers want a high level of customer service and response.

· Customers’ desire for more product sophistication.

· Insurance and financing synergies.

Fragmented Industries Are Ripe for Consolidations and Rollups

Some industries that are ready for consolidations or rollup examples include heavy-duty truck repair, office products, recreational vehicle dealerships, rental stores (equipment, tools and party) and distribution. Consolidation does not just happen. It is triggered by shifts in supplier and customer expectations. Consolidation in a supplier base or customer pool often alters the economic rational for the structure of an industry. Functional shifts are accompanied by serious margin shifts among channel participants.

Take notice of the speed in which an industry can experience consolidation. If you are a consolidator, pick the low hanging fruit before another beats you to it. If you are fighting consolidation, take notice of the state of your industry and make adjustments (like strategic alliances) to your business plan if your industry is highly fragmented.

· TruckPro, the $150 million sales creation of Haywood and Stephens Investments, was sold in May 1998 to AutoZone, the $3 billion distribution king of do-it-yourself auto parts.

· In June 1998, nine heavy-duty distribution companies with volumes of $6 to $37 million, simultaneously merged and raised $46 million from the public for their brand new $200 million company, TransCom USA.

· Brentwood Associates, a venture capital company, during Spring and Summer1998, created HAD Parts System, Inc. a $145 million operation, by acquiring three companies in the Southeast.

· In July 1998, Aurora Capital’s QDSP acquired majority interest in nine heavy-duty companies from FleetPride, a $200 million parts and service operation.

Stated in Truck Parts & Service, “Here the independent suffers a staggering disadvantage to roll-ups. Consolidators have access to large amounts of capital. The independent businessperson, however, must primarily finance his growth by earnings retains from current operations. New high efficiency service bays, significant and growing training expenses, data processing and communications technology all clamor for increased working capital. The large players’ acquisition cost advantage eventually will win him all the mega-fleet business and the vast majority of business from mid-sized fleets.

Supplementing his parts acquisition cost advantage, the consolidator will be able to lower many overhead costs through centralized management and volume discounts…Combined savings in parts acquisition cost and overhead reduction should easily exceed 4% of sales.”

Some of the indicators that an industry (any industry) is poised for consolidation are listed below. If you notice your industry has similar issues, it is just a matter of time. Plan now for what is coming. Where do you want to be when the train arrives?

· A high degree of fragmentation with numerous smaller companies and few, if any, dominating players.

· A large industry that is stable and growing.

· Multiple benefits for economies of scale.

· Synergies that can be achieved by consolidating companies.

· Infrequent use of advanced management information systems.

· Limited access to public capital markets and somewhat inefficient capital structures among companies.

· Lack of opportunities, historically, for owners to liquidate their businesses if they wish to leave the industry.

Reasons for Business Owners Selling to Consolidators

The reasons for a business owner to sell his or her business are as varied as there are people. Usually it is not one reason but several combined reasons that influence a seller’s decision. The following list provides you with the general areas that might drive a selling decision:

· First generation owner, without heirs, nearing retirement.

· Lack of capital to make necessary technological and capital improvements to compete, within an industry, and with new competitors.

· Flat growth rate in industry.

· Better profitability as part of a larger organization.

· Centralized buying.

Things You Don’t Know About China Shoe Industry

The Unfavorable Factors Now Facing Shoe Industry in China

More Cost for Labors

The Uprising in RMB

Raw Material Price Keeping Rising

Foreign Anti-dumping Charges

America Sub-prime Mortgage

The “Red Sea” Competition Within Shoe Manufacturers Themselves

Shoe Export Slows Down

Guangdong, a province in south China, exported 490 million pairs of shoes in January and February 2008, valued at USD 1.59 billion, decreasing 27.5% and 0.6% from one year before, citing customs statistics.

From September 2007, Guangdong’s export of shoes began to fall, 18.5% year on year in November of the year and 20.3% and 35.7% in January and February 2008. Besides, in the first two months, the number of shoes exporters in the delta decreased 1,855 year on year to 1,512, due to a rising renminbi, the US’ subprime mortgage crisis and a rise in China’s labor cost.

China has 40,000 shoe manufacturing plants with annual output of 6.5 billion pairs, accounting for 20 percent of the world’s total. However, 85 percent of them are middle and low-end products. Experts suggest that China’s shoe industry development should base itself on fashion culture and advanced management concepts, transforming the industrial strategy from simple manufacturing to brand promotion.Half of the country’s shoe output originates in south China’s Guangdong province, but most shoe factories there are small in scale and use simple manufacturing processes without much added value.

Four Manufacturer Bases of Footwear Industry in China

Guangdong Province

Many factories Close-downs is the must paid price for the industry transformation

Jingjiang City in Fujian Provice

Who will laugh at last? The “red sea” competition condition for the sports shoe in Olympic 2008 is getting more and more fierce.

Jiangsu Province

Brand cultivating and promotion is the core

Making technological innovations and taking the lead with technologies

In recent years, the footwear industry in Jinjiang has been paying attention to making more investment in technology improvement and encouraging innovations in terms of new technologies, new materials and new craftworks. Nevertheless, the footwear industry in Jinjiang just takes the lead in terms of manufacturing equipments but the level of technological innovation remains low, the research and development is still rather weak, there still lack high-end talents and relevant software and hardware, there is no sufficient production capacity of top-grade products, and it still lags far behind the international advanced level as far as studies on new products in terms of comforts and functions are concerned.

2008 Dongguan China Shoes – China Shoetec

This UFI approved event is widely supported by footwear industry. China Chamber of Commerce for I/E of Light Industrial Products and Art-Crafts(CCCLA), Hong Kong Footwear Association, Taiwan Footwear Manufacturers Association, Dongguan Leather & Footwear Association have confirmed to organize exhibiting pavilions in Spring 2008, and will bring in brand new exhibitors, allowing footwear manufacturers and traders enjoy the rewards that China Shoes âEUR¢ China Shoetec will bring. At the same time, overseas buyers express great interests to visit the exhibition and show gratitude to the organizers for providing suppliers with good quality sources. It is expected that the show will attract around 25,000 domestic and overseas buyers.

E-business Web Choice – Finding Authentic Shoe Suppliers in China

If you happen to be a buyer, looking for appropriate China Supplier partners. Would you like to get comprehensive information, such as company business registration condition, actual production, trade, R & D abilities and quality management system, of potential partners quickly? Do you hope that this information is from an impartial authoritative organization like SGS? If you are looking for such suppliers and need such important business information, please choose Made-in-China.com. It has already become a leading B2B portal especially in assisting global buyers and Chinese manufacturers to make contact and conduct international trade.

The influence of Beijing 2008 Olympic Games to science and technology content of sports shoes product. Nowadays the current of product with the same quality is more and more serious, who can keep ahead of technology and make out larruping and suitable product for customers, who will be favorite. Besides, sport shoes manufactures need improve professional capability, at the same time enclose with athletic sports requirement, via reduce cost to supply bargain gym shoes product for person.

Compared with burgeoning markets such as Vietnam and India, experts said China still has advantages in terms of cheap power and water supply, excellent infrastructure and an integrated industry.

What Have We Done To Our Industrial Base In The USA – Why Did We Do It?

During the 2016 election there was lots of talk about jobs, mostly lost jobs to crumbled industries. Sectors of our economy which were once strong and vibrant, but we traded them away to other nations is bad trade deals. Donald Trump is correct most of the major trade deals we’ve made haven’t been good for our economy in the long-term, sure they may have won us brownie points on the international stage and helped us out ‘client nation’ other former super powers and slowed down an emerging super power – but to what avail if we don’t have decent jobs for our own citizens?

You should see the destruction we’ve done in the mining sector for no real reason, today we have incredible mining technologies to prevent environmental damage, but good luck trying to get that going again. How can we compete with manufacturing when the entire supply chain from resources to the finished automobiles has been trashed? We are so much better than this.

We’ve allowed our industrial capabilities to be crushed, and we have politicians pandering to the vocal minority and incited media rather than by reason and reality. It should not cost $50 million dollars in EIR work and lawyers to get a refinery approved or a new strategy to add clean-coal technology to an existing coal-fired energy generation plant that has existed burning coal for power for 50-years. I thought we wanted clean and cheap energy?

No, apparently we want to hijack the fossil fuel industry to divert the wealth of the industry to new unproven alternative energy folks who are friends or relatives of Pelosi, Reid, or donated big bucks to the Obama Administration’s elections. And it isn’t just the Democrats joining the crony-capitalist feeding frenzy, because when the money flows in politics, people line up and throw their politics out, they just want to get rich, problem is we the taxpayers get screwed, and now we pay again in higher energy costs for the subsidies, and inefficiencies.

Our companies are less competitive with higher costs in energy for manufacturing, industry, mining, and thus it is even harder to compete on top of the four items I previously mentioned. Of course, I digress again. The point is bad policies, cronyism and attacks on our corporations from unions, class-action lawyers, over regulation, and foreign influences have us running at 1500 RPM when we redline at 5,000 RPM. Think on this, because it is fixable.

Urethane Products For Many Industries

Before I write further, I will emphasize that Polyurethane is identical to urethane. This means, the name can be exchanged. In the industrial field, urethane provides many benefits such as for industrial wheels or as industrial equipment coatings. The industrial wheel uses urethane because of its hard and elastic nature so it is suitable for heavy performance in extreme conditions such as high temperatures, impact with heavy and sharp elements, splashes of chemicals, etc. Urethane is also able to maintain the performance of industrial wheels with very heavy loads in very rough terrain.

In addition to industrial wheels, polyurethane also plays a role in the robotics industry, especially in robot wheels. The urethane robot wheel is designed by robotics engineers with very strict requirements. Well, have you ever seen a robot sent to record conditions in extreme locations that cannot be reached by humans such as space missions, inspection of sewage pipes, oil storage, and the nuclear industry? If so, have you ever asked, how can video images are received clearly despite extreme conditions? One factor that causes video images to be well received is sophisticated and high-quality urethane wheels. The urethane wheel is specifically designed to provide extreme vibration dampening so that the video images provided by the robot are sharp and clear.

Polyurethane also provides the same function when applied as a coating of industrial equipment. Industrial equipment coated with polyurethane will last longer; this is what makes industry players prefer polyurethane-coated products. Basically, Urethane manufacturing is a mixture of plastic and rubber; the solution creates a surface that is more resistant to friction, wear, heat, and resistant to some chemicals. The use of urethane has become increasingly widespread, apart from being a coating this material is also often used as elastomers, adhesives, hard foam, etc. Polyurethane can be formed into rigid or flexible and it is a versatile and safe material so it is widely used in environmentally friendly industrial products. In essence, Polyurethane provides many functions, so it is suitable for use in the heavy duty industry.

Polyurethane is also a material that has high resistance to oil and it is an electrical and thermal insulation, it means, polyurethane can reduce the rate of heat and electricity energy transfer. Therefore, polyurethane can be used for various types of products such as building insulation, fridge insulation, mattresses, sportswear, etc. Several other types of finished products in various industries such as vacuum suction for the beverage industry, paper suction for the paper industry, roll feeders for the printing industry, electric forklift tires for the Forklift industry, etc.

Well, if you are a businessman who needs finished polyurethane products, then you can order them according to industry requirements easily. There are many companies that serve custom urethane manufacturing, they use modern technology. Each urethane product is made with precision, using only high-quality ingredients and being very careful to ensure that the final results are precisely according to detailed specifications.

Rubber Seals Designs

The basic reason for using rubber seals is to prevent leakage of liquid between two joined surfaces. This is basically a mechanical seal used in static and dynamic sealing applications. Rubber seals, made of natural rubber or synthetic rubber, are used in various industries such as automotive, aerospace, construction etc. This seal is widely adopted in various applications due to features such as resistance to aging, fire retardation capabilities etc.

Rubber Seals Designs

There are different varieties of such seals available in the market on the basis of their designs, materials, usage and applications. There are three popular designs of these seals and each design has its distinct cross section. Let us discuss these designs below:

O-Rings

As the name suggests, these are round shaped, in the shape of O or a doughnut. It has the ability to do a sealing action by deforming to take the shape of the cavity and can easily fit into it. It can be a static or a dynamic seal. In static sealing, there is no or little motion between the mating surfaces. In dynamic cases, a relative motion is seen between the mating surface. O ring has simple mounting requirements.

X-rings

This design is in the shape of the letter-X and hence referred as X-rings. At times, it is also known as Q-rings. Considered to be a better alternative to O-rings. Used mainly in rotary seal applications. X rings provide double-closing action. They have a four-lobed configuration which prevent the seal from being twisted. With two areas to be sealed, they require less deformation to offer an effective sealing.

Square Rings

These are seals with square cross sections. Made of natural or synthetic rubber, these are used mainly in high pressure gasketing functions. Square rings are used in place of similar sized O-rings or other molded seals. They are ideal for static applications but not for dynamic applications. Some basic advantages of square rings are controlled surface smoothness, better elasticity, correctly formed edges, and accurate hardness.

U-cup Seals

Another popular design of rubber seals is the U-cup seal. They are mainly used to join stems or rams. With small glandular spaces, they become more perfect. With a U-shaped cross section, sealing itself is possible for inner and outer diameters. There are three varieties of such seals.

The Use of Laser Marking

A laser has long been the preferred tool for making precise, permanent aesthetic marks on objects. From the patterns on your kitchen set to the patterns on your stained glass windows, lasers leave traces everywhere. The reasons why people choose laser marking methods like doing it by hand or other forms of radiation are:

Speed. Laser works fast. By programming a design into a laser machine, that design can be reproduced in a matter of seconds. The same thing, by a human hand, would require a hundred times that duration.

Repeatability. Watermarks, logos, barcodes etc are all security information, and producing perfect replicas is of the utmost importance here. Laser replication is as error-free as it gets, with error levels too low for even the most sophisticated machines to detect. Also, repeatability is often desirable even when it is not of such paramount importance – for example, while printing designs on apparel or accessories in bulk.

Precision. A laser beam is no more than a few microns thick. A micron is a thousandth of a millimeter – yes, I have my calculations correct. Therefore, there is no better instrument than laser for making fine markings on areas where precision is absolutely necessary. This is why laser is used on things like glassware, medical implements, barcodes, backlit keyboards etc.

Till recently, however, laser instruments have been limited to 2-dimensional surfaces. Even this was not seen as too great as limitation, as the biggest advantage of laser was its speed, precision, repeatability and permanence. Now, the same precise performance has been diversified to include 3D items, of the most complex shapes and varied sizes. This is where 6-axis laser comes in. 6-axis laser technology combines several features:

o 3D scanning, for one
o Use of robots to move around the workpiece. This allows a more constant path and distance of the laser, where both the head and the material being worked on are moved around to generate optimal results.
o Marking lasers with vision system
o Software tools to allow image wrapping, even around complex and elaborate 3D shapes such as lanterns, vases, gems and so on

Consequently, 6-axis lasers have become highly popular in industries that require high-precision cutting, etching or marking on 3D surfaces. As most people know by now, markings these days are made by erasure as often as they are made by painting. Backlit keyboards, for example, work by having paint on the entire surface, but a few layers of paint removed to create the symbol on the key. The same holds true for car dashboards etc.

6-axis laser is also used in the aviation industry to remove paint from magnesium castings. Another important use of this sophisticated and sophisticated marking technology is to remove metal coating from the surface to produce beautiful and complex patterns. For cost-effective, efficient and aesthetic marking technology, there is no better choice than laser marking systems.

Appropriate Marketing Strategy for Manufacturing Company

The digital world has brought humans into an unlimited world. The digital world has also penetrated the world of marketing in industrial business; it is proven that there are many companies using the internet to attract people to become their consumers. Digital marketing strategies through the internet are critical for the success of a company today, because everyone always uses the internet to find anything to meet their needs. In my opinion, this is a phenomenon of radical change in behavior, where people prefer to enter the digital world via smart phones rather than meets directly with producers to make buying and selling transactions.

The company cannot fight this phenomenon; they cannot go against the flow and change consumer behavior to return to the traditional transaction system. What all modern manufacturing companies must do is, apply marketing strategies that are able to educate consumers so that they are interested in buying products naturally. What is the most appropriate strategy? One of the most relevant strategies today is inbound marketing for manufacturers.

The most effective marketing strategy for all companies today is inbound marketing. In essence, inbound marketing is a marketing technique using content or articles in a website that is designed creatively and relevant to everyone’s needs. The main purpose of this marketing strategy is to make the company’s business discovered by consumers; in this case consumers are getting closer to the company’s products and services.

It is a big success in the field of marketing if the company has many consumers who are closer to services and products naturally; they have been educated so that they know the benefits of a product for themselves. Inbound marketing contains accurate ways to get loyal and educated consumers. This strategy greatly maximizes many platforms to attract quality consumers; they are the function of social media, email, search engines, websites and blogs. Through these platforms, companies are required to present quality content to attract the attention of consumers.

The content is well-made and not haphazard. Therefore, the company must analyze the problems experienced and the habits that are often carried out by consumers. After that, correlate with the services and products provided. This method is done so that the content that is served is not only interesting but also has a use value. Inbound marketing for manufacturers is the right way to bring quality content to the needs of consumers naturally. How can these two variables meet naturally? Are there certain strategies? Well, of course there are special ways. Not all companies have qualified resources for conducting inbound marketing comprehensively. Therefore, companies should use marketing agencies that work specifically in conducting Inbound marketing for manufacturers.

Inbound marketing agency for manufacturers will help companies to educate consumers through the content marketing. They will take special steps so that consumers are easy to find out the existence of the company’s products in cyberspace. Some of the most widely applied inbound marketing activities include social media marketing, blogging, search engine optimization (SEO), email marketing, set the landing page, maintaining leads and making articles, videos, infographics and so on. All of that is done to create an unforgettable experience as long as consumers are on the company’s website.

A marketing strategy for the company will produce big results if you do it right. So, start building an online empire by implementing inbound marketing correctly for your manufacturing company right now. Why do you have to start as soon as possible? You need to know that to get loyal consumers who are educated through content marketing requires patience. This means, it cannot be obtained instantly. However, certainly your manufacturing company is on the right track to achieve great success.

Important Machine for Turned Parts Manufacturer – CNC Turning

CNC is an acronym for Computer Numerical Control. In its application CNC is a process used in the manufacturing industry which involves the use of computers that can produce various components called turned parts. One type of CNC machine used by turned parts manufacturers to produce high quality turned parts components is CNC lathes. The performance process of a CNC lathe is called CNC Turning.

Basically, CNC turning involves the process of cutting, carving and turning on material objects such as metal, wood, plastic, stone, etc. The materials are then processed in such a way as to produce the right dimensions in each turned part section. Through CNC Turning, turned parts manufacturer can make various types of components according to the required measurements. They are able to receive customized requests from all components of the industry such as parts in the communications industry, the semiconductor industry, medical equipment, optical equipment, surgical equipment, auto parts, audio parts, gear boxes, pumps and compressors, inspection instruments, gas devices, lasers equipment, and many more.

There is no reason for turned parts manufacturers to refuse in applying CNC turning technology. The turning activity of CNC turning machine will reduce complexity, reduce the amount of material released, veering from challenging shapes such as very long and flat structures. In addition, using this technology in manufacturing industry will be able to provide many benefits, namely cost savings.  

Increasing profits and reducing efforts are the working principles that must be held by all manufacturing companies, including turned parts manufacturers. Well, indeed CNC Turning machines are rather expensive but their existence can provide long-term investment benefits. This machine is not only able to reduce the need for the time and energy but it is able to reduce production costs. This machine is highly recommended for increasing production in quantitative and quality. All you have to do is make sure all machine devices are functioning properly and free of errors. Thus large profits will be obtained easily.

Turned parts manufacturer services help clients realize ideas quickly. The company always works hard to meet the expectations of every client that need turned parts. Usually, the company is also ready to provide additional services for fast shipping at affordable prices. However, the most important thing is communication between the client and the turned parts manufacturer. A good manufacturer always provides information on every step and the development of a project after signing the contract.

The turned parts procurement project involves collaboration between a client and turned parts manufacturer. After signing the contract, the company will ask for detailed information about product qualifications. Turned parts manufacturers will process the general information into drawing designs in 2D and 3D form as virtual examples. Drawing design will be sent to the consumer to be confirmed, if any problem the company will modify it according to customer correction. Before the turned parts are mass produced, the company will send samples of real products to consumers. If everything is in accordance with the wishes, turned parts will be produced in large quantities according to the order.

Every step taken by professional turned parts manufacturers always uses special equipment like CNC Turning. Make sure you find a company that works hard to meet your expectations for precision turned parts. If you are ready with all the requirements, then it’s time to determine the best turned parts manufacturer. For more information about turned parts manufacturer, you can access https://www.mmturnedparts.co.uk.

What’s Expected for Oil & Gas Prices in 2020

Oil and gas prices at the end of 2019 saw a dramatic drop with petrol stations offering a significant decrease in petrol pricing. It is thought that this is due to demand and the economic growth of the nation as a whole.  

Climate change has become a big worry for all of us, especially with the Australian bush fires, caused by the planet becoming too hot. Air pollution has been a very big factor to climate change which is high in built up areas such as China which have lots of factories, with its main products being plastic.

You may have seen in 2019 that a lot of work has been done to eliminate single use plastics throughout the world so far, with more expected in 2020. This will mean that production of plastic will be haltered and there will mean less demand for oil and gas. By having a significant demand decrease this can mean oil and gas prices will go down which can be a godsend to those who still use petrol engine cars.

Car manufacturers are doing their part too to help with climate change by creating electric and hydrogen powered cars which will mean soon, we will no longer need to refuel our cars at all!

However, in the early months of 2020 we are expecting to see a squeeze on gas supply due to the low prices at the pump at the end of 2019. As the year goes on production is expected to expand meaning an increase in supply which could mean that prices could drop again. There has also been a de-escalation of the trade war between the U.S. and China which could mean a slower oil demand too.

How Does Supply and Demand Work?

Supply and demand levels continuously fluctuate and depending on either one will depend on the other. For example, if demand is high, supply levels take a dip until they can keep up with demand. This dip will likely mean a price increase until supply levels start to level with demand.  Sometimes, supply levels outweigh demand which is why sometimes you will see a price decrease at the pump every so often, followed by a price increase. 

All About Expansion Joints

There are actually terms in this world which is very much not familiar to everyone, even you of course. You would get to be that ignorant sometimes of hearing a term, especially if that term is not even commonly used or associated with another term, though. Maybe you would say that it is as if you are not yet born enough to take note and be familiar with such terms. Just like for the expansion of the word joint, see? Maybe you have not yet heard of it at all! Well then, if that is the case, you could at least be imparted with the knowledge and expertise with regards to those terms by going over and reading this article specially made for you, for you then to get to be familiar with expansion joints. In that manner, you would never get laughed about for not being able to know what an expansion joint is.

Just like any other terms, pipe expansion joints actually could be related too, with other words. An expansion joint could be referred to as a flexible joint. You could also call an expansion joint as compensators. By being able to grasp these ideas of an expansion joint, maybe at least you are now conceptualizing in your mind the exact or at least a glimpse of the definition of these terms. Are you still not that sure of it? Well, say no more because this article would give you the meaning of which that you would not be obliged anymore of looking and searching over for its definition on the internet through surfing it or not push you any more of opening your dictionary to read its definition. This is noticeable in the UK technology director.

What an expansion joint is usually and commonly comprised of is of a metal bellow or many metal bellows. Oh yes. Bellow could actually be something not familiar with you, as well. So, to give you the idea of a bellow, it is actually something which could be associated with a stainless steel. Having the characteristics of a metal since it is a steel, it would really grant you its utmost durability and efficiency. Thus, it would provide you with a very much safe and secure manner of helping you with all of your things.

As for the expansion joints’ major components, you have obviously the so-called bellow, which was mentioned earlier. Bellows are usually comprised of a series of density. With this case, it would obviously be something that could navigate and resist all pressure made and created in a very much easier way. Because of this also, you would get to have lessened loads of pipe. That is why expansion joints really are something which would give you benefits. Moreover, an expansion joint is said to be used for you especially if you are someone who works at any company with an occurrence of a thermal expansion. Indeed, expansion joints are not just something which could give you a bellow or metal like the thing used for metallic purposes but also it is mostly and widely used at thermal expansions, as well.

What Is Epoxy Flooring?

There are things in your life you need to let go of. These are usually the things which are not anymore necessary for you to keep going. As a matter of fact, all things in this world are temporary. Nothing lasts forever. That is why you would end up having broken things as that is the usual case and would likely to happen to almost everything.

Now, if something gets broken, the only best and the usual thing to do is to try to somehow fix it. One of the mainly oftentimes ruined things in one’s home is the flooring. The floor actually is something which plays a very vital role in your house. Your floor is where you stand on, walk, and run through the various areas of your house. Without it, your house would not be able to stand anyway because this is actually associated with the foundation created for your house to stand. Now, your floor should always be maintained and fixed. You should take into consideration the best quality of flooring for you not to experience any deterioration when it comes to your floor itself. You should always see to it that your floor is in its good shape so as to meet any unnecessary burdens in the future.

Nevertheless, it is still inevitable for you to experience so many problems one could ever. For your floors, the case goes the same. So, if you are then to search for the best type of flooring suitable and perfect for your house, you might want to switch to epoxy flooring. Have you heard about the term already? Well, if you haven’t yet, below would give you a glimpse of what this epoxy flooring is all about.

First and foremost, try to at least be familiar with the term epoxy itself. Resin flooring of epoxy content is actually a mixture of both liquid resin and a hardener. Its use is actually to serve as a covering for floors, especially to those in the industrial environment. You might wonder how long would such a thing last. Well, it actually depends on the type of foot traffic the floor has to weather. It even depends as well to the manner of how it is maintained. But, for you to be given an actual lifespan of it, it could take up to 10 to 20 years before it gets worthless.

If you get to have epoxy flooring in order to safeguard against spillages from industrial hoses, you can purchase it at a very affordable cost and high-quality product. Second, it would give you convenience as it is very easy to install, unlike other floorings. Lastly, it is very durable and resistant to any damage especially water, tarnishes, hazardous chemicals, cuts, and even other impacts. 

Indeed, epoxy flooring grants you various benefits. So, what are you waiting for? Go to the nearest flooring store now and grab yourself epoxy flooring for a type of flooring that would last longer than any other.

Toilet Partition Style – Chose the Right One for You

Have you ever noticed several models of toilets in public places, such as offices, super markets, theaters, malls, airports, hospitals, and maybe schools? If so, are you surprised by a model that floats in the air? Most public places use a modern toilet partition with a floating model. In my opinion, it is a cool model and gives a neater and cleaner look.

Well, if you are interested in installing a floating model toilet in a building or public place that you will manage, then you should familiarize yourself with some of the available models and find out some of the best toilet partition installers so that the toilet is installed perfectly. After that, you can make the right decision about toilet partition in accordance with the bathroom conditions.

Actually, there are several different styles to choose from when you buy toilet partitions. Usually, each model has a different name but actually they have same function.

Floor Mounted and Overhead Braced – This is the most common style of toilet stalls, if you are looking for the most economical and basic style, this is the best choice for you. Floor Mounted is suitable for use in high-end office bathrooms because it has a modern and sleek design. This model is an alternative way if you don’t like the over head braced model. While overhead braced offers a simple style that has been applied to most bathrooms in public places.

Ceiling Hung – All partitions hang literally on the ceiling. This toilet is classified as a modern model; this model is often applied in places that require a high level of cleanliness. Ceiling hung also lighten the workload of janitors, they can mop all floors because there are no partitions touching the floor. Well, if you want to apply this toilet model then make sure your ceiling has a strong structure.

Floor to Ceiling Mount – This toilet model is the sturdiest toilet; all the partition is mounted on the floor to the ceiling. This model is the right choice for those of you who have rowdy customers, or you need a high level of stability and security such as in schools or other areas. In addition to providing extra stability, this toilet model also requires more expensive costs because you have to allocate funds for the structure of the ceiling and floor.

As you can see that there are several different styles. Make sure you review and choose the right style according to your bathroom needs. Choosing the right model will save thousands of dollars; to ensure the accuracy of the model selection, it is better to consult with professional bathroom partition installers. They will provide input related to the selection of models and appropriate partition materials such as metal, stainless steel, phenolic, solid plastic, plastic laminate, corian, etc.

Industrial Marketing Company – Reliable For Marketing Industrial Products

Marketing is very important in an industrial sector. Companies produce quality goods to increase their existence in the eyes of consumers. In the midst of intense competition like now, companies need to improve utilities marketing so that their products are always remembered by consumers or clients. In other words, successful marketing is able to increase consumer awareness to the product.

The Companies have to market the goods or services produced to consumers in order to survive and compete with other companies. Industrial marketing is an activity that facilitates the exchange of products between companies and other companies. All customers in the production market include many companies. They always buy the product on a large scale; it is differing from consumption markets which involve the exchange of small amounts of products and services. Because industrial and manufacturing companies sell goods on a large scale, it is necessary to do a neat and well-planned marketing strategy; industrial companies really need to hire the services of an industrial marketing company.

What will the industrial marketing company do? There are many things that will be done by the marketing team from industrial marketing companies, such as business development, event management, digital marketing, public relations and advertising, branding and positioning, marketing research, marketing monitoring, and many more.

Industrial marketing has a very important role in a company organization. The role of industrial marketing is more clearly seen in a country that is heading towards an industrial economic structure, and which has become an industrial country. The more developed a country’s industrial level, the more felt the role of industrial marketing in the marketing of industrial products in a country.

The increase in the activities of using industrial equipment brought changes in the industrial marketing system. These changes must be considered both in terms of environmental changes, buyer behavior, product strategies, distribution channel strategies, marketing strategies, pricing strategies, market research, promotion strategies, and so forth. Industrial marketing company will help industrial companies do it all in accordance with applicable ethics and norms.

Marketing service partners for industrial companies will help companies get closer to extraordinary profits. Why do I say closer to profit? There is no single industrial marketing company that truly guarantees that your product is sold.

Although an industrial marketing company cannot guarantee the results, they can tell you that they will work diligently and creatively to exceed expectations. This is why you should consider them for your company’s product campaigns. They focus endlessly on helping your company generate a return on investment.

Industrial marketing companies usually consist of people who are experienced in industrial marketing, they have gone through training and learned all the nuances of the strategy and carried out marketing campaigns both offline and online. The companies not only have deep talent; they also have the talent needed to succeed in an industrial marketing environment.

What Determines Oil and Gas Prices

As the years pass by, oil and gas seem to play an even bigger role in the world. Drilling to find oil in the early days was considered somewhat of a nuisance as the intentions of the drill was to in fact find water or salt. It wasn’t until the 1850’s that oil was commercialised, and we started to drill for oil.

The early demand for oil, however, was for oil lamps and kerosene, not as we know it today. In 1901, the first commercial oil well that was capable of mass production was drilled producing more than 10,000 barrels a day. With this new discovery, it was soon to be the worlds primary fuel source, replacing coal.

Gas and oil are very much a commodity today and continues to be in high demand across the globe but how exactly are oil and gas prices determined?

There are two main factors that impact oil and gas prices including supply and demand and market sentiment.

Supply and demand are a pretty easy concept to understand. When demand increases the price generally goes up and as demand decreases the price will go down. This works in the same way with supply. If supply increases prices go down and if it decreases, then prices go up. Simple right?

Not exactly. The price of oil isn’t determined on supply and demand alone but is also set by the oil futures market which is a binding contract agreement that gives someone the right to purchase oil by the barrel and a set price on a set date in the future. Under this contract, both the buyer and seller are obligated to fulfil their side of the contract on the date specified.

From the basic supply and demand theory, it seems logical that if we produce more oil and gas the cheaper, we can sell it for. Supply has actually increased, but that doesn’t mean to say that prices are going to fall. Although producing more, distribution and refinement can’t keep up. So why not increase this right? There are in fact fewer refineries than before with many now closed. Refineries also only operate at 62% of their capacity due to needing the excess capacity to meet future demands.

So, in hindsight unlike a lot of products, the price of oil and gas cannot be solely determined on supply, demand and market sentiment. However, they can be used to determine oil futures contracts. Regardless of how the price is determined it is obvious that oil and gas will still be in high demand for the foreseeable future due to its use in fuels and countless consumer goods. 

Mezzanine Racking System – When Should You Use It?

Mezzanine shelves are designed specifically for high warehouse layout, light items, large manual work to increase space utilization. Usually used in the auto parts area, light industry and electronics industry. Generally, mezzanine shelves have two floors; the ground floor is a rack system and the upper floor is a platform. Or both can be designed as a rack system. The ground floor rack system is not only used as a storage area but also as a support structure for the upper floors. This type of rack can be designed in two or three floors with stairs, handles, elevators and lighting systems. All of which can be adjusted to your warehouse space requirements. To get quality products, be sure to visit www.bakerindustrialsupply.com.

In addition for high warehouse storage systems, mezzanine racks are often applied to heavy and medium duty. In general, the multi-tier mezzanine load capacity is 300-1000 kg per square meter. However, once again the loading capacity can be adjusted to warehouse needs. If you see mezzanine shelves on the internet, you will be interested in a versatile design. Mezzanine rack has a sturdy design; this rack uses steel plates or solid steel checkered plates and perforated plates as the floor.

Mezzanine racks have a roof called a platform. This platform is made of steel. With a flat roof on top, it is suitable for storing large products like large round pipes. Mezzanine racking system is the perfect solution for designing additional floor space according to the conditions of the warehouse or factory. This rack system makes it possible to reach uninterrupted space above and in the lower room, offering unlimited flexibility for space utilization. When should you use the mezzanine racking system? Mezzanine racking is widely used in high warehouse conditions. If you use this rack then you can make full use of the space and certainly save the warehouse area.

Mezzanine shelves are built in the attic style of your warehouse. This racking system can be built into two or more floors to double the warehouse capacity. Each floor can accommodate a large load capacity, fast construction and low cost. Warehouse storage costs will double in accordance with the increasing needs of storage areas. Mezzanine shelves are here to reduce relocation costs and increase storage space; these shelves are very suitable for storing various types of goods flexibly and provide convenient access. This Rack System promotes storage management to simplify and improve storage efficiency.

Maximize your warehouse storage space by using the mezzanine racking system. There are many supply companies that are able to design and build mezzanine racking construction, you can find it through www.bakerindustrialsupply.com. The company not only provides and delivers the best products wherever you are but a professional crew will install the mezzanine rack perfectly.

Used Spiral Freezer

Used spiral freezers are the perfect apparatus if you need to stop bundled or unpackaged food items in a ceaseless procedure. They are utilized to solidify different items, for example, vegetables, natural products, meat, pastry shop, prepared to-eat dinners, and so on. Because of their smaller size, they can be sent in each creation condition, likewise those with constrained floor space.

Features:
• Spare vitality
• Are ultra-clean
• Limit yield loos
• Have a short freezing time
• Handle touchy items tenderly
• Utilized Spiral Freezers

The used Spiral freezers are a consistent in-line-belt freezer intended to limit item weight reduction and guarantee quality delicate giving during the freezing procedure. Items are equitably bolstered from the creation line straightforwardly onto the stacking freezer belt.

It rapidly ships the item into the low temperature-freezing zone. The belt spirals up or down along the turning drum until it arrives at the top or base where the freezed item is tenderly released from the freezer release port. Because of the enormous belt surface accessible, items can be freezed in single layers or independently for IQF (Individually Quick Frozen) quality. Since items can keep up their unique burden in position all through the freezing procedure, arranging after concurrent freezing of blended, various items are streamlined.

Advantages of Used Spiral Freezer

Winding freezers can solidify food items and even bundled food items in huge amounts simultaneously. Quicker paces of freezing guarantee more prominent vitality efficiencies.

The high nature of the item is being kept up all through the absolute freezing process, where the surface, dampness, and flavor stay steady where lack of hydration of the foods is limited.

The minimal type of winding freezers is one of the primary advantages. Particularly when there is restricted space accessible, winding freezers contrast better with burrow freezers which occupy more room.

1: Liquid Carbonic 19 Tier Spiral With FES Compressor
Features:
Used Liquid Carbonic Spiral With FES Compressor with Last utilized for 8-pound pockets of chicken item 19 levels Distance between levels: 4 1/2 inches Freezing specialist: Ammonia FES Compressor, model.
2: Airco KF28-CR400S Kwik Freeze CO2 Spiral Freezer
Features:
Used Airco KF28-CR400S Kwik Freeze Spiral Freezer with: Discharge stature: 125 inches 15 levels Digital show Product leeway: 4 inches Conveyor width: 26.5 inches Plastic tangle top transport.
3: Freezing Systems Spiro Freeze Spiral Freezer
Features:
Utilized Freezing Systems Spiral Freezer with Freezes two separate item streams immediately (2) infeed belts start one next to the other at that point stack entering freezer Capacity: roughly 2,600 pounds for every hour.
4: Aerofreeze 650 Foot Spiral Cooling Conveyor
Features:
Used Aerofreeze 650 Foot Spiral Cooling Conveyor with Aluminum outline 1.7 sweep design Footprint 12-foot x 20-foot high KVP plastic winding: 2-inch pitch, 20-inch width Useable belt.
5: Advanced IQF 36/3.2-18/4.5 18 Tier Spiral Freezer
Features:
Used Advanced IQF 36/3.2-18/4.5 18 Tier Spiral Freezer with Designed to stop or chill sensitive items, for example, meat patties, fish sticks, chicken parts, shrimp, arranged foods, and so on
6: RMF Freezers 2414-47-CCW18 Coldstar Spiral Freezer
Features:
Utilized RMF Freezers Coldstar Spiral Freezer with Number of levels: 14.5 Tier dividing: 5.5 inches Product leeway: 2.75 inches Conveyor: Hot plunged stirred developed with hardened steel.

Static Mixer for Your Industry

Industrial mixers are modern machines that function to mix a large number of materials and components in the production process. Industrial Mixers is the most sophisticated solution to get the perfect mix with a level of homogeneity that can be adjusted to the needs of production. Various manufacturing industries use this tool; they are the food and beverage industry, the chemical industry, the pharmaceutical industry, etc. An important part of this equipment is the blades with different values ​​that produce a mixture of various levels of homogeneity and are suitable for mixing various types of materials.

Technology in the field of industry is getting more advanced now so there are many modern mixers made. Industrial mixers are produced at various scales from the laboratory level to mass production capacity for the manufacturing industry. So the user does not need to worry to fulfill their production needs; there are many trusted companies that produce all types of industrial mixers, they produce many static mixers ranging from Custody Transfer static mixers for the crude oil industry to static wastewater mixers that are applied in sewage treatment.

Most industries that require high quality mixtures, they use various types of industrial mixers in the production process. In general, industrial mixers provide many benefits for companies. Here are some benefits for your industry:

The advantage of using industrial mixers is that they can mix and produce solutions according to the temperature and pressure required. Even for the type of Static Mixer, it can mix two liquid media using only the kinetic energy available in the flow stream. Static Mixer can be able to design mixing levels as needed, saving chemical and energy consumption.

Industrial mixers can mix smoothly and continuously. Industrial mixers are designed to be able to provide many benefits for a variety of industrial players such as lower electricity consumption, wider application usage, greater operating control, etc. There are several types of mixers that are often used in industry. They are planetary mixers, high viscosity paste mixers, and static mixers. You can get them easily on the internet today.

Static mixers have no moving parts. When the liquid is mixed in the machine, the right amount of air pressure is sealed inside the unit. Emerging air pressure forces the component and liquid to move and mix in the engine continuously to produce a mixture with the appropriate level of homogeneity. Static mixers consist of various types according to the type of application.

How to Choose the Hose as Needed

If your activity in the morning is watering plants or washing vehicles, of course you need support tools such as water hose. In some houses with large yard, you need a long hose. How to choose the hose that suits your needs, pay attention to the following important information:

  1. Select the hose length as needed. Determine how many meters in length the hose you will use.
  2. Choose how thick the hose you will use because it will affect the flow of water that will come out.
  3. Choose the hose material that is suitable for the climate in your area. Rubber hoses can be used in extreme weather conditions but are more severe.
  4. Consider the costs. The length of the hose will affect the price offered
  5. Determine the hose nozzle that can be adjusted either the water spray made of plastic or brass
  6. Look for a hose that is easy to store
  7. Choose a hose that has antimicrobial protection to hold the growth of bacteria in the hose

Choosing a hose may look very easy. But if you do not think about some of the above, then you will buy it in vain and will require expensive costs. If the hose has been chosen properly, do not forget to double check the water channel is installed correctly. To avoid water leakage, especially in pipe connections, use quality hose connections so that water always flows smoothly.

Best Hygrometer Recommendations

A hygrometer is a device used to measure the level of humidity in the environment. There are various types of hygrometers available, both digital and analog types, have a high level of precision and accuracy, to those that are attractive and adorable. Which would you choose?

Before buying a hygrometer, there are a few things you need to pay attention to. In the following, I will introduce how to choose a hygrometer and there are a number of recommendations for a hygrometer product to choose from. Read to the end and find the best hygrometer for your needs.

Choose according to where the hygrometer is placed

A hygrometer can detect air humidity levels based on the mass of nearby air, so the location of the hygrometer is important. When you place it on a bookshelf and move it to another place that has a different height, the measurement results can show different numbers.

To get a more accurate hygrometer measurement, it should be placed in an area that is free of direct sunlight. The hygrometer should also not be exposed to wind gusts from the air conditioner or humidifier in your room and placed at a height of at least 1.5 meters from the floor.

Before buying it, it helps you double-check the type of hygrometer of your choice, whether it can be hung on the wall or can be placed on the table. Choose which suits the room in your home.

Choose the type: digital or analog

Actually, digital or analog type hygrometers have the same ability. However, each has different advantages and disadvantages.

One of the advantages of digital hygrometers is their numerical display which is easy to read and it can display decimal values of humidity levels. In addition, there are types that can display warnings about the dangers of hot air, flu viruses, time, and many other features.

Meanwhile, the advantage of analog hygrometers is that they do not need batteries to run, are easy to understand, and can be seen and read from a great distance. In addition, there are also different colors at the humidity measurement level, to notify the presence of hot air or flu viruses.

How to Find the Best Epoxy Floor Coating

You should consider an epoxy floor covering in case you’re pondering changing your strolling surfaces. Epoxy floors are consistent, and there’s the wrong spot for microbes and different contaminants to increase. They’re extraordinary for cafés and other nourishment preparing organizations, and are additionally ordinarily utilized in mechanical settings. Epoxy deck is additionally ideal for home use, particularly for kitchens.

In the event that you need a durable, solid carport floor, epoxy is the best alternative. This sort of ground surface is anything but difficult to introduce, and should be possible by an expert or a roused do-it-yourselfer just by adhering to a couple of straightforward guidelines. There are various kinds of epoxy, and your decision ought to be founded on how much traffic passes on your ground surface from everyday, how regularly you’ll have to clean up, and obviously, the expense of every choice.

Here are the decisions:

Water-Based Paint

Water-based epoxy is the least expensive choice. Mortgage holders by and large find that it’s anything but difficult to apply, and the least lethal, yet in addition the least tough. It’s extraordinary for use in the home, and unfathomably easy to understand. It is anything but a generally excellent determination for modern purposes or for ground surface that experience difficulty with clamminess. As a property holder, it’s significant that you comprehend that water-based paint regularly requires yearly touch-ups.

A few people don’t consider water-based paint to be a genuine epoxy, since it doesn’t come in two sections. Not at all like different kinds of epoxy, where the hardener is blended in with the sap before being applied, water-based paint is pre-blended, and is along these lines not altogether different from standard paint.

Two-Part Solvent-Based

In the event that your epoxy floor paint is dissolvable based it is more lethal however more grounded than epoxy that is water-based. The two pieces of the paint must be combined, and you should be careful and exercise alert when applying it. Numerous painters find that it isn’t easy to understand therefore. Then again, the guarantee is generally preferable and it keeps going longer over its water-based partner. Likewise on the in addition to side, they’re simpler to work with and tidy up than 100 percent strong epoxy. The paint is more slender than the solids, be that as it may, and won’t keep going as long.

Two-Part 100 Percent Solids

This is the best decision in case you’re searching for a sturdy floor. This sort of epoxy floor covering “fixes” through a substance procedure that leaves a hard, strong and wonderful surface. It is multiple times thicker than water-based paint. A few specialists have expressed that this evaluation of epoxy is stronger than the solid underneath it. This excellent deck is additionally the most rough and compound safe.

An epoxy floor embellishes any space, increasing the value of your home, eatery or shop. It additionally broadens the lifetime of your solid and jelly it. Epoxy is anything but difficult to clean, and impenetrable to form and microscopic organisms. Numerous individuals use epoxy to cover their carport floors, since the material opposes solvents, synthetics, greases and hot tire marks. It is a successful waterproof sealer, and it decreases the release of radon gas.

A large number of hues and bunch styles are accessible, and it’s simply an issue of picking the example most appropriate for your motivations. Epoxy requires restoring time of at any rate twelve hours after application. It’s a simple to introduce and simple to keep up sort of deck, and it should be considered in case you’re intending to re-try your floors.