Category Archives: Manufacturing Production

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.


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
  • 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.


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


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.


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

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 “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.

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…


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.


Are you niching?


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.


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.


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.


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 ( and the Federal Insurance and Deposit Corporation ( 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 ( This is our closest competitor by far. More recently, we found, merely by accident, a company called Shinkuro (, 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 (, the public key system will implement RSA ( and the hashing function will implement the 256 bits version of the Secure Hash Algorithm ( ).

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 (

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. (


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.


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Investor Relations. Retrieved from the Internet on March 31, 2007 at

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Author Unknown, Strategic Planning, After a decade of gritty downsizing, Big Thinkers are back in corporate vogue. (2006) Retrieved from the Internet at

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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 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.”


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.


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 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.

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

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.

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.