Letter To A Fearless Leader

Foreword: Fairly early on, I promised myself I would not get involved in politics on this blog. It is the one area that can get me quite irritated. Yet here I am, feeling the need to acknowledge the hardship of the role of President of the United States. Ironically, I am not a U.S. Citizen and can't even vote....

August 29, 2011

Letter To A Fearless Leader

Dear Mr. President Obama,

Courage – defined as "the quality of mind or spirit that enables a person to face difficulty, danger, pain, etc."

Nearly four years have passed since your election to Commander in Chief with the task to lead this nation into its next chapter. Your election brought hope to a country that was facing war and an economic crisis at the time. You became the symbol of the American spirit, we looked at you as the "American promise that pushes us forward even when the path is uncertain." As so well stated in your acceptance speech, you made us "fix our eye not on what [was] seen, but what [was] unseen, that better place around the bend."

Anyone who has ever led a team or made a decision impacting more than a handful of people can appreciate the challenge of "doing the right thing" and pleasing the people you lead. If we magnified this sentiment and challenge by 1000, we would still not capture the burden carried by the position of President of the United States.

The role of President is defined by living in the public eye, being confronted with the consequences of decision making that is always accompanied by harsh, public criticism and the sobering citation of poll numbers. Let me state clearly that I do not and have not always agreed with your priorities and decisions. Neither with those of Congress. Yet public outlashing as so often heard is disrespectful and unnecessary.  Strong emotions are understandable when the fundamental beliefs of the people are impacted and you are dealing with people who believe and care about human rights and their country. That is what makes this nation so great.

The idea of living a normal life as President simply does not exist. There are no text books written on how to answer ethical questions raised by your daugthers. How do you explain that you cannot join your family for dinner because you have a war to lead and an attack to order?

The burden is mountainous: war, healthcare, unemployment, immigration, education, balancing the budget. The tasks are plentiful and never ending. The twists and turns are unpredictable, results delayed. None easily addressed. No right or wrong - though everyone not in your position believes otherwise and generally disagrees with the decision that was made independent of what it was.

One could argue that we are facing similar challenges today as we were in 2008: war and economic crisis. Political challenges in Iraq, Iran, Egypt, and Libya, the fight against terror, the Taliban… all challenges that we have faced before and continue to face. Many changes have taken place, some progress has been made. But many of these challenges remain and will remain; they are not contingent on who the leader of this country is.

At the beginning of your tenure in the White House, you committed to "end[ing] this war in Iraq responsibly and finish[ing] the fight against Al Qaida and the Taliban in Afghanistan...I will build new partnerships to defeat the threats of the 21st century: terrorism and nuclear proliferation, poverty and genocide, climate change and disease. And I will restore our moral standing so that America is once again that last, best hope for all who are called to the cause of freedom, who long for lives of peace, and who yearn for a better future."

An admirable call for duty, a dream worth fighting for. Chances of accomplishing them in the current political system, let's be honest, rather slim. The constant fight surrounding partisanship, which consistently blocks progress toward the overarching, possibly best solution.

How do you prioritize which goals to focus on? What is more important, saving the lives of our soldiers or creating jobs for our nation? Establishing a health care system that supports everyone, even the poorest, or making sure "no child is left behind"? Saving thousands of lives by preventing genocide and offering help to restore other nations' governments? All while balancing the budget and making sure the economy does not fall apart and managing the consequences of natural disasters.

Few live up to the demands of this job with grace; criticism is constant and unavoidable. Your presidency has raised the level of our international credibility, which we had lost for many years. You spoke of "restoring legacy" and your stewardship has raised our image across many nations.

Your governance, care, and intelligence have been respectable. You have set high goals for your tenure, which have been hard to accomplish and in the end may lead to a turnover in presidency come 2012.

Your dreams, efforts, and hopes whether accomplished or not, have been appreciated. Your courage is admirable. Stand tall, keep dreaming, and keep fighting.

All I ask is please do not mortgage the future of our children and think about the legacy: Yours and that of our World.

Courage – the quality of mind or spirit that enables a person to face difficulty, danger, pain, etc.

 Image: http://obeygiant.com/images/2008/10/obama.jpg

Apple's Attempt at World Domination…without Steve Jobs?

August 24, 2011

Apple's Attempt at World Domination…without Steve Jobs?

It is truly amazing that not one day goes by without Apple appearing in the news. Clearly, I, myself, am getting fascinated with this organization seemingly eying world domination. Apple's pursuit of lawsuits/litigation (see Apple: Litigation as Business Strategy) gains momentum on a daily basis, as evidenced by today's ruling against Samsung in a Dutch court. Galaxy tablet sales had already been banned in Australia, and today, Samsung was informed it can no longer sell smartphones Galaxy S, S II, and Ace because of similarities in the screen scrolling function with Apple's iPhones. A strong win for Apple.

Tomorrow, Samsung will find itself in court in Germany, trying to defend its technology. One of its arguments will be that Apple stole/copied the idea for the iPad from the 1968 movie "2001: A Space Odyssey." [The famous YouTube video everyone is talking about can be found here.] The goal is to prove that the external appearance was not first invented by Apple "and this may be enough to prevent Apple from enforcing its alleged intellectual property rights in relation to the physical appearance of its latest tablet." Go for it, Samsung. [This is turning into some sort of "reality show" and nobody can look away. Investors just seem to be wanting more, and more, and more…]

The same day Sprint announces that it will be able to make the new iPhone 5 available to its 52 million subscribers come mid-October 2011. The third-largest wireless carrier appears thrilled to add the iPhone to its portfolio and avoid customer attrition, but will have to accept a change in cost structure; Apple demands high margins. The new iPhone will supposedly be even lighter, thinner, with an improved camera and operating system. Another strong win for Apple.

So, on the same day, Apple claims victory over one of its rivals and announces a new ally. Even though, the term ally may be an overstatement. I find it hard to believe that the wireless carriers consider their Apple agreements as true alliances and partnerships instead of simply a "must-do" at "nearly-all-cost".

And then,…on the day when Apple appears to be just one step closer to world domination, the feared announcement is finally made: Steve Jobs resigns as CEO. Tim Cook, who previously served as COO, is reportedly taking over the reigns. While T. Cook has been in charge of managing operations, sales, etc. it has always been S. Jobs, who has been the visionary at the company, who created the dream [occasionally destroyed others'], set R&D priorities, and called the shots. Of course, Apple has faith in its new leader. The news seemingly came so late that it did not impact daytime trading: the stock was up. In after hour trading, the share price dropped. As of 9pm EST it was down 5.07%. In the official company press release, Apple quickly pointed out that Steve Jobs will take on the role as Chairman of the Board, and "will continue to serve Apple with his unique insights, creativity and inspiration.” Of course he is; imagine how investors would react if he was not going to remain engaged. Jobs himself was reportedly clever enough to reaffirm that he believed the most creative times were still ahead of Apple. AAPL After hours: $357.10 (-19.08; -5.07%). This is called situation management; dealing with the unavoidable. [Note: The man has accomplished great things and I do wish him well.]

I doubt that this announcement was truly news to anybody. Jobs had been on a leave of absence because of his health for quite some time. It was simply a question of how the succession would be managed and announced. I wonder how and if this announcement will impact the litigation in German courts tomorrow. The company is too strategic and smart for all of this to be coincidental. Some litigation wins were made, the ink dry on the agreement with Sprint. A good time to announce the change.

If Steve remains in the role of Chairman of the Board, I doubt that too many changes will take place in the immediate future. Operations and innovation will proceed as they did before; all in all, the focus will shift to Tim Cook for a natural phasing out of the brand Steve Jobs had built for himself. We may not notice any changes for a couple of years.

So will this impact Apple's path to World Domination? If they haven't gotten there by 2014, they probably never will.

Image: http://techicon.files.wordpress.com/2010/05/apple_world.jpg

VW: The Microcar…A Marketing Tool?

August 22, 2011

VW: The Microcar…A Marketing Tool?

All eyes on VW, which claims to be ready to reveal its carbon-free, single-seater microcar in about two weeks. According to an article in the Financial Times today, VW is aiming to "capture the lead in electric cars" and expects battery-powered vehicles to contribute 3% of total sales by 2018. A "full-service package" will supposedly be available to customers to purchase power from "renewable sources." According to Prof. Dr. Martin Winterkorn, Chairman of the Board "[VW's] pursuit of innovation and perfection and [the company's] responsible approach are designed to make [VW] the world's leading automaker by 2018 – both economically and ecologically." The effort by VW to "drive green" deserves applause. 

Let's rewind.

Who would not be supportive of exploring alternate energy sources, reducing carbon emissions, going green, etc? Governments across the globe have clearly emphasized their interest in developing carbon-free vehicles and support for driving innovation in this area. Look at China and the U.S. In his January 2011 State of the Union Address, President Obama stated "We can break our dependence on oil… and become the first country to have one million electric vehicles on the road by 2015." With promises of tax breaks and other incentives, consumers are encouraged to invest in the new kind of transportation, ...but they have not. Plenty of hurdles remain in the way of broader adoption, yet it is understandable, given the government interest and $$ support, that anybody in the space would want to position themselves as a leader in "green" technology.

Considering existing hurdles surrounding consumer hesitation to "buy-in", VW just seems to add another, practically speaking. I do not struggle with the value and importance of investing in the development of carbon-free vehicles; more so with the development of this particular "concept-car". Explain to me, someone, the purpose, value, and expected adoption rate of a single-seater microcar? This simply cannot be more than a promotional tool for VW… [Which on a side note, has done a fabulous job in marketing and advertising in my opinion – a true break from the mold!]

Explained by Juergen Leohold, Head of Research at VW, as suitable for "limited journeys, such as commuting", this particular concept seems to have very limited potential. Did it truly warrant the investment? [Total R&D expenditures in 2010 exceeded €2.8 billion or 6.1% of sales.] It could be as simple as me misunderstanding the expectations for and purpose of this vehicle. If it's main objective is to showcase the company's ability and ambition in the area of "carbon-free motoring", fine, no argument here. [So it really is a sales and marketing expense…] But it does appear as if actual sales of this microcar are part of VW's revenue forecast. As a lay(wo)man, I do not claim to be abreast of all the innovation and development taking place in this space. Yet it seems that there is quite a focus by all major car manufacturers on building carbon-free vehicles, and some with more practical applications than a single-seater. So where is VW going with this? Practically, where other than downtown Paris, France, would this be a suitable solution?

On the other hand...there is a picture circulating of a black, very slick-looking, space like single-seater that is supposed to be launched in 2011 with fuel efficiency of 258 miles per gallon. Can't say if this is the one, but the automobile-community seemed rather excited about it. Maybe VW's microcar will become a status symbol and the iPad of the auto world [...only with less applications]?

Back in 2007, an MIT group called "Smart Cities" promoted the idea of stackable electric cars, designed for two people, among other "green" transportation innovation. Without question, smart and innovative thinking has gone into these methods of transportation. The adoption of such automobiles, however, realistically still has to be decades away unless radical changes in the cost structure and ease-of-use occur. [The design looks strangely like that of vehicles from science-fiction movies created in the 80's and 90's.]

Maybe, VW's reveal will shock us with a dramatic reduction in cost that will allow consumers to consider the purchase of a car for commuting only. So far, no features of VW's microcar have been announced. According to the Institute for Energy Research, by March 2011, a total of 1,101 electric vehicles had been sold in the U.S.  "At the pace of 350 vehicle sales per month, a whopping 16,800 electric vehicles will be on the road by 2015." Not quite what President Obama is envisioning.

The ambitions of the governments and the car manufacturers are commendable as we clearly need to address the reliance on oil and the environmental impact of the ever-growing car-population and associated pollution. However, the tech revolution here needs to be more radical and not only focus on vehicle size.

To be clear, let's not halt innovation. Miniaturization efforts are key to reducing costs, however, in order to have a real impact, solutions need to be more practical and focus on lowering cost beyond miniaturization. There appears to be some kind of hesitation by automakers to openly discuss the cost of batteries. Analysts estimate battery costs to be around $900 per kilowatt hour for electric cars today. Expectations are that they need to come down to at least $350 per kilowatt hour in order to make them competitive.  Whether the American consumer should be more welcoming and supportive of these technology advancements in the area of transportation is quickly answered with a simple: Yes. However, at this stage, in this economy, the idea is simply not sustainable. [This is probably also much more politically intertwined than my naive little brain can imagine.]

In either case, I am eager to see how investors will respond when the VW microcar is revealed and possibly more light will be shed on its purpose. Today, as of this posting, VW stock was down -0.9%.

For now, I question whether this single-seater-endeavor should not be booked as a sales and marketing expense instead of part of R&D expenditures…

Image: http://onlineautosinfo.com/wp-content/uploads/2011/02/vw_0.jpg

HP: Innovator turned Dinosaur

August 19, 2011

HP: Innovator turned Dinosaur

Everyone working in the tech space these days must feel as though they are walking on thin ice. Seemingly from one day to the next, dramatic changes in strategic direction are taking place involving billions of dollars and impacting thousands of employees. One could argue that one side effect of the high-tech revolution is employment insecurity. And once again, all fingers point at Apple for triggering the latest dramatic event in the saga of "Leaders today, forgotten tomorrow."

So, is this the story of HP, historic innovator turning dinosaur? Or is this the story of HP, cracking through the shell and emerging as a newly focused entity?

HP's decision to discontinue operations for webOS devices has led to an onslaught of commentary and news, mainly critical, about the company's direction, plans, leadership. Every angle and strategic move over the past ten years has been discussed by journalists, analysts, techies, etc. [And clearly, I am unable to contain myself either.] The discontinuation of the TouchPad after less than two months of commercial availability comes surprisingly fast. Just last year, HP acquired Palm for $1.2 billion. The move even then was not considered smart by analysts who at the time thought HP paid too much for an already outdated technology with little to no competitive advantage against Apple's iPhone and iPad. At the time of launch, HP's commitment seemed hesitant at best with a lack of applications to support and build an "ecosystem". But what changed in two months that led to the decision to terminate the business that was not evident during the development of the actual platform?

The stated reasons for the potential divestiture of the consumer business (largely PC) are the low margins, and looking at the recent earnings announcement, who can argue with the decision to shift resources from a 5.9% margin business to one with margins of 13% (Enterprise, Servers, Storage, and Networking - ESSN)? Ironically, at the time the Palm acquisition was justified by HP as providing "the ideal platform to expand HP's mobility strategy" and enhancing "HP's ability to participate more aggressively in the fast-growing, highly profitable smartphone and connected mobile device markets."

No one can also argue against the intensity felt by tablet suppliers trying to compete against Apple. The executive decision to pull the plug on a venture after making the kind of investments HP has made over the past years is not an easy one. It takes guts to make that call, whether right or wrong. What is concerning, however, and will without question bear long-term consequences for HP and its reputation, is the lack of time and commitment that was given to the TouchPad.

The move will, independent of which sector HP will focus on going forward, lead to erosion of customer confidence in HP and the firm's commitment to its technology and products. The company's competencies may no longer be in the fast-paced consumer electronics space. The new focus on the ESSN group will bring longer sales and development cycles that may be more suitable for the tech giant. Nonetheless, customer confidence in the company will suffer from the latest move. And that… in my opinion… is the real danger!

The movement in share price clearly demonstrated uncertainty about the company's future. The last ten years of HP's history shows a record of a seemingly inconsistent acquisition patterns, changes in strategic direction, turmoil at the top of the organization leading to turnover in leadership. There is hesitation to believe in the company's direction after yet another twist and turn.

So now with the $10.2 billion acquisition of Autonomy,  is HP ready to tackle the next decade and emerge as a more focused entity in a space where it can provide innovation? Even with a divestiture of the Personal Systems Group, there appear to remain more pieces that do not to fit into the new vision and direction of CEO Leo Apotheker, which has been defined as "expand[ing] the company into software and services that help customers deliver computing over the Internet, via the so-called cloud." Maybe the financial services piece is next to go? Strong growth, but after the shedding the PSG group, the only remaining business unit with single-digit margins.

The 300K+ employees of HP will remain uneasy for a while. Many may find themselves laid off. I have known many HP employees and despite the controversy about pay cuts, bonus eliminations, and the inconsistency in leadership and direction over the past years, they always struck me as a loyal core.

So what will the future hold for HP? Maybe...if evolution is kind...it will give this dinosaur some wings to soar to new heights…

Google's War Against Apple

August 17, 2011

Fun fact: You think this was a pricy acquisition? Not even close… The most expensive acquisition I could identify was Vodafone Airtouch acquiring Mannesmann in 2000 for $202.8 billion followed by AOL acquiring Time Warner for $181.6 billion in 2001.

Google's War Against Apple

The 63% premium Google is offering to acquire Motorola Mobility has caused quite a stir; the pending merger of "Motorolans with Googlers" [Googorlas??] has opened conversations about the value of IP and patents, the escalating number of lawsuits due to patent infringement, as well as the question about the future of the open Android operating platform. It is hard to filter out what analysts/investors really think about the deal by looking at share price activity during the day, given the instability in the financial markets right now, but here are the facts. At 3:30pm EST on 8/17/2011...                

Google (GOOG): -1.21%

Apple (APPL): -0.14%

Microsoft (MSFT): -0.87%

$12.8 billion is a hefty price tag and a 63% premium is steep. Google is gaining access to 17,000 patents. There were discussions in the Financial Times and New York Times about the new valuation of patents and a new focus on IP. But is that really true? Maybe in this particular space, analysts have not paid much attention to patent portfolios, and only now that litigation is publicly escalating and M&A activity between these tech giants is rising, they are beginning to take a closer look. The actual competitors in this space have always had a strong eye on IP. Certainly in other industries, patents have been essential and key to M&A valuations and acquisition premiums. Look at the pharmaceutical industry. Talk about the need to patent your formulations to guarantee future revenue streams.

Of course, ownership of patents during this time seems to be more relevant than ever considering that seemingly new litigation is filed every day and everyone is going after each other, like children on a playground…fighting for world dominance (see Apple: Litigation as a Business Strategy). In general, patent infringement suits are warranted, but the recent escalation is not only consuming tremendous financial resources, but also stifling innovation due to concern over legal action among smaller entrepreneurial businesses.

Another point that has been heavily debated back and forth since the official announcement of Google's acquisition, is the future of the open operating platform, Android. In its official investor relations' announcement, Google stated that it is firmly committed to its current Android partners and the "vibrant open source community". Some analysts have speculated that going forward, Google will give Motorola Mobility handsets some kind of exclusivity. Why risk having Google's current partners switch to a Microsoft-based operating system for their smartphones? Nokia may be a bit too optimistic assuming that "the acquisition will play into the hands of Microsoft platform."  Google will have to be careful in how aggressively it pursues direct competition with its current partners. There should be plenty of room for additional customer segmentation.

Initially, I believe there is truth in one assessment, which is that Google is indeed defending Android and its partners (FT: Lex Column). The acquisition was pursued as a means to "protect profitability of the handset manufacturers that deploy Android." In reality, this may be an opportunity for Google to build a stronger core (no pun intended) against Apple, based on existing and acquired patents, but also an opportunity for further innovation.  Together with all Android-partners, which may become loyal soldiers/allies if executed correctly, they can build one united front against Apple.

So yes, I do believe this is war against Apple…

[P.S. My husband says I am a cynic and should write about more positive things. There is always next time…]

Image: http://wpuploads.appadvice.com/wp-content/uploads/2011/08/google-android-motorola.jpeg

Planet China

August 15, 2011

Planet China

It was a very small article in the Financial Times that triggered my interest today, located in the News digest section of the paper. It announced the acquisition of Australia-based Manassen Foods by China's state-owned Bright Food Group (Bright Food). Bright is making a $516 million investment to gain 75% ownership of the company. According to the Financial Times, Bright Food has attempted previous expansion, but failed to close bids for other players including the French company Yoplait.

Yet, today's post is not about Bright Food, Manassen, or Yoplait.

I am intrigued by China's continued ambition to dominate and build emerging allies. I am fascinated by the country's prowess and the hype. It was time to take stock, particularly after Mark Blyth outlined a noteworthy scenario for China's global dominance, accelerated by the financial crisis in the U.S. and Europe. Though he referred to his own scenario as far-fetched, I think it deserves attention. [An absolute must-read: China's European Shopping Spree, Foreign Affairs, July 25, 2011.] The following is not meant to imply negative intentions by China or give into some kind of conspiracy theory. Nonetheless, I better  inquire whether my son's preschool offers Chinese language classes…

Over the last 12 to 24 months, many excellent features have been published on China and the country's drive often lovingly described as wanting to "take over the world" (see links of select articles at the end of this post). China currently holds an estimated 8% stake in U.S. debt and is the largest single foreign investor in U.S. treasury securities. It is estimated that China accounted for 10.4% of Africa's total trade in 2010. China is pouring investments into Brazil, Australia, Canada, Pakistan, India, Iran, as well as many other countries. China holds over $3 trillion in currency reserves, reportedly the world's largest.

China's acquisitions have focused largely on natural resources and commodities such as iron ore, oil, zinc, oil, aluminum, oil, minerals, oil and other resources. Oh yes, and did I mention oil? There was a short period of investments in the Western financial services space in 2007, but China has since seemingly pulled out of this (unstable) sector. It's only paper after all. China has invested billions of dollars in oil, minerals, and other resources in Africa and the investments are welcome under the premise of building Africa's infrastructure.

China has been building a network of interesting allies across the globe and found willing partners in Africa, as well as Brazil and Russia. Combined, the latter two countries borrowed roughly $35 billion from China in return for a seemingly endless supply of oil. In an article dating back to 2009 in The Independent, the managing director of an investment bank was quoted as stating "China could [have bought] every bank in Europe [with the deal…] but it chose not to." The question that should have been asked here, but was not, is "Why not?" China does not want debt! It's only paper. China wants assets, resources, commodities. What better way to claim economic dominance than by controlling the majority of global resources and commodities. When financial and technology markets fail, it’s those natural resources – the basics – that will determine economic strength.

Analysts have evaluated China's motives many times over and not a day goes by China's actions are not reported on in the news. But typically, analyses end with the conclusion that there is "no real evidence of predatory behaviour by Chinese investors in the global resources sector." What kind of evidence are analysts looking for?

In early 2010, some journalists already noted "now China has more worldwide clout, and public opinion at home has taken on a combative (and sometimes downright jingoistic) tone. […] Beijing has begun to push harder to reshape international systems to make them more China-friendly. […] Already one can see worrisome changes in the way China deals with foreign firms. [The principle behind] the country's overall drive to move ahead of the rest of the world: to make sure it gets a real say in setting its future rules and standards. […] The idea that as China got rich it would simply become more like America, or at least more sympathetic to the U.S. agenda, is turning out to be wrong." This was in March 2010!

China's most recent shopping spree appears to be a bit more "diversified" i.e., automobile, food industry [Intentional diversion?], but resources/commodities continue to be the core of China's acquisition strategy. (Recall July acquisition of Canada-based oil sands producer OPTI).

As developed economies crumble, the timing appears to be once again right for China to take its assets and expand its global stake. A 2010 article in the Economist accurately framed the concerns of developed markets in the following way: "Chinese firms are going global for the usual reasons: to acquire raw materials, get technical know-how, and gain access to foreign markets. But they are under the guidance of a state that many countries consider a strategic competitor, not an ally." When China made some heavy investments in commodities in Australia in 2009, nay-sayers raised concerns about "leaving Australian sources of wealth in foreign hands. The Australian government would never be allowed to buy a mine in China, so why would we allow the Chinese government to buy and control a strategic asset in our country?"

It would probably take months to draft an accurate timeline of Chinese acquisitions between 2005 through 2011, but it would highlight a clear focus on commodities, with some (possibly intentional) distractions by making bids and acquisitions for other foreign companies. According to an Economist article, governments are creating greater hurdles for China to gain control over their resources and the author states "China is miles away from posing […] a threat. […]Even in natural resources, where it has been most active in dealmaking, it is not close to controlling enough supply to rig the market for most commodities." Hm,….

The much acclaimed article by Mark Blyth, starts by hypothesizing about a potential acquisition – by China – of as much as 50% of Greece's debt, after Chinese Premier Wen Jiabao commented on how a "stable eurozone is vital to China and that China is Europe's friend." An estimated quarter of all of China's foreign currency reserves are in euro-denominated assets. Blyth goes on to lead the reader through an economic scenario that would allow China to purchase key aerospace, technology, and defense-related assets. Assets that would allow China to obtain global dominance, largely due to a lack of remaining financial options for the United States and Europe and are seeking alternative revenue sources.

Blyth closes his feature by stating that the scenario may be far-fetched, but possible. I would like to close my feature by saying, no ill-will intended, but "Welcome to Planet China."

Worthy reads:

China's European Shopping Spree, Mark Blyth, Foreign Affairs, July 2011.

China buys up the world, The Economist, November 2010.

The Queensway syndicate and the African trade, The Economist, August 2011.

It's China's World We're Just Living in it, Rana Foroohar, The Daily Beast, March 2010.

China's shopping spree, The Independent, March 2009.

China's control over world resources?, Peter Drysdale, China, Development, Investment, September 2010.

Image Credit: Modification to image obtained from www.kenmusgrave.com/planet.jpg.

HTC and Dr. Dre…or…The Importance of Branding

August 14, 2011

HTC and Dr. Dre…or…The Importance of Branding

On and off, I have talked about the importance of branding in these various posts. Not that I am obsessed with the subject matter, but I look at "brands" as a determining factor in maintaining gross profit margins during challenging economic times. When pressure exists to provide low-cost products at low prices, brand image can make a difference. As someone who really is not that involved in marketing on a daily basis, I find that branding sometimes explains the unexplainable. Often times, when there are circumstances or consequences that do not seem to make sense, there is the "Aha"-moment…it's because of the brand (or the lack thereof).

The importance of branding is evidently also valued by HTC, a Taiwanese manufacturer of Android-based smartphones, which on Thursday announced a $309 million investment in Beats Electronics (Beats) to acquire a 51% ownership stake. To give some background, Beats was founded in 2006 as a venture between Dr. Dre and James Iovine, Chairman of Interscope Records. A USA Today article dated August 12, 2011, gives the details of how the venture started. The main product that has sparked the interest of HTC is the high-end Beats by Dr. Dre headset, priced upwards of $150 to $350. Despite their size, the headphones have established themselves as cult objects and icons. HTC CEO, Peter Chou, made very clear that this deal is all about branding for him: "This strategic partnership with Beats also makes the HTC-experience cool."

Since the establishment of the venture, the Beats audio technology has been built into HP computers and according to USA Today, the 2012 Chrysler 300S will be equipped with the same technology come fall.

The interesting question is, would this have been a good deal for Apple and does Apple even care? In response to the first question, I am not convinced that the demographics of the target customer match. Is the iPhone user the same customer that purchases Beat by Dr. Dre headphones? I am going to venture a guess and say "No". So, does Apple care? Absolutely. Maybe not because Apple would have liked a piece of that deal, but have no doubt that any move by a rival company, with which they are currently in litigation (see Apple: Litigation as Business Strategy) remains ignored.

The move by HTC is aimed at gaining greater share in the global smartphone market, and building its brand image to reflect some of that "high-end", but hip flair, similar to what the iPhone has become associated with.… But it really is for a different customer. A brand archetype analysis would be very interesting. Without much investigation, I would classify the Apple iPhone brand under Creator (Core Desire: Creating something of enduring value; If it can be imagined it can be created") or Ruler ("Core Desire: Control; Power isn't everything, it is the only thing") [I could really see either one work] and the Beats headphones under Jester ("Core Desire: To live in the moment with full enjoyment. If I can't dance I don't want to be part of your revolution.").

For Apple this may have been attractive as a defensive move; nothing but pocket change for the organization. But can you imagine Steve Jobs negotiating with Dr. Dre and J. Iovine? Hard to say who would need whom more in this scenario and that would make the deal immediately unappealing to Mr. Jobs, who likes to feel needed and prefers to be in the driver's seat.  [Nothing wrong with that.]  Separately, headphones that size seem to completely go against the sleek and "mobile" design standards implemented in the development of the iPhone. [Personally, headphones that size go against everything I consider "mobile", but that's just me…I guess the importance of accessorizing must not be ignored in this case.]

For HTC, this move is supposed to bring new and different momentum. There are some smart business men behind the venture, and diversification away from headphones should yield long-term benefits and growth opportunities. Larry Dignan, ZDNet, has a point [loved the boldness] stating that it may be too late to bank on the relevance of music on smartphones for HTC. I am not sure that I agree that the deal is completely pointless. While the headphones were key to make the deal attractive given their success and brand creation, I am certain that there are already bigger and grander plans in the works. With the market becoming so intense and competitive, I actually consider this move creative and relatively low risk. But I am sure, some competitor action is being plotted as we speak to counteract HTC's position and latest move. Never boring in this space…

[On a side note, as I was writing this post I attempted to log on to the Beats Electronics Web site several times and got the following message: Server is too busy….Now you tell me, branding is not important!!!]

Image Credit: http://www.mobiletoday.co.uk/images/2011/Mobile/Products/HTC_products/beats-by-dr-dre-htc.jpg 

Brazil: Hot or Too Hot? That is the Question.

August 13, 2011

Brazil: Hot or Too Hot? That is the Question.

[Maybe, I should be writing about Google and the launch of social games a couple of days ago in a direct move against Facebook. It has been debated and discussed in all the key newspapers along with Facebook's response, etc. But I don't want to and so I won't.]

Instead, I found much more intriguing food for thought and that was an article in the New York Times entitled "Foreigners Following Money to Booming Brazil, Land of the $35 Martini". [Besides the fact that I would enjoy a Martini right now…] The "BRIC" investment that is referenced in everyone's Annual Report and/or quarterly earnings call these days, is what let me to think about this article twice. I was also recently engaged in a market entry project for a client specifically looking at Brazil, so I figured I would ponder this one for a minute.

To take stock: Brazil experienced GDP growth of +7.5% in 2010 and is expected to grow an incremental +4% in 2011. The unemployment rate is the lowest it has ever been, reported at 6.2% in June 2011. The currency appears stronger than ever, and interestingly, Brazil is "now one of the biggest buyers of U.S. Treasury securities" aka, a significant stakeholder in this country's economy.

The economy is booming, expatriates are drawn to partake. Simon Romero's NYT article highlights that work authorizations for foreigners increased +30% in 2010, not shocking, considering the national U.S. unemployment rate and penetrating news of layoffs [see Job Cuts in the U.S. or "The Large Emigration"]. But, while there may be professional opportunities for individuals, is it yet a safe investment for foreign companies? 

Under the most recent leadership and the current government, Brazil seems eager to cement its strength in the global economy. It still ranks #6 behind Britain, but is reportedly on course to claim the title of 5th largest economy no later than 2026 (see Economist: Measuring Brazil's Economy, Statistics and Lies). Sounds appealing for investment, doesn't it?

Inflation has become a big problem, hence the $35 Martini reference. Infrastructure remains underdeveloped, labor laws favor local players, the educational system is still "behind". In many cases the remote undeveloped rural areas demand collaboration with local distributors. There seems to be little support for innovation and R&D. The economy is largely export driven, but the strong currency has made exports more challenging and hurt the local manufacturing businesses. These days, China is Brazil's largest trade partner. China surpassed the U.S. in relevance to Brazil in 2009; an interesting trade alliance between the two developing economies to say the least. Approximately 80% of the exports to China are petroleum, soy, and iron ore, which has Brazil reportedly somewhat concerned over a (de-)industrialization and in most recent trade negotiations with China, China appeared willing to consider "other products" for import as well.

Current concerns are that the economy is getting too hot. Already, June 2011 data indicates that industrial output is declining and the economy is slowing down even earlier and faster than initially expected. Experts also raised concerns about Brazil's stability during this new global financial crisis given its heavy dependence on external financing. Good thing, they have strong ties to China, which is still growing as an economy (+10.3% in FY:10).

Given the Olympics will be held in Rio in 2016 and the World Cup in 2014 [Go Germany!], money has to flow and will flow into continued development of the region. The question is [when] will the bubble burst? I recall that one of our project conclusions at the time was that investments in our particular sector remained risky. The currency may be strong right now, but I consider it far from stable. The devaluation of the currency occurred not that long ago. Notable is that those foreign companies that stayed put during the crisis at the time, benefited greatly from their commitment, both in terms of brand/image, as well as market share. In the sector that I was investigating, those players continued to hold over 50% market share well past the reentry of well-established global, competitive products once the crisis was over. There is something to be said about "sticking it out" in the hope of improving positioning once the crisis is resolved. It is all about the value of short-term ROIs versus long-term ROIs.

Finally, let's not forget corruption. Connections with key stakeholders are absolutely critical independent of which industry you are competing in.

Conclusion:  The promise of returns is high in this emerging economy, but as far as I am concerned, so are the risks to this day. The currency could depreciate any minute, economic growth could come to a screeching halt. Government is driving economic growth, but with interesting approaches and cautious tactics, carefully evaluating who gets to purchase land, and limiting volume imports of certain products to maintain local product dominance.

There are plenty of conflicting opinions on what the short-term future may hold for Brazil. While returns appear promising, risks remain high. It's a puzzle for anyone company that is interested, and by rights… all should be. There is no global company [or wanna be] that can afford to ignore or turn its back to Brazil at this stage, it's simply about "managing expectations"...

Let's just hope that this little piggy did not build its house out of straw and that the big bad wolf won't blow it in…

Oh Entrepreneurs - Where Art Thou?

August 12, 2011

Oh Entrepreneurs - Where Art Thou?

This is the United States of America, the Land of Opportunity, where dreams become reality. So far, this country's processes have been supportive of entrepreneurship. In fact, more and more business schools have specialized and developed dedicated entrepreneurship programs in an effort to support the "youth's flame" to be independent and live the dream. The country is longing for innovation and with the technology revolution and the Internet, customers have become more accessible. Product/service marketing has changed completely providing ample opportunity for creative thinkers to start their own business with limited investment in capital and equipment. Time has been the biggest investment. 

 Image: http://us.cdn4.123rf.com/

Today's WSJ featured an article entitled "Shrinking in a Bad Economy: America'sEntrepreneur Class". The author, J. Bussey, raises the question whether "the damage done by the weak economy [will] have a long-lasting effect, discouraging the next generation of entrepreneurs? Bussey points out that U.S. job growth depends on small businesses. Arguably more so than ever. All we hear about as of late are the sizeable layoffs and cutbacks in headcount that are taking place, particularly in the U.S. Even today, the U.S. Postal Service announced that an additional 220,000 positions will be eliminated by 2015. The U.S. simply needs small businesses and the jobs they create. 

Entrepreneurship has always taken a fair share of guts and willingness to take risks along with having capital. Who wants to take risks when red flags are going up everywhere and small business loans are hard to obtain? Who wants to be on their own, when security is what seems to be most critical? Some kind of sense of consistent financial income and health care coverage through an established organization seem more promising than venturing out. If that much growth in the U.S. economy is truly dependent on entrepreneurship, tough times may lay ahead. According to the U.S. Department of Labor, the number of firms that have been established less than 12 months ago is declining. 

But Americans are known to persevere. The global economy is changing, power houses are shifting, economies more interrelated than ever… point being: pressures are increasing, conditions becoming harder. Nonetheless, this nation has creativity, enough individualism and ambition to drive innovation forward and foresee opportunities. To take advantage of opportunities. What will the U.S. economy look like 10, 20 years from now? What will its major growth drivers be? What attributes will the "successful business (wo)man"  in 2020 have? What will it take to get access to capital? I have no idea.[Maybe as little as an Apple logo...just kidding!]

While crises seem to be escalating globally and nationally spanning from health care to unemployment and debt, one has to believe that things will eventually fall back into an equilibrium. Maybe the bottom has to fall out, the splendor and waste fall away... back to the basics. It is hard to imagine a United States where "bigger is not better", where progress and innovation are not supported and driven forward. Truth is: We need you entrepreneurs! Go forth and innovate. Move our country forward and defend its relevance in the global economy!

Business: Timing is Everything!

August 11, 2011

Business: Timing is Everything!

Times change fast. Especially in business and economics. Perfect conditions for one set of decision making today, cracks in the foundation tomorrow. The balance between moving fast and assessing risk is not easily found. Strong nerves are required. 

So what was different from today's issue of the WSJ and one from a couple of months ago: no acquisition talk. I pulled out the WSJ issue from May 10^th, 2011. LinkedIn was promoting its upcoming IPO and four mergers and acquisitions were discussed:

1) Microsoft looking to acquire Skype for $8.5 billion.

2) Southwest Airlines closing on AirTran acquisition for $3.2 billion.

3) Hertz making a $2.1 billion offer for Dollar.

4) Nvidia Corporation acquiring Icera for $367 million.

A total of $14 billion changing hands [generally speaking]. What has changed? There was already notable discussion of the European debt crisis at the time. Concerns over Italy's economy were front and center. Since then the words debt and crisis have appeared [I venture a guess here] at least 10 times each in each issue on any given day. In variations of course, sometimes pertaining to Spain, to Italy, to Greece, the U.S., and now to France. [For latest news on France's credit rating: go here.] The stock market has been up and down since then. Ideal timing for IPOs seems to have passed. Acquisitions will be considered more carefully now. Timing is everything.

 Image: http://www.stephenies-here.com/tag/time-is-money/

It would be interesting to take a closer look at which industries are expected to continue to grow and which ones will suffer most. And why? You could argue that consumer spending and spending choices have been more conservative since the recession of 2007. Yet smartphones for example have only grown in adoption despite the sometimes hefty price tag. So certain industries seem to be somewhat exempt from and immune to the overriding economic trends and are still able to post promising growth. Is that because of the evolution of consumer needs (no one can live without smartphones) and standards of living? How much has to do with branding i.e., Apple turning the iPhone into somewhat of a cult object? Trends change and whether you are able to predict how significant the impact on your respective business is and when the impact will occur is essential. It is impossible to always predict what is going to happen. It takes good instincts, good business sense, creativity, faith, guts, and $$$ to take advantage of emerging trends. Sad are the stories of those left behind. After reading an article on Eastman Kodak today, I realized that the company's stock is trading at $1.77 per share. WOW. Junk bonds are valued at $0.80 cents per $1.00.

The current economic conditions are rather unsettling. Personal consequences are frightening, but still hard to predict. [See and take the poll!!!]  From a business perspective, it seems that branding remains key to maintaining some kind of profit margin in these down times along with relevant innovation in emerging technologies. Most of all for any kind of bold move, whether an investment or acquisition the morale of the story is: Timing is everything….and guts!