Category Archives: Cornucopia

The Horn of Plenty

Below are some links and teasers to articles that I found interesting:

Selling Foreign Goods in China (The Economist)

Every year, says Paul French, head of Access Asia, a research firm based in Shanghai, the same company buys the same report from him on the market for a particular product in China. That is because each year the company in question sends a new executive to China with instructions to break into the local market, who soon departs in despair—having failed to find an opening given the (brief) time and (insufficient) resources allotted.

The promise—and frequent disappointment—of doing business in China has been a common theme since at least the 19th century, when weavers in Manchester were said to dream of adding a few inches to every shirttail in China.

It is incredibly difficult to do business in developing markets (see So You Want to Do Business in a Developing Country), and China is no exception. The interesting thing to me about entry into developed markets is how managers systematically overestimate the benefits and underestimate the costs. And sadly, I am not aware of any evidence that suggests that we are becoming better at making these entry decisions over time.

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Shazam, Maker of Phone App, Draws Investment (New York Times)

Cellphone applications can turn your phone into a mobile dictionary, help you find your way when you are lost on a hiking trail and identify mystery songs on the radio. But can they make significant money?

That question has been hounding the entrepreneurs and venture capitalists behind the start-up companies that create the software programs.

An interesting ditty about how making apps may actually be a commercially viable business. Be sure to look for their IPOs in an equity market near you…

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Schumpeter Centenary (The Economist)

The centenary of Joseph Schumpeter’s birth has not brought forth an avalanche of academic tributes and retrospectives. There is no Schumpeter industry to compare with the one on Keynes. No pop biographies. No “Schumpeter and the Post-Schumpeterians”. Yet his academic reputation at the height of his powers was of the same order, and the impact of his analysis continues to be strongly felt.

An interesting look at the history of an influential economist. He certainly left his mark on the fields of innovation and entrepreneurship.

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Wall Street Smarts (New York Times, ht Neysa)

“IF you really want to know why the financial system nearly collapsed in the fall of 2008, I can tell you in one simple sentence.”

The statement came from a man sitting three or four stools away from me in a sparsely populated Midtown bar, where I was waiting for a friend.

“O.K.,” I said. “Let’s hear it.”

“The financial system nearly collapsed,” he said, “because smart guys had started working on Wall Street.”

Hysterical anecdote (with more than a grain of truth) about the near-collapse of the financial system (see Krugman’s post on same)

Happy weekend everyone!!

Posted in Cornucopia, Economy, Humor, International Business, International Strategy | 3 Comments

This Week's Horn of Plenty

This was an interesting news week for me. I found too much worthy news to single out any one article. So I’ve decided to start a new blog post category (Cornucopia). Let’s see if it sticks to become a regular item.

Newsworthy Items:

Thriving on Adversity (from The Economist)

Although they are often called “slowdowns”, recessions shake things up rather than slowing them down. They reward strengths and expose weaknesses, create new opportunities and kill old habits, release pent-up energy and destroy old business models. Distressed assets can be bought for a song, talented people hired cheaply and new ideas given an airing.

The basic idea is that, however painful, recessions sow the seeds of creative destruction and present lucrative business opportunities.

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Profit for Buyout Firms as Company Debt Soared (from The New York Times):

Simmons [the famous bedding company] says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.

Thomas H. Lee Partners of Boston [Simmons private equity owner] has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

This is not entirely uncommon. The dividend recapitalization strategy was wildly popular among private equity firms over the past few years. The strategy was quite simple: buy a firm with lots of cash and/or little leverage, lever it to the hilt, and use the cash generated to pay dividends to the private equity owner. Since the days of easy money are now gone, such a strategy is unlikely to return anytime soon (see Private Equity: The End of an Era and Private Equity – Stupid Money Chasing Stupid Deals). In fact, watching several stories unfold similar to that of Simmons led me to call an end to the cheap money, cov-lite, excessive leverage-feuled private equity binge.

For a nice video complement to the Simmons story and a look at the dividend recapitalization PE strategy (although with some minor factual inaccuracies) see the New York Times video series Inside the Private Equity Game.

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Business School Reform (from The Economist):

This has been a year of sackcloth and ashes for the world’s business schools. Critics have accused them of churning out jargon-spewing economic vandals. Many professors have accepted at least some of the blame for the global catastrophe. Deans have drawn up blueprints for reform.

The result? Precious little.

That is too bad. You do not have to accept the idea that the business schools were “agents of the apocalypse” to believe that they need to change their ways, at least a little, in the light of recent events.

The real question is not whether business schools need to change, but how.

I have written a bit about the need for changes to the curriculum at business schools (see Op Ed on Business Schools and The Financial Crisis). I have suggested that we need to encourage our students to think more deeply about concepts, tools, and formulae rather than simply seek to apply them. Moreover, I have advocated for a curricular approach that favors analytical skills over technical skills.

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Hain to Sell Organic Food in China

A London-listed unit of Hong Kong’s Hutchison Whampoa Ltd. and Hain Celestial Group, the U.S.-based maker of Mountain Sun juices and Health Valley soups, are hoping that China has an appetite for organic products.The two companies announced a joint venture Thursday to sell Hain’s natural foods and organic household products in mainland China.

As my students can attest, I am generally not a fan of investments into retail businesses in China (especially in branded food goods). And I’m not convinced China is the right growth opportunity for Hain at the moment. I think they have plenty to keep them occupied in the domestic market.

The China retail market has caused headaches for most Western branded-goods firms. On its face, Hain’s investment seems no different, and it has the potential to bog Hain down for years.

I hope Hain’s executives have the fortitude to cut their losses quickly if the deal doesn’t meet profitability targets. Otherwise, it could develop into a money pit, not uncommon among Western investments of the sort.

The equity market clearly thinks I’m nuts. It applauded the deal, sending the share prices of both firms up handsomely. Although I could be mistaken, I think the market might have gotten this one wrong given the track record of Western firms in China, especially in this industry. The nice thing for shareholders of Hain is that their commitment to China appears to be limited, as according to the WSJ article, the capital committed was “not material to either company”.

Posted in Cornucopia | 2 Comments