The Future Of The Middle East

George Bush, World Forum Middle East

Naked Girl 6, Cover Art Magazine

THE NSW government will refer a magazine featuring a naked child on the cover to the Australian Classification board.

Art Monthly Australia magazine sparked fresh controversy over naked images of children by publishing an image of a six-year-old girl on its cover to protest against the recent furore over similar pictures by artist Bill Henson.

NSW police seized a number of Mr Henson’s photographs featuring near-naked or naked children in recent months, but were returned to a Sydney art gallery without charges being laid.

The July edition of Art Monthly Australia published the cover image in protest at the “hysteria” over Mr Henson’s work.

It also includes several provocative photos of children posing naked in adult jewellery as well as naked teenage girls.

NSW community services minister Kevin Greene said the images had been inappropriately hijacked for political mileage.

“I will refer this to the ACB tomorrow, and the community also should let (the Board) know what they think,” Mr Greene told reporters in Sydney.

Opposition Leader Barry O’Farrell labelled the publication a “provocative publicity stunt” and called for a review of Arts Council’s funding for the magazine.

He said the average parent faced strict regulation of photographing their children at school events, and would be frustrated by the actions of the magazine.

“I understand they are in receipt of funding from the Arts Council and I assume there are procedures where that can be reviewed by Mr Rudd and his ministers,” Mr O’Farrell said.

“I notice (Premier) Morris Iemma hasn’t ruled them out receiving state government funds in the future.

“The public are furious about the double standards, I think taxpayers are angry when they see funds used in this way and to review it, I think, would be sensible.”

“Restoring dignity”

In the editorial, Maurice O’Riordan said he chose the 2003 picture of the young girl in the “hope of restoring some dignity to the debate” and to “validate nudity and childhood as subjects for art”.

The image, taken by Melbourne-based Polixeni Papapetrou, is believed to be her own daughter.

Mr O’Riordan, who does not have children of his own, told The Sunday Telegraph he did not care if it stirred community complaint.

“I believe the image is of a six-year-old girl,” he said.

“Maybe this is bold, but I don’t see the need to give in to that sort of hysteria or the prospect of complaint.

“I couldn’t really understand the furore.”

The artist, Ms Papapetrou, said she supports the use of her work for the magazine’s cover.

“We need to be clever enough to distinguish art from other types of images, otherwise we live in danger of eradicating any image of childhood in this culture for future generations to see.”

Art Monthly Australia receives more than $50,000 in funding from the Federal Government’s Council for the Arts and lists the New South Wales Ministry for the Arts under sponsors and partner. The State Government has issued grants to the magazine in previous years.

Cheap, sick stunt

NSW Premier Morris Iemma immediately threatened towithdraw future funding after he was contacted about the images yesterday.

“Images of this kind are distasteful, exploitative of children – a cheap, sick stunt at the expense of a young child,” he said.

“We’ve now reached a sad point where some people think naked kids can boost their sales and get them a headline. We will have no role in funding them while they use images that exploit children.”

More than 5000 copies of the magazine have been distributed across Australia. The magazine also includes images by Bill Henson.

In May, police raided the Roslyn Oxley9 Gallery in Paddington, confiscating several images by Henson including the photographs of a naked 13-year-old girl.

The photos sparked major national debate and angered several organisations, including child-welfare groups, with Premier Morris Iemma labelling the works “offensive and disgusting”.

Mr Henson was cleared of any wrongdoing following a police investigation.

A spokeswoman for the Australia Council yesterday defended their decision to help fund the magazine. She said the Council regarded Mr Henson as one of the country’s premier artists.

-With the Sunday Telegraph, AAP

Singapore and Democracy

Well, what do you expect?

FOR the first time since the credit crisis began, the Federal Reserve’s open-market committee decided to keep American interest rates on hold. In a statement released after its policy meeting on Wednesday June 25th the Fed said the dangers to GDP growth had “diminished somewhat” but conceded that the continued rise in energy prices meant the risks of inflation had increased.

This was a shift in judgment, if a subtle one, about where the biggest threat to America’s economy lies. But there was no hint that higher interest rates are imminent. Richard Fisher, the president of the Dallas Fed, was the only member of the ten-strong rate-setting committee to vote for a rise.

After a series of cuts since the summer, the fed-funds rate, at 2%, looks uncomfortably low when set against headline inflation at 4.2%. Yet the Fed seems confident that inflation will moderate. One reason is that higher inflation reflects a jump in the cost of oil and food rather than a broad acceleration in prices. When commodity prices shoot higher, the standard policy response is to treat the resulting rise in inflation as a once-and-for-all shift in relative prices. An interest-rate increase big enough to squeeze inflation back down in short order would cause a needlessly large rise in unemployment.

As long as the public believes the Fed will act to control inflation, today’s price increases are unlikely to feed tomorrow’s wage claims, and a wage-price spiral can be averted. The trouble is, expectations of inflation have started to pick up. A survey by the University of Michigan shows that inflation is expected to be over 5% in the next year, the highest reading since 1982. And expected inflation for the next five to ten years is 3.4%, the highest since 1995. This trend is mirrored in other rich countries. In Britain expectations have risen to their highest level since the central bank’s survey began in 1999. A poll of the euro area, carried out by the European Commission, also shows a rise in the balance of consumers expecting higher inflation.

Until recently, central bankers have looked on the stability of inflation expectations with satisfaction. The public seemed to trust that independent monetary stewards would not be tempted, as politicians might be, to keep interest rates too low to control inflation. But now that faith is in doubt, policymakers seem to be shifting tack. The Fed’s statement referred to a pick up in “some” indictors of expectations but reckoned that this was a sign only of greater “uncertainty” about the outlook. In a speech on June 9th Ben Bernanke, the Fed chairman, admitted to gaps in knowledge about how the actions of central banks affect inflation expectations and how these in turn have a bearing on inflation. Such qualifications are a hint that inflation expectations may have lost their place at the heart of policymaking.

One reason not to worry is that perceptions often differ from reality. Consumers may be overly sensitive to changes in the price of frequent purchases, such as food and fuel, while they overlook the stability of other prices. As the effect of the commodity shock fades, expectations are likely to follow recorded inflation back down again.

If, however, an inflation psychology is returning, not all the rich world’s central bankers appear to be treating it with the same degree of trepidation. The European Central Bank has signalled that it will raise interest rates at its next meeting on July 3rd, to show that inflation remains its main concern. That the central bankers at its American counterpart are sitting on their hands, for the moment, reflects the greater threat of a sharp downturn in the economy there. But if the Fed’s rate-setters are too complacent about rising inflation expectations, they run the risk of squandering the credibility their predecessors earned at such a high price.

Starbucks Grounds Zero

FOR years it seemed that American consumers’ demand for liquid fuel was price inelastic—whether it was to drive their cars or get their brains going in the morning. Yet $4 seems to have been the price at which demand becomes elastic, for both petrol and a frothy latte. As a result, baristas at Starbucks coffee shops around America are starting to get a taste of what it feels like to be a carworker in Detroit. On July 1st the coffee retailer, based in Seattle, said it would close a further 500 stores in America (in addition to the 100 closures it announced earlier this year), and reduce its workforce of roughly 172,000 by around 7%.

A remarkable 70% of the stores due to close were opened after 2005, which seems to confirm the comment made by Howard Schultz, when he returned to the helm of the company in January, that most of Starbucks’ wounds were self-inflicted. As it expanded at a breakneck pace, the company opened too many Starbucks in subprime locations. But the deteriorating American economy is doing further damage. As a premium-priced supplier, Starbucks is suffering from the same trading down that is sending shoppers rushing from Target to Wal-Mart. McDonald’s, it seems, has perfectly timed its decision to start selling coffee that is pleasant to drink.

Shares in Starbucks are now trading at barely one-third of their peak value from two years ago. Yet, rather than being a sign of panic, the closures may be evidence that Mr Schultz means to return the company to its focus on quality, rather than growth. After closing all its American stores simultaneously for a brief retraining session a few months ago, there are plans for further improvements in the staff’s competence and demeanour, and in the cleanliness and comfort of its shops.

There are also innovations in the works, ranging from healthy smoothies, to a mysterious (and so far unnamed) Italian drink, to further automation. In March Starbucks bought the Coffee Equipment Company, a small outfit that produces a hugely expensive coffee-making machine called the Clover. It is now testing the machines in a handful of its American shops.

Admittedly, there have been some complaints about the introduction of the milder “Pike Place” filter-coffee blend. But on the firm’s popular new customer website, MyStarbucksIdea.com, the main concerns are about the quality of the food sold by Starbucks and, above all, its prices. Encouragingly for Mr Schultz, there are also many positive suggestions, from serving vegan food to introducing a loyalty card, which suggests that plenty of customers still care for Starbucks enough to give him a chance to win them back—recession or no recession.

Buyout Banks Take Peacemaking Term

By Peter Lattman

Word Count: 892 | Companies Featured in This Article: BCE, Penn National Gaming, Citigroup, Deutsche Bank, Home Depot, Goldman Sachs Group, Harman International Industries, Huntsman

A group of banks and buyout firms helped salvage the $52 billion takeover of Canadian phone giant BCE Inc. The compromise closes a year of bickering about how to fund boom-era deals, which may at last help banks begin new lending commitments to corporations and buyout groups.

That follows an amicable agreement the day before, greased by bank lenders’ concessions, to abandon a $6.1 billion acquisition deal for casino operator Penn National Gaming Inc. (See related article.)

In Penn, the banks paid handsomely to free themselves of underwriting $7 billion of unsold debt on which they would have had to …

Credit Crisis

Credit Crisis? Financial Crisis? That’s Nothing!!!!

Are you negative in your bank account? Have funds run low? Just let it slide. Let the structured one’s freak out about it. If your a risk taker and trying to take your company public for an ipo, it’s all going to come with the territory.

Here are some tips to play it cool:

1. Creditors are worthless, they just sit on the phone all day and are trained to read off there scripts on $9 -$10 an hour
2. Fico Scores these days are bull. As an entrepreneur, your credit will be back up like a heart rate machine just have faith
3. When the bank calls you, just buy them time on the phone. Banks know the game and that’s how you do it.
4. Your going to hear a lot of comments from the outsiders. Just ignore ’em they won’t get it anyway it’s who they are.

When the economy is low, now is never a better time to grow!!!

How to take advantage of the moment while the moment lasts…

1. Look closer at your business. Think of ways that you can improve on what could be better re: team, strategy, sales, etc.
2. Start a new business. Now is never a better time, the economy profits well from new business development so why not?

Don’t be so trusting…

A wise business man knows that trust takes time. Laying out all your cards is a no no.

Ideas, ideas, ideas…

Share the good, protect the great babies with your heart and soul.

Business owners have a ball together…

Why not? They work hard and play hard. They are very creative and the fun in the game is contagious.

Careful what you wish for because it may just come true!

What happens when you are looking for something and that something is just there for the taking. Be safe, because it’s gonna happen fast. Always have a back up plan when things may emplode.

At the end of the day, it’s all a big game

True but not so true, its the attitude and how you play the game in what counts.

Drive, Ambition and Passion are your powers. They come along way…Use them wisely

Russia’s New Leader

Mevedev, A Putin “Prodigy”… Born To Lead?

Vladimir Putin has appointed Mr. Medvedev, Moscow’s new Russian President has won the electorial election by a large marginal vote. Mr. Putin will stay on as prime minister, with there relationship remaining at close end. Power of president is hiearchy and Russia is known for it’s highly personal political system that has been molded by former Putin. Mr. Putin will now take the reigns as prime minister and no longer will be in charge of controlling Russian army as well as foreign policy.

Mr. Medvedev is challenged with some highly significant decisions that will not only impact Russian economy but will also impact ties with the United States. Questions from the public tend to arise on whether Mr. Medvedev will take control of Russia’s foreign political affairs that have been quite political in ties to the Kremlin.

Anything Can Be Possible

Moving Ahead, Why Anything Can Be Possible!

In today’s competitive society and all the negativities, the stressors involved, it is common human nature to fall short with worry and doubts. Having the proper emotional intelligence and the ability to think forward that “Anything can be possible” is positive for cultivating growth, inner strength and continuous progression through life. We learn through experiences, we learn through others and we learn for ourselves. There are many books, human nature of conversations that are expressed on ways and techniques. But in the end, it is only to your own making that anything can be possible if you possess the proper mental efforts.

Thinking bigger, and bigger and BIGGER…

Staying small is one’s own choice, however we cannot grow if we do not put in risk. Risk taking can frighten many people. Whether they are simply too set in there ways, or naturally uncomfortable, undesired to grow. Practicing risk taking behavior is supported to moving ahead in life. It is how you view the experience, take it in, look back and revisit these experiences, learn from them and move on. Repeating the cycle is unhealthy, takes out of your precious personal time and remember that we only have one life so it is to one’s own choosing how to live it well.

Pessimistic Views on Life…

Why it won’t…Why it can’t? How many times and rehearsed conversations from people have we heard that this won’t work because…or I am not able to because…Perhaps it was just a bad day or perhaps we are simply just acting out in ways why it won’t work. “No” is a regular response to these type of people. They have trouble imagining and visualizing. They are the types whom see failure as a predictable option. Fear and doubt create worry among these types. In the end, there isn’t enough of a mental climate to create something positive. Pessimistic views tend to down play on the dreams, the ideas and creativity.

Optimistic Views on Life…

Possibility Thinking is focused on problems and ways that are positive. Dreamers of sorts. They see the “Anything Is Possible” point of view and keep working past experiences “Turning Water Into Wine.” They are the ones who strive to achive, climb mountains, adventure, experience and explore. In a sense, a full life, resilience of never giving up one’s dream. Success thinking in optimism makes anything possible.

Positive outcomes with optimistic thinking result in the following:

Overcoming Inferiority
Living Confident
Challenges To Problems
Facing Lifes Personal Battles
Evaluating Ideas

What type of life do you want to create?

When you are putting your life together we look to believe in creating success in career, in marriage, in family and in friends.

Interpersonal Leadership

Interpersonal Skills for Leadership

Possessing the skills to being effective in interpersonal communication are essential for success in leadership.

Having the ability to be in command of one’s life, relating well with other people and to lead other’s in positive direction is valuable in today’s economy.

Measuring success has the effect of being able to deal with different people whom we exchange information with.

Great interpersonal skill development is something that can make both leaders and followers as well as the lives that they interact with less stressful and of value through possessing the ability to deal well with every kind of people.

Having the ability to listen well, act with vision and commitment, value in yourself and capabilities, handling stress, communicating with trust and empathy, leading wisely and to value others is time well spent.

Integrity and Influence

Integrity & Influence

When you influence others, you gain their spport and have the ability to change their thoughts or actions in some way. Influencing with integrity differs from manipulation in that the former occurs with the influencee’s awareness and consent to be influenced, either expressed or implied.

Influencing with Integrity

1. Influence is situational
2. Influence is a process not an event
3. Influence involves a mixture of tactics
4. Influence is bilateral

Psychology of Influence

1. Authority
2. Similarity
3. Liking
4. Scarcity
5. Commitment and Consistency
6. Reciprocation
7. Social Proof
8. Logical Proof

Understanding Individual Differences

Understanding Individual Differences

Great interpersonal skills takes being sensitive, appreciating and honoring differences among people.

Being aware of the many different ways individuals can be different in how they perceive themselves and how they view the world, process information and make decisions.

Being willing to accept those differences without evaluation and to adopt one’s own style and behavior to adjust to the styles and behaviors of others.

Sensitivity to Differences

Global consulting requires consultants to be sensitive to differences in cultures as you work together with different clients around the globe. Being sensitive means being highly aware of different traditions, cultural ways, language meanings, customs, gestures and so on. These differences are sometimes visible and sometimes concealed. Be aware of words, meanings as there are differences that should be honored. After becoming aware of differences it is important to honor them by assuming that their perspective is valid by not placing judgement to others by cultural norms, respecting differences and developing mutually respectful working relationships.

Understanding Individual Differences

Being able to understand how people are different is important for various reasons.

It helps us to understand that our own attitudes, interests and perspectives as well as needs are important.
It legitimizes the different ways people approach problems.
It shows areas of potential misunderstanding and conflicts.
It helps us adapt our styles so that we work effectively with others.

There are four different ways of interacting with others:

Drivers
Highly assertive, low on responsiveness. Results and accomplishment oriented. Comfortable in power, move quickly.

Analyticals
Low on assertiveness, response. They are organized, need to be accurate and task oriented.

Expressives
High on assertiveness and responsiveness. They are involved, idea oriented, people focused.

Amiables
Low on assertiveness, high in reponsiveness. They need cooperation and avoid conflict. People oriented.

How People Are Different

How People Are Different

Introverts
Introverts are focused inward, self reflective
Prefer quiet and time for concentrating
Drained by continuous interaction with others
Likes to work alone
Prefers to write out ideas before discussing them
Reluctant to socialize
More difficult to engage in sustained conversations
Disturbed by interuptions

Expect them to be less communicative during team meetings. Give them work they can do by themselves. Work that requires reflection and concentration. Allow them to write out ideas before presenting them. Avoid interrupting them unecessarily. Make social interaction safe for them. Be patient, a good listener.

Extraverts
Focused outward, human interaction
Like variety and action
Enjoy having people around
Enthusiastic communicators
Often think out loud
Discuss topics before committing anything to paper
Enjoy work involving interactions with others
Action oriented
Uncomfortable with lengthy discussion

When dealing and working with extraverts, create a social environment for doing the work. Set up teams or task forces, scheduling meetings where topics can be discussed. Give action, assignments and encourage them to participate in data gathering or problem solving. Involve them in group brainstorming and planning sessions. Use their presentation skills and interactive skills. Avoid asking them to work alone on long projects.

Sensors
Sensors value facts and reality, practical
Down to earth dimeanor
Factual and usually good detailers
Concerned about the specifics
Concerned about what words
Comfortable fine-tuning something that already exists
Want to reduce risk
Want to be shown why something makes sense
More interested in applications than theory

Be specific and factual. Provide evidence to support conclusions. Avoid asking them to accept something on faith. Make recommendations practical and feasible.  Outline plans step by step. Provide specific examples and anecdotes from experience. Pay attention to risk and show how to reduce or manage it. Use common sense.

Intuitors
Intuitors value imagination and inspiration, visionary
Oriented toward the future and toward possibilities
Disregards facts, makes factual errors
Thinks about the big picture
More interested in theory than applications
Enjoys learning new skills
Seem restless
Works in bursts of energy
Are visionary and follow their inspirations
May not be able to explain their rationale

Use their ability to make leaps of faith. See the big picture to generate original approaches and creative solutions. Challenge the status quo with them and trouble shoot systems, processes that need to be improved. Avoid overloading them with details. Ask them to theorize. Think about possibilities. Allow them to daydream.

Thinkers
Logical, objective and analytical
Analytical and objective
Tends to make impersonal decisions
May not consider impact on people
Focuses on the principles behind the decision or plan
Tends to be firm minded
May be critical
Appreciated a well organized presentation
May seem insensitive to others

Be logical, analytical and objective. State the principles involved. Be well organized and proceed logically from point to point. Support your conclusions with analysis and data, use graphs. Ask them to review and assess your own analyses. Remind them of the human impacts of decisions.

Feelers
Subjective, concerned with feelings and values
Concerned about how decisions effect people
Allows decisions to be influenced by what people like/dislike
Has trouble delivering bad news to others
Often appreciative and personable
Illogical, values harmony over logical conclusions
Open and forthright
Empathic and good listeners

Show concern for the effects of plans, decisions on other people. Be responsive to them. Use their interpersonal and communication skills to build teams and relationships. Ask them to evaluate how people will respond to a decision. Use them to determine what’s most important. Use them to balance your own perceptions and to factor in the human elements of a situation.

Judgement
Need for closure and decide quickly
Want things settled and finished
Very decisive
Makes decisions too quickly
Impatient with lengthy discussions
Want to see things structured and scheduled
Very good time mamangers
Insist that others be as punctual and controlled
Dislike surprises
Organized and focuses on tasks to be done
Make and use lists

Be as time conscious as they are. Start and end meetings on time. Structure your decisions. Be organized and systematic in your reports and presentations. Make your materials neat. Move through your agenda and proceed to decision making as quickly as possible. Avoid surprising them, last minute changes. Use them to manage time and to make lists. As for their assistance in project management.

Perceivers
Prefer spontaneity and like to keep options open
Uncomfortable with tight deadlines
Flexible and adaptable
Leaves things open
Expects last minute changes
Open to exploring new approaches and alternatives
Focus more on process than results
Postpone decisions in order to gather more information
Searched for more options
Uncomfortable with time management
Spontaneous, spur of the moment

Be flexible and adaptable. Show a willingness to explore new possibilities. Gather additional information, incorporate new ideas. Avoid giving them tight deadlines. Be process focused. Use them on teams exploring new possibilities. Be patient, don’t have expectations for them to be good time managers. Accept their spontaneity and go with it.

Fundamental Needs

The need for power
The need for affiliation
The need for achievement[

Gas Price Surge America

Gas Price Surge In America

Gasoline consumption in America has fallen by an average of 1.1% This in combination with the economy today, has made a dramatic after effect on American behavior, overall American consumer behavior, driving habits and lifestyle changes. Since February of 1994, gasoline prices have been on the rise. Costing Americans on average around $3.00 to $3.59 per the gallon rising to almost $4 potentially per the gallon, it is no wonder that we are pushing the “green movement” for an eco-friendlier economy of today. With the continuing rise of oil prices that are pulling gasoline higher in the current economy, American consumers are more likely to hold back on buying gas prices. Today’s weak economy has led Americans to cut back on driving, instead taking public transportation to avoid rising costs of fuel. As a result, the demand for gasoline has slowed with Americans becoming more fuel-efficient.

As consumers are wise spending decisions as result of economy downturn on where to live, what kind of car, what kind of “eco friendly” car, they begin to factor in more intelligently fuel costs, typical consumer spending behavior on goods and services as well as overall impact in every day cost expenses. We are beginning to see hybrid cars, compact cars pushed to market. Automotive changes in choice of car, have a significant impact on the obvious level of gasoline consumption rates which we have seen over the past years however significantly more so as we move toward a more “fuel efficient”, “eco-friendly” lifestyle. Behaviors such as consumer shopping at Wal-Mart, trading in the automobile rides for bicycle rides has left American’s concerned now with an impact on consumer behaviors due to gas price rates rising high, how the American people will be living in the future. Examining the downturn of the economy, the decline in the real estate market has also made significant impact on how we are living today. Real estate developers are building more walkable neighborhoods closer to public transportation and public shopping centers. It’s all about saving in the new economy. Rising gas costs, concerns of commuting, real estate market impacts and retail consumer behavior have certainly made its mark in today’s world.

Convenience is key. 0% The outlook of the future of today’s economy has impact on how much money individuals earn. If earnings stay high, then consumers will obviously keep spending and keep the economy growing. Consumer spending effects 70% of today’s economic output. The recession of 2001 did not impact consumer spending slowdown even through income growth had declined.

Communicating Effectively

Communicating Effectively

To communicate so that others hear you is crucial. Listed below are some key facts:

1. All human beings are self absorbed, there attention is selective and care most about what effects them
2. Human beings are not information processors. Everything that they sense is based on emotions, values, needs
3. Words and there meanings are a small part of any message
4. People will not hear you unless they are attending to you
5. To communicate effectively you must be credible, interesting, relevant
6. Keep things simpls, concrete and memorable
7. Have a bottom line approach
8. Elaborate, give specifics
9. Time awareness, keep it short
10.Summary, reinstate key points
11. Ask questions, avoid why, information point, staccato questions
12. Open questions, closed questions

China One Child Nation

China and it’s “One Child” Nation

China easing back on rules? In Beijing, China is currently has a restriction of family planning policies which have most urban couples in China to conceive only one child. The policy was launched in 1973 in response to the significant amount of birth rate that has left it’s population out of control. During the cultural revolution, China’s birthrate had soared that had reached an outrageous amount of a ratio as high as 5.8 children per couple. This then created worries in the country’s limitations of basic needs such as food, water and energy resources.

China today has decreased birth rates down to 1.8. It is possible that social difficulties are to arise in the future as there will be fewer younger adults that create social difficulties in the future. The future shift in China’s “One Child” policy will have little impact future prediction on change of controls. In the year 2033, it is predicted that China’s population is still growing. In reports, the year 2033 China population will hit a significant number of 1.5 billion people, leaving birthrates to soar in the next five years.

California Beef Recall

California Beef Recall

Animal Cruelty, a root cause of the California Beef Recall has lead American’s questioning even more the sanitary and humanitary well being of consumer lives and meat consumption. Last year in California, a law was passed allowing consumers to have access to the names of retailers that received products involved in all recalls. The company, Hallmark/Westland meat was issued a recall of 143 million pounds of beef earlier this month after the Humane Society had issued an undercover video that showed workers forcing sick and injured cows to stand up using fork lifts and high pressure water hoses. Mr. Herrera was held in police custody, was faced with felony charges of animal cruelty for moving these forced or injured cows that could not walk nor stand.

Political Gridlock & Tokyo Stocks

Japan is the world’s second largest economy. In 2008, the Nikkei Stock Average is down 19% for the year. Economist’s comment that the 19% drop of the Japan’s dollar’s steep decline would help the United States reduce its huge trade deficit and eliminate the United States $2 billion dollar a day addiction to foreign capital. After falling for the first time since 1995, Japan’s slide has created a host of problems worldwide for both the United States and Japan. In retrospect, the decline could help the United States reduce its huge trade deficit.

India’s Economy Hits The Wall

Just six months ago, India was looking good. Annual growth was 9%, corporate profits were surging 20%, the stock market had risen 50% in 2007, consumer demand was huge, local companies were making ambitious international acquisitions, and foreign investment was growing. Nothing, it seemed, could stop the forward march of this Asian nation.

But stop it has. In the past month, India has joined the list of the wounded. The country is reeling from 11.4% inflation, large government deficits, and rising interest rates. Foreign investment is fleeing, the rupee is falling, and the stock market is down over 40% from the year’s highs. Most economic forecasts expect growth to slow to 7%—a big drop for a country that needs to accelerate growth, not reduce it. “India has gone from hero to zero in six months,” says Andrew Holland, head of proprietary trading at Merrill Lynch India (MER) in Mumbai. Many in India worry that the country’s hard-earned investment-grade rating will soon be lost and that the gilded growth story has come to an end.

Global circumstances—soaring oil prices and the subprime crisis that dried up the flow of foreign funds—are certainly to blame. But so is New Delhi. Much of the crisis India faces today could have been avoided by skillful planning. India imports 75% of its oil to meet demand, which have grown exponentially as its economy expands. The government also subsidizes 60% of the price of such fuels as diesel. In 2007, when inflation was a low 3%, economists such as Standard & Poor’s Subir Gokarn urged New Delhi to start cutting subsidies. Instead, the populist ruling Congress government spent $25 billion on waiving loans made to farmers and hiking bureaucrats’ salaries.

Botched Opportunities

Now those expenditures, plus an additional $25 billion on upcoming fertilizer subsidies, is adding $100 billion a year—or 10% of India’s gross domestic product, or equivalent to the country’s entire collection of income taxes—to the national bill. This at a time when India needs urgently to spend $500 billion on new infrastructure and more on upgrading education and health-care facilities. The government’s official debt, which dropped below 6% of gross domestic product last year, will now be closer to 10% this year. “Starting last year, the government missed key opportunities” to fix the economy, says Gokarn. In fact, he adds, “there has been no significant reform done at all in the past four years”—the time the Congress coalition has been in power.

Even the most bullish on India are hard-pressed to recall any significant economic reforms made in the recent past. A plan to build 30 Special Economic Zones is virtually suspended because New Delhi has not sorted out how to acquire the necessary land, a major issue in both urban and rural India, without a major social and political upheaval. Agriculture, distorted by fertilizer subsidies and technologically laggard, is woefully unproductive. Simple and nonpolitical reforms, like strengthening the legal system and adding more judges to the courtrooms, have been ignored.

A June 16 report by Goldman Sachs’ (GS) Jim O’Neill and Tushar Poddar, Ten Things for India to Achieve Its 2050 Potential, is a grim reminder that India has fallen to the bottom of the four BRIC nations (Brazil, Russia, India, and China) in its growth scores, due largely to government inertia. The report states that India’s rice yields are a third those of China and half of Vietnam’s. While 60% of the country’s labor force is employed in agriculture, farming contributes less than 1% to overall growth. The report urges India to improve governance, raise educational achievement, and control inflation. It also advises reining in profligate expenditures, liberalizing its financial markets, increasing agricultural productivity, and improving infrastructure, the environment, and energy use. “The will to implement all these needs leadership,” points out Poddar.

“We have a government in New Delhi with the best brains, the dream team,” he says, referring to Oxford-educated Prime Minister Manmohan Singh and Harvard-educated Finance Minister P. Chidambaram. “If they don’t deliver, then what?”

Disillusioned Business

More worried than most are India’s businessmen, who have turned in stellar performances with their investment and entrepreneurial drive and begun to look like multinational players. For them, there’s plenty at stake. But lack of infrastructure, from new ports to roads, along with an undeveloped corporate bond market and high prices for real estate, commodities, and talent, are causing them to hit “choke points and structural impediments all over. We will lose years,” says Bombay investor Chetan Parikh of of Jeetay Investments.

Sanjay Kirloskar, chief executive of Kirloskar Brothers (KRBR.BO), a premier $470 million maker of water pumps, already has $100 million in overseas contracts. Yet few infrastructure contracts have come from New Delhi. Kirloskar had hoped to be part of a grand project linking India’s rivers, but those plans have been on hold for four years. “The infrastructure growth we had hoped for has not come about,” he says. “Instead, we will now expand overseas more than in India.”

Such constraints on growth at home will have an impact. Corporate earnings growth is likely to dip, says Merrill Lynch’s Holland, who now predicts just 10% growth, instead of the previous year’s 20%. That slowdown makes it less attractive for foreigners to invest in India’s stock market. Already this year, foreigners have taken $5.5 billion out of the market, compared with the $19 billion they invested last year. Gagan Banga, chief executive of India Bulls Financial Services, an emerging finance and real estate giant, points admiringly to China’s ability to maintain its growth momentum for a decade, while India’s has not been able to hold up for even three years. “Serious companies are going to grow at a much slower pace, and some may even de-grow this year,” he says. Unless major policy decisions are made by New Delhi immediately to keep the economy on the growth path, he says, “India will slow down even further.”

New Delhi defends its four year reign in India. “We’ve had 9% growth for four years in a row,” says Sanjaya Baru, media adviser to Prime Minister Singh. “That is unprecedented.” He attributes it to the increasing rate of investment, up from 28% of GDP to 35% currently, “close to most ASEAN economies,” though he admits that a large part is from the private sector. “Yes, there is a fiscal problem, but there’s a price to be paid for coalition politics,” adds Baru. So having growth drop “from 9% to 7% is not grim.”

Social Backlash?

Chetan Modi, head of Moody’s India, says the increasingly high cost of doing business in India may force global investors who had set up base in India—especially financial-services players—to move to more affordable and efficient hubs, such as Singapore and Hong Kong. If the economy slows and inflation continues to accelerate, says Sherman Chan, economist at Moody’s Economy.com, “social unrest is possible.”

In fact, India is becoming a dangerous social cauldron. The wealth harvested by the reforms of previous governments has made itself evident in the luxury cars and apartments in India’s big cities, leaving much of India full of aspirations but few means to achieve them. There is a severe shortage of colleges, yet a plan to build 1,500 universities gathers dust. The Communists in the ruling coalition are against both globalization and industrialization, so without new factories being built, employment growth has been almost stagnant, rising to just 2%—a disappointing rate in a country where an estimated 14 million youths enter the workforce every year, but just 1 million get jobs in the regulated, above-ground economy.

Meanwhile, few expect any bold moves New Delhi, especially with national elections due in 2009 and five important state elections scheduled before the end of this year. Thus far, the ruling Congress party’s record has been poor; it has lost almost every state election this year and is likely to lose all five of the upcoming ones.

The big hope for a return to the course of reform in India, businessmen hope, will be a new government in New Delhi next year. The gravest danger is that India’s messy coalition politics will bring into power another indecisive alliance that will keep the country in policy limbo for another five years. If so, says S&P’s Gokarn, it’s a meltdown scenario: growth slipping below 6.5%, accelerating the chances of India reverting to its 1991 status when it was plunged into a balance-of-payments crisis.

A Quest For Glory And Bonus Ends In Disgrace

PARIS — When Daniel Bouton, the chief executive of Société Générale, announced that the venerable bank had lost more than $7 billion in unwinding the positions of a rogue trader, he called the culprit “a terrorist.”

But Jérôme Kerviel, nicknamed “the mad trader” by the French press, told investigators that all he wanted was to be respected, and to earn a big bonus.

Mr. Kerviel, the son of a hairdresser and a metal shop teacher from the provinces — a contrast to his pedigreed superiors — reported to work early, stayed late, and took only four days off in 2007, in a nation where six weeks of vacation is de rigueur. Starting in early 2005, he made small unauthorized trades, a strategy that ultimately wound out of control.

At a news conference, Jean-Claude Marin, Paris’s chief prosecutor, said, “When you have been performing these operations for months without being discovered, there is a kind of spiral, where you ultimately think yourself much stronger than the rest of the world.”

In 48 hours of intense questioning, Mr. Kerviel described growing increasingly daring after no one at the bank detected a series of small, unauthorized trades that he had placed. And Monday, pressure mounted on Société Générale and Mr. Bouton to explain how the bank had missed the illicit trades, and the red flags Mr. Kerviel set off, for so long. French authorities began to snap at one another Monday, even as they closed ranks, promising to repel any hostile takeover bid by a foreign company.

Mr. Kerviel told prosecutors that other traders at Société Générale had used similar tactics but with smaller bets.

He said that he eventually built up a lucrative position that would have earned the bank 1.4 billion euros, or a little more than $2 billion, if it had been cashed out by the end of last year. And he told prosecutors that he thought he deserved a bonus last year of 300,000 euros. Instead, he received 1,500 euros.

Initially, his bets did pay off. The bank’s head of asset management, Philippe Collas, told Bloomberg News last week that Mr. Kerviel was “massively in the money” by the end of December. But then the European market turned down and his losses mounted.

Over time, Mr. Kerviel had increased the size of his bets — he hedged his positions on paper with falsified documents and e-mail messages — but he remained convinced that success was just around the corner.

“He bet on the return of the markets that were extremely low and he imagined that there would be a return of the markets just as large as the losses,” Mr. Marin, the prosecutor, said. “There is an addiction. There is a dependency on this complicated game of betting on the markets, and there is a sort of spiral into which it’s difficult to exit.”

If he is found guilty of abuse of confidence, the charge carrying the most severe penalty, Mr. Kerviel faces a seven-year jail term and a 750,000 euro fine. Mr. Kerviel is also accused of forgery and unauthorized use of someone else’s password to access a computer system.

He said he did not seek to keep any of the bank’s money.

The prosecutor recommended keeping Mr. Kerviel in protective custody, in part because of the danger of suicide once Mr. Kerviel realizes what penalties he is facing.

“One of our concerns is that he needs protection,” Mr. Marin said, adding that Mr. Kerviel had not received any threats. “He’s not depressed at the moment. But once the full measure of behavior hits home you know that the way that human nature operates means that he could take some kind of action.”

Later Monday, Mr. Kerviel surrendered his passport and was released by a judge, who decides such matters separately from the prosecutor. Prosecutors immediately appealed the decision.

Over the course of his interrogation by prosecutors, Mr. Kerviel admitted making deceptive trades. The trades were part of his ambition to succeed in the business and impress his bosses, and to lead them to recognize his “financial genius,” Mr. Marin said.

Mr. Kerviel was striving to break free from his lowly beginnings in the bank hierarchy. He graduated with a degree in finance from a university in Lyon that specialized in training bank employees, and in 2000 he began work in the unglamorous back office and middle office, where trades are monitored.

And once he became a junior trader, his salary of 100,000 euros was paltry in comparison with the bank’s stars.

“He wanted to prove his competence,” Mr. Marin said, “and his capacity to act on the market. He was also seeking a bonus from his results.”

Indeed, when Jean-Pierre Mustier, chief executive of Société Générale’s corporate and investment banking division, called in Mr. Kerviel for questioning on Jan. 19, the day after the trader’s faulty positions were discovered, Mr. Kerviel insisted for several hours that rather than engaging in wrongdoing, he had instead invented a new kind of trade that would make the bank money.

The pressure to perform apparently took its toll on Mr. Kerviel. His family said they had detected signs that he was suffering under pressure from his job and that they had grown increasingly worried.

During an interview with the French radio network Europe 1, Sylviane Le Goff, one of Mr. Kerviel’s two aunts, said he had suffered health problems because of his job. The family, she said, had urged him to quit, but Mr. Kerviel told them he did not know what else he could do.

“He is a boy who is serious, honest and hardworking and is incapable of doing anything wrong,” Ms. Le Goff said, declaring that her nephew had been manipulated and that authorities should examine the actions of his managers.

Mr. Kerviel still remains convinced that the positions he took would not necessarily have harmed the bank in such a drastic fashion if the company had not moved to unwind his actions into a volatile market that was already falling.

“In waiting a little while,” he told the prosecutors, “there could have been.

China Struggles To Provide Shelter

CHENGDU, China (AP) – China said it was struggling to find shelter for many of the 5 million people whose homes were destroyed in last week’s earthquake, while the region remained jittery Tuesday over warnings of aftershocks.

Meanwhile, rescuers pulled a 31-year-old man to safety, the second case of someone being found alive a week after the May 12 earthquake struck Sichuan province. Officials say the death toll is expected to surpass 50,000, and millions have been left homeless.

Ma Yuanjiang was saved from the debris of the Yingxiu Bay Hydropower Plant, where he worked as a director, after a 30-hour rescue effort, the official Xinhua News Agency said. Ma was able to speak and began to eat small amounts of food, colleague Wu Geng told the agency.

The confirmed death toll in Sichuan province alone rose to 39,577, Vice Governor Li Chengyun told a news conference.

Another 32,361 people remained missing across the quake zone, said the State Council, China’s Cabinet.

In the rescue effort so far, 6,375 survivors were dug out from quake debris, among some 360,159 people relocated to safer areas, the council said.

The government was setting up temporary housing for quake victims unable to find shelter with relatives, but there was a “desperate need for tents” to accommodate them, said Jiang Li, vice minister of civil affairs.

Five million people lost their homes in the quake, she said.

Nearly 280,000 tents have been shipped to the area and 700,000 more ordered, with factories working triple shifts to meet demand, Jiang said.

“Despite generous donations, the disaster is so great that victims still face a challenge in finding living accommodations,” she said.

China has said it would accept foreign medical teams as the relief efforts shifted from searching for survivors to caring for the injured and homeless. A growing number of countries responded by dispatching doctors to the quake area.

A Russian medical team with a mobile hospital arrived Tuesday in the Sichuan provincial capital of Chengdu, Foreign Ministry spokesman Qin Gang said. A 37-member medical team sent by the Taiwan Red Cross organization also arrived in the disaster zone.

Japanese Foreign Minister Masahiko Komura said a 23-member medical team would leave Tuesday for China.

Crews of doctors were also en route from Germany and Italy, Qin said.

Other countries and groups have also offered to send medical teams.

“But given the situation, and difficulties in the area, including transportation and telecommunications, it is not possible for us to accept all of the rescue and medical teams to engage in relief work,” he told a news conference.

Rescue workers resumed the search for bodies on the second day of a three-day national mourning period declared by the Chinese government, an unprecedented gesture to honor the dead.

Because of plans to bury bodies quickly, the government said DNA samples will be taken from corpses to help with later identification, Jiang said. Identified bodies will be cremated, although burial will be allowed where no cremation is possible.

During the mourning period, flags were flying at half-staff and entertainment events have been canceled. The Olympic torch relay has been suspended.

Such official mourning periods have previously only been ordered for late national leaders.

Thousands of quake survivors awoke Tuesday after spending a night sleeping in cars and in the open, frightened by government warnings of a potential strong aftershock. The alarm compounded uneasiness in the region, which has been shaken by dozens of aftershocks.

A panda from the famous Wolong Nature Preserve that had been missing since the quake returned safely, but two of the endangered animals were still missing, Xinhua reported. The others were “very likely to be alive,” forestry official Xiong Beirong told the agency.

“Both pandas were adults and they are more capable to escape from dangers than younger ones,” she said. “We hope the two missing pandas are as lucky as their peers.”

The quake killed five staff members at the reserve and destroyed or damaged all of its 32 panda houses. The local government has sent emergency supplies of bamboo, apples and veterinary medicine for the pandas, along with food and tents for staff.

Oil and gas operations in the quake zone are virtually back to normal, state-owned oil and gas giant CNPC said Tuesday.

Meanwhile, China’s banking regulators ordered banks to ensure adequate loans and other support for companies and individuals in the area.

Copyright 2008 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.

05/20/08 06:04 EDT

Intelligence in Handwriting…

These signatures obtained on May 14 show the handwriting samples of the three US presidential candidates (top-bottom), Democratic US Senator Hillary Clinton, Republican US Senator. John McCain and Democratic US Senator Barack Obama. Brilliant but cold, idealistic but coleric, charismatic but mysterious: such is the portrait of the three candidates by US graphologists.

(AFP/HO

China Quake

Why Widgets Dont Work

We knew widgets had gotten overhyped when we learned of the launch of a Widget Marketing Assn. When a marketing tool leaps from obscurity to cottage industry with its own trade group in just a few months, a bubble is surely brewing. Deep in your heart, dear marketer, you know this is true.

It didn’t take long for the fad to take flight. Widgets are small, easy-to-forward bundles of software that let users play with graphics and information online. Apple (AAPL) included a version of widgets in a 2005 operating system update, and suddenly Mac computer users could easily check weather forecasts or stock quotes from little flashy icons. The marketing world really began to take notice in May, 2007, when Facebook announced any software coder could easily build widgets for its vast online social network.

Ah, the dream! Marketers suddenly had a new way to reach the millions of computer users, especially desirable young consumers, who spend more time inside Facebook and other social networks than traditional, stodgy Web sites. The idea was simple: Create a cool widget, add your advertising message, and hope users pass them virally to all their friends.

Receive, Hunt, Do

But marketers are making a big mistake if they think widgets will help them build deep inroads with this demographic. To understand why, consider the mindset of the people spending time spiffing up their profiles and socializing online.

They are doing, not hunting, and you’ll have a hard time reaching them when they’re in this mode. There are three modes, or mindsets, people take on when they use interactive communications: receiving, hunting, and doing. You receive a phone call. You hunt for a book at the library. You take an action—say, writing an article such as this.

The history of the Web is a transition between these phases. Back in the mid-1990s, most people were happy to “receive” information on the Web. Content (meaning Web sites) was king, and so AOL, EarthLink (ELNK), and marketers responded by trying to create “sticky” Web portals where people would spend long stretches, returning often.

By 2000, the Web expanded, and millions of Web sites meant we all got lost. So consumers entered “hunt” mode, and Google (GOOG) arose as a powerful search engine helping us rapidly find stock quotes or sneakers for sale.

But “do” is where the Web is headed in 2008. Millions of people—mostly the under-35 demographic—have signed up for Facebook, MySpace (NWS), and Twitter. They are leaving single Web sites behind and becoming immersed in social media. Now Internet users can create, contribute, network, edit, share, even steal online, and pass it to hundreds of friends or colleagues. Google Docs helps you edit spreadsheets; Mint.com watches your bank and credit-card balances; Twitter lets you track the thoughts of friends.

Diversion vs. “Core Conversation”

The entire mindset of a person engaged on MySpace or LinkedIn is different from that of a hunter on a search engine. A Google user is walking into a store. A Facebook user is walking into a bar.

A clever widget is nothing more than a jukebox in the back of the social throng, a nice diversion, but really not part of the core conversation

Virtual Worlds

It’s not always easy to get new employees to mix well with co-workers—especially when they’re scattered across the globe or speak different languages. Few companies know this as well as IBM (IBM), the computer services provider that last year alone added 20,000 new staff members, many from Brazil, China, India, and Russia.

But IBM may have found a way to overcome new employees’ geographic and cultural barriers. When the Armonk (N.Y.) company can’t get recent hires to mingle in person, it has them interact virtually, using the same kind of 3D technology that runs virtual worlds such as Linden Lab‘s Second Life. “It makes you want to start relationships,” says Chuck Hamilton, manager of new media and learning at IBM@Play, a division that uses social media to foster collaboration. “People who are farther away—this is especially true of people who are not American-centric—get the feeling that they’re not isolated.”

Using software from Activeworlds, IBM builds virtual work spaces that let workers in far-flung regions use avatars, or graphic representations of themselves, to handle such tasks as rehearsing presentations or learning about employee benefits. The experimentation puts IBM in the vanguard of companies that, having tested the limits of marketing in such online environments as Second Life, are now infiltrating virtual worlds to tackle a range of other activities, from meetings to collaboration, from training to employee recruiting.

First Came Virtual Marketing

At companies like Sun Microsystems (JAVA), where upwards of 50% of employees may work outside traditional office spaces on any given day, virtual worlds can help scattered colleagues forge closer bonds. “It’s difficult to maintain a global corporate culture with people so spread around,” says Nicole Yankelovich, principal investigator at Sun Labs, who says the ethos can vary on Sun campuses from Menlo Park, Calif., to Burlington, Mass. “Virtual world technology is a way to bring the company together to build a global corporate culture where people are on equal footing,” she says.

At least that’s the hope. Most big companies, including IBM, Sun, Xerox (XRX), Cisco Systems (CSCO), Unilever (UN), are still in the early stages of using online 3D technology. Many companies embarked on virtual world exploration through Second Life marketing campaigns, but some were disappointed with the results. The chances of would-be customers seeing a company’s Second Life branding, much less interacting with it, are often slim.

As of Apr. 30, there were more than 13.4 million residents of Second Life, but only 340,623 had logged on in the previous seven days. Those users in turn are spread out over 65,000 virtual acres, so foot traffic in any particular place—say, on a company’s branded island—tends to be light. “It’s fair to say we saw a bubble when companies began to market in Second Life, and now companies are entering less publicly but for internal enterprise use than for external marketing,” says Dave Elchoness, founder and CEO of VRWorkplace, a virtual world consulting firm. “There’s not a large population for marketing in Second Life or other virtual worlds,” he says.

A Second Use for Second Life

But corporations are finding plenty of other uses for Second Life and comparable virtual worlds. At Xerox, for instance, a group of employees from Europe and the U.S. meets in Second Life each week to hatch strategies for using virtual world technology.

Starbucks Overseas

Starbucks (SBUX) is a startling example of how fast a Wall Street “angel” can fall. But based in part on the return of founder Howard Schultz as CEO and his aggressive plans to resuscitate the No.1 specialty coffee company—with more than 15,000 stores worldwide—some smart market watchers believe this fallen star will rise again. Its shares soared as high as 40 in 2006, up from 7 in 2001, when most stocks were crashing.

But fierce competition hit Starbucks: Same-store sales weakened, and margins narrowed as commodity prices jumped. After the departure of CEO Jim Donald in January, Schultz’s return gave investors hope for a turnaround. Schultz has laid out bold plans to boost traffic with new products, such as high-protein, low-calorie drinks and its highly promoted Pike Place blend. Also, he’ll cut back U.S. expansion while adding stores—1,050 in 2009, 1,150 in 2010, and 1,300 in 2011—in faster-growing foreign markets. Retail sales in fiscal 2008 should rise 10% in the U.S. and 32% overseas, figures Mark Basham of Standard & Poor’s (MHP), who rates Starbucks, now at 15.95, a strong buy, with a year’s target of 27. He sees profits of 85 cents a share in 2008 and $1 in 2009. Matthew DiFrisco of Oppenheimer (OPPEX), who rates the stock outperform, favors Schultz’s strategy of soft-pedaling growth in mature markets to invest in product innovation and overseas expansion, “much as McDonald’s (MCD) did in the early 2000s.”

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

—Gene Marcial

A-Power: Clean Energy in China

A-Power Energy Generation Systems (APWR) is a “green” Chinese company whose Nasdaq-traded stock has been on a tear. Shares of China’s largest provider of power co-generation systems have climbed to 17.32 a share, up from 6.15 a year ago. A-Power is also in wind energy. It is building a facility to assemble wind turbines based on technology licensed from European partners. “We visited two of A-Power’s generation installations in Shenyang, China, along with the wind turbine site,” says Mark Tobin of Roth Capital Partners. They confirmed, he says, the “value proposition” for the power plants and its wind energy business. The stock is undervalued, says Tobin, based on estimated earnings of $1.09 a share in 2008 and $1.39 in 2009. Moreover, A-Power has $100 million in cash and no debt. Another bull is Brian Yerger of Jesup & Lamont, who sees the stock at 25 in a year.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

—Gene Marcial

Can RadioShack Raise the Volume?

Consumer electronics retailer RadioShack (RSH) is in an unenviable position: Only 1 of 17 analysts who track it has a buy rating. Weak sales and Best Buy’s (BBY) dominance in the business have sunk its shares to 14.46, down from 35 last June. But some pros, who sniff a recovery in the works, say the time is ripe to buy. George Putnam III, editor of The Turnaround Letter, says a revival initiated by new CEO Julian Day is already well established, but the stock is still near its lows. RadioShack has many of the features Putnam considers key for a turnaround play: a widely recognized brand name and strong management with a well thought-out strategy to improve operating results. And the stock is cheap, he adds, trading at 9.3 times 2008 estimated profit of $1.60 a share. The lone bull among the analysts, David Strasser of Banc of America (BAC) Securities, has a price target of 20.

Services Vs. Recession

As the U.S. economy tries to fight off a recession, has it found a way to avoid a knockout? So far, strength in many service industries is delivering a powerful counterpunch to hits from homebuilding, autos, and other goods-producing businesses. Despite the economy’s tepid 0.6% growth rate last quarter, its service sector advanced a sturdy 3.5%. Consumer spending on goods plunged 2.6%, but outlays for housing, medical care, and other services rose 3.4%. Heading into the second quarter, while overall April payrolls shrunk by 20,000 jobs, services added 90,000. And in contrast to the weakness in manufacturing, the Institute for Supply Management says April service-sector activity continued to grow.

There’s no denying the sector’s increasing impact on economic trends. Services make up almost 60% of gross domestic product, up from 55% a decade ago and 52% the decade before that. However, despite that growing influence, the more important engines of the business cycle have always been the goods-producing sector and construction, and they are taking an unusually heavy pounding.

Dropping Demand for Goods

This sharp divergence reflects the unique set of forces affecting the economy, especially consumers. The mix of tighter credit, the double hit to buying power from fewer jobs and higher prices for energy and food, and shrinking household wealth are killing demand for big-ticket consumer goods such as homes, cars, and other discretionary purchases.

As a result the downturn in the goods-producing sector is intensifying. Despite strong exports, manufacturing output is down two quarters in a row, and in April, hours worked posted the largest drop in five years, pointing to a steep fall in industrial production. Automakers are getting hit especially hard as April vehicle sales dropped to a 14.4 million annual rate, the lowest since 1998, led by flagging demand for gas-guzzling sport-utility vehicles.

The pressure on autos and other credit-sensitive goods is only getting worse as the credit crunch spreads. The Fed’s April survey of banks’ senior loan officers showed sharply tighter lending standards, up from the already elevated January readings. For large companies, the percentage of banks clamping down was the highest since the 2001 recession. A rising percentage also tightened up on mortgage lending to households, even for prime mortgages. Meanwhile, standards for credit cards and other consumer loans rose significantly, partly reflecting higher required credit scores.

Dwindling Incomes

Even as credit is drying up, jobs and incomes are shrinking. Since payrolls peaked in December, service employment through April is up 98,000, but goods-producing jobs have plunged 358,000. Overall, more people are having trouble finding full-time work. This year’s rise in the number of people forced to work part-time is the fastest since the 2001 recession. Total hours worked began the second quarter well below their first-quarter level, and with hourly pay slowing, income growth, almost all of which has been eaten up by inflation over the past year, began the quarter on a weak note.

So far, despite consumers’ weaker incomes, their savings rate remains close to the near-zero level of the past two years, implying they are spending about the same proportion of their earnings. That means factors other than income have not yet had a negative impact on spending, but that trend will be put to the test this quarter.

As household wealth, which had helped to make up for low savings, falls, along with credit availability and consumer confidence, consumers may soon be forced to save more of their incomes. There’s a good chance the tax rebates will be either squirreled away or used to pay down credit cards. A shift to greater saving would tend to hit outlays for both goods and services.

On balance, recession forces appear to be getting stronger this quarter, not weaker. That will put even more pressure on the goods sector. And while the service sector’s resilience may help to keep the recession mild, it won’t necessarily be able to prevent one.

Innovation @ Google

Leading up to Google’s first-quarter earnings report on Apr. 17, investors couldn’t have been more bearish. They had knocked the stock down 35% since the start of the year, concerned that a weak economy would finally hurt the search giant’s advertising business. But Google (GOOG) defied skeptics—and the economic downturn—with a surprisingly strong showing that sent the stock soaring 20% the next day. More than anything, Google’s continued prosperity is a testament to its ability to keep innovating, both in search and advertising operations and in new lines such as online office-productivity software.

Many companies, says Chief Executive Eric Schmidt, can skirt downturns entirely by coming up with innovations that change the game in their industries—or create new ones. (When asked if Google’s strategy would change as the economy heads into a likely recession, he replied: “What recession?”) In a recent interview in a tiny meeting room next to his Mountain View (Calif.) office, Schmidt told BusinessWeek Silicon Valley Bureau Chief Robert D. Hof how Google manages the tricky process of innovation.

Do companies have to manage innovation differently in a downturn?

Innovation has nothing to do with downturns. A hot product will sell just as well in a recession as it will in a nonrecession. Let’s imagine that we invented a better advertising product for television. What would our revenue growth be for that? Well, you’re into a $50 billion market, so it will be driven not by whether there’s a television ad recession but by what degree we can get people to substitute [our product] for the other. The strong companies understand this, and during a recession, they invest.

Can other companies emulate Google’s famous model of letting engineers spend about 20% of their time on projects outside their main job?

The story of innovation has not changed. It has always been a small team of people who have a new idea, typically not understood by people around them and their executives. [This is] a systematic way of making sure a middle manager does not eliminate that innovation. If you’re the employee and I’m the manager, and I sit down and say, “Our product’s late, and you screwed up, and you gotta work on this really hard,” you can legally say to me, “I will give you everything I’ve got, 80% of [my time].”

It means the managers can’t screw around with the employees beyond some limit. I believe that this innovation escape-valve model is applicable to essentially every business that has technology as a component.

Why aren’t many other companies doing this, too?

I think it’s cultural. You have to have the culture, and you have to get it right.

What obstacles does Google face in continuing to innovate?

A problem that we face now is that we have people in multiple sites. It’s a problem that everybody faces, but we’re going to face it bad. We have, like, 50 locations.

So you still need that face-to-face contact?

The best programming team is a “telephone call,” which is two people, you and I, programming together. The second-best programming team is, everybody fits into a single room. All other variants are bad.

Google has a reputation for doing a lot of R&D in-house, as well as buying companies to bring in other technologies. Are you shifting that toward getting outside talent to contribute in a bigger way than they have?

I don’t know yet. The biggest acquisition we did was DoubleClick. We’ll see how successful that is. We really like the small-team company acquisition model

Why Risk Is Important

“What is it about entrepreneurs that enables them to live so far on the edge? Do they thrive on the adrenaline of risk-taking?” This made me think of another question that I frequently encounter when people find out that I love ice climbing: “How can you live with the risk? Do you actually enjoy flirting with death?”

I think that these are all the same question, founded on the same implicit but ill-founded assumption: that risk equates to danger. Now, I am not going to try and convince you that there aren’t people who do love the rush of throwing the dice—with their life or their bank account. But just because someone won a multimillion-dollar windfall by buying lottery tickets with their retirement fund, or survived running a treacherous river without any training, the fact is not altered that what they were doing was gambling, not investing. The end result is as unrepeatable as it can be inadvisable.

Calculated Risks

So if it’s not the thrill of gambling, what does distinguish the serial entrepreneur and the ice climber from the population at large? For a start, they understand the very clear distinction between risk and danger. Second, and—perhaps most importantly—they know that there are ways to approach an otherwise dangerous task in such a way that the risk is reduced to an acceptable level.

In fact virtually everyone knows this, at least in some domain. For example, driving in good weather on a 12-lane freeway in a well-maintained car is something that a trained driver would not hesitate to do. Yet it could be near suicide (or murder) for someone who had never been behind the wheel of a car, or who was driving a vehicle without brakes. What is curious about human nature is that we sometimes seem unable to translate knowledge from such everyday examples into our workaday life.

Why do entrepreneurs and ice climbers repeatedly prompt questions of flirting with death and disaster? My best guess is that a lack of familiarity prevents nonpractitioners from seeing what lies behind the surface: the serious and conscientious preparation that such people bring to their respective activities. To illustrate this, let me tell you a bit about ice climbing.

Essential Requirements

Anyone who has ever walked on a frozen lake, gone ice skating or tried curling knows that ice is slippery and that it takes practice to move with any kind of confidence. Now imagine that the ice sheet is vertical rather than horizontal. This should give you some sense of the challenge of ice-climbing. But then remember there are four things that the prepared ice-climber brings to the base of any climb: training, tools, fitness, and partner(s)

The need for training is pretty obvious. One has to know what one is doing. Just as you have to learn the rules of the road in order to drive on the freeway, the ice climber has to be educated about technique, the appropriate use of tools and procedures, reading the ice, and the evaluation of objective hazards.

Tools have improved significantly over the past decades. Strapped to one’s feet, in a manner not unlike roller-skates (but much more secure) are crampons. These have one or more long, sharp, surrogate toes that you can kick into the ice, thereby giving purchase to your feet. In each hand one has a short, curved, ice axe that is designed to enable one to smoothly drive the pick into the frozen water, thereby giving you something to hold onto. In the event that someone above knocks off some ice, one wears a helmet to protect the head. For protection in the event of a fall, one has a rope firmly tied to a harness around the waist. While ascending, the climber regularly sets a hollow titanium screw into the ice. This forms part of a system of running anchors.

The rope attached to the climber’s waist is clipped to the anchor, from which it runs to another person who is anchored below, paying out rope—but also positioned to catch the climber with the rope, should a fall occur. Properly placed, the ice screw will hold the load, with the ones below it as backup.

Fitness is critical. It doesn’t matter how good my training is or how good my tools are: If I am halfway up a climb and run out of strength, I am a liability both to myself and my partner. The middle of a route is not the time or place to suddenly realize that it might have been a good idea to do some jogging, pull-ups, or other conditioning before setting out. If people want unnecessarily to put their lives at risk, I guess that is their prerogative. But they have no right to jeopardize that of their partner in the process.

The Element of Trust

This last point relates to the fact that the whole exercise is based on trust; trust in our training, our assessment of the situation, our tools, fitness, and—especially—our partner. You wouldn’t consent to being driven on the freeway by someone you didn’t trust, or who was impaired in one way or another. Nor would any reasonable person put their life in the hands of such a person in the mountains. Your partner is someone you trust with your life. Perhaps because of that, a partner is also the kind of person who makes the experience doubly enjoyable, being shared.

If all four of these factors are well considered and adequately addressed, the recreational ice climber can undertake routes with a margin of risk that is comparable to a typical urban bicycle commuter. If any or all of them is not adequately addressed, the consequences could be catastrophic.

The lessons for business are simple: the four considerations employed by the ice climber are exactly the same as those used by the serial entrepreneur or the effective business person. Of course it could be argued that the rich scope of business constitutes a much more amorphous challenge than a frozen waterfall. But that makes it all the more rash to proceed without carefully considering the following:

Training: What, in fact are the skills that would best equip me to engage this problem? Are they evident in my team? If so, how do I hone them? If not, how do I bring them onboard?

Tools: What tools are relevant to the problem? What are the potentially useful processes, technologies or other instruments that might give me purchase and protection throughout the exercise?

Fitness: How does one prepare? How rusty are my skills? What would constitute a warm-up exercise, or a “preliminary heat” that would let me find out if I were ready for the game?

Partners: No matter how good you and your team are, in most significant cases you will need partners. Do you have the right ones? My approach in this is simple: Get the best. If you can’t, you might want to question the wisdom of proceeding. After all, if they aren’t working for you, they may be working for someone on the other side of the table.

These basic points provide a skeleton on which you have the opportunity to flesh out your creativity. The more innovation and insight that you bring to determining the answers pertaining to each of these four points, and the more effectively you execute on the answers, the lower the risk of your endeavor and the higher the probability of success.

Are there any guarantees? Few. Yet if you fail, which you might, at least there is a higher probability that you will live to try again. But remember, business—like life—never was about certainty (as long as we rule out the proverbial death and taxes).

Finally, what struck me most about the question from Roger’s student—a student in an MBA program at Rotman—was the implicit assumption that risk was the domain of the entrepreneur, not him. If there is a single message in all of this, it is this: The most dangerous way of all to play it is so-called safe. Safe leads to atrophy and certain death—of spirit, culture, and enterprise. There is not a single institution of merit or worthy of respect in our society that was not created out of risk. Risk is not only not to be avoided, it is to be embraced—for survival.

Anyone for ice climbing?

Learning From Facebook

For most business executives, Facebook remains a remote, somewhat mysterious, online frontier. Many executives harbor strong doubts that Facebook is at all relevant to “real business.” After all, isn’t it just a bunch of college kids sharing photos of drinking exploits and trying to hook up with each other?

Let’s start with the stats. Facebook now brings together 66 million online users. While many of these users are students and recent graduates, users 35 years old and older account for more than half of Facebook’s daily visitors and are the network’s most rapidly growing demographic. Currently the average Facebook visitor spends about 2.5 hours per month on the site, which was founded in February, 2004, and was valued at $15 billion three years later when Microsoft purchased a 1.6% share of the company.

Facebook is still largely a social environment where very little commerce occurs. In fact, many businesses have expressed concern about the low click-through rates on advertisements placed on such social network sites. Products are generally not bought or sold on Facebook, but it is becoming an important site for creative talent and businesspeople to achieve visibility and build networks.

On the Edge, But Not Marginal

Dismissing Facebook as irrelevant to business would be dangerously shortsighted. Yes, it is on the edge of traditional business activity, but it is an edge where new approaches to business are being tested and refined. Like most edges in the business world, it may look marginal at the outset, but has the potential to redefine business more broadly over time.

Consider the momentous decision by Facebook in May, 2007, to make its site available to independent, third-party developers to offer their applications to the network’s participants. In one fell swoop a single edge between Facebook and its users fragmented into thousands of edges where a growing number of independent developers can connect and interact with Facebook users in very diverse ways. Developers, drawn by the large numbers of Facebook users, swarmed in to offer a bewildering variety of applications. At last count Facebook had attracted 150,000 active developers, who are now generating more than 20,000 applications.

These edges are fertile with innovation because participation requires such a small investment in time and money. Last fall, psychologist B. J. Fogg taught a class at Stanford University in which he assigned students to develop Facebook applications. During the 10 weeks of the class, 73 students developed applications such as Kiss Me, Oregon Trail, and Secret Admirer, that have since resulted in 25 million installs and, by the end of the class, were attracting about 1 million daily, active users. These applications have generated more than $500,000 in ad revenue since September. At least three companies were formed by students in the class.

Ads Into Action

Edges not only spawn product and service innovations; they also catalyze business-model innovations. On Facebook, for example, the fragmentation of development activity made it inevitable that brokers would emerge to help entrepreneurial application developers monetize the results of their programming efforts by connecting them with advertisers. One of the most prominent of these early brokers is SocialMedia, a company formed by Seth Goldstein, a serial entrepreneur and venture capitalist who recently migrated from Silicon Alley (the infotech neighborhood of Manhattan) to Silicon Valley.

Goldstein sees a massive shift in the online world of communications and advertising, shaped by social network sites like Facebook, as applications provide a new context for placement of relevant advertisements. Rather than placing an online ad on a page of static content, why not place it in an application at appropriate points within a sequence of user actions? To take it further, why not make the entire application a promotion for a product or service?

Africa For Growth

As investment banks continue to feel the effects of the credit crunch in the West, some are looking to Africa as the latest emerging market opportunity to boost flagging profits.

Banking powerhouses including Citigroup and JP Morgan operate in sub-Saharan Africa, but last week Russian investment bank Renaissance Capital (RenCap) showed signs of things to come as it bought stakes in brokerages in Ghana and Zambia.

The group called Africa “strategically important” and said the investments in New World Investments in Ghana and Pangaea/EMI Securities in Zambia gave the group an opportunity “to play a role in the exciting development of both countries’ financial markets and their importance in the region as a whole”.

It said: “Sub-Saharan Africa, excluding South Africa, is expanding rapidly. There are world class businesses, just without world scale. They need banking services.” So far, few have invested in local operations on the ground, with only Standard Bank of South Africa buying IBTC in Nigeria.

RenCap, however, has signalled its intentions to target the region by moving one of its most senior bankers, Andrew Cornthwaite, to oversee its existing operation in Nigeria.

Mr Cornthwaite, also head of RenCap’s global investment banking, said: “As the financial centre of Sub-Saharan Africa, Nigeria is already experiencing rapid and sustainable economic growth, with an increasingly liquid and dynamic capital market. This growth and development is poised to continue for several years.”

Sub-Saharan Africa is gaining in importance for financial firms as the economies develop, often based on oil and gas discoveries such as in Nigeria and Ghana. The latter is also trying to position itself as the financial gateway to West Africa. Other countries interesting the banks include Kenya and Angola.

Companies have been slow to target the region because of a perception of political risk, uncertainty and a lack of Western resources and investment banks.

Mr Cornthwaite said: “The situation is similar to our experience in Russia 15 years ago. There is a business opportunity here, and if you’ve seen the movie before, you’re in a better position to capitalise,” he said.

He continued: “The Nigerian market turns over $200m (£100m) a day. We wouldn’t be there unless we thought it would hit $1bn in the next five years.”

Companies are looking to investment banks to provide debt and equity capital market operations, and increasingly mergers and acquisition advice, especially as the fragmented banking market consolidates.

Mr Cornthwaite said: “The sophistication is good in most of the existing African brokerages, although not all are up to international standard. I’m suitably impressed.”

Few international firms have invested on the ground. Both Citi and JP Morgan operate on a “fly in, fly out” basis. “There’s not a flight I take, which doesn’t have bankers coming into Africa, but they’re always out that night,” Mr Cornthwaite said. He added that international competitors had been slow to target the region but were likely to target it within five years.

Provided by The Independent—from London, for Independent minds worldwide

Raising Capital In An Economic Slowdown

Raising capital is difficult under normal conditions, and a tight credit market and fears of an economic slowdown have made the challenge harder. Unproven early-stage companies could face a tough time finding funds from informal investors who are less willing to take risks in an unsteady economy. Firms looking for equity investments should expect to give up more ownership for less cash than during flusher times. For established businesses that are good credit risks, lower interest rates will make borrowing more attractive. Here’s what you need to know.

Where should I look for capital if I have an existing business?

A good source might be a loan or credit line from your local independent bank (BusinessWeek.com, 12/26/06), especially if you already have a business relationship there. Subprime mortgage defaults have hit banking giants (BusinessWeek.com, 1/15/08) like Citigroup (C) hard, but most smaller banks don’t face the same losses. “Community banks have very solid balance sheets and liquidity. They’re not having to do the large writedowns for the subprime mess because they’re traditionally more prudent lenders,” says Paul Merski, chief economist at the Independent Community Bankers of America, a trade group. “They have money to lend.”

Is now good time to take out a loan?

Yes, if you can get it. The Federal Reserve has dropped its rate target for overnight lending by 2.25 percentage points since the summer, to 3%, in an effort to ease the credit crunch. That means banks can offer borrowers lower rates and make the same profit. “If you have a good business and you have a good relationship with your lender and interest rates are coming down, it may be even less expensive to borrow,” says Merski.

Will I face tighter credit standards?

Banks are still looking to lend to companies that have the ability to repay, according to Rebecca Macieira-Kaufmann, executive vice-president and head of Wells Fargo’s (WFC) small business segment. “In any economic environment, we’re going to want to look at a profitable business, an established business that has a history,” she says. The same credit standards apply for business loans, but an economic downturn could make it harder for you to meet them. “What will happen in a stressed economic environment is you may have fewer receivables, your collateral may be worth less,” Macieira-Kaufmann says.

Lenders are looking closely at the region and the sector that loan applicants are in, she says. You should demonstrate that your business is resilient enough to weather an industry slump. For example, businesses that thrived off new-home construction should show that they can shift to existing homes.

What if I my credit isn’t good enough?

There are nonbank options available for businesses that can’t land traditional loans. One new company in this space, On Deck Capital, offers loans of up to $100,000 to small firms based on their cash flow, rather than the owner’s personal credit rating. “We focus on loans to small businesses who can’t qualify for bank loans,” says Mitch Jacobs, On Deck’s CEO. “We’ve entered the market to fill the gap.” Jacobs says interest rates are “in the ballpark” of traditional bank loans. Borrowers have to be in business for at least a year and show they have adequate cash flow of at least $3,000 a month in credit-card volume

Raising Funding for Entrepreneurs

Most entrepreneurs, at some point along the way, need a good chunk of other people’s money. Although many small business owners have great ideas and a generous dollop of charm, they often shortchange the relationships that can bring in capital when they need it. “Entrepreneurs can get so swallowed up in their enterprise that they don’t take the time to romance those who they need to invest in them,” says Jerold Panas, executive partner and CEO of Jerold Panas, Linzy & Partners, a Chicago fundraising company that works with nonprofits, and author of Asking: A 59-Minute Guide to Everything Board Members, Volunteers, and Staff Must Know to Secure the Gift.

Chemistry isn’t enough. “A relationship will not guarantee you financing,” says Edward Zimmerman, partner at Lowenstein Sandler in New York and founder of AngelVineVC, a network of angel investors and venture funds. “You still have to perform. But there is always some relationship in place before a deal closes.”

Many business owners just aren’t comfortable asking for money. But professional fundraisers spend all their time doing it, and entrepreneurs would be wise to adopt some tricks of their trade. Most likely, your anxiety about asking for money will fade as you slowly build relationships with people who become so interested in your company they volunteer to open their checkbooks.

FIND PROSPECTS
1. Cultivating investors is a long-term affair. “Respect must be earned,” says David Lansdowne, a fundraising consultant and author of Fund Raising Realities Every Board Member Must Face. “Passion must be stoked.” Successful suitors meet potential investors long before they need money. “We’re always much more eager to talk to entrepreneurs when they aren’t raising capital,” says Joel Cutler, managing director at General Catalyst Partners, a $1 billion venture fund in Cambridge, Mass. “It gives us time to develop the relationship without the pressure of closing the deal. We don’t want a dating game, we want relationship development.”

You may have greater entrée to potential backers than you think. Your banker and accountant are obvious go-betweens, but perhaps your neighbor works for a law firm specializing in deals, or a former college roommate is in venture capital, or your second cousin runs a company and has fought the financing wars herself. But don’t ask your pals to do more than set up an introduction. “I do not want to talk to a banker or accountant or lawyer,” says Cutler. “I want to talk to the CEO. This is the person I will be developing the relationship with, the one who is the protagonist of the idea.”

Follow up an introduction immediately with a pithy e-mail explaining what your company does and why the investor might want to know about it. But don’t burden people with PDFs or spreadsheets, or slip into sales mode. As Cutler says: “An e-mail that tells me I’m going to make a billion dollars is not as valuable as one saying, ‘I am an entrepreneur and I’m not looking for capital today, but I think you will be interested in learning about my company. Do you have some time when we can chat?'”

Former colleagues and employers can also help. Sheila Lirio Marcelo, founder and CEO of Care.com, a 25-employee startup in Waltham, Mass., that offers a searchable database of caregivers, long hoped to launch her own company one day. She made a point of meeting the venture capitalists on the boards of the companies where she worked. So Marcelo already had a strong relationship with executives at Matrix Partners, a venture fund in Waltham, when she had the idea for Care.com. She launched in May, 2007, with $3.5 million in Matrix funding. Says Marcelo: “You have to take a long-term view of every job and relationship you have.”

Look for donors most likely to fall in love with your idea, says Panas. Don’t be afraid to cast a wide net. Investors are always looking for good companies to support and are happy to learn about them. Travis Corcoran is taking advantage of that eagerness. Almost immediately after launching Smart- Flix in January, 2005, Corcoran started a bimonthly e-mail newsletter about his $1 million, 10-employee company, which rents how-to videos and DVDs à la Netflix from its offices in Arlington, Mass. He asked executives and entrepreneurs he knew from previous jobs if they’d like to receive his bulletin. Five said yes. The roll has since grown to about two dozen, including several venture capitalists.

FIRST DATES
2. As in any courtship, it helps to know the tastes, interests, and background of the person you are wooing. You can often find an enormous amount of information about people online, including philanthropic interests, alma maters, and even net worth. Search on Google, as well as on business networking sites such as LinkedIn. Try to find out if your prospect prefers talking about business over lunch or espresso or martinis. Always defer on questions of time and location, even if you have to put off meeting for weeks or months. Remember, your goal is a long-term relationship.

Fundraisers advise that establishing your credibility at the outset is crucial. If you haven’t already, set clear revenue goals that you can share with potential backers. Make sure you understand your balance sheet and any weaknesses in your company that others might question. There’s no magic number for how much revenue you should have before you approach investors, says Zimmerman, but you do need to show why and how you expect to grow, and you must be able to explain your competition.

It is never, ever wise to ask potential investors for money during your first meeting. “It’s not unusual to visit a potential donor two or three times before even bringing up the discussion of a [donation],” says Lansdowne. “These early visits are critical to setting the stage for your relationship. Take the time to learn about your investor’s personal and business preferences.” Show passion for your product and ideas, but don’t boast about your successes. Instead, ask your new contacts for advice. Then they’ll be personally engaged in the growth of your company.

At this stage, you shouldn’t be monogamous. Meet as many potential investors as you can. As you get to know them, the field will narrow. “We can tell pretty quickly if an entrepreneur has a good idea or not,” says Michael Rolnick, general partner at ComVentures, a $1.5 billion Palo Alto (Calif.)-based venture capital firm. “What we can’t tell right away is if a person is insightful, manages well, hires well, sells well. So it’s always helpful for us to reduce the risk by getting to know somebody or have somebody we know vouch for them.”

BUILD THE RELATIONSHIP
3. After a first meeting, send a thank-you e-mail or note. Keep your prospect interested, either through regular updates or the occasional note after you land a big client, say, or launch a product. Some fundraising pros, like Panas, say such “touches” should come monthly. Others recommend that you share only particularly significant news. Still others don’t want to hear from you until you fix the problems they’ve brought to your attention. “If I have questions about a company,” says Rolnick, “the right time to follow up with me is when those questions are resolved.” Use this getting-to-know-you period to show you’ve absorbed the advice your potential investors have generously given you. “Talk shop,” advises Zimmerman. “You can get legitimate business advice during this process, and it’s a great way for investors to follow your growth.”

Unless you’re actively seeking investment, you should be spending only 10 to 15 hours a week on networking. “You want to make sure that your networking doesn’t get in the way of building your sales,” says David Honig, vice-president of Insight Venture Partners, a $1.2 billion venture fund in New York City. “Less is more during the courtship process.”

When your business does take a great leap forward, the time will be right to suggest another meeting—the one where you ask for the money.

THE COMMITMENT
4. When you’re ready to broach the topic of money, you may find to your relief that you only have to drop a hint. Corcoran of SmartFlix hasn’t yet asked anyone to invest, but he has had volunteers. In his newsletter this summer, he mentioned that his growth forecast was rosy, but that he wasn’t sure where he would turn for financing. Within two days he had three offers.

Even if no one is throwing money at you, you’re likely to know by now who your best prospects are and how much they might be willing to invest. You also should have figured out how much you really need and what you’re willing to give up for it—perhaps a seat on your board or some other advisory role. Ask for one more meeting with your prospects, and talk to them honestly about your goals. If they don’t see eye-to-eye with you on your strategy, talk candidly about why. In the end, if they say yes, bring in your banker or your attorney to handle the formalities.

If your potential investor says no, don’t be discouraged or think your effort was wasted. Rolnick has turned down entrepreneurs several times but kept in touch because, he says, “If I think they are quality people with quality ideas, I will always want to maintain that relationship.” More than once he has jumped at a chance to back a serial entrepreneur after declining to invest in an earlier venture.

Bankrupcy on the Rise

More businesses filed for bankruptcy in April, 2008, than in any month since new bankruptcy laws took effect in 2005, according to a company that tracks federal court filings.

The numbers show a 49% increase in commercial bankruptcies over last year, with an average of 235 daily filings last month compared to 158 in April, 2007, according to data compiled by Jupiter eSources, an Oklahoma City company that runs a database called Automated Access to Court Electronic Records(AACER). More than 5,000 firms filed for bankruptcy in April, 2008, the most in any month since the new laws took effect in 2005.

That leap in bankruptcy filings shows the troubles that started with sub-prime mortgages and other financial instruments on Wall Street have hit home for small businesses, according to one economist. “Last year was too early to really see the problem for normal-type firms. The only people having trouble last year were hedge funds and big banks in New York City,” says William Dunkelberg, chief economist at the National Federation of Independent Businesses (NFIB). He adds that companies that survived at the margins in good times are likely to be wiped out during a downturn: “Recessions always used to clean up the inefficient firms, and that’s what we’re seeing.”

A combination of tighter credit, higher commodity prices, and stagnant sales likely accounts for the rise in bankruptcies, experts said. Builders and other businesses tied to the housing market likely account for many filings.

Turning to Out of Court Resolutions

It’s unclear how much bankruptcies reflect the overall rate of business failure (BusinessWeek.com, 1/23/08). “Increasingly, businesses over the last 10 years have been turning to out-of-court resolutions for resolving financial distress,” says Robert Lawless, a bankruptcy law expert at the University of Illinois College of Law. Companies that have no creditors simply close their doors and are not recorded in the statistics.

AACER records any bankruptcy filed with a taxpayer identification number or a “doing business as” name instead of a Social Security number as a commercial filing, according to Mike Bickford, the firm’s president. Those filings include many sole proprietors whose bankuptcies would not be counted as commercial filings under official government records, he says.

Some of those unincorporated businesses—sole proprietors running home-based businesses, for example—may be victims of tighter consumer credit. “Those people don’t rely on bank loans. They’re using their credit cards, they’re using home equity lines of credit,” says Lawless, who writes about bankruptcy on the blog Credit Slips. Banks loans are tougher to come by as well. A Federal Reserve survey of senior loan officers at 56 banks showed that more than half raised lending standards for small business borrowers during the first quarter of 2008.

Rising Prices Are Real Culprit

The filings also reflect a shakeout in the housing market. “The number of new builders that opened up shop [in markets like Florida] was huge,” says the NFIB’s Dunkelberg. “A disproportionate number of these bankruptcies are going to be builders or companies closely tied to the housing market.”

Dunkelberg disputes that tight credit has hit small companies; he says rising prices are the real culprit. The share of business owners who listed inflation as their top concern rose to 12% in March compared with 4% the previous year, according to the NFIB’s monthly membership survey. Only 2% listed financing and interest rates. “There’s still no credit problem on Main Street, but there is an inflation problem,” Dunkelberg says.

As rising costs put pressure on margins, many businesses have seen their revenue fall as well. “I’m seeing contraction of the sales,” says Cathy Moran, a bankruptcy attorney in Mountain View, Calif., who works mostly with small businesses and consumers. Moran says she has handled recent cases for two construction companies and an engineering firm, along with non-housing related businesses like bike shops and spas. Business failure had been the prime reason clients came to her until about four months ago. “Now it’s kind of tipped the other way, so that more often than not bad mortgage loans are the driving force,” she says.

Tozzi covers small business for BusinessWeek Online

Would You Hire A Pregnant Woman?

The Equal Employment Opportunity Commission saw a 14% increase in pregnancy-discrimination complaints last year

Would you hire a pregnant woman?

If you’re British and said yes, then you’re decidedly in the minority among your peers. A recent survey by the UK-based Employment Law Advisory Services (ELAS) found that only 5% of managers would offer a job to a pregnant candidate. Fifty-two percent said that when making a hire, they assessed the likelihood of a candidate’s getting pregnant, taking into account her age and whether she had recently married.

On this side of the pond, last year the Equal Employment Opportunity Commission saw a 14% increase in pregnancy-discrimination complaints and received 20,400 pregnancy-bias inquiries at its newly established call center.

I understand managers wanting to avoid the costs and inconveniences of hiring someone who in several months’ time will be on leave, whether for 12 weeks and unpaid—standard terms in almost all U.S. states for women who work for companies with more than 50 employees—or for much longer and at partial pay (UK law allows women to take up to 52 weeks, with some pay). But at the same time I wonder how many managers consider that, in passing over pregnant candidates, they might be missing out on long-term value in the form of intense employee loyalty?

The manager who hired me did so when I was eight months’ pregnant, and my company treated my leave the same as anyone else’s (paying me a certain percentage of my salary for a certain number of weeks), although it wasn’t bound by law to do so.

The effect on me as an employee? I was in l-o-v-e: with the job, with my boss, with the organization. I worked at work, and then I went home and worked some more, wherever I could wedge it in: in the evening between feedings, on weekends, and during holidays. I even pulled a few all-nighters for big projects, compensating for the caffeine intake by giving my infant a bottle instead of nursing him at his next feeding. And rarely, if ever, did this feel burdensome. I was just paying my boss and my company back.

My story has a happy ending. What about yours? Please share your stories, from both sides of the interview table:

• Have you ever passed over a candidate who was pregnant? Do you have regrets or do you think you made the right choice?
• Did you ever hire a pregnant candidate against the subtle or not-so-subtle advice of colleagues?
• Were you passed over for a job or promotion because of pregnancy?
• Were you hired when you were obviously pregnant? What effect, if any, did that have on your workplace performance?
• And the big one: Do you believe that different countries’ maternity-leave laws affect whether pregnant women get hired in the first place?

Scouting Emerging Business Trends

There are few people as well placed and well qualified to see emerging business trends unfold as the world’s most influential executive recruiters.

Just consider the experience and perspective they gain from working with a variety of corporate clients to scope the competitive landscape, court exceptional management leaders, and shape succession plans that are both solid enough to ensure continuity but adaptable enough to compensate for challenges looming just over the horizon.

In the course of conducting research for my just-published book, Deciding Who Leads, I was reminded by a number of executive recruiters and corporate leaders that perceptions about the quality of management, future financial opportunity, and recent market momentum move the best management candidates to gravitate to the most compelling job opportunities.

Ready to Jump

Likewise, whenever a company begins to falter, the sharpest executives can read the tea leaves and usually begin to leverage their network to make their next career move before things start to get ugly. That often leads them to the executive recruiters and almost immediately to some pretty serious discussions about why they want to leave their current employer.

The cumulative effect of that one-on-one intelligence gathering about executive attitudes—either perceptions of a bright future or a looming organizational meltdown—gives executive recruiters unparalleled vision into emerging business trends and the best executive career opportunities.

Take that kind of information, multiply it by several hundred interviews with executive interviews in the course of a year, and you begin to realize that executive recruiters’ attitudes are actually a leading indicator about the health of organizations, and, for that matter, the broader economy.

The caliber and performance of senior corporate management is almost always suggestive of an organization’s current and future financial performance. So who better to judge the trajectory of an organization than these external leadership scouts? And who better to provide us with compelling statements about future business trends than those recruiters who help move top executives to where the best action is?

Sniffing the Breeze

The world’s most influential headhunters have a particularly acute sense for the business trends that may already be shifting the strategy and management demands for their myriad corporate clients. What follows are just some of the perspectives they’ve shared about the single global business trend that will most influence corporate performance in the future.

Tierney Remick, global managing director of the consumer/retail market for Korn/Ferry International (KFY), says she has already witnessing a global shift in consumer influence that will reshape the economic landscape. She points to “the globalization of consumerism, specifically the growing impact of consumer and economic independence in larger developing countries that have historically followed trends as opposed to setting them. They will create new centers of influence that will need to be understood by business leaders to compete effectively on a global scale.”

Marylin L. Prince, co-founder of New York asset-management specialist search firm PrinceGoldsmith, says sustainable business practices will have a tremendous impact on future corporate earnings and on the search for leadership talent for some time to come. “Industry leaders will need to embrace the moral and economic principles of sustainable business to remain competitive and build successful companies,” Prince contends.

The free flow of human and intellectual capital made possible by Internet technology is the moving force that will alter the course of many businesses, says Anne Lim O’Brien, a managing director at Russell Reynolds Associates. The fluidity of those forces, she offers, “provides speed and access to talent where you want it, when you want it. New media/social networking trends feed this flow.”

A Share of the Blame

Recognizing how lackluster or incompetent corporate management has hurt shareholders and led to scandal in recent years, Robert J. Brudno, managing director of Savoy Partners in Washington, offers his view of something that should influence future organizational performance.

That, he offers, is “greater professional and moral accountability from those who recruit, install, and maintain weak corporate leaders. In the case of most well-publicized meltdowns of companies, it is rare that insiders did not know that bad things were likely to occur.” Certainly he’s counting some misguided executive recruiters among them.

Furthermore, Brudno opines, “too many people pay no price for the damage they cause, and their enablers are rarely held to account. Fix that and watch performance soar.”

One consensus view offered by many of the most influential executive recruiters revolves around the growing influence of China and India. “The ability to expand in new markets and the capacity to reposition your business in new lines of activity while your core business or expertise is either disappearing or becoming a commodity,” says Marc Lamy, a Paris-based partner and managing director with Boyden, is going to shape future business performance in ways that are just beginning to be revealed.

That suggests that more business leaders, and, for that matter, more of the world’s executive recruiters, are going to have to balance intense focus on the challenges directly in front of them with a broader, global view of business trends before their full impact is widely felt.

China Is India’s Only Possible Threat

India’s trade body and chamber of commerce of the IT-BPO (business processing outsourcing) industry, Nasscom was established in 1988 to facilitate business and trade across the country’s software and services industries. The association has over 1,200 members, which include 250 global companies.

In an e-mail interview with ZDNet Asia, Natarajan discussed the challenges facing the Indian IT-ITES (IT and IT-enabled services) industry, and underscored the need for local companies to innovate and reinvent themselves for India to remain the preferred outsourcing destination.

Q: Congratulations on becoming the chairman of Nasscom. What are your top priorities as the new chief?

Natarajan: We have identified six key themes. Our agenda for this financial year includes issues like tapping opportunities through innovation, building communities of best practices, adopting green IT, societal development, and education and skills building.

Today, the IT industry is well on its way to make the transition to process quality and innovation. We believe these themes will help chart the way forward and maintain a steady growth for the industry.

With the U.S. economy slowing down and the rupee continuing to strengthen, do you think it’s a good time to head Nasscom?

These are all challenges of growth, and therefore, a good problem to have at hand. The U.S. slowdown and Rupee appreciation are short-term challenges.

In the long term, the Indian IT-ITES industry will continue to maintain a healthy growth rate, and is well on its way to achieve the US$60 billion mark.

Do you think the U.S. slowdown is hitting Indian IT-ITES companies hard? What can the industry do to counter the impact of the slowing U.S. economy?

The U.S. slowdown is impacting the industry in the short term. But in the long run, the Indian IT-ITES sectors will continue to maintain a healthy growth rate.

While the companies are making firm level efforts to counter the challenge, the key is innovation. As the traditionally successful sourcing model comes under strain, companies need to reinvent themselves and innovate for India to remain the preferred sourcing destination.

Commoditization of IT services, advent of new disruptive technologies and the blurring of the distinction between hardware, software and services, indicate the need for the Indian IT industry to move toward a more consumer-centric business model. And the only way to do that is through innovation. While it often means a new technology or product, it is equally applicable to processes or services.

With rapid economic growth, skill scarcities have been on the rise. Is this an area of serious concern?

The large and growing talent pool remains a key differentiator for India as a global sourcing destination and the fundamental driver of its IT-BPO growth. However, as the IT sector continues to grow and develop new competencies, talent suitability is becoming a concern.

So far, companies have adequately addressed these challenges through their own efforts around recruitment and training. But, as demand continues to grow exponentially, it is becoming difficult for the industry to address this challenge.

Can China Take on Boeing and Airbus?

China hasn’t had a good track record building big airplanes. The first Made-in-China big jet was the Shanghai Y-10, which had its maiden flight on Sept. 26, 1980. The 150-seat jet was as big as a Boeing 707 and bore a striking similarity to the American plane. The Y-10 flew 130 times, but the Chinese retired it in 1985 because local airlines refused to purchase it, preferring to buy the more fuel-efficient planes from Boeing (BA) and McDonnell Douglas instead.

Two decades later, the Chinese government is hoping for better luck. At a ceremony in Shanghai on May 11, China unveiled its latest attempt to build a larger jet—or literally “big airplane” in Mandarin—with the launch of the Commercial Aircraft Corp. of China (CACC). The company’s mandate: assemble jets at home to reduce the nation’s reliance on Western-made planes. There’s no shortage of demand. The aviation industry conservatively predicts the country will buy 2,800 new airplanes worth $329 billion over the next 20 years to keep up with China’s scorching air travel growth (BusinessWeek.com, 12/6/05). “Obviously, China wants to be part of this perceived profitable airplane making business,” says Martin Lin, head of the American Chamber of Commerce in China’s aerospace group. “But profits will come only when China will be able successfully to capture international markets.”

As the country’s failure with the Y-10 shows, that is a big “if.” Alarmists say that China entering the ring to manufacture big jets could pose a threat to the Boeing and Airbus duopoly down the road (BusinessWeek.com, 3/22/07). Publicly, Boeing and Airbus have sought to downplay any friction, saying they are willing to work together with China to help build its jets. “Boeing recognizes and respects the ambitions of other countries and companies to enter commercial aerospace as large airplane manufacturers,” a Boeing spokeswoman wrote in an e-mail. “Boeing will continue its legacy of cooperation with customers and suppliers worldwide.”

Fuel and Maintenance Are Key

Industry experts say that fears about China quickly eating Boeing and Airbus’ lunch are overblown. For starters, no one knows when the country’s jet will be ready. The government has set a goal of having a plane that can seat more than 150 passengers, which is smaller than the jumbo jets made by Boeing and Airbus that seat more than 400 passengers, ready by 2020. But in interviews with the Chinese media, CACC President Jin Zhuanglong declined to be tied to a timetable. China’s attempt to build a regional commercial aircraft, the ARJ21, has been delayed because suppliers have not had key systems ready in time. The 70- to 90-seat ARJ21 jet is expected to be delivered next year. To be fair, even Airbus and Boeing’s new airplanes have been wracked by delays (BusinessWeek, 4/17/08).

Another big problem: When it comes to building jets, China’s low-cost workforce is not all that significant an advantage. True, the country has lower labor costs than, say, Toulouse, France, which is why Airbus is setting up its A320 assembly line in the northeastern Chinese city of Tianjin. But airlines do not buy airplanes based on cost alone. The price tag of an aircraft accounts for only 3% to 5% of the plane’s total operating cost over its 20-year lifetime. More important considerations for airlines are fuel and maintenance costs. “Building an aircraft is not even half the battle. Delivering it and supporting it over a lifetime is what really matters,” says Martin Craigs, president of Aerospace Forum Asia, a Hong Kong-based nonprofit aerospace supply chain industry association.

And while CACC is going to design primarily for domestic airlines, there is no guarantee that Chinese carriers will purchase the planes if they are not genuinely globally competitive. In the 1990s, McDonnell Douglas had a difficult time selling the MD-80 and MD-90 series aircraft it assembled in Shanghai to Chinese airlines because the planes cost more than what airlines could buy directly from the U.S. Today, most of China’s biggest airlines are listed in Shanghai, Hong Kong, and New York, meaning they will be even more likely to base their airplane purchase decisions on earning the best possible returns for their shareholders.

Learning from Failure

To be sure, China’s aircraft manufacturers have learned from their past failures. CACC’s design teams have already reached out to Chinese airlines to solicit their opinions on the future jets’ requirements and performance. But they have not included foreign airlines in the initial round of discussions. “Based on our own experience, we have learned that developing a good plane is not necessarily the most difficult,” an Airbus spokesman wrote in an e-mail. “What is most difficult is to get the recognition on the world market not only to develop such a plane but also to deliver and maintain it. This is where collaboration can be helpful.”

Tschang is a correspondent in BusinessWeek‘s Beijing bureau.

Facebook Raises $100 Million

Facebook is about to stuff more cash into its already full coffers. Having raised $360 million in the span of seven months, the social network has clinched another $100 million.

Palo Alto (Calif.)-based Facebook will raise the additional funds to purchase servers, powerful computers designed to ensure the site can handle a swiftly rising number of users and the dizzying array of whiz-bang applications people add to profile pages. “It will be used entirely for servers,” Facebook Chief Financial Officer Gideon Yu says in an interview.

http://www.businessweek.com/technology/content/may2008/tc2008059_855064.htm?campaign_id=rss_daily&referer=sphere_related_content&referer=sphere_related_content

Is the Housing Crisis Over?

The Housing Crisis Is Over?

Is it time to start house hunting? Cyril Moulle-Bertaux opined that April 2008 marked the bottom of the U.S. housing market.

And in his R.O.I. column WSJ’s Brett Arends makes a similar argument. He looks at the data on housing starts since 1972, which shows that new housing starts slumped below the one million mark in March. Every time that has happened in the last 50 years, Mr. Arends writes, it proved to be the bottom of a recession.

“It’s bottom-fishing time, I think,” says Wellesley College Prof. Karl E. Case in the column. Mr. Arends says that he is one of the leading experts on the housing market in the country. “There’s got to be bargains in Florida, Arizona and Nevada.”

Mr. Arends points out that Bill Wheaton, a legendary real-estate professor at the Massachusetts Institute of Technology, has also suggested that fears about the real-estate crash were overdone. And he points to a private portfolio manager in London, who said the homebuilding stocks on Wall Street were at last a “buy.”

In the Journal editorial, Mr. Moulle-Bertaux suggests that the housing market will revive, as more first-time buyers are lured in by falling prices and lower mortgage rates. “Homes on average are back to being as affordable as during the best of times in the 1990s,” he writes. “Numerous households that had been priced out of the market can now afford to get in.”

To be sure, as Mr. Arends points out, there is no guarantee that this downturn will follow the patterns of the past. And he notes that prices in many areas are far from a historic bargain. And where there is a glut, prices — obviously — are likely to stay lower for longer. But in many areas, prices are low and buyers may be tempted.

Readers, are you tempted?

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Comments

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Some housing in some metro areas may be more affordable than in decades earlier, but they are still expensive. Go with he analysts who belive that housig prices for existinbg homes will decline, on average, about another 8 or 9 percent this year. The elusive “bottom” may appear late in ‘09 for most markets.

Comment by Legal Beagle – May 7, 2008 at 11:19 am

Home prices are higher for Q1 2008 vs. Q1 2007 for Birmingham, Huntsville, and Mobile, Alabama. While sales are not at the levels of 2006 and 2007, both of those years were record years for home sales in the state. The unemployment rate is 4.1% for the state. The state is projected to have significant economic growth in 2008 regardless of what happens to the national economy. What housing crisis?

Comment by Steven – May 7, 2008 at 11:39 am

I still fear that this time around, too many homes/condos were built / bought as second homes / investment properties to flip, so as the price multiples to incomes are still very high in some areas, there is still too much room on the downside.
Thus, I agree with the above Blogger, another year of price reductions are in order, next year will be bottom fishing time in FL, NV, with CA maybe pushing into 2010.

Comment by Bob – May 7, 2008 at 11:45 am

I’ve seen a number of other pundits and people in real estate get constantly burned by using the same type of logic – “it’s as bad as it was the last time real estate was in a bear market, therefore it must improve.” These types of arguments were popping up as early as in 2007.

It is good to be aware of history, but there is no way you can think things will be the same this time considering the run-up was much larger than ever before, and we’ve already set records in foreclosures and are seeing record lows in sales (even though there are far more homes and people than before).

It is – unfortunately – truly a new paradigm. It was an unprecedented bull market, so now we’re facing what appears to be an unprecedented correction.

Comment by cg – May 7, 2008 at 11:52 am

Homes most definitly are not affordable here in central & northern New Jersey, just ask anybody under the age of 30 that isn’t married. Nobody here stands a chance of being able to afford a home in an area where they won’t have to fear being shot or robbed. Combine the already high home prices the absolutly staggering property taxes, and New Jersey may be the most unaffordable place in the country, including California.

Comment by Priced out in NJ – May 7, 2008 at 12:16 pm

In Eastern Massachusetts you find that a 1950s style cramped, never updated 3 bed 1.5 bath cape, 1,400 sq ft house without a garage is still $400K (down from $450K a few years ago)… and you know it’s still way overpriced. Housing has a ways to fall here before it is priced at an affordable to income level. I would say that it’s likely prices will decline here another 10% before they stagnate at that reduced yet very high price for 3 to 5 years. I would not buy a doghouse in the MA market at this point. Prices have another 15-20% to fall in overbuilt former investror ridden bubble markets such as California, Nevada and Florida. The worst will be over by 1/1/2010.

Comment by Chris who says Barney Frank is a moron – May 7, 2008 at 1:36 pm

It’s ain’t over until the fat lady sings. The fat lady being debt-ladden US consumer. I believe any- and everyone with a pulse already “purchased” ARM-financed home back in the boom days. So, my question is, who are these “notional” buyers tasked with Herculean effort to buy all of this inventory?

Comment by Alternate Reality – May 7, 2008 at 2:05 pm

I am not tempted yet! To simply say that the US housing crisis is over is too simplistic and irresponsible. The mortgage crisis is far from over, with so many people upside-down in their homes and no end in sight. Many have loans on homes that are no longer available and wouldn’t qualify for others that are now available. That also means that those first time homebuyers, who may have qualified for home loans last year, will not be able to buy this year…or likely in the next either. This is contributing to another major issue here is that there will be a expanding divide between those who can afford housing and those who cannot. Many people will simply not be able to afford to live in the communities in which they serve. Once again, the middle (and lower) class families are struggling to survive with gas and food prices on the rise. Very soon, many Baby boomers, who will want to retire, will have to unload their homes, which are likely to have high mortgages, in order to survive…In other words, there are major socio-economic, both national and regional, variables that have yet to come into play that will play significant roles in recovery or not…

Comment by Carolyn – May 7, 2008 at 2:08 pm

The graph of housing starts left out the recession from the fourth quarter 2001.

Comment by Larry Schmidt – May 7, 2008 at 2:50 pm

One more factor to consider: not only is there an historic inventory overhang but the type of houses in inventory are not what the market demands going forward. A good analogy is the car dealer stuck with too many SUVs and light trucks on the lot. They will eventually sell but only after aggressive price reductions. Case-Shiller who has proven to be one of the most reliable sources of housing crisis information predicts an additional double digit decline nationwide. The fat lady will celebrate another birthday before she sings.

Comment by blutown – May 7, 2008 at 3:31 pm

1. I agree with NJ, young people and most singles still can’t afford to buy.

2. Homes under contract just dropped again last mth., according to the Nat’l Assoc. of Realtors.
3. Mortgage rates are low, but it’s significantly harder to get a mtg.
4. People aren’t buying. They’re afriad they’ll buy and prices will keep dropping. They’re afraid the economy will worsen even more and they’ll lose the house.
They’re just plain afraid to commit.

I don’t think it will change until after the election, more likely Jan. ‘09, when and if we actually have a transfer of power and a new president.
More people are afraid that won’t happen then will admit.

Comment by fl realtor – May 7, 2008 at 3:32 pm

I believe it is time to nimble in areas that are most likely to rebound. These areas are more affordable now. Your offering price should also discount an additional 5% decline in the market if you are wrong. On the long run, you will turn out fine if you have a 10-15 years horizon.

Comment by steven – May 7, 2008 at 3:36 pm

Steven:
Maybe. Still a risk. I do think the 10-15 year time horizon is correct. To me why risk losing 1%/month on your purchase price when it’s guaranteed that if the bottom has been reached it will stay at the bottom for some years anyhow. I would wait for another year and then pitch the 5% discount… and when you do, give the seller 24 hours to reply and then move on to the next house. The inventory will still be strong for years to come. No need to fall in love with a loser of a house.

Comment by Chris who says Barney Frank is a moron – May 7, 2008 at 3:48 pm

Look, we have “alternative reality” lurking around spinning his doom and gloom.

Comment by Jimbo – May 7, 2008 at 4:05 pm

Ok, I have been known to be gloomy. Tell you what… next time you make an offer on a house, give the seller 36 hours, but give it to the seller at 9PM at night so the seller will have 2 sleepless nights as they mull selling at a realistic price.

Comment by Chris who says Barney Frank is a moron – May 7, 2008 at 4:20 pm

To Chris who says Barney Frank is a moron: What do you think it costs to build a 1,400 square foot house — including the lot — where you have described above? Not counting the price of the land, $400K works out to about $285 a square foot. My guess is that you’d have a pretty tough time replacing that house for that amount of money and yet you think prices will decline another 10%? Dream on…

Comment by Hank – May 7, 2008 at 4:23 pm

Not tempted at all. Signed on for another year’s lease in fact. Maybe we’ll look next year, but more likely in 2010. With credit tightening everywhere and people overextended, and more ARM resets to come, I like my odds. Does anyone really think that prices will suddenly shoot up? Come on.

Comment by Indy – May 7, 2008 at 4:24 pm

Hey Indy, if the government doesn’t step in and rescue this subprime problem, you could be sleeping on the streets in 2010. LOL

Comment by Jimbo – May 7, 2008 at 4:39 pm

Hank: Valid point and the only reason prices have not fallen further. The $285/sq ft is more in the postage stamp sized lot land value and not the construction. For economic reasons prices will fall another 10% and not replacement cost. Note, few new houses are being built in MA to speak of and none in built up towns like the one I am referring to so there are no construction comps. Houses like these are pure junk… Professor Shiller often referred to Boston area housing as “junk housing”. When the market was strong it was not unusual for one of these houses to be on the market with its original 1950 roof and seller would list it as an “original fixture” as if it increased the value somehow.

Comment by Chris who says Barney Frank is a moron – May 7, 2008 at 4:51 pm

I believe anything in the past has nothing to do with now and going forward (future).

We have never in the History of US immigrations seen Nationals from India, China, and Japan migrating back to their homeland. This can attributed to the GDP of these developing nations.

So, I would say hang on buyers.. until the real estate normalizes.

Comment by Krish – May 7, 2008 at 4:59 pm

What, are houses going to disappear? I have my down payment fund/cash reserve, nothing can happen to me with subprime. If the gov’t does ‘rescue’ us, we’ll all be worse off. So help me I will have to hide Barney Frank in a cave somewhere if he keeps up with his stupid ideas, like allowing judges to rewrite mortgage contracts. Just let the (free)market adjust and be done with it.

Comment by Indy – May 7, 2008 at 5:06 pm

Indy: Need I say more than my tagline?

Comment by Chris who says Barney Frank is a moron – May 7, 2008 at 5:10 pm

You’ll never time the bottom and if you think it’s going to be Q1/09, you can keep paying rent without enjoying any interest write-off for the next 9 months, or you can make a fair & reasonable offer for that place on which you’ve had your eyes set. Wait too long and it will be gone!

Comment by David – May 7, 2008 at 6:59 pm

Despite the drop in home prices in the last year, median sale price is still 7x median salary in Tucson. As this is true in much of the country, as credit problems worsen, and as mortgages are harder to get, of course housing has not hit bottom. Bargains? What is he smoking? $350/sq.ft. for a dumpy run-down adobe in a bad neighborhood in a low-income city? Dream on…

Comment by Tucson Collapse keeps renting – May 7, 2008 at 7:14 pm

Too many impending foreclosure sales here in Socal. Prices wont stabilize till they work themselves out of the market

Comment by Beau Mccoy – May 7, 2008 at 7:37 pm

“3. Mortgage rates are low, but it’s significantly harder to get a mtg.”

This is incorrect, it is very easy to get a mortgage today. Just like it was in past decades. You just need to have saved 20 to 30% of the cost of the house in question, have a stable job and a stable history in making purchases and repayments.

The stupidity of the last 7 years when GREED was “get the fees” in mortgage writing is over and the usual specifications for qualifying for a mortgage are back in vogue.

Comment by Akex – May 7, 2008 at 8:33 pm

To Chris who describes a cramped, 1950’s house going for $400K in Eastern MA – that same house here in Vancouver’s West side is $1.3 million. And it was $600K in 2002. We haven’t even started the run-down in prices. People here say “it’s different”, but I lived through the recessions of 82 and 91 when prices dropped 50% in 18 months…and as the other contributor ointed out, the runup took much longer and is much higher than it ever has been (looking at a house price/average income ratio)

John

Comment by John – May 7, 2008 at 9:23 pm

David: “Wait too long and it will be gone?” Let me guess: realtor? I prefer to rent my house that would cost double my rent in mortgage if I bought it, and I now have money in the bank that I would have to spend for down payment. Forget the interest write-off…what about taxes and maintenance? Then, if I had to sell in the next five years, I wouldn’t have even put a dent in my principal because all my payments went to interest. Please…renting makes so much more sense in most situations now, even for those who plan to stay put.

Comment by Tucson Collapse laughs – May 7, 2008 at 9:23 pm

If that was directed at me David, you can save your breath. By the time I factor in the actual tax benefit (in NY the standard deduction is pretty high), the foregone interest on the down payment, the carrying costs of a place comparable to our rented apartment – renting wins very easily. It’s only over a long term it makes any sense to buy, and we aren’t particularly set on a long term home yet.
And Chris, it does say it all. I used to live in Mass. and don’t miss him, or Ted, or Menino! (Sidenote: Is there ever any turnover in MA politics?)

Comment by Indy – May 7, 2008 at 10:01 pm

The question is if interest rates hit bottom and can only go up then that means asset values must continue to fall.

The politicians and political spin machines prey on uneducated people who know no better. Here is the way things will unfold and listen up.

1. interest rates will bottom when inflation starts getting out of check… oh wait, it is already out of check.

2. if u increase interest rates to stop inflation, then you have asset values plummet and yes a house is most certainly an asset.

3. the fed cut rates and house prices still deflated… (see jack-sses, most of these wsj writers been reading my emails to them for the last 4-5 years saying that our economy was headed for a liquidity trap… guess what? it has arrived!!!!

If you people really want to know if it has bottomed, then the answer is simple —- no it has not. here are a few more reasons why.

1. avg. income is what $35k a year and the ave house is $200k a year. what is missing here Jacklegs? oh, yeah that means that most people can’t afford $200k house.

2. bank’s balance sheet in clean up mode for the next 5-7 years.. oh yeah, that is right. that means that banks will not lend as freely… so lets get FHA and the federal department (via taxpayers) to back it up. (that is a joke – privatize profits and socialize loses). so much for that whole capitalistic bull the politicians feed us.

3. have you seen statistics on credit scores of consumers? holly sh-t!!!!!!!!!!! if u have not, then don’t look because it will scare you.

like i said all u jacklegs r nutz — except OZ.

2008 Campaign Coverage on WSJ

A long nominating battle could split the Democratic Party and cost it the White House. Recent history suggests that Clinton, whose chances of winning the nomination are increasingly remote, may have other reasons to stay in the race.

http://online.wsj.com/public/page/election2008.html

Silver Lining For Obama

Amid the jumble of numbers surrounding the Democratic presidential race, one stands out here at Sen. Barack Obama’s headquarters: Six.

Six months remain before the general election. That’s six long months if your campaign knows it’s likely to lose big in Tuesday’s West Virginia primary, knows the primary battle is likely to continue for several more weeks, yet assumes it will win the nomination and needs to focus on a Republican foe who has a two-month head start in preparing.

In the midst of this awkward situation, the good news for the Obama team is that a lot of the work it has been forced to perform to survive this bruising primary season has had the unintended side effect of laying the groundwork for a general-election campaign. Voter-registration lists, ground operations and the Obama money network — all are bigger and better developed than they would have been had the race quietly wound down in mid-February.

This is the silver lining in the dark cloud of divisiveness and rancor that most Democrats see overhead as the Barack Obama-Hillary Clinton fight continues. Sen. Clinton hasn’t gone away, and shows no intention of going away, until she plays out the full calendar of primaries in early June.

Her simple calculation, even as she trails in delegates, votes and states won, is simply to stick it out because, as her campaign chairman, Terry McAuliffe, put it on NBC-TV’s “Meet the Press” Sunday, this is politics, and in politics anything can happen.

Meantime, the task for the Obama team, which figures the nomination is eventually coming its way, is to make general-election virtues of what have been primary-season necessities.

This is particularly important because Sen. John McCain, the presumptive Republican nominee, has benefited mightily from the luxury of being able to watch the Democrats fight. His aides figure they have made good use of the past two months to build a campaign organization that wasn’t really fully formed even as the nomination came tumbling his way. They have structured a unique, decentralized system of regional campaign managers in hopes of being nimble on the ground.

Sen. McCain also has had time to assemble a badly needed fund-raising plan, and to build support among doubters in his party’s conservative base.

But if the McCain benefits have come from being able to stand down a bit, the Obama benefits have come from having to step up to the stiffest challenge in recent primary-season history.

The first asset Sen. Obama now holds is voter-registration rolls. In state after state, the Obama campaign has found its principal advantage lay in bringing new, young and independent-minded voters into the system, and signing them up to vote. That has swelled the rolls in a broad swath of states with Obama supporters.

Beyond that, Obama aides point out the research behind these registration efforts has left them with keen insight about which voters have yet to be reached. In Georgia, for example, the campaign estimates there are a half-million unregistered black voters — the large majority of them likely Obama supporters, if exit-poll data on black voting patterns are any sign.

Enroll and get enough of them to the polls, and the Obama campaign could create a game-changing dynamic. With precisely that in mind, the campaign launched a new 50-state voter-registration drive over the weekend.

The second advantage the Obama forces have picked up is organization. In a series of states it has had to contest forcefully, the Obama team has at least some organizational structure in place, meaning it doesn’t have to be created from scratch for the general election.

That’s true even in states Sen. Obama lost, such as Pennsylvania, but is equally true in less-publicized places west of the Mississippi, where Sen. Obama did surprisingly well. He was a solid performer in winning caucus states, where organization and turning out supporters to vote are most of the battle.

The hope now is that work done to roll up victories in heartland and Western states has left Sen. Obama better-positioned in an unusual cross section of states: Washington, Colorado, New Mexico, Nevada, Montana, North Dakota and North Carolina.

The final advantage of the primary fight has been the need to construct a new fund-raising base. The Obama team says its online donor base now numbers 1.5 million people, most of whom haven’t made the maximum legal donation yet.

So while fighting for the Democratic nomination has cost a lot of money, the effort has brought in even more money. Sen. Obama had $51 million on hand at the end of March, which is one reason it is so hard for the Clinton forces to pull off an 11th-hour upset.

Financial success, as it happens, leads to what could be Sen. Obama’s toughest decision, if he wraps up the nomination. Would he accept public financing of the general-election campaign, as all candidates have done before, and as Democrats traditionally have advocated, or drop out of the system to let his fund-raising machine pay for the general election without any limits? It’s a closely held decision, and one aides say Sen. Obama has yet to make

Earthquake in China

A massive earthquake rocked southwestern China on Monday, resulting in a death toll that neared 10,000 Tuesday and creating a new crisis for China’s leaders after several that have heavily tested the regime this year.

One of the worst earthquakes since 976 struck western China, with reports of hundreds buried under collapsed buildings. Video courtesy of Reuter

The quake, among the most powerful to hit a populated area in recent years, flattened school buildings, shops and homes across a wide, mountainous area around the epicenter in China’s Sichuan province. Local officials estimated 3,000 to 5,000 people died in a single Sichuan county, called Beichuan, where 80% of the buildings were estimated to have collapsed, the official Xinhua news agency reported.

The full scale of the devastation wasn’t clear, in part because of damage to communications lines in the affected area. Rain, as well as rocks and boulders blocking roads, hampered rescue efforts, Xinhua said.

In the town of Dujiangyan, near the quake’s epicenter, fewer than 100 students out of 420 survived the collapse of a school building, Xinhua said.

Associated Press

People rushed to rescue students at Juyuan Middle School.

Outside the school, known as Juyuan Middle School, scores of parents huddled under tarps in the rain sobbing and awaiting news of their children. Rescuers used heavy cranes to lift toppled concrete slabs.

“When the building came down there was no one to help us,” said Li Dachang, whose 16-year-old daughter was later pulled dead from the rubble. “The quality of the construction was so poor. There are so many corrupt officials. They take the money and build shoddy buildings.”

“They haven’t found our kids,” said Wang Zhouqun, wiping away tears. Her teenage daughter was still missing.

The devastation represents the latest of several crises to test China’s leadership in a year that was supposed to be dominated by Beijing’s hosting of the Summer Olympics in August. Winter storms in January — China’s worst in 50 years — shut down much of the country’s central and southern regions for weeks and killed crops and livestock, exacerbating inflation that was running at decade highs.

A rescuer tries to pull an injured woman from the debris at Juyuan Middle School after the earthquake.

In March, antigovernment protests in the Tibetan capital of Lhasa, and the resulting government crackdown, triggered unrest throughout ethnically Tibetan areas in much of western China. Monday’s quake struck in part of that region. The Tibet flare-up fueled criticism of China’s government internationally, leading to protests during the Olympic torch relay through major Western cities, which in turn caused an anti-Western backlash in China.

The Aftermath

Following these crises, the earthquake’s aftermath is likely to be watched closely within China as a test of the leadership’s ability to coordinate a complicated relief effort — and of how it balances its own desire to seem self-sufficient against the need to request any resources from abroad that it might not have. Relief groups, already contending with the aftermath of the recent cyclone in neighboring Myanmar, said they were awaiting word from Chinese authorities on whether assistance was desired.

The quake also could offer a test of China’s adherence to earthquake standards in the midst of a massive building boom, and could put local officials under pressure as well.

The quake, which struck midafternoon local time, measured at magnitude 7.9, according to the U.S. Geological Survey. The initial jolt was so powerful it was felt as far away as Bangkok. It prompted evacuations of offices towers in Beijing and Shanghai, both more than 1,500 kilometers away, as office buildings swayed enough to make some workers nauseated. More than a dozen aftershocks followed, many of them topping magnitude 5.0.

Hundreds of people were trapped under two collapsed chemical plants in a town called, Shifang, where tons of leaked liquid ammonia caused the evacuation of 6,000 people, Xinhua reported.

Piles of Bricks

In Dujiangyan, entire blocks of six- and seven-story houses collapsed into piles of bricks, concrete slabs and splintered furniture. “My father died in there,” said Fu Xufen, who had rushed to check on her father after the quake hit and found a pile of rubble where his building had been.

China’s leaders moved immediately to show the public they were dealing with the disaster. Premier Wen Jiabao left Beijing for the affected area within hours of the quake, and state-run media later showed images of him with a bullhorn calling to possible survivors in the rubble of a wrecked hospital in Dujiangyan.

President Hu Jintao convened a special meeting of the ruling Communist Party’s powerful Politburo Standing Committee to discuss the disaster, and said relief and rescue work would be the government’s “top priority.” Tens of thousands of Chinese soldiers and paramilitary police were dispatched to the area to aid the relief effort, Xinhua said.

AFP/Getty Images

Rescuers searched for victims in the rubble of the collapsed Juyuan middle school in Dujiangyan.

Analysts said China’s government is likely to assemble more effective response than has been seen in Myanmar, where the military leadership’s refusal to accept many outside aid shipments has been blamed for likely exacerbating the toll. Still, if it needs aid such as equipment and dogs to find survivors, China would need to request it quickly to be effective, aid experts said.

Hours after the quake, the Czech Republic’s government offered a team of 15 earthquake search experts and their specially trained dogs, an embassy spokesman in Washington, D.C., confirmed. A statement from the Czech embassy in Beijing distributed by the Foreign Correspondents Club of China said China’s Ministry of Foreign Affairs had expressed appreciation for the offer, and promised “to study” the proposal. The Czech embassy spokesman said Monday afternoon that his nation hadn’t heard from Chinese officials about the offer. Chinese officials couldn’t be reached.

The most-important thing “now is the evacuation and rescue operation, and providing basic shelter and food,” said Qinghui Gu, a disaster-management official with the International Federation of Red Cross and Red Crescent Societies. Mr. Gu said his organization was struggling to obtain detailed information from the affected area but that the early official estimates indicated that it would be “a huge disaster.”

The earthquake isn’t likely to significantly slow China’s surging economic growth because the Sichuan region isn’t a major manufacturing center, according to a Merrill Lynch report. Reaction from China’s stock markets was muted Monday, before word of the quake’s magnitude spread.

Monday’s quake struck at 2:28 p.m. local time with an epicenter that the U.S. Geological Survey said was about 90 kilometers northwest of Chengdu, capital of Sichuan, capital of one of China’s most heavily populated provinces.

Ambulances carrying the seriously injured streamed into Chendgu Tuesday morning. They passed buses of troops, earth-moving equipment and electric utility trucks heading further into quake-hit areas. With aftershocks still rolling through the region Tuesday morning, residents of Chengdu — a city of about 10 million people — huddled along the road under heavy rain, too fearful to go back indoors.

Zhang Huiyong, a 50-year-old construction worker, brought quilts down from her seventh-floor apartment downtown to spend the night outside with her family. “I’m afraid there’s going to be another earthquake,” Ms. Zhang said. “I’m very scared.”

On the grounds of the University of Electronic Science and Technology of China in Chengdu, hundreds of students and local residents were camped outside, some sleeping, others gathered around radios trying to get the latest news on casualties. He Rong, a 20-year-old sophomore, sat clutching her cellphone, trying to get through to her family in a city closer to the quake epicenter. “I haven’t been able to reach anyone. I am so worried,” she said.

How To Catch Up On Lost Sleep

Sleeping too little messes with your mind and hurts your body.

Sleep not only makes you feel sharp and rested; it seems to play a key role in how the brain sorts out information and lays down long-term memories. And a lack of sleep has been associated with maladies ranging from cardiovascular disease to depression the CDC says.

Sleep debt is real. Go to bed too late or wake up too early day after day, and you’ll be faced with your own personal sleep credit crisis. It’s not entirely clear what’s going on in the body when this happens, but this NIH explainer suggests the compound adenosine may play a key role.

Adenosine builds up in the blood while you’re awake, and is broken down while you sleep. Over time, if you don’t get enough sleep, the level of adenosine in your blood rises. (Caffeine, by the way, is thought to keep you awake by interfering with the brain receptors that sense adenosine.)

Indeed, you may have more sleep debt than you think, Scientific American suggests in a story published this week. “People accumulate sleep debt surreptitiously,” psychiatrist William C. Dement, founder of the Stanford University Sleep Clinic, tells SciAm. A few minutes here, a few there, and suddenly your brain may be trying to foreclose on your alarm clock.

You can pay down that debt, but not in a single weekend sleep marathon.

Instead, SciAm says, you need to get an extra hour or two a night over many nights to get back to normal. If you’ve been missing sleep for a while, it could take months to get the sleep-debt monkey off your back.

For best results, go to sleep when you’re tired and sleep until you wake up naturally in the morning. Sounds great. But, like much common-sense medical advice, it also sounds tough to put into practice. In the meantime, the Health Blog will have another cup of coffee to get us through the afternoon.

Does Being Ethical Pay?

For corporations, social responsibility has become a big business. Companies spend billions of dollars doing good works — everything from boosting diversity in their ranks to developing eco-friendly technology — and then trumpeting those efforts to the public.

But does it pay off?

http://online.wsj.com/article/SB121018735490274425.html?mod=todays_us_nonsub_journalreports

Start Ups Race To Produce Green Cars

Spurred by the belief that the market for fuel-efficient vehicles is about to take off, a slew of tiny car companies is springing up in Europe and the U.S. They are racing to produce the next “green” car, betting that soaring demand will allow them to survive alongside the giants of Detroit, Stuttgart and Tokyo.

Most of the upstarts were founded in the last 12 months and have financial backing from venture-capital firms. They are headed by former top engineers and designers from the likes of Germany’s Volkswagen AG and storied U.K. racecar builder McLaren. Responding to soaring gasoline prices and a tightening noose of emissions regulations in Europe and the U.S., the companies are working on a new generation of hybrid and electric vehicles

http://online.wsj.com/article/SB121002128666768637.html?mod=hpp_us_autos

China Earthquake…

In the aftermath of the earthquake, people across China continued to turn to the Web to post firsthand accounts and look for information on loved ones.

One writer who goes by the name Aren posted photos of Dujiangyan, a town near the earthquake’s epicenter where a school collapse killed hundreds of students. “I just got back from hell,” Aren wrote on a Chinese-language site, describing chaos and at least two bodies still lying amid rubble on the street. (Warning: Some of the photos on the site are graphic.)

http://blogs.wsj.com/chinajournal/2008/05/12/blogging-the-earthquake-i-just-got-back-from-hell/?mod=homeblogmod_chinajournal

Prediction Markets

Every senior executive knows that business decisions are seldom better than the information behind them. Yet although it is usually lower-level employees who interact directly with the customer, decision makers rarely ask them how, for example, new products will fare. Leaders therefore deprive themselves of information that could enrich their analysis and reduce the risk of ivory tower decision making.

Some executives understand that valuable information lies scattered around the organization but don’t know how to retrieve it. Others don’t even try, perhaps for hierarchical reasons or because they suspect they might get answers colored by the desire to second their real or assumed viewpoint.

Prediction markets might solve these problems. Initially a field of research, true prediction markets in essence are small-scale electronic markets, frequently open to any employee, that tie payoffs to measurable future events, such as sales data for a computer workstation, the number of bugs in an application, or a product’s usage patterns.¹ Some companies, particularly in the high-tech sector, have adopted them in earnest, and a few major companies elsewhere are experimenting with them.

These markets yield prices on prediction contracts—prices that can be interpreted as market-aggregated forecasts. Their “collective wisdom” is usually at least as accurate as expert opinion. Proponents say that prediction markets work by rapidly aggregating information dispersed across an organization while freeing participants from constraints: for instance, employees can share unwelcome information about a project’s launch date or a new product’s performance anonymously, without fear their careers might suffer. What’s more, advocates say, competition among colleagues and the prospect of winning a prize create incentives for seeking information and making the best-informed bets.

To assess the potential of prediction markets and the organizational and legal challenges they must surmount to become a more widely used business tool, a roundtable was convened at a recent McKinsey conference in Dubai. The panelists were Bo Cowgill, who manages Google’s prediction markets; Todd Henderson, an assistant professor at the University of Chicago Law School; Jeff Severts, general manager of Geek Squad, the services arm of US electronics retailer Best Buy; and James Surowiecki, author of The Wisdom of Crowds, a book about prediction markets and other forms of collective intelligence. Renée Dye, a consultant based in McKinsey’s Atlanta office, moderated the discussion. What follows is an edited and abridged version of it.

Managing Talent

Managing talent in a global organization is more complex and demanding than it is in a national business—and few major worldwide corporations have risen to the challenge.

A McKinsey survey of managers at some of the world’s best-known multinationals covered a range of sectors and all the main geographies. Our findings suggest that the movement of employees between countries is still surprisingly limited and that many people tempted to relocate fear that doing so will damage their career prospects. Yet companies that can satisfy their global talent needs and overcome cultural and other silo-based barriers tend to outperform those that don’t.

We’ve long observed that global corporations grapple with a more difficult talent agenda than their domestic counterparts—partly because they need to share resources and knowledge across a number of business units and countries, partly because of the especially demanding nature of global leadership. To find out more, we undertook in-depth interviews with executives at 11 major global corporations and separately invited senior managers at 22 global companies to participate in an online survey investigating how effectively they manage their talent. More than 450 people, ranging from CEOs and other directors to senior managers, including human-resources (HR) professionals, took part in the survey.

The responses confirmed impressions from the interviews that companies now struggle on a number of talent-management fronts, such as achieving greater cultural diversity, overcoming barriers to international mobility, and establishing consistent HR processes in different geographical units.

Despite the value companies claim to place on international management experience, the senior managers who took the survey had made, on average, only 1.5 cross-border moves during their careers, as against an average of 2 for managers at the top-performing companies. Interestingly, we found that the respondents had also moved, on average, 1.7 times between different divisions within the same geography but only 1.3 times between different functions—another sign that movement from silo to silo is still limited.

Participants cited several personal disincentives to global mobility, but one of the most significant was the expectation that employees would be demoted after repatriation to their home location. “Overseas experience is not taken seriously and not taken advantage of,” commented one senior manager. “Much valuable experience dissipates” because companies have a habit of “ignoring input from returnees, and many leave.” The quality of the support for mobility a company provides (for instance, assistance with housing and the logistical aspects of a move) also plays a decisive role in determining how positive or challenging an overseas assignment is for expatriates.

Perhaps the most provocative finding from the research was the relationship between financial performance, as measured by profit per employee,¹ and ten dimensions of global talent management. Companies scoring in the top third of the survey (when all ten dimensions were combined) earned significantly higher profit per employee than those in the bottom third (Exhibit 1). The correlations were particularly striking in three areas: the creation of globally consistent talent evaluation processes, the management of cultural diversity, and the mobility of global leaders. Companies achieving scores in the top third in any of these three areas had a 70 percent chance of achieving top-third financial performance (Exhibit 2). Companies scoring in the bottom third of the survey in these three areas had a significantly lower probability of being top performers, particularly if the company had inconsistent global talent processes. Although providing no evidence of true causality and lacking a longitudinal perspective, the strong associations between company financial performance and these global-talent-management practices strengthen our belief that these are important areas on which businesses and HR leaders should focus their attention.