Reaching out to emerging markets

Fantastic piece inthe Globe on Canada’s need to expand its economic and commercial horizons beyond the US. This has been a refrain for some time now but the writer nicely summarizes the key points. As I deal in emerging markets investments for a large US firm this topic is of particular interest to me. At conferences and in conversations, Canada is noticeable absent from the emerging markets dialog.

Canada does not have a holistic strategy on how to engage emerging markets. I use the word “holistic” because it needs to include Canada’s foreign policy and international trade interests. It seems to me that there is a separation of church and state in Canada around foreign policy and trade. In our economically interconnected world, this separation is not a sophisticated strategy. With a relatively strong banking sector, Canada has the unique opportunity to use its national balance sheet to create economic and policy linkages in the emerging markets.

Don’t forget, the emerging markets are going through a recession because the West, a main customer, is going through a recession. But there isn’t a fundamental crisis of finance in the emerging markets as there is in the West (an ironic twist of fate, one could say.) So the emerging markets remain open to do business with whoever still has capital.

Despite current challenges, Canada still has capital, but it is not seizing the opportunity to use it and expand its economic and political influence.

Some thoughts on what the writer said:
By 2050, China and India are set to be the No. 1 and No. 3 economies in the world by GDP, and together will be larger than the G7 combined.

Yes, but the US is still #2, so let’s not get too ahead of ourselves. And if we look at GDP per capita, the US will remain number 1 for a very long time.

Moreover, the emerging patterns of global trade, travel and investment are increasingly multidirectional - from China to Africa, Brazil to India and no longer guaranteed to flow through the once dominant hubs of Europe and the United States.

Great point. All Western countries, not just Canada, need to better understand this trend.

Our competitors are cued up with active strategies and we risk losing out if we do not act quickly and with focus.

The US and Europe have diverse strategies that engage the emerging markets with a combination of aid, expertise, commercial contacts, loans, equity investments, technology sharing, JVs, the list goes on and on. It involves national governments and companies together creating linkages in the emerging markets and using a portfolio of investments, loans and grants to win influence and business. Canada doesn’t seem to get this.

The structural advantage is we have a good story for the times. Canada's relative financial stability amidst crisis, our advanced resource markets, quiet excellence in many of the emerging 21st-century technology areas, from clean tech to agriculture, in addition to the advantage that comes from our diversity, make for a compelling story that, if marketed well, will find ready global audiences.

Agreed

Being a destination and source of trade with India is essential - but better still, we need to be part of India's strategy for Brazil. Innovative trade and corporate strategies should be focused on building these trade triangles.

Genius.. This man for PM.

An effective diversification strategy requires focusing even greater corporate and public diplomatic resources on three key markets: Latin America, China and India.

What can I add?

To send the right signal to corporate India, Canadian business needs to take the lead and support the call for a "comprehensive economic partnership agreement" - a pathway to free trade. We should start simply by focusing on free trade in services and leave the other more contentious issue like agriculture off the table.

I agree in theory, but wonder if this will work in practice. Can Canadian businesses take the lead in building these sorts of economic partnerships? Perhaps, unfortunately, business waits too long and government must lead. That seems like a more Canadian way.

We are late to the party in these emerging markets. To jump ahead in the queue, Canada needs to get ahead of its peers with a co-ordinated public diplomacy strategy enabling us to tell a compelling 21st-century Canadian story, streamlining the cacophony of messages from our various levels of governments.

…and business communities.

$80-$100 m "me toos" to bring bling to Bing

I guess I don’t understand MSFT’s new push into search with Bing. Yes, I understand the importance of search and the value of search advertising, but I’ve used Bing and yes it is nice, yes it works well, yes it has a couple of nice features, but it seems to me to be at best an incremental improvement on what is currently out there from Yahoo and Google.

There is no earth-shattering innovation here. There is no new take on search. So I’m not sure what the big deal is. (The trivia-filled photos are nice, but it feels like they’re trying too hard to be “fun”)

Microsoft is going to spent $80-$100 million to say “look, we’re here also.” It looks like an $80-$100 million “me too” campaign.

I wish they would go back to Jerry Seinfeld, I found those ads super amusing (at least the first one in the shoe store.)

Saving grace of slow money

With all the money being pumped into the economy from the Feds, Tom Campbell says we may be looking down the wrong end of 13% inflation in about a year, as soon as the velocity of money picks up.

Paul Krugman says “don’t worry be happy”, inflation is econo-imaginary boogeyman and a bit of inflation will pint-size the debt, anyway.

The story here is why I think the answer will lie somewhere in the middle. If there is one fundamental change that we may be facing is that Americans may begin to save more. Not Asia type of savings, but more than in the recent past. If inflation creeps up, Bernanke and co will have to jack up interest rates which will also create and incentive for increased savings.

So jacked up interest rates and increase in savings may both contribute to lessening the return of high-velocity dollars, which may in turn dampen inflation so it’ll just be high, rather than very high.

Money quote:
With income growth far outpacing spending, Americans' personal savings rate zoomed to 5.7 percent, the highest since February 1995, the Commerce Department reported Monday.

If you can't bring Silicon Valley to Canada, bring Canada to Silicon Valley!

Through a series of “bootcamps”, the Canadian Trade Commissions in the US are helping provide guidance to Canadian start-ups on how to pitch and compete is a market as demanding as the US.

Select start-ups event get to move down into Silicon Valley for a while to establish operations and build a presence down here.

I’ve heard this process has taken some heat up in Canada because some claim this program is actually assisting the “brain drain” and creating incentives for start-ups to move out of Canada.

Rubbish! This is actually a very savvy move. What goes on in Silicon Valley cannot really be replicated elsewhere. Many programs around the world have tried, and almost all (if not all) have failed.

This program by the Trade Commissions is far more reasoned. Instead of spending all sorts of time and money attempted to re-create Silicon Valley someplace else, why not bring companies down here and let them learn from the original incarnation?

Canadian tech start-ups need access to the Valley’s ecosystem. It is not just access to capital, but access to talent, mentorship, new ideas and to customers. Companies, with one foot in Silicon Valley and one foot in Canada, are the best conduits through which some of the culture of innovation that exists down here can begin to filter north.

The local Trade Commissions realized this and through this “bootcamp” process have come up with a very creative initiative.

Will some companies move their HQs down here? Sure, probably. But they’ll also keep some functions back up in Canada and thereby create a great platform for SV/Canada exchanges.

And for the other companies that only stay down here for a short while and then head back, they’ll be newly armed with professional and commercial contacts that will help them grow their businesses.

Access to Silicon Valley means access to capital, expertise, and customers. The Trade Commissions are allowing Canadian start-ups to benefit from this access. Well done!


Canadian Technology Accelerator now open in Silicon Valley

India learning from Toronto?

This article on US media companies beginning to favor India over China in Asia reminded me of an earlier article on the success Toronto has had in multiculturalism.

The common thread here is how important it is to be open and welcoming to outside ideas. I don't mean this as a pitch for diversity per se (although diversity in its own right is a laudable goal.) But rather to highlight that encouraging a diversity of people and of ideas is good for business, helps grow markets and can actually contribute to social cohesion. Everyone wants to support society and its institutions because they feel directly vested in their success.

India is less onerous in its demands and regulations on foreign media and as a result is seeing a great influx of new media ideas. I'm sure it is no coincidence that the Indian media landscape is one of the most dynamic on Earth right now. India is currently the source for many pop-culture innovations from movies to music to fashion.

Conceding risk capital in Canada

Another story about a Canadian researcher being lost to the US due to budget cuts.

This shouldn't be dismissed as another example of Canada's "brain drain." Sure, Canada and many other countries will always lose talent to the US because it is a bigger market, more things are happening, and there will always be more opportunity.

But there is no reason why this trend should be exacerbated by budget cuts. Quite the opposite, money should be spent in order to stem this tide as much as possible. This isn’t a cost, it is an investment in the future (yes, I know this is clichéd)

There are two clear negative repercussions to losing R&D talent:

1) It will be more difficult to attract foreign investment, especially VC money, to fuel innovative industries. People invest risk capital in countries where they see new products and services being developed. A leading indicator for this is the relative health of the local R&D community. A non-existent community means no innovations, which mean no outside risk capital coming into Canada.

2) It threatens Canada's future as a hub for innovation. If Canada wants to diversify its economy away from just commodities, then it needs to make this sort of long term investments. The hope of Canada becoming a center for any sort of innovation will be dimmed without active R&D investing, which will lead to the commercialization of products and the creation of industries later down the line.

What is the point of creating an "urban paradise" if no one is around to enjoy it?

CATO loves multiculturalism (and Toronto, too)

I have to admit, I was a little surprised to see such a glowing commentary on Toronto and multiculturalism from the likes of someone from the Cato Institute.

I fully support this opinion and am heartened to see more progressive views on multiculturalism migrate across the political spectrum.

As someone who left Toronto over ten years ago, I can say that every time I've returned, I've found the city more sophisticated and cosmopolitan. When I left I thought Toronto was somewhat provincial but it has improved greatly over the years.

I'm not sure it is the urban paradise this article makes it out to be, but it does a lot of things right on the immigration front. There still needs much to be done in terms of urban design and overall urban/architectural aesthetics, but that is a different story.

Happily, the article debates this central anti-immigrant argument:

Successful societies (so this argument goes) owe their liberty and prosperity to distinct institutions which, in turn, depend on the persistence and dominance of the culture that established and nurtured them. Should that culture fade—or become too diluted by the customs, religions, and tongues of outsiders—the foundation of all that is best and most attractive about that society cannot long last.

This, I would argue, is a recipe for disaster for a society, not for success. Without constant external input, a society becomes complacent and its thinking ossifies. It basically bores itself to death because it is unable to draw on new sources of thinking to spur innovation and creativity.

The greatest societies are those that stood (or stand) at the crossroads of humanity and are able to pick from and integrate the best humankind has to offer.

Glad to see that Toronto has picked up on this lesson.

Why get something for free when you can pay for it?

Media to Google: Pay for our content

Google to media: Get stuffed, its free.

Maureen Dowd talks to Eric Schmidt about the media getting some of those Google riches for its own

He declines to pony up money, noting that newspapers could opt out of giving their content to Google free and adding, “We actually like making our own money for obviously good capitalist reasons.”

Yes, there is a crisis in the media but like so many other crises, this one is based on poor economics. Many people point to issues of the declining quality of content that is hurting the media. This is no doubt true, to a certain extent.

But more so it is because the media doesn't understand the economics of its own business in the new online world. They love Google because it drives content to their sites. They hate Google because Google, through its targeted advertising, is really the only ones making money in this transaction.

They give links to Google for free but then demand payment. Paying for something you would otherwise get free is not a wise economic decision and Google is not staffed by dummies.

For too long, the media has been giving away its content, which therefore has become increasingly commoditized. You can basically read the same story or opinion anywhere on the web. Most news sites have really very little content that is differentiated and therefore valuable.

The media will not make money by giving away content, even if it makes up for it in volume.

Apple tells music retailers how to behave

Here is a great example of a market leader signaling to its competitors the rules of engagement. So Apple is the market leader in downloading music, right? So when it raises its prices, what should the competition do? Lower their prices in order to win over users and gain marketshare, right?

Wrong?

They just follow right along and raise their prices too! Apple goes from 99 cents to $1.29 and so does Amazon, Rhapsody and others.
The concept is simple and is illustrated so well by Bruce Greenwald and basic economic theory.

Apple rules the market for downloadable music and every competitor knows, Apple could credibly take them on if it really wanted to. So who wants to launch a margin-busting price war with Apple when you could just imitate their prices and maintain your own comfortable share of the market.

Because of its dominant position, Apple is able to set prices for the rest of the market and everyone follows in proper obedience.

This example is a great counterpoint to the magazine industry that is fragmented, without a clear leader, and totally unaware of its own value.

Rather than the industry raising prices to protect their own margins, magazines are on this destructive race for the bottom in a vain attempt to attract subscribers. In the end they just end up commoditizing their own business because they are now unable to spend in order to innovate, and they create the perception that their product is cheap and replaceable.

Canada slipping in innovation

I’ve decried the lack of innovation in Canada before and while I (admittedly) don’t know the details of this announcement, it sends the wrong signal to the world. While most other countries are looking for ways to increase their national R&D capabilities, Canada should not be cutting its own. Not now, not in a crisis where, on the other side, innovation will be a premium.

For too long we’ve lived beyond our means financially and environmentally. If this economic crisis results in some sort (however small) of realignment of our priorities and our expenditures, we will need innovative thinking to help shape the new order.

I’ve seen Canada slip over the past few years in almost every global index of innovation. As someone who spends a great deal of time thinking about how to invest corporate funds in different countries, I can honestly say that a country’s capacity to do research and innovation is a huge criteria that impacts a decision.

For too long, it seems that Canada doesn’t really care about innovation. Now it seems that it cares even less.

Evolution of the newspaper

Currently it is very trendy to talk about the "death of the media" but I think a more sophisticated discussion should rather focus on its evolution. Yes, it is painful for those involved and yes the result may be a media product that is quite different than what we've been used to in the past.

But then again, find me one industry that has essentially remained unchanged over the past 100 or so years (the auto industry immediately springs to mind.... great model they turned out to be.)

Hyper-local sites like the one starting in Seattle may very well be the next step in the evolution of the local paper. There are already some excellent models out there, most notably in San Diego.

Admittedly, these are non-profits at the moment but hopefully these will evolve into sustainable for-profit models. Whatever business models these non-profits may eventually come up with will probably be better than some of the questionable management decisions that are currently plaguing parts of the media industry.

The micro of magazines

Basic microeconomics 101, when you’re competing on price, you are now in a commodity market. That’s great if you sell copper, it is not so great if you sell content.

If a magazine is trying to attract subscribers (and therefore advertisers) by slashing prices, it is a commodity magazine. Basically you’re telling the world that your content can be replaced by any other content out there, but so you’re willing to offer it cheaper.

This race to the bottom may explain part of the media’s ills. Positioning your product as a commodity is a terrible message to send to advertisers.

But it seems that people think they can rely on commodity pricing but still position themselves as a differentiated produce.

Interestingly, whether consumers pay $5 or $50 for a subscription does not affect their perception of the magazine, according to a study conducted four years ago by the media consultant Rebecca McPheters for publishers including Time Inc., Condé Nast, Hearst and Meredith.

“There was no difference between the engagement of those who paid less and those who paid more,” Ms. McPheters said in an interview.

I guess the debate will come down to how you define the word “engagement”. Maybe lining your birdcage with BusinessWeek is considered “engagement”.

Given those findings, the price a consumer pays should not matter to advertisers, since it does not affect the reader’s attitude toward the magazine, said Robert A. Sauerberg Jr., the group president for consumer marketing at Condé Nast. Mr. Sauerberg said that prices were constantly tested, and “the fact is, the pricing comes as a result of what the consumer is willing to pay.”

Or, in other words, how much they value your content. If you’re attracting subscribers only on price, there is clearly a problem with how readers value your content.
This lesson on the perils of a commodity existence isn’t lost on all publications however. One would hope that one called “The Economist” would get it right.

Even though The Economist is relatively expensive, its circulation has increased sharply in the last four years. Subscriptions are up 60 percent since 2004, and newsstand sales have risen 50 percent, according to the audit bureau.

Although, apparently you don’t really need to be that smart to figure this all out:

The subscription price for People has risen about 5 percent, to $104 a year, in the last four years. The cover price has risen 21 percent, to an average of $4.09 (including special issues, which cost more). In that time, People’s subscription and newsstand sales have both increased slightly.




In Switch, Magazines Think About Raising Prices - NYTimes.com

Bathing in Inflation?

Taking a warm bath in all the new money floating around may feel good now, what with the frozen credit markets, but as the economy stops cooling and begins to warm up (even ever so slightly), will the rising temperatures also cause inflation to heat up. (I think this metaphor really got away from me.)

To me, this is a key point:

Meltzer says political pressure will prevent Bernanke, 55, and fellow policy makers from withdrawing liquidity quickly enough as the economy recovers. That’s similar to the pattern that occurred back in the 1970s, he says. Then-Chairman Arthur Burns allowed excessive money-supply growth because he was unable or unwilling to resist pressure from President Richard Nixon’s White House to hold down unemployment, leading to the “great inflation” of that era, he says.

A lot of floating money may make sense now, but soon the time may be upon us when we need to start drying out this extra liquidity (run-away metaphor again...really, I shouldn't quit my day job...) Hopefully a sense of pragmatism has taken over the financial ruling class and they'll be willing to take the tough decisions to cool down inflation at the first sighting.

Bernanke Bet on Keynes Has Meltzer Seeing 1970s-Style Inflation - Bloomberg.com

The new normal - The McKinsey Quarterly - The new normal - Strategy - Strategic Thinking

Quick look at the “new normal” by McKinsey. Not a lot of detail here but in the spirit of the article, here are a couple of my “new normal” predictions;

1) The economy will be more slow burn. With (somewhat) higher savings rates and (somewhat) lower consumption, the economy will be on a slower, but hopefully more sustainable and less bubbly) path

2) I don’t want to overstate the higher savings/lower consumption in the US. Yes, there will be some changes in consumption patterns but it won’t be extreme. The US is not going to turn into Asia-type supersavers and consumer credit will trickle back to fuel consumption.

3) Western/Ango-Saxon/whatever you want to call it capitalism won’t die. It won’t even be on life support. Yes, it may evolve somewhat. Yes, there may be more regulations. But the core principles will remain

4) I hope I can say the same for globalization. I don’t think there is great long-term threat to globalization but there may be bumps


The new normal - The McKinsey Quarterly - The new normal - Strategy - Strategic Thinking

Homegrown Aid

Short but compelling case for bottom-up development, meaning letting poor countries decide for themselves how to allocate development resources.

Make development results-based rather than consultant-based. I'll leave it to Jeffrey Sachs to explain far better than I could:

Rather than have Washington (Penguin: or anyone else) decide the kind of aid each country will receive, the recipient countries should be invited to prepare plans and budgets that would be reviewed by independent experts. These plans would describe the inputs needed by the farmers, the expected increase in production, how the strategy would be put into place and how much money would be required. Such plans, if described with care, could then be closely monitored by the United States and other donors to gauge results and avoid corruption.

Two international programs during the last decade, championed jointly by the United States, other governments and the Gates Foundation, have demonstrated the benefits of such a scientific, results-based aid approach: the Global Alliance for Vaccines and Immunization, and the Global Fund to Fight AIDS, Tuberculosis and Malaria. These programs have saved millions of lives and protected hundreds of millions more from disease and infection. Here’s how they work: Low-income countries submit national action plans to the two programs, which then scrutinize the plans on their scientific, financial and management merits. If the plans are properly put into effect, recipients get more financing.

I would even take it one step farther and in certain cases, only where is makes sense, have outside investors come in to provide either loans or risk capital. When done properly (ie, this is NOT a peanut butter solution that can be spread over every problem) but when done properly, local for-profit entities working on local social problems could benefit from insights and knowledge of outside investors.

Inflation genie...

.... we shouldn't let it out of the bottle.

Nouriel Roubini speaks and as you'd expect, the news isn't good (well, he's called Dr. Doom for a reason)
.

I see Roubini covered a lot in the Canadian press. I think his general crappy outlook on the world suits the alienated Canadian perspective.

He's the "ghost of unregulated banks present" and I think Canadian like him because he's walking justification for the regulated bank past that Canada has been through.

Earnings could throw wrench in U.S. stock rally

Great headline.... those dang earnings are sssssooooo darn inconvenient.


Earnings could throw wrench in U.S. stock rally

Investment in addition to aid

I’m not sure I agree with much of this WSJ article, but hidden within this anti-IDB opinion is I think a valuable point, that creating an environment to attract investment, not just aid, is key for a country’s development.

Those developing countries that are the most attractive for investment are those with a stable local market, an educated population, and those that facilitate a way to both protect and safely deploy capital.

Developing countries (especially those that don’t happen to be China or India) need to demonstrate to international investors that the government is on their side when it comes to protecting capital.

People and institutions that put money in emerging markets are not risk-takers, they are in fact very risk-averse (or at least, the smart ones are.) So if these risk-averse investors find a developing country where they see a reasonably safe way to deploy and grow their capital---allowing them to put money in and take it out, to find and invest in promising enterprises, to work with trustworthy local partners—then the country will not only benefit from the money that comes in, but also from the talent and know-how that often accompanies these types of investment.



Latin America Needs Economic Liberalization and Property Rights, Not Foreign Aid - WSJ.com

Missed the last rally...?

...Don't worry, it probably won't last.

The market has been a lousy predictor. People used to say that the stock market predicted 12 out of the last nine recessions. This time, it predicted six out of the last zero economic recoveries. Every time there was a rally, and then the macro[economic] news, the earning news, the financial news was worse, and the market touched a new low.

reportonbusiness.com: A big bear: Markets 'way too optimistic'

Don't worry be happy... or maybe not

I love John Authers... he sorta reminds me of a British, slightly too earnest David Gergen.

Anyways, I'm always looking for some good news in the economy and John provides a bit for us here. Or maybe not... wait to the end when he at the last second puts things into some sort of historical context and suggests we may be more screwed than ever.

Short View: Happy Days