Category Archives: Business Strategy

The Challenge of Rapid Change in a Borderless World

The article below is an edited version of the keynote speech given by “Dr. John” at the graduation
celebrations at the Nyenrode Business University, Breukelen, The Netherlands.

Many centuries ago a fellow Greek, Plato, said among a few other things that

“Nothing endures but Change itself”

Let’s take a look at the global scene today:

Major changes in communications and information technology; great and rapid progress in transportation; international institutions and agreements; strong commitments to globalization, etc., have resulted to a significant economic and financial interconnectedness between nations and markets, which in effect have created a “BORDERLESS WORLD”

Capital, Technology, and Information do not have nationalities anymore. They flow essentially freely in and out through national borders.

Fifty years ago the USA, with a 27% of the world’s Gross Domestic Product was the
world’s economic power

The poorest countries such as India & China, were barely making  4% of the world’s
GDP each.

Now let’s jump ahead in today’s world. Let’s look at the state of the economies, about 50 years later and see what changed:

The USA portion of the world’s GDP has dropped to 22%

The “poor” countries of fifty years ago are growing at a rate that in another
30 years or so their economies will surpass those of the USA, Western Europe,
and Japan together!

Population Growth: with 6.5 billion people, the world demographic results in increase in life
expectancy; drop in fertility rates; increase in population age.

This might enhance economic growth in Africa and other underdeveloped areas.

Labor flow: the world has about 180 million migrants today. This number could expand significantly when we consider those regions with low income.

Multinational agencies such as the World Bank, world Trade Organization, and International Monetary Fund, have a very important role to play particularly if they evolve and continue to offer more effectively the needed expertise on economic issues such as development, monetary policy, and trade.

With these relatively rapid changes come risks, this time of major consequences, i.e. the recent melt down of the financial markets that are creating a recessionary environment due to uncertainties and credit tightness. Continue reading The Challenge of Rapid Change in a Borderless World

Understanding Derivatives: Beyond Good and Evil

H. Nejat Seyhun, contributing writer to The BusinessThinker magazine, is the Jerome B. & Eilene M. York Professor of Business Administration and professor of finance, Ross School of Business, University of Michigan. He is an internationally  recognized authority on financial issues and Derivatives.

Derivatives are often viewed as mysterious and dangerous instruments and they are much maligned these days.  The most famous investor, Warren Buffet, referred to derivatives in Berkshire Hathaway’s 2002 Annual Report as ‘I view derivatives as time bombs, both for the parties that deal in them and the economic system.’ Buffet continued:  ‘The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.’  These are strong words from a wise man.  Since we cannot put the genie back in the bottle, we have no choice but to deal with the genie. Continue reading Understanding Derivatives: Beyond Good and Evil

The Successful Business Acquisition Process – Step-#13-Financing the acquisition and step-#14-Your action plan

Financing the acquisition

Financing the acquisition requires thorough and careful planning.  You need to consider the different sources of funding accessible to you.  The amount required for purchasing the company may dictate the types of sources that you seek out.  Some combination of debt and equity is likely. Be wary of overextending yourself with too much debt. On the other hand, be careful to protect your immediate family by not taking too great a risk with your personal assets.  It should not be necessary to put your entire life’s savings up for collateral.  If the deal makes sound business sense,  if a bank or other lending institution starts making unreasonable demands, check out another bank, review your business plan, or try some other approach.  Lending institutions vary from the unscrupulous to the impeccably correct.  You need to be especially cautious with any lender that is likely to take your company away from you if you fall behind on a few payments.  Check out your sources, both equity and debt, as thoroughly as you check out the seller.  Are you dealing with honest individuals?  Have you reviewed the fine print for hidden commitments that might jeopardize your ownership?  The earlier you begin to develop your financing plan, the more likely you will be ready to close, when the purchase agreement is finally negotiated and signed.

Your action plan

You can easily get so caught up in the acquisition process itself that you delay proper planning of the takeover until after closing takes place. This would be a big mistake.  Successfully  executed acquisitions require months of planning prior to closing, to assure a smooth transition.  Much of the preliminary work overlaps with a properly done formal due diligence–extensive evaluation of the company and identification of potential problems.  The remaining work, some of which may be obvious and some of which might require more problem-solving creativity, involves identifying the necessary changes and improvements that should take place and an assignment of due dates, budgets and people responsible for carrying out these changes.  A simple format is to create a short one-page action plan for each topic, identifying the issue, the action required, who is responsible, and when it will occur, along with a budget and expected results.

The acquisition action plan may be the single most important thing you can do to assure the success of your new company.  It is viewed as an extremely critical component of the successful acquisitions.  The chief (principal) operating person must be involved in the process from the start.