Understanding Foreign Direct Investment (FDI)

Definition
Foreign direct investment (FDI) plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development. Foreign direct investment, in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country. The direct investment in buildings, machinery and equipment is in contrast with making a portfolio investment, which is considered an indirect investment. In recent years, given rapid growth and change in global investment patterns, the definition has been broadened to include the acquisition of a lasting management interest in a company or enterprise outside the investing firms home country. As such, it may take many forms, such as a direct acquisition of a foreign firm, construction of a facility, or investment in a joint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property, In the past decade, FDI has come to play a major role in the internationalization of business. Reacting to changes in technology, growing liberalization of the national regulatory framework governing investment in enterprises, and changes in capital markets profound changes have occurred in the size, scope and methods of FDI. New information technology systems, decline in global communication costs have made management of foreign investments far easier than in the past. The sea change in trade and investment policies and the regulatory environment globally in the past decade, including trade policy and tariff liberalization, easing of restrictions on foreign investment and acquisition in many nations, and the deregulation and privitazation of many industries, has probably been been the most significant catalyst for FDIs expanded role.

The most profound effect has been seen in developing countries, where yearly foreign direct investment flows have increased from an average of less than $10 billion in the 1970s to a yearly average of less than $20 billion in the 1980s, to explode in the 1990s from $26.7billion in 1990 to $179 billion in 1998 and $208 billion in 1999 and now comprise a large portion of global FDI.. Driven by mergers and acquisitions and internationalization of production in a range of industries, FDI into

developed countries last year rose to $636 billion, from $481 billion in 1998 (Source: UNCTAD) Proponents of foreign investment point out that the exchange of investment flows benefits both the home country (the country from which the investment originates) and the host country (the destination of the investment). Opponents of FDI note that multinational conglomerates are able to wield great power over smaller and weaker economies and can drive out much local competition. The truth lies somewhere in the middle.
For small and medium sized companies, FDI represents an opportunity to become more actively involved in international business activities. In the past 15 years, the classic definition of FDI as noted above has changed considerably. This notion of a change in the classic definition, however, must be kept in the proper context. Very clearly, over 2/3 of direct foreign investment is still made in the form of fixtures, machinery, equipment and buildings. Moreover, larger multinational corporations and conglomerates still make the overwhelming percentage of FDI. But, with the advent of the Internet, the increasing role of technology, loosening of direct investment restrictions in many markets and decreasing communication costs means that newer, nontraditional forms of investment will play an important role in the future. Many governments, especially in industrialized and developed nations, pay very close attention to foreign direct investment because the investment flows into and out of their economies can and does have a significant impact. In the United States, the Bureau of Economic Analysis, a section of the U.S. Department of Commerce, is responsible for collecting economic data about the economy including information about foreign direct investment flows. Monitoring this data is very helpful in trying to determine the impact of such investments on the overall economy, but is especially helpful in evaluating industry segments. State and local governments watch closely because they want to track their foreign investment attraction programs for successful outcomes.

How Has FDI Changed in the Past Decade?

As mentioned above, the overwhelming majority of foreign direct investment is made in the form of fixtures, machinery, equipment and buildings. This investment is achieved or accomplished mostly via mergers & acquisitions. In the case of traditional manufacturing, this has been the primary mechanism for investment and it has been heretofore very efficient. Within the past decade, however, there has been a dramatic increase in the number of technology startups and

this, together with the rise in prominence of Internet usage, has fostered increasing changes in foreign investment patterns. Many of these high tech startups are very small companies that have grown out of research & development projects often affiliated with major universities and with some government sponsorship. Unlike traditional manufacturers, many of these companies do not require huge manufacturing plants and immense warehouses to store inventory. Another factor to consider is the number of companies whose primary product is an intellectual property right such as a software program or a software-based technology or process. Companies such as these can be housed almost anywhere and therefore making a capital investment in them does not require huge outlays for fixtures, machinery and plants.
In many cases, large companies still play a dominant role in investment activities in small, high tech oriented companies. However, unlike in the past, these larger companies are not necessarily acquiring smaller companies outright. There are several reasons for this, but the most important one is most likely the risk associated with such high tech ventures. In the case of mature industries, the products are well defined. The manufacturer usually wants to get closer to its foreign market or wants to circumvent some trade barrier by making a direct foreign investment. The major risk here is that you do not sell enough of the product that you manufactured. However, you have added additional capacity and in the case of multinational corporations this capacity can be used in a variety of ways.

High tech ventures tend to have longer incubation periods. That is, the product tends to require significant development time. In the case of software and other intellectual property type products, the product is constantly changing even before it hits the marketplace. This makes the investment decision more complicated. When you invest in fixtures and machinery, you know what the real and book value of your investment will be. When you invest in a high tech venture, there is always an element of uncertainty. Unfortunately, the recent spate of dot.com failures is quite illustrative of this point.
Therefore, the expanded role of technology and intellectual property has changed the foreign direct investment playing field. Companies are still motivated to make foreign investments, but because of the vagaries of technology investments, they are now finding new vehicles to accomplish their goals. Consider the following:

Licensing and technology transfer. Licensing and tech transfer have been essential in promoting collaboration between the academic and business communities. Ever since legal hurdles were removed that allowed universities to hold title to research and development done in their labs, licensing agreements have helped turned raw technology into finished products that are viable in competitive marketplaces. With some help from a variety of government agencies in the form of grants for R&D as well as other financial assistance for such things as incubator programs, once timid college researchers are now stepping out and becoming cutting edge entrepreneurs. These strategic alliances have had a serious impact in several high tech industries, including but not limited to: medical and agricultural biotechnology, computer software engineering, telecommunications, advanced materials processing, ceramics, thin materials processing, photonics, digital multimedia production and publishing, optics and imaging and robotics and automation. Industry clusters are now growing up around the university labs where their derivative technologies were first discovered and nurtured. Licensing agreements allow companies to take full advantage of new and exciting technologies while limiting their overall risk to royalty payments until a particular technology is fully developed and thus ready to put new products into the manufacturing pipeline. Reciprocal distribution agreements. Actually, this type of strategic alliance is more trade-based, but in a very real sense it does in fact represent a type of direct investment. Basically, two companies, usually within the same or affiliated industries, agree to act as a national distributor for each others products. The classical example is to be found in the furniture industry. A U.S.-based manufacturer of tables signs a reciprocal distribution agreement with a Spanish-based manufacturer of chairs. Both companies gain direct access to the others distribution network without having to pay distributor support payments and other related expenses found within the distribution channel and neither company can hurt the others market for its products. Without such an agreement in place, the Spanish manufacturer might very well have to invest in a national sales office to coordinate its distributor network, manage warehousing, inventory and shipping as well as to handle administrative tasks such as accounting, public relations and advertising. Joint venture and other hybrid strategic alliances. The more traditional joint venture is bi-lateral, that is it involves two parties who are within the same industry who are partnering for some strategic advantage. Typical reasons might include a need for access to proprietary technology that might tip the competitive edge in another competitors favor, desire to gain access to intellectual capital in the form of ultra-expensive human resources, access to heretofore closed channels of distribution in key regions of the world. One very good reason why many joint ventures only involve two parties is the difficulty in integrating different corporate cultures. With two domestic companies from the same country, it would still be very difficult. However, with two companies from different cultures, it is almost impossible at times.

This is probably why pure joint ventures have a fairly high failure rate only five years after inception. Joint ventures involving three or more parties are usually called syndicates and are most often formed for specific projects such as large construction or public works projects that might involve a wide variety of expertise and resources for successful completion. In some cases, syndicates are actually easier to manage because the project itself sets certain limits on each party and close cooperation is not always a prerequisite for ultimate success of the endeavor. Portfolio investment. Yes, we know that youre paying attention and no were not trying to trip you up here. Remember our definition of foreign direct investment as it pertains to controlling interest. For most of the latter part of the 20th century when FDI became an issue, a companys portfolio investments were not considered a direct investment if the amount of stock and/or capital was not enough to garner a significant voting interest amongst shareholders or owners. However, two or three companies with "soft" investments in another company could find some mutual interests and use their shareholder power effectively for management control. This is another form of strategic alliance, sometimes called "shadow alliances". So, while most company portfolio investments do not strictly qualify as a direct foreign investment, there are instances within a certain context that they are in fact a real direct investment.

Why is FDI important for any consideration of going global?

The simple answer is that making a direct foreign investment allows companies to accomplish several tasks: Avoiding foreign government pressure for local production. Circumventing trade barriers, hidden and otherwise. Making the move from domestic export sales to a locally-based national sales office. Capability to increase total production capacity. Opportunities for co-production, joint ventures with local partners, joint marketing arrangements, licensing, etc; A more complete response might address the issue of global business partnering in very general terms. While it is nice that many business writers like the expression, think globally, act locally, this often used clich does not really mean very much to the average business executive in a small and medium sized company. The phrase does have significant connotations for multinational corporations. But for executives in SMEs, it is still just another buzzword. The simple explanation for this is the difference in perspective between executives

of multinational corporations and small and medium sized companies. Multinational corporations are almost always concerned with worldwide manufacturing capacity and proximity to major markets. Small and medium sized companies tend to be more concerned with selling their products in overseas markets. The advent of the Internet has ushered in a new and very different mindset that tends to focus more on access issues. SMEs in particular are now focusing on access to markets, access to expertise and most of all access to technology.

What would be some of the basic requirements for companies considering a foreign investment? Depending on the industry sector and type of business, a foreign direct investment may be an attractive and viable option. With rapid globalization of many industries and vertical integration rapidly taking place on a global level, at a minimum a firm needs to keep abreast of global trends in their industry. From a competitive standpoint, it is important to be aware of whether a companys competitors are expanding into a foreign market and how they are doing that. At the same time, it also becomes important to monitor how globalization is affecting domestic clients. Often, it becomes imperative to follow the expansion of key clients overseas if an active business relationship is to be maintained. New market access is also another major reason to invest in a foreign country. At some stage, export of product or service reaches a critical mass of amount and cost where foreign production or location begins to be more cost effective. Any decision on investing is thus a combination of a number of key factors including:
assessment of internal resources, competitiveness, market analysis market expectations.

From an internal resources standpoint, does the firm have senior management support for the investment and the internal management and system capabilities to support the set up time as well as ongoing management of a foreign subsidiary? Has the company conducted extensive market research involving both the industry, product and local regulations governing foreign investment which will set the broad

market parameters for any investment decision? Is there a realistic assessment in place of what resource utilization the investment will entail? Has information on local industry and foreign investment regulations, incentives, profit retention, financing, distribution, and other factors been completely analyzed to determine the most viable vehicle for entering the market (greenfield, acquisition, merger, joint venture, etc.)? Has a plan been drawn up with reasonable expectations for expansion into the market through that local vehicle? If the foreign economy, industry or foreign investment climate is characterized by government regulation, have the relevant government agencies been contacted and concurred? Have political risk and foreign exchange risk been factored into the business plan?

The Globalization of the Small Enterprise by Jeffrey P. Graham

The globalization of the small enterprise will most likely be the most important development in international business as we begin the new millennium. Clearly, the 20th century has witnessed the transformation of global commerce by transnational conglomerates and/or multinational corporations. This transformation is most evident when one considers the impact of the worldwide disaggregation of production and the advent of transfer prices, which tend to distort the real prices of manufactured components transferred across national boundaries but within a multinational corporation. It is certainly the case that large global corporations have created a significant portion of this century's wealth, however, it is the smaller enterprise that has been the engine that has generated most of the world's economic growth over the past 20 years. The challenge faced by many small enterprises will be how to globalize their operations in order to be able to better source raw materials and components and to take advantage of proximity to global markets in order to compete head to head with much larger companies. In order to do this, smaller companies will be forced to make a choice between two options: #1 to hire an international business #2 to retain an international business consulting company. specialist and

These choices are not mutually exclusive because it is entirely possible that some companies might choose to do both things. In any case, companies will be forced by rapid changes in the global economy to realign themselves accordingly. Globalization is a very recent phenomenon for most small and medium sized companies. That is, buying and selling in global markets, up until very recently, was generally speaking an undertaking specifically achieved by the use of an intermediary. In most cases, the intermediary was a global trading company. Global trading companies worldwide shared certain characteristics regardless of national origin. Most were fairly large business organizations with the significant financial resources necessary for international transactions. Contrary to popular myth, much of the business done between a global trading company and a foreign distributor, its overseas counterpart, was conducted on open account. Open account means that the distributor was creditworthy enough to be capable of receiving goods on credit by means of acceptance of a documentary draft. Essentially, a documentary draft is a document that compels the foreign distributor to accept responsibility to pay for a shipment as long as the documents, namely the bill of lading and other shipping and Customs' documents are in order. Still today, the more familiar trade document, the letter of credit, is very often backed up by a documentary draft or bill of exchange. What is most important to note in this context, however, is the fact that until the late 1980's most global trading

companies preferred to do business with foreign distributors who were good credit risks and who had both banking and trade references. In many instances, specialized global trading companies, also known as export management companies, acted as the familiar "middleman". Unfortunately, increased foreign travel and contacts with more foreigners gave very many people the impression that the so-called middleman role was quite easy to perform. It is quite often difficult to dispel such myths. Nonetheless, being an intermediary is a very complex task that requires significant understanding of differences in business culture and the ways in which an international transaction is concluded. For most manufacturers in the United States, and in other places as well, handing off the task of exporting was a welcome relief. Global trading companies were a group unto themselves, very often shrouded in a veil of secrecy. Most business executives did not want to know the details of how their products got sold overseas just as long as they got sold. As export markets began to grow in earnest in the mid to late 1970's into the early 1980's, global trading companies grew in power. Those business executives who did understand what these intermediaries were doing were quite often deterred from undertaking the role themselves because of its complexity. First there was the issue of finding a good foreign distributor. People who have worked at a global trading company will all tell you the same thing: anybody can find a foreign distributor. The trick is to find a good foreign distributor. Then came the issue of negotiating a good deal for the manufacturer while making sure that the intermediary was properly compensated. Sometimes, it was important to have good banking facilities because both parties wanted to guard against any currency fluctuation swings that might erase profit margins. This, of course, was just the beginning. For all practical purposes, two significant events changed the nature of global business for small and medium sized companies, especially in North America. It is very important to make this clear distinction from multinational corporations or global conglomerates. The first change was the advent of the facsimile machine. Before the fax machine became prominently used for direct and immediate written communications, most global trading companies relied upon the telex machine for direct and reliable communication. Telex machines were relatively expensive and required trained operators. Thus, any global trading company that was serious about providing services for its clients needed to have trained teletype operators to run the telex machines. These trained operators could wield significant power within a relatively small company that depended upon them for daily communications. The second change was in the educational systems. During the 1980's, local community colleges and many major universities began offering international business specialty courses. Many of the earlier curricula focused primarily on transportation and logistics functions, the types of activities normally performed by a foreign freight forwarder. However, as more people became interested in international business skills, the courses available to the public increased in variety and scope. These two changes had a swift and far-reaching effect on the business practices of global trade intermediaries. Most notably, the fax machine eliminated the need for teletype operators and this eliminated the jobs of many people who had become very

secure in their positions. The easy availability of training for jobs as freight forwarders, Customs' House Brokers, documents examiners and letter of credit specialists meant that a large pool of skilled employees became available for hire by manufacturers. Suddenly, global trading companies who had dominated import-export trade for most of this century found themselves locked into competition with their clients (manufacturers and service providers) for the most highly skilled employees available. Many manufacturers discovered that they could hire in-house international business specialists who could perform most of the actual marketing functions of the intermediary and for significantly less money. As global competition heated up, thinner profit margins meant that any cost savings could mean the difference between making a profit and facing extinction. This basic change in international business practices really intensified in 1987 when the fax machine finally eliminated the use of the telex. What should also be mentioned here is the fact that most of the training of skilled international business specialists had been heretofore limited to the community of global trading companies. Many have referred to this method as the "back room" training method because of the insular nature of global trading companies. That is, one could only learn that which the person offering the training was willing to give. The major flaw in this on-the-job type training was the fact that those doing the training had a vested interest in doing a bad job in order to protect their own position within the company. The advent of the Internet, especially the use of electronic mail for communications and the increasing popularity of the World Wide Web as a medium for communications, public relations and sales promotion, has hastened the pace of changes now occurring in international commercial practices. E-mail is threatening to eliminate the fax machine as quickly as the fax machine eliminated the telex. The World Wide Web makes it possible for anybody with Internet access to set up a website and offer goods and/or services to the entire world for about U.S. $50 per month. Compare these costs for entry to those of a global trading company that employed specially trained people such as a telex machine operator, freight forwarder/Customs' House Broker or transportation/logistics coordinator, import-export clerk, documents examiner and import-export marketing people. The elimination of this significant barrier to entry has fostered an environment in which anybody can claim to be an import-export trading company and has given rise to a proliferation of smaller global trading companies offering specialized services. This, in turn, has created a climate of confusion about professional credentials and has also encouraged the proliferation of volumes of useless trade leads (I covered this trade lead topic in some detail in an article titled, "Evaluating Trade Leads", which I wrote in late 1997. This article was summarized in the July 1998 issue of Gateway.) and/or other false or otherwise misleading information in the marketplace. To make matters worse, you also have the active participation of the international banking community. In this context, one has to remember that the "old" way of doing business, in which the global trading company and the foreign distributor were mutual business partners, effectively limited a bank's ability to earn fees from transactions. The bank was limited to verifying and/or vouching for the credit risk assessment of the

foreign distributor and earning fees for discounting commercial paper such as an accepted documentary draft. A bank might also occasionally finance an initial stocking order so that the overseas distributor might have inventory on-hand of the manufacturer's products in order to sell to its clients. Once the reliability of the distributor is established, the bank's participation is very limited. This is a very important point because most people just assume that the letter of credit is the principal way of arranging international transactions. While the letter of credit has been in use in one form or another for several hundred years, it was not the primary document used in international business transactions between a trade intermediary in North America and a foreign distributor until very recently. The changes within global trading companies in North America meant that some institution had to step forward to assume the role previously played by trade intermediaries. Therefore, it was the banks in North America who actually promoted the increased use of the letter of credit as the primary financial instrument of international trade. There was no altruism involved here at all. The banks were hardly interested in making life easier for small and medium sized companies, as some would suggest. No, their motivation upon the disappearance of large trading companies and the appearance of smaller and more specialized intermediaries was merely profit. Not only did banks in North America earn nice profits, but their counterparts overseas made more money as well. What does all of this mean? For most small and medium sized companies, the aforementioned changes simply mean that their business environment has become more complex. In too many companies, however, it is almost impossible to assess the impact of these changes because too many business executives are still in denial about these changes and have not rethought their business strategy accordingly. It would be very easy to say that this type of in-the-box thinking is to be expected given the circumstances of most small and medium sized companies. In fact, it is probably the case that this is equally true of small and medium sized companies everywhere in the world. To those of us who work with SME's, there is an understanding that these companies almost always focus on their distinctive competency. That is, they tend to really be very good at producing their good or service or developing their new technology and they tend to not be so good at actually selling this good, service or technology to the global marketplace. The most compelling reason for this would be a tendency to think that their product, technology or service will sell itself because it is so good. While this is quite understandable, it is nevertheless an impediment to success in the global marketplace. As we move forward into the next millennium, the real challenge for many smaller enterprises will be navigating the complexities of an increasingly globalized marketplace. This will simply mean that companies will have to globalize the operations in one way or another. Some will hire an international business specialist to develop a global strategy. Others will rely upon an international business consultant like myself. Some will hire an in-house specialist as well as retaining an outside consulting company. Almost all companies will be required to develop many different types of business relationships that offer their company a very well defined presence in foreign markets. Companies will also have to find new and more effective ways of assimilating

huge amounts of information and analysing it as well. Employees will be required to adapt and learn new skills such as foreign languages and international commercial practices. Top business executives will be required to travel to foreign markets more frequently to visit foreign distributors and to participate in trade missions and trade shows. Industry trade organizations are going to become even more powerful because their membership will represent key business constituencies that will wield significant power. In the very near future, global strategic planning will become an essential factor for the success of the enterprise. Looking ahead, it is very clear that business executives will have to rethink their global business strategy and to find a more dynamic approach to keep pace with changes in the global marketplace. What is not so clear, however, is how this approach will be developed. It is certain that any new solutions will be technology-based. It is this factor alone that complicates the true nature of the existing challenge for small and medium sized companies. An entirely new profession, international business specialist, has been born within the past 20 years or so and this new highly skilled profession is threatening to upset the delicate balance that exists within the management structure of most small and medium sized companies. When added to the fact that most small and medium sized companies now require a Chief Technology Officer, you now have two powerful business specialists whose input is crucial to the success of the smaller enterprise. Whether or not companies rely upon outside service providers or hire their own staff in-house, the expertise provided by the Chief Technology Officer and the international business specialist will become an essential part of the make-up of any successful company. Given the resistance to change that is an outstanding characteristic of smaller enterprises worldwide, it will be very interesting to see how these new business skills will be incorporated into companies' business culture. When one considers the maverick nature of the people drawn to becoming international business specialists or technology officers, it is quite clear that the early part of the 21st century will be very interesting. In most small and medium sized companies there will be a clash of basic business principles between those who favor a more traditional management approach and those who are preparing for the next generation of global business. How this will play out is anybody's guess, but it should be very interesting to watch it unfold in a global environment that changes daily

Logistics: Vital to Every Business was written by Jeffrey P. Graham and originally appeared in the Gateway Newsletter at Trade Compass in April 2000. Copyright Trade Compass. All Rights Reserved. Once upon a time, there used to be a venerable old shipping clerk. Reviled by many, if not most of his/her fellow employees, the shipping clerk actually had one of the most important functions in the company. This is one reason why so many owners and top executives made a practice of stopping by frequently to visit the shipping clerk; they wanted to make sure that the clerk was happy. In some cases, the senior shipping clerk had perks that rivaled those of the senior vice president. Truth told a good shipping department was very often the focus of any successful company. Shipping handled sensitive merchandise and was responsible for valuable equipment and finished goods that were quite often worth almost as much as the company itself. In the United States, there still exists a comic stereotype in television and movies about lowly shipping clerks rising through the ranks of management to become a chief executive officer or some other important executive. As is so often the case, the stereotype is not really too far from the truth in many instances. The truth is that yesterday's shipping clerk is today only a small part of the logistics function in the company. Please choose any definition that suits you, but in my opinion logistics is the process by which a company uses strategic planning and good old common sense in order to make sure that it is promptly delivering the goods that it manufactures to its customers and is acquiring those things that are necessary for the survival and prosperity of the business. By this I would mean the purchase and intake of raw materials and components that comprise the final products that the company manufactures. This would also include acquiring or procuring any materials, provisions and/or supplies such as office products, vehicles, work uniforms, spare parts for machinery, janitorial supplies and so on. While the education and skill level of the person who today performs this task might have changed, it is just as important today as it was when it was called shipping and the snotty shipping clerk was a guy named Tony who wore a pack of cigarettes tucked into his tshirt sleeve and was somebody that nobody would ever want to meet in the back alley. Today, guys like Tony who were tough and strong because they had to be in order to get the job done are about as prevalent as a typewriter in an office. You see a few in some special circumstances, but by and large they are now an historical artifact. With the rise to power of cost accountants (also known as management accountants) in many large firms during the 1970's and

1980's, shipping departments were transformed almost overnight. Pun intended because newcomer Federal Express came along and blew the doors off long held notions about overnight shipping of small packages. And this was the beginning of a revolution in commerce whose implications were clear and far reaching. But I digress.... Let's get back to Tony. In the old days, the Tonys of the world were recalcitrant high school dropouts who were usually only marginally intelligent and quite often were anti-social. Yes, these are assumptions and stereotypes and for the most part they are inaccurate. However, the perception of the shipping function within the firm is still viewed in much the same way today by up and coming junior executives in sales and marketing who would pretend to the throne of top management. And this perception is a continuation of myths perpetrated for many years before I got here. While this perception continues to cloud this issue, globalization continues to push it to the top of the list of most hotly debated topics in business. Logistics in the 21st century touches every aspect of the company's daily operations and has grown into a business specialty of its own. Understanding the demands of strategic planning and coordination and making use of new and better tools to do so would have probably been beyond Tony's reach. Scheduling manufacturing and making certain that each step of a process has all of its prerequisite needs fulfilled is an enormous task that requires intimate knowledge of engineering, computerized system design and process controls. While complex software programs perform much of the logistics function, human interaction is as important today as it was in the time of Tony and his dirty white t-shirt. The biggest difference being that today the shipping department might have 100+ offices around the world, many of whose employees might find it rather difficult to communicate with each other under normal circumstances. Tony knew everybody by his/her first name. To understand the impact of global logistics, it might be useful to consider the following:

Logistics is essential for the company's competitive strategy and survival. This is an important point that too often gets lost in the shuffle to overlook seemingly small but crucial details. Lee Iacocca brought this to our attention when he went to Chrysler and started confronting people about various issues. Many observers agree that Iacocca highlighted the critical role of the cost accountant within the corporate structure of a publicly traded company. Of course, he had mixed emotions about this. Cost accountants or what many also call management accountants perform a very thankless task: they do internal management audits. One goal of this type of audit is to provide information about the cost of goods sold so that the outside accounting firm

responsible for providing public disclosure can have accurate information. Iacocca used the cost accountants to force many different departments and divisions in Chrysler to communicate with one another in order to find ways to lower the cost of goods sold and increase profits. His own vision of logistics played a key role in Chrysler's eventual turnaround. Logistics is very well understood by customers. One of the problems that I constantly faced as a divisional export manager was trying to convince foreign distributors that my manufacturer was capable of delivering the goods consistently. Potential customers would cite examples of other distributors in nearby markets who had prior bad experiences with my client and would then ask pointed questions about what changes had been made to solve these problems. When I tried to talk to the manufacturer, they would just ask how come some dumb foreigner was asking such questions. When I spoke with my boss about this issue, he told me that I needed to be more aggressive. Of course, this was the same man who had that infamous slogan about customers painted on his office wall. Both knew and understood the issues surrounding the bad logistics of the client, but neither would confront the issue directly because of concerns about saving face. Both also refused to believe that the foreign distributor was asking these questions on a good faith basis. As my boss said, "He's just trying to lower your price". People who are smart enough to build successful businesses are not normally stupid. It is unwise and foolish to think that one can allay legitimate concerns about capability to deliver by merely taking a more aggressive stance with a customer. Makes me wonder what people are thinking when they say such dumb things. Logistics is also well understood by analysts. This is especially problematic for new start-ups in the dot.com world. The paradigm does not shift when you produce services. One still has to gather intellectual capital that might reside in faraway places and then develop a consensus across cultural, racial and national borders. Granted the Internet makes this task easier now, but it does not eliminate it as a risk factor in assessing the viability of a business plan. Neither service providers nor manufacturers are going to receive a free pass. Logistics is not well perceived as a career choice. This is not a real problem for large multinational firms who can afford to pay for top talent. However, smaller companies have fewer options. Globalization continues to explode while the U.S. economy is in a tight labor market. This makes it very difficult for smaller companies with fewer resources to pursue top talent with a solid background in global business because there are too many other very competitive offers out there. Logistics has been named a suspect in many corporate downsizings within the past 15 years. Upon seeing the pink slip on his desk, one business executive quaintly asked his secretary, "How can they replace me?" Some observers have correctly asked if the U.S. is going to hit a wall and then collapse of its own weight. We are now seeing the effects of corporate re-engineering done in the 1980's and the picture being painted is very bleak. Some would argue, and I am not so certain that I would disagree, that the current wave of mergers and acquisitions is being driven by the brain drain of the junk bond era. Some skilled logistics practitioners are rightly upset about how they are being portrayed in the media. Logistics cuts both ways. If one is highly trained in the inner workings of a

corporation, then one has the capacity for looting and other negative behavior. Logistics plays on a global stage. For too many multinational firms, the logistics department has become like an armed mine field with traps everywhere you might step. When academics and others finally do have time to really discuss the impact of transfer pricing, it should surprise nobody that they will look within two departments: accounting and logistics. In the end, it is these two groups of people more than any others who know where the corporate skeletons are hanging. Logistics is not only about strategic planning and resource management, but it is also about how companies go about their day and what impact this has on the rest of us. As a business specialty, the explosion of globalism has promulgated the practice of logistics. In the days of mostly domestic companies, shipping departments in most companies were run by an experienced shipping clerk that basically had carte blanche because too few people adequately understood how to get things done. Except for top executives, especially in family-owned companies, nobody wanted to have any direct involvement with this department. Most people wanted their packages shipped on time and wanted items shipped to them delivered to them immediately. Other than that, there was hardly any motivation to have contact with shipping in many instances. In many cases, this fact has not changed for practitioners of logistics. It is a business function that is largely ignored and mostly misunderstood because it is not very sexy. Smaller companies newly entering global business are beginning to recognize the importance of logistics, but many top executives still have a hands-off approach. In this sense, nothing much has changed since the days of Tony's dirty t-shirt

Many companies and organizations have set up a site on the World Wide Web (WWW) and have given very little consideration to developing a website strategy for promoting the website. Some executives scratch their heads and sigh when asked why this is so. As one confused executive recently said to me, "Hell, I thought setting up the website was the strategy. You mean I have to develop another strategy for the strategy? How do I do that?"

Here is a simple six-step guide to developing a successful website strategy:

1)

Define your target audience.

Probably the biggest mistake made by website newcomers is failing to consider the make up of their potential audience when designing their site. The design and content of a site will normally attract certain types of visitors. New webmasters make a serious blunder by thinking that by simply attracting more visitors to their site that they are achieving an appropriate goal. The goal should be to attract more visitors who fit the particular profile of a potential customer for a company or a new member for an organization. Savvy webmasters call this person their "target".

2)

Develop appropriate content for your website.

Visitors will continue to return to visit a website that provides interesting content. In general terms, content is usually broken down into two categories: links to other sites and topic specific information. If one visits several sites on the same topic or subject matter, he/she would clearly see that many sites would probably have the very same links to other sites. This fact tends to confuse people about the relative value of a site. Therefore, the issue of topic specific information that is useful to the visitor is extremely important. After you assemble a profile of your target, you should develop your site's content to satisfy the specific needs of your target. In some cases, this might involve providing specific information within a very narrow focus. In others, it might involve providing a broad spectrum of information about a topic. Whatever the case may be, remember that once you have satisfied a need of your target, you have developed goodwill that makes a buying or joining decision much easier. By continuing to add new and interesting content and keeping the site updated, you will continue to increase the goodwill and also develop your site's brand loyalty.

3)

Align your site with online communities and/or website partners.

If you want very high visibility for your website, it is essential to find and participate in the virtual communities on the Internet that pertain to the topic or subject matter of your site. These communities provide a forum where one can learn and exchange ideas with people from all over the world who have a mutual interest. Increasingly, these forums are also being used to provide business leads and enhance global business outreach because the quantity of collective resources available tends to attract many visitors from around the world.

Experienced webmasters will tell you that the best way to attract new visitors to a site is by having a reciprocal link with another site that has an allied interest. An excellent example of this would be a global trading company that has a reciprocal link with a foreign freight forwarder. Both companies will gain new visitors to their sites. More important is the fact that these new visitors will match the target profile for both sites.

4)

Develop an intra-company support network.

Somebody in the company will have to assume responsibility for answering email inquiries generated by the website and also periodically visiting the WWW to look for new sites and/or virtual communities that might be of interest to your company or organization. Somebody will also have to assume responsibility for maintaining the website (adding new content, fixing broken links and updating its features). Companies and organizations that have set up an internal network to handle these tasks in a coordinated manner have a better chance of deriving greater benefits from their website. The fastest way to diminish the credibility of your website and in turn your company or organization is to fail to respond to inquiries properly and in a timely fashion and to not fix broken or dead links at the site. Regularly adding new content is equally important.

5)

Refine your collateral marketing & promotion materials.

This is a no-brainer. Simply stated, if you set up a website, tell somebody. It is very surprising to see the number of companies and/or organizations that have set up a site and then failed to adequately promote it. Your company's letterhead, all brochures, any print ads or radio & television announcements should include mention of your new website. In fact, you should send a press release to all appropriate media organizations. Avail yourself of every opportunity for personal appearances on radio, television, meetings, and trade

shows to publicize your new website. Setting up a website is a wonderful opportunity to contact all of your current customers/members to show them that you are looking for new ways to satisfy their special needs. It is also a fantastic opportunity to reach out to new customers/members. Some companies use the announcement of a website as an opportunity to offer special discounts to attract new customers. Organizations can offer limited time discounted membership fees to attract new members.

This is very basic stuff and comes under the heading of plain common sense, but entirely too many companies and organizations fail to adequately promote their website by refining their collateral marketing & promotional materials. It does not require any high priced consultants or specialists. Many times, a simple postcard or a polite telephone call will suffice.

6)

Obtain appropriate feedback.

Feedback is the life force of any successful website. You need to know what your visitors think about your site. Is the content useful? Is the content appropriate? Does it really fit the subject? Is there enough content? Probably the best way to obtain feedback is via an online feedback form. Some webmasters also like to e-mail questionnaires to site visitors who have communicated with them. Feedback will often offer clues as to how visitors rate your site against other similar sites. This can be very helpful in your decisions about what to delete, add or change.

Nothing in this six-step guide seems extremely complicated. As a matter of fact, some of the steps seem almost too simple. However, simplicity is too often under-rated. Our experience has been that some companies and organizations looking to develop a successful website strategy are very frequently looking for gimmicks. Unfortunately, gimmicks do not work very well as an overall strategy for promoting your website. Lest we forget, the most important aspect of developing a website strategy is the necessity to write it down on paper and post it where everybody can see it. Then make certain that the entire staff is responsible for following each step carefully.

Finally, learn to listen to your staff people. Business executives and organization officials tend to have very limited hands on experience with the Internet. If you are the executive in charge and therefore have final authority for

making decisions, try to use it wisely. You may have a vision for your company or organization and that vision might be quite admirable. However, developing a good website strategy to promote your vision in the context of the website and the company/organization mission can only be accomplished if you factor in the expertise of your staff people when making decisions. While developing a website strategy might be considered part of an executive's responsibilities, an executive assistant might better accomplish it. The most egregious error that companies and organizations make is allowing Internet decisions to be made in a vacuum of real hands-on Internet experience. Companies that really do develop an intra-company network to support the website can often draw upon the rich and diverse talents of many employees from different disciplines. Because developing a website itself is a collaborative process, it seems clear that trying to develop a strategy to promote the website is collaboration as well. Companies and organizations that involve all staff members in developing their website strategy tend to have greater success in executing that strategy and thereby deriving the benefits of having a site on the World Wide Web.

MANAGING INFORMATION

The Internet and globalization have promulgated a trans-national business culture. Though volumes have been written about the differences in how business is conducted in various cultures around the world, very little has been said about the similarities. Clearly, the Internet has been very instrumental in bringing us closer together. The World Wide Web is in reality a global electronic bazaar where all sorts of goods and services are being bought and sold. Some businesses have obviously recognized that the changes brought about by globalization and the Internet present some extraordinary business opportunities. Many others, however, have not only failed to take advantage of these opportunities but continue to struggle with the enormity of the changes.

This trans-nationalization of business culture, which is most clearly apparent on the World Wide Web, is for very many enterprises a double-edged sword; it cuts both ways. While presenting opportunity, at the same time it requires that businesses ingest and process extraordinary quantities of information that is being generated in all of the media. Sources of information include, but are not limited to the following:

y Newspapers

y Magazines y Journals y Industry newsletters y Radio and television broadcasts y Special reports from think tanks y E-mail and Usenet discussion groups y Websites on the World Wide Web

A very knowledgeable executive recently placed this issue into proper context. How am I supposed to remain well informed about my industry when there is so much information being produced? I barely have enough time to read the morning newspaper. And you can forget about the Internet. Who has time to visit all of these websites? Her questions are very relevant to most companies in the current situation.

Managing information, especially the information generated by the Internet, is now becoming a very important function in the business enterprise. Some business executives argue that this is just another ploy to create a new category of highly paid specialized employees. Others point out that much of this information has very little relevance to their business. Still others advocate that the only information of any real value to the business enterprise is the database that has the names of customers and those who could become customers. While all have valid arguments to support their viewpoints, the marketplace marks such discussions as being insignificant.

So, how can your company develop an information management strategy? Following are some guidelines that just might help you:

1. Decide what information is relevant to your business. This is extremely important. Some companies, especially those in mature industries, do not find industry trend news or advances in technology to be important. Others are not as concerned about foreign news. Each business has different

needs. What is important is that you decide to evaluate your information needs. Merely thinking about your needs will probably change the way that you look at information entirely. 2. Reorganize your company to assimilate information better. Somebody has to really be on top of making sure that critical information gets to the proper people in the company. This may require some changes in duties and responsibilities of various employees. The most important thing to consider here is the knowledge and skill level of the person pushing information to decision-makers. In some cases, it will be very important to make certain that there is no duplication of effort. If an executive regularly reads certain publications, the person in charge of gathering for him/her can monitor other sources. 3. Develop information channels. Vendors, customers and service providers all have access to information that is vital to making decisions within the business. Sometimes, due to the informal nature of the contacts between employees, very critical information is lost. You should advise your employees to listen to what we commonly call gossip and other bits of information. Companies that closely monitor this type of information often adjust better to changing marketplace conditions. 4. Monitor the Internet carefully. This is also essential. So much of the new and interesting information is being broadcast via the Internet, either by e-mail, Usenet and e-mail discussion lists or websites on the World Wide Web. 5. Seek outside assistance when appropriate. Such things as clipping services can be a valuable business tool. 6. Periodically review the information gathered and assess its value as compared to the effort in collecting it and do some kind of cost-benefit analysis.

Managing information is no longer optional. Developing a strategy to manage information will provide other benefits to your business as well because you will enhance inter-departmental communications. Companies are often amazed at how they are able to save money on the costs of doing business by merely getting their employees to communicate with each other in a professional manner about issues that are relevant to every employee. Those companies who fail to develop such a strategy will pay a very serious price: failure