The Carlyle Group today announced that it has filed a registration statement with the SEC for an initial public offering. The price-range of the offering has yet to be determined. The stated purpose of the offering is to raise $100 million (expect that figure to rise) to repay some of its debts and to cover some other general corporate needs including growth initiatives and acquisitions, among others. With the downturn in the global markets, many private equity firms have either delayed their offerings, or have been hurt by a less than receptive public, too irked by the stagnant economy to be bold with their investments. This does open the door to some speculation as to why the Carlyle Group has chosen this moment for the IPO, being that the current market situation is far from stellar. Could it be that the founders of Carlyle, who are all now well into their 60’s, may be looking for a large last payout? Or is that too cynical? We can’t know for sure until more information is released, but as it stands, we are left with more questions than answers.
In other IPO news, Groupon is freezing its IPO after a scathing internal memo from CEO Andrew Mason was accidentally leaked garnering the attention of the SEC.
We spent Friday the 13th at Capital Connection ’11 and it was a powerful experience. First, the startups that presented are this year’s cream of the crop. A number of very interesting companies have a real shot at long-term success. Second, by their very nature, entrepreneurs tend to be an extremely optimistic group. Finally, the venture capitalists and service providers that attend Capital Connection are among the most respected in their industries.
But for me, the most powerful part of the day came through a personal revelation. As I observed these high caliber people present their stories and interact with the crowd, I saw a microcultural effect that I’ve never understood before. My epiphany may give you food for thought.
When we think of culture, we tend to think in broad strokes: American, Latino, Indian… Our use of language and the way we express ourselves establish the foundation for how the rest of the world perceives us. Growing up we model those around us. The impact of regional mores, dialect, and communication style learned early stay with us the rest of our lives. If the people we’re speaking with don’t understand our microculture, something is lost in translation.
When it comes to effective communications, others’ perceptions are as important as our own. On Friday I watched first-hand how the microcultural effect layers over one’s ethnicity to impact how others perceive us on a very personal level. And this is where it gets interesting.
To keep things simple, I’ll use myself as the example. A predominantly Scandinavian heritage combined with a very conservative upbringing in both Seattle and the Midwest establish a naturally stoic public persona and a private persona that has a bit of an edge. To the casual observer, nothing appears to ruffle the people from my personal microculture.
Case and point, one particular nuance caused a lot of trouble about 20 years ago. As a new manager I got in over my head one night at work. I called my boss for help. It was his night off and he didn’t come in. But, the next day he gave me a royal reaming because the store had performed abominably. My defense? “I called you when I needed you.” His response, “I couldn’t tell you were in trouble. Your tone of voice gave no indication of how bad things really were.”
Yup. Stoic Midwesterners flatline when it comes to communication. (Watch the movie Fargo and you’ll see exactly what I mean.) We can’t help it. When we’re together, we understand the subtext and have no issues reading between the lines and understanding each other.
Wait. There actually is no need to read between the lines. If we say it, we mean it. That style is very different from the rest of the country. Remove us from our natural habitat and people can’t see the emotions that lie beneath the surface. Even after 20 years I still sound stiff on the phone to ‘outsiders.’ When speaking face-to-face with people from other geographies I have to concentrate on assessing body language so I can read between their lines.
Living in a culturally rich locale means that all of us need to think about the face we present to the outside world. How will others perceive you in a way that enables you to be most successful?
It will differ from situation to situation and from group to group. A lot of times effective communication will mean that you have to go outside of your comfort zone and do a little bit of ‘acting.’ The trick is to remain authentic as you learn to match your delivery to the audience. After all, the people in your audience are viewing you through their own microcultures.
I knew about MindShare long before I was an invited CEO. So, when I was invited as CEO of OptiView Technologies, I considered it an honor. I knew several CEOs who I respected that had gone prior and I was happy to attend. So what is MindShare? Let me back up.
In my words, MindShare is one of the best networking opportunities and resources for CEOs for emerging companies in the Washington, D.C. region. More formally, as Mind- Share’s board describes it as “an exclusive, invitation-only organization for CEOs of the most promising, high tech, emerging growth companies.” The organization was formed 15 years ago to create a sense of community and spirit of innovation for entrepreneurs on the east coast, similar to that which was established in Silicon Valley. MindShare’s mission is to help CEOs build long-term, sustainable companies by creating opportunities and a sense of community.
As a MindShare CEO, you join about 50 other CEOs of the hottest emerging companies in the region for that year’s class. The program meets once a month for dinner, networking, and a panel discussion related to critical topics for building a business at the CEO level. Topics include everything from raising venture capital to hiring the best team to how to generate PR for your company. I found the series to be interesting and informative and looked forward to Q&A where the discussion sometimes got even more interesting. But, to me, the real value is in being part of the network once you are alumni. This is a group of seasoned entrepreneurs with many name brand CEOs you would certainly recognize, including Philip Merick (webMethods), Tim O’Shaughnessy (LivingSocial), and Patrick Sweeney (ODIN Technologies). The group communicates and collaborates continuously via Listserv for the most part, but a few other social media tools are used as well. Should you have a question in your daily business on anything operational, financial, marketing related, you name it, you can throw it out to the group. And I have found the group to be responsive. And supportive.
Also useful and quite enjoyable are the MindShare Network social gatherings. The largest gathering each year is the MindShare graduation for the new class, which generally draws out about 150 MindShare CEOs. The current leadership is co-chaired by April Young, Gene Riechers, Harry Glazer, as well as 13 other business leaders in the technology community. The broader MindShare Network is led by two CEO graduates of MindShare, Edwin Miller and Charlie Thomas. Edwin is known for Everest Software and Charlie Thomas for Net2000 and Razorsight. Their biggest goal this year is to “energize the Mind- Share Alumni Network leverage the power and value of what MindShare has built,” according to Edwin.
As of now, more than 550 CEOs have graduated from MindShare and it’s entering its fifteenth year. Here are some stats that I personally find quite impressive. MindShare companies have created more than 20,000 jobs and over $5 billion in revenue in our region. Many MindShare companies have gone public via IPO and the group has raised over $1.2 billion in venture funding. Now that is some MindShare.
The Bad News: Mark Twain once opined, “there are three kinds of lies: lies, damn lies, and statistics.” Today he would likely counsel, “there are three kinds of lies: lies, damn lies, and customer loyalty surveys.”
At their worst, customer loyalty surveys can mislead. For example, in December 2008, J.D. Power and Associates commended WellCare Health Plans Inc. for outstanding customer service. Just two months later, federal officials suspended Well- Care’s privilege to sign up new Medicare clients. Citing repetitive customer care problems, regulators claimed that WellCare’s “performance was substandard in numerous areas” and was “one of the overall worst performers among all plans.”
Even at their best, most customer loyalty surveys aren’t especially telling or capable of providing actionable results. They take the pulse of the customer and provide a score, but they’re all too often ineffectual in guiding the development of a better customer experience and moving the needle.
In short, many companies today are spending much and getting little in return for their investments in customer loyalty surveys.
The Good News: Ineffective customer loyalty surveys aren’t a fait accompli. Done right, they offer rich, meaningful insights about the customer experience, as well as a trustworthy barometer of corporate well being. Taken on with more than just good intentions, they facilitate the discernment and implementation of the “right” actions – those actions that lie at the intersection of a better customer experience and a more profitable company.
Habits For A Better ROI
Achieving a better ROI for your customer loyalty surveys is simple, but it’s not easy. It won’t cost more money, it’s not reliant on new technologies, and it’s not about the adoption of some novel business strategy. It does, however, require a discipline to practice six habits.
Embrace management by facts, not anecdotes.
Many companies rely on the individual, personal experiences of employees or other anecdotal data (e.g., focus groups, comment cards, complaint records, etc.) as a surrogate for customer loyalty surveys.
How often have you heard a colleague say, “I know a customer who…” or “I know about this one recent complaint where…” or “In this focus group we just completed…” and so on. Sometimes known as the “person who” fallacy, these rich, vivid, anecdotes can have a hypnotic effect on the organization and disproportionately influence decision making. As a senior executive of a large DC trade association recently lamented to me, “if one member expresses an opinion about his needs, it’s a trend; if two members share that view, it’s a mandate.” Worse yet, falling victim to the “person who” fallacy can lull a company into a sense of complacency about its need for a more intentional, empirical approach to listening to the voice of the customer.Would you manage your sales SURVEYSpipeline, marketing campaigns, product development efforts, or financial forecasts by anecdote? Of course not. And neither should customer loyalty outcomes be left to chance.
Companies that are “built to last” recognize that using intuitions, gut feelings, and anecdotal data about customer loyalty is a risky methodology for sustaining predictable, enduring, and profitable relationships with customers. Instead, they institutionalize some type of formal customer loyalty survey process that yields reliable, valid, and ongoing insights about the customer experience.
Set your sights on improving performance, not chasing scores.
Score chasing comes in a variety of forms. Sometimes, companies literally beg for better scores. For example, following a recent car repair, I received a “pre-survey” from the local dealership (“Will you rate your experience as “Very Satisfied”?) a few weeks before I got the “real survey” from the auto manufacturer. And during a recent hotel stay, the front desk receptionist wore a button that read, “How about a 10?” (“On the survey you’ll receive from our corporate office”). In both cases, the aim was to “coach” me to give a higher score (which, ironically, our research shows to have a negative impact on the score).
Other times, companies “correct” the scores. I once worked with a domestic auto manufacturer to end a practice whereby dealerships could request the removal of certain surveys from their overall score (i.e., those with lower ratings) because the customer was “unreasonable,” “crazy,” or otherwise “wrong.”
Companies getting the most from their customer loyalty surveys have transformed their culture from one that’s score-centric to one that’s performance-inspired. I like Andrew Carnegie’s vision of philanthropic effectiveness as an allegory here; the aim is to engineer “real and permanent good.” Analogously, companies devoted to improving performance value a better customer experience – not a score. Their objective isn’t solely to hit a target number tied to an “ultimate question” (i.e., Net Promoter) or some arcane industry-specific benchmark. Rather, the survey leads an effort to engineer a better customer experience – and the scores follow.
See the glass as half-empty.
An abundance of decision making research shows that people may be more influenced by a fear of “loss” than by a promise of “gain.” Yet, for fear of presenting bad news and/or using the results for promotional campaigns, many companies ignore this practical consideration when it comes to their customer loyalty surveys.
Using biased scales and questions (e.g., Are you Very Satisfied, Mostly Satisfied, Somewhat Satisfied, or Only A Bit Satisfied?), selecting “special” samples of customers (e.g., excluding those who are known to have had problems), and putting a positive “spin” on the results (e.g., combining Very Satisfied respondents with Somewhat Satisfied respondents to get a higher satisfaction score even when those who were Somewhat Satisfied are three times less likely to buy again), are but a few of the tactics used for viewing the world through rose colored glasses.
The most powerful customer loyalty results quantify the risk associated with not taking acting to improve the customer experience. Companies earning a better ROI for their customer loyalty surveys purposefully include survey questions to ferret out areas of customer dissatisfaction and potential causes of customer defection (e.g., providing participants with a list 50-60 problems they may have experienced, presenting respondents with a list of competitors and asking which company is the best, etc.). While such practices are counter to conventional wisdom, the resulting data go a long way toward compelling action.
Set credible targets.
Some years ago, a well known consumer transportation company sought our counsel during their customer satisfaction crisis. Bad press coupled with stagnant customer satisfaction index (CSI) made for a rather anxious Board Of Directors.
Hoping to send a message, the Board set a CSI target of 80. A goal which seemed completely defensible until you considered a current CSI of 66 and an average annual change that had not exceeded about 5 points over the prior few years.
Target setting isn’t about sending messages or emotional appeasement. Those companies realizing a better ROI for their customer loyalty surveys predicate their targets on a goal of encouraging continuous, long-term, incremental improvement. Thus, targets are rationally, carefully, and methodically calibrated on the basis of current and past performance (e.g., what’s the floor and ceiling, what’s the observed average change, etc.), statistical considerations (e.g., what is the level of statistical significance for the proposed target), and credibility (e.g., will the organization embrace the target?).
Concentrate on what matters most. Sometimes less is more. Better a small success than a colossal failure.
Of course, when applied to customer loyalty, these strategies work best when you focus on those elements of the customer experience having a significant impact on loyalty. All too often, customer loyalty surveys measure many things, without measuring the right things. We recently worked with a US professional services organization to explore the validity of their metrics. Their two-page questionnaire featured a few key outcome measures (e.g., overall satisfaction and loyalty) and 20 satisfaction questions that were designed to help them predict satisfaction and loyalty (covering various aspects of the customer experience). Together, these 20 measures only predicted about 30% of customer loyalty. In other words, they were measuring a lot of things they assumed were predictors of customer loyalty; very few were.
All else being equal, you’ll get a better ROI for your customer loyalty surveys if they help you target your limited resources so that you can improve where it truly counts. You don’t have to measure everything; but at least measure those few things that really make a difference.
Tell a good story.
When people look at the results of a customer loyalty survey, they tend toward one of three reactions. Some see nothing (the data resemble a television test pattern or the linkage between the results and their day-to-day job is muddled). Others, especially when the results are negative, express confusion or get defensive (since the data are complicated or inconsistent with their own experience, there must be something wrong with the data). And still others get it, but ask, “so what?” Storytelling breaks down these barriers to using the results and engages the organization in prescribing actions. The best stories help the company establish a shared narrative and business case for change. These stories create an economic imperative to act – by quantifying what’s at risk from not taking action – and connect the dots between the survey results, the right actions, and the benefits of effectively executing those actions. A long-time financial services client of ours demonstrated the value of good storytelling to me. Their corporate culture for sharing survey results was all too familiar. Directors from every department were shepherded into a conference room to endure an annual, two-hour perfunctory PowerPoint briefing which almost always ended in the edict, “things must change.” They didn’t; at least until this company reinvented the process for sharing results.
Although senior leadership continued to set the priorities for improvement, the broader organization was held accountable for driving change. Empowered cross-functional teams of mid-level managers were engaged in a day-long, structured and facilitated dialogue to formulate action plans for improving customer loyalty. Since launching this new protocol, this company has been ranked first in its syndicated customer satisfaction survey for five out the past six years.
Most of the post analysis concerning the failures of big U.S. names in China focus on erred approaches to the market. These companies followed a blueprint based on their previous success in the U.S., but the strategy failed to excite Chinese consumers. Could you give some examples of U.S. businesses thriving right now in the Chinese market?
Despite some notable failures, there are plenty of U.S. businesses that have successfully expanded to China, including companies like Coca-Cola, KFC, Nike, Boeing, and Goldman Sachs. Above all, a strong value proposition is the common factor linking these success stories. Each offers a product or service that addresses (or addressed at the time of entry) an under met but fast-growing need in China. They either have a tremendous first mover advantage, or have succeeded in a business by virtue of superior branding, execution or technology.
When companies like Mattel’s Barbie Best Buy and Home Depot are returning home, what are the chances that smaller companies will be able to succeed in the Chinese market?
In addition to the characteristics mentioned above, efficient decision making is critical in a rapidly evolving market like China. Without flexibility in process, product and strategy, any U.S. company is destined for a rough ride. Small American companies have the wonderful advantage of streamlined organizational structures that can adapt quickly to market shifts versus their larger brethren. This kind of dexterity coupled with the relentless execution that is a hallmark of the American startup is an indispensable trait of success in China. In NEA’s case, we’ve learned that the areas of greatest opportunity in China don’t always mirror our investment focus within the U.S., and we’ve tailored our strategy accordingly over the last decade.
One of your companies, Groupon, has recently entered the Chinese market as Gaopeng.com, which is taken from a Chinese phrase meaning, “cherished friend sitting around the table.” We’ve heard that Groupon was actually inspired by Chinese group buying habits, so jumping into the Chinese market should be like a return home for them. How will Groupon succeed in the $2.51 billion a year Chinese market for group buying?
Group buying has long been a common practice for Chinese consumers. Therefore when the Groupon clones started popping up in China back in Feb 2010, they grew like wildfire. The Chinese daily-deal market grew over 600% last year, and though it’s fragmented, consolidation has occurred with the top cohort of 10 or so players recently. Consolidation has raised from the barrier to entry and forced major players to focus more on deal quality and customer experience.
Groupon has several distinct advantages at this stage of the game, most notably their relentless quality control across all aspects of the business. Our technology and business intelligence platforms allow us to better track and target consumer preferences and lower the risk of fraud. Our product development and sales teams target the more affluent and brand conscious customers as we build an enduring consumer brand among the upper-middle class.
Gaopeng is a JV between Groupon and China’s Tencent (600m strong online community). The company will combine the know-how of Groupon with the local network and knowledge from Tencent. Add a little secret sauce, and I think you’ll see something special.
Recently, we have seen numerous newspaper stories about faltering U.S. companies finding a lifeline from Chinese investors. The varieties of companies where Chinese businesses are investing are surprising and they include RV makers to silicon wafer manufacturers for solar panels. What can DC Metro companies do to solicit capital investment from China? Do you recommend that they actively pursue Chinese investments?
Chinese investors increasingly see strategic value in investing in a range of U.S. businesses. With capital in relatively short supply, this is great news for U.S. businesses. Many of NEA’s portfolio companies have received capital from Chinese investors, and in our experience they add value far beyond capital.
Startup companies today have a global component to their business plan from day one; this has been one of the most interesting shifts we’ve seen during the last decade. Groupon is case in point. To the extent a company is eyeing China as an end-market or supply-chain, Chinese partners can help the company navigate the web of relationships and offer guidance during the negotiation process. For example, Suniva, our U.S. solar cell manufacturer, just closed a round of financing with significant participation from its Chinese suppliers and buyers.
The issue with Chinese investment is finding the right partners. Navigating the region’s capital sources is complicated, more so than domestically. This is one of the reasons NEA has expanded internationally. Our startups compete in a global market and, to help our portfolio companies, we needed a presence on the ground in emerging regions. Fundamentally, venture capital is undergoing the same transformation investment banking did in the early 1900s led by John Pierpont Morgan himself — it is institutionalizing from a boutique business into a multinational effort. NEA has developed the capability to identify pools of capital, partners, buyers, suppliers, regulators and so forth in emerging regions for our companies, assets inaccessible to other venture firms.
Are there private Chinese investors or is all investment abroad done by the Chinese government?
There are many private Chinese investors. For these investors, investment decisions are made no differently from private investors in the U.S. The Chinese government plays a role in those transactions to the extent that they could potentially influence the state-owned banks to be strict or loose in extending loans to private investors in their overseas investment activities. It’s worth noting that in recent years, we have seen Chinese banks increasingly supporting private clients in making investments overseas. For instance, SolFocus, an NEA portfolio company engaged in the design and manufacture of CPV (concentrated photovoltaic) modules, received an investmentfrom a purely private domestically listed Chinese company. This company ultimately became its parts supplier and distributor in China.
Most of the media coverage about China has a fear-based undertone. You can almost hear the cry, “The Chinese are coming…” Yet when you look at foreign direct investment, China including Hong Kong and Macau has only 6% of the global share. Compare this figure to England at 45% in 1914 and the U.S. peaking at 50% in 1967, and a different picture is painted. Is the fear over China much ado about nothing?
The fear-based undertone in much of the media coverage about China’s growth is not unlike the media portrayal of Japan’s overseas asset grab in the 80’s. Even worse, you see some denial in the U.S. press about the true capabilities in China, writing off the Chinese as simple copycats and weak in innovation. The English Parliament in the 19th century propagated a similarly false view of American innovation calling us “a nation of counterfeiters.”
Rather than focusing on fear and denial, I believe the more Chinese companies are integrated into in the worldwide economy, not just as suppliers, but as customers and owners as well, the more responsibly they will act as a natural consequence of protecting their own interests. Weak intellectual property laws in China, a weathered complaint of many U.S. companies, have been strengthening as their market becomes more integrated. That very same process occurred as the U.S. emerged as an economic power. I agree with President Obama that China’s “peaceful rise” is good for the U.S. and that the two countries ultimately have a huge stake in each other’s success.
You are also investing in China. What types of companies are you investing in China?
Since 2004 we have invested over $300 million in almost 30 companies in China across a range of sectors including semiconductor, consumer technology, financial services, cleantech, and healthcare. Our strategy favors industries undergoing transformation, with a focus on companies with not just innovative technology but also highly scalable business models. For example, healthcare is going through major structural changes as it shifts from a 100% state-owned entity to a more diverse ownership model. We like cleantech because China is not only the world’s foremost manufacturing base for renewable energy, but is also potentially the largest market, with the government setting a hard 20% renewable energy target for 2020. We also continue to like the broad consumer space as the country’s economy evolves from being export driven to being consumption driven, and at an especially accelerated pace since the global financial crisis in 2008.
How do you cope with the uncertainty risks in the Chinese market, such as government interference, competition from government owned companies, and changing rules that seem to be stacked up against foreign companies?
Like anything else, you need to understand your environment. For instance, investing in alternative energy in the U.S. is a very complicated endeavor with competition from government regulated entities and constantly changing policies that don’t always seem fair to the new entrant. Sound familiar? In our energy practice, NEA spends a lot of time on Capitol
It’s no different in China. At NEA, we help our companies build relationships with Chinese regulators and we work hard to maintain them. One of our venture partners, Songde Ma, was the former Vice Minister of Science and Technology for China. This helps the NEA community grasp the fundamental motivations behind policies that may otherwise seem befuddling or simply nationalistic. If you understand the intent behind policy, it’s easier to demonstrate commercial strategies that are closely aligned with the government’s objectives.
For example, a cleantech company in our portfolio recently received invitations to open factories across China. Eager to develop cleantech both as a political and an economic mission, the government in some of these locales used their influence on local banks to make sure the company receives favorable terms with local credit facilities.
The fact is, the Chinese government is like the U.S. government was in the post World War II era — the best and brightest are attracted to public service. They are very effective to work with if you foster the relationships.
What advice would you give to U.S. companies looking to expand in the Chinese market?
Those looking to expand into the Chinese market must first gauge the strength of the opportunity. China is certainly a massive market, but in many industries, China is also one of the most competitive markets. If the market opportunity is there and the organization has the ability to scale, then start building the relationships you’ll need to succeed. Find experienced, proven, referenceable partners that can guide you. It’s also critical to localize your team in China fairly quickly. A strong on-the-ground presence will make all the difference.
The last time gas prices neared $4.00 a gallon, the American people were pretty vocal. Now, it feels as if high gas prices are here to stay. Reports indicate one station in DC has charged as much as $4.99 a gallon. For every $10 rise in price per barrel, we can expect to pay another 25¢ per gallon.
While there are some things consumers can do to reduce total miles driven—including staying home, adjusting driving patterns, or using public transportation, I’m more concerned about what’s happening in the grocery store.
Food production relies heavily on diesel and gas powered vehicles. Rising fuel costs put a strain on local farmers who often do not recoup the full added expense at time of sale. This can have a devastating effect on individual producers. Add in transportation costs to get food to market and you experience a significant increase in your grocery bill. So, even if you do everything you can to minimize personal gas usage, you’re still paying for the rapid increases at the pump.
AAA reports that more motorists are running out of gas as they try to squeeze every penny—or fume—out of their tank. I played fume roulette all the way through college. That approach really works against you even when you absolutely don’t have the funds to fuel up. Especially if you hit construction or a traffic jam.
Fueling earlier in the week—or sometimes even earlier in the day—means you’re putting cheaper fuel in the tank. It’s better to get home on your own power. Calling for help because you’ve run out of gas is a total waste of your time and money.
To aid finding the best gas price nearby you can, of course, use online resources. I downloaded a free app to my mobile phone this weekend. It beats driving around and wasting fuel while looking for the best deal. It’s especially useful if you’re driving outside of your normal footprint.
Not many people can say “I have worked for one company during my 29 years of career.” Paul Spence, the Deputy General Manager of Capgemini, is one of those rare and lucky people. A Graduate of Wharton, long time on and off resident of Virginia, he has been relentlessly traveling the world and running business units for his company. He is often a guest speaker at many of the world’s most prestigious Universities providing his wisdom on Professional Technology Services. Currently Paul resides in the UK and Virginia. We caught up with him in London for the following conversation.
Residing in two countries, while working for a global company with 40 offices around the world, you must have more miles than George Clooney’s character in the movie “Up in the Air.” Do you have an airplane named after you yet? What do you do with all those miles?
No, no airplanes named after me. However, for those that have flown the London Heathrow to Paris Charles De Gaulle route as many times as I have, they will recognize the ‘Docklands’ plane. There are four primary users of my points: My wife Maria and I love to travel, so we do use them ourselves. Our oldest son Wes is a biologist and professional explorer, so upgrades are nice when he goes to remote places. My youngest son Ty loves his electronics, so he cashes them in for headphones, PDA’s, etc. and my mother-in-law Alicia splits time between her home country of Ecuador, US and UK, and she loves the upgrades!
You started out at an American, “partner” based, privately owned company, Ernst and Young and became part of a public French company, Capgemini after the acquisition. How is Capgemini different than the “original” Ernst and Young?
The biggest switch related to the obligations of public company reporting with 7 month forecasts and managing the markets on a quarterly basis, versus the more medium term management of a strategy and direction.
You are very familiar with China as right around the year 2000 you became the COO and then the CEO of Asia Pacific region for Capgemini living in Hong Kong. What is it like to live and do business in China?
In a word, exciting. The amount of growth going on, and thus the demands on a company such as Capgemini, are huge. In many cases, the economy has been able to leapfrog technology generations with the long term view they have to get things done. We all remember the very impressive opening ceremonies of the Beijing Olympics in 2008, with thousands of performers on the field, perfectly in sync. This is similar to business; when the government decides to develop a particular industry in a particular geography, everybody gets lined up and gets the job done.
Do your children speak Chinese? Would you encourage them to live and work in China?
Wes attended the British school there, and Ty the international school. Both have some basics around Mandarin (not Cantonese, the HK language of choice) and can recognize some characters. By no means are they fluent, however.
Should they want to live and work in China, it would be with huge support from my wife and I. In fact, for the 18th birthday of Tyler, he and several of his schoolmates went back to Hong Kong for the big rugby weekend festival called the Hong Kong Sevens. Both of them enjoyed their time there.
How can a company located in Metro DC area do business with China?
It is great that you consider Capgemini a Metro DC company, since this shows that we are living our vision of being a truly global company. While our stock is listing on the Paris Bourse as a CAC-40 company, we have 110,000 colleagues working in over 40 countries worldwide. Our focus is to take the best of technology innovation worldwide and adapt it to local needs through the use of local management.
You purchased a company in Brazil, established Capgemini’s operations in India and lived and worked in China. Basically you covered all countries in BRIC except for Russia. Why not Russia? Or should I say when in Russia?
When we look at the IT service markets today, combined with the compounded annual growth rates expected for the next five years, it becomes quite clear of the priority of our growth around Fast Growth Economies. Brazil is growing at 10% and is the largest IT market of those you referenced, thus our acquisition of CPM Braxis to become the largest Brazilian player in Brazil. China and India are next, then interestingly followed by Mexico before Russia.
Our clients, particularly those in consumer goods industries, need us to follow them and support them in Russia. We need to stay focused on not trying to open too many new geographies at one time, so our priorities are clear in the order in which we will go to each new economy.
Metro DC area is dominated by companies contracting with the Federal Government. How is business for Capgemini in the public sector? Do you anticipate harder times for growth with the looming budget cuts at all levels of public sector?
Capgemini has recently been awarded several major contracts with clients such as the USDA, U.S. Army and the Department of Homeland Security as a positive reinforcement that our global reputation for high quality, on-time delivery of major IT programs can be leveraged to support the success of major initiatives with our U.S. Government. Capgemini is also building a solid reputation for supporting key State programs such as the work we are doing to deliver modernized solutions for Unemployment Insurance which improves our ability to both manage the UI benefits process and ensure accuracy of information to eliminate fraud and error.
We established the Capgemini Government Solutions Business Unit, headquartered in Herndon in the middle of the last decade. Today we have over 120 and are planning for an additional 100 local jobs in the next 18 months. We also opened the Manassas data center last year, one of two new ones worldwide to join the other 28 we already had established. Therefore, since we are relatively new to the sector in this area, we see no boundaries to our growth.
Federal, state and local departments are looking for new players and new ideas that will allow them to absorb the budget cuts by delivering strong value for the ‘dollar’ and allow them to ultimately serve the citizen better.
You are very experienced in establishing offshore based services out of India and other cheaper locations around the world. Does the public sector use offshore resources today? Should they use it? Is it in the best interest of tax payers to reduce the cost of government expenses by leveraging offshore resources?
This is quite an emotive subject, as you can imagine. Some governments ban offshore based services completely, some place restrictions (Germany with no data shipped offshore) other governments (the Netherlands) embrace it.
While it could appear counter-intuitive, from a macro economic perspective offshore services is not synonomous with onshore job loss. There is natural replacement opportunity with retirement and attrition, which is high in the IT services industry. Additionally, by becoming more efficient on how services are provided to citizens, this allows an increase in discretionary spend that creates jobs in a macro environment.
Granted, at the individual level for the person who is being replaced, this is not an easy pill to swallow. However, this offshore movement is the trend in the IT industry, with India in particular becoming a hub for our industry, alongside Silicon Valley. This Indian migration has gone beyond the classic labour arbitrage of the 90’s and has become a true centre of technology innovation for our industry.
CAPGEMINI AT A GLANCE
Now 44 years old, Capgemini is headquartered in Paris, France and operates in 40 countries with around 110,000 people in North America, Europe, South America and the Asia Pacific region. Capgemini is Europe’s number one consulting company and it is widely considered one of the top 5 IT services and consulting companies worldwide. Since the acquisitions of Ernst & Young Consulting and Kanbay, the company has made major inroads into the US and Indian markets.
In the past, most American companies used UK or Ireland as their first foray into international markets. Today, Ireland is a basket case and the UK suffers from slow economic growth and budget cuts. Do you think that they still make sense as a beach head for American companies looking to expand internationally?
It really depends upon the sector. From a financial services perspective, London is one of, if not THE hub of the world. So yes, it could make sense depending upon the industry. However, when looking at companies that are focused on large consumer bases, difficult to overlook Brazil, China and India as primary expansion opportunities. The rapidly expanding middle class in each of these three countries far surpasses the entire population of many other countries around the world.
You work for a French company with headquarters in Paris. Why not live there?
Two major reasons: 1) I spend most of my time with clients, partners, and colleagues around the world, and Heathrow airport is one of the best to get to these places, and 2) After 4 intercontinental moves in the past 12 years, my wife has said we are done moving until retirement!
When away, what do you missed the most about the Metro DC area?
Many, many things…my friends in the Northern Virginia area who we only get to see once a year, my wife’s family in the area (I had to say that), the monuments during sunrise and sundown, the restaurant scene which is fantastic and as good as any city in the world, and further extended our home and friends in Wintergreen west of Charlottesville.
Silentio, Inc. (fictitious) is a start-up engaged in the manufacture and sale of electronic consumer products. An internal investigation reveals that one of Silentio’s most popular products is being counterfeited by a company located in the Peoples Republic of China (“China”). The product is covered by valid U.S. copyright and trademark registrations as well as U.S. patents. Silentio, however, failed to file for IP protection in China.
This story is not uncommon for many start-ups. Various economic studies estimate that sales and tax revenue lost by U.S. companies as a result of counterfeits goods are in the magnitude of billions of dollars. The unfortunate circumstance is that failing to arm yourself with the proper tools for protecting your technology from counterfeiters could lead to disastrous financial consequences.
The following outlines strategic ways to effectively combat the proliferation of counterfeit goods from China.
Clearly Defined Strategy
An ingenious idea devoid of a well-thought out plan is doomed to fail. Consequently, a strategic planning meeting should involve all levels of management: sales, marketing, legal and engineering. Outside intellectual property (IP) counsel may also be a necessary participant at some stage of the process.
Ultimately, the strategic plan should include at least three things: identifying your IP, protecting your IP and enforcing your IP. A failure to implement any one of these things could adversely impact any opportunity to either prevent the proliferation of counterfeit goods or seek legal redress in the event the counterfeit goods have already reached the marketplace.
PROTECTING YOUR ASSETS IN CHINA
State Administration for Industry and Commerce (SAIC)
Due Diligence Analysis is Essential
Although some start-ups lack the internal resources to conduct a due diligence analysis of its technology, this task can be conducted through outside IP counsel. The end result should be the creation of an IP database which identifies and lists unprotected technology that should be protected by way of patents, trademarks, copyrights and/or trade secrets. Although all identified technology will eventually be protected, it is still a prudent way to begin the process.
Protect in the U.S. and China
Developing a robust IP portfolio is critical. It can serve to motivate competitors into seeking a license rather than risk exposure to a multi-million dollar damage amount in federal court. Although unscrupulous Chinese companies do not always abide by this adage, it is still best to protect your technology to at least mitigate the damage of counterfeit goods.
This involves filing one or more patent applications with claims covering your product. For trademarks, service marks or trade names, this involves filing appropriate trademark applications for registration. For printed copyright products, i.e., books, journals, and other printed materials, this means registering the works of art with an appropriate Chinese agency and the Library of Congress.
Another viable strategy is marking your product or process. Having a pending U.S. patent application permits the business owner to mark its product or process as “Patent Pending.” Once any patent rights accrue, the product or process covered by the patent should be marked with the assigned patent number. Moreover, notice should also be provided on all registered trademarks, service marks or trade names. This means assigning the trademarks, service marks or trade names with appropriate trademark indicia (i.e., ® for registered trademarks, ™ for non-registered trademarks). For copyrights, all copyrightable works of art should be properly designated with the indicia of copyright (i.e., ©, “copyright” or “copr.”), the year of first publication and the name of the copyright owner.
Sometimes the Best Defense is a Good Offense
Aggressive pursuit of counterfeiters means asserting your intellectual property rights against them. In China, this should include filing a criminal complaint, an administrative complaint and/or a civil action with the appropriate Chinese court or administrative body.
Although historically China has been slow in preventing the exportation of counterfeit goods, progress has been made in this regard. This is especially true on the administrative and criminal level where companies are often frustrated when attempting to shut down manufactures of knockoff goods. On the civil level, however, there has been an increase in the number of complaints and damages leveled against infringers.
For products that are covered by U.S. registered trademarks, service marks and/or copyrights, a relatively inexpensive, yet effective option to litigation is having counterfeit goods seized at U.S ports of entry. This is accomplished through use of the intellectual property recordation system (“IPR”) at the U.S. Customs and Border Protection (“CBP”). Startups can enlist the assistance of CBP by recording its registered trademarks, service marks, trade name and/or copyrights. The IPR permits the CBP to enforce your registered IP by targeting, intercepting, detaining, seizing and forfeiting imported counterfeit products bearing a registered trademark or which are copies of copyrighted publications.
There are effective and cost effective ways for startups to mitigate the damage done by counterfeit goods from China. The ability to timely identify, secure and enforce IP rights in your technology are invaluable tools for maintaining an edge in the global marketplace.
You are the current Chair of the U.S.-China Business Council (UCBC). How does UCBC help the business relationship between the two countries?
The USCBC was founded in 1973 as a private and nonprofit organization to expand the U.S.-China commercial relationship. Our mission is to represent the business interest of our 220 members in China and also more broadly to help the US economy. We help the bilateral business relationship by providing leadership, influence and information in all areas of trade ranging from intellectual property rights to foreign direct investment. We have offices in Washington DC, Beijing and Shanghai and we often host dignitaries in our offices. We listen to them and they listen to our concerns. Communication, open and honest dialogue encourages constructive engagement with China that ultimately eliminates trade and investment barriers and develop a rules-based commercial environment that is predictable and transparent to all parties.
The member list for UCBC includes household names like The Coca Cola Company, IBM Corporation, Google, Inc. and Kissinger Associates, Inc. among others. Yet most of the new jobs are created by small businesses in this country. Do you only represent the interest of big business or do you have programs helping smaller US companies? What are they?
You are correct that our member list includes some of the most recognized names in America and around the world. However, we are also proud to have a diverse membership that includes smaller companies. In fact, smaller companies and service firms make up a substantial portion of the overall membership. Among our members you will find management consulting partnerships, health care companies and manufacturing firms that represent the smaller enterprises. So we represent all of our members regardless of their company size. We help our members by providing guidance, assistance and access to information that helps them become successful in doing business with China.
Should China be the first international market to explore for U.S. companies looking to expand abroad? It used to be the UK due to low language and cultural barriers?
The Coca-Cola Company began operating in China over 80 years ago. Our first bottling plants being opened in 1927 in Shanghai and Tianjin. Following the opening up of China in the late 1970s, Coca-Cola re-entered the marketplace in 1979. Our system now includes 39 bottling plants in mainland China, Hong Kong and Macau. In 2009, we publicly committed to invest $2 billion dollars in China over the subsequent three years. Today, our business in China employs 40,000 professionals and our extended supply chain helps support nearly half a million Chinese families. China is now our third largest market and our exceptional growth has made China the world’s #1 market for Sprite. I cannot tell you how to run your company, but we have been in China and successful for a very long time.
Over the next decade, can a U.S. based company be truly global without significant operations in China?
We see China not only as a great market for our products, but also as a development center for our company. China has become a major focal point for innovation in the Coca-Cola system. We recently opened a new $90 million U.S. dollar facility in Shanghai that is our company’s largest and most advanced research and development center in all of Asia. In the new facility more than 100 of the top research experts and food scientists from China and throughout Asia work on breakthrough products and innovations. The products we develop in the facility reach Chinese consumers who reach for our brands more than 100 million times a day… and the world’s consumers who reach for our brands over 1.5 billion times a day. We have been a global company for a very long time and our presence in China only enhances our capabilities.
How can UCBC help companies penetrate the Chinese market?
Our organization provides advocacy to both the Chinese and the U.S. governments on behalf of our members. We closely follow governmental policies that affect our members and provide our opinions to the leadership of both countries based on facts. We gather our facts from the annual surveys that we collect as well as the reports that we commission. We also have joint commissions on commerce and trade that provide guidance, objectives and goals for bilateral business. Our organization’s objective is to provide the climate that enables companies to do business in China.
One of the biggest advantages the U.S. has is its diversity. You are a product of this advantage as a Turkish American representing the U.S. business community in the most important relationship in the world. How does it feel? What can U.S. companies do to take advantage of this important aspect of our culture?
Diversity is at the heart of our business. We strive to create a work environment that provides all our associates equal access to information, development and opportunity. By building an inclusive workplace environment, we seek to leverage our global team of associates, which is rich in diverse people, talent and ideas. We see diversity as more than just policies and practices. It is an integral part of who we are as a company, how we operate and how we see our future.
As a global business, our ability to understand, embrace and operate in a multicultural world, both in the marketplace and in the workplace, is critical to our long-term sustainability and specifically, impacts our ability to meet our 2020 Vision People goals. Many people across the company continue to work diligently to help us advance in our diversity journey and build our practices on diversity, inclusion and fairness. We also include our associates in the process. We garner their feedback through formal surveys and informally through their participation in our business resource groups, and various diversity education programs. Ultimately, the diversity of our company helps us become successful globally.
May you live in interesting times.” It’s an American maxim often mistaken as a Chinese curse. It is used to imply that the current times we live in are unprecedented and chaotic in nature. Surely, since the great depression no age has been more fraught with insecurity than our own present time. The economic crisis that originated from America’s recent financial meltdown has left the US business landscape in a precarious state, but, it is from this uncertainty that some of our greatest opportunities may arise. At this very moment, China, that rising star in the East, is fertile ground for American businesses to find what they are after.
Unless you have been in a cryogenic slumber since the year 2000, you already know that rapidly growing China is one of the most important markets in the world. But how can an entity located in the Metro DC area benefit from doing business with China? We hope that the following will guide you in understanding the possibilities and opportunities of doing business with the new land of opportunity.
As we see it, there are four possibilities for your business:
Unless you are a large to enterprise–size company with deep pockets that can afford to ride the slow boat of success in China, this is not for you. Many companies as big as Vodafone, Best Buy, Google and Barbie have tried and failed to succeed in mainland China. The only thing that should interest you in this article is the mistakes made by these well–known companies. They all thought that they could take their cookie–cutter business template that worked in the western hemisphere and apply it to China. They were wrong. When doing business in China, one needs to listen rather than talk.
The need to crack open the China market has become a matter of life and death for some companies. Take for instance, Groupon, whose management feels that if they don’t enter the Chinese market now, they will fail to become a global entity and possibly soon face much larger competitors from China.
Getting Your Feet Wet
You are a small to medium size company with a unique service, product or a solution and you would like to learn more about its potential in the fastest growing market in the world. If John B. L. Soule were still alive today, he would no doubt say, “Go west, young man, and grow up with the country.” Nothing can educate you better than visiting a place and meeting locals (but of course reading this magazine is a great start). “But how do I go to China?” you might ask. Being located in DC, you are in luck. You can contact the Arlington Chamber of Commerce, which offers affordable ways to visit China. You can pay as little as $2200 for a 9 day trip that includes airfare, food, tours and 4 to 5 star accommodations spanning 4 cities. Trips like these will help you become more comfortable with visiting China and help you identify your opportunities without having to spend large sums of your hard earned money.
Made in China
You had your Eureka moment. You are certain that your product idea is the best thing since the fortune cookie. You just need to find a place where you can affordably manufacture your product. USA’s manufacturing output is 25% of the world and declining whereas China’s is around 35% and growing fast. China’s wages are a fraction of the salaries of U.S. workers even in the high tech field.
Our guess is that you will look for a manufacturer in China for your product. But where can you start? We suggest that you begin with the several free resources available, which include government organizations like The China Council for the Promotion of International Trade and The China Chamber of International Commerce. You can also use commercial websites like AliBaba.com which provides you with thousands of options. Once you select several candidates, travel to China and visit the factory floors. Meet the people and make sure that they are who they say they are. Cross check business cards, addresses, phone numbers. In China, “Non-disclosure Agreements” mean very little. Most experts recommend the use of “Terms of Engagement” and an “Authorization to Manufacture” instead. And always ask for references.
The economy is getting much better in the U.S.. Banks are even starting to loan money to businesses once again. But the recent economic crisis left a lasting mark on our nation. There is no shortage of money, but most U.S. companies, including the VCs, are investing abroad. China on the other hand is high on American ingenuity and is investing heavily on U.S. companies. There are Chinese sovereign wealth funds, large financial institutions, large corporations, indigenous investment funds and high-net-worth individuals, each of which is making investments. Many Chinese firms, flush with cash or squeezed by competition, are also casting abroad for new markets, technology and product lines. This year Chinese companies are expected to make more than $5 billion in U.S. direct investment. Being close to DC, you are in luck. You can start your research at the Chinese Embassy. If you can sell the value of your company to them, they will help you attract potential investors to your company. You can also work with The Virginia Economic Development Partnership that also has an office in Hong Kong. The partnership recently worked closely with Governor McDonnell to attract $21.2 million investment to Virginia. Another great resource is the Maryland International Incubator that opened its doors in 2009. Partner companies include Shandong Province Liaison Office which looks to identify businesses in Shandong as candidates to establish operations in the U.S.. Perhaps a direct investment in your company is a viable option for their candidates.
Regardless of what you end up doing, take your time and remember the Chinese proverb “He who hurries cannot walk with dignity.”