Strategy for a Consolidating Industry

(From “The Art of M&A Strategy”, Smith & Lajoux, McGraw-Hill, New York, 2012)

Many industries undergo periods of consolidation in which some companies identify opportunity to achieve competitive advantage through increased scale or scope, and others must follow in order to remain competitive. The opportunities are often triggered by changes in the market related to technology, globalization, or regulation that make larger scale or scope possible or more important.

It’s a compelling opportunity.  When companies in the same industry buy others to increase scale or scope, revenues are typically additive while costs are not. Simply put, it usually takes less than twice the costs to run a company twice the size in the same business. The availability of such cost savings has been the principal motivation of many corporate combinations.

However, such acquisitions have high failure rates, as measured by the shareholders of the acquiring company. Over the last 20 years of study, large acquisitions of in-market, like companies have proven 40% more likely to fail than other deals. It seems the greater the opportunity for cost synergies, the greater the failure rates. This is not to say that these combinations have not created value. Rather, the value has been transferred overwhelmingly to the sellers.

To develop successful M&A strategy for a consolidating industry, it is important to first understand why the industry will consolidate and what will drive value creation, and then to determine how to play based on opportunity and skills.

Triggers of industry consolidation

Most industry consolidations are the result of the natural progression of an industry through its life cycle from differentiation in growth to similarity in a mature or declining market. When companies start up, their value usually lies in offering something new and different to the marketplace. However, innovations tend to attract imitations, and profitable markets attract competitors. Products and services that were once unique become standard or even commoditized. Examples range from resource-based industries such as paper to consumer goods such as cell phones.

In fact, the economies of scale are so compelling in manufacturing that competing brands will source from the same factory in many industries (e.g., auto parts, home appliances, computer chips). Industries with expensive networks of infrastructure are natural monopolies, which is why regulators watch the consolidation of the railways and airlines, and why AT&T once had to be broken up.

Understanding what might trigger consolidation, or the next round of consolidation, can put a company in a position to influence or anticipate the change, and can therefore be the source of strategic advantage.

A downturn in the economic cycle is the most frequent trigger of consolidation as industry capacity suddenly becomes underutilized. That there will be another economic downturn is as certain as the next sunset, yet, when times are good, many players behave as if high prices will last forever. Those that plan for the next cycle and invest in efficiencies when they don’t have to, are more resilient to the cycles and typically become the buyers when the next downturn comes along.

Change in the relevant market is another common trigger of consolidation. Markets can become larger as a result of market integration across geographies or product categories. Free trade agreements, such as NAFTA, have triggered cross-border acquisitions. The emergence of larger consumer markets due to globalization has led to global brands and, in turn, advantages for global companies.  US bank consolidation, still ongoing, is the result of changes in interstate banking regulations twenty years ago. At the same time, integration of banking and insurance products has triggered bank-brokerage acquisitions in the US and bank-insurance mergers in Europe.

Value creation strategies, risks, and required skills

Opportunities to create value through consolidation exist along the value chain:

• In research and product development
• In operations,
• In sales and marketing.

Each of these three key areas warrants careful strategic consideration.

Research and development: While combining research and development functions across two companies reduces the cost of overhead in the short term, the more significant benefits come from managing R&D effectively across a larger, more diversified portfolio. This is best exemplified in the consolidation of pharmaceutical industry where strengthening the R&D pipeline has often been a primary motivator for mergers.

The primary benefit in the consolidation of R&D, (and most socially important in the pharmaceutical industry), is potential integration of good science to advance development. In addition to good science, however, there are several components of effective R&D management that can provide the strategic rationale for consolidation. There is first the opportunity to have a more proportional number of drugs at every stage of the pipeline. If one company has gaps in the R&D pipeline, then it cannot achieve a consistent pattern of revenue growth longer term. This clearly diminishes the net present value of that company through a lower growth rate and higher volatility (or beta) in future cash flows, and therefore a higher discount rate when projecting future cash flows. However, if the company combines with one that has drugs at complementary stages of the R&D pipeline, then the combined pipeline provides for both higher growth and lower volatility, and hence a lower discount rate. So complementary drug pipelines have more than an additive affect on value: 1 + 1 = 3.

The second R&D consolidation benefit lies in the fact that a larger laboratory provides more degrees of freedom for R&D optimization. One of the core competencies of R&D management is the ability to stop probable failures early and redeploy resources to higher-probability projects. The larger the lab, the more opportunities there are for effective redeployment, so all other things being equal, a larger lab, managed well, is more efficient.

Ultimately, the strategic opportunities in R&D consolidations relate to the ability to manage along a well-balanced pipeline, to better optimize deployment, and to diversify R&D risk. Mergers that fail in R&D consolidation can often be traced to poor skills in the fundamentals of R&D management applied to a larger combined lab or product development function.  Effective management of the integration process is also important and is a particularly subtle task in R&D, where culture and motivation are so fundamental to success.

Operations: Operations consolidation is usually about reducing unit costs through larger scale. Larger-scale operations can purchase more cheaply and benefit from scale economies in fixed manufacturing, distribution, head office and back office costs.

Cost synergies such as these are the most obvious and, ironically, the most illusive. The fundamental problem with operating-cost synergies is that, especially in a consolidating industry, the cost-synergy potential is easy to calculate and thus transparent to all possible bidders. A clear example is bank consolidation, where every bidder can count the branches and determine which ones would be rationalized. Since the market for corporate control is competitive, the value of these clear and calculable synergies will tend to be negotiated away in the bidding process. The “winning” bidder has often been the most aggressive about what synergies can be achieved and how quickly, and has bid accordingly, thereby transferring much or all of the value of the synergies to the seller and simultaneously setting savings goals that are nearly impossible to achieve.

Therefore, the operations consolidator must have superior implementation skills to win the bid and still create value.  Competitive advantage is most likely to reside in functions that are more difficult, and therefore less common, than simple asset rationalization.  For example, cost savings in purchased goods and services (e.g. office supplies, computer equipment and software, professional services, etc.) will be greater for the buyer with superior sourcing capability, where the best in the industry is often spending 15 to 20% less than others.

Another difficult function to consolidate is IT.   IT costs are somewhat less transparent than fixed assets and purchasing costs, and for most companies implementation of IT integration takes longer and achieves less than expected.  So again, the company with superior IT management skills and, in particular, a successful track record of IT integration, has a competitive advantage in a consolidating industry.

Marketing and sales: The cost synergies in marketing start with elimination of redundancies in the organization as the two organizations combine sales staffs. The savings in sales staff can be very substantial if there is a large sales force, whether it is a company sales force or is outsourced. Mergers of consumer goods companies illustrate this well. For example, if both companies market confectionary products, even if these products are not directly competitive, the merger can reduce sales calls by up to 50% because one visit to each retailer replaces what were two visits when the companies were separate.

There are also savings in marketing costs from consolidation of advertising agencies and, depending on how much the products were competing with each other, savings in advertising and promotion.

When the products and markets of the merging companies are complementary rather than overlapping, there are fewer cost synergies but the revenue synergies can be substantial. For example, the globalization of consumer goods markets provides many opportunities for merging companies with complementary product and geographic strengths to use each others’ marketing and sales channels to enter or better penetrate new markets. For example, the reach of Adam’s Brands expanded when Adam’s Brands was acquired by Cadbury in 2002 and again when Kraft acquired Cadbury in 2010.

Note that this is not a cost synergy, but a positive revenue synergy stemming from market integration. The revenue gain results from the companies’ products being somewhat different but with potential in each others’ market channels.

Notwithstanding the generally positive revenue synergies in complementary product–market combinations, the sales and marketing synergies in consolidation plays often turn negative due to revenue losses. Unlike cost synergies, which are under the control of the merging companies, revenue synergies are ultimately under the control of the customer. Again, superior marketing skills are required to derive such benefits and achieve strategic advantage in a consolidating industry.

Buy, sell or get out of the way

Companies can grow and prosper without acquiring or merging. McCain Foods Limited, Wal-Mart, and Research In Motion Limited (RIM) built leading international companies in food, retail, and technology, respectively, mostly organically. However, each of these companies had a new and distinct product or business model and was prepared to invest heavily in expansion.

Companies in consolidating industries that lack such a distinct advantage must buy or they will eventually be targets. Selling into a consolidating industry is not necessarily a bad strategy if the company believes that it can capture more value by selling and if the company prepares to be an attractive target.  Alternatively, some companies in consolidating industries retreat into a defendable niche, less subject to commoditization.  For example, some fine paper companies and ethnic banks continue to operate profitably without the economies of scale of the larger players.

However, the companies that can lead consolidation have the greatest potential to create value. For example, in the consolidating mining sector, handsome premiums were paid for Alcan, INCO, and Falconbridge, but these premiums pale in comparison to the value created in the development of mining consolidators such as Xstrata, BHP Billiton, and Barrick Gold. Belgium’s InBev Brewing grew from $3 billion to $60 billion by leading the consolidation of global brewing, eventually accumulating the financial strength to acquire America’s brewing giant Anheuser-Busch. There are many other successful acquirers that have built shareholder value in a range of consolidating industries: R.R. Donnelley & Sons Company in graphics, Magna in automotive supply, Thomson-Reuters in information services, Deutsche Telekom in telecommunications, Kraft in consumer goods and others.

Acquisitions are considered high risk, but in a consolidating industry, there may be greater risk for companies that choose not to participate. They will become subscale in the consolidated industry and, unless they operate in a defendable niche, they will become uncompetitive and ultimately unattractive as a target.

A more comprehensive treatment and examples can be found in Chapter 2 of “The Art of M&A Strategy”, Ken Smith and Alexandra Reed Lajoux, McGraw-Hill, New York, 2012.

BLACKBERRY SALE AND WHY EVERY COMPANY NEEDS AN EXIT STRATEGY

(Excerpts from The Art of M&A Strategy, Smith & Lajoux, McGraw Hill, New York, 2011, updated)

 

“You got to know when to hold ’em, know when to fold ’em,

Know when to walk away and know when to run.”

Kenny Rogers—The Gambler

 

Most companies have to consider acquisitions and divestitures at different stages of development. Ultimately, most companies will also be faced with an opportunity to sell the entire company, and in some cases there will be little choice if shareholders like the premium being offered.  Yet, many companies do not consider acquisitions, divestures or, in particular, the ultimate sale of the company as part of strategy development.

How should a company decide to be a buyer or a seller and when? A case in the business press at the time of writing serves to illustrate the importance and difficulty of these questions.

Research in Motion/Blackberry

Research in Motion (RIM), now known as Blackberry, is the company that invented the Blackberry pager. By any measure, the company was hugely successful up to 2010. The very idea of “push” wireless e-mail exchange on handheld devices was new when RIM was founded and launched the Blackberry in 1999.[i] The product quickly became an essential business communications device and was indeed the sole means of communications for thousands in the financial industry two years later during the tragedy of 9/11.

A tech startup from Waterloo, Canada, RIM passed $1 billion in revenue in less than five years and was operating worldwide. Wall Street was so dependent on and comfortable with the Blackberry that even as smartphones added e-mail capabilities at the millennium, the money men preferred to carry two devices on their belts rather than give up their Blackberries. Ultimately, RIM added telephony to the Blackberry, initially with a device that required a headset and then with integrated speaker and microphones in 2003. By 2006, the Blackberry was second to only Nokia in smartphones globally and dominated the US market.[ii]

RIM’s success to this point was in part due to its singular focus on serving the business segment. For example, RIM’s 2006 annual report stated that it provided “software and services to keep mobile professionals globally connected to the people, data and resources that drive their day” (emphasis added).

However, perhaps reluctantly, RIM was drawn in to compete with consumer offerings. In particular, Apple’s iPhone bridged the consumer and business markets and surpassed RIM and Nokia in sales.[iii] Blackberry responded with more consumer-friendly smartphones and a tablet to compete with Apple’s iPad. In the 2010 annual report, the earlier emphasis on the professional is muted, and RIM speaks more of “customers” and “consumers.”[iv]

By the middle of 2011, the market was indicating considerable pessimism about RIM’s future in this new competitive arena. RIM’s valuation fell about 50% from a year earlier,[v] and there was speculation that RIM could be a takeover target. Now, two years later, it has declared a refocus on professionals and laid off thousands of staff, discussions of stock value have turned to the value of patents versus a going concern, and it is desperately seeking a buyer to avoid a continuing death spiral.

This leads to a series of questions about if and when RIM should have sold or found a partner.

Should RIM have sold their patent or their company when they had merely proven the success of the idea? Most tech startups sell early, and the inventors and investors make a few million, perhaps to invest in their next venture. They leave the business-building and its rewards to others. The founders of RIM went on to create billions in value for shareholders by commercializing their invention, ultimately revolutionizing modern business communications.

Should RIM have sold when telephony became an expected feature of PDAs? While somewhat slow to respond, RIM developed telephony capability and became the leading smartphone in the United States for a time. Whether or not it was the intent at that time, the Blackberry smartphone also succeeded in penetrating the high-end consumer market.

Should RIM have sold when it became clear that the business and consumer markets would converge? This forced RIM out of its comfort zone and placed it in direct competition with the consumer tech giants.

Or should RIM have bought or merged? When its stock was a valuable currency, should RIM have sought business combinations in anticipation of the business-consumer market convergence? And if such foresight is unreasonable to expect, should it have acquired simply because it could, and because with the high valuations of its stock it could have acquired real options covering a range of market outcomes along with building greater scale and R&D capacity?

Moreover, did RIM need an exit strategy and/or an M&A strategy beyond its singular focus on the professional market well before facing the challenges of the past 3 years?

Our purpose is not to second-guess RIM’s strategy, which is too easy and perhaps unfair to do in hindsight, but rather to illustrate that these questions are relevant even for the most successful companies.

Learn from the Portfolio Companies

Portfolio companies buy and sell companies as a primary business activity. Their top executives have the advantage of being one step removed from the businesses in the portfolio, which can bring greater objectivity. They also face buy and sell decisions as often in a year as most executives do in a career.

Successful portfolio companies have a clear idea of how they will add value, well matched to the interests and competencies of the parent company. They understand the value of growth – how the cumulative size of such a company provides it with the means to raise cash and with the financial scale to look at larger deals. For the portfolio companies that are publicly held, a value-creating growth trajectory also supports high stock valuations, which reduces the likelihood of unwanted takeover.

Most successful portfolio companies define exit strategies in advance, with the possible exception of companies that actively develop synergies between or among their holdings. Berkshire Hathaway, for example, will hold an asset “as long as we expect them to generate at least some cash and as long as we feel good about their managers and labor relations.”[vi] GE’s mantra is to be first or second in each industry or get out. In the past three decades, GE has sold six out of ten acquisitions. Newscorp has grown by acquisition but has also sold hundreds of companies along the way.  Thomson’s transformation to an information services company (now Thomson-Reuters) was in part funded through the sale of its newspaper assets.

In all these examples of portfolio companies, there is a long-term view of shareholder value creation through pursuit of growth by acquisition, including defined sale criteria so that funds can be redeployed to the best use within the defined growth strategy.

The approach of the successful portfolio companies can be applied in most businesses. Looking at the company as a portfolio of assets can lead to new ideas for value optimization, including acquisitions and asset sales. Such an outside-in, objective view puts management in the role of the parent company of a portfolio of assets; that is, considering what the company is worth and what a dispassionate new owner would do to maximize value.

Consider the Sale Value of Every Asset

In theory, if selling an asset maximizes value then sale should be considered. Considering all assets as salable can change how they are managed, usually for the better. Public companies concerned about takeover sometimes conduct a portfolio review or “Raider Analysis” to pinpoint value gaps and divesture options. Most companies that undertake to restructure in this way don’t sell everything that could fetch a premium, but they usually improve financial performance of retained assets, become more tightly focused, and are better positioned for growth.

This also applies to the total enterprise. If the sale value is higher than the value the company can achieve by remaining independent, then sale or merger should be considered.  However, too many companies are let go for a premium over value “as is”, i.e. without adequate consideration for potential value.

The question really comes down to timing. On the one hand, consider that virtually every company will ultimately be sold in whole or in parts in the long run. Of the Fortune 500, only 62 companies have appeared on the list every year since the magazine began publishing it in 1955. Another 2,000 or so have come and gone. In a little more than half a century, 88% of what were the largest companies were gone from the original list: acquired, broken up, or shrunken. So in one sense it is not a question of if but when.

Taking a cue from the portfolio companies, the exit strategy should be considered even if there is no intention to sell in the short term. Considering the exit strategy can lead to good questions about how to maximize value. Every company that considers exit can then consider the optimal time and circumstances, and how to get to the optimal position and performance. In most cases, consideration of exit will result in more aggressive growth plans. Once a company determines that a strategic partner (i.e., a merger or sale) is necessary ultimately, it might accelerate growth and performance improvement programs so that they could be positioned well for a desirable partner.

On the other hand, most companies sell too early or cede industry leadership to a more ambitious competitor. More often than not, there is more value created in corporate growth than in invention and early-stage development. For example, when it comes to intellectual property, patents are valuable, but it is what a company does about its patents that determines long-term success. Part of the power of Thomas A. Edison was that he was not only in the laboratory inventing things, but he was also in the boardroom leveraging them.[vii] So his legacy is not only the light bulb but also in General Electric.

For mature companies in restructuring industries, there is yet more value created by industry leaders. Companies like Xstrata in mining, InBev in brewing, Kraft in consumer goods, Manulife in financial services, and Thomson-Reuters in information services have all created more value than the premiums of all the companies that sold to them combined.

Not every company can come out on top—there must be buyers and sellers—but every company should evaluate the buyer/consolidator option as well as the exit option and then weigh the returns against their competencies; the ambition of the company, its board, and its shareholders; the risks of trying and failing; the risk of selling too late; and the opportunity cost of selling too early.

By Ken Smith, Corporate Development advisor and author of “The Art of M&A Strategy” with Alexandra Lajoux, McGraw-Hill, New York, 2012 

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[i]. http://us.blackberry.com/newsroom/news/press/release.jsp?id=702.

[ii]. Research in Motion, 2006 Annual Report; share as reported by Gartner Group.

[iii]. Matt Hartley, “Apple Tops Global Smartphone Rankings, RIM Slides to No. 4,” Financial Post, August 5, 2011.

[iv]. Research in Motion, 2010 Annual Report.

[v]. Research in Motion (RIM) report in the Global and Mail website. http://www.theglobeandmail.com/globe-investor/markets/stocks/chart/?q=rim-T

[vi]. “Letter to Shareholders,” Berkshire Hathaway Inc., 2009 Annual Report.

[vii]. Julie L. Davis and Suzanne Harrison, Edison in the Boardroom: How Leading Companies Realize Value from their Intellectual Assets (Hoboken, NJ: John Wiley, 2001); Suzanne Harrison and Patrick Sullivan, Edison in the Boardroom Again (Hoboken, NJ: John Wiley, 2012).

Shuanghui-Smithfield an important test case for US foreign takeover policy

The proposed $4.7 billion takeover of Smithfield Foods by China’s Shuanghui International Holdings raises important questions for US policy makers regarding foreign takeovers:

1. Should food and agriculture be regarded as a strategic industry for which some level of ownership control matters?
2. Is this a takeover by an independent foreign business or by a company controlled by a foreign state?
3. In this industry as in others, why is the US losing in the global market for corporate control?

 

1. Strategic Industries:

Which industries, if any, are strategic to US interests and worth protecting?  Washington can block deals if they are regarded as a threat to national security.  For example, many components of the defence industry are kept in US hands to protect secrets and ensure US control of US defence.  Washington has also discouraged foreign acquisitions of ports and energy assets.

So what about food and agriculture?  Surely, to say that food and agriculture is a strategic industry is stating the obvious.  Food, shelter and security are at the bottom of Maslow’s hierarchy of needs, i.e. the most basic.  Blessed as we are, we may take it for granted, but for those countries that lack self-sufficiency in food or suffer from unreliable or unsafe agricultural supply chains, food shortages are the source of great misery, division and civil conflict.

In particular, food safety is a growing concern.  The standards for food safety in the US and other western countries are more difficult to meet than those elsewhere.  In addition, the industry is currently making significant investments in food tracing technologies, as consumers seek greater transparency of sources, and regulators and industry need to trace problems to source for crisis management and in order to better ensure accountability for safe practices and safe products.

The acquisition of Smithfield Foods in and of itself is no threat to America.  US regulations will still apply and US management will stay in place (for now).  As company president Larry Pope said: “Nothing’s going to change.”[1]  However, policy makers need to decide where and how to draw the line.  Smithfield Foods is the world’s largest pork producer, with 46,000 employees in 25 states[2].  How many Smithfields will it take before the US is overly dependent on food and agriculture decisions made by foreign controlled enterprises? 

Note that regulation alone does not ensure food safety.  In fact, as any food-processing expert will tell you, the culture of safety within the corporation is more important than regulations.  Post audits of crises here and elsewhere have borne this out.  So it is not enough to say that Smithfield Foods will be subject to the same regulations if the safety culture of the organization could ultimately be homogenized with China’s.

 

2. State Owned/Controlled Enterprises (SOEs):

Is Shuanghui an independent business enterprise as it appears to be or is it unduly controlled by a foreign government?  One reason to ask is that state owned or state controlled enterprises (SOEs) can have unfair competitive advantages, especially in the M&A markets, such as lower cost of capital, direct or indirect policy support at home (e.g. protection from takeovers), and active government promotion abroad.  Another reason is that it just doesn’t sit well to have critical resources in energy, mining and agriculture controlled by foreign governments.  In times of peace and plenty it may not matter, but in times of conflict or shortages it could matter a great deal. 

Many countries now draw this distinction in review of foreign takeovers and apply different rules to SOEs.  Most recently Canada announced new policies for SOEs and as Prime Minister Harper put it, “Canadians have not spent years reducing the ownership of sectors of the economy by our own governments, only to see them bought and controlled by foreign governments instead.”[3]

So while the US needs to be “open for business”, perhaps it should be more open to real businesses than to SOEs, especially in strategic sectors such as food and agriculture.  Like many Chinese companies, the degree to which Shuanghui International Holdings is state controlled is a matter for study, and policy makers will need to look beyond simply ownership positions and board seats to understand CEO Wan Long’s political involvement and to determine the true nature of the enterprise and its importance to China.

 

3. The Market for Corporate Control:

While the US was once at the forefront of global business development and growth, it is now losing in the global market for corporate control.  In the previous decade, the US was the world’s largest net seller of corporate assets[4], selling control of over $300 billion more in corporate assets than it acquired.  The US is followed by the UK and Canada as the countries selling more than buying, as industries restructure on a global basis.

Policy is a factor.  The buyers are increasingly from developing economies, but the countries of continental Europe were the biggest net buyers in the last decade, acquiring in the US and globally.  Notably, continental Europe and the M&A active developing countries each have less bidder friendly policies than the US.  Differences in securities law, foreign investment policy and governance practices make it more difficult to acquire in France, Germany, or Italy, for example, than in the US, UK or Canada.[5]  In some of the largest developing economies, such as India, China and Brazil, many industries are protected and acquisitions without a local partner range from difficult to impossible.   So all other things being equal, these policies support a continuing trend of net losses in corporate ownership for the more open US, UK and Canadian economies. 

Policy makers and corporate leaders should reflect on this trend.  Notwithstanding the benefits of foreign investment to the US economy, the position of US companies on the global stage is also valuable.  The corporate headquarters positions and supporting professional services, (e.g. investment banking, corporate law, accounting and audit, consulting), are among the highest paying jobs in America and support the core of most American cities.  These are real headquarters, not regional division offices or titular edifices.

Shareholders are also often losing out when companies sell into a global consolidation.  The price premiums paid to shareholders in a takeover pale in comparison to the shareholder value created by successful global growth.  Directors take note – the long-term interests of shareholders are often traded off for the short thrill of a one-time takeover premium.

US competitiveness in international M&A is highly relevant to the fortunes of all strategic industries, including the food industry.  Is the imbalance in takeover policies leaving American companies more vulnerable to takeover than their international competitors?  Are corporate leaders, especially in the food industry, too content with the American market?  The global food industry is ripe with opportunity – are companies like Smithfield selling when they should be buying?

Ken Smith

KenSmith@DundeeStrategy.com

Twitter @smithkennethw

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[1] Chinese takeover questioned, by Doug Palmer for Reuters, as published in the National Post, July 11, 2013.

[2] Ibid

[3] The Globe and Mail, Published Sunday, Dec. 09 2012, 10:47 PM EST.

[4] See Losing (Ownership) Control, Smith, Harvard Business Review, June 2009; data was later updated to include the entire decade.

[5] See Chapter 9 of The Art of M&A Strategy, Smith & Lajoux, McGraw-Hill, New York, December 2011

Introduction to bizpolicy

The globalization of the economy is presenting many new challenges in business and public policy.  In developed economies, companies find themselves in changed markets facing new competitors, and public policy that was largely developed to manage local economies is proving naïve as industries restructure on a global basis.  In developing economies, there are tremendous growth opportunities but patience is required to form new partnerships, and to develop new business models to serve local needs and that do not leave the poor behind.

Much good can come of global industry restructuring for business and society, but it’s a new world and businesses, governments, and social enterprises are all encumbered by rules and norms of the past.  For example, it is clear to most businesses that the developing economies are the growth markets of the future, but faced with constant pressure for short-term performance many have been reluctant to invest in international growth, particularly in developing economies.   It is clear to most governments that industries are restructuring on a global basis, but encumbered by outdated constitutions and local public opinion, many governments continue to develop policy with a focus on domestic market structures, failing to facilitate international competitiveness.  It is clear to most NGOs that sustainable solutions to hunger and poverty require working business models, but the social damage of profit-driven business ventures littering the history of international development has left deep-rooted skepticism of business.

This space is intended as a place to dialogue on the development of business and public policy in the context of global industry restructuring.  At times it will perhaps seem eclectic as it moves from business issues such as acquisition strategies to social issues such as food security.  However, all will be connected directly or indirectly with the challenges presented by the globalization of markets, the consequent restructuring of industries, and the need for new models to serve both business and societal needs.  As a bi-product, perhaps a broad spectrum of readers will find common ground some of the time, the basis for healthy debate at other times, and at all times a greater appreciation for alternate perspectives and the need for business, government, and social enterprise to work together.

Next Post:  Imperatives for companies in restructuring industries.