JimPinto.com - Connections for Growth & Success™
No. 255 : 29 September 2008

Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.

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Bailout Nation

Wall Street's credit catastrophe has dealt America's status as the global leader a serious blow.

All this time, brazenly and in plain sight, greedy Wall Street financiers have been selling and re-selling loans to each other, with immediate income and bonuses linked to each transaction. The failed financial giants had debt/assets leverage of more than 35:1 - something even Superman cannot sustain. The dominoes had inevitably to fall.

Most top-level executives (Fannie, Freddie and all the rest) have exit contracts (golden parachutes) which will withstand any legal challenge. So, as they get fired, they'll walk away with millions. Congress balks, but can't do anything about it, short of new laws which will take years to pass. Meanwhile, middle-class America foots the bill.

American bankers have been begging for new capital from sovereign wealth funds in Asia and the MidEast. The Big Three automakers are lobbying for federal loan guarantees. The "ownership society" has become the "bailout nation".

Just weeks, even days, ago, even while Freddie & Fannie & Lehman and AIG were being bailed out in quick succession, GW Bush kept insisting, "America's fundamentals are sound". Now he threatens "dire consequences" if something is not done immediately. What do the 30% of Americans who still think he is doing a good job say about this?

The next President of the United States has a tough job on his hands. One wonders what he can do, after all the empty election promises. The solutions won't be delicate; hammers and shovels will be needed to rebuild America's broken capital infrastructure.

Now a populist backlash will change America's political climate. Inflamed by the financial crisis and bailouts, a form of class warfare will haunt business leaders for years to come.

Click Buffet - We face "biggest financial meltdown in American history":

Click Fortune - Main Street turns against Wall Street

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America must win at Global Competitiveness

In the 1990s, Americans regarded globalization and free trade as positives. Initially, America got all the upside. Now we're getting some of the downside. As a result, we are now more inclined to see ourselves as victims of globalization - rather than beneficiaries.

Increasing anti-globalism has been justified because the typical American got nothing out of economic expansion. Adjusted for inflation, the median wage is lower than it was in 2000, and jobs are less secure. Americans want to cast blame, and it's easiest to blame foreigners - multinationals or illegal aliens.

In fact, Globalization means freer markets and more political freedom worldwide. Multinationals expand our business globally; immigrants are usually people who are willing to work at the lowest paid jobs which no one wants. These are major contributors to our prosperity, productivity and standard of living.

America needs to focus on education and boost R&D spending. We still lead in building intellectual property - high-tech products and services, computer software, biotech, marketing, and finance.

The decline of the dollar gives us an opportunity to reestablish competitive manufacturing here in the United States. We must push for more industrial exports. In order to remain an economic leader, America must attract the best talent. But our restrictive immigration policies are in danger of stifling that process.

The US remains the leader in the global economy. Americans succeed in the global marketplace because we are the most productive and creative people on earth, and our economic system has welcomed investment and rewarded success. Even now, US exports are a key pillar holding up a shaky economy.

America already has one of the highest corporate tax rates in the world, and some of the current election proposals would sharply increase taxation of entrepreneurs and people in high-tech, finance and engineering, the skills most in demand in the global market place.

To prosper, we must invest, and create jobs to make America the best place in the world to do business. Success will be directly related to America's ability to leverage new thinking combined with new business models on an increasingly complex global scale.

Click It Isn't a Zero-Sum Game

Click Is America Losing At Globalization?

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Top-tier automation growth paradigms

In past writings I have described the 5 phases of growth, from startups to $ 10B annual revenues. This particular discussion relates primarily to the 5th stage - growth to $10 billion and beyond - which is not well understood.

Once a company gets beyond about $1 billion, it is very difficult to continue to generate organic growth. At $5 billion, growth rates of at least 10% are required to keep stock markets happy; this means $500 million of increased revenue each year. That's not easy to achieve in relatively slow growth industrial markets.

Growth by acquisition seems the only alternative. But acquisitions are fraught with problems. The larger the acquisition, the more the danger; one slip and earnings may collapse, causing the acquirer's stock to dive, and making it a buyout target.

Primarily for this reason, the $1 billion to $5 billion automation majors are vulnerable. They must seek larger consolidations, or stagnate. Maintaining market focus is good during growth periods, but it's the wrong strategy when the market is flat or declining. Phase 5 companies often get stuck in the wrong paradigm.

Most of the global automation leaders are parts of companies that are well beyond $20 billion in global sales. At about $114 billion, Siemens is well diversified - energy, industrial and healthcare. Honeywell is $36 billion and Process Systems represents less than 10% of total revenue. Emerson is $25 billion; Emerson Process Management is about 25% of the total. At $33 billion, ABB has eliminated too-broad diversification, and is now split between automation and power.

The only remaining top-tier independents, Rockwell Automation and Invensys, have eliminated diversification over the past few years in order to focus on automation. In declining markets, that is the wrong paradigm. Both companies are stuck seeking organic growth at a company size that makes that difficult. Small acquisitions are simply palliatives.

To grow beyond $5 billion and reach the $10 billion-plus range, "bet-the-farm" decisions must be made. In order to achieve the growth that markets expect, Rockwell and Invensys will either make a major acquisition or themselves be acquired.

Click Reshuffling the automation majors

Click Rockwell dangles within acquisition range

Click Automation World (Sept. 2008) - Top-tier Growth Paradigms

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Tom Friedman's new book, "Hot, Flat & Crowded"

Tom Friedman's bestseller "The World Is Flat" has helped America to see the world in a new way. Now, his brilliant new book, published September, 2008, takes a fresh and provocative look at two of the biggest challenges we face today: America's surprising loss of focus and national purpose since 9/11; and the global environmental crisis, which is affecting everything from food to fuel to forests. Friedman shows how the solutions to these two big problems are linked and we can restore the world and revive America at the same time.

Tom Friedman explains how global warming, rapidly growing populations, and the astonishing expansion of the world's middle class through globalization have produced a planet that is "hot, flat, and crowded."

The earth is already being affected in ways that threaten to make it dangerously unstable. In just a few years, it will be too late to fix things - unless America steps up now and takes the lead in a worldwide effort to replace our wasteful, inefficient energy practices with a strategy for clean energy, energy efficiency, and conservation. Tom Friedman calls this "Code Green".

This is a great challenge and a great opportunity that America cannot afford to miss. Not only is American leadership the key to the healing of the earth; it is also our best strategy for the renewal of America.

Tom Friedman makes it clear that the green revolution is like no other revolution the world has seen. It will be the biggest innovation project in American history. It will change everything from what you put into your car to what you see on your electric bill. This needs to be a major American goal, with defined time-tables.

The payoff for America will be more than just cleaner air. Americans will be inspired to something we haven't seen in a long time - American nation-building. It will stimulate the intelligence, creativity, boldness, and concern for the common good that are our nation's greatest natural resources.

Click Review & Buy Tom Friedman's Book at Amazon.com

Click Pinto Review of Tom Friedman's "The World is Flat"

Click Newsweek review: Let's Rally Around the Green Flag

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After his more conventional selections for a running mate were nixed by Republican party insiders, John McCain made a "maverick" choice and took America by surprise. He picked an ex-beauty-queen, ex-mayor of a small town and the two-year Governor of Alaska. America loves surprises. The media was obsessed. The election process became a circus.

Somehow, no one has mentioned that the population of Alaska is only 700,000 - less than Columbus, Ohio or Austin, TX. The City of Wasilla, where Sarah Palin was Mayor, has a population of 9000 - less than El Cajon or La Mesa near San Diego where I live. There were 10 times as many people at some Obama rallies around the country and the world.

John McCain announced his selection on his 72nd birthday. Given his age and health, even conservative Republicans have recognized that Sarah Palin lacks the experience to be President. Tell me, how would YOU rate Palin vs. Putin? How would YOU feel about Palin's finger on the red-button?

Prominent conservative columnist Kathleen Parker, an early supporter of Sarah Palin, has stated explicitly that the Alaska governor should leave the GOP presidential ticket for the good of the party. Parker, who praised McCain's "keen judgment" for picking Palin earlier this month and wrote that the Alaska governor is a "perfect storm of God, Mom and apple pie," now says Palin should step down from the ticket.

These are Kathleen Parker's words:

    "Palin's recent interviews with Charles Gibson, Sean Hannity, and now Katie Couric have all revealed an attractive, earnest, confident candidate who is clearly out of her league. If Palin were a man, we'd all be guffawing. But because she's a woman - and the first ever on a Republican presidential ticket - we are reluctant to say what is painfully true. Palin filibusters. She repeats words, filling space with deadwood. Cut the verbiage and there's not much content there."
The criticisms in Parker's column are the latest in a recent string of negative assessments from prominent conservatives who have publicly questioned Palin's readiness to be vice president.

From David Brooks -

    "Sarah Palin has many virtues. If you wanted someone to destroy a corrupt establishment, she'd be your woman. But the constructive act of governance is another matter. She has not been engaged in national issues, does not have a repertoire of historic patterns and, like President Bush, she seems to compensate for her lack of experience with brashness and excessive decisiveness."
From David From -
    "Ms. Palin's experience in government makes Barack Obama look like George C. Marshall. She served two terms on the city council of Wasilla, Alaska, population 9,000. She served two terms as mayor. In November, 2006, she was elected governor of the state, a job she has held for a little more than 18 months. She has zero foreign policy experience, and no record on national security issues."
So, how are YOU going to vote?

Click CNN - Palin should step down, conservative commentator says

Click Pro-Palin website - judge for yourself

Click TIME - Mayor Palin: A Rough Record

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George H. Morgan [patagent@evansville.net] is pro-Palin, based on a single-issue:
    "Sorry, Jim, but I do not see Palin as a predicament. I think she was a great choice. I believe the Obama/Biden gun control radical abortion ticket is a menace to the country.

    "I am very happy to live in a country where a black man can run for president. However, I am a single issue voter, pro-life, and I see that as the ticket for Republicans to win elections.

    "No president is ever elected by the Republicans, there aren't enough of them. The only way is when the Democrats switch over & the only issue that will cause Catholic Democrats to switch over is the pro-life issue. Most Democrats are Catholics, and fifty percent vote pro life, and that usually is enough."

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Jim Pinto [Jimpinto@aol.com] - another Jim Pinto - writes on the decline of American manufacturing:

    "After 30 years in international business, I continue to see US Companies selling out the core essence of American Manufacturing due to lack of Leadership. It was bad enough to see manufacturing going abroad, but now, I see all the R&D and the engineering talent moving overseas.

    "It seems that my peer group in their late 50's early 60's are finding jobs in foreign corporations because there are very few jobs for our age group in America.

    "There is no other place for me to live than America, but I still keep my chopsticks in my back pocket as a survival mode."

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John E Blaesi [John.E.Blaesi@conocophillips.com] an end-user, comments on the subject of Performance-based pricing:

    "It would be interesting to see how this would stand up to economics today. Many moons ago, I was with an automation company and we often offered performance-based pricing to our customers, especially to those projects where price was becoming an issue. Basically, we would establish a baseline, provide automation services, and a delta would be added to the initial price based on increase in performance.

    "We had no takers. It could be that our initial prices were not low enough - basically it was just enough to cover our costs or our typical performance improvement level at that time was really high, so the final price had a good chance of being higher then our typical offering price. In the end, our customers were happy, they made money, we made money. Tough to beat.

    "However, I agree with you about the competition today, greater product offerings, and lower profit margins. Maybe the time might be here. It has been around a long time for construction companies that get a bonus for early completion."

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