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© Copyright 2006 USA TODAY, a division of Gannett Co., Inc. All rights reser ved.
AS SEEN IN USA TODAY’S MONEY SECTION, JANUARY 12, 2006
Trouble spots could derail global economy gains economies greater stability. Rather than
Though the outlook is good, it isn’t hard to imagine what could go wrong. depend on private capital flows from rich
countries as they did in the 1990s,
developing nations now rely on strong
export industries.
Reporting by David Lynch and George Petras, USA TODAY; graphic by Adrienne Lewis, USA TODAY
If oil supplies were cut by 2 million barrels per day, prices "This is what we signed up for when we bought into
would hit $90 a barrel this year and remain at $70 next year, globalization," Roach says. "The next global adjustment or
according to the World Bank. The price spike would add 2.6 downturn most likely will reverberate very quickly around the
percentage points to the inflation rate, which is 2.1% now, and world with a speed we haven't seen before."
cut global growth in half.
A combustible mix of security and relentless economic rise of China and 2000, for example, trade was backed 56%
economic dangers has left Americans India, which seems to imperil many to 36%. But in a June 2005 survey, by a
increasingly unsettled about their Americans' financial futures. 48% to 44% margin, more respondents
engagement with the rest of the world. judged it a threat.
Color-coded terror aler ts and the From 1994 until last year, a solid
persistence of the global al-Qaeda plurality of Americans saw foreign trade "Globalization creates vulnerabilities.
network mean danger is a fact of daily as an opportunity rather than a threat, There's no question about it," says Mira
life. Compounding public unease is the according to USA TODAY polling. In May Wilkins, an expert on foreign investment
International trade
The U.S. economy has become more dependent on foreign trade over the past 35 years. Imports as percentage of GDP:
16%
14%
12% 16.2%
10%
8%
6%
4%
5.4%
2%
0
1970 1980 1990 2000 2005
Source: Bureau of Economic Analysis
at Florida International University in Miami. Reinsch, president of the National Foreign Trade Council, a pro-
trade group.
The USA isn't alone in getting cold feet over globalization.
Europe, too, is witnessing a renewed concern. In France, Spain Still, the reaction to date against foreign investment —
and Poland, governments are blocking foreign firms from whether for national security or economic reasons — has been
acquiring companies even in seemingly benign consumer limited. Both the ports controversy and last year's Unocal dust-
industries. up involved foreign companies that were government-
controlled. Moves to limit Chinese imports have been confined
Global ties grow to specific industries, notably textiles and apparel.
If the concerns suddenly seem acute, it may be because in "It's not competitive concerns like the 1980s. GM and Ford
recent years the globalization era that began with the collapse are in rough shape, but there's not much sympathy for helping
of communism in 1989 has intensified dramatically. Example: them" with import limits, says Todd Malan, president of the
Cross-border mergers and acquisitions totaled a staggering $3.2 Organization for International Investment.
trillion last year, almost three times the level just five years
earlier, according to the Bank for International Settlements in The ports furor catalyzed the debate over security and
Basel, Switzerland. globalization, though the immediate prospect of an Arab
company operating terminals at several U.S. ports appears to
The U.S. certainly is much more intertwined with other have faded. On March 9, Dubai Ports World announced it
economies than ever. In 1971, when President Nixon cut the would spin off its newly acquired American operations so long
link between the dollar and gold, U.S. imports were equivalent as it could do so without losing money.
to 5.5% of the economy. Last year, they hit 16.2%.
More complicated times
The furor over the DP World ports takeover may have
surprised the White House. But it didn't come out of nowhere. This isn't the first time the U.S. has faced the issue. An earlier
Last summer, it took enormous political arm-twisting to get a age of global economic integration in the decades before World
very modest Central American trade deal through Congress. War I ended with the guns of August 1914. After the war, trade
Then, in the fall, a Chinese enterprise was forced to abandon its recovered in fits and starts. But then the 1930 Smoot-Hawley
planned acquisition of Unocal, a second-tier American oil Tariff triggered a protectionist frenzy that by 1934 had slashed
company, after Congress heatedly objected. And now an Arab international trade by two-thirds.
firm has been told it can't be trusted to operate cargo terminals
at American ports. During the Cold War, the relationship between national
security and commerce seemed clear. Buttressing the
"I think we're riding a wave of xenophobia," says William economies of Western Europe helped knit together an anti-
Soviet alliance. There was no question about who the enemy Others say the criticisms are overstated. Phillip Swagel, who
was and no question of trading with him. Today, life isn't so was chief of staff for the White House Council of Economic
simple. Instead of a government like the Soviet Union, the Advisers in President Bush's first term, says the Pentagon
enemy in the war on terror is a stateless network of Islamic representatives on the panel had a myopic focus on security.
extremists. "They just didn't understand the value of foreign investment in
the United States," says Swagel, now a fellow at the American
"We're now in an era where the national security interests of Enterprise Institute. "They'd rather foreigners not be here at
the United States are a lot more ambiguous, and there's more all."
disagreement about them," says Jeffry Frieden of Harvard
University. "Even if there's agreement on fighting terrorism, it's Edward Graham of the Institute for International Economics,
not clear what the economic implications of that are." author of a forthcoming book on national security and foreign
investment, says CFIUS has been more effective than the
Those who argue for changing the rules of the game target statistics suggest. Although the panel formally rejected only
the inter-agency Committee on Foreign Investment in the one deal, it effectively blocked 20 others, he says. Many others
United States (CFIUS), which approved the ill-fated ports deal. were modified by compelling the foreign acquirer to accept
The committee gathers representatives of 12 agencies to changes in how it would operate the American asset.
balance foreign investments' gains against potential security
threats. "What major security failure has happened in the U.S.? None
that we know of," Graham says.
Hunter, who helped kill the ports deal, wants to tighten the
government's method of reviewing proposed foreign U.S. dependent on foreign investment
acquisitions of U.S. companies. Currently, "Economic or
commercial implications apparently supersede national As Congress rethinks foreign investment, Clyde Prestowitz,
security considerations," the lawmaker wrote in a March 6 president of the Economic Strategy Institute, thinks the new
letter to colleagues. focus on security ignores the U.S. economy's dependence upon
foreign investment. The USA requires about $3 billion in
A Government Accountability Office investigation last year foreign capital every working day to finance the huge gap
also concluded that the panel "narrowly defines what between its consumption of foreign goods and its exports. The
constitutes a threat to national security." Since 1988, CFIUS has country just doesn't have the luxury of walling itself off,
rejected only one of more than 1,500 proposed foreign Prestowitz says: "We're shooting ourselves in the foot here.
acquisitions of U.S. companies: China National Aero-Technology People don't realize this, but our economy is on life support
Import & Export's 1990 attempt to acquire a Seattle aircraft from foreign lenders and investors."
parts maker.
Questions over foreign investment aren't going away. Next
Among those approved was a deal that left another Chinese month, Chinese President Hu Jintao is scheduled to meet with
firm producing 80% of the magnets used in the Pentagon's President Bush at the White House even as the Treasury
"smart bombs," according to Sen. Evan Bayh, D-Ind. Department nears a decision on formally stating that China
manipulates its currency for trade advantage.
If any security worries are found in the panel's standard 30-
day review, an additional 45-day probe can be launched. But Likewise, thanks to high oil prices, the Dubai Ports deal won't
the GAO report said that the committee, which is chaired by be the last Arab investment here. Since 1998, members of the
the Treasur y Depar tment, is reluctant to order such OPEC oil cartel have earned $1.3 trillion in petrodollars,
investigations for fear of discouraging foreign investment. Of according to the Bank for International Settlements. Much of it
470 proposed deals from 1997 to 2004, CFIUS initiated only is staying home, helping fuel enormous increases in regional
eight investigations, the report said. stock markets. But tens of billions of petrodollars have surged
into U.S. corporate bonds, equities and direct investment. And
Hunter's proposed legislation would mandate 45-day probes more are probably coming.
for "transactions that may have national security implications."
Treasury Secretary John Snow on Tuesday backed increased "Foreigners have a whole pile of dollars," says Reinsch. "I
scrutiny for deals involving state-owned foreign companies but don't know what we expect them to do with them."
warned against "isolationist" moves.
Business plans
should be
simple,
passionate
Keep financial projections
minimal, anticipate trouble By Robert Deutsch, USA TODAY
Eureka! You've come up with a great idea for an invention or Short — and simple
a new business. Or you've discovered a niche in the
marketplace crying out to be filled. What's the next step? Extensive financial projections aren't needed. Clarity about
the start-up's product or service is.
In a perfect world, you simply set up shop, watch
your business flourish, and count the money as it
“The real key to "The first piece should be an executive summary,"
flows over the transom. being an entre- says Shanda Bahles, general partner at El Dorado
preneur who Ventures, which backed EarthLink and a variety of
But in an imperfect world, you need seed money other technology companies.
to launch your business. And to get that capital,
has a chance to
you'll have to go begging for investment, either from succeed is "Think of it as a calling card to get you in the door,
a bank, a venture capitalist, an angel investor or your knowing pre- to get me asking questions. Do NOT write a 50-page
uncle. business plan with five-year financial models. It's
cisely what garbage in and garbage out."
Most of these sources of funds, except maybe your business you’re
uncle, will want to see a business plan. For many in. If you don’t, "It should be two pages," declares Stuart Reid, co-
entrepreneurs and Bill Gates wannabes, that's the founder of Urban Communications Transport, a
most difficult par t of launching a business:
you die. start-up broadband provider in New York City. "If
translating your idea, your vision, into a dry little you can't say it in two pages, you can't do anything."
document designed to win over a skeptical investor. — Doug Frazier,
co-founder of Urban Chip Hazard, a general partner at IDG Ventures in
It's even more difficult than closing the first sale Communications Boston, says the plan should be "precise, crystal
Transport clear" about what the new company is all about. "It
for your business.
never ceases to amaze me how many business
A business plan has to convince an investor that your idea for plans I see where after you read it once or twice, you still don't
a company is solid and that you're the right person to make the know what a company does."
whole thing work.
The key to describing your business is understanding what
benefit you're providing to your patient's ribs and listening to the sound.
customers, says Doug Frazier, the other What's your target market?
co-founder of Urban Communications "It was a technique called percussion,"
Transport. Identifying the target market is an Cooper says. "People would get real good
essential part of a good business at that. I was thinking, can't you come up
"You have to learn what business plan. Author Rhonda Abrams, with a device that would measure that?
you're in," says Frazier, whose previous whose columns on small business Eventually, it became ultrasound. In
company was a cable television provider. strategies appear Fridays at usato- 1966, I knew just enough to be
With cable, "People told us we were in dangerous, but if I'd been practicing
day.com, offers advice on target
the communications business. Nope, we medicine for 20 years and had that
were in the entertainment business." market planning in her book, technique down, why would I do it any
Business Plan in a Day. She says that way but that?"
Now, with broadband, "We realized we section of a business plan should:
were in the problem-solving business. Anticipate problems and challenges
People use the Internet so they can u Identify the geographic location
work. They use their telephone to of your target market. Pollyannas don't make good
communicate and solve problems. entrepreneurs.
u Describe demographic charac-
"The real key to being an entrepreneur "Anybody can have a great idea, and
teristics of target customers — traits
who has a chance to succeed is knowing anybody can be an entrepreneur," says
precisely what business you're in. If you such as age, income level, family Frazier. But the business plan has to
don't, you die." size, gender and ethnic group. "explain that you've thought the
problems through."
Introduce the management team u Explain customer motivations
and purchasing patterns. Addressing your business' potential
Obviously, investors want to know the problems is a must, Cooper says.
ways in which you plan to build the u Define the market's size. "Is your
better mousetrap. But venture capitalists market big enough to keep you in "Writing a business plan, a formal
will be most interested in the people business plan, forces you to answer the
business? … If you're looking for
behind the product. tough questions," he says. "It's one thing
investors, you need to convince to be out with a bunch of guys at a bar,
"The management team is key," says potential funders that your compa- and you're having a beer and you're
Reid. "Investors invest in people, not ny can grow to a size that will make telling them about your business idea.
ideas. You've got to pull a strong team their investment profitable." Everything sounds great. You can do this
together." and you can do that, and it all looks easy.
Resources to assess a target mar- A business plan forces you to address the
"Investors are always going to look at ket include: maps of the target holes in your idea."
management," says Thomas Cooper, a market area; customer surveys;
doctor who has started four successful Finding those holes and thinking
market-research reports; industry
businesses in the medical field and through your responses to them is
teaches entrepreneurship at Columbia research indicating market trends; crucial, says Cooper, who scans lots of
Business School. "Who are these people books, magazines and other media business plans as a partner at Aperture
and can they pull it off? What are their geared toward the target market; Venture Partners.
backgrounds?" Census data showing customer
demographics. "Rather than have investors raise these
Contrar y to conventional wisdom, issues to you, it's better if you've thought
Cooper says it's not always a plus when them through," Cooper says. "Any sharp
the management team has vast dangerous." investor will figure out the weakness, so
experience in the industry in which it it's much better if you come out with
wants to launch the new business. People on the outside are usually them. Most people don't want to enter
willing to try new ways to do business, into the negatives, but I want to hear it. If
"If someone's too steeped in an Cooper says. As an example, Cooper investors have to bring up the negatives
industry, they think there's only one way recalls an experience he had in medical to you, it makes them think you haven't
things can be done," he says. "I'd rather school in the 1960s. Doctors then tried thought your business through very
look for someone on the peripher y, to determine if a patient had fluid in his well."
someone who knows enough to be lungs by tapping an area between the
Show a path to profit "It's the end part that young entrepreneurs don't recognize,"
he says. "There's got to be an exit strategy so the investors get
A good business plan isn't stuffed with financial projections, their money out, a financial plan that the money guys
but it does explain how the business will make money. understand."
"The most important thing is sales," says Cooper. "If you can't "They're in the business of building wealth," adds Frazier. "If
get someone else to open up their wallet and turn money over you're not furthering that goal, why would they give you
to you, it doesn't make any difference how great the idea is." money?"
2. In what ways could the focus on the current U.S. deficit stifle entrepreneurship and innovation?
5. The article on business plans for start-ups suggests that templates or standard u Innovate America
formats should not be used for business plans. Do you agree? How could such www.innovateamerica.org
standardization help start-ups and the overall competitiveness of the country?
u Small Business Administration
6. Why do you think investors in new businesses look for management that www.sba.gov/starting_business
doesn’t have significant experience in the industry in which they want to launch /index.html
their start-up?
2. As the global economy becomes increasingly interdependent, do you think investment in new businesses should become
more global, too? What would be some of the advantages and disadvantages of having, for example, an Asian investor finance a
North American start-up?
Deborah L. Wince-Smith is president of the Council on Competitiveness. Founded in 1986, the Council is the
only national organization that brings together leading CEOs, university presidents and labor leaders to
promote U.S. productivity growth, success in global markets and a rising standard of living for all Americans.
Deborah L. Wince-Smith The Council’s regional, national and global portfolio aims to strengthen America’s innovation capacity.
An internationally recognized expert on innovation strategy, science and technology policy, regional economic development and
global competition, Wince-Smith was most recently nominated by President Bush to serve as a member of the Oversight Board of
the Internal Revenue Service. Wince-Smith serves on a number of boards and committees, including the Board of Directors of the
NASDAQ Stock Market, the National Science Board’s Task Force on Transformative Research, the Secretary of Energy Advisory
Board’s Nuclear Energy Task Force; the National Research Council’s Committee on Innovation Models for Aerospace Technologies;
the Board of Governors for Argonne National Laboratory, the University of California President’s Council for Los Alamos and
Lawrence Livermore National Laboratories; and the University of Pennsylvania Museum of Archaeology and Anthropology. She is a
trustee of the National Inventors Hall of Fame and a national juror for the MIT Lemelson Award for Invention.
Wince-Smith graduated Phi Beta Kappa and Magna cum Laude from Vassar College and received her master’s degree from
King’s College, Cambridge University. She is a frequent speaker at conferences and symposia and an author on innovation
and competitiveness.
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