Business

Frontside vs. Backside

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In my profession, I deal with many large corporations.   Many of them are household names that everyone has heard of.   I buy products from these corporations, mark them up, inventory them, and resell them for a profit.   I am a middleman, in wholesale distribution.   I suppose you can call me a relic that made it – I remember a long time ago many companies warning their distributors that with the dawning of the internet age that we would beome obsolete.   Nothing could be further from the truth – but I digress.

Consumers, by and large, see the frontsides of major corporations, or their retail marketing arms.   Very few people would know the ins and outs of GE’s locomotive division, but are very familiar with GE appliances such as washers and dryers.   It is very difficult for the average person to comprehend how large some of the companies in the Fortune 500 are, how they go to market, and how diverse many of these companies are.   Everyone who likes golf knows Titlest, but nobody knows who Fortune Brands is.

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Trying to Act Professionally

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I always try to act professionally at my job – I really do. It is never good to burn your bridges with anyone as you never know where you will end up – or where they will end up. On occasion the bridge must be burned, however. I think that is a normal part of doing business in a competitive marketplace. In other words, you can’t let someone stomp on you forever, or have endless meetings with you with the illusion that they are going to buy goods or services from you.

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Offshoring Production to the USA

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Chinese entrepreneur Liu Keli, who runs a company making copper cylinders for printing presses, decided to open a factory in South Carolina. He was motivated by a desire to improve his position in the U.S. market, and was surprised to find that substantial cost savings were also possible on some important aspects of his business. Specifically: electricity costs are 75% cheaper, and continuity of service is much better. Mr Liu also got 7 acres of land near Spartanburg for one fourth of what it would have cost him in Dongguan, a city in southeast China where he operates three plants.

Labor is, of course, significantly more expensive: about six times as much on a per-hour basis. But with the benefits from reduced power and land costs, and a $1500/employee tax credit from South Carolina, the overall cost picture is closer to that in China than he would have previously imagined.

I’m also kind of surprised by these wide differences in land and electricity costs.

(via Carpe Diem)

Number Gut Part II

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Way back in 2004 I wrote about how the lack of an intuitive sense of scale prevented many people from viewing the Lancet Iraqi Mortality survey with skepticism. The same lack of sense of scale shows up in other areas such as in this article (via Megan McArdle) about ending subsidies to the oil industry instead of levying a windfall-profits tax.

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The Clarity Clue

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A clue to the future performance of a company may be found in the literary style of the CEO’s annual letter. That’s the opinion of Laura Rittenhouse, head of an investor relations consulting firm, who has studied this topic extensively.

A study found that when the letters are analyzed for clarity versus jargon, shares of bottom-ranked companies lost more than 18 percent of their value in a two-year period ending in 2002, compared with a 12.7 percent drop for the top-ranked companies. More recently, another Rittenhouse study focused on newly-appointed CEOs and their content scores versus those of their predecessors. For the group with the highest gains in content scores, stock prices increased an average of of 28.4% (in the year after the new CEOs were named) versus an average decline of 10.5% for the ground with the greatest declines in content scores.

The usual cautions about cause and effect analysis–correlation is not causation, the direction in which the arrow of causality is pointing is not always obvious–of course apply. Nevertheless, this is interesting.

Here’s a presentation which provides a little bit of detail on the Rittenhouse analysis method. Ms Rittenhouse quotes Orwell:

If thought can corrupt language, then language can corrupt thought

…and offers her own version:

If language determines actions and results, then corrupt language will lead to debilitating actions and unsatisfactory results.

See also The Edifice Clue, The Harvard Indicator, and Readin’, Writin’, and the Business Shtick.

See also this comparing writing at J P Morgan in 1933 and in 2006. (Although I thought Jamie Dimon’s letter in the recent annual report was pretty good–not sure what the Rittenhouse analysis process would have to say about it.)