Enterra Insights

Happy New Year 2011

This New Year, like the last, will find many people struggling with the tight-fisted consequences of a lingering recession. Perhaps the best New Year's wish that could be offered is an old Irish toast that goes: "In the New Year, may your right hand always be stretched out in friendship, never in want." Unfortunately, as we begin this New Year there are millions who must stretch out their hand in want. "In November, 300 million more people around the world were suddenly poor – on paper, at least," reports Jina Moore ["Why 300 million more people are suddenly poor," Christian Science Monitor, 17 November 2010]. She explains:

"The Multidimensional Poverty Index (MPI) raises the number of poor by 21 percent, to more than 1.7 billion. According to the MPI, sub-Saharan Africa is still home to the greatest proportion of the world's poor, but more than half of the total number of poor lives in South Asia. These numbers, and the new index that produced them, are part of the UN's annual Human Development Index (HDI), a statistical touchstone. It covers everything from the number of women who die in childbirth to how many people have Internet access and can sway decisions on US policy, influence where nonprofits spend money, and help determine where donors give. For years, the HDI has set the standard for just how little a person has to live on to be considered poor. The answer? $1.25. But some researchers have long said income alone doesn't define poverty. 'There are some things money can't buy,' says Sabina Alkire, cocreator of the index and director of the Oxford Poverty and Human Development Initiative, which launched the index in collaboration with the UN. 'It might not buy electricity; it might not buy a public health system, or an education system.' Ms. Alkire's index looks at poverty more experientially. It uses existing survey data and categorizes households as poor if they lack three or more of the 10 poverty indicators, which are spread across health, education, and basic standards of living."

Although I encourage you to donate to causes that help the poor, I agree with William Easterly, a professor of economics at New York University and co-director of its Development Research Institute, that development, not dole, is the best solution to the challenges faced by those trapped in poverty ["Only trade-fuelled growth can help the world’s poor," Financial Times, 21 September 2010]. Easterly writes: "Current experience and history both speak loudly that the only real engine of growth out of poverty is private business. ... Trade-fuelled growth not only decreases poverty, but also indirectly helps all the other [millennium development goals]." To read more about the millennium development goals, read my post entitled Two Views of the Millennium Development Goals. In that post, I quoted New York Times' columnist Nicholas Kristof, who wrote, "The best way to overcome poverty isn't charity but economic growth, trade rather than aid." I also quoted the Wall Street Journal's Rupa Subramanya Dehejia, who wrote, "The only sure way of pulling people out of poverty and at the same time making progress on the other goals is employment-intensive development."

Easterly believes that the developed world has squandered "opportunities to allow poor countries' efficient private businesspeople to lift themselves out of poverty." Each New Year brings with it the possibility that past mistakes will be corrected and a better course followed in the future. As the American celebrity and activist Oprah Winfrey once said: "Cheers to a new year and another chance for us to get it right." Let's hope this New Year puts us on a course that corrects past mistakes, that sees us make better choices, and that raises more people rise out of poverty than sink into it. On a more personal level, it is my wish that this New Year brings you good health and happiness.

Consumer Trends to Watch in 2011, Part 2

In yesterday's post, I began discussing a list of "11 Crucial Consumer Trends for 2011" offered up by www.trendwatching.com, "one of the world's leading trend firms, trendwatching.com sends out its free, monthly Trend Briefings to more than 160,000 subscribers worldwide." In that post, I discussed first six trends: Random Acts of Kindness; Urbanomics; Pricing Pandemonium; Made for China (If not BRIC); Online Status Symbols; and, Wellthy. In this post, I discuss the final five trends.

"7. Social-Lites and Twinsumers -- In 2011, word of mouth and recommendations will be even more dependent on P2P dynamics. If TWINSUMERS (consumers with similar consumer patterns, likes and dislikes, and who are hence valuable sources for recommendations on what to buy and experience) are all about improving 'search curation', SOCIAL-LITES are all about discovery, as consumers become curators; actively broadcasting, remixing, compiling, commenting, sharing and recommending content, products, purchases, experiences to both their friends and wider audiences. ... Why would consumers want to become curators? Because many of them are investing time and effort in building BRAND ME, via online profiles that record their opinions and recommendations. And as audiences in knowledge economies value interesting, relevant and useful tidbits, they bestow status on those curators or SOCIAL-LITES who share. Furthermore, it's never been easier to be a SOCIAL-LITE. Rather than having to call, text or even email people personally, social networks' streams allow users to easily broadcast information to a wide range of people without interrupting or intruding. So, consumers will talk more about brands in 2011 than ever before, and opportunities for brands that create engaging content that consumers want to share, or that have personalities that actually engage consumers will also be bigger than ever. Making it easy for SOCIAL-LITES to retweet or 'like' this content is of course requirement number one. Examples:

"• The STRP Art and Technology Festival which ran from 18 - 28 November 2010 in Eindhoven, the Netherlands, employed the use of RFID in museums and galleries that allow guests to rate art via RFID wristbands. Visitors used RFID wristbands and 'dashes' (which represent how much they liked something) to tag art, with the results collated to create a visible 'tag cloud,' showing the most popular exhibits, and where they were located.

"• Gogobot is an online travel community with a social lens. Users ask questions about destinations (think 'Where's a fun restaurant in Paris?'), not just to the Gogobot community but also to their Facebook and Twitter networks. Gogobot collates the answers, and includes pictures and links to all of the places mentioned.

"• Levi's has integrated its online store with Facebook, allowing shoppers to socially interact with friends and create a 'like minded shopping' experience. From the Levi's store, users are able to share products with friends through the Friend Store, 'Like' them or search for 'Top Liked' products within Facebook.

"• Amazon now enables users to integrate their Facebook and Amazon accounts. The feature allows Amazon to connect through to a user's social network, then base recommendations (think books, DVDs and musicians) upon the information found in his/her Facebook profile.

"• US based Mombo analyzes Twitter feeds from users all over the world and assigns ratings on movies based on the collective opinion of Twitter users, with each tweet being analyzed by the site's 'sentiment analysis' engine. Users who sign in with Twitter will get movie recommendations based on what they and their friends have tweeted about.

"• Storify helps its users to curate content that they find on social networking sites. Users cut and paste pieces of content (including pictures and video) from various sources on the web and put it all together in order to communicate their desired message.

"Warning: Social customs and behaviors are still evolving. But the connections that consumers establish with one another are personal and therefore valuable (and not all about brands!). And SOCIAL-LITES still operate in a social sphere with intrinsic importance to participants. As such, brands need to tread carefully, treating consumers with respect, and be completely transparent. Get it wrong and you'll find 2011's SOCIAL-LITES can be bitchy as hell ;-)

The concept of Social-Lites (i.e., people "actively broadcasting, remixing, compiling, commenting, sharing and recommending content, products, purchases, experiences to both their friends and wider audiences) sounds very similar to the concept of "Mavens" discussed by Malcolm Gladwell in his book The Tipping Point. Gladwell writes that Mavens are "people who control word-of-mouth epidemics." I believe, however, there is a significant difference between social-lites and mavens. Gladwell notes that "the word Maven comes from the Yiddish, and it means one who accumulates knowledge." Social-lites have opinions whereas mavens have knowledge. One of the people interviewed by Gladwell for his book was Linda Price, a marketing professor at the University of Nebraska. She told Gladwell, "A Maven is a person who has information on a lot of different products or prices or places. [The Maven] likes to initiate discussions with consumers and respond to requests." Gladwell concludes:

"What sets Mavens apart ... is not so much what they know but how they pass it along. The fact that Mavens want to help, for no other reason than because they like to help, turns out to be an awfully effective way of getting someone's attention."

The concepts of social-lites and mavens are not mutually exclusive, but I'll take someone with knowledge over someone with just an opinion any day of the week. Mavens are generous with their knowledge and generosity is what highlights the next trend as well.

"8. Emerging Generosity -- In 2011, GENERATION G(ENEROSITY) will continue to give. Consider EMERGING GENEROSITY, which is about brands and wealthy individuals from emerging markets (yes, especially China) who will increasingly be expected to give, donate, care and sympathize versus just sell and take. And not just in their home countries, but on a global scale. It's a profound cultural change and a consumer demand that their counterparts in mature markets have had a few years to getting used to. Some fun stats:

"• 86% of global consumers believe that business needs to place at least equal weight on society’s interests as on business’ interests. 78% of Indian, 77% of Chinese and 80% of Brazilian consumers prefer brands that support good causes, compared to 62% of global consumers. 8 in 10 consumers in the India, China, Mexico and Brazil expect brands to donate a portion of their profits to support a good cause. (Source: Edelman, November 2010.)

"• The number of millionaires in India in 2009 grew 51 percent, to 126,700. (Source: Merrill Lynch, June 2010.)

"• 88-year old Yu Pengnian became China’s first billion dollar philanthropist in April 2010. The Yu Pengnian Foundation today has USD 260 million of bank deposits, and a Hong Kong and Shenzhen property portfolio worth just under USD 1 billion, which is expected to contribute USD 50 million of cash each year to the foundation. (Source: Hurun Rich List, October 2010.)

"• In September 2010, Bill Gates and Warren Buffett hosted a dinner for China's ultra-rich to promote philanthropy. The event was similar to their efforts to get US billionaires to pledge to give away at least half their wealth, although the two denied that they were recreating the pledge or pressurizing people to give, merely using the event to answer questions and discuss issues around developing a culture of philanthropy. (Source: Washington Post, October 2010.)

"In 2011, any brand or individual doing exceptionally well, will be expected to join GENERATION G. Thanks to shifts in power and a relentless TRANSPARENCY TRIUMPH, the ones who don't know how to give will have no excuses left, and nowhere to hide ;-)"

According to most reports, Chinese billionaires didn't step up to the table during their meeting with Gates and Buffett. For more on the Gates/Buffett effort, read my post entitled Wealthy Philanthropists: People We Love to Hate. In addition, not everyone agrees with the folks at trendwatching.com on the issue of corporate generosity. For the other side of the story, read my post entitled Dissing Corporate Social Responsibility.

"9. Planned Spontaneity -- Two years ago, we highlighted NOWISM: consumers' lust for instant gratification being fuelled by ever quicker, more accessible real-time products and services. We also noticed that NOWISM was part of a larger cultural, social and technological trend towards greater spontaneity. With lifestyles having become fragmented, with dense urban environments (URBANOMICS!) offering consumers any number of instantly available options, and with cell/smartphones having created a generation who have little experience of making (or sticking to) rigid plans, 2011 will see full-on PLANNED SPONTANEITY. Expect to see consumers in 2011 rushing to sign up to services (the PLANNED part) that allow for endless and almost effortless MASS MINGLING with friends, family, colleagues or strangers-who-may-become-friends-or-dates (the SPONTANEITY part ;-) What's next? Look beyond Twitter, and expect (younger) consumers voluntarily opting in to passively and continuously share their location*, in return for truly smart suggestions about what they could be doing or who they could be meeting up with. Will consumers accept their mobile data being collected, aggregated, analyzed and shared? If the benefits are interesting, fun or life-enhancing enough, then most likely yes.

"*According to Jeff Jonas at IBM, mobile devices in the US are creating approximately 600 billion geo-spatially tagged 'transactions' a day (that's every call and text, not just web connected smartphones!)

"For consumers, knowing where they are and what's/who's around them is the key to PLANNED SPONTANEITY. That's about to get a whole lot easier, as geo-location becomes a key feature of social networks and web apps (from existing providers adding location information, such as Facebook's Places, Twitter's locator, and Google's Hotpot, to dedicated services like Foursquare, Gowalla and Brightkite). Examples:

"• Geomium takes data from local review sites like Yelp and Qype, and combines it with social information to not only allow users to both see which of their friends are nearby, but also to find nearby event and venue information and deals.

"• LikeOurselves lets individuals with shared interests find each other via mobile groups. The service also allows users to quickly create a group and locate members within 20 miles of their location, enabling on the fly meetups.

"• Fast Society is a New York-based startup that has returned to Twitter's roots, aimed at simplifying communication between friends on-the-go. The service is SMS-based, and groups last between 3 hours and 3 days, increasing the spontaneous nature of the offering.

"• Unsocial aims to be a facilitator for people to meet others that share the same profession or industry. Unsocial works using a location-based algorithm - by opening the app and logging in a user is able to press the 'People' button, after which the app will display relevant matches nearby."

I suspect that parents are going to be very skeptical of any software that permits "users to ... see which of their friends are nearby." Pedophiles have found a way to use every new technology to carry out their nefarious activities. That said, the rising generation appears addicted to social media and this trend will likely endure.

"10. Eco Superior -- The number one challenge for governments, consumers and businesses (recession or no recession) in 2011 remains the quest for more environmentally sustainable societies and economies. When it comes to 'green consumption', expect a rise in ECO-SUPERIOR products: products that are not only eco-friendly, but superior to polluting incumbents in every possible way. Think a combination of eco-friendly yet superior functionality, superior design, and/or superior savings. Why the need for ECO-SUPERIOR? The number of consumers actively seeking out 'green' products is reaching a plateau, as mainstream consumers start to question the value and efficiency of going green:

"• While 40% of consumers say they are willing to purchase green products, only 4% of consumers actually do when given the choice. (Source: Journal of Marketing, September 2010)

"• 58% of global consumers think that environmentally friendly products are too expensive, while 33% of global consumers think that environmentally friendly products don't work as well. (Source: GfK Roper, September 2010)

"• While the volume of green products available to US consumers increased by 73% between 2009 and 2010, only 5% of products were not found to include some 'greenwashing' claims. (Source: Terrachoice, October 2010)

"Expect to see a number of leading brands in 2011 switch from purely marketing their products' sustainability and eco-friendliness (with its niche reach) and taking aim right at the heart of traditional alternatives: stressing the superior quality and design, increased durability and/or lower running costs of products in ways that will appeal to even the most eco-skeptic, self-centered or financially-challenged consumer. ECO-SUPERIOR examples? How about the Ovopur, a well-designed natural and environmentally friendly water purification device, or the Stealth Toilet, which contains a flushing system that only uses 0.8 gallons of water per flush - saving the average family approximately 20,000 gallons of water each year, or the Renault DeZir; a 'green' concept supercar that travels from 0-60 in five seconds, or Philips' 12-watt EnduraLED bulb. ... Meanwhile, our ECO-EASY trend, which we highlighted in our 10 trends for 2010, is still going strong. This is what we said a year ago: 'While the current good intentions of corporations and consumers are helpful, serious eco-results will depend on making products and processes more sustainable without consumers even noticing it, and, if necessary, not leaving much room for consumers and companies to opt for less sustainable alternatives to begin with. Which will often mean forceful, if not painful, government intervention, or some serious corporate guts, or brilliantly smart design and thinking, if not all of those combined. Think anything from thoroughly green buildings, to a complete ban on plastic bags and bottles, to super-strict bluefin tuna quota — anything that by default leaves no choice, no room for complacency, and thus makes it 'easy' for consumers (and corporations) to do the right and necessary thing". Here's just one ECO-EASY example that recently caught our eye:

"• In September 2010, Italy's famous Cinque Terre national park announced that the use of plastic water bottles by tourists and visitors was forbidden in an attempt to preserve the coastline from pollution and litter. Instead, visitors will be able to purchase reusable metal flasks which they will be able to fill up with still or sparkling water from public fountains."

Although I applaud sustainability efforts and environmentally friendly activities, consumers continue to vote with their wallets -- price trumps idealism every time. Does that mean that companies should abandon those kinds of efforts? The answer, of course, is "no." For one thing, governments are going to continue to regulate businesses in that direction. More importantly, many businesses are finding that such efforts actually make more sense than traditional activities. Take, for example, the matter of waste. The less waste a company produces the better it is for its bottom line as well as for the environment. It would be great if we could get consumers to start thinking about life-cycle costs rather than initial purchase prices. If we could, then product superiority could play an even bigger role in manufacturing and retailing. I suspect that more and more companies will concern themselves with the so-called "triple bottom line." The triple bottom line (sometimes abbreviated as "TBL" or "3BL") refers to doing business with "people, planet, and profit" in mind. As Wikipedia notes, the triple bottom line "captures an expanded spectrum of values and criteria for measuring organizational (and societal) success: economic, ecological and social." Now, for the final consumer trend:

"11. Owner-Less -- We covered the re-emergence of fractional ownership and lifestyle leasing business models (no more dodgy timeshares!) in our TRANSUMERS briefing way back in 2006. Brands like Rent the Runway (fashion) and Avelle (handbags - formerly Bag, Borrow or Steal) and P1(luxury cars) have shown that for many consumers, access is better than ownership. Indeed, over the past few years, there have been few industries that haven't got the 'Netflix treatment', from textbooks to jewelry to educational video games to calculators. For consumers, the appeal is obvious:

"• Traditional ownership implies a certain level of responsibility, cost and commitment. Consumers looking for convenience and collecting as many experience as possible want none of these things.

"• Fractional ownership and leasing lifestyle businesses offer the possibility of perpetual upgrades to the latest and greatest, the ability to maximize the number and variety of experiences, and allow consumers to access otherwise out-of-reach luxuries.

"• Owning bulky, irregularly used items is both expensive and unsustainable, especially in dense urban environments where space is at a premium. With more consumers having mobile access to online systems, it becomes easier to book items whenever and wherever they are needed (see PLANNED SPONTANEITY).

"Now, 2011 could be the year when sharing and renting really tips into mainstream consumer consciousness. Two key developments:

"• In 2011, expect to see more and more big brands getting in on the action. Take for example car sharing, one of the great successes of the OWNER-LESS trend, with car clubs springing up all around the world: Zipcar is the market leader, but similar services can be found everywhere from Australia (GoGet) to Brazil (Zazcar). Big brands, having seen the success of these smaller startups are increasingly getting in on the action: Hertz launched their car sharing service Connect back in December 2008, and now Daimler has added Hamburg and Austin, Texas following the successful pilot of their car2go pilot in Ulm (Germany). In July 2010, Peugeot launched its Mu 'mobility' service in the UK after successful launches in France, Germany, Italy and Spain. Customers can rent cars, scooters, vans or even bicycles.

"• Local authorities are finding that shared solutions allow them to expand their services at a lower cost, and in a sustainable manner. Public bike programs have been the global hit of 2010, with schemes launching in Minnesota, London, Mexico City, and across the Ruhr in Germany. Now, governments are exploring new forms of transportation, with Paris (who pioneered bike sharing) launching Autolib, an electric car sharing scheme in September 2011, and the New York City Department of Transportation announcing in October 2010 that they had partnered with Zipcar.

"Another big boost for the OWNER-LESS economy is that with so many highly visible transportation initiatives, all consumers are becoming used to seeing schemes in action, and more and more are feeling comfortable with the idea of sharing and renting large, expensive or often-idle objects.

"P.S. The brief introduction above only looks at brand/ government offerings. There is also a whole host of P2P sharing sites that are springing up to facilitate renting and sharing between consumers, with everything from homes to fashion, to cars (and car parking spaces) available."

A recent article in the Wall Street Journal discusses this trend ["Will Car-Sharing Among Strangers Catch On?" by Tomio Geron, 14 December 2010]. My guess is that if the trend really catches on people will prefer working through commercial businesses rather than sharing their personal items. The risks involved with sharing personal items (e.g., damage, theft, and liability) will continue to be a major barrier. Whether or not you agree with the folks at trendwatching.com, you must admit that they have provided us with plenty to think about over the coming 12 months.

Consumer Trends to Watch in 2011, Part 1

A company called trendwatching.com labels itself as "an independent and opinionated trend firm," that scans "the globe for the most promising consumer trends, insights and related hands-on business ideas." As you can tell from its self-description, the company is not your typical staid organization. In the introduction to an article on consumer trends to watch in 2011, the authors from trendwatching.com write:

"Another new year, another roller coaster of threats and opportunities. We tend to focus on the latter as, amidst currency wars and defaulting nations, there are more opportunities than ever for creative brands and entrepreneurs to deliver on changing consumer needs. From Brazil to Belgium. No rest for the wicked in 2011!" ["11 Crucial Consumer Trends for 2011"]

I was directed to trendwatching.com's web site from article I was reading on the Consumer Goods Technology (CGT) web site entitled "11 Crucial Consumer Trends for 2011," 7 December 2010]. The CGT article provides a good overview of 11 eleven trends discussed in the longer trendwatching.com article. For discussion purposes, however, I'll be using the original trends briefing provided by trendwatching.com. In Part 1 of this two-part series, I'll discuss the first six trends. I'll finish up with the final five trends tomorrow. The first trend might surprise you.

"1. Random Acts of Kindness --When it comes to the mega trend of GENERATION G (that's G for Generosity, not Greed), there’s no better way for a brand in 2011 to put its money where its mouth (or heart) is than engaging in Random Acts of Kindness (R.A.K.). Consumers' cravings for realness, for the human touch, ensure that everything from brands randomly picking up the tab to sending a surprise gift will be one of the most effective ways to connect with (potential) customers in 2011 - especially beleaguered consumers in North America, Europe and Japan. For brands, a serious (and sincere) R.A.K. strategy may mean no longer being seen as inflexible and unwieldy, but as more compassionate and charismatic instead. Something which is, of course, priceless and actually fun. Fueling the R.A.K. trend is brands' ability to actually know what's happening in consumers' lives (good or bad!), as people publicly and knowingly disclose (from Facebook to Twitter) more and more about their daily lives, their moods or their whereabouts. Social networks also enable acts of kindness to spread far beyond its recipients, as they will gladly tell their friends and followers about the unexpected good news (see SOCIAL-LITES). Two fun examples to copy or improve on in 2011:

"• Flower delivery service Interflora has launched a social media campaign in the UK designed to brighten up the lives of Twitter users by sending them flowers. As part of the campaign, Interflora monitors Twitter looking for users that it believes might need cheering up. Once found, the users are contacted by tweet, and sent a bouquet of flowers as a surprise.

"• Dutch airline KLM's 'How Happiness Spreads' Foursquare-based campaign employed a 'Surprise Team' to give passengers tailored, unexpected gifts at the airport. Throughout November 2010, as soon as someone checked-in at a KLM Foursquare location within its network of airports, the Surprise Team went online to find more background information about the person, decided upon a suitable gift and gave it them before they flew. For instance, one traveler tweeted he would miss a PSV Eindhoven football game while he was in New York. The Surprise Team, accordingly, gave him a Lonely Planet guide book of NYC with all the football bars highlighted in blue."

Obviously, not every company can afford to dedicate teams of people to reading tweets and scanning Facebook. The trend does, however, underscore what a lot of analysts are saying about social media -- get on board or get left behind.

"2. Urbanomics -- Urbanization remains one of the absolute mega trends for the coming decade. Here's just one telling stat: 'Today, half the world's population – 3 billion people – lives in urban areas. Close to 180,000 people move into cities daily, adding roughly 60 million new urban dwellers each year.' (Source: Intuit, October 2010) How will this change the consumer arena in 2011 and beyond? Firstly, urban consumers tend to be more daring, more liberal, more tolerant, more experienced, more prone to trying out new products and services. In emerging markets, these effects tend to be even more pronounced, with new arrivals finding themselves distanced from traditional social and familial structures, while constantly exposed to a wider range of alternatives. Secondly, keep a close eye out for ‘URBAN ISLANDS’: just 100 cities currently account for 30% of the world's economy, and almost all its innovation. Many are world capitals that have evolved and adapted through centuries of dominance: London, New York, Paris, etc. New York City's economy alone is larger than 46 of sub-Saharan Africa's economies combined. Hong Kong receives more tourists annually than all of India (Source: Foreign Policy, August 2010). However, metropolises such as Shanghai, Sao Paulo and Istanbul are obviously keen to join the top ranks, too. Catering to city-citizens in these vast urban entities requires a local, dedicated approach in products, services and campaigns that mirror if not surpass the usual country-specific approach. To cut a long story short: In 2011, go for products, services, experiences or campaigns that tailor to the very specific (and often more refined, more experienced) needs of urbanites worldwide, if not city by city. And don't forget to infuse them with a heavy dose of 'URBAN PRIDE'. From Smirnoff's Absolut Cities to BMW's Megacity vehicle, urban is the way to go."

The statistics are telling and the trend is clear. I was particularly intrigued by the fact that "just 100 cities currently account for 30% of the world's economy, and almost all its innovation." The term "urban islands" is also a wonderful visualization of a complex concept. My only comment about this trend is that the write-up is obviously encouraging companies to go after affluent urbanites (middle class consumers and above). Many of the residents of the world's urban islands, however, remain gripped in poverty. As I have noted in past posts on development, there is money to made selling to the so-called "bottom billion." They probably don't have much urban pride, but they nevertheless deserve attention.

"3. Pricing Pandemonium -- While consumers have always looked out for special offers and discounts, new technologies and services mean that 2011 will see total PRICE PANDEMONIUM:

"• More consumers are constantly connected, and when they hear about new deals online can quickly and easily spread them through their social networks.
"• Increasingly, consumers will be part of exclusive networks or groups to either receive special deals or demand them.
"• Mobile devices increasingly enable consumers to find or receive dynamic deals right at the point of sale, or to compare prices online. Case in point: Amazon.com just released an iPhone app that allows users to compare prices by scanning the product's barcode, photographing it or saying its name.

"Always-on connectivity is changing consumer spending habits in myriad ways. For example, coupon clipping required planning and dedication, hence wasn't that popular with consumers more interested in the here and now (see NOWISM), but now is a near-effortless online activity. Furthermore, whipping out one's smartphone at the counter, getting the latest deal via GPS, or barcode scanning is well, smart. And therefore a source of status rather than shame. Brands will continue to respond with a host of innovative new business models and pricing strategies in the next 12 months, building on:

"• Group buying. The two billion consumers now online can exercise their collective buying power, helped by the host of services and social networks that make it easier than ever to organize and act. Keep an eye on 2010's big success story Groupon, which will become even bigger in 2011 (especially when part of Google ;-) or their competitor Living Social. Indeed, group buying sites are springing up everywhere, from GoNabit (that covers Arab markets such as Kuwait and Dubai), to Big Lion (Russia) and Daily Deal (Germany). Or consider these two examples as confirmation that group buying is here to stay: in September 2010, Chinese group buying site Taobao sold 200 Smart cars in 3 1/2 hours, while in October 2010 Walmart used Facebook to run their own group buying offer, which got the 5,000 'likes' needed to make the deal happen within 24 hours.

"• Member sales. The old 'club' format (think of Costco) has been given a new lease on life online, where niche communities thrive. Making some memberships limited or invitation-only, only increases the perceived exclusivity; SOCIAL-LITE consumers enjoy the social aspects of shopping, while for brands, offering reduced prices privately to small groups confounds TRANSPARENCY TRIUMPH. Designer fashion brands were some of the first to offer heavily discounted ranges to select groups, via sites such as vente-privee.com, Gilt Groupe and iDeeli but member sales are now expanding to areas such as travel (Jetsetter) and home furnishings (One Kings Lane).

"• Flash sales. Both groups and member communities frequently use time-limited offers that encourage impulse buys. By limiting the time available, and frequently only making sales available to members, brands are able to shift excess inventory quickly. DellOutlet and Threadless have seen great success with Twitter flash sales, and in November 2010 flash sale site Hautelook integrated its offers into its Facebook page, so that consumers could take up the day's deal without leaving the site. Indeed, with so many daily deals, there are now sites like Yipit and MyNines that aggregate all the deals. Less of a flash sale and more of a weekend-sale is retailer J. Crew's online factory store. Open every weekend from midday Friday to midnight Sunday (EST), the site offers a limited selection of some of J. Crew's most popular pieces, produced exclusively for the factory, at reduced prices.

"• Local discounts. With more and more consumers being able to broadcast their location, either publicly via Facebook, Twitter or other dedicated location-based services, brands can offer deals directly to consumers virtually at the point of sale. These can be rewards for performing certain actions (Shopkick and Checkpoints), geo-located promotions (PlaceCast), or just geo-enabled apps such as UK-based Vouchercloud. Indeed, despite the hype around check-in game services such as Foursquare, B2C brands are finding that the best way to incentivize customers is to offer them deals (witness Gap's promotion to launch Facebook Deals).

"• Dynamic pricing. Traditionally practiced by the airline industry, improvements in real-time information are now allowing other sectors to experiment with innovative dynamic pricing models, such as the US-based Off and Away, which auctions hotel rooms, and Swoopo, the German based 'entertainment shopping' site where every bid placed extends the auction's time period."

Wow, that's a lot to digest. The first point to make, however, is that Groupon turned down Google's $6 billion acquisition offer. To learn more about Groupon and the Google offer, read my post entitled All Things Google: Beyond the Search Engine. Although the folks at trendwatching.com are encouraging businesses to embrace this pricing pandemonium, it appears that some retailers are frightened by the prospect ["Phone-Wielding Shoppers Strike Fear Into Retailers," by Miguel Bustillo and Ann Zimmerman, Wall Street Journal, 15 December 2010]. On to trend 4:

"4. Made for China (If Not BRIC) -- In 2011, expect an increasing number of 'Western' brands to launch new products or even new brands dedicated (if not paying proper respect) to consumers in emerging markets. After all, it's where the money is right now, and Western brands are still favored over local ones, so the combination of perceived quality with a bit of local tailoring, love or exclusivity makes total sense*.

"* Like all consumers, these Chinese, Indian or Brazilian consumers will appreciate products that are tailored to their needs, wants and desires, either for practical reasons (shape, size, features) or because of the deep-rooted desire for recognition (cultural pride, heritage, lifestyles).

"This MADE FOR CHINA (IF NOT BRIC) phenomenon is just one of the many sub-trends spawned by the macro trend of economic and consumption power shifting towards emerging markets. Just to remind you:

"• China's retail sales, the main gauge of consumer spending, rose 18.7% year on year to USD 183 billion in May 2010, following a 15.2% rise the previous year. (Source: Chinese National Bureau of Statistics, June 2010)

"• China’s retail sales may outstrip those of the US by reaching USD 5 trillion in 2016. (Source: Chinese People’s Political Consultative Conference, September 2010)

"• Affluent Chinese consumers prefer foreign brands: 52% of consumers whose annual income exceeds RMB 250,000 (USD 36,765) trust foreign brands more than Chinese ones while just 37% said they prefer the latter. (Source: McKinsey, September 2010)

"So who has already jumped on the MADE FOR CHINA band wagon? Check out the following examples:

"• Levi's dENIZEN Jeans brand, targeting Asians/Chinese consumers with slimmer fits.

"• Dior's very expensive Shanghai Blue Phone, only available in Shanghai stores.

"• Hermès’ new Chinese brand, Shang Xia; its luxury stores sell ready-to-wear and decorative arts inspired by Chinese culture.

"• Chloé’s limited edition Marcie handbag to celebrate their fifth anniversary in China.

"• BMW’s limited edition, orange metallic M3 Tiger to celebrate the 25th anniversary of its M3 model in China, coinciding with the Chinese lunar calendar (the year of the tiger).

"• Last but not least, and the inspiration behind the naming of this trend: Apple's Shanghai store employees started wearing red t-shirts with the slogan 'Designed in California, Made for China' written in Mandarin. The message is a play on the words that are found on the back of all iPhones: 'Designed by Apple in California, assembled in China'.

"P.S. Brands like Honda (Li Nian), Nissan (Venucia) and GM (Baojun) are busy introducing ‘cheaper’ brands in China, too, as many consumers in emerging markets still do have less to spend than their counterparts in mature consumer markets. And yes, that's yet another 'Emerging Markets' sub-trend."

Although authors of the article concentrate on China, they are right in implying that other emerging market countries are also worth watching. See my post entitled Knowing Your BRICs and CIVETS, in which I describe those countries that are now being closely watched along with the BRIC countries.

"5. Online Status Symbols -- Online culture still is the culture, and thus we'll see a rise in online status symbols in 2011 (after all, status symbols reflect the zeitgeist like nothing else). What started with showing off the number of visitors to one's Flickr pages or blog now also encompasses the number of one's Facebook friends (or any other social network), Twitter followers, Foursquare check-ins and a host of other metrics that indicate one's 'wiredness'. In 2011, you can't go wrong supplying your (online-loving) customers with any kind of symbol, virtual or 'real world' that helps them display to peers their online contributions, interestingness, creations or popularity. Indeed, one extra element to watch out for in 2011 is new status symbols that straddle the 'real' and 'online' worlds. From physical manifestations of digital status (think personalized Facebook and Twitter memorabilia), to online recognition of physical activities (status updates or badges based on real-world visits), consumers will seek to display their online status symbols in all arenas. Some fun (yet telling) examples:

"• Twournal enables users of Twitter to transform their tweets and pictures into a real-life published journal. In addition to creating their own 'books', users can also buy and sell publications from other users.

"• US based CrowdedInk offers an app that allows users to generate mugs filled with pictures of their Facebook friends or Twitter followers. Users only need to enter their username and a preview of the mug is automatically generated in minutes.

"• Location-based social game Foursquare awards members with badges for performing tasks, including the Supermayor badge (awarded when someone is mayor of 10 different places at once), the Entourage badge (awarded when checking-in with 10 friends), the Gym Rat badge (awarded when someone has checked- in on 10 trips to the gym in 30 days), and even the Last Degree badge (awarded when checking-in at the North Pole ;-).

"• Nerd Merit Badges are real-life, physical representations of a user's online achievements through Foursquare. The fully embroidered, velcro-backed badges sell for approximately USD 6. And Foursquare's own online store now offers similar real-world buttons."

This trend appears more likely to take hold among the very young or the very old. I can see kids at school as well as wheelchair-bound residents of rest homes wearing their "Nerd Merit Badges," but the whole "there is no 'U' in Internet" movement will probably remain a niche market. That doesn't mean that enterprising entrepreneurs won't be able to make money exploiting it.

"6. Wellthy -- As good health is now as important to some consumers as having the biggest, newest or shiniest status symbols, growing numbers of consumers will expect health products and services in 2011 to prevent misery if not improve their quality of life, rather than merely treating illnesses and ailments. Some signs of the times:

"• 73% of US consumers consider being physically fit important to being ‘well’, with 74% including ‘feeling good about themselves’. (Source: The Hartman Group, August 2010)

"• An estimated 500 million people worldwide are expected to be using mobile healthcare applications by 2015. (Source: Reasearch2Guidance, November 2010)

"• There were nearly 17,000 health apps available in major app stores in November 2010, with 57% of them being aimed at consumers rather than health care professionals. (Source: Reasearch2Guidance, November 2010)

"• The heaviest use of health or medical related apps is by young adults: about 15% of those aged 18 to 29 have such apps, compared to 8% of users aged 30 to 49. (Source: The Pew Internet Project, October 2010)

"In 2011, count on even more monitoring technologies becoming portable or even wearable, as well as getting cheaper (the smartphones held by many consumers are now more advanced than most dedicated medical devices). Also, both regular and dedicated medical social networks give audiences a platform to share, compare and discuss their personal health issues with other consumers. Last but not least, the 'consumerization' of health means that more consumers will choose products with embedded health benefits that are actually well designed, desirable, accessible, fun, tasty, interesting or storied. Some examples:

"• The Strollometer is a device that tracks all aspects of a new mother's strolling routine. On the display screen of the gadget, moms can check their speed, distance traveled, time spent exercising, average and maximum speeds, and the temperature outside. Once the strolling session is over, moms can then enter their data on the Fit4Mum.com website and see their results in terms of calories burned.

"• Sleep On It is a mobile app that allows users to track their nightly sleeping patterns. The free tool can determine what factors may be affecting their sleep and how much sleep they need each night to feel rested and energized. Sleep On It allows users to track the length and quality of their sleep, as well as time spent snoozing and mood to see how sleep impacts their overall health and quality of life.

"• Phillips DirectLife is a small, lightweight, wearable monitor that builds up a detailed record of users' daily activities. Users' data is uploaded to their personal DirectLife site, showing how many calories were burned throughout the day. Users track their progress against their personal targets, and have access to an online personal coach. Users can also compare themselves to other members and connect with the online community to encourage them to share tips and stay motivated.

"• Both Microsoft and Sony have recently released motion-sensing game controllers: the X-Box Kinect and Playstation Move. The systems use cameras (and a controller for the Move) to detect users' movements during gameplay. The controllers were designed not only to heighten the gaming experience but also, much like the Nintendo Wii, to add a physical and healthy dimension to it, with games like EA Sports Active 2 and Get Fit with Mel B."

I believe that this trend is going to be a lasting one. In a post entitled Shortages of General Practice and Family Doctors are Impacting Emergency Health Care, I discussed the fact that general practice physicians are already in short supply and the shortage is predicted to increase. Some analysts believe that one way to reduce doctor workload while increasing patient care is to use more remote patient monitoring. As noted above, consumers are starting to monitor themselves and are likely to become increasingly more comfortable in a healthcare environment permeated by remote monitoring devices.

A side note on the value of motion-sensing game systems: The father of one of my employees became deathly ill when he was infected with Methicillin-resistant Staphylococcus aureus (MRSA) following surgery for bladder cancer. The infection concentrated around his hip replacement hardware requiring it to be removed. Months of languishing pain and diminishing health followed. Eventually he had surgery to replace the hardware removed from his hip. Following that surgery, he was sent to rehabilitation facility to recover. Lying in his bed, he heard women laughing down the hall. When he inquired as to what was going on, the CNA told him that some women were bowling on the facility's Wii gaming system. His eyes lit up and he informed his caretakers and family that he wanted to go play as well. He went from being bedridden to bowling. From his first game, Wii played a part in his remarkable recovery.

In the next post, I will complete my discussion of the trendwatching.com list of consumer trends to follow in 2011. If you can't wait or want to learn more about that company, go to http://www.trendwatching.com/. You can also get regular updates from the company. As "one of the world's leading trend firms, trendwatching.com sends out its free, monthly Trend Briefings to more than 160,000 subscribers worldwide."

Top Supply Chain Opportunities and Challenges in 2011

As supply chain management analysts look forward to the New Year, two of them have offered their views on what lies ahead. Jim Tompkins, CEO & Founder, Tompkins Associates, discusses The Top 11 Positive Supply Chain Value Creation Opportunities for 2011 [SupplyChainBrain, 19 November 2010], whereas Chris Chiappinelli, Editor of ManagingAutomation.com, discusses The Top 3 Supply Chain Management Worries in 2011 [ManagingAutomation.com, 22 November 2010]. Let's begin with Tompkins' opportunities. He writes:

"The increased complexity of today's supply chains highlights the impacts that these operations can have on shareholder value -- positive or negative. So, I present my 'Top 11 Positive Supply Chain Value Creation Opportunities for 2011.' It would be easier to write a book than 11 brief summaries on these topics, but I feel that just the key points will be of more value to you."

I'm just guessing, but I suspect that Tompkins selected 11 rather than 10 opportunities because we are about to welcome the year 2011. His list begins with growth. He writes:

"1) Profitable Growth: Not all growth is profitable, and therefore, not all growth is good. View the supply chain not just as an opportunity to impact the bottom line by reducing cost, but also as a way to increase the top line by capturing new markets, new customers, providing new services and/or increasing market share."

Tomkins is correct that not all growth is profitable. In recent years, numerous conglomerates have stopped acquiring and have started shedding subsidiaries that don't complement what they consider to be their primary business focus. For example, "Fortune Brands, Inc., the maker of Jim Beam bourbon, Moen faucets and Titleist golf balls," recently announced "plans to split the company into as many as three separate businesses." ["Fortune Brands Plans to Split Up," by David Kesmodel, Wall Street Journal, 8 December 2010] According to Kesmodel, "The company intends to spin off its home and security unit to shareholders in a tax-free transaction, and to either sell or spin off its golf division, these people said. Separately, Fortune Brands would remain an independent, publicly traded company focused on liquor brands that include Maker's Mark bourbon and Sauza tequila." Tompkins is also wise to point out that as the supply chain becomes a more integral part of integrated, collaborative businesses, it should be seen as a way of capturing new business not just reducing costs. Supply chain analysts like Bob Ferrari have long lamented that most business leaders only look at supply chain management when they want to cut costs. Tompkins continues:

"2) Procurement: Procurement in many firms is really little more than purchasing. Procurement needs to accept a much broader responsibility beginning with strategic sourcing, to include all supply chain mega-processes (Plan-Buy-Make-Move-Store-Sell), and encompassing responsibility of supplier relationship management."

Both manufacturers and retailers are going to find themselves more often in the crosshairs of activists, environmentalists, and regulators with regards to the sustainability of their supply chains. Traceability is going loom larger as a challenge and it will be supply chain personnel who have to deal with this challenge. Tompkins lists procurement as an opportunity to create value because companies that do it well are likely to differentiate themselves from their competition (for more on traceability read my posts entitled Drug Safety and the Supply Chain and "Conflict Minerals" and the Supply Chain). Tompkins continues:

"3) Outsourcing: Focus on tasks that are your core competency. All other tasks should be outsourced, as we all need to enhance our performance or our core competencies."

My only caution here is that increased scrutiny is being placed on companies that outsource activities overseas. Make sure you consider all potential ramifications of your outsourcing decisions. An interesting side note on outsourcing is that the Philippines has recently overtaken India as the main go-to country for outsourced call centers ["Philippine Call Centers Overtake India," by Mehul Srivastava, Bloomberg BusinessWeek, 2 December 2010]. Tompkins continues:

"4) Inventory: Increase inventory turns and fill rates simultaneously. Advanced Sales Inventory and Operations Planning (SIOP) must be put in place to unleash working capital and drive customer service."

Since Enterra Solutions entered the supply chain management field, we have focused a lot on helping companies achieve better fill rates and reduce retailer chargebacks. The bottom line for businesses is not just to reduce penalties but to improve customer service. Customers hate bad surprises -- like bare store shelves because deliveries failed to be made. Tompkins moves on to number 5 on his Top 11 list:

"5) Transportation: Put forth efforts to develop core carrier programs, implement TMS, decouple inbound freight, and enhance shipment planning and execution opportunities."

A lot of changes have taken place over the past couple of years in the transportation industry. Some of the changes resulted from the recession and others from companies wanting to have more control over their supply chains. Looking ahead, I agree with Tompkins that transportation may be an area where opportunities emerge. To learn more about changes ahead in the trucking sector, read my post entitled Truck Transportation Safety and the Supply Chain. Tompkins continues:

"6) Network: The uncertain economy, globalization of business, M&A, and the evolution of your marketplace all demand an annual review of your network. Evaluate the number of and justification for your locations, along with the operation strategies, in order to establish the lowest cost/highest customer service network for current requirements."

I've written a number of posts about the benefits of collaboration and information sharing across the entire spectrum of the supply chain. I believe that collaboration implies something deeper than simply establishing and maintaining networks. Supply chain analyst Lora Cecere continually pushes companies to start moving towards demand driven supply chains. Getting your networks right is a foundational step on that journey.

"7) Service Supply Chain: View this as a profit center. Reverse logistics and end-of-life product opportunities need to be assessed with an eye toward enhancing profitable growth."

Those activities are also going to play increasingly important roles as companies begin contemplating product cradle-to-cradle sustainability. For more on that topic, read my post entitled Going Green: Cradle to Cradle Supply Chain. Tompkins continues:

"8) Speed, Agility and Productivity: Shareholder value will often be determined by how quickly the supply chain can bring product to market and fill orders. It will also be determined by the agility of the supply chain to respond to changing market conditions and by the eliminator of waste to enhance productivity. Successful organizations will be innovative in boosting speed, agility and productivity across the processes of Plan-Buy-Make-Move-Store-Sell-Return."

I couldn't agree more. Agility and flexibility are two of the key words that one hears whenever better supply chains are discussed.

"9) Tax-Effective Supply Chain: Include the Effective Tax Rate (ETR) in supply chain decisions and perform the analysis 'pre-tax' to avoid making bad decisions. Since the ETR for multinational corporations is often in the 25-percent range, supply chain managers need to understand the ETR and tax managers need to understand the supply chain. ETR and the supply chain is a big deal, and it is often overlooked."

With a new Congress about to be seated, U.S. companies are likely to hear a lot about taxes over the coming two years. It is clear that Democrats and Republicans have decided that taxes are the battlefield on which they want the next election to be fought. Internationally it will be interesting to see whether those who recommend corporate tax cuts to promote economic growth win the day or whether politicians will seek higher taxes to build infrastructure, provide social services, and, in some cases, address mounting deficits.

"10) Cash-to-Cash Cycle (C2C) Management: Consider the C2C cycle in all supply chain improvements. At a basic level, the C2C cycle is the length of time a company's cash is tied up in working capital before it is returned in the form of collections of receivables. Like all assets, cash is useful when it is available and conversely not useful when it is not available, so you can see how it has a major impact on the supply chain."

This past year has been an interesting period when many small and medium sized businesses have been cash strapped and some large corporations have been sitting on piles of cash because they were unsure how to invest it. Neither situation is ideal. Tompkins' final opportunity deals with technology.

"11) Technology: Move forward with technology upgrades that have a strong business case. As much as I would like to skip this topic on my Top 11, it would be irresponsible not to discuss ERP, best-in-breed, SaaS, the Cloud, the obsolete systems, expensive upgrades, etc. I say this because I have experienced dissatisfaction with ROI on many technology applications of the last five years. At the same time, the business case for supply chain technology applications is compelling and helps achieve supply chain excellence."

I believe Tompkins has touched on a sore point with many companies. One of things that we have tried to do at Enterra Solutions is ensure that our offerings complement legacy IT systems rather than replace them. The best advice I can give you is to your homework.

If those are the opportunities that lie ahead, what are the challenges? Chris Chiappinelli believes he has identified the three greatest challenges that are going to be faced in the New Year. He writes:

"The number of supply chain management factors that confront global manufacturers remains relatively stable from year to year. But the way those factors mingle and collide makes each year a new challenge, and 2011 will hold a particularly tricky mix that will make supply chain management a tenuous balancing act. IDC Manufacturing's Simon Ellis recently reported that an IDC survey of U.S.-based manufacturers showed that their top three criteria for sourcing decisions will be manufacturing cost, logistics and/or fulfillment costs, and supply lead time. No great surprises there. These fundamentals have been the bedrock of supply chain management for a long time. Year in and year out, manufacturers must balance a matrix of supply chain considerations, including production and distribution costs, inventory carrying costs, product quality, supply chain speed, intellectual property protection, and competitive market trends. But 2011 may change the mix more than usual, and that will impact manufacturers' supply chains, including global sourcing of raw materials and outsourced manufacturing services for which they contract. Among a host of other supply chain factors, there are three that I think we should all watch closely. Not surprisingly, they have a decided China bent."

Chiappinelli's three challenges include: "The appreciation of China’s currency; the price of oil as the world economy continues to recover; and China’s policy on exporting rare earth metals used in electronics and related products." He begins with China's currency:

"China’s currency: China has become a manufacturing powerhouse, in no small part because it has kept its currency, the yuan (officially, the renminbi), cheap compared to the U.S. dollar. That helps Chinese manufacturers sell their goods inexpensively to U.S. consumers. It also gives U.S.-based manufacturers cost incentive to set up outsourced manufacturing operations there. But lately the international pressure on China to let its currency grow against the dollar has intensified, and China has allowed some appreciation. The pressure for more parity is not likely to abate, especially from the U.S. As a result, 2011 may be a year in which costs in China rise significantly. That would change the supply chain management equation markedly for many U.S. manufacturers with operations in China."

Over the past couple of years I've noted that the so-called "China price" of products has been steadily climbing (meaning that the benefits of manufacturing there rather than domestically are beginning to shrink). As companies such as Foxconn (which employs over 800,000 workers) are forced to raise employee wages dramatically, the advantages of manufacturing in China will decrease even more. Chiappinelli next discusses the price of oil:

"The price of oil: In a recent article that weighed the possibility of $100-per-barrel oil, BusinessWeek quoted Sarah A. Emerson, managing director of Energy Security Analysis, as saying, 'This is a well-supplied market, and that won't be changing anytime soon. ... At the end of the day, fundamentals matter.' I'd say this view is dangerously ignorant of recent history. The run-up toward $150-per-barrel oil in 2008 owed much to an inflated commodity futures market, where speculative traders placed big bets on oil on the assumption that we were near or past peak production and that oil would soon be as precious as gold. The price may have come down, but those worries have not gone away. Couple that lingering concern with an increase in global demand for oil as economies worldwide start gaining traction, and the result could be a repeat of just a few years ago. Remember that oil prices right now, during a relative lull in economic growth, stand at more than $80, and have flirted with $90 recently. Some observers are talking again about oil reaching $150 per barrel. Don't bury your head in the oil sands and hope the price will fall in 2011."

I have to agree with Chiappinelli on this point. Most analysts seem to believe that we are quickly headed back to oil prices exceeding $100/barrel ["Crude oil tipped to bubble over $100 a barrel," by Javier Blas, Financial Times, 7 December 2010]. Since rising oil prices can significantly increase transportation costs, they can have a dramatic effect on the supply chain. In several past posts, I have noted that the rising China price coupled with increased transportation costs could realign manufacturing and supply chains around the world. Finally, Chiappinelli discusses rare earth minerals:

"Rare earth metals: China controls the overwhelming majority of the world's supply of rare earth metals, such as scandium, yttrium, and the lanthanides, which are used in products as diverse as mobile phones, glass, cars, wind turbines, and missiles. Over the course of many months this year, China refused to export any rare earth materials, forcing manufacturers in Japan and elsewhere to draw down their inventories and scramble for alternatives. China has since opened the supply lines for rare earths, but has expressed a desire to curb production to protect the environment. The cutbacks could recur in 2011."

I have a small nit to pick with Chiappinelli on the matter of rare earths. China overwhelmingly controls the current production of rare earth minerals but it does not possess the vast majority of rare earth reserves. For more on this topic, read my post entitled China and the Rare Earths Conundrum. Chiappinelli concludes: "Supply chain management success has always favored managers with prescience. In a game where fluctuation is the norm, it helps to know where the signs are pointing." His three challenges and Tompkins' 11 opportunities provide good fodder for some "what if" exercises that should be taking place in corporate conference rooms (look for a future post entitled Examining the "What Ifs" in Life). There you have two analysts' views as they look ahead to 2011. You should ask yourself, "As I look ahead, what do I see?"

BusinessWeek's Top Young Entrepreneurs for 2010

Studies have shown that most entrepreneurs are over the age of 30; but with the rise of companies like Facebook and its young founder Mark Zuckerberg, who was just named Time Magazine's "Person of the Year," more attention is being paid to young entrepreneurs (i.e., those under 25 years of age). Bloomberg BusinessWeek scoured the U.S. looking for companies founded by young entrepreneurs that its staff believed merited attention. The criteria for selecting the 25 finalists was: "Their founders were no older than 25 at the nomination cut-off date, and they appeared to hold promise based on business model, founders' experience, outside capital, and revenue." ["America's Best Young Entrepreneurs 2010," by John Tozzi, Bloomberg BusinessWeek, 23 September 2010]. Having identified the select group of 25 companies, the magazine let readers vote on their favorites. Before revealing the readers' picks, let's look at the candidates ["2010 Finalists: America's Best Young Entrepreneurs," by John Tozzi, Venessa Wong, and Lauren Hatch, Bloomberg BusinessWeek slideshow]. Below is the list of the 25 finalists.

1. 9 Clouds -- Founded by John T. Meyer, 25, 9 Clouds is an online marketing consultancy.

2. Campus Buddy -- Founded by Mike Moradian, 25, Campus Buddy publishes data on college class grading.

3. Cirtex -- Founded by John Xie, 21, Cirtex provides web hosting.

4. CitizenGroove -- Founded by John Knific, 23, Marc Plotkin, 24, Eric Neuman, 24. and Kyle Napierkowski, 24, CitizenGroove provides software for digitizing music school applications.

5. Convasis -- Founded by Alexey Ossikine, 22, Convasis provides product development for startups.

6. DefySupply -- Founded by Brent Gensler, 25, DefySupply provides online furniture sales.

7. Coach Line -- Founded by Ray Land, 23, Coach Line provides luxury motor coach charters and tours.

8. Forever Lazy -- Founded by Tyler Galganski, 25, and Dave Hibler, 25, Forever Lazy Sells one-piece pajamas for adults.

9. Freshbox Catering -- Founded by Joe DeLoss, 25, Freshbox Catering provides corporate catering.

10. Game Origin -- Founded by twins Ajay and Anil Patel, 22, Game Origin resells used video games.

11. Growth Spark -- Founded by Ross Beyeler, 23, Growth Spark provides web design and online marketing.

12. Hodara Real Estate Group -- Founded by Alex Hodara, 23, Hodara Real Estate Group brokers real estate rentals and sales.

13. Infegy -- Founded by Justin Graves, 25, and Adam Coomes, 25, Infegy monitors customer feedback online.

14. Innova Dynamics -- Founded by Alexander Mittal, 25, Arjun Srinivas, 25, and Michael Young, 24, Innova Dynamics provides advanced materials engineering.

15. Krossover -- Founded by Vasu Kulkarni, 24, Krossover Culls data from video footage for sports teams.

16. LifeServe Innovations -- Founded by Zach Bloom, 23, and Rick Arlow, 22, LifeServe Innovations develops medical devices.

17. LiveProud -- Founded by Phil Tepfer, 24, and Charles Bogoian, 24, LiveProud sells apparel made from trash.

18. Milo -- Founded by Jack Abraham, 24, Milo tracks products on store shelves.

19. Mobiata -- Founded by Ben Kazez, 23, Mobiata provides mobile apps for travelers.

20. New Media Campaigns -- Founded by Joel Sutherland, 25, Clay Schossow, 24, and Kris Jordan 25, New Media Campaigns makes websites for politicians and businesses.

21. PrimeTime Lacrosse -- Founded by Tyler Low, 23, and Jason Wellemeyer, 25, PrimeTime Lacrosse runs lacrosse leagues, training classes, and camps.

22. Pyknic -- Founded by Andrew Marshall, 24, and Stephen Thompson, 23, Pyknic sells decorated T-shirts.

23. SeatGeek -- Founded by Russell D’Souza, 25, and Jack Groetzinger, 25, SeatGeek predicts prices of event tickets.

24. VillageVines -- Founded by Ben McKean, 24, and Dan Leahy, 25, VillageVines helps restaurants sell excess capacity.

25. Vino Gallery -- Founded by Alex Head, 24; and Rachael Buehrer, 24, Vino Gallery is an art gallery and wine shop.

From those 25 candidates, Bloomberg BusinessWeek readers were asked to select their favorites. Before revealing the readers' five favorite picks, let me provide you with my favorites (in alphabetical order):

DefySupply -- "In 2007, after graduating from University of Wisconsin, where he had studied real estate and finance, [Brent] Gensler traveled through China to meet with companies that supply furniture to U.S. retailers. He moved back to Minneapolis at the end of the year, and in 2008 launched DefySupply to sell furniture from Chinese suppliers directly to customers in North America. ... He invested $50,000 of his savings and secured $200,000 from an angel investor in Minneapolis. The business, which began with sofas, bar stools, and patio furniture from five manufacturers, has since expanded to include 3,700 unique products from 45 suppliers. Customers have to be patient—it takes about six weeks for an order to arrive—but Gensler says prices are about half what retailers would charge. DefySupply has 10 employees in China and five in the U.S. Gensler expects $5 million in 2010 sales, twice as much as in 2009."

DefySupply clearly takes advantage of both globalization opportunities and information age technologies. Although the company's profit margins could shrink as the "China price" and transportation costs increase, Gensler's business model is still sound and I anticipate he will continue to be profitable.

Infegy -- "Justin Graves and Adam Coomes were running a game technology company, Invented Existence, in 2004 when they got a side offer from an ad agency to build a tool that could monitor online discussions about businesses. That job led them to create software to monitor and analyze customer conversations and comments on message boards and social networks such as Facebook. The pair used $50,000 of their own money to launch Infegy in 2006. Since then, the Kansas City (Mo.)-based company has expanded to 25 employees and a second office in Birmingham, U.K. Now more than 50 clients ... use Infegy for its database of more than 6 billion individual Tweets, blog posts, and customer comments. In 2009, Graves says, the company had over $350,000 in revenue and became profitable. He expects between $1.5 million and $2 million in revenue in 2010."

Almost everywhere I turn nowadays I read articles about the importance of social networks and corporate reputations. My guess is that Graves and Coomes will find a buyer for their company and will end up with a very nice nest egg.

Innova Dynamics -- "Alexander Mittal developed a process for imbuing plastics and polymers with new properties while pursuing a dual major in engineering and economics at the University of Pennsylvania. In his 2006 thesis project, he used that technique to create water pipes that would repel microbes in remote Honduran villages, making drinking water safer. He and his co-founders Arjun Srinivas and Michael Young founded a company, now called Innova Dynamics, in 2008 to commercialize the technique, which he says can be used to improve or develop products in a range of industries. ... Innova's process, which the company calls Innlay, has been used to create antimicrobial surfaces for hospitals, including floors and phones. Mittal says the company is working on changing the properties of solar panels to make them more efficient. Clients include the U.S. Army, DuPont, and PPG. Innova, which has 10 employees, raised $5.5 million in venture capital in May, and recently relocated from Philadelphia to San Francisco. Mittal says revenue in 2009 was in the 'low six figures' and this year he projects over $1 million."

Readers of this blog know that I've been interested in development and healthcare for some time. Innova Dynamic's initial product addresses challenges in both areas. My prediction is that Innova will do well selling their products in both developing and emerging market countries.

LiveProud -- "During their senior year at Babson College in 2007, suitemates and longtime sailors Phil Tepfer and Charles Bogoian borrowed $25,000 from friends and family to launch their SailProud clothing line of moisture-wicking T-shirts and rash guards to protect sailors from chafing. LiveProud, which contracts out its design and manufacturing to factories in Georgia, Illinois, and British Columbia, turned profitable in less than a year because it operates on low inventory, filling orders as they come in. In November 2009, LiveProud started using fabric derived from recycled plastic bottles and other waste such as corn husks and coconut shells for the 25 styles of T-shirts, jackets, and polos. Tepfer says all the clothes are now made from materials reclaimed from landfills, with each shirt saving about 5.5 pounds of carbon emissions. In addition to SailProud, the pair sell outdoor gear for hikers under the brand TrekProud and a line of yoga clothes called BeProud. Tepfer says the company had $110,000 in revenue in 2009, and expects $375,000 in 2010."

LiveProud not only taps into a profitable niche market it attracts environmentally-conscious consumers as well. As concerns about keeping trash out of landfills grow, companies like LiveProud will find their valuation increasing.

Milo -- "[Jack] Abraham came up with the idea for a website that would let users search for products in stock at local stores in real time. After raising more than $400,000 from investors, including his professor at the Wharton School of Business, Abraham moved from Philadelphia to Palo Alto, Calif., in November 2008 to launch Milo. He later hired Chief Technology Officer John Evans and lead engineer Ted Dziuba, a Google veteran. The website taps into the inventory systems of more than 50,000 stores, including Best Buy, Crate & Barrel, and Home Depot, to let customers know where an item they're searching for is in stock. Milo gets a commission from retailers when its visitors click through to their sites or use Milo to buy things that customers then pick up at the stores. The company has a staff of 25 and raised $4 million from early-stage venture capital firms and angel investors. Abraham says Milo had revenue of less than $500,000 in 2009 and projects around $1 million for 2010."

Milo addresses a challenge that many retailers are just beginning to face -- how to deal with multi-channel operations. Milo is also a good target for supply chain companies looking for an acquisition opportunity. Those are my top five favorites, but I have to give honorable mention to two other companies.

Coach Line -- "Ray Land ... founded the company in high school after finding charter buses he had hired for class trips lacking. He bought his first bus, a used, 49-passenger Van Hool, online for $25,000—using a loan and $5,000 of his own money—and set up the fabulouscoach.com website in 2004. Today, the 77-employee business has more than 40 vehicles. Land, who still drives buses himself, aims to make bus travel luxurious, starting with red carpets for boarding passengers. He takes his cues for new features such as seat-back monitors, wood-grain floors, leather interiors, and espresso machines from airlines, cruise ships, and luxury hotels, rather than from the auto industry. The charter rate for a 56-passenger bus: about $1,150 per day. ... The company’s largest deal to date was a $1.1 million, eight-month contract with the military to move troops around following Hurricane Katrina in 2005. Land says revenue reached $3 million in 2009 and forecasts $4.5 million this year."

Coach Line has transported important groups like the White House press corps and the need for chartered transportation isn't going away anytime soon. What I like about Land's approach is that he upgraded a basic service so that customers receive more than they anticipated when they travel in his vehicles. Smart lad.

LifeServe Innovations -- "Zach Bloom and Rick Arlow were life science students at Lehigh University in Bethlehem, Pa., when they began to develop a new way to open patients' airways in emergency situations such as might occur in combat zones. The device is intended to help emergency medical providers with minimal training to deliver oxygen to patients with results similar to those a hospital surgeon might obtain. ... Their device, based on the design of a viper's fang, is intended to open airways via minimally invasive procedures that can be performed in 60 seconds or less, compared to 10 to 15 minutes for a comparably effective surgical procedure. It's now in pre-clinical testing on models, cadavers, and animals. The pair raised $100,000 in grants and prizes from business plan competitions and is applying for funding from the National Institutes of Health and the Defense Dept."

LifeServe Innovations isn't really far enough along to know whether it will become a successful firm. It won't survive on a single product. If the first product does become profitable, however, I suspect that the innovative entrepreneurs behind the company will generate more money-producing and selling life-saving products.

Another company that would have made my honorable mention list is Freshbox Catering. I didn't include the company, however, because it made the readers' pick list. Before reviewing that list, I would like to give a shout out to Babson College which helped educate individuals associated with 16 percent of the recognized companies. The winners were announced in late October ["The Winning Young Entrepreneurs 2010," by John Tozzi, Bloomberg BusinessWeek, 28 October 2010]. The readers' picks' company blurbs are drawn from the slideshow by Tozzi, Wong, and Hatch in ascending order were:

Number 5 -- Convasis -- "A self-taught programmer who began coding in 9th grade, Alexey Ossikine started Convasis in 2009 during his junior year at Babson College to help companies build Web applications. ... With eight currently active clients, Convasis has so far served from 20 to 30 mostly Boston-area startups developing consumer-facing websites. Ossikine has five contractors in Boston and others based overseas. He says Convasis had revenue of $50,000 in 2009 and is projecting over $200,000 in 2010."

Number 4 -- Freshbox Catering -- "In September 2008, Joe DeLoss took a job as director of social enterprise at Lutheran Social Services, a 300-bed homeless shelter in Columbus, Ohio. His main task: creating businesses that would employ shelter residents and help them develop job skills. A former investment analyst who 'ate a lot of really crappy boxed meals' from corporate caterers, DeLoss recognized an opportunity to serve the Columbus market with better-catered lunches. In September 2009, he launched Freshbox Catering with $40,000 in seed money from local business donors and churches. The for-profit company is owned by the nonprofit Lutheran Social Services. DeLoss hired three workers from the shelter and is in the process of adding two more. The goal is to equip them with skills— including kitchen safety and financial literacy—that they can take to other jobs, DeLoss says. The company had $30,000 in revenue in 2009 and is projecting $135,000 for 2010. DeLoss hopes to replicate the model as a 'social-purpose franchise' with nonprofits in such other cities as Pittsburgh, Indianapolis, and Cincinnati."

Number 3 -- PrimeTime Lacrosse -- "Tyler Low and Jason Wellemeyer both played lacrosse at Babson College. In 2007, they started an informal summer league for 75 students, who each paid $100 to play once a week. That blossomed into an overnight camp the next year. Now PrimeTime Lacrosse runs camps, training programs, and a league known as Penguin Lacrosse. The company ran a tournament with 50 teams from across North America in June. Low says the two are responding to demand from lacrosse players who want to practice off-season. Their programs start for children as young as 7, with adults as old as 60 playing in their leagues. At peak times, they manage a staff of 50 people, mostly coaches. Close to 2,000 players will participate in training and leagues in 2010. Low says PrimeTime Lacrosse had $270,000 in revenue in 2009 and is projecting $650,000 in 2010."

Number 2 -- Pyknic -- "College friends Andrew Marshall and Stephen Thompson started Pyknic in 2006 by selling a first run of 200 T-shirts they had decorated by hand with Sharpie markers to their classmates at DeSales University in Center Valley, Pa. Today they're projecting $500,000 in sales for 2010, double what they recorded last year. Their T-shirts are targeted at youth, particularly high schoolers and college students interested in skateboarding and music. 'It started to catch on like wildfire internationally,' Marshall says; until recently, sales in Europe, Australia, and Japan exceeded U.S. sales. The pair run the operation on their own out of a warehouse in Robbinsville, N.J. The T-shirts, which retail for about $20, are conceived with food themes and rendered in cartoonish fashion. The shirts are printed by contract printers in the U.S. and China and sold online and at specialty retailers such as Hot Topic and Pacific Sunwear across the U.S."

And the readers' favorite company founded by a young entrepreneur:

Number 1 -- Campus Buddy -- "After experiencing a particularly rough time in a calculus class during his sophomore year at UCLA, Mike Moradian began to think students could benefit from knowing more about how professors grade. Through a Freedom of Information Act request, the business economics major got information about grade distributions at classes at the public university. That data became the basis for CampusBuddy, the business he launched in February 2008. Moradian aggregated public data on grade distributions for classes, professors, and majors at 250 public colleges, starting with the University of California system. ... CampusBuddy employs 100 interns who work remotely for school credit and maintains a staff of five at its Beverly Hills office. Moradian says the company had $60,000 in revenue in 2009 and projects $400,000 this year."

I admit I was surprised by most of the readers' picks. Based on their number 1 selection, I'm guessing that the median demographic age of those who actually voted was fairly young (i.e., recent college graduates or those still attending classes). I wouldn't worry too much about the numbers, the winner only received 2,106 votes and fifth place received 780 votes. Only time will tell; but I'm betting that the companies on my list do better than the companies on the readers' favorite list.

Happy Christmas 2010

Tomorrow most of the Christian world celebrates the Christmas holiday. Even some non-Christian countries join in the festivities because the lights, the tinsel, the trees, and the presents have become iconic features of year-end festivities. The genesis of winter celebrations can be traced back long before the birth of Jesus of Nazareth (see last year's post for more detail). According to the History Channel:

"The middle of winter has long been a time of celebration around the world. Centuries before the arrival of the man called Jesus, early Europeans celebrated light and birth in the darkest days of winter. Many peoples rejoiced during the winter solstice, when the worst of the winter was behind them and they could look forward to longer days and extended hours of sunlight. In Scandinavia, the Norse celebrated Yule from December 21, the winter solstice, through January. In recognition of the return of the sun, fathers and sons would bring home large logs, which they would set on fire. The people would feast until the log burned out, which could take as many as 12 days. The Norse believed that each spark from the fire represented a new pig or calf that would be born during the coming year. The end of December was a perfect time for celebration in most areas of Europe. At that time of year, most cattle were slaughtered so they would not have to be fed during the winter. For many, it was the only time of year when they had a supply of fresh meat. In addition, most wine and beer made during the year was finally fermented and ready for drinking."

The New Testament reports, "Then spake Jesus again unto them, saying, I am the light of the world: he that followeth me shall not walk in darkness, but shall have the light of life." [John 8:12] It is not difficult to understand why disciples of Jesus, who believed him to be "the light of the world," would adopt ancient celebrations that "look[ed] forward to longer days and extended hours of sunlight." It seemed like a natural fit and still allowed unbelievers to eat, drink, and be merry in the long, dark nights of winter. No matter your religious persuasion, this time of year is a good time to reflect on the peaceable things of the earth and to consider what can be done to help others who are in need. There are certainly plenty of people in want who could use a little help. You probably don't have to look very far to find someone near you to whom you can reach out and help. They may only need a kind word, an arm around the shoulder, or a listening ear. If you'll serve someone else this holiday season, I assure you that you will have a happier Christmas. As Charles Dickens wrote, "I have always thought of Christmas time, when it has come round, as a good time; a kind, forgiving, charitable time; the only time I know of, in the long calendar of the year, when men and women seem by one consent to open their shut-up hearts freely, and to think of people below them as if they really were fellow passengers to the grave, and not another race of creatures bound on other journeys." Happy Christmas.

Truck Transportation Safety and the Supply Chain

Barring some action, 2011 will see some important changes in the truck transportation industry as a result of "a shift in inspection regulations for carriers and drivers." ["Transplace Outlines the Effect of CSA 2010 on the Transportation Industry," by Steve Dye and Kecia Gray, Transplace press release, 8 December 2010]. This shift in regulations resulted from changes associated with the Comprehensive Safety Analysis (CSA) 2010 program, which establishes "a new regulatory system designed to measure, track, and report driver and carrier safety." Dye and Gray explain:

"Created and managed by the Federal Motor Carrier Safety Administration (FMCSA), CSA 2010 will be fully implemented by mid-2011 and will replace the current SafeStat program. ... What is CSA 2010? CSA 2010 was developed to shift the focus of safety audits away from those done at carrier facilities in favor of more roadside inspections of drivers and vehicles and a readily accessible database of results. Roadside inspections will focus on seven categories – unsafe driving, fatigued driving (i.e. hours of service), driver fitness, alcohol and controlled substances, vehicle maintenance, cargo related, and crash indicator. These seven areas are called BASIC (Behavior Analysis and Safety Improvement Categories) and add up to the Carrier Safety Measurement System (CSMS) score. While drivers do not have scores, carriers can elect to participate in a fee-based Pre-Employment Screening Program that will give the hiring carrier data on the driver including five years of crash data and three years of inspection data."

According to the staff at Supply Chain Digest, a number of carriers are not happy with the changes and have initiated a lawsuit to halt its enforcement ["With CSA Looming, Trucking Groups Move to Halt Implementation; Should Shippers Care?" 30 November 2010]. The article reports:

"Just a week before the government's Compliance, Safety and Accountability 2010 (CSA 2010) program is set to be operational, a coalition of transportation groups largely representing smaller carriers has petitioned a federal appeals court in Washington DC to block implementation of the program, or at minimum prohibit the public release of certain CSA data until the Federal Motor Carrier Safety Administration (FMCSA) reviews some aspects of the new regulations."

One reason that some carriers don't want CSA data released is because under the program the government scores each carrier. Dye and Gray explain:

"Each carrier will receive a CSMS for each BASIC, which will be stated as a percentile indicating the percent of carriers of a similar size that are better on each particular measure. Carriers will be labeled as 'continue to operate', 'marginal' and 'unfit' based on their CSMS score. CSMS data will be available beginning in December 2010 and the CSMS for every carrier will be updated monthly."

The intent of the act is to get unsafe drivers and vehicles off U.S. highways; but, Dye and Gray report that it will have other impacts as well. They write:

"Many industry experts estimate that 5% - 10% of the Truckload (TL) driver force will be removed from the industry when CSA 2010 is fully implemented. With expected TL capacity shortages in 2011, removing carriers and drivers will exacerbate the problem and could result in severe capacity shortages, rising TL prices, challenging TL service levels and increasing the cost of moving freight. TL drivers will be scrutinizing equipment and cargo conditions much more closely as they need to protect their own inspection record history. That means more drivers will refuse to pull a trailer if lights are out, tires are worn or brakes are questionable. Drivers will also reject a load that is improperly secured or loaded. There will also be legal implications from CSA 2010. Today, if a carrier does not have a safety rating or has a conditional rating, shippers and 3PLs will either not use that carrier or will look at the SafeStat score to see if the carrier has a record of safe driving."

Another concern about the new system is that it exposes companies that hire carriers with "marginal" ratings to legal action. As Dye and Gray write, "There is not a set standard of what combination of CSMS scores is high enough to allow the shipper or 3PL to demonstrate that they have exercised appropriate due diligence in hiring a 'safe' carrier." Supply Chain Digest agrees with this assessment. "Afraid of low scores that could lead shippers to drop poorly-ranked carriers or that could be cited as evidence in lawsuits related to future accidents, many smaller carriers see CSA as a major business threat." That is the reason, the article states, that it is small carriers pursuing legal action. The article continues:

"In the court filing, the three groups [The National Association of Small Trucking Companies, The Expedite Alliance of North America and the Air & Expedited Motor Carriers Association] said that FMCSA should disclose fully to the industry and public all aspects of its proposed rule, including:

• "The algorithms and other formulas the agency plans to use in developing carriers’ Behavior Analysis and Safety Improvement Categories (BASICs) grades and classifications
• "The sample populations used in developing the percentiles and other criteria the agency will utilize in grading carriers as to safety
• "The procedures the agency will use, if any, to determine that alleged violations are reported accurately.

"However, the industry's largest group, the American Trucking Associations (ATA), said that while it continues to have some concerns with the CSA 2010 methodology, it has decided not to join the other groups in challenging the program in court."

One reason that the ATA didn't join the lawsuit is its counsel believes the legal points being argued "have a very limited chance of being successful." Nevertheless, the ATA agrees that "in those categories where the accuracy of scores is questionable (the Crash Indicator and Cargo-Related BASIC) scores should appropriately be kept from public view." According to the Supply Chain Digest article, industry concerns have already caused the FMCSA to make some changes to the program. "Those included changing the term 'Deficient' to 'Alert' when a motor carrier's score in one or more BASICs is above the FMCSA threshold for intervention, changing the highlight color from red to orange, and making some changes in the algorithms used to compute the scores." These modifications have not satisfied the groups pursuing legal action. The article explains:

"The trucking groups filing the motion charge that FMCSA has not adequately responded to substantial concerns over CSA methodology, including:

• "Due Process Concerns: CSA 2010 will assign safety ratings based on citations and warnings that motor carriers have no effective way to challenge, the organizations said.
• "Peer Grouping: Carriers required to maintain paper logs of drivers' on-duty and driving time are peer grouped with carriers that do not need to do so, resulting in unfair comparisons that prejudice carriers using paper logs, the groups said. A large proportion of logging violations typically involve recordkeeping errors rather than excessive driving hours.
• "Data Inequity: Enforcement officials in some states need 'probable cause' for charging a moving violation in order to stop a truck for a safety inspection, escalating the number of warnings received by carriers in those states. Although this is the case under SafeStat as well, the inequity will be compounded when they can influence an actual safety rating under CSA, the associations said. In addition to geographical inequity, under-reporting of satisfactory inspections skews several of the BASIC scores, resulting in faulty statistical data.
• "Unexplained Methodology Changes: In August of 2010, after two years of test trials, the agency announced it made 800 technical changes in its methodology, none of which have been released or reviewed by the public, the groups said. 'Because neither the science nor the math behind the methodology appears to have been subject to Data Quality Act review by the agency, the data has no proven reliability and is not fit to be published given the substantial adverse consequences.'"

For companies that rely on truckload transportation to move their products, there are concerns over capacity shortfalls and rising prices. According to Supply Chain Digest, "assessments on the impact or SCA 2010 to shippers range from modest to dire." According to the magazine some companies are already screening drivers more closely and rejecting a larger number of candidates. Estimates of how much shipping costs will increase range from 10% to 20% over the coming months. The article concludes:

"While other don't think the cost increase will be that high, it's clear CSA will have a larger impact on shippers than many realize, especially those using a lot of smaller carriers whose survival could be in jeopardy from the new rules if they are implemented."

Dye and Gray indicate that "there are a few simple steps that carriers and shippers can take to help prepare for the changes to safety regulations and the impact it will have on the transportation industry when CSA 2010 goes into effect." They include:

"1. Make sure you are getting good legal advice on the carriers you should and should not do business with, as well as on your carrier contracting and record-keeping.

"2. Read about the topic and talk to knowledgeable people.

"3. Examine your trailer loading processes and your trailer inspection processes if you operate in a shipper-load environment."

The official website for FMCSA's Compliance, Safety, Accountability (CSA ) program can be accessed by clicking this link. Industry analyst Thomas Jackson agrees that CSA 2010 "will reduce the active driver pool (tighten capacity) and raise driver costs," he believes that the best-run truckload companies will see "better longer term rate gains." ["CSA Will Lead to Tighter Capacity, Higher Driver Wages and Shipping Costs," Gerson Lehrman Group, 6 December 2010]. Although that may be good news for some carriers, it's not such good news companies that rely on them. The program went live on 12 December, a week later than originally scheduled. It will take several months, however, to determine the full impact of the program.

Looking for Economic Growth Among African Lions

This year marks the tenth anniversary of the passage of The African Growth and Opportunity Act (AGOA), a U.S. scheme aimed at ending Africa's trade isolation. To put it mildly, the act didn't live up to its expectations ["US scheme fails to end Africa’s trade isolation," by Alan Beattie, Financial Times, 9 August 2010]. Beattie reports:

"The African Growth and Opportunity Act (Agoa) has extended duty-free access to the US market to about 40 countries, including in the highly contentious area of garments and textiles. ... [In August], Agoa’s 10th anniversary was marked by discussion forums in Washington and Kansas. US officials were frank about its failures. Hillary Clinton, secretary of state, told delegates: 'We all know, despite the best of intentions, Agoa has achieved only modest results and has not lived up to the highest hopes of a decade ago ... Petroleum products still account for the vast majority of exports to the United States and we have not seen the diversification or growth of exports that Agoa was supposed to spur.'"

Beattie notes that "making clothing is often the first step on the road to prosperity for developing countries." Textiles, however, have not proven to be entry products for breaking into the U.S. economy. Beattie explains:

"While African textile and garment exports to the US under Agoa rose by 52 per cent by 2009, according to a report by the US government accountability office, they were still barely more than 1 per cent of total US imports. An initial burst of exports was not sustained, and was concentrated in a small number of countries including the middle-income nations. Part of the reason is the breadth and depth of the agreement, shaped by political pressures in Washington. Economists say even a more generous programme would have struggled to overcome the real constraints to African exports, which are more to do with infrastructure and other supply-side problems on the east side of the Atlantic than trade barriers on the west."

You don't have to go very far into economic discussions about Africa before someone brings up the subject of infrastructure. For all of the billions of dollars of aid that have poured into African nations over the past half-century, little infrastructure has been built that can support a burgeoning economy. Nevertheless, despite AGOA's disappointing results and Africa's infrastructure challenges, more and more analysts are predicting a brighter future for many African nations. Extractive industries, for example, are moving back into locations that have been embroiled in civil conflict ["Mining groups target west Africa," by William MacNamara, Financial Times, 19 May 2010]. MacNamara reports that "infrastructure deals are key in the fight for the region’s mineral deposits." He writes:

"Six of the world's biggest mining and steel companies have converged on an unprecedented scale on a mineral-rich corner of west Africa beset until recently by civil war. The companies plan to spend billions of dollars in Guinea, Liberia and Sierra Leone, where some of the world’s richest deposits of iron ore, the raw ingredient of steel, are found. The groups are Vale, the Brazilian iron ore miner, Rio Tinto and BHP Billiton, the Anglo-Australian mining houses, ArcelorMittal, the UK steel company, Russia’s Severstal, and Chinalco, the state-owned Chinese mining company. ... As yet there is little infrastructure to facilitate mineral exports from any of these countries, whose governments want to use the multinational corporations to fund the ports, roads, and railways needed to lift their struggling economies."

In many frontier market countries, public/private partnerships will be required to build the infrastructure necessary to sustain economic growth. MacNamara reports that "Vale [has] agreed to spend between $5bn-$8bn on building mines, ports, and railways in Guinea and Liberia by 2020." Obviously, Vale wouldn't be making such huge investments if the potential profits from its mining efforts weren't also enormous. Although increased mining (and associated employment and infrastructure), will benefit the region, African states understand that sustainable economic growth requires a diverse economy. As South Africa prepared to host the World Cup, the Financial Times wondered "whether Africa is finally turning the corner ["Outlook brightens for frontier market," by William Wallis, 2 June 2010]. They began a series of reports beginning with Africa's changing economic landscape. Wallis wrote:

"In the half century since colonial administrators began packing their pith helmets and heading home, sub-Saharan Africa has experienced a string of false dawns. Autocracies waxed and waned, accompanied by varying degrees of socialism, nationalism and capitalism. When they were not catastrophic the outcomes were often disappointing. By the late 1990s, neither state intervention, nor the World Bank medicine of austerity and market reforms that ensued, had delivered to more than a handful of sub-Saharan Africa's 48 states self-sustaining economic growth, independent of foreign aid. To this day, only a handful of genuine democracies have taken root."

Wallis believes, however, that both the strategic importance and the business climate of many Africa states are improving. He continues:

"A steady flow of multibillion-dollar investments, reviving terms of trade and growing interest in regional markets suggest ... opportunity is knocking at the continent's door. 'Africa is rich and its stock is rising. The value of its land and minerals is going up,' Kofi Annan, former United Nations secretary general, said last week as he launched a review of Africa’s progress in meeting development goals. 'There is no lack of resources, no deficiency of knowledge and no shortage of plans. Africa's progress rests above all else on the mobilisation of political will.' ... The region could be on the verge of joining the Bric nations – Brazil, Russia, India and China – as a destination for investment, Ngozi Okonjo-Iweala, the World Bank vice-president, argues. 'An eminent businessman once commented that profit lies where the gap between perception and reality is greatest. That surely applies to sub-Saharan Africa,' she said."

Like most analysts, Wallis begins his assessment by noting the richness of Africa's resources. He reports:

"Africa has about 10 per cent of global oil reserves, possibly more. South Africa has 40 per cent of the world’s gold. The continent has more than a third of cobalt reserves, and base metals abound. Agricultural potential is barely touched."

Leading the charge for African resources is, of course, China. Wallis reports that China "has increased trade five-fold with Africa since 2003." But some economic successes, he notes, "have been home-grown." He explains:

"The expansion of mobile telephones, for example, has defied expectations, pointing to a vast consumer market of 900m people once considered too poor to be bankable. ... PwC, the professional services firm, found hundreds of African business executives surveyed felt more confident about the future than their peers on other continents. Yet much of the progress was occurring despite government, Mr Annan’s review concluded. A generous interpretation would be that the role of the state has decreased and the private sector now sets the pace. A less generous view is that despite routine elections, there is still a huge deficit in accountable leadership and a strong risk that a chance to boost social and physical infrastructure could be squandered."

Just as one cannot talk about African economics without touching on infrastructure, one cannot talk about Africa politics without mentioning corruption. Wallis reports that an estimated "$854bn (€703bn, £586bn) has been siphoned from Africa since 1970 in cumulative capital flight." Health care and education are other areas where many African nations fall woefully short. In addition, "Few countries have yet created a sense of national identity within the artificial boundaries inherited from colonial rule and many are still torn by ethnic and political strife." Wallis notes that the three Sub-Saharan countries that drive most regional economic growth -- Kenya, Nigeria, and South Africa -- "are going through tricky reforms and only one is a credible democracy." He also reiterates that most African nations lack a diversified economy. "The direction of trade may be changing," he writes, "but its character, involving raw material exports and manufactured imports, has not." He concludes:

"Yet over the long term demand for African commodities, land and manpower is unlikely to diminish. This time optimism about the outlook has less to do with visionary autocrats and more with the macro-economic climate. If Mrs Okonjo-Iweala is right and sub-Saharan Africa is the world’s next frontier market, this could be one time when the whole is greater than the sum of Africa’s parts."

In a companion article, Wallis notes that some African companies are starting to emerge as significant players on the global stage ["Emerging groups make African lions' roar," Financial Times, 1 June 2010]. He reports:

"Africa's top 40 companies are emerging as competitors on the global stage, propelled by economies whose performance now rivals the Bric nations, according to new research by the Boston Consulting Group. According to the study, ... 500 African companies have been growing at more than 8 per cent a year since 1998. The report selects the top 40 among them, ranging in size from $350m (€285m, £240m) to $80bn, and argues that these companies, already regional players in mining, consumer industries and services, are now well positioned to 'spread their wings and look beyond the continent'."

Even though AGOA produced disappointing results with regards to trade between African nations and the United States, Wallis reports that "export growth has helped power this expansion, surging from 3 per cent annually during the 1990s to 18 per cent since 2000." Unfortunately, the most prosperous companies "are drawn from eight countries which together represent 70 per cent of Africa’s GDP. Most are based in South Africa, Egypt and Morocco, with nine spread across Algeria, Angola, Nigeria, Togo and Tunisia." That leaves some 53 countries still suffering with struggling economies. Wallis notes that the collective per capita GDP of these eight countries (at $10,000), "is already higher than the average for the Brics." Wallis continues:

"Patrick Dupoux, one of the authors based in Morocco, says the research should wake up western companies and BCG clients both to the potential of Africa's market of 1bn people and the emergence of potential partners and rivals from the continent. 'We always talked about Asian tigers. There is another group we call the Africa lions. These are the countries that will drive the continent, become the locomotive,' he said. 'There is also group starting from much lower position like Ghana and Nigeria but that is starting to pick up, and of course there are others too like Ivory Coast that have stagnated.'"

Wallis concludes by noting that "a hypothetical $100 investment in the top 40 companies over the past 10 years would have been worth more than $900 by November 2009." One U.S. company that agrees with BCG's assessment concerning the African lions is IBM ["I.B.M.: Africa Is the Next Growth Frontier," by Steve Lohr, New York Times, 17 September 2010]. Lohr reports:

"I.B.M. will supply the computing technology and services for an upgraded cellphone network across 16 nations in sub-Saharan Africa. Its customer is India's largest cellphone operator, Bharti Airtel, which paid $9 billion a few months ago for most of the African assets of Kuwait's Mobile Telecommunications Company, or Zain. Under the 10-year agreement, I.B.M. will handle customer service for Bharti and provide the hardware, software and services to run everything from billing and call-traffic management to delivering new services like music and video. The deal takes the broad partnership between Bharti and I.B.M., begun in 2004, beyond India. ... The Bharti contract ... punctuates I.B.M.'s Africa strategy. The company’s presence in Africa dates back 50 years, but in the last five years I.B.M. has invested $300 million in the region to build data centers, add country offices and foster technology training programs — and it plans to expand aggressively in the region."

According to Bruno Di Leo, general manager for growth markets for IBM, the company believes that Africa is "the next major emerging growth market." Lohr continues:

"Though it looms small in the global technology market today, Africa is primed for growth, according to Frank Gens, an analyst at IDC. 'And I.B.M. is, as it's done before, getting in on the ground floor,' Mr. Gens said. The company's strategy calls for the growth markets — not only the well-known BRIC countries, Brazil, Russia, India and China, but also dozens of others — to increase as a share of I.B.M.'s revenue from 19 percent to 25 percent by 2015. That is the equivalent of $1 billion in new sales a year. In these nations, I.B.M. is targeting the linchpin industries of economies including telecommunications, banking, transportation, health care and energy."

The important thing about IBM's investment in Africa is that it involves sectors other than mining. As noted above, diversifying national economies beyond mining is necessary if resource-rich African states are going to avoid highs and lows associated with volatile commodity markets. I'm sure that residents of African nations are tired of hearing about the continent's "potential" and would love to see that potential realized. Helping the African lions succeed will play an important role in making that happen. Regional economies need to be anchored by strong economies.

Knowing Your BRICs and CIVETS

As emerging market countries increase in importance with regards to the global economy, identifying them has become an interesting game of acronyms. First there were the BRIC countries (Brazil, Russia, India and China). They were joined by the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa). Then Indonesia got promoted into the BRICI (I suppose that left the C-VETS with new acronym). My guess is that all aspiring emerging market countries want their nation represented by a letter in an acronym because it would be an honor that identifies them as up-and-coming economic powerhouse -- a place where investors should look to get a good return on investment.

The Financial Times has paid a lot of attention to emerging market countries over the past couple of years. One reason is because they have fared better coming out of the global recession than most developed countries. In one article, for example, Steve Johnson discusses how the CIVETS are vying to compete with the BRICs ["Next 11 and Civets vie to be Next Bric Thing," 13 September 2010]. Johnson openly ponders whether there is there "any merit in either of [the] two new acronyms" and discusses the emergence of a new group the "Next 11." He writes:

"To many, civets are best known for the unusual, but essential, role they play in producing the world’s most expensive coffee. But to emerging market aficionados, Civets is the acronym for Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. As such, it aims to identify the next wave of nations likely to follow the much-celebrated Bric quartet of Brazil, Russia, India and China on to the world stage. However, it is a rival grouping, the Next 11, that appears to be nudging ahead in the race for recognition. Next 11 has the kudos of being coined by Jim O’Neill, chief economist at Goldman Sachs, who came up with Brics in 2001."

Although members of the Next 11 are undoubtedly thrilled at the recognition, surely they are a bit disappointed about failing to make it into an acronym of their own (or, in the case of the CIVETS, to lose that honor). So what countries constitute the Next 11? Johnson tells us that the countries are: South Korea, Mexico, Indonesia, Turkey, the Philippines, Egypt, Vietnam, Pakistan, Nigeria, Bangladesh and Iran. He continues:

"'The Bric concept was a great success. It worked as an academic concept and as an investment. Bric returns have outperformed almost any other equity product since the concept was termed,' says Arrash Zafari, the manager of the new Castlestone fund. 'We think the Next 11 gives investors another shot at the concept. I see the Next 11 as being a collection of mini-Indias.' Mr Zafari argues that the Next 11 offer opportunities no longer available in the Bric nations. ... 'If you go back 10 years you could have got the same opportunities in the Brics. Now there are a lot of funds locked into Bric markets. You have an enormous number of brokers looking at China, India. Who looks at Next 11 countries?' he asks. However, Mr O’Neill freely admits there was 'no great science' behind the creation of the Next 11 universe – he simply listed the 11 most populous emerging markets after the Brics. 'The whole Next 11 thing was really just a notion to respond to the never-ending questions about why these four [the Bric countries], why not Indonesia, Turkey, Mexico?' he says. 'It was never intended to be anything like the Bric thing. I regarded the Brics as four integral parts of the world economy. I wouldn’t say the same about all the Next 11 countries.'"

The reason that O'Neill concentrated on "the 11 most populous emerging markets" is that it will be the emerging global middle class that will power global economic growth. The more populous the country the more potentially powerful it can become. Johnson continues:

"Mr O’Neill says latecomers have not missed the Brics boat. 'We are entering the beginning of a phase; the Bric consumer. China has overtaken the US to become the biggest car market in the world but sales are only a fifth of where I think they are going to go, and eventually Indian car sales will overtake those of China.'"

Johnson points out that the Next 11 is actually a rival concept to CIVETS -- a name which was coined by "Michael Geoghegan, chief executive of HSBC." If you aren't confused enough by the acronyms already in play, Johnson indicates that more are on the way. He explains:

"Jerome Booth, head of research at Ashmore Investment Management, [has] created the acronym Cement – Countries in Emerging Markets Excluded by New Terminology – arguing 'if you want to build a wall, you need both Brics and Cement'. 'I have never understood why anybody should just invest in 11 countries or four countries. It has never made any sense to me. People should diversify,' he says. Mr Booth does concede the Brics concept has been effective in helping retail investors 'get their head around' emerging market investing."

For my taste, "BRICs and Cement" is just a bit too cute; but the concept behind identifying countries on the brink of joining the developed world is important. As I noted above, investors want to know where they are likely to get a good return on investment. The most important type of investment for emerging market countries is foreign direct investment (FDI) because FDI is not as liquid as equity investments. That doesn't mean, however, that equity investments are not important. David Oakley indicated that equity funds in emerging nations soared while the developed world was mired in recession ["Big shift benefits emerging markets," Financial Times, 24 October 2009]. He reported:

"[In 2009], investors ... switched money out of developed world equities and into emerging market stocks in a dramatic shift in fund flows. While emerging market equity fund inflows have surged to all-time highs, developed world stocks have seen record outflows. This is because of strong data in the developing world and a growing view among investors that these markets are likely to offer the biggest returns as their economic growth outpaces the west." ... Equity fund inflows into the Brics – Brazil, Russia, India and China – ... soared to a record $32.3bn [in 2009], already nearly $10bn more than the previous high of $23.6 in inflows in 2006."

A year on from Oakley's report, there are mixed views of how things stand in emerging markets. Jerome Booth, Head of Research at Ashmore Investment Management, calls emerging markets "a beacon of opportunity" ["Emerging nations: a beacon of opportunity," Financial Times, 25 October 2010], while David Bonderman, co-founder of private equity firm TPG Capital, "has warned of an emerging markets 'crisis of expectation'" ["Bonderman warns over emerging markets," by Henny Sender, Financial Times, 11 November 2010]. Booth writes:

"If you are looking for a market bubble do not look to emerging markets. The US and Europe remain a huge super-bubble. Emerging markets, by contrast, are safe. Putting one’s head in the sand and denying this reality has the attraction of plentiful company, but constitutes the opposite of prudence. Remember, lemmings also like to crowd together and the collective name for them is a 'suicide'. Unlike Europe and the US, emerging markets do not have a credit crunch, in essence a multi-year, very painful, deleveraging – that is, wealth destruction. But if you have not experienced 30 years of rising financial leverage, the past 10 to excess, you cannot get a credit crunch. Emerging markets are in a very different cycle to the developed world now, with inflationary not deflationary pressures."

Bonderman, on the other hand, insists, "There will be dislocations. Emerging markets are volatile. At some point there will be despair just as there is euphoria now." Obviously, both analysts can't be right. The one thing they seem to agree on is that emerging market equity markets can be volatile and risky. Managed correctly, however, the economies of emerging market countries could see the continued emergence of a global middle class (i.e., new consumers) who will fuel economic growth. Elizabeth Rigby reports that "the relative importance of the West's shoppers is declining" ["Consumption starts to shift to China, India and Brazil," Financial Times, 21 April 2010]. She continues:

"While demand has been sluggish in the developed world, emerging markets – in particular China, India and Brazil – are telling a very different story, with consumer spending still buoyant. ... In the longer term, [Ira Kalish, director of global economics at Deloitte Research], thinks the US consumer is in decline, as the pattern of spending around the world shifts away from the US and Europe to China, India and Brazil. Americans, who re-mortgaged their houses to fund a spending boom – half the growth of consumer spending over the past decade has come from people extracting cash from their homes – no longer have credit so readily available. This means, says Mr Kalish, that spending in the US, which currently accounts for 72 per cent of gross domestic product, should move back to its historical level of 66 per cent. That is why the biggest US and European chains – Wal-Mart, Metro, Carrefour, Hennes & Mauritz, Tesco and Bestbuy – must push for growth in developing markets."

Whether new consumers come from a BRIC, BRICI, CIVETS, Next 11, or CEMENT country, they are becoming important factors in global economic growth. In the end, it is not the acronym but the individual consumer in an emerging global middle class that matters.

"Conflict Minerals" and the Supply Chain

The general public has not paid a lot of attention to the portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act that deals with "Transparency for [the] Extraction Industry." There is growing concern, however, among retailers and manufacturers about its potential effects (more on that later). The Dodd-Frank Act primarily concerns itself with financial reform and, rightfully, that topic is what has garnered most of the headlines. The section of the bill that most concerns manufacturers and retailers is the section on "Congo Conflict Minerals," which is summarized below:

"Manufacturers Disclosure: [The act] requires those who file with the SEC and use minerals originating in the Democratic Republic of Congo in manufacturing to disclose measures taken to exercise due diligence on the source and chain of custody of the materials and the products manufactured." [Brief Summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act]

The act also "requires the State Department to submit a strategy to address the illicit minerals trade in the region and a map to address links between conflict minerals and armed groups and establish a baseline against which to judge effectiveness." Clearly, the section on Congo Conflict Minerals seems out of place in a financial reform bill; but such oddities are not uncommon in Congressional legislation. From what I can discover, the sponsors of this section of the bill were Sen. Richard Durbin (D-IL) and Rep. Jim McDermott (D-WA).

If you are not familiar with African conflicts, you might wonder what is so special about the situation in the Congo that it deserves the kind of attention it received in the Dodd-Frank Act. Hollywood celebrity and activist Ben Affleck explains:

"Ask many Americans to name the bloodiest war since World War II and chances are that most would not know the answer. If you told them it was in Africa, they might guess Rwanda or the ongoing conflict in Sudan. They'd be wrong. By far the deadliest conflict was in eastern Democratic Republic of the Congo from 1998 to 2003. Eight African nations participated in the fighting on Congolese soil, many hoping to seize control of its vast mineral wealth. Some 4 million Congolese died during the conflict and nearly another 1 million have died in the lawless aftermath from starvation, conflict and preventable disease. Tens of thousands of children were forced to become soldiers, and as many as two out of three women were victimized by rape and other forms of sexual violence. This is still happening today."

Power and money rest at the heart of this conflict as they do in so many others. Groups in the Congo are fighting for control over the Congo's vast mineral resources hoping they will profit from their extraction. Unfortunately, most of the profits are being poured back into conflict rather than improving the quality of life for those in the region. Both activists, like Affleck, and groups he supports, like the Eastern Congo Initiative (ECI), are in favor of the Dodd-Frank provision concerning the Congo and want to see it stringently enforced. Affleck writes:

"Washington must implement the provisions in the Dodd-Frank Act designed to strengthen enforcement sanctions related to conflict minerals. Only in an equitable and transparent business environment can Congo's mineral wealth pay for Congo's future."

A white paper released by Eastern Congo Initiative entitle "Strengthening United States Foreign Policy in the Democratic Republic of the Congo," presents "actionable policy recommendations for the United States to take a leadership position that ensures the future stability and prosperity of the region." ["Eastern Congo Initiative Releases Recommendations For United States Leadership To Secure Prosperous Future For Congolese People," PRWEB, 30 November 2010]. The white paper mirrors Affleck's comments by recommending that the United States "effectively implement the provisions in the Dodd-Frank Act designed to strengthen enforcement sanctions related to conflict minerals."

Jason Stearns, a PhD candidate at Yale University who writes extensively about the Democratic Republic of Congo and the Great Lakes region, was a member of a panel discussing the region at a recent conference where Toby Whitney, the legislative director for Rep. McDermott, was also in attendance. According to Stearns, Whitney claimed that the legislation was specifically written to make "it easier for activists to target US companies who import minerals from the Congo." ["US legislation on Congo's 'conflict minerals,' explained," Christian Science Monitor -- Africa Monitor, 15 November 2010]. Stearns indicates that he learned a few other things at the meeting as well. He writes:

"First, and most importantly, there had been some debate among experts about the exact provisions of the bill. Toby clarified: The bill does not prohibit companies from buying conflict minerals. Instead, it requires them to carry out due diligence on their supply chain and to report back to the Securities and Exchange Commission what measures they have taken to find out whether they are importing minerals that fuel conflict in the Congo. 'It's a name-and-shame bill,' Toby said. There will only be fines for companies that do not do good reporting and auditing. Companies that carry out all the correct due diligence and report back to the SEC that they are indeed importing conflict minerals will not be fined."

That may sound like a strange law (i.e., it's okay to import conflict minerals as long as you tell us about it), but legislators obviously understand the power of public scrutiny. Although the intent of the measure is to pressure rebels to stop fighting, the ultimate result may be that manufacturers cease using Congolese minerals. That is not a desirable outcome. Stearns continues:

"Since all these reports have to by law [be] made public by the companies, the cost for the company will be reputational. For example, we are already asking Yale University to make clear to the companies it invests in that it will not keep them in its portfolio if (a) they do not carry out all the due diligence required by Section 1502 of the Dodd-Frank bill; and (b) if they do indeed buy minerals that fuel conflict in the Congo. Since Yale has a $17 billion endowment and is seen as a leader in investments, a policy statement could be important."

Despite the fact that Stearns claims that a company will suffer only reputational costs, there will clearly be other costs associated with the due diligence and reporting requirements of the bill. It is certainly no surprise, therefore, that resistance to those measures was put up by corporate interests. Stearn notes:

"Like many other congressional staffers, [Whitney] reported ... intense corporate lobbying against the bill. In the end, he said, they had won out because it was difficult for a company to be seen as in support of rape in the Congo."

That being said, some corporations haven't given up their fight ["Retailers Fight to Escape 'Conflict Minerals' Law," by Jessica Holzer, Wall Street Journal, 2 December 2010]. Holzer reports:

"Top U.S. retailers including Wal-Mart Stores Inc. and Target Corp. are battling to limit a new federal law that could force them to report whether their store-brand goods contain minerals from war-torn Central Africa. The requirement, part of the Dodd-Frank financial law passed in July, aims to pressure companies to spurn so-called conflict minerals—tin, tantalum, tungsten or gold from parts of the Democratic Republic of Congo or neighboring countries. Income from those minerals is blamed for fueling violence that has claimed millions of lives in eastern Congo, which a senior United Nations official recently branded the world's rape capital. Under the new law, public companies using any of the four minerals from Central Africa must report what steps they have taken to verify the minerals weren't taxed or controlled by rebel groups. Products that don't contain minerals that benefited such groups can bear the label 'DRC conflict free.' Companies that fail to verify their sources can still sell their products, but could face embarrassment."

Although manufacturers won't have to change their packaging to include to the "DRC conflict free" stamp, I suspect that most of them eventually will. Holzer explains the range of products that contain potentially offending minerals:

"A broad array of U.S. companies, including makers of medical devices, cellphones, airplanes and machine tools, will be affected by the requirement because the minerals are in the products they manufacture."

Since the law is aimed primarily at manufacturers, you might be wondering why retailers are entering the debate. Holzer explains:

"Less clear is the status of retailers, such as Wal-Mart and Target, who carry private-label goods. The Securities and Exchange Commission has the power to decide who is considered a manufacturer under the law, and so must comply with it. Some of the largest U.S. retailers argue they shouldn't have to comply with the rule if they don't exercise direct control over the manufacturing of goods carrying their own brands. The Retail Industry Leaders Association sent a letter making that case to the SEC."

Traceability of a product's supply chain is nothing new. Food suppliers, pharmaceutical companies, and clothing manufacturers have been wrestling with the problem for years. But traceability is neither easy nor cheap. Holzer continues:

"Tracing the source of minerals is a tricky task, companies say, because many intermediaries stand between them and the mines. They add that control of territory and transit routes in eastern Congo is always in flux. 'I think a lot of companies will be challenged, at least early on, with indeterminate situations where they just don't know' the origin of their supplies, said Mike Loch, head of Motorola Inc.'s supply-chain corporate responsibility program. ... Industry groups say the measure could backfire by forcing companies to halt all use of minerals from Central Africa, even ones untouched by armed groups. 'This is the only form of economic activity and subsistence for hundreds of thousands' of people, said Rick Goss, vice president of the Information Technology Industry Council, which represents high-tech companies. 'The challenge is to allow our supply chains to continue sourcing from the region but to do it properly.' Representatives from Best Buy Co., J.C. Penney Co., Costco Wholesale Corp., Lowe's Cos., Wal-Mart and Target met with SEC officials last month to air their concerns, according to SEC records and attendees of the meeting." The SEC must write rules by April to put the law into practice."

Sen. Durbin and Rep. McDermott believe that "retailers who contract for the manufacture of goods should comply with the requirement." If they don't, they argue, "a large, nontransparent use of the black market for DRC conflict minerals would remain, directly subverting the policy intention of the law." According to Holzer, one of the biggest concerns expressed by retailers "is how the SEC will define what companies must do to verify their products are conflict-free." They note that gold will be difficult to trace because it is so easily smuggled. "Tiffany Co. is seeking a waiver for fine jewelers, arguing that it is impossible for jewelers to know whether the gold bars they buy contain recycled gold tainted by conflict." Holzer concludes:

"The law's timeline is also a worry. Some companies must begin reporting by mid-2012 whether products they made during their 2011 fiscal year contained conflict minerals. They say that's too soon. 'Ford and a number of manufacturers are very concerned about being able to complete the due diligence in the time we have allowed,' said Monique Oxender, who leads Ford Motor Co.'s supply-chain sustainability effort. A Ford spokesman said the company purchases $50 billion of goods and parts each year from about 1,600 suppliers to make its vehicles."

In an article unrelated to the Dodd-Frank act but relevant to supply chain traceability, Paul Tyrrell insists, "We are approaching a tipping point ... beyond which everyone will want to know the provenance of their products." ["Buyers unravel the ethics behind the label," Financial Times, 15 September 2010]. He continues:

"Traceability has become an especially pressing issue for the clothing industry in recent years, as stories of worker exploitation have emerged from the developing world. However, some supply chain experts believe all retailers and their suppliers should be preparing for the sorts of challenges [created by a requirement for product traceability]. We are approaching a tipping point, they say, beyond which everyone will want to know the provenance of their products. In May, the Global Reporting Initiative, a network of 20,000 organisations developing a framework for corporate sustainability reporting, published 'The Transparent Economy', a report that identified traceability as a key challenge in corporate reporting over the next decade. It also included a survey in which 86 per cent of GRI members rated 'the importance of the ability of businesses to trace products through their entire life cycle' as important or very important. The report's lead author was John Elkington, the corporate responsibility and sustainable development expert who coined the term 'triple bottom line'. He points out that the food and pharmaceuticals sectors have led the way on supply chain traceability because their products have such a quick and dramatic impact on public health."

For those unfamiliar with the term "triple bottom line" (sometimes abbreviated as "TBL" or "3BL"), it refers to doing business with "people, planet, and profit" in mind. As Wikipedia notes, the triple bottom line "captures an expanded spectrum of values and criteria for measuring organizational (and societal) success: economic, ecological and social." Despite corporate protests, consensus seems to be building that product traceability is going to become an integral part of supply chains. Tyrrell reports, "Ethical spending has grown significantly over the past two decades, in line with increased amounts of information on corporate activities entering the public domain." The requirement for traceability will likely spawn the emergence of number of niche companies that specialize in the field -- companies like Historic Futures. Tyrrell explains:

"This UK company has developed an online application called String, which enables users to see at a glance what has happened to a particular product at every stage in its supply chain. String can capture data about any event resulting in an output – for example, when raw materials are purchased from a third party, when production processes are performed on those materials and so on – including documentary evidence uploaded to the site. If anyone fails to provide such evidence, this is clearly visible to those further along the supply chain. 'We’re not in the business of guaranteeing the data, we're in the business of automating the audit process,' says Tim Wilson, managing director. However, he says, it would be difficult for a user to falsify information and get away with it because the system allows for easy cross-referencing. 'If you wanted to falsify your data, then you'd have to get everyone below you in the chain to falsify their data too. It's a tiny problem compared with the patchy recording of data, which is already commonplace where no such system exists."

Wilson hopes that Historic Futures becomes "the Facebook of supply chains." If product traceability becomes a legal requirement that result in large penalties for non-compliance, I'm willing to bet that it will be difficult for one company to dominate the field. Tyrrell seems to agree.

"There are many other types of software designed to track supply chain data – most big suppliers of enterprise software, for example, offer supply chain management modules – but these are geared towards providing management intelligence. Where such data are made available to the public proactively as an aid to purchasing decisions, it is generally in basic form and needs only a simple database system accessible via the web."

Supply chain traceability will likely remain a hot topic in the years ahead. Even individuals pressing for more corporate responsibility are skeptical that traceability will provide a solution. Tyrrell concludes:

"Critics point out that such systems do not in themselves guarantee ethical behaviour. 'Supply chain auditing is currently a necessary but not sufficient tool to deliver assurance on labour standards,' says Rachel Wilshaw, ethical trade manager at Oxfam, the development charity, which advises companies on how to trade more ethically. 'Commercial audits in particular have delivered limited change for workers, added significant cost to the supply chain and, increasingly, do not provide reliable assurance about standards because of growing audit fraud.' Advocates counter that supply chain transparency should, in itself, make it easier for independent observers to police standards and for consumers to make informed decisions. If a consumer wishes to boycott ... jewellery because, say, a mining company they dislike is involved, then that is their prerogative. Previously, they would never have known how that jewellery got from 'mine to market'."

Consumers are going to be tested as to whether their ethics or their pocketbooks mean the most to them. Supply chain traceability and reporting doesn't come cheap and those costs are likely to be passed along to the consumers. Historically, price has been king in the eyes of consumers.