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December 23, 2005
Holiday Greetings - and see you next year
This is the time of year when Americans from a variety of faiths, beliefs and cultures pause for celebration. As this blog takes a break for the holidays, let us reflect on one of our most important intangibles assets.
Many people talk about the freedoms that we Americans enjoy. Among these is freedom of religion. We are free to live our lives according to our own personal beliefs. But freedom of religion also means freedom from others attempting to impose their religious beliefs and practices on us. We should have the freedom to practice those beliefs in an environment of tolerance and respect for our beliefs, just as we tolerate and respect the beliefs of others.
The motto of the United States is "e pluribus unum" - "from many, one." One can also say it means, "from diversity, strength." This time of celebration is a time to honor our diversity and take strength from it.
So, to a diverse America, let me wish you a Merry Christmas, Joyous Hanukkah, Happy Kwanza, Festive Solstice, and Happy Holidays for whatever you choose to celebrate.
(or according to the Dallas Morning News - Merry Chrismukkah)
And may you always have the right to choose what and how you wish to celebrate.
From Santa's friend:
See you in the New Year.
(and for those of you still looking for the true spirit of the holidays - let me direct your attention to this (spoof) from the advertising firm of Sedgwick Road)
Posted by Ken Jarboe at 12:40 PM | Comments (0) | TrackBack
December 19, 2005
Improving literacy
Last week, the Department of Education released the 2003 National Assessment of Adult Literacy:
Results showed that the average quantitative literacy scores of adults increased 8 points between 1992 and 2003, though average prose and document literacy did not differ significantly from 1992.
The survey uses the following definitions of literacy:
Prose Literacy - The knowledge and skills needed to perform prose tasks (i.e., to search, comprehend, and use information from continuous texts).
Document Literacy - The knowledge and skills needed to perform document tasks (i.e., to search, comprehend,
and use information from noncontinuous texts in various formats).
Quantitative Literacy - The knowledge and skills required to perform quantitative tasks (i.e., to identify and
perform computations, either alone or sequentially, using numbers embedded in printed materials).
Examples of the below basic level included:
- searching a short, simple text to find out what a patient is allowed to drink before a medical test (prose)
- signing a form (document)
- adding the amounts on a bank deposit slip (quantitative)
At the basic level, examples included:
- finding in a pamphlet for prospective jurors an explanation of how people were selected for
the jury pool
- using a television guide to find out what programs are on at a specific time
- comparing the ticket prices for two events
The intermediate level examples included:
- consulting reference materials to determine which foods contain a particular vitamin
- identifying a specific location on a map
- calculating the total cost of ordering specific office supplies from a catalog
The proficient level included:
- comparing viewpoints in two editorials
- interpreting a table about blood pressure, age, and physical activity
- computing and comparing the cost per ounce of food items
Much has been made in the press about the report's finding of a decline in literacy of college graduates, and the reasons for that decline. For example, from the New York Times - "Literacy Falls for Graduates From College, Testing Finds"
When the test was last administered, in 1992, 40 percent of the nation's college graduates scored at the proficient level, meaning that they were able to read lengthy, complex English texts and draw complicated inferences. But on the 2003 test, only 31 percent of the graduates demonstrated those high-level skills
. . .
Grover J. Whitehurst, director of an institute within the Department of Education that helped to oversee the test, said he believed that the literacy of college graduates had dropped because a rising number of young Americans in recent years had spent their free time watching television and surfing the Internet.
"We're seeing substantial declines in reading for pleasure, and it's showing up in our literacy levels," he said.
I've not so sure about this analysis. I can see where a rise in TV watching might result in lower literacy levels. But I thought time spent watching TV was not rising. And I'm not sure the connection between surfing the Internet - especially since much of surfing is scanning materials and picking out the relevant portions (which sounds like "document literacy").
In most cases, the decline in the "proficiency" category by college graduates was mirrored by an increase in the "intermediate" category. The Christian Science Monitor reported that there was:
modest literacy gains among African-Americans and Asian-Americans, but a drop among Hispanics in overall English literacy - the ability, essentially, to comprehend newspaper articles and fill out job applications. No significant changes were measured in whites among the 19,175 people surveyed. Moreover, literacy experts say, some 1.5 million adults a year show improvement in their reading skills, and there's a 5 percent annual growth in the total number of students taking literacy classes.
A more striking finding was the decline in English literacy in the Hispanic population. As the New York Times story relates:
The same period saw big declines in Hispanics' English reading skills. In 1992, 35 percent of Hispanics demonstrated "below basic" English literacy, but by 2003 that segment had swelled to 44 percent. And at the higher-performing end of the literacy scale, the proportion of Hispanics demonstrating intermediate or proficient English skills dropped to 27 percent from 33 percent in 1992.
"These are big shifts," said Mark Schneider, commissioner of the National Center for Education Statistics, the arm of the Department of Education that gave the test.
"The Hispanic population in 2003 is radically different than in 1992, and many of the factors that have changed for Spanish-language immigrants make learning English more difficult," Mr. Schneider said. "They are arriving later, staying in the U.S. for a shorter period, and fewer are speaking English at home."
According to the Monitor, the story is our response to the
some 40 million American adults can't read much beyond "See Spot run," many of them concentrated in economically depressed areas from Oklahoma to South Carolina. That fact puts pressure on a national strategy that is focused on schoolchildren and that was at risk this year of losing a chunk of federal funding for adult literacy programs.
"The idea is if we put money into elementary schools and prevent the problem, that'll solve it, but it's not enough," says Rochelle Cassella of ProLiteracy Worldwide in Syracuse, N.Y. "It doesn't address a sizable population that exists already."
...
Hurdles impeding adult literacy include intergenerational illiteracy - when parents don't read, their children often don't - as well as economic and cultural barriers.
Dealing with this intergenerational illiteracy might be the hardest task of all. When kids don't pick up on the importance of literacy from their parents, it is doubtful that they never will. And while low literacy abilities might have been a hindrance to the parents, it will become an insurmountable barrier to their kids as the economy shifts more and more to an information base.
Overall, the assessment shows a little progress in the past 10 years. The total percentage of those at basic or above has increased slightly in all three areas. The problem is that it has not increased enough. With 22 percept of the total population at the below-basic level in quantitative literacy, 14 percent at the below-basic level in prose literacy and 12 percent at the below-basic level in document literacy, we still have a long way to do to make sure everyone can prosper in the new I-Cubed Economy.
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December 16, 2005
Surviving on personized service
One of the things that the Internet was predicted to do was eliminate the "middle-man." "Friction-less" commerce was how Bill Gates described it. Well, that has and has-not turned out to be the case. Web-based transactions have not replaced the middle-man because the middle-man plays an important role as information-broker. Take the case of travel agents - who were supposed to disappear in the face of the onslaught by Expedia, Travelocity, Orbitz and airline/hotel/car rental direct web-based booking sites. This has not been the case, as the Christian Science Monitor points out in "Travel agents find routes to survival":
So are the nation's 100,000 or so travel agents headed for the same fate as blacksmiths and buggy-whip makers - near extinction? The US Bureau of Labor Statistics expects positions as travel agents to decline through 2012 and warns those considering the profession to expect "keen competition for jobs."
But balancing that are a couple of factors: (1) The travel market in general is expected to continue to grow, and (2) despite growing comfort with the Internet, some people are expected to still want personal service and expertise from another human being. Recognizing this, online travel agencies such as Expedia.com have expanded to offer bookings by contacting a real, live travel agent via its toll-free phone line - no computer needed.
"Service is what makes the industry," says Christopher DeSessa, an associate professor at Johnson & Wales University in Providence, R.I., who teaches courses on travel and tourism. "It's when [customers] start getting to the high-ticket items that they need the expertise of a travel agent."
Expedia adding real live people? What is the Web coming to!
Looks like the travel business is learning the same lesson that the banking industry learned when it thought it could do away with tellers just because of ATMs.
It is the intangible asset of tacit knowledge that is brought to bear in many service transactions - not simply the transaction. As routine information becomes codified and available easily in digital form, the skills and tacit knowledge to navigate and interpret that information become more important.
In the information age, there will always be a need for information brokers. That is what much of the "service" sector is all about.
Posted by Ken Jarboe at 11:09 AM | Comments (0) | TrackBack
December 15, 2005
Japan goes upmarket - in fruit
Japan has found a way to improve its trade with China -- selling the Chinese $17 apples. No, this is not a con job. Japanese apples that routinely sell for $15 in Tokyo are now selling for $17 in Beijing. As the Washington Post explains:
To be sure, through luxury fruits the Japanese are exporting their own culinary aesthetic. Apples in Japan, for example, are prized as much for beauty as for taste. On Japanese farms -- almost all of which are small-scale operations -- even slightly blemished apples are discarded for juice and jams while production is limited to grow fewer but better quality fruit.
And there are enough newly rich Chinese, and others, willing to pay the price for aesthetics:
As big as softballs and as shiny as gems, the precious produce typically goes from the farm to the glitzy retailers of Japan's big cities -- where the high prices charged for such fruit have earned this nation its reputation as the land of the $15 apple.
But this year, the most costly crates of Katayama's "Japan's Best" apples are bypassing Tokyo's chic Ginza district and heading to China instead. There, Japanese apples are being scooped up by the Lamborghini-driving, Gucci-toting nouveau riche in Beijing and Dalian at $17 a piece, or roughly 100 times the price of a Chinese apple. Some of the finest specimens, with dragon designs and Chinese characters in their peels, retail for more than $100 each.
. . .
The crates of "Japan's Best" apples being shipped overseas are only part of a niche-market export boom from high-end Japanese farms. It includes $240 musk melons flying off to Thailand, $3 strawberries heading to Hong Kong and $170 square-shaped watermelons carted to Kuwait.
Cultivating this upscale market is a one more extension of Japan's export-led economic strategy:
"Japan may well be beaten by developing nations with cheaper farm and fishery products," Prime Minister Junichiro Koizumi said at an agricultural conference in Tokyo this year. "But I think Japan can still compete on the international market -- by exporting more expensive and delicious goods."
It may be a little thing - but it goes a long way to explaining why Japan continues to run a trade surplus. (See the chart below from the Statistical Handbook of Japan).
I know many of my economist friends will maintain that the trade balance is all a matter of macroeconomics -- savings rates, etc. But I still believe that micro matters -- and that business competitive strategy plays a part. At least it does with $17 apples.
Posted by Ken Jarboe at 09:26 AM | Comments (0) | TrackBack
December 14, 2005
October trade in intangibles
The BEA trade data released this morning shows the surplus in our balance of trade in intangibles continued to increase ever so slightly. The surplus rose by just $51 million to $6.88 billion in October. Note that the revisions for the past few months show that the intangibles surplus grew by less than originally reported: $44 million in July, $94 million in August and $94 million in September. Before July, the balance of trade in intangibles had decreased for many months. Essentially, the balance of trade in intangibles is treading water at a surplus of just below $7 billion per month.
This comes at a time when the overall monthly deficit grew to a record $68.9 billion.
The deficit in Advanced Technology Products was somewhat improved in October, only $4.9 billion, compared to $5.6 in September. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.
Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:
Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.
Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.
Posted by Ken Jarboe at 08:38 AM | Comments (0) | TrackBack
December 12, 2005
Taking patents-are-property to its logical conclusion
There is a group of people who believe that intellectual property rights (such as patents) are an absolute property right. Now the EU is proposing a course of action that must be based on that position: criminalizing all intellectual property infringements, including patent violations. The obviousness of this position is clear -- we lock people up for theft of and trespass on real property, why not for intellectual property.
Well, the answer is not so clear. First, is "intellectual property" really property -- or is it a state-granted monopoly right? If it is a state-granted monopoly right, then civil not criminal penalties are more appropriate.
Second, assessing the validity of a patent right is not so clear cut (for more see the Athena Alliance/CELI session on patent reform). Patents are not the same quality as real property titles -- and even real property titles can get messy (which is why we all have title insurance on our houses). Criminalizing patent infringement would put a strong chilling effect on innovation, since an innovation that is later found to infringe (willfully or not) would subject the innovator to the risk of prison.
Here is what some of the most innovative companies have to same, according to the International Herald Tribune/New York Times:
Tim Frain, director of intellectual property at Nokia, called the inclusion of patents within the scope of a European law "ludicrous." Frain, who is based near London, advises managers at Nokia on the risks of infringing existing patents when they develop new functions for mobile phones.
Frain indicated that patent holders wanted protection but not penalties of imprisonment as they tested the boundaries of other patents. "It's never black and white," he said. "Sometimes third-party patents are so weak that I advise managers to go ahead and innovate because, after making a risk analysis, we feel we can safely challenge the existing patent."
He added, "But with this law, even if I'm certain the existing patent is no good, the manager involved would be criminally liable."
. . .
"The law could trigger abusive criminal litigation, which would have a chilling effect on innovation," said Francisco Mingorance, European affairs manager at the Business Software Alliance, a trade body that represents Microsoft and Apple Computer, among others, in Brussels.
Some of the biggest patent owners have themselves been accused of patent infringement. Microsoft owns around 5,000 patents and is currently fighting 32 infringement claims, the company's spokesman in Brussels, Tom Brookes, said.
So, does the EU propose hauling Bill Gates off to the gaol if Microsoft loses one of those 32 infringement cases? That would certainly foster a spirit of innovation and solve Europe's competitiveness problem.
Posted by Ken Jarboe at 02:14 PM | Comments (0) | TrackBack
Outsourcing gaming - and more
No - it's not about the growth of the video-gaming industry in China. It is about the growth of the paying-others-to-play industry, and how the Chinese are cashing in on it.
Ogre to Slay? Outsource It to Chinese - New York Times:
One of China's newest factories operates here in the basement of an old warehouse. Posters of World of Warcraft and Magic Land hang above a corps of young people glued to their computer screens, pounding away at their keyboards in the latest hustle for money.
The people working at this clandestine locale are "gold farmers." Every day, in 12-hour shifts, they "play" computer games by killing onscreen monsters and winning battles, harvesting artificial gold coins and other virtual goods as rewards that, as it turns out, can be transformed into real cash.
That is because, from Seoul to San Francisco, affluent online gamers who lack the time and patience to work their way up to the higher levels of gamedom are willing to pay the young Chinese here to play the early rounds for them.
This phenomenon is part of a growing trend where "professionals" play on-line games to collect a virtual currency (similar to the bonus points of early games).
The games allow players to trade currency to other players, who can then use it to buy better armor, amulets, magic spells and other accoutrements to climb to higher levels or create more powerful characters.
The Internet is now filled with classified advertisements from small companies - many of them here in China - auctioning for real money their powerful figures, called avatars. These ventures join individual gamers who started marketing such virtual weapons and wares a few years ago to help support their hobby.
. . .
This virtual economy is blurring the line between fantasy and reality. A few years ago, online subscribers started competing with other players from around the world. And before long, many casual gamers started asking other people to baby-sit for their accounts, or play while they were away.
That has spawned the creation of hundreds - perhaps thousands - of online gaming factories here in China. By some estimates, there are well over 100,000 young people working in China as full-time gamers, toiling away in dark Internet cafes, abandoned warehouses, small offices and private homes.
And where are the US professional gamers who are making money? Not there, apparently.
"They're exploiting the wage difference between the U.S. and China for unskilled labor," says Edward Castronova, a professor of telecommunications at Indiana University and the author of "Synthetic Worlds," a study of the economy of online games. "The cost of someone's time is much bigger in America than in China."
There are some attempts to crack down on this so-called "gold farming." At the same time, companies have set up their own trading exchanges.
Even if these gold farming factories are shut down, the operators have learned a valuable lesson:
"My ultimate goal is to do Internet-based foreign trade," [Mr. Yu, the Fuzhou factory operator] says, sitting in a bare office with a solid steel safe under his desk. "Online games are just my first step into the business."
Just wait until these guys hit the financial exchanges!
Posted by Ken Jarboe at 08:56 AM | Comments (1) | TrackBack
December 08, 2005
Future of Tulane ... and New Orleans
From the Wall Street Journal - "Tulane Announces Downsizing In Wake of Hurricane Katrina":
Battered by Hurricane Katrina, Tulane University announced a major downsizing that will eliminate the jobs of a third of its medical-school faculty, do away with 22 programs of study and suspend eight sports.
While this is understandable given the financial situation, this could be worrisome for the future of New Orleans. As I said earlier, how Tulane copes will be a leading indicator of the future.
But, there is a bright point in this story:
Because of changing health-care needs and the reduced population of New Orleans, university officials said they plan to downsize the medical school's clinical operations and put added emphasis on research and educational programs.
Keeping the research programs is key.
As the Wasington Post - "After Katrina, A Leaner Tulane" puts it:
Administrators say the long-term plan -- which will ultimately reduce the annual budget by $55 million -- is to create a stronger and leaner undergraduate school by focusing on strong programs in such areas as architecture, business, arts and sciences while jettisoning some engineering programs that were not as highly rated.
Tulane could come out of this as a stronger school - and one that can lead the nation in educational reform. That would be a positive for the future of the Big Easy.
Posted by Ken Jarboe at 04:41 PM | Comments (0) | TrackBack
Opening designs the old fashioned way
While secrecy is a good way to protect designs from pirates (see earlier posting), openness can be a way to make others work for you. The open-source movement is the classic example. The "anime" industry (Japanese-style animation) uses "pirates" (aka hard core fans) as both a screening mechanism and as a workforce. Here is how it works (according to Fortune):
The most dramatic example of [the industry's open] attitude is their tolerance for folks who have the potential to put them out of business: pirates trading anime online. And not just trading, but competing to see who can create the best subtitled version of a particular show.
This is open-source TV programming. "Fansubbers," as they're called, can spend more than a dozen hours collectively just to get a half-hour show ready for English speakers. The process is as orderly as an ant farm, with each fansubber having a specialized task. TV watchers in Japan start the process by recording an anime show and uploading it to the Net, typically a few hours after it airs. Bilingual fans around the world download the show and start writing out translations in text documents, which they post online or e-mail around. The first drafts have all kinds of mistakes - words are translated too literally or just wrong - and other translators make refinements. At this stage, self-appointed editors ask questions and make changes, then fan typesetters plug in the subtitles as well as the translations for words that pop up on signs or characters' T-shirts. Finally someone somewhere encodes the completed version - and here there's competition to see who can encode it with the fewest glitches and the best filters - and runs it through BitTorrent, a piece of software that allows large files to be downloaded quickly. Typically the fansubbers organize themselves in teams to make the process move more smoothly. All this is done for free.
Now comes the really interesting part -- US companies then license the best of these translations for distribution in the US. And the system works.
Part of the reason is that the fansubbers police themselves with a zero-tolerance policy that would impress Eliot Spitzer. The first rule of fansub club: Don't trade fansubs once a U.S. company licenses a show. . . .
The fansubbers themselves also scour the Net to make sure that despite all their hours spent translating, no copies of their work remain. "If you really like the show, you should go out to buy the DVD," says the fansubber who goes by the online handle Quarkboy. In real life, Quarkboy is Sam Pinansky, a 25-year-old physics Ph.D. student at University California at Santa Barbara who's researching string theory. Pinansky doesn't mind the ephemeral nature of what he does. All he cares about is making sure there's plenty of anime out there for him. "If you do buy the DVD, more shows like it will be licensed in the future. Our whole goal from the beginning was to get more people to like anime."
This works for marketing as well:
Fansubbers also act as free focus groups for the U.S. anime distributors. The more people rally to translate a show on the Internet, the more likely it is to do well as a commercial product.
Innovation through anti-secrecy.
Many paths to the same destination.
Posted by Ken Jarboe at 09:12 AM | Comments (1) | TrackBack
Protecting designs the old fashioned way
While it is fashionable to assert copyright and patent protection for almost everything, there are other, more old fashioned ways of protecting ideas and designs: keep them secret. Pre-releases of products may be important to marketing purposes, but it also gives pirates a head start. It is widely suspected in Hollywood, for example, that pre-release versions of movies sent out to influence the Oscar process are the source of pirated copies seen on the street even before the premier.
One area where this secrecy is especially important is in designer fashion. Nothing undercuts the value of a design to see knock-offs floating around. A niche of that market -- the wedding dress industry -- seems obsessed with that problem. After all, no blushing bride wants to pay mega-bucks for that special gown just to see it show up at everyone else wedding. (Being male, I can only accept this statement as fact, rather than try to completely understand it. After all, as some one said, what's the problem - it is guaranteed that the bride will be the only one in the room wearing that particular dress). So, wedding dress designers have taken an extra precaution to insure their clients will have at least one fleeting moment of uniqueness. No pictures -- absolutely none -- are allowed during the fitting process.
This came as a surprise (and disappointment) to a young friend of mine who is going through that pre-marriage ritual. She was eager to share the dress design with her bridesmaids. But the thought of having something special overrode any disappointment when the connection between pictures and knock-offs was pointed out.
So, secrecy still matters if you are trying to prevent piracy.
On the other hand if you are looking for collaboration in design, then secrecy can be a problem.
Posted by Ken Jarboe at 08:15 AM | Comments (0) | TrackBack
December 07, 2005
Competitiveness Summit
Yesterday, I attended the public session of the National Summit on Competitiveness at the Commerce Department. Originally proposed by Congressman Frank Wolf, the summit appears to have shifted from a Congressional activity to an Administration event. The meeting was held in two phases: a public session with the official participants on the auditorium stage making statements about the issue, and a series of closed door breakout session where participants met with various Cabinet members. (See NAM press release for a picture of the public session.)
Unfortunately, I'm not sure if anything will come of this exercise. The Summit statement - prepared ahead of time - was a reiteration of what has become the litany in the high-tech community: more Federal spending for basic research; more science and engineering graduates; better training for K-12 math and science teachers; reforming immigration law to make it easier to hire and retain technically trained immigrants; better technology transfer to the private sector; and more attention to emerging advanced technology areas.
It is also a policy agenda that could have been (and was) written 20 years ago.
The public discussion added only a little to that agenda. While Commerce Deputy Secretary David Sampson mentioned the importance of intangibles in his opening remarks, patent reform was never brought up. Sampson talked about the need for non-technical innovation, but did so in the context of needing innovation in government practices and policies, not about fostering non-technical innovations in the economy. He did raise the problem of energy and health care costs as drags on US competitiveness.
While one participant mentioned the importance of the Manufacturing Extension Partnership (MEP) in passing, the need to help MEP shift from manufacturing quality to innovation was never discussed. Only a couple of times did participants talk about the problem of getting the right skills at the production level; the entire focus was on higher education. And while one participant focused in on the critical issue of applied problem solving skills, the discussion centered on technical math and science education.
In fact, when a Congressman raised the concern that the movement of computer and engineering jobs offshore was scaring young people away from science and technology careers (because they don't see a secure future in those fields), his concerns were immediately discounted and downplayed. There are a lot of engineering jobs in this country, it was claimed; the problem is the lack of US graduates in those fields.
Unfortunately, this type of narrow focus dominated the meeting. Not doubt, all of the issues raised at the Summit are important. However, they are but a portion of the problem and they don’t necessarily address the newer aspects of our competitiveness challenge. What troubles me about the meeting is the dog that didn't bark: all of the issues that were not raised – at least in the public session. Let's hope that some of these issues were raised, and discussed frankly, behind closed doors.
Posted by Ken Jarboe at 12:40 PM | Comments (0) | TrackBack
Update - Symbols, mascots and intellectual property
In an earlier posting Symbols, mascots and intellectual property, I suggested the following to resolve the controversy over use of Native American tribes as college mascots:
Maybe what NCAA should do is require those schools that use specific tribe names to obtain the permission of the tribe for the use of their intellectual property. That way the Seminoles could license the name to Florida State (which might help the different parts of the tribe - Florida and Oklahoma - work out their differences). And the Chippewas (Central Michigan University) and the Utes (University of Utah) and the Choctaws (Mississippi College) and the Sioux (University of North Dakota) and the Illinois Nation - Illini (University of Illinois) could decide for themselves whether or not they wish to be associated with the team.
Turns out, that is exactly what the NCAA has decided to do (according to a Washington Post story last month):
North Dakota was among 18 schools initially cited by the NCAA and is among 15 still under censure after Florida State, Utah and Central Michigan won reprieves, having documented that the tribes for whom their teams are named (the Seminoles, Utes and Chippewas, respectively) endorse the use. Starting Feb. 1, schools that can't document tribal support won't be allowed to host NCAA postseason games or wear uniforms with the offending names or logos in postseason play. Also subject to the ban are schools with generic nicknames, such as the Newberry (S.C.) Indians, because they have no "namesake" tribe to grant approval.
I still think the schools should be paying the tribes some royalties for the use of the names, however. Or at least give tribal members a free education or reduced tuition rates.
Posted by Ken Jarboe at 10:45 AM | Comments (0) | TrackBack
China and patent reform
It looks like the Chinese are ready to fight back. According to a piece in yesterday's Morning Brief in the Wall Street Journal (citing a report in the Legal Times), the Chinese are hiring more American lawyers to fight counterfeiting charges. What is to come is IPR litigation. As the Journal piece states:
although Chinese companies have yet to initiate patent claims against their competitors in this country, lawyers tell the magazine that day is not far off.
My own sources tell me that they have see "a sizable increase in interest by Chinese firms to actively assess the enforceability or weakness of patent portfolios - not looking at design around strategies but rather looking at the feasibility of successful re-examination or invalidation."
This may be a spur to reform of the US patent system -- imagine the political ramifications if the RIM or eBay infringement cases had brought by a Chinese competitor. My worry is that we will not take this as a wake up call. Nor will it be a tool for accountability, focusing on purging the system of invalid patents. Rather I fear that the amount of litigation will dramatically increase as others learn to use the system (with the presumption of injunctive relief) as a strategic device.
In the 1980's we attacked the problem of Japanese patent thicket by (surprise, surprise) creating thickets of our own. I fear we are headed down the same path where we have created an absolute property right to ideas and a punitive legal system to back that right which can and is used as a competitive tool.
Having the Chinese take an interest in a valid transparent and enforceable IP system is in everyone's interest. Having a US patent system that can be gamed for strategic competitive advantage and stifle innovation is in no one's interest.
We need to reform the patent system -- now!
Posted by Ken Jarboe at 08:52 AM | Comments (0) | TrackBack
December 06, 2005
Outsourcing high value-added
From today's New York Times - Intel and J.P. Morgan Chase to Expand Indian Operations:
Intel, the world's largest chip maker, and J. P. Morgan Chase, the global investment banker, said on Monday that they would outsource significant operations to India, an indication that more complex high-value work was moving here.
Intel, based in Santa Clara, Calif., will invest more than $1 billion in India over the next five years, with $800 million going to expand its research and development center in Bangalore, the company's chairman, Craig R. Barrett, said in a statement during a visit to New Delhi.
Intel's news followed the announcement in October that Cisco Systems would invest $1.1 billion and triple its work force in India to more than 4,000 from 1,400 in three years.
Intel's Bangalore center employs around 3,000 engineers who design and develop products. Mr. Barrett said Monday that its latest investment "demonstrates Intel's long-term commitment." Intel will invest the rest, $250 million, as venture capital in technology companies.
J. P. Morgan Chase said it would add 4,500 employees in India by 2007, mainly by setting up operations in Bangalore to support its growing structured finance and derivatives businesses globally. The company will hire a mix of recent graduates and experienced workers and will double the size of its operations in India. All 4,500 of J. P. Morgan Chase's current employees in India are based in Mumbai.
The bank made news two years ago when it became the first global investment bank to hire 35 equity researchers in India to support its operations on Wall Street.
"In our experience, we have found high-quality, low-cost staff in India, and we want to continue investing in the country," said Michael Golden, a spokesman for the bank who is based in London. "The investment is about meeting the growing needs of our business and not about shipping jobs from another location."
Wall Street firms and large global banks have been particularly aggressive in outsourcing work to India in recent months. UBS said it would open its first center in Hyderabad, with 500 jobs, in early 2006. Goldman Sachs has 750 people in its center in Bangalore but has a capacity for 1,500 employees.
"This is way beyond mere cost savings," Madhavi Mantha, a senior banking analyst at the financial consultancy Celent, said from Montreal. "Unless global banks are comfortable with the quality of work, they would not risk taking the work offshore."
J. P. Morgan Chase said the new employees would process complex derivatives settlements and structured finance transactions. The company will hire about 400 people a month. By 2007, it will have almost a third of its back-office and support jobs, or about 3,000, in India.
Offshoring of work to India has steadily risen in the last few years, despite political discomfort in the United States over the trend. Recently, high-end jobs in areas like chip design and complex product design have been added to the relatively low-end call center and paid-by-the-hour software coding work.
Though salaries in India are climbing rapidly for entry-level workers and top managers, Indian employees still earn less than a fifth of what their peers in the United States do.
(emphasis added)
And why is it that everyone thinks we can continue to compete by just throwing more educated people at the problem?
Posted by Ken Jarboe at 05:53 PM | Comments (0) | TrackBack
China's China: Vietnam
Chinese manufacturers are looking for lower cost production. They are finding it in Vietnam. As today's Washington Post - ("China Ventures Southward") puts it:
While few would describe China as a beacon of labor safety or high wages, Chinese investors acknowledged in interviews that Vietnam beckons as an even cheaper, less regulated place to run a factory.
According to the Post:
For now, China's investment in Vietnam remains in infancy. Since 1988, Vietnam has attracted more than $50 billion, with roughly half coming from Taiwan, Singapore, Japan and South Korea, according to state figures. Mainland China has injected only $734 million while competing for foreign investment.
But much mainland money is filtered through partners in Hong Kong, which has sunk $3.7 billion in Vietnam since 1988, according to state figures. Chinese investment has surged in recent years. China has become Vietnam's largest trading partner, with two-way commerce expected to reach $7.5 billion this year, according to government figures.
. . .
Chinese manufacturers are now expanding into Vietnam, in part to lock up shares of the Southeast Asian market ahead of the creation of a planned free-trade agreement with China. Textile and garment-makers are shifting to Vietnam to sidestep quotas on their shipments into Europe and the United States.
Some investment is propelled by stricter enforcement of environmental standards in some areas of China. According to entrepreneurs in China who spoke on condition of anonymity for fear of angering government officials, leaders in coastal areas have been encouraging pollution-intensive industries such as plastics, steel and electronics to consider relocating to Southeast Asia. (emphasis added)
So China is already outsourcing some of its basic industries!
Does anyone still believe that we can succeed in the US under the old industrial paradigm of cheaper and cheaper and cheaper? There will always be someone out there who is willing to work cheaper - as the Chinese are finding out.
I doubt that Vietnam will cause much worker displacement in China. Vietnam is just not big enough. But, the trend will undoubtedly push companies (and the Chinese government) along the path they have already decided upon of moving up market. That will continue to present a greater and greater challenge for America - unless we find a way to re-invent the game.
To do so calls for greater attention to innovation -- and not just the old style where we invent it and let some one else make it. That static form of innovation is part of the old industrial model. In the I-Cubed Economy, dynamic, continual innovation is required. The new model is one of new products and processes tied to localized manufacturing. It is the fusion of manufacturing and services. And it is production rooted in jurisdictional advantage.
Right now, China is beginning to understand that one does not create sustainable jurisdictional advantage through low wages and low environmental standards. They are actively trying to create a new advantage - based on innovation and design.
We need to do the same.
Posted by Ken Jarboe at 07:55 AM | Comments (0) | TrackBack
December 05, 2005
Welcoming immigrants
Nashville is becoming the site of a grand experiment in welcoming (and coping with) immigration, according to a recent article in the Carnegie Reporter:
Today, Nashville is a handbook for the nation, an index of mistakes and gains. It is certainly a much more exotic and cosmopolitan city, an eclectic collection of international food, art and entertainment. Three Hispanic-themed films were featured in this year's Nashville Film Festival. Austin Peay State University opened a Hispanic Cultural Center this year and an exhibit at the Frist Center for the Visual Arts includes the star-spangled couture of Mexican-native designer Manuel. The country music duo Big and Rich has incorporated bilingual rap into their musical repertoire.
But a poll conducted by Middle Tennessee State University in 2002 indicated that negative feelings about immigrants and refugees are increasing in middle Tennessee. Hispanics are making life worse, according to forty-one percent of those surveyed, compared with twenty-eight percent in 1998. Negative reactions to Middle Easterners were reported by thirty-nine percent of respondents, while fifteen percent said the same about Asians. Seventy-four percent of those surveyed believed that U.S. immigration policy is "too open."
Steven Camarota of the Center for Immigration Studies says Nashville's reactions to the immigrant and refugee influx is an indicator of the mood in the rest of the nation. "Nationally, there's always a divide between public opinion and the elite opinion," he says, "and that's the case in Nashville and other cities. The mayor, the businessmen and the preacher of the Presbyterian church may have one reaction to their arrival, but the local union president may say another thing."
So as Nashville is forced to confront a critical crossroads in its history, the perennial question nags: Will the "Tocquevillian paradise" teeter as state budgets are pinched and social service demands increase? Can the city's economy sustain and tolerate an open-gate policy? Will it provide a blueprint for national immigration reform? Can the city become a truly diverse compendium of mixed races and cultures?
It also remains to be seen whether and how Nashville develops and markets this cultural mélange in today's creative economy. The question is not so much can the economy sustain the open gate policy as it is whether the open gate policy will pay off economically. So far it has as the influx of workers filled the need in the growing hospitality and manufacturing industries (including at the new Nissan and Saturn plants). Will the cultural mix and the environment of openness now help develop Nashville's jurisdictional advantage - rather than simply provide bodies to fill existing slots? Stay tuned to this test of the theory of the Creative Economy.
Posted by Ken Jarboe at 04:47 PM | Comments (0) | TrackBack
Taxing creative works
I am in process of writing a follow up to our white paper on Reporting Intangibles. This second paper is on the monetization of intangibles. In the course of my research, I am delving into the wonderful world of taxation - and getting an education on the difference between financial accounting and tax accounting. Not surprisingly one of those differences concerns their treatment of intangibles. The rules for taxing intangibles are not the same as booking intangibles.
Now one of the rules for taxing intangibles maybe changing. Two different provisions were added to the House and Senate tax legislation (HR 4297 - Sec. 304 and S.2020 - Sec. 567) that would change how the sale of music catalogs are taxed. Under the Senate proposal, a buyer or creator of a musical work would be allowed to amortize the cost of the over 5 years, rather than use the income forecast method of accounting. Under the House bill, sales of music catalogs would be treated as capital gains and taxed at a lower rate.
Interestingly, it only applies to musical works - not all copyrighted works. This may be because songwriters must be paid royalties - and pay taxes - immediately; writers can already spread out payment and taxes over a number of years.
It is estimated that the House provision will cost $25 million over 10 years while the Senate will actually increase tax revenues by $32 million over 10 years.
The House provision will clearly increase the revenues of songwriters. The change would also encourage songwriters to sell their portfolios by lower the rate, according to the Wall Street Journal - "Music to Songwriters' Ears: Lower Taxes".
The Senate provision works differently. Rather than change the tax rate, the Senate bill would allow songwriters to amortize their expenses over 5 years. The provision is also likely to help spur the sale of music catalogs, since the cost of buying the catalog could be amortized over years.
Neither provision is guaranteed to make it into the final bill - if there is a final bill. The House will vote this week on their version; the Senate passed its version last month. After the House vote, the bill will go to a conference to reconcile the two. At that point, either, both or neither of the provisions may remain in the legislation. However, since both the House and Senate have passed something on the issue, something is likely to stay in the final bill. It is just unclear what it will be.
More later.
Posted by Ken Jarboe at 10:22 AM | Comments (0) | TrackBack
December 02, 2005
Getting the currency data right
From WSJ.com - Citigroup Unveils New Currency Measure Using Investor Fund Flows
The dollar has fallen 10% since the end of 1999, according to the popular U.S. Dollar Index, which measures the buck's performance against a basket of currencies. But Citigroup argues it is more accurate to say the dollar has tumbled less than 6% over the same period.
Why the discrepancy? Citigroup is rolling out a new way to measure changes in currency values. Instead of studying international trade flows to get a sense of the relative weightings of the world's currencies, the new Citigroup Flow Weighted Index looks at flows of capital back and forth among international investors. Citigroup argues that this is an important change because nowadays portfolio managers and speculators -- not large companies -- are responsible for the bulk of foreign-exchange activity.
. . .
Citigroup, one of the largest foreign-exchange dealers, estimates that about 70% of all currency transactions world-wide these days are related to investor fund flows, including trading done by stock and bond portfolio managers, hedge funds and other speculators, commercial banks and central banks. Only 30% of foreign exchange is related to transactions from the corporations that are measured in government trade data, Citigroup says.
This just confirms what a number of us have been pointing out for years: capital flows are driven by investment transactions, not trade. Trade accounts aren't even the tail - and they certainly don't have the power to wag the dog.
Posted by Ken Jarboe at 12:50 PM | Comments (0) | TrackBack
The Information Society with less information
From today's LA TImes: "Thousands of Firms Could Stop Reporting Emissions":
For nearly 20 years, the national Toxics Release Inventory has allowed people to access detailed data about chemicals that are used and released in their neighborhoods. In about 9,000 communities, the annual reports identify which industrial plants emit the most toxic substances, whether their emissions are increasing and what compounds may be contaminating their air and water.
Seeking to ease the financial burden on industry, the U.S. Environmental Protection Agency has proposed eliminating some requirements for smaller facilities that must monitor their emissions and file the complex annual reports. The EPA will make a final decision on the proposal next year, after a public comment period.
And I thought that a principle of the Information Society would be better access to information. Silly me.
(BTW - one of my favorite New Yorker cartoons, published at the height of the dot.com frenzy, shows a group of executives sitting at a table surrounded by computers, etc. The caption reads "We have lots of information technology, we just don't have any information.")
Posted by Ken Jarboe at 12:41 PM | Comments (0) | TrackBack
Patents and injunctive relief
Normally I think that Steven Pearlstein is one of the most perceptive business commentators around. But I think he got it wrong in today's column - "Big Firms Caught With Their Patents Down". Pearlstein is taking the side of the little guys in the two major patent fights:
Despite the propaganda emanating from the high-tech lobby, which has rallied to the defense of eBay and RIM, these cases have nothing to do with "patent trolls," those unsavory characters who buy up obscure patents to extort money from innovative and law-abiding companies. Campana and Woolston were trained engineers who came up with genuine innovations for which companies like Yahoo and AutoTrader are currently paying good money.
Moreover, the patents held by Stout and Woolston are entitled to the same legal protection whether they aim to build operating businesses around the patents or merely license them to others. The high-tech industry is full of companies that boast entire business units dedicated to licensing their patent portfolios. It is pure hypocrisy for the industry to argue that this is somehow illegitimate when done by small inventors.
What these cases are about is legal thuggery -- big companies, with their endless motions and discovery and appeals, abusing the legal system no less than the plaintiffs' attorneys they always complain about. The only way to end these wars of legal attrition is for courts to issue business-threatening injunctions that force the parties to the settlement table.
This sounds great -- but there are two problems with this argument.
1) in the eBay case, there has been a settlement! There is no need for "courts to issue business-threatening injunctions that force the parties to the settlement table." And that settlement happened years ago. The only reason for an injunction in this case, as far as I can see, is punitive. Rather than end the legal-war of attrition, such an attitude is likely to provoke it.
2) in the RIM case, Pearlstein admits that "RIM came up with its technology all on its own -- there's no dispute about that." So RIM is to be executed - for that is what the injunction is likely to do - for a flaw in the patent system that gives the patent for the technolgy they came up with to someone else? Yes, maybe there needs to be a court-ordered settlement. But putting RIM out of business for using a technology that it developed on its own is, once again, not the way to end the legal warfare. It will just encourage it.
I'm as much in favor of protecting the little guy and ending the legal warfare that, as Adam Jaffe says, it throwing sand into the gears of innovation. But, the knee-jerk granting of injunctions, as in the eBay and RIM cases, is not the answer.
Steven -- please, tell me where I am wrong.
Posted by Ken Jarboe at 10:00 AM | Comments (0) | TrackBack
December 01, 2005
Mixing manufacturing and services
In my paper on our new competitiveness challenges, I made the point that there is a fusion between manufacturing and services. Part of that fusion is new - as design takes a preeminent role. But part is old - the remanufacturing and repair of products. Caterpillar is a case in point, as Business Week points out in Cat Sinks Its Claws Into Services:
Services, however, are the key to Cat's strategic shift. The Peoria (Ill.) company has three service divisions today -- Financial Services, Logistics, and Remanufacturing -- which account for 15% of Caterpillar's revenues and perhaps 20% of its net income. Because of their fast growth, [CEO James W.] Owens says, they should generate 20% of sales by 2010, which would put the troika's combined revenues at $10 billion. Since these also are higher-margin businesses, their bottom-line contribution should increase even more, to as much as 30% by the end of the decade, calculates Ann Duignan, an analyst with Bear, Stearns & Co. (BSC ).
Cat Financial extends credit for three-quarters of all Caterpillar sales, so it has soared right alongside the equipment business. The division, which averages 95,000 customers a year, opened its first office in China earlier in 2005. No surprise, then, that it's having a record year, with expected revenues of $2.3 billion and a $350 million profit. Cat Logistics, meanwhile, is prized for its steady income stream. The unit warehouses and delivers replacement parts for 60 industrial customers, including Bombardier Inc. and Harley-Davidson Inc. (HDI ). In October it signed a $100 million contract with General Motors Europe (GM ) that will pay out over a decade.
The remanufacturing division is the newest of the service units. Caterpillar got into the business almost by accident: It dates back to a favor Cat reluctantly did for Ford Motor Co. (F ) in 1973. To lower its own costs, Ford's truckmaking subsidiary wanted a source of rebuilt engines, which generally sell for half the price of new ones. As Caterpillar executives tell it, management saw Ford's demand as a chore. But because supplying Ford with new engines would be such a money-maker, the company consented and opened a repair shop in Bettendorf, Iowa. By 1982 the business had grown enough that Caterpillar bought a vacant factory in Corinth, Miss., to reclaim used crankshafts. Still, even into the late 1990s, after Caterpillar built a second plant in Nuevo Laredo, Mexico, and a third in Prentiss, Miss., remanufacturing was considered a sideline. "It was something we had to do," recalls Steven L. Fisher, president of the division.
In 2000 management realized that this handful of ancillary factories represented a hidden opportunity. The business had become reliably profitable, and the marketplace was full of mom-and-pop outfits, making it easy for the company to pick up business through acquisitions. Caterpillar's own numbers argued for expansion, too. As new-equipment orders were falling amid a plunge in the industrial economy, revenues and profits from Caterpillar services continued to climb. Since then, as the company has built and acquired more facilities, Cat Remanufacturing's results have doubled.
Design-build-finance/sell-service/repair. Its all part of the value chain - and smart companies (and countries) realize there are opportunities at each stage.
Posted by Ken Jarboe at 05:15 PM | Comments (0) | TrackBack