Monthly Archives: January 2010

Is Dubai in for a Downfall? And will it take the Middle East Economy With It?

A recent article over on Knowledge @ Wharton last month asked if Dubai World’s Debt Default Could Spark a Crisis in the Middle East and Beyond after Dubai World announced in late November that it wanted a six month delay on payments on 26 Billion in debt. In other words, it’s asking for a delay on a loan amount that is greater than the annual GDP of over 110 countries! And, according to the article, that’s just the debt it attributed to it’s overly ambitious real estate subsidiary, Nakheel, which, not satisfied with the construction of Islands in the shape of Palm Trees (Jumeirah, Jebel Ali, and Deira) had to go and construct a massive Waterfront, The World (Wikipedia), and, now, The Universe (Wikipedia).

Needless to say, the announcement threw the markets for a loop. As per the article, the Dow Jones Industrial Average quickly fell 1.5% (155 points), European stocks plunged, and oil prices plummeted. Between the end of November 25 (when it hit Bloomberg) and December 9th when the K@W article appeared, a flurry of news articles hit the wire trying to understand what it all meant, which so far has been very little beyond the initial shock. But given that negotiations are still ongoing and nothing has been finalized, a bigger shock could be coming, especially since Dubai World as a whole has debts totalling 59 Billion, which is an amount greater than the annual GDP of over 130 countries! The detailed analysis from the K@W article was that Dubai World’s lenders will work out a restructuring and will supply funds needed to complete the real estate projects that have stalled, because the buildings will be more valuable finished, quoting the burst real estate bubble that Florida suffered in 1926 (and how the excess building eventually drew people to Florida from around the US), but nothing is set in stone. There’s no guarantee that, in this economy, the lenders can even afford to wait six months for their structured payments, yet invest even more money in very expensive (and egotistical) projects that will take quite some time to sell. After all, how many people left can afford to pay 15 Million to 50 Million for their own island? With the major studios shelving scripts left and right, even “A” list actors are having trouble getting steady work at their usual pay rates! (And if the doctor had 15 Million to invest, he’d be launching new companies offering useful software and services [as they’d have revenue potential], not buying an over-priced man-made piece of real estate that really wasn’t needed in the first place.)

Now, while it’s likely that Wharton Finance Professor N. Bulent Gultekin is right in that problems arising from Dubai World will for the most part be contained in Dubai rather than affecting the region, largely because Dubai is the most highly leveraged country in the area, it’s important to note that if Dubai World did fail, it would be the largest government default since the approximately 100 Billion Argentine debt crisis of 2001 and that could spark a chain reaction (like there was during the Russian default crisis of 1998) as there has been a very big jump in government debts around the world as of late. And if a country like Greece, which has a lot of debt mostly held by lenders outside the country, fell, we could be saying goodbye to a quick recovery and hello to a nice, long depression. I just hope the financial decision makers think about this before they raise national debt limits again and risk plunging the world markets into turmoil.

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Invoice and Asset Based Lending Goes Mainstream

Venture Finance, the UK’s premiere independent Invoice Finance and Asset Based Lender with 20 years of helping thousands of businesses under their belt, just released a white paper on the evolution of invoice and asset based lending that is definitely worth a read. The white-paper, which resulted from a roundtable discussion among UK industry leaders in London late this summer, addressed the evolution of invoice and asset based lending and how it addresses today’s business needs in times of recession and growth.

Today, the UK Invoice and Asset Based Lending (ABL) Industry stakes a strong claim for a place at the commercial finance executive table, growing from £ 7.3B and 13,669 clients at the end of 1995 to £ 46.7B and over 46,000 clients halfway through 2009. This represents a strong, and consistent, growth in an industry which provides security and flexibility when compared with more traditional funding choices, which have proven to be quite fragile over the past 18 months as many banks called in loans and lines of credit with little, if any, notice as a result of the failure of the traditional banking system that started with the collapse of Lehman Brothers. According to research done by Venture Finance across 1,000 UK accounts, in the last year, 58% have had their clients refused credit from banks. As a result, payment times have increased to horrendous levels. Over a third of accountants are now suffering an average payment delay of 14 extra days, and over a quarter are now having to suffer an average payment delay of 30 extra days, which puts a tremendous strain on cash flow when you’re waiting an average of 60 to 75 days to have an invoice paid.

It’s important to note that ABL is not a new concept, having been around in some form or another for centuries, with a history that can be traced back to the glory days of Rome. A few centuries ago, in colonial times, it was common for British merchants to make use of factors to sell goods in the Americas. The industry has evolved significantly in the last 40 years. Whereas its modern beginnings consisted solely of basic factoring and invoice discounting forty years ago, in the 1990’s, we saw the introduction of true ABL that leveraged against stock and plant.

ABL is important because it provides value above and beyond traditional financing. This value includes:

  • direct link to business performance
    if your invoices are strong, so is your credit availability
  • flexible and responsive
    you can decide how many of your receivables you want to leverage, how much funding you want to ask for, and if your business improves, so does your credit availability
  • superior service levels
    in ABL, it is the norm to ensure face-to-face visits occur at least every six months in order to establish a productive and lasting relationship; this allows a relationship manager to pre-empt any upcoming issues in conjunction with the client and ensure that capital remains available; compare this to the banking industry where visits can be yearly at best from a manager with a large client portfolio

When you consider that ABL has grown during the recession, and that it can take as many as 13 quarters for a full recovery if we use previous recessions as a guide, it quickly becomes clear that, for many firms, ABL is a much better financing option than the local bank. In other words, if you’re not doing it, maybe you should. If you’re in the UK, you can start with Venture Finance and if you’re in the US, you can start with The Receivables Exchange.

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Is The Future of ERP Harmonization?

In a recent article over on CIO.com, Thomas Wailgum suggests that the future of ERP might be harmonization, which he defines as the happy middle between new advances in middleware offerings, tools from the big vendors that allow easy integration between core databases and infrastructure, and SaaS apps where appropriate.

Given that, as Thomas astutely notes,

  • for most companies, the pursuit of the single instance dream hasn’t led to success,
  • companies can no longer afford to wait the typical five to seven years for returns on major IT investments (especially when, on average, three new hardware platforms and three new major software versions will materialize in that timeframe), and
  • the worst recession in recent history is causing most companies to ask what the true cost of their ERP is and what the realized value is, especially when most ERP vendors are trying to raise maintenance costs to 22% or more while delivering little or no incremental value.

Given these harsh realities, and the fact that many companies are finding that their time is running out on their antiquated ERP systems such as PeopleSoft, R/3, e-Business Suite, and JDE, this might finally be the turning point where companies stop pumping millions of dollars into legacy ERP systems that, for many organizations, provide little return — especially when enterprise versions of open-source cloud-ready ERP systems like Compiere are available for a fraction of the cost of typical ERP systems. These systems, which can come bundled with support, often cost less than 1/5th of a SAP or Oracle solution and play nice with on-demand middleware and best-of-breed SAP solutions that implement common XML standards. This allows you to quickly assemble considerably more functionality, and value, for an up-front cost that is a drop in the bucket compared to what many traditional ERP systems cost.

In enterprise software, it’s often hard to say for certain what will happen. But I think this is the recession that will finally force the inevitable move away from “sunk cost” IT to “pay for performance” and that the enterprise of tomorrow will be different from today.

I’d also recommend checking out part II of the article on Making Sense of All That Data. Regardless of your viewpoint, Thomas makes some interesting points, especially with regards to the “Super Vendors” and the forthcoming consolidation in the traditional ERP space (which always occurs at the end of a recession when the rich buy the poor).

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What Impact Will the BI Megatrends from 2009 Have on Next Generation Spend Analysis?

An article in Intelligent Enterprise last year outlined the Nine BI Megatrends for 2009 that the author expected to reshape business intelligence and information management in the year(s) ahead. Since spend analysis is a major component of business intelligence in supply chain, one has to wonder what impact these megatrends will have. But first, let’s address the mega-trends presented in the article.

  • Open Source
    Low TCO, mature development stacks such as LAMP (Linux, Apache, MySQL and PHP, Perl, or Python) [or MAMP if you prefer the Mac which, being built on Unix, is fully compatible thanks to Xcode], and new open source offerings from players such as Pentaho are making open-source platforms and foundations attractive, and providing pressure on commercial vendors to bring down the TCO.
  • BI is becoming less isolated
    Many users are now employing reporting, access, and analysis tools that come with functional applications, forcing suites to break down silos to offer value.
  • Users are demanding a richer experience
    The days of simple, canned reporting are finally slipping into the past. BI portals are starting to become richer, more flexible, and more powerful. They’re using Rich Internet Application (RIA) technology to improve the user experience and incorporating mash-ups to allow users to better visualize the data.
  • BI is starting to focus on relationships
    BI used to focus on reports that did not provide any flexibility when it came to investigating data relationships, but new tools are giving users the ability to define their own relationships, cubes, and reports and dive into the data in new and innovative ways and find relationships that, classically, would take weeks of specialist data mining or statistical analysis to uncover.
  • Business Modeling meets MDM
    Master Data Management and emerging semantic models, which could serve business modeling in the same way that data models, schema, and metadata served extract, transform, and load (ETL) tools, are enabling some vendors to create tools that improve business modeling and its data modeling relationship using graphical interfaces that allow analysts to create their own data models without having to learn specialized languages or methodologies.
  • MapReduce meets Large Scale Data Analysis
    Although the most famous implementation belongs to Google, it’s also available in the open source Apache Hadoop framework, and allows organizations to build parallel, virtualized architectures based on server farms using commodity hardware which can analyze more data simultaneously than ever before, allowing for the discovery of new relationships that can prove very insightful to BPM.
  • Column-oriented databases are attacking performance woes
    Some of the leading column-oriented database technologies are employing advanced compression technology and large memory algorithms that is changing the game for BI and data warehouse architectures, allowing complex queries to be answered in realistic amounts of time.
  • Event Processing is opening up new analytical possibilities
    Emergent applications in healthcare, telecommunications, intelligence, IT management, gaming, and web analytics are capturing events and correlating them with analytics from BI tools to give organizations actionable insight.
  • Too Big to Fail
    As more and more queries are run against multi-billion row tables in data warehouses managing hundreds of terabytes of data (and growing daily), we’ll see more and more BI implemented to improve BI.

So what does this mean for spend analysis? With the exceptions of MapReduce and Column-oriented databases, not much. The reality is that It’s the Analysis, Stupid and anything that doesn’t simplify analysis while increasing the analytical power available to the user won’t stay on the radar very long. That’s why I’m pleased to inform you that Eric Strovink’s new series on Spend Analysis starts within a week. As I’m sure it will be as informative and forward looking as his last two (linked in Spend Rappin’), I’m certainly looking forward to it!

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Nearsourcers – Is Brazil in Your Future?

I’ve been on a nearsourcing kick for a while now because I never really believed in the outsourcing craze (and the outsourcing craze to China in particular) as it’s just not rational that it should be cheaper to source the vast majority of products from half way around the world. Now, it was for a while, but I’m blaming that on ignorance and incompetence and not what pseudo-economists like to call “market reality”. Let’s face it, fuel is expensive. Labor is expensive … and if you need trucks, boats, and trains to ship your product, that requires lots of extra labor to load and unload. And lead-time is expensive. Who knows where the market is going to move during the 35 days it takes the product to reach your warehouse? You might end up with a lot of unmoveable inventory and that’s going to cost you. (So unless you can air-freight affordably and without a lot of environmental damage, and unless the other factors Dick pointed out in his recent post on Nearshoring are met, outsourcing half-way around the world just isn’t a good idea.) And if we’re as smart as we’re supposed to be, we should be able to innovate a way to produce the (vast) majority of products more cost effectively close to (if not at) home. (If we can’t, shame on us.)

Now, my thoughts were that the rising cost of oil and the rising cost of labor in the former “low-cost” countries would push us back to Mexico — which received a lot of investment before the China craze, which has a lot of excess capacity, and which has a good understanding of our needs — but after reading this recent special report on business and finance in Brazil in the Economist, I’m wondering whether or not Brazil should be getting more attention.

For what might be the first time in modern history, Brazil is democratic, experiencing economic growth, and realizing low inflation. If the trend continues, it could be one of the world’s five biggest economies by the middle of the century. It’s already self-sufficient in oil, it’s government paper is classified as investment grade by all three of the main rating agencies, it is now lending money to the IMF (which was wary of lending to Brazil but a decade ago), and FDI in Brazil is up 30% year-over-year while the FDI global average is -14%. Plus, GDP outpaced inflation in Brazil in 2006 for the first time in over 50 years.

Most economists are pegging its expected growth in the 4-5% range, which is pretty damned good considering the current global economy. Furthermore, this growth should pull its higher-than-average interest rates down to normal levels soon, which will make Brazil a fertile ground for (new) business expansion.

All-in-all, Brazil is looking like a very good location to be near-sourcing from.

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