Photo of Lenovo HQ: 'Le-' is from its former Legend Computers and 'novo' meaning new. Also my laptop of choice.

A winning brand name is a crucial piece of your marketing plan.  It will represent all your hard work as an entrepreneur.  As your brand name is shaped, it will take on a life of its own and hopefully inspire others.  You may even secretly talk to it during late nights in the office.

In Part 1 of this exercise to rename my consulting company, I brainstormed different words that are appealing, trustworthy, memorable and meaningful to my service and to me.  In this second part I will explore different ways to combine these words, check on availability, and select my winning new name.

Creating a Short-List

There are three common origins of company names: acronyms and portmanteaus, names and places, and real words.  In the process of moving from my current name of JYK Marketing, I ruled and acronyms and sought inspiration from some of the portmanteaus found in a list of company name etymologies.  I also examined the naming choices of two companies I worked for previously:

• Edge Research: Here we have the real word, Edge, representing ‘cutting edge’ followed up with the service, Research.  By itself ‘Edge’ is vague and used by other companies in various industries.  Prospective clients may not get ‘cutting edge’ right off the bat, but will associate attributes like sharp, direct and well-defined—a perfect combination for a company that conducts research.
• Hinge: This branding and design firm does not have a modifier in its brand name.  Initial reactions may suggest a piece of hardware, but the name sparks curiosity.  This provides an ice breaker for a conversation about what the company does: ‘create pivotal brands.’

At this point, I began narrowing the list and playing with various word combinations including:

• Breakaway Strategy – A concept taken from cycling, but an obvious positive for strategy and marketing
• Moso Marketing – A type of quick growing bamboo that hints at my passion for sustainability
• Lyonmark – Lyon Park is the neighborhood I live in and ‘mark’ from marketing.
• Digsus – A combination of digital and sustainability, two of my passions that will impact the future of marketing and business.
• Digital Insights, or Digsights – Relevant concepts but they don’t quite roll of the tongue.

Availability

The easiest way to narrow this list down further is to check on the names’ availability.  Today finding an appropriate URL is one of the easiest ways to see if someone else already has the name.   After checking GoDaddy, I found that Digsus.com and Digsights.com were the only .com domains available.  MosoMarketing.com and Lyonmark.com were held by speculators.  If someone else already has your desired name, you can probably still trade under it if it isn’t registered it in your state, but your URL will need an additional modifier.

Next you will want to check to see if there are any trademarks on your company name.  Since my company is offering services at a regional level, I’m not concerned about getting the trademark but it’s good to know who else may be using the same name.

Perception

Your brand name should be appealing and convey some of the key attributes your firm seeks to represent.  Try to talk to at least 10 people about their perception of your potential company names, including colleagues, clients, designers and family members (kids will be the most honest with you).  Five questions to ask are:

• Which of the following brand names is most appealing to you…[read list]?
• What are your first impressions of the word (s) [_brand name_]?
• What products or services would you expect [_brand name_] to offer?
• What attributes do you associate with [_brand name_]?
• Would you ever hire a company named [_brand name_]?

JYK Marketing is now…

Digsus (Digsus LLC to be exact).

Feedback from others narrowed the choice down to Breakaway Strategy and Digsus.  Breakaway Strategy was the most appealing and first impressions were good.  Digsus was more of a blank slate. No one guessed the two words it was made from and no one could come up with any associations, but people liked its uniqueness.

I chewed on these names for more than a week, repeating: “I work for___,” “I’m the founder of___,” “___ has the solutions you need.”  Each appealed to me for different reasons, but the URL availability and character count (for Twitter) tipped the scale in favor of Digsus.  Now it’s time to begin shaping its identity and reputation.

What can Digsus do for you? (The tagline can come later)

A large part of a consultant’s job is finding new leads.  Networking can be a fun, easy and effective way to meet prospective clients.  In DC there is no shortage of networking events; I could easily attend 2-3 per week.  Whether the event is focused on instruction, a panel or just a happy hour, it provides opportunities to meet potential partners, learn about your competition, and expand your list of contacts.

For the non-salesperson, sparking a conversation with a stranger can be an intimidating experience.  To help navigate the sometimes overwhelming environment of the networking event, I have listed nine strategies for success.

1. List your goals for the event. For example, you may want to give out 20 business cards or meet three CEOs.  A simple goal like this will keep you focused on working the room and prevent you from getting distracted by idle chatter about the playoffs.

2. Practice your messages before the event.  Create one sentence answers for the following basic questions: “What do you do?” “Why are you here?” “What does your company do?”  “How do you think social media is impacting our industry?” Also prepare for likely content-specific questions about your business.

3. Identify your target audience and let people know who you hope to meet. Many people at an event are not going to be prospective clients but you should be polite to everyone.  Staying focused on who could be a future client is important.  In the course of your conversations, feel free to mention the types of people you are hoping to meet and you may end up with valuable introductions.

4. Try a warm-up conversation.  Practicing in front of a mirror is one thing but nothing builds confidence for talking to prospective clients better than a few rounds with someone as nervous as you. This person might be unemployed or working at a more junior level so you’ll only need to talk for a few minutes, but this strategy allows you to rehearse your elevator pitch and answers to questions in suggestion #2.  Repeat, if necessary, until you are comfortable with your pitch and the social environment.

5. Arrange an introduction.  Since a formal introduction often makes a good impression, inform the event organizer of your target audience. The organizer generally knows many of the people in attendance and loves to introduce people. The organizer will be swamped at the beginning of the event so try to connect before the raffle or announcements that occur later in the event. Being a newcomer to a networking event often elicits special efforts to introduce you to others and make you feel comfortable.

6. Approach a group with confidence. Social norms teach us that interrupting a group mid conversation is rude, but not at networking events. This can be the most terrifying part of networking, but most people are open to it and appreciate a fresh face.  Practicing your messages ahead of time and warming up will help to make a confident first impression and steer the conversation toward your objectives.

7. Know how and when to leave a conversation.  If your goal is to pass out 20 business cards, it won’t happen if you stick with one group all night. You must learn to feel comfortable excusing yourself to move on to others.  If those you are talking to aren’t in your target audience, don’t know anyone in your target audience, or won’t let you get a word in after five minutes, it’s time to move on.

8. Consider using ice-breakers.  If you are not comfortable jumping into a group, you might use an ice-breaker to attract people to you.  Examples include wearing a creative name-tag, standing by the open bar, or carrying a popular book or electronic gadget (e.g., the original iphone). It will probably be harder to complete your goals using this tactic but this strategy may help to get you started in an unfamiliar event or setting.

9. Bring a colleague or friend.  Similar to using an ice-breaker, bringing a colleague or friend to an event may be a helpful crutch in navigating the initial awkwardness of networking.  However, if the other person is uninterested in the subject matter or bored with those at the event, this strategy can make it more difficult to accomplish your goals.

BONUS TIP. What to drink: One drink can help to loosen you up for an informal, yet professional, conversation but more than one may obstruct your goals.  If possible, I like to get club soda with a lime.  It looks like a gin and tonic so others don’t ask “Where’s your drink!” but you’ll be on point all night.

Consciously employing these strategies throughout a networking event will help you to have fun and to meet some interesting business prospects. And don’t forget to pass out your business cards!

Photo a worker on the Chrysler building. Chrysler was named after the company founder, Walter P. Chrysler.

Like naming your make-believe band, a child or a newfound kitten, the job of picking your company’s name can be daunting. Entrepreneurs face a host of challenges when launching a new company, including legal paperwork, accounting, marketing, and recruiting clients. One thing that should not be overlooked, however, is creating an appealing company name.

For the new decade I have decided to change the name of my consulting company, JYK Marketing. As I’ve grown my consulting practice from word-of-mouth freelance gigs to a full time job, I have revisited the name that represents my work many times.  In 2010 I am changing my company’s structure to a LLC and creating a new name as part of this process.

In Part 1 of my approach to developing a brand name, I explored various naming conventions and developed a long list of words that fit my new brand message and positioning.  In Part 2, I will narrow these concepts by checking trademarks and creatively evaluating each name’s fit.

Types of Brand Names

Brand names have many origins, but most fall into one of these groups:

• Acronyms and portmanteaus like GEICO from Government Employees Insurance Company and Comcast  from communications and broadcast.
• A person’s name like Chrysler after company founder, Walter P. Chrysler
• Real words (Adobe, Nike, Virgin) including mispellings (Digg (dig), Google (googol))
• Internet start-ups have broken many traditional naming conventions with names coming from made up words (Hulu, Twitter), affixed words (Napster, Friendster), and tweaked words (ebay,iTunes) More here.

Generating the Word List

My new company name must be recognizable, trustworthy, memorable and meaningful–with a story behind it that adds value to the brand. It should roll off the tongue and give some insight into my services. Here are some questions that got me started:

1. What does my company do?  What are the key words in my elevator pitch?
2. Who else does what I do and how did they pick their names? Are there any common naming conventions in my industry that I should stick to or break from?
3. If I were to personify the business how would I characterize it?

Answering these questions generated a short list of conventional naming ideas to throw into the mix:

Founder’s Name: John, Koblinsky, JYK, JK

Locations: Arlington, Virginia, 703 (area code), 1st St (street address), Clarendon (neighborhood), Mid-Atlantic

Services: Marketing, Marketing Research, Insights, Foresights, Planning, Marketing Strategy

Service niches and adjectives: Digital, Green, New Media, Sustainable, Online, Consumer, Quantitative, Innovative

Additional Modifiers: Consulting, Group, LLC, Partners, Bros, Co., & Sons

In the search for a new name I have also considered unique words that I might use or tweak.  Literature, architecture, religion, nature, science and sport have been sources of such words.  Among those I added to the list are:  moso (a type of bamboo), breakaway (from cycling), bullnose (the first open step in a stairway) and Jackson Island (from The Adventures of Tom Sawyer.

Languages like Latin can be a great source of appealing words. One of my favorite portmanteaus is Verizon, which combines veritas (Latin for truth) and horizon.

With a fixed list of about 100 words that satisfied my criteria of being recognizable, memorable and meaningful, I completed the first stage of creating my new brand name.

UPDATE: Continue reading Part 2 here…

Photo by Craig Kolesky of B-boys Cico and Roxrite @ BC One w/logos imposed

Advertisers love to use hip-hop to target the attention of young audiences.  Of the four elements of hip-hop–graffiti, rap, DJing, breakdance–none has been more showcased by advertisers than breaking.  And no other dance form has seen the highs and lows in popularity that breaking (or b-boying) has over the past three decades.  It is the heart of this art, improvisation, that has helped b-boying adapt to variable popularity and evolve into the attention-grabbing beast that it is today. So why haven’t marketers used this more to their advantage?

History
With the boredom of disco setting in, the media and advertisers were quick to pounce on a new style of music coming out of NYC in the early 80s.  The newly discovered dance that put the exclamation point on this music was built on gravity defying power moves designed to humiliate and defeat an opposing crew.  Closely related to martial arts, b-boying was misunderstood by the media from the start and often lumped into an amalgam of hip-hop dance styles like popping, locking and uprocking.

In the hands of MTV and advertisers, b-boying became a frankenstein mash-up that the general public could imitate.  The result lacked the amazing power moves that contributed to true entertainment value and led to the death of b-boying in the US.

Although breaking (along with another extreme sport, skateboarding) faded from the attention of the American mainstream by the early 90’s, the dance was exploding overseas. Throughout the 90’s b-boying took off in Europe and Asia, benefiting from increased organization and originality.  As Y2K crept in and gangster rap died down, the b-boy returned to Madison Ave. Today, breakdance is treated as both a sport and an art form, with growing international competitions and respect from classically trained dancers on shows such as  “So You Think You Can Dance” and “America’s Got Talent.”

The B-Boy Market
Earlier I made a parallel to skateboarding which suffered a similar rise and fall in popularity. However, today skateboarding is a $4.8 billion market and bboying is…nothing close. Currently, Red Bull is the most identifiable sponsor of b-boying with its major international competition, the Red Bull BC One.  For performers, the goal is to win a major tournament like the BC One or Battle of the Year (BOTY) and use the recognition to book corporate performances or advertisements. Those crews unable to reach the top must rely on street performances and smaller competitions to support their passion.

Let’s Make a Deal
So if b-boys command attention with their magical moves, why haven’t sports marketers slapped their brand on the fronts, backs, and skull caps of any crews?  Have I missed it in all the street performances and videos that I’ve watched over the years, or has the conversation never taken place?  As the founder of my college’s breaking crew, I would have welcomed sponsored clothing and a little pocket change in exchange for exhibiting my moves on campus, but I never thought to ask.

From a sponsor’s perspective there is a risk that a crew might not attract enough eyes, but the eyes b-boys are performing for fit neatly into a target market similar to skateboarding. My first thought is for Adidas, Puma or UnderArmour to strike an exclusive clothing deal with the top crews. However, instead of using breakers solely for clothing commercials, for a relatively small investment fast food and electronics companies could put their logos all over b-boys as they have for cycling and soccer.

The top crews would probably need to break ground in sponsorship deals to make the concept popular, but lesser known crews that frequently perform on the street and battle in local competitions also have the eyes of many potential customers. Watching a b-boy crew the other weekend on Fisherman’s Wharf in SF with 40 other people, the idea of a sponsorship deal with a local sporting goods store or a trendy restaurant catering to youth seemed perfectly logical.

All b-bboys and b-girls consider their dance to be performance art so they might perceive that slapping on a brand discounts their style and creativity, making them puppets of a corporation. But in the real world, having a sponsor increases your visibility, credibility and travel money. As someone who rides for an amateur cycling team with ten sponsors on the kit, I feel in no sense that my skills are owned by faceless companies; on the contrary, I feel connected to something bigger than just the team of racers.

The B-Boy is Dead, Long Live the B-Boy
B-boying has been declared dead for the last time and will only gain popularity going forward. Just like business, it is extremely competitive and the crews who make their mark will do so with creativity and innovation, as well as hard work.

I’d love to hear your thoughts and if any company or crew would like me to broker a sponsorship deal, holla!

Adding Social Media Tools

Sign up for any and every social media service to reserve your company’s name.  Whether you’re ready to develop content doesn’t matter; you don’t want someone else taking your company’s name first and possibly defaming it.

Profile setup:

• Use standard company email address
• Add your company information (address, phone #, fax, etc)
• Set privacy settings to be as open as possible and still within the social rules of the community.  Your company won’t post anything secret, but sometimes “friends” or “connections” don’t want their social media communications out there.
• Sign up for email notifications and RSS feeds and put them into the corporate RSS reader account.  Status emails should go to RSS through the email-to-RSS bridge.

Communications Guidelines

• Above all, new media communications should be honest and fair.
• Be responsible for what you and your employees write
• Respect copyrights and fair use
• Remember to protect confidential & proprietary info
• Show enthusiasm and love of your brand.
• Respond to all communication within 24 hours in this order: employees, old/repeat customers, vendors, affiliates, new customers, potential customers.  Always mark something as being worked on or done as soon as you finish.
• Be authentic – Include your name and, when appropriate, your company name and your title. Consumers buy from people that they know and trust, so let people know who you are.
• Consider the audience – your readers include current clients, potential clients, as well as current/past/future employees. Consider that before you publish and make sure you aren’t alienating any of those groups.
• Employee’s private social media: companies can and will monitor employee use of social media and social networking web sites, even if they are engaging in social networking or social media use away from the office. Good judgment is paramount regardless of whether an employee’s online comments relate directly to their job.

Doing these things at a minimum will at least get your brands foot in the door.  With this platform you will be perfectly positioned to create a social media strategy that has a real impact on sales growth.

The 2009 Tour de France — a 3 week cycling race around France — ended this past Sunday with many viewers wondering, “What the heck is Astana?” Astana, as it turns out, is a coalition of state-owned companies from Kazakhstan, named after its capital city Astana. It is also the sponsor of this year’s Tour winner Alberto Contador, third place finisher Lance Armstrong, and the race’s overall winning team.

Watching this year’s race, I noticed that a lot of big corporations — many of which are professional services firms in the sectors of finance, telecommunications and consulting — have chosen to sponsor cycling.  This trend isn’t all that surprising once you realize that cycling has gained on golf as a networking activity for corporate executives. And increased participation in the sport naturally drives an interest at the professional level.

With an annual price tag of $3-5 million, lead sponsorship of an international professional team is out of reach of most companies.  But to target a burgeoning crowd of corporate executives, a number of professional services firms have begun to sponsor local amateur cycling clubs.

In the DC area alone there are 11 amateur racing clubs with 50-400 members each — all wearing corporate logos on their jerseys.  Clubs increase the visibility of their sponsors every time they participate in a mid-Atlantic-region race, train on the roads, or sit in coffee shops before and after rides.  Today, sponsors include Kelly Benefit Strategies, Inova Health System, Signal Financial, Bohler Engineering and Deloitte, each of whom pay $2,000-$20,000 for their logo to appear on a club’s jersey (cost depends on the team, as well as size and placement of the logo on the jersey).

Sponsoring a local cycling club is an easy way to boost visibility of your company’s brand, promote an active lifestyle, and foster a competitive spirit.  With the return of Lance Armstrong, a Tour finally free of doping scandals and improved television coverage, the sport of cycling is growing in popularity. So next time you climb on your bike, consider whether a foray into sports sponsorship might help your firm reach new audiences.

[Originally posted by John Koblinsky on The Hinge Marketing Blog]

The basement 'Man Room' with Vista Media Center and MControl

With the proper inputs and interfaces a computer should be able to dynamically control the environment of your house.

Goal

Other than for the pure sake of ‘geeking out,’ there are three core objectives that I hope to accomplish by adding home automation to my house.

First, I want to improve the efficiency of house to use less electricity.  That means collecting stats on energy usage and then training the house to only use energy when it has an impact on someone in the house.  For example, the computer will run the HVAC less when you’re actually out of the house and not just by what time it is.

Second, convenience. Many much wealthier new homes are incorporating the new technology because it makes life a little bit easier and more luxurious.  For example, when you begin to play a movie, the lights dim to improve the experience or your garden gets watered automatically everyday with an irrigation system.

Lastly, I want to prove that home automation can be affordable and not that out of reach of the average consumer.  Many custom builders are offerring services to renovate your house with a home automation, but this option is extremely expensive and invasive.  Using wireless technology like Z-Wave and Insteon, I can get the same result for a fraction of the price.

The Setup

I would need three elements to make this all work out: automation software, a USB controller, and interfaces for the things that I want to control. NOTE: This setup assumes I have an always on computer or server to run the software and USB controller.

The software: I eventually landed on Embedded Automation’s MControl.  This software supports multiple types of communications protocalls like X10, Insteon, and Z-Wave as well as maintaining and active support forum.  This software also has add-ins for Windows Home Server and Vista Media Center which were core elements that I wanted to take full advantage of.

USB controller: For the computer to talk to the interfaces I needed to pick a communications protocol and install a USB controller to talk to the devices I wanted to control.  I ended up picking Z-Wave because it offered two way communication–the device not only takes orders from the computer, but it can report which state it’s in as well (on, off, dimmed, etc.).  For this I picked the ThinkStick Z-Wave USB Adapter by ControlThink, which I highly recommend.

Controls: To start I wanted to get lighting elements installed for whenever we were out of town.  I also wanted to experiment with automatic lighting environments for the media room.  Another element to home automation is security and I purchased an IP camera to be controlled by MControl as well.

Result

Without getting too technical, here’s what I’ve been able to do so far with my home automation system that cost under $300 (eBay helped keep prices low).

Currently I have two zones: the family and dining room on the main floor and the basement, aka the man room.

Lighting:

• In the winter we get home after dark so I like the front light to be on when I get home.  MControl knows what time the sun sets and will turn on my front light right at dusk.
• The dining room has a scene for ‘Dinner’ which dims certain lights for a nice atmosphere.
• In the Man Room, my Home Theater PC (running Vista Media Center) will dim the front lights and turn off the rear lights when I start a movie.  If I stop or pause the movie, the lighting gets brighter in anticipation of someone getting up and moving around.  Lighting is returned to the dim state when movie is playing again. This application is my favorite so far.

Security: Using an IP camera with motion sensing I get an email sent to me whenever there is motion in a particular area.  To prevent this system from going off all the time, it is tied to when I’m out of the house.  Knock on wood, outside of testing I’ve never received an email.

Future Add-ons

If you have Compact Fluorescent Lighting (CFLs) in most rooms as I do there is one drawback to Z-Wave which is that wall lighting controls need at least a 40 Watt charge running through them to operate–CFLs generally consume less than 40 Watts.  One can get around this by adding Insteon technology, a competing communication system to Z-Wave that uses a combination of powerline and RF technology, but doesn’t have a minimum wattage.  Prices for components are comparable and both Z-Wave and Insteon controllers can run simultaneously with MControl on a WHS.  Insteon does however require a negative wire however and because my house was built before negative wires were common I will need to consult an electrician before I get this system.

After the lighting has been taken care of, the possibilities are endless.  Anything that has moving parts and is close to a power source can be automated and controlled: blinds can shut when the sun gets too bright, the garden and lawn can be watered on a schedule, and you can get an MMS when your security system is triggered with a video of what caused it.

Finally, installing a energy monitoring system like The Energy Detective (T.E.D.) will allow me to learn more about how my house is consuming energy so that I can tweak automation even more to save electricity.

Apple’s first iPhone challenged both of the common paths to market by having an unsubsidized product that didn’t have the most advanced technology, but was designed better than anything else in the market.  Apple’s first iPhone was sold exclusively in the United States and only through ATT.  The phone was directed at the consumer market and was triple the price of other consumer phones being offered by ATT and even $200 more expensive that the highest priced business phones.  Usually phone carriers will take a loss on the sale of the phone to tie a customer to a contractual obligation for service that is more profitable.

This initial price was a shock to most in the industry, but no one doubted the demand for the phone after it was officially introduced. The first iPhone did not have the best cellular technology, processing speeds or a physical keyboard, but selling on design alone, the company still believed it could get away with such a high price.

Apple’s brand is so strong that the company felt the demand could match the products initial supply based on two segments:  Apple fanboys (die-hard company followers) and early adopters.   To these followers, the “Jesus phone’s” price was not out of reach and in-line with many of Apple’s other products which are traditionally double the price of their competitors.

Only three months after the launch of the first iPhone Apple lowered the price from $600 to $400.  This move received a lot of backlash from consumers who had purchased the phone at the $600 price.  Apple had to offer a $100 return to those who purchased the original phone.  According to Piper Jaffray’s Gene Munster, before Sept. 5, iPhone sales had leveled off at around 9,000 per day, mostly at $600 a pop. Now, following the iPhone price cut, Apple is moving 27,000 per day at $400 each. This initial 200% sales surge was predicted to be unsustainable, but the price-cut did yield a stable 50% sales increase.

At the launch of the second iPhone 3G, the price dropped to $200 which was significantly cheaper than the original and the technology was now up to the speeds of its competition.  Again there was backlash from early adopters who had just paid $600 or $400 to buy the phone.  Apple tried to make this easier to swallow by allowing anyone who purchased the phone 15 days prior to launch of the iPhone 3G and upgrade, but all others were out of luck.  Anyone who wanted to immediately upgrade the phone from the old version was not penalized which was also a good gesture from ATT.  Possibly since ATT did not subsidize the first phone it was comfortable subsidizing the second for a renewal of the two year contract.

In addition to the new subsidized price, the iPhone 3G launched worldwide at the higher price.  Even in the international market, special deals were required with carriers to utilize such features as visual voicemail that are unique to the iPhone.  The price in the international markets reflected the normal unsubsidized price that international markets are accustomed to.

Competition

No phone can beat the jesusPhone.  Smartphones have been around since 2003 and earlier, beginning with the Sony Treo and a Microsoft platform called Windows Mobile.  The original market for these smartphones was for the business user , but as people look for more ways to be connected to their communications, the market has expanded.  The combination of PDA and phone has been essential to business users and in the past three years, Blackberry has dominated this market.

The iPhone will never be able to penetrate a threatening share of the business market because the majority of business users only need a small range of functions to be done excellently.  The iPhone’s focus on apps and expandability of functions has decreased the functionality of the business tools making it not attractive to big businesses.  Not having a full physical keyboard is also a major drawback to this phone.

The iPhone does have a good shot at continuing to dominate the consumer market however even with the influx of competition that is targeting the iPhone directly as the thing to beat.  Apple’s iPhone has many comparisons to the PC market in that Apple has tied its software to its hardware whereas Microsoft, Google, and Symbian operating systems can be put on many different phone manufacturers phones.

The major difference with the phone market is that Apple has allowed developers access to create applications for the iPhone that are easy to download and buy, greatly expanding the uses of the iPhone.  Previous operating system allowed the user to download programs, but the complexity of this process deterred most users.  Google and other cell phone operating system makers are now creating their own developer toolkits, but do not have the marketplace set up the way Apple does creating a massive barrier to entry in the consumer market.

Developing a strategic alliance with a developing country during a global financial meltdown may appear to be a crazy idea at first glance.  However, by partnering with a primary research firm in Turkey, Edge Research could boost growth and insulate itself from the poor economy in 2009.  This proposal will explain the growth opportunities in Turkey, the competitive advantages that can be gained through an alliance and the structure of a global partnership.

Edge Research is a full-service marketing research firm servicing clients in a range of industries including telecommunications, tourism, IT, and automotive.  Many of Edge’s clients are multi-national companies requiring research projects to be conducted all over the world.  Currently, Edge has the ability to manage most domestic primary research and analysis needs, but international primary research must be done on location and in language requiring outside vendor services.  Currently, Edge has two partnerships with sample providers that are able to handle international projects in Europe and Latin America.  As clients expand to developing markets, it is in Edge’s best interest to develop new alliances with service providers in those markets.  Turkey is one such market that Edge’s clients are becoming increasingly interested in and by developing a strategic alliance with a primary research partner in Turkey, Edge could cultivate competitive advantages to other domestic marketing research firms.

Before investing time in developing a partnership with a Turkish research firm, the country’s economic atmosphere must be examined to make sure the partnership will be able to weather the storm.  In light of the global financial crisis expected to last through 2009, it is important to look at the foreign government’s policies and abilities to stimulate growth.  The Economist Intelligence Unit’s (EIU) latest report on Turkey (Jan. 2009) states that Turkey’s government remains broadly in favor of reforms needed to control the public finances, boost competitiveness and attract foreign investment.  This is not to say that Turkey is immune from the global financial crisis however as 2009 indicators show that unemployment is rising, inflation is increasing, and economic activity is declining.

Q&A Market Research

Q&A Market Research is an ideal candidate for Edge Research to form a strategic alliance with in Turkey.  Based in Istanbul, Q&A is runs an online panel and a number of focus group facilities around Turkey.  A unique characteristic that sets it apart from the small handful of competitors has additional offices in the Middle East and North African markets as well.  For this strategic alliance, Edge will be offering its expertise in research methodologies, online capabilities and proprietary analytics. In return, Q&A will allow us volume discounts on panel participants, access to focus group facilities and rights to use their consumer knowledge database.  Both partners to this deal will provide referrals from current clients to use each other’s services when applicable.

Growth Opportunities

Entering a strategic alliance with Q&A Market Research will allow Edge to provide current clients with new market intelligence and access to one of the fastest growing research markets in Europe with net growth of 30.2% 2005-2006.  Creating a “virtual mass” through this partnership, Edge and its Turkish ally can build a portfolio of licensing agreements and contract partnerships to sustain specific markets through organic growth. Co-development and co-promotion strategies will help strengthen R&D and positioning in new or diminishing markets.

Edge Research has developed proprietary solutions for conducting consumer research in developing economies through its telecommunication studies for Nextel International in Latin America and has an expertise in the travel and tourism industry. In addition to helping Nextel International evaluate possibilities for expansion, the Edge/Q&A partnership will provide new research services Q&A’s current client, Turkish telecom Turkcell, the leading cell phone operator in Turkey with more than 36 million customers.

Tourism is one of the most important sectors of the Turkish economy. According to balance-of-payments data from the Central Bank of Turkey, earnings from foreign visitors and Turkish citizens living abroad rose sharply from US$7.4bn in 2001 to US$18.5bn, or 2.8% of revised GDP, in 2007.  As the economy and tourism goes into a slump during 2009, marketing research will be implemented to improve tourism in Turkey.

Competitive Advantages

A strategic alliance with Q&A in Turkey would give Edge the competitive advantage of combining services and enhancing their presence in the full-service marketing research market.  Having a partner in Turkey gives Edge access to key insights into the Turkish marketplace that it would not be able to afford without a foreign relationship.  There are three product solutions that Edge can develop by entering a strategic alliance: a reliable European focus group network, an on-demand source for online sample in Turkey, and access to new clients.

Recruiting for good, international focus groups is a major challenge for US firms trying to conduct international research.  A handful of domestic marketing research firms are able to provide international online sample for quantitative surveys and only two have consumer sample in Turkey.  The alliance would develop synergies between Edge and the Turkish partner allowing their clients access to the services of both companies as well as referrals. As mentioned above in the growth section, Turkey has many major companies that operate in industries that Edge has expertise in.

Already Edge’s partnerships allow it to be extremely competitive on cost because of volume discounts.  Developing an international collaboration with Q&A will allow it to provide competitive pricing that it can pass on to clients.  Having a consistent partner for survey research in Turkey will also reduce turnaround times on projects because it eliminates the need to develop RFPs.

Structure

To get the most out of the global strategic alliance, Edge Research will specifically define the structure of the global partnership.  It is important to communicate the benefits of working together to a potential strategic alliance partner and spell out what’s in it for them.  Q&A Market Research will need to be independent of Edge, but still share the same dependencies on joint projects’ success.

A good partner should help the company achieve its goals, share the company’s vision for the purpose of the alliance, and be unlikely to exploit the alliance for its know-how while giving little in return.  To keep both companies committed to the arrangement, Edge will develop a new team to manage all projects involving Q&A.  This team will be responsible for creating a knowledge management resource that can be maximized by other parts of the company.  This group will also routinely estimate revenues for the group to justify the partnership to both sides of the alliance and promote development.

Revenues from projects must be beneficial for both partners of the alliance, but Edge will not invest in nor share equity with the partner.  As mentioned earlier, Turkey is still a developing economy experiencing inflation and other economic instability caused by the global financial crisis.  It is in Edge’s best interest to minimize exchange rate risk by keeping equity separate.  The strategic alliance allows both companies to be fiscally flexible for the long term while benefiting from short-term and long-term growth provided by the partnership.  The alliance will be evaluated yearly to reestablish its profitability and goals.

In conclusion, entering a strategic alliance with Q&A Market Research will allow Edge Research to grow its international presence without sacrificing significant equity.  Turkey is an excellent country to be venturing into marketing research at this time, but it’s just the beginning as a strong presence in Turkey will translate into easy access to Middle Eastern and North African markets in the future.

References

Associated Press. “Turkcell wins 3G license in Turkey.” International Business Times. http://www.ibtimes.com/articles/20081128/turkcell-wins-3g-license-in-turkey.htm.

DataMonitor. “The Pharmaceutical Mergers and Acquisitions Outlook 2001.” Business Insights Ltd. URL: http://www.globalbusinessinsights.com/rbi/content/rbhc0064m.pdf

Dyer, Jeffrey, Kale, Prashant and Singh, Harbir. “How To Make Strategic Alliances Work.” MIT Sloan Management Review. July 15, 2001. http://sloanreview.mit.edu/the-magazine/articles/2001/summer/4243/how-to-make-strategic-alliances-work/.

Economist. “Travel and tourism profile.” Economist Intelligence Unit. Sept. 5th 2008.

Economist. “Turkey, County Report, January 2009.” Economist Intelligences Unit.

Delaying the extension of the ITC or not renewing the ITC will have a paralyzing effect on the solar industry in the US.  The lack of market certainty is detrimental to overall market development, disrupting investment cycles which lead to employment loss and a talent drain from the industry previously built by a combination of public and private investment. Market disruptions are extremely inefficient, leading to duplicate investments to rebuild market functionality after disruptions are resolved.  At a time when solar companies like First Solar are beginning to increase production, a lapse in support from the government would cause many companies to look overseas for countries that are more supportive.

However, if Congress extends the solar investment tax credit (ITC) for eight years, the U.S. solar energy sector could produce more than 1.2 million employment opportunities and $232 billion in investment according to a recent study by Navigant Consulting.  According to this study, by 2016, the solar energy industry would create 440,000 permanent US jobs with much of the growth occurring in domestic manufacturing, construction and the trades. “This figure reveals the strength of the solar job creation engine when compared to the current 79,000 direct employees of the coal mining industry and the 136,000 direct employees in oil and gas extraction.” (Runyon, 1)  As the economy is experiencing increased unemployment, renewal of this credit would create high quality domestic jobs in all 50 states since many solar energy components are manufactured near the markets the industry serves.

In addition to adding jobs, the Navigant study estimated that if Congress were to pass an 8-year extension of the ITC, solar energy could produce 28 gigawatts (GW) of power by 2016, which is 19 GW more than is expected to be installed should the ITC not pass.  While this amount would still account for less than 1% of total, it could reduce the need for burning fossil fuels by 2% a year, creating a significant reduction in carbon emissions and dependence on foreign oil.  Incentivizing citizens to purchase PV modules for their homes would also give American’s a feeling of greater independence from power companies and their highly volatile energy prices.

While First Solar believes renewing the ITC is essential to US prosperity, the solar industry and its customers would also like to see a push for new market development mechanisms to encourage the use of renewable energy sources. For example, several states have adopted renewable portfolio standards which require a portion of electricity come from renewable energy sources.  In addition, the US does not have national uniform net metering and interconnection policies. Currently, these policies are established on a state-by-state basis, making it difficult for utility multi-state companies to implement clean energy programs.

Work Cited

Runyon, Jennifer. “If Congress Extends ITC, 440,000 Solar Jobs Will Be Created, Study Says.” Renewable Energy World. Sept 17, 2008.

Urban sprawl is a threat to metropolitan areas because it requires more resources to adequately provide essential services like transportation, education, and safety services to low density areas than high density areas.  The Washington DC Metropolitan Statistical Area (MSA) is ranked 26^th most sprawling of 83 metro areas measured  by Smart Growth America based on an index ranking density, mix use areas, centeredness, and street accessibility.  The factor that hurt Washington’s ranking the most is its mix of homes, jobs, & services which is ranked 15^th worst.  Segregation of land use requires every trip to be made by car, and can result in a jobs-housing imbalance in which workers cannot find housing close to their place of work.

Problems caused by lack of mix use areas is apparent by driving around the Beltway at rush hour, but less than half of Washington’s carbon footprint stemmed from transportation, ranking it 20^th least polluting of the 100 biggest metro areas in the Blueprint study. (Sinha, 1) However, the Washington region ranked dead last in carbon emissions from residential use giving it an overall ranking of 89^th with a carbon footprint the size of 3.1 metric tons per person in 2005.  Since most of the residential energy use comes from air conditioning, some believe that it is the low cost of energy that denies incentives to conserve.

The solution for both of these problems is the same: sustainable and smarter growth.  An initial focus should be placed on the state governments of Maryland and Virginia as these two states contain the majority of the population and new development for the Washington MSA.  These two states, in partnership with the District of Columbia must take the initiative to curb excessive sprawl and promote more sustainable ways to provide energy to their citizens by: supporting centralized development, regulating carbon emissions and incentivizing businesses to develop smart growth solutions.

Centralized Development

State and local governments need to concentrate on urban planning to limit the amount of residential developments popping up in the outer counties of the metro areas.  Counties have the opportunity to improve their small towns by enforcing policies promoting centeredness.  Centeredness is a measurement of activity in a town or major city that correlates to business prosperity.  Washington’s score for centeredness was 97.85 in 2000, below average (100) for the 83 cities measured by Smart Growth America. (Ewing, Appendix 3, 3)

Better urban planning will also help alleviate Washington’s traffic woes.   Washington is continually ranked in the top three areas for worst traffic and the average commute is over a half hour (32.7 minutes).  Adding more developments causes the state to spend increasingly more on infrastructure including: new transportation planning and provision of safety and education services.  Local governments need to enact policies to restrict new development to areas with good scalable public transportation and zone for mix use space so that residents do not have to go far for the services they require.  Reducing travel times and time in traffic also reduces citizen stress levels and overall health.

Reduction of Carbon Emissions

Another way to improve the health and prosperity of Washington area residents is to conserve energy usage and reduce its 3.1 metric tons of carbon emissions per person.  Better city planning will help cut down on time in traffic which accounts for 35% of the Washington regions carbon emissions (1.1 metric tons per person), but it’s this area’s residential energy use that is dragging down its total. (Sinha,1 ) The dominant reason for each person in the Washington region emitting and average of two metric tons of carbon emissions is the low cost electricity coming from coal.

Existing homes and commercial buildings offer many cost-effective options for efficiency improvements with manageable payback periods. Energy audits can be conducted to identify the most cost-effective measures for existing buildings.  Reducing demand for electricity due to efficiencies will make it possible to halt construction of new coal-fired power plants. In the meantime, Maryland, Virginia and DC should consider is enacting the Clean Energy Renewable Portfolio Standard (RPS).  This bill requires all electricity providers to include a minimum percent of clean, renewable electricity in the electric power supply portfolio they offer to their customers. As renewable sources such as wind energy grow, older (dirtier and less efficient) coal-fired power plants can be phased out. (Ball,5)

Business Growth

Improving centralization and promoting energy efficiencies give the businesses in the Washington area a unique opportunity to tap into the developing marketplace for smart growth.  As the Blueprint illustrates, metropolitan areas must leverage the business sectors that are the strongest in their area.  Key sectors driving the economy in the Washington area are the federal government, technology, construction, international business, and hospitality.  The Washington area is unique in that it can join the superb capabilities of the commercial sector with Federal, State and Local Governments to create Public-Private partnerships able to address smart growth issues affecting the region and the Nation at large.

This strong tie between government and business allows the Washington area to act as a model for planning urban development with construction and technology industries especially during economic downturns.  In return, proliferation of high technology products and services, when combined with business transformation, produces more efficient government operations and a more effective and competitive commercial environment—a win-win for all of the areas sectors.  In 2006, the Washington area ranked first in the nation for computer systems design and engineering service jobs, and 2nd in R&D and testing labs. (Caliguiri,1) Governments will be able to count on leadership from the high-tech sector in the Washington area to also help development of renewable energy sources.

Challenges

The major hurdle standing in the way of smart growth is fragmented governance.  Currently, there is a lack of coordinated land use planning between state, county and local governments in the Washington region.  Greater government fragmentation correlates with more sprawl.  As a model for better planning Montgomery County, MD—in the Washington area—has a program allowing property owners to transfer the right to develop their property to higher density “receiving areas” in other parts of the County.  This program, perhaps the best in the nation, has preserved roughly 47,000 acres of farmland since its creation in 1980. (Katz.2. 41, 54)

Reducing carbon emissions is another problem that must be pushed onto area consumers through policy changes.  Even by increasing the price of energy will inspire conservation as it has in New York, a state with more expensive energy. (Smorg,1) Higher taxes on carbon emissions would allow the state to offer incentives to companies investing in renewable energy products and services and create a magnet for new energy product growth.

Conclusion

As the Blueprint illustrates, the nation’s metropolitan areas must leverage their assets through innovation, superior infrastructure, supporting human capital, and finding places for people to live within the metro areas to continue to move our nation forward.  The time is right for the nation’s capital to take advantage the local, dominant business sectors to develop smart growth plans that can be used to improve prosperity of the area and serve as a model for the new metropolitan nation.

Regardless of the admission by Tillerson that his products may contribute to climate change, ExxonMobil is not well known for its leadership on environmental issues.  The biggest company in the oil industry has a poor environmental corporate citizenship image stemming from twelve years of executive leadership by former CEO Lee Raymond who was more committed to the core product rather than, “spending shareholders’ money to diversify into businesses that aren’t yet profitable.” (Ball,1)  Even under new executive leadership, ExxonMobil is still debating what to do about climate change and the company firmly believes that fossil fuels will provide the majority of energy consumed for at least the next 20 to 30 years.

While reluctant to be a leader in developing more environmentally friendly energy products ExxonMobil is very aware of how the world perceives the threat of climate change.  Many international governing bodies and individual counties have begun to increase their scrutiny of larger companies that produce measurable amounts of pollution.  The majority of the actions taken by ExxonMobil to improve its environmental impact have been in production where the improvements have not only made production cleaner, but also more efficient.

ExxonMobil has reported a decrease in the amount of hazardous waste and spills as well as lower percentages of harmful greenhouse gas emissions released during production as seen in Table 1.  ExxonMobil is the only oil company that is a member of the United Nations Intergovernmental Panel on Climate Change and is an active member of the World Bank’s Global Gas Flaring Reduction Partnership.  They have also developed many best practices for reducing emissions during production that are now used industry wide.  However, the company’s mantra continues to be that by 2030 the demand for energy is set to rise 40% and that oil and gas will have to meet 60% of the need arguing that renewable energy sources lack technological scale.

As climate change becomes a pressing issue, management may find themselves forced to address these issues sooner, not by government, but by shareholders.  A poll, at the company’s 2008 annual meeting in Dallas, “demonstrated that a sizeable chunk of Exxon’s investor base is uncomfortable with the Texas-based company’s hardline attitude towards climate change and alternative energy.” (Clark, 1)  Improving the efficiency and spillage is great for the bottom line of any company, but as an international corporate citizen and the largest provider of petroleum products, ExxonMobil position itself to be ready for change.

Table1. Click to enlarge

ExxonMobil has been given a good indication by its shareholders of society’s demands in the not to distant future.  As Ian Davis writes in his paper, “What is the Business of Business,” “Social pressures can also serve as early indicators of factors essential to corporate profitability; for example the regulations and public-policy environment in which companies must operate, the appetite of consumers for certain goods above others, and the motivation of employees—and their willingness to be hired in the first place.”  Instead of continued cynicism, ExxonMobil should invest in developing products that meet future demand for more sustainable energy sources.

As a model for developing new products, ExxonMobil can use the United Nation’s Global Compact to help guide their actions.  The Global Compact, “seeks to advance responsible corporate citizenship so that business can be part of the solution to the challenges of globalization.”  There are three principles that this compact regarding environmental stewardship:

Principle 7 – businesses should support a precautionary approach to environmental challenges

Principle 8 – undertake initiatives to promote greater environmental responsibility; and

Principle 9 – encourage the development and diffusion of environmentally friendly technologies. (United Nations, 6)

As motioned before, ExxonMobil has developed many best practices for better production standards and continuing to be a role model with production will satisfy principles seven and eight in the global compact within the oil industry. ExxonMobil has only just started investing in battery technology which is one of the first deviations from its base product petroleum.  As seen in Table 2, ExxonMobil is planning future diversification of its product offerings, but not until 2030 when it will be playing catch-up to its competitors who are investing these technologies today.

Table 2. ExxonMobil’s Action to Reduce Greenhouse Gas Emissions

“In many instances, a ‘business of business is business’ outlook has blinded companies to outcomes, or to shifts in the implicit social contract that often could have been anticipated.” (Davis, 107)  To become a better corporate citizen ExxonMobil should invest larger portions of its $40 billion after tax profits into reducing emissions from energy production and improving consumer energy product offerings.  This will keep ExxonMobil ahead of the regulation curve and position the company well to continue record profit making as the desire for cleaner energy becomes more popular.

Works Cited

Ball, Jeffrey. “Exxon Chief Makes A Cold Calculation On Global Warming.” Wall Street Journal. June 15,2005. http://online.wsj.com/article/SB111870440192558569.html.

Cattaneo, Claudia. “Exxon Mobil CEO takes aim at environmentalists.” Financial Post. May 29, 2008. http://www.financialpost.com/story.html?id=547068.

Clark, Andrew. “Exxon investors reject green initiatives.” The Gaurdian. May 29, 2008. http://www.guardian.co.uk/business/2008/may/29/exxonmobil.oil.

Davis, Ian. “What is the business of business.” The McKinsey Quarterly. Number 3. 2005.

ExxonMobil. “2007 Corporate Citizen Report.” www.exxonmobil.com.

United Nations. “The Global Contract.” www.unglobalcompact.org.

Objectives

To improve traffic patterns around the Boston area allowing for more cars, decreasing congestion and traffic delays, and make it easier to get around the city.  Reconnect neighborhoods severed by the old elevated highway, and improve the quality of life in the city beyond the limited confines of the new expressway. The city of Boston also wants to gain more green spaces by putting much of the new traffic underground in tunnels through the city.

Scope

This will be achieved by two major components:

Replacing the six-lane elevated highway with an eight-to-ten-lane underground expressway directly beneath the existing road, culminating at its northern limit in a 14-lane, two-bridge crossing of the Charles River. The tunneling process will be completed using the latest boring equipment and geologic technology.

The extension of I-90 (the Massachusetts Turnpike) from its former terminus south of downtown Boston through a tunnel beneath South Boston and Boston Harbor to Logan Airport. The first link in this new connection will be the four-lane Ted Williams Tunnel under the harbor and South Boston Haul Road.

The map below shows the extent of the planned development.

Process

A panel of professionals–with experience in the numerous areas of engineering that are required to evaluate and plan this project–will be assigned as initial architects and overseers throughout the lifespan of the project.  The panel will have scheduled face to face meetings beginning on the first day of approval and in the first week of every month going forward.

Assumptions

The panel has made certain assumptions to be able to layout a timeline for the large job covered in the scope:

1. The structure of procurements would be developed on the basis of balanced allocation of risks and managed contingencies.
2. Cost elements for such soft areas as contingencies, overhead markups, and profit markups would be consistent with project risk and industry norms.
3. The development of final road alignments and other elements of the construction will be planned to minimize disruption of normal traffic patterns.
4. The disposition of excavated tunnel material and other refuse will be achieved through a proper balance of free market competition and preplanned reuse or disposal opportunities while minimizing the traffic impacts, trucking distances, and consequent roadway wear and tear.
5. The program management team will possess the requisite blend of skills, leadership ability, and knowledge to balance rigorous quality management with minimal duplication of effort, timely contract administration, effective technical decision making, and rapid dispute resolution.

Surveying

The initial planning process will include extensive surveying of the project area.  Rather than evaluate analysis done by others in the past decade of Boston area, our firm will be conducting all new analysis of the Boston area if records no older than a year ago cannot be found.  Surveying will include contracting new aerial photography of the area including a mile perimeter, obtaining the latest records of all utilities that will be affected within a five mile perimeter of all work, and getting a list of all current construction projects and projects in the pipeline for the Boston Area. An environmental review of the area will be included to understand the current ecosystem and soil consistencies as well as hypothesize environmental effects of the construction.

Planning

Once the surveying process has completed, planning of the new construction phases will begin.  The planning process will be broken down into different phases to mitigate the effects on Bostonian’s daily lives. There are three parts of the planning process: creating the drawings for the construction, building models of the expected outcome, and listing the resources needed to complete the job.

Quality Control

Our motto is, “take your time and do it right!”  Working closely with the City of Boston our firm will ensure third party observers are constantly monitoring the work of contractors and project managers.  We will be contracting the use of the latest technologies to bore underground and construct of the tunnels so that daily commuters will feel safe in the miles of tunnels we are creating.

Project Milestones:

• Receive funding approval, begin property mitigation, and begin aerial surveys.
• Exploratory physiographic, soil and rock analysis for boring.
• Preliminary planning and design before construction
• Construction pieces:
• At grade construction
  • South Boston Haul Road
  • Ted Williams Tunnel
  • Leonard P. Zakim Bunker Hill Bridge
  • New Broadway Bridge
  • Leonard P. Zakim Bunker Hill Bridge
  • I-90 Connector from South Boston to Rt. 1A in East Boston
  • I-93 Northbound
  • I-93 Southbound
• Dismantling of the elevated Central Artery (I-93).
• Restoration of Boston city streets.

Timeline and Cost

This project is estimated to take fifteen years to complete.  This timeline is longer than the requested timeline due to built in time for meticulous planning on the front end to ensure quality and meet budgeting requirements.  Preliminary estimates for this project are set at $4 billion.

Lucky for LonMark, there are only a few transactions that need to take place on the foreign exchange market because most of the revenues stay with the local affiliate to pay for operations, sales, and marketing.  However, LonMark might be able to take better advantage of their international status by increasing their financial investments in foreign markets. By changing accounting practices to treat foreign and domestic revenues and expenditures differently, LonMark can alter their tax situation and cash flows. In order to make these decisions, LonMark must develop a consistent strategy, employ an individual or team to monitor the exchange markets, and be cautious of changing foreign regulations and laws that might affect how they do business in foreign countries.

Strategy

As a non-profit association, LonMark does not have an obligation to make money for its share holders and does not need to expose itself to unnecessary foreign exchange risk.  The majority of both revenues and expenditures from international affiliate operations is received and spent in the local currency.  Therefore, LonMark does not have to concern itself with hedging foreign currencies.

For this exercise however, we can assume that on occasion, LonMark International’s home office in the US needs to help fund an event in an European or other country to help and a new or growing affiliate. For foreign exchange risk to be a factor, LonMark must commit to a payment in the future for this event, otherwise they would simply pay the spot exchange rate for that day.

If Lonmark knows that must make a payment for a marketing event in the future they can neutralize its foreign exchange risk a few different ways:

• The first way would be to enter a money market hedge.  This method is best if LonMark has the capital today to pay for services in the future.  LonMark can change their money into the foreign currency on today’s spot market and then buy a money market security that will mature when the payable is needed.
• The second method to neutralize risk for a future expenditure in a foreign currency would be to purchase a forward exchange contract.  In this case LonMark would commit to paying a predetermined exchange rate for the money needed.  In this case, even if the exchange rate fluctuates, LonMark is locked in at the agreed upon exchange rate and can account for this amount without exposing itself to risk.
• Finally, LonMark can hedge its foreign currency transactions by purchasing or selling options.  Many exchanges around the world trade these options, most notably in Chicago, New York and London.  LonMark could place a long hedge to cover any exchange fluctuations in the short term.  This strategy improves its cash flow over the money market hedging method.

Since LonMark is not speculating on foreign exchange investments, their primary objectives are to minimize risk and variability in cash flows.  Entering a forward contract or using futures options would be the best methods for hedging foreign exchange risk, but these methods may require more involvement from management since they have a small staff.

Management

LonMark has a very small staff and the majority of their work is marketing LonMark technology to companies and governments.  Passive hedging of foreign currency exchanges will allow LonMark to continue to concentrate on what matters most to them, marketing.  Passive hedging involves using forward contracts to best avoid exchange risk.

If LonMark is to increase transactions between its headquarters in the US and affiliates it could possibly consider limited active futures options trading, but since its primary objective is not to make more money for share holders, passive hedging is adequate. Monitoring exchange rates should always be a concern of LonMark management however as it could be used as a marketing tool.  For example if the US dollar becomes weaker to the Euro, American suppliers of LonMark products will become cheaper for European nations.

Regulatory

Before making an investment in a foreign country, LonMark should carefully consult with an expert on the prospective countries regulations on foreign investment. Laws and regulations are just as important as the exchange rate because they can specify capital gains that can be extracted from the country.  Since LonMark is a non-profit association, there may be accounting regulations it must follow with foreign investments.

Recommendation

When making foreign investments, LonMark should take the least risky strategy.  Using forward exchange contracts will help LonMark best account for its deliverables and receivables.  Management should use passive trading and simply try to minimize the risk to the fullest.  While this is a boring strategy, LonMark’s mission is to promote interoperability technology and not generate investment revenues.

1. Direct payment in US$ (Spot Rate)
2. Payment in the foreign currency and conversion to US$ on the dates payments were made
3. Payments in the foreign currency with conversion to US$ at January month-end, allowing the paying organization to hold all payments until the end of January and paying interest at the agreed to exchange rate (December month-end prime rate)

Analysis of Strategies

The first strategy of direct payment is the most consistent and allows for easy accounting.  Using this strategy, the income can accounted for in the receivables without fear of currency exchange fluctuations that may change the income.  Accepting income on the day its due in US dollars eliminates risk associated with foreign exchanges.  The only issue that could arise would occur if the US dollar increases in value to the foreign currency and the company paying the invoice has not properly planned for the exchange.  The risk for the exchange lies on the company responsible for payment.

Table 1 shows dates that the income that was collected on in US dollars.  These dates and amounts will be used to compare the next two more risky strategies

Table 1.

The second strategy calls for setting the currency exchange rate to the first of the month (January 2, 2008) and then receiving the income at the later dates.  This strategy benefits the receiver if the US dollar depreciates against the foreign currencies. During the month of January, the US dollar did better against the Brazilian Real, the Pound, and the Canadian dollar resulting in losses of $755,178, $335,317, and $654,617 respectively (Table 2).  These losses are a problem beyond the monetary values because they were not able to be accounted for.  Accounting figured the full $105m would be received so the company might struggle with its cash flow or other payments.

Table 2.

As seen in Figure 1, the Yen outpaced the dollar for the month of January resulting in a $717,104 gain (Table 2).  However, the risks in this scenario are far too great for this strategy to be used unless you know the value of the dollar is going to get weaker.

Figure1.

The final strategy, where the income is calculated based on the day’s exchange rate and is held in the foreign currency until the end of the month, is also very risky.  In this scenario, the final exchange rate matters the most.  In order to break even, the final exchange rate must equal the average of exchange rates that were transacted on the earlier dates.  If the exchange rate on the 31^st is lower than the average as it was in January (see Figure 2) then a profit will be made (Table3).

Figure 2.

Table 3.

In addition to the exchange rate, the money that is held by the foreign company earns interest at the prime rate.  In this case, the prime rate was 7.25% at the end of December and Table 3 shows this interest being calculated in the foreign currency.  The added interest in this case is simply a bonus since the exchange rate on this amount of money is more important.

Table 4.

The third strategy is only good if you know the dollar is going to drop at a later date and that drop will be lower than the exchange rate of your previous income transactions.  Since certainty is never a guarantee, this strategy should not be considered.

Hedging

The later two strategies are too risky as stated above, but could be used effectively with currency futures trading.  In both of these scenarios, a short hedge would be made to attempt to lower the risk of currency exchange fluctuations.  While possibly saving money in the second strategy for Brazil, Great Britain, and Canada, a short hedge would eliminate some or all of the potential profits from Japan.  A short hedge in the third strategy would also eliminate the profits from the exchanges of each country.  Overall however, the benefits from better knowing cash flow could be more beneficial in the long term.

Reccomendation

LonMark International should use first strategy of receiving US dollars for the income due.  This recommendation is consistent with the recommendation in LonMark’s currency strategy paper since there is no short hedging for the second and third currency exchange strategies.