Small & Mid Cap Markets

R&D Spending Increases Despite Recession Trends

In the face of a severe global recession, the world’s 1,000 largest publicly traded corporate research and development spenders actually increased spending on R&D in 2008, affirming the critical importance of innovation to their corporate strategies, according to global management consulting firm Booz & Company’s fifth annual analysis of global innovation spending, released today. R&D outlays for these companies rose by 5.7 percent to US$532 billion, even as sales were up only 6.5 percent. While the increase in 2008 R&D spend was less dramatic than 2007’s gain of 10 percent, it was just slightly less than the 7.1 percent global five-year compound annual growth rate (CAGR) for R&D.

Overall, more than two thirds of companies maintained or increased their R&D spending in 2008, despite more than a third (34 percent) reporting that net income plummeted last year, according to the study. More than a quarter of companies decreased their R&D allocation in 2008.

The study looked at R&D spending and its link to corporate performance, uncovering insights into how organizations can get the greatest return on their innovation investment. New to the study this year is an in-depth survey of nearly 300 senior managers and R&D professionals from 250 companies around the globe that probes the impact of the downturn on innovation spending and strategy.

Key findings of the report include:

Innovation is viewed as increasingly vital to corporate strategy. More than 90 percent of those surveyed say that innovation is critical as their companies prepare for the upturn, and fully 70 percent of respondents state their companies are either maintaining or increasing their spending on R&D in 2009, according to Booz & Company. Furthermore, the top 100 companies in the Innovation 1000 clearly signaled their investment priorities by increasing R&D spending by 3.2 percent while reducing overall capital expenditures by one percent.

Companies are spending more, but more wisely. “One result of the recession is that it has forced companies to think more carefully about their innovation processes and portfolios – for both good times as well as bad,” observed Kevin Dehoff, a Booz & Company Partner. “This held true through the most turbulent quarters these companies have navigated, indicating they’re ready to make smart bets that will pay dividends in the coming upturn.” Accordingly, the survey of senior managers and R&D directors reveals that seven in 10 companies are now adjusting their strategies to better capture changing customer requirements. Nearly half of the respondents report becoming more risk averse in their approach to innovation, changing the filters they apply when green lighting new R&D projects. More than 40 percent said their companies are focusing on process improvements to change R&D spend during the downturn, and a similar number say they’re getting better at killing bad projects, as well as focusing more on newer products that have the potential to grow faster.

The top 20 innovation spenders increased their budgets by just 3.2 percent. This gain is less than one-third the 10.7 percent rise in 2007 and was the result of a precipitous 35 percent drop in net income among the 20 companies, which fell from $115 billion in 2007 to just $75 billion in 2008. Still, the top 20 spenders accounted for 26 percent of spending by the entire Innovation 1000.

Recession’s impacts on R&D vary widely by industry. In 2008, as last year, two-thirds of R&D spending was concentrated in three industries: computing and electronics (28 percent), health (23 percent), and automotive (16 percent).

• No industry felt the pain more than auto with nine out of the top 10 R&D spenders in the category cutting their innovation outlays in 2008. Overall, 60 percent of auto companies in the Global Innovation 1000 decreased R&D spending, compared with 25 percent who decreased R&D last year. Yet the remaining 40 percent of auto companies on the list increased spending enough that the auto sector on a net basis slightly increased R&D spending overall by 0.6 percent.
• The Software and Internet sector, on the other hand, clearly has seen the recession as an opportunity. Eight out of the industry’s top 10 R&D spenders increased their R&D spending last year.
• R&D spending in the computing and electronics industry was up more than 4 percent, though the proportion of companies that increased R&D spending was essentially unchanged from last year.
• Healthcare companies spent the most on R&D as a percentage of sales –- 12 percent –- followed by Software and Internet (11.4 percent). In contrast Telecom, and Chemicals and Energy, spent the least, 1.4 percent and 0.9 percent, respectively.
• Aerospace and Defense was the only industry to see innovation spending sink, down 2.3 percent.

Every global region increased its spending. North American, European, and Japan-based companies retained their 94 percent share of the global 1000 innovation spend. Every region, including China and India, increased its expenditures, though they did so at slower rates. Japan upped its allocations by just 0.5 percent, Europe by 6.3 percent and North America, 6.5 percent. These levels were below the global five-year CAGR of 7.2 percent.

Additional study findings include:

• The top 10 global R&D spenders in 2008 were, in descending order: Toyota, Nokia, Roche Holding, Microsoft, General Motors, Pfizer, Johnson & Johnson, Ford, Novartis and sanofi-Aventis.
• R&D spending among the Global Innovation 1000 ranged from just under $9 billion spent by #1 Toyota to the $58 million spent by #1000 Laird PLC, a London-based maker of electronics equipment, a wide range that explains why the top 100 companies account for fully 62 percent of the total R&D spend of the Innovation 1000.
• Sales of the Global Innovation 1000 grew 6.5 percent to $15 trillion in 2008, a significantly smaller increase than the 10 percent increase this group registered in 2007, and R&D spending as a percentage of sales remained the same as the previous year, 3.6 percent.
• North American-headquartered companies on this year’s list spent 4.6 percent of sales on R&D, a slight decrease compared with 2007, while Japanese-headquartered companies spent 3.7 percent of sales, significantly up from last year, and European-headquartered companies spent 3.2 percent, a decrease from the prior year.
• Booz & Company estimates that the Global Innovation 1000 accounts for 81 percent of 2008 total global corporate R&D spending of $660 billion.

Economy to Impact Two-Thirds of Families this Holiday Season

Retailers are about to embark on the holiday season of the serious bargain hunter. According to NRF’s 2009 Holiday Consumer Intentions and Actions Survey, conducted by BIGresearch, U.S. consumers plan to spend an average of $682.74 on holiday-related shopping, a 3.2 percent drop from last year’s $705.01.

It comes as no surprise that the economy was an overriding theme throughout this year’s survey. Two-thirds of Americans (65.3%) say the economy will affect their holiday plans this year, with the majority of these consumers saying they’re adjusting by simply spending less (84.2%). People will also be shopping for sales more often (55.0%), using more coupons (41.7%) and putting up last year’s decorations (34.0%). Many Americans will also make changes in gift-giving, planning to buy more practical gifts (36.0%), buying a joint gift for kids or parents (17.3%), and making more gifts (16.7%). Additionally, more than one-fourth of Americans (28.6%) say the economy is forcing them to travel less or not at all for the holidays.

“While last holiday season was filled with chaotic confusion, adjusting to uncertainty has now become routine for many Americans,” said NRF President and CEO Tracy Mullin. “This holiday season will be a bit of a dance between retailers and shoppers, with each group feeling the other out to understand how things have changed and how they must adapt.”

Americans’ eagle-eye on bargain hunting is adjusting the priorities of many shoppers. According to the survey, more than half of holiday shoppers say that sales and price discounts (43.3%) or everyday low prices (12.7%) will be the most important factor when deciding where to shop. Factors like selection (21.0%), quality (11.8%), convenience (4.9%) and customer service (4.4%) declined from last year.

Not surprisingly, the majority of holiday shoppers (70.1%) will purchase from discounters this year, though more than half (55.8%) will also shop at department stores. Grocery stores (45.0%), the Internet (42.4%), clothing stores (33.8%) and electronics stores (31.8%) will also be popular destinations. In addition, one in ten holiday shoppers (11.4%) will buy gifts or other holiday-related merchandise at thrift stores or resale shops.

Retailers are compensating for soft sales this holiday season by cutting back on inventory. According to NRF’s Port Tracker report, released in September, traffic to the nation’s ports has scaled back to levels not seen since 2003.

“In anticipation of weak demand, many retailers scaled back on inventory levels to prevent unplanned markdowns at the end of the season,” said NRF President and CEO Tracy Mullin. “Once the most popular items are gone, retailers won’t have anywhere to get them, so if there was ever a holiday season to buy early, this is it.”

Whether they’re shopping to get the best selection or trying to stretch out spending over a longer period of time, many holiday shoppers are starting early. According to the survey, 39 percent of Americans will begin their holiday shopping before Halloween, which is comparable to previous years.

As in previous years, three-fourths of Americans’ holiday budget will be spent on gifts. While spending on family members will decline by a slight two percent ($387.06 in ’09 vs. $395.15 in ’08), gifts for friends ($66.77 vs. $80.13) and co-workers ($19.26 vs. $22.63) will see double-digit drops. Americans also plan to spend about five percent less ($34.81 vs. $36.88) on “other” gifts for people like babysitters, teachers and clergy.

Candy and food spending may be one bright spot this year, with the average person planning to spend $10 more in that category than last year ($90.26 in 2009 vs. $80.28 in 2008). Spending on other non-gift categories like decorations ($40.75 in ’09 vs. $43.45 in ’08), greeting cards and postage ($26.77 vs. $27.39), and flowers ($17.05 vs. $19.10) is expected to drop.

“While the economic climate has shown some improvement from last holiday season, retailers are not out of the woods yet,” said Phil Rist, Executive Vice President, Strategic Initiatives, BIGresearch. “With a variety of factors still up in the air, including uncertainty over job security, many Americans just aren’t buying into the talk of recovery.”

Though Americans were less inclined to purchase gift cards last season, the popular gifts retain their spot at the top of the list among gift recipients. According to the survey, 55.2 percent of adults would like to receive a gift card this holiday season, with clothing (48.8%), books and DVDs (48.6%) and electronics (33.2%) among other popular choices.

NRF continues to expect holiday sales to decline 1.0 percent to $437.6 billion.

Americans Split on Attitudes towards Ads Which Mention the Recession and Economic Troubles

As economic woes continue, advertisers have to decide how to deal with the issue of the recession. Some ignore it and find different ways to encourage people to buy in troubled economic times while others put the economic troubles front and center and mention the recession. What strategy actually works is a different issue altogether and the American consumer is mixed about that.

Just over one-quarter of Americans (27%) say advertisements which mention the economic troubles and the recession make the brand seem more manipulative while just under one-quarter (23%) say the advertisements make the brand seem more realistic. Just over one in ten (12%) say these types of advertisements are depressing and make them less likely to purchase the brand. Two in five Americans (39%), however, have no opinion about advertisements which mention the recession.

These are some of the findings of a new Adweek Media/ Harris Poll, survey of 2,186 U.S. adults surveyed online between September 25 and 29, 2009 by Harris Interactive.

Different groups have different attitudes on these ads

Different groups have different opinions on advertisements which mention the recession and economic troubles. Men are more likely than women to say these ads make the brand seem more manipulative (29% versus 25%) while women are more likely to believe these ads make the brand more realistic (27% versus 18%).

There are also age differences on ads which use the recession. Those aged 18-34 are more likely than those aged 55 and older to say these types of ads make the brand more realistic (27% versus 18%).

Education and household income are other differentiators on the use of the recession in advertisements. Looking at education, those with a college degree are more likely than those with a high school or less education to have an opinion at all, both believing that the ads make the brand seem more manipulative (31% versus 24%) and make the brand seem more realistic (26% versus 17%). Those who have a household income of less than $35,000 are more likely than those with an income of $75,000 or more to say the ads are depressing and make them less likely to purchase the brand (16% versus 8%). Those with a household income between $50,000 and $74,999 a year are more likely to make a brand more manipulative (32%).

So What?

Advertisers have to walk a fine line with their ads when dealing with the economic issues Americans are currently facing. Do they discuss the recession or pretend it doesn’t exist? We know there are certain tactics which work better than others for addressing the economy (mostly value propositions and luxuries for less), so when it comes to actually mentioning the recession, these tactics should be interwoven so advertisers do not seem to be manipulating the consumer or, even worse, depressing them and leading them to not purchase the brand.

Retailers Brace for Cold Sales and Hiring this Holiday Season

According to a recent survey by Hay Group, 72 percent of retailers predict holiday sales will be about the same or lower than last year. As a result, 57 percent of retailers are reducing staffing levels for the 2009 holiday season — a dramatic shift compared to only 29 percent that decreased staffing levels last year.

Hay Group’s survey, in its third year, analyzed responses from 25 top U.S. retailers including American Eagle Outfitters, Best Buy, Saks Fifth Avenue and Target in September 2009 to understand retailers’ plans for the 2009 holiday season.

According to the survey, 62 percent of retailers are seeing more seasonal applicants this year, however, 40 percent are hiring fewer seasonal workers, and 64 percent already have lower than normal staffing levels.

“With sales numbers down and consumers spending less, planning holiday staffing needs has been difficult for retailers this year,” said Craig Rowley, Vice President and Global Practice Leader for Hay Group’s Retail practice. “Retailers are doing what they can to survive the season, but more importantly, if the consumer decides to go on a spending spree this season, they are poised to respond fast with merchandise and staff.”

Among the highlights from the September 2009 Hay Group retail survey:

• Seasonal Worker Staffing Levels: Compared to last year, 48 percent of respondents are planning to hire the same amount of seasonal workers for the holiday season, and 40 percent are planning to hire five percent to 25 percent fewer workers. The majority of respondents (60 percent) indicate that the ratio of permanent to seasonal store employees is about the same as last year; however, 32 percent indicate that they plan to hire fewer seasonal workers and more permanent staff.
• Sales Expectations: Retail sales expectations are lower for this holiday season – 36 percent of respondents expect sales to be about the same as last year, and 34 percent expect sales to decrease by five percent to 25 percent. Some retailers (28 percent) remain optimistic this year and expect an increase in sales, however this is a drastic drop from the 60 percent of retailers that expected an increase in sales this time last year.
• Store Promotions: Retailers have changed their promotion strategy in response to current economic conditions, with 43 percent of respondents indicating that they will be running more promotions and/or deeper discounts this year. Stores have also shifted their focus from running the most store promotions on Black Friday (35 percent, compared to 45 percent last year), and will instead run consistent store promotions from now until New Year’s Day (43 percent of respondents). In addition, 13 percent of respondents indicate they will run the most promotions in mid December leading up to Christmas, and nine percent will run the most promotions on the day after Christmas.

“Retailers are planning for a challenging Christmas season, and to avoid the massive markdowns they had to take last year, they have reduced inventory and staffing levels to control costs,” added Rowley. “That said, retailers have their fingers crossed that they are wrong.”

Love This Question: “Do You Have the Capacity?”

One sign for me that things are really turning around in my area of the world – Wall Street and the middle market in particular: more than one client this week essentially asking the same question. “We have a bunch of deals  in the pipeline and want to work with you. Can you handle it?” Now, from those promises to the hoped for avalance  is going to be a little journey.

Luckily, we are already seeing things noticeably pick up. In addition to areas that have stayed strong in my practice throughout the difficult past year, the transactional work that slowed considerably is now picking up considerably. We’re working on acquisitions, reverse mergers, self-filings, private placements, public underwritings and even new partnerships getting started. Honestly, there was virtually none of this stuff in early 2009. So this is good.

Is this a “fool’s rally” in the stock markets as some have said? Is the economy and market about to take a second dip? Is the recovery going to look more like a soup ladle (as I have suggested) or some up and down letter of the alphabet? Yes, again I annoy my faithful blogees with great questions and no answers. But for now, I’m enjoying being busier!

Small Business Optimism Grows

More than half of entrepreneurs have an optimistic outlook on near-term business prospects, up from 45% in March 2009, according to the American Express OPEN Small Business Monitor, a semi-annual survey of business owners. One quarter report expanding opportunities for their business, up from 15% from a year ago, but six in ten do not think the worst of the U.S. economic woes are over, and nearly one in six say they risk going out of business in the next six months because of the economy.

“There appears to be a dichotomy where many small businesses are seeing signs of improvement while other firms are still struggling to make payroll,” said Susan Sobbott, president American Express OPEN. “For the first time since 2007, the majority of small businesses are optimistic about the near-term future, in part because of less competition, however some of the less healthy firms are dipping into cash reserves and personal assets to stem the tide of declining sales.”

Among those businesses reporting growth opportunities for their firms, 44% say these opportunities come as a result of less competition. The ability to renegotiate equipment leases and supply contracts (13%) and lower real estate costs (12%) also contributed to these firms’ growth mindset. Overall, when asked for the primary way they address cash flow issues, 32% of business owners said they use personal or private funds, up 9 percentage points from March. More than a third (35%) say the recession has caused them to tap personal assets, on-par with the March reading (37%).

Although small business optimism is on the upswing after hitting its all-time low a year ago, the American Express OPEN Small Business Monitor shows that business are not shifting to hiring mode. This fall, just under one quarter have plans to hire (23% vs. 28% this spring), which is the lowest reading in the history of the Monitor (falling below the fall 2002 recession level of 26%), and plans for capital investments equal the record setting low from Spring 2009 (42%).

With hiring and capital investment plans on hold for most, business owners are taking a conservative, back-to-basics approach to managing their firms:

• Concentrating on current customers. Forty-one percent of small business owners say their top priority over the next six months is maintaining current sources of revenue. By comparison, only one quarter (26%) say they are focused on growing their business, which is the lowest number for growth in Monitor history.
• Avoiding risk. Half (49%) say they are not willing to take on financial risk to grow their business, an all-time high for the Monitor.
• Keeping employees happy. In general, deteriorating employee morale has plateaued. Only twelve percent say employee morale has worsened over the last six months (down from 25% for the preceding six-month period.) Three-quarters say morale has stayed the same, and nine percent say it has improved. In addition, approximately one in three (28%) business owners see offering financial incentives such as bonuses and paid time off as a way to increase employee morale, and twenty-three percent see more regular communication about the business as the key to improving morale.

In addition, business owners continue to do everything they can to protect their employees. For example, thirty-five percent of small business owners have tapped personal assets as a result of the recession, twenty-seven percent have stopped taking a salary and seventeen percent are working a second job, comparable to six months ago. At the same time, fewer business owners are laying people off (15%, down from 23% in the spring) or cutting benefits (8%, versus 16% this spring).

Even as hiring plans are not in the cards for most business owners, the nearly one quarter planning to hire are upbeat. These business owners are more willing to think the economy creates new opportunities for their business (36% vs. 31% overall) and seek out alternative tactics to manage their business. In addition, more than three quarters (78%, compared to 65% overall) of those hiring will use online marketing techniques to boost business and nearly half (46%, vs. 39% overall) will negotiate flexible payment methods with their suppliers/vendors. On average, entrepreneurs with hiring plans work about one-half hour longer per day than business owners overall (more than 11 hours 45 minutes vs. 11 hours 15 minutes).

Regardless of hiring plans, one in ten business owners (11%) say they have recently hired someone who was laid off from another company because of the recession.

Economy takes toll on entrepreneurs

As business owners work to navigate their firms through the current economic climate, they are plagued by cash flow concerns and the overall stress a challenging economy creates. Nearly seven in ten entrepreneurs (68%) are “stressed out” by the economy and three in ten (31%) say that the current economy has caused them to question their decision to become an entrepreneur.

The number of entrepreneurs experiencing cash flow issues this fall (60%) is up slightly over both the previous fall (55%) and this spring (57%). The biggest cash flow worry for business owners is the ability to pay bills on time (26%). When cash flow concerns arise, business owners are most likely to dip into their own pockets: 32% of business owners will use personal or private funds, and one in four (25%) will put off purchases. Others will use credit or charge cards (13%), obtain and use a line of credit (12%), lease rather than purchase business equipment (4%), or get a short-term loan in order to improve cash flow (3%).

Looking beyond the basic issue of cash flow, nearly half of entrepreneurs (45%) are looking to access capital from external sources in order to run their businesses. One out of five business owners (19%) say they are experiencing difficulty accessing capital. To secure the funds they need, business owners are tapping a variety of sources, including using a bank loan (14%), using business or personal credit cards (each 13%), tapping personal savings (10%), borrowing from a friend or family member (3%), and private equity/venture capital or home equity (each 2%).

Outlook varies by industry, age, gender, and region

Examining business owners by generation, industry sector, region and gender provides further perspective on the economy. The American Express Small Business OPEN Monitor studies three key industry sectors: retail, manufacturing and services as well as the three generational age groups: Generation Y (18-28), Generation X (29-44) and Baby Boomers (45-63), entrepreneurs by gender and by geographic region.

As the holiday shopping season approaches, businesses in the retail sector are the least optimistic group of business owners across these industries. This fall, more than half of services businesses (58%, up from 53% last fall) maintain a positive outlook, versus just half of manufacturers (51%, on par with 52% in fall 2008) and just under half of retailers (47% on par with 48% last fall). The effect of the economy can be seen to have varying effects across industries:

• Retailers are more likely to have hiring plans, due to the upcoming holiday season, (27%, on par with 28% last fall) when compared to other industry sectors (22% of manufacturers down from 30% last fall and 17% of services businesses down substantially from 44% last fall)
• Services businesses are more concerned with cash flow issues (63% vs. 52% last fall) versus other industries (60% of retailers up from 56% last fall, and 61% of manufacturers up significantly from 47% last fall)
• The services sector is more likely than other industry sectors to have capital investment plans (39% down from 45% last fall) compared to 36% of manufacturers down from 59% last fall and 34% of retailers down from 37% last fall
• The manufacturing sector is more likely to say that the worst of US economic woes are not over compared to other industry sectors (68%, vs. 64% of retailers and 56% of services
• Manufacturers and retailers are the most likely to be willing to take a financial risk (each 55%) when compared to services businesses (40%)

Gen Y geared for growth, Gen X most “stressed out” and Boomers are cash strapped

Generally speaking, the experience of older and more seasoned entrepreneurs puts them in a better position than younger entrepreneurs to manage through downturns. According to the American Express OPEN Small Business Monitor, however, the tables have turned, and it’s younger business owners who are geared for growth.

The survey found that Gen Y is the most optimistic group of entrepreneurs when compared to other age groups and to the overall sample of business owners. More than three-quarters (80%) of these entrepreneurs have a significantly more positive outlook on business prospects versus Gen X and business owners overall (each 55%), and Baby Boomers (52%).

The optimism of Gen Y entrepreneurs extends across a number of areas:

• They’re most likely to hire (36%, vs. 25% of Gen X and 20% of Boomers )
• They’re most likely to have capital investment plans (58%, vs. 41% of Gen X and 39% of Boomers)
• They’re most willing to take a financial risk (67%, vs. 52% of Gen X and 47% of Boomers)
• They’re least likely to have cash flow issues (53% versus 59% for Gen X and 64% of Baby Boomers)
• They’re least stressed out by the economy (57% versus 72% of Gen X’ers and 71% of Boomers)
• They’re most likely to implement employee-friendly policies to battle the recession. Gen Y will allow employees to maintain a flexible schedule (44%), Baby Boomers will institute a hiring freeze (41%) and Gen X entrepreneurs will institute a salary freeze (39%)

Women more upbeat than their male counterparts

No less revealing than examining the mindset of entrepreneurs by age, gender also plays a role in shaping the outlook of a business owner.

• Women are more likely to have a positive outlook on business prospects considering the economic climate (60%, vs. 50% of men)
• Women are more likely to have cash flow concerns (62%, vs. 57% of men)
• Women are also more likely to have difficulty accessing the capital they need to run their business (26%, vs. 16% of men)
• Men are more willing to take financial risks (47%, vs. 40% of women)
• One third of men say the current economy creates new opportunities for business (34%, vs. 29% of women)

Businesses in the Northeast struggling to stay afloat; West is most optimistic Along with age, gender and industry sectors, geography plays a significant role in business owners’ outlook on business prospects and the economy:

• The west is most optimistic (60%, vs. 54% in north central states, 53% in the northeast and 52% in the south); businesses in the northeast are most at risk of going out of business (24%, vs. 19% in north central states, 17% in the west and 13% in the south)
• The south is most willing to hire (31%, vs. 22% in the west, 17% in the northeast and 15% in north central states)
• The south is also most likely to take on a financial risk (55%, vs. 50% in north central states, 44% in the west and 38% in the northeast)
• The north central states are most likely to make capital investments (48%, vs. 43% in the west, 41% in the south and 36% in the northeast)
• The northeast is most likely to have cash flow issues (69%, vs. 60% in the south, 58% in the west and 55% in north central states)
• The northeast is also most likely to question their decision to become an entrepreneur (39%, vs. 31% in the south, 30% in the west and 25% in north central states)

China in 2009…Hot!

I am in Guangzhou, China for business meetings. Summer here is quite hot indeed. A good metaphor, as things in China in general remain hot business wise. While some here decry the reduced growth rate to roughly 7% annually from 12% annually (and no question that has caused some economic hardship and layoffs), the environment is very positive, as I reported during my last visit to China in March.

The swine flu, combined with the difficult economy in the rest of the world, has hurt the local tourist industry for sure. Some hotels are really struggling. We had no problem with the flu issue, although a full plane temperature check took place before we deplaned here. We assume that will change once the flu recedes.

A number of simple things here could be good lessons for us in the US. We did not have to remove shoes to go through airport security. Free wifi throughout Hong Kong airport was very nice. The valet stationed 24/7 on my hotel floor adds a very nice touch. My blackberry world edition popped right on when we got here. I have always felt most welcome here, and their focus on service and attention to detail are indeed extraordinary.

No question the trip is long and the 12-hour time difference a real challenge at times. But I remain bullish on China and its growing business relationship with the US, especially in helping Chinese companies go public in the US through reverse mergers and similar alternatives to traditional IPOs.

Gov. Huntsman Nominated as Ambassador to China

Yesterday Pres. Obama nominated Utah Governor Jon Huntsman to be the next Ambassador to China. I have met the Governor several times in my former capacity as Chair of the Wharton School’s worldwide alumni association. Huntsman’s amazing father, billionaire Jon Huntsman, Sr., is the head of Wharton’s Board of Overseers. Having spent a lot of time in Asia, the Governor speaks fluent Mandarin and presumably has a strong understanding of the bi-lateral issues between us.

This appointment is important on a number of levels. Of course our relationship to China is overwhelmingly key to our economic recovery and future success. We have become a huge importer of their stuff.  They are pretty much the US’s biggest lender. And of course they are one of the biggest economies in their own right. In the small and midcap world I live in, Chinese companies have gone public in the US in record numbers through reverse mergers and other IPO alternatives.

It is also notable in that Huntsman is a Republican who has been talked about as a possible Presidential candidate. Some may think Obama is sending him to China to keep him out of the 2012 race against him. I can’t imagine Huntsman is that dumb and doesn’t realize if that was the motive. Presumably he thinks Obama is a shoe-in for 2012 and he is waiting for 2016.

The question is whether the Obama Administration will keep him fully informed about its policy development efforts when he is a potential future rival. One hopes they will. The other question is whether Huntsman will be the loyal message deliverer or have his own approach to things. His predecessor, Clark T. Randt Jr., an old buddy of ex-President George W. Bush, was notable for no one noticing him. One would think Huntsman will be more high profile. It will also be interesting to see how his relationship develops with Secretary of State Hilary Clinton. Huntsman’s dad served in the Nixon Administration with former Vice President Dick Cheney, so we’ll see….

SEC Veteran Returns to Run All-Important Division of Corporation Finance

Reprinted from our sister blog, www.reversemergerblog.com.

Meredith Cross, an SEC staffer through the 1990s, has been selected by Chairman Mary Schapiro to return and run the all-important Division of Corporation Finance. “Corp Fin,” as it is known, oversees every public company’s disclosure.

It took a little longer than expected for this spot to be filled. Ms. Cross has a strong background, having been a lawyer in Corp Fin’s chief counsel’s office, and worked her way up to Chief Counsel. She also worked in the Office of Small Business, which bodes well for those of us focusing on that area. Sometimes we find that the backgrounds of Corp Fin directors did not provide them with sufficient ability to truly understand the unique needs of smaller public companies.

Now that this important role has been filled, we hope the Division can begin to turn its attention to matters that have been on the table for awhile, including our request for the SEC to consider reversing the ill-advised “evergreen” requirement limiting shareholders of former shell companies in their ability to sell shares without registration.

Best of luck Ms. Cross.

Whither the Small Caps?

I am headed to Vancouver to speak at the American Bar Association’s spring meeting on “hot securities law issues for small companies.” As many of you know, the bulk of my law practice involves representing small and middle market companies, both public and private, in a variety of transactions and matters. I help take companies public through nontraditional means such as reverse mergers, which is the subject of my 2006 book. Thus, I care a great deal about the state of the small and midcap markets, representing many thousands of smaller public companies, any one of which could be the next Microsoft or Google.

Without a lot of data, so far the smallcap stocks have been performing as you might expect in the latest craziness. They tend to drop faster when things are bad and rise faster when things are good compared with the largecap stocks. They did so in the crash this past fall and rose faster than the Dow in the last month or so.

So what does this mean? American investors still believe in the longterm potential rewards to be had in betting on entrepreneurial growth companies. It is also good whenever the market behalves pretty much as expected, which brings less uncertainty.

It also means that financings and other activities for these companies, that had come to a virtual halt, could indeed commence, and have done so a bit already. Anecdotally I can tell you that we are looking at a number of potential projects that did not exist even a month ago.

Signs of hope in a Spring that still frustratingly feels like Winter!

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