Friday, July 29, 2005

Sweet oligopoly HCFS (High Fructose Corn Syrup) is a relatively new food product. It is liquid sweetener derived from corn. It was first manufactured in a big way in the early 1970s, and has since grown to massive proportions. More HFCS is now consumed at greater rates than sugar -- in soft drinks, in condiments, in baked goods, in toothpaste, and many other uses. Four companies dominate the market. They are Archer Daniels Midland (ADM), Cargill, Tate & Lyle (a British sugar company that bought out US-based Staley Manufacturing in 1988 and just this year changed the division's name to that of the parent company), and CPC International (also known as Corn Products International). In 2002, ADM bought Minnesota Corn Processors giving it control of over 35% of the market. Tate & Lyle has around 20%. Cargill grew its share to around 25% by leasing the operations of the ProGold Company in 1997. CPC had a share under 10%. The four largest companies account for well over 80% of the market. In 2004, ADM was sued by 20 food industry companies (including Coca Cola and Pepsico), who claimed that it had tried to fix the price of HFCS, ADM paid a settlement of over $400 million without admitting guilt. Tate & Lyle paid out $50 million in a related settlement. In Europe, the industry (called isoglucose) is an even tighter oligopoly, with Cargill (which in 2002 bought French company Cerestar, an industry leader giving it around 50% of the market) and Tate & Lyle (through its Amylum subsidiary. There is a perpetual war between the sugar companies (especially in the US) and the HFCS makers, since the corn product has eaten away at the sugar refineries' profits. But both are united in trying to stifle US and international dietary pronouncements that even hint at the suspicion that the easy availability of cheap sweet stuff is behind the worldwide obesity boom. Both have succeeded in stifling reports that recommend severe cutbacks in dietary sweeteners, even though the consumption of carbonated beverages and other treats seems to be directly correlated to obesity. 7:56:37 PM

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Innovation versus style A recent issue of BusinessWeek (8/1/2005) has an article entitled "Get Creative: How to Build Innovative Companies" that presents a rather confused view of innovation, creativity, and stylishness, a rather common problem. The article blathers on about how we are changing from the "Information Economy" to the "Creativity Economy." And as is usual with its genre, the author discovers, believe it or not, a paradigm shift. The article even acknowledges that "You're thinking 'this is all hype'." Well, yes. That's not to downplay innovation. It seems to me that innovation is coming up with (and making products from) truly original ideas that change some aspect of society or some consumer in a significant way. For example, the people who invent that handful truly new medicines that change patient lives in a significant way are real innovators. The invention of the Internet was a significant innovation. Then there are little innovations, like Apple's iPod or 3M's Post It notes, that are nice breakthroughs and cool products, but hardly world-altering ( I speak as an iPod addict). Finally there re improvements in style or convenience, that a re basically just improvements on what exist (Faster computers, most new car models, or low-carb Michelob Ultra). Oligopolies are great at such improvements, taking an existing idea and adding to it. That's their bread and butter. A small number are pretty good at little innovations, but it takes an unusual effort or a lot of luck as big corporations are, by their nature, good at stifling of new ideas. (Read that enlightening book The Innovator's Dilemma.) The really big breakthroughs are almost always discovered by small companies or individuals, the kinds of monomaniacs that don't fit into big corporation and who miss far more often than they hit. The giveaway in the article is a table of "The Top 20 Innovative Companies in the World, " based on a poll of executives conducted. Some of them like #1 Apple, #2 3M, and #7 Google have been and continue to be innovators, at least in the little sense. Some others #4 GE and #14 Wal-Mart have been major innovators in terms of business strategy. Still others once were good innovators (#5 Sony and #11 Nokia) seem to have lost their edge. But the biggest joke in the list is #3 Microsoft, a company that we think of as the antithesis of innovation, a company that has always been based on expropriating the innovations of others (apple, Netscape, Lotus, Sony, and many others.) Then there is #9, Procter & Gamble, a company that while well-run shows no real innovation. The article uses the company as its poster child, highlighting one new product, Mr. Clean Magic Reach (a kind of wall mop for bathrooms) as its key example. That's almost as great an innovation as the four-blade razor or putting cheese in a spray can, thought not quite in the same league as, say, hybrid auto engines or implanted insulin pumps! Give us a break. As we have maintained before, the real current innovators are small companies that would never get on such a list, because they are too small and unknown. Innovation is not something that sits easily in a big company, and it is really hard to dictate top-down . "Be creative" might be on the CEO's lips, but "make your numbers or else" is what is really communicated in most oligopolies. And that's why big companies keep buying up, luring away, or crushing the real innovators. 12:10:26 AM

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