“The Next Three
Mr. President, Board of Directors, Ladies and Gentlemen:
Thank you for the honor of addressing this important meeting of the
International Reciprocal Trade Association. Let me first welcome the delegations
from other nations and thank them for making the journey to our country to share
their experiences. A global network of exchange companies has long been a goal
of your Association, and your presence here is a sign of vitality.
Let me also welcome our younger people and newcomers to the trade
business. Today marks a passing of the flag from an older generation
to a younger one. We old soldiers offer you our wholehearted support
and encouragement, for you will be the builders of the commercial
exchange industry during the next 30 years.
The trade business was born of dreams brought to life by ambition
and hard work. Many of those dreamers are here today, gathered
perhaps for the last time. Their coming here is an expression of
confidence in you, the modern trade and barter industry.
Congratulations are due to the President, Board of Directors, and
Chief Executive of IRTA for organizing this great conference.
We are the innovators within commerce. We create markets where
there are none, allowing commerce to flow where it would not exist
if cash were the only means of payment. We form associations of
trading partners and build trusted relations with them. We look for
win-win solutions to business problems. When opportunity knocks, we
are ready to move. We put no boundaries to our calling: we never
look just at the markets we are in, we look at the total imaginable
In all, we keep our promises in spirit and deed. Our entire
industry is built upon trust. Trade credit has no value without
trust—trust that we will fulfill our obligations to our clients.
Allowing clients to accept trade credits when they have little or no
means of obtaining value in exchange is dishonest and a violation of
our Code of Ethics. These are the values that built the trade
industry, and they will serve well as our compass for the future.
An industry must not only know where it stands, but where it is
headed. So while resting on the shoulders of the past, let us cast
our eyes upon the future. The great depression of the world economy,
the rise of China, India, and Brazil as vast new markets, a world
with two-thirds of its population connected by mobile phone and a
quarter connected to the internet—what better moment to chart our
course for the next 30 years?
I call on everyone, during your meetings, during your
conversations at the breaks, to raise your eyes and think
strategically and boldly about our industry’s potential, its
opportunities, and share your vision of the future. Let the spirit
and aim of this convention be, “Finding the right way forward!
Finding the right way forward for the next three decades!”
I will try today to present some thoughts on the future world of
exchanging. I will deal with the economic environment, the strengths
and weaknesses of our business models, and ways we can use the new
information and communications technology to grow our networks. I
will try to raise some points you may wish to consider as you look
ahead to the next three decades.
Today, nearly 15 million workers are unemployed in the United
States, and millions more worldwide, as a result of the Great
Depression of the 21st century. The architecture of this
disaster—primarily the system of “too big to fail” private banks in
the United States, United Kingdom, Switzerland, France, and Germany
that speculated wildly, and government regulators that allowed the
speculation—this architecture is still intact, with stronger
oversight but with few real restraints, after the G-20 meeting of
world leaders in Pittsburgh. No doubt it will remain intact until
the day people decide they’ve had enough, and exercise their right
to create private money.
We in the commercial exchange business are
facing a period of depressed demand, slow growth, and even another
recession before the world economies recover. Of course, some
economic indicators are bouncing back, but do not be deceived.
Recovery in the industrial economies of North America, Europe, and
Japan will require more consumer spending and more business
investment spending. But with unemployment high and still growing,
consumers’ incomes have been reduced by the loss of jobs. Moreover,
people will be saving more out of those incomes as a precaution
against an uncertain future.
Manufacturing plants in the United States
are operating today at 65-percent of capacity. With excess capacity
and slow consumer spending, businesses will be cautious about
investing in new capacity and increasing their inventories; this
means we can’t look to business spending to help the economy any
more than consumer spending. There cannot be robust growth until
unemployment is cured and consumer and business confidence returns.
A slow economy will provide many
opportunities for us in the commercial exchange business. As demand
has fallen worldwide, manufacturers have been caught with excess
inventories which they are eager to get rid of to avoid loss on
value of these assets, which impairs their profits, and to avoid
storage costs. The corporate traders in our business—and this
includes both corporate trade companies who deal with larger
manufacturers and trade exchanges who deal with smaller and
medium-size manufacturers—have been buying up millions of dollars of
unsold inventories in exchange for trade credits redeemable in
advertising and other products and services. As manufacturers adjust
their inventories in line with demand, these trade opportunities
will be fewer; but due to slow growth of the global economy, we can
expect several years of good business.
In a slow-growth economy, trade exchanges
will be in a more favorable position to establish strong
relationships with quality clients. Small and medium-size businesses
are usually slower to adjust their inventories and working capital
to falling demand, and with credit tight and cash in short supply,
more businesses should find it advantageous to join a trade exchange
to increase their sales, promote their products, and cover their
Trade exchanges have a strong incentive to
grow their networks by adding quality clients. With more clients
they can offer better service and a wider range of spending
opportunities, generating more trade and more working capital to
stabilize the quality of their services, which can suffer when
revenue fluctuates. With stronger finance, trade exchanges can deal
for excess inventories just as corporate trade companies do,
provided they have the capacity to deliver the fulfillment products
and services agreed to in advance.
So our commercial trade industry should plan
to capitalize on a time of slow growth and less consumer demand—a
period that could last as long as five or six years. Should recovery
come sooner, we will be prepared to make good use of it. But recall
that I have asked you to set your sights on the next 30 years. Where
is the global economy headed in the longer run? To answer this
question, I turned to the wisdom of Peter F. Drucker, who was the
principal business philosopher of my age (and the age of several of
us here). Drucker’s essay written in 1992, called “Planning for
Uncertainty,” states as follows:
“Traditional planning asks, ‘What is most
likely to happen?’ Planning for uncertainty asks, instead, ‘What has
already happened that will create the future?’”
You see, we know a great deal about what has
already happened that will create the future. We know the
demographics—the generation that will be living 30 years from now
has already been born, and its needs for food, clothing, shelter,
and everything else can be estimated. We know that more of the
world’s peoples live in market economies than ever before, and
market economies are known to stimulate productive energy.
Today 4 billion people have mobile phones,
and prepaid calling is available even in the poorest regions. Right
now, 1.5 billion are on the internet, and the number with internet
access is due to grow rapidly with adoption of smart phones, WiMax,
and mobile broadband because governments are committed to building
mobile broadband as the third-generation architecture of the
internet. Yet the power of mobile broadband has only begun to be
The CEO of Swedish technology company
Ericsson puts it this way: “Today broadband infrastructure is widely
available, but we have not realized its full impact and potential
for society. Over the next 20 to 30 years, it will stimulate
innovation across society and lead to deployment of completely new
solutions.” Already with a smart phone and internet access, a trader
can run a commercial exchange or make deals with corporate clients
while on the move.
The rise of market economies of enormous
size in China, India, and Brazil with hundreds of millions of
consumers and millions of small and medium-size businesses is
already spilling over into global commerce and propelling global
growth. A robust recovery is underway in China, which will grow
7.8-percent this year and is forecast to grow 8.8-percent next year.
India’s economy will grow 7-percent in 2010, according to the Asian
Development Bank. Isn’t it clear that the fast-growing economies of
China, India, and Brazil—with 3 billion people, half the world’s
population—will fuel demand for all kinds of goods and services as
people’s incomes rise, yielding a rising tide of commerce and trade?
For a final look at what has already
happened that will shape the future, we should consider the sources
of economic strength in the industrial economies—their ability to
innovate, their long-term investments in research and development,
the stream of new technologies emerging from their laboratories, and
their high-tech manufacturing capabilities in such areas as computer
chips, solar arrays, ion batteries.
Some say the fiscal and trade deficits of
the industrial world will bring this house down. Will these deficits
continue to be financed by the world’s savings? There is no sign
they will not be financed, for savings grow as economies grow, and
capital continues to pour into the world’s financial centers looking
for investment outlets. Future savings of the developing world will
be huge, and the owners of those savings will decide where and how
it will be invested.
The world economy is so large it can’t be
turned around easily, and many countries with trade surpluses or
deficits have vested interests who would like to maintain the
current situation as long as possible. By running a trade deficit,
the U.S. economy buys the exports of other lands and supplies the
rest of the world with dollars that finance world trade. Turn the
U.S. deficit into a surplus and the world’s money supply becomes
smaller, even though more money is required for world trade to grow.
A lower U.S. current account deficit is realistic, but a
surplus is a long way off because we have a big appetite for
The goal set by world leaders at the G-20 is
to reduce the U.S. deficit with the cooperation of surplus
nations like China and Germany. China will soon become the second
largest economy in the world, and it’s possible the yuan may become
a reserve currency someday. But for this to happen, China must end
its trade surpluses, because how can importers make payments in yuan
if China is withdrawing yuan from circulation each year by running a
trade surplus? To be a reserve
currency, China must begin buying more from the U.S. and the rest of
the world than it sells.
But under its current policy of running a
trade surplus, China gains in two ways, first, by export sales that
propel its economic growth, and second, by accumulating reserves
that can be invested in strategic resources like Australian mining,
and infrastructure like the high-speed rail link between Beijing and
Shanghai. The United States also gains from the relationship,
because we get China’s goods and they get IOU’s. What would you
rather have, goods or IOU’s?
Some say China may one day dump its U.S.
government bonds. Of course, it may do so at any time. But somebody
will have to buy the bonds, so the debt is merely transferred to the
new owner. Well then, China can demand payment on its bonds as they
mature. The U.S. government can then give China all the dollar bills
they want. The fact is—this does not seem to be commonly known and I
hope it will be useful to you—the only way China can collect its
U.S. debt is by buying more from the U.S. than it sells.
To me the global economy of the next 30
years will look something like this. It will be a period of the
greatest wealth creation the world has ever known, powered by the
developing economies of China, India, and Brazil, and by
commercialization of countless new technologies being created as we
speak in the research centers of the United States, Europe, and
Asia—technologies like electric cars, new medicines, higher-yielding
foodstuffs, and hydrogen power.
All nations will have an opportunity to
share in the new purchasing power of workers as their productivity
rises. Commerce to meet the demands of mass markets will expand—this
has already begun in China where industrial countries are hastening
to build factories, retail outlets, and distribution channels.
People in developing nations will want televisions, refrigerators,
cars, and much else, and the rest of the world will make money
Unavoidably in a market economy, the rise in
income will be unequal. There will be many new millionaires who will
keep their money safely invested in the world’s money centers—not
only New York, London, and Zurich but Singapore, Hong Kong, and
Tokyo. These centers will recycle the savings of the wealthy into
private investments in businesses and infrastructure the world over.
The flow of the world’s savings to the U. S. and other countries as
the global economy rises will make capital plentiful over the long
term, and companies in the commercial exchange business should reach
for it. More capital means more deals and faster growth of our
Some people in government are saying this
huge flow of capital is the root cause of the recent financial
collapse, but don’t believe it. The fact is the flow of capital to
the world’s money centers, representing the savings of wealthy
individuals and institutions everywhere, occurs because capital is
mobile and owners of capital decide where to park it. Whether it’s
foreign funds or money from our domestic insurance companies,
pension funds, and endowments, the owners of such capital need to
invest it and they are smart enough to know the expertise for
investment resides in the talented people of the money centers which
invest it for them.
The availability of capital is important to
our business. The strongest reason for having a vision of the
future, and setting goals only a dreamer would set, is because
capitalists are more persuaded by your dreams than by your business
plan. So dream large, and sell your dreams!
Trade exchanges are fundamentally local in
character, starting with a base of quality businesses that
reside in the same area and can deal with each other face-to-face.
This is not to say that trade exchange operators do not conduct
long-range business, but the foundation of a trade exchange’s
business is local and most of its income is derived from
transactions among local businesses.
We emphasize quality businesses
because our industry has long recognized that an exchange member
must be sound enough to carry out its obligations. Credibility to
fulfill obligations can be measured by number of years in business,
revenue, and credit history among other things. Established trade
exchanges have sound methods of identifying quality clients, but we
also need sound systems to evaluate a potential client’s strength,
sustainability, and value. This is because the first step in growing
our networks is to build a target list of quality clients.
If we identify a quality client who would be
a valuable partner in the exchange, why would we charge up to $700
for that firm to join? It’s standard business economics that a
trade exchange should ask one—and only one—question: What is the
lifetime value of the client? The expected revenue produced by a
quality client in most exchanges would yield significantly more than
$700. I hope trade exchanges will think about this and consider
charging a $50 processing fee for a new client, $95 maximum.
Using the same formula—the expected lifetime
value of a new client—many businesses have decided to pay for
a new client. In the telephone business this is done by promising
the client premium services in return for the client’s agreement not
to cancel the service for two or three years. Would this work for
Consider the following situation. A trade
exchange in a large city in the United States has 1,000 clients and
revenue of $10 million a year. Since most large cities have up to
50,000 small and medium-size businesses the exchange has room to
expand, and accordingly it has identified 1,000 potential clients of
quality that are top priority for its sales effort. It has also
determined that each of these clients would produce lifetime revenue
for the exchange of $5,000 or more. The exchange’s goal is to get
100 of the 1,000 potential clients to sign an agreement to join the
exchange for three years and sell a minimum of $5,000 a year of
their product to other members of the exchange under the usual terms
The exchange states that, because of the
value of the client to the trading association, it will credit the
new client’s account with $2,000 trade dollars upon his joining the
exchange, and the client can spend those trade dollars immediately.
Why $2,000? Because that is the cost the exchange calculates it will
have to spend to acquire a similar client by direct sales and other
means. By signing on the spot, the client saves money for the
exchange which it gladly pays to him. Will this work?
I believe it’s worth discussing because
direct selling as a means of growing our networks with quality
clients is so labor intensive and costly as to make hiring a sales
force of a size needed to produce, say, 200 new clients a month,
impractical for most exchanges. Let me point out the following
regarding paying to acquire a client: first, the payment to the
client would be a legitimate business expense, offsetting an
exchange’s normal trade revenue; second, the client’s purchase
commitment puts $5,000 of new goods into the exchange, offset by
$2,000 of trade dollars; third, if the client departs after three
years, the $2,000 signing bonus which has become part of the
exchange’s float must be retired by reducing the exchange’s trade
dollar account (so long as the float can be offset by trade earnings
the exchange will win by paying for new clients of quality).
Most importantly, signing the client need
not be done by direct sales calls. The 1,000 targets could receive a
regular piece of mail inviting them to join and explaining the terms
and signing bonus—a technique so inexpensive that targeted clients
could receive several pieces of mail over the course of six months.
The ad would pitch the high quality of trading partners in the
exchange, the exclusive character of the invitation, premium
services that go along with signing a contract for three years, and
advantages of businesses working together for their mutual benefit
and conserving cash. Radio and TV advertising to promote commercial
trade, and non-media marketing like executive breakfasts to stress
that an exchange is, first and foremost, an association of
business partners organized for mutual benefit, could reinforce
the direct mail pitch.
In sum, we need to experiment in a major way
with alternatives to the direct sales model of growing your
exchange. To do this properly, design an alternative to direct sales
and give it the same amount of dollars you are giving to direct
selling. Then compare the results. Ask yourself, “If we had the
capital to deploy 100 sales people at $30,000 a year—total $3
million a year—would this be the best way to grow the exchange—or is
there a better alternative?”
Can technology help grow our networks
faster? Large companies are finding new ways to use smart phones
connected to the internet. Mobile phones are being used for banking,
Cisco Systems uses them to manage field sales forces on the move,
and Unilever is using them to issue bonus points electronically at
the grocery checkout, instead of issuing paper. The advent of cloud
computing makes it easier to write programs connecting an exchange’s
computer to smart phones without having to worry about whether their
hardware and operating systems are compatible. The following “points
of light” program illustrates the potential.
Suppose we divide the geographic business
area of a trade exchange into sub-areas that have lots of
businesses, so there will be plenty of prospects. Now we send an
independent businessman, armed with a smart phone that’s connected
to our computer, into each sub-area as our Business Agent with the
mission of organizing a mini-trade exchange of 150 quality members.
I use 150 because, in the early days of
commercial trade, we used to say anyone could carry the names of the
first 150 clients in his head. Also, British anthropologist Robin
Dunbar and others have established that 150 is the upper limit to
the number of individuals with whom one person can maintain stable
relationships. After 150 you must establish hierarchy, that is, you
deal with people through other people. The finding has been
confirmed by the way groups self-organize on the internet.
In this case, our Business Agent is a node
or point of light within the trade exchange node of a trade exchange
system. With seven points of light, within six months you have 1,000
new members. Of course, our business agent must be a trained
licensee of the trade exchange, with whom revenue must be shared. I
believe young university students, properly trained, would make
excellent points of light.
I will guess there may be 100 trade
exchanges in the U. S., and perhaps another 30 outside the U. S.,
who would participate in an IRTA web portal that tied the web sites
of these exchanges together. Recently, I read that Forbes magazine,
which has been hosting about 400 blogs on financial topics, has
decided to link them and create a web portal to attract advertising.
CNN Money is another example of a successful web portal popular with
advertisers. Web portals are attractive to online advertisers
because they have enough “eyeballs” or visitors to make it
worthwhile to put display ads on them.
An individual web site does not get enough
traffic, so it’s not attractive to advertisers. As the saying goes,
you can build a restaurant in a desert and the food may be good, but
who’s going to stop there? The idea of a web portal is that it
attracts many “eyeballs” to its web site and so offers advertisers
an opportunity to reach that population. How could an IRTA web
portal attract 100,000 visitors a month? First, by offering access
to the product offerings of all IRTA member companies and
(eventually) their clients; second, by offering tantalizing bargains
for premier quality products and underlining these bargains are in
limited supply, so as to create anxiety to check our portal daily.
If successful, IRTA would have a new revenue
stream which I strongly recommend allocating to building an
industry brand by buying advertising to reach the kinds of
businesses we would die for, popularize what we do, and support the
marketing and sales of our member companies. We are in a
relationship business, and we need a public relations effort on
behalf of the industry to establish a positive image to overcome
indifference in the quality businesses we are trying to reach.
Large online advertisers have demonstrated
that online ads can be targeted to specific populations, and results
measured. This is the latest idea in advertising—buying people
rather than space—and it’s available for cable TV as well as online.
It’s a concept IRTA can use because we know the businesses we
want to target in our advertising.
Trade exchanges can also grow by forming
cooperatives to combine their markets. I made this recommendation
four years ago, pointing out that all our independent trade
exchanges had under-utilized members—those who want to sell more but
can’t find buyers, and those who want to buy more but can’t find
suppliers of their wants. Combining networks expands trading
opportunities and increases trade volume per member as a result of
the larger marketplace, and the technical obstacles to sharing
databases are now smaller than ever.
With cloud computing, it’s now much less
costly to link the data bases of exchange systems that have a
common clearinghouse for many branch exchanges in different cities
so they can accept each other’s cards. Fear of undermining their
brand is a deterrent to the independents, so the prospect of a
single market in North America remains unrealized for now. The dream
lives on because a unified market means greater prosperity for every
exchange: with a bigger market, everyone shares a bigger pie.
It will be a great day when a client has
access to an international directory, like an Amazon.com of
commercial trade, where he or she can buy things online without
worrying about who issued their card or check; it will be a great
day, too, when a client traveling in another city will be able to
find a “Business Card” hotel, restaurant, or merchant and settle his
business by paying from the trade account or credit line of his
All this is technically feasible. The cost
to the client is the same; the corresponding revenue to the system
is the same—only there are more transactions and more revenue for
the participating exchange owners to share.
Lastly, let me turn to the question of
extending our trade networks to other lands. The law of networks is
that bigger is better: the value of a network to its participants
grows with the size of the network. IRTA has long had a vision of
trade exchanges operating in every land. Now with the internet and
large networks in several countries as a base, we need to expand to
cover the globe. The question is, “What can we do to promote this
expansion to every nation that does not have an exchange?”
Here I shall use the example of China. What
we can say about China is first, small and medium-size
businesses—firms with less than 3,000 employees—are privately run
and generate 60-percent of Chinese economic output, employing eight
out of ten workers; second, these businesses are starved for credit
because banks aren’t lending—just as in other parts of the world;
third, to help with the credit crisis, the government is promoting
microfinance institutions; fourth, only a quarter of China is
covered by the internet, but China is already the top internet user
in the world—225 million total users today compared to 217 million
in the United States; fifth, Chinese internet is first-rate, with
web portals Baidu and Google China in fierce competition to be
number one in search, music, and entertainment, while Alibaba is the
largest shopping network; and lastly, Chinese companies listed on
the mainland and in Hong Kong have raised four times more
capital this year than U.S. and European companies combined.
In this sketch we see many of the conditions
favorable for trade exchanges: many privately-owned businesses,
tight credit, government encouragement of institutions to help these
businesses, large and modern internet coverage, and what appears to
be plentiful ability to raise capital on the mainland and in Hong
The situation will vary from country to
country, but fundamentally I believe you can see that IRTA could
assist development of commercial exchanges in China by giving
all-out support to those IRTA members who have entered, or plan to
enter, the Chinese market. IRTA and its members have a powerful
asset, knowledge of how our industry is organized and operates. Some
trade companies have, in the past, sold this knowledge for millions
of dollars. To stimulate interest among Chinese entrepreneurs and
capitalists, IRTA could make presentations at conferences and
universities, explaining our industry without trespassing on the
intellectual property of our member companies.
Because of the extent of the market, one can
envision using the “points of light” system, with a parent trade
exchange and its branch mini-exchanges connected to several similar
exchanges and united by a single clearinghouse for an entire system.
It will be competent Chinese citizens who will own and run these
commercial exchange networks.
But, you will ask, suppose trade networks
arise in China, what do we trade for? My answer is to start with
travel and tourism, which is no small part of our business or
capabilities. China is an attractive tourist destination, and the
Chinese people will travel the globe as they become wealthier. We
can also exchange items that are not costly to transport, like
jewelry, watches, silk scarves, and the like. For marketing we have
the internet, and in time Chinese export companies will be
bombarding us with offers of their goods and demand for our hotels
and tourist destinations. One of our American companies already
trades for ocean freight, so even transport costs will come into the
trade network eventually.
Ladies and gentlemen, before closing I wish
to again pay tribute to the many dear colleagues, past presidents of
the Association and industry members who gave so much of their lives
to the International Reciprocal Trade Association. Through their
sacrifice and dedication, they breathed principles of integrity,
loyalty, and fair dealing into our living Ethics Code and our
business standards. The “Legends of Barter” have justly earned and
well deserve the world’s thanks and respect for their contributions.
Finally, I regret the absence today of
several of our industry’s founders and “great captains” who, whether
from illness or other conditions, were unable to be with us today.
Their staunchness of character in the face of daunting challenges,
their inspiration and many contributions, remain with us as
Attention Trade Exchange Owners. . .It’s GROW OR GO!
The magic bullet for growth is sales, always has been and always
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And for those newcomers, the lifeblood of an exchange, awareness of
and understanding about the value of trading is even more important.
If you expect prospects to come aboard and your members to be more
active traders, but you are perplexed when the results are less than
you desire...there’s a good reason. You must continually educate
and motivate every month--month after month after month!
Such action is necessary because, let’s face it, more cash business,
not trade, is of paramount importance to your members. You must
break through this “cash only” focus and redirect their thinking
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