The mission of Going Global, which appears on MidwestBusiness.com on most Tuesdays, is to educate and inform Midwest technology companies on what local technology companies are doing internationally so other firms can learn from the successes of like-minded peers.
CHICAGO – Joe Mansueto founded Morningstar in 1984. He has served as chairman since the company’s inception and as CEO from inception to 1996 and from 2000 to today.
Before founding Morningstar, Mansueto was a securities analyst at Harris Associates. He holds a bachelor’s degree in business administration from the University of Chicago and a master’s degree in business administration from the University of Chicago Graduate School of Business.
In a three-part Q&A series, Mansueto sat down with international expert Michael Muth to discuss mutual funds, international investing, and how Moringstar plays a role.
MidwestBusiness.com: Which of your Morningstar Tools apply internationally?
Joe Mansueto: Nearly all of our tools apply internationally. Basically, they all are aimed at evaluating a given security and assembling a portfolio. That doesn’t mean, however, that we bring them all out, for each job. To date, the focus has been on our main products and global platforms, Advisor Workstation and Morningstar Direct, and selling data feeds. We originate our own data, create our own databases, and then sell to others for their own proprietary uses. We sell them to Schwab, Fidelity, T. Rowe Price to power their enterprise applications, or large media organizations. For example, AOL, Google, MSN, Yahoo, are all powered by Morningstar’s mutual fund information. Data feeds have been a large business for us. We could bring in more international business by introducing newsletters sold to individual investors or holding conferences for advisors. We get more mileage focusing on the large platforms because they have the same set of needs. In short, there’s nothing fundamentally different about international application that would prevent our tools from being applied.
MB: What information do you localize and what is all-English? Why?
JM: We do localize our websites for investors. It’s up to each one of our country managers to take our tools and figure out what should be in the local language. We’re not just repurposing and translating our U.S. content. Analysts determine what’s appropriate in each unique market. They write reports for the website in the local language about the local market. In the more professional markets—advisor and institutions—a lot of what we sell is still in English. This is because, in most countries, financial circles tend to be pretty comfortable with English. Over time, our goal is do even more localization of our institutional products because for individual investors you need to be in the local language, which is driven at the local level.
MM comment: Localization must be tough for Morningstar because much of what they offer is quite dynamic, and thus expensive to localize.
MB: How are you able to maintain your “1 Morningstar” approach?
JM: It’s a difficult thing, but is core to what we’re doing. We have 1 mission: we want to make sure our employees around the world embrace the mission in everything that they do, putting the investors' interests ahead of their own. This philosophy goes into the values and culture of the company, as well as the kind of people we hire. We want Morningstar service to stay constant, around the world, which means you’re going to have the same high-level, quality experience everywhere. We act locally on more tactical levels, but we want the same research methodologies everywhere. We don’t offer individual products in some markets, but we want the same brand value in all the markets in which we operate. The service might be tailored differently, but the essence should be the same.
MM comment: It’s always a balancing act and difficult to say when to impose centralized, decision-making from the top and when to adapt to the local market.
MB: What equity research have you expanded to provide services to clients outside the U.S.?
JM: The bulk of what we do is in the U.S. We are just embarking on our goal of taking that overseas. We have 95 analysts covering more than 1,800 companies. We’ve already found 300-400 companies are ADR’s foreign companies, which trade in the U.S. so, defacto, we’re already in international equity analysis. We’ve begun to station some of our equity analysts overseas. We have a few in London and China. We’re covering foreign companies that trade in the U.S. Phase two will be coverage of companies that trade on the local exchanges. Most brokerage firms can buy shares traded on any foreign exchange. It’s still a little early, but we’re headed in that direction. We’re beginning to sell our research outside the U.S. and we’d love to sell locally on an international level. I don’t think there’s any question that there is increasing demand for buying foreign shares in international mutual funds or buying directly in the form of ADR’s or equities that trade on foreign exchanges. A big part of that has been the weak dollar. If the dollar continues to fall, those investments in non-dollar-denominations continue to increase in value. Many are bearish on the dollar. There are a large number of ADR’s if you want to be more adventuresome and trade in a very liquid way on international markets. We can help facilitate that by looking at securities the same way in many different countries, which makes for an easier transition. We’ve got a wonderful method. It looks at its moat, or its competitive advantage. The bigger the moat, the more we like it. The bigger the discount, the more we like it. We try to look for wide moats with shares that sell at a discount.
MB: Non-U.S. revenue growth appears be slower than U.S. growth. Why?
JM: The big problem with that comparison is that our U.S. business is growing so strongly. It’s tough for our international business to keep up, proportionally even. It has kept up this year, though. Now, both our U.S. business and international business is growing nicely. In absolute terms, it’s healthy, double-digit rate growth. In 5-10 years we’ll have a sizeable business overseas. In 1984, our 1st year here in the U.S. our revenues were only $100,000. And look where we are now. We kept plugging away to $200 million last year, through steady compounding. We put one foot in front of the other and keep marching, building our capabilities. We have a long term view.
MM comment: tough problem, all that growth.
MB: Non-U.S. assets seemed to double in 2005. Why?
JM: It’s just part of our international growth. In percentage terms it looks like a lot, but in nominal-dollar terms, it was quite small from $1 ½ to $3 million. We added our data center in London. It’s just the normal course of business and our infrastructure investment overseas.
MB: When do you plan on hedging your forex exposures?
JM: I personally don t believe in managing our foreign currency exposures, even though we have revenues in non-dollar-denominated assets. We have revenues and assets overseas. I think it would be counterproductive to hedge that and take bets on the direction. It costs money. It’s insurance to pay for that protection. Over time, it’s going to balance out. I don’t have any special talent in predicting foreign exchange rates. I don’t want to spend the money. Our foreign currency exposures fluctuate, but it doesn’t bother me. As long as we grow, I like having revenues and assets in other currencies. It’s an advantage to have a more diverse business. I don’t want to hedge that away.
MM comment: Philosophy aside, Morningstar went international after the Asian financial crisis of 1997 and exchange rates have been fairly stable since then. I humbly suggest a backup plan for those kinds of circumstances where if exchange rates change above a certain rate, consider using some forex management tools.
MB: Anything else?
JM: Our international experience has been a wonderful journey. We learn by doing. We didn’t operate outside the U.S. until the 90’s. We’re proud of what we’ve done here and if we hope to help overseas investors to do the same thing. To bring those capabilities to other markets is very gratifying. Trying to figure out how best to translate the Morningstar experience in other countries is intellectually challenging, but I find it a lot of fun to figure out the cultural differences and work with those issues. In doing this, we become better at what we’re doing because it brings in another perspective. I finally learned English grammar better by studying Spanish and in this way we will become better at U.S. investing by learning other cultures investing “language” and methods, then comparing them to ours. We are constantly learning from our overseas operations. For example, our guy in Spain created a fund-compare tool that we’re selling in other markets. It’s easy to get U.S.-centric, but our international business has helped us grow beyond this. It’s added so much to Morningstar. When we bring in young college recruits and send them overseas on the MDP (Morningstar Development Program), they just love having that experience. We’re now implementing a sales program and putting them around the world. They can say, “I’m working at a global company.” It makes Morningstar more attractive to not only customers, but employees as well.
Michael Muth is managing director of GATA, an international business development consultancy that helps technology companies build international partnerships. He can be reached at email@example.com.
Click here for Muth’s full biography.
Previous Columns in 2006:E-Mail This Article to a Friend or Colleague
Q&A: Morningstar Founder, CEO Joe Mansueto on Mutual Funds, Investing (10/17/2006)
Q&A: World Business Chicago on Chicago as a Success Story (9/19/2006)
Q&A: World Business Chicago’s Tom Bartkoski on Chicago vs. Other Cities (9/12/2006)
Q&A: World Business Chicago’s Tom Bartkoski on Economic Development (9/5/2006)
Q&A: Robert Noe, CEO of 1SYNC in Chicago, on Enforcing Data Standards (8/15/2006)
Q&A: Robert Noe, CEO of Chicago-Based 1SYNC, on Data Standards (8/8/2006)
Q&A: Robert Noe, CEO of Chicago-Based 1SYNC, on Data Synchronization (8/1/2006)
Q&A: Mike Jakob of Sportvision in Chicago on Creating Sports Innovation (7/11/2006)
Q&A: Mike Jakob of Chicago-Based Sportvision on What’s Coming Next (6/27/2006)
Q&A: Mike Jakob of Sportvision in Chicago on Enhancement Technologies (6/20/2006)
Q&A: Christos Fotiadis of ProtoGroup in Chicago on Japanese Culture (6/6/2006)
Q&A: Christos Fotiadis of ProtoGroup in Chicago on Japanese Expansion (5/30/2006)
Q&A: Christos Fotiadis of ProtoGroup in Chicago on Compliance, Partners (5/16/2006)
Q&A: Lakeview Technology Founder Bill Merchantz on Trade Shows (4/4/2006)
Q&A: Lakeview Technology Founder Bill Merchantz on International Partners (3/28/2006)
Q&A: Lakeview Technology Founder Bill Merchantz on Overseas Expansion (3/7/2006)
Q&A: Steven Ganster of Technomic Asia on Chinese Readiness (2/7/2006)
Q&A: Steven Ganster of Technomic Asia on Chinese, U.S. Differences (1/24/2006)
Q&A: Steven Ganster of Technomic Asia on Approaching Chinese Expansion (1/17/2006)
Click for 2005 column archive.
Click for 2004 column archive.
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