Harold McGraw III at FIPP

May 24, 2005

Harold McGraw III
Chairman, President and CEO
The McGraw-Hill Companies

Exploring the New (Publishing) Frontier
FIPP World Magazine Congress
May 24, 2005
New York, NY

Good morning and thank you, Gordon, for that introduction.

Gordon has been a great friend for many years and, of course, a wonderful representative for our industry, and I salute his leadership. 

I would also like to acknowledge my good friend, Tom Ryder, Chairman of this conference.

It is a pleasure to be here and to have the opportunity to speak with all of you at the 35th FIPP World Magazine Congress.

I’d like to begin by applauding FIPP’s choice of New York City as the venue for this conference.  New York is the quintessential international city, a global center of commerce, culture, and communications and a city of tremendous diversity, from which it draws remarkable strength.  It is also home to great international centers of teaching, learning, and thought leadership; repositories of knowledge; and leading global businesses and financial institutions. 

Wherever your home is, whatever country or region you departed from to be here, you’re home.  New York City is a world city, with a population representing every country in the world and the richness of those cultures.

The World Magazine Congress’s opening reception on Ellis Island is a wonderful reference and tribute to New York City’s proud history as a gateway to opportunity for people around the world – a role it continues to play.

And the closing reception at the Museum of Modern Art acknowledges New York City’s place on the cultural vanguard. 

So I want to begin by thanking the International Federation of the Periodical Press for choosing this city.  Because of all of the wonderful ideals that New York represents, FIPP’s choice of this venue emphasizes the power of the free flow of information and commerce, and it sends a message of hope and encouragement to all who support those ideals.  It is so good to have you all here.

And, from my viewpoint, the success of the 35th FIPP World Magazine Congress is already assured.  The very fact that you all care so much to be here, to be together, to spend this time focused on change, opportunity, and new direction says a lot.

Now, as we are gathered together here today, I would love to be able to talk to you about: the clarity we all have about the direction of the media in general and the magazine industry in particular; how the business models of the past continue to deliver strong results; and how the advertising market just keeps getting better and better. 

But obviously that doesn’t describe the state of the magazine industry, or any media for that matter. 

As the saying goes, “May you live in interesting times.”  And, by the way, the origin of that saying is emblematic of the times we live in – because the origin of that saying is far from clear.

Robert Kennedy used a version of it in a speech in Capetown, South Africa in 1966.  He referred to it as an ancient Chinese curse.  Others have characterized it not as a Chinese curse but as a Chinese proverb.  Someone else says it is Scottish, but that’s in dispute, too.  Whatever the origin of the phrase (and I don’t profess to know it), let me say that we do live in interesting times, so we know what it’s like.

Interesting times are usually influenced by large, developing, and complex trends that create change in the way we do things and disruption in existing business models.

Certainly one aspect we are seeing is rapid globalization.  It’s a topic of interest to this FIPP World Magazine Congress.  Each of us appreciates how globalization is affecting our lives and businesses, and so many of us at this conference are looking to grow our revenues through global growth. 

For The McGraw-Hill Companies, globalization has been a trend driving our growth.  That has been the case for our financial services company, Standard & Poor’s.  Today, 35 percent of Standard & Poor’s revenues are generated outside the U.S., and S&P expects that percentage to approach 50 percent by the end of the decade.

For McGraw-Hill Education, globalization is an opportunity.  Higher education is now very much a global business, especially as countries such as China and India expand their higher education systems to strengthen the skill sets of their workforces and build centers of excellence for research, and other countries – such Germany, Canada, Australia, New Zealand, and Taiwan – create higher education opportunities to attract skilled immigrants or grow revenue. 

Globalization has also been a part of BusinessWeek’s growth.  BusinessWeek has been in China since 1970, for example, and it recently launched an Arabic-language edition for distribution in 22 countries.

And yet, while globalization is a source of tremendous opportunity and excitement, it also has been a source of uncertainty and not a little controversy, as people worry about succeeding in a highly competitive global environment.  And it has been a cause of frustration at times, which I’ll address in a moment.

Other trends are opening doors to new opportunities, but are also causing “dislocations.”  These trends include the digitization of content as well as new delivery methods made possible by advancements in technology and communications.

The digital world enables us to reach more people at lower cost and improve service through customization.  At The McGraw-Hill Companies, we have – for example – united all of our informational resources for the construction industry in one gateway portal called “construction.com,” and have unified our sales forces for all of our construction publications.  

The flip side is that traditional media are seeing increased competition for customers and advertisers and changes in consumer habits. 

What is happening in media and communications is mirroring what is happening more broadly in the global economy.  It’s what columnist Tom Freidman so aptly describes in his new book entitled The World is Flat.  He writes about new players on a new playing field, shaping global economics in the early 21st Century.

It is here that I want to focus.  The big issues I want to explore with you this morning have to do with this “new era.”  First, what might we anticipate in this new era?  And second – and more important – how might all of us involved in the magazine industry shape this new era and drive our own growth and success?

Stating these questions differently: What are the opportunities?  What are our responsibilities?  What are the likely outcomes?

First, let’s look at the opportunities of globalization.  I must admit that I have already made up my mind on this issue.  Wherever I speak, I urge people to speak out for open trade and investment liberalization.   And I speak to you not only as the CEO of a business with global operations but also in my capacity as Chairman of the Business Roundtable’s International Trade and Investment Task Force and the Emergency Committee for American Trade, both of which appreciate the importance of trade as a driver of economic growth.

For example, for the U.S. economy, in the last decade export-related jobs in the U.S. grew three times faster than job growth in the rest of the economy.  U.S. exports accounted for 25 percent of U.S. economic growth over the past decade and supported an estimated 12 million jobs.  Six and a half million Americans have jobs working for foreign companies.

But trade has been critical to the growth of developing nations as well.  In recent years we have seen a significant reduction in poverty in parts of the world where poverty once seemed intractable. 

That reduction in poverty is a result of economic growth in developing countries – principally in the Asia-Pacific region – that have opened up their economies to trade and investment.

Look, for example, at China and India.  Both countries shifted to an outward and open economic orientation – China in 1978 and India in 1991.  No other country has had growth rates as rapid as China, and India is among the fast-growing economies as well. 

Post-reform, poverty declined in China, from an estimated 28 percent in 1978 to 9 percent in 1998.  In India, poverty declined from 51 percent in 1977-78, to 26 percent in 1999-2000.

Moreover, within these large emerging markets, those sectors and industries that have been the most open have experienced the most growth.  For example, where India has been the most open – in its Information Technology and Software sector – it has been most successful.   And where India is heavily regulated and closed – for example, in agriculture – is where growth has been the slowest. 

Likewise, among the poorest countries in the world are those that have not joined the global economic system.  Sub-Saharan Africa – where tariffs are six times higher than in high-income countries and twice as high than in parts of Asia – is a prime example.

The evidence is overwhelming that open economies that allow the free flow of goods, services, capital, and ideas grow faster than closed ones that delink themselves from the benefits of integration in the global economy.

The question for you and me is whether rapidly rising globalization can drive the growth of our magazines.  Are we witnessing the emergence of what some call a more “universal civilization” in which your content will appeal to a growing international audience?

Some people have challenged this notion.  Samuel Huntington in his book The Clash of Civilizations and the Remaking of World Order observes that global communications are increasingly perceived as a manifestation of Western cultural imperialism, embraced only by a small group of international elites – perhaps just one percent of the world’s population or even one-tenth of one percent – and, more and more frequently, denounced by non-Western societies.  Indeed, Huntington goes even further and challenges the idea that international commerce promotes peaceful interaction, suggesting that it may even be a highly divisive force.  Not a particularly optimistic view of a magazine’s potential to have a truly global audience.  Is globalization fueling local preferences and – worse – divisiveness? 

I feel differently.

Let’s look at what we know, and then test theories against those facts.  We know we live in a global economy where business is increasingly done on a global basis, including inputs, outsourcing, off shoring, down streaming, and up streaming. 

We know that globalization is driving economic growth, which in turn is driving the growth of the number of people all around the world who need to know what is happening around the globe and have a growing thirst for this information.

And we know that, in our knowledge economy, reliable, timely, and insightful information is essential for better decision making, which, in turn, is essential to success.

It’s a strong case against the notion that the people who desire global information comprise merely a small, narrow audience – and it’s a strong case for the notion that the customer base for the magazine industry is growing.

And when you travel to global and local markets, you see for yourself the tremendous effect mass communications are having in shaping and fostering change.

I would also argue that the depth of the economic links that are being forged in the global economy will continue to bring people of different countries, cultures, and even civilizations closer together.

While the European market is still very much segmented, and it has been difficult for many to enter markets in Europe, I am optimistic that we will see more meaningful change, driven by the ongoing financial integration of Europe.  We see evidence of this integration in the growing Eurobond market, as well as the E.U.’s initiative to create by 2010 a European Higher Education area with a common system encompassing 40 countries.  This E.U. initiative is known as the Bologna Process.

The rapid globalization of the economy and education is creating a growing understanding of our interdependence and mutuality of interests.

India illustrates this point.  India, which began a process back in 1991 to liberalize and open its markets, has shown gradual progress through the last decade as it deals with numerous social and political issues as well as its economy.

India had taken a more protectionist view and, on a global scale, a somewhat “obstructionist” approach in dealing with other potential trading partners. 

A year ago, the new coalition government led by Prime Minister Singh signaled a new, more cooperative, and very exciting direction of being a more open and constructive global player and of having a desire to work with developed countries to achieve that goal.

I just returned from a trip to India.  In addition to visiting customers, employees, and business and government leaders, I met with Prime Minister Singh about the changing conditions, including the focus on strengthening India’s financial market structures so it can acquire capital needed to improve infrastructure and grow; the need for higher Foreign Direct Investment in India and, therefore, the need to improve the business environment; and the desire to work with developed countries to strengthen multilateral initiatives.

My point is simply this:  When markets and countries seek to grow and be a part of the global economy, the market for information grows. 

As BusinesssWeek’s correspondent in India Manjeet Kripalani reported earlier this month, India is having a media boom, fueled by a wave of new advertisers seeking to sell to the country’s growing middle class.  In India, ad spending in print is expected to grow as much as 25 percent this year, compared to 3.8 percent worldwide.  And in the past year in India there have been four initial public offerings of media stocks, with three more expected by year-end.

In large developing markets – India, China, Russia, Brazil – there is a growing market not only for local content but for the global outlook and global information.  And even in countries that are not seeking to be part of the global system, people find ways to tap into global sources of information.

So, how can we grow in emerging global and local markets?

There is no straight line to follow, no set roadmap.  But there are enduring principles which will serve all of us well, and I’d like to offer three: first, the need to expand the global trading system and remove barriers to trade; second, while there is more than one way to enter a market – including joint ventures, minority stakes, start-ups, and acquisitions – I can’t emphasize enough the importance of strong and healthy relationships with local partners; and third and finally, the imperative of meeting the needs of our markets with quality and integrity.

Let’s start with trade.  All of us should be heard publicly as advocates for the economic and geopolitical benefits of open trade and investment liberalization.

I’d like to offer an example of how trade barriers are limiting the growth of BusinessWeek and, I suspect, some of your businesses, once again using India as an example.

Currently, the circulation in India of BusinessWeek is about 7,000.  I am referring to our pan-Asian edition of the magazine.  That circulation of 7,000 should be contrasted with the vastly larger circulation – more than 10 times as large – of Indian newspapers and magazines in the United States.

BusinessWeek would like to see its circulation in India grow.  In fact, BusinessWeek would like to work with a local partner to produce an edition of the magazine exclusively for the Indian market, which would be printed in India; expand local content by 30 percent; and increase local advertising, all of which would benefit the local economy. We have had success with this model, as BusinessWeek produces a widely read local edition in China. 

But BusinessWeek can’t produce a local edition in India because the Indian Government will not give us a license to do so.  I understand that more than 100 other foreign-owned business publications are in the cue in India, waiting for a license.

This is the India that is more inwardly focused, protecting its market, rather than the India that is outwardly focused, liberalizing trade. 

I should mention that there is a proposal before the Indian Cabinet to allow foreign publications to print a facsimile of their national editions in India.  That’s a step in the right direction, but more liberalization is needed.

To be able to expand in large emerging markets, such as India, we need to be advocates for open trade and investment liberalization.  

Trade agreements also create frameworks and mechanisms for protecting intellectual property.  While we all know that enforcing IPR has been a challenge, I believe we will see progress in this area as emerging markets make commitments to protections grounded in the rule of law, and as these markets become more integrated in the global market for intellectual property, a process that open trade obviously facilitates.

But I also want to emphasize that, on the issue of open trade, what is at stake goes well beyond our businesses and interests.  The World Bank estimates that removing trade barriers could add almost $3 trillion to the world economy by 2015, of which $1.5 trillion would accrue to developing countries, lifting 320 million people out of extreme poverty and into a better life. 

Supporting the development of domestic economies is the right thing to do, and it’s good for our businesses, too, because emerging markets are where we will find our new customers and business partners – which brings me to my second point: the importance of healthy relationships with local partners.

Again, there are many ways to enter a market, but your success will always come down to the strength of the relationships and partnerships you build. 

In Russia, Standard & Poor’s opened an office in Moscow in 1998 with just two employees, but we have grown our office to 45 employees today.  Our strategy has included working with a large number of Russian publications, including the business daily Vedomosti, which is, itself, a joint venture that includes The Wall Street Journal and The Financial Times.

In China, McGraw-Hill Education has made an equity investment in PRCEDU Corporation, the leading online education service provider for universities and other academic institutions in China.  Our experience in education and digital learning, coupled with PRCEDU’s local market knowledge, is a combination that will enable McGraw-Hill to serve China’s education needs and will drive our growth in China.

And in India, eight years ago S&P signed an affiliation agreement with CRISIL – India’s leading provider of credit ratings, financial news, and risk and policy advisory services.  It has been a strong relationship, and, as a result, just this month S&P was able to complete a successful tender offer to become CRISIL’s majority shareholder.

All three of these examples demonstrate the importance of relationships within the markets in which you seek to expand.

My third point is the most important: the imperative of meeting the needs of our markets with quality and integrity.

At a time when advancements in communications have – to put it bluntly – created more noise and clutter than ever before, and when anyone can start a Blog or build a Website, the role of reliable, quality information has never been more important.  It’s what Joseph Nye Jr. of Harvard’s Kennedy School of Government calls the “paradox of plenty.”  As Nye says, “A plenitude of information leads to a poverty of attention” so that “editors, filters, and cue givers become more in demand.”

As Nye rightly concludes, the paradox of plenty “is a source of power for those who can tell us where to focus our attention.”  I would add to that comment, it is not only a source of power; it is also a source of market power.

The more information there is, the more valuable certain information becomes – quality information.  What is quality?

It’s having reporters on the ground.  It’s providing well researched reportage.  It’s spotting trends and providing unique analysis.  It’s having integrity in everything you do.

And it’s what publishers must commit to and invest in, even at a time when the financial dynamics are not going their way.

What’s alarming is that a recent survey by Folio magazine revealed that, among the business-to-business media, editorial integrity is a declining priority.  In 2004, 23 percent of survey respondents indicated that editorial integrity was a top concern.  Twenty-three is not a big percentage to begin with. But in 2005, in a survey of that same group, only 14 percent identified editorial integrity as a top priority.

That’s a sad comment, and we all are a part of the equation to do something about that.

Ultimately, those who do not put quality and editorial integrity at the top of the list will end up on the bottom of the pile.  As the number of choices for consumers and advertisers increase, the publications that supply editorial excellence and that operate with integrity will be winners. 

This conference is making an important statement, a statement about the role all of us are playing in supplying information in a new information age, a new era.  This is an awesome endeavor. 

Although we see and live the challenges, including the current state of the advertising market, we can also see the amazing impact that the free flow of information is having across the world, helping people achieve a better life with improved standards of living.

Ladies and Gentlemen, what we do matters. Our leadership matters.  And I believe we have enormous opportunities ahead to promote positive change for our customers and the larger world, and – in doing so – to promote our own growth and success.

Thank you very much.