China
Economic Rise Reshaping Global Business
Chinese Automaker Buys Volvo
It is only the second time in history that this has happened and China Inc. is rejoicing. Six years ago, computer maker Lenovo bought IBM’s personal computer business. Now, Zhejiang Geely Holding Co., a rapidly growing Chinese automaker, has bought Volvo from Ford Motor for $1.8 billion.
China’s penchant for the acquisition of foreign assets has so far been focused purely on natural resources. These are deals conducted in the developing world and they are done by state-owned Chinese oil or resources companies. But though things are clearly changing, it will be a slow, gradual change. It has, after all, been only 30 years since Beijing opened its economic doors to the world. Besides appliance maker Haier, telecom giant Huwawei, Lenovo and Geely, there are very few Chinese companies that would be truly interested in Western acquisitions.
Industry gurus insist that it is not just commercial immaturity that makes China more comfortable with investing in the developing world. Acquisitions in the West tend to be scrutinised more closely not just by disgruntled competitors but by politicians and the press. The financing details of the Geely-Volvo deal, for instance, are still murky, but the Chinese press have reported that at least part of the $1.8 billion purchase will come from loans backed explicitly by municipal governments in China that will be home to some new Volvo production facilities. Another $1 billion will come from the state-owned Bank of China.
No party involved in the deal is really interested in putting the deal under a financial microscope. Ford has been eager to get rid of Volvo for some time now. After all, it paid $6.45 billion to acquire the company in 1999. Gothenborg, home to Volvo, one of Sweden’s industrial crown jewels, was also eager for the deal to go through to prevent the company from being shut down entirely. So with minimal scrutiny of the arithmetic involved, the deal makes Geely, a manufacturer of low-end small cars in China, the winner of a global prize. Perhaps it may prove to be a front runner of China Inc’s international acquisition race.
United States
Is Facebook Set to Usurp Google’s Supremacy?
Battle of the Titans Ensues
They are the Web’s two largest destinations and they are poised to participate in a gloves-off, no-holds barred battle for number one position. Facebook recently unleashed a string of new features at its developers’ conference that may lay the groundwork for reorganising the Internet according to the relationships between people rather than the link between pages.
Google has, over the years, certainly earned its crown as the king of search. Besides serving up the most relevant and popular Web destinations, it has also continually endeavoured to personalise and improve searches. But as the Web becomes more dynamic, Google may find that its title is up for grabs. Thanks to microblogging services and social networks, anyone can publish online, creating a massive amount of data that often exists inside a social network.
Besides this, the Web today can be accessed on any device that has a browser from Blackberries and iPads to laptops. With its newest round of features, Facebook, the search engine that began as a destination for searchers, reaches far beyond the social network itself. For instance, the “like” button enables users to “like” Websites. Facebook will then collect that data, creating an expanding map of personal preferences.
Unfortunately most of Google’s efforts at harnessing the new types of information passed around within social networks have fallen flat. The company has inked a deal to show Twitter results in its search stream but its recent launch of Buzz as a feature that let Gmailers share updates and content outraged users who found that their address books were suddenly made public.
Rather than bringing its software to the places users already are in, Google is trying to build new places for users to come into. Facebook, on the other hand, is offering better integration with the tools and websites users already like. Yet Google has a feather in its technological cap — the inbox. Even die-hard Facebook devotees insist that the site’s messaging system is hard to organise. Google’s Gmail is undoubtedly the best free email system available, and despite the poor reception Buzz received, the company was committed to turning its email platform into a social networking platform. Whoever wins this battle, for users of the Net, things can only get better. Let the games begin.
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United States
The IMF’s Latest Global Economic Predictions
Is the Enthusiasm Merited?
The International Monetary Fund (IMF) has forecasted that the world economy will grow almost 4.3 percent in 2010 and 2011 on a purchasing-power basis. Economic exuberance is certainly part of the global landscape these days but does this figure portray the whole truth? Financial markets are certainly more buoyant with business confidence rising and global growth increasingly robust. Global output is now back to where it was before the downturn. With global business investment accelerating and consumer spending increasing, there is growing optimism that the recovery is not just on the anvil but is also becoming self-sustaining. In late 2008 and early 2009, economic fear was almost palpable. International consumers and companies cut spending wherever they could and, unfortunately, even where they couldn’t.
The IMF’s predictions are certainly optimistic. It has reduced its estimate of banks’ total losses from the crisis by $500 billion, to $2.3 trillion, two-thirds of which has already been written off. While historically, deeper recessions are followed by stronger recoveries, this time around countries that were least affected by the recession are seeing the fastest acceleration. China’s economy, for instance, is now growing at double-digit rates. India’s GDP is expected to increase by almost 9% this year and some forecasters reckon that Brazil’s growth rate could reach 7%.
Cassandras predict that emerging economies, could easily overheat, risking inflation and asset bubbles. China needs to allow the yuan to strengthen soon. India’s recent interest-rate hikes have failed to keep up with inflation. But whatever the forecasts, the world is happy to see the economic storm clouds blow away.
Germany
Oxytocin Could Change Male-Female Dynamics
Time for a Cuddle
Pumped out by the hypothalamus, oxytocin is known more colloquially as the cuddle chemical. It soars during labor and nursing and plays a major role in mother-baby bonding. Psychiatrist Rene Hurlemann of Bonn University and neuroscientist Keith Kendrick of the Cambridge Babraham Institute conducted a two-part experiment to determine if the hormone could be artificially administered to manipulate feelings of empathy and perhaps even learning. To test how oxytocin might affect those capabilities, Hurlemann and Kendrick ran a two-part experiment. The results indicate that it enhances empathy and in the process, social learning.
Use of the hormone thus has more meaningful implications. If healthy social behavior is based to some extent on being able to feel the pain of others, antisocial behavior involves an ability to observe or even cause that kind of suffering and not experience any of it yourself. The researchers believe that oxytocin could change that. “Someone who didn’t sympathise with handicapped people might learn to with oxytocin,” says Hurlemann. “You’d probably have to administer it just once, because you learn the feeling forever.”
Other potential therapeutic uses could be more benign. Both schizophrenia and autism are defined by a lack of social feeling and an inability to read facial and other cues. When investigators administered oxytocin spray to 13 children with mild autism, the participants were better able to read body-language cues during a game of catch, and when looking at photographs of faces, they spent more time studying the images than they would have otherwise.
The researchers, however, warn that the hormone has its limits. An Israeli study has shown that when people are engaged in a contest, if one player’s emotions are manipulated by the offer of a bigger prize to the other player, the first player’s feelings of jealousy and ill will are actually exacerbated by a dose of oxytocin. “Oxytocin does not make you a better person,” Hurlemann says in warning. “In some cases it may simply intensify whatever you’re feeling.”
United States
Creating the World’s Largest Airline
United and Continental Fly High
The world’s largest airline will soon be created as United and Continental Airlines join fleets in a $3 billion deal. At the helm will be current Continental CEO Jeffery Smisek who will take over as Chairman from United CEO Glenn Tilton after a period of two years. The new parent company, United Continental Holdings Inc., will be based in United’s hometown Chicago with estimated revenue of about $29 billion and $7.4 billion in unrestricted cash.
The companies believe that the merger would save $1 billion to $1.2 billion a year by 2013, figures that include between $800 million and $900 million of new annual revenue, partly from increased international service. Owners of United parent UAL Corp. will hold 55 per cent of the combined company, with Continental Airlines Inc. shareholders owning the rest. The combination will test the notion that the money-losing industry can work better on a large scale.
Nearly two years ago, the Justice Department allowed Delta Air Lines Inc. to buy Northwest Airlines to form what is currently the world’s largest airline. Combining Continental and United would leave the U.S. with three big international airlines — the new United, Delta and American Airlines. Continental jumped in size in 1987 by swallowing Frontier, People Express and New York Air. But both airlines shrank to cope with the recession. United cut capacity 7.4 per cent last year and Continental shrank 5.2 per cent. And both have been losing money. Continental reported a 2009 loss of $282 million as revenue plunged 17.4 per cent to $12.59 billion. UAL lost $651 million for the year as revenue fell 19.1 per cent to $16.34 billion. Things can only get better for both when they become one.
Canada
Economic Recovery in Canada to Exceed US
Canada on Track for Strong Rebound
Canadians have cause to smile these days. The IMF has predicted that their country will have the highest growth rate of the G-7 countries this year. The Bank of Canada has echoed these predictions by projecting 3.7 per cent output growth this year and 3.1 per cent in 2011.
Last year’s Canadian recession was on par with the US slump. Real GDP contracted by 3.9 per cent from peak to trough compared to 3.8 per cent in the US. Production fell 16.4 per cent against a 14.3 per cent US fall. However, the Canadian economic rebound looks set to be stronger than that in the US Economic pundits attribute to a variety of causes: households were less overleveraged, a housing bubble was avoided and the financial system was less burdened by problematic assets.
Projected figures tell a promising story. Real consumer spending is slated to increase by 2.7 per cent in 2010, compared with 0.2 per cent last year. Private fixed investment will rise by 6.4 per cent, after a 14.1 per cent contraction in 2009. Exports will jump by at least 7 per cent, recovering from last year’s 14 per cent tumble. Recovering exports will reduce the current account deficit to $15 billion Canadian this year and $9 billion Canadian next year and the unemployment rate will dip to 7.8 per cent this year and 7.2 per cent next year, from 8.3 per cent in 2009.
Of course, the picture is not all rosy. The most significant challenge for Canadian monetary policy will be the country’s exchange rate. The Canadian dollar is already close to parity with its U.S. counterpart, and could easily rally to its November 2007 high of $1.10 Canadian. As Canadian business wants the exchange rate to remain closer to 90 U.S. cents, the risk of exchange-rate appreciation could slow the speed at which the bank raises interest rates.
Gulf of Mexico
BP Rig Explosion has Far Reaching Consequences
The Blame Game Begins
It took the 1989 Exxon Valdez fiasco, America’s most infamous oil spill in Alaska, to nudge Congress into passing the Oil Pollution Act in 1990, which made oil companies responsible for paying all spill clean-up costs. The law set a liability cap for oil companies at $75 million for economic damage claims caused by a spill. The ongoing massive spill in the Gulf of Mexico may prove that the figure is still too conservative. The BP oil rig explosion not only claimed the lives of 11 of the rig’s crew of 126 but has placed human livelihoods and natural habitats on the coasts of four states in jeopardy. The United States Coast Guard has estimated that 5,000 barrels of oil are being added to the slick every day despite attempts to contain and disperse it.
The various efforts to deal with the crude are costing BP, one of the world’s largest oil companies, about $6m a day. The costs fall to BP because, as the majority shareholder in the consortium leasing the Deepwater Horizon rig and the project’s operator, it is liable under American law for the costs of cleaning up. BP is also, at the moment, taking most of the blame from angry Louisianans and from stock markets. In the first week of May, its capitalisation fell by $30 billion, or about 16 per cent.
But a number of other companies have also played roles, albeit supporting, in the disaster. Transocean, the world’s largest offshore-drilling firm, owned and ran the Deepwater Horizon. The blowout preventer was made by Cameron International, a specialist engineer and Halliburton, an engineering-services firm, is also involved. Currently none of them are being held culpable. Financial analysts forecast that in the worst case BP could spend as much as $12 billion fixing the mess, though it would later recoup some of that from its partners. Estimates to clean the spill and compensate other parties for the economic damage run from $2 billion to $14 billion.
There are also the losses to the fishing, tourism and shipping industries to be considered. These costs could easily exceed the cleanup bill. BP’s liabilities may be capped by the federal rule that limits the payouts for economic damages. Once that $75 million threshold is reached, a federal fund kicks in, covering an additional $1 billion. To ward off any confusion, lawmakers in the House and Senate have introduced bills raising the liability cap to $10 billion, an initiative they’ve dubbed the “Big Oil Bailout Prevention Act.” Whatever the final figures turn out to be, BP will certainly pay a big price for this environmental tragedy.
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