Posts in category Business


ApprovedBusinessBusiness and finance

AkzoNobel makes unrealistic promises about growth

THE future for AkzoNobel is dazzling—if you believe Ton Büchner, its chief executive. The boss of the Dutch paint-and-coatings firm reported a solid set of quarterly earnings on April 19th, then promised a new era of rapid growth and investments. Shareholders are to get lavish dividends this year. The firm will break up its ungainly conglomerate structure. A speciality-chemicals part of the business will be sold or listed separately next year.

Mr Büchner has no choice but to talk things up, if he is to justify rebuffing two recent takeover offers from a similar-sized American rival, PPG. Its latest bid, of €22.5bn ($24bn) in cash and shares, represented a 40% premium over Akzo’s market value before the first bid. An activist fund, Elliott Management, which has a 3% stake in Akzo, is pushing other shareholders to demand discussion of the bid.

Akzo’s promises were welcome. But like a newly opened tin of paint, they made some heads spin. After years of eking out smallish gains mostly through cost-cutting, the firm is suddenly to boom. Akzo had previously forecast that returns on sales would be 11% by 2018, already well over its average of less than 9%…Continue reading

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ApprovedBusinessBusiness and finance

New types of driver embrace the recreational vehicle

EARLY spring is the main selling season for recreational vehicles (RVs) and the phone on Tom Troiano’s desk has been ringing incessantly. The owner of Continental RV, a dealership in Farmingdale, a village on Long Island, Mr Troiano is on track to sell more RVs this year than in any other since the early 2000s. Buoyed by cheap financing, rising wages and inexpensive gas, travellers are once again splurging on big-ticket camper vans.

RVs are a quintessentially American invention: more than two-thirds are made in the United States. Nationally, sales surged to 430,000 units last year, a 40-year high. At the inexpensive end they sell for as little as $5,000 for a caravan; deluxe versions cost up to $1m and are typically equipped with a bedroom, kitchen and bathroom that are bigger than in many European flats. The share prices of Thor Industries, the biggest RV-manufacturer in America, and Winnebago, the third-largest, have risen by 43% and 17%, respectively, in the past year.

That is a big change. During the 2008-09 recession, notes Mr Troiano, RV dealerships everywhere closed down, leaving his shop among the very few left serving the New York metropolitan area….Continue reading

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ApprovedBusinessBusiness and finance

Why the decline in the number of listed American firms matters

LAST month Schumpeter attended an event at the New York Stock Exchange held in honour of Brian Chesky, the co-founder of Airbnb, a room-sharing website that private investors value at $31bn. Glittering tables were laid out not far from where George Washington was inaugurated in 1789. The well-heeled members of the Economic Club of New York watched as Thomas Farley, the NYSE’s president, hailed Airbnb as an exemplar of American enterprise. Mr Chesky recounted his journey from sleeping on couches in San Francisco to being a billionaire. His mum, a former social worker, looked on. Only one thing was missing. When Mr Chesky was asked if he would list Airbnb on the NYSE, he hesitated. He said there was no pressing need.

Airbnb is not alone. A big trend in American business is the collapse in the number of listed companies. There were 7,322 in 1996; today there are 3,671. It is important not to confuse this with a shrinking of the stockmarket: the value of listed firms has risen from 105% of GDP in 1996 to 136% now. But a smaller number of older, bigger firms dominate bourses. The average listed firm has a lifespan of 18 years, up from 12 years two decades ago, and is worth four times…Continue reading

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ApprovedBusinessBusiness and finance

Trends in the air-freight business

WHEN people think of air travel they picture planes full of passengers. But air cargo is as vital—perhaps more—to the global economy. Only 1% of exports by volume go in aircraft but because they tend to be the most expensive goods, they account for 35% of global trade by value. Nearly everyone has used products delivered by aircraft, from vaccinations in poor countries to smartphones in rich ones.

Cargo airlines such as FedEx Express and Emirates Skycargo have had a difficult few years. Global trade growth has stalled, and along with it demand for air freight. Inanimate air cargo mostly rides in the same planes as the live sort; when rising passenger demand encouraged airlines to buy more planes, the additional cargo capacity flooded the industry, causing air-freight prices to slide. Industry revenues have fallen from a peak of $67bn in 2011 to $50bn now, according to IATA, a trade group. Yet the mood at the World Air Cargo Symposium in March in Abu Dhabi was cautiously optimistic. For the first time since the global financial crisis in 2008, demand for air freight has started to expand quickly again.

The industry-by-industry variations within this overall…Continue reading

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ApprovedBusinessBusiness and finance

Cloudification will mean upheaval in telecoms

IN THE computing clouds, startups can set up new servers or acquire data storage with only a credit card and a few clicks of a mouse. Now imagine a world in which they could as quickly weave their own wireless network, perhaps to give users of a fleet of self-driving cars more bandwidth or to connect wireless sensors.

As improbable as it sounds, this is the logical endpoint of a development that is picking up speed in the telecoms world. Networks are becoming as flexible as computing clouds: they are being turned into software and can be dialled up and down as needed. Such “cloudification”, as it is known, will probably create as much upheaval in the telecoms industry as it has done in information technology (IT).

IT and telecoms differ in important respects. One is largely unregulated, the other overseen closely by government. Computing capacity is theoretically unlimited, unlike radio spectrum, which is hard to use efficiently. And telecoms networks are more deeply linked to the physical world. “You cannot turn radio towers into software,” says Bengt Nordstrom of Northstream, a consultancy.

The data centres of big cloud-computing providers are packed…Continue reading

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ApprovedBusinessBusiness and finance

Google is accused of underpaying women

GOOGLE has made a fortune by helping people dig up whatever information they seek. But in a court hearing on April 7th, America’s Department of Labour (DoL) accused the company behind the profitable search engine of burying the fact that it pays its female employees less than their male counterparts. The accusation of lower compensation for women forms part of a lawsuit by the DoL, which has asked Google to turn over detailed information on pay. The department has not released data to back its assertion, and Google denies the allegation.

Whatever the outcome in court, the government’s recriminations risk marring Google’s image. Just three days earlier it had taken to Twitter to boast that it had “closed the gender pay gap globally”. That claim is now under suspicion. It is true that at Google’s parent company, Alphabet, several women hold high positions, including Ruth Porat, the chief financial officer, and Susan Wojcicki, who runs YouTube, an online-video business. But the important question is not only whether a few women get promoted but also how those in the middle and lower ranks fare.

What figures there are paint a depressing picture about the…Continue reading

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ApprovedBusinessBusiness and finance

How Germany’s Otto uses artificial intelligence

A GLIMPSE into the future of retailing is available in a smallish office in Hamburg. From there, Otto, a German e-commerce merchant, is using artificial intelligence (AI) to improve its activities. The firm is already deploying the technology to make decisions at a scale, speed and accuracy that surpass the capabilities of its human employees.

Big data and “machine learning” have been used in retailing for years, notably by Amazon, an e-commerce giant. The idea is to collect and analyse quantities of information to understand consumer tastes, recommend products to people and personalise websites for customers. Otto’s work stands out because it is already automating business decisions that go beyond customer management. The most important is trying to lower returns of products, which cost the firm millions of euros a year.

Its conventional data analysis showed that customers were less likely to return merchandise if it arrived within two days. Anything longer spelled trouble: a customer might spot the product in a shop for one euro less and buy it, forcing Otto to forgo the sale and eat the shipping costs.

But customers also dislike multiple…Continue reading

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ApprovedBusinessBusiness and finance

China’s HNA Group goes on a global shopping spree

Chen keeps spending

NOW it is a conglomerate with more than $100bn-worth of assets around the world. But HNA Group started life as a small local airline. Chen Feng, the Chinese company’s founder, led a coalition including private investors and the government of Hainan, a southern province, to launch Hainan Airlines in 1993.

Despite some help from the local government, the upstart firm was an outsider then. The central government chose three big state-run airlines to receive favoured landing slots, lavish subsidies and other advantages. The scrappy Mr Chen was undeterred. With $25m in early funding from George Soros, an American billionaire, he carved out a profitable niche.

Since then, HNA has grown quickly, mainly through acquisitions. It reported revenues of 600bn yuan ($90bn) last year. In 2016 it acquired a 25% stake in America’s Hilton Worldwide for $6.5bn and paid $10bn for the aircraft-leasing division of CIT Group, a New York-based financial firm. This week it bid nearly $1bn for Singapore’s CWT, a logistics company.

Most deals have been in industries adjacent to its core business, such as travel, tourism and logistics….Continue reading

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ApprovedBusinessBusiness and finance

Why carmakers need to get bigger

CARS are getting bigger. Motorists worldwide have for years been abandoning four-door saloons in favour of bulkier SUVs. Carmakers have become bigger, too. Four car firms now make around 10m vehicles a year in order to reap economies of scale, particularly in the mass-market bit of the business where profit margins can be painfully thin.

Many executives also believe that size is the only protection against the technological upheaval sweeping the industry. But bulking up fast is easier said than done. Lots of different constituents have to be won over. And most car bosses are still reticent about taking the plunge on mergers because many have been catastrophes. Daimler’s acquisition of Chrysler in 1998, for example, was a notable disaster. The list of past crashes is lengthy. Indeed, one recent deal—General Motors’ sale of Opel, its European arm, to France’s PSA Group for €1.3bn ($1.4bn)—seems to go directly against the imperative to bulk up.

In fact, that deal has had the effect of spurring more talk of consolidation. Speculation centred at first on a possible mega-merger between GM and Fiat Chrysler Automobiles (FCA), itself the result of a deal in 2014 (FCA’s…Continue reading

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ApprovedBusinessBusiness and finance

The University of Chicago worries about a lack of competition

ONE sign that monopolies are a problem in America is that the University of Chicago has just held a summit on the threat that they may pose to the world’s biggest economy. Until recently, convening a conference supporting antitrust concerns in the Windy City was like holding a symposium on sobriety in New Orleans. In the 1970s economists from the “Chicago school” argued that big firms were not a threat to growth and prosperity. Their views went mainstream, which led courts and regulators to adopt a relaxed attitude towards antitrust laws for decades.

But the mood is changing. There is an emerging consensus among economists that competition in the economy has weakened significantly. That is bad news: it means that incumbent firms may not need to innovate as much, and that inequality may increase if companies can hoard profits and spend less on investment and wages. It may yet be premature to talk about a new Chicago school, but investors and bosses should pay attention to the intellectual shift, which may change American business.

The fear that big firms might come to dominate the economy and political life has its roots in the era of the robber barons of the…Continue reading

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ApprovedBusinessBusiness and finance

A passenger is dragged from a United Airlines plane

UNITED AIRLINES urges travellers to “Fly the Friendly Skies”. The company makes no promises about its customer service before take-off. When, on April 9th, a traveller in Chicago refused to give up his seat on an overcrowded flight to Louisville, Kentucky, police yanked him into the aisle and dragged him by his hands along the floor, bleeding after he cut his head on an armrest. Horrified fellow passengers took videos on their phones and posted them to social media.

The company’s initial response was possibly the worst bit of crisis-PR in history, noted one media commentator. As videos of the bloodied man quickly went viral, Oscar Munoz, the carrier’s boss, woodenly apologised for having to “re-accommodate” customers. In an internal letter to staff, Mr Munoz said crew had “no choice” in their action and blamed the flyer for not co-operating.

Overbooking, which is common at many carriers, was not the problem. Rather, it was late-arriving, off-duty airline employees who needed seats at the last moment. The usual way of persuading paying passengers not to fly—offering lots of cash—did not work. Such bargains are best struck before boarding the plane….Continue reading

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Tesla increases deliveries of electric cars

Why on Earth did you park here?

ELON MUSK, a Silicon Valley entrepreneur, has had two bits of good news recently about his various bets on new technology. SpaceX, his privately-held launch company, last month became the first successfully to reuse a rocket to put a satellite into orbit. And this week Tesla, his electric-car manufacturer, at last hit its production targets.

Some analysts doubted Tesla would meet its goals after a series of production difficulties. But the carmaker said first-quarter deliveries were just over 25,000 vehicles, a record for the firm and a 69% increase over the same period in 2016. Some 13,450 were its sleek Model S saloons and about 11,550 were the firm’s new SUV, the Model X. This puts Tesla on track to produce the 50,000 vehicles it has promised to make in the first half of this year. That is good progress. But Tesla is going to have to crank production up by an awful lot more to make the 500,000 cars a year which Mr Musk wants to see pouring off the production line by 2018, let alone the 1m intended for just two years later.

To reach those volumes, Tesla is counting on its forthcoming Model 3. Priced at…Continue reading

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Oil struggles to enter the digital age

Off to new platforms

IT SOUNDS like a spectacular feat of engineering. Employees of Royal Dutch Shell located in Calgary, Canada, recently drilled a well 6,200 miles (10,000km) away in Vaca Muerta, Argentina. In fact, the engineers of the Anglo-Dutch oil major were using computers to perform what they call “virtual drilling”, based on their knowledge of Fox Creek, a shale bed in Alberta, which has similar geological features to Argentina’s biggest shale deposit. They used real-time data sent from a rig in Vaca Muerta to design the well and control the speed and pressure of the drilling. On their second try, they completed the well for $5.4m, down from $15m a few years ago. “It’s the cheapest well we’ve drilled in Argentina,” says Ben van Beurden, Shell’s chief executive.

Shell is not alone in deploying computer wizards alongside geologists in an attempt to lower costs in an era of moderate oil prices. The industry as a whole is waking up to the fact that digitisation and automation have transformed other industries, such as commerce and manufacturing, and that they have been left behind. Technology firms and consultancies are knocking on…Continue reading

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De La Rue rethinks its strategy

THOMAS DE LA RUE set up shop more than 200 years ago, printing newspapers, then playing cards and stamps. In 1860 a contract to print banknotes for Mauritius started a transformation. Today De La Rue is the largest commercial banknote and passport printer, involved in aspects of the production of currencies for 140 countries, and passports for over 40.

The British firm’s chief executive, Martin Sutherland, is relatively relaxed about the much-heralded death of cash. Despite advances in payments technology, and a shift to cards in Europe, the total demand for cash has proven remarkably resilient. Transaction values are rising rapidly in emerging economies, where hard currency is still the norm. De La Rue expects world demand for banknotes to grow by 3-4% a year for the foreseeable future.

But there are problems nonetheless. Even at the best of times, note production, which accounts for over 70% of the company’s revenues, is a volatile business. Contracts are lumpy. State-owned printers often call in commercial printers at short notice to manage spikes in demand, which are unpredictable. On top of that, national authorities are demanding better value. They are…Continue reading

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Encouraging African entrepreneurship

“YOU are either part of the solution or part of the problem,” it says in painted letters on a wall. “Stay hungry, stay foolish,” says the wall opposite. An old rickshaw sits among beanbags and a vase of flowers rests on an ancient oil barrel in the corner. “We wanted the space to feel like Google,” says Eleni Gabre-Madhin, the founder of blueMoon, a new agribusiness incubator that opened in Addis Ababa in February, without a trace of irony.

Incubators and their cousins, accelerators, provide hands-on training and mentoring, and often a physical space, to help early-stage business ideas develop. In Silicon Valley they find capital for startups and take a slice of equity in return for their services. Ms Gabre-Madhin says that blueMoon draws inspiration from Y Combinator, an American accelerator founded in 2005 whose investees include Dropbox and Airbnb. The new firm’s first cohort of startups will train at the office for four months, and it will give each a small cash injection in exchange for a 10% stake.

That is a rarity in Africa’s startup scene. A simpler and more common model is for “tech hubs” to provide office space, some networking…Continue reading

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Time Warner’s boss is the anti-mogul

THERE is a hawk in Central Park that sometimes dismembers its prey on the balcony outside Jeff Bewkes’s office. Guts are splattered around in the kind of Darwinian spectacle that any self-respecting media baron should appreciate as he plots plans for future world domination. Mr Bewkes, however, only manages a laconic shrug when he mentions the feathered predator.

The boss of Time Warner is an anti-mogul in more ways than one. In an industry long-dominated by imperious tycoons intent on amassing power—think of Rupert Murdoch, or Viacom’s Sumner Redstone in his heyday—Mr Bewkes has shrunk a content empire, not expanded it. He is about to sell it to AT&T for $109bn in the fifth-biggest takeover of all time. If the deal goes through shareholders will have made a 341% return during his tenure (including spin-offs and dividends), making Time Warner one of the best-performing big firms in America during that time.

Beneath his laid-back surfer persona, Mr Bewkes has been ruthless but in the rational pursuit of his owners’ interests, not his own vanity. His tenure can be split into three parts—culling, defending and preparing to exit on a high.

Back in…Continue reading

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