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Saturday, January 19, 2008

Multinational Firms Should Hold Own Management Styles In China

When it comes to breaking into the lucrative Chinese market, foreign multinational retailers should keep largely to their own, time-tested management techniques, according to new research funded by the Economic and Social Research Council (ESRC).

Rather than struggle to adapt to the Chinese cultural environment, firms from the UK and elsewhere are better advised to hone and refine existing managerial and technical expertise, argues Jos Gamble, of Royal Holloway, University of London.

A fluent Chinese speaker, he interviewed management and staff in eight Chinese cities, including Beijing, Shanghai and Chengdu, as well as key people in the UK and Japan. His findings also dispel claims that foreign retailers offer only ‘dead-end’ jobs in their Chinese subsidiaries. On the contrary, he says, such organisations can provide workers with significant opportunities to prosper and improve their skills. Rising prosperity and a rapidly commercialising economy have transformed China into the world’s most important emerging market. Multinational retailers have rapidly built up their presence since foreign participation was allowed in 1992.

By conducting case studies of UK and Japanese retailers and their off-shoots in China, Gamble set out to examine how these global organisations transfer management practices and retail concepts to their overseas subsidiaries. In China, the main approach of the Japanese and UK firms was to try to replicate the store procedures, employment relations and customer service standards of their parent company.

For both customer service and people management, this meant that companies often reflected their home country practices, so they were different from each other, as well as from local Chinese norms and practices.

However, the study found that, in some ways, retailers did diverge from practices back at home.

Japanese firms, for instance, took on far more women supervisors in China compared with their stores in Japan. And a UK multinational followed local practice with its use of large numbers of sales staff employed by product suppliers rather than directly by the stores.

Gamble says: “These findings indicate that while it is possible to transfer culturally innovative practices, those that run counter to institutional features - such as the nature of the local labour markets - are much harder to implement.” Japanese companies were more prescriptive and detailed in their way of dealing with customers than the UK-owned stores, which encouraged workers to adapt behaviour they used in everyday life.

Says Gamble: “The Japanese approach to customer service was particularly innovative in the Chinese context. Whilst, initially, local customer response was quite negative, it rapidly achieved acceptance as a form of ‘best practice’.” Most employees believed that their jobs would improve their skills level and employability, contradicting widely held concerns about ‘de-skilling’ of labour in the service sector.

Contrary to expectations, a UK firm examined for the study provided at least as much opportunity in this respect as Japanese companies.

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Saturday, November 10, 2007

Video: Consumers' Concerns for Economy

Economist Ethan Harris of Lehman Brothers speaks to Kelsey Hubbard about consumers' concerns for the current economic conditions.

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Thursday, March 01, 2007

Study: China's Attempts At Economic Coercion Have Limited Success


China has had only limited success in using economic pressure to win political concessions from Taiwan, although Taiwan's increasing ties with China leave it vulnerable to economic coercion, according to a recent RAND Corporation study.
China's limited success is not necessarily good for Taiwan or U.S. interests in the region, says Murray Scot Tanner, a RAND senior political scientist and author of the study, “Chinese Economic Coercion Against Taiwan: A Tricky Weapon to Use.”
“China has moved to a much more conciliatory and seductive policy toward Taiwan in the last 18 months or so,” Tanner says. “But if China comes to feel that economic and other non-violent levers aren't going to be effective, then it might use greater force in the future.”
The study by RAND, a nonprofit research organization, finds that China and Taiwan are currently in a state of “asymmetric interdependence.” For the past two decades, Taiwan has tried to balance two goals: avoiding excessive dependence on mainland China while trying to take advantage of China's booming economy to rescue Taiwan's own competitive position.
Both Taiwan's current president, Chen Shui-bian, and his predecessor, Lee Teng-hui, have struggled to limit Taiwan's dependency on China even in the face of exploding cross-strait economic ties.
“Although Taiwan is, overall, more economically dependent upon mainland China than China is on Taiwan, there are key regions and sectors of China's economy that are enormously dependent upon Taiwan investment — most notably China's information technology sector — and these would suffer very badly in the event of a serious cutoff of trade and investment,” the study notes.
Officially, the People's Republic of China (PRC) maintains that it is the legitimate government of all Chinese territories, including Taiwan, and believes that Taiwan and China will eventually be reunified.
Taiwan, however, officially considers itself the “Republic of China,” but for the most part operates as though it were a de facto independent state. Beijing fears ethnic Taiwanese will try to establish a legally independent Republic of Taiwan, and both presidents Lee and Chen have repeatedly asserted that Taiwan is a state separate from the PRC.
Beijing has repeatedly employed or threatened economic coercion to prevent any formal declarations of independence. Taiwan's economy is more vulnerable to some forms of economic pressure than others, including:


  • Selective harassment or intimidation of Taiwanese businesspeople who are heavily invested in the mainland (called Taishang).
  • Mainland sanctions against Taiwan's imports.
  • Mainland sanctions against Taiwan's investments.
  • Economic disruption, damage and sabotage of Taiwan's stock and financial markets or its information networks.

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Wednesday, December 27, 2006

The U.S. Economy in Review: 2006


One word—slowdown—can define the U.S. economy this past year. Economic growth and job growth both fell in 2006 from previous years as the residential housing boom came to an end. The slowdown in employment growth and economic opportunity was home grown as consumers saw rising debt payments on the record debt built up in past years.

That is according to the Center for American Progress, a left-leaning Washnigton think tank.

This debt squeeze leaves less money available for key household expenditures and is already beginning to push many hardworking families over the edge amid rising loan defaults and bankruptcies.

Yet at the same time, the federal government in 2006 continued to run large deficits— financed in large part by overseas investors—resulting in higher interest payments out of the U.S. Treasury. This outflow, in turn, exacerbated an already record high trade deficit fuelled by America’s large dependence on foreign oil and rising oil prices over most of the past year.
Specific economic statistics in 2006 are as disconcerting as the overall picture as we head into 2007.

Consider the following sets of numbers from this past year:

The economy slowed:
• Economic growth slipped to 2.0 percent in the third quarter, following 2.6 percent growth in the second quarter and a surprisingly strong first quarter growth of 5.6 percent. This was the first time in more than three years that the economy registered two consecutive quarters of growth below three percent.
• Consumption growth also slipped. Consumption growth was 2.8 percent in the third quarter following a 2.6 percent increase in the second quarter. Again, this was the first time in more than three years that consumption growth was below three percent in two consecutive quarters.
• Retail sales weakened. From June 2006 to November 2006, retail sales grew each month on average by an annualized rate of 4.2 percent, down from 6.4 percent in the first six months of 2006.

The labor market weakened:

• Job growth continued to drop. In 2006, the economy added on average 149,000 new jobs per month, down from 165,000 new jobs in 2005 and 175,000 in 2006. Job growth was 14.5 percent slower in 2006 than in 2004, the year with the highest job growth in this business cycle, which started in March 2001.
• Wages made up a record low share of national income. In the third quarter, wages and salaries made up 51.4 percent of national income, the smallest share since the U.S. government began to collect this data in 1947. Total compensation, which includes benefits, dropped to the lowest share in nine years. At the same time, profits grew to the largest share of national income since 1947.

The housing boom ended:
• Home appreciations decreased. In the first three quarters of 2006, the prices of all homes grew on average by an annualized rate of 5.9 percent, the lowest growth rate in any year since 1999, down from 12.5 percent in 2005 and 11.2 percent in 2004.
• Homes no longer flew off the market. The supply of homes for sale each month averaged 6.9 months of supply for the six months ending in October 2006—the largest average supply since 1991.

Consumers felt the pinch of record debt:
• Consumer debt soared to new heights. Household debt relative to disposable income continued to rise throughout 2006, reaching a record 130.9 percent by the end of the third quarter.
• Debt payments rose to highest on record. In the second quarter of 2006, families had to spend 14.4 percent of their disposable income to service their debt—the largest share since 1980.
• Families felt the pinch. Mortgage delinquencies rose to 4.7 percent of all mortgages in the third quarter, up from 4.4 percent in the first and second quarter of 2006. The share of all mortgages in foreclosure grew to 1.1 percent of all mortgages, the highest level since the first quarter of 2005. The default rate on credit cards also rose, to 3.9 percent in the third quarter, up from 3.5 percent in the second quarter, and 3.0 percent in the first quarter. And there were 2.2 bankruptcy cases per 1,000 people in the third quarter, up from 2.0 cases in the second quarter and 1.5 cases in the first quarter—an alarming rise.

U.S. still imports vastly more than it exports:
• The trade deficit widened. By the third quarter of 2006, the difference between imports and exports had grown again to over six percent of Gross Domestic product, a feat only accomplished once since the Great Depression (in the fourth quarter of 2005).
• At the heart of the widening trade deficit was America’s dependence on foreign oil. During the first 10 months of 2006, the deficit in petroleum-related goods grew by $46.1 billion relative to the same period in 2005—or almost twice as much as the deficit with China.

The U.S. government owes massive debt to foreigners:

•The federal government remained awash in red ink. For 2006, the expected federal deficit is $260 billion. Making the Bush administration’s tax cuts permanent and introducing relief from the Alternative Minimum Tax would carry the deficit to $3.5 trillion over the next decade, according to the Center on Budget and Policy Priorities. In this scenario, the federal deficit would never dip below $284 billion, even if the costs of the war in Iraq and Afghanistan decline.
•Foreigners financed vast shares of the federal budget deficit. Since March 2001, when the current business cycle started, foreign investors financed 77.9 percent of the federal budget deficit. The share of Treasuries held by foreigners grew to 45.0 percent at the end of the third quarter, up from 43.8 percent in the first quarter, and 44.6 percent in the second quarter.
• The U.S. Treasury sent more money abroad. Interest payments by the federal government to foreign lenders grew to $37.3 billion in the third quarter of 2006, up from $36.4 billion in the second quarter, and $32.8 billion in the first quarter.

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Friday, December 15, 2006

Economy: Coming in for Landing in 2007


Following the dramaticincreases in short-term interest rates by the Federal Reserve over the pasttwo years and given the current downturn in the domestic housing market,there's not much question as to whether the U.S. economy is slowing down.

The big debate, of course, is whether the country will experience a "hard"landing -- in other words, a recession -- or see the economy merely slow to a modest growth rate and then take off again after a more forgiving "soft" landing.

To help investors get a better handle on the hard versus soft landingdebate, financial services firm A.G. Edwards has just released the 2007 outlook report from its Investment Strategy Committee. Within sight from a wide range of sources, the report combines viewpoints from the firm's market strategists, economists, analysts and portfolio managers to examine the debate and identify the risks and opportunities thecommittee sees in the year ahead.

Chief Economist Gary Thayer notes that over the past five years, the economy has oscillated between extremes -- in recession or struggling out of it from 2001 to 2003 but then showing strength and expanding at anabove- average rate from 2004 through the early part of this year.

The Fed has drained excess liquidity from the economy with its lengthy cycle ofconsecutive rate hikes, and Thayer thinks the most likely scenario at thispoint is a soft landing between these two extremes.

"The Fed does not want the economy to swing between boom and bust," Thayer says, "but that does not mean it could not happen."

In addition to the gradual Fed rate increases, which gave borrowers time to adjust to tighter credit conditions, Thayer points out several other factors that may be indicative of things to come. A sharp drop in energy prices in the second half of this year, a halt in the Fed rate hikes once the housing market weakness became pronounced and continued growth incorporate profits have all helped offset other problems and seem to be setting the stage for a soft landing.

Turning attention to the stock market, Chief Market Strategist Al Goldman enumerates some of the pressing issues that could possibly turn into stumbling blocks for the soft landing scenario. He says the areas of greatest concern are geopolitical, as Iraq, Iran and North Korea will likely remain very serious problems. But Goldman takes heart in the trends that are currently in place in the economy and says recent history bodes well for the near-term market outlook.

"Economic activity has slowed primarily because of the recession in the building industry," Goldman says. "However, the economic trends in place indicate a slowdown rather than a meltdown, and thus, we look for a soft landing in 2007."

Goldman notes that the rising market is now 49 months old, compared with the average duration of 25 months for previous bull markets. But healso points out that the current market's advance has been more laboredthan most, and a couple of years of lackluster growth in the middle havehelped increase its longevity. Goldman is looking for an increase in S&P500 earnings on the order of about seven percent over 2006 earnings, which would predict a target for the S&P of approximately 1472 in late 2007.

To give investors a clearer picture of where they should focus their investment dollars, Chief Equity Strategist Stuart Freeman offers several sector picks for the new year.

"Based on our expectations for a slower growth economic environmentduring the first half of 2007, we continue to suggest investors overweight the defensive health care and consumer staples sectors," Freeman says. "However, because more cyclical stocks have already retrenched during the course of the year, our industry group rankings include a larger mix of more cyclical stocks than they did six months ago."

Some examples of Freeman's most favored individual industry groups include: energy companies (except the major integrated international names), agricultural products, construction & engineering, health care distributors, building products, water utilities, steel, managed healthcare, household appliances, and reinsurance companies.


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