Modern management

Larkspur

The increasingly desperate search for the stuff is changing modern management—not always for the better

SELDOM has corporate strategy been turned on its head so quickly. Barely a year ago, cash was a dangerous thing to accumulate: activist investors stalked companies, urging boards to return it to investors, to pay special dividends or to buy back shares. Ever since the 1980s the fashion had been to make companies as lean as possible, outsourcing all but your core competencies, expanding your just-in-time supplier system around the globe, loading up with debt to “leverage” your balance-sheet. Old-style defensive conglomerates, such as Arnold Weinstock’s General Electric Company, were dismantled. Companies that hoarded cash—even ones as good as Toyota and Microsoft—were viewed with suspicion.

No longer. For many big American companies, the day of reckoning came two months ago when the deepening financial crisis brought about the abrupt closure of the overnight commercial-paper market. This briefly sent even the most solid companies into a desperate scramble to find money to meet such basic obligations as paying their staff. Since then, the guiding principle for managers everywhere has been to gather up whatever cash they can find, and then do their damnedest to keep as much of it as possible for as long as possible.

For some firms—the investment banks or the Detroit carmakers—this struggle is already a very public affair. But most of the panic is still hidden. In Britain solid corporate giants are finding it harder to roll over routine loans. Across Europe nervous accountants say they will need to see more proof that firms are “going concerns” before they sign off year-end accounts. In America Fortune 500 firms now face questions from investors about how long their cash will last at current “burn rates”. In Silicon Valley, Sequoia, a venture-capital firm, recently told the small businesses in which it has invested to treat every dollar as if was the last they would ever raise, to cut jobs and scale back growth plans that were not immediately “cashflow-positive”. And the emerging world is not immune: witness a stiff e-mail from Ratan Tata to managers at India’s bellwether Tata group telling them to undertake “a critical review of their cashflow requirements and business plans”.

Thrift and its paradoxes
This cash squeeze is a huge problem for the world economy, because as firms cut discretionary spending wherever they can, the result is likely to be a corporate version of what John Maynard Keynes called the “paradox of thrift”. Every firm does what is prudent for itself, but by cutting its spending it slows down the economy still further and thus hurts everybody, including itself. This will only reinforce the need for expansionary monetary and fiscal policy (see article) to boost demand; and also for more direct support in credit markets, such as the Federal Reserve’s prop for the commercial-paper market (already tapped by some large American firms).

These are vital tasks for politicians and regulators, but for managers the paradox works the other way: spending money might be in society’s interests, but not in their shareholders’. For a whole generation of bosses, what they do in the next few months may come to define the rest of their careers.

For the few lucky hoarders, this is a time to feel both smug and predatory. Japanese firms have been able to make $71 billion in foreign acquisitions so far in 2008, which is on track to be a record year. Bill Gates thought his company should have enough cash to survive a year with zero sales: its $21 billion pile now gives it even more options than normal. Cash-rich drugs firms, such as Eli Lilly, Roche, Merck and Bristol-Myers Squibb, have all said that the financial turmoil presents an opportunity for them to buy biotechnology companies at knock-down prices. Germany’s Siemens plans to provide finance for customers that are strapped for cash. A study, aptly from Citigroup (which axed 52,000 people this week), shows cash hoarders now outperforming indebted firms, having lagged before.

For the non-hoarders, there is a balance to be struck. In the short term some of the old ways to perk up your share price now seem suicidal. Huge dividends or share buybacks have to be regarded as reckless (even though share prices, as Warren Buffett points out, look cheap). What was once seen as evidence of corporate fitness for the moment looks like anorexia. More padding—in the form of cash in the bank—will be necessary to secure a clean bill of health. Likewise, ultra-lean supply chains no longer look like such a brilliant idea when you have to find cash to keep afloat a supplier that cannot get even basic trade credit. “Just in time” is giving way to “just in case”.

The bloodbath or the death spiral?
But for how long? This new conservatism is not solely motivated by the fact that cash is hard to come by; demand is also falling for most firms’ products. Households and firms alike have hit the pause button, and no one knows when they will press “play” again. Companies need to plan for that day as well.

As in every downturn, who succeeds and who fails is likely to be determined not by what costs are cut, but how they are cut and above all which ones are not cut. There is a hint of blind panic about some redundancies. Companies argue that one big swing of the axe does less harm than what Sequoia calls the “death spiral” of successive morale-sapping rounds of modest job cuts. But firms that get a reputation for too readily offloading people whom they described only recently as “our most important assets” will suffer eventually in the labour market. One reason why downturns tend to be good times to launch new businesses is because established companies abandon promising growth opportunities too fast. Oracle and Microsoft were both born in difficult economic times.

And there will also come a time when the necessity to safeguard cash is not so all-consuming. Rash though some of them seem today, the Western management fads of the past 30 years improved productivity (one year’s outperformance does not prove the Japanese model was right). But even if cash does become more plentiful, it is doubtful whether today’s generation of managers will be quite so cavalier about taking it for granted. That change in attitude, more than anything else, will be the legacy of this credit crunch for the corporate world.

Larkspur

Asian economies

Sittin' on the dock of a bay


Trade slows and gloom mounts. But Asia’s economic downturn will be milder than the one it endured a decade ago

eyevine
EARLIER this year most businessmen and investors hoped that Asia’s emerging economies could withstand the economic and financial turmoil in the developed world. Now, however, stockmarkets seem to be betting on a rerun of Asia’s deep recession after its own crisis in 1997-98. Share prices in the region have plunged by an average of two-thirds (in dollar terms) from their peak in 2007—almost as much as they fell during the Asian financial crisis. Is Asia really heading for such a painful economic slump?

The latest figures are certainly worrying. Japan is now in recession. China’s economy is slowing much more sharply than expected, with the 12-month growth in its industrial production falling from 18% to 8% over the past year. Indian spending is being squeezed by the credit crunch: commercial-vehicle sales fell by 36% in the year to October. Hong Kong and Singapore are already in recession, with GDP having fallen for two consecutive quarters.

Asia is more reliant on exports than is any other region, so it is bound to be hurt by the rich world’s worst recession since the 1930s. China’s exports have so far held up surprisingly well, growing by 19% in the 12 months to October. South Korea’s have increased by 10%. But in Singapore and Taiwan exports have plunged this year. An Indian official has said that exports in October were 15% lower than a year ago.

Asia’s foreign sales are being choked by the global credit squeeze as well as weak demand. Cargoes pile up on the dockside and ships wait empty because exporters cannot get letters of credit to secure payment on delivery. Robert Subbaraman, an economist at Nomura in Hong Kong, reckons that over the next year exports from Asia (excluding Japan) could fall by 20%—roughly the same drop as during the 2001 dotcom crash. Weaker exports will dent investment and consumer spending. Yet Mr Subbaraman reckons emerging Asia as a whole will see GDP growth of 5.6% in 2009. That would be well down on the 9% seen in 2007 and perhaps 7% this year, but it would be slightly faster than during the 2001 downturn and much stronger than the 2% average growth in 1998.

In 1998 Hong Kong, Indonesia, Malaysia, South Korea and Thailand all suffered slumps in GDP of more than 6%. Even the gloomiest forecasters do not expect anything so dire this time. A few, such as JPMorgan, expect GDP to decline next year in Hong Kong, and Hong Kong’s chief executive, Donald Tsang, expects growth to be flat or negative in all the region’s “mature” economies, including his own and Singapore. But everywhere else should see positive growth (see chart), and generally remain stronger than during the 2001 dotcom crash. Only Taiwan is likely to have a worse year in 2009 than in 1998.

Mr Subbaraman also believes that Asia will recover sooner than other parts of the world, because most governments have ample room to ease policy and their economies are in better shape than those elsewhere. China, India, South Korea, Singapore, Taiwan and Hong Kong have all cut interest rates in the past two months. Falling energy and food prices will push inflation lower, and so allow further rate cuts.

All the main Asian emerging economies, apart from India’s, have public debt-to-GDP ratios well below the average in rich economies, giving them room to boost public spending or cut taxes in order to spur domestic demand. China, Malaysia, South Korea, Taiwan and Thailand have already announced fiscal stimuli. Singapore is expected to fire its hefty fiscal ammunition soon. Hong Kong’s Mr Tsang is “up to his eyeballs in contingency plans”.

In contrast to the late 1990s, most Asian economies are in relatively good shape, if not Pakistan’s (see article). Elsewhere, foreign-exchange reserves exceed short-term foreign debts. Almost all the region’s countries have current-account surpluses, though India and South Korea have deficits, which explains why they have seen large currency depreciations this year.

Most Asian households and companies are also modest borrowers. The black sheep is South Korea, where households and firms are even more indebted than in America. But total domestic debt (private and public) fell to 143% of GDP in emerging Asia in 2007, compared with 251% of GDP in America. As its exports stumble, Asia faces a nasty cyclical downturn. But it is spared the deep structural problems, such as excessive debt, which could depress growth elsewhere for several years.

Tortoise or tiger?
All the Asian economies will slow sharply next year, but some more than others. As the most open economies that are also big financial centres, Singapore and Hong Kong have been hit hardest. India is the least dependent on exports, at only 22% of its GDP, compared with a regional average of over half. So, in theory, it should be the least affected by the global slump. But India has two disadvantages. First, it is more exposed to the global credit crunch as a result of its previous reliance on large capital inflows. The sudden reversal of capital has sharply increased the cost of borrowing, forcing firms to cut investment—an important driver of growth in recent years. The Reserve Bank of India has cut interest rates and pumped liquidity into the banking system, but borrowing rates remain high.

A second problem is that, unlike China, the Indian government has little room for a fiscal stimulus. Its budget deficit is running at an estimated 8% of GDP (including off-budget items). Whereas China is boosting infrastructure spending to prop up demand, India’s plans to build roads and power plants with the help of private money may be delayed by the credit squeeze. The finance minister, Palaniappan Chidambaram, declared this week that growth will “bounce back” to 9% next year. Many economists reckon it is likely to be closer to 6%, while China’s slows to 8%.

Among the South-East Asian economies, Indonesia seems to be holding up best, with GDP up by 6.1% in the year to the third quarter. As a big exporter of commodities it will be squeezed by falling prices. But Malaysia, which is much more dependent on foreign demand, will be hit harder. Its exports are equivalent to over 100% of its GDP—proportionally, more than three times bigger than Indonesia’s. Thailand, where Asia’s financial crisis began in 1997, has learnt its lesson the hard way. Its foreign-exchange reserves are now four times as large as its short-term foreign debt, and it has a current-account surplus. It is not about to suffer another crisis. But as exports fall, business and consumer confidence remain depressed by political uncertainty. Thailand will remain one of Asia’s slowcoaches.

On the surface, the massive debts of South Korea’s households and firms might suggest serious trouble ahead. However, the government has been quick to bail out its banking system, and most economists reckon that a large fiscal boost and the cheaper won (down by 29% this year) will help to cushion the economy, resulting in modest growth, of around 3% next year.

In contrast, Taiwan is already in recession. Its GDP fell by 1% in the year to the third quarter, dragged down both by a collapse in exports and by weak domestic demand. Some economists forecast growth of only 1% next year. To lift consumer demand, the government this week said that it would give everybody NT$3,600 ($108) in shopping vouchers to spend in shops and restaurants.

Such measures are a far cry from 1997, when rather than urging households to spend, governments in Asia begged them to hand over their gold jewellery to be melted down to bolster official reserves. Times have changed. Asia is certainly not immune to the rich world’s recession, nor will its economies quickly regain their previous rapid growth trajectory. But the current gloom and doom among investors in the region might yet prove overdone.

softt8141

庆祝，，不知第一个踩点有没有红包呢老大。

Larkspur

Innovation in America

A gathering storm?


Confronted by Asia’s technological rise and the financial crisis, corporate America is losing its self-confidence. It should not


LISTEN to the growing cries of despair coming from some leading business people, and you might imagine that corporate America’s competitiveness could be the next victim of the global financial crisis. But Jeffrey Immelt, the boss of GE, the world’s largest industrial firm, sees opportunity amid the woe. “Companies and countries that really play offence vis-à-vis technology and innovation are going to come out ahead,” he said this week at an event in New York to present GE’s coming innovations in health-care technology.

With those words, he touched on a debate that has been heating up for many months. Even before the financial crunch began, many businessmen were worried that America was losing its lead in innovation to India and China. They were particularly upset that Asian rivals had been investing with more gusto in teaching young people mathematics and science, and in advanced scientific research. America’s National Academy of Engineering even issued a report last year, “Rising Above the Gathering Storm”, arguing that America’s “economic and strategic security” was in question because of lack of investment.

The cries are growing louder. The Council on Competitiveness, an influential group of American company bosses, university presidents and labour leaders, issued a terse report on the matter on November 11th and demanded that Barack Obama “take bold action to recapture America’s competitiveness” in his first 100 days in office. Craig Barrett, the chairman of Intel, the world’s biggest chipmaker, has also made similar complaints of late.

And in a speech in Washington, DC, on November 18th Eric Schmidt, chief executive of Google, an internet giant, claimed that government-funded research done in university laboratories was “the core aspect of America’s competitiveness”. Without a dramatic increase in investment in such research, and in maths and science education, Americans risked becoming mere “captive consumers” at the mercy of rising Asian powers, he argued.

Venturesome America
So does the relative decline of America as a technology powerhouse really amount to a threat to its prosperity? Nonsense, insists Amar Bhidé of Columbia Business School. In “The Venturesome Economy”, a provocative new book, he explains why he thinks this gloomy thesis misunderstands innovation in several fundamental ways.

First, he argues that the obsession with the number of doctorates and technical graduates is misplaced because the “high-level” inventions and ideas such boffins come up with travel easily across national borders. Even if China spends a fortune to train more scientists, it cannot prevent America from capitalising on their inventions with better business models.

That points to his next insight, that the commercialisation, diffusion and use of inventions is of more value to companies and societies than the initial bright spark. America’s sophisticated marketing, distribution, sales and customer-service systems have long given it a decisive advantage over rivals, such as Japan in the 1980s, that began to catch up with its technological prowess. For America to retain this sort of edge, then, what the country needs is better MBAs, not more PhDs.

America also has another advantage: the extraordinary willingness of its consumers to try new things. Mr Bhidé insists that such “venturesome consumption” is a vital counterpart to the country’s entrepreneurial business culture.

Is he right? The lack of long-term data means this has become “a quasi-theological dispute”, says Robert Litan of the Kauffman Foundation, a charity that provided some funding for Mr Bhidé’s work. But the contrarian should not be dismissed out of hand. For a start, he is right to argue against making a fetish of invention. Edison did not invent the light bulb and Ford did not think up the motor car, but both came up with the business-model innovations required to profit from those marvels.

And as GE’s Mr Immelt likes to say, his firm is not great at invention, but it is outstanding at “turning $50m businesses into billion-dollar businesses”. Adam Segal of the Council on Foreign Relations, a think-tank, points out that the sensors that America’s soldiers use are no longer secret technology, but they use them in sophisticated ways that rivals cannot copy easily.

There is another reason to take the current “techno-nationalism”, as Mr Bhidé calls it, with a grain of salt. Even if China and India really are surging ahead in the number of technical graduates (and research by Vivek Wadhwa of Harvard University casts doubt on the quality of many of those degrees), innovation is not a zero-sum game. On the contrary, there is growing evidence that the rise of the giant emerging economies may even help those companies from the rich world that take a global approach to innovation.

For several years Booz & Company, a management consultancy, has compiled a ranking, called the Global Innovation 1000, of the world’s leading firms ranked by investment in research and development. It has shown in the past that spending more on research has no correlation with better financial performance. But this year’s study, recently released, found that multinational firms that took a global approach to research outperformed those that concentrated their research spending in their home market.

Why? “Being global and open is now necessary for innovation,” says Henry Chesbrough of the University of California, Berkeley. Cost is only one reason (and not usually the main one, Booz argues) to have a global research presence. Another advantage is the ability to tap into pools of talent abroad. But the most important advantage is the ability to listen to, and learn from, customers in new markets.

As well as helping designers come up with products relevant to those markets, it also allows innovation to flow the other way. Indians often share mobile phones, notes Stephen Johnston of Nokia, so the handset-maker developed software to allow multiple phone-books on a single handset; this idea is now being brought to Western markets so that users can, say, separate their home and work contacts. Similarly, GE has developed low-cost medical scanners for Asian markets that are now being sold in other poor countries, too.

Clayton Christensen of Harvard Business School is not fully persuaded by the arguments put forth by Mr Bhidé (who happens to be a former classmate). He thinks Chinese and Indian firms may in time “disrupt” established American companies just as personal computers challenged mainframes, and he worries about America’s education system. But he accepts Mr Bhidé’s notion that it is more useful to teach technical skills to managers and factory workers than merely to crank out more theoretical scientists.

Most importantly, Mr Christensen agrees with Mr Bhidé that there is no case for protectionism. Some techno-nationalists argue, for instance, that “American innovation” should receive preferential tax treatment or subsidies. Such proposals make little sense given the increasingly global and open nature of innovation. As Mr Chesbrough wryly puts it: “What’s good for Intel may not necessarily be good for America.”

Larkspur

送朵大红花给你.

叛逆

晕死啦。。。。我中文都没及格呢？？你就别害我今晚睡不着了。。

Larkspur

也送朵大红花给你.

不过据说人一旦看到自己看不太懂的东西,都特别容易困,想睡觉.

叛逆

呵呵。。。谢谢你的花，，我好久没碰书本咯。。我见到就头痛

叛逆

说真的。。你这些英语到底什么意思哦？？你不会在网站复制过来的吧？？？

Larkspur

难不过,你真的以为是我一个字一个字用键盘打出来的吧*.*lll

netwalker

灌水! 别以为换英文我就不知道了!