OxBowBusiness: March 2006

31 March 2006

Away the lads hic

Away the lads! (hic!)

The World Cup is coming soon – some papers such as The Sun even have a counter showing how many days left. All 32 teams have chosen their training bases, with only Ukraine opting for the former communist east, but Germany hopes all of the country will benefit from the tournament, which is expected to pull in more than two million foreign visitors. As with all good marketing campaigns, the tournament has a slogan: "A Time to Make Friends" and the government and industry have joined together in a bid to show Germany in a new light.

On the FIFA homepage there is a section called the marketing concept which says:

“FIFA offers sponsors many different ways to promote both themselves and their products in conjunction with the FIFA World Cup™ as well as other FIFA Events. The Official Partners benefit from a standard marketing rights package as well as from the possibility to customise their sponsorship according to their individual marketing strategies and needs, which enables them to leverage their marketing rights extensively. A partnership with the FIFA World Cup™ represents a two-pronged approach -- giving Official Partners the possibility to promote their brand on a global basis and, at the same time, to target local markets.

Together with the broadcasters who deliver worldwide TV and radio coverage of the events, the sponsors are the pillars that support the staging and promotion of the FIFA World Cup™. The exclusive club of 2006 FIFA World Cup™ Official Partners boasts some of the world's leading blue-chip corporations, namely adidas, Avaya, Budweiser, Coca-Cola, Continental, Deutsche Telekom, Emirates, Fujifilm, Gillette, Hyundai, MasterCard, McDonald's, Philips, Toshiba and Yahoo!.”

So clearly countries are tooling up for the marketing possibilities. An advertising campaign called "Germany - Land of Ideas" is designed to attract an audience far beyond football fans.

"The World Cup is a unique chance to present our country to a wider public," said Mike de Vries, who heads the campaign. "We want to broaden the image of Germany and show a country that is open to the rest of the world, innovative and looking to the future."

The likely impact on Germany is:

The creation of 60, 000 jobs (every third job will be permanent)

0.3-percent growth rate to the country next year.

An increase of 2.2 billion euros during the World Cup for small businesses

Source: Xinhua and elsewhere

Oddly, though, it is Italy we should support – for economic reasons of course. The world economy will benefit most from an Italian victory at the football World Cup in June/July, according to ABN AMRO's economists in their 'Soccernomics 2006' study.

But surely if England do well supermarkets will sell out of beer within seconds? Certaonly, pubs will be full … and private consultants specialising in liver disease will be rubbing their hands! You may not know your liver is in trouble unless you have a test for liver enzymes (though there are some signs of liver disease) so why not try stopping alcohol now and be weaned off by the summer? (See the myths of alcohol too though…)

Wean yourself off caffeine too and because caffeine can also irritate your liver, try drinking herbal tisanes or water instead; drinking at least 2.5 litres of water a day will in any case help your liver to rid itself of unwanted waste products.

Food-wise, focus on eating plenty of fresh vegetables, particularly carrots, which seem to have a positive effect on the liver's health and performance.
The best way of giving your liver a hefty carrot hit is to juice them, either on their own or with a flavour-enhancer like ginger or orange. Have a small glass of fresh carrot juice every day for a fortnight. Alternatively, include plenty of carrots in salads, eat them raw as crudités or steam them to serve with your main meal (sweet baby carrots are delicious when steamed and then drizzled with a little virgin olive oil and a pinch of sea salt and freshly ground black pepper). Your liver will also welcome plenty of fresh fruits, pulses and wholegrains or wholemeals like rice, oats, pasta and bread.
But, I digress…

Contrary to what appears to happen in supermarkets, the direct economic impact (higher sales in bars and cafes) is marginal. The key is the effect on consumer and business confidence. In the past, countries winning the World Cup added around 0.7% to their economic growth. And at the last three tournaments the winning country's stock market considerably outperformed the losing finalist's market. On average there was 10% positive effect in the winner and a 25% negative effect in the loser.According to Charles Kalshoven of the ABN AMRO Economics Department: 'The Italian economy is hampered by an inflexible labour market and deteriorating competitiveness. An Italian victory in the World Cup final would boost consumer and producer confidence, and thus lead to more spending and investment. 'Made in Italy' would also reap more benefits abroad. This may well push economic growth upwards, which would then give the government scope to introduce economic reforms.'ABN AMRO's economists take as their starting point the imbalances in the world economy, above all the US current account deficit. Additional growth in Europe would cushion the inevitable correction to this situation. To achieve this, a major European country needs to win the World Cup to spark an economic upswing. The 'economic final' in soccernomics should therefore be between Germany and Italy, with Italy lifting the World Cup.

But if England do well then the binge drinking will have effects on the economy for years to come!

Three years ago a government report found:

Alcohol abuse costs Britain at least £20 billion a year

17 million working days are lost to hangovers and drink-related illness each year - costing employers £6.4 billion.

One in 26 "bed days" in the NHS is taken up by alcohol-related illness

The annual cost to the taxpayer is £1.7 billion.

The cost of clearing up alcohol-related crime is a further £7.3 billion a year.

Drink leads to a further £6 billion in "social costs"

Four out of 10 men and 22% of women "binge-drink"

The binge-drinking period that was once confined to the late teens now often runs from 16 to 24

There are 1.2 million incidents of alcohol-related violence a year.

Four out of 10 visits to hospital casualty wards are drink-related, rising to seven out of 10 at weekends between midnight and 5am.

Between 800,000 and 1.3 million school children are affected by parents with drink problems, it added.

Check out the factsheet on binge drinking

It’s not just binge drinkers that suffer though!

A study reported in yesterday’s press has found that the vast majority of patients with alcohol relate cirrhosis were people who drink socially with friends, family and work colleagues. The classic cirrhosis patient is a married man in his 30s who drinks at the pub over the weekend and enjoys wine at home.

So, although Soccernomics has some interesting statements such as:

“Let us assume that everyone believe that Brazil has a 50% chance of winning the World Cup, that the odds are 2 to 1, in other words. If the punters get a return of twice their bet if Brazil win, they will not be that keen to place a bet because if the chances or winning and losing are even, the expected value is zero. Odds of 2 to 1 are only attractive to betters who assume that Brazil has a more than 50% chance of winning. Betters who believe that Brazil has a less than 50% chance of winning can then act as the counterparty and bet that Brazil will not succeed. “

and

“Our tentative conclusion on this basis is that not our ‘economic favourite’ Italy will win the World Cup, but Brazil, which will beat France in the final in Berlin. On its way to the final France will knock out Italy in the quarter-final and the Netherlands in the semi-final. “

alcohol abuse will also very much be in the news!

Chris Sivewright

Mobile Roaming Charges

Mobile telephone companies are probably making monkeys out of us with their roaming charges: that's the additional premium we pay when we take and use our mobile phones abroad.
The EU got itself involved last year and set up a web site to help us. The EU also wants the industry to regulate itself and moderate its roaming charges. Of course, no industry like that would voluntarily moderate itself as the roaming market alone is worth 10 billion Euros which represents around 10% of the total mobile phone market, according to the EU.

What are the other aspects of the problem? Just look at the variation in charges, from country to country:

... charges vary widely across the EU from as high as 13.05 euros charged to a Maltese consumer roaming for four minutes in Latvia to as low as 0.20 euros for a four minute peak time call made on a Finnish mobile contract from Sweden.
From the EU web site

The EU Information Society and Media Commission tell us that

The commission will make formal proposals on new regulation by June and if member states and the European Parliament give their approval in the following months, consumers could see the impact of the regulations by mid-2007.

In a key proposal, the commission was considering making operators charge a customer the price of call when calling locally while abroad in the EU and a normal international tariff when calling back home or to another EU country. Another proposal would be to eliminate roaming charges when someone received a call from abroad.

Brussels also wants to require operators to not charge foreign operators substantially more than the actual cost of a call and the commission will try to ensure that wholesale savings are passed on to consumers.

Of course, there are two sides to every story.

The head of the British telecom regulator Kip Meek said: "The high retail prices ... are held up by high wholesale prices and retail competition cannot address this effectively. Market pressures which would normally enable competition to bite don't seem to be working in this instance," added Meek, who is also president of the EU telecom regulators group.

... operators have vowed a tough fight against the the new rules, arguing that more regulation is not needed and could have unforseen consequences.

"European Commission proposals to introduce an additional layer of regulation governing international roaming services ... are unnecessary and could do long-term damage to a key European industry," said the GSM Association, a lobby which represents the industry.

See the EU web site for this dialogue: I have corrected some grammar and spellings you will notice!

So how much do we pay? Here are some example tariffs, again taken from the EU web site.

Assuming you are being called from home when using the Bouygues Operator when travelling in France and being based in five different EU countries.

I put a table here and Blogger deleted it ... it takes a while so just go to the page from the EU Web site to see this sort of thing:

if you're in France and from
the UK expect to pay from 3.45 Euro to5.81 Euro per minute for your roaming call
Germany expect to pay from 3.96 Euro to5.04 Euro per minute for your roaming call
Sweden expect to pay from 3.46 Euro to5.12 Euro per minute for your roaming call
Italy expect to pay from 4.00 Euro to4.00 Euro per minute for your roaming call
Portugal expect to pay from 3.87 Euro to6.20 Euro per minute for your roaming call

Big differences as we can see and none of them is cheap whatever anyone says!

Here's some advice for frequent travellers from the page of the EU website devoted to this problem:

Consider buying a local SIM card especially if you visit the destination country frequently. Your number will change while you are away but you will only pay local rates for your outgoing calls. This will be significantly cheaper if you need to make calls within the country you are visiting. But be aware that phoning your home country in such a way will be charged at international rates. You will also be able to receive calls without having to pay for them. Inform your family and friends that you have a new number. They will have to pay an international call to contact you but generally it will be cheaper than roaming.

Consider sending text messages instead of calling – this will reduce your charges. However, remember that the price for sending messages is not the same when you are at home. It can be considerably higher.

This is how I manage my trips to places I visit frequently, I buy another SIM card. Some countries' SIM cards are virtually given away, others are more expensive. However, the savings and inconvenience of changing SIM cards makes it a decent financial proposition and any business worth its salt would ensure that its employees take that course of action.

The EU has promised action from the mobile phone industry by mid 2007. Don't hold your breath waiting for the industry to cut their charges unless competition suddenly becomes important to them. It's really easy money for them.

Duncan Williamson

30 March 2006

Renewable Energy

The General Manager, E.ON UK Renewables, Jason Scagell, has made an excellent point:

Many years ago, Britain was powered by windmills and water mills and people burned wood to provide heat. It might seem strange to many people that we’re looking back to the past to answer our energy needs for the future.

Weird isn't it? Here we are at the most advanced stage in our history and we are going back centuries in terms of the generation of power. Of course, there are parts of the world where wood burning is still the norm.

So what are we doing about all of this to make it true? Well, E.ON already have many projects generating green energy, including 16 windfarms and the largest hydro-electric scheme in England and Wales at Rheidol and via UK Watch (a UK government service) we learn that

E.ON UK has given the go-ahead for the UK’s largest dedicated biomass power station, a £90 million ($157 million) 44 MW plant to be built at Lockerbie in Scotland. The scheme, which will supply enough green power to meet the needs of around 70,000 homes and displace the emission of 140,000 tonnes of greenhouse gases every year, confirms Scotland’s huge potential for both electricity generation and growing energy crops.

The 220,000 oven dried tonnes of fuel required by the station every year will come from the area: initially in the form of forestry residue but subsequently willow trees harvested by local
farmers.

You can red the rest of the UK Watch where this came from here. Just a page but looks nice!

Why not look at E.ON's introduction to biomass energy here: a nice flow diagram helps to spell it all out too; and you'll learn how biomass can be ‘dependent’ or ‘dedicated’!

Marvellous and you don't have to ben an environmental freak to appreciate this sort of news either. It's for the good of us all!

Duncan Williamson

28 March 2006

Companies tell us how good they are

There are people who haunt some discussion boards who think it’s bad to sell yourself. Here are just a few slogans from highly successful companies who achieved part of their success by convincing of how good they are.

The ultimate driving machine: BMW

Finger lickin' good: KFC

Because I'm worth it: L'Oréal

M'm! M'm! Good!: Campbell's Soup

When you care enough to send the very best: Hallmark

If it's Borden's, it's got to be good: Borden Inc

The World's Favourite Airline: British Airways

The King of beers: Budweiser Beer

They're G-r-reat!: Kellogg's Sugar Frosted Flakes

Top breeders recommend it: Pedigree Chum Dog food

A great way to fly: Singapore Airlines

Duncan Williamson

24 March 2006

Free Money

Free Money!!!!

No, honestly.

Wanna know how?

It’s simple. I refer you to this site where it says:

“Just a reminder that the price of both 1st and 2nd class stamps go up on Monday 3rd April. You might want to consider buying in advance - but only those with no value on them (i.e. 1st or 2nd). The lowest weight prices are both going up by 2p: to 32p and 23p”

I did exactly that. I bought £200 worth of stamps. This will save me 10% in the future BUT surely as retailers can sell stamps, it’s worth buying £50,000 worth and then you’re guaranteed 10% profit in addition to what you normally make…

I floated such an idea to the Post Office Manager.

He agreed.

So, here’s your chance – buy £10 for £9 and provided you can shift the stamps quickly, you’re onto a winner.

Thought: what about companies doing mailings – will they stockpile and then charge more?

Comments are invited.

Oxbow – no other site offers this!

Chris Sivewright

Top Down or Bottom Up?

At last someone has the brains to agree with me. After years working in developing/emerging economies, I have spent many hours trying to convince all and sundry that bottom up development is the best way to approach many things to do with economic development.

I'm not just talking about developing economies here either; but developed economies should take note too. Of course the money for development has to come from the top to pump prime things, from governments and, in some economies, state owned enterprises.

So who is as smart as me then? Well, it's none other than billionaire Vinod Khosla who helped to found Sun Microsystems and then made his name and his fortune as a partner at Kleiner Perkins, a Silicon Valley venture capital firm famous for its early investments in AOL, Amazon, Compaq and Google. Mr Khosla wanted to help his relatives and friends in India but ...

When [Mr Khosla] tried to start a project to help the mother country, he was initially frustrated by its bureaucracy and corruption. His first attempt to start a traditional top down charity failed, so he now funds only charities embracing micro enterprise approaches. A lesson he learned from India, he says, is that one has to think big: “Unless you influence the lives of at least a million people, it simply doesn't matter.”
(See A healthier addiction 23rd Mar 2006 The Economist)

Although micro enterprise approaches have proven exceptionally effective, I don't say that they are the only way to approach the development problem. Indeed, I have been primarily involved in Small and Medium sized Enterprise (SME) development; but this, again, has been largely a bottom up solution using top down funding.

Oh how wise we are!!

Duncan Williamson

Blind leading the blind

Blind leading the blind.

I have just finished a revision session with a Business Studies student. She is taking her examinations this afternoon. In common with so many internally examined courses, she has been told the questions. She merely has to learn the answers and she will pass the exam and then go off to University. (In fact last year a whole class failed all their exams but the college fiddled the results and they were all given a pass and are now at university – the wonders of private education!)

But…I digress.

One of her questions this afternoon is about a private company becoming a public one. She has made notes on this and, being very nervous, she merely wanted me to test her on her notes. One of her notes said:

A private limited company must have less than £50,000 share capital

I explained to her that this was wrong. She became very agitated and told me that this is what her dictionary said – and indeed in the A-Z book it does say this (page 214) – this is the book written by ‘leading examiners’.

For those of you who think these ‘leading examiners’ are right I advise you to look at the companies house site where it says:

“3. Is there a maximum and minimum share capital?There is no maximum to any company's authorised share capital and no minimum share capital for private limited companies. However, a public limited company must have an authorised share capital of at least £50,000 (and, if it is trading, issued capital of £50,000 - see question 5)”

This started me thinking. I remember years ago I read another textbook by a Chief Examiner (for those thinking about whether to be an Examiner or not think of the marketing possibilities if you make it to the top!). This clearly stated that the gearing ratio was Equity: Borrowed Funds

I was new to Business Studies.
I had no degree.
I had nothing really above A level and I hadn’t studied A levels for 6 years.

So I was unsure.

I phoned the Board – and no-one there knew. They advised me that if all my students put this ratio ‘it would be looked at leniently’. So even though I had five other textbooks saying the ratio was at best Borrowed Funds: Equity because this book was by a Chief Examiner then his word counted more than the others.

Or at least the same.

Since then I have wondered, as I look at mistake in marking guidelines and mistakes in exam papers, how many people studying Business Studies have been taught incorrectly – only to gain marks when they repeat the incorrect ‘facts’.

Just a thought.

Chris Sivewright

Global Warming? Brrr

Bucharest has been basking in glorious sunshine and relatively high temperatures this week. Then this morning I woke up to find snow on the roof of the University building opposite my bedroom window.

Even the locals are aghast at the way the weather is behaving at the moment: so unusual they say.

Then I was listening to the Today programme on Radio 4 via the internet and they were rabbiting on about global warming ... again.

So, do yourself a favour and take a different view: go and find an excellent book, State of Fear By Michael Crichton (the chap who wrote Jurassic Park among many others). The book is in novel format but he takes a serious view of some of the nonsense spoken in the name of global warming. Crichton spent three years researching the subject and he provides loads of references to articles, books and web sites ... all real and many well worth a read. I am sure you will be much better informed once you've read this book than you are now. It's enjoyable to read, too.

You can start by reading my review of this book (find the book in the menu on the left of the page) if you think you might need some convincing before you buy it

Duncan Williamson

23 March 2006

The Apprentice are

The Apprentice – are these really the cream?

Just finished watching the Apprentice on the BBC The latest person to be fired is Mani. Mani describes himself as having strong leadership qualities and being highly intelligent.

He showed his rapport with other team members in the following exchange:

Mani: Ruth was an autocratic leader

Ruth: Speak English. What’s autocratic?

Mani: Look it up in a dictionary. I really don’t have time for this

So, I thought I’d look at marvellous Mani’s business success…

From Google I got:

“Well, my name is Mani Sandher and I'm the Director of Sigma Organisational Learning. We're "... putting learning to work!"™ for companies, such as AT ...”

as an extract from his home site called Sigma The only problem is that the forward-thinking Mani, the ace planner Mani had, er, not renewed the domain name!

“This domain name expired on 02/16/2006 and is pending renewal or deletion.”

So I thought I’d look at his second business:

The 2nd Tier

This is written in true Mani-speak:

“Are you on a quest to make an authentic difference, one that transcends and includes making a healthy profit?”

I wanted to have a look at his blog so I clicked: “Read my weekly blog to see if I succeeded!” and got this

Oh dear – hardly a blog!

And these are the cream?

Perhaps the most interesting thing about the series – apart from how Sir Alan uses it as a vehicle to promote…Sir Alan and his wares, is the ‘Unauthorised Version e-book”

It’s available for just £2.99

Naturally I have bought a copy…..

Chris Sivewright

22 March 2006

Key Facts: the UK Budget

Key Facts about the UK Budget

2.5% economic growth and on target

Business investment to grow by 4.5 to 5.25%

Inflation at 2% and hitting expectations

UK ha5 second highest national income per capita in the g7

£516bn The government expects to collect £516bn in taxes from the UK in 2006-07.This is£29bn more than the previous year, with the largest chunk coming from income tax at £144bn. Corporation tax will provide £49bn, just £5bn up on 2005-06.

£11bn The budget deficit this year. The chancellor quoted the figure as a way of proving that the Budget would balance over the economic cycle. He said the deficit of £16bn this year would be followed by annual deficits of £11bn, £7bn and then an annual surplus of £1bn in 2009, followed by more surpluses of £7bn, £10bn and £12bn.This would total an overall surplus for the cycle of £16bn.

£37bn Net public borrowing this year the chancellor said this compared well with £90bn just over a decade ago. In following years, borrowing is predicted to be £36bn, then falling to £30bn and even more to £25bn, £24bn and £23bn in 2010-11. Borrowing would be 1.5% of national income compared to 8% a decade ago.

£36.45bn Net debt for the UK The chancellor reported that in the following years the figures would be 37.5% for 2007-08, 38.1% for 2008-09, 38.3% in 2009-2010 and 38.4% for 2010-2011.

2.8% The chancellor said that we are now entering the tenth successive year of economic growth, citing 2.8% as the average annual growth over that time. He expected 2.0% to 2.5% for 2006, 2.75% to 3.25% for 2007 and 2.75% to 3.25%for 2008. He said growth was now 'significantly higher than 2.1% average of the period 1979to 1997'.

£552bn The total projected spend by the UK government for 2006-07. Spending is expected to be up £33bn on the previous year with the largest sum, £96bn going on health, up £6bn last year. The smallest spend will be on housing and the environment at £19bn.

3,000 The number of new science teachers to be recruited under a programme to counter felling behind in science and maths. That will include money for 250 new after school science clubs. The education budget for this year will reach £73bn. Every advanced industrial country knows that falling behind in science and mathematics means falling behind in commerce and prosperity the chancellor said in his speech.
© http://pdf.accountancyage.com/aa_tax2_Mar06.pdf?id=0 220306
Accountancy Age Budget Edition 22nd March 2006 pages 4 and 5

Duncan Williamson

AQA AS June 2006 Case Study Resources now on sale

Hooray! OxBowBusiness has now made its innovative, nay revolutionary, AQA AS June 2006 Case Study resources available for sale. This is the S4U case study.

At just £25 a go, these major resources are a real snip.

Just go to http://www.oxbow.org.uk/cases/alevel.html, click on the buy now button and they are yours.

Duncan Williamson

21 March 2006

Hackers Crackers

Hackers have managed to get Windows running on an Apple Mac computer.

This was seen as an impossibility and the two gents who did the hacking and cracking won a prize of a few thousand dollars for their pains … no doubt they’ve won themselves a lucrative contract somewhere too and good for them!

The importance of this? Well, Apples have lagged behind Windows based PC because they have been unable to run Windows based software, especially games.

Question: what are the implications for the Apple - PC wars now if Apples can run Windows?

The implications are potentially huge, so what are they?

Duncan Williamson

19 March 2006

General Motors: one to watch

General Motors: one to watch

Now, I don’t like being the harbinger of doom but you really ought to keep your eyes on General Motors (GM), the giant American car manufacturer. GM is suffering exceptionally badly at the moment from a variety of ills that include:

sales problems

profitability problems

pension fund problems

Today the BBC reported that GM now has accounting problems:

the company has restated its profits for 2005 and will be restating profits for 2000 - 2004 as well. Not only have they restated their profits for 2005 but they have done so to the tune of $2 BILLION.

The company now says its losses totalled $10.6bn last year, with the additional $2bn caused by errors at a mortgage subsidiary.
http://news.bbc.co.uk/1/hi/business/4818950.stm 180306

Where are GM’s problems coming from? Market share for a start, you can download an Excel file (see link below) containing the company’s market share data from 1996 to 2003: for North America (the USA, Canada, Mexico), for Europe, South America and Australasia. Sorry reading it is as their car market share in North America has fallen from 1996 - 2003 from 32.7% to 25.7% (with a low of 25.4% in 2002). Trucks have held their market share in that market although even that fell, to 27% in 2000.

GM’s world wide market share has fallen over the 1996 - 2003 period from 16.2% to 14.6%.

Take a look at that Excel file and you’ll see that GM has suffered most in these markets over the whole period:

Loss of market share (absolute % change from 1996 - 2003)
United States: cars      -7.0%
Other North America      -6.8%
Mexico           -5.1%
Germany           -5.1%

On the other hand, some markets have gained market share:

Gain in market share (absolute % change from 1996 - 2003)
Argentina           +7.3%
Venezuela           +7.2%
Other South America      +6.8%
Source: http://www.gm.com/company/investor_information/docs/sales_prod/market_share.xls

More up to date information will be released by the company shortly no doubt but at least we can see from these figures the source of at least some of GM’s problems.

Is market share such a problem? Well, for a huge fixed cost based operation as GM must be, the answer has to be yes. Fixed costs are a problem because a company with a large fixed cost base will have a small margin of safety … remember cost volume profit (break even) analysis?

Moreover, GM says it will now delay publishing its 2005 annual report. Here’s a top tip for the future: whenever any business delays the publication of its annual report, it is more likely than not to be in trouble.

GM is well known to be in trouble but this latest restatement has come as a surprise to everyone as far as I can tell. You can find the following Investor Information on the GM website dated 16th March 2006:

General Motors Corp … today provided updated preliminary financial results for 2005 and said it will delay filing its annual report … due to an accounting issue regarding the classification of cash flows at ResCap, the residential mortgage subsidiary of GMAC.

The ResCap accounting issue relates to the erroneous classification of cash flows from certain mortgage loan transactions as cash flows from operations instead of cash flows from investing activities. Although the company has not completed its review of this matter, the issue will not impact either net income or the balance sheet presentation but is expected to impact the presentation of cash flows from operating and investing activities. This issue may impact the statements of cash flows for 2005 and prior periods at ResCap, GMAC and GM and the impact may be material in some or all of the affected periods.
http://media.gm.com:8221/servlet/GatewayServlet?target=http://image.emerald.gm.com/gmnews/viewmonthlyreleasedetail.do?domain=589&docid=24262 180306

The misclassification of assets as expenses and vice versa is a classic example of what accountants can do to distort the truth: it’s a fundamental error, by the way; and something that can happen through innocence or through criminal intent. I have no way of knowing which is the case at GM; but at the time of writing, it is being presented as a mistake.

GM is desperately looking to raise cash from the liquidation of some of its assets/investments. The BBC again:

Earlier this month GM announced plans to raise $2bn through the sale of 17.4% of its stake in Japanese carmaker Suzuki.
http://news.bbc.co.uk/1/hi/business/4811014.stm 180306

As a measure of GM’s problems, they have been rumoured for many months now to be considering selling its most profitable segment, its financing segment: want to buy a car but don’t have the cash … borrow it from GMAC (what does GMAC stand for?). All large companies have their own financing arm these days, British, American, German …

GMAC Financial Services includes automotive financing, commercial finance, insurance and mortgage products and real estate services. We have a presence in more than 40 markets around the world and have been a wholly owned subsidiary of General Motors since 1919.
http://www.gmacfs.com/us/en/about/business/index.html 180306

How large and profitable is GMAC? From their annual accounting filing report (Form 10K-A) their total revenue (sales) in 2004 was $20.331 billion and their post tax profit was $2.913 billion. 2004 is the latest year for which information is available from the company.
Source: GMAC Form10K-A Amendment 1 14th March 2005 page 7

Why would they want to sell their stake in GMAC after almost 90 years of ownership? Why sell of their most profitable segment? Well, according to another report from the BBC, this is why:

Analysts speculate that GM wishes to sell a stake in GMAC both for the immediate cash injection, but also to improve GMAC's credit rating, which has been dragged down by GM's own "junk" score.
This would enable GMAC to borrow additional funds at a cheaper rate.
http://news.bbc.co.uk/1/hi/business/4811014.stm 180306

Notice that they are speculating that GM would not sell all of GMAC but just a part of it. Did you also notice that GM’s own bonds (loans) now have junk status? They are no longer valued very highly by the market because they are seen as being risky now.

Why are GM’s bonds considered to be risky? Ever heard of the trade off between risk and return? On average, if a business is not risky, we might accept, say, a 5% return (net profit, return on investment, whatever you are measuring). If, on the other hand, a business is seen to be risky, you might say, OK I’ll invest but I want a return of, say, 12% because of the risk of earning nothing or losing everything.

That’s the way risk and return really are traded off against each other.

What makes a business risky? Consider these and add examples of your own:

poor sales record

poor profits record

poor product portfolio

weak management

threat from other competitors

end of a product life cycle with no new products in the pipeline

operating in an emerging economy

operations overseas have currency restrictions

Still not convinced that GM is in trouble? Go to their Investor Relations page and take a look at all of the corrections to their annual report that they have issued recently. There are a lot more than a normal company should issue: go to http://www.gm.com/company/investor_information/sec/ (accessed 180306)

Conclusions

GM is definitely a company in serious trouble. The share price has nose dived over the last 9 months or so and should GM go under, there will be serious repercussions given the level of its sales and the number of people it employs. A dead GM would cast a long shadow over the USA and the motor industry.

As a matter of interest, GMAC stands for General Motors Acceptance Corporation … not a lot of people know that!

Duncan Williamson

16 March 2006

AQA Center Parcs Case Study Resources Part 3

Center Parcs: Marketing part 3

All parts of this analysis can be found here.

Unusual to put it in a blog I suppose, but just in case you need it and haven't seen what we've done already, this is part three of the four parts of the FREE analysis of the AQA GCSE Case Study Center Parcs for the June 2006 examination.

Did you try the quiz that went with yesterday’s work? If not, go to http://www.oxbow.org.uk/ and click on quizzes … you’ll find it.

Also you were given the task of rereading the Stakeholders section of the case because that’s what we are discussing today. It’s all on page 9! These are today’s topics, then:

Employees

Local Economy

Local Environment

Employees

This is a dangerous section of the case study because there is very little in it. However, there are clues as to what they might want you to talk about.

Confused? You won’t be!

Part Time Workers

Firstly, there is a large number of staff working for CP, 5,870 in all but we are told that most of them work part time.

( you might be asked to discuss why so many employees are part time employees.

Question What would you say to that?

well, part time employees are cheaper than full time employees … do you know why?

part timers may be job sharing … oooh, what’s job sharing?

does that mean that many staff are female then? are most part timers women?

Then the case does give us two further things to think about here

it gives it greater flexibility in arranging work rotas

helps to improve efficiency, as more employees can be used at busy times

Training

Then there is training; and we are told that CP believes that it is important to invest in the training of employees in order to get the best from them.

And … ? See, there is so much that they could say here but they haven’t. So,

( be ready to discuss training, on the job, off the job, sitting by Nelly, formal, informal, certified training, undergraduate training. Then there are the costs involved …

Question give five examples of costs incurred in a training programme

1 __________________________________________

2 __________________________________________

3 __________________________________________

4 __________________________________________

5 __________________________________________

Motivation

Then we are told that the company realises that employees need to be well motivated; and that One way in which it tries to do this is by rewarding employees’ achievements.

( good … what would that be then?

Question a) Define motivation and say why it is important that employees are well motivated
b) Give three possible effects on company performance of employees who are badly motivated
c) Say how a company can reward its employees’ achievements: give specific examples to support your arguments.

These are crucial questions for you to answer. Whilst it’s really dangerous to try to spot questions, there does seem some scope in this part of the case study for the examiner to ask the kinds of questions we are giving here.

Communication Systems

The case says It also makes sure that there are good communication systems, so staff are kept up to date with company policy.

( Does anyone believe that a good communications system simply means keeping staff up to date with company policy?

Hands up everyone who thinks that.
How many hands can you see, everyone?
None?
Me neither!

Question a) Define what you mean by an employee communication system. Give three examples of effective employee communication.
b) What is company policy? Give four examples of company policy for each of CP and any other company with which you are familiar.

Employee Retention

Is it a surprise or just a shock that we are told that CP realises that it needs to retain good employees?

This might lead to a discussion of labour turnover. So:

Question Define labour turnover and say why labour in CP might turn over: give concrete examples to support your arguments.

This is getting ridiculous: they are just spilling out lots of ideas to cram as many business concepts and ideas into the case as they can with very little development for our benefit.

Team Work

The best way to look at team work is to look at what the case says and then work through a series of questions.

Well, that’s my story anyway!

CP believes it is important that its staff should work as part of a team. The Company states that employees are more productive working in a team than operating individually. Employees are set targets against which they are monitored to see if they are working efficiently.

Question a) What is meant by being more productive?
b) Define productivity
c) Give four examples of where teamwork is an advantage
d) Give four examples of where teamwork is a disadvantage
e) What is meant by targets for employees and how are they set? Give realistic examples.
f) Define efficiency

Another Question a) Why have they given us the CP Mission Statement?
b) What is a mission statement?

Local Economy

Same stuff as before now. Remember the key part of this examination that I just mentioned: they want you to know and discuss key business concepts and ideas. The section on the local economy is like that. Here is that section with the key concepts and ideas highlighted.

CP is the main employer in each of the immediate areas in which the villages are located. The local economy benefits financially from the business. Jobs are created at the CPs’ villages, and local businesses are used whenever possible to supply goods and services. The employees’ wages and suppliers’ profits will also generate more wealth in the area when they are spent. CP must also pay local business rates. This brings more money into the areas in which CP operates.

Task Find, define, understand and learn how to use and discuss each of the concepts and ideas that I have highlighted. One way of doing that is to write a new sentence using the word or phrase highlighted: you might even combine the concepts and ideas in one sentence … you choose how to do it. The important thing is that you know how to use these things properly … that comes from having identified the ideas and learned the.

For example, from me:

It is important to realise that as the main employer in the immediate area, CP has a great responsibility to the local economy. As CP grows, jobs are created and the local economy benefits financially.

There you go … try it yourself now. It’s not difficult once you’ve tried a few.

Local Environment

Similarly, let’s look at what the case says about the local environment and then let’s explore what they’re talking about.

Local authorities are becoming stricter in giving planning permission for rural locations to be developed as holiday villages.

Great care was exercised in planning the villages so that the impact on the natural forest environment was kept to a minimum. Pressure groups have become increasingly concerned about environmental damage caused by businesses. CP, however, has received several awards for its commitment to the environment.

Planning Permission

Task go online to your local council’s web site and search for planning permission if you can. If you can’t search there, use your favourite search engine and find what planning permission is in the UK … it will be different in different countries so stick to the UK.

I did that for Vale of the White Horse district Council, my local; and got some good information.

If you can, try to find a few case studies of who did what.

Now why not take a look at a council where holiday companies/hotels and so on are bound to apply for planning permission? Go and have a look at Brighton and Hove Council’s pages on planning permission … http://www.brighton-hove.gov.uk/index.cfm?request=b1000100 There’s a lot to look at but you don’t need to read and make notes on everything. Don’t like Brighton? Try Blackpool, Scarborough, Bournemouth ... you choose

Pressure Groups

Pressure groups are a favourite with examiners for some reason. Take a look at these web sites where you can several examples of pressure groups …

Wait a minute, before I give you those links, how many pressure groups do you already know? Name them? Go on, name four pressure groups:

1 __________________________________________

2 __________________________________________

3 __________________________________________

4 __________________________________________

Now, those links:

A HISTORY site: http://www.historylearningsite.co.uk/pressure_groups.htm who’d have thought that history could be so relevant?! There you will see the answer to such questions as these:

What are pressure groups?: click on this link and you’ll find a useful list of pressure groups

What are sectional pressure groups?

More good examples here: http://www.uknetguide.co.uk/News_and_Weather/Organisations/Pressure_Groups.html and when you click through the links on that page you’ll see some really good examples of the issues they are pressurising the government and business with!

From Australia … not a problem to be international here http://hsc.csu.edu.au/pta/scansw/powgps.html

Environmental Pressure Groups

You must include at least a search of at least two of the following environmental pressure groups: they are specifically mentioned in the text of the case.

Take your choices from this one site, Greenphase, which lists a huge number of them: it’s an environmental directory http://www.greenphase.com/organisations.html. You can choose from:
(image placeholder)
UK Organisations and Pressure Groups
(image placeholder)

British Ecological Society

Campaign for Nuclear Disarmament

Environmental Law Foundation

Ethical Consumer

Fairtrade Foundation

Friends of the Earth UK

Foundation for International Environmental Law & Development

Greenpeace UK

NSCA: National Society for Clean Air

Word Wildlife Fund UK

Waste Watch

If you know and prefer different pressure groups for the environment, fine, use them.

That’s it for today.

Homework For tomorrow this is what you need to do:

Reread the Competition and Finances sections of the case because that’s what we will be discussing tomorrow. It’s all on page 10!

Duncan Williamson

Buy the book then buy the t-shirt?

Buy the book then buy the t-shirt?

Some Business Studies teachers seem to think I have a hatred of Ian Marcouse

Well, I don’t.

Ian Marcouse was AQA Chief Examiner from 1994-2004. That’s the exam board where – as newspaper articles tell us – there was ‘cause for concern’ about the standards and, more recently, I have shown you can pass easily after a day of tuition.

Naturally Marcouse would reject my claims about falling standards – at least I assume so. After all if as subject is easy then why buy all the textbooks him has written and other products he produces?

But, I stray from the point.

This blog entry is about ETHICS. Not Marcouse’s ethics or even those of the EBEA (Marcouse is Chair of the EBEA) so I’ll leave aside how the EBEA journal printed my review of a book which systematically showed how the book was rubbish – and then the journal printed an apology to the publisher and banned me from reviewing!

No, as I said, I’ll leave that aside.

I’ll also not mention the post to the EBEA discussion group by Geoff Riley of tutor2u where he called me a liar – even though I was not a member of the group (having previously been banned for calling someone else a liar).

No, I’ll leave that aside. (Riley was shown to be wrong but of course no apology came and neither did any form of censure.)

This is about ethics of exam boards.

In particular about their email support service

Now, you might say that it was commendable that Edexcel (like Oxbow) offer something for free – but they don’t.

And that’s the problem.

This is what you get:

Highly topical business case material

GCSE classroom activities and worksheets

Monthly updates from Senior Examiners and Moderators

Fully up-to-date Scheme of Work with references to useful materials to support your teaching (from September 2005)

Monthly message board, listing training events and student conferences

Reviews of new text books and classroom materials

Source: www.edexcel.org.uk

All very good – others such as tutor2u provide a similar service – more expensive and without the reviews, but it may be better.

That seems to be fine. Tutor2u are independent – there is no feeling that you ‘have’ to buy this product as it’s directly for your exam.

But there is a perception that this is the case for Edexcel.

Edexcel, for example, refuse to answer any queries about the GCSE syllabus unless you can give a centre number – which if you’re freelance, then obviously you cannot. So clearly they’re not the most helpful of organisations.

Certainly Edexhell were not too impressed.

And now they’re selling via Marcouse, an email support service.

There used to be a joke that AQA worked for Marcouse, not the other way round. I remember a few years ago AQA were telephoned and asked about conferences in general. They plugged various conferences but warned people off conferences ’run by Oxford School of Learning, especially by Mr Sivewright.’

I know they said that because they said it to me – having forgotten to ask the name of the caller!

I guess I still support the Cone-Campaign stance over all this – exam boards should examine only - and they should all merge as one.

We want to educate, NOT steer pupils through hoops closely defined by first the syllabus, then the Chief Examiner’s book and then pay more for the email support service.

How long before we buy Edexcel pens as the ‘essential aid to writing smoothly in exams’?

Buy the exam – not the t-shirt!

13 March 2006

Economics Terms from the Bank of England

You will have gathered that I am reading a lot of things published by the Bank of England at the moment. Here's another one: the Bank publishes a wide number of booklets, papers and articles for student and practitioner alike. In the latest edition of their booklet for students Target Two Point Zero they highlight a number of words and phrases ... these are key words and phrases that any busines studies and economics student ought to know.

Here are those words in the order in which they appear in the booklet ... learn them and understand them

Narrow money
Notes and coin
M0
Nationwide Index of house prices
Halifx Index of house prices
Balance of trade
Total goods export volumes
Total goods import volumes
Goods export prices
Goods export prices (excluding oil)
Goods import prices
Goods import prices (excluding oil)
Index of production
The output of the production industries
Manufacturing output

Question By the way, you do know why they call this publication Target Two Point Zero don't you?

Go to the Bank of England web site and subscribe to this booklet yourself ... it's free for you and will be delivered to your in box automatically every time it's published. All you have to do is open it and read it.

Duncan Williamson

Vodafone ... watch out!

Vodafone is in serious trouble as anyone who reads my blogs and follows my web site will appreciate.

The latest outpouring from the company is that their Honorary Life President, Sir Christopher Gent has left that post. Now, how can you leave a life presidency? OK, it's happened.

Secondly, everyone at the top of the company is vehemently denying that anything is wrong and that there are plots and counter plots to get rid of the current CEO Arun Sarin. Well, given that Vodafone's financial results have been awful for years and that these men simply do not seem to like each other, the denials confirm one thing: they ARE all plotting against each other and Arun Sarin will either be the last man standing or the next to go.

Just my two penn'orth.

Duncan Williamson

11 March 2006

Inflation

This post simply reflects the fact that anyone studying business, economics and accounting related subjects really should be reading the articles and papers published by the Bank of England.

In this post I am going to highlight the main points stemming from the BoE booklet from 2004 entitled Low Inflation and Business (hyperlink to the PDF given at the end of this post).

Firstly, the purpose behind the BoE booklet:

The United Kingdom has experienced low and stable inflation over recent years. This has probably diluted memories of the high inflation and economic instability that once seemed to characterise the UK economy. This pamphlet explains why economic well being depends on maintaining stable prices. It outlines the benefits of low inflation to business and the wider community and describes how the Bank of England undertakes the task of setting interest rates to meet the Government’s inflation target.

Secondly, how does the BoE define inflation ... is this the same as the definition you use?

... inflation ... is a widespread rise in the level of prices across the economy.

There is a perhaps surprising chart (see the end of this post for a copy of it) in the booklet in that inflation in the UK was pretty stable over the period 1700 to around 1920. Since 1920, however, the behaviour of UK inflation has changed dramatically. Sorry but the quality of the image here isn't as good as it is in the booklet (right click the picture and save it and it will look good!): the impression it creates is clear except atht the vertical scale is logarithmic ... what does that mean and how does it have an effect on the impression that an arithmetical scale would have?

Just look at the commentary on this chart on page 2 of the booklet ... download it from the BoE site ... link provided at the end of this post.

There are two further charts that help to explain what generates inflation: growth of the economy and the money supply. Not shown here because of the quality issue. They also mention the shock to inflation of such things as sudden and significant oil price rises.

What's Wrong with High Inflation

The BoE make a good job of telling us why high rates of inflation can be a bad thing. They also make the point that the UK suffered very badly from high rates of inflation in the 1970s and into the 1980s. Here are the headings the BoE uses in this section:

Hampers longer term planning
Increases risk and borrowing costs
Economic instability
Misdirects resources
Less equitable

Read the booklet to find out what they say under each heading: although I have changed the order of these five points, I think the first three are clear and you can guess what the BoE says here but the second two might be a bit more difficult for some of you.

Inflation Flowchart

There is a very useful flowchart (repeated at the end of this posting) that the BoE has presented that helps to explain how inflation really comes about. The flowchart follows and again, if the quality of the graph is not so high for you, right click and save it and deal with it from there!

The rest of the booklet then takes us through that flowchart and discusses both the way the monetary policy committee (mpc) works and includes a number of useful points on the good points concerning low rates of inflation.

Lower Inflation

Lower interest rates can affect consumers’ and firms’ cash flow: a fall in interest rates reduces the income from savings and the interest payments due on loans.
Lower interest rates can boost the prices of assets such as shares and houses.
Changes in interest rates can also affect the exchange rate. You need to read page 5 of the booklet to follow up on this assertion.
So lowering or raising interest rates affects spending ... Changes in spending feed through into output and, in turn, into employment
The Bank’s remit is to deliver price stability, as defined by the Government’s inflation target of 2% and, subject to that, to support the Government’s economic objectives including those for growth and employment.

There is a key question stemming from any debate on UK inflation which is why is the target set at 2% ... read page 7 of the booklet!

Finally, on page 8, the BoE says this:

Achieving and maintaining low and stable inflation is a foundation for many of the economic and social objectives that most people would want to see achieved. Crucially, it is an essential ingredient for sustainable growth in investment, output and jobs. The present monetary policy framework is designed to deliver a more certain environment in which businesses can plan and operate. If the Bank of England can deliver monetary stability, businesses can concentrate on what they are good at, producing competitive goods and services, without having to be concerned about high inflation and its consequences. That is a big difference.

Graphics

Double click thes graphics to enlarge them: right click to save them

You can download this booklet by clicking here

Duncan Williamson

10 March 2006

Motivation ... Brainiac style!

OK, so Brainiac isn't exactly the finely tuned end of science but there is one snippet that I thought was well worth reporting as it concerns the popular business studies topic of motivation.
Brainiac thought it was worth testing an unemployed young man of straw (ie poor as a church mouse) to see if they could assess the effects on him of various forms of motivation. He would have won £100 in cash if:

he'd caught up with a man on a bike and taken the £100 dangling from the back of the bike: all he had to do was run after the bike and catch. The bike had head start and the guinea pig had a standing start.
he ran 100 metres faster than 16.2 seconds: that was his best ever time at that distance up until this test
he ran the 100 metres faster than 16.2 seconds (as above) when being chased by a trained Alsation dog!!! (he was wearing padding on his arm, which is where the dog was trained to attack people!)

1 the bike was too quick for the guinea pig and the man stopped running once he'd realised it was a pointless exercise ... no £100 reward

2 he failed to achieve a better time than his previous best ... no £100 reward ... and in my opinion he didn't look to be trying too hard

3 despite the motivation of being caught and mauled by a well trained guard dog, his time here was a full five seconds slower than under activity 2 ... no £100 reward

I thought this was a good experiment for Brainiac and is a useful one to discuss and replicate ... consider Maslow's hierachy for example and try to work out why under experiment 2, where the guinea pig should have had the best chance of success, he still failed.

If you saw and remember this episode, you may have more of an opinion than anyone who didn't!!

Duncan Williamson

Database interrogation ... Chicago style

I have always been a great fan of databases: they can not only contain masses of fascinating data but they allow us to interrogate them to turn those data into information.

I just came across a database that I heartily recommend because of the way that we are able to interrogate it ... just as a thought process it's fascinating. The subject of the database is interesting albeit not entirely business related.

Just take a look at http://www.chicagocrime.org/ which, according to a BBC web site discussion on the impact of the collision of technology and media ... puts government provided crime data on Google maps and lets people drill down into detail.

OK, at first you might want to know about the most grisly or sad things that have happened to people in Chicago over the last 24 hours, or last week ... then get into information retrieval and analysis mode and just appreciate the power of the database. They allow us to sort or classify crimes by date by type by street ...

Just play around with the database and then consider questions such as these:

how could you as an individual or family member benefit from the information you have retrieved
how can businesses benefit from the information you have retrieved
what are the implications for the police service in Chicago (and probably other cities and world wide) of the information that we and they can retrieve from the database
what are the political and societal implications of having retrieved the information

See why I think it's fascinating? There is so much to go on now. Go and look, go and retrieve, go and analyse.

Duncan Williamson

09 March 2006

Bad behaviour

Just lately I have been advertising at Daily Information for people who wish to share my house. There are several bedrooms currently available and I am seeking people to move in who will not upset the balance here. A house with 10 occupants needs to be treated carefully as one unruly/inconsiderate new member and disharmony results.

One of the people who telephoned works for OPP which until the person rang, I did not know even existed. I visited the site and found several interesting aspects that can be used in class. The site says: “With over 15 years experience, we help clients throughout Europe to optimise their effectiveness at individual, team and organisational levels.”

Clearly effectiveness at work is reduced if there is ‘bad behaviour’ by members of staff -just as the house would be unsettled by ‘bad behaviour’ by tenants. Oddly, bad behaviour seems to be even encouraged in The Apprentice where surely Jo should have gone by now?

If we take the view that “give me the child at the age of seven and I will give you the man” (which is based on the writings of Francis Xavier ) then perhaps ‘bad behaviour’ is first exhibited at home, then school and then work. Clearly it would be difficult to identify all the factors causing bad behaviour at home (apart from a junk food diet ) so I was interested to read a thread in the Times Education Supplement forum where teachers posted the reasons for bad behaviour. The TES started by identifying ten reasons for bad behaviour:

“…..consumer culture; the increase in the number of working mothers; changes in the family structure; a lack of sleep; limited amount of outside play; a lack of communication between adults and children; poor diet; increased use of technology; the increasingly competitive ethos in education and the erosion of good manners.”

Teachers then added a lot more (my post is post 4).

Which brings me back to bad behaviour at work and low productivity etc. Maybe if some of the motivational techniques were applied at school as part of lessons on ‘business citizenship’ perhaps then 10 years later employees would behave better? Or is bad behaviour at work merely a symptom of society - and should we look to society to improve and thus productivity at work?

I don’t know the answer but certainly there is scope for the application of business psychology techniques to be applied to school.

Chris Sivewright

MPC Simulation

Go to my post What the MPC REALLY talks about and gather as much of the information highlighted in there as you can and then in groups of 5 or 6 people make your recommendation for what the MPC should decide over the next two days: they start their two day meeting today, 9th March.

Duncan Williamson

Customer Relations ... more

In an earlier posting (see the archive for 12th February, Shite Kudasi), Chris told us about his experiences as a member of Esporta in Oxford and his efforts to get the staff and management there to resolve his problems. He feels he failed. Well, is Chris alone in bemoaning the passing of good service? Is he, more to the point, alone in bemoaning the passing of service to the company he believes is failing him?

Crucial questions both and in the latest edition of Knowledge at Wharton, there is an article tailor made to answer the questions ... more accurately to provide pointers to organisations like Esporta who may fail as a result of failing to answer the questions properly.

Here is the beginning of the article: it's a lengthy article and although I have taken the following verbatim, I am providing a full link to the original and am acknowledging that this relatively short extract is not my own work. I have highlighted what I consider are the links to Chris's Esporta problems!

Beware of Dissatisfied Consumers: They Like to Blab

It's cold and rainy and the car park outside the shop is packed, except for a spot way out in the corner. The shopper pulls up, only to find a shopping trolley blocking the space. Inside, the shop is jammed. The digital cameras are hard to find and it's impossible to know why one costs $150 and another $300. The two models that are on sale are out of stock and it takes an assistant five minutes to bring another one from the back of the shop. At the check out, the queue is stalled while those on either side are flowing smoothly. Finally, when the customer reaches the cashier, he is told his $25 off coupon is not valid until the next day.

Wharton marketing professor Stephen J. Hoch, who suffered through this scenario first hand during a recent shopping trip, says customers are bound to talk about these kinds of experiences; and, according to new Wharton research, such word of mouth communication should be a big cause of concern to retailers.

Results of The Retail Customer Dissatisfaction Study 2006: conducted by The Jay H. Baker Retailing Initiative at Wharton and The Verde Group, a Toronto consulting firm, in the weeks before and after Christmas 2005: show that only 6% of shoppers who experienced a problem with a retailer contacted the company, but 31% went on to tell friends, family or colleagues what happened. Of those, 8% told one person, another 8% told two people, but 6% told six or more people. "Even though these shoppers don't share their pain with the shop, they do share their pain with other people, apparently quite a few other people," says Hoch.

Overall, if 100 people have a bad experience, a retailer stands to lose between 32 and 36 current or potential customers, according to the study.

The complaints have an even greater impact on shoppers who were not directly involved as the story spreads and is embellished, researchers found. Almost half those surveyed, 48%, reported they have avoided a shop in the past because of someone else's negative experience. For those who had encountered a problem themselves, 33% said they would "definitely not" or "probably not" return. "This storytelling has even more impact on the people the story is told to than the people who told the story," says Hoch. The data is based on a survey of 1,186 shoppers.

That's enough to whet your appetite isn't it? In summary, the rest of the article says this:

Those surveyed were asked to discuss their most recent shopping experience. Half said they had at least one problem. On average, survey respondents reported experiencing three problems on the shopping trip, during which they spent an average of $163. The top three categories of merchandise purchased were clothing, 23%; groceries, 16%; and electronics, 12%.

That's a lot of problems isn't it? Is this your experience of shopping where you live?

Paula Courtney, president of The Verde Group: "To make a story worth telling, there has to be some entertainment value, a shock value," says Courtney. "Storytelling hurts retailers and entertains consumers."

Parking was a major source of aggravation for shoppers ... parking problems set the stage for customers to "arrive angry,"

... shoppers surveyed complained that it took a long time for them to be waited on (24%) or to pay (33%). Shoppers who had to wait for service complained about it to 2.1 other people, on average and those who had to wait a long time to pay told an average of 1.4 people.

... shoppers are likely to tell 2.5 people, on average, about their inability to find an item because the shop was cluttered with merchandise. "Retailers are putting as many jeans and shirts out as they can get on the racks." In the end, she points out, retailers will wind up reducing the price on merchandise to make up for the negative experience, eroding their profit margins.

... men were more likely to complain. "It's clear that males are hunters and gatherers and females are grazers and gleaners. When the male is frustrated in his attempt to get the task accomplished, he is more likely to be irritated. Females are more interested in the customer service interaction."

Go to your local Tesco (don't know about other retailers) and you should come away having disagreed with the next point that comes from this article:

... despite the value in learning about consumer gripes, retailers have resisted asking their customers what they do wrong for fear of stirring up negative thoughts, Courtney adds. "They have been reluctant to present consumers with a laundry list of things they may have experienced because it would turn people off."

Tesco has a board, certainly in the Abingdon branch, that lists suggestions and comments that customers have made and the responses of management to them.

Courtney recommends that retailers pay closer attention to recruitment and hiring of front line sales people and other workers with direct customer contact. "The least trained, lowest paid people are the ones you put in front of your customers ...

... "Retailers that are responsive and friendly are more likely to smooth over issues than those that don't try to be as friendly as possible. Maybe something as simple as a greeter at the beginning of the shop or at the end would help. Some people say the personal touch doesn't matter, but I disagree."

I think that's a really useful summary article for retailer, customer and student alike.

You can find the original article here: http://knowledge.wharton.upenn.edu/article/1422.cfm

Duncan Williamson

08 March 2006

What the MPC REALLY talks about

The mpc meets on Thursday of this week (9th March) ... you have heard of the mpc haven't you? You know, the Monetary Policy Committee of the Bank of England ... the committee that sets UK interest rates. Well, what do they talk about every month? After all, all we hear is that interest rates stayed the same, or not; and in general who said up or down or stay. But what do they really talk about as they arrive at their decision?

Let's take a look at the MPC meeting held on 8th and 9th February 2006 shall we? The answer's yes, we shall!

The minutes are freely available at the Bank of England's Web Site and the link for that is given at the end of this post.

In addition to talking about its projections for output and inflation, the MPC discussed:

developments in financial markets
the international economy
money, credit, demand and output
costs and prices

Developments in Financial Markets: one thing that comes across clearly here is that the committee members are taking their lead from the people who influence the financial markets. They say things like, Sterling money market instruments implied that interest rate expectations were broadly flat over the next year or so ... Both UK and US long-term implied forward interest rates had been little changed on the month ...

They also admit that they don't know everything: they say such things as, There had been a rise in long-term forward rates in the euro area, the reasons for which were unclear. (emphasis added)

The International Economy: several paragraphs under this heading are devoted solely to the USA and we shouldn't be surprised by that as it is the most important single economy in the world. The Euro area and Japan are also given star billing: again quite rightly. Oil and other energy sources are a key factor and feature here too.

The minutes illustrate the sorts of background reading that members do when they discuss the Purchasing Managers Index (PMI) and the European Commission industrial confidence [data].

Money, Credit, Demand and Output a total of five paragraphs of discussion under this heading. Interestingly, we can see again what it is that members of the committee are reading for background ... things that you and I might read. Take a look:

Data from the Office for National Statistics (ONS)
The CIPS/RBS services business activity index
The CIPS/RBS manufacturing index
The BRC- KPMG Retail Sales Monitor
CBI Distributive Trades Survey
The average of the lenders’ house price indices [they don't mention their sources here]
The annual growth rate of the M4 monetary aggregate [again no mention of sources]

Costs and Prices the committee began by talking about the unemployment rate increasing to 5.0% in the three months to November and noted that it is at its highest since 2003. They then suggest that The slackening in the employment rate might have reflected the beginning of an unwind in the labour hoarding that had been a possible explanation for the low productivity growth recorded recently.

Then they concluded that If that were the explanation, it was possible that employment growth could remain subdued for at least another quarter or two.

Pay settlements came next, followed by a discussion about average earnings growth. That, probably naturally, let to the thought that they ought to discuss

overtime and other elements of non basic pay
productivity
profits
activity

Finally in this section the said that an advance estimate of CPI inflation for January had been provided to the Governor ahead of publication. This had indicated that inflation was 1.9% in January. There were also revisions to the past data. In particular, the December inflation rate had been revised down from 2.0% to 1.9%.

The February GDP growth and Inflation Projections The central projection for CPI inflation, on the market based assumption about the path of official interest rates, was for it to remain close to the 2% target throughout the forecast period, as a declining contribution from the prices of energy and imported consumer goods was offset by a gradual increase in the pressure of demand on capacity.

The Committee’s best collective judgement was that the key risks to the central projection related to:

the outlook for consumer spending;
the prospects for net exports;
the sustainability of low long term interest rates;
the margin of spare capacity;
the evolution of energy prices and their impact on inflation.

There was a range of views among members, but the Committee judged that, relative to the central projection, the overall risks were to the downside for growth and broadly balanced for inflation.

Stemming from the above, then, The Committee’s projections for GDP growth and CPI inflation conditioned on a constant interest rate of 4.5% were similar to those based on market rates, reflecting the broadly flat interest rate profile implied by the market yield curve for the next two years.

Which led them to their decision for the month ... in the following section, there are a lot of arguments but they have been signficantly condensed in the minutes and I have condensed them even further here.

The Immediate Policy Decision Against this backdrop, there were a number of arguments in favour of leaving the Bank’s official interest rate unchanged, to which different members attached different weights.

So how did they arrive at their final decision ... what did they take into account?

global growth
demand growth in the UK’s primary export markets
consumption
the housing market
post tax labour income
saving rate

That was followed by discussions on:

GDP growth
the housing market and consumption again
inflation
consumer price inflation
energy prices more generally
prices of energy and imported consumer goods
demand on capacity
energy prices yet again
GDP growth
capacity utilisation
spare capacity in the economy
consumption
investment
inflation

Finally, the vote The Governor invited the Committee to vote on the proposition that the repo rate should be maintained at 4.5%. Eight members of the Committee ... voted in favour [one] voted against, preferring a reduction in the repo rate of 25 basis points.

The minutes are freely available on the Bank of England Web Site.

Duncan Williamson