Chinese toys 3: Mattel Climbs Down ... a bit
Following on from my previous two articles on this topic, I felt it useful to report that there is an article in the 28 th September – 4th October 2007 edition of The Economist in which Mattel offers an apology of sorts. Here are what I think are the main points of that article:
Mattel tries to rescue its relationship with its Chinese suppliers
The apology was late, reluctant and was no sooner made than it was partly retracted. "Mattel takes full responsibility for these recalls and apologises personally to you, the Chinese people and all of our customers who received the toys," said Thomas Debrowski, a senior executive at the world's biggest toymaker, which has had to recall 21m toys this year. His words came in a meeting in Beijing on September 21st with Li Changjiang, the chief of China's quality watchdog. But a few hours later Mattel said that the nature of the meeting had been "mischaracterised". The apology in Beijing was not a kowtow to the Chinese, it said, but merely an elaboration of the apology it had already made to consumers all over the world.
Mr Debrowski had not intended to talk to Mr Changjiang in the presence of journalists, but Chinese officials made it a condition for the meeting. After months of what they consider to be unfair accusations of shoddy production, the Chinese felt a public apology was long overdue. On September 5th Mattel had told an American Congressional committee that its recall of 17.4m toys containing a small magnet that could be swallowed by children was due to a flaw in the toys' design, rather than production flaws in China. As for some other toys recalled because of allegedly hazardous levels of lead in their paint, Mattel admitted that it had been overzealous and is likely to have recalled toys that did not contravene American regulations on lead content.
The rest of the article then discusses the various supply chain problems that foreign companies face when doing business in China. The article also discusses the potential for and consequences of bribery and corruption. For example, Corruption, blackmail and counterfeiting are rampant. Eight buyers at Carrefour, a French supermarket chain, are under investigation for accepting kickbacks from suppliers. Zheng Xiaoyu, a former boss of the State Food and Drug Administration (SFDA), was executed earlier this year for taking bribes to approve fake drugs and certificates claiming that the paint used by Mattel's suppliers was lead-free. Yet many foreign managers working locally say bosses in Europe or America do not understand these problems, or do not want to hear about them.
Then again,
Chinese firms, for their part, complain that they are bullied by foreign purchasing managers to cut costs. This forces them to squeeze their own suppliers, with unpredictable consequences. Local firms also moan about having to meet the complex logistical demands of foreign customers in a country where such costs are typically 15% higher than in the West, according to Jürgen Kracht at Fiducia, a consultancy.
Duncan Williamson
More on Northern Rock
Interesting how these things go round in circles. I have just read a report in Accountancy Age of 27th September 2007 that says this:
The Chancellor of the Exchequer's former department made the comments in an annual survey it conducts of the Value Added by companies across the UK. In the survey from April 2007, Northern Rock was singled out for praise.
"Examples [of consistent performance] include Porsche in automotive. Northern Rock in banks, Johnson Matthcy in chemicals and H&M in retail, but there arc many more. Consistently strong companies make good strategic choices, have effective business processes, are customer aware and make wise and balanced investments to maintain their position,"
the report said.
Question for students and possibly a reminder for teachers: what is value added and how is it defined and calculated?
Duncan Williamson
To be in the Black
Did you know that the phrase to be in the black comes from the 11th March 1928 edition of the New York Times?
It did and it comes from the practice of recording credit items and balances in black. To be in the red is similarly derived.
Duncan Williamson
Animals in factories
I am reading Congo by Michael Crichton (Jurassic Park, State of Fear ... ) at the moment and early on in the book he talks about animals being trained to carry out particular activities such as counting, recognition of people, things ... How about this though:
Imagine that you are operating a factory or an office or providing some kind of service. Checking quality of provision, colours, size and shape and so on may be determined quite easily by someone trained to do the job. However, some jobs like these are extremely soul destroying and anyone doing the job becomes bored and alienated quite quickly. This is why highly intelligent people and people with very low IQs, by the way, are suitable for such jobs. Highly intelligent people can achieve the tasks easily and use spare brain capacity thinking about and solving alternative problems. People of low intelligence do not have any spare brain power so they are reasonably happy carrying out these tasks.
Now, though, imagine you can train
- a chicken to count, say, 10 items of production coming down a line. Once those 10 items have arrived and they are acceptable, the chicken presses a button, the items are accepted and the chicken is rewarded in some way. 10 more items then come down the line ...
- a dog to smell chemicals or perfume or food to assess its fitness for purpose. Something not right and the dog barks and sits down until someone does something about the problem. The dog is then rewarded and life goes on ...
Many animals can be trained in this way but the question is: would you want to be someone using animals in this way? Would you be happy to buy some perfume knowing that a dog had been used as the quality controller?
Duncan Williamson
Shocking or an example of Fair Value?
I have just read an article in the Financial Times that discusses the possibility, or even the need for, Microsoft to buy out Facebook, that online social networking site. OK so MS might feel the need to buy the company but for how much? $1 million, $10 million, $100 million? Nope and not even $1 billion either apparently. The FT reports that Wall Street is valuing Facebook at $10 billion.
What do you think of that? Is that really a fair valuation of the company? How did they get to $10 billion. Even if you had that much money, would you pay it? What's your valuation of the company? How did you arrive at that value?
Now, if I could just have that one killer idea ...
Duncan Williamson
Moving up the Value Chain
While we are at the OECD web site, take a look at some good and simple explanations of what it means to move up one's value chain.
Flat Tax
I think the tory party here in the UK have toyed with the idea of moving to a system of Flat Taxes. What is a flat tax and how does the system work? Well, here is a good article from the OECD that should prove useful for you.
Here is the introduction to that article, to whet your appetite.
Imagine a tax return no longer than a postcard. This at least is what proponents of a "flat tax" system predict.
Filing is simplified, since gone are most deductions and exemptions. A flat tax improves the transparency of the income tax, cuts the administrative and compliance costs and, if the rate is low, reduces the temptation to evade tax. It even stimulates growth, its defenders claim. But there is a price: a move to a flat tax system strongly affects income distribution. Advocates of the flat tax say it has already proven its worth in Russia and other economies in transition, such as the Slovak Republic. The idea has now caught the attention of some OECD countries, including Italy, Greece and Mexico.
While no government has implemented a pure flat tax, politicians in many OECD countries have recognised the need to reform their personal income tax system over the last two decades. Paired against mounting expenditures brought on by ageing populations, healthcare and other social needs, a broader tax base can shore up tax revenues. But governments must also make taxes competitive in order to lure investors and prevent the decampment of their own businesses and workers. Yet no clear consensus has emerged on what is the ideal personal income tax. Could flat taxes be the way forward?
Duncan Williamson
Government Deficit and Borrowing
Alerted by the Financial Times, take a look at this page:
Then take a look at this page:
Now compare the two.
I'm not even hinting that the FT has got anything wrong, just that there is additional information on the ONS page that might help to balance the discussion a little bit.
Question is: what is that additional information and how does it help to balance the discussion a little bit?
Duncan Williamson
Examiner Scandal and a Complete Lack of Help from a Certain Quarter
The following letter should speak for itself and it is addressed to my former MP Dr Evan Harris, Liberal Democrat MP for Oxford West and Abingdon
24th September 2007
Dear Dr Harris,
You probably won't remember but at the end of last year, you and I began correspondence in the matter of The Commercialisation of GCSE and A Level Examination Boards. The basic problem I outlined was that examiners from our examination boards are prostituting themselves for personal private gain. These gains are being reaped at the expense of their audience of pupils who were to become candidates of theirs in their up and coming examination diets.
Following my initial correspondence with the Secretary of State for Education I copied you in on all correspondence I generated and made you fully aware of the correspondence I had received in turn. I put your name as cc on every letter I generated as I pursued this issue.
On 15th December 2006 you wrote to me to say: I would be interested in taking up the matter you raise about the conflict of interest between principal and chief examiners from GCE [sic] and A level examinations doing paperwork for seminars.
It grieves me to have to say that in spite all of my efforts to keep you fully informed, I have heard absolutely nothing from you apart from acknowledgements of receipts of my letters to you: for example, on 3 rd January and 9th March, both 2007. You can imagine that this is a huge disappointment for me since this is a serious matter yet the conclusion of the Qualification and Curriculum Authority is that whilst there does appear to be a prima facie case for the boards to answer, they were prepared to do nothing about it.
I wrote to you and confirmed this finding and suggested that we then move on to higher levels of authority, which is where you would have been most helpful. You remained totally silent, however.
I am happy, on the other hand, to say that I was instrumental, along with a colleague of mine, to pique the interest of journalists at The Times Educational Supplement and as a result of that, they wrote and published two articles covering this matter. I have also been contacted by an editor from BBC Radio 5 Live with respect to this matter and have corresponded with her but at this stage am aware of no further developments.
My motivation in writing to you now is that I have just moved out of your constituency, former address xx xxx xxxxxx xxxxx xxx; and felt you would appreciate this position statement.
I understand that my MP here in Halifax is something of a fire brand and given time I will try to engage her in this debate.
Given the seriousness of this issue and your lack of delivery on your promise of involvement I will conclude by saying that this is the second time you have let me down and I am happy that it will be the last. I previously tried to engage you on the theft of pensions from pensioners in the Republic of Georgia. Whilst you did manage to get a letter of encouragement for me from then EC Commissioner Chris Patten, our correspondence was littered with inadequacies on your part: lost letters, failure of memory and even a threat by you to cease acting on my behalf as my MP.
You can appreciate from my letters that I have a highly developed sense of moral duty and it is a pity that whilst someone in your position might profess to share it, they do little to act on it.
Yours sincerely
Duncan Williamson
Northern Rock Again
Duncan Williamson
Northern Rock
The Northern Rock bank has dominated the headlines for the last few days but what has actually happened? Unless you read the newspapers carefully and watch the right business news bulletins on the telly, you might just think that the Bank is about to collapse and the only alternative depositors have is to camp outside a branch and withdraw your money.
Well, here are a few of the facts as I see them.
Banks who are dealing in mortgages as a significant part of their business finance their lending by borrowing and lending as frequently as over night. Northern rock is no exception and it came a cropper last week when it needed longer term finance to help it to pay off some of its debts that were maturing ... it couldn't pay them off. The wholesale money market is still reeling from that ridiculous sub prime mortgage problem we saw last month and the banks are being much more conservative for at least a while.
Why Northern Rock? Well, an average UK bank gets 7% of its funding from what is called wholesale securitisation: the Norther Rock gets 43% of its financing from those sources. Consequently, Northern Rock is much more sensitive to the vagaries of the money markets than any other bank.
The Bank of England, then, extended a line of credit to the bank last week whose cost is reported to be at least 7%. Given that the Financial Times has estimated that its return on assets is just 6%, we can see that paying 7% for its credit line might be a problem for it. I am afraid I have been unable to determine the size of the line of credit they have been given.
One interesting aspect of the Northern Rock line of credit is that Central Banks tend to work to two principles: loans should be short term in nature only, as short as over night money; and loans will only be based on risk free collateral from the borrowing bank. The financial Times reports that this Northern Rock crisis has breached both of those principles in that the loan to it is unidentified in terms of its length and the bank is using its mortgages as collateral.
The Northern Rock bad debts ratio, however, is reported to be below the industry average so any problems with its business model may be in the future rather than with the past and the present. The bank is known to have been lending at the margin of six times earnings meaning that it is really operating in a sub prime kind of way by allowing buyers to borrow, for example, £600,000 when their income is £100,000 a year. Other banks tend to be much more conservative, lending at 3 - 4 times earnings on average. This may not be a problem, of course, expect that borrowing at such limits could mean that when interest rates increase, as they have been doing lately, the payments on such mortgages could tip the borrower over the edge of payability.
Overall, then, the Northern Rock business model is suspect as it has used it to grow at an astonishing speed and it is possibly overly dependent on the money markets and their sensitivities.
Duncan Williamson
Kashagan oil field
This is a staggering story from some points of view.
Kashagan is an oil field in the Caspian Sea in the east of Kazakhstan and at the moment there are tensions between the developer of that field, the Eni Group and the Kazakhstan government.
From the Financial Times we learn:
Karim Massimov, prime minister of Kazakhstan, told reporters last week that ... Kashagan is crucial to Kazakhstan's ambition to triple oil production and emerge as an important force on world energy markets in the coming decade. Anvar Saidenov, governor of the national bank of Kazakhstan, said: "Kashagan will determine the macroeconomic landscape and the shape of the economy in the future." The project will impact "foreign investment flows, export revenues, the national oil fund, the budget, everything," he told the Financial Times.
So far so, well, iffy. Take a look at the figures involved, however: so far the Eni Group has invested $19 billion in developing the field. However, the full development now expected to absorb $137bn. The reported size of the Kashagan oil field is that it will be 750,000 mmboe and will produce at the rate of 75,000 bopd.
What does one get for $137 BILLION one wonders, in terms of infrastructure and so on, let alone the oil?!
Duncan Williamson
Mattel again
Have you seen the follow up of the Mattel story I reported on the other week? I am still really surprised that Mattel is getting away with appearing to be as much of a victim as the people who bought their blighted products.
I still want to maintain that I think Mattel is as guilty as their manufacturers for painting their products with lead based paint, having small magnets that fall out and so on; but no one else seems to agree.
Then again, I was the only one calling for a halt to the buying of shares in
amazon.com until a Wall Street broker eventually caught up with me!
Duncan Williamson
Autism at work in Denmark
I'll get follow up details later but have you heard about that fantastic organisation in Denmark that employs autistic people as a matter of policy?
I didn't have a pen with me so couldn't write down all of the details but as I was flying down to Muscat from Dubai I read an article in the in flight magazine (Emirates) about a business man from denmark whose son has autism. As a way of helping his son and fellow autistic chappies and chapettes, this man set up a company especially for them. Part of the reasoning was to help and part was that autistic people ar often very intelligent, as opposed to just being intelligent!. Moreover, they are very logical and methodical and are therefore especially suited to a lot of routine tasks like quality contol, data input and so on.
These autistic employees have done what expected of them and a lot more. Moreover, some of them have formed friendships with each other. What's wrong with that? Well, apparently the text books say that autistic people can't form relationships ...
This company intends to open up a branch in the UK next year, 2008, so well worth following up on.
Duncan Williamson
