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On Global Business and Economics in Volatile Times

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Exporting Pub Culture

December 30, 2009

 

Tourists like authentic English or Irish pubs, so why not take the pubs where the tourists come from? How about opening an English pub in France? Ship all the interior decoration from England, put English beers on the tap, and serve English pub food - how difficult can that be?

 

The challenge is that the authentic atmosphere comes with the people - not with the 'hardware'. So, to create an authentic atmosphere you have to make the customers behave as if they are English, which is more of a challenge. Ordering at the bar? Standing up while drinking? Ordering a round for your mates? Eating jacket potatoes? Drinking beer rather than wine - and using pint glasses rather than smaller one? The average French customer would expect to sit down, wait to be served, and have a considerable choice of foods? The FT reports today the story of an English chain of pubs that succeeded in creating that authentic atmosphere, in part by becoming the local watering hole for expats, but also actively 'educating' the customer.

 

This little anecdote illustrates an interesting international business challenge for many businesses in culture-related industries: How to create an authentic experience where the participation of the customer contributes to the experience? And, how authentic should it really be? How American should Disneyland Paris be - and how American can it be if the audience doesn't behave like Americans?

 

Many say they would like authentic Indian or Chinese food in British restaurants - but do you really? Most of my Indian or Chinese friends don't like to go the local Indian or Chinese restaurant because it isn't the real thing, but the English like the adapted version. To be truly authentic, you would need to educate your customers - which some may like, and other don't. London China town shows a variety of degrees of adaptation, and flexibility. What restaurants experience on small scale, is equally a big challenge for culture industries like movies, shows, tour operators, hotels, etc.

 

The tourism research literature has explored the issue of communicating culture to foreign visitors (a few references are below), but to my knowledge that research has not been connected to the international business and strategy literature.

 

 

Philosophy for Christmas?

December 25

 

Shouldn't Christmas be a good time to think a bit deeper, philosophically about our times? Here is a nice challenge to think about - or to debate: Imagine Socrates would come to America today, what would he be saying and doing? 

 

The Economist debates the question in its Christmas issue, opining that "Socrates would witness a vibrant and proud democracy, and disdain it as indulgence of the benighted, unphilosophical "herd". He would interrogate America's politicians, talk-radio and cable-television pundits in search of honest discussion, and thereby exposing their confusion, contradictions and ignorance...". It is an interesting piece, but to complex to summarize here. Thus, I recommend that you read for yourself - or even better, debate!

 

Picture of the Year

December 23

 

Klaus Meyer, 2009

 

 

My favorite picture of the year, I have taken outside a car dealership in Reading. Unsuspecting passers by might think they could now get rid of their government - and that option would certainly have appealed to many at the time. However, what was on offer was a subsidy from the government if you scrap your car, a scheme meant to kick-start the economy (and a rare case of the UK government copying a German policy that it previously criticized as ineffective).

 

 

Merry Christmas from The Economist

December 22

 

In its Christmas issue, The Economist summarizes the Great Depression that never was in the leader "The Great Stabilization". It is easy to forget how worried we were a year ago about the state of the global economy. The Economist's leader makes  few points worth remembering for the policy debates of the coming year(s), which are likely to be lively:

 

Most importantly, "2009 was extraordinary not just for how output fell, but for how a catastrophe was averted" ... " That outcome was not inevitable. It was the result of the biggest, broadest and fastest government response in history." It is important to remember that, because we are seeing opposition parties the world over lambasting those who were carrying responsibility in the dark winter 2008/9 for spending to much government money, piling up national debt. Certainly, mistakes were made, and some of the money could have been spend wiser. But, it could have been a lot worse.

 

However, there are many challenges ahead, as the the world economy is far from recovery, and the fall-out of this recession and the government bail-outs have to be paid for. Challenges are many:

  • The imbalance of international trade with a huge deficit of the US and a corresponding surplus in China.

  • The big debt accumulated by some government, most infamously Greece.

  • The bubble that may be in many stock markets due to the expansionary monetary policy.

  • The inflationary potential arising from the recent monetary policy, unless excess liquidity is withdrawn by Central Banks without delays.

  • The uncertainty in the housing market, notably in places like Ireland, Spain, the UK and the US - and with it depressed consumer spending. 

  • The uncertainty regarding the liquidity of some banks, and the need for better regulation - yet where few agree what would be "better regulation".

  • Distribution conflicts between companies and their workers, such as those at British Airways.

  • The budget cuts expected in many countries, and the associated pressures on public services, and indirectly consumer spending and quality of life.

2010 promises to be a lively time in the global economy!

 

Infrastructure Under Stress

December 21

 

Every year this time of the year, I get cynic messages from around the world about the British inability to handle a little bit of snow. It seems, the rest of Europe is giggling in front their televisions watching, yet again, England seemingly braking down after a slight bit of snow. Sometimes, it is the airports, sometimes it is the roads, and usually it includes the trains. This year, it is the Eurostar trains connecting London to Paris that seem to be hardest hit - they are closed down for the third day now, leaving tens of thousands of passengers stranded, with no alternative modes of transport available. What is going on?

 

In my view, there are three fundamental problems facing British infrastructure, whether privately owned or state owned:

  • An underinvestment in infrastructure maintenance and modernization. Coming back from travels abroad, it is always sad to see how backward and expensive any form of travel is in the UK - with very few exceptions (Heathrow T5 is modern, and easyJet is cheap (but unreliable)). The origins of this problems, in my view, go back to the Thatcher years of the 1980s when the government slashed expenses on anything in the state sector, and this investment gap has never been recovered; privatization made little difference on this score. 

  • A lack of contingency planning. The relentless drive for efficiency of operations reduces the slack in organizations - no more resources and people sitting idle. Of course, if you have a bit of slack, you can easier accommodate 'unexpected' adverse events - you pull all your people together and solve the problem. This also requires thinking ahead and be prepared for various forms of adverse events - from signaling failure to snow storms - and train your people on what to do if something happens.

  • A demotivated workforce. The relentless drive for efficiency (in part driven by the focus on shareholder value) often goes at the expense of the workforce, who feel stretched and (in less skilled jobs) underpaid. If you support your people when times are good, they are also more willing to pull in extra effort in times of crises. If, however, they feel (subjectively!) treated badly, they are less willing to put in extra hours when crisis hits. This probably explains why the staff of British Airways is even considering to go on strike during the Christmas period. 

What to do about it? As an investor, I would stay away from companies with dissatisfied customers - sooner or later these customers are going to desert (as will the best employees). As a politician, I would advocate better compensation for passengers who do not get the service that they bought a ticket for. If companies have to pay compensation (as train companies now have to in Germany), they have incentives to put proper contingency planning in place! And it would end the excuses that the snow was unexpected ...

 

In fairness, I should add that the train that I am on right now is 'only' 10 minutes late... but two weeks ago, a journey on the same route took me 3 hours instead of 1 hour, without snow, only "signaling failure". 

 

 

Big Green Business in Copenhagen

December 13

 

Climate change, and the current political processes aiming to introduce new regulations is often see as a threat to businesses. However, El Pas, which I was reading for breakfast (yes, I am in Spain today), takes a different twist: "Green" is a big opportunity for business!

 

Many businesses have been thinking about the implications of climate change for a long time, and they have been developing new technologies - and gradually these technologies have reached the stage where they can be introduced to the market at prices that are not outrageously expensive. New technologies help climate change in multiple ways: improving the efficiency of energy use (for example, more fuel efficient cars), efficiency improvements in energy generation (i.e. changes in existing power plants), power generation from renewable sources (e.g. and solar energy), bio-combustibles, nuclear, and carbon capture (i.e. putting carbon created in power station underground).

 

El Pas shows a figure suggesting that consumer demand based on more efficient energy usage would stabilize carbon emissions by 2015; to get carbon emissions down, new technologies of power generation are needed. Business people are thus present in Copenhagen, demonstrating their technologies, and the opportunities they see - from Vestas' windmills to Renault's fuel-efficient car. And, presumably, they are lobbying for new regulation to favour their particular technologies. 

 

Another interesting statistic from this article: Denmark is already earning over 3% of its GDP from 'clean energy' - followed by Brazil, Germany and Spain. I presume, export of windmills, solar power and associated technologies account for a major part of this. This puts Denmark in a strong position to 'square the circle' of cutting emissions while keeping the economy buzzing.

 

Comparative Newspapers

December 13

 

The hotel offers a neat service for its international customers: 1-page news from their respective countries. It is interesting to read them across and compare what is top news in different countries. Americans seems most preoccupied with Tiger Woods, British are still arguing whether they were right to invade Iraq alongside George W., and Germans are arguing about their military operations in Afghanistan. I was also curious to note that the item on Copenhagen had the same headline across editions. However, the (identical) US/UK version talks almost only about the violent protestors, the German version emphasizes more the large numbers of peaceful demonstrators and some creative ideas they used to get their point across.

 

Needless to add that the sports news are mutually incomprehensible: "Cleveland 104, Portland 99" and "Stoke 2-2 Wigan" or "Bremen 0:2 Schalke" may excite the fans in either country, but have little meaning for others.

 

 

About Blogging

December 7

 

A good blog takes quite a bit of time. I guess that is obvious, if you think about it. Since my main job is not blogging - or journalism - that time often just isn't there. I have recently been working on a new book on 'Global Business', and that is taking most of my time - using up those time slots that I might otherwise use to think about global business practice. So, I promise to continue but perhaps not twice a week.

 

I also realized that a lot of material we read in the newspapers about business is a mix of wild speculation and the companies' own public relations statements. What is really going on behind closed doors remains confidential, and so it actually should be. But that makes it difficult to evaluate what is going on. For example, I have been asked many times what I think about GE and Opel (see June 6). Well, the story took a very different turn than everyone expected. The only thing I can say is that politicians are not good at negotiating with businesses...

 

I want to focus the blog on business matters rather than being drawn into political matters - though there would be plenty to say about British politics (and the supposedly independent media reporting about it). Yet, that's really beyond what I can do here. However, there is one issue that I feel strongly about and that I shall explore on the blog in the next weeks, and that is "election systems". Even though we have democracies all over the world, the actual process by which public votes are translated into actual politics varies widely. In my view, the supposed differences between 'nations' are in fact not caused by, e.g., the French being different than the English, but by the way voters can or cannot influence national politics. My favorite example is the second Iraq war where public opinion across Western Europe was fairly similar (small majority against), yet we saw a big rift between the governments of Britain and Spain versus the governments of Germany, France and various others. Watch this spot...

 

Unemployment trends across countries

November 6

 

The recession appears to be over the worst (keep your fingers crossed), yet most people feel it in their every day life more now than a year ago. The recession started with crashes in financial markets, yet they seem to be on their way to recovery, and bonuses in 'the city' are on the rise again.

 

In contrast, unemployment is still rising. That is typical for a recession - the impact in the financial markets is felt earlier than the impact on labour markets. Financial markets anticipate the developments of the near future, so share prices start rising when expected profits rise - even if in the short-term things are getting worse. This means that we really ought to turn our attention to labour markets now.

 

The Economist ran a good article explaining why the recession had hugely varying effects on unemployment in different countries. The essence is that in countries with highly flexible labour markets, such as the US, companies are prone to quickly lay-off people when they face declining demand. This then suppresses consumer spending, which makes the recession worse (even the fear to loose a job can have that effect).

 

These effects are felt less in countries that make it more difficult to lay-off staff, that provide support for companies keeping temporarily not needed staff, or that pay generous unemployment benefits. In consequence, Germany, Italy and the Netherlands have seen much less increase in unemployment that Spain, the US and Britain. Moreover, companies keep there often highly specialized people together rather than loosing human capital for good. It is rare for The Economist to point out the advantages of a less free market! However, as The Economist is quick to add, when the good times return, countries with more rigid labour markets will also find it more difficult to reduce their unemployment again.

 

 

Scientists, Politicians and Ethics

November 5

 

The U.K. has experienced a peculiar debate on the relationship between scientists and politicians in recent days. The trigger has been the dismissal  of the of an eminent scholar, Prof David Nutt of Bristol University, by the home secretary Alan Johnson (no university education), from a supposedly independent advisory council on drugs policy. His misdeed? He repeated his assessments regarding appropriate classification of drugs, notably cannabis, in various scholarly outlets: according to scientific evidence it is much less dangerous than the government suggests, a view supported by many other experts. Yet, the government is determined to class it as a dangerous drug, and to send the police after all those growing or distributing it.

 

Naturally, the government is free to form its own opinion. For instance, they would want to take into account wider consideration such as social implications rather than just medical impact. However, where this case becomes unacceptable is when the minister denies or discredits the scientific evidence presented. When he moreover dismisses an advisor for not 'towing the party line', he makes a mockery of the word 'independent'. Consequently, scientists across the UK, usually not a very vocal group, spoke out against their treatment by politicians in government and opposition alike.

 

Scientific ethics requires to be truthful in reporting research results! It is not acceptable to only report results that please the authors' favorite theory, or the sponsors' preferred outcomes (a common concern in medical research). Neither, is it acceptable to depress findings that don't please the political elites of the day.

 

On the other hand, if scientist become involved in politics, or otherwise participate in an argument without this being grounded in scientific evidence, they should be free to do so - but need to clarify the difference. (this blog presents personal opinions that is not necessarily grounded in my own research, though I try to provide evidence where appropriate.)

 

This story raises serious questions whether it is acceptable for scientists to work with a government on independent advisory panels if their membership is de facto conditional on towing the party line. It also raises serious concerns regarding the independence of research that is funded by government bodies on a project by project basis, and creates de facto dependencies on political decision making. The implications of this story

 

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Klaus Meyer, 2006-2009