Global Business |Update|
(A weekly update on Global Business )
Skyline Business School
Hauz Khas Enclave, New Delhi 110 016
Tel: 2686 4848, 2686 6968

Issue 4

A. Global Environment

1.EU chief warns on protectionism
European Commission President Jose Manuel Barroso has strongly attacked EU member countries who abuse their position in national markets. Mr Barroso said the EU executive would take action against countries that pursued protectionist policies. "We do not need any national champions, what we need are world champions based in Europe," he said. The EU has expressed concern about efforts by national governments to thwart pan-European mergers. "Economic nationalism will not build tomorrow's Europe. The commission will exercise its powers if companies abuse their dominant positions in the market," said Mr Barroso at the European Parliament. The European Commission recently wrote to the French government following a planned merger between France's privately-run Suez and state-run Gaz de France. The plan to merge the two French companies followed a bid by Italy's utility company Enel for Suez. Paris said it aimed to create a "national champion" in advance of Europe's energy markets being liberalised next year. And France is not alone. EU regulators are also taking action against Poland for trying to thwart part of Europe's largest bank merger.
BBC.com 15 march 06

2.US trade deficit soars to record
The US current account deficit, the nation's broadest measure of trade, reached a record high in 2005. According to the Commerce Department, the shortfall, which includes trade figures as well as money flows, surged 20% to $804.9bn (£463bn) last year. The deficit was 6.4% of the total value of the US economy, the world's largest. Analysts say that the imbalance in the current account may prompt problems, as investors try to limit their exposure to the US and a drop in asset values. While the US is posting steady and healthy economic growth, there is a worry that problems are being stored up. Analysts have pointed to a bubble in the housing market, reluctance among consumers to spend, the threat of a weaker dollar and an inability to compete with lower-cost Asian manufacturers. "The current account deficit has grown to a point where it arguably cannot be corrected by US action alone," said Michael Woolfolk, senior currency strategist at the Bank of New York. Many US politicians blame the growing trade deficit with China for broader economic problems, arguing that China has deliberately suppressed the value of its currency to sell goods abroad cheaply.
BBC.com 14 march 06

3.German investor confidence slides
German investors in March unexpectedly became less confident about the outlook for the economy, a report has shown. The monthly ZEW Institute index fell to 63.4 points in March from 69.8 in February, the second drop in a row. ZEW said that a lack of progress on key economic reforms and a sputtering recovery were weighing on sentiment. However, analysts said that even though the drop was a surprise, confidence was still buoyant and the index was well above its historical average of 35. Demand for exports is still strong, helping to drive Europe's largest economy and offset sluggish domestic consumer demand. There are still significant problems. Unemployment has remained stubbornly high and close to 12%. "The harsh economic reality, with its big reform plans still unresolved, increasingly seems to influence economic expectations," said Wolfgang Franz, president of ZEW. Alexander Koch of HVB Group said that: "It is quite likely that we have now seen the peak in the current business sentiment cycle."
BBC.com 14 march

4.US, Russia in nuclear power call
Russia and the US have spearheaded a call for increased nuclear power to provide a more secure energy supply for the world. The US called for "substantial rebirth" of nuclear power after a meeting of energy ministers of the powerful Group of Eight (G8) nations in Moscow. A joint G8 statement said it was vital "for those countries that wish it". Green groups said nuclear fuel would fail to provide a sustainable energy future or prevent climate change. US Energy Secretary Samuel Bodman said after the meeting: "We are hopeful of a very substantial rebirth of the global nuclear industry." A joint statement released by G8 ministers said: "For those countries that wish, wide-scale development of safe and secure nuclear energy is crucial for long-term, environmentally sustainable diversification of energy supply." Analysts said the difference in tenor of the statements reflected the strong support for nuclear fuel in the US and Russia compared to some other nations such as Germany and Japan.
BBC.com 16 march 06

5.UK jobless total moves up again
The number of people out of work in the UK rose 37,000 to 1.53 million between November and January, according to the Office for National Statistics (ONS). The ONS figures also showed that the number of people out of work and claiming benefits rose by 14,600 in February to 919,700. The claimant count rise is the biggest increase since December 1992. ONS figures also showed that average earnings in the three months to January were 3.5% higher than a year earlier. This helped ease worries highlighted by the Bank of England that big pay deals were threatening to push up inflation. The number of unemployed people has risen by 109,000 in the last 12 months, and now stands at 5% of the UK population. But over the same period the number of people in work has risen by 178,000. "The fundamentals remain strong," said Margaret Hodge, Minister of State for Employment and Welfare Reform. "Employment is up on the year, vacancies are up again this quarter and redundancies are at historically low levels." She said the rise in people claiming Jobseeker's Allowance was offset partly by a fall in the number of people claiming incapacity and lone parent benefits. The number of unemployed people claiming benefits has risen by 0.3 percentage points over the last twelve months, and stands at 2.9% of the population.
BBC.com 15 march 06

6.Billionaire boosts Saudi stocks
Saudi stocks have rebounded after Saudi billionaire Prince Alwaleed bin Talal announced he would invest significantly in the Saudi bourse. Kingdom Holding, the Prince's business, could invest up to 10bn Riyals ($2.7bn)(£1.54bn) in the near future. Stocks across the region had been at an 11 month low, but rose by over 4% after Prince Alwaleed's statements. The Prince's decision came as the Finance Ministry said it might allow foreign residents to invest directly. "Splitting shares is beneficial and allowing foreign residents [to invest] is a very good decision", said the Saudi prince. Trading earlier in the day had seen the Saudi Tadawul All-Shares Index (TASI) drop 4.81% - or 717 points - to 14,182.90, but the Prince's announcement boosted the market by 4%, almost regaining the previous day's loss. The TASI - the biggest Arabian market - lost about 17% of its value since its close on Friday, but this was up from its earlier low of 21%. Experts have been blaming the losses on fears that stocks in the region were overvalued. Prince Alwaleed said: "What happened a few months ago on the Saudi market is that speculators dominated the market and created a bubble." "The sentiment in the entire region is negative," Hany Hussein, fund manager at Mashreqbank in Dubai told Reuters.
BBC.com 15 march 06Story from

7.EU calls for joint energy policy
The European Commission said in a green paper on energy that the EU's joint bargaining power would be second only to the US and let it get better deals. EC president Jose Manuel Barroso said that "political will" was now needed. The vision of a more unified power market may stumble, however, as nations including France, Spain, Italy and Germany fight to control key providers. "We are in a new energy century, demand is rising, Europe's reserves are declining, there is underinvestment and the climate is changing," Mr Barroso said in Brussels. "We must have an approach which matches the new reality." Mr Barroso said that it was vital EU leaders abandoned their 25 "different and uncoordinated" energy policies and spoke with one clear voice. However, energy is still regarded by many member governments as vital to national security. This attitude was reinforced over the winter, when a spat between Russia and Ukraine led to supplies being compromised in a number of European nations. At the same time, attempts to shake up the European energy market have encountered resistance, with France and Spain attempting to block takeovers of domestic power firms by foreign rivals. As a result, the European Commission has now recommended the appointment of a single energy regulator and the setting up of a single European power grid.
BBC.com 14 march 06

8.Marked drop in US inflation rate
US inflation slowed sharply last month, suggesting the Federal Reserve may now choose to end its recent round of interest rate hikes. The closely watched Consumer Price Index rose only 0.1% in February, compared to January's 0.7% increase, said the Labor Department. Excluding the price-volatile food and energy sectors made no difference to the size of the rise. The Fed has raised US rates 14 times in a row to the current 4.5% level. As the US economy has gathered pace, the Fed has increased interest rates steadily, so as to remove any inflationary pressures. With the latest data suggesting that the Fed has been successful, chairman Ben Bernanke and his colleagues might have reason to refrain from any additional rises. Gary Thayer, chief economist at AG Edwards & Sons said US inflation now looked "relatively benign". "It suggests that the economy is on a healthy growth path," he added. "These numbers look as if there's no urgent need to raise interest rates much further." The latest figures were helped by a sharp decline in energy prices, which dropped 1.2% in February, said the Labor Department. US energy prices had risen sharply since hurricanes hit the US Gulf of Mexico cost at the end of August last year, but now appear relatively stable.
BBC.com 16 march 06

B. Global Finance

9.Trading starts in shares of NYSE
The new NYSE Group is trading under the ticker symbol NYX. The move follows the completion of its $10bn (£5.8bn) takeover of trading rival Archipelago. Owner of the world's biggest stock market, its shares soared 24.5% on their first day to close at $80. The NYSE had previously been a private partnership owned by its 1,366 members. These members, or "seat holders" as they were formally known, own the majority of the new shares. Money raised by the float will help the NYSE expand into new businesses, such as derivatives trading, and could also be used to fund further acquisitions. NYSE chief executive John Thain will continue to lead the company. Analysts have long said that the NYSE needed to float to better compete with rivals such as Germany's Deutsche Boerse, which has already made the switch.
BBC.com 14 march 06

C. Global Corporate

10.US retail sales see shock tumble
US retail sales dropped in February as consumers reined in spending on cars, clothes and furniture because of cold weather, a government report says. Sales fell 1.3% after jumping 2.9% in January, the Commerce Department said. The data indicated that US consumers, the main driver of the world's largest economy, have become more reluctant to spend after many years of splurging. Though analysts said that the world's largest economy was well-placed to keep expanding, concerns have been mounting. The current account deficit, the widest measure of trade, surged to a record last year, while unemployment is proving difficult to bring down.  President George W Bush, meanwhile, has seen his approval ratings slip.
BBC.com 14 march 06

11.US group buys uSwitch for £210m
Price comparison website uSwitch.com has been taken over by US media group EW Scripps in a £210m ($366m) deal. Scripps owns a range of newspapers and TV stations and syndicates cartoon characters such as Peanuts and Dilbert. It will combine uSwitch.com and its own Shopzilla price comparison site within a new interactive media division. uSwitch.com compares prices on utility and telecoms bills and financial services and is expected to make a profit of £6m to £9m this year. Earlier this year, uSwitch said it was looking to sell itself or list its shares on the stock exchange, with an estimated value of just over £100m. The company was owned by private investors, including Lord Milford Haven, cousin of the Queen, and its employees. uSwitch.com does not charge its users for accessing the site, but gets a fee from the supplier if the consumer chooses to change providers.
BBC.com 16 march 06

12.Vodafone hits 10 million 3G users
Vodafone says it has met its March 2006 target of 10 million customers using its third-generation (3G) mobile phone services. The company set the target back in November 2004 when it launched 3G, which offers video calls, music downloads and games. Vodafone has spent £14.7bn around the world on 3G licences, and sees the service as a key business generator. But growth has been slow - 3G services account for just 7% of revenues. "This is an important milestone for Vodafone and I am very pleased that we have achieved our target ahead of time," said chief executive Arun Sarin. Reaching the 3G milestone may take some of the pressure off Mr Sarin, who has come under increasing pressure in recent months after a series of bad news announcements. Last month Vodafone warned its assets were overvalued by as much as £28bn ($49bn), and said that it faced slowing revenue growth - news that drove its shares to three-year lows. In early March the company admitted it had thrown the towel in on its Japanese business, and said it was discussing a sale to Softbank, the country's largest broadband internet provider. And rumours of boardroom unrest culminated with the departure of honorary life president and former chief executive Sir Christopher Gent last weekend. There have even been rumours of a possible £100bn buyout by a private equity consortium, although most analysts have dismissed them as unrealistic.
BBC.com 16 march 06

13.Jobs hit by Lloyds TSB cost cuts
High Street bank Lloyds TSB is to cut 566 jobs as it attempts to reduce costs in its back office operations. Posts will go in London and Tonbridge in Kent and will also see three offices close in Glasgow, Chorley in Lancashire and Newton Aycliffe in County Durham. Lloyds TSB is also relocating hundreds of staff in Birmingham, Bristol and Brighton as part of a strategy to operate fewer, larger offices. The bank has a plan to cut its back office costs by £121m a year by 2010. The changes will see 105 posts, 90 of them from a site in Andover in Hampshire, being transferred to India, but the bank is promising to retrain and redeploy the staff affected. Unions say that the bank will move up to 400 jobs to India this year and has plans to "offshore" many more. The bank will start the job reduction process this month, and hopes to have completed the changes by March 2007. "We have an extremely good track record of acheiving reductions in staff numbers by natural turnover and redeployment and when we've made these changes in the past we have never had any compulsory redundancies", said a Lloyds TSB spokesperson. Last month Lloyds TSB announced a 4% rise in pre-tax profits to £3.47bn, but said bad debts had hit its High Street operations.
BBC.com 15 march 06

14.Cathay Pacific hit by fuel costs
Net profit was 3.3bn Hong Kong dollars ($425m; £244m) in the year ending 31 December, from HK$4.4bn a year earlier. Cathay said fuel costs jumped 67% and accounted for a third of total annual expenses - more than it paid in wages. The airline is the latest to be hit by fuel prices. The industry has warned that many firms may continue to suffer. Shares in Cathay fell 3.2% to HK$13.65 after the announcement, as the profit and sales figures were less than many analysts had expected. Sales rose 19% to HK$50.91bn, from HK$42.76bn in the year before. Cathay said that its total passenger traffic rose 14% during 2005. It added that it planned an annual dividend of HK$0.28, down from HK$0.45 in the previous year.
BBC.com 14 march 06

15 S-Max kicks off Blue Oval's new style
The S-Max is the production model of a sports activity vehicle (SAV) concept that was on display here a year ago, and it is "the first car in a long line of products to come", says Stephen Odell, vice president of marketing, sales and service, Ford of Europe. Coming as a result of investments of 715m euros ($850m; £490m), the car is the first to fully display Ford's new style, which it dubs "kinetic", or "energy in motion". "It's a highly styled vehicle," insists Mr Odell in an interview with the BBC. "The S-Max is kind of white space for us."The S-Max can come kitted out as a seven-seater car, and as such it could be seen as a substitute to the Blue Oval's already successful Galaxy. But as opposed to the Galaxy, which in its latest reincarnation has just grown larger, the S-Max looks more like an ordinary car, and as such it "will not appeal to the regular MPV crowd", Mr Odell predicts. Instead, the S-Max could expand Ford's customer reach in Europe, further cementing the division's role as a profitable part of Ford Motor. A 4x4 crossover version, which might be unveiled at the Paris motor show in September, could further boost earnings. After all, producing it at Ford's factory in Genk, Belgium should not make costs any higher, points out Mr Odell.
BBC.com 14 march 06

16.Google agrees to pay $90 mln in click fraud suit
Web search leader Google Inc. said on Wednesday it had agreed to pay up to $90 million to settle a class action lawsuit over advertising fraud by outside parties on its site, in a bid to put the controversy behind it.The settlement stems from a lawsuit filed by Lane's Gifts earlier this year in an Arkansas state court and is designed to settle all outstanding claims against Google for fraud committed using its pay-per-click ad system back to 2002, it said.The $90 million would involve legal fees and credits -- rather than any cash payments -- to all advertisers who apply to be part of the class settlement, once the judge certifies the agreement, Google spokesman Steve Langdon said.The case covers all advertisers using Google's pay-per-click advertising system back to February 2002 through the date when the judge certifies the case. The final settlement hearing is expected to take place in coming weeks.The vast majority of Google's revenues, or around 97 percent, are the result of pay-per-click ads, which critics say can be vulnerable to fraud.
www.reuters.com 09 march 06

17.Levi Strauss sees lower 1st-qtr sales, oper income
 Levi Strauss & Co. said on Wednesday it expects lower first-quarter net sales due to less demand in Europe, the impact of foreign currency exchange rates, and U.S. retailers' cutting their inventory of Levi products. The company said it expects consolidated net sales to drop 7 percent to 8 percent from a year earlier and to be down 4 percent to 5 percent on a constant-currency basis. Levi Strauss said operating income in the quarter will likely be down 12 percent to 15 percent as a result of the lower sales and currency exchange impact.
www.reuters.com 09 march 06

18.Prudential profit beats forecasts
Life insurance company Prudential has reported a 33% rise in operating profit, well ahead of market estimates. The UK's second-largest listed insurer said it earned £1.7bn in 2005, above an average forecast of just under £1.6bn But a "deterioration in consumer credit conditions" hit its internet bank, Egg, where profits fell 16% to £60m. Prudential said it had seen good growth in its UK and US pensions businesses and expected to earn a profit from its Asian operations this year. Following its move to buy out the remaining shares in Egg last year, Prudential said it had identified £40m ($70m) in annual cost savings to be made across its UK operations. It is also working on a plan to harmonise its global IT infrastructure, which it says could save the company £20-£25m per year.
BBC.com 16 march 06

19.Sony delays PlayStation 3 launch
The news was announced at a hastily-convened news conference, after reports of a delay appeared in the Nihon Keizai Shimbun, Japan's main financial daily newspaper. The reports had triggered a 1.8% drop in Sony's shares to 5,470 yen ($46.56; £26.67) on the Tokyo market. The PS3 is one of three new gaming consoles promising cutting edge processing and graphical power. Sony has said the console will ship with a 60 GB hard drive and will play games created for both the PlayStation 1 and 2 at higher resolutions than the original. No potential price was given for the console. It will compete with Microsoft's Xbox 360, which went on sale late last year in the US, and Nintendo's Revolution, which is due later this year. So far Sony has dominated the market for home consoles, with its original PlayStation and PlayStation 2 having sold more than 200 million units. It had originally planned to release its new machine in the spring. But instead it is now talking of a November release in Japan, the US and Europe simultaneously. In the past, Sony has staggered the launch of new consoles, with Europe coming a belated third. "We are absolutely delighted that we will be able to bring PS3 to gamers in Europe and Australia before Christmas," said David Reeves, head of Sony Computer Entertainment Europe.
BBC.com 15 march 06

D. Global outsourcing

20. Outsourcing: NASSCOM 2006 Round Table’s Point of View
At the India Leadership Forum - NASSCOM 2006, Economic Times invited 5-global IT heads for a business discussion.  At the round table were Ronan McGrath, CIO, Roger Communications (Canada), Aaron McCormack, Vice President, Network Platforms, British Telecom Global Services (BT), Erik Viens, Vice President and CIO, Invista (USA), Les Dawson CEO, Southern Water (UK), and Richard Gragner, Director-General of IT, National Health Services (NHS) (UK).With, India clearly on the radar screen of these companies, Economic Times invited the five global IT heads to talk about their IT strategies and spending, competitiveness of Indian IT service companies, increasing global competition, and if outsourcing meant handing over or reducing responsibility.  And, the five responded as under:
www.offshorexperts.com

21. Outsourcing: $200-million Investment for India
Santa Clara, US-based Tessolve Services specialising in providing cost effective solutions for test development, failure analysis for semi-conductor companies plans to establish a Testing Assembling Packaging and Proto-typing (TAPP) facility in India.  Expected to be operational by 2007, Tessolve envisages an investment of $200-million, over 4-years.  With an impressive range of clients, Tessolve’s client list includes Texas Instruments, 2Wire, Alliance Semi-conductor, Insilica, SCL, National Intersil and Wipro. A semi-conductor testing services company, Tessolve set up its Indian operations in Bangalore in the year 2004.  Two years later, the company has grown to 44-skilled engineers with state of the art testers in high speed digital, mixed signal and RF technology.  “With the Indian design industry scaling new heights, Tessolve was created to cater to the infrastructural void.  The industry now needs the next phase of environment, and we are looking to provide that with a high end knowledge based, high volume TAPP unit.” Raja Manickam, CEO – Tessolve Services said.
www.offshorexperts.com

Compiled by Madhur Ajmani
(Faculty Member)

Skyline Business School
Hauz Khas Enclave, New Delhi 110 016
Tel: 2686 4848, 2686 6968
www.SkylineCollege.com