Author: Ben Debski

Hydrogen-powered cars become viable option

Posted on by Ben Debski

Many technologies have been put forward as a solution to the problem of providing energy for the auto industry. Battery-powered electric cars have seen an upsurge in interest in recent years. Governments have been eager to encourage cleaner vehicles in their cities by installing charging points. In the US, President Obama announced funding of up to $2.4bn to kick-start the nascent industry, while many European countries have started to invest in expanding the infrastructure to cater to such vehicles.

Hybrid cars, a combination of an internal combustion engine and an electric motor, have proved particularly popular with environmentally conscious drivers due to the lack of additional infrastructure required for them to run. Spearheaded by Toyota’s launch of its Prius car, many other manufacturers have unveiled their own models. The adoption of these vehicles is comparatively small at 2.2 percent of new car sales in 2011 in the US, although Japan saw a higher rate of 17.1 percent during the same period.

One technology yet to conquer automotive sales is hydrogen-powered cars. The concept behind the technology is that, through a combination of oxygen and hydrogen – which are abundant in the Earth’s atmosphere – vehicles will be powered more efficiently and without any carbon emissions.

Exploiting the technology has presented many difficulties: not least because hydrogen fuel is merely an energy carrier and not a source, with the energy being produced in so-called fuel cells. Fuel cells require a constant supply of oxygen and fuel to run, which is difficult to achieve. The most common way of making it is through environmentally harmful fossil fuels. Due to the inconsistent productivity of fuel sources like wind and solar, hydrogen-powered vehicles have not been seriously promoted as a reliable solution to green transportation.

New research
Many of the limitations that have prevented hydrogen-powered vehicles from taking off are being overcome. Fuel Cell Electric Vehicles (FCEVs) use hydrogen and oxygen from the air to operate. They have already been used in heavy material handling vehicles like forklifts. Car manufacturers from across the world have been developing their own models in the hope that they will eventually become commercially viable.

The question of cost is key to the industry. With battery-powered electric cars leading the way so far due to their comparatively lower cost, FCEVs need to bring down the cost of production to be able to compete. Ford’s Vice President of Powertrain Engineering Joe Bakaj said: “The question is when will fuel-cell vehicles become affordable to customers? Within 10 years, I think they will be as affordable as full battery vehicles, and the fuel cell will have a big advantage in range.”

Infrastructure requirements
Governments need to invest in the infrastructure to support this industry, in particular hydrogen filling stations. Toyota Europe’s Chief Executive Didier Leroy said that manufacturers and governments needed to come together to make sure the infrastructure is in place for when the market takes off. He said: “We plan to commercialise fuel cell vehicles in 2015 and to achieve this goal a hydrogen charging infrastructure will be required.”

One such initiative was launched in the UK in 2012. UKH2Mobility will bring together car manufacturers, the UK government, utility companies and infrastructure firms in order to support the industry. UK Business Minister Mark Prisk said: “Hydrogen fuel cell electric vehicles are increasingly being recognised as one of the viable options as we move to a lower carbon motoring future. UKH2Mobility will bring together industry expertise to establish the UK as a serious global player in the manufacture and use of hydrogen fuel cell electric vehicles and the supporting infrastructure.”

Mercedes-Benz, which already has its F-Cell car available to lease, says hydrogen could be extracted from existing infrastructure sources like water treatment plants. The company’s Head of Advanced Product Planning, Sascha Simon, said: “We could power over 200,000 vehicles just using waste gases from the chemical industry.”

In the meantime
Until a fully realised, zero carbon hydrogen offering is realisable some intermediary initiatives are taking place. Air Products is a gas provider that services many different industrial markets around the world, one of which is London’s taxis. Diane Raine, Air’s European chief, said in September that showing the technology works with non-renewable sources can get the market started in the interim.

She said: “We’re using brown hydrogen [from non-renewable sources] to demonstrate the technology and to improve the infrastructure. When the market is there, then we’ll invest in green hydrogen but we can only do that if the pathway to green production is there.

“Air recently launched two new hydrogen-refuelling stations in London, and plans more in the future. We want to prove the technology at the lowest possible cost. The London refuelling station uses brown hydrogen, which provides a 50 percent CO2 reduction compared with existing taxis.

“But we’ve made a commitment up front with Transport for London to improve the existing production line and eventually go green. A pure electric vehicle makes sense for a limited range where you have the capability to recharge slowly because it’s the most efficient way of converting renewable electricity into transport fuel.”

In Germany there are currently 14 refuelling stations, with a government and private sector initiative recently announcing an addition of 36 by 2015.

Industry enthusiasm
Accounting firm KPMG revealed in its annual Global Automotive Executive Survey that industry leaders believe the long-term prospects of FCEVs are more positive than those of hybrid and electric powered vehicles. According to the survey, FCEVs are set to dominate the space in developing countries like India, Brazil and Russia, in preference to hybrid or battery-powered electric cars. There was also a general consensus that fuel cells would be preferable to consumers over battery-powered electric cars, with 25 percent more executives telling KPMG it would be the preferred technology by 2025.

Kevin See of consultancy firm Lux Research believes FCEVs have the potential to balance consumer requirements. He said: “Automakers believe in the capability of the fuel cell vehicle. There are no issues with range anxiety, making it a zero-emission option with the requisite performance to serve a broader consumer base.”

Poison-proofing Chinese industry

Posted on by Ben Debski

Last January, China’s environmental authorities barely averted the contamination of nearly three million people’s drinking water after a mining company dumped cadmium – a toxic heavy metal used in the manufacture of batteries, paint, solder and solar cells – into the Longjiang river.

To stop the contamination from spreading, the local fire department had to add significant quantities of dissolved aluminium chloride, which binds to cadmium and settles on the river bottom. The toxic sediment will eventually be dredged.

Such threats to health and the environment are not uncommon in China. The water in as many as half the country’s rivers and lakes is unfit for human consumption or contact.

China has also gained a reputation for food and drug contamination (not to mention lead paint in toys and poisonous toothpaste). For example, in 2008, the industrial chemical melamine was added to milk products in order to give falsely high readings of milk protein, causing the death of six infants and sickening 300,000 other people.

Similarly, Mengniu, China’s largest dairy company, announced last December it had destroyed hazardous products at a plant in the Sichuan province after government safety inspectors discovered the carcinogen aflatoxin in a batch of its milk (the company denied any contaminated milk had reached consumers).

In 2007, melamine was deliberately added to an ingredient in pet food to artificially enhance its protein levels, causing renal failure in hundreds of cats and dogs in North America, Europe and Africa. Later that year, diethylene glycol was mislabeled as non-toxic glycerin, then mixed into cold medicine, killing at least 100 people in Panama, including many children.

The following year, crude precursors of the blood-thinning medication heparin were contaminated, causing hundreds of allergic reactions and 19 deaths in the US, and at least 80 serious adverse health events in Germany. In the same year, eggs contaminated with melamine caused kidney stones and renal failure in children.

Warning signs
Internal criticism of the Chinese government’s management of health, safety and overall quality-of-life issues is growing.

In July 2011, following the highly publicised crash of a supposedly state-of-the-art high-speed train in eastern China, Qiu Qiming, a news anchor for the national broadcaster CCTV, turned the disaster into a metaphor. She said: “While satisfying our need for speed, we might be forsaking many things. China, please slow down. If you’re too fast, you may leave the souls of your people behind.”

Given the pervasiveness of Chinese-made goods, China’s safety record concerns consumers worldwide. But Chinese officials’ piecemeal efforts to restore confidence in the country’s exports – for example, establishing limits for trace amounts of melamine in dairy products and tightening quality control regulations for the dairy industry – are unlikely to reassure foreign consumers or importers.

Indeed, Chinese policymakers seem unable to grasp the importance of crafting appropriate incentives and disincentives. Rather than adopting the western model of motivating every link in the supply chain to adhere to specified quality and safety standards, the government continues to rely on top-down policies. But the decentralised, dispersed nature of many industries, the absence of an effective regulatory infrastructure and the lack of firm-level inducements undermine the effectiveness of this approach.

In fact, perverse incentives throughout the supply chain facilitate the widespread, systematic contamination of food and drugs. Both milk producers and heparin-precursor suppliers were motivated to add adulterants that would make their products appear to be of a higher quality than they actually were.

The task ahead
To be sure, Chinese authorities face a daunting task. Only a few decades ago, China was a poor, largely rural country with an agrarian economy and almost no middle class. Today, it boasts the world’s second-largest economy, a thriving manufacturing sector and a rapidly growing, prosperous middle class, while more than half of China’s 1.5bn citizens now live in cities.

Until relatively recently, environmental protection and consumer safety were secondary issues in the US and Europe. In 1952, London experienced five days of lethal, particulate-laden smog that killed 12,000 people and sickened more than 100,000. And, in 1969, America’s heavily-polluted Cuyahoga River caught fire.

Just as Europe and the US have made substantial progress in implementing effective health and environmental policies, China’s quality control mechanisms can be improved. But, in tackling the issue, Chinese officials would do well to heed the proverb: “With time and patience, the mulberry leaf becomes a silk gown.”

(c) Project Syndicate, 2012

BRIC opportunities continue to thrive

Posted on by Ben Debski

Major western companies have long viewed diversification into emerging markets as a means of boosting the bottom line, given growth has been slowing in their traditional domains: the banking crash of 2008, which had less of an impact in much of the developing world, merely served to hammer the point home.

In the case of the construction industry, for example, Global Construction Perspectives and Oxford Economics, in their joint report Global Construction 2020, note that construction in the rapidly emerging economies of Asia, Latin America, the Middle East, Africa and Eastern Europe – all collectively playing economic catch-up – is expected to double over the next decade to become a $6.7trn business. It will account for some 55 percent of global construction output: the boom is set to be underpinned by urbanisation, globalisation, infrastructure renewal and the burgeoning needs of developing ‘megacities’.

In September 2012, China’s economic planning body, the National Development and Reform Commission, gave its approval for 60 infrastructure projects worth an estimated 1trn+ yuan ($157bn): roughly one-quarter the size of the 4trn yuan ($630bn) stimulus package issued in 2008/09 in response to the financial meltdown in the West. In its recent report Achieving High Performance in the Construction Industry, consulting and technology services provider Accenture noted that Chinese construction companies – buoyed by unprecedented internal demand in the infrastructure, real estate and healthcare sectors – have consistently outperformed their western counterparts over the last three years and posted double digit earnings growth in the process.

Asian markets are expected to continue to see strong construction spending growth in 2012, according to consultants Davis Langdon: China leading the way (+9 percent), followed by India (+8 percent), Indonesia (+8 percent) and Vietnam (+7 percent). Much of the impetus will come from non-residential construction, such as upgrading (or building new) infrastructure. China continues to be the largest market in the world, accounting for 41 percent of the Asia Pacific total in 2011: almost double and four times the size of its Japanese and Indian counterparts respectively. The latter, constrained by its public finances, has increasingly been examining private funding solutions.

In 2010, four Chinese contractors (China Railway Group Ltd, China Railway Construction Corp., China State Construction Engineering Corp and China Communications Construction Group) entered the top 10 of the Engineering News-Record Top 225 Global Contractor Rankings based on revenues. In the process, they displaced North American, Japanese and European companies that had traditionally dominated this sector. Their combined revenues ($238.5bn) easily overshadowed the remaining six firms making up the top 10 ($180bn). In 2011, factoring in China Metallurgical Group Corp and Shanghai Construction Group, total contracting revenues amounted to $275bn.

As the Chinese market itself matures, many of the major players that have hitherto relied on domestic business are increasingly flexing their muscles globally. They are looking to exploit fast-growing markets not only elsewhere in Asia, but also Latin America and the Middle East: usually as part of large consortia bidding aggressively on infrastructure projects.

French connections
Increasing use is being made of the public-private partnership  business model in construction, especially in the Middle East. Governments in the region are looking to reduce their risk exposure to mega projects, as well as bringing in outside expertise. If that represents one side of the coin, food retailing, for example, represents the other. The recent decision by French supermarket giant Carrefour to offload its Colombian operations to Chile’s Cencosud for €2bn ($2.6bn), including debt, is part of a wider strategy of freeing up funds as it embarks on a three-year turnaround plan instigated by new CEO Georges Plassat. It’s also an admission of failure: the company said in a statement that it will focus on geographies and countries in which it holds or aims to develop a leading position.

With Carrefour leaving Colombia, where it had an estimated 18 percent market share against the 43 percent of local leader Exito (controlled by France’s Casino Guichard-Perrachon), the spotlight is now focusing on the company’s Polish, Turkish and Indonesian operations as it looks to reduce its debt (end-2011: €6.9bn) still further.

Meanwhile, Carrefour’s presence in Brazil – where it failed last year to merge its business with Grupo Pao de Acucar, Brazil’s largest retailer – must now be thrown into some doubt too. While Brazil is the retailer’s number three market behind France and Spain, it continues to battle old adversary Walmart across other markets in the region. On the bright side, sales growth has held up well in the region (up 12 percent in Q3) – but then it needed to, given stagnant sales in Europe.

Cencosud also recently purchased Brazilian supermarket chain Prezunic and Chilean department store Johnson’s, and has operations in Argentina and Peru as well. It will gain 72 hypermarkets, 16 convenience stores, and four cash-and-carry stores in Colombia as part of the Carrefour deal, adding to the 900 stores and 26 commercial centres it already operates throughout the region.

Brazilian markets
Even for US behemoth Walmart, Brazil has proven to be a corporate minefield at times: its short-lived joint venture with local non-food retailer Lojas Americanas, after entering the market in 1995, being a case in point. Walmart Brazil’s (WMB) strategy initially foundered: the company was eventually forced to concede that its US store format couldn’t easily be replicated in Brazil, where local demands, tastes and requirements are different.

WMB addressed the problem by introducing new store formats and bringing in more experienced store personnel. In 2004, it acquired 118 Bompreço stores in northern Brazil, followed by the 2005 purchase of 140 supermarkets in the south from Portugal’s Sonae. It’s these purchases that have driven much of the company’s Brazilian growth in recent years.

Top dog in the Brazilian retail market  remains Grupo Pao de Acucar, with an estimated 18 percent market share. It sells everything from food through to clothing and home appliances: expansion into the latter segment coming after the company bought the Ponto Frio chain from Globex Utilidades, as well as the Casas Bahia outlets. Rated number two, Carrefour has an estimated 14 percent market share, with Walmart just behind on 12 percent.

Major players in this sector are expected to benefit from Brazilian President Dilma Rousseff’s recent decision to promote economic growth by cutting taxes on consumer goods, interest rates on loans and demanding that banks, power companies and phone operators reduce prices. These measures are also likely to accelerate plans by credit card giants Visa and MasterCard to muscle in on the estimated $400bn+ credit card market, which at present is under the tight control of domestic card processers Cielo and RedeCard.

Indian protectionism
In contrast to the Latin American retail sector, the protection of local operators in India from foreign operators is still jealously guarded, given previous attempts to liberalise Foreign Direct Investment (FDI) rules that have invariably run into the political sand in Delhi. In September 2012, however, the government, in part to stave off a sovereign ratings downgrade, took another stab at it by announcing a raft of measures. These included a new FDI ceiling of 51 percent for foreign food retailers. This gives foreign investors the opportunity to take effective control of local operators, as well as opening up a market of 1.2 billion people (300 million of whom are regarded as middle-class). Previously, foreign firms were only allowed to operate as wholesale outlets.

However, foreign operators will be required to put at least half their total investment into infrastructure, such as warehousing and cold storage facilities. This is intended to reduce supply bottlenecks that can cause a third of fresh produce to rot before it even reaches the market, as well as increasing prices paid to farmers by cutting out intermediaries. They’ll also only be allowed to set up in cities with a population of more than one million and must source at least 30 percent of goods from local, small industries. Chains will certify compliance themselves. State governments will have the final say on whether the supermarket groups will be allowed to operate in their states. Foreign operators will be required to stump up a minimum of $100m.

Reflecting India’s status as a nation of shopkeepers and other small businesses, the organised retail segment accounted for just five to six percent of the total retail market in 2010, according to Booz & Company (India) Pvt. Ltd. It’s expected to grow to just 10+ percent by 2016-17. By contrast, the US has an organised retail penetration rate of 85 percent. Major local players such as Reliance Industries, Aditya Birla Group, Bharti Enterprises and Mahindra Group are already active in India. They are likely to be augmented in the longer term by foreign operators such as Walmart, Tesco, Costco and others. Organised retailing in India refers to trading undertaken by licensed retailers registered for tax, such as supermarket groups.

African expansion
In Africa, meanwhile, the growth story that is mobile telephony is likely to continue. Estimates from BMI-TechKnowledge Group forecast that total combined fixed and mobile cumulative capital expenditure made in Africa since 2000 will have grown from $78.8bn in 2008 to $145.8bn by 2015: the money set to be invested in a wide array of local, regional, pan-African and global infrastructure, services and operations. Crunching the numbers further, the mobile sector is forecast to account for over two-thirds of all cumulative investment in African telecommunications by 2015.

For mobile operators, the business case for investing is strong, given the rapid take-up of mobile subscriptions and, in the case of foreign entrants, providing alternative streams of revenue as cutthroat competition and slowing growth impacts their traditional markets. About 60 percent of these operators (estimated at 175 across the continent in Q4 2010) are affiliated with major international telecom groups as Vodafone, France Telecom, MTN, Bharti Airtel and Millicom: the balance being local players.

Analysis from consultants Frost & Sullivan, Sub Saharan African Communications Quantitative Quarterly Tracker Q3 2012, found the market had 181.7 million mobile and fixed telephony subscribers and 29.8 million internet subscribers in 2010. This is forecast to reach 266.1 million mobile and fixed telephony subscribers and 77.5 million internet subscribers by 2017.

Business Unit Leader for Africa Chantel Lindeman said: “The growth of voice and internet markets in Africa is expected to be driven by a decline in retail price for these services… Operators in the region are investing significantly in mobile infrastructure, including base stations and transmission networks. It is expected that this will result in the availability of higher network capacity at lower cost, with operators spurring growth by passing savings in network costs to the end users of services.”

Africa isn’t a homogenised market of course and relatively mature markets such as Nigeria, South Africa and the Maghreb region contrast sharply with other markets growing from a much lower base (from an investment standpoint). Regulatory regimes vary too, although the general trend is a continuation of liberalisation measures instituted in the late 1990s. Unsurprisingly, fixed services still tend to be the preserve of state-controlled monopolies while mobile markets are far more deregulated and competitive: many governments having fostered this through competitive spectrum auctions.

Despite liberalisation measures across many emerging markets, the WTO, the OECD and UNCTAD warned in a recent joint report for the G20 countries that FDI, which slumped after the 2008/9 financial crisis and subsequently staged a slow recovery, fell by eight percent in H1 2012 vs. H1 2011. Emerging economies such as India, Brazil, Mexico and South Africa are heavily dependent on steady foreign investment flows to underpin domestic development plans. The report bemoaned the slow pace of FDI recovery since 2008/09, in spite of abundant liquidity in global markets. The message is clear: emerging markets need to continue along the path of liberalisation in terms of attitudes towards FDI.

Why the EADS/BAE merger fell apart

Posted on by Ben Debski

The announcement that British defence giant BAE Systems was in talks with European Aeronautic Defense and Space Company (EADS) about a possible merger came as a shock to all associated parties. Both companies had a unique and vast reach, as well as their own reasons to benefit from the arrangement. But it was not meant to be; competing interests and political deadlock meant EADS and BAE could not join forces.

There were any number of reasons the deal fell apart. There were critics at every level, including shareholders, government officials and industry analysts who had reservations about the prospects and power of the larger corporation, and feared for their investments in a changing industry.

Merging resources and client lists would have widened growth prospects as BAE and EADS also combined manufacturing

Analysts have been left wondering what each side could have offered, what would have happened to competitors and could it really have, as chiefs of both companies announced in a joint statement, “produced a combined business that would have been a technology leader and a greater force for competition and growth across both the commercial aerospace and defence sectors”?

Merger talks within these industries are not uncommon and this is not the first time BAE has been through negotiations to protect its future. It has reportedly had discussions with EADS’s biggest competitors in the past, including Boeing, Lockheed Martin and Northrop Grumman. The current bid for collaboration started in early September. Terms of the deal gave shareholders in BAE and EADS 40 percent and 60 percent of the combined company respectively. There was an immediate call to renegotiate terms from investors on both sides, including BAE’s majority shareholder Invesco Perpetual.  It had “significant reservations” and said it did not understand the “strategic logic” behind the deal.

Further obstacles emerged as the British, French and German governments began dialogue. The British requirement for a capped nine percent for each foreign government investor was heavily contested as both European partners demanded bigger shares in the new business. German Chancellor Angela Merkel also announced fundamental objections to the creation of the largest integrated defence and aviation company, giving little hope for completion. Unable to agree any workable solution, the deal collapsed.

Airbus and its US adversary boeing… have been in a constant war to rule the skies for decades

For each side, the prospect of collaboration was filled with opportunity. For BAE it was a route back to the thriving civil aviation sector it had left years before, access to a wider audience across the Asia Pacific and the stronger balance sheet it needed to ride out the severe cuts in defence spending that were looming from its prominent American customer base.

EADS, home to successful plane maker Airbus, did not have the fears for the future that BAE had as its commercial market was continuing to grow. It did, however, see hope for expansion through the deal, exploiting the joint client collection and benefiting from expansion into a US market which it had yet to conquer.

EADS was also partial to the deal’s terms, which would have seen a distinct reduction in the influence the French and German governments had in its operation; the US’ terms for agreement meant there was a cap on foreign investment to limit involvement in closely guarded American security files. As it turned out, though, this particular contract condition would be one of the deal breakers.

In a changing economic climate, both companies saw an opportunity in collaboration to maintain their impact and grow in new regions and reach new markets. Both BAE and EADS have proven themselves successful for many years, have expanded progressively to build up their respective reputations and fortunes, and have sought to capitalise through synergy. EADS is a European corporation that unites the capabilities of four unique manufacturers, including: Astrium, Europe’s leading space programme; Cassidian, the defence and security arm; and Eurocopter, the world’s largest helicopter supplier. But by far the biggest earner for EADS is Airbus, a leading aircraft manufacturer that accounts for around two-thirds of the corporation’s revenues. Airbus and its US adversary Boeing have taken over the aerospace market, leaving little room for competitors, and have been in a constant war to rule the skies for decades.

The merger would have given Airbus a new sword edge with which to fight this close battle; for years the US market was out-of-bounds and strictly Boeing territory.

Prospective partner BAE is Europe’s biggest security contractor for air, land and naval defence forces worldwide: its biggest market being the US military. It is also heavily involved in contracting the Pentagon and other intelligence services with the systems needed to maintain national security. These include advanced electronics, information technology and support services for computers, as well as armour for defence vehicles and aircraft. BAE and EADS have collaborated in the past and the security multinational produces a significant number of the systems on board Airbus aircraft.  Current projects include the world leader in missile technology development, MBDA, and the Eurofighter Typhoon, which, despite controversy over its costs, is currently being used by numerous air forces including the RAF and Royal Saudi Air Force.

What wasn’t
The multi-billion-euro merger could have been immense despite its rejection by the majority of shareholders. A corporation that size would have had a significant impact on the industrial landscape. Both EADS and BAE have offerings that could have made the alliance a formidable player: one that accomplished Airbus’s original mission statement to “strengthen European cooperation in the field of aviation technology”. It would have presented a substantial rival to Boeing: which, despite being most famous for its leading aircraft manufacturing, gets around 30 percent of its proceeds from defence operations.

Pooled revenue figures reveal the size the merged company could have been initially, and presents a case for significant growth potential that could have overtaken rivals across both security and aerospace industries: on turnover at least. Figures from 2011 show EADS had takings of £39bn and BAE of over £19.1bn. This would have meant that the merged corporation had combined returns exceeding £58bn. Boeing’s £42.7bn in 2011 sales, combined with its 1997 merger with McDonnell Douglas Corporation, make it the largest aerospace company. Airbus’s latest report also presents more growth potential, particularly if research and development funding resources are pooled. The European airspace manufacturer is expecting its commercial market to escalate, predicting that, over the next 20 years, it will deliver around 27,900 new aircraft across its designs and mount a market value of almost £2.2trn: bear in mind these figures do not include growth into competitive US territory as a result of a merger with BAE. This figure, combined with the prospective extension into new commercial and security aircraft markets, would have meant the merged corporation exceeded even Boeing’s expected demand by 2031 (it recently announced a predicted market value of £2.8trn).

The merged company could also have become an influential defence contractor to the US Army. Merging resources and client lists would have widened growth prospects as BAE and EADS also combined manufacturing. BAE Systems has a huge American client base and is the ninth-largest supplier to the US defence sector, making £4.5bn from its Paladin howitzer, various combat vehicles and naval gun sales. Market leaders Lockheed Martin and Boeing make triple that figure. EADS is yet to make its mark on the US defence market. Although it is a frontrunner in the commercial aircraft field, it remains a fledgling competitor in security, offering just UK-72 Lakota light utility helicopters to the American army. Merging EADS’s aeroplane capabilities with BAE’s massive US presence would have made a stronger force, more capable of competing effectively with rivals for US defence contracts.

The collaboration would have created a 220,000-strong workforce across the world and new markets to tap into as geographical scope widened and market leverage strengthened.

In comparison, Boeing employs just over 170,000 people across its divisions in 70 countries. EADS currently boasts growing key markets across Brazil, Russia, China, India, Australia and the Middle East. BAE’s biggest markets are based in the US and UK, with unique access to national security documents. Although these are set to decline as military forces retreat from Afghanistan, there is an emerging interest from a new Saudi Arabian market. Together, the partnership would have taken over a huge part of both sectors, building upon respective reputations in their selective markets as a more powerful alliance.

Broken ties
As well as having the scope to take over a huge geographical base, an impending collaboration would have placed a further, more personal burden on Boeing, as BAE is one of its suppliers. In fact, BAE’s efforts in providing Boeing with military and commercial aircraft apparatus were commended in a recent awards ceremony, further signifying just how deep the disruptions could have been for the wider industries as a result of the deal. President and CEO of Boeing Defence, Space and Security Dennis Muilenburg said: “There are national security questions, industrial questions, and those will have to be dealt with… [This is] a serious matter that needs to be scrutinised.”

Among other things, BAE currently supplies the American corporation with automatic flight control systems for its V-22 Osprey tilt-rotor, a touch-screen attendant control panel on the 737 single-aisle airliner, and engine-control systems on the 767 and 787 Dreamliner jets. As it shared its research and development resources with Boeing’s rival, and helped boost its own credentials rather than reduce them, the merged company would have had an advantage in the market. EADS and BAE’s relationship would also have compromised competition confidentiality, as Boeing’s interests were no longer valued. BAE would most likely have shifted any shared plans for development to Airbus, helping develop and strengthen the competition. Boeing would have to have found an equally advanced, alternative contractor to replace electronics that are currently installed in more than 6,000 Boeing planes across 181 airlines.

Despite the prospects of the larger company, negotiations were terminated, leaving BAE and EADS’s futures uncertain. Some analysts have suggested there is a chance the two companies will try to restore their pact at some point in the future. BAE chief Ian King has reportedly said he “still believes in a full merger with continental aerospace group EADS” and would consider organising further discussions if “politicians, particularly those in Germany, could be convinced to change their views”.

In light of huge cuts in defence spending by US clientele (which account for around 40 percent of the company’s revenue), much of the discussion centres on BAE. Some analysts predict BAE will attempt to merge with another firm in the near future or consider other drastic options as it continues to struggle to maintain its business model.

Financial services provider Morgan Stanley said: “While BAE’s lack of near-term growth is well known, the proposed merger could be seen as an indication that the outlook for defence is more difficult than is currently expected. We therefore believe investors will now turn their focus to BAE’s next possible strategic move (e.g. a merger with a different party or [the] break-up of BAE).”

The innovation gamble: Manufacturing vs digital output

Posted on by Ben Debski

The phenomenal growth of technology companies, and in particular web startups, over the last 15 years has caused a shift in the makeup of the world’s most powerful companies and a wildly different economy from  the one before. While envious investors wish they had seen these opportunities coming and frantically look to find the next big thing, governments desperately hope they are able to foster the sort of technology-fuelled growth that has seen economies transformed on the back of a few successful companies.

After the tech bubble burst at the beginning of the millennium, it was assumed investors – both public and private – would act more cautiously in approaching companies that might seem innovative one day and be dismissed as old hat the next.

As a consequence of the second wave of internet-based success stories – especially Facebook and Twitter – and a crushing economic downturn, investors and governments are gambling on catching the next technology wave, while students are eager to emulate the likes of Facebook founder Mark Zuckerberg. The stakes, unfortunately, are colossally high.

Gambling on tech
Developed countries are pumping money into growing tech zones to encourage startups, offering tax breaks to entrepreneurs and special visas to attract overseas talent, as well as investing in the high-speed internet infrastructure required for many of these ventures.

The UK government in particular has diverted a great deal of attention towards an area in East London known as Tech City, where many online startups have emerged over the last few years. The area around London’s Old Street Roundabout – which has come to be known as ‘Silicon Roundabout’ due to the number of hi-tech startups in the area – has been renamed with the aim of turning it into an internationally recognised and officially supported tech hub.

Revolutionary inventor James Dyson says a gamble on such a volatile industry is an unwise risk for governments to take. He said: “The hardware trade around the world is growing at a much faster rate than social media or anything that’s going on in Silicon Roundabout. Hardware creates jobs, it creates exports, it creates wealth. I’m not sure that Google and Facebook do that.”

The aim of Dyson’s new design centre is to help train the next generation of engineers. He said: “We’re producing far too few engineering graduates: there’s a 50,000 shortage now, in a few years time we’ll be 200,000 short. Britain produces fewer engineers out of our universities than the Philippines.”

A recent study by the Royal Academy of Engineering concluded the UK needed to invest more in training engineering graduates. This would counteract the current shortfall and help boost the economy. The report said: “There is good econometric evidence that the demand for graduate engineers is pervasive across the economy. The evidence can be seen in a persistent, sizeable wage premium for people holding engineering degrees and this premium has grown in the last 20 years.”

President of the RAE Sir John Parker’s own experiences support the findings. He said: “I have travelled around in business and seen how other nations organise themselves and tilt policy in favour of their industrial base. At the highest level, an industrial strategy in my view is about giving the right signals to society that industrial activity is very important.”

First world problem
The problem is apparent in a number of developed countries where governments are eager to promote web innovation over a dwindling engineering industry. Australia has been desperate to create a thriving tech industry in Sydney with little success.

The US has seen a sharp decline in its manufacturing industry over the last decade. During the last decade, the US lost around 5.7 million manufacturing jobs – 33 percent of total jobs in the sector – and at a rate worse than during the Great Depression.

A report by the Information Technology and Innovation Foundation said: “Some go so far as to assert that manufacturing industries are ‘old economy’ and that it is a reflection of failure, not success, if a country has a manufacturing sector that is either stable or growing. “Perhaps they are thinking of the kind of factory represented in old movies, television shows or news clips: dirty, clunky, mechanical havens filled with low and moderate-skilled workers producing commodity products. They would be well-advised to visit the clean, streamlined, IT-driven manufacturing facilities operating in the US today.”

Emerging innovation
In contrast to developed nations, many emerging markets have seen considerable growth fuelled by a healthy and productive manufacturing industry, especially through the designing and building of hardware.

Foxconn, the Taiwanese electrical manufacturer that produces many of the world’s most recognisable consumer electronic goods, has operations in China, Brazil, Malaysia and Mexico.

Neither are emerging economies hooked on the idea of abandoning manufacturing as soon as they reach a certain level of development: they have been keen to lay the foundations for the future of their engineering and design sectors. In China, South Korea and India, a huge amount of investment has been made in training up highly skilled engineers it is hoped will develop new technologies and create homemade, world-class industries.

Although tech companies have the potential to create enormous wealth for a few lucky founders, they don’t employ the numbers of staff manufacturing companies do. According to Dyson, General Motors, bailed out by the US government in 2009, employs four times as many people as Google.

Dyson said: “Talented young minds want to be the next Mark Zuckerberg or Larry Page. But with the world abuzz with digital, we are losing sight of real engineering. Hardware is profitable. Don’t be fooled, Apple’s success as a technology company is built on hardware. The current fixation with digital is misplaced. Long-term it is unlikely to generate jobs, growth and exports. Instead, we need to encourage more young engineers to commercialise their technologies…

“The world needs the next generation of engineers to solve the problems of energy supply, food shortages and infrastructure building. We need to do more to inspire them.”

Joint venture resubstantiates BP and Rosneft

Posted on by Ben Debski

For years BP has been struggling with a joint venture that made it a business partner with the AAR consortium of Russian billionaires. Now board members have found a strategic way out through a cash-and-shares deal worth £16.8bn, which will make them shareholders in a state-owned Russian energy giant. The arrangement sees Rosneft buy the British multinational out of TNK-BP for £10.6bn and a 12.84 percent stake: an arrangement that ranks as the third-largest in the history of the oil industry. In further advances, Rosneft also plans to buy AAR’s 50 percent share for a rumoured £17bn, seeking the entire takeover of TNK-BP within the next six months.

The transactions reveal the Russian firm’s aspiration to become one of the world’s most powerful oil companies. If successful, they will pass ExxonMobil to become the world’s largest publicly traded producer of oil and gas in terms of output. The developments establish opportunities for expansion for both British and Russian counterparts on a number of levels, but significant challenges are ahead as the exact strength and profitability of the contracts are yet to be determined. If nothing else, breaking away from the problematic partnership within TNK-BP will be warmly received by BP management, as any recent lucrative potential in Russia has been overshadowed by a challenging relationship with the AAR.

Russian affairs
Forming this alliance will undoubtedly open more doors for BP, particularly within Russia: a key site in the oil and gas industry. The deal will allow one of the largest companies in the world the exposure it needs to break into the market significantly. It will also be able to continue its decades-long exploration of Russia’s extensive energy and untapped hydrocarbon reserves.

Ildar Davletshin, an oil and gas analyst at Renaissance Capital, said the deal “strategically looks very positive for BP [as it exchanges] a private partner for a strategic national company which has much bigger access to resources in Russia and has much bigger political support in this country”.

As part of the deal, the BP board have also been given two out of the nine places on the Rosneft executive board. Despite that not being enough to warrant a veto, this does suggest a certain degree of power for planning growth steps and sharing projects.

Although BP has as yet denied the prospect of direct collaboration with Rosneft, by
guaranteeing a share in the larger company it will now secure itself as the partner-of-choice for future joint ventures, undermining the power competitors have within the region.

In the past, rivals such as Royal Dutch Shell have expressed desire to expand their eminence in Russia, but analysts now expect that the BP-Rosneft partnership will ward off others.

Robert Van Batenburg of Louis Capital Markets said: “for foreign oil companies seeking to expand production and reserves, Russia is now off limits.”

This will give BP a very strong position within the region, something that is particularly important as Russia is one of the leading oil and gas producers and exporters. Recruiting BP, now the second-largest stakeholder in Rosneft, will help the Russians strengthen their position within the wider industry.

Benefits and objections
Rosneft has a lot to benefit from BP’s international brand and presence, and will undoubtedly exploit its offerings to implement more efficient and advanced projects and raise its status as an oil and gas expert. Further to this, BP has an immense supply of skills within engineering and technology that Rosneft can utilise and build upon.

The British oil specialist also has a reputation for transparency and management expertise, and the Russians may well seek to benefit from this to enhance their reputation in order to raise capital from international investors. As Rosneft’s reputation improves and shares grow, BP’s stake in the wider business is set to increase in value. The British conglomerate is rumoured to be reinvesting some of the cash from the deal to increase its stake in Rosneft to almost 20 percent.

Many of BP’s investors are still unconvinced about what may happen to their investments as they are put into Rosneft. Whilst TNK-BP has seen interrupted growth since its formation, Rosneft’s shares have not moved in years. Reservations regarding their dividends influenced BP’s shares soon after the deal was announced, as they declined 0.3 percent.

BP, however, has vowed to offset any dilution to earnings per share caused by the deal, which is likely to cost it around £3bn to £6bn. BP managers are still trying to reassure uncertain shareholders, saying that their cash payment and share of almost 20 percent equity, coupled with Rosneft’s payout policy – which promises 25 percent of earnings – suggests BP is well on track to a healthy dividend this year. BP’s Group Chief Executive Bob Dudley said: “BP intends to be a long-term investor in Rosneft: an investment which I believe will deliver value for our shareholders over the next decade and beyond.”

Government support
Initial analysis of the contributing factors suggests there are sufficient benefits on both sides to ensure full exploitation of oil reserves and return healthy profits. Input from the Russian government so far has been full of support as the deal puts the state back on the map as an important player within the energy industry. President Vladimir Putin said: “This is a good, large deal that is necessary not only for the Russian energy sector but also the entire economy. This is a very good signal to the Russian and international energy markets. I am certain that it will be beneficial.”

It remains to be seen whether the new partnership can fulfill expectations to gain international recognition within the oil industry as its frontrunner.

Recognising and profiting from growing niche markets

Posted on by Ben Debski

As was recently demonstrated by Red Bull, a worthwhile marketing campaign can take a long time to prepare, cost a huge sum and can be as extreme as jumping from space: and it’s all in aid of promoting just one product. Of course, not every company needs to be travelling through the stratosphere to show off its products, but every business does need to have a growth plan. Many of today’s global giants started off as small, specialised start-ups and have managed to strategically develop their corporations to compete internationally. Red Bull, Apple and Nike are in entirely different industries, but all have proven themselves to be leaders in their respective fields and maintain strong promotional campaigns. Although diverse, all concur on what it takes to make marketing work and ensure growth.

At the core of any successful business is the consumer. Carefully selecting and understanding that consumer will guide important decisions of product selection and brand identity. This can also direct growth, as effectively providing for a selected group can build reputation and aid acceptance of future ventures. After identifying the needs of the market comes developing a quality, innovative product or service to cater to them.

Niche companies provide services tailored to small audiences. Once that specified market has been infiltrated successfully, opportunities for expansion can present themselves: initially by exploiting within that niche and eventually branching out. Companies such as Traulsen, Lehman’s and Yeo Valley Organic all serve emergent crowds and have effectively shown that a deep understanding of their customers’ needs and continuous innovation can translate into effective growth and be used in promotions to broaden their appeal.

All in the timing
Timing can play a huge part in product development and launch. Its important that companies have an understanding of the social context into which their product is being launched. Context must be taken into account as it can have a huge influence on the perception of a product and its success once released. It can have a significant impact on word-of-mouth marketing: an invaluable form of promotion which has contributed to the success of many campaigns, including those for Red Bull, Apple and Nike products.

The story of Nike is an important one. Its rapid transformation from Oregon start-up to global sportswear and goods giant has become a model for commercial planning and execution. Over the years, Nike has embraced all kinds of marketing initiatives and spent increasing percentages of its (now not inconsiderable) budget on effective, influential and distinctive campaigns. There are many reasons Nike’s approaches have been particularly successful and the story of how two athletes developed a billion-dollar empire, amassing revenue of over $24bn in fiscal year 2012, is a lesson in strategic growth from niche business.

Blue Ribbon Sports (BRS), with its headquarters near Beaverton, Oregon, was founded in 1964 by distance runner Phil Knight and his coach Bill Bowerman. Being athletes themselves and sensitive to the specific needs runners had, Knight and Bowerman already had the advantage of having an increased awareness of their chosen consumer. The fledgling entrepreneurs sought to find an alternative, cheap manufacturer for their unique shoes for distance runners. Lower costs would allow them to undercut the German-made shoes that dominated the market. From his education at Stanford, Knight had identified a gap in the market and set about sourcing cheaper goods from factories in Japan.

Humble beginnings
The first step was to find out if it was even possible to break into the industry. Making an initial order for $1,000 worth of shoes from Japanese shoemaker Onitsuka Tiger, BRS acted as American distributor.  Knight, also working as an accountant, took care of business matters while Bowerman, a renowned innovator, took the trainers apart and began redesigning them to enhance performance and reduce injury for distance runners.

They worked together towards the specified goal of distributing high quality, low-cost shoes to reduce the dominance of German brands. Their goals changed as their company evolved: something that was fundamental to their development.

After selling at the sides of racetracks for a while and finding their product was popular among targeted runners, Bowerman designed the shoe that would enhance BRS’s profile. The innovation came from Bowerman’s wife’s waffle iron, which he used to create a ‘waffle sole’ out of latex. Trading increased and as more runners were seen wearing and, more importantly, winning in BRS’s shoes, word spread and the business expanded. Carefully exploiting their market, BRS sold a selection of shoes for distance runners before branching out to develop shoes for athletes. More employees were brought on and the company set up a number of retail outlets. BRS started advertising  through product brochures and promotional material.

In 1971 the Nike name, derived from the Greek for victory, was conceived after a dispute meant BRS had to split from Onitsuka Tiger and start designing and manufacturing their own shoes. Soon after, the iconic Nike ‘swoosh’ logo was selected, and the new Nike brand was ready to launch. Nike wanted a significant marketing event to instigate the reformed brand and, returning to its roots, recruited celebrity distance runner Steve Prefontaine.

Prefontaine, a successful athlete, was hugely popular and became a powerful ambassador.

He boosted Nike’s profile nationally, making appearances in the athletic shoes and sending pairs to upcoming athletes with letters of support. The Nike brand launched just in time for the 1972 US Olympic Track and Field Trials. Its timing meant considerable publicity opportunities, particularly as four of the top seven finishers of the marathon wore Nike’s signature shoes. Nike’s lightweight waffle sole made a lasting impact and by 1974, after 10 years of work, it had become America’s best-selling training shoe.

Growing year-on-year, the company hired its first advertising agency in 1976 – John Brown and Partners – which created the first ‘brand ad’ for Nike and boosted its sports-make profile further. Nike continued to build upon its repute with distance runners, providing clothing and equipment, and broadened the range to appeal to diverse audiences.  As the Nike brand and reputation grew, so did customer loyalty, particularly among distance runners. This meant price became less of a consideration as more people were willing to pay slightly more to be associated with the brand name itself.

By 1980 Nike held a 50 percent share in the US athletic shoe market and began to launch more products. The company collaborated with inventors to create innovative technologies, such as Nike Air.  Most Nike factories were, and still are, situated in less developed countries such as Indonesia, China and India in order to keep production costs down. After 20 years of business, Nike had grown to become a billion dollar company with worldwide sales, widely acknowledged to be the industry leader. The Nike brand had built a reputation for high quality and relatively low cost training shoes. Nike used this as a platform from which to launch products across all the major team games.

Legendary endorsements
Although a huge surge in the aerobics industry in the mid-1980s meant Nike missed out to growing rival Reebok, the company eventually regained the top spot by widening its scope and signing upcoming star athletes and sports stars, including NBA’s Michael Jordan. A series of memorable campaigns followed as it launched diverse product lines, including the Air Max, cross-training shoes and adverts featuring the powerful slogan “just do it”.

Knight regularly affirmed the company’s passion and, speaking at Nike’s new headquarters in Portland, said: “Our goal is simple: to be the market share leader and the most profitable brand in all 39 footwear apparel and accessory lines in which we compete.”

As Nike’s reach developed, so did its capabilities. The company opened larger flagship ‘Niketown’ stores internationally and by 1995 was signing entire sports teams. The Brazilian football team was the first to be signed, but a number of other national teams soon followed. This gave Nike further exposure and power in the sports community and it continued to sign upcoming legends from all over sport: from golf’s Tiger Woods to cycling’s former-hero Lance Armstrong.

The brand gained added notoriety after being one of the only sponsors who maintained its support for Armstrong through his cancer scare. Nike chose whom it supported carefully, selecting the best of the best across the spectrum of sports. Over time, this marketing technique allowed Nike to broaden its audience. The company’s business goals also evolved to be more challenging, allowing the brand to supply a range of products to people of all ages and thus maximise profit opportunities.

Success and innovation
By the turn of the century, the Nike empire held a one-third share of the world’s athletic market. It had passed the $20bn-in-revenue mark, employed 22,000 people across 120 countries and was a full 30 percent bigger than closest rival Adidas.

Success did not halt the brand however. Nike continued to innovate, ensuring it kept up with trends and inventing completely new styles, including the Nike Shox, which reportedly took more than 15 years of work as “Nike designers stuck with their idea until technology could catch up”. A campaign in 2002, ‘Secret Tournament’, is widely regarded as one of the largest marketing tactics Nike has undertaken. Internet, public relations, retail and consumer events were all used to promote Nike’s football products and athletes during the World Cup. A pattern in Nike’s promotions and product launches is  seasonal variation as it evolves its collection to keep up with what’s happening in wider society. Its best sales are unsurprisingly recorded around sporting events.

More recently, Nike has introduced eco-friendly designs and products.  The launch of its Volt running shoes during the London 2012 Olympics was a noteable piece of ambush marketing; though Adidas was the official sponsor, over 400 athletes were seen competing in the neon-green Volts. Nike has been able to succeed across a spectrum of sports goods and its constant innovation recently allowed it to delve into technology, as it teamed up with fellow giant Apple to launch Nike+: a device which gives feedback while running to promote exercise.

While maintaining its identity as a niche manufacturer, Nike has been able to make itself a multinational powerhouse for all things sport. Knight and Bowerman first identified their target consumer and, through strategic marketing and growth, have been able to bring their products to the mainstream. They have convinced the market of their products’ necessity. The utilisation of all possible promotional tools is a power and responsibility that Nike has built and maintained.

The use of well-known athletes for endorsements, multimedia commercials and sponsorship has been effective and the Nike swoosh has become one of the most iconic and recognisable symbols in the world. The company continues its global expansion: in the last year it has unveiled its latest collections, set up retail deals in China, continued its ongoing investment in community stores and signed a deal to become the official sponsor of the US’s National Football League. Current CEO Mark Parker said: “At Nike, Inc. we run a complete offense and it’s based on a core commitment to innovation. That’s how we stay opportunistic, serve the athlete, reward our shareholders and continue to lead our industry.”

Manana in Brazil: Stuttering preparations for the World Cup

Posted on by Ben Debski

So much needs to be done in the next 18 months that FIFA and the Brazilian government must be privately sweating more than its national football squad. Most of the 12 stadiums are behind schedule to varying degrees, but should at least be finished on time. The big concern is everything else that the showcase of the world’s biggest game is expected to have as a matter of course.

There’s security. With ten murders a day in Sao Paolo alone, the security situation has actually worsened since 2007 when Brazil won the right to stage the World Cup. And that’s despite bland assurances from the authorities that they’re going to get on top of it with the aid of the military.

There’s the roads. Bottlenecks in Sao Paulo, the commercial capital, and in Rio de Janeiro are so bad that many businesspeople use helicopters to get from place to place. The city has more rooftop helipads than New York.

There’s the commercial airports. Although airports authority Infraero has known for nearly a decade that Brazil would be given the World Cup, it’s only just following up half-heartedly on a long-delayed promise to privatise the main airports to make them more efficient. After decades of under-investment most of the main airports in the regional capitals are chronically congested. At Sao Paulo passengers are advised to leave their hotels five hours before take-off.

Yet plans for a new terminal there have been dropped and a rail link from downtown is way behind schedule, as are other rail projects in other cities. A Brazilian think tank, the Institute for Research into Applied Economics, predicts that promised improvements to ten of the thirteen earmarked airports will not be done on time.

Given these delays, it’s hardly surprising that FIFA’s nerves are on edge. Earlier this year the football body’s secretary-general, France’s Jerome Valcke who bears much of the responsibility for getting the show on the road, said the Brazilians needed “a kick up the backside”. Although he rapidly backpedaled and claimed he really said (in French) that Brazil needed to “pick up the pace,” Valcke had summed up what many are saying inside as well as outside the country. Namely, there’s too much manana in Brazil.

An outraged government’s response however was to shoot the messenger, warning FIFA president Sepp Blatter that it would no longer deal with Valcke. In his latest column on FIFA’s website, a contrite Valcke acknowledged “very positively” the achievements made in the last few months.

But that’s not what Roberto Bernasconi, president of a leading association of architects and engineers, is saying. “There are countries which suffer natural disasters and need to reconstruct everything on an emergency basis. We create our own emergencies without any need to,” he wrote in sports publication Lance.

How did Brazil slip so far behind? One scapegoat among several is Ricardo Teixeira, long-standing kingmaker of Brazilian football as head of its association, the CBF, and also president of the World Cup organising committee. Although Teixeira was the architect of the grand plan to stage the event across 12 cities, for some reason he delayed for two disastrous years a decision over exactly which cities they would be. Eventually, FIFA had to step in and choose them.

Claiming health issues, Teixeira resigned abruptly in April this year and moved to the USA after it emerged he had accepted £8.4m [$13.4m] in payments from failed sports management group ISL. It had not helped preparations when sports minister Orlando Silva, who was coordinating plans for 2014, stepped down a few months earlier over allegations of corruption.

There are big question marks over the financing. Although most of the money was originally supposed to come from the private sector, nearly all of the official $12-14bn budget will be provided by state coffers. Yet, according to Bernasconi, only five per cent of the huge transport budget for the cities has actually been allocated.

You have to admire Brazil’s vision in staging a 12-city World Cup including some games in a remarkable new stadium in Manaus in the Amazon jungle. But if the authorities pull this off, they’ve only got another two years to get organised for the 2016 Olympics in Rio – and that’s a much tougher feat. While new sports minister Aldo Rebelo insists all the construction work will be completed on time – “we’ve achieved some crazy things over the centuries,” Brazil will need plenty of boa sorte.

Richard Branson puts forth plan B for capitalism

Posted on by Ben Debski

Capitalism has become a dirty word over the last few years, as policymakers and the media paint it as the source of the majority of the world’s ills. However, despite the wishes of some of the more extreme campaigners, capitalism is likely to live on beyond these turbulent times.

Adjusting the model, however, is something many have called for, not least British entrepreneur Richard Branson. Having successfully launched airlines, record labels and train companies through his Virgin brand, riding the crest of the capitalist wave over the last 40 years, Branson wants to create a more ethical approach to business.

He has gathered leading businessmen into his B team in order to formulate an alternative to the existing capitalist system. Jochen Zeitz, chairman of German sportswear maker Puma, will head the group alongside Branson with the explicit aim of creating a “fair, honest, positive and creative” business environment.

According to the Economist, the group will campaign governments and other multinationals to reform standard business practices, including ending quarterly reporting of results, transparent accounting of companies environmental impact and an end to fossil fuel subsidies.

The B team is yet another organisation that Branson has formed to bring reforms to the way the world is run. Other groups include the Elders, which counts the likes of Jimmy Carter and Desmond Tutu among its members, which aims to advise politicians around the world on how to run their countries. Another is the Carbon War Room, which is designed to help businesses and politicians cut the use of fossil fuels.

While Branson has been frequently accused of shameless self-promotion, his stated aim of making businesses act in a more ethical way, while profiting from the capitalist system they operate in, can only be applauded.

European Union aids African geothermal development

Posted on by Ben Debski

Providing enough power for poverty stricken African nations has proved difficult, as investors have been reluctant to enter into deals in less developed and unstable countries, while also attempting to remain sustainable. Geothermal power is thought to offer considerable benefits in Africa, but getting the industry into a dominant position in the region has proved difficult.

However, a new partnership between the EU and African Union (AU) is set to reward investors with grants in order to bring down the cost of entry into the market. The Geothermal Risk Mitigation Facility (GRMF) will offer both public and private sector investors with help researching viable geothermal areas.

The initial investment will be $65m and will look at countries predominantly in the east of the continent, with projects in Ethiopa, Kenya, Rwanda, Tanzania and Uganda the first to be looked at.

Gary Quince, Head of EU Delegation to the AU, told the Xinhua news agency: “The idea is to provide grants to investors who are undertaking studies then drilling to find the good sites for geothermal power stations. The work carries quite a lot of risk; very often they drill and they don’t find the steam necessary for investment in the power stations. So, by reducing the costs we have to cover some of the risks.”

Geothermal energy is relatively untapped in the region, but there is thought to be significant potential. Geothermal energy currently accounts for ten percent of the total power consumption in Kenya, and the country hopes to increase that number to 25 percent within five years.

Ben Goldacre argues: “Medicine is broken; malpractise rife”

Posted on by Ben Debski

Pharmaceutical companies have been involved in some of the bigger corporate scandals over the last decade, as whistleblowers at giants like GlaxoSmithKline, Eli Lilly and Pfizer have drawn attention to a culture of malpractice and deception across the industry.

With so many high profile cases, it would be assumed that companies would attempt to clean up their acts, but according to one doctor and science journalist, big pharma companies are still misleading the public about many of their practices.

Ben Goldacre, the British author of Bad Pharma, says that “medicine is broken”, and that the malpractice extends across the industry, from firms hiding negative results from clinical trials to regulators not picking them up on the problems, and medical journals failing to rigorously check the reports they publish. All this leads to an industry failing to provide doctors with the necessary information about what they are prescribing to patients.

According to Goldacre, whose previous book Bad Science brilliantly exposed the alternative medicine industry, pharmaceutical companies need to be pulled up on their misleading approach to marketing their drugs. In an interview with the London Metro, Goldacre said: “Large numbers of people suffer and die unnecessarily due to distortions in medical science…I think a lot of doctors know there’s dodgy marketing behaviour by drug companies and that sometimes drug companies do badly designed trials that are flawed in such a way that it’s an advantage to them.

“What appalled me most was when I put it together in one place and realised what an incredibly destructive picture it was.”

In the book he highlights a number of companies hiding the results of clinical trials that would have led to drugs being withdrawn from the market. One particularly shocking case includes GlaxoSmithKline failing to report that trials had shown their anti-depressant Paroxetine could potentially increase the risk of suicide in children.

With the industry failing to address their behaviour even after so many whistleblower scandals have exposed them, books like Goldacre’s are hugely important in holding big pharmaceutical firms to account.

Amazon raises legal battle: Who owns digital content?

Posted on by Ben Debski

When paying money for a book, both physical and digital, most customers assume that their purchases are theirs forever. However, according to Amazon, the rights to those books belong to them, and the money paid by the customer is merely a rental fee.

According to a Norwegian technology blogger called Martin Bekkelund, his friend Linn Jordet Nygaard entered into a dispute with Amazon after her account with the online retail giant had been shutdown and all access to her Kindle book collections had been rescinded. When she attempted to contact Amazon to get back access to her books she was told by a representative that her account had been linked to another and therefore breached their copyright rules. The confusion was caused, according to Nygaard, after she bought a new Kindle and gave her old one to her mother.

Over the last decade, with media being delivered digitally rather than physically, many of the rights that consumers were accustomed to have been removed, with the remaining system considered, by retailers at least, to be more of a rental service.

A similar case emerged recently, although was later denied, when it was reported that Hollywood star Bruce Willis planned to sue Apple over a dispute as to who owned the music he had downloaded from their iTunes store. Again, content purchased digitally is tied to users’ accounts and are not supposed to be transferred.

Perhaps digital rights owners and online retailers would be better off making these issues over ownership much clearer in the future, in order to avoid further confusion and bad press.