Regardless of the outcome of the Copenhagen conference in December 2009, one of the most pressing anti-climate-change needs will be the ability to get things done in 2010 and beyond. The commitments already made by some large economies require an extremely large capacity to get new energy systems in place quickly. That includes making sure that there are the people around to design and build them.

The infrastructure needed to make a large dent in the world’s emissions is daunting. What is unusual is not the scale of investment, but that much of it has to be spent on new capabilities. With the use of coal worldwide expected to double by 2030, for example, carbon capture and storage (CCS) technologies will be crucial. The amount of pipelining, geological surveying and chemical engineering needed for this is not unprecedented compared with what already exists in the oil, gas and mining industries. But it is vastly larger than today’s CCS capacity, and the people needed cannot just be borrowed from the current fossil-fuel industry.

The nuclear industry is also bedevilled by labour-force issues, at all skill levels. For the past few decades very few Western countries have been producing nuclear engineers; if the nuclear industry is to expand again, over the next decade it will need thousands of engineers who are at present nowhere to be found. And if the supply of expert engineers is tight for builders and operators, it will be tight for regulators, too—regulators who will be sorely needed if a new generation of nuclear-power plants is to enjoy, and deserve, public confidence.

Renewables do not face these issues in quite so pressing a form; the solar and wind industries reap the benefits of the production line in ways that nuclear and carbon-capture technologies, with their large installations, do not. This is one of the reasons that governments like renewables: they provide jobs. Retrofitting homes for greater energy efficiency also offers this advantage on a large scale (which makes one wonder why it is not a higher priority). Even so the renewables sector will also be competing for designers and engineers.

To a large extent this is a market problem that markets can solve; if the demand is created, companies will find ways to get the work done. But there are some specific things that governments can do to help. One is to fund research with a strong emphasis on energy engineering and science. New breakthroughs, however welcome, are not the point here; though new technologies will be a boon in the 2030s and 2040s, the realities of large-scale change mean that, for the moment, energy transformation is a come-as-you-are party. But breakthroughs are not the only thing research produces. Nuclear engineers are scarce in part because there has been little ongoing research to captivate students.

Another smart policy will be to re-examine the extent to which governments subsidise high-tech jobs in other industries, notably defence, tying up talent. There are a lot of opportunities in green technology for laid-off missile designers. A third idea, for those who can afford it, is to reap the benefits of the educational successes of other countries by importing people from places where many aspire to become, and qualify as, engineers.

The people needed cannot just be borrowed from the fossil-fuel industry

Who wants to be an engineer?

And it would be nice to find ways to spread that aspiration more widely. In a number of countries (Britain is an example) engineering does not carry much cultural cachet. A pride in the engineered past—remember Isambard Brunel—is accompanied by apathy towards the engineering of the present. It is neither fruitful nor desirable for governments to meddle in broad cultural attitudes. But leaders of the environmental movement, and politicians who aspire to such leadership, might do well to encourage the young to apply their idealism to their choice of career path.

It’s all very well to recycle, pester your parents about fuel efficiency and aspire to holidays that need no flights. But the best thing a bright young person can do to help rid civilisation of fossil fuels is get an education in engineering.

Renault-Nissan CEO Carlos Ghosn: 'Now Is the Time for the Electric Car'

The electric car is real. It's here. And before long -- when curbside charging stations become as ubiquitous as parking meters -- it won't seem all that complicated, either.

So says a man who has thrown his corporate reputation into the post-gasoline car: Carlos Ghosn, CEO of Renault and Nissan. In a wide-ranging Wharton Leadership Lecture that touched on everything from managing a multicultural conglomerate to pushing for targeted government regulation, Ghosn was at his most optimistic when discussing a future where zero-emissions vehicles are embraced -- not out of altruism towards Mother Earth or hostility towards the oil-rich Middle East, but because they are good business.

"The electric car appeared at the beginning of the century, then disappeared, appeared in the 1950s, then disappeared, appeared in the 1970s, then disappeared," Ghosn said. "But a lot of things have changed.... We are putting our chips and we are putting our investment and we are putting our efforts behind this belief that now is the time."

Why now? Ghosn says one critical element was technological progress. "The battery of today is capable of doing things that the battery of 10 years ago was not capable of," he said. Where the task of supplying enough energy for a car's wildly varying power needs was once impractical, it's available today at reasonable prices.

The second element is the price of oil. Noting that the cost of a barrel is $68 in the middle of a recession, Ghosn asked his audience whether anyone thought the price would go down. No hands went up. With the U.S., China, Brazil, Indonesia, Eastern Europe and Western Europe all growing, "imagine what the price of oil [will be] if we don't change the consumption," he said.

Also affecting costs, he predicted, would be a third factor: Regulations. During his lecture, he asked for another show of hands from people who believed environmental restrictions would become less stringent. Again, no hands went up. "The car industry is 14% of CO2 emissions," he said. "In the eyes of the public, the car industry is responsible for 50%. We have no choice."

The coming boom in car ownership in emerging economies will likely increase this perception. Ghosn predicts a spike from 700 million cars today to some 1.5 billion globally: "If you're going to let developing countries have as many cars as they want -- and they're going to have as many cars as they want one way or another -- there is no absolutely alternative but to go for zero emissions. And the only zero-emissions vehicle available today is electric.... So we decided to go for it. We decided not to wait for the next battery and the next car in five years. We decided now is the time."

Plugging In

Ghosn went into significant detail in describing how his firm can make electric cars a practical reality -- and a consumer favorite. "Driving an electric car is pure pleasure," he said. "I'm sure when the car is on the market in the U.S. and people start to drive it, it will totally change the image of an electric car." Starting next year, Nissan and Renault plan to offer a wide range of such vehicles, not just a single marquee product marketed to show off a driver's green inclinations. "We want the car to be affordable, which means, if you want to buy an electric car, it has to cost the same" as regular cars.

The logistics, on the other hand, will require a certain degree of investment from individuals, businesses and perhaps governments. Ghosn said car buyers with garages at home should be able to upgrade their electric outlets to facilitate an electric car's plug for around $500. In big cities, he predicted, electric companies will pay about $1,000 for devices resembling parking meters that can be arrayed along curbs to charge the vehicles. He predicted that price would fall as companies began mass-ordering the devices, and said firms would quickly recoup their expenses as customers pay to charge their batteries.

Both of those options, though, require a car to be charged overnight, like a mobile phone, for a charge that gets a car fewer miles than a tank of gas. Drivers in a hurry will have to go to a quick-charge station, which can fill up 80% of a battery in 30 minutes. The equipment isn't cheap: A quick-charge device, Ghosn said, costs $30,000 -- an investment that might make sense once there is a critical mass of electric-car drivers already on the road, but something that could seem expensive for service station owners in a market where electric cars remain rare. He called for governments to step in and spur the market via regulation. One idea: Make quick-charge facilities mandatory for anyone operating a gas station starting in 2012.

Ghosn indicated that he foresees epic battles over his ideas, commensurate with the major economic interests at play. "It's not possible unless government supports you. It's not because the technology is more expensive. It's because you can't compete against 68 million cars being produced in the whole system.... That's why we need support from the government, in order to make the ramp-up from 500,000 to one million cars. And then the system works by itself. Governments are all lined up. They are all agreeing to say, 'Okay, I want an electric car in my country. I'm going to put in the incentives that are necessary. I'm going to put in the infrastructure that is necessary, because we need to get out of dependence on oil. We need to get out from CO2 and global warming. And we need to get out from the risk of oil going to $150 and $200 a barrel.'"

Comic Book Hero

Ghosn's career makes him the ideal person to translate once-fantastic ideas into practical nitty-gritty. Born in Brazil, he moved to his parents' native Lebanon at age six. Educated there and in France, he went to work for Michelin and became chief operating officer of its South American division at age 30. By 34, he was running the firm's North American operations, where he led a merger with Uniroyal. He moved to Renault in 1996 in time for the French automaker's takeover of Nissan. In 2001, he became the first non-Japanese to run the firm, which was deeply in debt and had lost nearly $6 million the previous year. In 2002, it turned a profit. Ghosn's turnaround skills made him a celebrity in Japan, where his story was featured in a comic book.

Ghosn said he never planned a career as a turnaround specialist. Rather, he said, he chose the transportation industry because "I liked cars, I liked products and I liked to work with people." Were he in a position to hire someone to fix a distressed firm, he would focus on three more specific qualities: Someone who had previous experience with tough business challenges, someone who was rigorously factual and willing to question assumptions by using data, and someone who could connect with other people to enlist their help with difficult parts of the recovery effort, such as layoffs.

Ghosn described his firm's multinational character as a plus: In addition to its well-known French and Japanese components, it also owns or partners with automakers in Korea, Romania and Russia. "We are a hybrid of different cultures -- one French, one Japanese, one Russian. Every company is autonomous, but we develop synergies together.... We are a unique combination of different cultures, and it works. It's complicated, it goes against all the advice, but it works." In 2008, the company had more than $100 billion in global revenues.

Ghosn, 55, says a diverse firm like Renault Nissan, with 300,000 employees around the world and head offices in Paris and Tokyo, is a fairly good reflection of a business world where management culture has become as diverse as labor and market locations. "Six or seven years ago, the BRIC [Brazil, Russia, India and China] countries were a new frontier," he said. "Now they are at the heart of the system.... 'Multicultural' used to be American leaders, Japanese leaders and West European leaders. Not anymore." The current downturn, which has seen China, India and Brazil remain comparatively resilient, will only serve to strengthen this trend.

Ghosn sees major new possibilities for those countries, and other emerging economies, in his industry. His advice to nations dreaming of an auto sector: "You have to bring something to the table." Japan, he noted, started by introducing cheap cars that were bedeviled by quality problems. Once the quality problems were fixed, Japanese firms ruled the market. Korean automakers followed the same model, occupying the low-cost niche Japan had vacated, and then moving up as quality soared. He sees Chinese firms following suit. India's auto industry, on the other hand, appears not to be copying the pattern, focusing instead on "frugal engineering -- a habit that's lost elsewhere" -- for cars like Tata's low-budget Nano. The vehicle might come to dominate parts of Asia, Africa and Latin America, although Ghosn doubts it would clear Western safety hurdles.

The increasingly multinational nature of automakers and auto buyers stands in contrast to a strain of nationalist dialogue that has been especially prevalent as the U.S. ponders its reliance on gasoline.

In the case of the automobile industry's move away from oil, one factor that is frequently cited by American politicians is not high on Ghosn's list of motivations: national security. An audience member asked whether a transition to batteries would really help America's push for energy independence, since many battery ingredients come from China, a country that presents its own set of foreign-policy challenges for Washington. But Ghosn said the point wasn't to cut potentially competing governments out of the action: Instead, it was to liberate the market from the environmental risk and price uncertainty that are specific to oil.

In addition, he said, the oil and battery industries are both more diverse than the national security rhetoric would have people believe. Slash transportation's dependence on oil by 50% and there will still be a large market in heating, industrial products and countless other regions. And while the least expensive batteries and several key raw materials do come from China, the most sophisticated batteries are made in Japan and Korea.

The very unpredictability of his own path -- like the technological change his industry is now experiencing -- offers a fairly good lesson about managing a career, Ghosn said.

"A career, no matter what, you can't predict, you can't plan. You're going to be offered much more opportunity than you ever think could happen. The only thing to make sure of is that your mindset is open enough so that when the opportunity comes, even though it's completely bizarre or completely strange or in a place in the world that you never thought you would be, you're ready to take it," he said. "If somebody had told me six months ago that ... I would be sitting in [the Tokyo neighborhood of] Ginza managing one of the largest car manufacturers in Japan, I'd have said [he was] crazy. Not going to happen. If you don't maintain your open mindset, if you say, 'This is my plan and everything else is a distraction,' you're not going to go anywhere."

Tuesday, 10 November 2009

How consumers behave - TV, Net gain from slowdown

Small was big and less was more during slowdown

Starcom MediaVest Group, the brand communications arm of Paris-based Publicis Groupe, which is one of the world s top marketing services company, recently released a study on how the recent economic downturn impacted consumers across Asia and the lessons to be learnt from consumer behaviour during challenging times.

The study, which measured consumers brand behaviour and media consump- tion habits, was supported by the group s real-time consumer intent behaviour tracking tool, IntenTrack. IntenTrack samples around 250 consumers across 35 product categories on a weekly basis and tracks consumers intent to research, purchase or recommend 400 brands in 32 countries.

Joanna von Felkerzam, head insights and captivation, at Starcom MediaVest Group, Asia, and also one of the authors of the study, was in Mumbai recently. She spoke with FE s Pritha Mitra Dasgupta about various aspects of the report. Edited excerpts:

Why was the research done and how is it going to benefit Starcom MediVest Group and its clients?

The slowdown had a big impact on countries outside Asia. It, however, impacted Asian consumers as well to a good extent. We wanted to know how the Asian consumers were faring at a time when the world was battling with the slowdown and to better understand their realities, behaviour and attitude. This in turn helps us anticipate and prepare ourselves as we move through the timeline of the slowdown to recovery. Our clients benefited from having a cross-market understanding of consumer realities and the underlying change in mindset and needs that have a direct impact on brand purchase decision-making.

Tell us about some of your key findings about the Indian market.

We saw that more time spent at home watching TV or surfing the internet on account of postponed or cancelled holidays and time spent viewing TV increased in the first half of 2009 as compared to 2008. In fact, more overseas holidays were cancelled. We had predicted earlier that low-cost airlines would make money and domestic getaways will be popular, especially, the pilgrimage getaways.

Secondly, virtual and offline socialising such as online socialising on Facebook, Twitter saw an approximately 500% growth in the number of registered users in 2009 compared against 2008.

Thirdly, we had said faith in government institutions such as banks will see a revival with a spate of fresh account openings or investments and there would be less faith in private banks. We still have to get some evidence from our banking clients on this.

There was a renewed faith in financial instruments such as bonds, gold and property as against mutual funds and equity; classical packs rather than exotic variants were sold more in the consumer products categories. Small local stores were back in favour than modern retail outlets but again we need some data from retail clients to support this. There was a pride in Indianness, which was evident at the Oscars this year because of the success of 'Slumdog Millionare'. This was more evident in the sports sector with the Indian cricket team doing well and we also captured the imagination in other sports such as billiards and boxing.

Small is better and less is more was evident in the redefined upgrades for cars. We predicted that small cars would be the focus and indeed, they were. Most auto companies just focused in that segment and it is this segment alone that has buoyed up the auto sales so far. So these are some of the basic assumptions and hypotheses, which we went in with in our slowdown study and as you can see some of them did turn out true.

Your study reveals that time spent watching TV increased by 30% but a number of media agencies in India talk about growth of ad avoidance on TV. Have you observed any change in that?

The difference between the programme rating and slot rating is usually the measure of how many people watch the porgramme and skip the ad breaks. Slot TRPs (television rating points) or the percentage of people watching a particular programme at a given point in time) have always been around 15-20% less than the programme rating, depending on the genre of programmes. Typically, on live cricket telecast, the drop in slot TRP will be much less than the drop in slot TRP in comparison with movies and general entertainment shows. This figure of a 15-20% drop has been consistent across the last two years, and has not really affected by the slowdown.

Many media pundits across the world said that traditional media's loss during the downturn will be online medium's gain. What is the trend on this front?

Investment, travel, automotive, high tech and consumer electronics are the key advertisers in the digital space. A similar trend is seen across Asia. Digital industry in India is expected to grow about 20% between 2009 and 2010. This is on a par with the trend estimated for China. Growth will be driven by search, social media and branded content, with mobile becoming ever more important in the overall digital offering with 3G/mobile internet growth.

In China, there will continue to be growth in online video space. Out-of-Home had a particularly bad year in India because of the slowdown. What was the trend in the other Asian markets? Do you foresee a recovery for this medium?

There continues to be a growth in OOH in China with the proliferation of the outdoor channels whether mobile TV in buses, or LCDs in buildings among others. We anticipate the growth in China to be 5% in line with the estimated 5% investment growth for total Asia.

Thanks and Regards,

Navneet Singh Chauhan.

Government's Role in Managing Risk -- Both Natural and Man-made

What do the global financial crisis, Hurricane Katrina and the 9/11 terrorist attacks have in common? All are examples of how not to manage risk, according to America's top risk-management official, Homeland security secretary Michael Chertoff.

Risk management "lies at the core" of his department's mission, Chertoff said at a recent Wharton Leadership Lecture in which he addressed areas where regulation -- in moderation -- can reduce risk in the marketplace. Managing risk was the first objective he saw before him when he was sworn in almost four years ago, Chertoff said, and it remains "maybe the fundamental social problem that we face in the 21st century."

"Our mission is very broad -- it covers everything from preventing and reducing our vulnerability to terrorist attacks; to protecting and reducing the vulnerabilities of our infrastructure, including our cyber-infrastructure, and then mitigating the consequences of disasters by strengthening our preparedness and response."

Looking back at the 9/11 attacks and various natural disasters during his soon-to-conclude tenure, "or even the current financial crisis, it becomes very clear that we have not always handled risk properly," Chertoff acknowledged.

The 9/11 attacks were not, he said, "a total surprise." U.S. law enforcement and intelligence agencies had known for years about Osama bin Laden's intentions because he had been linked to the 1993 World Trade Center bombing and the suicide attack on the USS Cole. "We had report after report that talked about the need to strengthen our homeland security. And with all of that, we did not devote even a fraction of the investment we currently put into homeland security ... before September 11," Chertoff said. "So, you'd have to say we misjudged the risk."

Similarly, U.S. officials have long known that storms the magnitude of Hurricane Katrina could seriously harm a city, especially a large city below sea level. "It's clear that government at all levels simply failed to invest in maintaining critical infrastructure such as the levies," he said, "wreaking untold havoc" upon New Orleans.

The same can be said of the global credit seizure, he argued. The nation now faces financial woes that were to some degree or another "predicted over a period of years, going back into the 1990s.... We have not managed to address the risk in a way that prevented what was ... a [financial] disaster of the magnitude of a natural disaster and a terrorism disaster."

The official response to each of those was after-the-fact, he noted, and was costlier than would have been necessary had prevention or mitigation efforts been underway beforehand. "Managing risk is not about looking backward at something that's already happened, although that can be useful in terms of what we do going forward," he explained. "Managing risk is fundamentally looking ahead" to possible disasters and making cost-benefit analyses designed to prevent or reduce our vulnerability to them.

"That's not a particularly startling definition of risk management. And yet if you look at all of the events I've described ... you will see that our society has simply failed on a looking-forward basis to manage risk properly." Worse yet, he said, is that institutions of all kinds fail to learn from such mistakes. "We begin to decide that we are spending too much money trying to avert the risk, and we begin to degrade our preparation once again."

That pattern applies even to the U.S. reaction to the 9/11 attacks and Hurricane Katrina, he suggested. Because there have been no terror attacks on U.S. soil since 9/11, many officials at various levels of government say the need to be prepared for attacks, or to spend so much money to prevent them, has diminished. So, he urged a "disciplined, risk-managed approach" to learning the lessons of the last three major American catastrophes.

Chertoff was sworn in as the second Homeland Security secretary in February 2005, less than seven months before Katrina swept over the Gulf Coast. After that disaster, Chertoff acknowledged that he was slow to focus on the storm as it developed. Congressional investigations into the federal response to the deadly storm faulted Chertoff specifically for delays in activating the federal emergency plan that could have rushed aid more quickly. Previously, he was a partner in the law firm of Latham & Watkins, and he served as Special Counsel for the U.S. Senate Whitewater Committee from 1994 to 1996. He was also a federal prosecutor for more than 10 years, including service as U.S. Attorney for the District of New Jersey.

When to Regulate

Because of the current financial mess and the federal response to it, "people are beginning to wonder if changes [are needed in] the ... role of government in dealing with risk in the financial sector and perhaps across the board," Chertoff said. "Although it's getting less publicity, these very same questions are being asked with respect to natural disasters. For instance, what is the role of government in letting people rebuild" in places like Galveston and East Texas, flooded by the most recent hurricanes?

"I still believe, with all that we've experienced, that in a free society like our own, the default position, the starting point for risk management, is with the individual and with the private sector," he stated. "People routinely balance risk and reward. It is the essence of what freedom is.... The private economy is ... the fundamental engine of risk management, and by and large it works very well. We have a system that has figured out the right level of risk." But he added that "there really is no such thing as a truly free market. The market is always bounded by rules and regulations that are put in place by government. Even the most ardent capitalist, the most ardent free marketer, accepts as a fundamental premise that government does have a role to play in laying down certain rules of the road that make it possible for a free market to function."

He recommended that lawmakers, when considering the regulatory response to the financial crisis, should ask themselves what "the government could do and should do to allow risk management, at a social level and an individual level, to proceed in a much more informed, balanced and sensible way." He suggested that any regulations should address three factors: short-tem thinking, self-centered assessments of the value of risk, and conditions under which the value of risk is obscured.

"The free market and people who operate in it tend to favor and focus on [the] short-term," Chertoff said. They prefer benefits that are "immediately realized and immediately capitalized, at the expense of potentially higher long-term costs, especially when those long-term costs are uncertain." For example, he noted, when federal officials make flood maps to help hurricane-prone coastal regions try to direct development efforts to higher ground, "we start to see community pushback" from property owners who do not want to spend tens of thousands of dollars to elevate structures in threatened areas.

He said that if those property owners had to eventually pay the price for ignoring the maps -- instead of being bailed out with federal aid programs that are routinely provided to cover such losses -- they'd be less likely to ignore the flood maps' warnings. Because they encourage risky behavior, such aid programs establish a "moral hazard," a term that Chertoff noted has come up a lot in the debates over whether the U.S. government should invest in or provide loans to financial firms whose devaluation of risk helped create today's credit crisis. The post-hurricane federal aid provides "a clear message to people that they can continue to ignore the warning because even if they don't get the insurance -- for which they have now been disqualified because they didn't elevate the house -- they're going to get rescued anyway." This is an area where government action before the event can help reduce everyone's costs, he said, by making sure people have properly internalized their own risk management.

Another problem that can be addressed by the government "occurs when we may properly internalize our own costs, but we simply don't internalize the costs that we're putting on others." This is an old economic problem, classically illustrated by the upstream landowner who fouls the water used by downstream neighbors. "Increasingly, the failure of a business to internalize its own costs has collateral and cascading consequences for people in unrelated businesses." In the immediate aftermath of hurricanes, it's a "critical cornerstone of recovery [that] you've got to get the power up and running." Government must step in, he asserted, because the people who run the power plant can't get there because filling stations lack electricity to pump gasoline. Chertoff said he is working with federal energy authorities to devise a federal rule similar to one in Florida requiring gas stations to have emergency generators.

Chertoff also offered an example from the shipping industry. He said shippers do not want to incur the expense of gathering and providing to federal inspectors point-of-departure information about shipping containers. Such data, he asserted, speeds the inspection process, reducing the shippers' and the nation's exposure to the risk of a catastrophic terrorist attack. "Again and again we come up against this short-sighted mentality that does not look beyond people's own costs and balance sheets."

The third area for regulation, he argued, "is what I call 'validation.'" It eliminates "the ... costs that are imposed by risk when we don't really have confidence in what we are dealing with, or what we are seeing." The government, he suggests, can require producers to clearly state the risks associated with their product or service so that customers can know "what we are dealing with, and who." Toxic ingredients -- within toys from China or intricately constructed investment vehicles -- harm everyone and [undercut] the entirety of the food chain," he argued. "All of these systems of the marketplace depend on this trust," Chertoff said. "When this trust fails, we see very serious consequences."

Even where regulation is required, he said, moderation is important. "The case in these instances is for intelligent, strong and not overly coercive regulation. We don't want to go to the extreme of smothering initiative, but we also want to make sure that initiative is rewarded" when properly used to allocate and manage risk, Chertoff said. "Over-regulation ... is just as big a problem as under-regulation."

Thanks and Regards,

Navneet Singh Chauhan.

Planning for Crisis -- or Death

Planning for Crisis -- or Death

Disaster can strike in a matter of seconds. On February 12, a fire turned the Windsor building, one of Madrid’s most famous skyscrapers, into ashes. At the very center of the capital’s financial district, the Windsor was home to the Deloitte consulting group and three departments of the Garrigues law office. Hundreds of documents, confidential memos and critical data files were reduced to ashes. This information was crucial for companies that were using these firms to prepare their annual reports. The origins of the fire remain unknown. Clearly, it would have been a catastrophe if the companies had not counted on contingency plans and back-up centers that allowed them to resume operations fairly easily, in a matter of hours.

Managers at Deloitte and Garrigues knew nothing beyond the dimensions of the fire, which could not be extinguished until Sunday morning. However, they began to put their recovery plans into effect right away. Although it was Sunday, they scheduled a flurry of meetings where crucial decisions were made. Their only objective was to get people back to work by Saturday. The Deloitte crisis team, which counted on 1,200 employees at the Windsor building, rapidly informed people that all their data had been stored in a back-up data center. That was crucial because Deloitte has been the largest auditor in

Spain

ever since it took over business from the old Andersen group. Deloitte manages two-thirds of the selective Ibex-35, and 40% of the overall market. At this time of the year, it was heavily involved in preparing annual reports.

Those Garrigues departments affected by the fire -- processing; industrial property; intellectual property and information technologies -- decided on Sunday morning to relocate their 133 employees in an IBM back-up center near the Barajas airport. Big Blue is Garrigues’ provider of emergency services, and the law firm had contracted for a back-up center that now allowed it to rapidly re-start its operations.

Contingency Plans

“The first thing you do when you build a skyscraper is analyze and evaluate risks,” explains Luis Solís, area director for operations management at the Instituto de Empresa business school. “You try to identify possible risks and what can cause them.” A report by IBM shows that fires are the most likely reason for a disruption of activities; they are the cause in 17.5% of all cases. Acts of terrorism and sabotage (including computer viruses) cause an additional 17.5% of disruptions. Other common sources of headaches for organizations include atmospheric disturbances (14%), earthquakes (10.5%), power outages (9.5%), software errors (8.8%), floods (7%), and hardware errors (5.3%).

“Some simple construction work can ruin all the systems in a company by accidentally breaking a wire,” notes Enrique Rollán, director of information technology outsourcing at EDS. Telefónica became a victim of this kind of error two years ago when a machine accidentally broke a wire, preventing it from providing telecom services. “These companies cannot allow themselves to stop providing services. They need alternative centers that guarantee they can continue operations in case of failure,” adds Rollán.

Solís stresses that every company must analyze its exposure to various kinds of risks and how serious the impact will be if a disaster strikes. “Companies must evaluate the probability of an event; high, medium or low, and then, how serious the impact will be -- high, medium, or low. That way, they can find out if they face risks of low probability and high impact (such as an earthquake) or risks of high probability but low impact (such as a cable cut by construction work).”

The attacks on New York’s Twin Towers on September 11, 2001, demonstrated that we can never entirely discount any possible risk. Before 9-11, the notion of two planes crashing into the Twin Towers seemed too far-fetched, even for fiction. But it happened. Low probability, great impact.

Being Prepared

Within minutes after the first plane crashed into the North Tower, managers at a few of the 430 companies directly affected were calling their service suppliers to prepare locations where they could restart their business activities. “That day, we relocated 4,000 employees from many companies, such as American Express, in an alternative center in a New York suburb,” recalls Rollán. Amex and Lehman Brothers were two of the earliest companies to start functioning from centers in New Jersey, because they had prepared for any disaster by drawing up contingency plans.

“Basically, this kind of plan defines how you are going to behave in the event of a disaster,” explains Solís. “The most important part is to eliminate all improvisation that can result from not foreseeing a situation.” In his opinion, panic is the worst enemy in any emergency. Nevertheless, that kind of emotional response is very human. “Very often, panic makes you take a very rapid response that is probably not the most appropriate one.”

The attacks of 9-11 demonstrated the capacity of many

U.S.

companies to respond even to the greatest disaster. But Solís believes this mindset is not so well established outside Anglo-Saxon culture. He recognizes, however, that the impact of the Twin Towers has raised awareness among managers responsible for disaster planning. Between 2002 and 2003, there was a 13% increase in disaster simulation trials. Since 9-11, they have grown by 33%.

According to Juan García Gay, a risk-management consultant at the Marsh consultancy, “Spanish companies are barely concerned about these subjects. What is worse, they are not prepared to face these kinds of risks. Clearly, having a business continuity plan is no guarantee that we are able to anticipate a specific event, but we can deal with and manage it successfully.”

Both Deloitte and Garrigues, the two firms most affected by the Windsor fire, say they used their contingency plans and did not lose any data. Garrigues, which occupied the seventh and eighth floor of the tower, also had its data center there. “Our last back-up had been made on December 16,” says a company spokesperson. However, the company has lost little or no data. “Our professionals always make a security copy. In addition, almost all of them work with a lap-top computer that they take with them,” he adds.

Antonio Garrigues Walker, president of the law office, recognized on February 16 that the firm had copies of almost all the material destroyed in the fire. He added that he was confident they could recover some data from the computers that were in Windsor. He said those machines “are alive.”

PrimaryCenter, AlternativeCenter

The goal of disaster centers is to guarantee that, if an unexpected event destroys a company’s data systems, the company can get up and running right away. Service providers offer two kinds of centers. “The first is a data center where they keep all the information,” explains Rollán. “The second, or alternative center, has back-up copies of all the data.”

These buildings are constructed with the highest level of security. They are located in areas where there is a low probability of natural disaster. Ordinarily, these sites are outside the central business center to avoid attracting attention from terrorists. “Normally, the second center is located in a different province from the first one,” adds Rollán. Depending on the contract with the service provider, the information is either copied automatically or is stored in discs that can later be brought to the disaster center for storage.

These kinds of buildings have the most advanced technology, including equipment and services from a range of vendors. Companies can also contract to relocate their personnel to the remote location, if necessary, as in the case of September 11 and, more recently, Windsor Tower. According to Rollán, the normal practice is to move between 10% and 20% of the staff for a period of one to three months.

According to Solís, “Generally speaking, banks and financial service companies are the most advanced at doing this. Their back-up systems may even be located in other countries because they depend so much on data.” According to IBM, banks and the financial service firms are affected in 26% of all disasters; more than any other sector. Risks are highest there because those sorts of firms cannot afford to shut down services. Other major victims are government agencies (19.1% of all cases), and communications firms (8.2%).

Double Victims

Whenever a disaster strikes, there are other victims beyond those companies that are directly affected. The entire business community nearby also suffers. The fall of the Twin Towers affected several buildings around the World Trade Center. In Madrid, three nearby office buildings (Bronce, Orense II and Orense IV), as well as the Cortes Inglés de Castellana [department store], were shut down after the fire. No one knows how long it will take for them to reopen. In addition, shops, restaurants, kiosks and all sorts of services near the Windsor have been forced to close temporarily.

According to Copyme,

Spain

’s general confederation of small and medium-size companies, every business within a radius of 500 meters is going to be affected by the Windsor fire for some six months. Some of those businesses will have to be shut down for good, and others will have to cut their staff. In addition, a barrage of lawsuits has already begun, and that will have a direct and negative impact on insurers. Both El Corte Inglés and Windsor had signed insurance policies with Allianz that, predictably, will force the insurance company to face a bombardment of claims.

Asón Inmobiliaria de Arriendos, the real estate firm that owns the Windsor building, has also filed a criminal indictment while awaiting clarification about what started the fire and who was responsible. For the time being, no one knows how the disaster began. However, the number of victims -- not all of whom were prepared -- continues to grow.

Netflix: One Eye on the Present and Another on the Future

In a year when DVD sales are falling and studios are facing major shakeups in their executive ranks, Hollywood is beginning to look a lot like one of its own slasher films, the Los Angeles Times noted recently. Amid all the turmoil, however, there is at least one success story in the movie industry: Netflix.

Founded in 1997, Los Gatos, Calif.-based Netflix made a splash in the movie rental business by offering an online subscription model with a flat monthly fee for unlimited rentals and no late charges. Since then, despite a recession, fierce competition and the emergence of online video delivery, the company continues to thrive. According to experts at Wharton, Netflix is now in a race to transition to a business model focused on streaming content online, while continuing to exploit its current model based on physical DVD distribution via the U.S. Postal Service. "You would think that Netflix would be entrenched in its old model and fighting off digital distribution, but it is embracing the future," says Wharton marketing professor Peter Fader.

While many companies see the need to develop new business models as older, more profitable ones erode, not all of them deftly manage the transition. For years, Netflix has been mailing DVDs to subscribers in its recognizable red envelopes, but in 2008 it introduced a "Watch Instantly" service that allows consumers to stream movies on their home computers. Since then, the company has forged a bevy of partnerships to embed its Watch Instantly service in television sets, game consoles such as the Xbox, Blu-ray DVD players and set-top boxes. In its latest move, on October 26, the company announced a partnership with Sony to deliver its streaming service via Sony's PlayStation 3 game console, nine million of which have sold since it was first introduced in 2006.

Netflix had 11.1 million subscribers through the third quarter ended September 30, up from 8.67 million for the same period a year earlier. The company predicts it will have 12 million to 12.3 million subscribers by the end of the year. For the nine months ended September 30, Netflix reported net income of $84.9 million on revenues of $1.22 billion, up from earnings of $60.3 million on revenues of $1 billion for the same period a year ago. According to Fader, Netflix's low-priced subscription model -- it offers plans that range between $4.99 and $16.99 a month -- has helped to keep its churn rate low (4.4% for the third quarter).

On an earnings conference call October 22, Netflix co-founder and CEO Reed Hastings said the company's goals were simple: Grow revenue, subscribers and earnings while expanding into streaming content. "Of the 115 million estimated households in America, 9.6% now subscribe to Netflix," said Hastings. "In the greater San Francisco Bay Area, which we believe is a leading indicator of Internet behavior elsewhere in America, 21.2% of households now subscribe to Netflix, up 13% from one year ago."

Hastings added that the company expects disc shipments through the mail and its 58 distribution centers "to grow for several more years as video stores close and our subscriber base expands." For instance, Netflix rival Blockbuster, the largest movie rental chain in the U.S., plans to close 40% of its stores over the next two years as it focuses on launching kiosks and its own digital rental service. In a regulatory filing, Blockbuster said that 18% of its stores are unprofitable.

'Netflix Killers'

However, Netflix faces intense competition from companies ranging from Apple with its iTunes service, which rents movies online, to Blockbuster and an upstart called Redbox, a division of Bellevue, Wash.-based Coinstar, which rents DVDs through kiosks primarily at supermarkets and convenience stores. The Redbox plan is simple: It charges $1 a day for a rental. Each kiosk holds between 70 and 200 titles, which are updated weekly. To keep up with growing demand, the company has nearly doubled its outlets during the past year to a total of 17,900 across the U.S. It expects to add another 8,500 this year. According to Video Business, revenues from video kiosks like Redbox will reach $1 billion by 2011.

Like its DVD rental business, Netflix's video streaming model is under fire from powerful rivals. The most significant among these is YouTube, now part of Google's mighty empire, which streams films for free off its Movies channel and competes directly with Netflix's "Watch Instantly" service. To get a sense of the popularity of YouTube's movie service, consider this: In late October, a documentary titled "Home" about climate change had been viewed more than 3.4 million times and more than 13,000 people had commented on it. Another challenger is Hulu, launched in March 2007 by News Corp. and NBC Universal, whom Disney joined as an investor this year. The company is an online video service that provides TV shows and movies from more than 190 content providers.

But it's not as though competition is anything new for Netflix. So-called "Netflix killers" have surfaced repeatedly in the last decade. A significant threat loomed in 2002, when Walmart began an online rental service. However, the retail giant abandoned the project in 2005 after failing to gain traction with consumers. In addition, Walmart launched a movie download business and had to pull the plug on it in 2007 following a dispute over infrastructure with Hewlett-Packard. Now, the company has a cross-promotional deal with Netflix. In 2004, Blockbuster also started an online rental service, but it hasn't been able to stop Netflix's momentum. (Blockbuster does not offer separate sales figures for its online rental division.)

Wharton experts say that Netflix has proven its doubters wrong repeatedly, but it is unclear how the balancing act between the company's old and new business models will play out. "Netflix has won round one with physical distribution of DVDs, but that advantage won't [necessarily] persist" once the game switches to digital distribution, says Wharton management professor David Hsu.

For now, though, movie rental sales figures are playing to Netflix's advantage, Hastings noted during his call. DVD rentals have held up well as consumers opt for cheaper forms of entertainment. According to research firm Digital Entertainment Group, third quarter consumer sales of DVDstotaled $4 billion, down 3.2 % from a year ago, but digital distribution (including on-demand video rentals and other forms of electronic delivery) was up 18% in the third quarter to $420 million. Meanwhile, media measurement firm Rentrak reported that movie rentals were up 9.9% for the quarter.

According to Wharton experts, particular strategies have helped Netflix maintain its lead. These include:

Keeping one eye on the road and one eye on the turn ahead. "Any company that doesn't keep its eye on where things are going and only focuses on the here-and-now risks having its market disappear," says Kendall Whitehouse, director of new media at Wharton. "Netflix is positioned nicely for when the digital transition comes. It can exploit the current model [distributing physical discs] now and hedge against future technology changes with its Watch Instantly service."
Employing a subscription model. "One way to define Netflix is by the technologies it uses, but another way to define it is by its business model. Netflix took the per-item rental model and turned it into a subscription model. The 'aha' moment was really charging a subscription for a physical product," says Dan Levinthal, a Wharton management professor.
Moving quickly to stay ahead. "Some obvious lessons that can be learned from Netflix are: Target a niche and stay flexible," says Wharton marketing professor Jehoshua (Josh) Eliashberg. "Netflix should be commended for moving fast to seize opportunities and technological trends."

Sunday, 8 November 2009

India's gold purchase - Adornment and investment

IF YOU count bangles, necklaces, anklets and other pieces of jewellery, India is the largest repository of gold in the world, according to the World Gold Council. Many Indians see gold as an investment as well as an adornment. India’s post office sells 24-carat gold coins, as small as 0.5 grams, to savers wary of fiat currencies or mutual funds. The latest big investor in the metal is the Reserve Bank of India (RBI). On November 3rd the central bank said it had bought 200 tonnes of gold from the IMF, a purchase that would have cost about $6.7 billion. The news pushed the price past $1,090 an ounce for the first time.

The IMF’s gold holdings are less decorative than India’s, but also impressive: the third-biggest official stash in the world. Its sale to the RBI is part of a plan to offload 403.3 tonnes, or an eighth of its total. The proceeds will create an endowment to cover the fund’s operating expenses and help expand its lending. It is doing its best not to rock the market by selling first to central banks, in keeping with their agreement in August to sell no more than 2,000 tonnes over five years. But the gold market is now interested in how much central banks might buy, not how much they might sell.
The central banks of China, Mexico, the Philippines and Russia have all added to their gold reserves in the past year. The RBI is merely catching up. Its stockpile fell to just 3.5% of its total foreign-exchange reserves (of $281 billion) in September. This purchase will restore it to almost 6%. Every central bank with a large holding of American debt is worried about capital losses if the dollar continues to weaken. Gold offers reassurance. Anyone who wants to try “quantitative easing” in the gold market has to dig a mine.

Thanks and Regards,
Navneet Singh Chauhan.

Saturday, 7 November 2009

Introduction

Hi there,

Here, you will get all updates from the world of Business, Stocks, and Marketing and Promotions.
All that effects or may effect the world of business.

Thanks and Regards,
Navneet Singh Chauhan.

Friday, 13 November 2009

World’s Best MBA College’s (TOP 100): surveyed by Economist.com

The World in 2010: Wanted: green engineers

The world needs more of them, notes Oliver Morton