Tag: Business and finance

THEY evoke metal gorillas in a cavernous, floodlit hall: 640 robots with riveting guns and arms for handling parts. They will spring into action this autumn at the opening of a new plant for Jaguar Land Rover (JLR), built at a cost of €1.4bn ($1.6bn) on former farmland in Nitra, in western Slovakia. Cars under construction will travel along 3.9km of elevated maglev track, taking just two days from start to completion. The robots, together with 2,800 human workers, will assemble a Land Rover Discovery every two minutes.

JLR is just the latest carmaker to come to Slovakia. VW arrived 27 years ago, followed by Kia and PSA. The firms together churn out over 1m cars annually, more per head of population than any other country. JLR considered 30 or 40 locations, says Alexander Wortberg, who oversees operations at Nitra. Mexico has cheaper workers and (for now, at least) favourable access to the American market. But Nitra is close to a new motorway and Slovakia has an impressive supply chain,…Continue reading

Too pricey to drown sorrows

ON A residential street corner in Buenos Aires, Van Koning Market sells imported beers to the city’s well-heeled. Since it opened in June last year costs have soared. The peso has plummeted, meaning wholesale prices have shot up. Inflation is running at 26%; the reduction of government subsidies means the monthly electricity bill has risen from 700 pesos to 4,000 pesos ($142). Already losing customers, Sergio Discenza, the manager, is reluctant to raise prices much. “In a normal country this would be a viable business,” he says. “But here everyone is struggling.”

The year started badly for Argentina when the worst drought in 50 years hit the harvest of maize and soyabeans, both important exports. In May a stronger dollar and higher US Treasury yields prompted international investors to flee risky assets. Most emerging-market currencies suffered, Argentina’s especially. Its twin fiscal and current-account deficits have seen the peso…Continue reading

COMPETITION forces companies to keep prices low to attract customers. But if a few firms become powerful enough, they can see off competitors and charge more. A new working paper by Jan De Loecker of the University of Leuven and Jan Eeckhout of University College London presents evidence that this is happening across the rich world.

The researchers examine markups—selling prices divided by production costs. At 1, products are sold at cost; above 1, there is a gross profit. Using the financial statements of 70,000 firms in 134 countries, the authors find average markups rose from 1.1 in 1980 to 1.6 in 2016.

America and Europe saw the biggest increases (see chart). But in many emerging markets markups barely rose. In China they fell. That suggests rich-world firms may have been able to increase markups by outsourcing to cut labour costs. Another possibility is that corporate concentration may have increased because of lax antitrust enforcement or the growing heft of companies benefiting from…Continue reading

FOR months Chinese officials have stuck to the same script: China does not want a trade war, but will win if dragged into one. As hostilities turn more serious, this confident façade has taken a blow. Chinese equities have plunged into bear-market territory. The yuan had its biggest monthly fall against the dollar on record. Economic indicators have weakened. Even bombastic state-run media have turned introspective, counselling against arrogance.

All this, and the tit-for-tat trade battle is only just getting under way. On July 6th, after The Economist went to press, America was due to impose its first major set of tariffs on China: 25% duties on $34bn-worth of imports, notably machinery and electronic parts. China was set to retaliate with tariffs on goods worth the same amount, hitting products from soyabeans to sport-utility vehicles. Both countries have listed more tariffs to follow, on goods worth another $16bn. Both have also warned that they are willing to inflict much…Continue reading

TWO contests are under way in which titans holding billions in their thrall vie for global domination. One is unfolding on Russian football pitches and features the likes of Neymar and Harry Kane. The other is playing out on the smartphone screens of consumers in India, Indonesia, Brazil and other emerging economies. There, American online superstars such as Google, Facebook and Amazon are pitted against a Chinese dream team led by Alibaba and Tencent.

The geopolitics of business means that the world’s biggest tech firms have swelled to combined market capitalisations of over $4trn without really going head to head. China blocked Google et al with its Great Firewall, preventing American firms (Apple is an obvious exception) from taking on Chinese rivals on the mainland. Chinese giants have stayed out of America; Europe fell under the spell of Silicon Valley before Chinese tech had matured.

Time, and capabilities, have changed. Chinese tech firms once simply mimicked Silicon Valley…Continue reading

TRAVELLERS come in all different stripes. So it is generally not wise for the chief executive of a major airline to say something like this about a controversial presidential stance: “This policy and its impact on thousands of children is in deep conflict with [our] mission and we want no part of it.» But that was Oscar Munoz of United Airlines on President Donald Trump’s now-reversed policy of separating immigrant children from their parents at the border. He is not the only airline boss to have attacked the policy. American Airlines issued a statement condemning the move as “not at all aligned” with its values. They, along with Frontier Airlines and Southwest Airlines, asked the government not to use their flights to transport children away from their parents. America’s other major airlines, Delta, also said that the family separations “do not align with Delta’s core values”.

The loud and explicit condemnation of the values of a serving president is unusual…Continue reading

IT USED to be said that America’s shale producers were the new “swing factor” in global oil markets. It turns out that role is being taken by America’s president. 

At a time when oil prices are at three-and-a-half-year highs, markets are being buffeted by three countervailing forces unleashed by President Donald Trump: his geopolitical agenda, particularly sanctions on Iran; his domestic political agenda, to lower American petrol prices before the mid-term elections; and his looming trade war with China. If he does not get his way, he may have a dangerous weapon up his sleeve—America’s Strategic Petroleum Reserve (SPR). His meddling risks making OPEC, the oil cartel that is a focus of his wrath, look like a paragon of predictability. 

First, geopolitics. Despite an agreement late last month by Saudi-led OPEC and Russia to increase output by up to 1m barrels a day (b/d), the price of Brent crude, a benchmark, has risen to above $77 a barrel. The proximate…Continue reading

CHINESE investors often refer in jest to the central bank as “central mama”. The idea is that it can be counted on to provide tender love—that is, policy easing—when market conditions are rough. But during the past couple of years it has been more of a disciplinarian, taking cash away from reckless investors. Its latest move, a cut of banks’ required reserves, has triggered a debate about which school of parenting it subscribes to these days. Is central mama turning soft again, or is she still cracking the whip?

On June 24th the People’s Bank of China said it would reduce the portion of cash that most banks must hold in reserve by 50 basis points. This was equivalent to deploying 700bn yuan ($106bn) in the financial system, or nearly 1% of GDP, which might sound like a healthy dose of liquidity to shore up growth. But the central bank insisted that it was not easing policy.

Many analysts take the central bank at its word. In the past, when it focused on the quantity of money in the economy, reducing required reserves could be seen as a form of loosening. But in recent years it has placed more emphasis on interest rates. Its most important target is banks’ short-term cost of borrowing from each other. That remained stable over the past week at about 2.8% in annual terms, proof that the announcement had little discernible…Continue reading

“MONEY often costs too much,” quipped Ralph Waldo Emerson. But a new study suggests that since 1950, the price of buying it with labour in America has fallen. Greg Kaplan of the University of Chicago and Sam Schulhofer-Wohl of the Federal Reserve Bank of Chicago have linked measures of how Americans today feel about various jobs to changes in employment.

Both men and women are less likely to be farmers, for example, now than in 1950, and more likely to be in management. Women are less likely to be secretaries, and men more likely to be in service-sector jobs. Assuming that people in 1950 felt the same way about particular jobs as people do now, workers today are less sad, less tired and in less pain.

But changes in other measures of well-being, and a separate analysis of men and women, are less uniformly positive (see chart). The economists find that modern employment patterns probably mean that today’s workers are more stressed. And although the jobs women have moved into are ones they…Continue reading

MOST workers view the prospect of a two-hour meeting with the same enthusiasm as Prometheus awaited the daily arrival of the eagle, sent by the gods to peck at his liver. Meetings have been a form of torture for office staff for as long as they have pushed pencils and bashed keyboards.

One eternal problem has been their inefficiency. In 1957, C. Northcote Parkinson, an academic and legendary writer on management, came up with the law of triviality, that “the time spent on any item of the agenda will be in inverse proportion to the sum [of money] involved.” In that same spirit, this columnist would like to propose an even broader principle, applying to gatherings of ten people or more, and immodestly called Bartleby’s Law: “80% of the time of 80% of the people in meetings is wasted.”

Various corollaries to this law follow. After at least 80% of meetings, any decisions taken will be in line with the HIPPO, or “highest-paid person’s opinion”. In short, those who backed a…Continue reading