Car industry and the future

From tutor2u website - an interesting analysis on the car industry. Advanced business English students can use this as background reading for a discussion related to the ML Advanced unit 7 case study.

Alliances - benefits of scale without the risks?

Tuesday, June 15, 2010

by Tom White

Is there the potential for some firms to enjoy economies of scale and the benefits of size, without risking a potentially disastrous merger?  The boss of Renault Nissan thinks so and is continuing to hype his alliance model as the way forward in the car industry.  We’ve heard about ‘co-opetition’ before: how would it work out this business?
As the Economist has recently explained, the Renault Nissan alliance “really is like a marriage”. Renault owns 44% of Nissan, which in turn holds 15% of Renault. They purchase most of their parts jointly, and have gradually learned to share engineering expertise, such as Renault’s strength in diesel engines and Nissan’s in petrol ones. The boss argues that it has also made Nissan more daring and Renault more cosmopolitan.
Then in 2002 Nissan launched what has proved to be a successful joint venture in China, now the world’s most important car market.  In late 2007 Nissan beat General Motors to become a strategic partner to a big Russian carmaker, taking a 25% stake. Next came Daimler.  The alliance will focus on sharing resources in four main areas: car ‘platforms’, small petrol and diesel engines; technology for fully electric and hybrid cars; and bigger diesel engines.
Why are economies of scale so important in car manufacturing?  The article highlights three main reasons:
-Under pressure to boost fuel efficiency and cut carbon emissions, carmakers are spending huge sums on R+D.
-There needs to be extra investment in substantial new manufacturing capacity and dealer networks in the emerging markets that are generating nearly all the industry’s growth.
-You can no longer survive as a niche player specialising in small cars or luxury vehicles. To cover overheads, big car manufacturers must cover every segment.
It’s not clear if a web of alliances can deliver all this. Even where full mergers have taken place (as with the disastrous union between Daimler and Chrysler) savings have proved difficult to find because engineers from one side are unwilling to share ideas and resources with the other. After 11 years and much effort, some argue, Renault and Nissan have yet to equal the efficiencies of the various arms of VW Group or Toyota, which are both tightly integrated and centrally managed.
Are other car firms following suit?  VW sees the 20% stake it took late last year in Suzuki, which is strong in India and in small cars, as a “critical” step towards surpassing Toyota as the world’s biggest car company. PSA Peugeot Citroën and Mitsubishi are keen to deepen their ties. And although Fiat has in effect taken control of Chrysler despite owning only 20% of the American firm, it is adopting a similar management structure to Renault and Nissan.

Article on Costa Rica and the economy

Advanced Business English students can read this article and discuss how their own organisation is planning for the future
The Pygmalion Effect & Costa RicaBy John R. Holtz*
What is truly difficult to do, and I really want do it, is write a lot of positive editorials about Costa Rica other than the expected such as our natural beauty, wildlife and inviting beaches that have been written about and publicized time after time.

But I scan all of the news outlets, even the Latin Business News, it comes down to asking myself, “How come so many other countries in Latin American are not drowning in poor economics and we are?”

Look at Chile, Brazil, Panama and even little Uruguay. They are thriving and we are digressing. The shout-it-out “Pura Vida” has become a semi-intelligible mumble which is barely audible.

The United States and Europe are not the only places on earth to see consumer confidence plunge and a possible recession close at hand; put our own Costa Rica on that list as well. My concern is focused on Costa Rica because that is where we live and there is a sense of sadness and disappointment that is permeating among both expats and Ticos alike.

Certainly perception has a lot to do with it and so does reality. In Costa Rica, mix the two in equal parts and we have the recipe for abject failure.

We are a small, compact country. The ripples in the water are felt from here to Guanacaste and from there to the Osa Peninsula. We talk, and we talk and we talk some more each time an exaggeration, more distortion along with flat out untruths that eventually become reality.

The newest trend to get published is to do an encuesta – a poll. Do one, release it to the media and it will become fact. Some are legit like from Unimar and University of Costa Rica (UCR) and El Financiero while many are just whamo numbers.

Much like the U.S., which we mirror, the Consumer Confidence Index (CCI) of this country has dropped five full points in three short months according to the UCR pollsters.

The “optimistic group” declined from 21.5% of the population to only 13.9% while the “pessimistic group” increased by 27.9%.

El Financiero´s 27 economists or “analysts” as they refer to them said that 61% believe Costa Rica will be in a recession within five years. Meanwhile, 66.2% believe the current economic conditions and social conditions are “poor”.

Only 6% approve of the government´s economic policy while a measly 6.4% say the government is doing a good job. (UCR)

At a recent celebration honoring municipality work, President Chinchilla told them, “You will need to do more with less.” Those are not very encouraging words and the press picked it up that day.

To sell, not market, the Draconian fiscal (tax) plan Laura Chinchilla and her sidekick, Minister of Economy (Ministerio de Hacienda) Fernando Herrero have repeatedly played the “scare card” in order to tax just about all that can be taxed.
Both, with a lot of help, are selling catch all fear. They sell simple fear that we will dissolve into the pits of destruction and poverty unless we pass their unabridged tax plan.

Last Thursday, Herrero said, “We are living on the brink.” Again, less than enthusiastic words to promote confidence.
Since 1948 Costa Rica has lived “on the brink” from borrowing money in the international market place and I have not noticed an appreciable difference in the social network. As well, we have been able to attract foreign investment in call centers and the tech companies such as Intel, Boston Scientific and Panasonic, to name a few.

Costa Ricans and expats have the absolute right to be pessimistic if not downright depressed because we are being told to feel this way almost daily.

It boils down to the Pygmalion effect: A self fulfilling prophecy. If enough times and enough people keep on repeating that Costa Rica will fall apart, we will and I do not want that to happen.

Massive taxes, under no circumstance will cure the economic and social ills of Costa Rica and I´ll argue that to the grave.

We very much need leadership, positive leadership that offers both a defined direction and economic opportunities. What we do not need are more scare tactics to pass a tax plan and if we do not, the people of this country need to prepare themselves for Armageddon.

The construction industry, Costa Rica´s largest private employer, laid off 35,000 to 40,000 workers in 2008 and 2009. Then in late 2010 and the first half of 2011, new construction projects bounced back again. However, the forecast for the remainder of 2011 and early 2012 is not to realize new projects but only to finish up those in progress.
Why?

Who in their right mind would invest in a country where taxes and tax collection have not yet been defined? And the proposal which is floating around from the central government would tax rents, education, healthcare, global income, real estate and for the first time, capital gains. We really have not been told what good will come from all these taxes, only the great harm that will befall upon us by not having them.

A clear example of how the government intends to manage Costa Rica´s finances was the release of the national budget by the Ministry of Economy.

After all the feel-good rhetoric that finally something is about to be done concerning rampant crime, the 2012 budget calls for an increase in funding of a meager 6%. Subtract an expected 5% inflation rate and, “yes,” that comes down to a net 1% increase. That means the proposed $300 corporate tax will pay for the much needed security measures or perhaps frittered away for something else. Who really knows?

The central government also plans to borrow 47% of the entire 2012 budget just to pay salaries which La Naciόn claims to be an illegal move since the constitution prohibits borrowing money to pay current obligations.

The true fear factor of Ticos and expats is that the CR government will abuse or steal whatever money is raised from taxes as historically been the case. If we could be assured of transparency and if we could be assured our money would be used for in-country development and not to put more fat on an already obese government while continuing to feed the still untamed dragon of corruption, I think we would have passed, at least in part, this plan a year ago.

For now, selling fear and avoiding hard questions is about all we've got while never saying, “…here is the good that we will do with your money.” Ergo, our nation continues to walk on with its self-fulfilling “poor me” prophecy when in fact we are economically and socially bankrupt, not poor.*John Holtz can be reached at jrh@modernmanagement.org

Costa Rica Investment and construction

Business and Financial English students, especially those studying Advanced Market Leader (unit 7) can read this article and identify vocabulary and phrases to talk about trends and future predictions.
Costa Rican builders cautious despite sector growth / Business & Real Estate / Costa Rica Newspaper, The Tico Times
This could lead to a discussion on how these trends will affect the student's company and future investment opportunities.

Business and Golf

From the BBC business website students can watch, read and listen to the business behind the sport of golf and the British Open Golf Championship. Then students can discuss their own experiences of corporate sponsorship and hospitality.
http://www.bbc.co.uk/news/business-14042846

Business English Costa Rica pineapples and sustainability

This is an interesting article to read and business English students can identify the vocabulary of CSR ethics and the language used to present conflicting points of view. It would be a relevant topic for discussion for Market Leader Advanced unit 6 Business ethics and problem-solving.
Follow the link to Tico Times
http://www.ticotimes.net/News/Top-Story/Industry-regulations-keep-pineapple-environment-safe-say-Costa-Rica-producers_Friday-June-10-2011

Bridgestone expands financial service centre in Costa Rica

From Tico Times
Bridgestone expands operations in Costa Rica / News Briefs / News / Costa Rica Newspaper, The Tico Times
Check the words in the article  related to investment and expansion

PUMA’s environmental profit and loss account

Last week students studying Advanced Market Leader unit 4 Energy were discussing their own company's innovative environmental audit and this recent news from Puma is an interesting example of social enterprise.
 Follow the link to the website which has  extremely comprehensive information on Economics for students.
 http://economicsonline.co.uk/blog/
Posted on May 16, 2011 by George Higson

Today PUMA, the German based sportswear producer, published a detailed environmental profit and loss account (E P&L) which makes it the first global business to put value on all the resources used in production and the likely environmental impact caused.  PUMA worked with PricewaterhouseCoopers (PwC) and Trucost to develop a method to quantify the emissions it generates and the water consumed throughout its supply chain. An example is water used in the production of cotton, which in many cases is produced in areas where water is particularly scarce and the price paid for water fails to meet the true cost of water supply. PUMA are one of the first global companies to acknowledge the need to take environmental effects into account when making business decisions. The company estimates that, in 2010, the environmental cost of its supply chain was €94.4m. The UK government is shortly due to make a decision on whether large companies should be forced to publish an annual report detailing the environmental impact of their activities.
More on environmental economics