Exams in MGMT 320

The evening class has an exam tonight; the day class has an exam Wednesday.

For the evening class --

1. I sometimes have problems in keeping Columbia and Venezuela straight on the map. I hope you don't.
2. Was Adam Smith a mercantilist?

For the day class --

1. Fortune global 500 companies, including the largest employers
2. Think about languages; what ones are most useful to know?

"Stuff"

The next installments on the CIVETS should be up tomorrow, but in the meantime, look at this Chinese photographer's project to take pictures of people and all of their possessions.  The New York Times article's comments pointed out that photographer Peter Menzel did the same thing twenty years ago.....

See some of his pictures from Material World here..  A follow-up book, Hungry Planet, looked at what people eat.  Women in the Material World moved beyond possessions and food to look at women's experiences overall (this is, I believe, a chapter from that book).

The CIVETS are coming. Meow?

Picture from http://www.cdc.gov/animalimportation/civets.html



"Meow" might be the wrong word here, since a civet isn't (technically speaking) a cat.

It's actually a member of the same order (Carnivora) as both cats and dogs, but the civets belong to the Viverridae family (as opposed to cats, whose family is Felidae).  I know you really needed to know that. 

It it worth noting, though, that the civet's natural range is in Southeast Asia, including Indonesia.

Ok.  The CIVETS countries are:

Columbia
Indonesia
Vietnam
Egypt
Turkey
South Africa

So, the theme for this week is the CIVETS, one country at a time.

First of all, the term CIVETS was invented (by British bank HSBC) as a follow-up to the BRIC grouping.  Not the Big Economies, but the smaller, "second generation emerging markets characterized by dynamic, rapidly changing economies and young, growing populations."

It's become fairly common usage; for example, there's a S & P CIVETS Index

 

One article did say that CIVETS is an artificial cluster, unlike BRIC, which really were set to be the next Big Economies.  As one writer put it, "It sort of makes you wonder if Vietnam was added to provide a needed letter."

In any case, artificial or not, let's look at the CIVETS.

Columbia

The first CIVET is Columbia.  How does it look on the numbers?

Columbia's GDP is in the $4 billion neighborhood (#29 world-wide), and growing at 5.9% (2011).  Where is this GDP coming from?  According to one source (the source for all other numbers not otherwise attributed), Columbia's major exports are petroleum, coal, emeralds, coffee, nickel, cut flowers, bananas, and apparel.  In other words, its economy is based on natural resources, agriculture, and (in last place), low-tech manufacturing.

Moreover, Columbia does not appear to be investing in their future.  Gross fixed investment (in income-producing assets) is at 23% of GDP.  To put this in perspective, Belarus is spending almost 40%, Vietnam almost 35%.

I can't determine whether or not there's capital flight going on here (which is what Argentina's been battling for years), but I did find one article talking about FDI flowing out of Columbia -- $20 billion from 200 to 2010.

Official sources claim that FDI flowing into Columbia is increasing, but even that source admits that most of the FDI is coming from oil and mining.

What does your future economy look like?  What are you investing today?

So maybe it's the demographics.  Median age is 28.3 years.  That's right in the ballpark for developing economies (for example, Indonesia is 28.5 years, Brazil is 29.6 years).  This is ok, but nothing special.

Columbia's population is 75% urbanized, which matters, because urban residents shop more, driving domestic consumption (for a discussion of this phenomenon in China, see this report).  Again, not bad.  Indonesia's 44% urbanized, Peru's at 77%.

If the CIVETS are the economies of the future, what else is being done to invest in that future.  Literacy is 90.4% and average educational attainment is 14 years.  Public spending on education is 4.7% (World Bank numbers), which puts Columbia right in line with Nepal (4.7%) and Rwanda (5%).  In contrast, (and more to the point), Brazil spends 5.7% and Costa Rica is at 6.3%.  You'd think that if you were interested in economic growth, you'd invest in education.   Columbia isn't really low, but nor is it inordinately high.

So, then, why Columbia?  Per the Wall Street Journal:

Colombia is emerging as an attractive destination for investors. Improved security measures have led to a 90% decline in kidnappings and a 46% drop in the murder rate over the past decade...

A 90% decline in kidnappings.  I don't want to joke about what is a serious issue, but that doesn't strike me as the strongest recommendation out there.

Another source cites Columbia's "pro-business government."  Well, governments change.

During the 1990s, foreign investment was pouring into Argentina, under the government of President Carlos Menem (1989-1999).  That slowed in the Argentine financial crisis in the late 1990s, and under current president Cristina Fernández , nationalization is the order of the day.

And, Columbia has some internal governance issues.  President Santos is currently preparing for Formal Diplomatic Talks with an outfit called FARC (The Revolutionary Armed Forces of Colombia). FARC is politically left-wing and has long financed their operations by kidnapping and drug trafficking (though they claim to have given up kidnapping for ransom).

So, than, why not Venezuela?  The numbers are comparable or better (economic and demographic). 

Venezuela already exports oil; Columbia is in the beginning stages.  And, by the way, FARC just loves to take out oil pipelines....

Our problem with Venezuela -- Hugo Chávez.  However, as we've said, governments change, and we know (or suspect) that  Mr. Chávez is probably not too much longer for this world (though nobody knows for sure).

So am I dismissing Columbia?  No.  Just that there are other attractive Latin American countries in addition to Columbia.  Brazil we aren't counting here as up-and-coming, but I've also heard positive reports about Panama and Costa Rica.  Smaller countries, smaller economies than Columbia, but with growth potential.

Next up....South Africa.

"More saving. More doing." But, "nothing doing" in China.

From today's Financial Times -- Home Depot Shuts Big Box Stores in China.

According to the article, Chinese customers are less likely to be interested in do-it-yourself (DIY) home improvements (since many workers are migrant workers).  But, reasons don't matter.  Chinese consumers aren't just that into DIY.

According to Home Depot:

"Closing stores is always a difficult decision," said chairman & CEO, The Home Depot. "We are thankful for the dedicated service of our store associates in China, and we wish them all the best during this transition."

While it is closing its big box stores, The Home Depot is maintaining a new formats team to continue research and development activities. In addition, the Company is maintaining two recently-opened specialty stores - a paint and flooring store and a Home Decorators Collection store, both located in - and is in the beginning stages of developing relationships with several of China's leading e-commerce websites, a combination which the Company believes is more tailored to Chinese customers' needs and shopping preferences.

"We've learned a great deal over the last six years in China, and our new approach leverages that experience and reflects our continuing interest in providing value to Chinese customers, as well as our shareholders," said Blake.
 

My favorite part is the last paragraph. "Our new approach leverages that experience..."  Where I come from, they call that "learning from your mistakes."  But, I do loathe and despise business buzzwords.

That is all for today.

Back to Black?

In both 320 sections, we've recently been talking about bribery, with some reference to the 2003-2006 scandal involving BAE Systems (British Aerospace Engineering) and Saudi Arabia, with a supporting cast of a large flock of fighter jets, a pink airplane, a peacock-blue Rolls-Royce, and numerous sports cars.

Although there was some speculation that BAE chairman Sir Dick Evans and his high degree of cross-cultural awareness played a part in securing the Saudi contract.

Well, BAE is in the news again.  There's a proposed merger between BAE and EADS (European Aeronautic Defence and Space Company).  Per the Financial Times:

Both companies are aiming to reach an agreement by October 10, according to two people familiar with the deal talks. BAE and EADS executives wanted to decide “whether this thing will fly or not” by that date, although the deadline could be pushed back if necessary, one of these people said.

Some Background

Both companies are defence contractors (that is, weapons manufacturers), although only about a third of EADS revenues are military (EADS includes Airbus, which is civilian aircraft).

The Economist quick update on the arms business

EADS is a Dutch company, with a complex ownership structure that includes the German, French and Spanish governments and Daimler and worldwide operations (including China and Brazil). 

BAE is British owned and  deals primarily with the UK and other English-speaking countries (US and Australia), with significant interests in India and Saudi Arabia.

The Merger

According, again, to the Financial Times, the motivation behind this is mutual benefit.  BAE has a significant presence in the US defence market (which is almost half of the world's defence spending), allowing the EADS / BAE combination to take on Boeing.  And, if military markets dry up (though plans would be to expand into additional lines of military hardware), EADS has Airbus, which is civilian aircraft.

However, nobody else -- shareholders, governments, employees, labor unions, and the lady that pushes the food trolley on the Hogwarts Express -- likes the idea.

More later....

The US Reaction

Here's the New York Times coverage; from the comments, it appears that US observers are worried about the potential power and size of the mergerd firm.