The era of cheap capital draws to a close – McKinsey Quarterly – Corporate Finance – Capital Management

The era of cheap capital draws to a close – McKinsey Quarterly – Corporate Finance – Capital Management.

Here is another short article that is predicting that as demand for capital is growing to finance the growth of the global economy and as available funds are becoming scarce, this will trigger a new era where capital costs more than before.

The question then becomes: is this going to reshuffle the growth agenda and how it is distributed across the globe? Unfortunately no, as a country like China is not only a big money saver but also attracts a lot sovereign wealth funds, they will continue to enjoy economic growth way above the global average. So the winners of today seem to be the winners of tomorrow for the foreseeable future…

Five myths about US interest rates – McKinsey Quarterly – Economic Studies – Productivity & Performance

Five myths about US interest rates – McKinsey Quarterly – Economic Studies – Productivity & Performance.

If you are interested, I actually have several other posts referring to articles and videos on the same topic. This one has the merit to be short (3 pages) and kill some myths about interest rates in the US and abroad. The mechanics is exactly the same.

Good reading !

Managing for improved corporate performance – McKinsey Quarterly – Strategy – Growth

Managing for improved corporate performance – McKinsey Quarterly – Strategy – Growth.

Here is a fascinating article, which is 2003 old, and is as relevant today as it certainly was by then. Reading it really made we wonder what we learnt between now and then and whether we put into practice some of the key lessons and recommendations shared by the authors.

I read through a lot of business articles, not that many have that level of pertinence and candor in the analysis of a  macroeconomic situation. Once the assessment was done, the prescription was very straight forward. Interestingly enough though, we did not see that many major corporations since then re-balance their priorities between corporate and operating management.

The question has often been asked: “Does humanity take the lessons of the past or do we keep repeating the same mistakes again and again…?”

All times high US household savings hinder global economic recovery

Professor Arturo Bris @ IMD explains to his students that US households are currently saving too much to enable the global economy to pick up again.

Furthermore, we are currently trapped in a vicious circle of:

• Deflation: lowering prices encourage consumers to wait
• All times low interest rates (down to zero) do not encourage banks to lend money as there is no financial incentive for them to do so

Professor Briss concludes that counter-intuitively inflation may be the trigger to the global economic recovery

Is Google still innovative?

It is interesting to see how everything is a matter of perspective. I received this RSS feed earlier today:

• Google’s Schmidt hands top job to Page as company posts strong Q4. Google’s Eric Schmidt has announced his resignation, and will hand the CEO job to company co-founder (and original CEO) Larry Page. Schmidt, who will remain as executive chairman to advise Page, says the change “will result in faster decision making and better value for the shareholders.” Analysts say the move is aimed at helping the company regain an entrepreneurial stance, addressing claims that it has grown too large and bureaucratic. In Q4, Google’s earnings rose 29 percent to $2.54 billion, with revenue rising 26 percent to $8.44 billion. Research firm eMarketer notes that the company’s revenue, while still mainly driven by search ads, was boosted by a growing stake in the display ad market. New York Times; Wall Street Journal; USA Today; Associated Press (also Bloomberg Businessweek)

So Eric Schmidt would be stepping down in order to reinvigorate Google’s entrepreneurial spirit ! Well… I can only speak for myself but Google was still in my eyes one of the iconic brand conveying an innovative and entrepreneurial image. So what a surprise !

That being said, it would be too early to cry for Eric Schmidt. He does not leave his CEO position uncovered for the future:

• Google’s Schmidt gets $100m grant: Google’s Eric Schmidt, who recently announced his plans to move from CEO to executive chairman, has received an equity award of $100 million in stock and stock options. Experts say the award is unusual, as apart from the sheer size of the award, most such awards are granted to new CEOs. Outlets also note that Schmidt recently filed to sell $335 million in company shares.

Again a matter of perspective. Many people will find such a golden parachute  indecent in the current economic climate. However, I’m sure that if he were interviewed on the matter, he would say that this is a fair compensation for the business value he contributed to generate for Google.

One single reality, multiple possible interpretations of it… what’s the truth? Is there only one? Who holds it?… I’m puzzled

Unifying economic challenge of the Arab Muslim world

What is currently happening in Tunisia, largely echoed on the media, reminded me one of the chapters of the “Start-up nation” (Cf. yesterday post) . As a matter of fact, I found in the book one paragraph that let me puzzled and made me wonder what kind of visionary skills will be required to fix an issue of this magnitude. This is an excerpt from the book, just make up your own mind:

“The unifying economic challenge for the Arab Muslim world is its own demographic time bomb: ~70% of the population is under 25-year old. Employing all of these people will require the creation of 80 million new jobs by 2020. Meeting this goal means generating employment at twice the US job growth rate during the boom decade of the 90’s. The public sector isn’t going to create these jobs. “The stability and the future of the region is going to depend on our teaching our young people how to go out and create companies”, said Fadi Gandhour, a successful Jordanian entrepreneur.”

As you can read above, it will require more than management skills to fix a systemic issue of this complexity and scale. It will require a bold vision and true leadership skills to make it happen. Any volunteers? 😉

Amazon.com: Start-up Nation: The Story of Israel’s Economic Miracle (9780446541466): Dan Senor, Saul Singer: Books

Amazon.com: Start-up Nation: The Story of Israel’s Economic Miracle (9780446541466): Dan Senor, Saul Singer: Books.

 

 

 

 

I have always been puzzled when I was reading the news to see major tech companies like Google, Intel, Cisco and others establish their R&D labs and production plants in Israel. Given the geopolitical instability of the area, I was wondering what were the business benefits of going there vs anywhere else in the world… until an Israeli colleague of mine recommended that reading to me.

This book has been a true discovery. I discovered that I knew very little about Israel as a nation, about its history and finally about its economic miracle.

If you are curious to learn why there are more startup’s per capita in Israel than in any other countries of the world, this is the book to read. If you would like to understand why Israel has succeeded where Singapore, Korea and Dubaï keep failing, this book will give you hints. Finally, this book is a treasure of true leadership and entrepeneurship lessons.

Hopefully when you will have reached that point, I will have triggered your curiosity and you will be looking for ways to order the book nearby in your country.

Enjoy the reading !

The commodity crunch in consumer packaged goods – McKinsey Quarterly – Retail & Consumer Goods – Strategy & Analysis

The commodity crunch in consumer packaged goods – McKinsey Quarterly – Retail & Consumer Goods – Strategy & Analysis.

Here is another interesting short article by McKinsey, which explains the challenges of managing price changes to the customer in a cost-volatile environment. Management teams have 2 options when input costs are increasing:

• They can keep prices the same in order to keep and/or build a competitive advantage on price. This decision will help protect short-term revenues but will reduce their margins and threaten the long-term perennity of the company
• They can increase prices but then they take the risk that consumers are turning away from their products for cheaper alternatives

That being said, let’s take one step back and broaden the field of possibilities:

• Apple has been very successful so far in selling consumer products at a very significant premium on price because consumers were willing to pay for the perceived value of their products
• Reversely, for all these consumers that are extremely cost-conscious, isn’t there a huge market for simpler and cheaper products? Looking at the success of products like Tablet PC’s, a lot of consumers are not looking for sophistication, they are looking for a communication and media device at an affordable price. The speed of the processor, the amount of memory, the size of the disk, the video card, are not criteria that they will use in their buying decision. HP seems to have understood it by launching in India their “Dreamscreen” product. But they are not the only ones.

This is a good first step ! Hopefully, there will be many more like this in the future with less emphasis on features and functions and more on product usage. This may be the key to sell cheap products at a price, which still enables to generate decent margins so that companies can keep innovating and developing new products we will want to purchase and play with…

Should the EUR be high or low versus the USD?

How often have we heard everything and its contrary when it comes to currency valuation or devaluation? Depending on whom you talk to, a strong EUR compared to the USD is a good thing when others will claim that a lower EUR would actually be better. In such context, you may actually wonder: “But where is the truth?”.