Saturday, April 27, 2013

"We believe the profits to be genuine"

Dr. Frank-Jürgen Richter, Former Director of the World Economic Forum and current Chairman of Horasis, is a strategy advisor to governmental organisations across Asia and Europe. Today, he works to build cooperation between agencies in emerging and mature markets. Dr. Richter talks about the B&E US Power 100 companies and the road ahead of them

B&E: Last year, the total profits made by B&E US Power 100 corporations rose more than 13% y-o-y. Do you think there has been a real appreciation in terms of profitability, or is the jump an outcome of 2010 being a bad year?
Frank-Jürgen Richter (FJR): The data is real but has to be placed in the context of trends in the US and in other countries. By and large, all business cycles are out of synchronisation with each other – except for firms working along the same supply chain. But even in the latter, we may see apparently large fluctuations, especially if some have ramped up and in the short term demand falls. For example, take the US Employment Figures released in mid-June this year. They showed a fall and the markets ‘went wild’ and pundits’ sound bites were overstating that US was slowing down. It reflected the easy US ‘hire & fire’ regime. And, if they were part of a long chain incorporating value-added assembly in China, it is possible a US firm may have decided to fire some staff. Its goods would be shipped to Asia over 20 days minimum, be assembled (maybe 20 days more) and shipped back for sale (a further 20 days). Data from China shows transaction volumes rising at 20% y-o-y. The Asians will be taking in part-finished goods from US made by staff just recently made redundant. Apparently the US workforce is being reduced just at the time that China needs more staff to handle increasing trade. Yet it is true that the recession cut jobs into 2009 and 2010, so the increases in production and profitability come from a lower base – year on year. But in general, we believe

lieve the profits to be genuine. Longer term, US companies must either begin hiring again (since unemployed people are less likely to consume goods and services) or find other markets in which consumers have adequate purchasing power.

B&E: How do you think the slowing down of emerging markets like Brazil, China and India, would hurt the top and bottomline outlook for B&E US Power 100 firms?
FJR: The policies of US firms must be differentiated across the BRICS. What might work in one market may not work in another, and this applies across all overseas ventures. Brazil has a policy-led growth strategy unlike the other members of the BRICS as it is more inward looking. China is edging into a long-term fall in its working age population; and India is waiting for the results of its next national elections in the next few months (a bit like the US). Slowdowns arrive as a trend that might be forecasted. So US firms must do much new ‘home work’ – not just in innovating and believing the world will both make it in volume and then buy it. The new manufacturers have to think ‘outside the box’ and ask their venture capitalists do likewise. Even in these times of global market stress! There is no bad news for US firms – or at least the ones that can look ahead to selling what the Asian and emerging market wants. But overall I expect isolated announcements of poor data affecting major US firms and their non-US sales and profits in 2012.

B&E: Would you say the American economy has got back on its feet to be able to support the domestic demand that is crucial?
FJR: I would agree with this premise, but due to the large fluctuations globally, US will see adverse data from time to time. One statistic that is very worrying is the high [and growing] rates of youth unemployment.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
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