Posts in category Business


ApprovedBusinessBusiness and finance

Cisco adapts to the rise of cloud computing

WHEN John Chambers ran Cisco, the world’s biggest maker of networking gear, his hyperactivity nearly matched that of the high-speed switches and routers that made the firm’s fortune. He pushed Cisco into dozens of new businesses, from set-top boxes to virtual health care. He travelled the world preaching the virtues of connectivity. In interviews it was hard to get a word in edgeways. Conversations invariably ended on a restless question: “What should we do differently?”

Chuck Robbins, who succeeded Mr Chambers in July 2015, has two decades of experience selling Cisco gear and seems more comfortable talking about its core business than about diversifications. He avoids the limelight and comes across as almost shy. But he, too, is aware of the need to keep moving. “Networking is getting complex. We need intuitive networks that are secure and can learn and adapt.”

Different times require different bosses. Mr Chambers led Cisco to the top during the dotcom boom; in…Continue reading

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The prospects for the world’s biggest IPO

THE proposed sale of 5% of Saudi Aramco is not just likely to be the biggest initial public offering (IPO) of all time. “It’s like Gibraltar selling the rock,” as one expert on Saudi Arabia’s oil policy puts it. The world’s biggest oil company keeps the House of Saud in power, bankrolled 60% of the national budget last year, and is a paragon of efficiency in an economy otherwise mired in bureaucracy.

The elevation on June 21st of Muhammad bin Salman, the 31-year-old architect of the IPO, to crown prince is likely to add more momentum to a sale planned for the second half of 2018. The news will further sideline domestic critics of the IPO, some of whom wonder whether it would be better to borrow the money than sell the family silver. But the success of the IPO is not guaranteed. The tendency of MBS, as the prince is known, to micromanage the listing runs counter to the spirit of openness and liberalisation that he says he wants for Saudi Arabia. That could backfire on the IPO…Continue reading

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General Motors is getting smaller but more profitable

THE headquarters of General Motors (GM) tower over the other skyscrapers in Detroit’s city centre, a reminder that the carmaker still rules the American market. Yet GM’s domestic might increasingly contrasts with its position elsewhere in the world. Although most other carmakers see becoming ever bigger everywhere as the answer to the industry’s multiple challenges, GM is in retreat.

It, too, long vied with the world’s largest carmakers for the global crown. Along with Volkswagen, Toyota and Renault-Nissan, it made around 10m cars last year. Investors have been unimpressed. Although GM had record profits in 2015 and 2016 and has performed solidly this year, its share price has barely budged since its IPO of 2010, after the financial crisis had forced it into bankruptcy.

Such is the frustration that Greenlight Capital, a hedge fund with a 3.6% stake in GM, proposed splitting its shares into two classes—one keeping the current dividend and the other…Continue reading

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Amazon’s big, fresh deal with Whole Foods

JEFF BEZOS does not like sitting still. In his annual letter to Amazon’s shareholders this year, he warned of “stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death.” Competitors are toiling to avoid the same fate but it is hard to keep up. On June 16th Amazon said it would pay $13.7bn for Whole Foods, an upscale grocer known for its organic produce. Lest be accused of sloth, four days later Amazon announced a new service to let shoppers try clothes at home, for no fee, then return those they don’t like.

The news that Amazon would make clothes shopping even easier is a blow to America’s apparel chains, many of which are already in the middle of that excruciating decline. Yet it was the Whole Foods deal, more than ten times bigger than any acquisition Amazon has made so far, that caused the bigger stir.

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A trendy Asian lifestyle chain opens in North Korea

Shop till you pop

WHEN Miniso said in January that its stores would “bring the happiness of stress-free shopping to the Koreans”, you would be forgiven for thinking they were referring to emporium-loving Seoulites. In fact, the home-goods store, co-founded by a Chinese entrepreneur and a Japanese designer, was announcing that it would be taking its capitalist trinkets into (ostensibly socialist) North Korea. In a joint-venture deal with one of the country’s state-owned enterprises, it agreed to establish the first foreign-branded chain store in Pyongyang, the destitute country’s showcase capital.

The first Miniso store opened there in April, eight months after its first shop in South Korea began operating, and just before it launched in America. Its arrival is remarkable in a place where displays of branding are rare (the exception is a handful of billboards advertising a local car firm, Pyeonghwa Motors).

Miniso’s coup in the secretive…Continue reading

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A hybrid startup offers AI services to business

Bengio, neutral agent?

BOSSES are more likely to groan than feel giddy about advances in artificial intelligence (AI). They need a strategy, but few companies can hope to own a unit like Google’s DeepMind, whose algorithms not only beat the world’s best Go players but made a 40% improvement in the energy efficiency of its parent’s data centres. A Canadian startup, Element AI, wants to let all businesses tap into the world’s best AI minds.

The brain behind the new firm is Yoshua Bengio, a pioneer in “deep learning”, a branch of AI. As firms such as Google and Facebook lured dozens of AI academics, some in the field expressed fears about a brain drain from academia. In 2015, for example, Uber, a ride-hailing startup, poached 40 researchers from Carnegie Mellon University. Mr Bengio meanwhile stayed at the University of Montreal (though in January he became an adviser to Microsoft).

Element AI will let researchers stay in their university…Continue reading

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India’s huge buffalo-meat industry is in limbo

IN A corner of the state of Uttar Pradesh (UP) stands a gleaming building dedicated to animal slaughter on an industrial scale. Neatly mown lawns lead the way to a corral for hundreds of the curly-horned Murrah buffalo typical of the region. Nearby is a lorry-sized, stainless-steel machine in which the animals are killed. A Muslim cleric stands ready to oversee the incantation that ensures each carcass will be halal. Upstairs a microbiology lab monitors the progress of each beast through stages of chilling, deboning and deglanding. Each pile of disaggregated buffalo is then frozen solid and put into a loading chamber.

Such facilities are common in UP, although they do not advertise their whereabouts for fear of antagonising “cow vigilantes”, Hindu militants who harass and extort in the name of protecting cows, which a majority of Indians hold to be sacred. India earns around $4bn a year from exporting beef, and last year was the world’s biggest exporter of the product….Continue reading

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An industry shudders as Amazon buys Whole Foods for $13.7bn

AMAZON announced on June 16th that it would pay $13.7bn to buy Whole Foods, a grocer known for its organic produce. On the face of it, the purchase might not seem to upset the grocery cart, either for Amazon or for the supermarket business. Amazon controls a measly 0.2% of America’s grocery market; Whole Foods has just 1.2%, according to GlobalData, a research firm and consultancy. By Chinese standards, Amazon looks slow: Alibaba, another e-commerce titan, bought a 32% stake in a Chinese grocer last year.

Nor is Whole Foods a juggernaut. It has about 450 stores in America, Britain and Canada, but American shoppers are now buying a wide range of organic foods at other grocers, without having to put up with Whole Foods’s steep prices or its hipster clientele.

Nevertheless, the deal marks a new era for Amazon. It has run a few experiments in physical retail, including bookstores in Chicago and in New York. In Seattle it is testing a small grocer, Amazon Go, where…Continue reading

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Canadian banks don’t face a crisis. They do face a strategic trilemma

AS the global financial system was engulfed in crisis in 2008-10, only one set of banks in Europe and North America stayed serene and safe: Canada’s big five lenders. They were largely untouched by the madness south of the border and across the pond and kept churning out profits. After the crisis experts went on pilgrimages to Toronto and Ottawa to study the Canadian way. The country’s central-bank governor, Mark Carney, became a financial celebrity who was headhunted to run the Bank of England.

Canada’s banks quickly joined the select ranks of the industry’s superpowers, shooting up the global league tables in the aftermath of the crisis. Today three of them are on the list of the 20 biggest banks globally, measured by market value: Royal Bank of Canada (RBC), Scotia and Toronto Dominion (TD). RBC is worth more than Spain’s Santander, the euro zone’s biggest bank.

It has taken nearly a decade but Canadian lenders are back in the spotlight, this time accused of…Continue reading

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Corporate Europe is giddy with optimism

IT IS remarkable what a difference a single election can make. “The way Europe is regarded by the rest of the world has changed in a few months,” says Gérard Mestrallet, chairman of both Engie and SUEZ, two big French energy firms, and a board member at Siemens of Germany, the region’s biggest engineering firm. The arrival of Emmanuel Macron as France’s reform-minded new president—his party is set for a giant victory in parliamentary elections this week—is helping to transform attitudes from gloom to cheer.

Mr Mestrallet echoes many corporate leaders in describing “real hope and enthusiasm”, amid expectations that the new president will, within months, “de-block” the euro zone’s second-largest economy. Mr Macron will start freeing business activities, he says, first with legislative reform of a rigid labour market to simplify rules on hiring and firing, and then by cutting tax rates (the corporate kind will fall from 34.4% to 25%). Measures to boost entrepreneurship…Continue reading

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German deep discounters go big in America

Rummage sale

AMERICA’S economy is enjoying its third-longest period of uninterrupted expansion since the 1850s. So it is at first glance puzzling that Lidl, a German deep-discount chain whose sales soar when times are hard, is entering the market now. On June 15th Lidl opened nine stores in Virginia, North Carolina and South Carolina. Up to 90 more stores across the country are to follow within a year.

The move may be far-sighted, however. Lidl’s arch-rival, fellow-German discounter, Aldi, has been in America for four decades and has 1,600 stores across 35 states. It has had success not just among poor Americans but, increasingly, among the middle class, according to Bain, a consultancy. Aldi is preparing for an expansion: on June 12th it said it would add 900 more in the next five years, putting it third in the country by store count, behind Kroger and Walmart, America’s biggest retailer.

Unlike conventional supermarkets, which usually carry…Continue reading

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American energy firms are enjoying a bonanza south of the border

Supply chain in action

A CHEMICAL engineer at Pemex, Mexico’s state-owned oil company, opens a tap atop a maritime platform in this offshore oilfield in the southern part of the Gulf of Mexico. She decants a jar of heavy Mexican crude that comes, hot to the touch, from 3,500 metres below the seabed. It looks like a succulent chocolate sauce, but smells like the back end of a cow. “Taste it,” she laughs.

The crude that she is testing is pumped a short distance across the sea to a vast floating storage tank, known as an FPSO, where it is blended with lighter crude for export. The FPSO stores about 2m barrels—roughly the equivalent of a day’s worth of Mexican oil production. A quarter of that is fed into a supertanker tied alongside, contracted by Chevron, America’s second-largest oil firm. It then sails north across the maritime border to Texas or Louisiana where the crude runs through refineries. The refined petrol or diesel often then returns to…Continue reading

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A high-flying Chinese dealmaker has his wings clipped

“THE total number of airline miles travelled by this team is equal to a round trip between Earth and the moon.” So bragged Wu Xiaohui at a recruiting event held at Harvard University in January 2015. The boss of Anbang, a big Chinese insurer, was dazzling potential hires with his plans to go global. Anbang had shot to prominence just weeks before with a deal worth $2bn to acquire the Waldorf Astoria hotel in New York from America’s Hilton.

Since then Mr Wu has attempted acquisitions around the world worth a total of some $38bn (see table). Political controversies have caused a number to unravel. One that recently fell apart was Anbang’s negotiation to take a $400m stake in a property in Manhattan, 666 5th Avenue, controlled by a firm owned by the family of Jared Kushner, President Donald Trump’s son-in-law. There were complaints about a potential conflict of interest on the part of Mr Kushner, who advises Mr Trump on relations with China.

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One year before the World Cup, FIFA is shunned by sponsors

AT THE World Football Museum in Zurich, run by FIFA, football’s global governing body, visitors take their photo with the World Cup trophy, try their hand at match commentary and gawk at artefacts ranging from the original handwritten set of the rules of the game to the yellow card famously shown to Paul Gascoigne, a lachrymose English footballer, in 1990. Those wanting a glimpse of the luxurious bedsheets that were used to shield FIFA officials as they were hustled out of a ritzy Swiss hotel in 2015 having been arrested on corruption charges may feel cheated—they are not on display.

If FIFA’s shrine to itself ignores this squalid period of its history, its balance-sheet bears the traces. FIFA lost $369m in 2016, triple the losses of the year before, and forecasts a loss of $489m in 2017. Reserves, which have been above $1bn since 2008, are predicted to fall to $605m next year.

The latest loss is partly because of higher development funding for member…Continue reading

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A Swedish activist speaks softly and carries a big stick

Gardell, smiling butcher

“SCLEROTIC companies abound in Europe,” says Christer Gardell, co-founder and managing partner of Cevian Capital, an activist hedge fund based in Sweden. That is an uncommonly pugnacious statement for a firm that operates behind the scenes and uses public pressure as a last resort. Unlike its louder American peers, such as Bill Ackman’s Pershing Square, Paul Singer’s Elliott Management or Dan Loeb’s Third Point, Cevian has never written a pointed open letter to a chief executive or waged a proxy battle (although Carl Icahn, an activist who has been known to call bosses “morons”, is one of its investors).

Its calm approach seems to suit corporate Europe. Cevian is the region’s largest activist fund, and one of the world’s biggest, with over $15.4bn in assets. It was founded by Mr Gardell and Lars Forberg in Stockholm in 2002; both still run it. Its “constructive” activism, focusing on only a dozen companies at a…Continue reading

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Tanzania’s firebrand leader takes on its largest gold miner

“IF THEY accept that they stole from us and seek forgiveness in front of God and the angels and all Tanzanians and enter into negotiations, we are ready to do business.” As conciliatory gestures go, that one by John Magufuli, Tanzania’s president, to Acacia Mining, the country’s largest foreign investor, could hardly have been more fork-tongued.

Nonetheless, two days later John Thornton, head of Barrick Gold, Acacia’s largest shareholder, met Mr Magufuli to start talks on ending a dispute that has halved Acacia’s market value since the government in March imposed a ban on the export of gold- and copper-concentrates. It is a mark of the seriousness of the stand-off that he is ready to negotiate on all points of contention between the two sides.

The context of the row is increasingly typical of Africa’s mining industry. The Tanzanian government is seeking more tax revenue from a foreign mining firm that was initially wooed into the country by generous tax…Continue reading

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General Electric picks a new boss

JEFF IMMELT looks like he was born to be a chief executive. Tall, affable and energetic, he was selected to run General Electric (GE) in 2001 after an interminable and mildly sadistic selection process run by GE’s then CEO Jack Welch, at the time America’s most celebrated boss. After 16 years at the top, on June 12th Mr Immelt said he would retire, to be replaced by John Flannery, who runs the firm’s health-care arm. The departing boss has reshaped GE radically but his legacy as the boss of the world’s most important industrial company is a mixed one.

Part of that reflects what he inherited. GE was not in nearly as good shape as Mr Welch liked to pretend. Its share price was significantly overvalued, pumped up by hype about Mr Welch’s talents, while its profits were inflated by gains from its pension scheme and its financial arm,…Continue reading

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How retailers are watching shoppers’ emotions

In the mood for buying?

FOR eight months up to this April, a French bookstore chain had video in a Paris shop fed to software that scrutinises shoppers’ movements and facial expressions for surprise, dissatisfaction, confusion or hesitation. When a shopper walked to the end of an aisle only to return with a frown to a bookshelf, the software discreetly messaged clerks, who went to help. Sales rose by a tenth.

The bookseller wants to keep its name quiet for now. Other French clients of the Paris startup behind the technology, Angus.ai, are testing it in research shops that are not open to the public. They include Aéroports de Paris, an airport owner; LVMH, a luxury conglomerate; and Carrefour, a chain of hypermarkets. In a test at a Mothercare shop in Tallinn, Estonia, software from Realeyes, an emotion-detection firm based in London, showed that shoppers who entered smiling spent a third more than others.

Simple video yields a lot of insight. But…Continue reading

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President Trump wants to privatise air-traffic control

IN JUNE 1956 a TWA Constellation collided with a United Air Lines DC-7 over the Grand Canyon in Arizona, killing all 128 people on both aircraft. At the time it was the worst ever airline disaster. Struggling with outdated technology and a post-war boom in air travel, overworked air-traffic controllers failed to spot that the planes were on a collision course.

That crash led to the creation of a new body, which became the Federal Aviation Administration (FAA), in charge of running and modernising the world’s biggest air-transport system. With that system again struggling to keep pace with demand, Donald Trump thinks it is time to privatise America’s air-traffic control service. This week the president outlined a plan to turn air-traffic control into a separate non-profit entity financed by user fees, instead of the present patchwork of taxes and grants. Shorn of its air-traffic responsibility, the FAA would become a safety body.

America’s air-traffic system…Continue reading

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America’s number two ride-hailing firm

ONE firm’s bad news is often another’s good fortune. For years Lyft, an app that offers on-demand rides, was outdone by its seemingly unstoppable rival, Uber, which zoomed into new markets and grabbed a near-$70bn valuation, the largest of any private American tech firm in history. Uber does not report a share price that would register its recent troubles, which include one investigation into alleged intellectual-property theft and another into its workplace culture. But that Lyft’s market share in America has risen from 18% five months ago to 25% now (according to TXN Solutions, a data provider) is a gauge of the larger firm’s crisis.

Lyft is far from a typical Silicon Valley company. Unlike Uber, it does not lust for world domination and it operates only in America. Nor does it take itself especially seriously. For years it identified its drivers by pink, fuzzy moustaches fastened to the front of cars, and encouraged riders to fist-bump their drivers and sit in the front seat…Continue reading

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A wind pioneer is sceptical about batteries

The way the wind’s blowing

ONE of Ignacio Galán’s early jobs as an engineer was to design lead-acid batteries for the milk floats that used to trundle around Britain’s streets. So the 66-year-old Spaniard, who heads Iberdrola, one of the world’s largest utilities, claims he has been thinking about the storage of electricity for his whole career. That is useful, because for the second time since he took over Iberdrola in 2001, the industry faces a fork in the road. This time round, the big debate in energy is about batteries and storage.

The first time, Mr Galán blazed the right trail. He made a prescient bet on renewable energy, turning Iberdrola into one of the world’s biggest providers of onshore wind while at the same time underpinning returns with relatively safe, regulated electricity networks in America (Avangrid) and Britain (ScottishPower). Some European peers, such as Germany’s E.ON and RWE, took the opposite approach, prioritising…Continue reading

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Big business sees the promise of clean energy

PITY America’s big businesses. For years their efforts to reduce their carbon footprint were dismissed by environmentalists as “greenwashing”. Now, after months trying to persuade a supposedly pro-business new president, Donald Trump, of the merits of staying in the Paris climate accord, he practically laughed in their faces by withdrawing on June 1st.

Executives fear the exit will do no good to America’s—and by implication their—reputation. Not for nothing have more than 900 American firms and investors, including Amazon, Twitter, Target and Nike, put their names this week to a “We are still in” open letter to the UN. Its signatories pledge to help reduce the country’s carbon emissions by 26% by 2025, in keeping with America’s Paris pledge. That may be quixotic but is a rallying cry nonetheless.

Indeed, some American firms are taking climate change so seriously that they are surprising even former critics. Alongside energy-efficiency measures, the…Continue reading

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The battle for territory in digital cartography

IN THE 1940s Jorge Luis Borges, an Argentine writer, wrote a short story about mapping. It imagines an empire which surveys itself in such exhaustive detail that when unfolded, the perfectly complete 1:1 paper map covers the entire kingdom. Because it is unwieldy and thus largely useless, subsequent generations allow it to decay into tatters. Great scraps are left carpeting the deserts.

In their capacity for up-to-the-minute detail, modern maps surpass even Borges’s creation. By using networks of sensors, computing power and data-crunching expertise, digital cartographers can produce what are in effect real-time simulations of the physical world, on which both humans and machines can base decisions. These maps show where roadworks are blocking traffic or which street corners are the most polluted. Innovative products will make new demands of them. Drones need to know how to fly through cities; an augmented-reality game might need to know the exact position in London of Nelson’s…Continue reading

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Chinese companies’ weak record on foreign deals

CONSIDERING the size of China’s economy, it seems inevitable that its firms will eventually play a huge role on the world stage. Yet China Inc’s adventures abroad in the past 15 years have been a mixed bag. Thousands of small deals have taken place, some of which will succeed. But of the mergers and acquisitions that have been worth $1bn or more, it is a different story. There have been 56 abandoned deals, 39 state-backed acquisitions of commodities firms at frothy prices, and, lately, wild sprees by tycoons scooping up trophies such as hotels and football clubs.

Some deals defy any conventional logic. Last month HNA, an airlines-and-tourism conglomerate from Hainan, said it had bought a 10% stake in Deutsche Bank, having earlier considered buying a Landesbank. The Chinese firm, which runs a beach-volleyball tournament in Beijing, appears to think it can consolidate Germany’s fragmented banking industry—the financial equivalent of bringing peace to the Middle East. If China Inc is…Continue reading

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