Global Business |Update|
(A weekly update on Global Business )
Skyline Business School
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Issue 105

Global Business Update

(25th Feb.’09---3rd March’09)

Contents

Global Corporate

1 HSBC in £12.5bn fund-raising plan

2 Stronger US dollar helps Pearson

3 GE makes rare cut in dividend

4 GM Europe 'could run out of cash'

5 AIG reports record $61.7bn loss

6 Iberia profits see 90% nosedive

7 Body Shop chain to cut 275 jobs

Global Outsourcing

8 Outsourcing sector unfazed by Obama warning

9 Global outsourcing benefited US firms: Nasscom

10 India may contest Obama's move against outsourcing in WTO

11 Obama to eliminate tax benefits for cos outsourcing jobs

12 LANG to Outsource Printing of Several Titles to Two Shops

13 Outsource more from India: Airbus parent to suppliers

14 Dell Outsourcing Manufacturing One New Product At A Time

Global Economy

15 Global markets continue to fall

16 Oil price falls on economic fears

17 Euro manufacturing 'slides again'

18 PC sales to suffer biggest drop

19 US economy suffers sharp nosedive

20 Asean group seeks economic action

Global Market

21 Asian shares flat on financial crisis, investor concerns

22 Indian stocks worst performer among BRIC countries in February

23 European stocks plummet, led by AIG loss

24 Oil rises above $40, but demand worries remains

26 S&P below 700 first time since Oct 1996 on bank crisis   

Global Corporate

 

1 HSBC in £12.5bn fund-raising plan
Europe's biggest bank, HSBC, has confirmed it is seeking to raise £12.5bn ($17.7bn) from shareholders through a rights issue in the UK. The bank's chairman Stephen Green said the funds would help the firm in the uncertain economic environment. He also ruled out cash bonuses for 2008. The news came as HSBC revealed pre-tax profits for 2008 of $9.3bn (£6.5bn), down 62% on the previous year. The news contributed to a fall in share prices on the London stock market. HSBC shares closed down by almost 19%. Other banking shares were also dragged down, with Lloyds Banking Group falling 15% and Barclays losing 6%. Shares in Royal Bank of Scotland closed down 3%, after falling 13% earlier in the day.
3rd March 2009, www.bbc.co.uk

2 Stronger US dollar helps Pearson
Media group Pearson, which publishes Penguin books and the Financial Times, has reported a rise in 2008 profits, boosted by a stronger dollar. The group also said it had been helped by a good performance at its educational business, but was cautious about the outlook for 2009. Pearson reported a pre-tax profit of £585m for 2008, up from £468m in 2007. Sales grew by 8% to £4.8bn. But it said advertising revenues at FT Publishing had fallen. We don't expect economic conditions to improve any time soon, but we do expect our company to remain hardy and aggressive, said chief executive Marjorie Scardino. Pearson generates about 60% of its revenue in US dollars. And currency movements added £320m to sales, largely the result of the strengthening of the US dollar against sterling, the firm said.
2nd March 2009, www.bbc.co.uk

3 GE makes rare cut in dividend
US conglomerate General Electric has made a rare cut in its shareholder dividend as it seeks to conserve cash to see out the recession. GE said it would cut its quarterly dividend to $0.10 (£0.07) per share from an originally planned $0.30 - a 68% reduction. GE, which had long resisted cutting its divided, said the move would save it $9bn a year. The news hit the company's share price, with stocks sinking 6.5% to $8.51. GE's problems mainly stem from its finance unit GE Capital, which makes a wide variety of loans including mortgages. However, the wider economic downturn has also hit its industrial unit, which makes aircraft engines, home appliances, light bulbs and wind turbines.
1st March 2009, www.bbc.co.uk

4 GM Europe 'could run out of cash'
The European divisions of General Motors (GM) could collapse within weeks without European governments' help, GM's top executive has warned. Chief operating officer Fritz Henderson said governments should step in immediately to ensure GM Europe does not run out of money by April or May. It could help prevent some 300,000 jobs from being lost, Mr Henderson said. He wants governments to put up 3.3bn euros ($4.2bn, £2.9bn) to finance the separation of Opel and Vauxhall. Mr Henderson said during the Geneva motor show that Opel and Vauxhall should become a separate division that can then be opened up for investment. He also urged Opel, Vauxhall and Saab employees "to make shared sacrifices" to save their jobs. The Swedish and UK governments have been similarly reluctant to offer direct assistance to save Saab and Vauxhall. Mr Henderson, with Tuesday's statement, is clearly trying to force their hands, insisting that Saab will go into bankruptcy if its restructuring efforts do not succeed, and telling the UK government that it cannot expect the German government to do it on its own. There are now growing fears that political processes aimed at helping GM will be too slow to bring forth assistance before it is too late.
3rd March 2009, www.bbc.co.uk

5 AIG reports record $61.7bn loss
Insurance giant AIG has reported a loss of $61.7bn (£43bn) in the final three months of 2008 - the largest quarterly loss in corporate history. And the firm will receive an extra $30bn from the US government as part of a revamped rescue package. AIG has already received $150bn in financial support - the biggest bail-out by far of any US company. Stock markets slid sharply as AIG's plight underscored fears about the health of the global financial system. The Federal Reserve and the Treasury said that AIG posed a "systemic risk" to the global financial system.
2nd March 2009, www.bbc.co.uk

6 Iberia profits see 90% nosedive
Spanish flag-carrier Iberia has blamed weak demand in the economic slowdown for a sharp drop in 2008 earnings. The airline, which is discussing a tie-up with British Airways, said its annual net profit plunged 90% to 32m euros ($41m; £28.5m). Soaring fuel prices through most of the year and a new high-speed train service between Madrid and Barcelona had also hit earnings, it added. Sales were down 1.3% over the year at 5.45bn euros, Iberia said. The airline had warned of a sharp drop in earnings last month, after it began to feel the impact of the economic downturn.
27th February 2009, www.bbc.co.uk

7 Body Shop chain to cut 275 jobs
The Body Shop ethical cosmetics chain has announced 275 job losses worldwide - about 150 of them in the UK. The firm, which has its main UK bases in London and Littlehampton, says the cuts will not affect individual stores or store staff. The Body Shop was founded by the entrepreneur and campaigner Dame Anita Roddick, who died in September 2007. The company was sold to French cosmetics giant L'Oreal in March 2006 for £652m ($1.14bn).
26th February 2009, www.bbc.co.uk
 

Global Outsourcing

8 Outsourcing sector unfazed by Obama warning
THE COUNTRY’S burgeoning outsourcing industry has nothing to worry about despite US President Barack H. Obama’s repeat of a vow to end tax breaks on American firms shipping jobs offshore — there’s no such incentive and tweaking tax policy won’t stop multinationals from going overseas. Mr. Obama is following through a populist campaign promise to force American companies to keep jobs in the US, saying in his first presidential address before the joint session of US Congress: We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas. But experts say this is all part of old Washington rhetoric as there is really no direct tax incentive awarded to US companies who transfer jobs to other countries. What the US tax code has is a decades-old provision that allows American companies to defer income tax payments on offshore profits until they are repatriated back home, and Mr. Obama wants to eliminate this.
26th February 2009, www.businessworld.com

 

9 Global outsourcing benefited US firms: Nasscom
Indian IT industry body Nasscom has reacted cautiously to US President Barack Obama's remarks on outsourcing, saying global outsourcing had benefited US firms that generate over 50 per cent of their business overseas. Welcoming Obama's observations on protectionism, Mittal said late on Wednesday that the US president's statement would have a positive effect on his country's economy that is going through a recession after a long time.
26th February 2009, www.tutorial-reports.com

10 India may contest Obama's move against outsourcing in WTO
India on Thursday indicated that the US move against outsourcing may be contested in the World Trade Organisation, stating New Delhi Financial crisis will take up the issue with Washington. In his first address to the joint session of the US Congress on Wednesday, Obama stated his administration would end tax breaks for corporations that ship the US jobs overseas. Nath said, "One has to see how the US companies using India as a base for technological development respond to their own government." Outsourcing of technology development by large companies cannot be switched on and off, he added. About 1,000 American firms, which have moved their jobs abroad, are expected to be affected by the proposed Obama move against outsourcing.
28th February 2009, www.economictimes.com

11 Obama to eliminate tax benefits for cos outsourcing jobs
US President Barack Obama has vowed to eliminate tax benefits for American companies shipping jobs to foreign countries but did not reveal its blueprint in his maiden budget speech. In a slew of measures aimed at boosting the nation's economy, the government would do away with tax breaks for firms outsourcing jobs to overseas destinations including India. At the same time, the administration would be providing tax relief to 95 per cent of American working families. Nearly 1,000 US firms, which have shipped their jobs overseas are anticipated to be affected with the proposed elimination of tax incentives. The plan mainly refers to one of the provisions in the tax code that allows companies to pay lesser taxes for profits earned from foreign shores. However, the US is yet to outline the ways to abolish tax breaks for the entities outsourcing jobs. Majority of the Democrats are against the provision, saying the same was encouraging firms to move jobs overseas and even cut the local positions.
28th February 2009, www.tutorial-reprots.com

 

12 LANG to Outsource Printing of Several Titles to Two Shops
In late May, the Los Angeles Daily News in Woodland Hills, Calif., and the Long Beach Press-Telegram will outsource their printing to Southwest Offset Printing, in Gardena, Calif. The Press-Telegram has been printed in Valencia, the Daily News production site for the past 20 years. The company said it is evaluating non-production plans for its Valencia property. The privately owned commercial printer has a relationship with the papers' Los Angeles Newspaper Group -- a division of Denver-based Media News Group -- as printer since 2005 of its Torrance Daily Breeze and several of its weeklies. Three of LANG's San Gabriel Valley dailies that also are now printed in the group's Valencia plant will hereafter be printed the Freedom Communications' flagship, The Orange County Register, in Santa Ana.
1st March 2009, www.tutorial-reports.com

 

13 Outsource more from India: Airbus parent to suppliers
European aerospace major European Aeronautic Defence and Space Company (EADS), parent company of India’s largest aircraft supplier Airbus, has directed its European tier-1 outsourcing partners to direct a larger portion of their outsourcing orders from India. This indirect outsourcing will make EADS’ total business outsourced to India grow 10 times by 2020, from the current  €100 million. In comparison, total outsourcing to countries outside Europe will only increase by more than three times in that period, albeit from a far larger base of €8 billion. Industry experts said this indirect outsourcing would be a clear way to rationalise costs. “Manufacturing parts in India would be 30 to 40 per cent more cost-effective, although it does depend on where the manufacturing takes place in India owing to differential tax structure,” said Kapil Kaul, CEO (Indian sub-continent), Centre for Asia Pacific Aviation (CAPA).
2nd March 2009, www.business-standard.com

 

14 Dell Outsourcing Manufacturing One New Product At A Time
Dell Inc. (DELL) Chief Financial Officer Brian Gladden on Tuesday reiterated Dell's plans to outsource more product manufacturing, and told an investment conference Dell's doing it one new computer or server at a time. So far, Dell uses third-party manufacturers to produce about 25% of the IT hardware it sells. Expect the percentage to ramp up slowly over time, Gladden says. We're not doing it mid-production cycle, he said Tuesday. "It's coming up as new products come up. Dell last Thursday announced plans to cut costs by another $2.5 billion in the next two years. Outsourcing more products, reducing headcount and thinning Dell's product lines are some ways Dell is seen meeting its new goal. Gladden added Tuesday that he expects more cellphone operators to sell Dell's lower-cost netbooks computers at a steep discount as a lure to sign long-term contracts. AT&T Inc. (T) in the U.S. began doing so in January, and Gladden said Dell has also begun working with some carriers in Europe.
3rd March 2009, www.tutorial-reports.com

Global Economy

 

15 Global markets continue to fall
After a volatile day's trading, US and European markets closed lower on Tuesday as investors continued to fear for the health of the global economy. The UK's FTSE 100 was down 3.2% at a six-year low, France's Cac 40 dropped 1%, while Germany's Dax fell 0.52%. On Wall Street, the broader S&P 500 index closed under the 700 level for the first time since October 1996. The Dow Jones index lost 0.55% following cautionary comments from Federal Reserve chairman Ben Bernanke. Mr Bernanke warned of stagnation if the US authorities did not move "aggressively" to stimulate the economy. His comments were a reality check for the market that nothing changed between yesterday and today, said Jim Awad, managing director at Zephyr Management in New York.
3rd March 2009, www.bbc.co.uk

 

16 Oil price falls on economic fears  
Oil prices have plunged 10% as yet more bad economic data sent stock markets sharply lower and undermined hopes of economic recovery. US light crude fell by $4.61 to $40.15, while London Brent crude dropped $4.14 to $42.21. Huge losses at US insurer AIG and plans for fund raising by HSBC bank sparked sharp falls in global markets. And weak manufacturing figures in the UK and eurozone only served to deepen the gloom yet further. With hopes of an early economic recovery now fading, fears are growing that demand for oil will remain depressed. Oil cartel Opec has already cut production by millions of barrels a day in an attempt to support oil prices.
2nd March 2009, www.bbc.co.uk

17 Euro manufacturing 'slides again'    
Manufacturing activity in the eurozone fell to its lowest level in 12 years in February, according to new figures. The purchasing managers index (PMI), compiled by research group Markit, fell from 34.4 in the previous month to 33.5 - its lowest level on record. Rising activity in January had led some analysts to believe that the eurozone manufacturing sector had reached a turning point. New orders fell to 28.2, also reached the lowest level on record.
1st March 2009, www.bbc.co.uk

18 PC sales to suffer biggest drop
Sales of personal computers (PCs) will fall more sharply in 2009 than at any time since their invention, new research suggests. Sales of PCs will total 257 million units this year, a fall of 11.9% compared with 2008, said information technology research company Gartner. The steepest decline to date was in 2001, when sales fell by 3.2%. The fall will be the result of slowing demand due to the economic downturn and longer PC lifetimes, Gartner said. The PC industry is facing extraordinary conditions and as the global economy continues to weaken, users stretch PC lifetimes and PC suppliers grow increasingly cautious, said George Shiffler at Gartner. Both emerging and mature markets for PCs will be badly hit, the company said.
28th February 2009, www.bbc.co.uk

19 US economy suffers sharp nosedive   
The US economy shrank at an annual rate of 6.2% in the last three months of 2008 official figures show, a far sharper fall than previously reported. Plunging exports and the biggest fall in consumer spending in 28 years dragged the annualised figure down from an earlier estimate of 3.8%. The decline was much worse than analysts had expected, sending US stocks spiralling lower. In 2008 as a whole, the economy grew by 1.1%, the slowest pace since 2001. The blue-chip Dow Jones industrial average dropped 119.15 points, or 1.66%, to 7,062.93. The broader Standard & Poor's 500 Index fell 2.36% to 735.09 - a 12-year low. Consumer spending, which accounts for about two-thirds of domestic economic activity, fell by a rate of 4.3% in the final quarter - the biggest fall since the second quarter of 1980. This was a revision of the earlier figure of 3.5%.
27th February 2009, www.bbc.co.uk

 

20 Asean group seeks economic action
South East Asian leaders have called for greater co-ordinated regional action to help restore their damaged export-driven economies. The 10 countries in the Asean group endorsed measures to stimulate economic activity, ease access to credit, and stand firm against trade protectionism. They also called for reform of the international financial system to take more account of developing countries. Their regional grouping also aims to be an economic community by 2015. The Association of South East Asian Nations' statement at the end of its summit in Thailand included the goal of a forming a community similar to the European Union. However, the nations stressed that the EU was an inspiration and not a model. It is clear from the limited progress that integration of the diverse countries is likely to take longer than six years, says BBC correspondent Jonathan Head in Bangkok.
26th February 2009, www.bbc.co.uk
 

Global Market

21 Asian shares flat on financial crisis, investor concerns
Asian shares were flat on Friday, ending the month with losses on continued investor concern over the world economy and the financial system, while safety bids such as dollar buying erased some of their recent gains. The advances in stock markets at the start of the year unraveled further in February as the MSCI index of Asian shares outside Japan headed for a 5% monthly fall, having hit at one point their lowest since the five-year lows in late November. Risk aversion in February was reflected in the surge of the dollar, which is on track to its biggest monthly gain against the yen since 1995, and a rally in gold that took it past the $1,000 an ounce barrier to approach a March 2008 record. Weak economic data in Asia, including double digit export drops and contractions in gross domestic product, also pummelled currencies such as the South Korean won. The drop in exports in the region continues to take a terrible toll on GDP and the region’s economies will continue to decelerate for some months to come, said Calyon in a note to clients on Friday.    

26th February 2009, www.livemint.com

 

22 Indian stocks worst performer among BRIC countries in February   
Finding it difficult to wriggle out of the bear grip, Indian equities have given the worst returns to investors compared to their peers in the three other BRIC nations Brazil, Russia and China in February. According to an analysis of MSCI Barra indices, a measure of returns from various stock markets across the world for foreign investors, Indian stocks have given the highest negative return among the four BRIC countries in February. Indian stocks have provided a negative return of 10.40% last month, while China and Brazilian markets have given losses of 3.18% and 2.93%, each. At the same time, investors witnessed marginal negative returns to the tune of 0.86 per cent in the second month of 2009, according to an analysis of performances of MSCI Indices for various nations. Indian stocks have even underperformed the MSCI Barra’s emerging market index, which includes all the developing world markets, giving negative returns to foreign investors to the tune of five per cent in the month.
28th February 2009, www.livemint.com

 

23 European stocks plummet, led by AIG loss
European shares were lower at midday on Monday, led by financials after American International Group (AIG) reported a $61.7 billion quarterly net loss and HSBC announced Britain’s largest ever rights issue. By 1143 GMT, the pan-European FTSEurofirst 300 index of top shares was down 4% or 691.05 points trading at a six year low and just off a lifetime low of 681.17 points. “Everyone had lingering hopes that by the time we were moving towards the end of the first quarter there would be signs the banking industry and world economy would be stabilizing and the pace of declines would be lessening. However, it appears the downward trend is picking up pace,” said Jim Wood-Smith, head of research at Williams de Broe. Banks were the biggest fallers on the index. HSBC lost 19.6% as it launched a £12.5 billion rights issue after annual profits more than halved.
28th February 2009, www.livemint.com

 

24 Oil rises above $40, but demand worries remains   
Oil rose above $40 a barrel on Tuesday after a 10% slump on Monday but showed no sign of a return to last week’s bull run as global equities extended a fall on worries about the global economy and outweighed Opec’s strong compliance with supply curbs. US crude was up 69 cents at $40.84 a barrel by 4:40pm, after tumbling $4.61 overnight, while London Brent crude rose $1.03 to $43.24 a barrel. European shares fell on Tuesday, with a key index hitting a lifetime low as investors sold out of the banking sector and concerns about the health of the economy weighed on sentiment. Opec oil supply fell in February for a sixth straight month as members enforced a deal to cut output and prop up oil prices, a Reuters survey showed on Monday, but analysts expect more cuts by the producer group when it meets in Vienna on 15 March.
1st March 2009, www.livemint.com

 

25 S&P below 700 first time since Oct 1996 on bank crisis
US stocks fell in volatile trading on Tuesday, with the S&P ending below 700 for the first time since October 1996 as persistent uncertainty about the amount of money needed to shore up the financial system overshadowed a hunt for bargains. Stocks swung to both sides of the break-even mark throughout the session with the S&P’s ultimate break below the key psychological level of 700 adding to the gloom. Federal Reserve chairman Ben Bernanke left the door open to whether banks will need more money when he said the size of a $700 billion bank-rescue package would depend on bank “stress tests” being conducted by regulators and the economy’s direction. An S&P index of bank stocks fell 1.6%, with Goldman Sachs off 4.5% at $82.37 and PNC Financial Services down 5% at $24.82.
3rd March 2009, www.livemint.com