If you didn’t have ethanol, you would not have the prices we have today

The globe’s worst food crisis in a generation emerged as a blip on the big boards and computer screens of America’s great grain exchanges. As prices rise, major grain producers including Argentina and Ukraine, battling inflation caused in part by soaring oil bills, were moving to bar exports on a range of crops to control costs at home. It meant less supply on world markets even as global demand entered a fundamentally new phase.

At the same time, food was becoming the new gold. Investors fleeing Wall Street’s mortgage-related strife plowed hundreds of millions of dollars into grain futures, driving prices up even more. By Christmas, a global panic was building. With fewer places to turn, and tempted by the weaker dollar, nations staged a run on the American wheat harvest.

Foreign buyers, who typically seek to purchase one or two months’ supply of wheat at a time, suddenly began to stockpile. They put in orders on U.S. grain exchanges two to three times larger than normal as food riots began to erupt worldwide.

The food price shock now roiling world markets is destabilizing governments, igniting street riots and threatening to send a new wave of hunger rippling through the world’s poorest nations. It is outpacing even the Soviet grain emergency of 1972-75, when world food prices rose 78%. By comparison, from the beginning of 2005 to early 2008, prices leapt 80%. Much of the increase is being absorbed by middle men — distributors, processors, even governments.

At least 14 countries have been racked by food-related violence.The crisis, it fears, will plunge more than 100 million of the world’s poorest people deeper into poverty, forced to spend more and more of their income on skyrocketing food bills.

People worldwide are coping in different ways. Although China has tried to calm its people by announcing reserve grain holdings of 30 to 40% of annual production, a number that had been a state secret, anxiety is still running high. In India, the government recently scrapped all import duties on cooking oils and banned exports of non-basmati rice. Even wealthy nations are being forced to adjust to a new normal. In Japan, a country with a distinct cultural aversion to cheaper, genetically modified grains, manufacturers are risking public backlash by importing them for use in processed foods for the first time.

In the United States, experts say consumers are scaling down on quality and scaling up on quantity if it means a better unit price. In the meat aisles of major grocery stores, steaks are giving way to chopped beef and people used to buying fresh blueberries are moving to frozen. Some are even trying to grow their own vegetables.

A big reason for higher wheat prices, for instance, is the multiyear drought in Australia, something that scientists say may become persistent because of global warming. But wheat prices are also rising because U.S. farmers have been planting less of it, or moving wheat to less fertile ground. That is partly because they are planting more corn to capitalize on the biofuel frenzy. If market forces had played a larger role in food trade, some now argue, the world would have had more time to adjust to more gradually rising prices.

Gas and oil prices pushed further into record high territory Tuesday, with retail gas reaching a national average of $3.51 for the first time and crude nearing $120 as the dollar fell to a new low against the euro. At the pump, the national average price of a gallon of regular gas rose 0.8 cent.  

Gasoline supplies are also being hurt by low profit margins. Refiners have to buy the crude they turn into fuel, but falling demand for gasoline has hurt their ability to raise gas prices as much as they would like. Gas prices are nearly 66 cents higher than last year, when they peaked at a then-record of $3.23 in late May, and have prompted many analysts to raise their estimates of where gas is going to go.

Chinese intertwine business and personal affairs much more deeply. They do things for their partners even if they are personal affairs.

If you wander into any of China’s five floored bookstores, the first thing you notice right when you enter the store won’t be the newest hardcovered fictions. It’ll be management books written by successful American businessmen. On shelf after shelf, you could see copies of Jim Collins’s “Good to Great,” Jack Welch’s “Straight From the Gut,” Tom Peters’s “Re-Imagine!” and just about everything the late Peter Drucker ever wrote. One section you won’t find in Chinese bookstores is a section for management or human resources.

There’s a good reason for this. In the West (not to mention Japan and South Korea) management skills are a given. Graduate schools of management churn out M.B.A.’s, while instilling the basic processes and systems that virtually all multinational companies rely on. People who rise to the top of companies are the ones who have mastered the art of management. But there are also many first-rate managers who populate the middle ranks of companies. They are the lifeblood of most big companies.

That’s not the case in China. The shortage of managerial talent is huge. There just aren’t very many people here who have the range of skills you need in that position. Xiang Bing, dean of the Cheung Kong Graduate School of Business, said: “We Chinese are so willing to work hard for money. We are intelligent. We have the drive and the passion. But we put too much attention on technology and not enough on institution-building. And our soft skills are a real weakness.”

One issue with management is that most Chinese entrepreneurs hire friends and family because they don’t trust people they don’t know. And if they don’t get help fast, they are going to lose control of their rapidlygrowing businesses. Rapid growth, though, is only one of the issues these entrepreneurs are facing. Every bit as difficult are ingrained mind-sets and attitudes that can make it difficult for Chinese executives to adapt professional management techniques.

Many Chinese entrepreneurs (even those who have graduated from the executive M.B.A. program) don’t want to hire M.B.A.’s because they bridle at having to pay professional management salaries. Another problem is that many Chinese executives believe that because it is a Chinese business, professional managers won’t fit in the system.

When dealing with each other, the Chinese, quite simply, do business differently than Western companies do business. For one thing, there is a lot of petty corruption that is an ingrained part of business, especially among the state-run companies. Purchasing managers favor one vendor over another because they get a kickback. A sales rep buys customer loyalty with under-the-table payments. And so on. People also tend to put their own interests over the interests of their company — not a huge surprise, given that everyone worked for the state just a generation ago.

Finally, there is the gnarliest issue of all: the importance placed on the deep, intertwining set of relationships known as guanxi. Unlike the West, you don’t just have a business relationship in China; you have a relationship that interchangeably mixes the personal with the professional.

One billion dollars is no longer enough to gain entry to Russia’s rich list.

Ten billionaires failed to make Forbes magazine’s annual list of the 100 richest Russians that is led by those who built their fortunes on the country’s metals resources. Russia’s richest 100 people had a combined fortune of $522 billion - 3.8 times more than the total when Forbes first published a Russian list in 2004.

Another reason for the increase in dollar billionaires was the fall in the value of the U.S. currency. Boo!

China Surpasses USA in Exports and Now Riding Germany’s Tail

China has overtaken the US as the world’s second-biggest exporter, the World Trade Organisation (WTO) said yesterday. WTO economists are also sceptical about how long emerging developing countries that have spearheaded global growth “can maintain a strong pace in the face of sluggish demand in major developed markets and rising inflationary pressures.”

1. Germany   2. China   3. USA

Germany!? How often do you see ‘Made in Germany’ on labels. Apart from some cars and Adidas, what else does it export?

Another stellar performance by China, which recorded a 26% rise in its merchandise exports to $1.2 trillion, enabled it to surge ahead of the US to be ranked the world’s second biggest exporter and is breathing down the neck of top-placed Germany.

 Wherever you turn, the rise of Asia is making its impact felt on our existence.

To many Victorians, British supremacy was a simple matter of racial supremacy - Europeans, and the English in particular, were fated to be the masters. The truth is that they are masters of the world no more.  The global power shift from the West to the East is no longer just a matter of debate confined to learned journals and newspaper columns - it is a reality that is beginning to have a huge impact on our daily lives.

Napoleon III compared China to a sleeping giant and warned: “When China awakes, she will shake the world.” After a long hibernation, China, and her 1.3 billion people (twice the population of the U.S. and EU combined) is awaking almost overnight. And not just China. The world’s second most populous country, India, is industrialising at a historically unprecedented pace.

Like anything, there are downsides that are becoming more apparent. Unskilled workers in the West have become unsettled by the threat to their jobs as production moves East. The most vulnerable Western workers have found their wages stagnate as they struggle to compete in an increasingly global market place. And competition for raw materials is pitting East against West.

Europeans have, for half a millennium, been unchallenged as the global colonisers, but last month the respected Economist magazine dubbed the Chinese “The New Colonists“.  The dire warnings from the International Monetary Fund this week that the West now faces the largest financial shock since the Great Depression, while the Asian economies are still powering ahead, simply underlines our vulnerability in this new world order.

There is an infectious confidence in Bollywood, and the price of Chinese antiques is rocketing as the newly rich Chinese decide they want a slice of their history.

Asian countries are not just buying up foreign raw materials, but as their companies try to become global leaders, they are buying up Western companies. From Kazakhstan to Indonesia to Latin America, Chinese firms are gobbling up oil, gas, coal and metals. Canadian authorities were recently alarmed to find the Chinese interested in exploring the Arctic Ocean, in a bid to get a share of the minerals beneath the thawing icecap.

 And Western governments are concerned that the rules of the game are changing. Most worryingly, as China’s brutal suppression of the once independent Tibet shows, this is not a superpower that respects Western standards on human rights. Western attitudes of superiority to China and the rest of the East will also subside, as Westerners realise they are no longer the masters of the world.

Europe, Here They Come 

European MBA programs may have traditionally lacked the brand recognition of their U.S. counterparts, but that’s changing fast. The continent’s increasingly dynamic business environment, improvements to curricula, and growing corporate demand for employees with international experience are attracting top-notch candidates from all over the world. In addition, most Europe management programs are cheaper, shorter, smaller, and more diverse than their U.S. rivals, which is drawing a growing number of American students to studies in the Old World.

Applications from the U.S. to INSEAD, an elite French business school with campuses in Fontainebleau and Singapore, grew 20% in the past year and the school’s 2008 enrollment of Americans grew nearly 24% since 2007, to 73 students.

Young people are recognizing the value of an MBA but don’t want to spend two years earning one—the length of most U.S. programs. Others credit the U.S. recession. The average tuition at the top 10 European schools is less than $73,000, vs. $86,600 at Harvard Business School, and about $95,000 at Wharton. Furthermore, MBA students are increasingly looking to pursue social justice through business, and many European schools have responded with a wealth of new courses on corporate social responsibility, social entrepreneurship, and doing business in developing countries.

A potential threat to the growth of European MBA programs is 46 European countries have pledged to adopt an Anglo-American system of higher education by 2010 and to recognize each other’s degrees more than in the past. Rather than spending as many as six years at one school to earn one degree, students will complete a bachelor’s degree in three to four years and have the option to do a master’s elsewhere.

To build on their growing reputations, many European institutions are now opening satellite campuses in other parts of the world, particularly the Middle East and Asia. While the repercussions for Europe’s MBA programs remain to be seen, the current outlook is bright: Applications are up, admissions are increasingly selective, and ever more companies are demanding multilingual recruits with global polish.

The New Economics of Outsourcing

Companies that traditionally rely on India for offshore IT services have been looking for that something beyond India for years, citing such reasons as high employee turnover and unreliable communications. But the search has taken on added urgency recently, especially for U.S. companies, as a weakening dollar has boosted the cost of IT services priced in India’s rupee. Over the past five years the dollar has declined about 16% against the rupee. High real estate costs and expectations for tax increases also have diminished India’s allure.

As outsourcing to India becomes more expensive, North American companies are more inclined to “nearsource,” keeping work in the Western Hemisphere, where they can operate in a closer time zone. In years past a company could save 40% to 50% by hiring Indian firms to handle IT and other services. Should the U.S. dollar continue its descent, that differential would shrink to 10% to 20%.

How much longer the world’s companies will have financial incentive to outsource to India is a matter of lively debate. India’s “advantage as an offshore location is fast eroding—its attractiveness takes a hit with each passing day,” analysts at Forrester Research wrote in a January, 2008, report. Forrester catalogued some of the well-known challenges, such as increasing staffing costs, turnover and strained infrastructure.

The benefit of doing business, from a labor-cost point of view, in such locales as Bangalore, India, will disappear for some companies in three to four years. Indeed, while costs are increasing in India, the country is generally less expensive than Latin America and most other locations, especially for companies that don’t require high-end software developers. The average annual salary for an IT worker in the U.S. is about $75,000. In India it’s about $7,779 and in Argentina, it’s slightly higher at $9,478. In Brazil, the annual wage jumps to $13,163, and in Mexico it climbs to $17,899.

Increasingly, companies want a provider that can nimbly shift tasks and labor among its own global network of work centers. The dollar’s decline aside, even Brazilian firms are benefiting as companies spread their outsourcing around. The real question, if you’re going to sign onto somebody for five to seven years, is do they have a vision for how they’re going to move work around the network.

 4 Companies That Conquered America

Accounting for almost 30% of world GDP, the United States is the world’s largest and most demanding market for almost everything from oil to microprocessors to premium coffee. Companies around the world aspire to do business in the U.S., or at least with U.S. companies in their home markets. By doing so, they learn much about the latest management practices, they can be closer to the cutting edge of innovation, and they can boost their reputations by supplying well-known U.S. firms.

So how do you penetrate the U.S. market? The annals of business are littered with foreign companies that have never quite succeeded in the USA. But here are four companies that have. Each carries a special lesson.

1. Royal Bank of Scotland. This company built up a strong retail market share in the U.S., not under the RBS brand, but through a series of acquisitions of regional (not national) banks. RBS is adding value for its shareholders by letting these banks retain their individual brand identities, by focusing on improving back office efficiencies, and by having the highly respected CEO of one of the acquired entities lead the combined U.S. organization.

2. IKEA. IKEA offers a furniture retailing value proposition and experience unparalleled in the U.S. market. There are no national furniture retail chains, making market penetration easier. IKEA’s location selection expertise and their established global supply chains enable them to offer exceptional category-killer prices that are further keys to success.

3. ING. The Dutch bank converted its weakness (no retail branches in the U.S.) into a strength. Following a successful Canadian market test, ING gave its entrepreneurial general manager the green light to offer retail banking services to U.S. consumers but exclusively on an online basis. Taking advantage of its low no-bricks-and-mortar cost structure, ING was able to offer generous rates on certificates of deposit.

4. Dyson. The British home appliance maker earned a break when it managed to get a Best Buy buyer to take one of its vacuum cleaners home to test. The buyer was impressed. Fortunately for Dyson, Best Buy became the first U.S. retailer to stock Dyson vacuum cleaners. Electronics retailing in the U.S. is concentrated (10 chains control 60% of the market) and tough to penetrate. But Dyson could not have succeeded had its products not been superior to other vacuum cleaners already in U.S. stores.

The Pressure Is On For Rice Farmers

Asian governments have long focused on developing high-growth sectors, such as manufacturing, and meeting the infrastructure requirements of increasingly urban populations. But that has been coupled with a neglect for farming that is now hurting as a larger and more affluent population demands more food, thereby also contributing to surging world prices for staples such as rice and soyabeans. Such neglect is particularly worrying because nearly two-thirds, or 641m, of the world’s poor live in the Asia-Pacific region, with rural poor accounting for some 70% of those.

Asian governments have shown chronic complacency towards agriculture since reaping the benefits of the green revolution three decades ago. Then, US research led by Norman Borlaug allowed India and other Asian nations to switch to higher-yielding farming techniques and rapidly gain self-sufficiency in crops such as wheat. A clear example is the demise of extension services in many Asian countries. While officials from agricultural ministries used to visit rural areas to train farmers and introduce new technologies, “this provision of public service has now almost collapsed”.

Thailand is ahead of Asian peers on productivity. But it is not immune to the distribution problems and even criminal activities undermining the region’s farming. A surge in crop prices is believed to have been accompanied by increasing theft. According to local reports, some Thai farmers have been waking up to find outsiders have harvested their entire crop overnight.

China and India, meanwhile, have both made substantial pledges to farmers in their latest budgets, with India waiving some $15bn in loans to small farmers. The challenge for China, where a wealthier population has more than doubled its meat consumption over two decades, is the limited availability of arable land rather than poor production. China is a leader in the use of fertilisers, at levels about three times the world average per hectare, and most of the easy productivity gains have already been achieved.  Hail to rice farmers!

Rice climbed to a record and corn traded near its highest ever on speculation a 3% annual increase in global demand for cereals will outstrip supply as governments curb exports to prevent protests. Rice, the staple food for about 3 billion people, rose 2.4% in Chicago trading today after doubling in the past year. Soybeans advanced for the third day and wheat gained as investors bought agricultural commodities on concern dry weather in the Great Plains and heavy rain in the eastern Midwest may curtail U.S. production and push down global inventories.

The World Bank estimates “that 33 countries around the world face potential social unrest because of the acute hike in food and energy prices,” Robert Zoellick, the bank’s president, said on the organization’s Web site. For these countries “there is no margin for survival,” he said.

Gone are the days when U.S. companies hired locally

The head of the top U.S. phone company AT&T Inc said on Wednesday it was having trouble finding enough skilled workers to fill all the 5,000 customer service jobs it promised to return to the United States from India. “We’re having trouble finding the numbers that we need with the skills that are required to do these jobs,” says AT&T Chief Executive Randall Stephenson.

So far, only around 1,400 jobs have been returned to the United States of 5,000. Stephenson said he is especially distressed that in some U.S. communities and among certain groups, the high school dropout rate is as high as 50%.

“If I had a business that half the product we turned out was defective or you couldn’t put into the marketplace, I would shut that business down,” he said. Stephenson said neither he nor most Americans liked the situation, and the solution was a stronger U.S. focus on education and keeping jobs.

The Department of Education (DOE) announced Thursday that the Commonwealth’s dropout rate is at an all-time high. The annual dropout rate rose from 3.3% in 2006-2007 to 3.8% this year. Among all students,

9.1% of Hispanic students, 6.4% of African American students, 2.7% of white students and 2.6% of Asian students drop out each year. While Hispanics have the highest population of dropouts within their demographic, white students actually had the most dropouts last year, 51.2% of the total number.

Consumers still face at least 10 years of more expensive food

From subsistence farmers eating rice in Ecuador to gourmets feasting on escargot in France, consumers worldwide face rising food prices in what analysts call a perfect storm of conditions. Freak weather is a factor. But so are dramatic changes in the global economy, including higher oil prices, lower food reserves and growing consumer demand in China and India. While the price of spaghetti has doubled in Haiti, the cost of miso is packing a hit in Japan.

In the long term, prices are expected to stabilize, but consumers still face at least 10 years of more expensive food. The Chinese middle class is starting to change the traditional thought process of beef as a luxury. Attempts to control prices in one country often have dire effects elsewhere. China’s restrictions on wheat flour exports resulted in a price spike in Indonesia this year, according to the FAO. Ukraine and Russia imposed export restrictions on wheat, causing tight supplies and higher prices for importing countries.

Gas prices are exploding in Germany at $8.60 per gallon

Record prices on the international oil markets have driven gas prices across Europe sky high, with a gallon of unleaded gas costing about $8.60 per gallon in Germany.  (In Germany, gas is sold by the liter with one liter of unleaded fuel selling for an average of $2.29).  Hopefully, we are seeing oil in its last days as a use for energy.