if tht was meant to scare me away then i m TOTALLY scared.......
There are better ways of scaring someone other than a "online reply" and i think being a "consultant" u might b aware of them...
but then i am pretty sure tht in ur sad life u dont get too many channces to actually raise ur voice etc etc
Buddy !! Dont make a personal statement without having a bit of knowledge about someone. I work at a place where "consultants" like you daily make a round....and as for "sad life"...Yeh m pretty sad to have met a "consultant" like you first thing in the morning...
P.S.: boss.... i am a consultant.... the "analysis" u r talkin abt, i do them day in and day out... maybe nt the same sectors, maybe nt the same cos. ..... but lets nt get into this.... if u have taken the mantle of copy pasting, keep them flowing....
PPS: and this is nt the forum where i wud like a personal spat.... so over and out
A word " consultant" doesnt make you more intelligent and better read than any other person.
N even then m not doing this "copy pasting" for a "consultant" like you. M doing this for 40,000 other members here and if they havent objected till date i wont stop it either...
if tht was meant to scare me away then i m TOTALLY scared.......
it was jus a small question, and u cud have answered it without gettin workd up (but then i am pretty sure tht in ur sad life u dont get too many channces to actually raise ur voice etc etc)
P.S.: boss.... i am a consultant.... the "analysis" u r talkin abt, i do them day in and day out... maybe nt the same sectors, maybe nt the same cos. ..... but lets nt get into this.... if u have taken the mantle of copy pasting, keep them flowing....
PPS: and this is nt the forum where i wud like a personal spat.... so over and out
Buddy, was this necessary ? teesra_banda's doing a wonderful job here .. and do we reciprocate him with such a post ? There's no need of any personal attacks like this. .. kindly refrain from posts like this ..
And what's the harm in copying and pasting as long as we have something constructive to read and all that at one place..
and I was NOT trying to chide Teesra Banda or nething... when i said tht we shud post our own analysis, i was trying to sound out an idea.... but then it was taken as a personal attack and wht followed was ugly... newaz.... i might jus copy-paste stuff abt merck's restructuring myself :D
am working on some stuff on advocating tonnage tax for coastal shipping in India..... we do a lot of sector/company/policy analysis.... but then it wudnt be of general interest... plus we do it for clients... so won't be ethical to put it up here.......
when i said tht we shud post our own analysis, i was trying to sound out an idea....
Even my idea was same initially. But then its difficult to analyse these things and initially i got even comments that the posts are getting "too heavy" ! But if someone want to give their own analysis they are more than welcome to do so...
|vaguefunda Says
am working on some stuff on advocating tonnage tax for coastal shipping in India.....
BTW..To whom u r advocating tonnage tax? As far as m aware of, it has already been introduced in 04-05 Union Budget. Though i agree till now it applies only to purely shipping companies, not on companies whose main business is something different but are involved in shipping also like cement companies transporting cemet or raw material through ships.
Though i m not a consultant, the salient points of this tax regime are: - For shipping companies tonnage tax replaces the "corporate tax" as is the practice globally - As of now its voluntary where a shipping company can opt for this scheme with a lock-in period of 10 years. If i company opts out of this scheme it cant opt for this scheme for next 10 years - It may bring down the effective tax for shipping companies to 2-3 % from 10-13 % in "corporate tax" scheme
@vaguefunda : Ur views & further analysis is welcome
BTW..To whom u r advocating tonnage tax? As far as m aware of, it has already been introduced in 04-05 Union Budget. Though i agree till now it applies only to purely shipping companies, not on companies whose main business is something different but are involved in shipping also like cement companies transporting cemet or raw material through ships.
Though i m not a consultant, the salient points of this tax regime are: - For shipping companies tonnage tax replaces the "corporate tax" as is the practice globally - As of now its voluntary where a shipping company can opt for this scheme with a lock-in period of 10 years. If i company opts out of this scheme it cant opt for this scheme for next 10 years - It may bring down the effective tax for shipping companies to 2-3 % from 10-13 % in "corporate tax" scheme
@vaguefunda : Ur views & further analysis is welcome
- tonnage tax is a tax on assets, rather than a tax on profits. This is the most important point. The oevrall tax level comes down substantially, as pointed out. This has been the practice in most of the major maritime nations of the world - it is applicable on shipping and dredging companies presently. Not on inland vessels and coastal vessels currently.
Is Indian Business Ready for a Brave New World of Tough Corporate Governance? As global business interest in India keeps growing, so does the expectation that Indian companies must play -- and be seen to play -- by rules that are clear to international investors. Demands have long been heard for greater transparency in the way Indian companies do business. Now, matters are about to come to a head. Ready or not, India's public companies must meet a January 1, 2006, deadline to comply with sweeping new corporate governance standards.
The reforms, ordained by the Securities and Exchange Board of India (SEBI), are laid out in amendments to Clause 49 of the companies' listing agreement with Indian stock exchanges, a section that pertains to corporate governance. Among the requirements: More independent directors on boards and audit committees; a code of conduct for board members; a larger role for the audit committee; mandatory risk assessments and certification by the chief executive officer and chief financial officer of the effectiveness of internal accounting controls.
Sound familiar? The reason is that many of these rules have been inspired by the Sarbanes-Oxley Act that was passed in the U.S. three years ago in response to governance scandals involving Enron and other companies. While U.S. executives have tended to grumble about the regulatory burden that Sarbanes-Oxley imposes on their companies, India's governance gurus have viewed the law as a promising template for their reforms.
Many Indian companies have been phasing in the requirements through 2005. Predictably, with the deadline looming large, some companies say they are not ready yet. Virtually all the laggards are large "public sector units" -- companies such as Bharat Petroleum and Steel Authority of India that are partially government-owned -- according to a recent tally by The Hindu group of publications. Among their concerns is an apparent dearth of candidates qualified to be independent members of their boards. That reason -- or excuse -- is unlikely to buy them more time. SEBI chairman Meleveetil Damodaran has warned in public remarks that there will be no extension of the deadline, and no exceptions from compliance for any company.
Tough New Rules What's behind this hard-charging resolve to bring corporate governance in India in line with the latest world standards? Clearly, the demands of increasingly global capital markets provide part of the answer. In addition, though, the resolve also reflects a shrewd recognition by Indian corporate leaders that greater transparency is in their self-interest, say two Wharton management professors, Michael Useem and Harbir Singh, and Govind Iyer, the India representative of the board consultancy and executive search firm, Egon Zehnder International. The three, along with management professor Jitendra V. Singh, are scheduled to be part of a Wharton executive education program in Mumbai, India, on Jan. 4, 2006, that aims to prepare Indian directors for the new era they are about to enter. "With the internationalization of equity investing, corporate governance reform comes along like day follows night," says Useem. Western institutional investors such as CalPERS, the giant California state pension fund, are being drawn to India as longstanding Indian restrictions on foreign capital are being lifted and investment returns in India's fast-growing economy appear attractive, Useem says. But these investors also are insisting on the same rigorous governance regimes they have campaigned for in their home countries.
"They can bring pressure to bear on company leaderships by selling stock, by supporting raiders, and by using the press to stigmatize poorly run or poorly performing companies. Big investors are not shy about telling directors to oust top management or face a proxy struggle to bring in a new board," Useem adds, noting that the rewards for good governance have been revealed in several U.S. studies. "Companies with better governance show higher market valuation and better year-over-year results and are better able to withstand crises and setbacks."
Governance at Godrej That is a scenario familiar to Adi Godrej, chairman and managing director of Godrej Consumer Products, one of India's largest manufacturers of personal care products such as soaps. The company has been an early and enthusiastic adopter of governance reforms, including independent directors. Six of the eight members of its board of directors are independent of the management. All four of its audit committee members are independent. Both are better ratios of independent to "executive" members than required under the new Clause 49. Other requirements, including the creation of a risk-management regime and certification of financial controls by top officers, are being put in place by a consultant, Godrej says. "Our strong emphasis on corporate governance has helped us get high ratings on both corporate governance and shareholder value creation," Godrej adds, citing ratings given by the Investment Information and Credit Rating Agency of India. "I also feel that the markets have recognized and rewarded our pioneering corporate governance initiatives." His company also expects a lot from its independent directors. Board memberships at Godrej and in a growing number of Indian companies, especially globally ambitious information-technology pioneers such as Infosys Technologies, are not given out as sinecures for industrialist friends of the CEO, bankers and retired generals. Board meetings at Godrej Consumer Products last for at least half a day and the company also organizes a two-day strategic meeting once a year. "Independent directors are supposed to provide tremendous value to the company's performance. We compensate them well and expect them to spend quality time with the company," Godrej says. Infosys pays its directors one of the highest annual retainers in India -- nearly $45,000 a year. In return, it demands a lot of its directors, including requiring them to participate in a peer review and an annual self-assessment of their contributions to the company. Such reviews of board members' performance are a growing trend worldwide, says Iyer of Egon Zehnder, a firm with a decade of experience in India recruiting and training directors for top domestic and multinational companies. "There is no point just hiring independents. They need to use their independence and knowledge to add value." To that end, directors need to improve their interpersonal behavior even as they leverage their individual strengths. Iyer notes, however, that the demand for directors with financial savvy may be off the mark. "It's more important to know what questions to ask, and a doctor or a marketing guy could ask good questions" as well as an accountant. Godrej points out that most Indian public companies are working diligently toward implementing the revised Clause 49 by January 1. They are being helped by the Confederation of Indian Industry, a corporate association whose governance council is headed by Godrej. "Once the revised Clause 49 is implemented, we feel Indian companies will meet most sensible standards of corporate governance," he adds, expressing concerns about the high costs being borne by U.S. companies for implementing the more extensive provisions of Sarbanes-Oxley.
Harbir Singh says that one key area in which Indian companies generally lag the best international standards is in "the amount of disclosure of strategies and priorities" to shareholders. He attributes that to a corporate culture in which Indian chief executives have greater longevity and therefore wield more influence than their Western counterparts. A shorter tenure, or at least the fear of it, encourages more accountability. Singh also cites the relative lack of influence exerted by institutional shareholders. There just aren't that many yet.
Family Business Practices One corporate-cultural idiosyncrasy in India is that a large proportion of Indian public companies, including Godrej, are family dominated. That can make for corporate governance calamities, as witnessed most recently in a bitter and unusually public falling out between the two Ambani brothers -- Mukesh and Anil -- over control of the Reliance conglomerate built by their father, Dhirubhai. Other shareholders watched as the two finally broke up the business empire, which had previously been India's largest business group.
Iyer believes that CEOs and other top leaders at India's family controlled firms will have to get with the program or pay the price. "In the end, their companies' share performance is dependent on their empowering the board. If not, their companies' value won't grow," he says.
But family dominance can also be a source of strength for the company, Singh points out. Management teams in these companies are likely to have closer relationships with the main equity holders in the family, and "that provides less of an agency problem in which management and shareholders have divergent interests," he says. Adding the disclosure requirements from the American context would be a good blend, he says. "Corporate governance is really about making management more accountable to shareholders. If management's actions are not geared to the interests of shareholders, then they must be held accountable. In the Indian context, there are many stakeholders, but the problem is how to align their interests with those of shareholders. One powerful incentive for that seems to be the growing desire of Indian companies to get access to global capital markets by gaining listings on international stock exchanges."
Useem says "there is a kind of emergent world standard" of governance. While there are national peculiarities, such as combining the chairman and CEO functions in one person in the U.S., "there is a basic notion worldwide for good transparency; reliable reporting of financials and risks, and boards that have the independence and strength of purpose to be able to do all this."
Developing strong governance standards means helping directors appreciate what board practices "make for good governance and great performance," he says. "What kind of relationships do they need to develop with senior management? What contacts should they have with big investors? Should they never speak directly to investors or should they have a dialogue?" When carefully done, with the collaboration of senior management, director-investor contacts can be helpful, Useem says. Then there are the seemingly mundane but critically important skills directors, especially those on the audit or compensation committees, need to have: How to read financial statements and know the principles of incentive-based compensation.
Search for Independent Directors And what about that alleged shortage of candidates for independent directorships? Under the new Clause 49, one-third of the board must be composed of independent members if the chairman of the board is not also an executive of the company, and half of the board membership must be independent if the chairman is an executive. According to rough estimates, just the top 500 listed companies, with an average of nine members on their boards, will need to find 2,500 new board members. They would qualify as independent only if they have no material financial relationship with the company and were not employed by the company in the previous three years. Godrej says he is not concerned about the lack of qualified people to fill the post of independent directors. A website has been set up to recruit independent directors. The effort has been sponsored jointly by the Bombay Stock Exchange, the National Stock Exchange and the Confederation of Indian Industry. It already has identified about 3,000 candidates, Godrej says, and "more are being listed each week." When all is said and done, Singh says, Indian companies will have to identify their own system of corporate governance, one that is appropriate to the Indian context and takes into account the merits of their history and their experience. "They don't necessarily need to imitate everything in the U.S."
Is Indian Business Ready for a Brave New World of Tough Corporate Governance? When all is said and done, Singh says, Indian companies will have to identify their own system of corporate governance, one that is appropriate to the Indian context and takes into account the merits of their history and their experience. "They don't necessarily need to imitate everything in the U.S."
Source : Wharton
nice article... but it wud certainly help all if u cud post a brief summary about the article..... wud help a lot of people
Why China's Banking Sector Isn't as Weak as It Might Look -- and Other Myths China's transformation from a stagnant, government-controlled economy marked by corruption and stagnation to a more international free market system has been accelerated by banking and other financial reforms, according to speakers at a conference on China sponsored by the Global Interdependence Center, a non-profit organization based at the University of Pennsylvania and focused on increasing global trade. The change, these speakers add, is being directed by Chinese leaders who feel pressure to continue to deliver economic growth. Banking reform in China is being bolstered by stronger regulation as well as the upcoming privatization of leading banks, although the system remains weighed down by large non-performing loan portfolios, said Jeffrey R. Williams, president of Shenzhen Development Bank (SDB) and the first foreign president of a Chinese bank. "It's my belief that historians will look back on the 21st century and say that China's entry into the global economy was the defining theme" of that era, he noted. Williams, an American who has spent his entire career in China, Taiwan and Hong Kong, recalled his first trip to China in 1979 to teach at Peking University, where he earned the equivalent of $100 a month. A colleague lived with her husband and two children in one room in a flat shared with another family. In the winter, teachers and students kept their coats on in the classroom because there was little heat. "It was peaceful and idyllic, but life was extremely tough," he said. Since then, he added, the change that China has experienced "has been breathtaking in its rapidity and reach." Indeed, the common Western view of China's banking system as crippled by corruption and bad loans, overstates the problems. "The real story is not nearly so gloomy. As China has changed, so has banking." According to Williams, China is not in danger of a crisis like those that hit Southeastern Asia in 1997 because it has little external debt. Most of China's banking obligations are local. In addition, China has vast foreign reserves and -- unlike Japanese officials who were reluctant to clean up bad bank debt and prolonged the country's decade-long economic slump -- Chinese leaders are taking a strong role in pushing bank reform. "In Japan, a culture of inertia has defeated the central bank and its ability to drive growth. China's leaders are intensely aware that they need to maintain stable growth to meet the needs and aspirations of their people." Expertise, Not Money Williams pointed to three main elements of Chinese banking reform. First, he noted, the government has announced a firm timetable of 2007 for the banks to meet World Trade Organization standards for capitalization and limits on non-performing loans. "It has a no-turning-back mindset," said Williams, although he added that it is not clear now whether all of China's banks will be able to meet the deadline. Second, China has increased the powers of its banking regulation body, the Chinese Banking Regulatory Commission (CBRC). In the past two years, he said, the CBRC, which was once a division of The People's Bank of China, has gained new independence and raised its profile. The CBRC recently issued 127 new regulations geared toward bringing international standards of risk management to Chinese banks. Finally, Chinese regulators have decided to seek foreign financial investments in order to gain banking expertise. Williams noted that the Chinese Construction Bank, which went public in October, listed on the Hong Kong exchange rather than domestic stock markets. PetroChina used a similar tactic with its 2000 initial public offering on the New York Stock Exchange. A foreign listing, Williams said, provides Chinese companies with a kind of international stamp of approval on their governance standards. "China does not need the money. What is important is that Chinese leaders are looking for expertise and change." He cited an old Chinese saying: "For reading scripture, a monk from outside is best." Williams' own bank, SDB, is one of 12 "joint-stock commercial banks" operating in the country. The bank was founded 18 years ago by the government of the city of Shenzhen. At that time, it was the center of China's special economic zone, just over the border from Hong Kong where Chinese leaders first began to experiment with capitalism in the late 1970s. Shenzhen City, originally a small fishing village, is now a major financial center with a population of 10 million. SDB, which has branches in 18 cities, was the first company to trade shares on the Shenzhen stock exchange. In late 2004, after Newbridge Capital, a U.S. private equity firm, acquired a nearly 18% share of the bank from entities controlled by Shenzhen City government, Williams was appointed president. Direct Lines of Reporting Like most Chinese banks, SDB had problems, including a large portfolio of non-performing loans. Williams said the bank has set out to make changes. In the past, for example, branch officers had great autonomy over loan approvals, a system which encouraged lending and, in turn, drove up bonuses. The branches also used an incentive system similar to an agricultural reform introduced in China in the 1980s, known as the household responsibility system, whereby a business was required to return a set amount of money to the state, but could keep anything it generated over that amount. "It's a great way to motivate people, but it also leads to a lot of short-term behavior," said Williams. To rein in risk, he set up direct lines of reporting from headquarters to the credit officers in each branch. A week after this change was announced, regulators sent out a circular urging other banks to adopt a similar system. Williams also improved the bank's human relations department, strengthened internal auditing and published a new code of conduct. SDB is still working on new accounting and information systems and recently signed a deal with General Electric Capital, which will invest $100 million in the bank and help develop new consumer banking products. SDB's capital ratio has improved from 2.3% to 3.3%; when it hits 4% the bank will be able to sell subordinated debt, which could bring the ratio up to 6%, said Williams. This is still short of the 8% required by 2007, but, he noted, "we are breathing easier."
Continued... Finding the Key In addition to banking and other reforms, China is also looking to foreigners for new ideas that will allow the country to continue its astonishing economic growth, according to Ted Chu, senior manager of economic and industry analysis at General Motors and a conference speaker. Chu, who was raised in Shanghai and earned graduate economics degrees at Georgetown University, was a macroeconomist at the World Bank. He cautioned that his remarks do not necessarily reflect the opinion or policies of General Motors. "Please allow these personal observations, not as a professional economist or a representative of a car company, but as one who has been raised in China and is now a citizen of the U.S. and has some understanding of both societies." Chu noted that change has been remarkably fast in China where per capita GDP has grown 10-fold since 1970, the fastest in the world. China passed Germany in motor vehicle sales in 2002 and is expected to pass Japan next year with sales of over six million vehicles. Such growth has implications for the global economy, Chu said. For example, 60% of Chinese GDP is now linked to global trade and Chinese reserves of over $700 billion help finance the U.S. trade deficit. "Chinese exports to the U.S. are rising dramatically and exports from the U.S. to China are also rising dramatically. There is a lot of potential ahead." Western analysts have attempted to explain what is going on in China with broad strokes, according to Chu. He pointed to rapid economic growth, urbanization, a high savings rate, cheap labor, strong foreign direct investment, inequality, environmental pollution and over-investment as some of the generalizations about China that are frequently made. Discussions of these issues usually focus on "China today and its short-term growth, but do not provide insights into the future," said Chu. He compared the practice of basing opinions about China's future on the current situation to looking for a lost key at night only under a streetlight. At the beginning of the 20th century, he noted, economists forecast that Argentina would develop a stronger economy than the United States. A similar bet might have been made on Japan in the 1980s. "Looking at Japan's numbers and statistics gave the impression that Japan was going to take over the world. Today, we are very relaxed about Japan." Now the attention is on China, said Chu, who went on to discuss some of the common perceptions about China. First, many people believe China's key economic advantage is its vast supply of cheap labor. Chu challenged that idea. "I would like to suggest that cheap labor is not China's advantage, but its problem." China's biggest economic challenge today is how to stimulate domestic demand, especially private consumption. Chinese workers are not paid well and therefore lack the purchasing power to consume, according to Chu. He said that looking around the world, cheap labor does not necessarily mean a country is competitive. He pointed to the African nations as an example. Other countries have high wages but are not competitive, such as Germany, Italy and Japan. Still other countries, he said, pay high labor rates but remain competitive. The United States, United Kingdom and South Korea fall into this category. That leaves a handful of nations, including China, Thailand, India, the Czech Republic and Russia, as examples of countries that are inexpensive and competitive. "China becomes the manufacturing floor of the world, not because of cheap labor, but because China has the most open and flexible market," said Chu, adding that productivity improvements and structural reform of economic systems have driven down manufacturing employment in China from 54 million jobs in 1994 to 30 million in 2004. As China faces higher costs of production inputs, such as energy, the country is under pressure to increase productivity and innovation. "This leads to a two-way Gold Rush. On the one side, Chinese firms are spending a lot on research and development to go up the value chain. On the other side, foreign firms are rushing into China to take advantage of low costs." Chu downplayed concerns that China's growth will be cut short by projected shortages of resources. "The most reliable signpost for the future is not with statistics but with ideas," he said, noting that China has been importing ideas on a scale that is unprecedented since the Meiji Restoration in Japan in the mid-19th century. For example, China is studying international accounting standards and looks to Britain, the United States and Hong Kong for securities laws. China is borrowing ideas about military systems from France, developing a Central Bank along the lines of the United States Federal Reserve system and looking to Singapore for exchange-rate policies. Japan's economic power was short-lived because its leaders never promoted fair trade and economic openness, Chu added. "In global developments these days, we tend to worry about things like the spread of bird flu, but the biggest problem is national and political barriers to the spread of the best ideas." Chu is often asked whether China's political system represents an ideological conflict with the West that would require investors and businesses to consider a big risk premium when it comes to China. Chinese leaders are indeed trying to remain in power, he said. But he went on to say that in a true dictatorship, government retains control through brutality and terror, and ultimately is doomed to fail if it tries to maintain a closed society and does not have the psychological support of the population. Chu finds it ironic that many countries considered to be operating under a capitalist system actually have more examples of socialism than China. "It is the Communist party that is trying all it can do to adopt capitalist reforms," he said. "The Communist party is not promoting this on the basis of ideology, but only because it works." There is no denying there are large differences between the economic and political systems of China and the United States, he added, citing differences in the forms of democracy practiced by England in the eighteenth century and its breakaway colony across the Atlantic. "American and British democracies have gone a long way. China has just begun its socioeconomic-political journey." SOURCE : Wharton Summary/ Salient Points of the article : A comparison between China & India is mandatory when one discusses either of the country. There are two main aspects in which India used to & still scores over China. They are : Democracy & Strength of Banking Sector. Indian banking sector is considered stronger than China's, But in this article author talks on the myth of apparent weakness of China's banking system Important Points : - NPA of chinese banks is around 50% of China's GDP, though thats a different story that it played a strong part in financing the economy's growth - Whereas in case of India the figure stands at 8% - Chinese govt is taking steps ot strengthn Banks by way of : 1) Increased power to banking regulator, Chinese Banking Regulatory Commission (CBRC) 2) Steps to meet World Trade Organization standards for capitalization and limits on non-performing loans 3) Privatization of Govt Controlled Banks 4) Increased FII in banking sector which bill bring more techincal & operational know how of banking industry to China These steps coupled with a good forex reserve, limited exposu re to external debt and an increase in domestic consumption will improve the banking sector's performance. PS : This summary is bound by limits of my knowledge
Continued... pt;">Summary/ Salient Points of the article : A comparison between China & India is mandatory when one discusses either of the country. There are two main aspects in which India used to & still scores over China. They are : Democracy & Strength of Banking Sector. Indian banking sector is considered stronger than China's, But in this article author talks on the myth of apparent weakness of China's banking system Important Points : PS : This summary is bound by limits of my knowledge
Britain has proposed cuts to the European Union budget in an effort to save the rebate it has enjoyed since the mid-1980s. But deep rifts over farm policy and competition will make it hard for Tony Blair, Britain's prime minister and current EU president, to resolve the row over who pays what at a summit next week THESE days, farmers account for only about 5% of the population of Europe. Yet they manage to cause an astonishing amount of trouble. Few can boast of dismantling a McDonalds and dumping the rubble in front of the town hall, as Jos Bov, a French farmer, famously did in 1999. But as a group, those who work the land have nearly succeeded in derailing the World Trade Organisations latest round of negotiations. These have all but ground to a halt over the European Unions refusal to consider deeper cuts to its lavish farm subsidies. And as the EU heads into an important summit next week, Tony Blair, Britain's prime minister, will try to keep Europe's farmers from taking the Unions budget to pieces as well. Mr Blair has the uncomfortable job of trying to get EU leaders to agree on a budget for 2007-2013. Britain currently holds the EU presidency, which rotates among the member states every six months, and it is Mr Blairs job to propose something that everyone can live with at the upcoming summit, on December 15th-16th. Unfortunately, he is himself one of the main obstacles to a deal.
Negotiations over the budget came off the rails at a summit in June, thanks largely to a row over Britains rebate, which was secured in 1984 by Margaret Thatcher, Britain's then prime minister. At the time, Britain was one of the poorest countries in western Europe, but made outsized contributions to the budget because it had relatively few farmers (who have long received the biggest slice of EU spending). Now, however, Britain is wealthier, and a smaller share of the EUs budget goes on the common agricultural policy (CAP). Furthermore, the Unions recent eastward expansion has been relatively beneficial to the British, who are not competing with the new members for development funds; as a result, Britain will go from one of the largest net contributors to one of the smallest if the rebates growth is not checked. The budget proposed at the June meeting by the EUs then president, Luxembourgs Jean-Claude Juncker, would have frozen the rebatewhich currently returns about two-thirds of the difference between Britain's contributions and its receiptswith the goal of eventually phasing it out.
Mr Blairs government balked at this. Almost half of EU spending still goes on the CAP, and another large percentage is accounted for by transfers to poor regions, which also puts Britain at a disadvantage. Mr Blair insisted that there could be no substantial change to the rebate unless the CAP was also reformed, ie, cut back. Big beneficiaries such as France reacted angrily, pointing out that Britain had agreed to a deal on the CAP in 2003, and that further restructuring should be off the table until after that agreement runs out in 2013. In the six months since then, the French have demonstrated just how serious they, and other big agricultural producers, are about protecting their farmers. Jacques Chirac, the French president, has led moves to block Peter Mandelson, the EU trade commissioner, from offering deeper concessions on farm policy in the Doha round of WTO negotiations, even though failure to do so may well mean that the round fizzles.
Mr Blair has sought to avoid a head-on clash over the CAP in his latest proposal for the EU budget, which was unveiled on Monday December 5th. Instead, he proposes to increase Britains net contribution by a total of 8 billion ($9.4 billion) over the six-year budget period, either through a lump-sum payment or a reduction of the rebate. In exchange, he wants to see the overall budget cut. His plan trims about 24 billion off the 871 billion figure proposed by Mr Juncker, largely through cuts in rural-development aid and assistance to the EUs new members in central and eastern Europe. But though the proposal avoids direct confrontation on the CAP, the issue still looms large. Britain wants to keep the bulk of its rebate as compensation for the EU keeping the CAP. And Mr Blairs plan calls for a review of all EU revenue and spending in 2008, when Britain will presumably once again go after the CAP with a carving knife.
Even before the details of the British proposal had been made public, Jos Manuel Barroso, the president of the European Commission, the EUs executive, called the plan very worrying, especially for new member states. Guy Verhofstadt, the Belgian prime minister, was less circumspect. I don't intend to approve a budget that the representatives of the people, the European Parliament, will certainly reject, he told a meeting of his party on Sunday. Since the EU budget must be ratified by all 25 member states, Mr Blair will have to fight hard to get his proposal, or something like it, passed. He will begin his campaign on Thursday and Friday of this week, when he is scheduled to meet the leaders of Portugal, Finland, Slovenia, Sweden, the Netherlands, Ireland, Greece and Spain. The list is notable for its omissions, in particular Mr Chirac; perhaps Mr Blair thinks that pushing the CAP aside, for now, will be enough to appease the French. Other countries, however, will undoubtedly want a fight, particularly the central European newcomers, who will pay the greatest price for British concessions on the rebate: under Mr Blairs plan, they stand to lose 14 billion, or 8.5%, of future aid. Mr Blair is expected to try to secure their approval by lowering the level of matching grants they must supply to qualify for EU structural funds.
Even if he gets their blessing, however, he must contend with general resentment of Britain's longstanding exceptionalism. It is not just the rebate, or Britains hostility to farm subsidies, that annoys other countries; since Mrs Thatchers time, Britain has championed free trade and deep economic reforms to Europes markets that would make them more like the Anglo-Saxon model, which is much derided by politicians in continental Europe. EU enlargement has made those tensions worse by bringing in even more competition from central and east European companies that are less shackled by regulation, and pay lower wages, than their counterparts to the west. The rejection of the proposed EU constitution by French and Dutch voters this year was the culmination of long-simmering discomfort with the goals of ever-closerand ever-largerunion. Mr Blairs budget proposal does little to resolve these fundamental issues, though the cuts in aid might temporarily assuage voters anxiety over the eastward expansion. As for Europes farmers, they would dearly love to see the British leader brought down a peg or two. Next week, through their national leaders, they will have a chance to do just that.
Source : Economist
Summary & salient points about EU : - The European Union is more than just a confederation of countries, but it is not a federal State.The Council of the European Union is the EUs main decision-making institution.Each EU country in turn presides over the Council for a six-month period - In March 1999, the Berlin European Council agreed the overall size and shape of EU finances for the period 2000-2006. This agreement was called Agenda 2000. The EUs own resources chiefly made up of the money it raises from VAT and of contributions from the member states, based on their gross national product (GNP) would not be allowed to exceed 1.27% of the Unions GNP in 2000-2006. - The European Parliament is the elected body that represents the EUs citizens and takes part in the legislative process. Since 1979, members of the European Parliament (MEPs) have been directly elected, by universal suffrage, every five years.The present parliament, elected in 2004, has 732 members - In 1992 the EU decided to go for economic and monetary union (EMU), involving the introduction of a single European currency managed by a European Central Bank. The single currency - the euro - became a reality on 1 January 2002 - The Common Agricultural Policy (CAP) is a system of EU which represents about 44% of the EU's spending (49bn scheduled spend for 2005). These subsidies work by guaranteeing a mimimum price to producers and by direct payment of a subsidy for crops planted. This provides some economic certainty for EU farmers and production of a certain quantity of agricultural goods. Reforms of the system are currently underway including a phased transfer of subsidy to land stewardship rather than specific crop production from 2005 to 2012
This Weeks Business Headlines !!! ------- NTL, a British cable operator, confirmed that it was seeking to buy Virgin Mobile, controlled by Sir Richard Branson's group, for 817m ($1.4 billion). The approach, which was rebuffed by Virgin, came hot on the heels of NTL's merger with Telewest, a domestic rival, and is an attempt to boost the firm's strategy of becoming the premier "quadruple-play" provider of fixed and mobile phones, broadband and TV in Britain. ---------- Boston Scientific made a $25 billion counterbid for Guidant, a maker of medical devices, trumping Johnson & Johnson's renegotiated offer by some $3 billion. Last month Guidant ironed out a row over its market value with J&J; to accept a reduced price of $21.5 billion. The firm said it would consider Boston's bid. J&J; did not raise its offer and said its transaction offered "full and fair value". ----------
South Korea's Fair Trade Commission ordered Microsoft to create a separate version of Windows that does not include its instant messaging and media player services, in a bid to promote competition. Microsoft's fine in this case, which is similar to the European Commission's landmark antitrust ruling against the firm in 2004, was small$32m compared with the EU's $613m penalty. ------------- Gemplus and Axalto, the world's largest makers of smart-card chips for credit cards and mobile phones, agreed to merge. The new firm, called Gemalto, will be registered in the Netherlands and have sales of euro1.8 billion and 11,000 employees. Even though the company faces strong competition from Asia, regulators will scrutinise the merger since Gemalto will control 40% of the market. --------- The World Trade Organisation voted to make permanent a waiver to its rules on intellectual property that allows poor countries to import cheaper, generic versions of patented drugs (the rule has to be ratified by WTO members by late 2007). Under the rule, poorer nations will be allowed to import generic drugs for humanitarian reasons, but not for commercial purposes. -------- P&O;'s share price rose by almost 12% on December 2nd amid rumours of a counterbid to DP World's 3.3 billion ($5.7 billion) recent takeover offer. Investors pored over a statement from Temasek Holdings, the Singaporean government's investment company, that confirmed it had built a 4.1% stake in P&O;, but left the door open as to whether it was seeking to buy the British operator of ports and ferries. ---------- Airbus signed a $10 billion deal to supply 150 A320-series aircraft to six Chinese airlines and said it was extending "industrial co-operation" with China that may include a new assembly line in the country, its first outside Europe. --------- General Motors said it was discussing a board appointment for a lieutenant of Kirk Kerkorian, the billionaire investor who owns almost 10% of the beleaguered carmaker. The likely candidate is Jerome York, a former Chrysler executive. It also appointed Frederick "Fritz" Henderson, who oversaw a restructuring and job-cutting plan as chairman of GM Europe, who will become chief financial officer. ------------ German and Russian banks announced two big deals. Dresdner Bank said it was buying a third of Gazprombank (controlled by Gazprom, the Russian gas monopoly) for $800m, ahead of a planned listing of the Russian bank next year. And Deutsche Bank agreed to buy the 60% it doesn't already own of United Financial Group, a brokerage, for an estimated $420m, underlining the increasing keenness of western banks to move into Russia's banking system. ------------------ More than 95% of the New York Stock Exchange's members approved a merger with Archipelago Holdings, an electronic exchange, which will turn the 213-year-old institution from one owned by 1,366 "seatholders" into a public company owned by shareholders. The new company, NYSE Group, will have a market capitalisation of more than $9 billion. -------------- J.P. Morgan Chase, Intel and Microsoft all announced plans to invest further in India. J.P. Morgan will move one-third of its back-office operations to India and recruit an extra 4,500 Indian graduates to process foreign exchange and credit derivatives transactions. The move highlights a growing trend among large financial institutions to cut costs through offshoring. Source : Economist
------------------- Pernod Ricard sold its Dunkin' Brands unit to three private-equity firms for $2.4 billion. The unit's franchises include the Dunkin' Donuts coffee shops, which will be developed as a low-cost alternative to Starbucks.
ConocoPhillips launched a $35.6 billion cash-and-shares takeover bid to buy Burlington Resources, another energy company based in Houston. Burlington specialises in using new technologies to drill for natural gas, which has recently been trading at record highs. ------------------ Paramount Pictures agreed to buy DreamWorks SKG, the film studio created by Steven Spielberg, Jeffrey Katzenberg and David Geffen, for $1.6 billion including debt. The deal is a blow to NBC Universal, which had been in takeover talks with DreamWorks and is now expected to lose lucrative distribution contracts for its films outside America and DVDs worldwide. -------- PepsiCo's stockmarket value overtook Coca-Cola's for the first time on December 12th. PepsiCo has diversified its brand over the years with beverages, such as Gatorade and Tropicana, that are perceived as relatively healthy. The firm, which has seen its share price rise by 14% this year, now gets only 20% of its revenue from carbonated soft drinks, compared with Coca-Cola's 80%. ------------ Steve Case, who recently resigned from Time Warner's board, admitted that the merger with AOL had been wrong and called for the company to be split up. Mr Case had attracted severe criticism as an architect of the merger from a group of dissident investors who want the media conglomerate to take remedial action, such as selling AOL. Mr Case's admission adds to the pressure on Time Warner's directors, who are reportedly considering an alliance between AOL and either Google or Microsoft. ------------ Standard & Poor's cut its credit-rating for General Motors by two notches and gave its starkest warning yet that the beleaguered carmaker will eventually file for bankruptcy protection. Meanwhile, GM said it had not reached an agreement with Tracinda, Kirk Kerkorian's investment firm which owns nearly 10% of GM, to appoint Jerome York, a Kerkorian lieutenant, to its board. Talks are to continue "in the future". ----------- NTP rejected an offer by Research In Motion, the makers of BlackBerry wireless devices, to settle their long-running patent dispute. Without an agreement, RIM faces an injunction that could shut down its service in the United States. ----------- Vodafone won an auction to buy Telsim, Turkey's second-largest mobile-phone operator, by agreeing to pay 2.5 billion ($4.6 billion). Vodafone expects demand for mobile phones in Turkey to surgethe country is forecast to have a larger population than Germany's by 2017. ---------------- Electronic Arts, a video-game developer, offered to buy JAMDAT, a firm that specialises in creating games for mobile phones, for $680m. The deal comes amid a rapid expansion in mobile gaming, which is estimated to be worth $2 billion worldwide in 2005 compared with $1 billion in 2004. ------------ Lehman Brothers led a crop of stellar results from Wall Street investment banks. In the year ending November 30th, the firm's net income rose by 38% on the previous year, to $3.3 billion. ------------- The first federal court case brought against Merck over Vioxx, an anti-inflammatory drug that was withdrawn on safety grounds, ended in a mistrial after the jury failed to reach a unanimous decision (two state cases have already been heard). The judge ordered the case to be retried. --------------- The OECD reported that China had surpassed the United States for the first time in exporting information-technology goods, such as computers, mobile phones and related parts. China exported $180 billion-worth of IT goods in 2004, and is expected to keep its top position when figures are collated for 2005. ------------- America's Federal Reserve put up its key interest rate by one-quarter of a percentage point, for the 13th consecutive time, to 4.25%. Economists pored over the language of the central bank's accompanying statement for an indication that the cycle of interest-rate rises will soon end. ----------- The price of gold continued its bullish run, breaking $540 a troy ounce for the first time since 1981 during trading on December 12th. Japanese investors, looking for higher-yielding assets than the weakened yen, are reckoned to have been a primary factor in the recent price hike. But some analysts also predict the price will remain high next year, as big gold producers have lowered forecasts of their output. Source : Economist
ConocoPhillips launched a $35.6 billion cash-and-shares takeover bid to buy Burlington Resources, another energy company based in Houston. Burlington specialises in using new technologies to drill for natural gas, which has recently been trading at record highs. Source : Economist
This one's a massive deal. It's transaction value is $92 per share, based on the closing price of ConocoPhillips (Research)' shares on Dec. 9.
ConocoPhillips would pay $46.50 in cash plus 0.7214 of its own stock for each Burlington share. It would bring the No. 3 U.S. oil company's revenue within striking distance of the U.S. No. 2, Chevron Corp.
Together, ConocoPhillips and Burlington Resources (Research) will have "pro forma" reserves of about 10.5 billion barrels of oil equivalent, according to company records as of Dec. 31, 2004. "Pro forma" 2005 production will total about 2.3 million barrels of oil equivalent per day.
Pernod Ricard sold its Dunkin' Brands unit to three private-equity firms for $2.4 billion. The unit's franchises include the Dunkin' Donuts coffee shops, which will be developed as a low-cost alternative to Starbucks.
For the uninitiated...
Based in Canton, Massachusetts, Dunkin' Brands Inc. is part of U.K.-based Allied Domecq PLC and is responsible for the worldwide development and marketing of quick service restaurant brands including Dunkin' Donuts, Baskin-Robbins and Togo's. Allied Domecq was purchased by Paris based Pernod Ricard in July. It is represented by more than 12,000 worldwide points of distribution, including approximately 7,600 units in the United States and 4,400 units in 46 countries around the world.
Pernod announced the sale to Thomas H. Lee Partners, the Carlyle Group and Bain Capital four days after bidding closed in an auction for the U.S. fast food company.
Boston-based Bain Capital has invested in more than 225 companies over the last two decades, including Dominos Pizza, Inc. and Burger King Corp. Investments by T. H. Lee, also a Boston firm, include Snapple Beverage Corp. Washington, D.C.-based Carlyle, with $35 billion under management, is the largest of the three successful joint bidders. The three companies will invest equal amounts of equity in the company, according to a joint press release. The consortium plans to leave the existing Dunkin Brands management team in place, including Chief Executive Officer Jon L. Luther.
Dunkin Brands three restaurant chains collectively generated $4.8 billion in revenue last year. Dunkin Donuts, however, is widely considered the crown jewel of company, with a 12 percent increase in sales last year and more than 6,000 locations worldwide. Founded in 1950 with one store in Quincy, Mass., Dunkin Donuts is now the largest U.S. doughnut franchise. It has more than 6,000 stories in 30 countries, drawing 2.7 million customers each day.
British beverage company Allied Domecq PLC bought Dunkin Donuts in 1990. In April, Allied announced a $14.2 billion takeover by Pernod, its French rival whose brands include Martell cognac and Jacobs Creek wine.
Headlines this week Antonio Fazio resigned as governor of the Bank of Italy. Mr Fazio was implored to quit by Italy's finance minister last week after revelations that he is under investigation for misusing privileged information relating to a bid for Banca Antonveneta. He is already being investigated for abuse of office in favouring Banca Popolare Italiana's (failed) offer for Antonveneta. The pressure on Mr Fazio grew after the arrest on December 13th of Gianpiero Fiorani, his friend and BPI's former chief executive, for a range of alleged offences that included embezzlement. ------------- Florida Power & Light offered to buy Constellation Energy Group, based in Maryland, for $11 billion. It is the third-largest merger deal among American utilities this year. ---------- Google was reported to have reached an agreement with Time Warner to take a 5% stake in AOL, trumping Microsoft in a move that would boost Google's and AOL's online advertising businesses. Speculation has been rife over a deal, which is being made in the face of a revolt by investors in Time Warner who want the company broken up. ----------- In a ruling that favours big pharmaceutical firms, a federal judge in America upheld two of Pfizer's patents on its Lipitor treatment for cholesterol. Ranbaxy Laboratories, a generic-drugs maker based in India, had challenged the patents in an attempt to launch a competing product. Sales of Lipitor amount to $12 billion a year. Merck laid out additional cost-cutting plans that will reorganise its research into diseases. Last month the pharmaceutical company unveiled a restructuring programme of plant closures and job losses to save $4 billion over three years; the additional plan will save an extra $1 billion over four years. The firm also said the number of lawsuits filed over its Vioxx anti-inflammatory drug had risen to 9,200. ----------------- Amgen, the world's biggest biotechnology group, agreed to pay $2.2 billion for Abgenix, a smaller rival. The companies have been collaborating on a new drug for fighting colon cancer that is in the final stages of testing. ------- Illinois's top court overturned a $10 billion award for damages against Philip Morris,won by smokers who claimed they had been cheated because they had not been sufficiently warned about the health risks from "light" cigarettes. The decision is a big victory for the tobacco company, which is still waiting to see if a separate $145 billion award in Florida for damages against it and other firms will be reinstated by the state's Supreme Court. ----------- Macquarie Bank formalised its bid, on December 15th, for the London Stock Exchange. However, the Australian bank did not increase its indicative offer, made a week earlier, valuing the LSE at 1.5 billion ($2.7 billion). Macquarie assembled an unusual group of co-investors, including a Portuguese holding company that has stakes in infrastructure projects, two London hedge funds and an Australian businessman best known for his involvement with a surfwear company. The stockmarket's management dismissed the bid as "derisory". ------------ Rentokil, a British business-services firm, became the first FTSE 100 company to close its final-salary pension scheme to future accrual by current workers. Most of Britain's top quoted firms have already closed such schemes to new employees. ----------- In Hungary's biggest single privatisation, BAA, the operator of Heathrow and Britain's other main airports, announced a 1.2 billion ($2.2 billion) deal to take control of Budapest Airport, which it hopes to develop into central Europe's primary hub. However, Hochtief, a German building firm that lost out in the bid, mounted a legal challenge. Takuo Tsurushima resigned as president of the Tokyo Stock Exchange. He came under pressure after failures in the exchange's computer system culminated in a bungled trade that could possibly cost up to 40 billion ($345m). -------------- General Dynamics said it would buy Anteon International, which provides IT and systems integration to the American government, for $2.2 billion. The deal underpins a move by the defence contractor into providing high-tech services to bolster its core business of making tanks, submarines and command-and-control centres. ------------ America's trade deficit in goods and services reached another record, hitting $68.9 billion in October. The news, much worse than expected, was blamed partly on a surge of Chinese electronic and toy imports (the deficit in goods with the country was a record $20.5 billion) and capped a year of growing political rancour with Beijing over trade. Source : Economist
