Current event: Siemens’ Cost Cutting Plan Impresses, But There’s More to Do

After a decade of restructuring, Siemens AG still works on a plan to promote growth and reduce costs by implementing more efficient operation and manufacturing processes, eliminating redundant functions and laggard units. In effort to cut cost, Siemens laid off a total number of 615 workers in Iowa, Kansas, and Florida on September, 2012 because tax credit for wind energy was not renewed by the Government. The Republican Party was fighting whether or not to continue the tax credit program. During the recent five years period, the wind energy industry is facing a substantial decrease in demand. As a result, Siemens must find ways to adjust the manufacturing, planning project on wind power to survive. Siemens will cut about 8,000 positions at the end of 2012 globally.  On the other hand, Peter Loescher, Chief Executive Officer of Siemens AG, announced on September that he will dispose the operation of solar thermal energy and photo-voltaic, just three years after acquisitions.

According to him, there have been two distinct phases to push the success of Siemens: the cost reduction phase from 2008 to 2011 which was view as a big success. However, since 2011 a transition to a growth phase has faced many difficulties. Nicholas Heymann, an analyst at William Blair in New York, said that Siemens currently is under a critical transformation. Cost cutting and more aggressive in selling peripheral businesses may not enough to be successful, but doing fewer things on a truly global scale.

With the efficiency program, CEO Loescher hoped that Siemens AG can reach the industrial earnings margin before interest at least 12%, compare with 9.5% last year. However, some economics experts stated that this financial target is far from ambitious because the market’s expectation on 2014 is 11.5%. On November 8, 2012, Siemens AG made an announcement of a €6 billion savings plan, which is significantly above market expectations, assets sales and a more generous dividend policy. However, according to analyst Peter Reilly, restructuring charges and weak prices will partially offset the gains.

To prepare for these outcomes, Siemens middle managers should do a better job in managing human resources and manufacturing processes. It is important to calm current employees down and to guarantee a stable future since cutting labor has been the big threat for every employee. Besides, they need to encourage and reward employees with creative and practical ideas of producing effectively.

References

Pitt, David. (2012). Siemens to lay off 615 in Iowa, Kansas, Florida. Businessweek. [Available at http://www.businessweek.com/ap/2012-09-18/siemens-to-lay-off-615-in-iowa-kansas-florida ]

Weiss, Richard. (2012). Siemens Scaling Back Creates Chance to Reload Leadership. Bloomberg. [Available at http://www.bloomberg.com/news/2012-11-07/siemens-scaling-back-gives-loescher-chance-to-reload-leadership.html ]

Geiger, Friedrich. (2012). Siemens’ Cost Cutting Plan Impresses, But There’s More to Do. The Wall street journal. [Available at http://blogs.wsj.com/source/2012/11/08/siemens-cost-cutting-plan-impresses-but-theres-more-to-do/?KEYWORDS=siemens] 

A transatlantic free-trade agreement should be a priority

A transatlantic free-trade agreement should be a priority and that economists hope it will bring positive changes for current crisis. All three articles on The New York Times, the Bloomberg.com, and the EurActiv.com mention the new hopes from this free-trade agreement.

For years, U.S and Europeans are the biggest market of foreign trade.

“In 2011, Europeans bought three times more U.S. goods ($286.1 billion) than did the Chinese, and Europeans sold about twice as much merchandise to the U.S. ($368 billion) as they did to China.” (Bloomberg.com)

“While China has dominated the political debate in the United States, U.S. trade with Europe is much larger, totaling $485 billion in goods in the first nine months of this year, compared with $390 billion in trade with China.”  (Jack Ewing, The New York Times)

A free-trade agreement or lower/non-tariff agreement for both sides might bring to the U.S and European some great benefits. For example, it might help raise the GDP for the U.S by 0.3 percent and for the European by 0.7 percent because it helps companies more competitive on both markets. Or, it hopes to “create millions of jobs”.

Free-trade will influence on industries and firms such as Daimler might not need to “obtain multiple certifications” whenever it wants to offer a new Mercedes engine to the markets. Or the pharmaceutical industry does not need to have new treatments in both markets. In contrast, some industries also are doubt about free-trade deal such as restrictions of EU for some corn and soy products. A harmonize agreement on what needs to regulate made the process takes so long. But it is still continuing for a commitment soon because of its perspectives. For managers, they need to put their eyes on this process and prepare their plans in doing businesses on both sides (expected affections, reacts of the firms, changes if needed, etc.)

References:

“EU-U.S. Free Trade Deal Offers Painless Stimulus for Both” published June 17, 2012 on www.Bloomberg.com

 

“EU, US trade agreement is a top priority” published October 08, 2012 on www.EurActiv.com

“Trade Deal Between U.S. and Europe May Come to the Forefront” by Jack Ewing, published November 25, 2012 on www.nytimes.com

Theory testing - Does CSR Reduce Firm Risk? Evidence from Controversial Industry Sectors

Theory Testing Post

Does CSR Reduce Firm Risk? Evidence from Controversial Industry Sectors

The purpose of this article is to test if a relationship exists between corporate social responsibility (CSR) investment and overall risk reduction for controversial industry sectors such as tobacco, gambling and alcohol.  If a relationship can be established, firms in these industry segments can determine whether to develop strategic approaches to CSR management.  The article proposed two hypotheses:

1. “Under the risk-reduction hypothesis, we predict a negative association between CSR engagement of controversial industry firms and firm risk” and

2.  “Under the window-dressing hypothesis, we predict a positive (or at best insignificant) association between CSR engagement of controversial industry firms and firm risk.”

The research conducted for this article included data from 513 firms engaged in businesses seen as controversial, including alcohol, tobacco, gambling, oil, cement and biotech.  Risk reduction in these firms was then compared to over 18000 firm-years of similar data for non-controversial firms.  The research supported hypothesis number one as opposed to number two.  Controversial industries proved to decrease overall risk by engaging in CSR strategies.

This research is broadly based and relevant for strategic managers involved in controversial industries.  Developing a strategic investment approach in CSR is essential for lowering risk in these firms.  Further, the results of this testing showed a stronger negative correlation between hypothesis number 1 and controversial industry firms than those in non-controversial industries.  This is a valid point for consideration by executives in those non-controversial industries to consider with respect to the level of strategic CSR investment strategies compared to long-term risk reduction.