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.  

Developing Theory Article - “Managing Corporate Reputation in Times of Global Changes and Turbulence — A Strategy for Competitiveness”.

“ManagingCorporate Reputation in Times of Global Changes and Turbulence — A Strategy forCompetitiveness”.

By: Claudia Ogrean, Mihaela Herciu, Lucian Belascu, Journal of Modern Accounting and Auditing, ISSN 1548-6583 July 2011, Vol. 7, No. 7, 726-733.

This is an article about how a company can take advantage from any opportunities as well as minimize all of the threads thanks to managerial frameworks in such global business. And the main point or important component for this framework is corporate’s reputation. To authors, reputation of corporate is a tangible asset. It is one of the competitive advantages. It is not easy to build but easy to lose. Nowadays, doing business doesn’t mean producing and selling. It becomes suggesting the best products or services solutions for a selected market segment to take as much as market shares that company can. And, players now are facing more and more competitors from international. In this situation, invisible assets in which reputation is an important factor because it is hard to imitate have more interest. And, reputation have important role in improving company image, rising competitive advantage, getting more attention from customers about company products, may accessing cheaper capital, etc.

There are different theories how corporation reputation become a strategic factor. Now, it is related to signals that company gives to public and the congruence between signals and what company actually does. Or we can have the idea that it includes internal reputation (comes from company stakeholders such as managers, workers, customers, suppliers, etc.) and external reputation (comes from external or society stakeholders).

Because of the important of corporate reputation, Fortune magazine as well as Reputation Institute have different surveys that publish the most admired companies in the world based on reputation attributes such as human resources management, assets management, financial management, global competitiveness, social responsibility, innovation, etc. Next, customers from 24 countries rate companies’ reputation for 54 highest-rated companies based on seven dimensions of reputation. They are “performance, products/services, innovation, workplace, governance, citizenship and leadership” from four perceptions of emotions “esteem, admire, trust, feeling”. From the Reputation Institute result, in 2010 Google, Sony, The Walt Disney Company, BMW, and Daimler (Mercedes-Benz) are the top-five highest reputation companies. By global reputation industry, it is “consumer products, food manufacturing, retail food, industrial products, computer, electrical & electronics, retail general, beverage, automotive”, etc., respectively.

In conclusion, from different studies and their results authors say that corporate reputation is an essential element for company success. However, it is needed to have knowledge about its transformations. For example: time, space, points of view. And, in this “crisis time” business environment changes every day, each company is facing more risks and uncertainty situations that can affect to its reputation and its competitiveness as well, a flexible and more adaptable strategy with crisis is a good strategic management for company. I think this is a good article for managers who are looking for a general knowledge about the corporate reputation and its factors. From different points of view mentioned in the article, they may have their own opinions about the managerial frameworks for their corporation in this global recession. 

Current Event Post: U.S. Fossil Fuel Industry Rebounds

U.S. Fossil Fuels Industry Rebounds

In a stagnated economy hoping for any well spring of job development, the fossil fuels industry is offering a light to guide the way in the coming years.  In blog posted by Mark J. Perry, a University of Michigan economics professor, data from the U.S. Energy Information Administration indicated significant growth in U.S. energy production from oil, coal and natural gas since 2009.  It appears that much of this growth is directly attributable to technological advances including hydraulic fracturing and horizontal drilling.  Perry wrote that these advancements “…have allowed us to tap into previously inaccessible underground oceans of domestic oil and gas trapped inside shale rock far below the earth’s surface.” (Sebastian) 

The use of this technology is not cheap.  Initial investments can be as much as ten times more expensive than a similar traditional well.  However, the payoff continues for a longer term.   Because the supply chain for oil and gas drilling is very long, and mostly domestic, the trickledown effect on the economy is vast.  IHS, a global information company, published in a recent Global Insight Study that the increase in unconventional oil and gas drilling will bring more than $5 trillion in capital spending that will support more than 3.5 million jobs by within the next twenty years. (Dlouhy)

Aside from the boost to the domestic economy, oil production from shale has had another effect.  Oil production in the Gulf of Mexico continues to fall as a percentage of total U.S. output.  In the past, when a hurricane enters the Gulf, oil rigs shut down and prices soar.  Shale extraction is proving to stabilize the hurricane issue as proven at the end of August when hurricane Isaac shut down Gulf production for more than a week.  Compared to a few years ago when hurricane Katrina caused oil prices to jump to $130 a barrel, stemming 95% of Gulf production during Isaac caused no appreciable change in the price of crude. (Zhou)

Technological advancements in gas and oil drilling have lead to a dramatic increase in U.S. fossil fuel production.  Coupling this increase with diminished domestic fossil fuel usage in recent years positions the United States as a major player in the world reserve and decreases U.S. dependence on foreign oil.  Moreover, it increases domestic economic development and limits disruption in the market due to late summer tropical storm activity.  This allows managers to better plan for long term activities independent of massive fluctuation in crude oil prices. 

Sebastian, Simone. "U.S. on track to produce record fossil fuel energy." Houston Chronicle 25 10 2012, D3. Print.

Dlouhy, Jennifer. "A potent economic force: Study says energy from shale is a bonanza for future jobs." Houston Chronicle 23 10 2012, B6. Print.

Zhou, Moming. "Storm Effects on Oil Prices Waning As Shale Booms: Energy Markets." Bloomberg (2012): n.pag. Bloomberg.com. Web. 28 Oct 2012. <http://www.bloomberg.com/news/2012-09-14/storm-effect-on-oil-prices-waning-as-shale-booms-energy-markets.html>.

Internet corporate reporting by listed firms in Hong Kong

By Pak-Lok Poon and Yuen Tak Yu

Internet corporate reporting has rapidly increased since the last decade to provide newest company information to global customers and investors. This information can be financial or non-financial such as company overview, history, products and services, etc. Hong Kong is a one of the biggest financial centers in the Asia-Pacific region. As many companies went public, the demand for their financial information roars up. Since financial information plays a very important role in investor’s decisions, Internet financial reporting is an economical and fast way to reach potential investors.

Under high pressure of dynamic and competitive business environment, firms see Internet corporate reporting no longer an option, but rather a necessary way that any firm needs to implement. The purpose of this article is to illustrate the relationships between the degree of reported information on corporate websites and the characteristics of Hong Kong's listed firms.  This is measured in terms of the richness of the corporate information disclosed on their websites which reflects firm's commitment, resources and level of strategic significance attached to Internet corporate reporting.

This empirical study test the theories of innovation theory, the expectation-confirmation theory, corporate governance theories, and the learning/experience curve theories. This research can imply on many contexts related to the adoption of Internet corporate reporting. The authors implemented an empirical study by using the questions, measuring the variables in formulating hypotheses under the local context, and collecting lots of data during three years. The data set composed of the top 200 listed firms which collectively make up over 80% value of the total capitalization of the stocks in Hong Kong.

The authors found that the degree of a firm using Internet reporting has a positive relationship with some of its characteristics, such as the level of corporate governance and previous experience of adopting such a reporting practice. Furthermore, other factors including firm's size, revenue and stock trading activity also play an important role. Interestingly, it is found that system openness does not affect the degree a firm adopts Internet reporting.

The study has some implication in providing a clearer picture of Internet corporate reporting in Hong Kong. Larger firms with higher revenues and stock trading activities are typically more innovative, have more financial resources and greater access to technical knowledge and expertise to adopt Internet corporate reporting. But as the popularity of Internet corporate reporting grew, the size, revenue and stock trading activity of a firm were no longer key indicators of adopting such a reporting practice. Manager can utilize that knowledge to transform company website as an effective and cheap community tool with consumers and investors by providing useful information. This can help to build a strong understanding and relationship with more customers, especially when firms enter new market and consumers are lack of their products and company information.

References

Poon, P-L. & Yu, Y.T. (2012). Internet corporate by listed firms in Hong Kong. Information Research, 17(1) paper 510. [Available at http://InformationR.net/ir/17-1/paper510.html]

Second Life and E-Marketing in an Online Social Network: The Implementation in China Marketing.

By Sharma Gajendra, Li Baoku, Wang Lijuan

What are you doing right now? I’m pretty sure that you are using a PC, laptop or smartphone for working, entertaining, communicating, etc. Other word, you are on cyber world – your “second life”, a place some people found more interesting than their real life. Millions of people access to the Internet every day, and many marketers have recognized the huge opportunities and great potential of e-marketing. The article discusses about the significance of communication and internet marketing opportunities in the virtual world generally, and China market specifically. As people spend more time on the internet, it is obvious that firm needs to discover and invest more money on these great opportunities.

Research findings show that there are many important factors affect the chance of success of an internet marketing campaign, such as financial investment, time engagement, customer relations, and quality of products, etc. There are two vital elements for brand recognition and promotion: advertising and communication. The author states that some of the cheapest and most effective marketing is using word-of-mouth and blogging. Just a simple click, potential customers can read thousands of review, written by real consumers, about any kind of product and make their purchase decision quickly. However, the main problems in virtual world are annoyances, hacker, misconduct, and highly-addiction. Other challenge includes increasing competition because it is so much easy to start a business. A website, a bank account, some stuffs and you are ready to run your very first business. But life is not that easy, a successful internet marketing plan requires deep understanding, exactly mirroring all the operation activities of business in the real world. It is stated that the person should have experience in running a real company.

This study confirms that “second life” is a proper place for effective and efficient communication, and e-marketing promotion. This research has two critical implications for managerial practice. First, second life can be a good test place for new ideas, products, and operation process with rapid feedbacks from users, and low cost.  Utilizing those feedbacks, firm can effectively modify their offerings to meet customer requirements in a real world to guarantee a higher rate of success. Secondly, this study argues that communication is the most essential part of cyber marketing. Besides, “second life” has a substantial impact on Chinese Internet users and the development of China market. As the virtual business has significantly influenced the real world economy, many big companies started designing and testing their new products and services concepts in second life website. So, what are you waiting for? Let’s open an account on “second life”, start your own business, and make a huge profit, hopefully.

References:

Sharma, G, Li, B, & Wang, L 2012, 'Second Life and E-Marketing in an Online Social Network: The Implementation in China Marketing', International Journal Of China Marketing, 2, 2, pp. 38-59, Business Source Complete, EBSCOhost, viewed 24 September 2012.

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