Remedies to European Unemployment
AGAIN I OWE TO HIM…ITS HIS STUDY ON EUROPEAN UNEMPLOYMENT
Layard, Nickell and Jackman (1991, p. 61-75) discuss several policy measures for
combating high European unemployment. See if you can find one measure where you
agree and another where you can disagree with the authors’ policy conclusion.
We will start with the one we agree. We agree with the author’s conclusion that any
country wishing to sustain low unemployment would do well to study the example of
Swedish manpower policies [1]. We will first highlight the main points and merits of this
active manpower policy. They are:
The placement services (employment exchanges): These exchanges work with the
unemployed to get them a job suitable to their skill sets. In this way, the workers have an
excellent platform to complement their new job search.
Retraining: Workers are retrained to provide them with new skill sets. This might be
important when either the worker himself wants to change the nature of his job or when
the circumstances demand so. In this rapid world of technological development, the
workers (especially the blue collar workers), will have to adapt to it. Due to more
automatic machinery, the demand for raw manpower has decreased. But the demand for
skill workers has definitely increased. Retraining will provide them with a wonderful
opportunity to deal with it.
Recruitment Subsidies: These are given to employers who recruit workers that haven’t
been employed for a specified period of time (6 months in case of Sweden). This
encourages the employers. But a word of caution here, these recruitment subsidies should
be carefully managed so that they don’t give the employer some unnecessary leverage.
We will talk more about this in a short while.
Temporary Public employment and the right to work: The public sector provides jobs in
case the worker has been unemployed for a long time (14 months in case of Sweden).
These are more of temporary jobs which the worker leaves as soon as he gets some other
job suiting with his skill set.
We agree with the author that this policy can be very effective. The employment
exchanges provide the unemployed with a great platform to conduct job search. The main
problem in job search is getting contacts. The employment exchanges help to mitigate
this. They provide the worker with a repository which would have otherwise taken a lot
of time for them to compile. Retraining is a wonderful mechanism for the workers to
adapt and improve their skill set. I think this is also very important in the social context.
This helps in not stereo – typing people in the same kind of jobs and gives room to a lot
of creativity. Recruitment subsidies are good but one should be cautious in not stretching
this too far. It should be implemented in a way that it should give more incentives to the
workers and not the employers. An effective way would be to keep the track record of
how different employers make use of these subsidies. For example, if large employers
purposely delay their recruitment decisions to increase short term unemployment and
then get subsidies for recruiting a large pool of people. This would also make the short
term unemployment rate pretty volatile.
Temporary Public work as a last resort is also very effective as it’s providing some sort of
employment to the unemployed. This is very relevant in the social context. This makes
worker feel that they are needed in the society and that they are the part of the society.
Infinite unemployment benefits suffer from this problem. Along with diminishing the
skill set of workers, they also make them feel unwanted in the society. Slowly and
steadily it gets into their psychology that they are unwanted and then they want to remain
like that permanently. Active manpower policies are often criticized to be expensive.
They are indeed expensive but they can’t be more than what governments spend in
unemployment benefits. The good side of that is they help in keeping unemployment
down and improving the mental status of the unemployed. We think it is much better to
pay someone by making them do some work (like in public sector) instead of paying
them for free. In the long term, this can be very good for uplifting the morale and skill set
of the labor force. Active manpower policy is also said to displace workers from their
jobs because there is limited demand for labor. But this is misleading as manpower policy
has a role in the supply side and not the aggregate demand. Another point of criticism is
that it provides unnecessary incentives to the employers. But we have argued that this can
be mitigated by active management of subsidies and the portion that will be left will be
negligible.
We now talk about the point where we disagree. The author argues that for a country
which is already plagued with high unemployment, it is more prudent to have the active
help concentrated on the workers who have been out or work for about a year to prevent
long term unemployment. This will in turn reduce unemployment and the external benefit
to the taxpayer from removing the second type of person is much greater than removing
the first one. We think that this conclusion can be very misleading and is based on some
very non – real assumptions.
The author assumes that the workers who have been out for more than a year were not
able to secure employment in spite of searching and that to help them in their job search
will mitigate the risk of long term unemployment. It assumes that all the long term
unemployed workers are still actively searching. In reality there can be more than just
long term unemployment for countries that have high rate of unemployment. The high
unemployment might be the result of structural inefficiency and not a pure
unemployment problem. In this case, following the above policy might be quite
hazardous and might trigger the unemployment level to high extremes. We feel that more
effort should go in helping the people who have been recently unemployed. The author
argues that these type of workers “would on average have left unemployment fairly soon
anyway” is flawed. On the contrary, these type of workers if not helped will feed into the
long term unemployed list and create problems.
We should also take into consideration that effect of decreasing skill set. People recently
unemployed retain more skills than long term unemployed. It is much easier to help them
find a job. The diminishing skill set for those unemployed for over a year can make the
job of finding them unemployment hard and long. I think the author is looking more
towards giving a temporary treatment to the disease and not helping preventing the
disease to grow more.
To take a simple example, let us assume that the effort needed to help find 2 recently
unemployed workers a job is equal to help one long term unemployed find a job. Now if
we follow the author’s policy, then we are helping one long term unemployed getting
employed but we are also endangering two workers to again get to that stage where they
have been unemployed for a year. This can be very dangerous and instead of decreasing
unemployment can raise it to further unreasonable levels.
In the above example, we have taken the ratio 1:2 which is very optimistic. But in the real
world this would be much more difficult. Let us see why. For a recently unemployed, it is
easy to gather his skill information. But for a person who has been unemployed for over a
year, he goes through a period of skill readjustment which he himself doesn’t know. So
the first thing is to estimate this skill readjustment. This might itself take a lot of time.
Let us also look at the social context. For workers who have been unemployed for over a
year have probably already gone through that period of mental transition (of being
unemployed and some of them might be so transformed that they would not like to get
employed) but the recently unemployed haven’t. So it is important that we don’t allow
them to go into that stage. Along with the unemployed worker, it also transforms
everybody in his family which might be very bad for the society. It is like having a
capsized boat where half of the people are old and half are youth. So assuming that we
can save only half of them whom shall we save? The old require more help but it is the
youth that will work and keep the society running. Assuming that if we even save the old,
who is going to feed them once they are saved? They are anyhow going to die of
starvation if there is nobody to work and provide food to them.
Our analysis says that this policy might be more detrimental than helpful. It will
ultimately lead to still higher unemployment. For countries that already have high
unemployment, it is important to make sure that it doesn’t go up. For that it is necessary,
that we don’t let a lot of people getting unemployed. Once we stabilize that part, we can
try to reduce that unemployment by either structural reforms or steadily helping the long
term unemployed to acquire their lost skills and becoming employed.
[1] Layard, Nickell and Jackman (1991, p. 61 – 75)
Saturday, September 13, 2008
LONG TERM CAPITAL MANAGEMENT
Thoughts about LTCM (Long Term Capital Management)
DEAR FRIEND FROM NYU
• During distressed times, however diversified a fund may be, all their trades
become positively correlated. This is what happened with LTCM. They thought
that they were pretty well diversified but one crisis triggered the other and all their
trades became positively correlated.
• Sometimes to generate alpha, hedge funds try to put up exotic trades where they
don't have any expertise. They should understand that with their position sizes,
they can move markets. So if they don't know much about the relevant markets,
they should remain away from it. I get a feeling that to make money, LTCM
somehow ventured into the unknown territory which was a last nail in the coffin.
They were trying to profit from large positions in risk - arb when they had no
business or expertise to do so.
• LTCM was a very special case. Because of their large clout (Nobel prize winners
and math geniuses), they were able to shell money from a lot of Investment
Banks. They were never worried about their haircuts, which specially gave them
the luxury of affording huge leverage positions and also to keep their losing
positions for the time they wanted.
• Related to the above point, if there are substantial margin requirements and
haircuts, traders tend to remain disciplined. At some point of time, they know that
they have to cut losses because they don't have the luxury to replenish their
margin for ever. (on the other hand if there are no margin requirements,
everybody is lax)
• Very smooth returns should cause suspicion in the investor's mind. This specially
happens if the fund trades in a lot of illiquid securities and the marks are not well
defined in those securities. These returns also tend to have a high degree of auto -
correlation. Although, returns for a well managed (in terms of risk) fund can be
auto correlated, but this definitely demands some inspection.
• Mathematical models are always true (I firmly believe in this), but markets are
not. The markets are made up of mortals and some of them have to be wrong.
Therefore, even though the market may ultimately go in the right direction and the
funds may profit from their models, but before that they will have to survive the
noise created by these wrong mortals. Markets can remain illogical for more time
than one can remain solvent. So on the contrary, this statement does seem more
sensible, “Markets all always correct and it is the individual participants that are
wrong, for there won’t be markets if there are no losers”.
DEAR FRIEND FROM NYU
• During distressed times, however diversified a fund may be, all their trades
become positively correlated. This is what happened with LTCM. They thought
that they were pretty well diversified but one crisis triggered the other and all their
trades became positively correlated.
• Sometimes to generate alpha, hedge funds try to put up exotic trades where they
don't have any expertise. They should understand that with their position sizes,
they can move markets. So if they don't know much about the relevant markets,
they should remain away from it. I get a feeling that to make money, LTCM
somehow ventured into the unknown territory which was a last nail in the coffin.
They were trying to profit from large positions in risk - arb when they had no
business or expertise to do so.
• LTCM was a very special case. Because of their large clout (Nobel prize winners
and math geniuses), they were able to shell money from a lot of Investment
Banks. They were never worried about their haircuts, which specially gave them
the luxury of affording huge leverage positions and also to keep their losing
positions for the time they wanted.
• Related to the above point, if there are substantial margin requirements and
haircuts, traders tend to remain disciplined. At some point of time, they know that
they have to cut losses because they don't have the luxury to replenish their
margin for ever. (on the other hand if there are no margin requirements,
everybody is lax)
• Very smooth returns should cause suspicion in the investor's mind. This specially
happens if the fund trades in a lot of illiquid securities and the marks are not well
defined in those securities. These returns also tend to have a high degree of auto -
correlation. Although, returns for a well managed (in terms of risk) fund can be
auto correlated, but this definitely demands some inspection.
• Mathematical models are always true (I firmly believe in this), but markets are
not. The markets are made up of mortals and some of them have to be wrong.
Therefore, even though the market may ultimately go in the right direction and the
funds may profit from their models, but before that they will have to survive the
noise created by these wrong mortals. Markets can remain illogical for more time
than one can remain solvent. So on the contrary, this statement does seem more
sensible, “Markets all always correct and it is the individual participants that are
wrong, for there won’t be markets if there are no losers”.
P.CHIDAMBARAM WONS INDIA LOOSES 2007
India Budget 2007 – If Chidambaram1 won, then India lost.
ITA A REVIEW FROM A DEAR FRIEND OF MINE FROM NEW YORK UNIVERSITY
A Goldman Sachs report2 on the BRIC countries based on the Solow’s growth model
places the Indian economy ahead of the US in the next 50 years. The Solow’s growth
model assumes that capital, labor and total factor productivity 3(TFP) are the key drivers
to economic growth. Although this assumption is not very accurate, these three drivers
capture lots of crucial economic factors into account. For example, inflationary factors
that play a major role in deciding the dimensions of the capital and labor markets are
build into this model through the capital and labor inputs. In this article, we will try to
link this budget with the above mentioned drivers of growth.
Instead of simplifying the tax code, this budget has worked to add on more
complications. In India, there is a 30% tax on personal income and then a 10% surcharge
on that income. Additionally, there is a 1% “education cess” surcharge. This budget
bought another education surcharge of 1% on secondary education. We feel that people
are not as troubled by the effective taxes as they are with the number of different
surcharges. Accounting for the different number of surcharges is cumbersome. This
example was for personal income tax. For company income taxes, this surcharge list runs
longer. There are more than 10 different surcharges that one has to pay in importing
materials. People waste a lot of time just to figure out these categories. We believe that
people will be much more productive with a flat tax rate. They will spend more time
working and less time accounting for these surcharges. This will increase TFP.
The effective tax rates for medium businesses in India work out to be around 34% - 38%
depending on the type of business. Then there is the unofficial tax that is paid to the
government official as bribes4. Approximating this tax as 2% would bring the affective
tax rate to around 40%. Very large businesses get special tax exemptions because they
are placed in the so called Special Economic Zones (SEZ). Although theoretically, it is
not only the large businesses that are allowed to enter the SEZ’s but that is what ends up
happening. The government has forgotten that it is the medium and small businesses that
will define India’s future. It is the medium and small industries that need government
help and not the large industries. The large industries will reach limits in terms of their
marginal product of labor and capital. We believe that the Indian government is working
towards destroying the medium and small sector rather than helping it to come up. This is
a great worrying factor for the long term growth picture of India.
1 P. Chidambaram is the Finance Minister of India
2 Goldman Sachs, Global Economics Paper No: 99, Dreaming with BRIC’s: The Path to 2050.
3 Total Factor Productivity can be seen as the degree of efficiency and the related technological innovations
in the economy.
4 It doesn’t matter whether one pays the government tax or not. This unofficial tax is present in both the
cases. It will be roughly 20% in case you decide not to pay anything to the government. That is also the
reason why a lot of people in India don’t pay taxes to the government. They prefer to pay this unofficial tax
and save the actual taxes. We also fear that complicating the tax structure further will decrease the taxing
base as people would prefer to pay the unofficial tax (which ironically has a flat structure)
The implementation of the fringe taxes will be detrimental to the incentive structure. Let
us talk about staff welfare and see how that will be affected by this new tax. There will be
a 6% tax levied on all staff expenses and welfare initiatives. So now all the staff outings,
trainings and even the food expenses during the staff meetings will be taxed. What effect
will this have on the company policies? Will the company now spend on staff outings?
Will they promote staff get – together’s that are so important in the overall welfare of the
working atmosphere? We need to think about these questions and much more. This can
have a very deleterious effect on labor productivity.
In this budget, the finance minister outlined the initiatives that he would be taking to
control inflation. We also believe that these measures will work but with one caveat.
These measures will only work when people will believe them. “Credibility” is the
buzzword over here. We do not have to go far to see that the finance minister has lost all
his credibility. Hours after his differential excise policy5 on the cement manufacturers
was announced, that the cement cartel increased the prices6. The move backfired. The
finance minister had included this as measures of decreasing inflation but now this will
increase the inflationary pressures. Even in the past, the finance minister has not allowed
the Reserve bank of India to function independently. Every time the Reserve bank raised
rates, the finance minister comes out with a statement about cutting rates in the future.
This is definitely not the best scenario for a developing capital market.
The Goldman Sachs report says, “The key assumption underlying our projections is that
the BRICs maintain policies and develop institutions that are supportive of growth”. We
believe that this assumption might not be true if the Indian government does not work to
improve her economic and tax policies. Though the above analysis is by no means
complete, they give a flavor of the present system. India will have to bring a steady
change in her policies in order to sustain growth and productivity. This budget has been a
total failure in this regard. Instead of addressing the above issues, this budget has further
worked to exacerbate the deteriorating situation.
5 A Differential excise duty is to be levied on cement. A retail price of less than INR 190 per bag will
attract an excise duty of INR 350 per tonne while the same will be jacked up to INR 600, if the retail price
exceeds INR 190 per bag
6 Cement prices in western and northern India have been raised by INR 12 per 50 kilogram bag from March
1, a trade body official said on Thursday, Reuters
ITA A REVIEW FROM A DEAR FRIEND OF MINE FROM NEW YORK UNIVERSITY
A Goldman Sachs report2 on the BRIC countries based on the Solow’s growth model
places the Indian economy ahead of the US in the next 50 years. The Solow’s growth
model assumes that capital, labor and total factor productivity 3(TFP) are the key drivers
to economic growth. Although this assumption is not very accurate, these three drivers
capture lots of crucial economic factors into account. For example, inflationary factors
that play a major role in deciding the dimensions of the capital and labor markets are
build into this model through the capital and labor inputs. In this article, we will try to
link this budget with the above mentioned drivers of growth.
Instead of simplifying the tax code, this budget has worked to add on more
complications. In India, there is a 30% tax on personal income and then a 10% surcharge
on that income. Additionally, there is a 1% “education cess” surcharge. This budget
bought another education surcharge of 1% on secondary education. We feel that people
are not as troubled by the effective taxes as they are with the number of different
surcharges. Accounting for the different number of surcharges is cumbersome. This
example was for personal income tax. For company income taxes, this surcharge list runs
longer. There are more than 10 different surcharges that one has to pay in importing
materials. People waste a lot of time just to figure out these categories. We believe that
people will be much more productive with a flat tax rate. They will spend more time
working and less time accounting for these surcharges. This will increase TFP.
The effective tax rates for medium businesses in India work out to be around 34% - 38%
depending on the type of business. Then there is the unofficial tax that is paid to the
government official as bribes4. Approximating this tax as 2% would bring the affective
tax rate to around 40%. Very large businesses get special tax exemptions because they
are placed in the so called Special Economic Zones (SEZ). Although theoretically, it is
not only the large businesses that are allowed to enter the SEZ’s but that is what ends up
happening. The government has forgotten that it is the medium and small businesses that
will define India’s future. It is the medium and small industries that need government
help and not the large industries. The large industries will reach limits in terms of their
marginal product of labor and capital. We believe that the Indian government is working
towards destroying the medium and small sector rather than helping it to come up. This is
a great worrying factor for the long term growth picture of India.
1 P. Chidambaram is the Finance Minister of India
2 Goldman Sachs, Global Economics Paper No: 99, Dreaming with BRIC’s: The Path to 2050.
3 Total Factor Productivity can be seen as the degree of efficiency and the related technological innovations
in the economy.
4 It doesn’t matter whether one pays the government tax or not. This unofficial tax is present in both the
cases. It will be roughly 20% in case you decide not to pay anything to the government. That is also the
reason why a lot of people in India don’t pay taxes to the government. They prefer to pay this unofficial tax
and save the actual taxes. We also fear that complicating the tax structure further will decrease the taxing
base as people would prefer to pay the unofficial tax (which ironically has a flat structure)
The implementation of the fringe taxes will be detrimental to the incentive structure. Let
us talk about staff welfare and see how that will be affected by this new tax. There will be
a 6% tax levied on all staff expenses and welfare initiatives. So now all the staff outings,
trainings and even the food expenses during the staff meetings will be taxed. What effect
will this have on the company policies? Will the company now spend on staff outings?
Will they promote staff get – together’s that are so important in the overall welfare of the
working atmosphere? We need to think about these questions and much more. This can
have a very deleterious effect on labor productivity.
In this budget, the finance minister outlined the initiatives that he would be taking to
control inflation. We also believe that these measures will work but with one caveat.
These measures will only work when people will believe them. “Credibility” is the
buzzword over here. We do not have to go far to see that the finance minister has lost all
his credibility. Hours after his differential excise policy5 on the cement manufacturers
was announced, that the cement cartel increased the prices6. The move backfired. The
finance minister had included this as measures of decreasing inflation but now this will
increase the inflationary pressures. Even in the past, the finance minister has not allowed
the Reserve bank of India to function independently. Every time the Reserve bank raised
rates, the finance minister comes out with a statement about cutting rates in the future.
This is definitely not the best scenario for a developing capital market.
The Goldman Sachs report says, “The key assumption underlying our projections is that
the BRICs maintain policies and develop institutions that are supportive of growth”. We
believe that this assumption might not be true if the Indian government does not work to
improve her economic and tax policies. Though the above analysis is by no means
complete, they give a flavor of the present system. India will have to bring a steady
change in her policies in order to sustain growth and productivity. This budget has been a
total failure in this regard. Instead of addressing the above issues, this budget has further
worked to exacerbate the deteriorating situation.
5 A Differential excise duty is to be levied on cement. A retail price of less than INR 190 per bag will
attract an excise duty of INR 350 per tonne while the same will be jacked up to INR 600, if the retail price
exceeds INR 190 per bag
6 Cement prices in western and northern India have been raised by INR 12 per 50 kilogram bag from March
1, a trade body official said on Thursday, Reuters
Friday, September 12, 2008
wal mart history and marketing strategy
Wal-Mart's history is one of innovation, leadership and success. It started with a single store in Rogers, Arkansas in 1962 and has grown to what is now the world's largest - and arguably, the most emulated - retailer. Some researchers refer to Wal-Mart as the industry trendsetter. Today, this retailing pioneer has annual revenues of over $100 billion, 3,000 stores and more than 750,000 employees worldwide. Wal-Mart operates each store, from the products it stocks, to the front-end equipment that helps speed checkout, with the same philosophy: provide everyday low prices and superior customer service. Lower prices also eliminate the expense of frequent sales promotions and sales are more predictable. Wal-Mart has invested heavily in its unique cross-docking inventory system. Cross docking has enabled Wal-Mart to achieve economies of scale which reduce its costs of sales. With this system, goods are continuously delivered to stores within 48 hours and often without having to inventory them. This allows Wal-Mart to replenish the shelves 4 times faster than its competition. Wal-Mart’s ability to replenish theirs shelves four times faster than its competition is just another advantage they have over competition. Wal-Mart leverages its buying power through purchasing in bulks and distributing the goods on it’s own. Wal-Mart guarantees everyday low prices and considers them the one stop shop. Case Overview The case study starts off with quotes from Wal-Mart executives with their thoughts of how employees/consumers should feel about the arguably most innovative retailer. “Wal-Mart employees who do not think globally are working for the wrong company.” “Wal-Mart must think and act as if it’s a global company. Otherwise, it cannot grow enough in the United States to maintain its stock price. It needs to be in South America. It needs to be in Asia. It needs to be in Europe.” Wal-Mart has taken their mind and cash over the last 20 years to become the world’s largest retailer. Wal-Mart had a base of 2,200 stores in the 80’s, closing out of the 90’s with a bang of 3,600 stores and $4.4 billion in net income. Spurred by NAFTA, Wal-Mart took advantage foreseeing potential growth in the foreign markets. Currently they have stories in the following countries: Mexico, Puerto Rico, Canada, Argentina, Brazil, China, Korea, United Kingdom, and in 1998 a controversial Germany. Most analysts believed Wal-Mart would move into eastern European countries however Wal-Mart confounded the analysts when they purchased a 21-unit Werkauf chain in Germany. Why Germany they ask? The Germany countryside was littered with carcasses of other retailers, therefore Wal-Mart new that its non brand name items, service, and low prices would succeed. Analysts believed that Wal-Mart would not buy in Germany for many reasons: first, zoning laws, scarcity of land, and high real estate prices make it almost impossible to find affordable space for new supercenters. Second, the domination of other major retail stores. Next, due to German unions, the workers are very highly paid and unemployment being high. Last, Wal-Mart low price strategy could be hindered due to other manufacturers’ marketing strategies of selling brand name goods. Of course, Wal-Mart has succeeded in Germany with a “smile” as always advertised. Wal-Mart pushes the limit of hours being opened despite the government regulated operating times. Wal-Mart has also renovated many German stores, restocking them with common shopping practices, wider aisles, and renaming the stores Wal-Mart. Most importantly in a land of pfenning pinchers, Wal-Mart has introduced EDLP (“Every Day Low Prices”). The new low prices have caused many competitors to lower their prices, in turn reducing income. After the completion of the move to Germany, analysts now started predicting Wal-Mart’s next threat to retailers was going to happen. Wal-Mart landed in Europe, causing many retailers to merge in order to survive. Questions 1. Describe Wal-Mart’s global strategy? What tactics has it used to become a major global retailer? Wal-Mart's success is mainly based on its concentration of a single-business strategy. This strategy has achieved enviable success over the last three decades without relying upon diversification to sustain its growth and competitive advantages. In a sense, Wal-Mart’s low prices, service, and smile are their leading marketing strategies. However, there is risk in this strategy, because concentration on a single-business strategy is similar to "putting all of a firm's eggs in one industry basket". On the business side, Wal-Mart is the country’s most sophisticated retailer in terms of using information systems. Their cross-docking inventory and transportation services able them to have the goods needed by the consumer at all times. In order for Wal-Mart to become a major global retailer, they have closely examined and utilized tactics to profit from their many stores. One great tactic is starting free-trade-zone distribution centers, in turn, saving almost $500,000 annually. Another tactic includes their service from when you walk in the store to when you leave. Also, their bread and butter is again the technology they utilize. They can track how much of one item has been sold on any giving day, and if not a hot commodity at one store, they will ship it out to another where it is being sold much faster. 2. Can Wal-Mart sustain its competitive advantage in global retailing? Domestically, Wal-Mart is growing through its Superstores. Traditionally, this business is a very low-margin space, but with Wal-Mart's competitive advantages in distribution and leverage over suppliers, they can make it a big winner. International expansion has been robust and will continue to be an important part of Wal-Mart's future growth opportunities. Certainly the Internet provides a growth avenue as well that will open a new faucet for them to potentially take over an upcoming market. I really think that the growth opportunities for Wal-Mart are just beginning. Any company that can grow net income to $4.4 billion and yearly sales of $137 billion should make you do a double take. I personally feel that a trillion dollars in sales is not unreasonable. 3. Explain the importance of selling only brand-name merchandise to the Wal-Mart strategy. The focus that Wal-Mart shares in all advertisements is service, low prices, and quality of goods. Wal-Mart is not a specialty shop focusing on one “good”, they are innovative offering a selection based on consumers overall needs. They do have some brand name merchandise however do not have a specific section set aside for Polo Shirts. Unlike Wal-Mart, brand name stores in most circumstances, only offer their product at a price that is normally above affordable. These retailers rely on their name to sell; Wal-Mart relies on their convenience and low prices. 4. Choosing markets to enter is of major importance in global expansion. If you were in charge of Wal-Mart, what European country would you enter next? Why? Would entering this country require adaptation of Wal-Mart’s marketing strategy and tactics? If so, how? If I were in charge of Wal-Mart, I would choose to expand into Russia next. The Russian economic structure nine years ago is still struggling from the collapse of USSR. Russia has achieved some economic progress. Inflation is now under control and the ruble is now somewhat stabilized. The economic situation in Russia makes it a perfect target for a Wal-Mart. Wal-Mart’s inventory of heavily discount of brand-name merchandise would offer consumers in this market the quality they desire at prices they can afford. Even though there has been an economic decline, people still seed discounted prices as opposed to high-end goods. Wal-Mart sells reliable merchandise that consumer’s need. Russian consumers are looking for quality goods that they need to sustain life at a price they can afford. The fact remains that people need day-to-day items to get by such as milk, eggs, and meat – things people need, food and clothes for their families. Wal-Mart is the ideal place to purchase these goods; it is your one stop shopping headquarters. I do not feel that entering Russia would require Wal-Mart to alter their marketing strategy and tactics. Wal-Mart runs its business based on “everyday low prices”, which is just what the Russian population needs. 5. If you were running Wal-Mart, what non-European country in the world would you enter next? Why? Would entering this country require adaptation of Wal-Mart’s marketing? If so, how? I would choose Australia. Australia is a perfect market for Wal-Mart for much of the same reasons as Russia but from a different angle. Australia has had one of the most outstanding economies of the world in recent years—more competitive, flexible and vibrant than ever before. Although much smaller than those of the United States and Japan, Australia's economy is larger than those of Sweden, Belgium and Switzerland. Australia is a high-growth, low-inflation, low-interest rate economy with a very competitive business sector, a flexible labor market and an efficient and democratic government. One of Wal-Mart’s main competitors would be Franklin, which is currently struggling at this time. (I better get my Wal-Mart set up quick.) Many of the Australian retailers such as Aldi, Tesco, and Ahold, who previously relied on specials, would be forced to reduce their daily prices to compete with Wal-Mart’s everyday low price strategy. Low-Prices are the foundation of Wal-Mart’s ideas and strategy and could surely beat out Australia’s smaller end retailers. Another are in which Wal-Mart would prosper is with tourists,. Wal-Mart is well known and trusted , and in high tourism cities such as Sydney, travelers would be more likely to shop at a place they know and trust. Its inevitable that while on vacation for example, people forget to pack or run out of necessities such as toothpaste, shampoo, and deodorant, etc. Why not go to Wal-Mart and get all these things and pick up the few extra goodies you didn’t realize you needed. I thinks Wal-Mart’s normal marketing strategies are traditional marketing strategies, ideal for the Australian culture. Australians expect the quality they need at the prices they can afford.
long term indian hospitality sector seems sunny!!!
Hotel investment firm Jones Lang LaSalle Hotels (JLL Hotels) set up a dedicated India team this year, hiring Sudeep Jain from Starwood Hotels and Resorts Worldwide Inc. as executive vice-president and country head. JLL Hotels advised on 259 hotel transactions globally last year with a combined value of $13.9 billion (Rs63,106 crore). On a visit to India, Arthur de Haast, global chief executive officer of JLL Hotels, in an interview spoke about a global slowdown in the hotel business and India’s future prospects. Edited excerpts:
How has the economic slowdown affected the hotel business?
There is clearly a slowdown in the global markets, and it is affecting different markets at a different pace. In markets like the US, there is definitely a slowdown in the demand for hotel accommodation, but that is not universal. The continent of Europe is moving at different speeds and markets like Spain are in quite a lot of trouble whereas in central and eastern Europe, the economies are still growing and the demand there is holding up better. Russia is still very strong and has some of the highest RevPARs (revenue per available room, a combination of occupancy and average room rates) in the world. Asia is generally holding up better. Economic growth is slowing a little bit, which is beginning to impact the performance of some hotels, but it is not as significant as we are seeing in Europe and North America.
How do you quantify this slow down globally?
If you look at what has been happening in the global hotel investment market, this year, till the end of June, the total volume of transactions is $13.9 billion worldwide, which is 76% down on what was trans acted in the first half of 2007.
So, we have seen a very significant slowdown in the level of investments, and a large part of that is driven by the US market which is down by 81%. Within the Asia-Pacific region, Japan, which was a very active investment market in 2006-07, has been the market with the most significant slowdown in 2008.
And India?
Here, there is virtually no investment activity, and I am talking about existing hotels where the ownership is transferred from one investor to another. Here, the existing hotels are very tightly held by three major companies—Taj, Oberoi and ITC—and they are not inclined to sell out their real estate. The investment volumes in India are relatively small.
How is India positioned in this con text?
In India, if you look at it medium to long term, the fundamentals are very promising. In a global context, given the size of the economy, the population and the future potential of India as a tourist destination, the demand fundamentals are very good. The current supply of hotel rooms in India—at around 100,000—is less than London and even Manhattan.
The continuing growth in the economy and the continuing promotion of India as a tourist destination is increasing its importance for international conferences and business meetings. The long-term demand will be good. However, India needs a lot more hotels in order to service that future demand. There is a lot of sup ply being talked about, there is also quite a lot under construction, and there are clear trends that what has been talked about and what is being built in the short term are two different things. Even in those projects that looked pretty solid and likely to happen 12 months ago, we are beginning to see some slippage.
Any reasons for this slippage?
Projects are slowing down for two reasons. One is it is becoming more difficult to raise debt finance for projects... The other factor is that they are also beginning to sense that there may be some slowdown on the demand side and, therefore, they are becoming a little bit more nervous about whether they are going to meet their target returns. And in some cases they are reviewing their project to see whether it is going to make sense at all.
What is the short-term impact (six months to a year) of the slowdown in India?
We are clearly seeing a slowdown, not so much in domestic demand as at the international level. Major financial institutions that would have held a global conference here in New Delhi or Mumbai are likely to review that and probably cancel it. International companies that have global conferences and trade shows are very carefully looking at this and it is starting to impact the demand side. This will result in a slowdown in demand.
How is India perceived as an in vestment region by international hotel brands around the word?
I don’t think there has been any reduction in appetite from the big global brands. The long-term fundamentals of India are very strong, and there are companies that have very long-term strategies for India.
The Accors, the IHGs (InterContinental Hotels Groups) and the Starwoods of this world will continue to seek to increase their penetration in the market here and increase the number of hotels they have under management.
How has the economic slowdown affected the hotel business?
There is clearly a slowdown in the global markets, and it is affecting different markets at a different pace. In markets like the US, there is definitely a slowdown in the demand for hotel accommodation, but that is not universal. The continent of Europe is moving at different speeds and markets like Spain are in quite a lot of trouble whereas in central and eastern Europe, the economies are still growing and the demand there is holding up better. Russia is still very strong and has some of the highest RevPARs (revenue per available room, a combination of occupancy and average room rates) in the world. Asia is generally holding up better. Economic growth is slowing a little bit, which is beginning to impact the performance of some hotels, but it is not as significant as we are seeing in Europe and North America.
How do you quantify this slow down globally?
If you look at what has been happening in the global hotel investment market, this year, till the end of June, the total volume of transactions is $13.9 billion worldwide, which is 76% down on what was trans acted in the first half of 2007.
So, we have seen a very significant slowdown in the level of investments, and a large part of that is driven by the US market which is down by 81%. Within the Asia-Pacific region, Japan, which was a very active investment market in 2006-07, has been the market with the most significant slowdown in 2008.
And India?
Here, there is virtually no investment activity, and I am talking about existing hotels where the ownership is transferred from one investor to another. Here, the existing hotels are very tightly held by three major companies—Taj, Oberoi and ITC—and they are not inclined to sell out their real estate. The investment volumes in India are relatively small.
How is India positioned in this con text?
In India, if you look at it medium to long term, the fundamentals are very promising. In a global context, given the size of the economy, the population and the future potential of India as a tourist destination, the demand fundamentals are very good. The current supply of hotel rooms in India—at around 100,000—is less than London and even Manhattan.
The continuing growth in the economy and the continuing promotion of India as a tourist destination is increasing its importance for international conferences and business meetings. The long-term demand will be good. However, India needs a lot more hotels in order to service that future demand. There is a lot of sup ply being talked about, there is also quite a lot under construction, and there are clear trends that what has been talked about and what is being built in the short term are two different things. Even in those projects that looked pretty solid and likely to happen 12 months ago, we are beginning to see some slippage.
Any reasons for this slippage?
Projects are slowing down for two reasons. One is it is becoming more difficult to raise debt finance for projects... The other factor is that they are also beginning to sense that there may be some slowdown on the demand side and, therefore, they are becoming a little bit more nervous about whether they are going to meet their target returns. And in some cases they are reviewing their project to see whether it is going to make sense at all.
What is the short-term impact (six months to a year) of the slowdown in India?
We are clearly seeing a slowdown, not so much in domestic demand as at the international level. Major financial institutions that would have held a global conference here in New Delhi or Mumbai are likely to review that and probably cancel it. International companies that have global conferences and trade shows are very carefully looking at this and it is starting to impact the demand side. This will result in a slowdown in demand.
How is India perceived as an in vestment region by international hotel brands around the word?
I don’t think there has been any reduction in appetite from the big global brands. The long-term fundamentals of India are very strong, and there are companies that have very long-term strategies for India.
The Accors, the IHGs (InterContinental Hotels Groups) and the Starwoods of this world will continue to seek to increase their penetration in the market here and increase the number of hotels they have under management.
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