Virtual Properties

The Economist:

AFTER a long winter, spring brought a touch of sunshine to American house prices. The latest Case-Shiller indices, released on June 30th, showed that prices continued to fall in April: the ten-city index was 0.7% lower than a month earlier, and the 20-city index went down by 0.6%. But these falls were the smallest since June 2008. So even though house prices in America were still roughly 18% lower than a year earlier, many now suspect that the worst is over.

Such optimism may be premature. On June 30th the Office of the Comptroller of the Currency, a bank regulator, said that the number of foreclosures in process rose by 22% in the first quarter of this year, and that the number of prime mortgages with payments at least 60 days late went up by 20%. The government is stepping up its efforts to get people to take part in its anti-foreclosure programmes.

The focus on the housing market is understandable, not least because it has direct links with many other industries. But those who look to housing to lead a broader economic recovery also believe that house prices indirectly affect consumer spending, both by allowing people to borrow against the value of their homes and through something known as the "housing wealth effect".

Bill Gross:

I was impressed this weekend by an article in the Op-Ed section of The New York Times by staff writer Bob Herbert. "No Recovery in Sight" was the heading and his opening sentence asked, "How do you put together a consumer economy that works when the consumers are out of work?" That is really all one needs to ask when divining our economy's future fortune. Unless an optimist can prescribe how to put Humpty Dumpty back together again and shuffle him/her back to work then there can be no return to an "old normal." As unemployment approaches 10%, what is less well publicized is that the number of "underutilized" workers in the U.S. has increased dramatically from 15 to 30 million. Those without jobs, as well as those individuals who only work part-time and have become discouraged and stopped looking, total 30 MILLION people. The number is staggering. Commonsensically, one has to know that many or most of these are untrained for the demands of a green-oriented, goods-producing future economy. Imagine a welding rod in the hands of an investment banker or mortgage broker and you'll understand the implications quicker than any economist using an econometric model.

What this all means to you as an investor is near obvious as well. Unsurprisingly, what still can be modeled is the direct correlation of real profit growth to real economic growth, assuming a constant division of the "pie" between profits, labor and government. If long-term economic growth declines by 1½% then profit growth will as well. This, after settling at perhaps half of absolute peak profit levels of 2007, because of the rise of savings rates from 0 to 8% or higher. But to add to the woes of the investor class, one has only to observe that their share of the pie is shrinking. What does the General Motors example tell us all about the rebalancing of power between the investor class and the proletariat? What do trillion-dollar deficits and the recent reinitiation of PAYGO government programs tell you about the future of corporate tax rates? They're headed higher. Do you really think that a national health care program can be paid for with cost-cutting as opposed to tax hikes at insurance companies and benefit-paying corporations throughout all sectors of the American economy? The new normal will not be investor-friendly unless your forecasting dial is turned to "Pollyanna" or your intelligence quotient is significantly less than 100.

Michael Skapinker:

In the view of two recent surveys, however, London is no place to live. Nor is New York. Tokyo perhaps passes muster. Shanghai? Forget about it.

The two surveys - one by Monocle magazine, the other by the Economist Intelligence Unit - rank cities for their "liveability". This sounds like a dreadful neologism, but the Oxford Shorter Dictionary is quite happy with it, defining liveable as "conducive to comfortable living".

Zurich is the world's most liveable city, declares Monocle. My colleague Tyler Brûlé, who is editor-in-chief of that excellent publication, writes that Zurich gets the wink for its "high-quality housing, impeccable public transport network, a refreshing lake at its core, a well-connected and user-friendly airport, cosy little cinemas, well-tended bars and diverse population". Copenhagen took second place. Neither London nor New York made the top 25.

Vancouver, 14th in the Monocle survey, won top spot in the Economist Intelligence Unit liveability table, which ranked cities for their stability, healthcare, culture, environment, education and infrastructure. Vienna came second, Melbourne third.

Tokyo came only 19th in the Economist table, well behind the third slot Monocle assigned it. But then, as readers of his Financial Times Weekend column know, Tokyo is a personal favourite of Tyler's. I have visited the city twice, and loved it too. But one FT letter writer declared it "traffic-snarled, polluted and architecturally challenged". That is the fun of these city rankings. They get people worked up

Don Sull:

During the boom, many managers assumed their companies excelled at execution. In fact, much of their success arose from strong economic tailwinds. Now that the winds have shifted, executives discover to their chagrin that their company's execution engine is less powerful than they imagined. This post lists five of the top obstacles to execution in volatile markets.

1. Worship false idols
2. Managers talk about the wrong thing
3. Vikings become farmers
4. Chase too many rabbits
5. Rely exclusively on process to execute.

McKinsey:

Consumer-facing businesses whose revenues are now under pressure may find themselves having to compromise on customer service--for example, by reducing their hours of operation or the number of service workers they employ. Not surprisingly, McKinsey research shows that customer satisfaction scores are falling in some industries. Yet most executives think that reducing service levels is a mistake. How can a business maintain them while reining in costs? Our review of the companies with the best customer service records in ten industries shows the wisdom of challenging long-held but seldom-reviewed beliefs about service and testing them analytically. Very often, they turn out to be wrong.

Tim Bradshaw:

A boy lies on his back on a boardroom table in a high-rise office block in Toyko. He pulls out his Nokia, takes a photo of the setting sun - upside down - and sends it to his girlfriend in New York, where dawn is breaking. "Now I know we share the same horizon," says the voiceover. "My sunset is your sunrise."

It's a brilliant Nokia ad - the sort of simple, well-executed idea that agencies charge six-figure sums for. Only this one wasn't made by an ad agency - it was made by Hiroki Ono, a 23-year-old film student from Yokohama, Japan, who'd never made an ad before. The film, "Feel the globe", took just two days to make.

Hiroki's 30-second video was the winner of a competition run by Mofilm - a group working with film schools and YouTube addicts to find the best in user-generated content. Mofilm convinced companies such as Visa, HP, Best Buy and AT&T to "put their brands in the hands of consumers", as Nokia's head of brand engagement, Fiona Bosman, put it at yesterday's press conference at the Cannes Lions advertising festival.

Judging this contest was Spike Lee, director of Malcolm X and Inside Man and an enthusiastic supporter of user-generated content and DIY filmmaking.

Knowledge & SMU:

The seven ways

So, what should companies do to "reinvent" themselves as they gear up to meet these new challenges?

First, companies need to freely challenge the industry dogma. To Sheth, an industry's legacy and heritage is more of a liability than an asset. The reluctance to change, the natural tendency to follow a "prevailing wisdom", is a behaviour not restricted to a narrow group of companies. "Companies are able to thrive under tough times by challenging existing dogma," he said. For example, banks were reluctant to take part in micro-banking - the lending of small, miniscule sums of money to the poor and disadvantaged. But with a net margin of at least 40%, micro-banking is proving to be even more profitable than even investment banking.

Second, business leaders need to make "ordinary people extraordinary". "The best talent lies not at the top of the organisation, but at the foundation level. How you nurture them, how you bring them up, actually becomes a requirement for businesses, and there are companies that have done it," said Sheth, citing India's Wipro Technologies, one of its largest technology services firm, as an example. "Think about the value-add of a grain of wheat: when you make it into bread, the value-add is about five times. But if you take a human being, which is the best resource you can ever get, and polish him, nurture him, educate him, the value-add is infinite," said Sheth, a member of Wipro's board of directors since 1999.

Next, companies should learn how to be "world class customers". Many large corporations are great marketers, with the skill and savvy to produce goods that people are all too willing to buy. Yet, these very same companies are also the "worst buyers", with corrupt procurement departments and not nurturing their own suppliers positively, said Sheth. In a typical large manufacturer, the company's own value-add is only 30% of the total costs, including labour and capital investments. The other 70% are the costs of materials procured from the company's suppliers. Thus, "if you treat them with respect, just as you treat your customers, you will get an enormous leverage out of your suppliers," said Sheth. "But, I've not seen that in most companies."

British Airways:

With British Airways, the price you see is the price you pay.

You can rest assured that there won't be any extra charges for selecting a seat within 24 hours of departure, checking your bag or having a drink from our on-board bar. And of course, you'll receive the quality of service you'd expect from our award-winning airline.

Compare us with those no-frills airlines such as Ryanair and Easyjet that add extra charges and we think you'll be surprised to see what great value our prices offer.

Akio Toyoda:

was appointed president of Toyota Motor Corporation at the board of directors meeting held on June 23, following the Ordinary General Shareholders' Meeting on the same day. In addition to my comments here today, our executive vice presidents will provide remarks on their areas of business.

The global automobile industry has been facing extreme hardships since the latter half of last year. As for Toyota, we ended the last fiscal year with an operating loss of 461 billion yen. We expect our losses to deepen this fiscal year, and so all of us in the new management team at Toyota feel like we are setting sail during a storm.

Since the birth of Toyota, the company's philosophy has always been to "contribute to society." The first article of the Toyoda Precepts, our original statement of purpose as a company in 1935, states that we must contribute to the development and welfare of each country we operate in by working together - regardless of individual position - in faithfully fulfilling our duties. In other words, we must manufacture high-quality vehicles for the benefit of society.

"Contributing to society" at Toyota means two things. First, it means, "to manufacture automobiles that meet the needs of society and enrich people's lives." And second, "to take root in the communities we serve by creating jobs, earning profits and paying taxes, thereby enriching the local economies where we operate."

Unfortunately, we are currently losing money and that negatively affects the amount of revenue we pay the government in Japan and our host countries. Like everyone in the company, I am extremely frustrated about this.

So, we must start again from the very bottom up.

The 70-year history of Toyota has been filled with many challenges. Toyota stood close to the verge of bankruptcy in 1950 and suffered a labor dispute that reduced its workforce by a quarter. As a result, the president and other top executives chose to take responsibility for the situation by resigning. But this experience also marked the starting point of the strong labor-management relations that have supported Toyota to this day.

....

Rather than asking, "How many cars will we sell?" or, "How much money will we make by selling these cars?" we need to ask ourselves, "What kind of cars will make people happy?" as well as, "What pricing will attract them in each region?" Then we must make those cars.

The Economist:

Networking websites are booming, but they have not supplanted more traditional business networks.

RANÇOIS PÉROL, the adviser whom Nicolas Sarkozy, France's president, controversially appointed in February to head two merging mutual banks, is not known as a champion of transparency. But Mr Pérol has let it be known that he intends to reduce the influence of freemasons at Caisse d'Epargne and Banque Populaire. He has refused an invitation to a tenue blanche ouverte, a masonic meeting that non-freemasons may attend. And he does not want senior posts shared among the banks' various rival lodges.

French business may be particularly full of networks, but every country has its cliques, whether based on education, social background or spiritual beliefs. In Spain, Italy and Latin America as well as France, businesspeople speak of the influence of Opus Dei, a conservative Catholic lay order which supports a number of business schools. America has its Ivy League alumni groups and Rotary clubs. Chinese businesspeople often rely on guanxi, or personal connections.