BRIC - A shortcut to remember

Newspapers are full with information regarding automotive companies who open or will in the near future open a production capacity in Russia. 

Ford, Toyota...they already set ground in Russia. Now, it's GM's turn to begin producing their cars in Russia. Fiat, Hyundai, Nissan and Suzuki announce to follow the trend.

The paradox is that even though automotive companies struggle now with decreasing turnovers and profits, they still invest in factories in Russia. How come?

Markets in developed countries are already very saturated and market shares are rather stable. 

BRIC countries (Brasil, Russia, India, China) are the among the developing economies that play an increasing role in the world's economy. 

Especially in times of crisis, when developed countries are in recession, these countries continue their ascending trend. 

Russia and China  are countries with huge market potential as the economic growth leads to an increasing proportion of the middle class who affords to buy cars and new technology products. 

So why Russia and not China?

Although the regulations on foreign companies access in China have become less stringent, automotive companies still need a lot of authorizations and licenses and undergo shareholding restrictions (49%) if they want to open up a production capacity in the mainland. 

In contrast, Russia's laws are a bit more lax in this regard and allow wholly owned foreign businesses. Still, companies have to fight the red tape and long processing times or need to develop good ties with the local officials in order speed up processes.

Despite this, foreign companies take the risk because Russia will be one of the "promised lands" for the automotive business in the next years. 

But why open up a production factory and not use imports?

The most important reasons behind their thinking are:

- lower labor costs

- access to cheap resources (all kinds of metals)

- speed of distribution

- avoid taxes on imports

To sum up, while automotive companies standstill or even shut down some production capacities in developed countries, they open up new production facilities in Russia, as well as in other BRIC countries. The latter will be their main distribution markets in the future and everybody wants to gain a foothold in their markets to be able to capture a share of the huge market potential. 

Mobile phones - lifestyle or necessity?

"Romanians change mobile phones as they change socks"

According to a recent market study, one out of three Romanians change their mobile phones every 6 months. 

If we compare this with the Americans' buying behavior, they change their mobile phones every 3 years.

Irrational behavior I would say if we think that the average monthly income is EUR 470. However, as for everything, there IS AN EXPLANATION.

For Romanians, mobile phones are fashion and lifestyle objects. Mobile phones are used as artifacts of a certain life quality or social status that people aim to have. So it happens that even though some don't afford it, Romanians feel the need to own the latest technology, the most fashionable mobile phone and to show off with it. 

Post-communist Romania is a materialistic society. In this Romania, material objects such as a German car brand, a Nokia or Samsung mobile phone, play an essential role for one's image in the society. 

This behavior is somehow explainable by the political history. In communist times, all people were almost uniform in what they owned. Now when they have a wide variety of goods on the market and they have the possibility to buy them, they try to differentiate from another by owning sometimes extravagant material goods. 

However, I believe that Romania as EU member will change. Its citizen will learn from their EU peers that showing off doesn't bring too much long-term. Thus, they will prioritize their investment and will put more emphasis on: their homes, cultural and sport activities and health / wellness. They will understand that one doesn't show its quality of life by the car he/she drives, or the phone he/she speaks on, 

BUT

by the cosiness of one's house, by the overall image, especially the appeal of healthy and fit person, who feels good in its body and who enjoys a rich cultural life. 

Who's still profitable in times of crisis?

The last two months trained us to put up with bad news every day. We get up in the morning and open the newspaper with one idea in mind: 

which bank went bust this time? 

whom does the government rescue today?

or 

who is is taking over whom?

However, even in such difficult times there are some companies that have not only kept their profitability level, but increased it. 

So, who are they? What are their strategies so that we can transfer them to other industries?

One industry is the oil industry. Companies such as: Exxon Mobile, Royal Dutch Shell have announced increasing profits in the third quarter. 

The key question is: why?

Recall the situation on the market a few months ago, when the oil prices rocketed to $147 / barrel. At that point in time, these companies didn't suffer as they had oil reserves for a few months time. On the contrary... they used the market conditions to transfer the increase in price to the end consumers. As such, they registered increasing turnover, while keeping the same cost level. 

And now? 

Now, the price of the barrel has plummeted to $64, thus these companies can secure their oil reserves for a few months time at low prices. Thus, they won't be affected short term by the expected price increase to $100 / barrel. 

So, are they the winners?

For now, they are the winners. However, the effect of the crisis will be visible in their income statements in a few months time, because of the lower fuel prices and because of the consumers' tendency to drive less and choose more fuel efficient cars.

That is, this strategy is not sustainable in the long-run. That's why we see oil companies diversify in related fields such as regenerable energies, which is definitely  a high potential market in the future.

Finally, the oil industry is not the only one who doesn't suffer in times of crisis. Other industries are: pharma, tabbacco and consumer staples, known in the investors' world as "defensive industries". 

Helping China deal with the environmental issues

China is at crossroads. Environmental expectations are rising among its citizens along with the impatience and magnitude of environmental damage. World attention is focused on China as a result of its rapid economic growth and emergence on the global stage. 

Yet, increasingly the image of China is as the world’s factory with pollution blanketing the landscape, urban areas clogged with cars, skies filled with emissions and rivers too polluted to sustain life or productive use. While this is a caricature, it contains many elements from reality that shouldn’t be ignored. 

What can Chinese authorities do to address environmental issues?

- introduce tax incentives for recycling industrial land and thereby preserving agricultural land 

- condition local official's promotion to achievement of environmental targets

- introduce systems of road pricing that reflects congestion costs and environmental damage

- appoint more and better trained staff within the authorities who are responsible for implementing the environmental regulations

Furthermore, the top down approach of dealing with environmental issues must be complemented by a bottom-up approach in which every company feels itself responsible for its effects on the environment.

How can EU help China in the environmental challenge?

- EU could assist China in reforms, could transfer cutting-edge technologies and develop demonstration project. 

- enlist international NGOs to help with education and enforcement policies. Such measures would involve steering citizens and industries towards more energy-efficient and less environmentally damaging behaviour.

- Persuade multinational corporations (MNCs) to use their economic leverage to ensure that their Chinese partners adopt the best environmental practices is another alternative. 

Furthermore, the prices of energy have been kept low to reflect merely the production costs. China could use EU’s approach of “user should pay” and extend reforms that make energy price align to the supply and demand and reflect externalities. 

In line with the same reasoning “user should pay”, cars should be subject to safety inspections that include passing emissions tests on a regular basis. Policies that ban bicycles from some cities should be reversed, cycle tracks built and cycling, plus public transport, encouraged.

What can Chinese companies learn from EU companies approach to promote ecological awareness?

Chinese and foreign owned companies in China should be aware that:

- Corporate social responsibility can be a HR strategy for retaining the talents. This will become increasingly important as more and more young employees - especially those that are well educated and highly skilled - are looking at ethical issues.

- Corporate social responsibility has a positive effect on the bottom line and promotes team spirit. Organising staff outings to plant trees is one example of the kinds of activities that can help the environment while raising environmental awareness among employees and building team spirit. However, day to day activities such as paper recycling, limited use of air conditioning, turning off computer when they are not used have a more significant and longer impact.

- Along with demonstrating a commitment to corporate social responsibility and cutting costs, adopting an environmentally friendly policy can also be good for business. It can attract new customers while building community and investor confidence and expanding market share. Another key advantage is reduced overheads and operating costs in such areas as energy consumption, the production of waste and conservation of resources.

Finally, only the Chinese themselves can solve China’s environmental problems. The international community can help by persuasion, and where the environmental problems generated by China spread beyond its borders diplomatic pressure can legitimately be applied. But, the main role of the industrially developed countries will be to assist China through providing technology both commercially and through aid programmes.

Management consulting - in or out?

During one year, I have been gathering for and against impressions about working in management consulting, Now, I finally have a more round picture of this topic.

The main reasons for going into consulting are:

- If you don’t know for sure which industry you would prefer, consulting is a good option as it allows you to get a grisp of different industries in a short period of time .
- Type of activity – is very diverse, not in terms of the type of work that you’re actually doing, but rather in terms of areas/ topics / problems that you analyze.
- People – team work is the norm in consulting. If you like to argue for your ideas, to learn from others then that could be one place for you to be. Furthermore, consultants are known for being very analytical people, who tackle every problem in a structured way. They are also highly motivated to succeed and are willing to invest long hours in order to achieve this.
- Finally, it a springboard into middle management positions in external companies.

However, when you decide whether you should go into that direction, you should be aware of the following aspects:

- The activity is project-based, so basically you work in concentrated time frames. This means that you have to dedicate long hours to your job.
- Travel – is extensive. Expect to leave early on Mondays to different destinations and visit hotels, but not the countries. Do not expect to be home during the week. Friday is usually “office day”, which means that you return to your home office.
- Consulting is an intensive period in your life in which you have limited time for other activities. However, this is highly dependent on the office and country in which you are based.
- From consulting you acquire general industry knowledge, but not company specific. You have to be aware that if after such an experience you choose to join an external company, you won’t be offered top management positions, but rather middle management jobs. There is also the option of opening up your own business. In this case, consulting know how helps in developing and evaluating a business opportunity, as well as in leading teams, motivating people and understanding what are the key areas of each business.

Thus, it would be wise to evaluate your alternatives wisely:
do you want to be in a very active environment with extensive learning, work with very motivated and highly competitive people, but have no life outside it

OR

do you prefer to grow within an industrial company and have a more balanced lifestlye, but not as high results in terms of learning intensity and financial benefits?