DHL gives up on its American dream

MANY an ambitious, long-nurtured growth strategy will be abandoned during this rapidly worsening downturn. Bravely sticking to their original plans may ultimately make heroes of a few bosses, but in most boardrooms caution is now the watchword as new schemes are abandoned in favour of defending what is already profitable. DHL, the overnight-delivery arm of Deutsche Post World Net, a logistics conglomerate, is a case in point. On November 10th DHL said it would shut down its express-delivery service within America, with the loss of 9,500 jobs.

Five years ago DHL, which had been acquired by Deutsche Post in 2001, targeted the American market with much fanfare, eager to demonstrate that it was at least equal to the two delivery giants, FedEx and UPS. This was a crucial step in the campaign by Deutsche Post’s boss at the time, Klaus Zumwinkel, to create a global “one-stop shop” for delivery. (The former McKinsey consultant stepped down in February this year after a raid on his home in Cologne, and on November 7th he was charged with tax evasion.) ...

An air show highlights China’s ambitions in aviation

“ZHUHAI is one of the world’s most romantic cities,” claims the airport website of the southern Chinese city, just along the coast from Macau. It is hardly Paris or Venice, but Zhuhai has a special place in the heart of China’s aviation industry as the home of the country’s biggest air show, held every two years, at which deals are done and home-grown technology is proudly displayed.

One of the stars of the 2008 show, even though it has yet to make its maiden flight, was the ARJ21, a locally developed 70-seat regional jet. Its first flight is due to take place on November 16th after several delays—which, in all fairness, are common throughout the industry. But the ARJ21 made headlines because its manufacturer, the Commercial Aircraft Corporation of China (CACC), announced that the aircraft-leasing arm of GE, an American conglomerate, had ordered five of the $30m jets, with the option to buy another 20. The first will be delivered in 2013. ...

Television advertisements can work in fast-forward

BACK in the 1980s, marketers could be certain of reaching 90% of American households with an advertisement on prime-time network television. Now they would be lucky to reach a third. With hundreds of television channels and millions of websites to choose from, audiences have become fragmented. To make matters worse, the rise of digital video recorders (DVRs) such as the TiVo, which record programmes on a hard disk so that they can be watched at any time, also makes it easy to skip past the advertisements. So here, at last, is some good news for advertising folk: it is still possible to get your message across on television, even when a viewer has his finger on the fast-forward button.

The finding arises from an observation made by Adam Brasel and James Gips of the Carroll School of Management at Boston College in Massachusetts. They noticed that when people fast-forward a DVR they actually concentrate intensely on the screen, looking out for the end of the advertising break so that they can get back to their programme. This means they are probably paying more attention than they would if the advertisements were playing normally. ...

Companies may still have too many heads at headquarters

DOWNSIZING is the undisputed global management trend of the moment. This week Nortel, a Canadian telecoms-equipment company, Britain’s BT and DHL, a logistics giant owned by Germany’s Deutsche Post World Net, were among a host of firms announcing thousands of job cuts. As well as pruning heads in business units, some chief executives are trimming their headquarters (HQs), too.

Nortel is a case in point. On November 10th the company said that it had lost $3.4 billion in its third quarter and was taking urgent steps to cut costs. These include shedding 1,300 jobs and handing over activities such as marketing and R&D, which were previously run from the centre, to business units. Among those leaving are its marketing and technology chiefs. ...

Casino operators have taken some big gambles. Who will clean up?

PUSH through the packed crowds in the smoke-filled haze of the main gambling hall of the old Lisboa, once Macau’s flagship casino, or try to squeeze into a spot at a packed baccarat table at the Sands or its sister casino, the Venetian, now the most prominent property, and you would probably conclude that the gambling industry in Macau is thriving. Over the past year gambling revenues in the territory have increased by 27% to an all-time high (see chart). On November 10th Las Vegas Sands, owner of both the Sands and the Venetian, said revenues were up by two-thirds compared with a year earlier, and it had moved from an operating loss to a profit because of Macau’s performance. And yet, as good as all that may seem, trouble is looming.

In the four years since the ending of the monopoly on gambling held by SJM Holdings, the Lisboa’s parent, Macau has been transformed from a sleepy island into a legitimate rival to Las Vegas, with the same operators—Sands, MGM Mirage and Wynn Resorts—as the driving force. Growth, however, peaked in January and revenues have declined in the past two quarters. ...

After the bank bail-out, it is now Detroit’s carmakers who are pleading for help

IF NOTHING else, the revelation by General Motors (GM) on November 7th that it is in danger of running out of cash before the end of the year has concentrated minds. The reaction within the embattled car industry, and in Washington, DC, has been the same: we knew it was bad, but we did not know it was that bad. Ford is in a similar position, although its cash should hold out for a few months longer.

As for Chrysler, the smallest and weakest of Detroit’s Big Three, the precise state of its finances are harder to gauge because it is privately held. But the increasingly desperate attempts by Cerberus Capital Management, the private-equity firm that owns 80% of Chrysler, to offload some or all of it to another carmaker (GM said on November 7th that it had walked away from such a deal) suggest that its future as an independent entity is all but over. ...

Big drugmakers’ love affair with America is coming to an end

FOR many years America has been the heart and soul of the pharmaceuticals business. The adoption of price controls and government-run health systems in Europe, where the industry began, led many drugs firms to pitch their tents in the land of the free market. Keen to encourage innovation and suspicious of big government (until recently, anyway), America has allowed drugs companies to price their wares more or less as they please. As a result, over half of the leading firms’ profits come from America alone.

So it might seem odd to suggest that the industry’s future now lies in the developing world. Indeed, for years drugs firms resisted the trend, fashionable in other industries, towards pouring billions into emerging markets. They justified their stance by pointing to weak patent protection and low incomes in those markets. But now the industry has changed its mind. ...

Yahoo!’s Jerry Yang, a nice person and a pioneer of the web, must go

NOBODY would have been surprised if he had pulled out. Hours before Jerry Yang of Yahoo!, one of the world’s largest internet companies, was due to appear on the stage at an industry conference in San Francisco on November 5th, a big part of his firm’s strategy disintegrated. But Mr Yang gamely turned up at the Web 2.0 Summit nevertheless, and in his gentle and polite way tried to explain how it had all gone so wrong. This has been a “pretty amazing year”, he said with understatement. But he couldn’t quite bring himself to admit that he had made a mistake in June 2007 by taking over as chief executive of the firm that he and his friend David Filo had founded in 1994, at which they had since held only the tongue-in-cheek titles of “chief Yahoos”. Yet a mistake it clearly was, and it is time for Mr Yang and Yahoo!’s shareholders to say so.

At the time Mr Yang thought that he could, through sheer passion for his creation, revive the ailing company. He had been one of those who, during the dotcom depression, invited a Hollywood mogul, Terry Semel, to run Yahoo! and turn it into a media company. Both Mr Semel and Mr Yang, however, missed the significance of a new rival, Google, even though Messrs Yang and Filo had helped Google’s two founders—all four had been graduate students at Stanford—to get started only a few years earlier. ...

Japanese firms’ tradition of cross-shareholdings is causing problems

WHEN Japanese shares plunged to a 26-year low on October 27th, it was not just investors who felt the pain. Billions of dollars of corporate assets were also wiped out because many Japanese companies own stakes in their peers. Cross-shareholdings (when two firms hold each other’s shares) and stable-shareholdings (friendly firms holding shares they almost never sell) are the blood-brotherhood of corporate Japan. Such holdings are regarded as a way to cement business relationships, rather than as investments.

After falling for a decade, the level of cross-shareholding has crept up since 2004 (see chart). Greater shareholder activism, mostly on the part of foreign investors, and fear of hostile takeovers prompted managers to adopt mutual shareholdings to insulate themselves from nettlesome outsiders. Over 20% of the shares on the Tokyo Stock Exchange are owned by Japanese companies and financial groups. ...

The revived Alitalia will face growing competition

APPARENTLY at ease with risk, the businessmen and bankers who are investing in the phoenix-like rebirth of Alitalia submitted an offer for the airline’s assets to the bankrupt flag-carrier’s administrator on October 31st, even after failing to convince pilots and cabin crew to sign new contracts. But although fuel costs have fallen lately, the outlook for aviation has worsened. The economic slowdown is weakening demand. And now fierce competition is threatening the airline’s services between Rome and Milan—a core part of its business.

On November 3rd easyJet, one of Europe’s leading low-cost operators, began operating four flights a day from Fiumicino, Rome’s main airport, to Malpensa, Milan’s second airport. But an even greater danger to a reborn Alitalia may be that posed by trains. Allowing for journeys to and from the airports and the time needed for check-in, security and boarding, a trip from central Rome to central Milan by plane takes well over three hours. The quickest train takes just over four hours. But on December 15th a 182km (114 mile) section of new track will open between Bologna and Milan, cutting the journey time by about half an hour. And at the end of next year 79km of high-speed track between Florence and Bologna should enter service, reducing the one-hour travel time between the two cities by almost half. ...

Blogging is no longer what it was, because it has entered the mainstream

IN THE anthropologically isolated subculture of elite bloggers, it was the equivalent of a watershed, and certainly a tear-shed. With “a heavy heart, and much consideration”, Jason Calacanis this summer announced his “retirement from blogging”, which he believed was “the right decision for me and my family”. Mr Calacanis, a founder of Weblogs, Inc., a blog network that he later sold to AOL, an internet portal, had been a member of the “A-list”—those bloggers with the most incoming links and the highest “authority” on blog-search engines such as Technorati. With the bathos of Napoleon departing for Elba or Michael Jordan bidding adieu to basketball, Mr Calacanis bowed out, reverting to the ancient medium of e-mail to disseminate his opinions.

“Blogging is simply too big, too impersonal, and lacks the intimacy that drew me to it,” he offered by way of explanation. It was, he said, “the pressure” of staying on the A-list—ie, of keeping his blog so big and impersonal—that got him. Only a few years ago, so few people blogged that being a blogosphere celebrity required little more than showing up. Now it takes hard work. And vitriol. “Today the blogosphere is so charged, so polarised, and so filled with haters hating that it’s simply not worth it,” Mr Calacanis lamented. ...

The economic slowdown casts a shadow over the prospects for clean technology

EARLIER this year, with the oil price at record heights, T. Boone Pickens, a celebrated Texas oilman, seemed to confirm the unstoppable growth of the clean-technology industry when he announced plans not only to build the world’s biggest wind farm, but also to spend $58m of his personal fortune promoting the cause of wind power. On October 30th, with oil prices having fallen by more than half, he told a television reporter that the boom he had foreseen in wind would be “put off”, due to the unexpected fall in the price of fossil fuels and the sudden difficulty of borrowing money.

Mr Pickens is not the only clean-tech investor caught out by the credit crunch. New Energy Finance, a research firm, calculates that the amount of project finance devoted to clean-energy projects around the world fell by almost 25% in the third quarter, to $18 billion. The firm expects it to fall further before the end of the year. It also expects firms to raise less money on stockmarkets, due to the financial turmoil. NEX, an index that tracks clean-tech stocks globally, has tumbled even faster than the market as a whole (see chart). ...

Two once-mighty technology firms need to take radical measures

“HAVE lunch, or be lunch.” The Silicon Valley mantra coined by Scott McNealy, the outspoken former boss of Sun Microsystems, a troubled computer-maker, still rings true as the technology industry heads into recession. At particular risk of being lunch are Sun and another once-mighty technology firm: Motorola, America’s ailing telecoms-equipment giant. Both posted dismal results on October 30th. Sun’s sales to Wall Street firms, which are among its biggest customers, fell by 20% in the most recent quarter compared with a year earlier, and it reported a loss of $1.68 billion. Sales at Motorola, meanwhile, fell by 15%, with unit sales of mobile phones down by a third, and a loss of $397m. Yet even before the downturn, both firms were in serious trouble.

Sun styled itself “the dot in .com” during the internet boom, selling fancy servers to firms rushing to set up online. Motorola’s most recent claim to fame was its hugely popular RAZR (pronounced “razor”) handset, the first version of which appeared in 2004. But both companies focused too much on their clever hardware, and too little on software and services. Today Sun accounts for 11.8% of server sales (by value) worldwide, compared with 18.1% in 2000. Motorola’s share of the handset market has dropped from 22.4% at the height of RAZR mania to 9.5% in the second quarter of this year. ...

A tale of two airlines and their Facebook fiascos

AS WELL as embracing blogs, firms have been exploiting social networks such as Facebook and MySpace to get their messages to a broader audience. But although they have the potential to be useful marketing tools, such networks can also be a source of damaging publicity, as British Airways (BA) and Virgin Atlantic have discovered to their cost.

On October 31st Virgin fired 13 of its cabin crew who had posted derogatory comments about its safety standards and some of its passengers on a Facebook forum. Among other things, crew members joked that some Virgin planes were infested with cockroaches and described customers as “chavs”, a disparaging British term for people with flashy bad taste. On November 3rd BA began investigating the behaviour of several employees who had described some passengers as “smelly” and “annoying” in Facebook postings. ...

Steve Schwarzman declares the dawn of a new golden age for private equity

“I’M NOT Robert de Niro, but I’m a raging bull on private equity,” enthused Steve Schwarzman on October 28th. And, lest his strikingly contrarian message be lost on the mostly worried investors gathered at the North American Venture Capital Summit in Canada, the co-founder of the Blackstone Group described this as a “wonderful, wonderful time to be an investor”, an “opportunity now of enormous proportions” in which “it is very easy to make money” and “you basically can’t lose.”

Economic gloom is spreading throughout the world, and many of his fellow financiers are fighting to preserve their shrinking fortunes, including two rival private-equity giants: Kohlberg Kravis Roberts (KKR), which has again postponed its initial public offering (IPO) due to difficult market conditions, and the Carlyle Group, which this week told investors not to expect returns on their money any time soon. Yet Mr Schwarzman’s exuberance is of the rational kind—which doubtless makes it all the more galling to his many critics. The severity of the pain felt by others in the financial system is what is creating desperate sellers—and thus the glorious investment opportunities that could ultimately make Mr Schwarzman and his investors richer than ever. ...

Have chief financial officers ever mattered more—or been less prepared?

“THERE is no Armageddon scenario,” said Keith Sherin, the chief financial officer (CFO) of GE in an interview in July with 247wallst.com, a website. Two months later, Mr Sherin may have regretted his optimism. As the credit markets froze and investors panicked, he found himself embroiled in a frantic effort to stabilise the huge, triple-A-rated conglomerate. In the space of a few days, GE raised fresh capital from Warren Buffett and other investors; slashed its profit forecast; abandoned a share-repurchase programme; and paid extraordinary interest rates (for GE, at least) to meet its overnight financial needs in the commercial-paper market.

On October 27th GE became the first company to borrow from the Federal Reserve’s new Commercial Paper Funding Facility—not, the firm insists, because it is having difficulty borrowing, but to help get the facility going. Meanwhile, Mr Sherin is trying to reduce GE’s use of commercial paper (it is the world’s largest issuer). ...

A new bid to liberalise the crisis-wracked airline business

SUCH is the mess in the world airline industry that the halving of oil prices from their peak in July has brought only a modicum of relief. Fuel prices were high during the summer, the industry’s busiest time, so airlines were unable to build up their cash reserves before demand weakens in the winter. And although the oil price has eased, the dollar has strengthened—which is bad for airlines outside America, since fuel and aircraft are priced in dollars. The onset of global recession will drive another 30 airlines out of business before the economy bottoms out, adding to the 30 that have already failed this year, predicts Willie Walsh, the boss of British Airways.

According to the latest figures released by IATA, the industry’s trade association, international passenger traffic in September suffered an “alarming drop”, falling by 2.9% compared with the same month last year. Cargo plummeted by 7.7%. Asia-Pacific carriers experienced a 6.8% fall in passenger traffic, and even Middle Eastern airlines, used to years of double-digit growth, contracted by 2.8%. In Europe and America, after a flat August, freight traffic nosedived by 6.8% and 6% respectively, the biggest declines since 2001. ...

Will European governments’ efforts to help firms do more harm than good?

ACCORDING to the accounts of Jerome Frantz, director-general of Frantz Electrolyse, a family-owned car-parts firm in the suburbs of Paris, daily sales in October averaged €40,721 ($52,700), 25% lower than the average for the first six months of 2008. The company breaks even at €45,000 a day and, ominously, one of its suppliers just went bust. “I don’t know what to do,” says Mr Frantz, who does not want to fire any of his 170 employees.

He wants immediate help from the government to boost short-term access to credit, plus longer-term reforms to lighten the fiscal and regulatory burdens which handicap French industry. In asking for government help, however, European firms must be careful what they wish for. In the past governments have acted in ways which made things worse. After the oil shock in 1973, for instance, says Gayle Allard, an economist at IE Business School in Madrid, France made it harder to fire people by raising the mandatory level of severance pay. This week, echoing that era, France’s President Nicolas Sarkozy issued a stern warning to businesses not to use the crisis as a pretext to fire people. ...

The combination of GM and Chrysler hinges on government support

DESPERATE people do desperate things, which is why the odds are that a merger between two of Detroit’s Big Three carmakers, General Motors (GM) and Chrysler, will somehow be made to happen. Certainly, the choices facing both firms are stark. At their current rates of cash burn, both firms will run out of money before the end of 2009, according to Rod Lache, an analyst at Deutsche Bank. GM, which has seen its sales in America fall by 18% this year, has about $20 billion in cash, but it needs to keep back at least $11 billion as working capital. Sales at Chrysler, which is owned by Cerberus Capital Management, have fallen by 25%, but it should have about $8 billion left by the end of this year. It too needs more than half that amount to finance its continuing operations.

Neither GM nor Chrysler is in any position to raise funds on commercial terms. Nor do they have assets that anyone else wants to buy. Chrysler’s hopes that Carlos Ghosn of Renault-Nissan, always on the lookout for new automotive alliances, might provide it with an injection of capital were firmly rebuffed this week by Mr Ghosn himself. ...