Leo Apotheker, SAP’s new boss, is an unusual choice, installed in an unusual way

CHANGES in leadership at big companies can be like those in Washington, DC. They bring in fresh perspectives and new people. At the same time, they are often drawn out, disruptive and damaging to institutional memory. To avoid these problems, SAP—the world’s third-largest software company and the leader in business applications—does things rather differently. At the end of this month, just a few days after the swearing-in of America’s new president, Leo Apotheker will take the helm at the German company, having been “co-chief executive” for the past nine months. His predecessor, Henning Kagermann, will stay on as second-in-command until May.

At first, this sounds like a recipe for cloning the head of a corporation so the body can stay the same. But SAP, which has practised this type of “smooth” transition in different forms since it was founded in 1972, has so far avoided this pitfall. Each of its bosses has been quite different from the previous one, as the firm’s needs have changed. Dietmar Hopp, one of the founders and the chief executive until 1998, was an Ubervater, a father figure who gave SAP a strong culture in its early days. Hasso Plattner, another founder, who co-led and then headed the company between 1997 and 2003, was more of a brash software boss, which was appropriate at a time when SAP was growing quickly in America. And Mr Kagermann, an honorary member of the founders’ club who became co-chief executive in 1998 and sole boss in 2003, comes across as a trustworthy college professor, which was reassuring after the heady days of the dotcom bubble. ...

Reality bites for young workers

JESSICA BUCHSBAUM first noticed that something had changed in May 2008. The head of recruitment for a law firm in Florida, Ms Buchsbaum was used to interviewing young candidates for summer internships who seemed to think that the world owed them a living. Many applicants expected the firm to promote itself to them rather than the other way around. However, last May’s crop were far more humble. “The tone had changed from ‘What can you do for me?’ to ‘Here’s what I can do for you’,” she says.

The global downturn has been a brutal awakening for the youngest members of the workforce—variously dubbed “the Millennials”, “Generation Y” or “the Net Generation” by social researchers. “Net Geners” are, roughly, people born in the 1980s and 1990s. Those old enough to have passed from school and university into work had got used to a world in which jobs were plentiful and firms fell over one another to recruit them. Now their prospects are grimmer. According to America’s Bureau of Labour Statistics, the unemployment rate among people in their 20s increased significantly in the two most recent recessions in the United States. It is likely to do so again as industries such as finance and technology, which employ lots of young people, axe thousands of jobs. ...

A novel way to satisfy feedback junkies

ONE defining characteristic of the Net Generation is that it thrives on feedback. Just as they are used to checking their progress on leader boards when playing video games, so Net Geners want to keep close tabs on their performance at work, too. This can be a problem for managers who may be badgered weekly—even daily—for appraisal by eager young members of staff.

The creators of a new, web-based service called Rypple claim that it can satisfy Net Geners’ desire for frequent assessments while easing the burden on their supervisors. The service requires employees to establish a network of trusted peers, mentors and managers whose opinions they value. They can then send out short questions, such as “What did you think of my presentation today?”, to which their network’s members can respond online. The responses are kept anonymous so that, at least in theory, employees cannot tell who has made them. ...

Europe’s flawed insolvency regimes will face a severe test in 2009

THE word “bankrupt” originally came from Italy, deriving from banca rotta, or broken bench. When a medieval moneylender could not pay his debts, his bench was broken in two, sometimes over his head. Things are not quite so brutal these days, but European countries still deal with insolvent firms far more harshly than America does, and most such firms end up in liquidation. They often treat creditors badly too, meaning that neither side ends up satisfied. Observers worry that Europe will cope with the coming flood of defaults far less effectively than America, meaning a slower recovery.

Standard & Poor’s (S&P), a rating agency, reckons that 60-75 European companies from its speculative-grade category could default on a total of €20 billion-25 billion ($28 billion-35 billion) of debt in each of 2009 and 2010, taking the overall default rate up as high as 11.1%, compared with 3.2% for the past 15 years. In more normal times, most distressed companies would work things out with their creditors in private restructuring processes. But a combination of high leverage and so-called “covenant-lite” loans, which mean that a firm can get into serious trouble before breaching loan conditions, is likely to mean that many more companies will end up in a formal, legal process. In addition, out-of-court restructurings usually involve lenders making new money available, which is less likely in today’s market conditions. ...

Detroit has been given a brief reprieve, but the threat of bankruptcy still looms

THE sense of relief in Detroit that greeted the $17.4 billion federal lifeline thrown by President Bush to General Motors (GM) and Chrysler just before Christmas is unlikely to last long. The terms of the bridging loans amount to a gun at the heads of the two carmakers and their stakeholders. Unless they use the next three months to negotiate a viable way forward, the loans will be called in at the end of March—and bankruptcy will follow.

In effect, the deal announced on December 19th is just one step short of the bankruptcy the carmakers have long insisted is not an option. “If restructuring cannot be accomplished outside of bankruptcy, the loans will provide time for the companies to make the legal and financial preparations necessary for an orderly Chapter 11 process that offers a better prospect of long-term success,” Mr Bush said. Dealers, bondholders, suppliers, unions and retirees are all going to have to make sacrifices, and with a speed and purpose that has hitherto been lacking. ...

Asia is steadily eroding America’s leadership in research spending

TO SEE the geography of the technology industry, crack open an Apple iPhone. Although the firm that sells it is American, it provides none of the physical innards. The components are almost entirely Asian: the screen is mostly from Japan, the flash memory from South Korea, and it was assembled in China. Apple’s contribution is the design and software—and, importantly, integrating the innovations of others.

As goes the iPhone, so goes the broader technology industry. The biggest and most technically clever firms are American and European, but their predominance in research, innovation and production is being challenged by Asian companies. A new report by the OECD puts hard figures on the extent of this steady shift. ...

The bail-out that didn't happen

A proposed government bail-out of two of America’s Big Three carmakers, General Motors and Chrysler, was thrown into confusion after Senate Republicans unexpectedly rejected a $14 billion loan, approved by the House of Representatives and the White House, on December 11th. The following day George Bush said he was prepared to use funds from the Troubled Asset Relief Programme, set up to rescue the financial industry, to keep the carmakers going into 2009. These funds can be dispensed at the discretion of the Treasury. But after days of negotiations it remained unclear how and when this might happen, and what conditions might be attached. ...

Middle-class India now celebrates entrepreneurial success. Can it forgive failure?

IRFAN ALAM, a 27-year-old from the Indian state of Bihar, remembers clearly when he first felt the thirst for entrepreneurship. Sitting in the back of a cycle-rickshaw on a parched summer’s day in his hometown of Begusarai, he asked his rickshaw-puller for a drink of water. He points out that India’s rickshaw-pullers earn only a pittance after paying the rent on their vehicles. Perhaps, he thought, they could make a bit extra by selling drinks, newspapers or even mobile-phone cards to their passengers. And since the average rickshaw covers 10km (six miles) a day, perhaps it could also courier goods around town and advertise them to passers-by.

These ideas evolved into Sammaan (which means dignity), one of 30 Indian enterprises shortlisted in a competition to find the country’s “hottest” start-up. The contest, which attracted over 500 nominees, is run by the National Entrepreneurship Network (NEN), which promotes the spirit of enterprise on India’s campuses, and the Tata group, an Indian conglomerate, which was a hot start-up 140 years ago. The competition’s five winners, decided by a mixture of online voting and expert judgment, will emerge in late December. ...

The stench of bribery at Siemens signals a wider rot in Europe

WHEN Siemens, Europe’s biggest engineering firm, adopted the slogan “Be inspired” in the mid-1990s, bribery was not what it had in mind. But no one can accuse its managers of lacking inspiration in devising ways to pass generous backhanders to corrupt officials and politicians around the world. On December 15th Siemens pleaded guilty to charges of bribery and corruption and agreed to pay fines of $800m in America and €395m ($540m) in Germany, on top of an earlier €201m.

There is something almost touching about the candour and trust with which Siemens went about a very dirty business. Take the three “cash desks” it set up in its offices, to which employees could bring empty suitcases to be filled with cash. As much as €1m could be withdrawn at a time to win contracts for Siemens’s telecoms-equipment division, according to America’s Department of Justice (DoJ). ...

Alan Hassenfeld is spreading an elfish spirit throughout the toy industry

“THERE will be toys under the Christmas tree this year,” says Alan Hassenfeld, as confidently as if he were Santa Claus himself. After a lifetime in the toy business, the chairman of the executive committee of the board of Hasbro (short for Hassenfeld Brothers) has learnt not to worry too much about the impact of an economic downturn on his business. “The papers say everyone will get coal as presents this year,” he says, “but most parents—and grandparents—in difficult times will spend less on themselves to ensure their children are happy, especially in the holiday season. That is the important leg-up toys have on almost all other retail items, except food.”

The numbers seem to bear him out, which may explain why Hasbro’s share price, though well below the all-time high it reached in August, is still up in a miserable year for the stockmarket. In America sales of toys grew by 10% a year during the recession of 1990-91 and by more than 3% in that of 2001. This year the growing popularity of “staycations”, in which people stay at home but behave as if they were away, is helping sales, especially of family-friendly board games (Hasbro owns Monopoly and Cluedo, among others). So too has the recent fall in fuel prices, which means that money that would have gone into the tank can be spent on gifts. Around 80% of Hasbro’s products are priced below $20, so the fuel/ toy trade-off is a real one. ...

Video games have proved to be recession-proof—so far, at least

IS IT any surprise that an industry that enables its customers to escape from reality into elaborate fantasy worlds is thriving in today’s gloomy economic climate? As other industries collapse, sales of video games are racing away. Global sales of console hardware and games software are expected to hit a record $49.9 billion this year, says Screen Digest, a consulting firm (see chart). Games sales in America in October totalled $697m, 35% more than a year earlier, according to NPD, a market-research firm. It is often said that video games are recession-proof. Are they really?

Video gaming is isolated from the wider economic cycle by having a cycle of its own. Every few years a new crop of consoles is launched, spurring a wave of sales as gamers upgrade. (Today’s set consists of Microsoft’s Xbox 360, launched in 2005, and Sony’s PlayStation 3 and the Nintendo Wii, which both appeared in 2006.) During the cycle the prices of the consoles fall, bringing in more buyers. Each cycle is bigger than the last as gaming becomes more popular and the average gamer becomes older and richer. ...

Basic games have widespread appeal

AS MANY big games publishers fail to make the most of the strong demand for compelling video games, one corner of the industry is doing better than ever. Simple “casual” games, played on a PC or a mobile phone, are booming. They may lack the narrative depth of epic console games such as “Fallout 3”, but such games can be the most addictive of all, as even hard-core gamers will attest. The rise of social-networking websites and “smart” mobile phones has created new outlets for “quick fix” gaming.

Zynga, a studio based in San Francisco set up only in 2007, has hired 80 people since June, more than doubling its staff. The company primarily makes “social” games that friends can play together on social-networking sites. Zynga’s “Live Poker” game for the Apple iPhone is also hugely popular. ...

Second-hand prices are plummeting as demand declines

THE Rolls-Royce Phantom nudges its way through a swarm of car dealers and into one of the sales halls at British Car Auctions in Blackbushe, Surrey, south-west of London. Only two years old, it is as immaculate as a new model costing more than GBP265,000 ($392,000). But within seconds the auctioneer has knocked it down for GBP135,000. Then it is on to the next in line: a Bentley Continental, a Range Rover, a Porsche Boxster and scores of Audi, BMW and Mercedes-Benz models. All are suffering the indignity of a collapse in second-hand-car prices as global demand for luxury and prestige cars dwindles.

Sales of new luxury cars in America were 39% lower in November than in the same month in 2007, according to Autodata, a research firm. Mercedes-Benz saw American sales sink by 43%, and Porsche by more than half. The story in Europe and Asia is similar. The producers, mostly European, are cutting back with extended factory closures and layoffs. In previous downturns the market for luxury cars was more resilient than the mass market, but not this time. Since the credit crunch, the readily available finance that made buying a fancy car easy has disappeared. ...

Merck’s woes illuminate the shifts taking place in the drugs industry

DICK CLARK is no stranger to hard times. The chairman of Merck, a giant American drugs firm, got the top job after a safety scandal caused Vioxx, the firm’s blockbuster painkiller, to be pulled from the market in 2004. The soft-spoken Mr Clark has won praise for his handling of that crisis and for being quicker than his rivals to start restructuring his firm in preparation for leaner years. He was also appointed head of Pharmaceutical Research and Manufacturers of America (PhRMA), the industry’s lobbying arm.

But Mr Clark is not celebrating. Merck’s shares have underperformed those of its rivals this year (see chart). Investors have worried that its efforts to find new sources of growth were not as vigorous as those of its peers, which have been buying biotech firms and generics-makers, replenishing their product pipelines and moving into new markets. On December 9th, at the annual business review conducted at the firm’s headquarters in central New Jersey, Mr Clark announced yet another new strategy, involving low-cost biological drugs. He also spelt out PhRMA’s softening stance toward health-care reforms that the group has hitherto opposed. ...

The Tribune Company files for bankruptcy protection

WHEN Sam Zell announced on December 20th 2007 that he had completed a deal to buy the Tribune Company—with holdings including the Los Angeles Times and the Chicago Tribune, an array of local television stations and the Chicago Cubs baseball team—he made a bold promise. A property tycoon with little experience in media, Mr Zell vowed to create “a fresh, entrepreneurial culture that is fast and nimble, and which rewards innovation”. Tribune, he hoped, would represent the future of newspapers. He may be right, but not in the way he intended. On December 8th the company filed for bankruptcy protection.

America’s newspapers have been in decline for years as readers and advertisers have migrated to the internet. In 2007 the total circulation for daily newspapers was 51.2m, 14% lower than in 2000, according to the Newspaper Association of America. Total advertising spending (print and online) fell by 8% in 2007 alone. This year has been even worse, thanks to the recession: in the third quarter it was 18% lower than a year earlier. ...

Six firms in cyclical industries battle excess debt

IF A rollercoaster keeps cranking upwards for long enough it can be tempting to relax your grip—just for a moment. The bosses of some of the world’s biggest basic-materials firms did exactly this and are now suffering. Lulled by expectations that industrialisation in China and other developing countries would ensure sustained demand, leading firms in the steel, cement and mining industries have entered the recession with far more debt than is normally viewed as prudent (see table).

Much of this reflects the ambitious acquisitions of 2006 and 2007. For the six leading firms reviewed by The Economist, cash spent on deals in those two years accounts for four-fifths of their total net debt of $136 billion. The steel industry’s largest producer, the combined ArcelorMittal, has high gearing in part due to its cash-and-stock-financed merger, and the sixth-biggest producer, India’s Tata Steel, is burdened by the leveraged takeover of its Anglo-Dutch peer, Corus. In cement, the world’s biggest producer, France’s Lafarge, bought Orascom Cement of Egypt, and the third-largest, Mexico’s Cemex, purchased Rinker, a big Australian rival. Xstrata, the mining industry’s serial acquirer, is highly geared, and giant Rio Tinto has record debts thanks to its purchase of Alcan. Last month BHP Billiton, a rival mining firm, withdrew a stock bid for Rio, saying its debts and the difficulty of making disposals raised risks to an “unacceptable level”. ...

Falling Western demand is keeping high-quality Chinese goods in China

ON THE shelves of Chinese shops is the usual assortment of toys, clothing, appliances and cookware. But over the past month the quality of many of the goods on offer has improved. In part this is because scandals over toxic paint and poisoned milk have brought closer scrutiny from inspectors and hence less corner-cutting. But it is also partly because of falling demand for Chinese goods from America, Europe and the Middle East, which has given China’s manufacturers and local government a big incentive to work around the country’s formidable export-promotion policies and to sell at home.

Chinese manufacturers are well aware that they operate in one of the few large markets that is still showing a pulse. Retail sales in October were up by 22% compared with the same month in 2007—a slight drop from 23.2% in September, but an impressive figure nonetheless. That certainly exaggerates the country’s economic vigour (growth in car sales, for example, is declining), but it would be a stretch to believe that China is in recession. ...

Italy’s legendary car designers face hard times

MANY men dream of owning a flame-red Italian sports car: a Ferrari, a Maserati or an open-topped Alfa Romeo, like those that appear in the films of the 1960s. These cars owe their elegant lines to the teams of designers at Pininfarina, Bertone and Italdesign, the styling houses based in Turin, in north-west Italy. But as the demand for fancy cars collapses, the car stylists are in difficulty.

On December 3rd Pininfarina’s board agreed measures that will provide breathing space for the troubled firm. It has debts of some €600m ($780m), and 2008 is shaping up to be its fifth lossmaking year in a row. In 2007 it lost €114.5m on revenues of €713m. In a complex debt-for-equity swap, the Pininfarina family will dilute its 50.6% stake to reduce the total owed to the banks by €180m. ...

How badly will television advertising suffer in the recession?

THE Super Bowl is one of the biggest events on the advertising calendar, as companies vie to produce the most memorable and innovative ads. The battle for the National Football League’s ultimate prize attracts more viewers than anything else on American television and provides a “symbolic pulse-taking” for the advertising industry every February, says John Frelinghuysen, an analyst at Bain and Company, a consultancy. But this year the patient is in poor health. All the advertising slots for the 2008 Super Bowl had been sold by the end of November 2007, despite the $2.6m price of each. For 2009 the price has risen to $3m, but at least ten slots (out of 67) are still looking for a buyer.

General Motors, which ran 11 ads on Super Bowl Sunday in February 2008, has already said that it will not run any in 2009. America’s two other big carmakers, Ford and Chrysler, are likely to follow suit. Tellingly, Monster.com, an online job-search company, said recently that it was buying a slot. Instead of the usual parade of expensive ads paying tribute to American consumerism, 2009’s Super Bowl will reflect a country in recession and herald a grim year for the advertising industry. ...