Posts in category Business


ApprovedBusinessBusiness and finance

A weak market for football rights suggests a lower value for sport

Might Paul’s wages fall?

FOR years the cost of rights to broadcast major sports in America and Europe has trended in one direction—up. This gravity-defying law shapes the economics of modern sport: as television operators bid ever more substantial sums, teams take in more revenue and star-player salaries (and transfer fees) climb higher. In 2017 that trajectory continued as broadcasters splurged on rights for Champions League football matches for 2018-21.

This year gravity is reasserting itself. Top-flight football rights are out for tender in two major European leagues—England and Italy—and are expected to be put up for sale this year in France and Spain, too. Analysts expect relatively small increases in pay-outs (though Spain’s La Liga boss predicts a 30% rise)—and possibly a decline in Italy. “The happy days are over,” says Claire Enders of Enders Analysis, a research firm.

The chief problem is fundamental weakness at the bidding…Continue reading

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Innovative materials from bamboo are helping a new industry to sprout

A bamboo spider rides high

FANNING out from the sodden delta of the Yangtze, and southward to the flanks of the Nanling mountains, over 6m hectares of emerald bamboo groves—one-fifth of the world’s reserves—flourish in China. Giant pandas nibble the softest shoots. Around 40bn pairs of disposable chopsticks are made from bamboo twigs annually in China, for use with everyday meals. Steel scaffolding is still often shunned for bamboo on skyscrapers under construction in even the ritziest parts of Hong Kong. The history of the grass is colourful, too. Before paper, Chinese wrote on bamboo slips; they used bamboo tubes for irrigation, and later stuffed them with gunpowder to ignite muskets.

Yet for all its importance and abundance bamboo is “China’s forgotten plant”, says Martin Tam, an expert in Hong Kong. To demonstrate its potential, he greets visitors with a can of bamboo juice, proffers a bamboo business card, and gestures to a bamboo armchair near his desk….Continue reading

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After a huge loss on old reinsurance contracts, GE contemplates a break-up

Flannery kitchen-sinks it

DECISIONS made long ago, and often long since forgotten, can come back to haunt. General Electric (GE), an American industrial conglomerate, has discovered that to its chagrin. On January 16th the company said it would have to take a $9.5bn charge (before tax) on old reinsurance contracts in its financial arm, GE Capital—despite exiting the insurance business in the mid-2000s. The firm also said it would have to set aside up to $15bn of additional reserves for GE Capital over seven years. The conglomerate had already been struggling, with its share price down by over 40% in the past year. News of the latest hit, which the company’s chief executive, John Flannery, called “deeply disappointing”, sent its shares plunging by a further 3% on January 16th alone.

The issue at hand concerns reinsurance contracts in GE Capital’s American life- and health-insurance portfolio. Jack Welch, an idolised former GE boss, had massively expanded the…Continue reading

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Masayoshi Son may raise yet more cash to pump into tech

AT AN investor briefing in 2015, Masayoshi Son, chief executive of SoftBank, flashed up a picture of a goose. The company is like the bird of legend that produces golden eggs, he explained. In his quest to encourage more laying, Mr Son has taken SoftBank well beyond its telecoms business. The firm also manages the world’s largest tech-investment fund, the $100bn Vision Fund, which has a slew of wealthy backers, including Saudi Arabia’s Public Investment Fund and Apple.

Using both the firm and the fund, Mr Son has acquired stakes in tech companies at a frenetic pace, by one count opening his chequebook once every four days on average in 2017. Such shopping sprees do not come cheap. SoftBank is one of Japan’s most highly leveraged companies, with debt exceeding ¥15trn ($139bn), not least because of its purchase in 2013 of a controlling stake in Sprint, an American mobilenetwork operator.

News reports this week suggest SoftBank is now hatching a plan to raise ¥2trn by…Continue reading

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Chinese tech companies plan to steal American cloud firms’ thunder

WHICH of the world’s tech giants boasts the fastest-growing computing cloud? Many would guess either Amazon or Google, which operate the world’s largest networks of data centres, but the correct answer is Alibaba. In 2016 the cloud-computing business of the Chinese e-commerce behemoth grew by 126%, to $675m. Growth is unlikely to slow soon. Simon Hu, president of Alibaba Cloud, wants it to “match or surpass” Amazon Web Services (AWS) by 2019.

That is a stretch: AWS is estimated to have generated revenues of about $17bn in 2017. But Alibaba’s cloud (known locally as Aliyun) is one of a thriving group: China’s cloud-computing industry as a whole is growing rapidly. Even more intriguing than its speedy expansion is the fact that China’s cloud is different to that of Western firms in important ways.

The technology that China’s cloud-computing providers use is not so dissimilar. Indeed, the fact that Western tech firms have released much of the necessary code as open-source…Continue reading

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Taiwanese bosses are the Chinese-speaking world’s oldest

DESPITE her father’s pleas, Cherry Liu refused to work for the family business, a small electronic-components company founded in 1979 on the outskirts of Taipei. A 34-year-old diamond dealer based in Sydney, Ms Liu says she is simply not passionate about gadgets such as circuit-breakers. Nor are her siblings. Her 64-year-old father cannot find a successor, but he will not even consider recruiting someone outside the family, she says. He fears that a newcomer might leave and take the family’s precious list of customers and suppliers with him.  

Taiwan’s economic boom was fuelled by people like Ms Liu’s father, entrepreneurs who started from nothing to build successful family-run companies, many of which are now huge. These firms still dominate Taiwan’s export-reliant economy, which specialises in high tech. Of all listed firms, 70% are family-run, compared with 33% for Chinese firms and 40% for Hong Kong-based ones. Almost three-quarters of family concerns are operated…Continue reading

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India’s tea industry is going through tepid times

Tasseography in progress

BULK tea sales at the offices of J Thomas in Kolkata, which first started auctioning the stuff in 1861, lack the boisterousness of years past. Gone is the noisy trading pit, replaced by a handful of buyers sitting behind their laptops in a silent auditorium. Armed with tasting notes, they bid electronically on hundreds of lots drawn from the city’s hilly hinterlands in Assam and West Bengal. To passing visitors, it appears as if everyone in the room could do with a little caffeination. Yet within only three hours or so, enough tea changes hands to brew 24 Olympic-sized swimming pools.

If Indian tea delights those who get to drink the country’s finest blends, it frustrates all those who plant, pluck and peddle it. Archaic government regulations have in recent years pushed up production costs to around 175 rupees ($2.70) per kilogram, well above average auction prices of 140 rupees, which makes large cultivators grumble. Pickers complain about…Continue reading

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Artificial intelligence dominated the Consumer Electronics Show

WHEN the electronics industry meets in Las Vegas at CES, its main trade show, buzzwords abound. But rarely has one been as pervasive as this week. “Artificial intelligence” or variations on the theme (“AI-driven”, “AI-powered” and so on) were slapped across most new products—although often the artificial overcame the intelligence.

Those attending gawped at an interactive bathroom mirror on the stand of Haier, a giant Chinese white-goods maker. Look into it, like the Wicked Queen in Snow White, and instead of being told you are the fairest, your data profile appears on the glass. It displays weight (from an interactive scale), urine-test results (from a sensor on a connected lavatory) and other health-related things.

For those attentive visitors who could see past the AI assault, another theme could be identified: firms innovating around how they innovate. Haier’s stand also had a new device that is the result of combining its product development with that of…Continue reading

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Companies are moving faster than many governments on carbon pricing

Disney offsets its air miles

ECONOMISTS have long argued that the most efficient way to curb global warming is to put a price on the greenhouse-gas emissions that cause it. A total of 41 OECD and G20 governments have announced either a carbon tax or a cap-and-trade scheme, or both. Add state and local schemes, and they cover 15% of the world’s emissions, up from 4% in 2010. Voters concerned about climate change are egging them on. So, too, are corporate bosses. More firms are imposing such pricing on themselves, even in places where policymakers are dragging their feet.

Of the 6,100-odd firms which report climate-related data to CDP, a British watchdog, 607 now claim to use “internal carbon prices”. The number has quadrupled since CDP first began posing the query in its annual questionnaire three years ago. Another 782 companies say they will introduce similar measures within two years. Total annual revenues of these 1,389 carbon-price champions amount to a hefty…Continue reading

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Spotify opts for an unusual way of going public

FOR seasoned bankers and starry-eyed entrepreneurs alike, doing an IPO, or initial public offering, is synonymous with the very idea of taking a firm public. No wonder, then, that the decision by Spotify, a music-streaming service, to opt for an unconventional alternative called a “direct listing” has prompted debate. Instead of paying investment banks hefty fees to arrange an IPO, Spotify plans to have existing shares simply switch one day to being tradable on the New York Stock Exchange (NYSE).

IPOs themselves have become rarer, as startups such as Uber and Airbnb have chosen to raise money through private markets instead. Although there was an uptick in the number of IPOs in America in 2017—108, compared with 74 in 2016—the average number of IPOs has remained at around 100 annually since 2000, compared with over 300 in the course of the two previous decades. But until now no big company had contemplated direct listing as an alternative. The structure has been seldom used: in…Continue reading

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Having rescued recorded music, Spotify may upend the industry again

IN JUST a few short years Spotify has evolved from bête noir of some of the world’s most prominent recording artists to perhaps their greatest benefactor. The Swedish company transformed the way people listen to music, and got them used to paying for it again after digital piracy had crippled sales. Global revenues from music streaming, which Spotify dominates with 70m subscribers, more than tripled in three years, to an estimated $10.8bn last year, for the first time surpassing digital and physical sales of songs and albums.

But if it is earning billions for others, Spotify is losing money for itself—with an operating loss of nearly $400m in 2016—because it pays out at least 70% of its revenues to the industry, mostly in royalties. As it prepares for a “direct” listing on the New York Stock Exchange (see article) it must convince…Continue reading

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As gyms hit peak season, the market does the splits

EVERY year, like clockwork, swathes of humanity go through the same routine. On December 26th and January 1st, as the fog of cheese, chocolate oranges and champagne lifts, remorse creeps in. Online searches for “get fit” and “lose weight” surge (see chart). Health clubs of all shapes and sizes stand ready to respond. “Intent typically takes seven to 14 days to turn into reality,” notes Humphrey Cobbold, chief executive of Pure Gym, Britain’s largest gym chain. So this week will be one of the busiest for the gym industry globally.

There will be other ripple effects, too. According to recent data from Cardlytics, which monitors spending in Britain, people spend 18% more in sports shops the week before joining a gym (compared with the week prior), and 16% more in speciality health shops. Spending on fashion items also increases around the time of joining a gym.

Many gym recruits will wear their new togs for an ordeal known as high-intensity interval training. In the basement of…Continue reading

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BlackRock v Blackstone

THE two most successful entrepreneurs on Wall Street of the past two decades work on opposite sides of Park Avenue. Larry Fink, 65, is a Democrat whose hand is glued to a Starbucks cup and who runs BlackRock from 52nd Street. Stephen Schwarzman, 70, is a Republican who wears striped shirts with plain collars and runs Blackstone from between 51st and 52nd. The two are ex-colleagues, but have sharply opposing views on investment and management. Their trajectories illustrate how finance is changing. Mr Fink, once the underdog, is on top.

His firm, BlackRock, is the world’s largest asset manager, with $6trn of assets. It stands for computing power, low fees and scale, and is booming. Mr Schwarzman’s firm, Blackstone, is the largest “alternative” manager, focused on private equity and property, with $387bn of assets. It stands for a time-honoured formula of brain power, high fees and specialisation. Lately, it has trod water.

When Mr Fink was a securities trader in his 30s he joined…Continue reading

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Masterful salesmanship has pushed Salesforce to ever-greater heights

Benioff’s guide to upselling

VISIBLE from nearly every corner of San Francisco and from up to 30 miles away, the new skyscraper that will be the headquarters of Salesforce, a software giant, stands 1,100 feet (326 metres) tall, making it the highest building in America west of Chicago. On January 8th, after four years of building, workers will start moving in.

Those who know Salesforce’s founder, Marc Benioff, find his firm’s new digs fitting. As creator of a firm that caters to salespeople, he is himself a fiercely ambitious salesman. In its 2018 fiscal year, which ends on January 31st, Salesforce is expected to reach $10bn in annual revenue for the first time. It plans to more than double that figure over the next four years. Even that is not enough. In 20 years Mr Benioff’s “dream” is $100bn of revenue, he muses.

Can his towering expectations be met? Founded in 1999, Salesforce claims a combination of longevity and size that few tech companies…Continue reading

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China’s Ant Financial is obliged to abandon an American acquisition

It didn’t mean jack

“THE geopolitical environment has changed considerably since…a year ago.” That was the explanation given this week by Alex Holmes, chief executive of MoneyGram International, a Dallas-based American money-transfer firm, for Ant Financial abandoning its $1.2bn deal to buy his firm. Ant, the online-payments affiliate of Alibaba Group, a Chinese e-commerce giant, had outbid Euronet, an American rival, in 2017 and secured the approval of MoneyGram’s board for the acquisition. In normal times, Ant would have secured the prize.

But it is up against a rising tide of anti-China sentiment in Washington, DC. Donald Trump has often argued that China does not play fair in global commerce. The sense that China and its companies are not to be trusted is spreading on Capitol Hill, too. Ant’s bid was blocked by the Committee on Foreign Investment in the United States (CFIUS), a government body reporting to the Treasury. It reviews such deals for…Continue reading

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Canada frets about anonymously owned firms

WHEN reports surfaced in 2016 of foreign students with no known income buying homes worth millions of dollars in Vancouver, locals said it was yet more evidence that foreigners were inflating prices in Canada’s dearest property market. It was also evidence of a home-grown problem. The students turned out to be figureheads for anonymous firms whose ultimate owners cannot be identified because the information is not legally required by the land registry. Canadian authorities are concerned about the abuses caused by such opacity. The property market may well be attracting foreign criminals and corrupt officials seeking to launder dirty money, notes David Eby, the attorney-general of British Columbia.

Other countries have taken steps to make sure that anonymous ownership of firms does not help criminals. In 2014 G20 leaders agreed to make the ultimate ownership of legal entities more transparent. Britain, for example, set up a searchable, public database of beneficial or ultimate owners of all firms,…Continue reading

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South Korea’s antitrust tsar has a good shot at taming the chaebol

AS KIM SANG-JO was preparing last May to make the switch from snappy shareholder activist to a regulatory role as South Korea’s fair-trade commissioner, he had a simple message for the country’s big conglomerates: “Please do not break the law.” Not one to make bosses quake in their brogues, exactly. And yet the chaebol, as the country’s family-controlled empires are known, are responding to his call for reform. Addressing complaints about governance, a few have brought far-flung businesses into a simpler holding-company structure. Others have set up funds to provide support to suppliers, which have long accused the giants of treating them badly. Another group is paying out record dividends to once-disregarded shareholders.

Mr Kim was preaching, if not yet to the converted, then to the disconcerted. The chaebol have had a bruising couple of years. Nine of South Korea’s most powerful bosses, some rarely seen in public, were grilled on…Continue reading

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2018 will be the year that large, incumbent companies take on big tech

ACCORDING to Ginni Rometty, IBM’s boss, the digital revolution has two phases. In the first, Silicon Valley firms make all the running as they create new markets and eviscerate weak firms in sleepy industries. This has been the story until now. Tech firms have captured 42% of the rise in the value of America’s stockmarket since 2014 as investors forecast they will win an ever-bigger share of corporate profits. A new, terrifying phrase has entered the lexicon of business jargon: being “Amazoned”.

The second phase favours the incumbents, Ms Rometty believes, and is starting about now. They summon the will to adapt, innovate to create new, digital, products and increase efficiency. The schema is plainly self-serving. IBM is itself fighting for survival against cloud-based tech rivals and most of its clients are conventional firms. Yet she is correct that incumbents in many industries are at last getting their acts together on technology.

Enough time has elapsed for even…Continue reading

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Combustible cigarettes kill millions a year. Can Big Tobacco save them?

BESIDE a serene lake in Switzerland sits a modern glass building called the Cube. Wide-leafed tobacco plants grow in the lobby. In one room machines that can “smoke” more than a dozen cigarettes at a time dutifully puff away, measuring the chemicals that consumers would inhale. The research centre is run by Philip Morris International (PMI), which sells Marlboro and other brands around the world. The facility’s purpose is not to assess the risks of smoking, but to determine whether this huge cigarette-maker might get out of selling cigarettes altogether.

André Calantzopoulos, PMI’s chief executive, talks about moving to a “smoke-free future”, with the firm’s business comprised entirely of alternatives to cigarettes. “We are crystal clear where we are going as a company: we want to move out of cigarettes as soon as possible,” he says. Mr Calantzopoulos has the boldest goals in this regard, but he is not the only tobacco executive to tout a new direction. Nicandro Durante, chief…Continue reading

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An experiment with in-home deliveries is under way

AFTER staying at home one afternoon for a delivery of discounted toilet disinfectant that never came, Valentin Romanov, a Stockholm IT manager, installed a special lock on his flat’s entrance. When no one is in, deliverymen unlock the door and slip packages inside. Four months on, Mr Romanov has doubled his spending online and says he cannot imagine life without in-home deliveries. These are sweet words for delivery firms and online retailers, Amazon included, that are setting up partnerships with lock manufacturers to overcome a big hurdle for e-commerce.

Conventional deliveries fail so often that a parcel is driven to a home an average of 1.5 times in the Nordic region, says Kenneth Verlage, head of business development at PostNord, a logistics giant operating in Denmark, Finland, Norway and Sweden. It is an expensive inefficiency made worse, he says, by the fact that recipients have still often had to wait for a failed delivery. Some couriers leave packages on doorsteps, but this invites theft….Continue reading

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A vote on “net neutrality” has intensified a battle over the internet’s future

A DAY before the Federal Communications Commission (FCC) voted to rescind “net neutrality” regulations designed to ensure that internet-service providers do nothing to favour some types of online content over others, Ajit Pai, its chairman, tweeted a short video reassuring Americans. “You can still post photos of cute animals,” he says in it, posing with a dog. He also wields a light sabre, which prompted Mark Hamill, the actor who portrays Luke Skywalker in the “Star Wars” films, to criticise Mr Pai on Twitter for siding with giant corporations. Ted Cruz, a Republican senator, then asserted in Mr Pai’s defence that Darth Vader supported government regulation of the web; further jabs followed.

It made for a silly treatment of an arcane subject. But net neutrality is a serious business. The state of New York’s attorney-general said he would lead a multi-state suit against the FCC; in Congress Democrats and Republicans are expected to propose competing bills on the subject in 2018. Broadband and wireless companies such as AT&T responded to fears about their increased power by questioning whether internet firms like Google have too much. Google, Facebook, Amazon and other platform companies in turn put out statements in support of an open internet. So rather than end the struggle over how the internet is regulated in America, the FCC’s vote has…Continue reading

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Russia’s dysfunctional funeral business gets a makeover

Stiffer competition is coming

THE calls began shortly after Yulia’s grandmother died. The undertaker offered help arranging the funeral, for 47,000 roubles ($800) in cash. She then travelled to Moscow’s Khovanskoe Cemetery, where she was offered a discount on a gravesite—150,000 roubles off—if she could bring cash within three hours and sign a receipt saying she had paid half that amount. Yulia (whose name has been changed) and her family gave in. “We knew we were paying a bribe, but what else could we do?”

To bury a loved one in Russia often means entering an underworld of corruption and red tape. The myriad goods and services needed, from preparing the body for burial to funeral arrangements to carving a headstone, all represent opportunities for extortion in a largely informal market. “Instead of a funeral as a commercial service, the consumer is offered a strange sort of quest,” writes Sergei Mokhov, editor of The Archaeology of…Continue reading

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American business has concerns on tax reform

PRESIDENT DONALD TRUMP’S effort to change America’s tax code is approaching the finishing line. Republican negotiators from the Senate and the House of Representatives this week hashed out a consensus bill behind closed doors. On December 13th, Mr Trump expressed confidence that he would be able to sign the reform into law before Christmas.

The key provision is the slashing of the corporate tax rate, from 35% to 21%. Big business in America uniformly cheers this reduction. The US Chamber of Commerce calls it a measure to “grow the economy, create jobs, and increase paychecks”. The Tax Foundation, a right-leaning think-tank, claims that reducing the corporate rate to 20%, just one percentage point lower, would increase the size of the economy by 2.7% over the long run. Yet big firms are less enamoured of controversial international provisions that may make it into the final law. Both the Senate bill and the House bill try to stop the shifting of profits by American…Continue reading

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The Santa clause

DEAR Team, I trust you are looking forward to your vacations and that the spirit of love and generosity infuses your family gatherings. I also hope that this spirit will be left next to the Christmas tree when you return to work at this incredible company on January 2nd. Because 2018 is going to be the year when America Inc loses its head after a decade of iron financial self-control. And I am not going to make that mistake. Let me drop some festive wisdom: when everyone else is throwing money around like Santa, it is best to behave like Scrooge.

During my workout at 5.10am this morning my trainer played U2. I love Bono for his personal advice on charitable giving, but he is also a perceptive lyricist. “It’s a beautiful day” captures the mood in business. Third-quarter results blew the roof off. Earnings per share for the S&P 500 are 23% above the last peak in 2007. The world economy is rocking. At this week’s digital town halls our sales teams in Houston and Guangzhou reported…Continue reading

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The global property business tries to adapt to e-commerce

Stores of value

FIFTH AVENUE in New York is the most expensive stretch of retail property in the world, now festooned with lights in the approach to Christmas. The pavements heave with crowds eager to see the diamonds sparkling at Tiffany & Co, a jeweller, and festive displays at Saks Fifth Avenue, a department store. But storefronts further downtown in once-thriving shopping districts remain vacant.

The global retail property business is having to adapt as consumers spend more online. Consolidation is in vogue. On December 12th two retail property companies, France’s Unibail-Rodamco and Australia’s Westfield, agreed to merge in a deal worth $24.7bn to form the world’s second-biggest owner of shopping malls by market value. Westfield earns about 70% of its revenues from property holdings in America.

In November, Brookfield Property Partners, another mall owner, bid $14.8bn for the 66% of GGP, a rival, that it did not already…Continue reading

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America’s Public Company Accounting Oversight Board gets a new boss

THE collapses of Enron and WorldCom in the early years of this century turned book-cooking into front-page news. Investors lost over $200bn; in 2002 the stockmarket fell by over a fifth between April and July. In response, America’s Sarbanes-Oxley Act set up a new body, the Public Company Accounting Oversight Board (PCAOB), to supervise auditors.

Its quest to give auditors more teeth continues, with the introduction of new rules that James Doty, its outgoing chairman, bills as the most significant changes to reporting by auditors in over 70 years. The question now is whether Mr Doty’s successor, who was announced by the Securities and Exchange Commission (SEC) on December 12th along with four new PCAOB board members, will keep heading in the same direction.

New disclosures on auditors’ tenure and independence take effect this week. And from 2019 auditors must go above and beyond the low bar they have historically set themselves, which is a pass or fail “opinion” on…Continue reading

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Companies in the region vote with their feet against political uncertainty

Employees, customers, separatists

“WE ARE used to dealing with political crises, but not a break in the rule of law,” says the boss of a big Barcelona cement firm, of Catalonia’s constitutional crisis. Fearing separatists in the region would declare independence, as they did on October 27th, he shifted its headquarters to Madrid. That ended decades of family tradition, but there is no plan to return. “It was a painful decision, but we had no alternative,” he says.

Catalonia accounts for roughly a fifth of Spain’s GDP and a quarter of its exports, but only a sixth of the country’s population. Its diversified economy is the envy of much of Spain, notes Jordi Alberich Llaveria of Cercle d’Economia, a business lobby in Barcelona, thanks to flourishing medium-sized, family-run industrial, textile and perfume-making firms. It has become a hub for multinationals, carmakers, pharmaceutical firms, fashion boutiques and hundreds of…Continue reading

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An accounting scandal sends Steinhoff plummeting

Steinhoff goes on special offer

THE scale is staggering, even by the standards of scandal-worn South Africa. Steinhoff, a retailer that is one of the country’s best-known companies, admitted to “accounting irregularities” on December 6th when it was due to publish year-end financial statements. Its chief executive, Markus Jooste, resigned, and the firm announced an internal investigation by PwC. Within days Steinhoff had lost €10.7bn ($12.7bn) in market value as its share price fell by more than 80% (see chart). Much is unclear, but it is shaping up to be the biggest corporate scandal that South Africa has ever seen. The company has said it is reviewing the “validity and recoverability” of €6bn in non-South African assets.

Steinhoff traces its roots to West Germany, where it found a niche sourcing cheap furniture from the communist-ruled east. The company merged with a South African firm in 1998 and is based in Stellenbosch, near Cape Town—a…Continue reading

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