No respite for the global economy as conditions get worse

brexit economy growth Nov 05, 2019

As we head towards the end of the year it is a good time to look at the current state of the global economy.

Trade wars and the threats of tariffs being imposed by the US on China have become a wearyingly familiar story as US President Donald Trump continues his policy of ‘putting the American economy first’ at all times. It is not just China in the firing line, the rhetoric has escalated with his threat made in October to introduce a series of 25% tariffs on a range of exports worth an estimated £5.8bn from the EU.

But this is not the only trade dispute in the global economy as Japan and South Korea’s disagreements threaten the production of smartphones, computers and other electronics, while yet another Brexit delay, and now a UK general election, all add to the uncertain economic outlook in both the EU and the UK.

Growth has been slowing in India, particularly in its automotive sector, and to an extent in China also.

At the same time there seems to have...

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SMEs, start-ups and ethical fundraising

Fund raising can be a challenge for SMEs and start-ups but there are signs that many are turning to ethical fundraising for their money.

This growing trend is particularly pronounced among younger business founders and entrepreneurs, many of whom are reportedly shunning the venture capital routes that focus primarily on forcing them to grow as fast as possible to generate returns.

With the issues of global warming, climate change and damage to the environment being a major factor among young people it is no surprise that ideas of sustainable growth and ethical sources of finance should be so appealing.

But are they narrowing their options by focusing on ethical fundraising and risking their prospects for growth and possibly their business survival?

It would seem not, according to analysts, as there is also a growing movement among investors, particularly retail investors, to search for investment opportunities specifically with ethical funds.

Lisa Ashford, chief executive of Ethex,...

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Long term corporate survival can only be achieved by having the right values

There are signs that the Gordon Gekko culture of “greed is good” is dying and that corporate survival will depend on not only giving customers what they want but also being seen to have and act on a wide range of ethical values and behaviours.

In an environment of high employment and significant skill shortages in many sectors, the bargaining power of millennials and Generation X will only strengthen as the older generation of employees retires.

Equally, the power of consumers and customers choosing who to buy from is having a greater impact on corporates’ processes and practices.

In this context, CSR (Corporate Social Responsibility) policies will no longer be enough. Too many of them have been unmasked as marketing and PR exercises among the larger corporations and of little practical substance. SMEs often fare better, however, being closer to their localities and customer base, where their greater visibility puts them under pressure to be more accountable.

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What are the prospects for UK manufacturing?

economy growth productivity Jul 18, 2019

UK manufacturing output growth held steady in the three months to May, according to the Confederation for British Industry’s (CBI) monthly industrial trends survey.

In July, the CBI reported that in the three months to June UK factory output had turned in its slowest quarterly growth since April 2016.

Furthermore, the CBI reported that ten out of sixteen sub-sectors experienced growth with chemicals, food, drink and tobacco being resilient, while car manufacturing struggled.

Confusingly the CBI also reported that order books deteriorated in the quarter.

By comparison the monthly snapshot from IHS Markit and the Chartered Institute of Procurement and Supply showed that activity levels in the UK manufacturing sector in June had dropped to the lowest level since February 2013.

IHS Markit/Cips found that high stock levels, ongoing Brexit uncertainty, a deteriorating economic backdrop and rising competition contributed to the drop in output. Weak export demand amid a...

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Redefining measures of national economic health

economy growth productivity Jul 02, 2019

For almost 40 years the defining measure of a country’s national economic health has been GDP (Gross Domestic Product).

As such, my monthly Key Indicators have focused on various specific aspects, such as oil prices, factory output or investment decisions and the like. This time, however, given that the summer is generally a time to pause and reflect, the Key Indicator considers this notion of how we measure national economic health.

There are signs of a growing resistance to using such a simplistic measure as GDP to compare the relative success of national economies.

For example, Evan Davies, the BBC’s former economics editor argues: “It is barely an exaggeration to say it has been fetishised in economics, despite obvious weaknesses in its capacity to encapsulate a whole economy in a single number” in an article analysing where economists have been going wrong.

National economies are, he argues, both too complex and too theoretically...

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Investment decisions in a mature business cycle

A mature business cycle is one where the prevailing conditions are such that any economic slack is largely used up and assets are richly priced after a period of expansion.

Arguably this is the position in which the economies of the developed countries, such as the USA, UK, EU and Japan now find themselves, where there is a stable population and slowing economic growth. In this context a growth rate of 2% is seen as acceptable.

Arguably, too, mature economies are at a pivotal moment, in that a market economy is never static and there have been signs for some time that the situation is somewhat volatile, as a selection of headlines in any period illustrates.

For example, on April 28 a new report on global trends published by KPMG Enterprise suggested that increased activity from venture capital investors had been pushing up deal prices in the North of England, and the billionaire investor Warren Buffett told the Financial Times that he is “ready to buy something in...

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Are Internet unicorns another bubble destined to burst?

Reminiscent of the hubris leading up to the 2000 dot com crash, the start of this year there has seen a queue of internet unicorns lining up to launch on the stock market via Initial Public Offerings (IPOs).

A unicorn business is defined as a private, venture capital-backed firm worth over $1bn. Among those that have either launched IPOs or considering them are Lyft (launched in March), Uber (launched in early May), Pinterest, AirBnB and possibly We Work and Slack.

So far, the results have been distinctly underwhelming with Lyft’s shares valued at $72 each on debut, giving the seven year-old company and rival to Uber a market value of slightly more than $24bn.

Uber set its launch value at $90 billion (£70 billion) and listed share prices at $45 each. However, within hours on its first day of trading Uber’s share value had dropped by 7.6% down to $41.51.

Neither of the two ride-hailing businesses has so far ever made a profit.

Last year, despite boasting revenues of...

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Business opportunities for SMEs in the growing demand for sustainability and cutting waste

The neoliberal economic model based on perpetual growth has come under increasing attack from environmental campaigners particularly since the week-long Extinction Rebellion activity in April this year.

With almost-daily horror stories about climate change, global warming and the amount of plastic waste littering the planet, not to mention a significant decrease in biodiversity, it is clear that action needs to happen a lot more urgently than has previously been admitted.

Changing the developed world’s economic model from perpetual to sustainable growth is no doubt going to be a major challenge, particularly in the face of a rise in populist political parties putting national self-interest first and also of some leaders, such as US President Donald Trump who despite the evidence still questions the truth of climate change.

Nobel prize-winning economist Joseph Stiglitz makes a distinction between good capitalism, which he calls “wealth creation”, and bad...

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Two examples that justify agility when pursuing a retail turnaround

This blog contrasts the fortunes of Majestic Wines with those of Debenhams as arguably examples that show how retail business can survive a rapidly changing environment.

There have been efforts by many struggling High Street retailers to improve their businesses by using an insolvency mechanism called the CVA (Company Voluntary Arrangement).

The most recent of these is Debenhams, which, having secured £200 million in new loans in March and followed with a pre-pack administration sale in early April, effectively wiping out its shareholders including the vociferous Mike Ashley who also owns Sports Direct and BHS.

It was acquired by new owners, a consortium of banks and hedge funds, who almost immediately launched a major store closure programme ultimately to involve 50 stores, in conjunction with a CVA aimed at persuading landlords to reduce the rent for remaining stores by up to 50%.

Debenhams’ sales had dropped by 7.4% in the previous six months but it has been...

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