In the blog Has Merlin lost his magic, the issue of banks failing to meet their lending targets as set by the government was considered. Small businesses have been finding it difficult to obtain bank loans to help their business grow. Vince Cable has gone so far as to say: ‘There is a serious problem with lending to good, small companies.’ As a result of this, new sources of finance are being sought and one innovative approach has come to the forefront: crowd funding. People group together by pooling their money and investing in ideas or businesses. The attraction is that it doesn’t require huge amounts of cash, but with enough potential investors, significant amounts of finance can be raised. The following BBC News article looks at this innovative approach to financing a business.
Small firms seek crowd funding BBC News, Catherine Burne (27/5/11)
Questions
- What is the attraction of crowd funding?
- Are there any risks of this method of finance to the investors and to the firm seeking investment?
- What are the disadvantages of crowd funding relative to something like investment from a venture capitalist?
- How important is the size of the firm when it comes to the viability of crowd funding?
We frequently hear about two companies merging with each other, whether for certainty, market share or economies of scale. However, in this case, we’re looking at a de-merging of one company to create two companies. Foster’s will be split to create two stand-alone companies.
With Foster’s retaining its beer business, a new company called Treasury Wine Estates will take over its ailing wine division. This split comes after 99% of investors cast their votes in favour of the split. The future profitability of this demerger is uncertain and how the stocks of the two separate companies trade in the coming months will give a clear indication of whether or not this divorce is the right move.
Foster’s votes to split beer and wine business Telegraph, Richard Fletcher and Jonathan Sibun (29/4/11)
Investors agree to split Foster’s into beer, wine units BBC News (29/4/11)
Two halves: Foster’s to split its beer and wine operations Mail Online (29/4/11)
Foster’s wine-beer demerger to clarify divisions’ value The Australian (30/4/11)
Questions
- What type of de-merger could we call this?
- How do you think the share prices of the 2 separated companies will fare following the de-merger?
- How concentrated is the beer and wine market? What effect will the de-merger have?
- In the BBC News article, Donald Williams says ‘The wine business needs a better pricing environment before it is likely to perform.’ What does this mean?
- Why has the wine division been a financial drain for so long?
There has been an ongoing battle between Microsoft and Google for many years in the technology industry. Microsoft have received many fines in countless anti-trust cases, but Microsoft has now taken the upper hand in the most recent development, after filing its first official complaint with the regulators against Google. Microsoft is claiming that Google’s actions are restricting competition in the market and thereby abusing its dominant position. This complaint follows numerous complaints by small businesses. Microsoft’s Brad Smith said that they had been forced to act because of a:
“broadening pattern of conduct aimed at stopping anyone else from creating a competitive alternative”.
Google controls approximately 95% of the European search engine market and complaints have focused on actions that Google have taken to restrict competition, further its dominance in the market and thereby harm consumers. The European Commission is already investigating Google and will continue to discuss the case with all parties involved.
Microsoft takes on Google with antitrust complaint Guardian, Mark Sweney (31/3/11)
Minnow Microsoft v the Google giant BBC News Blog, Rory Cellan-Jones (31/3/11)
Adding our voice to concerns about search in Europe Microsoft Blog, Brad Smith (30/3/11)
Microsoft accuses Google of antitrust violations CNN Money, David Goldman (31/3/11)
Questions
- What constitutes a dominant position? In what forms can a firm abuse its dominant position?
- What is the purpose of anti-trust laws and competition policy?
- To what extent are Google’s actions against consumer’s interests?
- What anti-competitive practices have Google been accused of? Explain how each is against consumer’s interests and against the interests of its competitors.
- What are (a) the arguments for keeping interest rates at 0.5% and (b) the arguments for raising interest rates? Who wins and loses in each case?
Are we heading for ‘perfect storm’ in commodity production and prices? Certainly the prices of many commodities have soared in recent months. These include the prices of foodstuffs such as dairy products, cooking oils and cereals, crude oil, cotton, metals and many other raw materials. The overall world commodity price index has risen by 28% in the past 12 months. The following are some examples of specific commodities:
Price rises in the 12 months to February 2011
• Wheat 62%
• Maize 59%
• Coffee 70%
• Beef 39%
• Sugar 46%
• Palm kernal oil 142%
• Soybean oil 50%
• All food price index 32%
• Crude oil 20%
• Cotton 132%
• Fine wool 55%
• Softwood timber 25%
• Iron ore 78%
• Copper 29%
• Tin 55%
• All metals index 58%
• Rubber 79%.
The problems are both short term and long term, and on both the demand and supply sides; and the effects will be at micro, macro and global levels. Some hard choices lie ahead.
The following webcast, articles and reports explore both the current position and look into the future to ask whether rising commodity prices are likely to continue or even accelerate.
The first link is to a BBC World Debate which considers the following issues: “Is scarcity of natural resources a serious challenge for developing and advanced economies? How great is the risk that scarcity might lead to conflict, both within and between nations? Might a scramble for resources lead to a retreat from globalisation and to greater protectionism?”
Webcast
World Debate: Resources BBC World Debate, Louise Arbour, President and CEO, International Crisis Group; James Cameron, Global Agenda Council on Climate Change; He Yafei, Ambassador and Permanent Representative of China to the UN; Malini Mehra, Founder and CEO, Centre for Social Markets; Kevin Rudd, Minister of Foreign Affairs, Australia (19/1/11)
Articles
Global Food Prices Continue to Rise Reuters, Steve Savage (7/3/11)
The 2011 oil shock The Economist (3/3/11)
Global Food Prices Will Probably Be Sustained at Record This Year, UN Says Bloomberg, Supunnabul Suwannaki (9/3/11)
Food prices to stay high as oil costs, weather weigh livemint.com, Apornrath Phoonphongphiphat (9/3/11)
‘Perfect storm’ threatens agriculture in developing nations Manila Bulletin, Lilybeth G. Ison (9/3/11)
IMF sees no immediate respite from high food prices Commodity Online (7/3/11)
Drought, supply, speculation drive world food prices to record high NZ Catholic (8/3/11)
The Factors Affecting Global Food Prices Seeking Alpha, David Hunkar (7/3/11)
World food prices climb to record as UN sounds alarm on further shortages FnBnews (India), Rudy Ruitenberg (9/3/11)
Food crisis: It’s a moral issue for all of us New Straits Times (Malaysia), Rueben Dudley (8/3/11)
Oil prices: Green light from the black stuff Guardian (5/3/11)
Cotton hits $2 a pound Guardian, Terry Macalister (17/2/11)
Supermarkets are raising prices faster than inflation, says UBS The Telegraph, Philip Aldrick (1/3/11)
What next for commodity prices? BBC News, Jamie Robertson (5/5/11)
Reports
FAO Cereal Supply and Demand BriefFood & Agriculture Organization, United Nations (March 2011)
Rising Prices on the Menu Finance & Development (IMF), Thomas Helbling and Shaun Roache (March 2011)
Data
Commodity prices Index Mundi
Commodities Financial Times, market data
Questions
- Identify the various factors that are causing rises in commodity prices. In each case state whether they are supply-side or demand-side factors.
- How can the price elasticity of demand and supply, the income elasticity of demand and the cross-price elasticity of demand be used to analyse the magnitude of the price rises?
- To what extent are rising food prices the result of (a) short-term (i.e. reversible) factors; (b) long-term trends?
- Why are food prices in the shops rising faster in the UK than in many other countries?
- To what extent is the future of food security and prices and moral issues?
- Why may current oil price rises become an opportunity for the future?
- What might be the respective roles be of government, business and consumers in responding to natural resource constraints?
Nokia and Microsoft have announced that they are to form a strategic alliance. This will see Nokia using Windows Phone as the software platform for its smartphones. This follows problems with Nokia’s own Symbian software and the success of Apple’s iPhone and Google’s Android software.
Recognising the depth of Nokia’s problems, its new boss, Stephen Elop, sent a memo to staff with apocalyptic warnings. He likened Nokia’s position to one of standing on a burning oil platform about to be engulfed with flames.
So is the alliance with Microsoft the way out of Nokia’s problems? Will it bring problems of its own? The following articles look at the issues.
Nokia to Use Microsoft Software in Smartphones New York Times, Kevin J. O’Brien (11/2/11)
Nokia, Microsoft to Join Forces to Challenge Apple Dominance Bloomberg, Diana ben-Aaron (11/2/11)
Nokia: ELOP’s challenge Bloomberg, Martin Garner (11/2/11)
Nokia falls into the arms of Microsoft The Economist: Newsbook blog (11/2/11)
Nokia and Microsoft sign strategic tie-up Guardian, Graeme Wearden (11/2/11)
Nokia and Microsoft form partnership BBC News (11/2/11)
Is the Nokia/Microsoft horse a stallion or a tired nag? BBC News blogs: Peston’s Picks, Robert Peston (11/2/11)
Microsoft and Nokia announce my dream partnership so why aren’t you all happy? ZDNet (CBS), Matthew Miller (11/2/11)
Questions
- What is meant by a strategic alliance? What forms can a strategic alliance take?
- For what reasons are Microsoft and Nokia forming a strategic alliance?
- How does Nokia hope to benefit from the alliance?
- How does Microsoft hope to benefit from the alliance?
- Why is Nokia’s share of world profits in the mobile handset market much less than its share of total handset sales (see The Economist article above)? Conversely, why has Apple such a large share of world profits in the handset market (just over 50%) and yet only a tiny market share?