Global Glance: Sep 21, 2015
A quick look at intriguing international stories
By John Bostwick, Managing Editor, Radius
Welcome back to Global Glance. This week we look at:
- Why GE is moving jobs to, of all places, France
- A BMW executive’s collapse and the importance of corporate reputation
- Netflix’s plan for world domination
Why GE Is Moving Hundreds of Jobs to France
Last Wednesday’s Financial Times carried the following large and (to me) unexpected headline: “GE Switches 500 Jobs to France in Blow for US Manufacturing.” Why would GE — a company based in virtually the only country in the world with at-will employment — send hundreds of jobs to a country with legendarily strict worker-protection laws?
Apparently, GE’s decision springs from politics as well as economics. As the Financial Times article indicates, the US Export-Import Bank (known as “Ex-Im”) — which helps to finance the export of US goods and services to global markets — “lost its ability to extend new loans on July 1 after opposition from conservative Republicans.” Jeff Connelly, GE’s VP, Supply Chain, GE Power & Water, said in a press release on Tuesday, “Our customers rely on export credit agencies, like US Ex-Im, to finance their critical power projects. … While our preference is to continue producing power generation equipment in our best US factories, without customer access to the US Ex-Im bank, we have no choice but to move our work to places that will offer export credit financing of these projects.”
One of the clearest summaries of GE’s decision appears in this brief piece for MarketWatch, which explains: “A band of mostly younger Republicans in Congress have fought a yearlong battle to try to kill off the bank, arguing that it’s a form of corporate ‘welfare’ that mostly benefits just a handful of companies such as GE … and Boeing.”
For more information on exactly what Ex-Im does (or rather did) and why, check out this export.gov page. The Ex-Im website's own homepage currently carries the following all-caps message in alarmingly large font: AUTHORITY HAS LAPSED. It also has a link to another Ex-Im page with information on the lapse, including a statement that Ex-Im will now “focus on the management of our $107 billion portfolio of outstanding obligations until such time as Congress acts to reauthorize the Bank.”
BMW Chief’s Collapse and the Importance of Corporate Reputation
In a blog post earlier this summer, Radius advisor Katie Davies explored the emerging regulatory area of out-of-office work restrictions, such as laws against allowing work emails from home. As Davies observed, these worker protections are somewhat unusual, as they tend to create protections “primarily for professionals as opposed to blue-collar workers.” She notes that in 2013, “the German government banned managers in the employment ministry from contacting staff outside of work hours” and that some private companies, such as BMW, “have enacted policies and procedures to safeguard workers’ time off.”
Coincidentally, BMW was in the news last Tuesday for what appeared to be a case of white-collar worker exhaustion. BMW AG Chief Executive Harald Krüger collapsed on stage while conducting a news conference at a Frankfurt auto show. An article about the incident in CNBC.com — “BMW Chief’s Collapse Highlights Executive Stress” — notes that Krüger felt ill before the presentation but pressed on anyway, no doubt due to fears that “cancelling would have looked bad” for the company. Regrettably for Krüger and BMW, what transpired was arguably far worse for the company’s reputation. (Fortunately, Krüger himself is recovering.) The article goes on: “in an era when chief executives' viruses can go viral … they need to be more careful about how they feel before they put themselves under the spotlight.”
The CNBC.com piece does not contain an embedded video of Krüger’s collapse, but this BBC News report does. That short report notes that the chief executive was “helped to his feet by assistants.” That’s a kind way to put it. To me, those “helpful assistants” look in the video more like a team of secret service agents bundling a would-be assassin off stage. Their clear lack of concern for Krüger’s health in their rush to get the weakened leader out of sight speaks to the enormous importance companies place on corporate reputation.
Netflix’s Plan for World Domination
In a January shareholder report, Netflix addressed its remarkably ambitious global expansion strategy, including a plan to expand into 200 countries (from 50) by 2017. It is only then that the company expects to turn a profit on its international streaming services. While Netflix is now losing money on international streaming, its January report cited three long-term advantages of going global: a bigger market for increased revenues and a related ability “to develop and license more content for our members and improve our service;” the ability “to source great stories from around the world and deliver them to the world;” and the efficiencies and influence that come from “being a unique global licensor that provides worldwide distribution.”
An article in last Wednesday's Financial Post gives an update on Netflix’s progress: “The stock has doubled since Netflix announced its major international expansion in January, despite anticipating its earnings to decline to break-even over the next two years as it copes with expansion costs.” Accurately forecasting those costs — which include “facing challenges such as regulatory issues in places like China” and paying for local content in countries like India — is to put it gently challenging. It should be said that at least one analyst quoted in the article has faith in Netflix’s forecasting abilities. If that faith proves justified, Netflix stands to seriously cash in on its global expansion activities. As the Post article observes: “The company could grab more than 81 million international subscribers by the end of 2018, representing roughly 10 per cent of the total addressable broadband market.”