Global Glance: January 11, 2016
A quick look at intriguing international stories
By John Bostwick, Managing Editor, Radius
Welcome back to Global Glance. This week we look at:
- How Netflix’s world domination is almost complete, but compliance challenges loom
- VW’s mounting legal troubles
- The latest Big Mac index
Netflix’s World Domination Almost Complete but Compliance Challenges Loom
The annual Consumer Electronics Show took place in Las Vegas last week. The CES has been held in Vegas for over 40 years now, and bills itself as “the global stage where next-generation innovations are introduced to the marketplace.” One event last week in particular has generated some serious buzz: Netflix CEO Steve Hastings announced that the company had just introduced streaming services in an astounding 130 new countries. Apparently, the company is well on its way to fulfilling the promise it made in a January 2015 shareholder report to expand into 200 countries (from 50 at the time) by 2017.
The announcement seems to have been covered by all major news outlets, including this front-page story in last Thursday’s Financial Times. It’s worth noting that while the announcement was made at the CES, it did not herald any new gadgets, software or other “next-generation innovations.” It simply stated that Netflix had engaged in more global expansion, which if you think about it is rather an odd revelation for a consumer electronics show. Indeed, The Financial Times reported that when Hastings addressed the subject of global-expansion challenges, he didn’t mention technological hurdles, including internet bandwidth issues, but the “difficulties involved in securing global rights to hit shows normally sold country by country.” The Times writer himself adds that Netflix’s primary challenge is not technological, but lies in delivering “enough high-quality programming that resonates in countries where tastes vary wildly.”
One other colossal challenge for Netflix that’s not addressed in the Financial Times article is the need to comply with foreign laws that govern business. Country-specific regulations related to data protection, corporate tax and indirect tax in particular are evolving at a rapid pace, in part to account for burgeoning cross-border electronic commerce. Global Glance readers will recall that Australia updated legislation last year to ensure that digital suppliers such as Netflix pay their fair share of VAT/GST. That’s of course just one random example among countless others. And it’s remarkable to consider how many new laws Netflix will have to understand and track in the wake of its move into 130 new countries, of how much risk it is taking on in its quest to be — as Hastings put it last Wednesday — the world’s “new global internet TV network.”
VW’s Mounting Legal Troubles
Netflix or any other multinational that might be tempted to regard compliance with applicable foreign laws as somehow ancillary to running a business would do well to follow the developing story of the Volkswagen emissions scandal. In a press release last Monday, the US Department of Justice (DOJ) announced that it had filed a civil suit in federal court against VW for its vehicles’ “illegal defeat devices installed that impair their emission control systems and cause emissions to exceed EPA’s standards, resulting in harmful air pollution.”
According to a Wall Street Journal article published the next day, DOJ’s suit “seeks sanctions that could total more than $18 billion.” (A January 6 article in Road and Track indicates DOJ is “seeking up to $48 billion.”) The Journal goes on to point out that the civil suit is, in effect, the tip of the iceberg, and that “Volkswagen faces myriad lawsuits from consumers and dealers, as well as regulatory investigations in the US, Europe and elsewhere.” In a sentence seemingly designed to raise VW brass’ hopes only to dash them, the Journal further notes, “Monday’s legal action doesn’t involve criminal charges against Volkswagen or its executives, and federal prosecutors are in the midst of a separate criminal probe of the auto maker.”
In coming months, it will be fascinating to read about the VW decision-makers involved in the deception, and what exactly they were thinking at the time. For VW’s most recent official response to the scandal, check out this NPR summary of a December 10 press conference in Wolfsburg, Germany, featuring company chairman Hans Dieter Pötsch. Here’s an excerpt: “The company continues to maintain that only a small group of people were actively involved in designing and installing [the deception] software … But Pötsch said systematic issues — including, in some parts of the company, a tolerance for rule-breaking — allowed the deception to go undetected.”
Drawing Conclusions from the Latest Big Mac Index
The Big Mac index was created by The Economist 30 years ago as a relatable means of judging currency levels. The paper’s Big Mac Index web page explains that the index, published annually in January, has “become a global standard” for gauging currency alignment. It’s “based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services (in this case, a burger) in any two countries.” Basically, the index looks to determine which global currencies are relatively overvalued or undervalued based on what it costs to buy a Big Mac in 48 countries and the “euro area,” on foreign exchange rates, and on other factors.
This year’s index was released last Thursday and can be found at the link above. Such charts and indexes tend to draw the eye to extremes, and the viewer almost immediately notes that, with the US dollar selected as the base currency, only Switzerland, Sweden and Norway have relatively overvalued currencies. Venezuela, Russia and Ukraine all have notably undervalued currencies.
For an excellent analysis of this year’s index, check out the related Economist article “After the Dips,” published last Friday. Among other observations, the article notes that the relatively strong US dollar “is partly owing to the Federal Reserve’s decision to raise interest rates when the central banks of the euro zone and Japan are loosening monetary policy” and that “another force weakening many currencies, including the ruble, has been the ongoing slump in commodity prices since mid-2014.” This comes as good news for US tourists and importers, and seems at first glance to be bad news for nearly everyone else. But, The Economist explains, there are benefits that come to those countries appearing on the low end of the index: “Pricier imports should encourage consumers to switch towards domestic products and stimulate local production. A cheaper currency should also boost growth by spurring exports.”
Of course, any benefits that come with a devalued currency aren’t inevitable. The Economist reports, for example, that non-energy Russian exporters have not enjoyed recent success despite the depreciated ruble. As one expert quoted in the article notes, “First you have to produce something that someone wants to buy.”