MBA2009cases

Cisco Building on Core Competencies In recent months Cisco has demonstrated its ability to perform well in an intensely difficult environment, translating core strengths of manufacturing scale and efficiency into good profitability. Cisco has benefited from a well-diversified product and consumer base. Ethernet switching helped to offset some weakness in the routing division, which was going through a product transition phase. Considering the advanced-technologies unit, which includes home networking, Internet Protocol (IP) telephony, optical networking, security, storage-area networking, and wireless technology, it is hard to find an equipment market Cisco does not have a hand in. Unlike many companies that try to stretch past their competencies to boost their target market, Cisco has entered markets that play directly to its core strengths in switching and routing. Segments like security, wireless, and home networking have all become critical parts of an integrated network. Customers are increasingly looking for a complete enterprise product that can offer routing and switching connectivity, security applications, and voice over IP all in one box. Cisco believes that customers are better served by standardizing to a single vendor, with benefits like faster network deployment and lower operating maintenance. In addition, an integrated network typically improves performance speed, saves physical hardware space, and lowers overall product costs. Source: BusinessWeek May 16 2005

Focus on Core Competence - Isuzu In October 2002 Isuzu projected that it will lose $1.4 billion in the year to March 2003, on top of the companys $346 million loss in 2001. Isuzus sales in 2002 were expected to be down 21 percent to $10.2 billion. Isuzus stock is down 41 percent for the year to 35c a share. These forecasts accompanied a revision in Isuzus restructuring plans the fourth such revision in five years. Isuzu plans to exit loss-making light-truck production in the USA, stop sales of sport utility vehicles in Japan, speed up job cuts and refocus on growth markets such as China. Isuzus main shareholder, GM, will contribute $499 million even as it reduces its equity stake in the company to 12 percent, down from the 49% it has held since 1998. In exchange, GM will get majority stakes in Isuzus diesel-engine units in Europe, the U.S., and Japan. An interesting question is how did Isuzu get into difficulties? After Isuzu stopped making passenger cars in the early 1990s, its SUVs, which were based on pickup trucks, couldnt match the comfort of competitors carbased offerings. So Isuzus Rodeo and Trooper SUVs lost their early lead in the U.S. to rival models from Honda and Toyota. Since 1995, Isuzus share of the U.S. auto market has fallen by more than half, to 0.3 percent in 2002. It has not fared much better at home in Japan. Sales of Isuzus mainstay Elf two- to three-ton trucks and Giga 10- to 20-ton cargo haulers have fallen by half as business at Japanese construction companies among Isuzus top customers has slowed in the economic downturn. Isuzu has yet to shut any of its five factories each of them now working at 50 percent capacity even as its heavy truck sales in Japan fell to 18,000 in 2001 from nearly 34,000 in 1997. Isuzu does have some strengths. The company builds state-of-the-art diesel engines that run cheaper and cleaner than many gasoline-powered motors. Its diesels are used in cars sold in Europe by Honda, Renault, Saab, and GM. In the U.S., GM puts Isuzus diesel engines in full-size pickups such as the Chevrolet Silverado and GMC Sierra. Isuzu needs to focus its energies if it is to survive. Analysts say Isuzu would do better to pull out of the heavy-duty truck market, where its rivals are backed by well resourced industrial groups such as Toyota and Mitsubishi. Instead, they say Isuzu should focus on its edge in diesel engines and smaller light-duty trucks, which together account for half of its sales. Source: BusinessWeek November 11 2002 p28.

February 10, 2008 Will Disney Keep Us Amused? By BROOKS BARNES ANAHEIM, Calif. VISIT Disneys California Adventure a 55-acre theme park next door to the fabled progenitor of the modern amusement Mecca, Disneyland and you will find a noisy reminder of what happens when a company loses its focus and cuts corners. The Walt Disney Company built the park on the cheap in 2001, and many rides are copies of familiar carnival workhorses like the Ferris wheel. A lack of landscaping can leave guests sweltering. Outdoor shows were borrowed from other Disney properties. And the theme, built around tributes to California, is modest except for an occasionally unintentional ghost-town atmosphere: The park draws about 6 million visitors a year, a trickle compared with the 15 million who swarm Disneyland. Now, Disney is embarking on a $1.1 billion, five-year effort to get California Adventure on track. The blueprints call for ripping out ho-hum rides and adding elaborate new ones, rebuilding the parks entrance a hodgepodge of turnstiles, a miniature Golden Gate Bridge and pastel tile murals to shift the focus to Disney iconography. In June, Disney will unveil a glimpse of the shoot-for-the-moon bet it is making on California Adventures makeover, with the introduction of a ride called Toy Story Mania. More than three years in the making, and estimated to cost about $80 million, the attraction essentially puts guests inside a video game. Riders, wearing 3-D glasses, board vehicles that career through an oldfashioned carnival midway, operated by characters from the popular Toy Story film franchise. Vehicles stop at game booths 56 giant screens programmed with 3-D animation from Pixar and riders play virtual-reality versions of classic carnival games. But much more is riding on the attraction than a complex turnaround of just one theme park. Toy Story Mania, which Disney is also installing in Florida, reflects the larger pressures and challenges facing the companys $10.6 billion parks and resorts business. To stay relevant to younger, digitally

savvy visitors while also delivering growth to investors, Disney, the company that invented the modern theme park, knows that it has to devise a new era of spectacular attractions rooted in technology. One-upmanship increasingly drives this intensely competitive business, and Disneys rivals are also trying harder to gain market share. Universal Studios, part of NBC Universal, has more than quadrupled its spending on new rides, introducing attractions in California and Florida that are based on The Simpsons. Universal is teaming up with Warner Brothers to bring a small Harry Potter-theme park to Florida in late 2009. Niche players like SeaWorld and Legoland are also muscling in on Disneys territory. At its core, however, Toy Story Mania represents an effort to solve a puzzle that poses a much larger threat to Disney and the broader amusement park business. The quickening pace of daily living, advances in personal technology and the rapidly changing media landscape are combining to reshape what consumers expect out of a theme park, Disney executives say. Toy Story Mania, which carries a modest price tag compared with some other Disney efforts, demonstrates one way that the company is fighting back, said Jay Rasulo, the chairman of Walt Disney Parks and Resorts. Bigger and more expensive is not necessarily the answer, Mr. Rasulo said. You want people leaving thinking, Wow, only Disney could do that. Consumers fixation on instant gratification and personalization has been reshaping the entertainment industry for some time, but it has finally caught up to the theme park business in visible ways. For instance, Disney has spent much more effort and money developing ways to entertain people as they stand in line for Toy Story Mania. An animatronic figure with an estimated $1 million price tag will sing songs and interact with guests as they wait. Employees dressed as Toy Story characters will stroll among the crowds. Theres an erosion of patience, said Bruce Vaughn, the chief creative executive for Walt Disney Imagineering, the companys development group. Peoples tolerance for lines is decreasing at a rapid rate.

Mr. Rasulo said that younger visitors, in particular, expect customized entertainment. So Toy Story Manias computers will accommodate riders of various skill levels. Guests are pretty much no longer interested in being passive viewers, Mr. Rasulo said. To address shifting tastes, the broader amusement park industry will have to rewrite its operating rules, said Jerry Aldrich, the founder of Amusement Industry Consulting. Disney is already there, but a lot of parks are just waking up to this, he said. The health of the parks and resorts unit is crucial to Disneys overall performance. Its lucrative sports unit, ESPN, makes more money, and its movie studio basks in Hollywood glamour. But the parks, where people interact with Mickey and his pals, are the reason that the Disney brand is so powerful, analysts say. As the theme parks go, so goes Disney. Lately, Wall Street has been sounding alarm bells about the unit and not just about California Adventure. While Disneyland and the cluster of Florida parks that make up Disney World have been churning out record profits on strong increases in attendance, some investors worry that the troubled domestic economy will tear a hole in the business. In late January, a Citigroup analyst downgraded Disneys stock to a sell, citing concern about lower demand for hotel rooms at the resorts. DISNEY strongly rejects the skepticism, and some other analysts agree. Disneys chief financial officer, Thomas O. Staggs, said the company saw no indication that consumers were cutting back. We are pleased with the current pace of business at our parks, particularly given the record attendance we achieved last year, he told analysts on Tuesday during a conference call, held as the company released fiscal first-quarter earnings. Vacationers from Europe and Asia, benefiting from a weak dollar, could pick up some of the slack in the event of an economic downturn, but that could lead to cannibalization Disney needs those same visitors to patronize theme parks in Paris, Hong Kong and Tokyo. Although its performance has drastically improved from its early days, Disneyland Resort Paris is still struggling after 10 years of changes and

heavy capital investment. The park in Japan is cruising right along, but attendance at nearby Hong Kong Disneyland, the companys newest park, has fallen more than 25 percent since its 2005 opening. Disney told analysts on Tuesday that attendance in Hong Kong has recently improved significantly because of new promotions. To make certain that Toy Story Mania is a hit part of a strategic effort to keep mining revenue from the 13-year-old Toy Story franchise Disney is pulling every lever in its vast arsenal. Pixar, the Disney-owned studio working on Toy Story 3 for a 2010 release, contributed animation and general creative advice. Disney VR Studios, the companys video game unit, customized software, while the parks and resorts unit handled the heavy lifting of design and construction. The media networks division, which includes ABC, will help publicize the ride once it opens along with hundreds of other promotional partners. We have an incredible number of engines at this company, and every one is firing around this franchise, Mr. Rasulo said. WORK on Toy Story Mania got under way on a stiflingly hot September day in 2005, when a team of Disney creative developers went to the Los Angeles County Fair. The goal was to research how carnival games operate. Two developers, Kevin Rafferty and Robert Coltrin, had devised an idea for a new California Adventure ride that would juxtapose the old-fashioned romance of a carnival midway with high-tech video game elements. They had a hunch that Toy Story and Toy Story 2, the Pixar films about toys coming to life, would provide a good theme. But they didnt know much about carnival games. We looked at each other and said, Are the games we remember from our childhoods even relevant anymore? Mr. Coltrin said. At the fair, the two were thrilled as they walked through rows of game booths wooden structures that carnival operators call stick joints to find crowds enjoying classic games like the ring toss and water guns. We were like, Score! and gave each other a high-five, Mr. Coltrin recalled.

Using digital cameras, members of the development team documented details, from the colors of the canvas covering each booth red and yellow to how far apart the games were spaced. They quickly ruled out some games as options for the ride. Toss a coin in a cup didnt really do it for us, said Chrissie Allen, a senior show producer. But other games, like one in which customers threw darts at balloons, piqued their interest. We thought, This just might work, Ms. Allen said. Reassembling at Disneys offices in Glendale, Calif., the team worked on the concept that would become Toy Story Mania. Because carnivals sell commotion, there would be lots of flashing lights, barkers trying to capture riders attention, buzzers and bells. Mr. Rafferty and Mr. Coltrin dreamed up a fanciful story: The classic toys in Toy Story had come to life and staged a carnival under their owners bed while he was away at dinner. Little Bo Peep would operate the balloon darts; Ham, the talking piggy bank, would cheer riders as they tossed virtual eggs at barn animals. The culmination would be Woodys Rootin Tootin Gallery, a twist on old-fashioned shooting galleries. They would use full-scale 3-D animation, a first for a Disney ride. That, Mr. Vaughn said, would make riders feel as if they were inside a video game or a virtual world. We look at it as gaming meets immersive storytelling, he said. While Mr. Vaughn and his colleagues were cogitating in the fall of 2005, Disney had its hands full. Robert A. Iger had just taken over the company after the exit of Michael D. Eisner and was working to extend Disneys partnership with Pixar, an effort that would result in a $7.4 billion acquisition. When Mr. Rasulo and his team presented Mr. Iger with plans for Toy Story Mania, Mr. Iger was interested but cautious. Would that dovetail with much larger efforts to overhaul the entire park? The ride could handle up to 1,500 riders an hour. Was that enough? An improved relationship with Pixar looked promising, but what if a deal couldnt be reached? Would that hinder plans to build a lavish ride around Pixars core creative property?

But Mr. Iger liked a couple of the important parts of the proposal. Imagineers (Disneys term for creative developers) suggested building versions of the ride at the same time in California and Florida a Disney first to leverage the development costs. Another component involved the ease with which the ride could be rethemed every season. The chance to take simple games that people have loved playing for generations and pairing them with cutting-edge technology just sounded exhilarating to everybody, Ms. Allen said. BUILDING elaborate models is among the first formal steps in creating a Disney attraction. Engineers, paying attention to scale and sight lines, want to find out how a planned addition would affect the existing park. Models are built on large tables equipped with wheels. The company keeps room-size models of entire parks, and engineers will eventually wheel the new model into that area to see how it looks. To give birth to Toy Story Mania, Mr. Rafferty and Mr. Coltrin went to work turning drawings of the ride into foam models, toiling in the same 1950sera building in suburban Los Angeles where Walt Disney himself once tinkered. Tweaks started to happen. The team added turrets to the top of the ride for a more dramatic flair. They shifted the direction of the facade by a few degrees to make it more visible from the park entrance. And we knew at this stage that we wanted a little piece of magic out in front as a tease to people as they waited in line, Mr. Coltrin said. Upstairs, designers entered blueprints for the ride into a computer program. This would allow them to start building and refining the entire project, which is made up of 150 computers, with 90 of them moving around on the ride vehicles and communicating with one another via a secured wireless network. With a click of a mouse, developers could jump to any spot inside in the vehicles for a virtual dip into how the experience might look to someone on the ride. We dont want anybody to be able to see multiple versions of Woody at the same time, and seconds make a difference, said Mark Mine, the technical concept designer. Every part of the ride has to be magical.

It is much easier and less expensive to do this before the concrete has been poured, he added. As rides become more complicated, your ability to tweak in the field gets harder and much more expensive. Across the street, in a cold, unmarked garage, Ms. Allen helped to conduct play tests on rudimentary versions of the ride. More than 400 people of all ages all had signed strict nondisclosure agreements sat on a plywood vehicle set up in front of a projection screen and played various versions of the games. Disney workers studied their reactions and interviewed them afterward. We were looking to see if some effects were too scary, Ms. Allen said, or if there wasnt enough laughing happening during certain sequences. Among the discoveries: People wanted to be able to compare scores after they were finished playing, while some children had a hard time reaching the cannonlike firing controller, christened by Disney as a spring action shooter. Engineers added a computer screen to vehicles to display scores and installed the controls on movable lap bars. We were trying to find out things we didnt even know to ask about, said Sue Bryan, a senior show producer. The rides psychological components started to take shape during this phase. Disney decided that riders were happier when they got a bigger visual payoff. (One of Little Bo Peeps balloons now pops with greater force when hit with a virtual dart and a blast of air shoots into a riders face.) A game involving shooting at a paper target was dropped. (It was hard to make paper interesting, Ms. Bryan said.) And developers decided that the last game before the exit needed to be the easiest, so riders would feel that they were coming out as winners, even if they werent very good. After Disney closed the Pixar deal, in January 2006, Toy Story Mania became more elaborate. Mr. Iger wanted Pixar and particularly one of its co-founders, John Lasseter, who had worked as a skipper on the Jungle Cruise ride at Disneyland after college to contribute to creative advances in the parks. Disney had incorporated Pixar movies into its theme parks before, but Pixars involvement in those efforts was modest, Mr. Vaughn said.

The minute Pixar became 100 percent part of the family, it could go whole hog and dive in, he said. One of Mr. Lasseters major concerns about Toy Story Mania centered on the animation, various developers said. Disney had hired an outside contractor to handle it, but Mr. Lasseter insisted that Pixar staff members who were involved in creating the films should also work on the ride. The Disney team had also decided to leave out Buzz Lightyear, the modern spaceman toy in the films, because he was already showcased in an older ride called Astro Blasters. But Pixar felt that the character was essential to the Toy Story franchise. Buzz will now be a host of a game, and he shares top billing on the rides marquee. Creating what Mr. Coltrin had called a little piece of magic was another area of special attention for Mr. Lasseter and his lieutenants. To entertain people as they waited in line, the developers decided to place one of Disneys signature animatronic figures outside. It would draw attention like a carnival barker, but also be sophisticated enough to interact one on one with guests, adding another element of customization. Only one Toy Story figure was considered for the role: Mr. Potato Head. WORK on Mr. Potato Head started last year in a heavily guarded Disney research plant a few miles from the companys headquarters in Burbank, Calif. Developers had to make a five-foot-tall plastic potato sing, dance and seemingly hold conversations with people at random. The robot also had to be able to remove his ear and put it back on. Its all in the math, said Jimmy A. Thomas, the lead mechanical designer. When Walt Disney introduced animatronics in the 1960s, coining the word in the process, his creations moved in simple ways through the use of pneumatic valves and hydraulic pumps. The children in the Its a Small World attraction wowed patrons simply by blinking their eyes and bowing. Modern visitors expect much more. Mr. Potato Head with help from a dozen video cameras, several computers, an unseen ride operator and a $1 million budget will be able to make his mouth form words, a first for Disney animatronics.

The comedian Don Rickles, whose gravelly voice brought the character to life in the films, was hired to record 750 words and four songs. The hidden ride operator, armed with a computer and cameras that scan the crowd, will then choose phrases based on the actions and appearance of people standing in front of it. (Hey, you in the red baseball hat.) The goal was to make the character so perfect that it looked as if it had just stepped out of the movies. Pixar executives tightly monitored every detail and helped direct Mr. Rickles. At a recent taping, the Pixar team put him through his paces. Lets put a little more chuckle in that line, said Roger Gould, Pixars creative director, sitting in a recording studio as 10 other executives and engineers took notes and adjusted instruments. Mr. Rickles complied, repeating a line that would play if the ride stopped unexpectedly. Folks, were having a little delay here, he said. For your safety, please stay seated inside the game tram. Among Disneyphiles, at least, the wait for Toy Story Mania to open is unbearable. Blogs like Blue Sky Disney and Mice Age, which are not affiliated with the company, have been chronicling minute details of the construction. (The first ride vehicles have just arrived in California from their production facility in Osaka, Japan!) Al Lutz, the publisher of Mice Age and a critic of what he calls California Adventures cheap strip-mall stucco aesthetic, says fans are keen to see the rides over-the-top details. Disney is, after all, a company that studied how the sun struck the earth differently in various locations to determine the color of paint to use on the fairy-tale castle at the center of each resort. Young people are going to be fighting to be first in line, he said.

February 20, 2009 Its Muscle Car Glory Faded, Pontiac Shrivels Up By MICHELINE MAYNARD DETROIT With its history of building muscle cars like the GTO and the low-slung Firebird, Pontiac had good reason to take pride in its best-known marketing slogan from the 1980s, We Build Excitement. Lately it has been using Pontiac is CAR, a phrase more likely to catch the attention of grammarians than car buffs. And on Tuesday, when General Motors asked the federal government for more bailout money, it also announced a reorganization plan that included demoting Pontiac to a focused niche brand, signaling that its lineup of vehicles would shrink and that it would no longer be a separate division. To industry analysts and Pontiacs longtime fans, the downgrade provides a case study of the product missteps that helped put G.M. in its precarious state, and a reminder of the dangers in straying from a successful formula. When you deviate too far from it, thats when you run into trouble as a brand and a company, said Jack R. Nerad, executive editorial director at Kelley Blue Book, whose 1968 Firebird made him feel as cool as I could be. More than any other G.M. brand, Pontiac stood for performance, speed and sex appeal. Its crosstown rivals followed with similar muscle cars, giving Detroit bragging rights over the cars that Japanese automakers were selling based on quality and reliability. Though still G.M.s third-best-selling division, behind Chevrolet and GMC, Pontiacs sales peaked in 1984, when it sold almost 850,000 vehicles, roughly four times as many as it sold last year. G.M.s chief executive, Rick Wagoner, said the companys decision to concentrate primarily on Cadillac, Chevrolet, Buick and GMC left the company with a comprehensive portfolio. By many accounts, Pontiac started to falter when G.M. pursued a costsaving strategy of providing the same cars to different divisions.

It gave Pontiac vehicles like the TransSport minivan, and the Sunbird, Sunfire and Phoenix cars that were barely distinguishable from models sold by Chevrolet and Oldsmobile. Pontiac also garnered unwanted publicity in 2001 with the Aztek, whose tag line declared, Quite possibly the most versatile vehicle on the planet. Its bulky looks landed it on lists of the worlds ugliest cars. Indeed, Aztek won top honors in that category from The Daily Telegraph of London last year. Pontiacs current plight is reflected in its Vibe, a well-regarded crossover vehicle that shares underpinnings with the Toyota Matrix, as part of a joint venture between Toyota and G.M. While the Matrix holds 67 percent of its resale value after three years, according to Kelley Blue Book, the Vibe retains just 54 percent. The Vibe, whose future is not clear but which was redesigned for 2009, is meant to appeal to the same age group that Pontiacs muscle cars once did. But many younger Americans, who were not around for Pontiacs prime period, will not miss the brand as it shrinks, said Ron Pinelli, who is president of Motorintelligence.com, a company that tracks industry statistics. To them, he said, it doesnt have any cachet unless theyre watching a late-night movie with Burt Reynolds, whose film Smokey and the Bandit featured the Pontiac Trans Am. But in its best years, Pontiacs were highly styled and valued and really something, Mr. Pinelli said. Known before World War II primarily for its sedate sedans, Pontiac got a lift in the 1950s when G.M. used its cars on the racing circuit. Because of its wide track stance, Pontiacs quickly caught on with street racers, as well. Tim Sampson, whose family owned a yellow Pontiac Grand Prix in the 1960s, remembered the Pontiacs that were used for drag races on Presidents Island, in an industrial part of Memphis. People used to get

arrested, said Mr. Sampson, a founder of the Stax Museum of American Soul. Italian sports cars inspired another classic Pontiac in the 1960s, when the divisions new general manager, John Z. DeLorean, decided it needed a small, fast car modeled after a Ferrari. He hit on the name GTO after a Ferrari coupe called the Gran Turismo Omologato. The GTO returned this decade, as part of an effort to revive Pontiac. But G.M.s Holden division in Australia built that car. Its appearance barely echoed the original GTO, disappointing its core audience. It lasted only from 2004 to 2006, before G.M. stopped selling them. The most recent efforts to breathe new life into Pontiac were put into motion by G.M.s vice chairman, Robert A. Lutz, who will retire at the end of 2009. Known in the industry for his love of high-performance vehicles, Mr. Lutz had pushed the division to return to its car heritage. On its Web site, Pontiac explains its new slogan more fully: Pontiac is style. Pontiac is performance. Pontiac is culture. Pontiac is music. Pontiac is CAR. Now, G.M. will have to determine which Pontiacs will remain Pontiacs. So far, Mr. Wagoner and other executives have not given any indication of the companys specific plans for Pontiac. But unlike Saturn, which will be discontinued by 2012, G.M. does not have to dismantle a dealership lineup for Pontiac. Its franchises, for the most part, already have been grouped with Buick and GMC. Any future models, G.M. said this week, will be sold through this Buick-Pontiac-GMC organization. Were the third generation, and were the last, said Rick Zimmerman, whose family has sold Pontiacs in Pittsfield, Ill., since the brand came to life as part of its Oakland division in the 1920s. (Pontiac became a stand-alone division in 1932.)

Mr. Zimmerman, whose first car was a GTO, said hundreds of customers used to flood his showroom each fall when new Pontiacs like the popular Bonneville, now a retired nameplate were unveiled. Now, despite positive reviews about the performance of some new models like the G8, he has trouble getting his customers interested in them. Its been a good name, and had a lot of good cars, Mr. Zimmerman said. Its tough to see it go.

Globalization of Soccer Kicks Local Fans Worldwide popularity pushes the game from a club culture to a corporate one Kanishk Tharoor YaleGlobal, 25 February 2008

Thousands of years ago, the Chinese, Greeks and Vikings all played games kicking balls about. But the modern game of soccer was born in England and the popularity of that particular sport has taken over the world. Thanks to satellite television, British soccer teams have hundreds of millions of fans all over the world and sport executives look to expand their audiences to more lucrative markets. But the local fans could not care less. Theyre not part of an anti-globalization movement, and simply want favorite teams to stay close to home. Such fans loudly and successfully protested a plan by the English Premier League to add an extra game to the schedule, one that would have been played abroad. But the victory may be short-lived, explains Kanishk Tharoor, a writer based in London. For some, the teams represent tradition and hometown pride, and for others, the game is merely a source of profits. As teams construct elaborate stadiums, corporate advertising networks and a global fan base, ticket prices climb and most fans can afford only to watch the game on televisions at home or in the pubs. YaleGlobal

LONDON: Soccer is quite aptly called the "world's game." The sport's superstars are household names around the globe. Its landmark competition the World Cup is watched by hundreds of millions. Even gun-toting insurgents in Iraq can be spotted wearing replica shirts of Europe's most fashionable clubs. Not everyone in Britain, however, revels in the games global appeal. As domestic leagues look Global goal: Hong Kong fans of Arsenal, increasingly to foreign markets, the English football club, cheer from local supporters see their teams afar drifting from their moorings. Such fear was evident after Richard Scudamore, chief executive of the English Premier League (EPL), proposed that a "39th game" be added to the league's traditional 38-game calendar and, more controversially, that the game be held abroad. Is it April Fool's? asked one irate football manager. Critics labeled the plan comical. Fans across the country wrote into tabloids and called talk radio shows, bemoaning the voracious greed of Scudamore and his vision of a regular "international round" of matches. Some imagined a doomsday scenario of English clubs based permanently abroad, an era of Manchester United of Dubai and Liverpool of Shanghai. Opposition was unanimous; the English game must be protected. For now, the Premier League looks likely to remain on English soil after threats from football's world governing body scuppered Scudamore's plans. The EPL chief is reconsidering his proposal: "We want to address globalisation and embrace this opportunity, whether in this form or not we can't be definitive." Victory! the fans crowed. In truth, this is not some resounding victory for the plucky forces of the home-grown against the powers of globalization. Even if no EPL fixtures are played in Macau any time soon, the league is still lifting off from its base. The EPL is already a global phenomenon beamed to nearly 200 countries and into more than 600 million homes. Even Middlesbrough, a decidedly mediocre team, has organized support groups in Indonesia and Singapore. South African football officials considered shifting kick-off times of their

domestic league to avoid coinciding with those of the EPL; many fans in South Africa prefer huddling around TV sets to watch their heroes in England than follow their own club teams. Uganda is notoriously divided between London clubs Chelsea and Arsenal, with the latters Kampala supporters making a hit music video celebrating their love for the team. Here and elsewhere, the EPL has left an indelible mark. At the same time, the EPL increasingly draws serious foreign investment. International tycoons have replaced local businessmen and generations of family owners at the helm of many English clubs. Russian oil magnate Roman Abramovich bought Chelsea in 2003. His astronomical spending (578 million in less than five years) brought success to the club, but also inflated transfer fees and wage bills around the league and Europe. To remain competitive, a number of top teams required injections of foreign capital. Soon after Abramovich muscled into the EPL, the American billionaire Malcolm Glazer acquired Manchester United for a cool $1.47 billion. He preceded compatriots Tom Hicks and George Gillett, who bought Liverpool, and Randy Lerner, who took over Aston Villa. Even disgraced former Thai Prime Minister Thaksin Shinawatra owns a club, bankrolling the reviving fortunes of Manchester City. The influx of foreign owners left a bitter taste in the mouths of many EPL fans, who observe their league growing stratified on the basis of financial brawn rather than footballing merit. After all, English fans think of their teams as clubs, not money-making franchises. The former is social, the latter commercial. Traditionally watched by the working class, English football teams many formed in Victorian times by church and workers' groups are community institutions, rooted in place and history. They inspire the kind of primitive passion that fuelled the infamous hooligan violence of the 1970s and 1980s, as well as the dogged localism that led supporters of Wimbledon Football Club to form and register their own club after the team moved to the London satellite town of Milton Keynes. All of this goes some way in explaining the vitriol that greeted Scudamore's proposal. From a local perspective, the English game is at its heart a parochial beast. If Abu Dhabi isn't a market town in Shropshire, then EPL teams have no business playing league matches there. But while opponents of the 39th game celebrate its rejection, the erosion of the games local backbone is already under way.

Take, for example, my local soccer club Arsenal, the pride of north London. Formed by laborers and trade unionists of the Royal Armoury in the 1886, Arsenal has historically drawn support from the working-class neighborhoods of north and northeast London. At the same time, the team has long had something of a global standing. It was the favorite of the African National Congress leadership-in-exile in London. Fidel Castro supports Arsenal, as does, notoriously, Osama bin Laden, who in a less antagonistic past life watched his beloved Gunners in the team's old ground at Highbury. The 21st century Arsenal is an even more evolved species of global creature. A visit to the club's new spaceship-like stadium the Emirates, sponsored by the UAE airline is instructive. Advertising hoardings along the pitch flash messages in Thai and Vietnamese for the TV audience, or sell cheap flights to Reykjavik. The stadium boasts nearly twice the capacity of Highbury, Arsenal's former abode, barely a kilometer away. Yet ticket prices have still risen. In the early 1990s, entrance into Highbury didn't normally cost more than 10. The average ticket at the new ground is 44, or $86. A seat at club level reserved mostly for corporate sponsors can set one back 87. The ground lacks the traditional edginess of English football stadiums, where terraced banks of supporters chanted through the match. Diehards miss the intimate and raw atmosphere of Highbury, with its all-standing North Bank and Clock End, and stunning circa 1910 art-deco faade. A new stadium has cemented in place a new attending audience, largely middle class and suburban. To find the old supporters, visit any number of boozers in the vicinity of the stadium on matchday. In colorful, peeling pubs like the Bank of Friendship or the Yucatan, locals gather to watch Arsenal on screen. Over the tinkling of pint glasses, snatches of Turkish, Yoruba and Yiddish mingle with that bruised dialect known in these parts as English. Arsenal sits in the shadow of Abu Hamza's Finsbury Park Mosque, in the midst of heavily immigrant areas, where successive waves of Irish, South Asian, Kurdish and West African immigrants, among others, have created a diverse local constituency for the team. Yet few of the denizens of the Yucatan have been to the Emirates stadium they simply can't afford it. They bring their children to the pub, decked in miniature Arsenal shirts and hats. These young boys and girls grow up in spitting distance of Arsenal, but most wont see their heroes in the flesh. The EPL hasn't left its base so much as its base has fundamentally changed. Whereas clubs once relied on the support of local communities, now

executives reap the rewards of a cleaned-up marketable game, winning TV deals, canny commercial sponsorships and viewers across the world. Its a measure of the strange inequality of 21st-century English football that the game has become more accessible to a global public. In the rainy streets of its 19th-century roots, the EPL is all the more rarefied and removed. Supporters may have retained the matches on English soil for now, but the game is no longer their own. Kanishk Tharoor is an editor and writer at openDemocracy.net.

Kenya's flower industry Roses are red Feb 7th 2008 | NAIROBI From The Economist print edition Violence and political turmoil threaten a flourishing industry IF YOU live in Europe and are lucky enough to be given roses by your Valentine, there is a good chance that they were grown in Kenyaspecifically, in one of the colossal greenhouses that blot out the once wild shores of Lake Naivasha, 90km (56 miles) north-west of Nairobi. Some 25% of Europe's cut flowers come from Kenya.

AF P

After a tentative start in the 1980s the industry is now the country's third-largest foreign-currency earner, bringing in $120m Business is blooming a year. The top two earners, tourism and tea, have been wrecked by the spasms of bloodletting and ethnic cleansing since December's disputed election. Safari lodges are mostly closed, and package tourism on the coast is ruined for the rest of the year. Lost exports are costing the tea industry $2m a day, and violence on the big tea estates around Kericho has destroyed machinery, warehouses and housing. The flower farms are clinging on, but the violence could not have come at a worse time. Although they grow buttonhole carnations in every shade of cream, the real money is in red roses. The Lake Naivasha Growers' Group, an alliance of owners, says Valentine's Day accounts for one-third of their annual production. Oserian, one of the largest farms, hopes to sell 6m roses this week. Its 5,000 workers live on the farm, and nearly all have been reporting for work. The story is very different on the smaller farms, where workers live off-site in their own often squalid and insecure housing. Several days of work were lost when violence reached the lake on January 26th. Killings elsewhere in the country led to an explosion of anger and a systematic campaign to drive out workers belonging to the Luo group. A local trade union says 3,000 of the 30,000 workers employed in Naivasha's flower farms have abandoned their jobs, most of them Luos. The growers are trying to limit further trouble by housing displaced workers in a temporary camp. Hiring replacements will not be difficult, since the average monthly salary of $80 plus benefits is considered a good wage. Roses need labour-intensive watering, pruning and treating before they can be clipped and flown daily to buyers in Amsterdam and London. The best are sold through (Dutch) auctions to florists; the less good end up in

European supermarkets. Kenya emerged as a flower power when Israel scaled down its own industry. It has since lost business to neighbouring Ethiopia, which offers tax breaks and better security, but Naivasha's perfect intensity of sunlight and days of near-constant length should keep it on top. In any case, the owners are stoical. We're committed privateers, says one. We'll just pick up and move somewhere else in Africa. February 22, 2009 Total, the French Oil Company, Places Its Bets Globally By JAD MOUAWAD SANA, Yemen ITS been a tough first year for Martin Deffontaines in this arid, impoverished and secluded country on the southern tip of the Arabian peninsula. Since moving here 13 months ago as the local manager for Total, the French oil giant, Mr. Deffontaines has seen his main export pipeline damaged by terrorists, endured devastating flash floods and sent expatriate families back home because of security concerns. Despite these challenges, Mr. Deffontaines, a lanky, 43-year-old Parisian, doesnt appear overly anxious. Indeed, Yemen is a showcase for Total, whose experience here shows how far an oil company will go these days to unearth new energy supplies. Because of the endlessly complicated interplay of geology and geopolitics, access to petroleum resources is increasingly constrained, costs have soared and energy projects are becoming more complex. Add the recent, dizzying collapse in oil prices to that picture, and you have a raft of companies rethinking their investments and scurrying to cut costs. So Mr. Deffontaines was philosophical, and a little amused, when he recounted some of the challenges the company had faced here, like negotiating with tribal leaders and sending actors to remote villages to stage a play about the hazards of gas pipelines. In meetings with government officials to thrash out problems, participants typically chew khat, a mildly narcotic plant that is widely consumed in Yemen but banned in many places around the world.

This is a country where tribes are often better armed than government troops, where piracy runs rampant along the coastline, and where many trappings of modern life are absent. The risks are so pervasive that Total employees cant travel around town without an escort and are not allowed to leave Sana, the Yemeni capital, on their own. A wave of attacks linked to Al Qaeda occurred last year, including suicide bombings at the United States Embassy in September that left almost 20 dead, 6 of them attackers. But Total has still gained a strong foothold here. It will soon start shipping liquefied natural gas from the Gulf of Aden, completing a $4 billion project begun less than four years ago. Those shipments will make Yemen the newest member of the worlds small club of gas exporters and earn the government as much as $50 billion in tax revenue over the next 25 years. If we can build this here, we can do it anywhere, says Stphane Venes, a construction manager at Totals natural gas plant in Balhaf, a coastal town. Building the plant required about 10,000 workers, a monumental endeavor in such an isolated place. It also meant building a 210-mile pipeline that had to snake through 22 different tribal lands and one of the worlds most unforgiving deserts. Such audace is precisely what Christophe de Margerie, Totals chief executive, says he would like to instill throughout his company. I make a big distinction between being risky and being bold, says Mr. de Margerie, 57, in an interview at Totals headquarters in La Dfense, the business district on the outskirts of Paris. If youre in a desert without water, thats not bold, thats dumb, he says. If you storm out of the trenches with your sword drawn while machine guns fire at you, its not bold, its dumb. Times have changed. Total doesnt have much choice but to charge ahead. Although it managed for years to expand its hydrocarbon production even as larger rivals like Exxon Mobil and Royal Dutch Shell struggled to keep output from falling that run ended last year when it reported a production drop.

Like its competitors, Total now faces one of the sharpest downturns in the history of the oil business, with consumption collapsing and oil prices shedding 73 percent of their value since peaking in July. At the same time, public opinion is sharply divided about oil companies themselves as environmental concerns take an increasingly important place in debates about the future of the energy business. With no domestic production but deep roots in the Middle East and Africa, Total as well as its longtime domestic rival Elf Aquitaine, which it acquired in 2000 has always been forced to blaze or bully its way through faraway lands. It has struck deals in countries where few wished to do business, like Sudan and Myanmar, or sailed against the tide when it saw lucrative opportunities, as it did in Iran in the 1990s. Such forays have come with complications: in separate investigations, French judges have been examining Totals role in the United Nations oil-for-food program in Iraq, and whether it made secret payments to enter the Iranian market. Totals appetite for risk has also turned it into the top-ranked Western oil company in Africa, and the second-largest in the Middle East, after Exxon. Total pumps an average of 2.3 million barrels of oil and gas a day, and it earned more than $15 billion last year. While the company has operations throughout the Middle East, some of its biggest bets in the region have not yet paid off. During the 1990s, Total negotiated with the government of Saddam Hussein and laid the groundwork to eventually develop Iraqi oil fields. But now, some Iraqi officials prefer American companies to European ones and view Total with suspicion because of this past. In Iran, a political confrontation with the West has forced a reluctant Total to walk away at least for now from a multibillion-dollar investment to develop a huge natural gas field there. Total still has its eyes on other targets. Its aggressively developing assets around the world, whether in Angolas deep offshore sites, the Sahara in Libya or the forests of Venezuela. And it has decided that part of its future lies in developing expertise in nuclear energy.

They are very good at capturing deals, says J. Robinson West, the chairman of PFC Energy, a consulting firm based in Washington that counts Total as a client. They are also prepared to ride through storms where American companies arent. And they are more commercial and agile than others. NESTLED at the foot of the Pyrenees near the Basque country in southwestern France, the town of Pau is home to Totals global research center and a communication hub linking its global operations. Teams from around the world send core samples from wells which the French call carottes for analysis there. Lab workers use magnetic imaging technology, also employed in the medical industry, to look for traces of oil in the samples. The center is home to one of the worlds most powerful computers, which can crunch billions of bits of seismic information and provide invaluable clues as to where oil deposits are hidden. Geologists analyzing that data can then consult with drill sites thousands of miles away, using technology that links the research center to platforms around the world. Total spends about $1 billion on research annually to find better ways to discover, squeeze or refine oil and gas. Technological advantages are becoming crucial in the race for petroleum resources. The worlds easy oil reserves have mostly been found, forcing companies to drill at ever-greater depths sometimes exceeding 30,000 feet and to look for hydrocarbons in remote places, like the Arctic. I dont think we should be alarmed about reserves running out, says Manoelle Lepoutre, Totals vice president for research and development. The potential is there. Engineers know how to extract resources. Its not a question of resources, but more of production capacity. Yet there are increasing limits to oil exploration, which are worrying both engineers and energy experts. At a conference in London two years ago, Mr. de Margerie shook up his colleagues and challenged the industrys consensus when he warned that the world would not be able to pump enough oil to meet energy demands in coming decades.

At the time, most energy forecasters, including those at the Department of Energy in the United States, expected that supplies would rise above 120 million barrels a day by 2030, up from around 85 million barrels. But in Mr. de Margeries estimation, world production will struggle to rise to 95 million barrels a day, mostly because of geopolitical constraints but also because oil fields produce less and less as they mature. In a wine cellar, you know exactly how much wine you have, says JeanJacques Mosconi, Totals director of strategy. For oil, its different. You only know your final reserves once you run out. More recently, Total has warned that a major oil supply crisis will emerge if oil prices remain at todays lower levels and companies cut their investments. Of course, Total has long been accustomed to provoking the status quo. After buying Petrofina of Belgium in 1999, Total surprised the French establishment when it started a hostile takeover bid for Elf. Total prevailed after a corporate battle by paying about $50 billion for the company, which was nearly twice its size. Overnight, the hard-fought merger propelled Total into the small club of super majors, pitting it against much larger American corporations. Total recently outplayed its rivals when it grabbed a piece of a huge offshore natural gas field in Russia, beating out Chevron and ConocoPhillips to snare 25 percent of the project. The field, Shtokman, in the Barents Sea, about 350 miles northeast of Murmansk, will cost $20 billion to $25 billion to develop. It is likely to be one of the biggest energy projects of the next decade. While that deal was a success, the company suffered a setback more recently in Saudi Arabias treacherous Rub al-Khali desert, where the kingdom in 2001 had taken the rare step of allowing foreign investors to look for natural gas. The new policy initially generated great enthusiasm among Total and other foreign oil companies, which saw it as the kingdoms first step toward reopening its oil sector after nationalizing Aramco in the early 1980s.

But the excitement quickly waned after the Saudis imposed strict limits on foreign partners, including mandates that all oil discoveries belonged solely to the kingdom and that all gas found there had to be sold on the Saudi market at a cut rate. Total left Rub al-Khali early last year, after its program there ran far over its budget and its teams drilled three wells that came up dry. Shell, another shareholder in the venture, has decided to stick with the project. No hard feelings, however. After Total left Rub al-Khali, Aramco renewed its commitment to build a new refinery with the French company in the Persian Gulf port town of Jubayl, said Michel Bnzit, Totals president for refining and marketing. The refinery is expected to be completed by around 2013. IN a conference room at Totals headquarters, Mr. de Margerie lingered with a visitor recently, joking, stretching his schedule after an already long day and straining the nerves of his assistants, who complain that the boss is always late. A few years ago, after arriving nearly two hours late for a meeting with Qatars oil minister, Abdullah al-Attiyah, Mr. de Margerie fell to one knee to apologize for his tardiness. Such bonhomie has endeared him to colleagues, clients and analysts since his days as Totals chief for the Middle East in the 1990s. But it also made him an unlikely choice to replace Thierry Desmarest as C.E.O. two years ago. Mr. Desmarest, who was seen as cold and reserved, is nonetheless widely credited for the success of the merger with Elf, and he remains the companys chairman. Mr. de Margerie is neither an engineer nor a geologist. He joined Total in 1974, just after graduating from the cole Suprieure de Commerce in Paris, a business school, and picked oil over diplomacy or a career running the family business. His grandfather, Pierre Taittinger, founded the Champagne company that bears his name. Mr. de Margeries family also once owned the Crillon hotel in Paris and Baccarat, the maker of crystal and jewelry.

A gregarious talker with a taste for fine whiskey, Mr. de Margerie can be alternately humorous, rambling or serious and single-minded. He is a bon vivant who enjoys long lunches, preferably with a good bottle of wine and pleasant company. His bushy, starburst mustache, which The Economist magazine once said would look right at home on the face of a British cavalry officer, earned him the nickname Big Mustache in the French press. He also used to have a Kazakh Army hat on hand, which he would wear when he wanted to scold his assistants. (It was a joke, he cautions.) Now he keeps nearby a graceful Indonesian figurine from the island of Java to keep evil people at bay. It was given to him by an employee after he was investigated on suspicion of corruption two years ago. The episode still rankles him. In March 2007, a little more than a month after being named chief executive, he was held in an investigative judges chambers for nearly 36 hours to answer questions about a 10-year-old gas deal in Iran. The judge ordered that Mr. de Margeries tie, shoelaces and belt be removed, lest he try to harm himself. It was not the first time that he had found himself in such an uncomfortable position. The previous year, he was questioned about his role in the United Nations oil-for-food program in Iraq, which Saddam Hussein used to skim billions of dollars in fees. Total and Mr. de Margerie deny any wrongdoing. No charges have been brought forward, and neither case is part of an active prosecution. For his part, Mr. De Margerie says other issues demand his attention. At a time when national oil companies like Aramco, Petronas in Malaysia, Petrobras in Brazil and Gazprom in Russia control large shares of the worlds reserves, and nationalistic governments tighten the screws on foreign companies, the traditional role of Western oil companies is under threat. Being accepted simply means being able to perform your job even in the most hostile environments, Mr. de Margerie says.

THE Hadhramaut region of central Yemen offers a stunning natural backdrop of deep gorges and lush valleys interlacing one another like delicate fingers. It also provides a good window on how Total balances the requirements of its oil business and its relationship with the locals. Total operates its main oil-producing block on a desert plateau about 700 feet above the valley. The companys rigs are practically invisible from below. On the plateau, the scene feels like a lunar landscape. The facility, called Block 10, produces around 50,000 barrels a day, a relatively small operation compared with the huge fields found in neighboring Saudi Arabia. Despite its size, the operation exemplifies the hardships that Total is willing to take on in its hunt for new energy sources. The company, which has been in Yemen since the 1980s, is now the countrys largest outside investor. While the government has welcomed foreign concerns, dealings can be complicated. In 2006, a joint venture between the Hunt Oil Company and Exxon ended abruptly after Yemen canceled a contract to explore a field known as Marib al-Jawf. Totals managers here believe that their work with local communities building schools or financing computer classes and sewing tutorials can help them avoid similar problems. But dealing with local residents can still be tricky. A few months ago, torrential rains devastated the region that lies beneath Totals operations, uprooting nearly half the palm trees in the area and killing 44 people. The company says it has provided more than $300,000 in emergency aid to help deal with the flooding, in addition to $800,000 it spends each year for its own local development programs. On a recent morning, Mr. Deffontaines, Totals general manager in Yemen, was meeting with residents hit by the floods. Sitting among tribal representatives, Mr. Deffontaines grew uncomfortable as Dr. Awad alJabery, a local politician, asked Total for more money for reconstruction in the region.

We are like kids demanding things from their father, Dr. al-Jabery said. Oil will one day be depleted in this area for Total, but if you contribute to this project, you will be remembered here for centuries. Mr. Deffontaines defused the tension with a broad smile and a quick joke. I prefer to keep a brotherly relationship with you rather than one of father and son, he said. So it goes for Mr. Deffontaines, who says he spends about a third of his time on community-related issues in Yemen in addition to attending to such matters as the explosive charge placed on his pipeline by terrorists last year that punched a fist-size hole in the tube. More recently, he has had to contend with thorny personnel issues. In April, in response to growing security concerns, he decided to send the families of his workers back to France. His own wife, son and twin daughters were among those forced to depart. Mr. Deffontaines says that sending loved ones home was among the hardest choices hes had to make, but it may have been very wise. A few months later, militants disguised as soldiers detonated two car bombs outside the American Embassy compound here. While Mr. Deffontaines chalks up all of this to the ups and downs and the thrills of working for Total, he says his family is less enamored of the hardships. My wifes not too thrilled, he says. You could say she doesnt fill up at Total these days.

Fiat Rebirth of a carmaker Apr 24th 2008 | TURIN From The Economist print edition With some fine new cars and financial figures to match, Fiat has staged an astonishing recovery AP

THE dominating image at last month's Geneva motor show, Europe's most glamorous, was a giant mock-up of a tiny car: the new Fiat 500. It was Fiat's way of celebrating the crowning of its achingly fashionable baby as European car of the year, ahead of a strong field and with one of the biggest winning margins in the competition's history. At the same show, Fiat launched the first all-new Lancia for four years and revealed the Alfa Romeo 8C Spider, judged by some to be the most beautiful car in the world today. Underpinning the display of confidence in Geneva is a remarkable industrial and financial turnaround that is likely to be pored over in business schools for years. On April 24th Fiat Group, which as well as car marques includes Iveco, a truckmaker, and CNH, a producer of agricultural and construction equipment, reported a trading profit for the first quarter of 766m ($1.1 billion), 29% more than a year earlier and beating expectations. In the whole year it is aiming for 3.4 billion-3.6 billion.

Good news is no longer unusual: despite a stumble in recent months, the share price has outpaced its closest rivals over the past three years (see chart 1). In 2007 Fiat Group made a record trading profit of 3.2 billion, 66% more than in 2006, while eliminating its net industrial debt. The progress of the once loss-making car business was even more dramatic. Fiat Group Automobiles, which comprises Fiat, Alfa and Lancia, raised its trading profit from 291m to 803m. Ferrari and Maserati chipped in a further 290m. By 2010, Fiat (with joint ventures) expects to make 3.5m vehicles. This is a far cry from the business Sergio Marchionne walked into in June 2004 when he agreed, at the urging of the Agnelli family, Fiat's dominant shareholder, to take on the job of reviving the company's fortunes. Attempts to trim costs were under way and the tiny new Panda had hinted at a much-needed return to form. But otherwise the picture, especially in cars, was grim. Held back by either ageing or unappealing models, car production was running at about 70% of its annual capacity of 2.5m. Fiat's Italian factories were notoriously inflexible thanks to intransigent unions and a lack of investment. The group's net debt had risen to 4.4 billion and cash was flowing out at an alarming rate. And a 3 billion convertible bond would fall due in 15 months. The banks were eventually repaid with the help of a rights issue in late 2005which would have been impossible to get away without signs of improvement. Before that, however, the issue of Fiat's put option with General Motors had to be resolved. Both troubled companies were looking for a way out of an ill-starred partnership, but Fiat was insisting that to extinguish the option, which gave the group the right to sell its car business to GM, the American firm must pay for the value it represented. But as Fiat's plight worsened, so did the claim to any value in the put. In turning to Mr Marchionne, a corporate troubleshooter who at the time was running SGS, a big Swiss inspection and certification firm in which they had an interest, the Agnellis knew that it was their last roll of the dice with Fiat. A

shambling bear of a man with unruly grey locks and a penchant for shapeless black sweaters and straight talk, he is the antithesis of the archetypal smooth Italian executive. In part that may be because Mr Marchionne, though Italian-born, grew up in Canada, where he qualified as both a lawyer and an accountant. His approach to business is decidedly Anglo-Saxon, as is his frequent use of expletives. He demands complete openness, fast communication, accountability; he abhors corporate politics and hierarchy. So poor was the state of Fiat's carmaking business, which represents half the group's turnover (see chart 2), that Mr Marchionne felt he had no choice but to act quickly. He says: The single most important thing was to dismantle the organisational structure of Fiat. We tore it apart in 60 days, removing a large number of leaders who had been there for a long time and who represented an operating style that lay outside any proper understanding of market dynamics. We flattened out the structure and gave some relatively young people, in terms of both age and experience, a huge amount of scope. A divorce to celebrate Mr Marchionne's next task was to extract Fiat from its five-year partnership with GM on the best terms possible. It had not worked, for several reasons. Sharing platforms, engines and purchasing had not produced the expected economies of scale and Fiat's ability to act independently had been gradually eroded. Mr Marchionne says that since 2000 Fiat had been like a rabbit frozen in the headlamps. He says: Every time I saw GM it felt like going out on a date and not having been invited. But we had a contract, an exchange of a promise for a promise. I was ready to uphold my side of the promise. In the event, GM was prepared to write Mr Marchionne a cheque for $2 billion to escape being forced to own Fiat's declining car business. The couple split up on the eve of St Valentine's Day 2005. Mr Marchionne celebrated on the plane back to Italy. He recalls: When I signed the divorce, I had the sense that we had got our independence back, but there was also the knowledge that we'd lost our only parachute, which was alarming for some people given how much money we were losing. But I now had the chance to run this business and run it properly. If I had walked away without monetising the GM put, I would not have had the credibility for the next phase. But more importantly, with $2 billion you can make a lot of small cars. The most pressing priority was Fiat, which accounted for more than 80% of the 1.6m cars the company was selling each year. The Panda had shown that Fiat could still build great small cars, but the rest of the range was in desperate need of renewal. The first car to be delivered on Mr Marchionne's watch was the Grande Punto, a bigger than usual B-segment hatchback (a

class that includes the Renault Clio and GM's Corsa). Built, ironically, on the Corsa's platform, the car came to market at the end of 2005. Stylish and with a feeling of quality rare in a Fiat, the car was an instant success. Sales are likely to reach a million later this year. Next, in 2007, came the Bravo, a replacement for the Stilo in the C-segment (with the Volkswagen Golf, Peugeot 308 and GM's Astra). Although the Bravo breaks little new technical ground, it brings together two elements that Mr Marchionne and his team of kids, as he calls them, identified as critical three years ago. One is the importance of styling. The Bravo is as crisply handsome as the Stilo was stodgy. Mr Marchionne observes: We used to make too many ugly cars. We really pushed the envelope on that one. We thought we had the right to do whatever we wanted. It was arrogance. The era of the brilliant but hideous Fiat Multipla and the bug-eyed Lancia Thesis (aiming at the refinement of the Mercedes S-Class, it was a 1.2 billion flop) is over. Mr Marchionne has brought all the group's styling divisions together in a strikingly restored building in Turin's Mirafiori complex, known simply as Officina 83, and put them under the overall charge of Lorenzo Ramaciotti, a former design chief of Pininfarina, a renowned car-styling house. Mr Ramaciotti says that at Fiat design had ceased to be seen as a core competence of the manufacturing process, but that has now changed. Referring to Lancia, Mr Ramaciotti argues that you can't be successful if your cars look odd. But nor can Fiat be as conservative as the German premium marques. Italian brands must be extrovert and innovative, he says. We have more freedom, but more risk as well. The reason that the new 500 is so important is that it has given Fiat's designers the selfconfidence to believe they can compete with the best in the world. The second way in which the Bravo symbolises the new Fiat is the extraordinary speed of its development. The company's urgent need for fresh products and its limited resources forced it to take risks. Harald Wester, Fiat's German head of engineering, claims that the key has been to trust your virtual world. In designing both the Bravo and the 500, Fiat chose to rely entirely on computer simulations rather than to take the lengthy traditional route of making a series of prototypes. Mr Wester says: With virtual engineering, we can test and validate hundreds of different solutions and configurationsmuch more than we possibly could with prototypes. Fiat, he says, did not even make a prototype for crash testing. As a result, Fiat was able to cut the time from design freeze to production on the Bravo and the 500 to just 18 months, from 26 months on the Stilo. Mr Marchionne says that cutting time to market is a critical source of competitive advantage for the guys running the brand who are mostly not engineers, but are people with a very strong consumer product bias.

Because they don't have to forecast the market so far ahead, they have a better chance of getting the car right when it is launched. Another advantage that Fiat is determined to exploit is its cars' relative fuel efficiency. When new European Union rules on carbon-dioxide emissions come into force (supposedly in 2012, but subject to intense political negotiation), Fiat expects its fleet to have lower average emissions than any competitor. That is a reflection partly of the fact that the company makes lots of light small cars and few big heavy ones, but also of the strength of its power-train technology. It has already become the first carmaker to offer diesel engines that comply with so-called Euro 5 fuel standards. And it has another trick up its sleeve: a new generation of petrol engines, called Multiair. Using a patented Fiat technology that does away with camshafts and valve gear, the first engine to be launched next year will be an 80bhp twincylinder turbo 900cc engine that will emit only 69g of CO2 per kilometre just over half the proposed EU target for 2012. It will also cost far less to make than an equivalent four-cylinder engine. A few years ago Fiat made the mistake of licensing another important innovation, common rail diesel technology, to Bosch: being financially weak, it could not afford to keep common rail to itself. This time it will protect its advantage by not licensing Multiair to other manufacturers for at least four years. One area, however, where Fiat is still playing catch-up with rivals such as VW and PSA Peugeot Citron is in standardising parts and platforms across model ranges. According to Mr Wester, before 2005, every part in an Alfa Romeo, down to the last screw, could be slightly different from that on a similar-sized Fiat. In 2006 the group was using 19 different platforms. By 2012 it will have just six. From pandas to spiders With Fiat now in good shape and with the prospect of a new Panda next year as well as a city car and various spin-offs from the 500, the next task is to revive the group's two underperforming, supposedly premium brands, Lancia and Alfa Romeo. Olivier Franois, Lancia's chief executive, says that Lancia should stand for Italian style and character, what he calls elegance with attitude. The new Delta, which in size is midway between a Golf and bigger, D-segment cars, certainly looks different from anything else on the road without descending into the lethal eccentricity of the recent past. But Mr Franois may have a difficult job persuading non-Italians to try it precisely because it is a hard car to categorise. He and Mr Marchionne have, however, had one stroke of luck in fuelling interest in the brandthe inspired decision to hire none other than Carla

Bruni, now married to Nicolas Sarkozy, to star in Lancia's advertisements. Mr Marchionne says: She wasn't sleeping with the French president when we approached her. There was a headline in an Italian newspaper saying Marchionne got there first. Typically Italian, but I'm afraid absolutely false! Keyston e

Blooming again Although Mr Marchionne sees Lancia as a purely European marque, he has said that he wants Alfa Romeo to return to America for the first time since the early 1990s. He is looking for a partner, possibly Chrysler, to build the cars there within the next three or four years. Mr Marchionne believes that despite having lost its way many years ago, Alfa is still a world brand that people identify with. He says: Alfa was known for lighter, faster, more agile vehicles. Who doesn't remember the Duetto in 'The Graduate'? It's just a pity we ended up doing the exact opposite of what Alfa drivers wanted. The 159 is one of the heaviest D-segment cars around. We have to go back and clean that up. That is a job for Luca De Meo, a 40-year-old regarded by some inside the firm as a possible heir to Mr Marchionne. Mr De Meo, who is the group's head of marketing as well as Alfa's new chief executive, admits that the expensive, limited-edition 8C Spider is a halo model rather than a practical contribution to Alfa's recovery, a sign of competence and a blueprint for Alfa's brand values. The cars that will decide Alfa's immediate future are the new MiTo, which is based on the Punto and has been designed to match the driving dynamics of BMW's Mini, and the 149, successor to the compact 147 hatchback. Mr Marchionne says that the MiTo (the name stands for Milan and Turin), which will be launched this summer, will come up looking and smelling like Alfas of the future, but that it is the 149 which will really set the mark for the rest of Alfa's range. He says: We threw the 149 back for more than 30 months because it wasn't enough of an improvement. It was the smartest thing we've ever done. Mr Marchionne has set Alfa and Lancia sales

targets of 300,000 each in 2010. Last year they managed only 275,000 combined. In common with most of the world's leading manufacturers, Fiat is expecting a good deal of its growth to come from emerging markets. In 2006, 37% of Fiat's vehicle sales, including vans and joint ventures, came from outside western Europe. By 2010, that is due to increase to 46%. Fiat is the market leader in the rapidly expanding Brazilian market, but apart from a truckmaking joint venture between Iveco and SAIC in China, it is weak in China, India and Russia. Fiat's performance in Russia, which will soon overtake Germany as Europe's biggest car market, has been particularly poor. Although (or perhaps because) Fiat designs were the basis of much of the Soviet car industry, the company sold only 2,000 cars there in 2006. However, the new, booted Fiat Linea, which is manufactured in Turkey and will also be made in China, India and Russia, provides ammunition it has previously lacked. So far, for all its small-car expertise, Fiat has yet to decide whether to join the low-cost bandwagon that Renault started with the Logan, a basic fourdoor saloon made in Romania. Mr Marchionne says: We want to play in low-cost, but not with one of our existing brandsit would destroy all the work of the last four years. We have the technical skills, but the big issue is how deep is the market and how long will it last. Fiat has a joint venture with Tata in India and has recently signed a similar deal with Chery with the intention of launching Alfa and Fiat in China. But Mr Marchionne is wary: China is damned if you do, damned if you don't. The market is exploding, but it's very competitive. Can you make real money there? Although it is occasionally suggested that Mr Marchionne may not stick around long enough to find out the answer to that and other questions (he is vice-chairman of UBS, a troubled Swiss bank, and some shareholders would like him to become chairman), he gives the impression he is there for the long-haul. We set targets to 2010. Any speculation before that is nonsense, he says. The first phase of this story finished last year. We'd shown we're not the dumbest people on Earth and that we could make some money. The next phase is the really important one. Can we build a great industrial group or not? What does he mean by that? Closing the gap, he explains, with the industry's very best: making cars as well as Toyota, trucks as well as Scania and agricultural equipment as well as John Deere. As for his own role, he says: The kids are truly devoted to the cause. They are the heart of the success. I've been a conduit for change and that's about it.

May 18, 2008 DIGITAL DOMAIN The Computer Industry Comes With Built-In Term Limits By RANDALL STROSS MATHEMATICIANS have long tried, and failed, to solve the Riemann Hypothesis, a stubbornly unyielding math problem. Good luck to whoever tries to figure it out. For the first correct proof, a $1 million prize will be awarded by the Clay Mathematics Institute. Similarly, two successive Microsoft chief executives have long tried, and failed, to refute what we might call the Single-Era Conjecture, the invisible law that makes it impossible for a company in the computer business to enjoy pre-eminence that spans two technological eras. Good luck to Steven A. Ballmer, the companys chief executive since 2000, as he tries to sustain in the Internet era what his company had attained in the personal computing era. Empirical evidence, however, suggests that he wont succeed. Not because of personal failings, but because Mother Nature simply wont permit it. Its unfortunate, as a $300 billion prize could be collected by Microsoft shareholders: that would be the increase in market capitalization, should the share price return to its high of $59.56, attained in 1999, from its current price of $29.99. (Maybe this was why Mr. Ballmer flirted with Yahoo.) That prize, however, seems a mirage. You cant merge-and-acquire your way around the Single-Era Conjecture. Just ask I.B.M., which gobbled up Lotus Development Corporation to no avail. The Yahoo affair obscures the larger story: Microsofts long, long struggle since 1993 to maintain its leadership position while the Internet grew ubiquitous. Mr. Ballmer, who joined Microsoft in 1980 as its 15th employee, and Bill Gates, his mentor who will retire next month as a full-time Microsoft employee, have certainly tried their best to avert the inevitable decline of the companys influence. In 2000, Mr. Ballmer credited Mr. Gates for noting that no company in the computer business had ever stayed on top through what Mr. Gates called

a major paradigm shift. The two men wanted Microsoft to be the first company to achieve that goal. An interesting challenge, but some problems are of a size that dwarf the abilities of multibillionaire mortals. In a 1995 internal memo, The Internet Tidal Wave, Mr. Gates alerted company employees to the Internets potential to be a disruptive force. This was two years before Clayton M. Christensen, the Harvard Business School professor, published The Innovators Dilemma: When New Technologies Cause Great Firms to Fail (1997). The professor presented what would become a widely noted framework to explain how seemingly well-managed companies could do most everything to prepare for the arrival of disruptive new technology but still lose market leadership. Its Google, of course, that has developed the musculature to step forward and lay claim to being Microsofts successor as industry leader in the Internet era. If there had been any way Microsoft could have prepared for this day, it had ample time to do so. In 1993, fully five years before Googles founding and two years before Mr. Gatess memo, Nathan P. Myhrvold, then Microsofts chief technology officer, wrote his own memo, Road Kill on the Information Highway. It spelled out in prescient detail how each of many industries would be flattened by the build-out of digital networks, and it said that the PC software business would be no exception. Its no secret that Microsofts online businesses have failed to gain leading market positions. But what is not widely appreciated, perhaps, is that the companys online initiatives have lately been doing worse than ever. The last year when Microsoft made a profit in its online services business was the fiscal year that ended on June 30, 2005. Its MSN unit used to do a nicely profitable business providing dial-up Internet access to subscribers. When its users began to switch to broadband services provided by others, however, the earnings disappeared. Microsofts Web sites brought in a trickle of advertising revenue, which did not grow fast enough to offset the disappearance of the narrowband access business. AOL suffered in similar fashion. In the 2006 fiscal year, Microsofts online services produced a $74 million loss after the previous years profit of $402 million. Since then, the numbers have become uglier, as Microsofts online segment has added employees

and absorbed growing sales and marketing expenses. In the 2007 fiscal year, the online businesses lost $732 million. In the next nine months, through March 31 this year, they recorded a loss of $745 million, almost double the amount in the period a year earlier. With $2.39 billion in revenue for the nine months, the online segment represents only 5 percent of the companys total revenue. The numbers at Google, which is nothing but an online services business, have moved in the opposite direction. For rough comparison, profits in its 2005 fiscal year, ended on Dec. 31, were $1.5 billion. The earnings grew to $3 billion in 2006 and $4.2 billion in 2007. According to Hitwise, an Internet research firm, Googles share of searches in the United States has increased to almost 67.9 percent in March 2008 from 58.3 percent in March 2006. During the same period, Microsofts share has dropped to 6.3 percent from 13.1 percent. Mr. Ballmer has always been a ham on stage. His comically demonic chants and dances in recent years have been preserved on YouTube. But even way back in the day, he had the gift. At the companys annual meeting in 1994, when he was overseeing sales and Microsoft was enjoying its moment of triumph over competitors, he shouted at top volume: Its market share market share! market share! market share! that counts! He continued: Because if you have share, you basically leave the competitors here he grabbed his own throat for emphasis just gasping for oxygen to live in. His mock asphyxiation of competitors was later stripped out of its jokey context by government antitrust lawyers. But the imagery is no less apt now than it was then, except that the roles have reversed. As Google continues to gather market share and the Single-Era Conjecture dictates Microsofts eclipse, it is Mr. Ballmers own online services that now are gasping for oxygen.

Can Sony Resolve the Conflicting Aims of its Two Businesses?

Sony is essentially a firm of two parts: electronic goods and media content. However, the Sony name is no longer a by-word for up-market electronic products. As consumers have increasingly turned to the competition particularly Samsung, a South Korean rival, and at home Matsushita and SharpSony has slipped from its position as the predominant force in consumer electronics. In the fiscal year ending March 2004, some 62% of the firms revenues came from its electronics division but that part of the business lost $339m. Businesses Revenue as % of total year to March 2004 62 10 7 10 7 4 Operating profit/loss $m -339 650 182 339 530 -96

Electronics Games Music Film/TV Financial services Other

Sonys media division is prospering by comparison. In fiscal 2004, music and films contributed some 40% of group operating profits. It has completed two big deals recently: the merger of Sony Music with Bertelsmann Music Group (BMG), creating the worlds second-largest music company; and a deal to buy MGM, a famous Hollywood film studio The nub of Sonys problem is that its media arm wants to protect its content from piracy. Apples iPod has taken the world by storm because of the ease with which music can be downloaded. Since the American computer-maker produces no musical content of its own, unlike Sony, it does not find itself torn between protecting its copyright and making gadgets that allow music to be copied and swapped. Sony once dominated the portable-music market with its Walkman, but since the onset of digital music it has handed control of the market to Apple by refusing to support the MP3 format, the pirates favourite, in its players, and pushing its own proprietary format instead. Last year, Sony finally introduced MP3 support on its music players, since nobody would buy them otherwise. As high-speed internet technology spreads, piracy will threaten the film business just as it has the music industry. Sonys plans to marry its media content with a range of networked household electronic devices are fraught with a huge internal conflict. Gadgets that cannot be used to copy films or

burn CDs may be good from the perspective of copyright protection, but they are not what most consumers want. And even Sonys biggest success story, its games division, faces threats. The firms PlayStation is the worlds most popular console, and games sales contributed over half of Sonys operating profit of $1.3 billion in 2004. The division shows that a happy marriage of content and hardware is possible, if managed properly. Sony is gambling heavily on the success of the PlayStation 3, which is set for launch in 2006. It has even developed a new computer chip, jointly with IBM and Toshiba, to run the sophisticated graphics that todays gamers demand. However, Microsofts new Xbox is set for launch a few months beforehand and thus has a chance of catching on before Sonys product has even come to market. Ultimately, Sony may have to decide whether it is an electronics firm or a media company. Source: The Economist March 7 2005