Economist 6/14/14

1.Hutchison Whampoa, one of the region’s biggest specimens with a value of $60 billion and a worldwide empire of ports, energy, property, telecoms and retail. Hutch itself defies categorisation. It has a reputation as Asia’s most wily asset trader. Its patriarch and chairman, Li Ka-shing, was a refugee who fled China for Hong Kong in 1940. Having started by making plastic flowers, by 1979 he had bought control of Hutch, becoming the first Chinese in charge of one of Hong Kong’s big business houses. In 2000 Hutch won 3G telecoms licences across Europe, but at a heavy cost. The low point came in 2004-05 when the group’s core cashflow turned negative.Some argue that Hutch is a giant private-equity fund, but it has much longer holding periods . It is likely to remain under family control: Mr Li’s son, Victor, is deputy chairman. It does not have a global brand because it thinks there is no money in it. And it has a fascination with financial engineering. In 2011 it partially spun off its ports in Hong Kong and south China into a listed trust in Singapore. In March this year it sold a 25% stake in its retail arm to Temasek, a Singaporean investment fund.

2. Nigeria is Africa’s largest economy and its largest beer market after the country where SAB (South African Breweries) was founded in 1895. The firm moved its main stockmarket listing to London in 1999 and a few years later it acquired Miller, a big American brewer, in a deal that gave the renamed SABMiller global scale and reach. It now operates in 75 countries. SAB has operations in 15 African countries and a stake in 21 others through its alliance (bolstered by cross-shareholdings) with Castel, a French drinks firm. SAB also began looking for fresh territories to conquer. This was a riskier gambit than buying rundown breweries on the cheap. In 1998 SAB entered Kenya, building a brand-new brewery, only to retreat a few years later after it had been out-muscled by East African Breweries, a local outfit in which Diageo, a big British drinks company, has a majority share. Nigeria, in contrast, is one of SAB’s fastest-growing ventures. Stung by its experience in Kenya, the firm had initially been wary of entering a market where it faced not one but two big incumbents—Guinness, owned by Diageo, and Nigerian Breweries, owned by Heineken, a Dutch giant which also has ambitions to refresh all parts of Africa. A new beer was developed just for Onitsha. Nigerians like larger-than-life names: the country’s leading brand is called Star; SAB named its beer Hero. In Tanzania its best-selling beer is Kilimanjaro. Each ale has a distinct taste. Hero is brewed with fewer hops than a European lager. This gives it a less bitter, more refreshing taste that is suitable for a hot climate. A push to make factory-made beer more affordable is an important part of SAB’s strategy on the continent. An average consumer works for 2-6 hours to earn enough to buy half a litre, compared with 17 minutes in America. South African businessfolk have a phrase for it: paying your school fees. The first year in a new African market almost never goes to plan, says Mr Bowman. There is no recipe for success but persistence clearly matters.

3. Companies may manipulate the “top line” of their accounts—their revenues—say, by booking sales they are not yet sure of (to boost their reported profits) or not booking sales that they are certain of (to postpone profits, and the taxes on them). In Britain the controversy surfaced again after HP’s takeover of Autonomy in 2011. Revenue recognition is perhaps the biggest headache for investors trying to compare companies in different countries. The GAAP standard used in the United States is Byzantine, with more than 100 different protocols for various permutations of transactions and industries, whereas the IFRS rules applied in most of the rest of the world offer only broad guidance. Scheduled to take effect in 2017, it represents a neat middle ground, adopting the IFRS’s principle of one size to fit all industries, but with GAAP-style clarity. It spells out how companies will have to break down sales contracts into their component obligations and allocate the total value among them, The biggest impact will be felt in industries that rely on bundled product-plus-service contracts, such as software and telecoms. In the 1990s Microsoft was accused of “cookie-jar accounting”, holding back revenue so as to recognise it during weak quarters, to smooth its reported earnings. For investors in America, the risk of switching from the rigid “rules-based” GAAP method to the IFRS’s “principles-based” approach is that unscrupulous companies will enjoy more leeway to mislead them.

4. Club Méditerranée’s roots are humble. In 1950 Gérard Blitz, a Belgian water-polo champion, pitched 200 tents on a Mallorcan beach. His dream was to offer bronzed Europeans the chance to eat and drink, commune with nature and enjoy vigorous outdoor pursuits. With it, the “all-inclusive” holiday, combining lodging, food and drink, was born. in time, Club Med upgraded its structures, from tents to beach huts to hotels. It also spread to exotic locations like Tahiti and the Gulf of Guinea. Despite the firm’s moves upmarket, all-inclusive holidays had become a tired concept, associated in holidaymakers’ minds with tepid buffets, cheap plonk and austere rooms. Last year Fosun, a Chinese conglomerate, and Ardian, a French private-equity firm, launched a joint bid to take Club Med private. Some shareholders objected and went to court, unsuccessfully, to stop the deal.  In 2013, 12% of holidaymakers worldwide booked all-inclusive deals, up from 8% in 2010, The biggest opportunity, and the reason why a Chinese firm has been trying to get its hands on Club Med, is growth in Asia. Club Med says it will open two new villages in China by the end of 2015, besides the three it already operates. Hyatt Hotels’ new all-inclusive brands, Ziva and Zilara, have opened their first resorts in Mexico and Jamaica, but have China in their sights.

5. ONE in four people living in New Zealand was born outside the country, according to figures released last month from the 2013 census of New Zealand’s 4.5m people. That is an increase of nearly 8% since the last census in 2006. People born in Asia now make up 32% of the foreign-born population, overtaking the proportion born in Britain and Ireland, at 27%, for the first time. Auckland has the heaviest concentration of Asian migrants. Just under one in four in the city is of Asian ethnicity and four out of ten of the city’s population were born overseas. In 1987 legislation that favoured British immigration and discriminated against Asians was changed. Skills, education and willingness to invest in New Zealand were introduced as qualifications for migrants regardless of race. The two major parties, the National Party and the Labour Party, have encouraged immigration. The tiny National Front Party, and its even tinier offshoot, the Right Wing Resistance (neither of which is represented in Parliament) oppose immigration. Some Maori are increasingly worried about competition for jobs. They also see a threat to the special place they have as the indigenous people of the nation. Experts say there are several reasons for New Zealand’s relative tolerance. There is widespread acceptance that New Zealand needs more workers, as Kiwis continue to migrate to Australia. In addition, New Zealand has not so far been targeted, as Australia has, by Asian people-smugglers. But New Zealanders, tolerant as they are, are unlikely to put up with the use of big money from Chinese migrants if it looks like it is buying favours.

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