Economist 7/5/16

  1. China is the world’s biggest market for  instant noodles infused with monosodium glutamate (MSG), a chemical that makes flavourless food more palatable. Locals slurp down over 40 billion packets each year.The volume of instant noodles gobbled last year fell by 12.5%, according to a new report on China’s consumer market from Bain and Kantar Worldpanel.Profits for China’s biggest instant-noodle firm fell by 36% in 2015, to $256m, as hungry Chinese consumers turned their backs on its wares.Even more shocking, the volume of beer sold in China—the world’s biggest guzzler—fell by 3.6% last year, largely because of plunging sales of cheap brands.Brands that cater to blue-collar workers, like instant noodles and bottom-of-the-barrel brews, are being squeezed as a painful downturn in the industrial economy hurts workers in those sectors.The middle classes in the country’s bigger cities, confident urban professionals with jobs in service industries, are indeed still splashing out. This explains a trend towards premium goods from fancier brands. Sales of make-up grew by over 15% last year, for example, and skincare products by 13%.
  2. Antoine Deltour and Raphaël Halet, two ex-employees of PwC, an accounting firm, and Edouard Perrin, a French journalist, had been tried in Luxembourg for their role in leaking documents that revealed sweetheart tax deals the Grand Duchy had offered to dozens of multinationals. The defendants denied the charges which included theft of documents and violation of secrecy, arguing that their exposure of dodgy tax practices was in the public interest.Luxembourg insisted the deals were both legal and unremarkable.However, the prosecutor—perhaps sensitive to the strong public and, in some places, political support for them abroad—called for suspended sentences of 18 months. In the end the judge handed Messrs Deltour and Halet suspended sentences of 12 months and nine months, respectively.
  3. The “LuxLeaks” affair has highlighted the role played by certain European Union countries, including Ireland and the Netherlands as well as Luxembourg, in facilitating tax avoidance. Luxembourg is not a typical tax haven levying no or minimal income tax; its statutory rate is 29%.Its tax authority in effect sold tax-avoidance services to large firms by rubber-stamping opaque arrangements that helped them to cut their tax bills dramatically in both their countries of residence and their countries of operation.The leaks helped propel multilateral efforts to overhaul international corporate taxation, led by the OECD. Its mostly rich members and a dozen developing countries agreed last year to a raft of reforms.Proposed EU rules known as the “common consolidated corporate tax base”, which would remove many of the national differences that multinationals have exploited to pay less tax, have been diluted to make them more palatable.
  4. Companies often search for ways to disrupt their industries lest a rival or new entrant does the same and pulls the rug from beneath them. But reinventing a business from the ground up, to avoid being consumed by the fires of new technology, comes with huge risks as well as a potential for great rewards.Sometimes being cautious, incremental and pragmatic when others are gambling on bold and visionary thinking is more sensible.The first is products: how can you stretch merchandise so that it generates more income or appeals to more people? An obvious way is to make accessories.Another is to link services to products, a tactic made easier by the internet of things.
  5. The second edge is the “customer journey”. This sounds nebulous but is, in fact, simple. Customers usually buy goods and services to solve a problem.Whole Foods Market, a swanky grocery store, used to specialise in the raw ingredients needed for healthy eating. It now gets around a fifth of its revenue from selling ready-to-eat foods.The third edge is exploiting underused parts of the enterprise. One example would be farmers renting out marginal land to energy companies for wind turbines.Toyota, a Japanese carmaker, sells traffic information generated by its vehicles to local governments and businesses.UnitedHealthcare sells information culled from its enormous database, OptumInsight, to various customers. OptumInsight’s revenue increased from $956m in 2006 to $6.2 billion in 2015, a much faster rate of growth than its parent company.

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