SRI: the double-sword for Starbucks

SRI (the socially responsible investment) attracted more attention in each industry. And socially responsible investing, also known as sustainable, socially conscious, green or ethical investing, is any investment strategy which seeks to consider both financial return and social good. In general, socially responsible investors encourage corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity, and/ or the military. Normally, because of SRI, companies could obtain good reputation on their business. Customer in the market would take companies’ imagine in account to encourage their purchase or build the brand trust, and in this way, companies could be benefit from their SRI spending. However, because of the regulation and culture, companies would suffer from the SRI judgment in different area.

The Settle Times, 20^th March 2012, has published that Starbucks was in trouble of blame for SRI. On Starbuck’s Wednesday’s annual shareholders meeting, Mr. Howard Schultz, the CEO of Starbucks, was expected more on the both profitability and socially responsibility. Starbucks has taken care their social imagine for a long time, and they received the benefits from their socially responsible investment. For example, the company promised to buy the coffee beans from importers who pay above-market prices to small farmers, for this reason, their customers accepted the higher selling price of Starbucks. However, because their socially responsible behaviours, the market required more about their investment or attention on the social benefits, like environment. An activist shareholder, John Harrington, encouraged the company to create a committee on environmental sustainability. The committee will burden more on the company’s operation. Moreover, sometimes, Starbucks has no choice. Another nonprofit organization, the National Gun Victims Action, called for a boycott of Starbucks for allowing people to carry guns in stores. Actually, because the differences in each state of USA, the regulations for guns are different, thus, how to deal with the guns could not be so easy to the company. Therefore, this brings the trouble to the company, that the good imagine brought profit, and as the same time, they also made troubles to the company.

In my opinion, the company should not be so flexible. SRI is a wonderful sense for companies, but it also works within limits. Because companies all have their limits on ability, the company could should be their strategy and plan for their SRI, and do what they plan to do and explain the rest. And if companies, like Starbucks, Nike, Levis’, have enough ability both on financial and social area, they could burden more responsibility but limited. The smaller or weaker companies could not perform so much, for the most important thing is to survive from the competition. On contrary, the market or society should think rationally that there is no company can do any things to meet any one in the society, and actually, some of the requirement could go against each other. Just like what I believe, to do what they should and could do is more appropriate. 

The Federal Reserve Keeps Expansionary Monetary Policy: Good or Not?

Last few weeks, my blog focused on the corporation finance: merger and acquisition. However, to operate the business, the macroeconomic environment should be taken in account. This week, I would like to review the Federal Reserve’s (FR) monetary policy. According the definition of monetary policy, in order to keep the stability of the market and GDP development, the Federal Reserve uses the interest rate and money supply to control the macro economy. The monetary policy could be divided into two parts: expansionary monetary policy and tight monetary policy. In this credit crisis, the Federal Reserve provided the expansionary monetary, which means that they increase the supply of the money to the market.

On 14^th, March, the Federal Reserve declared their policy would keep the expansionary monetary method. Since the 2007, the FR provided the expansionary monetary policy. From 18^th, September 2007, the FR adjusted the federal funds rate from 5.48% to 0.25%. At the same time, the FR increased the minimum period of liability, from 1 day to 90 days. Meanwhile, the FR used the 700 billion dollar to incentive the market to develop the liquidity of the market again. However, the result is not so convinced. American economy did not recover from the crisis. Apart from that, the increased money liquidity leads to a new challenge of inflation. Golden price, petrol price and commodity prices have been challenged at the same time. So is this policy real benefit for the market? The efficiency and effect of this policy have been doubted by the market.

 

Where was the money? According to the research by Dr. Ye of University of Alabama in the USA, these policies did not let the capital flow to the companies, but just buy the NPA (non-performing asset). And the interest policy just pushed the investors from the long-term financial investment, shelter. The benefited party should be these giant investors who lost money in the financial crisis. Compared with the Roosevelt's New Deal in 1927 crisis, these policies in this crisis lost their target and efficiency. In 1927's crisis, the government spent the money on the public infrastructures to provide the opportunities in the market, but this time, the FR just want to fix their lost. Is that a good thing for survive the crisis? So why do they keep these policies? 

Coca-Cola failed to merge with Huiyuan Juice --- The Influence of Non-economy Factors

After we discussed about the cooperate format, this week my topic would involve the merger itself. Speaking for the semantics definition of merger, it could be described as the combining of two business entities under common ownership. Before the mergers, the company should think about what they could achieve by these processes and what are the benefits. Normally, companies should experience regulation, pre-bid, bid and post-bid to finish the merger. During processes, companies have to consider the difficulties of the mergers, from finance and management. However, there are other kinds of factors that also influence the result very much, such as, the politician and culture. Governments could have several ways to influence the result of mergers, such as the cost increase, the bureaucratic functions. This blog would focus on the Coca-Cola’s merging failure and discuss why the Chinese government wants to reject this merger and the effects of the failures.

On March 23th, 2009, the biggest international merger of Coca-Cola was declared to be failure with the statement of Ministry of Commerce (MOC). The MOC rejected this merger, for they thought this merger could lead the unbalance competition in Chinese beverage industry. Coca-Cola, the biggest carbonated beverage producer, would use their great distribution ability to aggress into the whole Chinese market with the basement of Huiyuan. This merger was looked forward by both of the company, for Huiyuan, it could be challenge to develop themselves with advanced technology, marketing and management, and for Cola, it was a great opportunity to obtain the competences in Chinese Market, their third large market in the world. There was no conflict between the two companies, so the main reason for this failure could be attributed to the political factors.

Why did the government want to force this merger to be rejected? According to Brussels’ report, the main reason could be Cola-Colonization. Cola had invested in Meizhiyuan (Minute Maid) in Chinese juice industry, but it was not obtain the main market share successfully. Thus, Cola wanted to used Huiyuan, the biggest pure juice producer, to achieve their colonization strategy. If this merger has been reached, the biggest market share would be obtained by the company, the other companies, like Wahaha Co., Qianshou Juice Co and other the local brands would run their business in a unfair market, which was not match to Chinese government policy to develop their national brand. Besides, the Cola would gain the buyer power and seller power at the same time, it would do harm to the customers’ benefits without doubt. Additionally, they considered the difficulties of technology transfers, and found it would be difficult to achieve the technology from Cola. Even though, the technologies could be transferred, the benefit could not overweight the drawbacks in the market. So the merger failed. However, what was the conclusion for this failure?

 

Speaking from the Huiyuan, they was listed in Hong Kong stock exchange market, and their shareholders felt very disappointed with this result, and there were 42% price dropped, and Cola dropped 20% in the following 6 months, which could not react so fierce like the former. Some comments point this disaster to Chinese government directly. In my opinion, this hard result could be cruel, but this could be the last protection for the new market from unbalance competition, which could contribute to the organized booming in the new market in totally. In terms of improvement, the better way may try to use economic control but political control instead to provide a soft landing for the failure. 

10 Year’s Joint Venture --- SONY and Ericsson Mobile Communication Company

Last week, my blog focused on that the Sony acquired the whole ownership of the Sony and Ericsson Mobile Communication Company, and why they traded with Ericsson with full cash and what other reasons to support the acquisition in the unstable currency period. This week, I would still like to concern myself on this company, but my focus would move to their cooperative model from joint venture to wholly owned subsidiary.

Global market makes millions of multinational company, some of them were established into a joint venture module like SMART mini car, while some of them preferred to run their business in wholly owned company, so what is the advantages and disadvantages for these two kinds of modules? According to the textbook, joint venture could be defined as shared ownership in a foreign business, but in contact, the wholly owned subsidiary could be a totally owned by the parent company. Compared with wholly owned subsidiary, joint venture could have the advantages such as local type of management, marketing, easier capital raising and technology development. Wholly owned company could perform better on the control and strategy consolidation.

Sony and Ericsson Mobile Communication Company (will be short as S&E below) should be one of the successful joint venture companies in the world. However, on February 16^th 2012, Sony declared that they would like to acquire the mobile communication company with 10.5 billion Euros, which stopped 10 year’s success of joint venture. In this 10 year, Sony made the most of their digital imagine technology with Ericson’s mobile communication technology, including EMES (Ericsson Mobile Extension Service), WENS (Wireless Enterprise Network Solution) and so forth. Besides, Sony has successfully stepped themselves into European market with this cooperation. Speaking from Ericson’s perspectives, the famous mobile communication company received great amount of capital and at the same time, it helped the company transfer their vision from the handset provider to service and infrastructure provider. Actually, this acquisition has already been written into the contract of joint venture before they build this multinational company, but why Sony wants wholly owned subsidiary instead of the joint venture?

The reasons could be summarized in two main parts: company strategy and finance. Divergent views could be most difficulties for their operations. In the recent years, Sony Company looked further increases on the Android OS system, but Ericsson would not like to focus their perspectives on this single system too much, so the Wholly owned subsidiary could let the company consolidate their strategies. Besides, product integration has become a trend in the world, since Apple Company achieved their great remarkable success. Sony would like to follow this idea to integrate their products, but the joint venture could become a barrier for the company to some extent. They have to consider about the patent protection and transfer their competences with Ericsson, so the acquisition should make this operation much easier than that before. In terms of the finance, the wholly owned Sony Mobile Company could benefit from the financial safety and financial control, for most of the joint venture should exposure their financial information to their partner, which could provide the potential dangers to their parent company, such as key data lose, and wholly owned subsidiary could overcome this back draw. More over, the financial control would lead to more troubles for each other, and they would spend amount of time to argue with that, and sometimes, they have to turn their finance to the third part company to keep the fairness. Sony would use the acquisition to keep their financial information safe and improve the efficiency of financial management.

However, for wholly owned Sony Mobile Communication Company, they have to face up with several new challenges, such as new agent fee, whole risk burden and further capital requirement. How to deal with these could be the key for the company to continue success in the future.