A New Start

BT: Teaming up to stay ahead

Business Times - 31 Oct 2009 Teaming up to stay ahead MANUFACTURERS, logistics industry players and Spring Singapore are teaming up to prepare the industry for future challenges as they strengthen Singapore's supply chain management and transshipment hub capabilities. 'Singapore as a thriving transshipment hub will position us as an important global supply chain control tower. This will attract manufacturing and logistics companies to set up operations here. It is therefore imperative to continuously improve our supply chain capabilities to maintain our lead,' said Spring industry development group director Victor Tay at the signing of two Memoranda of Understanding (MOU) yesterday. The first MOU between the Singapore Manufacturers' Federation (SMa) and The Logistics Institute - Asia Pacific (TLI-AP) aims to identify, develop and promote the adoption of supply chain best practices among local manufacturers. SMa and TLI-AP will launch a competitive study for the manufacturing industry which will first form a high level task force to examine the external environments for threats and opportunities for Singapore, followed by the recommendation of some strategic programmes that will build on existing strengths within the manufacturing industry to spur the industry up the value chain. In the second MOU between TLI-AP, Singapore Logistics Association (SLA) and Spring, the partners will embark on a competitiveness study assessing Singapore's challenges and unique propositions as a transshipment hub. The industry-wide study will be conducted to uncover opportunities to strengthen Singapore's status as a transshipment hub against regional players in air and sea freight. Leveraging on Spring's LEAD Programme, SMa and SLA will gain insights from the competitive study to develop an industry roadmap with strategic projects that can be implemented for the entire industry. This could be either in terms of exploiting of new technologies and infrastructure or upgrading manpower capabilities and managerial competence. The outcome of both studies will also foster deeper understanding of industry trends and requirements so as to develop industry specific strategies. Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

FT: A close-up look at Sumatra’s orangutans

A close-up look at Sumatra’s orangutans

By Judith Matloff

Published: September 19 2009 00:25 | Last updated: September 19 2009 00:25

Orangutans at play in the Gunung Leuser national park

As I stepped down the embankment to the wooden boat that would take us up river, Mr Mistar, our guide, made me pause. “She disappeared,” he said in an ominous tone. I looked up inquiringly, waiting to hear more. “A woman washing clothes. The crocodile ate her.”

With that, we pushed off. I knew the trip to pursue wild orangutans in Sumatra would be tough. Wading thigh-high in swamp was expected, as was the risk of strange diseases. I hadn’t wagered on man-eating reptiles but nothing was going to stop me now. Many years back, I was thrilled to encounter feral gorillas in Rwanda – one even touched my shoulder. And so I jumped when my brother-in-law, an expert on orangutans, offered to arrange access to Asia’s only great ape. I was conscious that, at most, only 6,600 orangutans remain in Sumatra. Scientists warn that this close human cousin might disappear in a decade or two as a result of the destruction of its habitat for palm oil plantations.

The photographer and I travelled for two hours up river to our destination, a research station called Suaq Balimbing in the Kluet swamp, where the animals live unmolested. As we sailed past the pristine forest of gigantic trees, Ellen Meulman, a Dutch researcher, identified hornbills and the rare Storm’s stork. We saw kingfishers while indigenous fishermen paddled by in dugout canoes, their wicker baskets filled with river oysters. Mindful of Mr Mistar’s cautionary tale, I recoiled when something reptilian slithered into the water. Thankfully, it was just a monitor lizard.

Shortly thereafter a shout went out: “Oranghutan”, the local word for “person of the forest”. Everyone looked up. Sure enough, something hairy perched in a Neesia tree. The boatman stopped the motor and we watched the animal nonchalantly munch on the husky fruit.

Thrilled at such an early sighting, we resumed the voyage only to come upon an awful scene. Flames crackled in a clearing where palm seedlings awaited planting. “This was dense vegetation a few months ago,” Meulman said, shocked. “It takes 70,000 years to grow a primary forest.”

Soon we arrived at the camp, which consisted of two wooden cabins and a dozen researchers. A quick dip in the river refreshed us until the photographer emerged with blood streaming from his side. “Leech!” Mr Mistar exclaimed. Over a dinner of rice and fresh catfish, the trackers discussed the various endangered creatures that lived in these parts – sun bears, tigers, clouded leopards.

“Don’t forget the reticulated python,” Mr Mistar added. He held up a dinner plate. “One was this thick. It crushed and ate a man whole.” Meulman changed the subject to orangutans. They only live in Borneo and Sumatra, use tools to eat and fashion umbrellas out of leaves. That, I thought, would be worth seeing.

The next morning we set forth at first light, with leg guards to protect us from leeches. “Wear long sleeves,” Mr Mistar advised. “They fall from trees.” We plunged into the peat swamp, clinging to vines to stay upright as our legs sank deep into the muck. “You’re lucky it’s the dry season,” said Meulman, as the mud reached my hips.

The orangutans had moved deep into the forest to seek fruit and it was slow-going in pursuit. Every now and then the trackers would point to a big nest 30m above. Orangutans are the only great apes that sleep in trees, to avoid feline predators below, and they use nests only once before moving on. These all appeared to be discarded beds.

Six hours and just as many nests later, we still hadn’t spotted an ape and the afternoon heat felt like a steam bath. We turned back for camp.

Days later, eager to get a close look at the apes, we headed for the orangutan sanctuary in Gunung Leuser national park. Eventually we reached Bukit Lawang, a village on the banks of the rushing Bohorok River. We dropped our bags off at the Eco-Lodge run by the local conservation group YEL. The cabins with private baths seemed luxurious after sleeping on the floor at Suaq. With an approving look at the bar serving chilled beer, we headed out for a three-hour hike in the rainforest.

The path began through a rubber plantation before winding steeply uphill. Silence was broken by the whine of a distant chainsaw and the guide’s explanations about the local plants. “Liana vine: heals the liver. Suli stimulates lactation. Pasak bumi cures malaria. Rubber tree – good for family planning!”

Suddenly, we saw a flash of copper fur, then two, 15 metres above. A mother and child hung by their feet like furry laundry. The baby made a smacking noise with its lips to signal fear, and the mum pulled him towards her with one deft hand. They swung from branch to branch.

We stood transfixed until the long call of a male reminded us that others awaited observation at the sanctuary. We headed towards the feeding station, where we were guaranteed a closer encounter. The spot comprised a wooden platform, surrounded by primates from Australia. A sound of crashing through the brush announced the arrival of a 4ft-high orangutan with a tiny baby clinging on like a backpack. The mother pushed past the humans, grabbed a bunch of bananas and stuffed them into her mouth. Surely we should leave these wondrous animals alone, I thought. The mother seemed to ponder the same thing. She trained her intelligent eyes upon us and I imagined her thinking, “What went wrong with evolution?” We stared at each other at a metre’s distance until she disappeared into the thicket.

On the river path back to the lodge, we encountered another pair of orangutans that had commandeered a boat. They playfully swung from its ropes as the owner seethed with frustration. Looking for a new challenge, the apes moved on to tease sunbathers. The male orangutan put on someone’s T-shirt. His lady friend, meanwhile, imitated a woman tanning on a rock.

After a while, they tired of the fun and sauntered back into the forest. I hoped that they would hide there for ever, far from the destructive influence of humans.

Judith Matloff is the author of ‘Home Girl’ (Random House)

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FT: My Paper Chase

My Paper Chase

Review by Lionel Barber, Financial Times

Published: September 19 2009 00:20 | Last updated: September 19 2009 00:20

My Paper Chase: True Stories of Vanished Times – An Autobiography
By Harold Evans
Little, Brown £25, 512 pages
FT Bookshop price: £20

Amid the pervasive gloom surrounding the future of newspapers, Harold Evans has produced a memoir to lift the spirits. My Paper Chase is the story of a locomotive driver’s son from Manchester who wins fame and fortune, first as a crusading editor in London and later as an author, broadcaster, publisher and showman in New York.

There is a touch of Horatio Alger about this transatlantic tale, though Evans is no sentimentalist. As editor of The Sunday Times from 1967 to 1981, he pioneered a brand of hard-hitting investigative journalism that produced a string of scoops: The Crossman Diaries, the Thalidomide scandal, the Bloody Sunday killings in Northern Ireland and the unmasking of Kim Philby as a KGB agent working for MI6.

The diminutive, irrepressible Evans belongs to a generation that saw print journalism as a craft rather than a profession. (Full disclosure: my father worked alongside Evans as a splash subeditor for 13 years on The Sunday Times. He shared the same passionate view.)

Evans left school at 16, learning his trade at the Ashton-Under-Lyne Weekly Reporter. After national service in the RAF and a postwar degree in social studies at Durham University, he joined the Manchester Evening News, then a leading (and profitable) regional daily with a million readers.

Newspapers in the 1950s were an essential part of the community. Television was an upstart; computers were the stuff of science fiction. What gripped Evans was the industrial process of putting together a paper.

More than 50 years on, he still marvels at the experience. Here is his description of his first day as a downtable subeditor at the Manchester Evening News: “Mr Bow Tie ... indicated an empty chair at the long table and equipped me with the tools of the trade: spike, gluepot, two pencils, scissors, a galley listing deadline times for every page of the day’s edition, a pad of copy paper and an office book of typefaces.”

Subeditors these days are an endangered species as newsrooms cut back on production costs but Evans venerates subs as “the hidden impresarios of the news”. These male craftsmen (women were virtually non-existent) sorted out the reporters’ stories, wrote the headlines and ticked up the copy to length before it was dispatched for processing into hot metal and, finally, the printed word.

Evans himself was a master craftsman. Few journalists could match his expertise in basic editing skills, whether cropping a picture, honing an intro or selecting the correct font size. His five-volume series on editing, design and photojournalism, published 30 years ago, still ranks as the last word on the subject.

As an editor, he was a self-confessed meddler, especially when deadlines approached. But he also possessed two other enviable strengths: an eye for talent and a willingness to publish and be damned. He recognised that it was not always enough to print the truth once. “Amnesia is a characteristic of all newspapers,” he observes, “because we move on to the next story.”

Evans’s success as editor owed much to the high-mindedness of the Thomson family owners, especially Roy Thomson, the bespectacled patriarch. The latter’s belief in editorial independence was unshakeable, born of a conviction that a great newspaper depended on the dedication and skills of a professional journalist rather than an interfering proprietor. Thomson also had a mischievous sense of humour, declaring that “part of the social mission of every great newspaper is to provide a home for a large number of salaried eccentrics”.

The era of benevolent ownership ended with Rupert Murdoch’s successful bid in 1981. The Thomson family had no strategy for dealing with the unions which had rendered Times Newspapers ungovernable and unprofitable. But the Australian parvenu had a plan.

First, Murdoch persuaded the Thatcher government to pass on a competition probe, despite having a sizeable share of the UK newspaper market. Then he seduced Evans into leaving his Sunday stronghold to edit The Times, only to fire him less than a year later. Evans confesses that his ambition to edit a distinguished daily paper got the better of his judgment. More interesting is how he has reappraised Murdoch and his legacy.

The Mephistophelian character of Evans’ account in Good Times, Bad Times (1983) has transformed into a visionary reformer. Evans now accepts that by moving his titles from Gray’s Inn Road to Wapping in London’s Docklands in 1986, Murdoch outwitted the unions and gave the newspaper industry a new lease of life.

In fact, both Evans and Murdoch have more affinity with each other than either would care to admit. Both rose to prominence as anti-establishment characters; both moved to a bigger stage in America and became US citizens. Evans writes that Britain has “a penchant for secrecy, social privilege and the nurturing of an educational elite remained pervasive in the culture and has not been quite expunged to this day”. Murdoch could easily have written the same words (though he did attend Oxford).

After the privations of wartime Manchester and the snooty sniping of the Oxbridge elite in London, Evans revelled in meritocratic America. He and his wife Tina Brown became one of New York’s power couples – she went on to edit Vanity Fair and The New Yorker and now runs The Daily Beast, a news blog. Evans even accepted a knighthood, confirming his view that in the US everyone has a second chance.

Is there a second chance for the newspaper industry? Murdoch has signalled that he wants all his titles to be charging for online content by next year. Once again, he is being heralded as the saviour of the industry. But the methods and scale of charging are still up in the air, even if the principle is sound. My Paper Chase is an inspiring tale but in the end it is a vivid and eloquent testament to a bygone age. For once, Evans has buried the lead. The sub-head tells the story: True Stories in Vanished Times.

Lionel Barber is editor of the FT

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FT: Financial sweetener for suppliers

Financial sweetener for suppliers

By Richard Milne

Published: October 22 2009 03:00 | Last updated: October 22 2009 03:00

W hen KPN, the Dutch telecoms group, last year decided to extend how long it took to pay suppliers it knew it would not be a popular decision. So, as it moved its payment terms from 45 to 90 days, it looked into a mechanism called supply chain finance. "Obviously [the lengthening of payment terms] is a negative thing for suppliers. So we were looking for a sweetener to smoothen the implementation and then we found this," says Toon Huiskes, a financial manager in KPN's procurement division.

Supply chain finance is seen by many supply chain experts and managers as the great hope for easing problems with suppliers. Although it actually refers to several different solutions, at its most basic it allows both the buying company and the supplier to improve their working capital - a crucial attribute given the recent financial crisis. Companies such as J Sainsbury, Nestlé, Syngenta, retailer Metro and truckmaker Volvo have all used it.

The way it works at KPN is typical. The Dutch group pays its suppliers later, improving its own working capital by holding on to its money for longer.

But suppliers can now access their invoices to KPN on an internet platform and sell them on to a bank as soon as they are approved. That means they can get their money almost three months ahead, against the payment of a fee they need to pay the bank. The bank eventually collects the money from the buyer on the official payment date.

"It supports our supply chain because it is a win-win for everybody," says Mr Huiskes.

"Win-win" is a term used by many in supply chain finance. Both sides improve their working capital while the banks get a fee. It looks similar to the widely used practice of factoring but the main difference is that the risk is transferred from a group of buyers to one, usually more creditworthy, buyer. It also tends to be cheaper as the supplier essentially uses the buyer's credit rating, and the risk for the bank is low as the invoices have been confirmed by the buyer.

Supply chain finance has even caught the eye of the Bank of England as it seeks to encourage lending in the real economy. The UK's central bank is consulting on whether to introduce such a programme itself to help suppliers who are facing financing problems as banks tighten credit. "The Bank of England is going to be opening the floodgates for supply chain finance," says Mark Perera, head of the Procurement Intelligence Unit.

But the sunny language of win-win situations belies the difficulties involved in setting up such a scheme. Those challenges in turn demonstrate why, for all the interest in supply chain finance, its application so far has been slower than expected.

The main challenge when introducing supply chain finance is simply to get everybody on board, both internally at the buying company and among suppliers. "You need to cover a lot of angles," says Mr Huiskes. The treasury, procurement, accounting, IT and accounts payable departments were all involved at KPN.

The problem is that all of the departments speak different languages and have different incentives. "It is like procurement speak Chinese and finance speak English," says David Brown, head of Oxygen Finance, a start-up attempting to use credit card processes in procurement.

It can also be difficult and costly to roll out globally. Legal and audit issues mean it is tricky to do worldwide while the retrenchment of banks to their national markets means there are few genuinely global institutions left to help set up the schemes. Even if a bank can be found, some worry that they are reticent to push into it because they do not want to give up the larger profits from factoring.

Even banks agree, to a point. Alan Keir, head of European commercial banking for HSBC, says: "If you are an intermediary the issue is: how do you make money?" His colleague, Adrian Rigby, points to the advantage on risk for banks of dealing with buyers rather than suppliers: "On a pure margin side it may not be so profitable, but overall on risk it is more secure."

Companies also need to invest in infrastructure such as IT and ensure they have efficient processes. That can lead to high set-up costs. But it can help in other ways such as minimising disputes. A supplier can see its invoice - and whether it is correct - long before the technical payment date. "Due to this platform we eliminated a lot of disputes," says Mr Huiskes.

But suppliers themselves need convincing. Many have fared so badly - such as in the retail and car industries - that they are distrustful of anything proposed by their buying companies. Daniel Corsten, a professor at IE business school in Madrid, calls their worries the "adoption paradox". He says suppliers that need the finance are the most reluctant to adopt because they fear they might become more vulnerable: "It might mean that you are dependent on your customer not just for business but also for finance."

Even if they are in favour, companies are tending to extend the scheme to a few select suppliers, which are normally their biggest ones and in less trouble than the smallest. "There is nothing very supply chain about finance right now," says Mr Brown.

KPN started out with only its two biggest suppliers and will soon have 25 on board, representing 15 per cent of its total spending. Mr Perera warns: "It needs to be there for the smaller suppliers as well as the big ones." The irony is that the smallest suppliers are often weaker financially than the big ones to start with, says Prof Corsten.

But despite the imperfections, supply chain finance can be a useful tool for companies to help them and their suppliers. Some companies such as Crédit Agricole and SCF Capital have even applied it to mergers and acquisitions.

Back at KPN, the launch has been a success. "This has been very well received," says Mr Huiskes. "This is the main game in town now."

How Nestlé chewed over an invoicing conundrum in Russia

The 1998 financial crisis, coupled with the general expense of financing in emerging markets, made Russia and its 3,500 Nestlé suppliers an obvious place for the Swiss group to test extending payment terms through the sweetener of supply chain finance.

According to a case study by the IE business school, suppliers set up an account with Citibank, and received a purchase order and shipped goods as normal.

Nestlé would then approve the goods and after the suppliers then contacted Citi, the bank would pay 90 per cent of the invoice on the first day. The remainder would come on the official payment day, when Nestlé would also pay Citi the full amount.

The approach ultimately proved successful but it took longer than expected to be accepted.

Initially, Nestlé's Russian purchasing department resisted the change as did many suppliers through a lack of understanding. Suppliers were unused to dealing with an international bank and were more worried about the longer payment term than the lower working capital.

What does it mean?

Supply chain finance allows a supplier to sell its invoices to a bank at a discount as soon as they are approved by the buyer. That allows the buyer to pay later and the supplier to secure its money earlier. Instead of relying on the creditworthiness of the supplier, the bank deals with the buyer - usually a less risky prospect.

Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

NIGHT MAIL by W H Auden

NIGHT MAIL
by W H Auden

This is the Night Mail crossing the border,
Bringing the cheque and the postal order,
Letters for the rich, letters for the poor,
The shop at the corner and the girl next door.
Pulling up Beattock, a steady climb:
The gradient's against her, but she's on time.

Thro' sparse counties she rampages,
Her driver's eye upon the gauges.
Panting up past lonely farms
Fed by the fireman's restless arms.
Striding forward along the rails
Thro' southern uplands with northern mails. Winding up the valley to the watershed,
Thro' the heather and the weather and the dawn overhead.
Past cotton-grass and moorland boulder
Shovelling white steam over her shoulder,
Snorting noisily as she passes
Silent miles of wind-bent grasses.

Birds turn their heads as she approaches,
Stare from the bushes at her blank-faced coaches.
Sheepdogs cannot turn her course;
They slumber on with paws across.
In the farm she passes no one wakes,
But a jug in the bedroom gently shakes.

Dawn freshens, the climb is done.
Down towards Glasgow she descends
Towards the steam tugs yelping down the glade of cranes,
Towards the fields of apparatus, the furnaces
Set on the dark plain like gigantic chessmen.
All Scotland waits for her:
In the dark glens, beside the pale-green sea lochs
Men long for news.

Letters of thanks, letters from banks,
Letters of joy from the girl and the boy,
Receipted bills and invitations
To inspect new stock or visit relations,
And applications for situations
And timid lovers' declarations
And gossip, gossip from all the nations,
News circumstantial, news financial,
Letters with holiday snaps to enlarge in,
Letters with faces scrawled in the margin,
Letters from uncles, cousins, and aunts,
Letters to Scotland from the South of France,
Letters of condolence to Highlands and Lowlands
Notes from overseas to Hebrides
Written on paper of every hue,
The pink, the violet, the white and the blue,
The chatty, the catty, the boring, adoring,
The cold and official and the heart's outpouring,
Clever, stupid, short and long,
The typed and the printed and the spelt all wrong.

FT: The knocked postman

The knocked postman

By Brian Groom and FT reporters

Published: October 21 2009 21:58 | Last updated: October 21 2009 21:58

Letters of thanks, letters from banks,
Letters of joy from girl and boy,
Receipted bills and invitations
To inspect new stock or to visit

EDITOR’S CHOICE

Postal workers start two-day strike - Oct-22

Companies scramble to find delivery services - Oct-21

Tories fear strike impact on Royal Mail - Oct-19

Post offices threat adds to US property woes - Sep-08

Brussels approves merger of postal services - Apr-22

Deutsche Post shows interest in Royal Mail - Apr-05

relations,
And applications for situations,
And timid lovers’ declarations,
And gossip, gossip from all the nations.

Nearly three-quarters of a century on from W. H. Au­den’s “Night Mail”, the UK postal service itself features in the “news financial” whose dissemination his paean goes on to celebrate. And the current tidings are not good.

A last-ditch effort to avert a nationwide strike by up to 121,000 postal workers faltered last night. But the Royal Mail is just one of numerous incumbent delivery organisations across the world that are steadily losing business. Recession has only speeded up the decline.

With huge staffs to collect, sort and deliver post from one end of a country to another, the industry is feeling the heat – and not just from electronic means of communication. A liberalisation of the industry, notably in Europe, is adding to the pressure on their business model – although progress in opening up the mail market is far from smooth and Britain is not alone in having stoppages threatened by trade unions concerned about their members’ prospects.

Where postal services once delivered handsome profits to their state owners, now they often bring problems. In recent years, many governments have tried to have it both ways: they want an incumbent that will preserve a universal delivery service at a price electorates will accept, but they also want the benefits of competition.

Postal operators can to some extent compensate by winning more lucrative packets and parcels business – particularly delivering books, DVDs, clothes and the like that consumers order from internet retailers. But that is where competition is most intense. Private rivals cherry-pick the most profitable segments, such as bulk mail, express delivery and packages. If this goes on, the question will be: for how much longer will universal delivery services survive?

“Are letters viable in the long-term?” asks Ian Senior, a postal consultant. “No, but it will take 20 years. The older generation will have gone and the laptop generation will have grown up. People will look on letters as they once viewed telegrams – something for special occasions.”

Under European Union legislation adopted last year, most member states have to liberalise their postal markets fully by the end of December 2010, although 11 countries have a further two years’ grace. The aim is to encourage more competition and efficiencies in a sector that directly employed about 1.6m people in 2006. However, progress to date has been patchy. A European Commission paper late last year expressed concern about a slowdown in market opening.

For the UK, Mr Senior expects the universal service obligation – the requirement on Royal Mail to deliver to every address in the country – to erode rather than suddenly end. He can foresee deliveries to rural areas being cut to three or four a week, compared with six at present.

UK INDUSTRIAL RELATIONS

Out of the dark ages - but distant echoes of the year-long miners’ strike

Britain, once renowned for strikes and poor productivity, has largely sorted out its industrial relations in the past 30 years, writes Brian Groom. But in the state-owned postal service it remains in the dark ages.

The strikes that have been in prospect for today are its second national dispute in two years and follow three months of regional stoppages. Parallels have been drawn with the year-long unsuccessful strike by coal miners in 1984-85. Billy Hayes, general secretary of the Communication Workers Union – which represents almost 90 per cent of Royal Mail’s 141,000 postal workers – says his members are in a stronger position. Whereas the miners’ strike began in spring, when electricity demand was low and coal stocks high, these come in the peak period for pre-Christmas mail. The CWU’s action is also supported by a 76 per cent majority of those voting in a ballot, which the miners never held.

The CWU says it is not opposed to modernisation but that changes to increase workloads are being imposed without agreement. The 2007 dispute ended with a pact on pay and modernisation that each side accuses the other of breaching.

To benefit from its investment in equipment such as hand-held tracking devices for packages and “intelligent” letter-sorting machines, Royal Mail wants staff to work harder and in different roles. It wants to increase the length of “walks” and end practices such as finishing work early if a round is completed. For example, delivery drivers could help with sorting.

The CWU, which fears 60,000 more job losses on top of 53,000 since 2002, wants agreements to define what workers can be asked to do. It is also angry about cuts in pensions and a pay freeze. Royal Mail says the CWU is demanding an “absolute veto” on change.

Britain’s dispute over jobs, pay and working practices has come in the peak pre-Christmas period, when mail volumes treble, and at a fragile moment as the country emerges from recession. According to Lord Mandelson, who as business secretary is in charge of the service, a strike would be an “act of suicide” by staff at Royal Mail, which says letters volumes are 10 per cent down this year.

The business is investing £2bn ($3.3bn, €2.2bn) in technology and demanding greater flexibility from its workforce. Its situation is better than earlier this decade, when it was losing £1m a day. In the year to March it doubled operating profit to £321m – but threats are crowding in.

Its pension fund deficit is soaring towards £10bn and its future is in limbo after the government shelved a plan to legislate to sell a 30 per cent stake, along with regulatory reforms and a pension bail-out. At the time, Lord Mandelson cited poor market conditions but many blamed a backbench revolt by Labour MPs. But analysts say redundancies are inevitable at some of Europe’s poorer performing post offices such as the Royal Mail, as labour accounts for up to 70 per cent of their cost base.

Short-sighted politicians in both main UK parties, as well as industrial strife, have played their part in holding it back. In the past the Treasury siphoned off profits: over 23 years until the late 1990s Royal Mail was forced to invest nearly £2.5bn in government securities while the postal service was starved of new equipment. It is now estimated to be 40 per cent less efficient than European counterparts.

Even so, many continental postal operators also find themselves immersed in controversy about their future. For instance, the French government faces opposition to reforming the status of La Poste. A draft bill is due to be debated in parliament next month, but already the subject has drawn the wrath of unions and provoked a public outcry.

Almost 3m people have taken part in a referendum orchestrated by the unions, delivering a resounding No to the question of whether La Poste should change from a so-called public establishment to a limited company. Postal executives insist privatisation is “out of the question” but the words ring hollow with voters who remember the suggestion from Jean-Paul Bailly, La Poste chief executive, last year that the service should be floated on the bourse to raise investment.

W  ith competition eating away at their generally profitable packages businesses, and competitors likely to target lucrative urban regions when the letters market is finally liberalised, the need for incumbents to find rewarding new areas of business is urgent. Paris plans a €2.7bn injection to develop La Poste’s banking arm and allow Mr Bailly to create a European package delivery service through acquisitions. But another option is to find new ways of protecting their operations.

German politicians two years ago approved a minimum wage for postal workers that most observers saw as a thinly disguised way to help Deutsche Post, the former monopoly, compete on favourable terms with smaller rivals that were paying staff less. Competitors such as TNT – born out of a 1996 merger between the Dutch postal service and the international express carrier of that name, are fighting the move. Deutsche Post, which itself owns the rival DHL, still claims almost 90 per cent of Germany’s mail market. Yet it admits falling volumes are a headache and Frank Appel, chief executive, has demanded mail staff work longer hours to improve efficiency. The result, if talks with the unions are unsuccessful, could be a clash with echoes of the UK dispute.

Even the Netherlands, one of the first to liberalise, is not problem-free. The Dutch postal market was fully opened to competition from April, allowing all companies to deliver items weighing less than 50g. TNT, which resisted the change, had already complained last year that two competitors, the local Sandd and Deutsche Post’s Selektmail unit, were in effect undercutting the national minimum wage by paying employees by volume delivered rather than hours worked.

Since then, the rivals have signed a collective labour agreement. But TNT, complaining it remains at a disadvantage, is trying to renegotiate its own such accord – and is threatening 11,000 job cuts unless the postal union backs away from a strike on which it is currently balloting members.

By no means are those sort of tensions confined to Europe. So low has the US Postal Service fallen in public esteem that President Barack Obama can use it as a joke. “UPS and FedEx are doing just fine,” he told an August public meeting on healthcare reform. “It’s the Post Office that’s always having problems.”

That attempt to persuade his audience that private insurance companies would withstand a public healthcare option riled postal workers. But they could not complain about its accuracy. According to the postal service’s own numbers, it will rack up a $7bn net loss this year, widened from $2.8bn in 2008. Debt will swell to $10bn. The Government Accountability Office, the investigative arm of Congress, placed the entity – which has so far escaped privatisation or relaxation of its monopoly over non-urgent letters – on its high-risk list in July, reserved for issues that demand urgent attention from lawmakers.

In China, foreign express delivery services such as DHL and FedEx and hundreds of privately owned domestic courier services have grabbed a chunk of a postal market that boasted 7.3bn letters and 1.5bn express deliveries last year. China Post, the state-owned letter delivery monopoly, has its own express business but private companies account for more than 60 per cent of this segment.

Now, Beijing is moving to back the incumbent against its challengers. A postal law that took effect this month locks foreign express delivery services out of the domestic market – a rule that formalises past practice but which industry representatives argue violates the spirit of China’s World Trade Organisation commitments.

From protectionism to strikes, from complaints of inefficiency to the threat of rising competition, world postal services are having a tough time. With the growth of e-mail, text messaging and web-based means of communication such as Facebook and Twitter continually adding to the problems, it can only get harder for them.

“Faced with a declining mail market, post offices in Europe need to continue to increase the automation of postal sorting, so that fewer people touch a letter,” says Søren Vestergaard-Poulsen, a partner at CVC Capital Partners, the private equity group. “They need to pre-sort the mail so that the mailman can pick up a pre-sorted bag, rather than spending hours putting it into the right order for delivery.”

Mr Vestergaard-Poulsen led CVC’s investments in the Danish and Belgian post offices. He says CVC, which recently swapped its Danish stake for slightly less than half of Belgium’s De Post-La Poste, helped to implement automation in both those countries. The best time to carry out a modernisation is when the economy is buoyant and unemployment low, he adds, so that people made redundant can more easily be found new jobs. In other words, not now.

There are no easy ways out. The UK attempt to sell a 30 per cent stake in Royal Mail was the country’s third failed postal privatisation effort in 15 years. Each time, political resistance has proved too strong. If the Conservatives win next year’s general election, they may try again.

But even if they succeed, taking on Royal Mail is a daunting task for any investor. The company will help its prospects if it succeeds in breaking union resistance to accelerated change. Given the history, that would be a remarkable achievement.

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FT: Emirate re-engineered

Emirate re-engineered

By Andrew England

Published: October 22 2009 23:54 | Last updated: October 22 2009 23:54

Managed development: a labour ministry official inspects an Abu Dhabi construction site. At least $300bn in infrastructure and property projects are planned for the emirate

When Saeed Alromaithi’s friends phoned him at his new place of work, they would often have a chuckle. They could hear the clank of heavy machinery in the background or the roar of a steel plant’s furnaces. “They used to make fun of me when they called and heard all this noise,” says Mr Alromaithi, his blue work jacket and jeans a contrast to the pristine white robe that is the uniform of most of his fellow Emiratis.

EDITOR’S CHOICE

New dawn signalled for debt-ridden Dubai - Oct-07

Dubai strains to restructure debt - Sep-09

Downturn tests Dubai’s social tolerance - Sep-07

Change set in train for Dubai - Sep-02

Shuaa Capital’s chief resigns - Aug-12

Comment: Dubai needs law reform - Aug-10

Their reaction is not surprising. Since the 1970s, when a spike in oil prices brought wealth to the Gulf, its nationals have gained the reputation for avoiding work that might risk an encounter with sweat or dirt, preferring instead the air-conditioned office suites of, say, a state oil company or sovereign wealth fund. Governments provided social safety nets that hoovered up graduates and dealt out public sector jobs for life.

That is a phenomenon some of the region’s leaders now seem to have grasped is unsustainable as populations swell and they look to a future when oil runs out. The need to diversify economies and develop private sectors has become a common theme.

But Abu Dhabi – where Mr Alromaithi is vice-president of operations at Emirates Steel Industries – is pushing ahead with arguably the most ambitious programme of all. More than $300bn (€200bn, £181bn) worth of infrastructure and property projects have been announced for the UAE capital; billions more dollars are also being spent by state investment vehicles to tap into the latest technology and lure businesses to the emirate.

No longer the retiring, sleepy place that was happy to let the smaller Dubai grab attention with its mega-projects, Abu Dhabi plans to be an internationally recognised metropolis by 2030, with a mix of high-end cultural tourism, technology and other industries that are capital- and energy-intensive. It is benchmarking itself against what it describes as “transformation economies” such as Singapore, New Zealand and Norway – small countries that have pursued successful development models.

HOW TO DIVERSIFY

A capital that is avoiding many – but not all of Dubai’s errors

“We will learn from Dubai’s mistakes.” Thus spoke one of Abu Dhabi’s leading powerbrokers a few years ago as a new generation came to the fore in the emirate, keen to emulate the success – and avoid the pitfalls – of its brasher neighbour.

In many ways the United Arab Emirates’ capital has done just that. Dubai, built on trade even before the discovery of its modest oil reserves, has in recent decades turned itself into an entrepreneurial hub encompassing tourism, transport, services and finance. But, with its grand ambitions and dependence on debt, it has come somewhat unstuck during the credit crisis. By contrast, Abu Dhabi’s vast oil and investment wealth have given it the luxury of time and greater resources with which to plan.

While Dubai built beach resorts and city h

otels for tourists from Europe, the Gulf and Asia, the capital has foc

used on higher- spending leisure and, later, branches of the Guggenheim and Louvre museums are intended as a testament to that vision. Abu Dhabi has pursued industrial developments, from petrochemicals to steel, to tap into its cheap energy resources; Dubai has focused on services and trade.

But Abu Dhabi is also trying to move into sectors that helped Dubai to transform itself so successfully over the past decade, such as the media. The capital’s new and well funded film festival and art show compete with established events in Dubai – although the jury is out on whether these schemes will flourish in the same way. Finance could also become a pillar of the emirate’s diversification as it launches bespoke buildings in the Sowwah Square development aimed at the banking community. International institutions that set up in Dubai’s financial district are already wondering if they might have to open offices in the capital, which is the source for more business than indebted Dubai.

Yet the UAE capital has failed to avoid two of Dubai’s most obvious problems: clogged traffic and housing shortages. As in Dubai a few years ago, public transport has lagged behind population growth; inhabitants must wait another six years for a metro system.

When they meticulously planned the city’s future – but failed to deliver enough houses and offices to meet demand created by its myriad developments – Abu Dhabi’s new generation of leaders provided an unintended fillip for Dubai’s blighted property market. The area closest to the capital turning into a dormitory for Abu Dhabi workers willing to tolerate a three-hour drive each day for lower rent.
Simeon Kerr

In doing so, the emirate is targeting sectors that helped drive the Asian “tiger” economies, combined with construction projects that draw comparisons with brash Dubai. The difference is that Abu Dhabi’s greater oil riches mean it is doing so from a more solid financial position.

As young Emiratis produce high-technology components for customers including Airbus, say, Abu Dhabi could in future see wealthy tourists spending a day on a “cultural island” at the Louvre and Guggenheim museum offshoots it will host. Next, visitors might hop over to a space port and experience a sub-orbital flight. At least, that is the dream.

Few doubt that Abu Dhabi has the wealth to push forward with its goals. It is endowed with the world’s second-highest level of combined oil and gas reserves and production per head, after neighbouring Qatar, according to Moody’s, the ratings agency.

For decades, its rulers tucked away surpluses in the Abu Dhabi Investment Authority, generally regarded as the world’s largest sovereign wealth fund with estimated assets of around $400bn. Nominal gross domestic product per capita soared to $87,000 last year, making it one of the richest locations in the world.

Recent spending has reached far and wide in its quest for talent and expertise. Last month, Abu Dhabi added to its collection of assets when Advanced Technology Investment Company announced it was acquiring Chartered, the Singapore-based semiconductor manufacturer, in a deal with a total value of $3.9bn. Atic emerged from nowhere last year with the announcement that it was investing $2.1bn in a new US-headquartered semiconductor manufacturer with AMD . Atic is spending up to $6bn to build new fabrication facilities in Germany and New York.

The deals give Atic global exposure and a chance to take on Taiwanese chipmakers’ dominance of a market that requires the deep pockets that Abu Dhabi boasts. In less than a year, it has gone from zero to controlling 18 per cent of the industry’s outsourced contract manufacturing.

The target is to reach a 30-40 per cent market share within three to five years, acknowledging that it will take at least five years before there is a return on investment, says Ibrahim Ajami, Atic’s chief executive. A local fabrication facility is also part of his plans. “This is about bringing highly sophisticated people; this is about training a new generation of engineers, scientists, of operators and it’s about installing a complete new mindset of how we work and what we produce,” Mr Ajami says.

Atic is just one of a growing stable of investment entities pursuing similarly lofty goals. Deals by others such as Mubadala and Aabar include the acquisition of stakes in Daimler of Germany and Virgin Galactic, Sir Richard Branson’s space tourism project, as well as ventures with EADS, General Electric and Rolls-Royce.

The transformation under way can be traced to the 2004 death of Sheikh Zayed bin Sultan al-Nahyan, the UAE’s founding father. That ushered a new generation into power, led by Sheikh Khalifa bin Zayed al-Nahyan, UAE president and Abu Dhabi’s ruler, and Sheikh Mohamed bin Zayed al-Nahyan, the crown prince.

Sheikh Mohamed, a 48-year-old Sandhurst graduate, and a small group of trusted technocrats are seen as the driving forces behind the evolution. Mr Alromaithi at ESI can in many ways be held up as a model of what the leaders are seeking to achieve. The 34-year-old, a UAE flag on his hard hat, graduated in engineering in the US, took an office job with ESI’s parent company and then, looking for new challenges, moved to the steel plant itself, working his way up to the executive committee.

“We are looking at industries that have a high capital component and a high energy component and these are two competitive advantages we have,” says Khaldoon al-Mubarak, chief executive of Mubadala. “Then you look at the Emirati component and we are looking at industries that are not labour-intensive and here we are able to attract the right quality of Emiratis, train them and then put them in that cost mix.”

Yet the potential pitfalls ahead as Abu Dhabi attempts to move beyond basic industries such as steel and petrochemicals to increasingly technical areas are huge. One main issue will be Abu Dhabi’s limited human resources, as many senior officials already have multiple roles.

Then there is the UAE’s education system: so weak is it that about one-third of the higher education ministry budget is spent bringing high school graduates to a level where they can attend a local university. And while Singapore embraced dual citizenship to retain skilled workers over the long term, the UAE has yet to follow suit in spite of its already heavy reliance on expatriate workers.

Cyrus Behbehani, a senior Middle East executive at Morgan Stanley, the US investment bank, says that if setting up onshore semiconductor facilities were to be an independent undertaking, “it would never be economic or achievable”. But as part of a “global cluster and enterprise”, the odds that Atic will be able to execute such a transfer have dramatically increased. “This has similarities with the Korean conglomerates in the 1990s, focusing and investing heavily and counter-cyclically when others were down in the memory chip sector and then in the semiconductor sector,” Mr Behbehani says.

Another banker, however, predicts challenges for Abu Dhabi’s goal of establishing itself as a manufacturer of aerospace components in particular. “It’s not that you’re dislodging it from France. You’re actually competing against the Koreans,” he says. “Even if you have cost advantages with the west, I don’t see how you can have cost advantages over the east.”

Still, observers say that Abu Dhabi is right to be seeking to modernise – and that now is a good time to do so. The oil boom has topped up its investment war chest, and the global financial and economic crisis then meant it was one of the few left standing with capital to take advantage of depressed asset prices. Ultimately, though, the test will lie in implementation and execution – and whether the right sectors have been identified, as the emirate is starting virtually from scratch.

“It’s a bit like your three-year-old son saying he wants to become an astronaut and now he’s applying for an engineering degree. He might not prove to be quite so good at maths, or he might have vertigo,” says another international banker. “But it’s good to see him trying rather than saying ‘my dad is rich’ and asking for a new car.”

Government officials, who insist they should be judged over the long term, acknowledge the risks. “We have a clear vision but we are still learning so it will require fine tuning,” says one. “Some of our choices might turn out to be wrong but our wealth of natural resources gives us a cushion and the luxury of time.”

The alternative would be to live life within a closed economy, cash invested overseas and laws that guarantee Emiratis a government job “so you create a society where nobody needs to work”, he adds.

“Right now we are comfortable with our resources, but you see the likes of Argentina and Brazil 100 years ago, they had resources that disappeared, so we are preparing ourselves for the future. There are always issues with implementation, but this is the right path. It’s better to take the bitter medicine now, when you have the resources, than when you are forced to.”

Yet some Emiratis are concerned that they can already taste that medicine. The pace of development is prompting questions about whether nationals, which represent only about 20 per cent of the UAE’s population, risk being diluted by the arrival of ever more foreign workers and finding themselves, and their culture, pushed to the margins.

“OK, we have a semiconductor factory. Who will work there? They will bring more expatriates. [The pace of change] is not gradual, giving us enough time to be absorbed,” says a civil servant. “Just imagine 10 people in your home, eating your food, visiting your bathroom. You don’t have enough space.”

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FT: The genuine nobility of manufacturing

The genuine nobility of manufacturing

By Luke Johnson

Published: September 29 2009 22:01 | Last updated: September 29 2009 22:01

Something has been troubling me for a long, long time. I have a certain regret about the industries to which I have devoted my attention. I love fields like hospitality and the media, where I have spent much of my career. I understand how the economics work: restaurants and broadcasting can offer high margins and excellent cash flow, and providing diners and viewers with pleasure is hard to beat.

But a part of me would have loved to have been a genuine manufacturer. There is something authentic, something noble about making physical objects. It appears to me the essence of capitalism. Service and support sectors are all very well, but their output feels so much less tangible than a production business. Moreover, economies need balance: that way they are better equipped to ride out downturns.

Success in manufacturing needs at least four ingredients that are in short supply in countries like Britain. First, it needs patient capital – returns are rarely quick or indeed easy in many manufacturing spheres such as automotives, machinery or electronics. Second, it needs steady capital expenditure – unlike activities such as media, for example, which demands little. Third, it needs an army of sub-contractors and suppliers supporting the core fabrication. And finally, it needs engineering and technical skills in the workforce.

In truth, I have found service industries an easier and more certain path to profit than manufacturing. I served as a director and part-owner of a producer of large print presses, but the wild fluctuations in orders and work-in-progress were scary, and the quality of the global competitors was intimidating. Endless research and development expenses absorbed heavy amounts of cash flow. Low-cost foreign rivals can always undercut you. Meanwhile, regulation and taxation place an ever-greater burden on any factory owner. In this safety-first age, it often feels as if we have become almost too squeamish to cope with the grit and noise of manufacture.

But manufacturing matters not simply because of vaguely romantic notions about creating things. It provides well-paid blue-collar and professional jobs. It generates exports to help offset trade deficits generated elsewhere in the economy. It adds far more value pro rata than service industries. Every major plant fosters clusters of other businesses. And with R&D, patents, investment and original technology, it is possible to construct formidable barriers to entry for rivals.

And I think high-quality manufactured goods stimulate a pride and belief in industry and business that other outputs cannot match. Just look at how confident Germans are in their motor vehicles and machine tools.

Meanwhile, in the UK, our largest industry is financial services: what reputation does that profession have among the public? I would think it ranks alongside grave-robbing and arson in general esteem.

These days most manufacturing of scale needs to be global and best in class. That means great technology, a highly skilled workforce and solid leadership. And it probably requires investors and management to tolerate lower pay and returns than the rewards available in the City.

Government could do much to balance out these challenges – probably through favourable tax policies. I have never fully understood why lines of work such as property development, investment banking, hedge funds and private equity are so lucrative, and engineering much less so.

In almost any country, dealing in property, shares or companies will likely lead to riches far faster than running factories to produce the goods we all need. I would love an economist to explain to me the flaw in our system that leads to this far from ideal outcome.

Most intelligent entrepreneurs and executives desire to invest their work with meaning. They like the idea of improving the world while earning a living. And many of us who mostly shuffle paper secretly admire those in the Hard Industries, who manufacture things, in spite of all the obstacles.

lukej@riskcapitalpartners.co.uk
The writer is chairman of Channel 4 and runs Risk Capital Partners, a private equity firm

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