quarta-feira, outubro 29, 2008

Turbulent times test our faith in equities...

Excerpto do The Times...

Um estudo de um economista do Barclays mostra que o investimento em acções, nos últimos 25 anos, quando comparado com um feito em obrigações do Tesouro, propicionou rendibilidades mais baixas...

It is an article of faith among most investors that equities outperform government bonds. Smart long-term investors put their money in shares because over any lengthy period in the past century or more, they have produced much bigger returns than bonds have.

With shares now languishing unloved once more, that faith is being put to the test. The cult of the equity is still the mainstream view but its adherents are having to be a lot more patient than usual. British shares are lower today than 12 years ago. Japanese shares are lower than 26 years ago.

Tim Bond, the man behind Barclays' Equity-Gilt study, has crunched up-to-date numbers for The Times and come up with some sobering findings. Only investors who put their money to work in 1983 or earlier would have done better placing it in equities than government bonds (gilts). From 1984 onwards, in any timeframe up to the present day, gilts have produced a better total return than shares. Over any timeframe of less than 15 years to the present day, even deposit accounts have produced a better return.

terça-feira, outubro 28, 2008

Entrevista exclusiva de Alex Ferguson ao The Times

Um must para qualquer gestor e curioso do futebol e da gestão de entidades desportivas.

Alguns excerptos:

Another challenge reared its head in the summer when Luiz Felipe Scolari took over as manager at Chelsea. If some wondered why, after more than 30 years, Ferguson had not got bored of management, the clues were in his reaction to a preseason issue of the Racing Post that trumpeted the Brazilian’s abilities over his own.

“Every analyst in there was tipping Chelsea for the title,” Ferguson recalls. “One guy wrote: ‘The reason is Scolari is in town.’ He said Scolari will not be intimidated by me. He suggested that Wenger, Mourinho and Avram Grant couldn’t ‘handle me’. The paper mentions me as having ‘had a go’ at Chelsea by saying that a team [with players] over 30 can’t win the league, which is absolute rubbish. I never said that. What I did say was that a team over 30 doesn’t improve a lot. But Chelsea, given their performance last season, don’t have to improve a lot to win it.

“Then, the same writer argues that Scolari is a better manager than me. I am not so arrogant as to believe that is impossible. Scolari may be a better manager than I am. But how can a sensible writer say that about a guy who has never managed in England? If you look at Scolari’s CV, he has managed about 17 teams.”


(...) (O The Times, provavelmente o melhor jornal do mundo)




http://www.timesonline.co.uk/tol/sport/football/premier_league/manchester_united/article5026752.ece

segunda-feira, outubro 27, 2008

Running for Fun: Managers and Professionals enjoying the pleasures of running

Um novo blogue de um grupo de entusiastas.
A acompanhar.

Why talent is overrated...

So if specific, inborn talent doesn't explain high achievement, what does? Researchers have converged on an answer. It's something they call "deliberate practice,"

http://money.cnn.com/2008/10/21/magazines/fortune/talent_colvin.fortune/index.htm?postversion=2008102116

quinta-feira, outubro 23, 2008

A Visão que vem do Atlântico...artigo do Diário Económico




A visão que veio do Atlântico

A visão do futuro que se pretende para o arquipélago é verdadeiramente a notícia relevante que veio dos Açores.

Paulo Gonçalves Marcos

Eleições regionais nos Açores, a vitória expectável do PS, com as surpresas do crescimento do CDS e do BE. A perda de votos foi mais que compensada com a dimensão simbólica da vitória em todas as ilhas. Vitória aguardada, e deixada antever nas diferenças de adesão popular conseguidas, na mobilização de antigos quadros do PSD local ou mesmo nos meios comunicacionais desenvolvidos. Acima de tudo o PS Açores soube desenvolver uma máquina eficiente em capturar apoios europeus, para além das transferências do Orçamento Geral do Estado ou das capacidades endógenas de obtenção de receitas fiscais. Mas a conjuntura dos Fundos Europeus, favorável que possa ter sido, não oblitera o mérito de ter a capacidade técnica de os solicitar, preparando para o efeito as complexas candidaturas. Antes de tudo, contudo, a visão do futuro que se pretendia para o arquipélago. E esta é verdadeiramente a notícia relevante que veio dos Açores. Não o resultado de umas eleições mas uma visão traçada em meados da década pretérita, tendo como linha estratégica a transformação de uma economia regional assente no sector primário para uma outra capaz de coexistir com este mas potenciadora dos atributos comparativos dos Açores, via Turismo: paisagem e beleza cénica, mar, ruralidade, clima ameno… Atributos não únicos tomados isolados, mas capazes de serem ímpares se conjugados. Uma economia nova para o século vinte e um, assente num sector não poluente, capaz de estimular a qualificação dos recursos humanos e a sofisticação das técnicas de gestão dos grupos empresariais. Começando pelo desenvolvimento do transporte aéreo, como forma de quebrar o ciclo vicioso: de falta de massa crítica, baixas rendibilidades, incapacidade de atrair capitais com que o sector do transporte aéreo regional se vinha defrontado. Ou, na gíria económica, introduzindo investimento do governo regional como forma de trazer “externalidades” positivas ao sector do Turismo nos Açores. Aproximando estes dos principais mercados emissores. Como resultado, a oferta e a procura dirigidas ao Turismo dos Açores a crescerem a taxas compósitas de dois dígitos, ao longo de mais de uma década. Um crescimento de mais de 200% no volume de negócios ou no emprego turístico da Região. Complexos turísticos integrados, hotéis modernos, empresas de animação e guias turísticos, desenvolveram-se de forma exponencial. Mas também a restauração, os centros interpretativos (forma moderna de fazer pequenos museus que são experiências vivas e interactivas), portos e náutica de recreio beneficiaram de forma exponencial. O Turismo dos Açores tem sido capaz de captar da atenção dos turistas continentais portugueses (e a sagacidade de usar o ‘product placement’ nas telenovelas da TVI a isso ajudou decisivamente) e nórdicos (com o trabalho feito pela Região e pelos empresários locais nos agentes e operadores da Escandinávia). E, caso ímpar no panorama nacional, o Turismo é já o segundo principal sector da Economia Regional (mas caminhando a passos largos para ser o mais proeminente). Mas os Açores fizeram mais que um boa visão e execução. Reconheceram, recentemente, que o paradigma do turista estava a mudar: contemplativo e tradicional, estagnado e em potencial declínio; haveria que desenvolver uma nova estratégia para servir os segmentos afluentes emergentes. Para o efeito, a aposta na captura de novos nichos de mercado, desenvolvendo as indústrias relacionadas e de suporte locais, especializando a oferta, desenvolvendo as capacidades de Gestão, de sistematização de Informação (com o Observatório Regional do Turismo) e de integração da Oferta (via Associação de Turismo dos Açores). E para além de Carlos César, existe um outro responsável pela visão e irrepreensível execução estratégica para o Turismo dos Açores: Duarte Ponte, secretário Regional da Economia. Os baixos níveis de desemprego, a actividade económica dinâmica do sector privado e o reforço das estruturas públicas, têm a marca do secretário Regional. Ou seja, se os eleitores também votam com a carteira, o PS Açores deve muito da vitória à sua economia!

www.antonuco.blogspot.com
____

Paulo Gonçalves Marcos, Economista

Comentários
Antonio Moreira
Sendo madeirense, confirmo que os Açores seguiram o modelo de AJJardim...obra pública a rodos, rendimento social de inserção...e turismo. Nos açores, mérito seja feito, uma aposta mais selectiva neste, menos estragadora da paisagem
Paulo Curto de Sousa (curtodesousa@gmail.com)
O bom aproveitamento dos apoios disponíveis (nomeadamente os europeus) é uma condição essencial para promover o desenvolvimento de qualquer região (sobretudo as periféricas). Nem sempre foi assim no Continente... Abraço.
DM
Caro Dr. Paulo Marcos Sendo açoriano concordo que nos últimos 12 anos Carlos César tenha deixado uma marca e obra de relevância e sucesso inegável. Porém não acho que haja assim tanta dinâmica privada ou mesmo emprego (falo do emprego qualificado). O Turismo podia ser um sector a apostar, mas com a forte crise mundial o público-alvo vai começar a cortar nas despesas e as viagens vão ser o primeiro "luxo" a acabar. Quanto ao mercado nórdico falado, era dito em voz alta nas minhas ilhas pelos principais responsáveis hoteleiros que estes turistas eram do tipo desinteressante e não lucrativo, porquê? Ora...comiam nos quartos de hotel uma sanduíche e bebiam um vinho rasca comprado num hipermercado em vez de irem a um restaurante, por outro lado o governo regional subsidiava a grande parte da viagem - no fundo era um mercado fictício. Para acabar, tenho esperanças que os Açores se desenvolvam realmente, pois as pessoas merecem. É uma região muito pobre e ainda hoje penso se o actual investimento de 60M€ nas "Portas do Mar" terão sido realmente um investimento ou infelizmente um grande custo! Cmps
Bruno Valverde Cota
A aposta na captura de novos nichos de mercado, novas indústrias locais, oferta especializada, nas capacidades de Gestão, foi claramente ganha. Um bom exemplo de estratégia política e local, com uma perspectiva global.
vg
De acordo com A.Moreira.Aquilo é "jardinismo light"...
Anabela
Ainda assim aposto que o PS Nacional não vai aproveitar ninguém dos Açores para dar um novo impulso ao governo da republica. ou seja, obra feita só conta para dar o "pulo" se for em Lisboa e na CML... Parabéns ao colunista
Manuel Pestana
Eu gosto do colunista. Escreve de forma diferente. Erudita. Mas não posso estar de acordo com o tema desta coluna. O desperdício parece ser a tónica dominante dos governantes das ilhas. Um gasto desproporcionado,face ao benefício líquido social.
Marco Cardoso (marco.cardoso@cco-consulting.com)
Parabéns Paulo por trazeres o tema para debate. Que tal os Açores promoverem um estudo para identificar os factores que promovem o desenvolvimento noutras ilhas/arquipelagos do Planeta. Existem tantos casos de sucesso. Com cada vez menos tempo... é cada vez mais importante não andarmos sempre a inventar a roda... Existem nichos para os Açores que não estão minimamente identificados... Porque não pensar em mercado nórdico (Islândia, Noruega, Suécia, Finlândia e Dinamarca) em vez de mercado escandinavo (Noruega e Suécia)? Um abraço,

segunda-feira, outubro 20, 2008

First things first

Who hasn’t heard the cliché: “It’s not what you know, it’s who you know”. Knowing people is important. After all, if people don’t know you it doesn’t matter how much you know.

However, there is an even more important ingredient for success than knowing people. It is called: standing for something. Without a clear positioning and a relevant brand promise what you know or who you know won’t take you very far.

Standing for something comes first. Everything else follows.

It’s not what you know
It’s not who you know

It’s what you stand for

terça-feira, outubro 14, 2008

Déja vu: six steps that make a great panic

From
October 13, 2008

Déjà vu: six steps that make up a great panic

For 2008, read 1907. This time, however, China and India have emerged well, unlike America, Britain and Europe

It has not been too difficult to foresee the course of the 2008 credit crisis, since it has followed the classic pattern of financial panics. There has been nothing new so far; it is just that the world forgot the lessons of previous panics: an expensive oversight.

One of the classic panics occurred in 1907, when the failure of the Knickerbocker Trust precipitated a credit crash on Wall Street, which was eventually brought under control by the great US banker, J.P. Morgan.

The following year, Marlon T. Herrick, an Ohio economist, published an article, The Panic Of 1907 and Some Of Its lessons. in which he laid out the six stages in which panics occur. “(1) Failure of an important bank or institution: the Knickerbocker Trust in 1907; (2) Heavy withdrawals of funds by depositors; (3) Demoralised stock markets affecting banks and depositors alike; (4) Hoarding of money in large amounts, not only by individuals, but by banks; (5) Gradual improvement in financial affairs;

(6) Acute trade reaction, discharge of many thousands of employees, and realisation that the country must pass through a more or less severe industrial reconstruction.”

That was 1907; it might just as well have been 2008. For the British, Northern Rock was the important bank that helped to precipitate the panic; in New York it was Bear Stearns, followed by the disaster of Lehman Brothers.

Since then the financial world has moved from step one to step four of the 1907 pattern; hoarding of money, which Maynard Keynes termed “liquidity preference”, is still inhibiting the normal flow of interbank lending. We are stuck, for the present, in phase four.

However, the world will move on, as it always does. There will eventually occur a gradual improvement in financial credit, with some resumption of interbank lending stimulated by government interventions. Unfortunately, there will also be an “acute trade reaction” and a serious rise in unemployment - phases five and six of the 1907 formula are already in the pipeline.

The 1907 panic was the sixth- largest contraction in the financial history of the United States. As one commentator, Benedikt Koehler, has observed: “Once the storm subsided, the aftermath showed the world had changed irreversibly and did not return to business as usual. The crisis of 1907 set out in sharp relief that new forces in financial markets were in the ascendance.” One could take a similar view of all other big financial crises. That is again true in 2008.

The 1907 panic led to the creation of America's central bank, the Federal Reserve Board, under the Act of 1913. Subsequently, it was the 1929 panic that led to more stringent US banking regulations and, more broadly, to President Roosevelt's New Deal. The Great Depression that followed the 1929 Crash undermined confidence in democracy throughout the world and brought Hitler to power in Germany.

More recently, the inflation of the 1970s, which destroyed the secondary banks in London, brought Margaret Thatcher, and deregulation, to power in 1979, and Ronald Reagan in 1980. Financial panics occur when there has been a long-term build-up of new forces. When the dam breaks, that changes the whole landscape.

Before the 2008 crash, the United States was already widely seen as losing relative power, in politics, economics, and even defence. Entangled in Iraq and Afghanistan, it already had a large trade deficit and was borrowing from Asia on a colossal scale.

The rising power was not seen as Europe or Russia, but as China, the largest and most successful of the emerging Asian economies. Russia does indeed have very large reserves of oil and gas, and benefited when the oil price was rising, but it was China that had become a successful modern manufacturer and exporter.

If people looked beyond China for a rising economy, they saw India, also with a population over a billion, and with a growth rate two or three times that of the West. China has about two trillion dollars of currency reserves, a crucial asset at the present time. Neither Chinese nor Indian banks have substantial investments in the toxic sub-prime mortgages, because they had much better opportunities for profitable investment at home.

If China and India have been particularly impressive in the crisis, the other emerging Asian markets have performed reasonably well. They experienced the Asian crisis of a decade ago and learnt some painful lessons about the importance of liquidity. You do not need to tell Asian bankers that cash is king.

In the early stage of the present panic, Europe was complacent, taking the view that this was an American crisis, caused by holdings of American sub-prime mortgage securities in American banks. However, if the United States has been a big loser in the crisis, so has Europe. European banks turned out to have too much toxic debt and toxic derivatives. This was bad banking, badly regulated, whether it occurred in the US, the UK or the eurozone.

If anything, the European authorities lagged behind the American and the British. There has been no big consolidated European response, either from the European Central Bank or the European Union itself.

Britain has benefited from its freedom of action outside the euro. We could take our own decisions, some of which, admittedly, proved mistaken. To the irritation of Germany, the Irish Government gave an independent guarantee to the Irish banks; how that could be reconciled with membership of the euro is an outstanding question.

The IMF and the World Bank, the Federal Reserve, the European Central Bank, the European Union, the British regulatory authorities will all have to review their position. So will the world's largest banks. The group of eight will have to be extended to China and India. The world has changed; the world's banking system must change with it.

The West hasn't got the stomach for work anymore, only inflate & speculate on financial instruments, & now payback time.

ian cheese, london, uk

Let us see how well Asia handles a dramatic downturn in orders for manufactured goods. Factories in China are closing at record levels, causing massive payroll shifts from the private sector to the central government. A dramatic increase in crime is sure to follow. Always does.

Juan, San Diego, USA

William makes a good commentary on the 'crisis', however lessons must be learned from the 'good days' leading up to it which CAUSE the problem.

Dominic Graham de Montrose, London,

How very clubby of David UK, wanting to join the Europeans.
The world is now one very big club economically, however, as witness the current international panic. I think it behooves every nation to work collectively to maintain
reasonable economic stabilty. If this means more attentive oversight....

schmendric, Murphy, USA

I wonder why anyone would suggest entering the Euro. They have been unable to come up with a common policy and have ended up adopting ours.

Ironic when you hear people ranting on about Britain having no influence outside the Euro. You could argue that we're running the thing without belonging.

jon livesey, Sunnyvale, CA/USA

There are steps before your first point (1) failure of an important bank.... Include, banks and companies allowed to get, too big to fail and too big to manage. Also promotion of the wrong people, who don't treat other people's money like their own. When a collapse is allowed the crooks get fired.

Hugo van Randwyck, London, UK

It's a learning curve that every generation needs to go through. The goal should be to speed up the process so that pain bites sooner and is over with quicker.
Sadly though that might impair the learning process.

An interesting ride for everyone

Steve, Derby, uk

We must thank our lucky stars we have stayed out of the Eurozone. Membership would have involved a loss of independence on the exchange rate and higher and longer unemployment. America may be a busted flush but so is much of Europe. I, for one, do not want to be ruled by Brussels or Frankfurt.

William, Guildford, UK

Personnally, I would not write-off Russia in one sentence. It has all the raw materials it (& to an extent China and India) needs. It will soon own the meters on the EU gas supply. Put that into per capita terms on a population of 145m and you have wealth.

We have a "financial services" base...

Mike L, Chippenham,

A very good analysis AFTER the event.

The next crisis?

'Green financial instruments'?

Govt off-balance sheet liabilities?

Where can I lay bets on this eh?

Rhys Jaggar, Leeds, UK

This weekend proves that we can get along and lead a life without the doom-sayers having a platform to shout from. Will the panic start again Monday?

Phil, Atlanta, US

To David of Exeter,
Au contraire, recent events have only shown
disunity and an everyman for himself mentality in the Eurozone. Defections from the Eurozone, fi not break up, is more likely that any significant enlargement of the Eurozone.

Denver Watt, Osaka,

Ireland, a member of the eurozone, did its own thing. The UK, a non-member, is leading a coordinated response with France and Germany. Euro-membership has not been a relevant factor here. It would however have prevented currency devaluation in the UK with its inflationary effects.

Andrew, London,

There is an easily observable eighteen to twenty year economic cycle (once you subtract the war years) - each time Americas decline has been predicted, followed by a recovery usually lead by the United States.

Arnold Ward, Weybridge, Surrey, UK

We should thank Ireland for precipitating action within Europe. If they had instead defaulted without taking a lead, we would all be in a much more difficult situation. They forced European government to face the need to take responsibility. But rescuing the banks is only the first step to stability

Chris Coles, Medstead, Alton, United Kingdom

I would have thought this weekend proves quite conclusively that we must enter the Euro zone. America is a busted flush its time to join our European partners.

david, exeter, uk

segunda-feira, outubro 13, 2008

Prémio Nobel da Economia Paul Krugman

Press Release

13 October 2008

The Royal Swedish Academy of Sciences has decided to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008 to

Paul Krugman
Princeton University, NJ, USA

"for his analysis of trade patterns and location of economic activity"


International Trade and Economic Geography

Patterns of trade and location have always been key issues in the economic debate. What are the effects of free trade and globalization? What are the driving forces behind worldwide urbanization? Paul Krugman has formulated a new theory to answer these questions. He has thereby integrated the previously disparate research fields of international trade and economic geography.

Krugman's approach is based on the premise that many goods and services can be produced more cheaply in long series, a concept generally known as economies of scale. Meanwhile, consumers demand a varied supply of goods. As a result, small-scale production for a local market is replaced by large-scale production for the world market, where firms with similar products compete with one another.

Traditional trade theory assumes that countries are different and explains why some countries export agricultural products whereas others export industrial goods. The new theory clarifies why worldwide trade is in fact dominated by countries which not only have similar conditions, but also trade in similar products – for instance, a country such as Sweden that both exports and imports cars. This kind of trade enables specialization and large-scale production, which result in lower prices and a greater diversity of commodities.

Economies of scale combined with reduced transport costs also help to explain why an increasingly larger share of the world population lives in cities and why similar economic activities are concentrated in the same locations. Lower transport costs can trigger a self-reinforcing process whereby a growing metropolitan population gives rise to increased large-scale production, higher real wages and a more diversified supply of goods. This, in turn, stimulates further migration to cities. Krugman's theories have shown that the outcome of these processes can well be that regions become divided into a high-technology urbanized core and a less developed "periphery".

quinta-feira, outubro 09, 2008

Auditors last report on Lehman Brothers Balance Sheet...

"There are two sides of a Balance Sheet, Left & Right (Assets and Liabilities respectively):

On the Right side there is nothing right and on the Left side there is nothing left".

quarta-feira, outubro 08, 2008

Financial Institutions not communicating with customers enough in present economic turmoil

October 8: Industry Risk - Financial Institutions Not Communicating with Customers Enough in Present Economic Turmoil


Location: Princeton
Author: Lisa Olson
Date: Wednesday, October 8, 2008


Despite Wall Street Chaos, Most Investors Consider Assets Safe

According to a new survey from Opinion Research Corporation (an infoGROUP Company), banks, savings and loans, and credit unions appear to be doing a poor job of keeping their customers informed in this turbulent economic climate. Nearly half of those surveyed (46%) said the bank in which they have the most assets was not communicating with them enough.

Mutual funds fared slightly better than banks, with 42 percent of respondents that hold the majority of assets there expressing disappointment in the level of communication from their provider. Brokerage firms appeared to be doing the best job of keeping their customers informed, with sixty-two percent of respondents that hold the majority of assets there indicating that the level of communication has been good.

“With the stock market on a rollercoaster ride, financial institutions must take proactive measures to reassure their customers and shareholders and bolster confidence in their performance,” said Jeff Resnick, President of Opinion Research Corporation (US). “In the absence of information, people will fear the worst.”

Despite the chaos on Wall Street, overall confidence levels in financial services institutions remain high, with eighty-five percent of respondents saying they consider their assets to be safe. However, the study shows that levels of confidence vary by sector.

Banks, S&L’s, and credit unions were regarded as safe havens for savings by 89 percent of those who keep their assets there. Brokerage firms and mutual funds fared almost as well, with 78 percent of those who have the majority of their assets in either of these institutions saying they were confident that their assets were safe.

The survey also found that more than half (55%) of respondents thought that the crisis would have a negative impact on them, while 24 percent didn’t think it would have any impact on them.


Article Printed From RiskCenter.com

Buying commercial paper...at last!

October 8: Market Risk - US Fed Announces Creation of Commercial Paper Funding Facility to Help Provide Liquidity to Term Funding Markets


Location: Washington, DC
Author: RiskCenter Staff
Date: Wednesday, October 8, 2008


The Federal Reserve Board on Tuesday announced the creation of the Commercial Paper Funding Facility (CPFF), a facility that will complement the Federal Reserve's existing credit facilities to help provide liquidity to term funding markets. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers.

The Federal Reserve will provide financing to the SPV under the CPFF and will be secured by all of the assets of the SPV and, in the case of commercial paper that is not asset-backed commercial paper, by the retention of up-front fees paid by the issuers or by other forms of security acceptable to the Federal Reserve in consultation with market participants. The Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the Federal Reserve Bank of New York in support of this facility.

The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors, themselves often facing liquidity pressures, have become increasingly reluctant to purchase commercial paper, especially at longer-dated maturities. As a result, the volume of outstanding commercial paper has shrunk, interest rates on longer-term commercial paper have increased significantly, and an increasingly high percentage of outstanding paper must now be refinanced each day.

A large share of outstanding commercial paper is issued or sponsored by financial intermediaries, and their difficulties placing commercial paper have made it more difficult for those intermediaries to play their vital role in meeting the credit needs of businesses and households.

By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market. Added investor demand should lower commercial paper rates from their current elevated levels and foster issuance of longer-term commercial paper. An improved commercial paper market will enhance the ability of financial intermediaries to accommodate the credit needs of businesses and households.

Commercial Paper Funding Facility (CPFF) Terms and Conditions (57 KB PDF)


Article Printed From RiskCenter.com

Financial crisis: how to cope (McKinsey Review)

How to win in a financial crisis

When is a good time to make strategic advances? During a crisis, of course.

November 2002

Simple survival is the first strategy that most managers come up with when confronting a financial crisis. The savviest managers, however, realize that a period of great uncertainty, with financial and competitive landscapes changing almost overnight, can be the ideal time to make important strategic gains.

Douglas Daft, Coca-Cola’s chief executive, knows the feeling. In 1997, as head of the company’s Asian operations, he watched capital investment turn fickle and devaluations deepen while a financial storm swept across much of Asia. As panic spread, Daft summoned his executives to a series of workshops about how Coca-Cola could capture new growth opportunities and emerge strengthened from the trauma. After all, the company had achieved one of its greatest breakthroughs in international markets at the end of World War II, when it discovered new opportunities in the broken landscape of Western Europe.

Daft emerged with a focus on acquisition opportunities that, he calculated, would be unchained by the turmoil. Over the next few years, Coca-Cola bought a bottling business in South Korea, giving the company better access to the mom-and-pop retail stores there, and gained better access in China, Japan, and Malaysia. The company abandoned its country-defined market perspective in favor of a more regional strategic view and bought several locally branded coffee and tea drinks. It also revamped its procurement business by consolidating and renegotiating purchases of aluminum, coffee, PET (a type of plastic for bottles), and sugar.

It isn’t only foreign multinationals that can take advantage of upsets in emerging markets. At the beginning of the Asian crisis, South Korea’s Housing & Commercial Bank (H&CB) was a midsize, government-controlled institution focused on mortgage lending. Its performance was mediocre, and its market capitalization stood at only $250 million. Yet in Kim Jung Tae the bank had a bold CEO who took advantage of a useful fact—that employees are more willing to accept change during a crisis—to restructure the company by changing its organization, strategy, and performance culture. Regulations governing mergers were also modified, opening the door to H&CB’s 2001 merger with Kookmin Bank.1 Just before the merger, the market capitalization of H&CB stood at $2.1 billion, and it became the first South Korean bank to list American depositary receipts (ADRs) on the New York Stock Exchange.

Consider also the case of Roust, a company that used Russia’s 1998 debacle to transform itself, in three years, from a consumer goods distributor specializing in premium alcohol brands into a holding company that includes a leading bank built from scratch. The remake took nerve, but Roustam Tariko, Roust’s CEO, spotted an opportunity: the country’s many failed banks were leaving behind important facilities and talent that could be acquired cheaply. The missing ingredient—money—was one that Roust, fortunately, did have. In six months, Tariko crafted a solid business plan, used it to recruit selected senior managers from other banks, and established the Russian Standard Bank, now one of the largest consumer lenders in Russia and growing by several hundred percent a year.

Together with the shock, threat, and uncertainty of a financial crisis comes a new landscape of broad, radical economic change

How do companies achieve such transformations amid chaos? These anecdotal examples suggest that one common approach is to recognize that along with the shock, uncertainty, and threat comes a new landscape of broad, radical change. Alert executives relax their assumptions about the boundaries that normally confine their businesses. Coca-Cola already knew that local attitudes toward foreigners were changing and that acquisition opportunities would become more plentiful because of the Asian crisis—in short, this was an ideal time to expand market share. H&CB took advantage of regulatory shifts and its employees’ new willingness to accept change. Roust stepped into banking while industry leaders were falling.

Beyond boundaries

In normal times, four boundaries limit the scope and nature of a company’s business: regulations, competition, customers’ attitudes, and the organization’s ability to change. In times of crisis, however, the boundaries often shift dramatically, and those shifting boundaries can become the means through which companies improve their competitive position. By understanding how the boundaries affect a business before the crisis hits, and how they might change during the upheaval, executives can prepare to capture strategic opportunities.

Regulations move

Regulatory restraints are embedded deep in the core assumptions of most companies. Management takes for granted parameters such as the types of businesses or markets a company can enter, the kinds of products or services it can sell, and how much market share it is allowed to capture. Often, however, these constraints are relaxed or removed during a crisis.

In South Korea, for instance, the Fair Trade Commission, which approves mergers, took a dim view of industry concentration before 1997. As the government scrambled to restructure the country’s sinking financial system, however, some formerly unthinkable bank mergers suddenly became possible.2 It was this shift that helped H&CB merge with Kookmin Bank in 2001, creating a behemoth unprecedented in South Korean banking: H&CB’s market share leapt from 11 to 26 percent in deposits, from 29 to 44 percent in retail loans, and from 5 to 24 percent in corporate loans.

Moreover, limits on foreign ownership might be liberalized or abandoned altogether. Throughout most major economies in Asia, the allowable levels of foreign ownership in banking, for example, rose from less than 50 percent to 100 percent in some cases; Malaysia was the notable exception (Exhibit 1). Similar changes took place in other industries, thereby creating new opportunities for foreign players.

Chart: Asia’s banking sector is opening up

Deregulation can also release pent-up consumer demand and create new industries, seemingly almost overnight. During the 1994 crisis in Brazil, its government extensively revamped the regulation of personal financial services. New rules designated mutual funds as legally separate entities from banks, and credit card issuers were allowed to work with a number of brands. As a result, mutual-fund assets under management rocketed from virtually nothing in 1994 to more than $120 billion in 1996. Over the same two years, the volume of credit card transactions soared from $10 billion to $26 billion.3 Institutions that anticipated the transformation saw their business take off.

Furthermore, financial crises not only spur top-down regulatory changes but also give companies leverage to influence change from the bottom up. GE Capital, for instance, was able to bargain with Japanese insurance regulators in 1998, when the government was trying to sort out the troubled industry. GE then recapitalized a failing company, Toho Mutual Life Insurance, in a $1.1 billion deal, and in return the government agreed, in a regulatory ruling, to lower the rate of interest on new policies, from an unprofitable average of 4.75 percent to a more profitable 1.5 percent.4 Executives should always work on the assumption that regulations can be changed, particularly during the throes and aftermath of a crash.

Competition shifts

Industry leaders might seem to have the best position for weathering a financial storm, but interest-payment defaults, supply chain interruptions, and a loss of confidence by creditors or investors can quickly topple them, opening the door for newcomers and changing the dynamics of the business. After both the 1994 Mexican and the 1997 South Korean crisis, rankings among the top ten companies in each nation changed twice as frequently as before, and consolidation in many industries increased enormously.

The upheaval is often greatest in financial services. Three of the top ten private banks in Brazil were bankrupted by the crisis of 1994, and several state-owned banks were privatized, leading to the consolidation of the industry and to greater foreign participation. By 2000, half of the top ten banks in the country were newcomers; moreover, the foreign-owned banks in the top ten held assets that went from zero to $63 billion, or 13 percent of total bank assets, by the end of the year. All foreign-owned banks in Brazil held as much as 30 percent ($133 billion of the country’s bank assets (Exhibit 2). In Russia, a similar story played out: five5 of what in 1996 had been the ten largest banks in the country went bankrupt by 2001, while local upstarts such as Alfa Bank rose from relative obscurity to take their place among its biggest institutions. This situation was repeated in country after country.

Chart: Changing places

Where small local players are hit hard by a crisis, they may well be acquired by larger companies, which tend to be foreign and to have more diverse operations. In Southeast Asia, cement production was dominated until 1997 by locally owned companies, many of them inefficient operators. Most are now foreign owned. Holcim, the Swiss cement giant, is one of the largest newcomers. After more than a decade of looking for opportunities to expand in Asia, it at last bought large and often controlling stakes in beleaguered local cement companies in Thailand (Siam City Cement), the Philippines (Alsons Cement and Union Cement), and most recently Indonesia (PT Semen Cibinong). By upgrading the management skills of these businesses and installing new boards of directors, Holcim turned lackluster performers into tough competitors; Siam City Cement, for instance, boosted its market capitalization fivefold in the three years after the takeover. This scenario was repeated in industries throughout Southeast Asia.

Conventional wisdom suggests that companies should put new investments and potential M&A deals on hold when markets are changing rapidly. Yet the experience of many successful companies during periods of financial turmoil clearly demonstrates the opposite. From August to December 1997, as chaos broke out in Asia, upward of 400 deals, totaling $35 billion, were completed in the region outside Japan—a more than 200 percent increase over the same period the year before.6

Certainly, it would be foolhardy to ignore the greater risk that acquisitions entail during financial crises. Nevertheless, deals can be structured to accommodate it. In 1997, for instance, the Belgian beer company Interbrew was negotiating with South Korea’s Doosan over the sale of its beer business, Oriental Brewery (OB). Given the uncertainty in the market and rumors of impending change in the liquor laws, the two companies agreed on a set of "triggers," or conditional payments, designed to bridge gaps in expectations of future value. Interbrew bought a 50 percent stake in OB, with the triggers leading to additional payouts if specific changes occurred in the industry structure or tax code. By thinking creatively, Interbrew and Doosan inked a "win-win" deal that managed the downside and the upside.

Customers’ attitudes evolve

As people lose their jobs, and sometimes their savings, their demands as customers may change. If so, retailers and manufacturers of lower-end goods are naturally well placed to prosper. The fortunes of the Indonesian company Ramayana, a discount retailer once shunned by a growing middle class more interested in global brands and upscale goods, began to improve when the country’s currency, the rupiah, plummeted in 1997 and the public’s purchasing power dwindled. Ramayana’s managers responded by holding prices steady, offering goods in smaller quantities, and providing affordable, staple items such as cooking oil, rice, and sugar. While high-end and mass-market department stores saw their sales decline, Ramayana’s sales increased by 18 percent in the year to December 1998, when the crisis was at its height.

McKinsey research shows that after 1997, consumers in many Asian markets became more receptive to new financial products, new channels, and foreign institutions (Exhibit 3). From 1998 to 2000, consumer attitudes toward credit also changed sharply: for example, the percentage of people who considered borrowing "unwise" fell from 46 to 26 percent in South Korea, from 52 to 42 percent in Malaysia, and from 55 to 45 percent in the Philippines. Not surprisingly, in many countries the once fiscally cautious public has gone on a borrowing spree; the amount of consumer loans from 1998 to 2001 increased by 30 percent in South Korea and by 129 percent in China. Similar changes in demand have occurred in other industries as well.

Chart: Customers ready for change after crisis

Public perceptions of foreign companies can alter, too. Only 47 percent of South Koreans favored incoming foreign direct investment in 1994, for instance, but by March 1998 almost 90 percent did.7 South Koreans recognized their country’s need for not only foreign capital but also the technology and new management practices that foreign companies would inevitably bring. President-elect Kim Dae-Jung played a key role in persuading the country of the benefits of foreign investment, drawing on the example of the United Kingdom’s financial-services and automotive industries, in which few companies are British owned, though well-paid jobs abound. That argument took hold, and from 1997 to 1999 inflows of foreign direct investment to South Korea increased from less than $7 billion to more than $15 billion.8

Foreign companies that respond quickly to such shifts in attitude can reap the benefits. Before the crisis in Asia, Citibank struggled to expand its operations in the region. Following the Indonesian riots of May 1998, however, Citibank set up 75 minibranches in the country’s four largest cities. In most cases, the branches consisted of only an ATM and an attendant, yet this modest investment helped Citibank increase the number of its accounts by 300 percent. In Singapore, meanwhile, Citibank employees greeted people arriving from Indonesia at the airport during the early days of the crisis with signs reading, "Citibank will help you!" Over the next few years, the bank invested more than $200 million in Asia. According to one Citigroup manager, the crisis "gave us opportunities that were beyond belief."9

Organizations change

For executives willing to make bold moves, a crisis can be a burning platform that creates an opportunity to change corporate culture and operations drastically: shareholders, employees, and creditors alike recognize that things must change, and resistance melts away. For visionary leaders, this is the time to revamp the power structure, adjust the organization’s size, create a stronger and more performance-driven culture, and throw out sacred cows.

At H&CB, for instance, CEO Kim Jung Tae drove unprecedented changes throughout the organization during the crisis of 1997 and 1998. First he set tough performance targets (a return on assets of 1.5 percent and a return on equity of 25 percent) intended to mirror the performance of US-based Wells Fargo and Britain’s Lloyds TSB. Kim declared that H&CB could "become a world-class, top-100 retail bank in three years"—high aspirations for a mediocre, midsize South Korean institution. The tumult of the times, however, enabled Kim to back his words with actions: he cut 30 percent of the staff within three months and in the first year took a salary of just 1 South Korean won (less than $0.01), receiving the rest of his compensation in stock options. In South Korea, these measures were unconventional, to say the least.

Over the following two years, Kim launched more than 20 performance-improvement initiatives in areas such as pricing strategy, retail credit scoring, and customer service. To improve accountability and make it easier to judge the performance of the bank’s divisions, he reorganized them away from their geographic focus, turning them into customer-oriented business units. The proportion of compensation based on performance was increased and the bonus system revamped. These radical reforms were unthinkable before the crisis. Afterward, though, employees and other stakeholders went along with them, so that H&CB met Kim’s ambitious performance targets within two years.

Meanwhile, Ayala (see Ken Gibson, "A case for the family-owned conglomerate," The McKinsey Quarterly, 2002 Number 4), a 168-year-old Philippine conglomerate, had always prided itself on a social pact with its employees: a job for life. In the wake of the 1997–98 financial crisis, however, Ayala’s management realized that the company would have to refresh its talent pool to remain competitive and took the unprecedented step of offering a voluntary layoff program.

Time and again we have seen crises prompt managers and shareholders to reevaluate the ways of local management and move closer to international best-practice standards in areas such as governance, staff management, and accounting. Companies that make these reforms are better placed to emerge as market leaders when the dust settles.

Seize the day

Merely recognizing that the rules have changed and looking for new opportunities is not enough, however, to make the most of a crisis. Where a company in normal times might have months to manage late-paying wholesalers, each day can make a critical difference during a crisis. This environment can brutally punish companies that are slow to adjust but offers the possibility of big rewards to those that are fast and flexible.

Moving quickly often means being the first to enter a market when its future is still clouded by uncertainty. This takes courage, but the payoff can be handsome. Consider the experience of Lone Star Funds, the first investor to purchase distressed banking assets in South Korea. Bidding against a very small number of investors in December 1998, Lone Star obtained its first portfolio of nonperforming loans from the Korean Asset Management Company (KAMCO)10 for just 36 percent of book value. Being the first company to do so seemed risky. Steven Lee, Lone Star’s country manager in South Korea, said that "No one had tested the liquidity of these assets in the market. It was a daunting due-diligence task." The move paid off, though, and the portfolio earned a very significant annualized return. At KAMCO’s next auction, in June 1999, 14 investors were in the bidding pool and prices rose.

Making strategy during such times requires fast footwork and a rapid reassessment of the way circumstances change with each major event. The sharpest executives will review the changing boundary conditions of their companies on a weekly, even daily basis. Although steering through each day’s turmoil is hard enough, managers must always keep an eye on the changes needed to make a company emerge as a winner and consider how to influence these changes before competitors do.

Financial crises shock and paralyze not only countries but also companies—and often pull companies under. For sophisticated executives, however, the tumult produces a changing backdrop for doing business, and this backdrop can be exploited, frequently to great advantage. By remaining calm while the weary and wary retreat—and by keeping an eye on fundamental changes in the regulatory, financial, and political environment—the best crisis managers have turned unfortunate circumstances into the opportunity of a lifetime for their companies.

About the Authors

Dominic Barton is a director in McKinsey’s Seoul office; Roberto Newell is a recently retired director in the Miami office; Gregory Wilson is a principal in the Washington, DC, office. This article is adapted from their forthcoming book, Dangerous Markets: Managing in Financial Crises, New York: John Wiley & Sons, 2002.

Notes

1The merged entity now goes by the name Kookmin Bank.

2Before the 1997 crisis, only one bank merger had ever taken place, and it was viewed as largely a failure, since labor law restrictions ruled out potential cost savings.

3Banco Central do Brasil.

4Falia News, Number 32, April 2000; and Nikkei News, February 11, 2002.

5Inkombank, Menatep, Mosbusinessbank, SBS-Agro, and UNEXIM.

6See Rajan Anandan, Anil Kumar, Gautam Kumra, and Asutosh Padhi, "M&A in Asia," The McKinsey Quarterly, 1998 Number 2, pp. 64–75.

7Survey on South Korean opinion about foreigners investing in the South Korean economy, Korea Development Institute, 1994 and 1998.

8Ministry of Commerce, Industry, and Energy. See "Pupil who has learned enough to tutor," Financial Times, March 21, 2002; and Foreign Direct Investment in Korea, KPMG, September 2001.

9"Citibank conquers Asia," Business Week, February 26, 2001.

10A government-run body that bought the distressed assets of banks and other financial institutions and was charged with liquidating those assets.