Global Crisis Blog

The End of Chimerica — The End of the World?

By Shlomo Maital

  Niall Ferguson is a respected historian and economist at Harvard. Together with Moritz Schularick, Free University (Berlin), he has made a compelling and deeply troubling argument.  They show why the world economy is in deep trouble, what the solution is and — in my opinion — why the solution will not be adopted, until it is too late. [1]

        Here is a brief summary (perhaps, I admit, made more extreme) of their case:

1. “For the better part of the past decade, the world economy has been dominated by a world economic order that combined Chinese export-led development with US over-consumption.”  Under Presidents Reagan, Bush Sr., Clinton and Bush Jr., America lived beyond its means, buying cheap Chinese exports that stuffed the shelves of Wal-Mart, financed by borrowing from the Chinese (through Chinese purchase of US Treasury Bonds, over $2 trillion worth).  America enjoyed living beyond its means for nearly three decades. China loved it too, because export-led growth created jobs for hundreds of millions of Chinese migrating from farms in the West to factories in the East.  American capitalists made fortunes.  American workers were totally screwed.  America’s middle class lost its well-paying manufacturing jobs.

     Here is evidence for the last underlined sentences:  Fully  HALF  of the gain in family income, from 1993-2007, accrued to the top 1 % of income groups! [2]

 % of  total family income growth captured by top 1%  of income groups:1993-2007      50 %    

  (Clinton: 1993-2000     45 %;    Bush  2000-2007    65 % )                                           

2.  “In some ways China’s economic model in the decade 1998-2007 was similar to the one adopted by West Germany and Japan after World War II. Trade surpluses with the U.S. played a major role in propelling growth.”

    Japan and Germany too used undervalued currencies to propel exports.  But as they became wealthy, they realigned their currencies to realistic rates relative to the dollar. China refuses to do so. 

3.  “We conclude that Chimerica cannot persist for much longer in its present form. As in the 1970s, sizeable changes in exchange rates are needed to rebalance the world economy. A continuation of Chimerica at a time of dollar devaluation would give rise to new and dangerous distortions in the global economy.”

   The global conspiracy between America and China (“Chimerica”), for America to overconsume and China to oversave has now led to global crisis.  If China persists in keeping the yen-dollar rate frozen, and when (not if) the dollar drops, Chinese exports will become even more competitive relative to other currencies like the euro.  This would be disastrous.

    Conclusion:   The world is in deep trouble. A major fall in the dollar relative to other currencies (except the yuan/renminbi) is inevitable.  The question is only, when will it begin? And how massive will it be?   America will welcome it, because it is the only way America can hope to repay the massive dollar debt it owes to other nations. 

      If China and America do not cooperate to manage the dollar collapse, the world economy will be in huge trouble.

      China is led by shrewd leaders.  They may perceive that a collapse in the dollar is in their interest, ending forever American hegemony.  They may be willing to lose $600 b. (30 per cent of their $2 trillion dollar holdings) in return.   China may be believe it no longer depends on the world economy, having built a strong Asian ecosystem and having shifted to rising internal demand to replace some export demand. 

       I urge all readers to think very carefully about a scenario, in which the value of the dollar relative to other currencies drops by 30 per cent, and in which China continues to try to buy massive amounts of dollars to keep the yuan-dollar exchange rate at 7 RMB per dollar –   and ultimately, gives up, putting the dollar into free fall.

       With Americans used to overspending, and China stubbornly clinging to its undervalued currency,  there seems to be no other more hopeful scenario that is anchored in reality. 

[2] “The Evolution of Top Incomes in the United States”,  Emmanuel Saez, Univ. of California, August 5, 2009.

Global Crisis Blog

Deficit Panic:  Let’s Hope History DOES Repeat Itself

By Shlomo Maital

Dec. 12/2009

 A Nov. 30 headline in Britain’s   Daily Telegraph reads:

        Morgan Stanley fears UK sovereign debt crisis in 2010

  “Britain risks becoming the first country in the G10 bloc of major economies to risk capital

flight and a full-blown debt crisis over coming months,” according to a client note by Morgan Stanley. 

   Capital flight from Britain?  Want a real nightmare?  How about capital flight from America?  Britain’s debt-to-GDP ratio is growing the fastest, but America’s is much larger, soaring to over 100 per cent by 2013,  a level that triggers IMF alarm bells for countries far less crucial that America.

   There is good reason to panic about levels of government debt in America, UK, Japan and the EU. 

   But history also shows there is a solution.

   Bill Clinton was elected President of the United States in Nov. 1992.  He inherited enormous budget deficits from his predecessor, George Bush Sr.  Together with his key economic advisor Larry Summers, Clinton fashioned a package of measures aimed at slashing the deficit, and getting government borrowing under control. 

    The Deficit Reduction Act:     ¨ created 36 percent and 39.6 income tax rates for individuals.  (28% was the maximum rate up to then). ¨ created a 35 percent income tax rate for corporations.  ¨ the cap on Medicare taxes was repealed. ¨ transportation fuels taxes were raised by 4.3 cents per gallon. ¨ the taxable portion of Social Security benefits was raised.  ¨ the phase-out of the personal exemption and limit on itemized deductions were permanently extended.

Many of these measures were tremendously unpopular politically, especially Medicare, Social Security and income tax. 

   The bill very nearly failed.   It was a ’squeaker’.  According to Wikipedia:

   “Ultimately every Republican in Congress voted against the bill, as did a number of Democrats.

¨ Vice President Al Gore broke a tie in the Senate on both the Senate bill and the conference report.   The House bill passed 219-213.

¨ The House passed the conference report on Thursday, August 5, 1993, by a vote of 218 to 216 (217 Democrats and 1 independent (Sanders (VT-I)) voting in favor; 41 Democrats and 175 Republicans voting against), and

¨ the Senate passed the conference report on the last day before their month’s vacation, on Friday, August 6, 1993, by a vote of 51 to 50 (50 Democrats plus Vice President Gore voting in favor, 6 Democrats (Lautenberg (D-NJ), Bryan (D-NV), Nunn (D-GA), Johnston (D-LA), Boren (D-OK), and Shelby (D-AL) now (R-AL)) and 44 Republicans voting against).

  President Clinton signed the bill on August 10, 1993.

 Strong economic growth, which both helped (and was helped by) the deficit reduction act, led to booming tax revenues that eliminated America’s federal budget deficit within four years.  From a deficit of $300 b. in 1993 (one fourth the size of today’s US budget deficit!),  the deficit was zero by late 1997, and by the time Clinton left office (with George W. Bush narrowly defeating Al Gore, who had played a key role in getting the deficit reduction legislation through Congress), the deficit had become $300 b. — but a surplus! 

   (See Figure).

   deficits

    Under Bush, the deficit again soared (because of massive irresponsible tax cuts) to $500 b. within three years. 

   Can Obama follow Clinton’s lead?  Can he slash the deficits, reduce America’s borrowing, and save the dollar form collapse, while sending more troops (and money!) to Afghanistan?    

       Remember — Obama’s chief economic advisor is the same Larry Summers that helped shape Clinton’s plan. 

    Let us hope history DOES repeat itself. If it does not,  the world is in trouble.

Global Crisis Blog

“Wall Street Recruiters Trawl Online Poker Circles for Talent”

or

Why We Should Lose Sleep

By Shlomo Maital

Nov. 22/2009

    Do you lose sleep, like me,  because America will pay, in 2015,  some $533 b. in interest on its public debt, debt equal to an entire year’s worth of GDP ($15,000 b.), where the interest alone will consume a third of all federal income taxes paid that year?  

    Do you lose sleep because, like me, you believe America is endangering the global economy because its currency, the dollar, has been dangerously overprinted and its impending collapse undermines  global capital markets?

     Do you lose sleep, like me,  because while political leaders and central bankers declare the global recession over,  global managers see no sign that ordinary people are spending more or that business are investing more, and a significant minority fear another recession soon? 

     If that is not enough, here is another reason to lose sleep.   The title headline is genuine, though it appears to come from Comedy Central, or MAD magazine.  It is from the International Herald Tribune, taken from Mason Levinson’s piece for Booomberg News. 

    Here is the gist of Levinson’s report:   “an increasing number of hedge funds and brokerage firms are scrutinizing professional poker to find talent and analytical tools.”  Levinson reports that a recruiter got a request from a hedge fund for online poker players with “no financial experience”, after the World Series of Poker in Las Vegas four months ago. 

    Let me get this straight.  It is widely agreed that a core cause of the global crisis 2007-9 was the utter breakdown in risk management models of banks and investment funds.   So, the solution is to recruit poker players?  The people who bluff, conceal, and deceive, who bet the whole pot on a single card?

       Global capital markets are apparently being rebuilt as enormous poker games with daily pots of $3.2 trillion (two-thirds of that derivatives).   Some of the better players, like Goldman, Sachs are profiting enormously.  In the past 90 days (the 3^rd Quarter, July – Sept.), Goldman Sachs made $100 m. or more on each of 36 days from trading profits alone.  Why would they not want to return to the Great Global Poker Game? 

        Let’s see if we can figure out an optimal way for the financial services industry to build back the public’s trust.   How about, say, hiring a thousand star poker players?  Yes — that will do it.  That will certainly make ordinary people put their money back in banks and keep it there. 

Global Crisis   Blog

Tale of 20 Losers: A Massive Failure of Leadership

By Shlomo Maital

Nov. 16/2009

      Fortune magazine publishes annually the Global 500,  a listing of the world’s 500 largest companies.  In 2008,  20 large companies (those with the dubious distinction of making the 20 Largest Losers list)  lost a massive amount of money:  $320 b. in total. (To reach that sum, Israel’s 7.2 million inhabitants would have to work for two entire years).  

Fannie Mae $58.7,  RBS $43.2, GM $30.9, Citigroup $27.7, UBS $19.3, Conoco $17 , Ford $14.7 ,  HBOS $13.8, Time Warner $13.4,  Pemex $10, Delta $8.9, Hypo $8, Hitachi $7.8, Alcatel $7.6, Credit Suisse $7.6, Bayern $7.4, Lyondell $7.3, Flextronics $6.1, Mizuho $5.9, Deutsche Bank $5.9

     Not all were banks or financial services companies.  Some were manufacturing companies, media, telecom, airlines, even oil companies!   All reflected a massive failure of CEO leadership.    

    What is the common thread uniting all of these losers — if there is one?  I believe it is the utter failure of their Boards of Directors  and CEO’s to think independently, and daily, to challenge what they were doing and how they were doing it.  Some CEO’s, like Citigroup’s, seemed unaware of their organization’s huge exposure to risk. 

      There were those that did resist the ‘herd’.  The CEO of Canadia’s Toronto Dominion Bank kept his bank out of the sub-prime mortgage market, while other huge banks like Citigroup were being swept to disaster.    

     Does your organization have leadership that thinks independently, evaluates evidence on its own, and constantly challenges the prevailing herd thinking?    Does your Board of Directors contribute to this,  and is it part of the problem (complacently rubber-stamping whatever the senior management says)?    

    If your answers are “NO”,  and “YES” –    prepare yourself to join Fortune Global 500’s list of losers in the future — perhaps, the near future.   

———–

   In the Tables below, I provide an analysis of the 20 Largest Global Losers in 2008:

 Table 1.   Industries Represented in the 20 Largest Losers

Banks & Financial Services (9 companies);  Manufacturing (3); Automobiles (2);  Oil Companies (2); Telecom Infrastructure (1); Media (1); Airlines (1); Real Estate Holding (1).

  Table 2.  Countries Represented in the 20 Largest Losers

U.S. (8 companies); Germany (3); Switzerland (2); UK (2); Japan (2); Mexico (1); Taiwan (1); France (1).

               Table 3.   Key Management Leadership Errors 

                (companies may appear more than once)

* Excess lending to poor risks, bad investments (9 companies)

* Overpriced, or badly-timed, acquisitions  (5)

* poor products unsuited to market needs (5)

* exchange-rate-induced losses, poor hedging (3)

* operational inefficiency 1

Global Crisis Blog

Russia’s President Tells the Truth:

“Russia’s Economy is Archaic, Hollow”

By Shlomo Maital

Nov. 13/2009

     Harvard Business School Professor Chris Argyris conveys a simple, powerful message to his students and clients:  “Tell the truth!”.   Organizations that cannot face the brutal facts by definition are incapable of dealing with them.  “Tell the truth” is not a Sunday School moral lesson but a key principle of management.

      Take Russia, for instance.   It is widely assumed that former President Putin, who reinvented himself as Prime Minister, still pulls the strings.  But new President Dimitri Medvedev  (pronounced med-vye-dev,  few TV and radio broadcasters — and even George W. Bush –  take the trouble to learn to pronounce it properly)  is asserting himself and becoming a strong leader.  And he tells the truth.

      In a recent speech, he said it bluntly:  Russia’s economy is archaic and hollow.    The money pouring in from oil is highly deceptive and dangerous.  Russia can, and perhaps has,  become like an oil-rich Mideast sheikhdom,  drowning in paper but with no real economy apart from sticky black goo. 

   Here is an excerpt from an IMF report on Russia:  

GDP went from less than $1 trillion (£600bn) in 1998 to $2.1tn (£1.26tn) in 2007 but has since dropped sharply (IMF).  Exports as a portion of GDP soared from 20% in 1990 to more than 60% in 1992, but had fallen back to 33% by 2008 (World Bank).  Mineral products accounted for 70% of exports in 2008, machinery – 5% (Russian government statistics).   

Here is what Medvedev said, in his speech, according to the BBC:

   Russian President Dmitry Medvedev has called for profound reform of the economy in his annual state of the nation address.  The Soviet model no longer worked, he said, and Russia’s survival depended on rapid modernisation based on democratic institutions.  An oil and gas-based economy had to be reworked with hi-tech investments.  Inefficient state giants should be overhauled and issues of accountability and transparency addressed, he said.  ”Instead of a primitive economy based on raw materials, we shall create a smart economy, producing unique knowledge, new goods and technologies, goods and technologies useful for people,” Mr Medvedev said.  “We can’t wait any longer,” Mr Medvedev said.   ”We need to launch modernization of the entire industrial base. Our nation’s survival in the modern world will depend on that.”

   The BBC Moscow correspondent Richard Galpin, commented on the speech: 

    Mr Medvedev is certainly establishing more of a political identity by focusing on the modernisation theme. But there is still deep skepticism about his ability to deliver on any of the reforms he has called for because his power base is extremely limited and there will be many vested interests to overcome to bring about real change.

           Russia is for many companies a potentially rich market, but fraught with huge difficulties — corruption, bureaucracy, chaos.   We should watch Medvedev and Russia closely in the coming years.   Former IMF Deputy Director Stanley Fisher once said that the world   believed Russia, as a nuclear power, could not be allowed to collapse; yet in August 1998, it did and no-one came to the rescue.  One can imagine a failed, hollow archaic Russian economy run by Mafia — and the immense mischief it could cause to the interests of freedom and stability in the world. 

Global Crisis Blog

Can We Trust the Intuition of Experts?

By Shlomo Maital

Nov. 10/2009

    An article in the latest American Psychologist, by Daniel Kahneman and Gary Klein, addresses the key issue:  When can we trust the intuitive judgment of experts? [1]

    Kahneman is identified with the HB (heuristic bias) approach.  His work, some of it done with the late Amos Tversky, shows how flawed our judgment is and how non-rational our decisions often are.[2]  Kahneman won the Nobel Prize in Economics for his research.

    Klein is identified with the NDM (naturalistic decision making) approach, which chronicles often-amazing successes of intuitive judgment.  The article is an interesting dialogue between the two approaches, ending in “a failure to disagree”, i.e. broad agreement.

     Here is what the two scholars agree upon:

• · An environment of high validity is a necessary condition for the development of skilled intuitions. Other necessary conditions include adequate opportunities for learning the environment (prolonged practice and feedback that is both rapid and unequivocal).If an environment provides valid cues and good feedback, skill and expert intuition will eventually develop in individuals of sufficient talent.

 ● Although true skill cannot develop in irregular or unpredictable environments, individuals will sometimes make judgments and decisions that are successful by chance. These “lucky” individuals will be susceptible to an illusion of skill and to overconfidence.   The financial industry is a rich source of examples.

    Let me translate.   If the ‘environment’ of decision-making is stable and predictable (i.e. that of a chess game),  experts develop startlingly accurate intuitive judgment.  Chess grandmasters, for instance, can choose the best move quickly in complex situations when amateurs fail to even consider that move.  But if the environment is unstable and unpredictable,  expert intuition is flawed.  True, such judgment will be right part of the time.  But this is solely through chance.   Those who ‘hit it’ by chance become overconfident, take excessive risk — and destroy their own businesses and the capital of others. 

      If “the financial industry is a rich source of examples” of flawed intuition,  then those enormous bonuses the industry is again paying itself are not justified.  Nor can we put our faith in investment advisors with superior rates of return over the past year.  Probably, an accident.   We can, however, better understand Warren Buffett’s surprisingly accurate intuition.  It is based on investing from the outset ONLY in stable environments, i.e. basic products like food, drink, machine tools or railroads, and holding on to the equities for decades.  

      Kahneman and Tversky once investigated the phenomenon of the ‘hot hand’ in basketball (streaks of baskets, without misses, by star players) and showed statistically that there was no such thing — it was simply random.  (Toss enough coins, and you will eventually get a dozen straight ‘heads’).   Why, then, do we still believe in ‘hot hands’ among financial advisors?   And why have they returned to paying themselves obscene bonuses? And why do we the people agree to it?   

       And finally, why in the world would anyone believe, in a world of overconfidence in flawed intuition in the financial services industry,  that the 2007-9 global crisis will not recur? 

[2] See S. Maital, “Daniel Kahneman: on redefining rationality”, J. of Socioeconomics, 2004.

                    Global Crisis Blog

Fall of the Wall:  20 Years Later

By Shlomo Maital

  As I write this, I am watching German Chancellor Angela Merkel on CNN, in a sea of Germans, speaking informally about the extraordinary events two decades ago — events she personally witnessed and took part in, when she, then a young scientist crossed from East to West.   Merkel chose not to create a formal diplomatic event with stuffy speeches, but simply stood elbow-to-elbow with thousands of Germans, some of whom had crossed with her on Nov. 9, 1989,  after symbolically crossing from East to West again, as she did in 1989.   Merkel thanked Mikhail Gorbachev, who was with her, for his policies that made the Fall of the Wall possible and eventually, on Dec. 25, 1991, led to the dissolution of the Soviet Union.  When Poland’s Solidarity movement won the June 4, 1989, election,  the Russian ambassador to Poland called the Kremlin in panic and asked,  what shall I do?   what shall we do?   Gorbachev had a simple answer.  Do nothing.  Let the election stand.   It was in part Gorbachev’s non-intervention policy that enabled the Wall to fall. 

     The Berlin Wall was erected in June 1961, after some 3.5 million Germans fled East Germany to the West.   The Wall had concrete walls, barbed wire, guard towers and a death strip that had anti-vehicle trenches, spikes and other types of defense.  Between 1961 and 1989 some 5,000 people tried to escape over the Wall;  an estimated 150 people died.

     Those most surprised at the fall of the Wall were the Germans themselves.  Most of them who witnessed the dramatic events of Nov. 9, 1989, said they never believed the monolithic German Democratic Republic would crumble so rapidly.  

     Today we know that British Prime Minister Margaret Thatcher and French Prime Minister Francois Mitterand were both worried and displeased by the fall of the Wall,  understanding that it would bring German reunification and create Europe’s largest and most powerful economy.    Indeed, unification came quickly.  On Oct. 30, 1990,   the new reunited Germany was announced.  West  Germany was in such a rush to implement the unification, that it offered to buy East German marks at a price of one such mark for a West German mark — at a time when the buying power was about eight to one.   The resulting flood of marks into the system caused inflation, led the Bundesbank to raise interest rates –  and ultimately, caused Britain to leave the European Monetary System, as the British wanted to free themselves from the straitjacket of high European interest rates and float the pound.  (On Sept. 16, 1992, George Soros’ massive sales of pounds caused Britain to leave the European Exchange Rate Mechanism).    So ironically, the fall of the Wall may have ultimately been responsible for keeping Britain out of the euro system.

     These events, from 1989 through 1992 and beyond, show how appropriate is the initiative taken by German students  to visually demonstrate the impact of the fall of the Wall.  The students created 1,000 styrofoam dominos, each three meters high, and placed them along the path of those who fled from East to West.   As one domino toppled another, we saw clearly how the Fall of the Wall led to a chain of remarkable events that forever changed history.  

    Congratulations to those innovative German students!

Global Crisis Blog

Act Two: Which Country Will Be Smart Enough to Find a Happy End?

By Shlomo Maital

Oct. 31/2009

     As the world breathes a sigh of relief — the global crisis has not become a decade-long Depression, and GDP growth is restored in the U.S. –   there is room for gloom, or at least great caution.  We are not out of the woods yet.  Bad things still lie ahead. (What other message would you expect from an economist?).

     The reason is simple.  Both America and China, and to some degree other nations,  spent their way out of recession, through massive fiscal stimulus packages and huge deficits, plus enormous credit expansions.  America’s package exceeded $1.2 trillion.  China’s was over $586 b.  But as the Wall Street Journal’s widely-read column “Heard on the Street” notes,  “It is going to be a challenge for Beijing to rely on stimulus spending to keep growth going.”  And,  WSJ might have added, for America, Israel, and every country.

       America and China restored growth, or maintained it, respectively, by deficit spending.  For America, this has created a huge debt overhang, because the money was largely borrowed.  The deficits must be restrained, at some point.  Otherwise, the debt burden will soar impossibly and inflation may result.  But, what will replace government demand?  Exports?  We are seeing a wave of protectionism.  Investment?  No sign of that, only higher profitability will drive investment, and margins are down.  Consumer spending?  No way– with unemployment still high, and no signs that employment will revive any time soon,  why would consumers spend, rather than save? 

     There is no replacement for government demand. But governments cannot continue to give the economy artificial respiration, or CPR,  forever. 

     The near-term prognosis is for very very weak growth, in America and Europe,  and in China, a difficult transition from export-led growth to consumer-led domestic demand growth.

     Which country will be smart enough to write Act Two for its fiscal stimulus plans, and end the Act with a happy ending?  America? China?

      We are not yet out of the woods.

Innovation Blog

WHAT WOMEN WANT

Shifting Consumer Mindset:

Are You Tracking It?  Part II

Oct. 31/2009

   Boston Consulting Group  expert Michael Silverstein and colleague, who head BCG’s global consumer practice, recently ran a web-based survey of some 25,000 women worldwide.  They published their results in a recent book  What Women Want.  The results are important and revealing. They show a rapidly developing and changing market, based on women who are increasingly stressed and pressed for time, and whose needs are not being fully met.  There is much room here for innovation.   If innovation is largely managed, led and conducted by men,  perhaps it is time to enlist women — unless men can suddenly become massively empathetic to the needs of half the world that has XX chromosomes.  The female economy, we learn, is a quiet economic and social revolution.   

   Here is a brief summary, taken from Singapore’s Business Times, Oct. 29, written by BCG principals in Southeast Asia:

      We are on the brink of a major business revolution. Over the next five years, women will have US$5 trillion in incremental earnings to spend and we see this as a commercial opportunity bigger than the rise of the consumer economies of China and India combined, and an economic stimulus far larger than any government bailout package.    Women control US$12 trillion of the overall US$18.4 trillion in global discretionary consumer spending, and they will have an even bigger share in the coming years. These women increasingly earn a substantial portion of the household income and control up to 65 per cent of household spending.   Taken from What Women Want – a Boston Consulting Group (BCG) global consumerism survey of more than 12,000 women in 22 countries around the world – these figures and survey analysis  highlight  their focus — the [need to] understand and serve this female economy.

     Much of the research from the survey findings shows that women are dissatisfied with the products and services available to them.   Companies fail to answer women’s needs and misunderstand the overwhelming demands placed on their time and the challenges they face when dealing with the myriad roles they typically play – as wives, mothers, sisters, daughters, partners, professionals, friends and colleagues.   These dissatisfactions need to be addressed by businesses in many industries before they can truly win the trust and consistent purchasing power of women.

  Specifically, companies fail to:

¨ address women’s need for time-saving solutions;

¨ design and customise products specifically for women;

¨avoid condescending and clumsy sales and marketing efforts;

¨align with women’s values or develop community; and,

¨increase their social initiatives and give back to society in more meaningful ways.

  The women surveyed in Women Want More indicated they are most dissatisfied with financial services (73 per cent), health care (71 per cent) and consumer durables (up to 47 per cent).

Of the three, financial services is the industry that frustrates women most. In general, women indicated they don’t have a desire to accumulate money for its own sake or experiment with complicated financial instruments.   A majority of the women value money as a means for caring for their families and themselves, improving their lives and assuring long-term security. Many indicated they want advisers and services that recognise their need for short-term simplicity and long-term stability.

  For the most part, women aren’t getting the financial management solutions they want. Instead, many experience a lack of respect, poor advice, contradictory policies and an obstacle course of red tape and paperwork.   Of the companies studied, very few understand the significance of the female economy to their business. If they respond to this economy at all, they do so by making small adjustments to their product line or to their organisations.

    To better understand the female audience, companies must reconsider how they do research, how they develop products, how they sell and merchandise and how they add services to their value proposition.   Companies must rethink how they segment the female audience and how these segments react to changes in consumer bahaviour.   To facilitate broader analysis of what women want, we created six key female consumer segments -

¨ fast-tracker, ¨  pressure cooker, ¨ relationship-focused, ¨  managing on her own, ¨ fulfilled empty nester and¨ making ends meet.

Each archetype is defined by income, age and stage of life. Such segmentation proved useful for our research and is now successfully informing the development and marketing of offerings to women.

Understanding what women want can be done through a four-R approach -

¨ recognise, ¨ research, ¨ respond and ¨refine. 

¨ Recognise the opportunity;

¨ research how a product or service is being consumed; and respond with new disruptive innovations that create new categories, new segments, or entirely new sources of products and services; and,

¨refine ideas in a way that creates lasting relationships with female consumers, builds connections and continually improves the offering to strengthen those relationships.

 Balancing ‘work at work’ and ‘work at home’ :  Women earn a substantial portion of the household income and yet they still do the bulk of the housework and home management. As a result, it is not surprising that women in every corner of the world are starved for time and many are stretched.

 BCG’s research has shown that women are struggling to balance the ‘work at work’ with the ‘work at home’. At the same time, they have high standards and even higher expectations of themselves.

These expectations – combined with the responsibilities women shoulder for caring about good nutrition, education, health care and making money for the family – create tremendous stress.

  Women hold approximately 50 per cent of university places throughout the world. Apart from the number of graduates entering the workforce, there is a global increase in the number of women going to work in full-time and part-time positions.

 The facts cannot be ignored, and increase in significance as companies recognise the importance of the female economy.  By systematically targeting this market and understanding women’s dissatisfactions, companies can holistically, rather than incrementally, participate in and profit from one of the most important commercial opportunities of the century. Women will benefit from and appreciate the outcomes too.

Source:   Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

Global Crisis Blog

Shifting Consumer Mindset:

Are You Tracking It?

Oct. 30/2009

     Geophysicists tell us the earth is built on tectonic plates, that shift and slide — imperceptibly, only at the rate that fingernails grow, but, sometimes, when these plates collide, earthquakes and tsunamis result.

     Consumers are similar.  Their preferences change, often imperceptibly, but the changes add up to major shifts and trends — and unless we track them closely, we miss the boat.

     Consider this.  Singapore, the country, acts like Singapore Inc.  Its leaders track the country’s global rankings carefully and at the first sign of slippage, react and act.  For example, Singapore ranked only 17^th recently in the World Economic Forum Global Rankings for “consumer satisfaction”.  So Singapore initiated a large-scale survey of customer satisfaction (tourists and residents) across several industries. 

    The results are reported in the Straits Times, the leading Singapore newspaper, on Wed. Oct. 28.  The results:

 “Consumer Satisfaction Drops Again!”    Across-the-board declines in consumer satisfaction in transportation, retailing, tourist services, etc. 

      Is this truly the case?  In a country squeaky-clean with faultless customer service and Asian politeness,  has customer service suddenly deteriorated — at a time when businesses know that in a shrinking market and global downturn, they must redouble their efforts to please their customers?

       What has happened, I believe, is on the customer side, not the business side.  In a global downturn, which has impacted Singapore too,  people have new respect for money, even the wealthy, and demand greater value-for-money.  Unless businesses work hard to create the perception that they are delivering more value,  consumer satisfaction declines.  What worked in 2007 and 2008 may not work in 2009.

      The story is told of an old married couple…the wife complains, dear, we used to sit so close together in the car!  The husband (driver) replies:  Sweetheart — I haven’t moved.  

       Businesses haven’t “moved” in the way they treat customers. But the customers have.  Businesses should have moved in response — marketing, advertising, packaging, product design, pricing,   everything to build and strengthen the ‘value for money’ proposition, which has gained new importance in the downturn.   This is the real message of Singapore’s survey.