The Great Debate UK
from The Great Debate:
The frugal revolution
General Electric’s healthcare laboratory in Bangalore contains some of the company’s most sophisticated products—from giant body scanners that can accommodate the bulkiest American football players to state-of-the-art intensive-care units that can nurse the tiniest premature babies. But the device that has captured the heart of the center’s boss, Ashish Shah, is much less fancy: a handheld electrocardiogram called the Mac 400.
The device is a masterpiece of simplification. The multiple buttons on conventional ECGs have been reduced to just four. The bulky printer has been replaced by one of those tiny gadgets used in portable ticket machines. The whole thing is small enough to fit into a small backpack and can run on batteries as well as on the mains. This miracle of compression sells for $800, instead of $2,000 for a conventional ECG, and has reduced the cost of an electrocardiogram to just $1 per patient.
In Chennai, 202 miles farther east, Ananth Krishnan, chief technology officer of Tata Consultancy Services (TCS), is equally excited about an even lower-tech device: a water filter. It uses rice husks (which are among the country’s most common waste products) to purify water. The device is not only robust and portable but also relatively inexpensive, giving a large family an abundant supply of bacteria-free water for an initial investment of about $24 and a recurring expense of about $4 for a new filter every few months. Tata Chemicals, which is making the devices, hopes for an eventual market of 100 million.
GE and TCS are doing something more exciting than fiddling with existing products: they are taking the needs of poor consumers as a starting point and working backward. They are producing radically simpler products in order to reduce costs: instead of adding ever more bells and whistles, they strip the products down to their bare essentials. But there is more to frugality than simply cutting costs to the bone. Frugal products need to be highly adaptable.
Anurag Gupta, a telecom entrepreneur, has reduced a bank branch to its essence—a smartphone and a fingerprint scanner—so that banks can take ATMs to rural customers. These products also need to be tough and easy to use. Nokia’s cheapest mobile handsets come equipped with flashlights (because of frequent power cuts), multiple phone books (because they often have several different users), rubberized key pads, and menus in several different languages. Nor does frugal mean second-rate: emerging-market consumers are obsessed by both value-for-money and the latest trends. GE’s Mac 400 ECG incorporates the latest technology. Many inexpensive mobile handsets allow users to play video games and surf the net.
The fortune at the bottom of the pyramid
Frugal innovation is not just about redesigning products; it involves rethinking entire production processes and business models. Companies need to squeeze costs so they can reach more customers, and accept thin profit margins to gain volume. Three ways of reducing costs are proving particularly successful.
from Breakingviews:
Buffett’s crisis bets outrunning his freight train
Warren Buffett's annual missive to Berkshire Hathaway's shareholders is out. Among the usual folksy nuggets, the Sage of Omaha notes that he funded Goldman Sachs, General Electric and others at the height of the crisis.
The $21 billion invested is now worth a quarter more and yields 10 percent annually. Short term at least, that's more than Buffett's bet on railroad Burlington Northern Santa Fe is likely to deliver.
Berkshire has deployed a similar amount of cash to buy BNSF -- some $22 billion. It has also issued stock. That's why Buffett's latest letter is partly a primer for the 65,000 new shareholders the deal added to the half million or so that Berkshire already had.
Even Buffett, though, admits that the decision to buy BNSF in November was a "close one". The generous $34 billion price tag for the rail company's equity looked even higher from Buffett's point of view because he paid partly in stock. He and his investing partner Charlie Munger like issuing shares "about as much as we relish prepping for a colonoscopy", the 79-year-old Buffett writes.
It's an expensive, long-term punt on a capital-intensive industry: Buffett at the time described it as "an all-in wager on the economic future of the United States."
Meantime the $21.1 billion invested in the past 18 months in Dow Chemical, GE, Goldman, Swiss Re and Wrigley -- a combination of confidence-building injections and pre-agreed investments -- has delivered more instant gratification.
Those holdings are now on the books at $26 billion, and they throw off $2.1 billion of interest and dividends annually.
Warren Buffett likes trains – which isn’t a bad thing – and his pal Bill Gates is the single largest shareholder in Canadian National Railways, so it’s hardly surprising the sage of Omaha bought himself a shiny new electric train set to run under the tree at Christmastime. People nowadays look down on railroads: too much capital, too much labour, too much history, too much TOO MUCH. Mr. Buffett isn’t stupid, nor is Mr. Gates. Consider their investments in rail as something to emulate.
from The Great Debate:
China Inc. takes stock after overseas buying spree
-- Wei Gu is a Reuters columnist. The opinions expressed are her own --
Abundant liquidity, government support and a strong yuan fueled Chinese companies' overseas buying spree.
But since they went out at the peak of the market and did not have a clear strategy for acquisitions, it should come as no surprise that most of those deals have turned sour. Once bitten, twice shy.
Crisis-ridden companies around the world are hoping that cash-rich Chinese buyers will come to their rescue, but the Chinese are not eager after getting their fingers burnt.
Chinese regulators are now giving more scrutiny to foreign deals, forcing interested buyers to lay out the most pessimistic scenario when seeking their approval.
Bankers said Beijing is skeptical about buying everything except resources, which is seen as important to China's strategic interest and involves few integration challenges.
BUYING THE BRAND
The time is ripe for the Chinese to step forward with their own luxury brands, reliability brands, efficiency brands. If you ask the average American to name a single Chinese brand, they will be hard put to do so.
