It has been a couple of months since my last blog post (for which I apologise) as I concentrated on the completion of my Masters. It has been handed in and is under assesment – I am finally departing Univeristy after 5 and a half years of fun. This post is relativly short just to ease back into it.

In a weekly feed I recieve from The Economist I read that:

A technical glitch was blamed for the reappearance on a newspaper’s website of a six-year-old article describing United Airlines’ bankruptcy. The item was picked up by Google’s news service and UAL’s share price fell by 75% before the airline reassured investors that the story was old news.

IT increase jitters. Firstly, an IT glitch caused the reappearance of the article. Secondly, Googles news service was able to distribute this information quickly, eviscerating the United Airline’s share price. What does this teach us?

• Think twice before placing content online as it spreads beyond your control
• Reduce your risk by setting up alerts that tell you when you (or your business) has been blogged or been picked up by news services
• Public perception, regardless of truth, drives human behaviour

A small Christchurch software manufacturer, Netresult Mobility, was a spin off from Computerland in 2002 as they moved away from software development. Three ex-employees set about developing a mobile system that reduced the paper work involved in processing car finances in the field and as a result entered into a joint venture with Turners Car Auctions.

“Being half-owned by a well-known publicly listed company helped Netresult, a relatively unknown software firm with eight staff, gain customers, especially in Australia,” Wells said in this article.

After establishing their base in New Zealand and Australia (70% revenues) with large firms such as St George Bank, Toyota Financial Services, GE Money and Daimler Chrysler they decided to test the market in Britain. It soon became apparent that the demand was there and as a result they have a man on the ground carrying out tests and demonstrations to prospective clients.

Netresult expects to increase sales three fold over the next three years, driven by the entry into the British market.

This story follows an entrepreneurial vein in that a talented team saw an innovative opportunity, looked for investors in their industry from who they could learn from and test the product, develop a strong customer base and then expand into growing markets. Well done Netresult, a New Zealand success story.

The primary sector has played and will continue to play a pivotal role in the development and success of New Zealand. According to the Treasury, agriculture accounts for 6.8% of GDP but more importantly contributes over 50% of New Zealand exports. Agriculture accounts for 4.6% of GDP while the process and manufacture of these goods add a further 2.7%. Downstream activities, including transportation, rural financing and retailing related to agricultural production also make important contributions to GDP. Up until recently the agriculture sector has been characterised by small family owned enterprises, often handed down from generations before.

Yesterday I read Day of small farms passes in the NBR which outlines the changing ownership structure of rural businesses. With commodity prices, especially for milk derived products, at high levels mean that the values of properties are sky-rocketing when a discounted cashflow valuation is utilised. The article quotes that an average size dairy farm is worth around $5 million which is out of reach for most aspiring farmers or perhaps members of the next generation who miss out on the family farm. The closest some may get in the future is a small shareholder and perhaps farm manager.

So who is buying up these farming assets? There are two firms mentioned AGinvest and FarmRight who, lead by a team of farming professionals, specialise in bringing together the factors of production to provide an investment opportunity as part of a syndicate. International investment funds are increasingly looking to enter into industries that in the past have tended to be private and the work these two firms have done provide opportunity of private equity within the agricultural sector. The agricultural sector is becoming more accessible to those on the outside but the recent dismissal of Fonterra’s restructuring by its farming shareholders shows that they are weary of ‘corporate shareholders.’

Don’t Just Read the Numbers, Think about Them

Just as an aside when I was briefly looking through the AGinvet My Farm website I found a fact that interested me. They disclosed that the agricultural industry has increased its contribution of GDP from 12% 17% over the past 10 years. They were kind enough to reference and date the fact (2003). It surprised me that they had not updated this to reflect the numbers I found (dated late 2007) after a little googling. I think that their 17% and my 6.8% are very different numbers especially in reference to such a large number as GDP ($110 billion in 2002 and $130 billion in 2007 from Statistics NZ Tables).

Recently Gareth Morgan said “[People have been] pretty disillusioned with the products and the ethics of those who have promoted them” when referring to saving and investments in an article on his website. I agree that many investors out there, especially ‘mum and dad’ investors and those with little knowledge of financial markets and systems, do not know what they are getting themselves into. However, I think everyone needs to be more aware, perhaps even cautious, which means you need to read the facts and figures and think about their validity and influence on the investment decision.

Over the past couple of months I have been trying really hard to become more productive. I spend a lot of time on my computer as I write up my Master of Entrepreneurship Thesis so it makes sense to try and use my computer more efficiently to get more tasks completed quicker.

I think that time is the most important asset that anyone can posses so time so the way in which you it will determine your success. Enter lifehacks. Originally used by computer programmers to sort their way through a torrent of information and to organise their data today it relates to “anything that solves an everyday problem in a clever or non-obvious way.” (Wikipedia)

One of the best sights that I have discovered is www.lifehack.org which is a blog dedicated to Getting Things Done (a productivity methodology by David Allen) and Lifehacks. I recommend that you have a look around their site and read a few articles. Most lifehacks are easy to undertake and usually provides a solution to those situations when you think “there must be a better way of doing this!”

As I learn more life hacks I will post them on my blog in the Lifehack category. Go forth and increase your efficiency and productivity, I have!

In May I posted ETS – Can-Tiawi Point Survive? in which Rio Tinto publicly announced that “if passed [the Emissions Trading Scheme] would most likely put the smelter on a path to closure.” I was reading the Sunday Star Times and read Rod Oram’s “Smelter Owner Misses Point” which delineates how unlikely it is that the ETS would make the Tiwai Point smelter uneconomical, a view contrary to that of its owners Rio Tinto. This post is a summary of his article which I have posted as it gives balance to one of my earlier post.

Tiwai is a role model of efficiency and eco-friendliness and regularly welcomes Rio Tinto managers and technicians from around the world to help improve its other more pollutant smelters. It is some of the purist aluminium in the world and for that reason Tiwai aluminium demands a small premium over market prices.

In the smelting industry there are two main causes of carbon emissions; the generation of power to support the smelter and the process of smelting itself. Rio Tinto is extremly lucky because it has an exclusive deal with Meridian Energy which secures electricity from the Lake Manapouri Dam which produces zero carbon emissions. However, its not that simple because Rio Tinto argues that the price that they pay for electricity is determined by the wholesale rate which will increase as the energy industry adopts the ETS. It also argues that peak demand is satisfied by high carbon emitting sources further increasing the costs of electricty, thus making Tiwai uneconomical. This argument will only stand up until the New Zealand energy industry achieves 90% renewables, that ratio of the 1980s and renewable sources of energy is one of New Zealands competitive advantages.

In terms of carbon emissions attributable to smelting Tiwai is well positioned. It produces 1.9 tonnes of carbon equivalent per tonne of aluminium, which is far less than the worst (4 tonnes) and even best practise (2 tonnes). This means that when the scheme comes into effect it will receive free tax credits at 90% of 1995 emissions until they are faded out between 2018 and 2030. By overlaying a high cost of carbon at $50 US then the maximum cost per production in 2030 will be $95 US per tonne. Given today’s cost of aluminium of $3000 US per tonnes the cost imposed by the ETS would be around 3%, assuming that the smelter does not continue its path of carbon reduction. The International Aluminium Institute also forecasts demand to double over the period 2005 to 2020 thus Rio Tinto are onto a ‘good thing.’

As far as metals go aluminium is one of the most eco friendly. It is indefinitely recyclable, using only 5% of energy each time and products made from it are more energy efficient themselves. The industry believes that consumers will pay a premium for sustainable aluminium so achievable for Tiwai given the benefit of hydro electricity. Other comparable smelters without renewable energy sources will have to pay $700 US per tonne for energy alone!

The ETS is an example to the world of a national carbon emission trading scheme and if or when other countries adopt it Rio Tinto and Tiwai Point stand to gain as they produce the highest purity, greenest and highest priced aluminium. Come on Rio Tinto turn the ETS to your advantage!

Facebook, the most popularised social networking application, provides the foundations for A Small World. Its an exclusive, by invitation only, networking application for the rich and famous.

It is looking to launch an IPO to raise between $6 and $8 million dollars to fund growth, albeit at a much smaller rate that the social networking sites of the mass market. Given the current turmoil in financial markets and the credit crunch management decided to delay the European IPO instead focus on advertising revenue from the worlds most luxurious brands.

They believe that each of their current 265,000 members are worth more than the $300 (as proposed by mass market social networking sites), in terms of advertising spend, which gives an implied valuation of at least $78 million dollars. Who knows exactly how much it is worth and maybe we should all just sit tight and see what happens if and when Facebook launches an IPO?

I talked earlier this month about the impacts of the proposed ETS in “ETS – Can Tiwai Point Survive” which relates to some interesting articles I read today from The Economist about computer data centres. The link lies in the amount of power that each uses – it’s comparable. So if Rio Tinto decides to leave maybe we can replace it with a data centre, just like the ones that power Google?

Down on the server farm explains that the rise of web based applications is increasing the amount of computing power required to run the world wide web. It is data centres at the other end of the fibre that will become increasing important as we embrace “cloud computing.” Football sized warehouses filled with thousands of computers are needed and it may become a bit of a surprise as to the location of such structures.

As more and more servers and systems are required the more energy they will require. Thus energy is a major consideration when deciding on a server farm location because it must not only power the computers but cool them also. It is therefore understandable that geographic locations with cool climates are being investigated. Iceland may be an option? Maybe Bluff?

So Bluff maybe the right location, but how does it stack up against the ETS? At present, not as great as one would think. I have always thought of a web business as having a low impact on the environment but if current cloud computing trends hold some estimate that by 2020 its carbon footprint will be larger than aviation!

If you read my blog Think Smarter Not Harder you will be aware of the big impacts of relatively small increases in efficiency. Well the same is true here. It appears that companies that supply to data centres are playing on these estimates because guess what? They can provide a solution!

According to Buy our stuff, save the planet many servers are not running to capacity and those controlling them only have a vague idea what is happening on each computer. By increasing efficiency, through matching computer requirements and availability the estimated carbon footprint would be significantly smaller.

Corporate strategies change over time as internal and external forces act upon the firm. As strategies change the factors of production within the firm must change also. When this occurs it is likely that firms will sell off assets that do not contribute to the emerging strategic direction. The selling off of assets, for this reason, is often referred to as the divestiture of non core assets.

Yesterday the Dominion Post reported that Skycity was progressing through a deal to sell off its cinema division to an American firm, Reading Cinemas. Skycity, primarily a Casino and Hotel operator, acquired cinema assets as it moved towards a diversified entertainment portfolio. Since then Skycity have begun to distance themselves from this strategy to return their focus to the casino and hotel industry, its core competency, as the following remarks from New chief Nigel Morrison explain:

“There was good rational for acquiring those assets several years ago. But as the board has already recognised they are not a core asset for us. Going forward it does make sense to divest that business.” NZ Herald

Although assets may become ‘non core’ it does not mean that they are unprofitable. So why then should they be sold?

In the long term, the corporate strategy is more likely to drive bottom line profitability than individual assets. The value generated from a corporate entity, or any business entity for that matter, is driven by the combination and application of assets towards the goals of the under riding strategy.

As the environment changes we must change in order to capture the opportunities around us.

A few weeks back I posted “Clearer From the Coal Face” and in today’s Sunday Star Times I read “Carrier Gets the Staff on Board” in which CEO Rob Fyfe describes his methods to increase customer awareness. To understand both his staff and their customers, once a month he spends a day a month working in overalls in the hanger or pouring tea on flights. He places a great deal of value on these experiences and as a result is better positioned than most CEO’s in terms of the needs and behaviours of his staff and their customers.

As economic times tighten understanding ones customers is of prime importance and can lay the foundations of a customer focused organization, which Air New Zealand sees as their competitive advantage.

It is clearer at the coal face and I just wonder how many coal faces I can visit?

As a New Zealander I am aware of the duopoly market every time I send a text or visit the supermarket. Defined as a market in which two firms dominate, duopoly markets around the world include Coca-Cola & Pepsi, Gillette & Schick, Moodies & S&P, and Airbus & Boeing.

The Economist article Flying the flag outlines the launch of Commercial Aircraft Corporation of China (CACC) by the Chinese government which, it hopes, will reduce the reliance on Airbus & Boeing for its national air transportation needs.

Who could blame them? Communist countries have always been blindly nationalistic and the Chinese prime minister announcement was in line with his launch statement:

“The Chinese people must use their own two hands and their wisdom to manufacture internationally competitive large aircraft. It is the will of the nation and all its people to have a Chinese large aircraft soar into the blue sky.”

There are predictions of double digit growth until 2012 when it will slow to 9 percent. Airbus predicts that they will need 2,800 new planes by 2026 … what an opportunity! Will China be able to take on the aerospace duoploy and produce an aircraft that Chinese airlines will commit to?

Firstly, what does China know about the aircraft industry? The business model for aerospace industry mean Airbus & Boeing rely on a global supply chain, of which China has been a been a part of for the last 20 years, building their knowledge base ever since. Even though the distributed supply chain has caused delays for both major manufacturers their must be some well grounded arguments for both to switch to a global manufacturing process. So can new players compete?

Secondly, lets look at history to give context. The only successful emerging market producer of aircraft is Embraer from Brazil. It was a 30 year cash drain, and is just producing a competitive product after a long and troubled road. However, Embraer is the exception. Indonesia has tried but failed just like Japan. Question: How long is China’s pipeline?

CACC inherited a 70 seat regional jet program from China’s previous attempts which it hopes will be a starting point for its 200 seat rival to the Airbus 320 and Boeing 737. More recently Airbus also announced a joint venture with a Chinese firm, unsurprisingly associated with CACC, who see the transfer of knowledge as a cost of doing business in China.

Government subsidies could define the success of CACC and knowing this Boeing highlighted WTO rules which discourage market distorting subsidies. This raises an interesting point: Have Airbus or Boeing received such subsidies in the past?

Ultimately, to be successful, CACC needs to produce aircraft that airlines want. If Airbus or Boeing can provide a better offering to Chinese airlines then only extreme government intervention will produce a successful company to challenge the current duopoly.