20% oil price fuelled by oil futures speculation

For straight five weeks in a row Americans have bought less gas than last year. And 20% of the current US price of $110/barrel is ascribed to oil speculation. 

Driving less does not mean that everyone is ordering online and calling in the pizza. Instead, folks are cutting back on driving to lunch and that's not good news for the pizza place or the economy. Food prices are up  right from the farm to retail with costs going up for fertilizers, diesel for tractors and distribution trucks that carry produce  to retail. If gas prices  does reach $5/gallon inflation will rise and slow the economic recovery and even result in a double dip recession.The problem is that we can't do much about Libya,   but what about the 20% contribution of oil        speculators ?

In fact the Commodities and Futures Trading Commission is supposed to bring out the rules to curb speculative energy trading, they need to do so quickly, before the oil speculation bubble becomes like the mortgage bubble.

Democracies in flux : Shutdown, Anna Hazare the new “Mahatma” against corruption and the Middle East

Around the same time as the US Government was reaching Shutdown at Washington DC on Friday, Anna Hazare was being declared the new "Mahatma" Gandhi against corruption  in New Delhi as the different Middle East movements continued their unchartered progress to democracy. Over the weekend democracies were in a state of flux of different orders, in different parts of the globe. But let's look at momentous events in India with respect to corruption.

India is rated 3.3 in the Transparency International's corruption perception index and foreign investors notice. For 42 years the Lokpal (Ombudsman) bill has not been passed and "enough is enough" said Anna Hazare, who went on a fast unto death, just like Gandhi, in protest. Millions joined him in different cities of India and millions of others supported via the Internet including Facebook and Twitter. The Government of India heard the voice of the people, a ten member    committee  comprising of five Government ministers and five representatives of civil society will create the Lok Pal draft bill which will include examining  charges against  the Prime Minister of the day, and the bill must pass the monsoon session of parliament by August 15, 2011. If it does not, the apolitical Anna Hazare will go on a protest fast again. Indian politicians do not want to think of the electoral consequences of such a dire possibility!

Democracies are messy but as nobel prize winner Amartya Sen pointed out, no democracy has ever suffered famines. In advanced democracies like the  US- Shutdowns are averted, in younger democracies like India old problems like corruption are confronted, in fledgling ones like Libya the opposition tries to come together as a viable alternative.

So where does the Indian Lok Pal bill leave business? Business is hopeful that India's perception of corruption score will improve and the mass of red color in the world corruption map will become lighter with the spread of democracy. For sure Afghanistan will do better than 1.4 and Iraq will do better than 1.5. The scores, by the way, are out of 10, with 10 being the cleanest.

Cherry Blossom Festival and Government Shutdown

Subroto Roy at Cherry Blossom Festival Sunday April 3,2011 Last weekend we were  at Washington DC and thoroughly enjoyed the Cherry Blossom Festival on Sunday. We parked  at the Haines Point Parking  place and I was pleasantly surprised at the free shuttle which took us along the Potomac  river to Jefferson Memorial offering a great view of the cherry blossom trees along the way. The drivers , both ways, were courteous and polite  with that "public servant" imposing sort of presence just in case the huge numbers of tourists got out of control!

There were thousands of visitors and kids were having a great time running around. A Japanese couple asked us to help with pictures and I was reminded of the Cherry Blossoms which came in as a gift from the Japanese in 1912 as 3000 trees and have now multiplied all around.

Little did I realize  last Sunday that the Cherry Blossom Festival might be shut down this weekend over the Government Shutdown. There is an announcement to this effect on the Cherry Blossom Festival Website.

It turns out that the free shuttle is operated by a contractor Tourmobile Sightseeing  and it seems if there are no shuttles to run the contractor will lose revenue and the good drivers,  their income. The Government Shutdown effects suddenly feel real.

Update Saturday, April 9,2011: Thankfully the Government Shutdowm is averted !

Pringles moves from P&G to Diamond Foods and global markets

Pringles potato chips in a can ("once you pop you can't stop") moves from P&G in Ohio to Diamond Foods in California primarily for strategic synergy reasons.P&G wants to focus on its core detergents,beauty and hygiene products like Tide,Oil of Olay,Crest toothpaste business.  For Diamond Foods it makes sense as they are a snack food company with a large  US retail presence in packaged almonds,peanuts under the Emerald  brand,that is looking to compete in global growth markets. The sale of Pringles to  Diamond Foods  for $2.35 B will add a product for Diamond Foods that is sold in 140 countries which means that there is distribution,advertising and marketing in place alongwith a retail shelf presence. It's easier to manufacture a consistent quality Pringles chip anywhere in the world than a potato chip and the can really helps the product for display and transportation compared to bags that tend to get crumpled with crushed chips  in some crowded and booming  markets like India.

The base method and process for processing potatoes was patented by one Mr. Pringle in 1942 and you can see the US Patent 2,286,644 here. 

But it was great development and marketing work by Procter and Gamble since 1968 that really make the "potato crisp" market take off. See a 1976 Procter and Gamble patent for  "Ripple Chip Type Product " here US 3956517. Apparently, at the time the potato chip industry was hugely against allowing the product to be called potato chips (hence chip type) because it was not sliced potatoes and meant competing with a product that was of uniform quality compared to potatoes that tend to differ from one another!

The global market for Pringles is huge and it still has a younger demographic in the US. In Asia the flavors are shrimp,crab and seawood mainly for the East and South East Asia and you can expect many more new flavors. The composite material Pringles can  should  be great  for retail distribution and with a line up including Kettle Chips, Diamond Foods should be in great shape to gain retail shelf space in Asia and take the product to new heights.

Southwest airlines: does aircraft maintenance mimic auto maintenance behavior ?

During the great recession (2007-2009) people became more conscious about repairing their cars since they were not going to be buying a new car soon. Airlines  too slowed down maintenance to cut costs ,if you think about it in the context of the cracks found in the Southwest Airline planes.

Consider this :  individuals not planning to buy a new car try to get the basic maintenance done during a recession. Airlines do the same thing except that checking the fuselage seems redundant when the economy is tight and the guidelines and specifications seem to be clear.The difference is that in the air you need more than brakes and tires on the road.

Innovations like the ABS brakes have come from the aerospace industry to the auto industry and surprisingly its a reverse movement for maintenance behavior from the auto industry to the airline industry during the recession. Just do the minimum needed.

Keep in mind that the Southwest aircraft in question is only 14 years old. In many parts of Asia, Africa and Latin America there are planes that are 30-40 years old on commercial routes and risks of this kind are far higher. 

Aircraft engine makers (like GE,Pratt and Whitney and Rolls Royce) are already active in global markets like China and India that have bought new planes to overhaul engines as they age – but fuselage maintenance is something new.Decision processes to spend timely B2B maintenance money in these markets can be far more complicated than a simple “no budget /bad economy” rule with maintenance engineers not being the most powerful influencers of decision making in many cultures.Hopefully as the NTSB and US airlines sort  out the fuselage maintenance protocols- the growing global aerospace market will learn important lessons.

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19th century gas pipelines to be replaced in the US-needed for natural gas industry

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When you think of natural gas pipelines in the US and learn that some of these are operational since 1899, you tend to be concerned,particularly if you have piped cooking and heating gas.

This blog had discussed the San Bruno gas pipeline burst and since then we have had gas pipe accidents in Minnesota and Allentown,Pennsylvania.

Well the good news is that piped gas distribution organizations including utility companies, municipalities will face stiff fines for not replacing gas pipes that are getting old. Fines will jump from $100,000 per day to  $250,000 a day for dangerous pipelines. The problem though is that every federal and state inspector is responsible for 5700 miles of pipeline as there are  2.4 million miles of gas pipelines and only 420 inspectors.

Cast iron gas pipelines do not seem to be rated for replacement. Kind of strange because  your home roof or your car tire has replacement guidelines. You need to replace your roof in 20 years or now 40 years and your tires when the Lincoln penny head is no longer visible on the tread. It's even stranger to think that New York's gas pipelines are planned to be replaced by 2090 ! Pennsylvania will need about a century, yes a hundred years to replace the cast iron pipes with high density polythene pipes which are less prone to soil and weather damage.

Just because the gas pipelines are out of sight  should not put them out of mind till accidents happen. Gas distribution organizations need to clearly articulate their gas pipeline condition,tests and plans for replacement to shore up public confidence in natural gas both in the US and  throughout the world.

Natural gas is an important part of the world's energy mix -according to one estimate 25% of all energy by 2030.  Standards for safe distribution will be a great help to develop this industry to its full potential.

Food color and link with ADHD

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Food color might accentuate ADHD in children prone to the condition, is the initial thought of some food scientists and the FDA is investigating the matter.

Bright colors in food and its packaging greatly help their marketing. Naturally the food industry resists the thought that food colors might have adverse health implications.

While the scientific jury is out on the issue it reminds me of a personal experience with color in packaging material for milk. As a food packaging executive several years ago, I had a client who reported that aseptically packaged milk  in certain batches had a peculiar smell. Then the technical folks in the client packaging plant decided that the newly re-designed green colored package gave off the odor. The earlier orange colored package did not have the odor and to prove it they packed some more milk in the orange material and made me taste both of them. I could'nt make out the difference and our packaging material plant technologists were pretty frustated when I asked them to go back to the orange color because the "customer is always right."  The packaging material plant people had solid technical reasons for what they were saying because both inks were water based, similar dyes and above all were printed on paper board externally. The milk inside had two layers of plastic , a 175 gsm paper board to cross before it could get near thhe ink.  The funny thing was that the engineers at the clients milk filling plant could not disagree with the logic of the printing and paper converting folks. Yet we changed the color back to orange and took the loss of printed green stock.

The point is that just as color is important at the front customer end of retail and distribution, accusing color becomes easy even at the manufacturing end, when there is no scientific reason to believe that a particular color is to blame.

Apparently,the European Union has warnings on packages that have  certain food colors and let's see how the color and ADHD link plays out in the US.

India-Pakistan Cricket Match seen by 1 Billion TV audience

Today’s India-Pakistan cricket match (March 30, 2011) was seen by an estimated TV audience of  1 Billion people. Life came to a standstill in both countries where “cricket” is almost a religion. For my part, I decided to postpone calling friends in India about research I am doing being pretty sure that no calls would be taken!

[Note: This post from March 30, 2011 is updated for formatting issues on May 22, 2021]

Taxi-men in Mumbai took their cabs off the street in Mumbai for the  8 hours of the match, politicians in the assembly of Indian state Madhya Pradesh suspended legislation, tech companies in Bangalore closed early and many organizations arranged for employees to watch the match on TV in-house along with refreshments.

The Prime Ministers of India and Pakistan sat together and watched the match in Mohali Punjab India where the Pakistani leaders were invited by Indian leaders. Preceded by talks at the Home Secretary level Pakistan has agreed to allow India access to the Pakistani terrorist end of the 2008 Mumbai attacks. There is dinner after the game and probably the outcome that Pakistan lost is not so important as a dialogue between the two countries.

There is just so much common between the two countries that younger people do not fully understand the periodic conflicts that occur. Same language, sport,film and food interests tie the countries together and Indian muslims play a huge role in Indian film (Bollywood) and are well represented  in sports like cricket in Hindu majority India.

The common Pakistani and Indian want peace to prevail, because only with peace can there be economic activity. Let us hope that the “Mohali Spirit” translates to better relations between India and Pakistan.

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Avery Dennison labels to innovate from Germany

In 1935  R. Stanton Avery invented the self adhesive label in California and created the adhesive label industry. In 2011 they are opening a  Design and Innovation center in Germany.

If you have interest in the packaging and printing industry you might remember the name “Avery Dennison” from those labels you bought from Staples and used for creating sections in your project documents. You don’t realize that this is a 6 Billion $ company with a fascinating history. It includes, creating the pressure adhesive postage stamps, so that you don’t have to lick them!

And here is a company that expanded global manufacturing  to China in 1995, India in 2008, Japan distribution center in 2009 and now a Design and Innovation Center  for Retail Branding and Information Solutions in Germany. The center will focus on vastly improving the image resolution on apparel printing compared to what  we are used to on T-Shirts, on sustainable packaging solutions for apparel and footwear and interestingly on RFID, which can improve accuracy in retail shelf stocking from  lows of 65% to highs of upto 99%.

Given the huge reputation of the German Printing Industry, it probably makes sense to base the Design and Innovation Center in Germany. Despite high costs in Germany, the skill levels are probably very high in this industry and will  accelerate  the innovation efforts of the company in all its global markets.

So does this mean that innovation is leaving America ? Not really, because in a global world, knowledge and expertise matters and if innovation is from  Germany in 2011 for Stanton Avery’s company started in 1935 in California, that’s globalization !

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Moving intellectual property including patents, computer code and trade secrets overseas for lower taxes

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Why would companies move patents, computer code and trade secrets overseas for lower taxes? Because profit after taxes is what counts, suggests  60 minutes.

Ask any CEO and they’ll tell you that  profits and share prices are hugely important leading to the famous “think of the next quarter” maxim  in management thinking. Marketing and Sales managers work hard to increase volumes and “value” while operations managers try to reduce cost at high quality while supply chain folks focus on reducing “total cost”.  The operations and supply folks look at low lost global locations to manufacture and source while marketing folks look for new global markets. Sounds plain and simple- except that we are now in a “global” world, even for the post production and sales picture i.e. how much tax the company has to pay.

The difference between your sales and costs is your profit, and taxes come after profit and shareholders get a piece of the profit after taxes. At 35% corporate tax in the US, companies find it making sense to move the company to locations where taxes are less. Some dubious  ones move the shell of the company while other big names simply move key intellectual property overseas for tax purposes, it’s not necessarily where you make, sell or buy your product or its components. It’s enough if your top managers reside and operate from the low-tax location or your intellectual property resides in that low tax location. In any case, with changing global opportunities, it’s difficult to figure out which country would qualify on all three counts of procurement, production and sales for tax residency! So companies might just register their intellectual property in a low tax country like Ireland as a first step and then move operations and jobs there because trained manpower and infrastructure helps.

Just reforming the patent filing process is not enough, lawmakers need to examine the US corporate tax situation to make it worthwhile for US multinationals to stay here and not move jobs along with intellectual property.