August 13, 2008 | posted by Michael Baxter in India | comments (0) |

And through all the upheavals, Tesco continues its march towards overseas expansion. “Every little helps,” they say. Well, in the UK the stores are still booming, although evidence is growing to suggest customers are finding “every little helps” even more if they shop at discount stores such as Aldi.

Meanwhile, in the US, and now India, it seems customers are set to find out exactly how much “every little” really does help.

In the US its Fresh and Easy stores hit a hiccup earlier this year, with evidence that US shoppers preferred service over price, but when you think about it, local stores with cheap products could be just what the US consumer wants right now. If they want to cut back on gas, and just drive a few blocks away, then in this new era when Americans care about the cost of fuel, Fresh and Easy stores on their doorstep could be perfect.

But now Tesco turns its attention to India.

But there is a snag with India. Overseas supermarket chains are not allowed to set up retail stores in India. So, to get around that, they find partners.

And Tesco’s partner is a big one – Indian giant Tata.

The plan is for Tesco to set up cash and carry stores – to supply Tata’s Star Bazaar hypermarkets.

So Tata rolls out its plan to capture India’s consumers, Tesco provides the backbone.

In all, Tesco is planning a £60m investment at this stage, with cash and carry stores in Mumbai, Delhi and Bangalore.

But this is just the beginning. The potential market is huge, and Tata could prove to be a brilliant choice of partner.

Sir Terry Leahy, boss at Tesco, said: “Our wholesale cash-and-carry format will bring improved value, range and service to thousands of Indian businesses,” and he said it provides the company with “access to another of the most important economies in the world.”

June 27, 2008 | posted by Michael Baxter in India | comments (0) |

It all started innocuously enough.

After choosing to leave interest rates on hold the Fed put out a statement which said: “The committee expects inflation to moderate later this year and next year.” 

The Fed’s optimism on inflation builds on the belief that wage inflation is firmly in check.   It is like that in the UK too, of course.    Yesterday, data from the Industrial Relations Services, here in Blighty, revealed that company salary awards rose from 3.2 to 3.3 per cent in the three months to the end of May – hardly the stuff inflation is made of.

The mildly good news continued with data from the US on existing house sales.  There was a 2 per cent jump in sales in May.    House sales have been pretty stable now for 7 months.   Sure, sales are well down on the levels seen, say, in 2005 – in September 2005 annualised sales were 7 million; in May just gone, 4.99 million.   Sure, inventory levels are such that it will be at least a year before the backlog is cleared – meaning prices are sure to fall for another 12 months, but that is not news.    The only news yesterday on house prices was that sales were up. Light is there at the end of the tunnel, albeit a long tunnel.

Meanwhile, in the UK, Mervyn King and chums were talking to MPs.

They talked tough on inflation. Paul Tucker, who is the executive director for financial markets at the Bank of England, talked about “the inflationary genie”, and how it is essential we don’t let it out of the bottle.

Merv gave another warning about pay rises, saying that if wages rise above inflation then we will see a “very prolonged and deep slowdown in activity.”

But in the UK and US, unions don’t have the muscle they used to.  The threat to jobs is very real.    A repeat of the 1970s inflationary spiral still seems unlikely.

On this track, the Telegraph quoted Sheila Attwood from the said Industrial Relations Services: “With below-inflation pay awards now a reality for the majority of workers in both the public and private sectors, our data suggest that employers have gained the upper hand in pay negotiations.”

Yet, not everyone is convinced inflation is licked.   Warren Buffett, for example, said: “I think inflation is really picking up.” Interviewed on CNBC, he added: “It’s huge right now, whether it’s steel or oil.  We see it everywhere.”

Maybe that’s the problem.  On one hand you have got gurus from the world of central banking saying: “Yes we have to watch inflation, but we think this is just temporary.” On the other hand, you have the Big Daddy of all financial gurus, the world’s richest man, saying inflation is “everywhere.”

Maybe the reality is this.   They are all right.

Inflation, that’s real 1970s inflation, is everywhere.   It is in India, where the wholesale price index recently hit 11.1 per cent, a 13-year high, and where its Finance Minister P Chidambaram says inflation is his biggest concern.

Inflation is in China, where the World Bank thinks it will reach 7 per cent this year.  It is in Russia too; in fact, latest estimates suggest Russian inflation is now 12 per cent.

Capital Economics has predicted that global inflation this year will be 5.5 per cent.

But the point is this.  Capital Economics reckons inflation in the G7 will be 3.3 per cent.

In other words, yes, it is true inflation is everywhere – it is just that it really isn’t such a danger in the UK, US, Eurozone or Japan.

And that surely is one of the key reasons behind it all.

In the developed world, asset prices are crashing; that’s house prices and, now, we can say equities too.    In the West, a shortage of credit should lead to deflationary pressures down the line.

In the developing world, growth has been so rapid, just like it was in Europe in the 1950s and 1960s, that inflationary pressures are building.

Yes, it is like the 1970s in China, India, Russia and the rest of the developing world.

In the West, the similarities are much closer to 1929, or to Japan when its lost decade began.

The snag is this.  The dollar and euro are, in effect, the world’s currencies.   China et al still like to keep their currencies in line with the dollar.

The Fed and European Central Bank are, in a way, the world’s central banks.

The world needs higher interest rates to stop inflation.

In a way, we are seeing the debate on the euro magnified and applied to the world.

Should Britain join the euro?   There is no right rate of interest for the eurozone; Germany and Spain, France and Ireland, they all need interest rates that are quite different.  The UK needs another level.

But, in a way, on a global level, there are only two currencies.     That is why the current financial crisis is so intractable.

March 27, 2008 | posted by Michael Baxter in India | comments (0) |

This morning it was official.    Tata, India’s biggest vehicle manufacturer, has bought Jaguar and Land Rover from Ford.

For Tata, it provides two brands of global recognition, and technical expertise.  It could potentially lever off these two attributes, and when combined with own its unique selling points – largely cheap labour,  propel itself forward onto the world stage.   Jaguar and Rover may yet become associated with enormous success.

The end result could be an exodus of jobs from the UK, although unions seem to be optimistic the deal will mean the opposite.  

Equally, we could be witnessing an example of globalisation working.   British expertise combined with India’s labour pool to create a new giant on the automobile stage – eventually.

Interestingly, KPMG also released a report this morning, showing that Indian companies are leading the charge for acquisitions within the developed economies. 

According to KPMG’s Emerging Markets International Acquisition Tracker (EMIAT), which analyzes deal flows between 10 selected emerging economies and 11 key developed markets, 35 deals between India and the developed economies were completed in the second half of 2007, compared with 34 in the first half.
    
In all, the second half of 2007 saw 62 companies from the developing world buying companies in the developed world.  This compares with 78 in the first six months.

By contrast, there were 105 deals involving companies in the developed world buying companies in the developing world in the second half of the year, but in the previous six months there were 148 such deals.   

The US is the one country whose activity has tailed off the most, according to the Tracker. After recording 83 deals into the emerging markets a year ago – and another 67 six months ago – American deal activity collapsed to just 39 deals this time round. The reason seems quite clear – China. Having accounted for 73 US-backed deals in the previous twelve months, China registered a mere eight in the past six months.