Corruption curbs crimp luxury market

From China Daily - http://www.chinadaily.com.cn/china/2013-01/17/content_16128533.htm:

Government moves to fight corruption will have some surprising effects, including putting a possible dent in the market for luxury goods, as Wang Wen finds out.

Strict government regulations to ban officials' consumption of luxury items are expected to soften the luxury goods market and change patterns of consumer consumption.

Statistics from the Federation of the Swiss Watch Industry show that Swiss watch exports to the Chinese mainland dropped 27.5 percent year-on-year in September.

A pedestrian walks by a Swiss watch advertisement in downtown Shanghai in September 2011. JingWei / for China Daily

China's demand had been weakening through the year, but September was the worst, followed by another 12.3 percent fall in October, noted Ren Guoqiang, a partner at Roland Berger Strategy Consultants in China, a consulting firm based in Germany.

Ren said government officials, who used to be the main recipients of luxury watches as gifts,were unsure about the future policy environment.

Several government officials who were noticed by the public to own luxury watches were investigated for corruption in 2012. One was the director of the provincial administration of work safety, who wore a Swiss watch when appearing at the site of a highway accident.

Officials are cautious now about receiving gifts, Ren said.

"It hurts the luxury watch business a lot," since more than 25 percent of the luxury items sold on the Chinese mainland were used as gifts.

The government has made a new regulation banning government officials from using public funds to buy luxury items. The regulation was made in July and came into effect in October.

The regulation specifically restricts buying luxury items as gifts, especially products such as men's watches and garments, said Bruno Lannes, a partner of Bain & Co, a consultancy based in the United States.

Bain & Co shows that the yearly sale of luxury watches would fall 5 percent on the Chinese mainland in 2012, whereas in 2011 the figure rose as much as 40 percent.

Domestic distributors were also hit.

"The ban will have an adverse effect on our watch sales," said Sun Xuguang, the operations manager at Sparkle Roll Group Ltd, a Hong Kong-listed luxury dealer of Swiss independent watch brands, including Parmigiani and DeWitt.

Very high-end watches are eye-catching and easily recognized by the public and so will be affected more, Sun added.

The recent ban on public money for luxury goods has had an impact not only on sales, but also on consumer trends.

Buying gifts, which will remain an important part of luxury spending, is moving away from items with logos due to the extensive exposure on social media, said Lannes.

Reduced overtime at Foxconn upsets migant workers

An unintended consequence of enforcing 'fair' worker treatment - reduced income for migrant workers more than willing to work excessive overtime!

From Wall Street Journal - via Foxconn Workers Say, 'Keep Our Overtime' - WSJ.com.

 "Nets to catch would-be jumpers still sag ominously from Hon Hai Precision Industry Co.'s  buildings.

But two years after a spate of suicides at the Apple Inc.  supplier's campus here, workers are more concerned about another measure designed to protect them: limits on overtime.

Hon Hai in March said it would change its workplace practices after an audit by a U.S.-based nonprofit worker-safety group found widespread breaches of Chinese law and Apple policies at three plants, including the excessive use of overtime. Hon Hai responded by pledging that it would bring its overtime policies into alignment with Chinese law by next year, allowing workers to work no more than nine hours of overtime a week. 

The Taiwan-based company, also known as Foxconn, pledged to improve health and safety conditions at its campuses across China as well.

But more than 15 workers on the Shenzhen campus said in interviews that they work more than the legal limit of nine overtime hours a week. A majority said they work 10 to 15 overtime hours and would prefer more, having left their distant homes to make money in this southern Chinese boomtown on the border of Hong Kong.

"I think a lot of the more experienced people from the technology production lines will leave" if the policy to limit overtime goes into effect, said a worker who asked to be identified only by his surname, Ma. "We don't know how much our salary will go up. But after being here three years, I don't have much incentive to stay, since my wage probably won't rise much."

Mr. Ma, who earned roughly 3,400 yuan ($540) a month including overtime when he arrived three years ago, said he now earns about 5,000 yuan. To make extra money, the 26-year-old buys used car parts cheaply on an e-commerce website and then resells them.

Basic pay at the Shenzhen Longhua plant is 2,200 yuan, before overtime.

Keeping Mr. Ma and its 1.5 million other Chinese workers satisfied, while manufacturing complex, time-sensitive consumer electronics profitably is becoming more challenging for Hon Hai. The company's labor costs will rise by roughly $1.4 billion when the new labor policies roll out next year, according to a Bernstein Research estimate. Hon Hai's operating profit margin had declined since the second quarter of 2010 because of rising wages. The figure rose to 3.4% in this year's third quarter from 2.2% a year earlier as the company raised what it charged customers, analysts said.

Hon Hai isn't alone in facing such challenges. Employee protests over working conditions and the willingness of staff to change employer for more pay have forced electronics manufacturers to raise wages throughout China. Hon Hai and other companies have moved some operations to countries such as Vietnam and Mexico, where costs for labor or transportation to end markets are lower."

Starbucks cuts staff benefits to fund avoided tax!

The Law of Unintended Consequences strikes again!

From the Guardian   - http://www.guardian.co.uk/business/2012/dec/03/starbucks-slash-lunch-breaks

"Starbucks is cutting paid lunch breaks, sick leave and maternity benefits for thousands of British workers, sparking fresh anger over its business practices.

On the day the House of Commons' public accounts committee branded the US coffee chain's tax avoidance practices "immoral", baristas arriving for work were told to sign revised employment terms, which include the removal of paid 30-minute lunch breaks and paid sick leave for the first day of illness. Some will also see pay increases frozen.

The changes affecting about 7,000 coffee shop staff emerged as thecompany tried to quell public and political outrage at its use of secretive company structures that has seen it pay just £8.6m in UK tax over the past 13 years on sales of £3.1bn.

On Saturday Starbucks announced it would open talks with the UK government that could lead to it paying more tax in future and on Monday it was reported that such an announcement could come on Wednesday. But at the same time it was telling workers it was removing benefits and changing employment arrangements.

The new contractual terms being circulated to staff across 750 stores include the removal of cash incentives for becoming manager or partner of the year in favour of the award of a plaque and the removal of a bonus scheme for women returning after they have had a baby because "it is not considered a valued benefit".

A worker who claimed he was told to sign the new contract last week or leave, told the Guardian colleagues were "really upset" at the changes and said it appeared relatively low-paid staff were being forced to help bear the cost of the company's potentially increased tax bill.

"It's really convenient for them to say we're going to pay more taxes, when they're going to save money with us, the staff," said the coffee shop worker on condition of anonymity. "It's convenient saying we'll pay more because they're going to save more – and the perfect excuse for them is to say to staff 'We're going to pay more taxes, so…'."

He said his manager explained Starbucks "is losing a lot of money in Europe, so they said they needed to make these changes to save the company money".

Even apparently minor benefits are being cut. Starbucks is ending the practice of giving hampers to new mothers in favour of "a card and Starbucks baby grow and bib". The new policy on staff birthdays orders: "Removal of birthday cards. Bakery good code to be issued in store for free birthday treat." Congratulations cards on the anniversary of the first four years of service are being withdrawn."

Great 'natural' imports ... ?

TOBACCO: When Sir Walter Raleigh brought tobacco from America to England, it was deemed to be a wonder drug.  But several centuries later tobacco is the cause of lung cancer and multi-million $ in health care.  


"In 1585, Sir Walter Raleigh helped found the infamous settlement on Roanoke Island in Virginia. Although this colony was short-lived and no one quite knows for sure what happened to its residents, Roanoke did leave at least one lasting legacy that continues to influence our lives to day. It was at Roanoke that Europeans first had experience with tobacco. Thus, our multi-billion dollar cigarette industry (and its effect on the general health) is the direct product of the efforts of those early settlers on Roanoke Island to popularize the drug in Europe. http://socyberty.com/history/how-sir-walter-raleigh-helped-introduce-tobacco-to-europeans/#ixzz20ynzQ1AV

POTATO: And Sir Walter Raleigh is credited with importing the potato. Another wonder produce that helped to improve people's diets, until in 1845 there was a potato blight that changed teh face of Ireland forever.

"During the summer of 1845, a "blight of unusual character" devastated Ireland's potato crop, the basic staple in the Irish diet. A few days after potatoes were dug from the ground, they began to turn into a slimy, decaying, blackish "mass of rottenness." Expert panels convened to investigate the blight's cause suggested that it was the result of "static electricity" or the smoke that billowed from railroad locomotives or the "mortiferous vapours" rising from underground volcanoes. In fact, the cause was a fungus that had traveled from Mexico to Ireland.

"Famine fever"--cholera, dysentery, scurvy, typhus, and infestations of lice--soon spread through the Irish countryside. Observers reported seeing children crying with pain and looking "like skeletons, their features sharpened with hunger and their limbs wasted, so that there was little left but bones." Masses of bodies were buried without coffins, a few inches below the soil.

Over the next ten years, more than 750,000 Irish died and another 2 million left their homeland for Great Britain, Canada, and the United States. Within five years, the Irish population was reduced by a quarter.

http://www.digitalhistory.uh.edu/historyonline/irish_potato_famine.cfm/

MORPHINE & OPIUM: Although used for millennia, Opium and morphine did not become problems until the 19th century in England and in China. Initially it was used as medication, but abuse soon caught on. Today, of course along with cocaine, these drugs are the root cause of a lot of crime in most Western countries.
http://wiredintorecovery.org/articles/entry/8932/historical-perspectives-opium-morphine-and-heroin/

TEA: When English merchants brought tea from China to England in the latter part of the 17th Century, it slowly grew to be such a great drink that housewives did not trust their maids to look after the cupboard where it was stored but rather kept the key themselves. Sadly, along with silk and porcelain, England found that the trade balance was impossible to sustain as the Chinese apparently desired nothing in return apart from silver.  This led to the infamous Opium Wars and the quasi-colonialisation of China and the 'century of humiliation'.
http://chindia-alert.org/why-is-chindia-a-big-deal/ and http://chindia-alert.org/historical-perspectives/china-20c-timeline/

Once again we see the Law of Unintended Consequences at play.

Foxconn workers in China get pay rise but ...

The unintended consequence is that before long Foxconn will move some of its manufacturing out of China, where it currently employs more than a million workers into lower cost and lower expectation countries.

http://www.reuters.com/article/2012/04/27/us-china-foxconn-idUSBRE83Q0JV20120427?feedType=RSS&feedName=topNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FtopNews+%28News+%2F+US