UK out of recession?

The UK Office for National Statistics announced on 26th January that the UK is officially out of recession. After six consecutive quarters of contraction, the British economy finally registered positive growth.

The UK grew by 0.1% in the fourth quarter of 2009, although an amount that skims the borders of statistical insignificance, this modest figure heralds the end of Britain’s greatest economic slump since the Depression. The International Monetary Fund added to the relief by forecasting 1.3% growth during 2010 in Britain. It also predicts 2.7% growth in the US, 1.5% in Germany and 1.4% in France.

However, the evidence from the ONS suggests that the UK is still in a troubled times.
The yearly trend is still negative, indicating that although the UK is technically out of recession, output and employment are still well below those levels enjoyed two years ago. Economic activity is still below the annualised trend.

Furthermore, ONS’ preliminary forecasts are often subject to revision.
As we can see, there is much tweaking and refining of data before the “final” growth figure is fixed. Even a -0.2% alteration would see Britain’s recession prolonged.

The City was expecting a robust return to growth following higher employment figures and lower business failure rates in Q4 2009. Yet, the feeling in the Square Mile was one of disappointment. Analysts continued to fret about the potential to fall into the “double dip” recession.

With all political parties promising major cut-backs in public spending to reduce the record-braking government debt, a major stimulus to the economy will be withdrawn. Further still, the collapsing pound may fuel inflationary pressures that might further eat into nominal GDP growth figures.

Although most major trading partners are now growing, some key economies are still struggling: the Spanish economy is forecast to remain in recession until 2011.

Recovery at present looks perilously frail, coupled with already low confidence-levels, the UK tipping back into recession looks a 50/50 bet for Q1 2010.

China's commercial cheating Googlewhacked

Google’s single motto of “don’t be evil” was called into question when they agreed with the Beijing authorities to censor the Google’s Chinese search engine. A dipped toe into the pool of moral dubiousness was the price of Google’s access to the China market. However, this agreement verged on collapse on the 12th January, when Google announced that its users were subject to Government-sponsored cyber attacks.

David Drummond, Google's corporate development and chief legal officer, posted a statement on the company's official blog, indicating it may "shut down Google.cn, and potentially our offices in China."

Although the international business press flourished into life following Google’s announcement, the Chinese seemed uncertain how to respond. The main Chinese news outlets set-up a smokescreen story on minor copyrights disagreements on electronically publishing out-of-print books.

Some days later, the major Internet news sources in China acknowledged the dispute, but played down its importance. CCTV even claims that there is “no indication” that Google is leaving China.

Now, most Chinese reports admit that Google took this action following “attacks” but do not specify that the Chinese Government alledgly orchestrated these cyber-assaults.

China appears to be rattled by Google’s defiance. All that the Government could manage was a bland call to observe Chinese directives. Yao Jian a spokesman for the commerce ministry, said

“Foreign companies, including Google, should all follow international standards and respect local law and regulations and local culture and customs to shoulder social responsibility."

Compared to China's previous tough-talking diplomacy, it almost looked like a shamed-faced admission of guilt.

The internal effects of Google’s withdrawal are limited. Although there are an estimated 80 million Google-users in China, they are a poor second to China’s main search engine, Baidu, which commands 60% of the market share in Internet searches. Baidu shares on the United States NASDAQ market jumped 13.7 percent on Wednesday13th January to US$439.48.

It is doubtful whether there will be any further political unrest. The entire Xinjiang region was cut off from the Internet after the July 2009 riots. There was little resistance to the region of 19 million half a year without net access or contact with the outside world, despite a summer of violence and protest.

Nevetheless, the withdrawal of one of the largest multinationals will have a huge impact on foreign business confidence. In an attempt to calm the storm, a Foreign Minister spokesman insisted that China has a "favourable environment for the Internet." Recently, it announced that foreign investment has doubled in the last quarter – but all that may be at risk.

(Source: http://www.chinadaily.com.cn/bizchina/2010-01/16/content_9330224.htm)

The business world accepts China’s communist trappings as cosmetic. But the private sector’s main issue with China is its hyper-nationalistic tendencies and its casual breaching of basic trading principles. Intellectual property rights have long been a sticking point between China and the international business community.

China has a long history of flagrant theft of intellectual property rights. CYBERsitter, a web-filtering company, is seeking $2.2 billion in damages from China for alleged theft of is software to develop the new Green Dam Internet control software.

Amongst US firms, China holds the worst record in violating intellectual property rights. The US custom authorities claim that 81% of sized counterfeit originate from China.

Recently, however, underhanded business practices have taken a turn for the sinister. Washington recently claimed that 30 cyber attacks against its companies were conducted over the last year – including Google. Even CYBERsitter’s lawyer, Gipson Hoffman & Pancione, suffered a Chinese-based hacker.

The extent of the change may be exaggerated. A 16th January search on http://www.google.cn/ on the "Tiananmen Square Massacre" produces a mainly tourist advertisements and videos of attractice presenters urging you to visit "fantastic" tourist must-do.

Yet, Google’s stand may prove a turning point for trading in China. Will Beijing yield to commercial realities after decades of political pressure have failed to bring about normalisation of Chinese business?

If not, with its barefaced theft of commercial property and aggressive attitude to foreign businesses, will multinationals, long mesmerised by China’s huge market size, finally full the plug on foreign capital?

Either way, Google’s unprecedented confrontation with China has revealed a super-power less sure of itself than the business world has hitherto dared to realise. And highlighted the massive risk that investing in China represents.

Business Continuity Management in the Recession

Business that plan for long term success much prepare for unexpected disasters. What happens if your supplies go bust? What do you do if your computers stop working? Planning for the worst eventuality in times of calm, should aid the recovery process during crises with the minimal panic.

Business Continuity Management (BCM) aims to provide businesses with the systems to absorb and recover quickly to full productivity. BCM is a fairly recent term for a well-established management principle, but treats business recovery as a discipline with universal rules and guidelines. It stems from risk management and disaster recovery, which can be seen as components of the broader BCM process. In short, it aims to equip managers with the tools necessary to reduce the impact of a unexpected event, and hasten the resumption of normal business.

During recessions, even small events can push an unprepared firm into insolvency. Companies experiencing cash-flow problems during the lower end of the business cycle may miss crucial deadlines if their IT systems fail at a critical juncture. With ever tightening credit, even the smallest delay may leave a permanent impact.

With the roll out of BS 25999 in the UK, and ISO 22399 and ISO 31000 internationally has encouraged a wider take-up of BCM plans. This has provided plenty of consultancy work for BCM practitioners, but there is little evidence that this improved business performance.

A recent survey by Equifax found that the total number of British business failures in 2009 increased by 18% on 2008. However, the fourth quarter improved on the 2008 equivalent period. A spokesman states:

“Figures for the last quarter [in 2009] show a continuation of this trend with a 7.7 per cent year-on-year decrease. This has to be good news for the economy as a whole.”

It must be noted that the yearly figures for 2009 are worse than 2008, and the fourth quarter enjoyed the additional benefit of lower sales tax rates, the future for the UK economy remains uncertain.

In its 2009 survey of resilience in international business, iJET found that the vast majority of companies had BCM plans in places. The sampled plans addressed concerned: emergency response (85%), continuity (82%) and crisis management (81%).

Indeed, take-up of BCM principles has taken off on an international level. Recent studies into businesses in Australia and New Zealand found a very positive reception, with 75% of organizations possessing BCM plans and holding regular testing.

It is this final issuing of testing that is crucial to embed BCM into organisational culture. The Chartered Management Institute's Business Continuity Report 2009 found that most business do not test their plans regularly. The BCI recommends that plans are rehearsed four times a year - the reality is that only 11% of British firms do so. With a third of businesses not testing plans at all.

Frequency of testing BCM plans

The key to preventing an unexpected event tipping a business over the edge, is to have BCM practices embedded into corporate culture. A off-the shelf BCM plan, or one-stop report procured from a BCM consultant will not, in itself, increase recovery times. A plan, on its own, is likely to be filed and ignored by a complacent workforce.

Plans need to be rehearsed - even in times of economic urgency. With firms operating under hand-to-mouth business plans, resilience and preparedness are the key buzzwords. .

Iceland fights the thaw

For a supposedly powerless figurehead, Olafur Grimsson fancies his chances of taking on international capitalism - and winning. Iceland’s ceremonial president refused to sign a law that would indebt his national by €3.8 billion ($5.5 billion). This would cost each individual Icelander over $17,400.

The debt is owed to the British and Dutch Governments, which compensated their citizens who lost their money when Icesave, an Icelandic internet bank, went bust. Now Britain and the Netherlands want their money back.

But the way in they have sought to do so has aggravated more than it soothed. Britain used draconian anti-terrorism legislation to freeze Icelandic assents, and threatened to block Iceland’s EU application, as well as preventing it from accessing credit through the IMF. Once the payback was agreed, an interest rate of 5.5% in an age of low rates was seen as punitive.

Added to this fermenting unrest was the common sense argument of the man on the Reykjavik omnibus: “Why should I repay the debts of rich foreigners? It’s nothing to do with me.”

The Government’s plan to repay the debts was hugely unpopular. Opinion polls tracked an opposition high of 70%. Over 56,000 - about 23% of Iceland's voters – signed a petition to reject the Bill. Grimsson, traditionally viewed a legislative rubber stamp, heeded the protests and refused to sign the law. As a result, the Constitution automatically required a national referendum.

So, the Icelanders are currently deliberating their rights to vote away their debts.

Some may argue that these debts do not belong to the Icelandic people, but the international picture is far deeper. Once obligations are rescinded, the likelihood of future transactions is reduced. When the referendum was announced, Fitch, a debt rating agency, immediately downgraded Iceland debts and loans, increasing the costs of current and future credit.

The reality for tax-payers across the globe is a grudging acceptance of the state’s bailing out of reckless banks, on the basis that allowing the financial system to collapse would come at an unacceptably high price. Although these subsidies were provided with reluctance, it was a better option than catastrophic depression.

Yet, why should Iceland, home of the “rate tart” attracting under-capitalised dot com banks, escape the same fate that befell everyone else?

Icelandic exceptionalism probably isn’t the driver for this two-fingers to global capitalism, as a sense of pride. Britain, itself suffering from bail-out fatigue over its own failing banks, bullied its Nordic neighbour. The UK’s threats and strong-armed tactics detracted from the reasonableness of its position, and decreased the chance its repayment.

As the full implications sink-in over Iceland’s potential economic isolation should they vote “no”, a rational and pragmatic public discussion should raise support for the Government’s position. Before the campaign started, polled opposition to the Government fell to 56%.

But, the Icelanders have an opportunity to contribute to their own economic policy, which indeed is an international exception. By bringing along its people in its economic thinking, Iceland may avoid the discontent and extremism that has erupted elsewhere in Europe. Reykjavik’s humiliation may prove to its long-term advantage.

Nigeria fairly screened out?

After Nigerian national Umar Farouk Abdulmutallab’s failed attempt to crash a commercial flight over the US, the American administration increased already strenuous security measures.

Most noticeably, they demand that passengers hailing from a list of troubled nations are subject to more intensive screening through pat-downs and additional baggage scanning.

Those countries affected are:

Supposed “state sponsors of terrorism”: Cuba, Iran, Sudan and Syria.

Plus: Afghanistan, Algeria, Iraq, Lebanon, Libya, Nigeria, Pakistan, Saudi Arabia, Somalia and Yemen

The most curious name of this list is Nigeria. All the other listed countries have populations with active and armed anti-American movements. Indeed, (Cuba aside) they all have a history of exporting Islamic violence.

Nigeria, although wracked by an anti-Western oil insurgency and a long history of religious conflict, has never developed an international terrorist group as seen in the Middle East. But now, in Britain’s open Commonwealth and an increasingly integrated global economy, social contact and association is less rigid. Ironically, the US has established a strict list of rules at a time when national-identification has never been less relevant. Islamic terrorist are just as likely to come from Western nations with large Muslim populations – as the British “shoe bomber” Richard Reid demonstrated 2001.

The policy has also revealed an underlying threat for world security: The poor quality of security provision in developing nations. Those passengers taking connecting flights from developing nations would have passed through security levels that are slight and perhaps easily crossed with bribes. Nigeria, however, is not the only country with dubious security measures and limited resources to invest in border controls.

The former head of the British internal intelligence service, Dame Stella Rimmington noted that most terrorists travelled in first class and carried multiple passports. It is doubtful whether the additional security measures would reveal any of the more sophisticated assailants capable of delivering most damage. Terrorist could, on paper, hail from any country in the world.

An Islamic attack might originate from any country with any Muslim population, ranging from Sweden to Tanzania. Requiring the US authoritarians to effectively close its borders. Or at least, establish an expensive, time-consuming and demeaning security system.

The security services have long cited their public invisibility as an unfortunate. Claimed failed plots rarely win plaudits in open discussion. It is difficult to access the impact of events that never took place. Presumably, the more incompetent terrorists were those that are captured, so their ability to succeed is added to uncertainty. The heavy security present in all airports not only assures the public that activity, but also attempts to reduce anxieties.

Perhaps these additional steps may be a stage in a long-term increase in airport security?