What is the French and German plan to create bi-national champions really about? 1 страница

THE latest attempt by France and Germany to revive tired old industrial policies by jointly creating European business champions got off to an inauspicious start. Before the German chancellor, French prime minister and their respective economy and finance ministers could hold their summit in Berlin on June 1st to hammer out the details of the plan, on May 17th Nicolas Sarkozy, the French finance minister, and Mario Monti, the European Union's competition commissioner, agreed a rescue deal for Alstom, a troubled French engineering firm, that flies in the face of the new spirit of co-operation.

Siemens, a huge and prosperous German firm, has expressed a strong interest in buying Alstom's turbine business — on the face of it, a perfect opportunity to create a symbol for the new policy. Instead, under the deal between Messrs Sarkozy and Monti, Alstom will remain a French company, bailed out by the French state. This decision led several German officials to complain about France going it alone. Siemens is considering a legal challenge, once the details of the rescue package are official.

In theory, at least, the French and Germans have in mind a different sort of national champion to the inefficient, protected monopoly, state-subsidised sort of which Alstom is a reminder. A classic example of the old-style champion, says Louis Schweitzer, chairman of Renault, is Fiat before the EU forced open the Italian car market.

The new sort of national champion, or Euro champion, would have a somewhat different objective, says Mr Schweitzer, to ensure that Europe, or a given European country, has firms able to hold their own in competitive global markets, particularly against America's mighty multinationals. This, he says, is the logic behind the recent controversial drug merger, pushed by the French government, of Sanofi-Synthelabo, a French company, with Aventis, a Franco-German firm.

France and Germany launched their new plan on May 13th, when they declared an intention " to formulate a joint industrial policy aimed at creating a framework for mergers and joint-ventures between major German and French corporations." Together Germany and France could create a number of industrial champions modelled on EADS, the European Aeronautic Defence and Space firm, formed in 2000, said Jacques Chirac, the French president.

Such a policy would have its downside even if it were being pursued in conjunction with general economic liberalisation. But there are reasons to think that the big talk about cross-border action may be mere cover for various politically driven national initiatives in France and Germany, many of them protectionist.

The Economist

UNIT 2

• Text

All YOURS

Manufacturing companies are increasingly using the Internet to give customers the impression of personal service. But true customisation needs new production techniques as well

" ANY colour you want so long as it's black, " was Henry Ford's approach to customer choice. Click on the website of idtown.com, and you see the next industrial evolution at work. This firm, in Hong Kong, will sell you any of an almost infinite variety of designs of watch, assembled from standard parts, at much the price of a Henry Ford-type watch.

Thanks to the Internet, all sorts of firms are using one-to-one marketing to elicit information about individual customers. Such information could once have been collected only through a direct sales force, and its high cost meant that it was used only for high-value customers. Now, the cost has fallen sharply. And mass customisation allows companies to use such information to produce individually tailored products at affordable prices. " As in so many areas, " notes Ward Hanson, author of " Principles of Internet Marketing" and a professor at Stanford Business School, " the Internet allows the democratisation of goods and information."

Until now, these techniques have been applied chiefly to services. Banking, stockbroking, communications, on-line information: all increasingly appear on your computer with your name attached. " Anything that can be digitised can be customised, " says Joseph Pine, who helped to found Strategic Horizons, a consultancy in Ohio, and also wrote a book on mass customisation. But now, products that cannot be digitised are increasingly receiving die all-yours treatment too. And as the revolution spreads to manufacturing, firms are finding they need to change their entire production process.

The first manufacturers to tailor products to particular customers have, not surprisingly, been selling to other businesses. Mass customisation is more prevalent in business-to-business, because the customer can attach a dollar value to it, " says Mr Pine. The simplest approach is to design a product that buyers can customise themselves. However, too many choices, and too much flexibility, create problems for both customers and company.

But the change has not merely affected customers' costs and convenience. Gradually, it has affected the way that customers work too. The manufacturer that has done most to apply this approach in the consumer world is Dell Computer. To the customer, the company's most striking feature is a website that allows the buyer to design an individual computer and then track it through to delivery. But Dell also shows that when you get mass customisation to work, some remarkable things start to happen.

First, the need to hold stocks of parts, partially finished and finished goods falls sharply: inventories at Dell have fallen from 31 days of parts at the end of the financial year to only six days today, says Paul Bell, who runs Dell's operations in Europe. Much of Dell's production, up to the point of final assembly, is outsourced. That makes it essential for suppliers at every link in the chain to be plugged into good information about what customers want, and when. " If all our suppliers are guessing, " says Mr Bell, " you end up with inventory, which is the physical embodiment of bad information." Mind you, this process can also bring an opposite problem: delays when Dell runs out of a particular part.

Speed and good communications are thus essential if mass customisation is to work. Get them right, and another prize is yours. In Henry Ford's day, Ford made the car and the customer paid for it. In Michael Dell's day, the customer pays for the computer and then Dell makes it. Thus, in the past quarter Dell has been sitting on 18 days' sales, and the figure is creeping up as the speed of production increases.

Car makers, lumbered with more than $100 billion of stocks in America, look on this with envy. " We've learnt a lot from studying Dell, " admits Mark Ryhorski, manager for consumer-relationship marketing at Ford in America. " After all, they broke the paradigm that great consumer choice means huge amounts of inventory. The auto industry is a trillion-dollar industry, sitting on 60-100 days of finished goods. Think how much of this country's capital is tied up in that." Conventional car making pumps thousands of cars through each plant to keep costs down. But accumulating stock has to be financed and, as often as not, cleared using special deals, both of which eat into margins.

As a step away from this, Ford announced a partnership with Microsoft last year that will give potential customers a view, not just of their local dealer's lot, but of what regional dealers have, what is on order and what is being built. The trouble is that this is not that many steps away from Henry Ford. What Ford and Microsoft propose is merely a customisation of the stock pipeline. Customising the car itself will be harder: for instance, body colour is determined early on, when the newly bashed metalwork is sprayed. By contrast, the colour of a Smart Car, made by DaimlerChrysler, is decided almost at the last minute, when plastic panels are clipped on to the sides. Without changing their production process, traditional car makers will not really be able to customise their cars.

To succeed in mass customisation, firms must change more than just the order in which things are assembled. " One of the biggest changes is in the design and construction of products, " says Frank Filler, an expert in mass customisation at the Technical University of Munich. Companies, he says, need to move to modular production processes, in which each group of steps can be separated or clipped together " like Lego blocks."

One example is in the garment business. Timothy Belton left Andersen Consulting in 1997 to set up Express Custom Tailors, producing tailored menswear to order. He offers " a custom garment in less time than you have to wait for the alterations, at a lower price than off-the-rack."

He put the garment-producing end of his business in Cleveland, Ohio, because the town's tailoring tradition gives it a ready supply of skilled workers. But the production process he uses is Lego-style, not old-style. Instead of making the sleeves of a jacket first and then the body, assembling the garment in a series of steps, his workers make sleeves and body simultaneously, working in parallel with others who are stitching other sections. By breaking the 100 or so operations into modules, a garment can be assembled in five hours. " Saville Row on steroids, " is how Mr Belton describes it.

Some firms are developing the link between one-to-one marketing and mass customisation. Reflect was created by Procter & Gamble to develop online sales of beauty-care products. It takes information from its customers and offers them cosmetics, shampoos and so on, all made to their specification. It opened 12 weeks ago, and half its orders are already repeat business.

Part of the appeal to customers, says Richard Gerstein, who runs design and marketing for Reflect, is to enjoy a wider choice than in even a well-stocked department store, where " most brands can sell only 15 or so items." But the producer gains even more. Reflect has complete control of its relations with customers, learning from them as well as being able to market to them without a retailer getting in the way.

A new metric too

Few things reflect a firm's priorities more clearly than what it chooses to measure. One corollary of mass customisation is a focus on what customers want, rather than what the company can produce. This is shown, says Stanford's Mr Hanson, in a switch from measuring market share to measuring a customer's lifetime value. " The old way was to measure performance against a fixed set of competitors, " he points out. " Now, I may not know who is my competitor. It becomes more important to measure how much a customer costs to acquire and to retain. We couldn't do that before; instead we just measured what went out on the loading dock."

The key to exploiting mass customisation is to manage customers at the same time, observes Mr Filler. Don Peppers, an American writer on one-to-one management, makes a similar point: " Customers are no longer passive recipients of a message. They tell you what they want. You stay with me because we have a learning relationship."

It is not easy to turn around a business designed, in the style of Henry Ford, to produce first and sell afterwards, and point it instead towards serving each customer individually. It requires a different corporate structure, built not around products but around different kinds of customers. Henry Ford's mass production transformed manufacturing in the 20th century. Mass customisation may do the same in the 21st.

The Economist

Notes

1. Saville Row - 1) a street in London where fashionable tailors have their shop; 2) an expensive men's suit

2. paradigm - 1) система понятий или представлений (в какой-либо области знаний), принцип; 2) тип (напр. потребителей), модель, разновидность

Translation Commentary

Speed and good communications are thus essential if mass customisation is to work.

Следует запомнить перевод конструкции «tо be + Infinitives” в условном предложении:

1. для того, чтобы; 2. если кто-то желает чего-либо; 3. если суждено (см. упр. 3).

Vocabulary

Useful Words and Phrases

Exercise 1. Give the Russian for the following.

to have affordable prices; to have one's money tied up in the mining industry; the white-goods-producing end of the business; inventories; individually tailored products; to receive the all-yours treatment, to found a consultancy; to be ill founded; to elicit quite useful information; to elicit the truth; a direct sales force; to customize a car; mass customization; to turn around a company; accounts receivable; to attach a dollar value to smth; to affect customers' costs and convenience; to outsource production; to have one's job outsourced

Exercise 2. Give the English for the following words and word combinations.

приемлемые (для потребителя) цены; удерживать цены на низком уровне; испытывать нехватку каких-либо комплектующих; сырье; полуфабрикаты; готовая продукция; распространение опыта, полученного в сфере услуг, на обрабатывающую промышленность; применять индивидуализированные методы маркетинга; индивидуализированный продукт; использовать субподряд; создавать товарные запасы; проводить коррекцию запасов; высокорискованные, «бросовые» облигации; применять финансовый рычаг; квалифицированные рабочие; проводить монтаж (демонтаж); определять (измерять) результаты деятельности компании; гибкость; руководить деятельностью компании в Северной Америке; повышать качество и эффективность

Exercise 3. Translate the following extracts paying attention to:

a) emphatic structures

1. What Ford and Microsoft propose is merely a customisation of the stock pipeline.

2. What has kept the educated job market from falling off the cliff so far is continued hiring by some key industries.

3. If the Conoco/Phillips fusion does trigger yet another round of consolidation however, it is unlikely to be as earth-shattering as the previous one, for one simple reason: the oil industry's premier league is too far ahead.

4. If chief executives had taken the depressed market valuations of the 1970s and 1980s seriously, there would have been virtually no investment. Fortunately they did not do so. Unfortunately, they did take the overvaluations of the late 1990s quite seriously and promptly proceeded to waste resources on a vast scale. In both environments, however, wise managers would have paid little attention to the market gyrations, just as wise shareholders would have shielded their managers from its temptations.

5. What worries Nestle's chief executive far more are accusations that the Swiss group is swapping a consistent, long-term strategy of controlled expansion for an unbridled acquisition spree to pep up its growth rate — and that it is doing so just when dullness is back in fashion in the business world.

6. Only when one of the shareholders began asking questions was the company forced into initiating an investigation. What was unveiled and made public yesterday might have been expected to have already disturbed some investors.

b) to be + Infinitive

7. Yet a huge strength of American firms is their ability to reap scale economies and roll out brands across the world's largest single market. If Europe is to benefit fully from the Euro, it needs to follow suit. And that is more likely to happen if Europe's companies find it easier to merge across borders.

8. The Carlsberg Foundation controls the brewing business and is obliged to maintain the ownership of the Carlsberg holding company above 50 per cent. It might need a clever structure to sell. If the Carlsberg Foundation is to protect its investment, it is time to make sure it has done the necessary groundwork.

9. Imposing Japanese-style quality and efficiency is a must if Renault is to have a shot at reentering the US, a goal the French company has set for some time after 2010.

Exercise 4. Translate the following text into Russian paying attention to the structures with " it".

1.As it turns out, it's how Michael Dell manages the company that has elevated it far above its sell-direct business model. What's Dell's secret? At its heart is his belief that the status quo is never good enough, even if it means painful changes for the man with his name on the door. When success is achieved, it's greeted with five seconds of praise followed by five hours of postmortem on what could have been done better.

2.Hilfiger's no fashion leader. When it comes to mergers and acquisitions, clothes are all the rage. That has some smart investors worried that prices are getting too high. " It's a buying spree that doesn't seem to have a lot of pricing discipline, " say Liz Clairborne Inc.

3.It's only this year that Yahoo, prompted by the sudden and huge success of Google, has set about trying to build a solid engineering culture of its own around a handful search engine companies it acquired.

Exercise 5. Translate the following text into English in writing.

Трансформация «Эй-Би-Би»

Швейцарский концерн «Эй-Би-Би» (ABB) — один из миро­вых лидеров по производству энергетического оборудования — объявил о начале реструктуризации. В прошлом году доходы компании снизились, и руководство компании почти в открытую стало обсуждать возможность выкупа 6 млн акций.

Из-за плохих финансовых показателей компанию покинули 612.менеджеров. Среди них был и президент компании, который ушел в отставку, не пробыв на своем посту и трех лет. Пришедший ему на смену новый глава компании объявил о принципиально новой стратегии «Эй-Би-Би», которая должна помочь группе «найти свое место мире». Раньше отдельные подразделения компании работали с одним и тем же заказчиком на разных условиях. Отныне же все части «Эй-Би-Би» будут работать «по единым правилам».

Эксперт

Exercise 6. Translate the text into Russian orally.

Has Outsourcing Gone Too Far?

Farming out in-house operations has become a religion. Faith now be tempered by reason

If all manufacturers sang from the same hymnal — and many do — they would outsource almost everything: management gospel holds that manufacturing is too labor- and capital-intensive to support the high margins and fast growth that investors demand. By shedding assets, companies can be born again as product designers, solution providers, industry innovators, or supply chain integrators — and, it is said, quickly boost their return on invested capital. Standard & Poor's reports that in the year 2000, the market-to-book ratio of the S& P 500 was six times greater than it had been in 1981 — a reflection of the declining importance of tangible assets.

Such pressures and perceptions make outsourcing an almost irresistible impulse for manufacturers. Gobal access to vendors, felling interaction costs, and improved information technologies and communications links are giving manufacturers unprecedented choice in structuring their businesses. Through outsourcing, companies can now dump operational headaches and bottlenecks downstream, often capture immediate cost savings, and avoid labor conflicts and management deficiencies. We are aware of no managers who have been taken to task for farming out in-house operations.

But in the race to hand over capital-intensive manufacturing assets to outside suppliers, companies may be ceding the very skills and processes that have distinguished them in the market place. Consider the case of Gibson Greetings, the oldest US greeting card maker. In the 1990s, it started running out of cash. To realize savings, Gibson chose to outsource its manufacturing, but it soon ran into supplier-management problems that cost the company its place at large retailers. In the meantime, its competitors had been investing in more efficient printing and production technologies. Ultimately, one of those competitors acquired Gibson. An analyst observed, 'The final nail in the coffin was that Gibson got out of the manufacturing business and started outsourcing."

Obviously, the decision to outsource doesn't produce such a drastic outcome; done right, outsourcing manufacturing or services can deliver game-changing levels of value. But by assuming that outsourcing is the answer rather than critically assessing its pros and cons, companies may be failing to do what really matters: improving a company's performance and maximazing value. Outsourcing can be instrumental in realizing these goals — but not always.

The rush to outsource has delivered much less value than it might have. It has been forgotten that outsourcing isn't an end in itself but rather a strategic tool for enhancing overall performance. The ability of outsourcing to play this role depends partly on the form chosen — the re-lease or sale of assets, a spin-off or intitial public offering of the business, or the formation of an alliance or joint venture. If outsourcing isn't used strategically, it probably shouldn't be used at all.

McKinsey Quaterly

Exercise 7. Translate the text orally.

Can Bayer Cure Its Own Headache?

Shareholders would like it to shed everything but health care

On Jan, 24, Germany's biggest drug-maker, Bayer, will make its debut on the New York Stock Exchange. The company, best known for inventing aspirin, in 1897, likely hopes to use its new shares as currency for acquisitions in the world's most profitable drug market: the U. S.

But why should American investors buy into a sluggish, old-fashioned conglomerate? After all, Bayer's German shareholders are deserting the company in droves: Its Frankfurt-traded shares have plunged close to 40% in the past 12 months. Bayer's recent performance indicates that its glory days are behind it.

Bayer can attribute some of its disastrous results to Baycol, the cholesterol-lowering drug that was pulled from the market last year after it was implicated in 52 deaths. But the problems run much deeper. For years, shareholders have tried and failed to persuade management to sell underperforming units and focus on the more lucrative pharmaceuticals business. Citing a recent study by Boston Consulting Group, Bayer executives say conglomerates perform better than more narrowly focused companies over the long term. Yet that's not a convincing argument for one London analyst: " This is a classic case of a company that should be broken up to get some value out of it, but management clearly doesn't agree, " he says.

Blame this impasse on Bayer's determination to cling to the now discredited notion that there are real benefits in owning both chemical and pharmaceutical businesses. The synergies, however, aren't there. Just ask other giants of the so-called life-sciences industry. Switzerland's Novartis and Britain's AstraZeneca spun off their agrochemicals units in 2000. Bayer, in contrast, has been expanding its own, buying Aventis Crop Sciences in October for $6.5 billion. The acquisition pushed Bayer's net debt to more than $12.5 billion. " Any successful drug company today doesn't have all this baggage of specialt y chemicals or plastics, " says Barrie James, president of Pharma Strategy Consulting in Huntingdon, England.

Bayer Chairman Manfred Schneider is open to a joint venture. " Ibis could involve part of our activities or even the whole [healthcare] business, " he says. Schneider hopes any partner would have a strong position in the U. S. market yet be small enough that Bayer could retain management control. Few drugmakers fit that bill.

Schneider, 63, may need to moderate his criteria if he is ever to find a partner for Bayer. In December, Schneider announced that next year Bayer would separate its four divisions into legally independent entities. The move could open the way for strategic partnerships. But a bolder, fast-working treatment is in order for Bayer's long-suffering shareholders.

BusinessWeek

Exercise 8. Speak on the following topics. Use of other resources is necessary.

1.Mass customization.

2.Dell - the company and its boss.

3.The challenges Dell's computer business has to face.

4.Outsourcing - ins and outs of the strategy.

UNIT 3

• Text

QUALITY ISN'T JUST FOR WIDGETS

Six Sigma, the quality-control and cost-cutting power tool, is proving its worth on the service side

IN the world of manufacturing, Six Sigma has become something akin to a religion, with none other than John F. Welch as its charismatic apostle. The former chairman and CEO of General Electric Co. came late to this rigorous, statistical approach to quality control. But once he embraced it in 1996, he quickly assembled an unprecedented army of employees to pinpoint and fix problems throughout GE using the number-crunching skills they learned in Six Sigma training.

The results were awesome. In the past three years alone, these troops saved the company $8 billion, according to GE. Little wonder, then, that Welch has won so many converts preaching the cost-cutting power of this methodology.

So what is GE doing with Six Sigma under Welch's successor, Jeffrey R. Immelt? More than ever. The $126 billion conglomerate spent $600 million on Six Sigma projects in 2002 — mostly for the salaries of 4, 000 full-time Six Sigma experts, plus 100, 000 employees who've undergone, basic training. Altogether, they have a target of finding an additional $2.5 billion in savings in the company.

On top of that, GE is sending out its Six Sigma squads to customers such as Dell Computer and Wal-Mart Stores to help them root out what GE estimates to be more than $1 billion in inefficiencies and waste — and help GE win more business.

GE may be preeminent, but it's certainly not unique in pushing Six Sigma into new comers of its business. Originally conceived by Motorola Inc. as a quality-improvement device in the mid-1980s, Six Sigma soon morphed into a cost-cutting utensil for manufacturers of all stripes. Now, it's fast becoming the Swiss army knife of the business world. Goods producers still make up the bulk of users, who typically rely on statistics to uncover and then reduce product variance in order to boost quality and efficiency. But increasingly, manufacturers are applying Six Sigma to functions as varied as accounts receivable, sales, and research and development.

And their success in these non-factory domains has inspired Six Sigma projects at financial institutions, retailers, health-care concerns, and in other areas of the service sector. Says Gregory H. Watson, a consultant and past president of the American Society for Quality in Milwaukee: " Six Sigma might be the maturation of everything we've learned over the last 100 years about quality."

It's easy to see why Six Sigma works well in large-scale manufacturing. For one, factory processes tend to be both repetitive and easy to track as goods move along the line. Also, companies usually quantify what happens at each step. So, by measuring defects per output, they can quickly assess how a different way of doing things at any stage affects productivity or profits.