Why 2010 business and economic outlook still gloomy ?

Why are many firms still currently so cautious in business outlook? One likely factor is that they regard the present stale economy as highly uncertain, particularly in the US and Europe. The recent combination of volatility and a declining trend in developed-world stockmarkets has reinforced concerns that already abounded in companies’ executive suites, that the recovery so far has relied too much on government spending. That, given all the recent political talk about the need for public austerity to fend off bond-market vigilantes, may not continue. Meanwhile, private-sector demand remains anaemic.

A second factor is that firms have much less need to invest now because their capacity utilisation remains at historically low levels, so you do not need more resuorces as you got nothing much to output as demand is still slow in picking up. Currently, for example, industrial-capacity utilisation in US is 73%. That is up from the recessionary low of 69%, but well below the 80%-plus level it was at in the years before the economic meltdown in September 2008, and during much of the 1990s. Since plants still have so much spare capacity, managers see little justification for capital spending. It is forecasted that in developed countries, industry’s capital spending will fall by 3% this year after a 10% fall last year. In emerging markets, capex is expected to grow by 8% this year but far short of last year’s roaring 21% growth.

MARKETS seem to be emerging from a bad patch of turbulence and the past two months have seen wild swings across global financial markets that would have unsettled even the most seasoned of investors. Europe may have averted disaster but its sovereign debt problems are far from over. In China, the yuan is finally unshackled from the dollar but it remains to be seen how far it will be allowed to gain on the greenback.

For sure, a range-bound market characterised by much volatility was pretty much a given this year as the global economy faced its biggest test since the depths of March 2009. With government stimulus petering out, the question was always whether private investment and consumption had mended sufficiently to take over the mantle of championing global growth. Strong emerging market growth is set against lagging expansion in the West, while Asia's inflation-fighting policy-makers square off against Europe's fiscally tied hands.

As it stands, Asian governments, faced with the threat of inflation, have started to normalise fiscal and monetary policies. China, in particular, has moved fairly aggressively to curb the rapid rise of real estate prices. In contrast, those in the West have been fairly content to retain stimulatory policies - at least until Europe's sovereign debt crisis erupted. Beginning with what seemed like a peripheral problem, the continent - and the world - was sucked into a spiral of anxiety as sovereign solvency fears spread beyond Greece. Efforts by EU policy-makers appear to have successfully stabilised the contagion.

In second half of 2010, the global recovery could be on track and fears of a double-dip recession are likely overstated. Concerns that Europe's fiscal problems may spark a liquidity crunch of post-Lehman proportions might be fast fading, and upcoming stress-test results for the region's banks should go some way towards nullifying those fears. While banks are lending to one another at higher interest rates, perceiving greater counter-party risks, the actual risk premiums demanded are not worryingly high by historic measures. In any case, the European Central Bank appears committed to pump in as much liquidity as is needed to prevent a shortage.

On the other hand, medium-term worries about an over-leveraged global economy are probably warranted. Public debt in the developed world has ballooned as governments deploy massive amounts of fiscal stimulus to prop up economic activity. Fiscal deficits are starting to reach unsustainable levels that necessitate spending cuts that are likely to be a drag on economic growth, especially in the industrialised nations, for many years to come. Still, the effects of such fiscal tightening are unlikely to be felt immediately and may well be overcome eventually by gathering momentum in the global recovery.

Indeed, emerging markets, especially in Asia, are likely to continue to grow strongly, and that seems to be underscored by China's move to allow greater flexibility in the yuan exchange rate. While actual latitude for yuan appreciation has been fairly limited and gradual, the policy change seems to signal that policy-makers are at least more confident about the outlook for the domestic economy. In addition, monetary tightening in Asia may be delayed. Europe's sovereign debt problems are likely to prompt policy-makers to be a tad more circumspect about global growth, and hold off raising rates until later in the year, or even next year. In the US, momentum from the first half of the year is expected to be sufficient to keep activity growing through the rest of the year, albeit at a more moderate pace. Unsurprisingly, Europe is set to bring up the rear. Growth is expected to be sluggish as fiscal tightening is expected to be a significant drag even into 2011.

Economic contraction is often thought to cause corporate revenue and earnings to fall sharply, missing current forecasts. On examining major double dips in various markets in the past 30 years, it is believe that markets may be too focused on the top line. Company profits, then, are likely to be more resilient than expected, even if the economy tanks again.

Current price-earnings valuations seem to imply a brutal double dip in which the economy contracts even more than in 2008-009, down one per cent in nominal GDP terms in both 2011 and 2012. Even in such a severe scenario, corporate earnings would be expected to grow more than 10 per cent in 2010, before declining 10 per cent in 2011 and 2 per cent in 2012 - much less than the 56 per cent plunge in 2008-09.

Still, it could take some time for markets to realise that a double dip is not a probable scenario and that corporate earnings are likely to be more resilient if it does happen. In the meantime, volatility is likely to persist, calling for nimble toes - and fingers, while an uneven recovery warrants judicious market selection and stock-picking.  These moments of volatility may yield good trading opportunities - and are unlikely to derail the fundamentally bullish long-run outlook for emerging markets. Even if China, and Asia overall, prove unable to escape the cycle of bubble, these economies remain well-placed to continue strong growth over the next few decades. Against this backdrop, emerging markets remain preferred over developed ones, as investors are likely to recognise their strong economic fundamentals and keep capital flowing into these more vibrant markets. Among the developed markets, the US is looking the most attractive, buoyed by robust economic momentum of its economy.

In conclusion, balancing risk to opportunity is going to be key to portfolio performance where equity markets are expected to remain volatile and range-bound for at least the rest of the year. Even though we remain optimistic about the long-term prospects for emerging markets, especially in Asia, and remain cyclically positive on the US, events in Europe do present significant short-term threats to the recovery. In this scenario, it is even more important to ensure that diversification and regular risk assessments remain a fundamental anchor to ensure balanced growth in one's portfolio in these interesting times.

How managers make good decisions...

What is termed a “good” decision?

Some of these elements go into a good decision:

Make sure you’re solving the right problem in the first place. It is important we understand the problem and not make any premature assumption. Jumping into conclusion will lead to failure in making what is right or wrong. Be clear about what you are looking at. For example, are you trying to maximize profit margin or just trying to stay alive and minimize loss? Gathering the right information, including information about uncertainty, which is essential if you want to choose the best option.  Reasoning out the right choice and includes what you know and what you don’t.  A commitment to make it happen, since a decision is no stronger than its weakest link.

Where do leaders fall down when making decisions?

They fall down on all these elements. In some organizations, managers don’t get the information they need to make a decision, so they end up having to make decisions based on experience and intuition or wrong feedback from subordinates. Sometimes distorted information were passed on to the management level thus leading to wrong decision made.

Does personality type determine decision making?

Yes, people become aware of their natural biases and habits, it becomes easier to avoid them. People may tend to procrastinate or focus on the big picture and the creative part. Your habits will get you in trouble if you don’t watch out and most people drag a problem into their comfort zone instead of solving it.

How do you evaluate the success of your framework?

Here’s how we figure out if it made a difference: We take a decision and try to document what people would have done otherwise, which is called the momentum strategy. Then we compare the best choice they make with us to the momentum strategy they would have used. We can now say pretty clearly that our approach avoids lots of downside errors. It avoids value destruction and creates a lot of value. Most people leave a lot of value on the table when they make intuitive decisions.

Managers basically make these types of decisions:

Strategic decisions- Managers have weeks or months to make these decisions, which have life-shaping effects on a organizational or management level. Strategic decisions are very important, involve significant uncertainty and complexity, and are hard to think through. Such decisions are costly and it may require various levels of brainstorming before the final "say" is made.

Typical decisions- These decisions often come from team meetings that last a few hours. They can have a big impact, but they are frequently tactical in nature and arrived at through a collaborative process. Usually these are made day-to-day so that the project or work process are not held up by delay in decision making.

In-the-moment decisions- For decisions made on the fly, managers use a different part of the brain that emphasizes rapid pattern recognition. Beginning with limited or incomplete information, they habitually look for similarities to experiences they’ve had in the past.

Facing Risk of Cyber War !

New technologies have revolutionised warfare, sometimes abruptly, sometimes only gradually: think of the gunpowder, aircraft, radar and nuclear fission and some have been working alongside computer information technology. The internet have transformed economies and given Western armies great advantages, such as the ability to send remotely piloted aircraft across the world to gather intelligence and attack targets within accuracy of a few meters range after travelled few thousand kilometers. However the spread of digital technology comes at a cost and it exposes armies and societies to “digital- 010010110” attack.

The threat is complex and potentially very dangerous and modern societies are ever more reliant on computer systems linked to the internet, giving enemies more avenues of attack. If power stations, refineries, banks and air-traffic-control systems were brought down, people would lose their lives. Yet there are few, if any, rules in cyberspace of the kind that govern behaviour, even warfare, in other domains. As with nuclear- and conventional-arms control, big countries should start talking about how to reduce the threat from cyberwar, the aim being to restrict attacks before it is too late.

Cyberspace has become one of the domains of warfare, after land, sea, air and space. Imagine the failure of the systems that keep the modern world turning and as computer networks collapse, factories and chemical plants explode, satellites spin out of control and the financial and power grids all come to a halt. That seems most threatening to all, yet most agree that infiltrating networks is pretty easy for those who have the will, means and the time to spare. Experts know this because they are such enthusiastic hackers themselves. Spies frequently break into computer systems to steal information by the warehouse load, whether it is from Google or defence contractors. The cyber-attacks on Estonia in 2007 and on Georgia in 2008 (the latter strangely happened to coincide with the advance of Russian troops across the Caucasus) are widely assumed to have been directed by the Kremlin, but they could be traced only to Russian cyber-criminals. Many of the computers used in the attack belonged to innocent Americans whose PCs had been hijacked. Companies suspect China of organising mini-raids to ransack Western know-how: but it could just have easily been Western criminals, computer-hackers showing off or disillusioned former employees. One reason why Western governments have until recently been reticent about cyber-espionage is surely because they are dab hands at it, too.

As with nuclear bombs, the existence of cyber-weapons does not in itself mean they are about to be used. Moreover, an attacker cannot be sure what effect an assault will have on another country, making their deployment highly risky. That is a drawback for sophisticated military machines, but not necessarily for terrorists or the armies of rogue states. And it leaves the dangers of online crime and espionage.

All this makes for dangerous instability. Cyber-weapons are being developed secretly, without discussion of how and when they might be used. Nobody knows their true power, so countries must prepare for the worst. Anonymity adds to the risk that mistakes, misattribution and miscalculation will lead to military escalation—with conventional weapons or cyberarms. The speed with which electronic attacks could be launched gives little time for cool-headed reflection and favours early, even pre-emptive, attack. Even as computerised weapons systems and wired infantry have blown away some of the fog of war from the battlefield, they have covered cyberspace in a thick, menacing blanket of uncertainty.

One response to this growing threat has been military. Iran claims to have the world’s second-largest cyber-army. Russia, Israel and North Korea boast efforts of their own. America has set up its new Cyber Command both to defend its networks and devise attacks on its enemies. NATO is debating the extent to which it should count cyberwar as a form of “armed attack” that would oblige its members to come to the aid of an ally.

But the world needs cyberarms-control as well as cyber- deterrence. America has until recently resisted weapons treaties for cyberspace for fear that they could lead to rigid global regulation of the internet, undermining the dominance of American internet companies, stifling innovation and restricting the openness that underpins the net. Perhaps America also fears that its own cyberwar effort has the most to lose if its well-regarded cyberspies and cyber-warriors are reined in.

Such thinking at last shows signs of changing, and a good thing too. America, as the country most reliant on computers, is probably most vulnerable to cyber-attack. Its conventional military power means that foes will look for asymmetric lines of attack. And the wholesale loss of secrets through espionage risks eroding its economic and military lead.
Maybe the economic crisis and oil spill saga are the least to worry for now, let's start looking at our IT infrastructure, our network lines, our fast speed cable, etc.........  and who knows, the North and South Koreans may not be looking at "solid" weapons launching but "soft-launch" attack through the cyberspace.

Recently early July2010, DBS Bank's computer system broke down with a technology glitch and has disrupted business and raised some customers' hackles.  But it is a timely reminder that systems can - and do - go down and such incidence could be linked to "cyber attack" or either techno fault and till the investigation result is out, it is either a good guess.

A quick scan of news headlines reveals the downside of the technological workhorses that businesses, governments and the general public have become so dependent on. 'Asia stock plunge raises alarm on trading'; 'Nikkei slump caused by bank system fault'; 'Computer glitch slows air travel'; 'FAA computer glitch delays flights across region'; 'Million users hit by Yahoo/Google/Baidu shutdown'; and on and on.

Computer failure has caused city-wide power outages, aborted rocket launches, forced large-scale vehicle recalls, and triggered airplane and train malfunctions and crashes. Seen in that context, the loss of access to bank ATMs and online banking facilities might not seem as critical.  What if all these are triggered by someone out there who has hacked into the system vault and managed to carry out an attack on the software system ?

And what if, despite all reasonable effort, a system glitch occurs? The principle remains the same: a contract has been broken, trust has been breached, and immediate steps should be taken to redeem the contract and restore that trust. Restoring the system in the shortest possible time is an essential first step; but equally important is keeping the customer in the know - not in the dark - right from the beginning. An immediate announcement that the system is down, accompanied by an apology - it's not so difficult, really.

And going forward, the post-mortem, the search for the reasons for the breakdown, should be transparent. What were the exact factors that caused the crash? What could the organisation, and the technology provider, have done better? The customer deserves to know. Of course, prevention is better than cure. So, hopefully, the recent bank system breakdown will provide fresh impetus to other organisations to review their own networks and processes. Not just dollars would be saved - possibly lives too if the extent of hacking into the vault is tantamount beyond ones imagination.

More Safety in future Rig design and operation? More cost ?

The aftermath of the Deep Horizon rig explosion in the Gulf of Mexico has left a lot of lesson to be learnt for those in the offshore industry as well as those classification socities reviewing and approving the design and construction of rigs in various region in the world. For the majority of those who are non-offshore industry people, an oil well gushing uncontrollably into the sea for over two months seems bewildering and there still is no sign that BP, having mobilised many rigs and support vessels, is able to plug the powerful gush and luckily the recent Tropical Storm Alex veered away from the Gulf of Mexico oil spill Saturday but experts warned that strong waves and winds could still upset efforts to halt the environmental disaster.

For Americans, the accident has been catastrophic and costly, and for the offshore oil industry, the reputation has taken a severe hit. US President Barack Obama and his administration are also feeling a political backlash. The widespread pollution as a result of the gushing oil is wreaking havoc on the ecosystems of the Gulf and the livelihoods of affected Americans. Entire industries across the Gulf coast, from fishing to tourism, have been devastated. This makes the issue a political hot potato on top of everything else.

The political and regulatory fallout from this disaster will be analysed and discussed for many years, as happened following the Exxon Valdez oil spill some 20 years ago. New regulations to govern the industry are already in the works, and hopefully the commissions of inquiry and Congressional hearings will produce conclusions that will be helpful and instructive for the industry. But the question remains: how is it that the world's most powerful nation - with the most sophisticated scientific and technological resources at its command - looks so helpless in the face of an oil leak? It must be asked: is leaving the job of plugging the leak to just one company a satisfactory approach? It's high time the Obama administration considered the possibility that this is something BP cannot solve on its own. There is also the danger that as the bills mount, and its run of unsuccessful attempts continue, BP may just give up the ghost.

The option of pooling global resources and tapping the collective expertise of the entire oil industry should be seriously examined.

Meanwhile, for us in Singapore, the Deep Horizon rig disaster contains a cautionary lesson. We must remember that Singapore is not just an international maritime hub, but also the world's biggest oil rig builder. Keppel Offshore & Marine and SembCorp Marine together account for around two-thirds of the rigs built in the world currently. Our port and waterways are among the busiest in the world with most of the oil tanker fleet plying this route. Woe be the day when a manufacturing fault of a Singapore-made rig becomes the cause of a disaster elsewhere. Or when a major accident of a similar nature occurs close to our own shores as seen recently, the spill occurred when the Malaysian-registered tanker MT Bunga Kelana 3 collided with the St. Vincent's and The Grenadines-registered bulk carrier MV Waily in May2010 at the Singapore Strait about 13km to the southeast of the city-state's east coast.

Such minor spill have already created much inconvenience to shore lovers, sea-going businesses,etc.

The oil industry will continue to boom for several years yet. But as the Deep Horizon disaster has made clear, it is an industry exposed to unpredictable and enormous risks. The need for safety first cannot be overemphasised. And if that calls for tighter regulation here as well, so be it and we as rig builders in Keppel O&M will have to take a further step to look at our rig designs and what kind of possible prevention or pre-empt to the future possibility of repeat incident and upholding and sustaining the reputation of "world class" rig builder in the offshore business sector.


Mid July 2010, BP has halted the Gulf of Mexico oil leak for the first time after struggling to cap the well for three months, raising hopes yesterday that the worst oil disaster in United States history may finally be ending.


In London, BP shares were up after the latest development in a disaster that has cost the company US$3.5 billion (S$4.8 billion). Compensation for damage caused by the oil spill could reach 10 times that amount.

Mr Obama, who has encouraged, cajoled and outright ordered BP to stop the leak, welcomed the news as 'a positive sign' but reminded everyone that 'we're still in the testing phase'.

BP is hoping to choke off the oil flow from the well, estimated at between 35,000 and 60,000 barrels a day. But doing so from the top could force oil out in new leaks if the wellbore has been damaged.
During the tests, engineers will take multiple readings from the 9m capping stack placed on top of the wellhead on Monday to monitor the pressure inside. High pressure readings would allow the three valves to remain shut and the well would effectively be sealed, but low readings could mean there is a hole or holes somewhere else in the casing of the well where oil is escaping. After 48 hours, the engineers will open up the system again and begin capturing the oil through two surface vessels to allow a new seismic survey to be done, said the official in charge of the US response, Coast Guard Admiral Thad Allen.

A final solution is not expected before the middle of next month, when crews will complete the first of two relief wells, allowing the oil reservoir to be permanently plugged in a 'kill' operation.

The disaster began on April 20 when the BP-leased Deepwater Horizon oil rig exploded 80km off the coast of Louisiana, killing 11 workers. Two days later, the still-blazing rig sank to the bottom of the Gulf.


Oilwell Plugged

Reforming business schools a must ?

World’s leading business schools are changing their course syllabus and re-making their business school image ensuring they catch up with time and the reputation upheld with high rating. This year Harvard Business School (HBS) announced the appointment of a new dean, Nitin Nohria, a first-class choice. The Kellogg School at Northwestern University has also recently selected a new head, and the Judge School at the University of Cambridge, the Ross School at the University of Michigan and the Booth School at the University of Chicago are all in the process of doing the same. Our local uni business faculties (NUS,NTU,SMU) are also trying to boost up it's image and maintaining the international standard every year and they too have excel in the top lists of preferred MBA courses in many of surveys done.

Elite business schools are plagued by self-doubt and the financial crisis has dealt them a double blow. It has damaged their pristine images, because so many financial analyse and bankers are MBAs. It has also dented their market: Wall Street laid off 240,000 people in the 18 months from the middle of 2007.

The business-school boom depended largely on the idea that MBAs were entry tickets to the world’s two most lucrative professions: investment banking and consultancy. These trades not only consumed more than half the graduates of the leading schools. They also underwrote the schools’ finances: students were willing to pay US$100,000 in fees and living expenses (and forgo even more in income) because they were all but guaranteed jobs in these high-paying industries.

Criticism of MBAs extends beyond consultancies and banks. People in many industries worry that business-school professors are more concerned with pure theory than with practical management (promotion is usually earned by publishing articles in academic journals rather than by teaching, advising businesses or gaining managerial experience). The professors themselves complain that their students are spending ever more time looking for jobs and ever less time studying. These problems are already taking their toll on the two-year courses that once constituted the ideal of business education. Students are gravitating to one-year MBAs, which are offered by 70% of European business schools, and more specialised courses. Lower-ranked business schools are already finding it harder to fill their places. The elite worry that the trend will eventually catch up with them too.

Yet business schools have an important asset: they are remarkably flexible compared with the rest of academia. Even before the financial crisis they had begun to implement far-reaching changes. Both Stanford Business School and the Yale School of Management have changed their curricula radically in the past few years. Business schools are also moving to globalisation. INSEAD led the pack by opening a second campus in Singapore: all its students have a chance to study in Asia as well as Europe. Almost everybody has leapt on the bandwagon. Of course business schools must not lose sight of their primary function. We must remain faithful to academic rigour and excellent teaching. Yet at the same time we have to regain the entrepreneurial fervour of the past; the world expects more than good functional graduates. Recent times have underlined the need for managers capable of taking a fresh look at opportunities unafraid to forge new alliances and practices outside of the norm. Schools have also struggled to make their courses less theoretical. Yale has replaced conventional subject-based courses (marketing and so forth) with “integrated” courses based on “constituencies” (such as investors, customers and employees). The University of Michigan’s Ross Business School gives students a chance to work with, say, hospitals in India and energy companies in Mozambique. Most schools are trying to employ more people with practical experience.

The new generation of deans will undoubtedly preside over dramatic changes. We must play the role of an entrepreneur in its purest meaning. It is no longer enough that we concentrate on functional training. We must constantly scan for projects to which we can add value. Once found, we must take a more developmental, consulting role, helping the project’s different stakeholders—companies, public bodies, research centres and universities—to create and manage the organisation.