Settlement of the power conflict between top management of Cathay and pilots Essay Example for Free

Settlement of the power conflict between top management of Cathay and pilots Essay 1. INTRODUCTION 1.1 Background Information Since 1993, Cathay Pacific Airways Limited (Cathay) has experienced the threat of industrial actions initiated by unions. On 1 July 2001, another industrial action was commenced, resulted in a three-month chaos in Hong Kongs tourist industry. Being the representatives of the pilots of Cathay, Mr Nigel Demery, the President of Hong Kong Aircrew Officers Association (HKAOA), informed Cathays top management that the pilots refused to accept Cathays new pay proposal. Members of the HKAOA have decided to commence industrial actions to force Cathays top management to accept their demand. The event was followed by a sharp increase of pilots reporting sick leaves. Unlike previous industrial actions, Cathays top management held firm to their original standpoint and dismissed 52 pilots and chartered additional aircraft to moderate the problem of pilots reporting sick and absence from work. However, the incident did not come to an end. On the contrary, the problem escalated when HKAOA reacted by announcing support of the sacked pilots by taking legal actions against Cathay for the unfair dismissal. The pilots industrial action caused a financial loss of US$12.8 million to Cathay each day. In fact, this was not the first time for the pilots to use industrial actions as a mean to press the top management in accepting their demands. Three industrial actions have been taken place since 1999. These frequent industrial actions have not only caused financial loss, but also harmed the companys overall reputation. Table 1 provides a summary of the industrial actions that has been taken place since 1993. 2. OBJECTIVES 2.1 Objectives The chief objectives of this report include: Settlement of the power conflict between top management of Cathay and pilots Moderate the power of pilots in order to avoid or reduce industrial actions in future 2.2 Analysis of the Existing positions of both parties Luthans (1992, p.426) said that formal organizations are highly political and power is the name of the game. Managers and non-managers in an organization often manipulate power to accomplish goals. Cathays top management holds legitimate, reward and coercive power to perform various specific tasks and decisions. Legitimating refers to an upward appeal, which adds weight to an influence attempt by showing support from senior managers, rules or procedures.1 On the other hand, coercive power means the using of threats, intimidation and coercion to gain compliance.2 In the recent industrial action, the top management tried to utilize their legitimate and coercive power to gain pilots compliance. Apart from the effectiveness of this position-based power strategy, the use of coercive power always causes negative consequences such as weakening relationships. In contrast, the pilots hold strong expert power. Pilots have high-value expertise. Referring to the strategic contingencies model3 which focused on individual power and how it is obtained, the subunits that are most central to the flow of work in an organization acquires power. The major revenue of Cathay comes from passenger and cargo services. It is impossible for an aircraft to operate without a pilot. The past industrial actions showed the strength of pilots expert power. Thus, the power conflict between top management and pilots must be settled in the long run. Besides, Cathays pilots manipulated the coalition strategy to accomplish their goals. HKAOA is a typical coalition of pilots. At present, Cathay employs 1,500 pilots, more than 75% of the pilots are members of the HKAOA. Thus, each industrial action evoked by HKAOA has caused a significant impact on Cathays business and reputation. Given the fact that the majority of the general public was of the view that the pilots have been over-demanding and created much chaos to the tourist industry in Hong Kong (According to the interview results as well as from the media), it is a good opportunity for Cathay to take advantage of the situation and to moderate the power of the unions. 3. SOURCE OF INFORMATION 3.1 Source of Information This report is based on both primary and secondary information from various means. This includes:- ? Interview with representatives of both Cathay and the HKAOA. ? Annual Interim Reports of Cathay ? Newspapers ? Magazines and Journals ? Cathay Pacific Airways Official Web Site 4. FINDINGS Our findings are mainly based on the following sources:- * Interview Findings * Financial data published in the Next Magazine as showed at Tables 1-5. * Review of Cathays existing policies and procedures as showed in Appendix 1. 4.1 Interview Findings 4.1.1 Interviews with HKAOA (Interviewee: Mr. Spurrier M.) ? According to HKAOA, Cathay was intimidated by aggressive interviews by managers about delays; ? For other managers or employees acting on Cathays instructions had followed pilots into the cockpit to watch them doing flight checks even though they did not possess the required qualifications to know what was necessary, as such, prosecutions for those people may be possible under the safety law of Air Navigation Ordinance as intimidation risked distracting pilots from their jobs; ? The pay demand was reasonable to Cathay; 4.1.2. Interviews with Cathay Management (Interviewee: Mr. Tang) ? Many crews were being put under extreme pressure to sign the HKAOAs lawyers letter; ? Cathays net recurring profits has already been forecasted to fall by 20% to 25% in 2001 due to the global economic downturn; ? The pay demand of HKAOA was unacceptable; 4.1.3. Interviews with the Human Resources Department (Interviewee: Mr. Chau) ? Employees remuneration represented about 25% of Cathays Total Operating Expenses; 4.1.4. Interviews with a Cathay passengers (Interviewee: Mr. Lee) ? The respondent described the pilots pay demand as unreasonable while the economy was still recovering; ? He complained that the pilots threat of industrial action had thrown his holiday plans into chaos and the pilots union was selfish especially during peak travel seasons; 4.1.5. Interview with Tourists Right Association ? They said that industrial actions would not gain the support of the general public and would only injure Hong Kongs reputation and tourism industry; ? They claimed with anger that the pilots earned well in Hong Kong, but tried to endanger Hong Kong tourism industry; 4.1.6. Media Comments from the Next Magazine, Hong Kong ? Analysts said it would be hard for the pilots to pressure Cathay into roistering changes because of the financial implications; 5. SWOT ANALYSIS OF CATHAY 5.1 SWOT Analysis A SWOT analysis may help management to identify the companys strengths and weaknesses against its major competitors in the industry and to explore the opportunities and threats for effective strategic planning purposes. The analysis has been summarized from our findings and observations by various means as mentioned in Section 4 of this report. The SWOT analysis is mainly based on our observation and analysis on the financial information provided in Cathays annual report and from that of the Next Magazine. 5.1.1 Strengths ? Strong management team such as the director of corporate development, Tony Tyler, has implemented tough policy; ? Code share agreements with a number of other international airlines to provide greater flexibility such as British Airways, Japan Airlines, Malaysia Airlines, South African Airways. Swissair, THY Turkish Airlines; ? With the decisions made to cut schedules and bring in charter aircrafts, the level of flight disruptions and delays have been considerably reduced, and the effect on sickness levels have to reduce; ? With the prevention from government regarding overseas airlines in carrying passengers in Hong Kong to other destinations, Cathay became a price maker; 5.1.2. Weaknesses ? Existence of Tenure employment contracts strengthen pilots power; ? Contracts are issued to pilots according to HKAOAs instructions, for example, all newly recruited pilots must start from the entry post of a Junior Pilot regardless of his/her previous experience; ? Long history of tolerance to pilots for their industrial actions created wrong perception to pilots that industrial action was an effective way in request for a demand; ? Lack of local pilots as substitutes in time of strike; ? High cost of training a Cadet Pilot (approximately US$128K); ? Huge amount of financial interest of about US$1.3 million a day and labor cost of US$2 million per day; 5.1.3. Opportunities ? Prolonged industrial action created unnecessary anxiety to passengers and the public, resulting in the loss of confidence in pilots and its union; ? Insufficient coalition between the union and pilots as not all the pilots are willing to participate in the industrial actions; ? As pilots were sacked, Cathay could recruit pilots at a lower cost; ? Intensive trainings were held in an Adelaide aviation training school; ? Only a 3-year contract for new recruitment could be signed; ? More better experienced pilots can be recruited with closure of airlines subsequent to the 911 tragedy in America. 5.1.4. Threats ? The corporate image was spoiled by the HKAOA strike; ? As flights were delayed or suspended, loyal customers have been lost, resulted in loss of competitiveness; ? Aviation market has been opened up for competition; ? Owing to the pilots expertise, substitutes would be extremely difficult in the case of sickness; ? The pilots are forced to sign a letter drafted by the HKAOAs lawyers to Cathay and were intimidated by having their names as non-signers on its website when they refused to sign; ? The unions source of income was supported by the membership fee from 80% of the 1,500 pilots at 1% of their income and was proposed to increase the contribution up to 5%; 6. PROBLEM-SHOOTING AND RECOMMENTDATIONS 6.1 Problems Difficulties ? The industrial action has been too powerful for the company to deal with. This was evidenced in the prolonged action that has caused substantial damage to the tourism industry; ? High level of dependency on foreign pilots to carry their passengers; ? The HKAOA vowed no resolution to the Cathay dispute unless all the pilots who have been unfairly dismissed were reinstated. 6.2 Recommendations and Strategies Our recommendations are made to achieve 3 chief objectives:- i) Strengthen the power of the company ii) Weaken the power of the pilots iii) Building-up relations with the pilots 6.2.1 Strengthen the power of the company In order to strengthen the power of Cathay, playing games will be a good tactic. Authority game can be used to resist the power of the pilot. History indicated that Cathay lost in 3 industrial actions (from 1993 to 2000), as the company did not resist the power of the other party. Hence, the company original policy should be strictly adhered in order to win the game. In July 2001, Cathay proved that the Authority Game tactic was feasible with its firm adherence to its proposed pay, benefits and roistering package with up to 9% increment (Table 2 showed the salary package as proposed by Cathay). On the other hand, Cathay has publicly refused to consider negotiating with the pilots again unless they withdrew their industrial action. Besides, Cathay may consider using the coalition-building game to form alliance with other airlines, preferably nearby airlines. Coalition game is another power-base game to increase power through forming of alliances or coalitions with groups within the subunits of the company or groups outside the organization.4 Cathay can then enjoy immediate assistance by chartering additional aircrafts and rebook passengers on other aligned airlines. This increases the flexibility for Cathay even if HKAOA imposes further destructive actions. Moreover, all airlines should agree not to hire bad-listed pilots. Furthermore, Cathay can inform outsiders about the injustice and irresponsible actions of pilots via a whistle-blowing tactic. Firstly, they should let the public know the prospect and earnings of a qualified pilot, i.e. create a high-income earner image for the pilots (Table 3), during recruitment of cadet pilots. In general, the general public will not accept high-income earners taking industrial actions to fight for salary increment. Secondly, they may let the media know that more than 10,000 passengers were adversely affected by the industrial action in July 2001. Besides, joint efforts with the Government are required to show the economic damage to Hong Kong during the industrial action. 6.2.2. Weaken the power of the pilots Political influences are a good way to conform the pilots to meet organizational value. This can be done by position-based influence strategies through pressure and threats in return for compliance. Besides, coercive power depends on fear. During the industrial action in July 2001, 52 pilots were sacked without any reasons. The action tended to show the firm position of Cathay and intimidated the pilots to accept the offer. Since Cathay could afford to pay sacked pilots a better than most package, as the Hong Kong labor laws offered the company with certain flexibility. This implies that further dismissal of pilots is possible. The enforcement of pressure and threat can be achieved by the issuance of written statement warning that lateness will not be tolerated as this would breach of the employment contracts, which may in turn lead to dismissal. Moreover, the announcement of cutting foreign-based pilots is a feasible alternative. Another way is to abolish the tenure employment so as to reduce pilots employment security. The new employment proposal is a three-year contract for newly employed pilots. Renewal of contract is subject to performance, i.e. diluting the portion of permanent pilots. Substitutability refers to the ability to engage other pilots to perform the job of the existing pilots.5 This implies that if Cathay has or can obtain alternative sources of pilots to perform the job done by the existing pilots, the pilots union can be diminished. Therefore, Cathay can consider hiring pilots from other airlines, who have been sacked during the redundancy programs, e.g. America Airline, Continental Airlines, etc. The reduction in the dependency on foreign pilots becomes the most important aspect of power which is a function of dependency. This is because the greater Cathays dependency on the foreign pilots, the greater the pilot unions power has over Cathay. It can be observed that in August 2001, 10 local pilots have completed their Cadet Pilot Programme at BAE SYSTEMS Flight Training in Adelaide, South Australia. The 10 graduates brought the number of cadet pilots who have graduated from Cathay Pacifics training programme to almost 150 since its first launch in 1988. Cathays investment brings long-term commitment to develop Hong Kong aviation industries as well as reducing the dependency of the majority of the 90% overseas pilots. Obviously, foreign pilots are the source of power. Rule of thumb, if Cathay can have its own local pilot team, Cathay will not reply to hire the pilots from overseas. The sources of pilot unions will be diluted. Therefore, it is very important to speed-up the training of Cathays own local pilots team. 6.2.3 Develop relations with the pilots Building up better relationship with pilots is a long-term solution. This can be achieved through interpersonal influence. With the application of position-based influence strategies, Cathay can offer rewards or benefits in exchange/return for pilots compliance. Rewards can be anything that another person values which is the opposite of coercive power. In Cathays case, rewards can be monetary rewards, fringe benefits, favorable promotion prospects, flexible shifts or flight territories. If the company can give someone something of positive value or remove something of negative value, the company will have reward power over that person. Emphasis should be made on the fact that Cathays pilots are still the most expensive pilots when comparing to other American and European Airlines. This has been achieved during all public announcement and negotiation (as shown in Table 4 and Table 5). Motivating the pilots is crucial to Cathays long-term success. It is important to build up common goals and values to obtain support or commitment with personal-centered strategies. These are strategies that rely on an individuals characteristics and abilities to access expert and referent power bases, or inspirational appeals and consultation.6 One suggestion is that the pilot s remuneration package should split into basic salary and performance bonus, which relates to the company s annual profit. The outcome, consensus or agreement can be achieved through Normalization. Normalization influence can gradually change the opinions and the behaviour of pilots by reciprocal process and informational influence to achieve conformity.7 In fact, coercive and reward powers are counterparts of each other. If Cathay can remove the Unions powerful/dominant value from pilots or inflict negative values upon them, Cathay will have coercive power over them. As mentioned earlier, legitimate appeal can add weight over influence attempt by showing support of the senior management. Cathay may provide indication to the general public that the pilots are under intolerable pressure from Unions. First, it can be done through media to pronounce the number of calls that management had received complaints from pilots on managing Unions intimidation. Alternatively, it will be a good tactic for management to show care and understanding of pilots difficulties and to encourage them to follow the instructions from HKAOA by signing the lawyers letters back to Cathay. Lastly, ethical success will confront ethical dilemmas by the referent-powered management, like Mr. Tony Tyler. It is important that emphasis should be stress on Cathays pilots, Unions and the general public that the current package offered by Cathay is the best. The termination of industrial action is for the good benefits of pilots, passengers and the public instead of Cathay itself, which meets the utilitarian outcome. The packages offered allow the pilots an option to choose for their terms of package. The emphasis is on fairness, freedom of choice and individual rights. No strict rules for the pilots. In return, the dismissal of industrial action is expected from pilots. Message may be made to the general public with emphasis that Cathay has confidence over the pilots professionalism and legitimate power. They will be responsible for their actions. In addition, Cathay may show appreciation for those pilots who have filled in for their absent colleagues. 7. SUMMARY 7.1 Summary Since 1999, Cathay encountered threat from industrial strikes every few years (Table 1). Cathay compromised with HKAOA in the previous three strikes and gave in to the HKAOA industrial actions. This year, the fourth industrial action organized by HKAOA with an aim to fight for higher pilots salary increment and shorter working hours have caused Cathay loss of over millions of profits, not to mention the damage on its reputation and the loss of significant market share to major competitors. (Appendix 1 provides a summary of the vision of Cathay and its traffic figures from June to November 2001) This report has examined the current power between Cathay and HKAOA and accordingly recommended Cathays management to take proper actions to counter HKAOAs industrial action and to end HKAOAs threats in future. We have interviewed both the Cathays management and HKAOAs representative and gathered necessary information from other public means. We then evaluated these information to perform a SWOT analysis and based on it defined the problems facing by Cathay in its current situation. In general, Cathay is facing a powerful union, which has a very strong bargaining power due to the pilots expertise power. Hence, we have recommended Cathay to deploy political games to strengthen the companys power and to weaken the power of the pilots. In addition, we have recommended management to build up a long-term co-operative relationship with the pilots after the power struggle. By doing so, we trust Cathay can end this industry actions in a reasonable period and to prevent the same problem happen again in future. 8. REFERENCE BIBIOGRAPHY 8.1 REFERENCE Interviewee: Mr. Chau W., Director of Personnel, Cathay Pacific Airways Ltd. Interviewee: Mr. Lee, passenger of Cathay Pacific Airways Ltd. Interviewee: Mr. Spurrier M., Image Director of HKAOA. Interviewee: Mr. Tang A., Director of Corporation Planning, Cathay Pacific Airways Ltd. Luthans F. (1992). Organization Behavior 6th ed. Singapore: McGraw-Hill. 8.2 BIBIOGRAPHY Annual Report 2001, Cathay Pacific Airways Limited Botton V. Agencies, Cathay chaos may start today South China Morning Post, 3rd July 2001. Botton V., Pilots put battle plan into action South China Morning Post, 4th July 2001. Botton V. Agencies, Cathay may ground all flights South China Morning Post, 22 September 2001. Botton V., Cathay warns it may close foreign bases, South China Morning Post, 28 September 2001. Botton V., Secret Cathay peace talks fail South China Morning Post, 29 September 2001. Bowman J., Cathay turns screw on pilots South China Morning Post, 30th June 2001. Bowman J., Union denied access to Cathay mail boxes South China Morning Post, 3rd July 2001. Cheng A., Narrow nationalistic views clouding the Cathay issue South China Morning Post, 19th July 2001. Cheung C.F., Thousand stranded at airport South China Morning Post, 8th July 2001 Cheung J., Dispute may open extra routes South China Morning Post, 8th July 2001 Interim Report 2001, Cathay Pacific Airways Limited Ivancevich, J., Olekalns, M. Matheson, M. 2000, Organizational Behavior and Management, 1st Aust. Ed, Irwin, Sydney Lai C.Y., Cathay Strike, Next Magazine, 28th June, 2001. Lai C.Y., Cathay vs HKAOA Next Magazine, 12th July,2001. Lo J., Rostering and overtime remain key issue in Cathay negotiation South China Morning Post, 4th July 2001. Luthans, F., 1992, Organizational Behavior, McGraw-Hill, Singapore. Mintzberg H., 1983, Power in and around Organizations, Prentice-Hall, N.J., USA. Mullins, L., 1989, Management and Organizational Behavior, Pitman, Great Britain Pfeffer J., 1981, Power in Organizations, Pitman Publishing, M.A. USA. Porter L.W., Lawler E.E., and Hackman J.R. 1975, Behavior in Organizations, McGraw-Hill, N.Y., USA. Kotter P. 1987, The Empowered Manager, Jossey-Bass, San Francisco, USA. Reuters, Airline job cuts hit Europe South China Morning Post, 21 September 2001 Robbins S. P., 1994, Organizational behavior, 4th ed., Prentice Hall, N.J, USA. See http://www.cathaypacific.com Tichy N.M., 1986, The Transformational Leader, N.Y., USA. 1Ivancevich J, Olekalns M, Matteson M (2000), Organizational Behavior and Management, 1st Aust ed., McGraw-Hill, pg. 401. 2 Ibid. 3 Ibid, pg 393. 4.Ivancevich J, Olekalns M, Matteson M (2000), Organizational Behavior and Management , 1st Aust ed. McGraw Hill, pg.403. 5 Ivancevich J, Olekalns M, Matteson M (2000), Organizational Behavior and Management , 1st Aust ed. McGraw Hill, pg.395. 6 Ivancevich J, Olekalns M, Matteson M (2000), Organizational Behavior and Management , 1st Aust ed. McGraw Hill, pg.401. 7 Ivancevich J, Olekalns M, Matteson M (2000), Organizational Behavior and Management , 1st Aust ed. McGraw Hill, pg.397.

Reasons For The Fast Global Growth Of Mcdonalds Marketing Essay

Reasons For The Fast Global Growth Of Mcdonalds Marketing Essay McDonalds success can be attributed to their ability to adapt their business to the diverse culture and fast pace of city life by providing quality fast food in a short period of time. Their restaurants are generally comfortable, clean and provide a variety of choices on their fast food menu. The quality of food is generally consistent and prices are low worldwide. This keeps production costs down enabling them to generate higher turnover every year. Furthermore, McDonalds expanded aggressively, opting to franchise rather than operate its new locations, providing new income and little overheads. They managed to provide a product and service to the global middle class, particularly in emerging markets like China, India, and Latin America. This gave McDonalds a massive advantage and great opportunity. By inducing the idea of going global, Kroc managed to attract the fast food market, using Franchised Restaurants, Company Operated Restaurants, and Affiliated Restaurants. To attract the local market Ray introduced a concept of localising the products, so that they will cater to all verities of the local craving. This approach increased the revenue as well as the stability of the company. Krocs strategy of making partnerships with other businesses created huge success to the company. Going in the same successful path, current management has made partnerships with companies such as Wall-mart, Sinopec, and Wall Disney to reach more customers. QUESTION TWO McDonalds needs to adapt to different cultures and conditions when it sets up business in different parts of the world. What problems might McDonalds encounter when it opens outlets in: 2.1 Countries in Eastern Europe? Eastern Europe constitutes an emerging market for most businesses. The collapse of socialism in the region in 1989 facilitated the move of countries to prepare for the participation in the capitalist market. In 1999, most Eastern European countries were working to meet the requirements for the European Community. In 2004, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovenia and Slovakia became members of the European Union. Membership of a number of European countries in the EU prompted the flow of foreign investments into the country, increasing household income, increasing investment into the region primarily due to cheap labour compared to wages in Western Europe. There was a general trend towards the improvement of the standard of living of citizens of Eastern European countries. However, in the last two years, most Eastern European countries experienced slowed growth due to the increase in the wages of workers that discouraged investments. Nonetheless, wages are still more competitive in Eastern Europe compared to other regions in Europe. Most Eastern European countries are still in the process of completing their transformation from a controlled to a capitalist Economy. Full transition and the stability of the political and economic institutions are expected to boost economic development in these countries. Assessing the potential of a new market for expansion requires the consideration of several factors providing a comprehensive background of the environment that the expanding business firm expect to enter into. In the past unrest created an environment of uncertainty for investors. Products would have to be sourced from nearby countries creating an increase in transportation and labour costs. EU currencies did not have strong buying power, so profit earned would not be enough to sustain the operating costs of the businesses in that region. Consumption volatility could also have an effect on sales on the eastern region due to the rapid increase in income resulting in a change in consumer behaviour. Employment and wage volatility are important factors in deciding to enter a new market because minimal employment and wage volatility translates to regular income for households influencing the stability of consumption resulting to sales and revenue for business firms. The economic condition of the state affects the financial condition of consumers and their ability to purchase the goods and services offered by entering business firms. Although there is a general trend for consumption, employment and wage volatility among European countries, introducing McDonalds into the region is viable for the following reasons: First, McDonalds will develop a market by providing technological, management and marketing expertise to local entrepreneurs enabling them to establish a known restaurant in different areas that creates jobs translating into income to households due to the hiring of local employees and the purchasing of raw materials from the local farmers and businesses. 2.2 Countries in West Asia? If McDonalds was to open a new outlet in one of the West Asian countries, it would have to take a few things into consideration. McDonalds would experience resistance from the Islamic countries for selling American food and culture. Also, Muslims do not eat pork so McDonalds would have to source Halal suppliers and adjust their menu variety to accommodate them. McDonalds has modified its products to cater for local tastes, not least in countries that have special dietary laws. In Muslim countries like Malaysia, bacon is not served in McDonalds burgers or in its breakfast menu, as pork is haraam, or not permissible under Islamic dietary law. In Israel, the nature of kosher dietary laws, forbidding the mixture of meat and dairy products, means that cheeseburgers are not popular among Jewish customers; furthermore, all meat not prepared in a certain manner is considered unkosher by strict observers of the dietary laws. (Spiritus-temporis.com, 2005) 2.3 Countries in Africa? In Africa McDonalds may face various problems when trying to open up new ventures in countries like Ethiopia, Sudan and Zimbabwe. Ethiopia borders Sudan and Kenya and it is one of the largest and poorest countries in Africa. Its population consists of about 74 million people. Two major religious groups occupy Ethiopia, Muslim and Ethiopian Orthodox, with Muslim being the majority. Unfortunately Ethiopia suffers some the worlds worst droughts in history, which in turn destroys their economy. Agriculture produces 60% of exports, and 80% of total employment for the country. In order to develop a McDonalds in Ethiopia, many major factors such as location analysis, market, competition, facilities style, and menu must be considered. McDonalds already has great marketing programs and strategies in place in other foreign markets so the corporation can help with those variables. Most cultures in Ethiopia will allow consumption of red meat such as hamburgers but not of pork. The bacon used for breakfast and on certain sandwiches can be available but also substitutable with turkey bacon. The Ethiopian culture also doesnt use utensils so they will also be available but optional. Zimbabwe is another country that is filled with Political and financial turmoil over the past few years. McDonalds had indicated its interest in Zimbabwe in 1997 and wanted to open a franchise in the country in 1999 but a political storm that year, which later precipitated an unprecedented crisis that saw inflation levels soaring to record highs, forced the fast foods giant to retreat. (bizcommunity.com, 2011) QUESTION THREE 3.1 Critically discuss McDonalds Globalisation Strategy Globalisation is the integration of markets and technology to a degree never witnessed before in a way that it enables individuals, corporations and nation states to reach around the world farther, faster, deeper and cheaper than ever before. Globalisation affects the whole world in ways that may benefit some while disregarding others. Global corporations, such as McDonalds manipulate their advertising to persuade a target audience to purchase and support what I believe to be an unhealthy scheme. Not only has McDonalds changed the way people view the world, but through negative impacts such as health issues, it has also manipulated the everyday life of individuals living in a global community. The faà §ade of healthy eating posed by McDonalds is epitomised through a short TV advertisement displaying the disturbing outcomes due to reliance on quick, easy and convenient food that people pay for, not only with their wallet, but also their health. Globalisation is the outcome of mixing the concepts of localisation and globalisation-as a portmanteau, it is the coming together of the two terms in a manner which suggests that there should be a way for businesses and people to think globally, act locally (Egan, 2007). In practice, this generates business strategies and manners of communication which seek to find innovative ways to blend together the use of a global communication network and scale with the desire to maintain individual areas and cultures, by means of modifying large scale organisations to suit smaller populations (Schumacher, 1967). Consider, for example, McDonalds: as an organisation, it is an incredibly large company which has put branches in many areas and across several different countries. But as they have continued to grow, there has been an increase in resistance against such large scale corporate food chains, as they are seen to ruin the character of a neighbourhood and drain it of culture, as well as provi ding food which is perceived to be substandard and unhealthy. They have therefore had to modify their business practices so as to instil practices which are more welcoming to the local populations, for example by focusing on foodstuffs which are popular amongst the local neighbourhoods and providing healthier, more upscale types of foods on their menu (Towers, 2004). Standardized and adapted approaches to communication are two dichotomous approaches to an advertising or marketing campaign which rely upon two very different methods and achieve differing results. A standardized approach to communication is based upon using the same marketing strategies and techniques regardless of where the campaign is being publicised. This would mean, for example, that the slogans and marketing materials are the same whether the global organisation is approaching a target audience in the United Kingdom or in India (DePalma 2004). A good example of this would be a company like McDonalds, whose campaign slogan Im lovin it remains the same no matter what country it is in-the slogan may be translated out of English and into the local language, but the concept and execution remain the same. The campaign was first launched in Germany in September 2003 as ich liebe es and followed in the United Kingdom and the United States soon after with Im lovin it. The benefits of a standardised marketing plan is that it is cost effective-as it does not require multiple marketing strategies to be drawn up and implemented-and that it helps to create a cohesive global branding concept (DePalma 2004). McDonalds, to continue the example, is easily recognisable the world over for the same branding concepts as any other country. McDonalds has grown from an organisation which had a few branches in the United States to an international phenomenon that has stores in nearly every country in the world. Known for reasonably priced meals with fast food and service, they have pushed even harder to become both a recognisable brand that draws customers in on the strength of their name and brand, but also to adapt to local mores and traditions in such a way to incorporate themselves into neighbourhoods in a strong fashion (Azarya, 2004). McDonalds has had a greater impetus to modify their business practices on a local scale as they are serving food products which are not always locally acceptable. In India, for example, where the Hindu religion prohibits the eating of beef, McDonalds has changed their menu to be primarily chicken and vegetable based, with several items being seasoned in similar ways to the local tradition (McDonalds India, 2010). 3.2 Explain why and how the entry stage of McDonalds was different in China in comparison with the rest of the world. McDonalds made a foray into China in 1990. In China of the 90s ancient belief systems rooted in Confucianism and Taoism were intermingling with Western ideologies, through the narrow window opened up by the Communist government at the helm. This was especially true with regards to thoughts on consumption, consumerism and brands. Although, the hurdles faced by McDonalds in China, like lack of quality supplies and distribution difficulties, were very similar to the Russian experience, it found a more accommodating and efficient bureaucracy and government in the Chinese. The Chinese government wanted to develop its fast food market and wanted McDonalds to take the risk in paving the way. Thus there was mutual interest involved and consequently, on the cultural acceptability front, McDonald did not have to labour as much as it had to in the Soviet Union where it had to stave off an ideological backlash before finding its feet. The interactions between the McDonald brand (and all that it stood for), and the Chinese cultural value system, combined to provide a synergy that resulted in some interesting developments. While in some cases McDonalds became an upholder of traditional values, while in other situations, McDonalds became an appropriate medium for consumers to explore new beliefs and ways of acting. This apparent paradox epitomized the fact that Chinese society was making a transition and elements of McDonalds value orientation were slowly being imbued by the Chinese masses. Two instances are cited to highlight this: McDonalds made a departure from the hierarchical set up of the dining experience in traditional Chinese restaurants, based on considerations of age. In McDonalds the seating arrangements were open, and everyone having equal access as to where to sit and what to order. In this case McDonalds encouraged the Chinese to make a departure from tradition. The lack of alcohol served in McDonalds led some consumers, primarily Chinese women, to embrace being able to be on a more equal footing with men while eating. In this case McDonalds upheld a traditional Chinese custom. In retrospect, in Russia, McDonalds has come a long way from the days of communism inspired anti-globalization backlash. Today, the McDonalds brand is a sign of quality for Russians, so being seen to work for it or supply to it is a highly regarded stamp of cultural approval. By investing in a strong local supply chain and teaching local producers, McDonalds has earned itself an almost unassailable position in the minds of the Soviet people who now view McDonalds as an international brand, run by local people and supplied by local people. It is little wonder that there are as many as 137 McDonalds restaurants in 37 cities with 500,000 customers a day. In a cultural milieu qualitatively different from that of the Americans, McDonalds has done remarkably well in China over the last 15 years. Analyzed from the cultural perspective, today McDonalds does not always denote Westernization in the minds of the Chinese consumers and the interactions are more subtle than that with the result th at McDonalds has absorbed elements of the traditional value system and the Chinese people have imbued elements of Western culture from McDonalds producing a powerful synergy in the process. (answers.com, 2011) QUESTION FOUR Explain some of McDonalds efforts to localize its offerings in China and describe how successful these efforts were. (operational issues) sourced local suppliers, employed local The Chinese fast food market has been booming in the last decade because of fast changing lifestyles and eating habits. The reason for this evolution is that Chinese consumers have accepted the Western-style fast food restaurants as a way of life in China. As a result, the popular American food has become a huge success story, creating a growing market for U.S. frozen potatoes. To position a product in a country, a good marketing strategy is needed. McDonalds success in China is based on a five-point strategy focused on product, price, people, promotion and place. A new trend is the introduction of the sixth P, namely profit. McDonalds also tries to improve the profitability in China. (Edward B. Colby, 2006) PRODUCT McDonalds product strategy consists of three categories. First they try to reflect the tastes and customs of the local markets by offering different kind of menus. The Chicken McNuggets in China come with the traditional BBQ, Sweet Sour, and Honey Mustard sauces, but theres also a Chilli Garlic Sauce, which is very popular in China. (Answers.com, 2007) In 2001 McDonalds Vegetable and Seafood Soup and Corn Soup were introduced. I think that these menu items were introduced because it was in line with their culture and love for foods with exotic taste. Clearly this proved to be a successful marketing strategy as it targeted the palatial needs of the Chinese people because of their ancient history and experimentation with different varieties of food. Furthermore McDonalds went on to introduce a local; version of its Dollar Menu calling it the Value Menu. This also proved a successful concept as most Chinese people are short, tiny in physique and very health conscious. The regular sized meals in the US and other parts of the world suited the BMI (Body Mass Index) height and weight of the average customer. Remember, Chinese people in general are not big eaters thus the reason for McDonalds offering a smaller and cheaper variation of the original product. Due to the urbanization and overpopulated cities, China has many problems with vehicles and parking. McDonalds opened restaurants and dessert kiosks targeting pedestrians and the general working class. Secondly, McDonalds also tries to provide information about their products. In cooperation with their global nutrition team, their local business units develop and implement nutrition information, which can be found on the packaging of the products. The packaging provides information on key nutritional values in a simple and clear format, so that customers around the world can use the information to make menu choices that suit their preferences. Also other communication tools are used, such as advertising both on television as on the World Wide Web to give information about the quality of their food products. (McDonalds Corporation, 2007) Thirdly McDonalds promotes physical activity, for example their sponsorship of the Olympic Games. McDonalds history with the Olympic Movement dates back to 1968. As the Worldwide Olympic Partner and the Official Restaurant of the Olympic Games, McDonalds has served millions of athletes. With the sponsoring of the Beijing Olympic Games in 2008 McDonalds wants to continue to promote an Active Balanced Lifestyle and Olympic Spirit among Kids, Families and Adults of all ages. (Beijing 2008, 2007) This strategy gained McDonalds a lot of support and trust from the Chinese people as their campaign supported good health and physical activity. PRICE The conventional wisdom about China is that most consumers are highly sensitive to price. As a result, a decrease in burger prices is likely to be more effective than a big marketing campaign. To convince Chinese consumers coming to McDonalds, McDonalds lowered prices for its basic menu consisting of a hamburger, fries and drink from 12.50 Yuan to 10 Yuan. (Scott Hume, 2007) Across China there are a lot of differences in purchasing power. Therefore McDonalds China is also exploring menu pricing by taking into account both market and restaurant. (James A. Skinner, 2006) PEOPLE McDonalds provides employment and growth opportunities for a lot of people, more than 1.5 million worldwide. Entering the Chinese market they can give many people the opportunity to operate in their restaurants. They focus also on training and development, which is necessary to learn the required skills, to do their jobs well. McDonalds has its own learning academy, namely the Hamburger University (HU), where a leadership development program is established based on Western management practices. (McDonalds Corporation c, 2007) PLACE There are two important evolutions concerning this subject. First evolution is to open McDonalds China 24 hours a day. Presently, more than 400 restaurants of the 800 restaurants in China have provided services for 24 hours a day. In Beijing 40% of the companys stores open their business for 24 hours. In Shanghai 50% and in Guangzhou 60% have a 24-hour service. The major reason for opening 24-hour restaurants is to meet the demand by the customers, because more and more customers need the services at night because of their changing living habits. In Beijing customers actually werent eager for the night service due to the relatively cold weather there at night. This is different from the customers in the warmer southern China. (Answers.com) The McDonalds success story in China is quite evident as they opened their first 1000th McDonalds restaurant faster than any other country outside the US and is the main focus for investment in the regionà ¢Ã¢â€š ¬Ã‚ ¦ They go one further to mention that they plan to have à ¢Ã¢â€š ¬Ã‚ ¦2000 outlets in China by 2013. Clearly this is quite an achievement in country that is diverse and rich on different culture. QUESTION FIVE Discuss the challenges that McDonalds faced when entering the Chinese market and to expand its operations. You need to use the Geert Hofstedes model to compare China and the U.S. and then highlight cultural challenges that the U.S. managers must be aware of in managing McDonalds operations in China) McDonalds difficulties and challenges in China McDonalds is considered as the most successful and largest restaurant chain in the world. In 1990 McDonalds opened its first store in Shenzhen China. In 1992, McDonalds Beijing outlet was opened. There are more than 800 McDonalds outlets in China today. (answers.com, 2011) In so far as the legal aspect was concerned, there were no franchise laws that existed in China. This posed a problem about how franchises should exist or operate. Chinese people were loyal to Chinese cuisine and felt that the fast food chains did not offer much variety to suit their palate. The Chinese preferred the traditional culture of food and drink complete with colour, fragrance, flavour, and variety. To make matters worse, they also faced intense competition by its biggest rival Yum Brands i.e. KFC. Not only did McDonalds have the difficult task of adapting their business to the Chinese culture and way of life; they also had to fend off their competitors. This meant finding other ways to compete against them and attract customers by changing their product range, style and advertising. Hofstedes Cultural Dimensions: China and The United States: One of the most popular works in the study of culture is that of Geert Hofstedes (1984). Through his research and surveys he theorized that cultural and sociological differences between nations can be categorized and quantified, thereby allowing comparison of national cultures to take place. Hofstedes identified four cultural dimensions. These are: 1. Power Distance The dimension of power distance is about the extent to which power structures are hierarchical and reflect significant inequalities in power. Countries with large power distances exhibit wide inequalities in power, power that is often concentrated in relatively few hands in heavily centralized and hierarchical organizations. Individuals within such cultures view themselves as inherently unequal: subordinates are dependent on those higher up the hierarchy and accept the power of their superiors by virtue of their position in the hierarchy. All participants in the hierarchy expect their position within it to be clearly demarcated. China is considered as a large power distance country. In small power distance countries, individuals are more inclined to regard themselves as equals: rather than expecting to be told what to do, subordinates expect to be consulted and will argue a case with those higher up the organization. Respect for individuals within the organization comes from their proven capacity to perform a role rather than from the possession of a particular job title or their place in an organization. Shorter small power distances coincide with flatter organization structures. The United States is considered a country with small power distance. 2. Uncertainty Avoidance Uncertainty avoidance measures the lack of tolerance for uncertainty and ambiguity. This manifests itself in high levels of anxiety and emotion. This in turn translates into a preference for highly structured formal rules and limited tolerance for groups and individuals demonstrating deviant ideas or behaviours. 3. Individualism vs. Collectivism The individualist-collectivist dimension measures the degree to which the interests of individuals or of the group take priority. The social framework in an individualistic society is looser than that of a more collectivist society and individuals take responsibility for themselves and their immediate as opposed to extended families. Individualist societies demonstrate a greater regard for individual rights and freedoms and tend to be characterized by assertiveness and competitiveness rather than by teamwork and cooperation. China is considered a country that is collectivist. In China, it is the group (which could be the extended family, the employer or the society as a whole) that looks after the interest of individuals and gives them their sense of identity. In return from this protection, individuals offer the group loyalty and work towards the attainment of goals determined by and for the good of the group, organization or society. The United States on the other hand is a highly individualistic society. 4. Masculinity Femininity Societies that place a high premium on assertiveness, achievement and the acquisition of material possessions are exhibiting aggressive or masculine goal behaviour. Masculine environments also favour conflict and competition in the workplace. Cultures that place a high value on social relationships, quality of life and sensitivity demonstrate passive or feminine goal behaviour. Cultures and workplaces scoring high on the femininity dimension exhibit high degrees of cooperation, negotiation and compromise. The United States can be considered as a masculine culture while China is leaning toward femininity. QUESTION SIX Where do you think the best opportunities for future growth lie for McDonalds? Why? Relations between the U.S. and China could be entering the realm of interesting times, but McDonalds seems undaunted. The fast-food giant recently announced plans to nearly double the number of Golden Arches locations in that highly coveted market. It comes as no surprise that American companies yearn for heated expansion in this populous nation. China has more than 1.3 billion people; one in five people on the planet live in China. Thats a lot of people who might want fries with that. Meanwhile, informal dining out in China is currently a $300 billion opportunity, and its expected to increase by 10% this year as the middle class in that country grows. An aggressive growth target for Chinese restaurants certainly looks like a good idea, given McDonalds 2010 plans to grow global revenue by 3% to 5%, and profit by 7% to 9%. In fact, China is the companys fastest-growing market in sales and income. As it stands now, China has 1,100 Mickey Ds. By the end of 2013, McDonalds plans to have planted 2,000 in the nation. China already represents 23% of revenue from the fast food giants Asia Pacific/Middle East/Africa segment. Lets look at McDonalds comparable-store sales by geographic region for the last several years (in constant currencies): MCD annual comparable-store sales 2009 2008 2007 Asia Pacific/Middle East/Africa 3.4% 9% 10.6% U.S. 2.6% 4% 4.5% Europe 5.2% 8.5% 7.6% *From company press releases and SEC filings. As you can see, in 2009 comps slowed down across the board, although admittedly, McDonalds faced tough comparisons in years past. Investors understandably get excited about U.S. companies that eye Chinese growth; one of the significant factors for the investment thesis for Yum Brands have been its presence in China, and its continued aggressive expansion. Last year alone, it opened more than 500 new restaurants there. Yum has more than 2,870 KFC outlets in China, and more than 450 Pizza Huts. You can see why McDonalds would be salivating to compete for some of that action. Of course, expanding into China is not without pitfalls. Although Starbucks is still waxing enthusiastic about its Chinese locations, its faced plenty of frustrating moments, including its 2007 retreat from the Forbidden City. Many U.S. companies have also had to navigate difficulties with the Chinese government and its policies, including Yahoo! and more recently Google. (www.fool.com, 2011) India may overtake China as the worlds fastest growing major economy by 2015, as the South Asian nation doubles infrastructure investment and adds six-fold more workers than its northern neighbour, Morgan Stanley said. Indias growth may accelerate to 9.5 percent between 2011 and 2015, Morgan Stanley economist Chetan Ahya said in an interview from Singapore today. Indias gross domestic product has expanded at an average 7.1 percent over the decade through the third quarter of 2009, compared with 9.1 percent in China, which surpassed Japan as the second-largest economy last quarter. (Bloomberg.com, 2011) India will surpass China, Japan and many other European countries in the current economic climate with their economic growth rate. It has one of the largest populations in the world. According to a survey by Bloomberg, the govt will invest millions of dollars to develop the countrys poor infrastructure. The creation of jobs in the manufacturing industry means that there will be an increase in consumer expenditure in the long term. McDonalds has great potential in reaching many more consumers in India because an injection of capital into the economy.

Implications of Chinese Capital Account Liberalisation

Implications of Chinese Capital Account Liberalisation If China does liberalise, few other events over the next decade are likely to have more impact on the shape of the global financial system. This also sets out a conceptual framework, identifying three separate factors which help explain why the scale of the subsequent movements in capital flows — both into and out of China — could be very large relative to the size of the world economy: (i) ‘Closing the openness gap’- There is a large gap between China’s current level of openness and that of advanced economies. Liberalisation will lead this gap to close, generating large flows in the process. (ii) ‘Catch-up growth’- China’s economic growth is expected to be relatively high over the next decade. So even if China’s capital flows do not increase relative to its own economy, they will relative to the world economy. (iii)‘Declining home bias’- Prior to the recent crisis, the global financial system became increasingly integrated. A resumption of these trends over coming decades would lead capital flows to increase both in China and globally. Summary chart Potential impact of capital account liberalisation on China’s international investment position Based on these three factors and some simple but plausible assumptions, the summary chart shows a hypothetical scenario for China’s global financial integration in 2025. It shows that China’s gross international investment position could increase from around 5% to over 30% of world GDP. The global financial integration of China has the potential to be a force for economic growth and financial stability not just in China but also globally. Global implications of Chinese capital account liberalisation The potential changes in both the magnitude and composition of capital flows outlined in the previous section would dramatically alter the financial landscape both in China and globally. In principle, capital account liberalisation in China could be a powerful force that enables the Chinese and global Implications for China For China, there are several potential benefits of liberalisation which can all be viewed through the broader lens of contributing to economic rebalancing. The Chinese economy is now starting to transition to a new model of growth, away from reliance on exports and investment as the key sources of demand. The new model of growth will therefore place a greater emphasis on consumption as a source of demand and an increase in the production of services relative to exportable manufactures. This is a challenging task and will require an ambitious agenda of structural reforms. Among these reforms, capital account liberalisation will play a key role. A removal of restrictions on outflows, for example, will allow Chinese companies and households to diversify their large pools of savings by investing in overseas assets. This should help to spread risk, reducing the need for precautionary saving and hence free up income for current spending. And it may also boost household income if returns earned on overseas assets are higher than on domestic assets (which is likely given that real deposit rates in China are currently negative due to  regulatory caps). China has the biggest banking system in the world by total assets but it is very domestically focused. If China’s banks were to diversify their balance sheets by expanding abroad — either directly through cross-border bank lending, or indirectly through lending to foreign affiliates — they may become more resilient to an adverse shock in their home market and so be better able to maintain lending to domestic companies and households in China. Allowing more channels for inflows, on the other hand, will help to deepen and diversify China’s financial system, providing alternative sources of capital for Chinese borrowers. Should liberalisation also lead to lower reserve accumulation, it could lead to an improvement in China’s fiscal balance since the return on its FX reserves is lower than the cost of sterilising those purchases. And if it were accompanied by a more flexible exchange rate regime (as was suggested by the Third Plenum), it could allow China to operate a more effective monetary policy, increasing its ability to respond to domestic shocks. All of these factors should promote China’s rebalancing and its transition towards a new model of growth. But there are also risks. There are several notable examples where capital account liberalisation has resulted in instability. The most recent, perhaps, was the Eastern European countries where large capital inflows contributed to unsustainably rapid cr edit growth that ultimately culminated in economic and financial crisis in 2008 (Bakker and Gulde (2010)). Chinese policymakers will need to ensure they have sufficient scope to set policy to offset shocks that could pose risks to economic and financial stability. It will be particularly important to sequence carefully external liberalisation with appropriate domestic macroprudential and microprudential policies to mitigate risks from excessive credit growth and asset price volatility. One concern is that by opening the financial gates, some banks and, ultimately, borrowers in the Chinese real economy may find themselves faced with a shortage of liquidity. China’s banking system is heavily reliant on domestic deposits for its funding, which account for around two thirds of total liabilities. A reallocation overseas of even a small share of these deposits could therefore cause funding difficulties. By  enabling higher real returns for Chinese domestic savers, however, domest ic interest rate liberalisation could help to reduce these risks. Another set of risks are related to inflows. In the short run, there could be indigestion in China’s asset markets, which are still small relative to potentially large inflows of capital. And over a longer time period, inflows could lead to an unsustainable build-up of maturity and currency mismatches in national balance sheets (for example, long-term domestic investment funded by short-term overseas FX-denominated borrowing). Large mismatches are susceptible to unwind in a disorderly way, as was the case for some Asian economies in 1997–98. Finally, the risks arising from a more flexible — and potentially more volatile — exchange rate would need to be effectively managed. Which of these outcomes — more sustainable growth or a rise in instability — would dominate will depend on the accompanying policy framework. The empirical evidence on the costs and benefits of financial openness tends to suggest that countries benefit most when certain threshold conditions — such as a well-developed and supervised financial sector and sound institutions and macroeconomic policies — are in place before opening up to large-scale flows of capital (Kose et al (2006)). This underscores the importance in China of careful sequencing of capital account liberalisation alongside other domestic reforms such as domestic interest rate liberalisation, development of effective hedging instruments and enhancing the microprudential and macroprudential regimes. Implications for the rest of the world From the perspective of policymakers outside of China, it is important to understand how capital account liberalisation might ‘spill over’ to affect other economies. Four such channels are discussed below, although there are undoubtedly others. Greater exposure to the Chinese financial system If liberalisation has a large impact on the Chinese economy or financial system, it is also likely to have a significant impact in other countries as well. Although China’s economy is already considered able to generate material spillovers onto other economies (International Monetary Fund (2011b)), the process of capital account liberalisation will likely increase its systemic importance even further, by magnifying existing transmission channels, while also creating new ones. Foreign households, businesses and financial institutions will increase the amount and the number of their claims on China, while those in China will do the same with respect to the outside world, thereb y deepening the complex web of financial interconnectedness. If China does hard-wire itself into the global financial system, it will bring important benefits in terms of risk-sharing. Households that purchase Chinese assets whose returns are not perfectly correlated with their own income would be better able to smooth consumption. And foreign banks that  expand in China would diversify their earnings base and potentially enhance their resilience. The flipside of increased interconnectedness, however, is that the global financial system will be more sensitive to shocks originating in China. Increased holdings of Chinese assets, for example, would imply greater exposure to fluctuations in their price. Greater reliance of global banks on Chinese banks for  funding, in turn, would bring about the possibility of a liquidity shortage if those banks were to repatriate funds in response to balance sheet pressures back home.(1) Increase in global liquidity If China’s financial walls are lifted, some of its vast pool of domestic savings will migrate into global capital markets, providing a significant boost to liquidity. The illustrative scenario in Chart 5 suggests that these flows could amount to a substantial share of world GDP. A new source of global liquidity from China could lead to several beneficial effects, particularly during a period where the world’s financial system is becoming increasingly fragmented and retreating into national borders (Carney (2013b)). As well as providing a new source of finance for borrowers, it could lead to a more diversified and more stable global investor base. At the same time, however, a rapid increase in liquidity from China could lead to absorption pressures in some asset markets in the short run, which could lead to a mispricing of risk with adverse consequences for financial stability. Increased global role of the renminbi Greater international use of the renminbi would add another dimension to the global impact of capital account liberalisation. Potential benefits include lower transaction costs and a reduced risk of currency mismatches. But it may also amplify the international transmission of Chinese policy and domestic shocks, of which policymakers around the world will need to take into account. Take the following hypothetical case: a country purchases a large proportion of its imports from China and its currency depreciates against the renminbi. If the prices of those imports are set and invoiced in the domestic currency of that country, the depreciation would not automatically lead to an increase in their price and hence no response in domestic monetary and fiscal policy would be needed.(2) If, however, the imports were invoiced in RMB, then their price would increase in line with the exchange rate depreciation, leading to domestic inflation. Moreover, a country that had no trade with China but whose imports were set and invoiced in RMB — such that the RMB would be a ‘vehicle currency’ — would need to respond to macroeconomic or policy fluctuations in China that affect the exchange rate and feed through into domestic prices of that country. There is a body of literature which finds evidence of these invoicing effects for the US dollar, as the world’s most international currency. Goldberg (2010) finds that for non-US economies, large use of the US dollar in reserves and in international transactions is typically associated with greater sensitivity of trade, inflation and asset values to movements in the value of the dollar relative to the domestic currency. However, as discussed above, it would likely take much longer than a decade for the renminbi to take on a similar role to that of the US dollar today. Global imbalances The literature on the causes and consequences of global imbalances is as vast as it is inconclusive. According to one influential perspective, the large imbalances in current account positions that accumulated over the past decade partly originated in high net saving rates in developing Asian countries (Bernanke (2005). If true, capital account liberalisation in China could potentially help to alleviate these imbalances to the extent that it leads to a reduction in China’s net savings and correspondingly its current account surplus (although clearly the impact of this on overall imbalances would depend on the corresponding adjustment in other countries). This may occur either because liberalisation lowers the incentives for precautionary saving or because it leads to a more flexible and higher exchange rate. But even if Chinese capital account liberalisation were to lead to no reduction in global imbalances, it could still help to lessen some of the adverse consequences relating to these imbalances. There is evidence that reserve accumulation by foreign governments can materially depress the risk-free interest rate in the United States (Warnock and Warnock (2009)) which, in turn, may encourage excessive risk-taking behaviour globally. So to the extent that Chinese capital account liberalisation were to result in a switch in the composition of outflows, away from reserve accumulation by the central bank and towards overseas investment in riskier assets by other Chinese residents, this may reduce some of the downward pressure on government bond yields and related rates i n the United States and globally. Of course, this would bring other challenges. But in the longer term, it could be beneficial for the stability of the international monetary and financial system as a whole. Conclusion If China continues to liberalize its capital account over the next decade or so, it is likely to be a force for development and constancy not just in China but also for the international monetary and financial system. While this process will be companied by new and important risks, it falls to international bodies and national authorities to monitor and take appropriate policy actions to mitigate such risks. This will not be a petty task. As we already know Chinese capital account liberalisation could lead to striking changes in the global financial landscape, policymakers will be facing uncharted territory. In order to succeed, policy cooperation between national authorities is necessary, both to increase understanding of the risks and to develop common policy approaches. Currently the Bank of England is working intimately with the People’s Bank of China regarding the development of offshore renminbi activity in the United Kingdom and will continue to seek other ways to suppo rt a successful integration of China into the global financial system.

The Good Mother †A Passive Life :: Good Mother

The Good Mother – A Passive Life  Ã‚   "We live in a world...where the decisive deed may invite the holocaust." --John Updike An interesting question that emerges while reading The Good Mother is: Why did Anna let it happen? Of course, this question must be included among many others, most of which elicit ambiguous answers: What really happened? Was there fault to be assigned? If so, who was at fault? What is a good mother? Can a woman be a good lover and a good mother? Where must sexual boundaries be drawn between children and couples in a household? Regardless of what it is, the answer to the question Why did Anna let it happen is that she was rendered almost powerless by her gender, class, and social and family background to do anything but let it happen. She spent her life letting things happen. Anna Dunlap, recently freed from a boring marriage and involved in a sexual awakening with an unconventional man, probably thought of herself as liberated in a very literal way before and during her affair with Leo Cutter. "I had a sense, a drunken irresponsible sense, of being about to begin my life, of moving beyond the claims of my own family, of Brian, into a passionate experiment, a claim on myself." (p. 10) As events played out, however, it became obvious that Anna had not escaped her history and that her "liberation" was just an illusion. Anna grew up in the shadow of her wealthy, domineering grandfather, her emotionally absent father and her cold, achievement-oriented mother. Her mother ran her life, pushing Anna to practice piano in the hopes she would become a professional musician one day. Anna was learning that she was not in control of her life; she was forced to let life (through her mother's ambitions for her) happen to her. When she visited her grandparents' summer home in Maine, Anna witnessed her grandfather's overwhelming dominance and saw her grandmother, mother and aunts engaged in interesting but meaningless (in Anna's view) "women's" conversations. When Anna was fourteen, her mother, realizing Anna was not a musical genius, loosened her grip on her daughter and, in fact, ceased to praise her for anything. As Anna's body changed and she became attractive to boys, she tried to define herself through sex, which she found empty and unsatisfying. Once again, Anna was not in control; she let it happen.

Assisted Suicide Essay -- Euthanasia Essays

The right to assisted suicide is an intricate topic posed upon those in the United States and several other countries throughout the world. Assisted suicide proposes a controversy of whether or not a person has a right to solicit death through the help of a licensed physician. This issue has sparked an intense moral controversy. Assisted suicide has become apparent in various places around the world such as the Netherlands, Belgium, Luxembourg, Switzerland, Oregon and Washington (Humphry). The increasing legalization of assisted suicide creates an even bigger controversy because it disrespects the beliefs of many who are pro-life. But, the act of legalizing assisted suicide in countries and states shows that people are starting to be think more compassionately instead of binding strictly to the laws. When people think of the words â€Å"assisted suicide† many believe it is the action of helping a person commit suicide without the aid of a licensed doctor, making it seem unlawful and inhumane. The importance of assisted suicide is that is directed by a physician that serves to make dying as painless and dignified as possible. Even with this understanding, people still oppose this action because it goes against their religious and moral beliefs. Others support the legislation because of their compassion and respect for those who suffer. Supporters main argument for assisted suicide is that everyone has their own freedom and self determination to decide what they want to do with their lives; others should not be able to control a persons fate. An advocate believes that assisted suicide should be allowed as long as their is no harm inflicted on others. Contrastingly, people who argue against assisted suicide have the opi... ... should be up to them of how they want to live it. The United States allows for freedom of religion and freedom of speech, so how can assisted suicide not be allowed when we have the right to speak for ourselves. Our life is not our own if we cannot choose when to end it. Works Cited "Assisted Suicide: A Right or a Wrong?." Santa Clara University - Welcome. N.p., n.d. Web. 1 Dec. 2014. http://ww.scu.edu/ethics/publications/iie/v1n1/suicide.html †¨Humphry, Derek. "Liberty and Death: A manifesto concerning an individual's right to choose to die." Assisted Suicide - Information on right-to-die and euthanasia laws and history. N.p., n.d. Web. 1 Dec. 2014. http://www.assistedsuicide.org/liberty_and_death_manifesto_right_to_die.html Kuhse, Helga, Peter Singer, and John Lachs. Bioethics: an anthology. 2nd ed. Malden, MA: Blackwell Pub., 2006. Print.

William Wordsworth

Describe similarities and differences between â€Å"I wandered lonely as a Cloud† by William Wordsworth and the extract from The Grasmere Journals by his sister Dorothy Wordsworth. Comparison must include comments on the, language, imagery, genre and audience of the two texts. â€Å"I wandered lonely as a Cloud† by William Wordsworth is a lyric poem focusing on the poet's response to the beauty of nature. A lyric poem presents the deep feelings and emotions of the poet rather than telling a story or presenting a witty observation.This is also seen on the language of the poem as W. Wordsworth uses personifications when he starts by comparing himself to a lonely cloud. Another personification and metaphor is when W. W compares the daffodils to a crowd of people and further more dancing humans. He starts his poem with a simile Alliteration: lonely as a cloud (line 1). Simile: Comparison (using as) of the speaker's solitariness to that of a cloud (line 1). Personification: Comparison of the cloud to a lonely human. line 1) Alliteration: high o'er vales and Hills (line 2). Alliteration: When all at once (line 3). (Note that the w and o have the same consonant sound. ) Personification/Metaphor: Comparison of daffodils to a crowd of people (lines 3-4). Alliteration: golden Daffodils (line 4). Alliteration: Beside the Lake, beneath the trees, Personification/Metaphor: Comparison of daffodils to dancing humans (lines 4, 6). The speaker humanizes the daffodils when he says they are engaging in a dance.

Taxation W/O Representation

The colonists strongly desired independence and separation from Britain once taxation without representation was imposed on them. The colonies struggled to earn their representation in the Parliament of their mother country. They were turned down repeatedly and this caused huge issues for the colonists; it was the complete reason for the Revolutionary War. Therefore, the demand for no taxation without representation was the primary force to motivate America against Britain and it was also a symbol for democracy. A primary cause is the definite reason to how much or to what extent; therefore, the primary cause for the revolutionary movement was America’s demand for no taxation without representation. Taxes were forced upon the 13 colonies to gain money for Britain. After the Seven Years’ War, King George III issued the Sugar Act and the Stamp Act to simply raise revenue for the economy. These acts were imposed on the colonies without their word or representation. These acts drove the colonists to think for themselves and their own rights. The pursuit for â€Å"life, liberty, and property† began, and drove the colonist’s strong desire for their representation. Although Britain repealed the Stamp Act due to the anger of the colonies, they created the Declaratory Act, which gave them complete rights to control taxation and anything â€Å"in all cases whatsoever†. Colonists of America believed that their rights and liberties were completely taken away because they had no representation in the Parliament. Many boycotts and restraints to the taxes took place- although many peaceful approaches were attempted to the King for the representation of the colonies. The Olive Branch Petition is an example- this was sent to the king so they could be recognized and equally represented. Instead of introducing a violent approach, this enabled the colonists to put their say in how they wanted representation-not independence yet. This was one of the letters that were turned down by the king-it was argued that America did have representation in the Parliament. This angered the colonists because they did not believe they had just representation due to the fact that Britain was 3,000 miles away across the Atlantic Ocean and that it was almost impossible to them to be governed. Many began producing rhetoric speeches and poetry that showed their desire for independence and the anger that they were building up because they were turned down for their representation. A pamphlet titled the Common Sense by Thomas Paine brought upon the ideas that they should have independence from Britain and a republican government instead-this pamphlet became extremely popular and sold over 150,000 copies. The acts that did not give proper representation led the colonists to boycott and think individually for their country-it was a primary source to the revolutionary movement including the Revolutionary War that ended with success of the Americans. These enabled the American colonists for desire for independence and a separation from Britain after being repeatedly rejected. Not only did they not have much of a representation, but Britain rarely included the colonies. This was called salutary neglect-where Britain tended to forget about Americca and not focus on them at all. Thomas Jefferson signed the Declaration of Independence in 1778, which was full of statements and reasons that justified why America should be separated- because they were rejected and still not represented properly. In this document it states that they relied on democratic consent of the governed. The imposed taxes without representation to America were a direct drive for democracy. This taxation without representation represents the core value to independence and separation from Britain. Many documents and studies show that no taxation without representation is the primary cause for the revolutionary movement and is also a symbol of democracy. Document C introduces how the taxes are completely imposed without the America’s consent- and that it is denied because it is not fair to the colonies that don’t even get representation to their government. This proves that no taxation without representation enabled many letters and petitions to be sent to the king that angered the leaders and the other colonists because there is no consent of the governed. Document G-which is the Common Sense pamphlet explained above-is an example of the drive to independence and a symbol for democracy. â€Å"It is evident that they belong to different systems. † This justifies how it is simply not possible for America to be correctly represented. In conclusion, no taxation without representation angered the colonists and drove them to the revolutionary movement. It was the primary reason to motivate them and it was a symbol of democracy by forcing their desire to separate away from Britain and become their own government.