gordeeva_o_g_praktikum_po_perevodu_ekonomicheskih_tekstov_s

IBM intends to be in a better position than it was during the last economic upturn – when the IT giant failed to keep up with its competitors.

As part of its restructuring plan, Sam Palmisano, chief executive, has stepped up investment in the most profitable business – software.

Another part of its overhaul plan is to reverse a process that began in the early 1990s when IBM divided its business groups, with the aim of breaking them up into independent companies.

However, IBM’s plan to reintegrate various business groups could run into danger: returning to some of its former glory may also mean a return to some of its former troubles.

Its huge success in the 1960s and 1970s turned IBM into a lumbering giant unable to respond quickly enough to fast-paced markets led by personal computer technologies. By the early 1990s many had written it off.

During the last upturn, marked by the dotcom boom, IBM’s size made it difficult for it to compete against more focused competitors, with thousands of start-ups trying to bite off chunks of its business.

Now, four years later, with many of the start-ups gone, many billions of dollars-worth of acquisitions under its belt and market share gains won during a very tough downturn – IBM glimpses a chance for faster growth and better profits.

Shell looks to overhaul management after studying other multinationals

Royal Dutch/Shell is exploring ways to overhaul its management structure, in the move that would answer some investors’ criticisms after it restated oil and gas reserves in January.

The Anglo-Dutch group has reviewed the board structures of three other multinationals with roots in two countries. It is seeking models for its own senior team.

The person with knowledge of the plans said: “Shell has reviewed the structures of three companies and may move quickly to collapse its own management structure.”

102

The insider said Fortis, the Dutch-Belgian banc-assurance group, was considered the most likely model, given the experience of the complexities of issues such as Dutch tax law.

Fortis has two separate companies but has unified its shares and has a single chief executive and executive board. It announced last week that it would have a single chairman from May. Shell is likely to move to a single chief executive and single chief financial officer rather than the current management committee structure, which sits on top of the Dutch and UK companies’ separate boards.

It is also possible that Shell will recruit a chairman from outside the company. The person familiar with Shell’s thinking suggested that it might choose an American, if only to avoid criticism from either British or Dutch factions.

Shell said yesterday: “We are actively listening to the concerns of shareholders.”

The Financial Times March 2004

Danone seeks appetite for yogurt in U.S.

In the early 1900s a Russian biologist theorized that Bulgarian peasants lived longer because of their yogurt consumption. A century later, the sales pitch for what has become a staple of supermarket shelves borrows from that sentiment.

Danone SA, the world’s largest maker of dairy products by sales, is looking to convince U.S. customers about yogurt’s health benefits.

Americans aren’t big on yogurt. They eat an annual average of just 3.2 kilograms of it. In France, Danone’s turf, the average yearly consumption of yogurt is more than 22 kilograms, according to Danone’s market research in 2005.

Factor in the size of the U.S., the cost of TV advertising and the initial reluctance of supermarkets to make room for yogurt on their shelves, and it becomes clear why Danone’s progress in the U.S. has been spoon-size.

In fact, U.S. yogurt consumption lags so far behind that of other developed countries that America qualifies as an emerging market for Danone.

103

To conquer this market, the Paris company has a multipronged strategy of reworking tried-and-tested products from mature markets, promoting the health benefits of its yogurts and targeting niches such as Hispanic community. It is also cranking up production capacity.

The rewards could be enormous. From $300 million in 1980, the U.S. market increased to $3.5 billion in 2005. During the past three years, it has increased by 7% to 9% annually. That compares with no expansion in France’s market for dairy products this year.

“The payout in the U.S. is very good because you get big businesses,” said Juan Carlos Dalto, chief executive of Danone Co., Danone’s U.S. subsidiary. “But this is a very expensive country. It’s not only about the distances, but about the cost of the communications, of the TV mainly, of the advertising,” he said.

Danone isn’t a newcomer to the U.S., where it set up shop in 1942. Through the introduction of containers with fruit on the bottom, to the launch of blended and low-fat goods, it has built a solid business. It is only recently that the company has decided to make a major U.S. market push, notably with the introduction of its Activia yogurt, a product that Danone says promotes digestive health.

Launched in the U.S. in 2005 in a $60 million advertising-and- promotion campaign, Activia raked in $130 million in sales in the first year. After being sold in Europe, the product was adapted to the U.S. market. Its fat content was cut to less than 2% so it could classify as low fat under U.S. Food and Drug Administration rules.

Danone has found success in exporting established European products to the U.S. and is aware of the need to tailor to American tastes.

The Wall Street Journal October 2006

104

A new strategy boosts Dell

Dell Inc. recently lost its No.1 position in the world-wide personal computer market – and investors have reason to cheer.

For years, the Round Rock, Texas, computer maker was a highflying tech company that churned out healthy profits and consistently grabbed market share with its low-cost business model of selling PCs directly to customers. Over the past year and a half, as the formula has shown its age, Dell has struggled to consistently increase its share and maintain robust profits. It often slashed prices in order to move more PCs.

The price cuts hit Dell’s bottom line hard. In August, it reported that fiscal second quarter profit plunged 51%. Dell’s operating margin, once the envy of the industry, also deteriorated. Margin, a measure of profitability that represents the difference between revenue and the cost of production, stood at more than 10% in the late 1990s and above 8% as recently as 2004. It plunged to 4.5% in the most recently reported quarter.

Meanwhile, Dell shares, which trade on Nasdaq Stock Market, have risen more than 9% since fiscal second-quarter results were announced Aug.17, although the stock is down nearly 17% for the year.

It now appears that Dell has chosen to give up its focus on market share in favor of profit. The company announced in July that it was simplifying its pricing structure, in part by reducing the number of promotions it uses. Dell’s PCs have been selling at higher-than-expected average prices over the past quarter.

Even as Dell’s market share is taking a hit, its earnings are looking up. By one measure, Dell’s global market share fell to 16.1% in the third quarter from 16.6% a year ago, giving up the top spot in the PC market for the first time since 2003.

Dell, which generates nearly $60 billion a year in revenue, isn’t the only maturing technology company that has had to find a balance between growth and profit. Hewlett-Packard’s personal-computer business struggled earlier this decade between growing its market share and its profit, often leading to losses for the unit. In late 2004, H-P

105

decided to concentrate on profitability. Since then, its PC business has posted stronger profit and the company’s stock price has risen.

IBM Wins Big Contract In Outsourcing Deal

International Business Machines Corp. agreed to take over most of the computer operations of auto-parts maker Visteon Corp. in an outsourcing deal the companies say is likely to be valued at more than $2 billion over 10 years.

The deal is one of IBM’s larger deals in outsourcing, which the company has identified as a major driver of its growth.

Visteon, of Dearborn, Michigan, was spun off from Ford Motor Co. in 2000. Since then, Visteon has been working to diversify its business away from the auto maker, which still accounts for 80% of its revenue. Visteon uses Ford computer systems for its operations. With the arrangement, Visteon will complete its operational separation from Ford.

Under the deal, IBM will take over operations including data centers and help desks. An unspecified number of Visteon employees will move to IBM, but no layoffs are planned, executives said. Visteon will continue to employ a handful of its information-technology staff to chart strategy.

Over the past year, IBM has won a number of multibillion-dollar outsourcing contracts, including one with J.P. Morgan Chase & Co. in November valued at $5 billion over seven years.

For corporations, outsourcing can be attractive because it frees them from making huge investments for information technology that they may not need in the future. Under the deal with Visteon, IBM will get a variable monthly fee depending on how many services Visteon uses.

IBM, the No.1 computer maker, has been shifting away from sales of hardware and software and toward selling sophisticated packages of services to software clients. Services, including outsourcing, have become the company’s fastest-growing line of work. Last year, services accounted for $36.4 billion in revenue, or 45% of IBM’s total sales. In

106

this field, IBM competes with companies such as Electronic Data Systems Corp., of Texas, and Computer Sciences Corp., of California.

Meanwhile, IBM said a much-touted deal to sell parts – such as disk drivers, monitors and displays – to Dell Computer Corp. has been terminated. In 1999, IBM said it expected to sell as much as $16 billion in parts over seven years to Dell under the agreement. An IBM spokesman said the deal ended because IBM had left the disk-driver, monitor and display businesses over the past two years. IBM said the end of the pact wouldn’t have a material impact on results.

Ford Motor Co. will aim to cut white-collar staffing, benefits and other costs by 30% as part of a broader restructuring plan the company’s board was expected to begin reviewing yesterday, according to people familiar with the matter.

Ford’s board also is expected to hear details about a new vehiclepricing strategy, which will focus on keeping prices closer to the suggested retail price amid a cut in production. Details of its cost-cutting efforts could be disclosed as soon as tomorrow, said people familiar with the matter.

The 30% cut to salaried costs is on the high end of a 10% to 30% cut that had been studied by Ford, which has come under criticism that its first restructuring plan didn’t go far enough. The auto maker aims to cut back mostly on the number of managers and supervisors, with fewer cuts to lower-level, less-expensive salaried workers. The white-collar cuts will take place through the rest of this year and into 2007, said one Ford supervisor.

Under the plan, Ford managers will be told to look at their operating budgets and figure out how they can reach the 30% target. “It will be very difficult. A lot of people will lose their jobs and the people that stay will be asked to do a lot,” said another person, who had been briefed on Ford’s plans.

107

Ford would look to make white-collar cuts through earlyretirement offers, buyouts and attrition before looking to layoffs. The cuts could include reductions in benefits such as pensions and healthcare plans.

Ford is under pressure to speed up cost-cutting efforts after the auto maker – No.2 in the U.S. after General Motors Corp. in terms of production – reported a $254 million loss in the second quarter and worse-than-expected July and August U.S. sales. Ford hopes that by lowering production it can avoid overbuilding vehicles and using big discounts to lure in customers.

Now Honda Is Feeling the Pain, Too

Slumping sales and a strong yen force Japan's No. 2 automaker to slash its profit target by 62% after already cutting it just six weeks ago

Honda Motor Co., Ltd. had been tipped to weather the storm engulfing the auto sector better than most other carmakers. Analysts cited its penchant for fuel-efficient small cars and the absence of unpopular large models in its lineup. And while Honda trimmed earnings forecasts at its half-year earnings announcement on Oct. 28, it was by less than rivals, and the company still planned on making $5.5 billion this year.

All that changed Dec. 17. Speaking at a hastily arranged press conference in Tokyo, Honda Chief Executive Officer Takeo Fukui, flanked by solemn-looking fellow executives, announced a huge downward revision in the company's earnings. Honda now says it will earn $2.1 billion this fiscal year, 62% less than it said just six weeks ago. Sales are now expected to plunge $4.5 billion, to $131 billion, 10.3% worse than previously expected. That means Honda expects to lose more than $2.1 billion in the six months through March 2009 after making $4.2 billion during the first half. "The situation is worsening every day in all regions," Fukui told a packed press conference at the company's Tokyo headquarters.

108

In an earlier announcement, Nissan said it would cut production in Japan by a further 78,000 from January, which means it has now announced cuts of 238,000 vehicles in Japan. Nissan, which started the fiscal year in April with 2,000 temporary employees, also said it will employ none by March 2009. Toyota is delaying the opening of a new Prius plant in Mississippi.

Yen Troubles

While slumping auto sales and a surging yen remain the causes of Japanese automakers' problems, their combined impact has grown rapidly in recent weeks. The yen is now below 89 to the dollar, a 13-year high, after the U.S. Federal Reserve cut its target interest rate to a range from zero to 0.25%. The strong yen reduces the profitability on cars exported from Japan and reduces the value of earnings made overseas when converted back into the Japanese currency.

Sales, meanwhile, are falling in the U.S., Europe, and Japan and slowing in emerging markets. In the U.S., where Honda traditionally makes most of its profits, its pace of sales has fallen at a remarkable rate in the past few weeks. Honda's sales year-to-date are down only 5.4%. That's not good, but it's much better than the declines at Nissan, Toyota, and the Detroit Three. However, as the financial crisis has worsened, Honda's sales have fallen into line. In November, sales plunged 32%. "The impact of November says everything," Honda Senior Managing Director Koichi Kondo said at the press conference when asked why Honda had slashed its projections so soon after the last revision.

To avert more red ink, Honda is undertaking a series of measures, most aimed at cutting costs. Among them, a new flagship plant in Yorii, outside Tokyo, and a minicar plant in western Japan will be delayed by at least one year, while planned capacity increases in India and Turkey have been postponed. Honda has dropped a plan to release the Acura luxury marque in Japan in 2010 and has axed the development of the successor to the NSX sports car, scheduled to have been equipped with a new V10 engine. And the company's plans to use diesel engines in larger models are now on hold. All new projects will be "reassessed from scratch," Fukui added. Earlier in December, Honda had already pulled out of Formula One in order to save the company about $500 million a year.

"Dramatic Action"

Management will take its share of the pain. In January all Honda directors will take a 10% pay cut and Fukui expects executive bonuses to be "cut dramatically." So far, Honda has avoided laying off full-time

109

workers in Japan, but 760 temporary employees have been told that their current contracts won't be renewed beyond December. Next year, a further 460 will be released after their contracts expire. "We need to take dramatic action to avoid losses at any cost," Kondo added.

Still, amid the rapid-fire restructuring, Honda isn't skimping on small-car or hybrid plans, which it insists are the key to its long-term health. Within three years, Honda plans to introduce a new entry-level small car that will be smaller than its Fit subcompact. While diesels for bigger cars are on hold, Honda is now developing new diesels for smaller cars.

And more greener, gas-sipping models are in the pipeline. Fukui confirmed the new Insight model will go on sale in spring 2009 as planned and that it will be priced below 2 million yen in Japan, or $22,000 at the current exchange rate. The U.S. price is expected to be below $20,000. The CR-Z sports hybrid will follow by the end of 2010, and, breaking away from the plan to use diesels for larger models, Honda now says it is considering applying hybrids to larger models. In a second press conference, Honda revealed that it will team up with battery company GS Yuasa to form a new company that will develop and manufacture lithium ion batteries for future hybrids.

to engulf – поглощать, засасывать penchant – склонность, любовь к… to skimp – урезывать, экономить

EX.A Look through the text and pick up the words describing the negative trend in the industry

EX.B Give Russian equivalents to the underlined word combinations.

110

Management by objectives

It may seem obvious that managers must have somewhere to go before they set out on a journey

The idea of management by objectives (MBO), first outlined by Peter Drucker was popular in the 1960s and 1970s. In his book “The Practice of Management”, published in 1954, Drucker outlined a number of priorities for the manager of the future. Top of the list was that he or she “must manage by objectives”.

With the benefit of hindsight, it may seem obvious that managers must have somewhere to go before they set out on a journey. But Drucker pointed out that managers often lose sight of their objectives because of something he called “the activity trap”. They get so involved in their current activities that they forget their original purpose. In some cases it may be that they become engrossed in this activity as a means of avoiding the uncomfortable truth about their organisation’s condition.

MBO received a boost when it was declared to be an integral part of “The HP Way”, the widely acclaimed management style of HewlettPackard, a computer company. At every level within Hewlett-Packard, managers had to develop objectives and integrate them with those of other managers and of the company as a whole. This was done by producing written plans showing what people needed to achieve if they were to reach those objectives. The plans were then shared with others in the corporation and coordinated.

Bill Packard, one of the two founders of Hewlett-Packard, said of MBO:

No operating policy has contributed more to Hewlett-Packard’s success … MBO … is the antithesis of management by control. The latter refers to a tightly controlled system of management of the military type … Management by objectives, on the other hand, refers to a system in which overall objectives are clearly stated and agreed upon, and which gives people the flexibility to work toward those goals in ways they determine best for their own areas of responsibility.

MBO urged that the planning process, traditionally done by a handful of high-level managers, should be delegated to all members of the organisation. The plan, when it finally emerged, would then have the commitment of all of them. As the plan is implemented, MBO demands that the organisation monitor a range of performance measures, designed

111