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Sunday, October 24, 2010

Life as Steve Jobs' boss

Apple CEO Steve Jobs at the All Things Digital conference, Tuesday, June 01, 2010.

Prof. John Kay wrote in his Financial Times column in Oct 2008 that John Sculley was chief executive of Apple from 1983 to 1993. He gave an extended account of his experiences to Fortune magazine, which posed the question: “Sculley – chump or champ?”

Sculley’s tenure included a period of great success - - Apple’s graphical user interface brought the present computer within the capabilities of everyone; and a period of serious failure -- Microsoft achieved almost complete dominance of the industry. How could one man have been both so right and so wrong?

Prof. Kay said the analysis overlooked the obvious answer - - that neither Apple’s success nor its failure had much to do with Sculley, an able corporate bureaucrat who rode the roller-coaster of high technology.

He said by describing Napoleon’s Russian campaign through the eyes of individual participants, Leo Tolstoy rejected the notion of history as the lives of great men. Of the battle of Borodino, he wrote: “It was not Napoleon who directed the course of the battle, for none of his orders was carried out and during the battle he did not know what was going on.”

On September 12, 1985 Steve Jobs stood up at an Apple board meeting and after years of internal political turmoil and power struggles, said in an unemotional voice, "I've been thinking a lot and it's time for me to get on with my life. It's obvious that I've got to do something. I'm thirty years old."

He returned to the company he co-founded in 1997.

John Sculley has given an interview on working with Steve Jobs:

Steve had this perspective that always started with the user's experience; and that industrial design was an incredibly important part of that user impression. He recruited me to Apple because he believed the computer was eventually going to become a consumer product. That was an outrageous idea back in the early 1980s. He felt the computer was going to change the world, and it was going to become what he called "the bicycle for the mind."

The one Steve admired was Sony. We used to go visit Akio Morita, and he had really the same kind of high-end standards that Steve did and respect for beautiful products. I remember Akio Morita gave Steve and me each one of the first Sony Walkmans. None of us had ever seen anything like that before, because there had never been a product like that. This is 25 years ago, and Steve was fascinated by it. The first thing he did with his was take it apart, and he looked at every single part. How the fit and finish was done, how it was built.

Apple became the leader of the mobile music market with the success of the iPod digital music, which was launched in 2001 .

Bloomberg BusinessWeek: Being Steve Job's Boss, Oct 2010

John Kay, Oct 2008: Could Napoleon have coped in a credit crunch?

Finfacts article, May 2010: Apple overtakes Microsoft as the world's most valuable technology company

Finfacts article, Oct 2010: Apple posts 70% surge in quarterly earnings eclipsing profit reported by IBM

Bloomberg Game Changers: Steve Jobs - - VIDEO: Through interviews with friends, former colleagues and business associates, GAME CHANGERS reveals the many layers of the intensely private Steve Jobs - his style of leadership, management and creative process. Interviews include Apple co-founder Steve Wozniak, former Apple CEO John Scully, journalist turned Venture Capitalist Michael Moritz, Dreamworks CEO Jeffrey Katzenberg, former Apple "Mac Evangelist" and Silicon Valley Entrepreneur, Guy Kawasaki and Robert X.Cringely, technology journalist and former Apple employee.

Monday, October 18, 2010

Irish State broadcaster RTÉ enters property selling market

Irish State broadcaster RTÉ has entered the property selling market in partnership with online property service Daft.ie.

RTÉ.ie stated as the website of Radio Telefís Éireann, Ireland's National Public Service Broadcaster, which relies partly on mandatory licence fees payable by Irish resident owners of television sets, has launched the service 'RTÉ Property' and it is focusing on residential, commercial and holiday property sales.

The Irish obsession with property coupled with lax banking regulation, cronyism, a corrupt land rezoning system, poor planning and little concern for conflict of interest, has doomed the Irish economy.

During the bubble, senior politicians publicly urged citizens to buy houses in case they missed the boat; many of them did as the bubble headed for a peak in the crazy year of 2006 and they are now sinking with negative equity.

Maybe RTÉ might be able to get away with claiming that its property service is an advertising vehicle but in a well-run European country such an excuse would not wash.

If you present a business service to consumers under your name, you are responsible and excuses about partnerships would not matter.

The following is from a comment that was made in August on an online forum relating to issues of planning and conflict of interest.

The case that the planning system should be examined and reformed with the same seriousness that is being given to the banking crash, is very strong.

It was inevitable that in a small country with 88 planning authorities and a culture where conflict of interest is almost an alien concept, there would be serious consequences for the economy and much of the population, when there was a spike in demand for development land.

Development land is the main driving force of corruption across the globe and Ireland has been no exception.

In Ireland, the rezoning system has been used to create an artificial scarcity of land and during the boom site costs as a proportion of the cost of a house jumped and a small number became immensely wealthy from the system.

Restrictive planning is a big factor in house price inflation and in England, Tory controlled shires have traditionally restricted housebuilding to preserve the so-called green belt while in the cities, it has been in the interest of the Labour Party to keep populations hemmed in to preserve their core support base. In one year in recent times, there was no new house built in David Cameron’s constituency!

In Ireland, local government power had been transferred to county and city managers to reduce the opportunities for corruption but local councillors were left with the power to rezone agricultural land for development. It gave the often uneducated elected officials, a powerful means of raising funds, ostensibly for election campaigns.

RTÉ’s Prime Time programme in Nov 2007, disclosed statistics about the involvement of elected representatives in the land development and property business.

A total of 22% of councillors dealt in or developed land through their day jobs as estate agents, landowners and builders. In Mayo, that figure rose as high as 45%, in Offaly it was 44% and in eight other counties it was 33% or more.

Prime Time found that in Clare, declarations of interest showed that 97% of elected members had no beneficial interest even in their family home. In ten counties, two-thirds or more of the councillors had not declared an interest in the family home.

In Scandinavian countries, if a councillor intervened behind the scenes to influence a planning or rezoning decision it would be considered corruption – a criminal offence – but in Ireland, it’s the norm.

So in a country that is estimated to be 4% urbanised and despite the huge rise in new stock, Ireland has poor housing conditions compared with other countries with similar living standards, with floor areas per person of around a fifth less than the western European average, even though a large number of dwellings (45%) are detached houses.

The UK’s Policy Exchange think tank, argued during the boom that the Irish planning system creates too many ‘starter homes’, of often mediocre quality on monotonous estates, and allows insufficient quantities of larger, better quality properties. The lack of better properties has fuelled house price inflation, it argued, so that the high headline housebuilding figures gave a misleading picture of the true supply situation.

The quality of some apartments built in Dublin during the boom is a national disgrace; occupiers have not only to deal with negative equity but very limited storage space and poor soundproofing. In the Gas Works development in South Dublin, bicycles have to be stored on balconies. At least they don’t have to worry about storing coal in the bath — that’s if they have one!

Sunday, October 10, 2010

Irish corporate tax rate and FDI (foreign direct investment)

US chip giant Intel is Ireland's largest industrial employer. Since 1989, Intel has invested over $7 billion transforming the 360 acre former stud farm campus in Leixlip, Co. Kildare into a state of the art manufacturing centre of excellence.
Intel had peak employment in Lexlip of over 5,000; In 1930, Henry Ford, son of a native of Ballinascarthy, near Clonakilty, West Cork, had 7,000 employed at his Cork plant.

The following are contributions to a thread on the issue of the Irish corporate tax rate of 12.5%, on the Irish Economy blog.

A tax exemption on export profits was introduced in 1956; a 10% tax on manufacturing - broadly defined: it included growing mushrooms under galss - was introduced in 1981 as some companies were due to see their 1956 exemption expire.

Intel for example began on a 10% rate in the early 1990s.

The EC agreed in 1997 to one rate of 12.5% replacing the general corporate tax rate and the two schemes as outlined above.

The challenges for Ireland

A significant downscaling of costs and reform to have a governance system comparable with the Nordic model is necessary to meet the current challenges.

Declare open season on sacred cows; despite the crash, it’s private sector workers and business collapses where the real pain has been experienced.

The rest have experienced baby-step adjustments.

We have got most of the big US companies that are likely to locate in Ireland; the key challenge now is keeping them. This is why the recession period fall in costs is just not enough. Rivals in Eastern Europe have also had big drops.

Why has Intel got its original plant idle in Leixlip?; it has to have a strong reason to invest $3bn in another plant in coming years when the centre of economic gravity is moving eastward.

Research should focus on the food area; amazing isn’t it that Ireland’s cheese output could be as low as Sweden’s?; lower than in Spain and Greece while production in the Netherlands is six times the Irish level.

Amazing too that a New Zealand company could capture almost 40% of international trade in dairy products.

The the main focus of increasing exports should be in the single currency area.

Taoiseach Brian Cowen said last week there should be more trade missions to regions like Asia; we can’t be all over the place like a company with too many products or a restaurant with too many choices on the menu.

We have little recognition in Asia; Roy Keane and Boyzone gave us some; logistically it is also a big challenge.

I have some idea of what I’m talking about as I live in Kuala Lumpur!

EU Commissioner Olli Rehn recently said, Ireland has to prepare to be a higher tax economy and suggested that an increase in the corporate tax rate should be considered.

The European Commission is also critical of tax competition from Switzerland.

At present, companies in Lucerne for example, pay an average 23% combined local, cantonal and federal taxes on their profits depending. In two years time the burden will be reduced to 15%.

Adjacent canton Zug is well established as a location for the European headquarters of international firms, while Schwyz, Nidwalden and Obwalden also offer better incentives.

A KPMG study shows that global corporate tax rates were reduced by 7% between 1999 and 2009 with EU countries slashing their tax by 12% on average and Switzerland by 6%. Guernsey and the Isle of Man top the table with zero taxes on company profits. The British islands are followed by Montenegro (9%), and a group of countries – Bulgaria, Cyprus, Serbia, Albania and Bosnia & Herzegovina – on 10%.

In the canton Zug, about 30 minutes drive from Zurich, the corporate tax is about 16% but can fall as low as 9.5% for companies that do most of their business outside Switzerland.

Such a location may not suit big manufacturers.

There are 3 key tax factors in the attraction of Ireland for multinationals.

1) There is no tax on patent income

2) the corporate tax rate of 12.5%

3) R&D tax credits — it’s a while since I worked in MNCs but my hunch is that ‘R&D’ would be broadly defined and with capital allowances, the effective tax rate would be in single digits for big firms.

Microsoft operates 2 tax haven companies in Ireland.

Income from patents parked in Ireland is routed through Flat Island; licensing fees from 20 or more EMEA countries are routed through Round Island One.

As Round Island One paid over $300 million in Irish taxes in 2004, it is possible that half the corporate taxes paid by US MNCs are from the tax haven activities.

The tax haven income may well be worth up to $2m in taxes paid in Ireland - - 40% of total MNC tax paid.

As regards the zero tax on patent income, given that there is now an R&D tax credit, I don’t know what is the justification for it.

Irish residents are also tax exempt on patent income - - it is hardly the key motivator for innovation.

Intel CEO Paul Ottilini said in July in Aspen, Colorado that a new semiconductor factory at world scale built from scratch would cost about $4.5bn - - in the United States.

He said: “it costs $1bn more to build, equip and operate a semiconductor manufacturing facility in the US. Ninety percent of the cost difference is the result of tax and incentive policies.”

He said in Aspen: “At Intel, we generate 75% of our revenue and much of our profit abroad. The US tax treatment of that income makes it extremely expensive to repatriate that profit and invest here.”

Obama said this week that he is open to cutting the headline tax rate of 35% if it would be revenue neutral — eliminating various breaks.

FDI investment in Ireland has plateaued and while the country has been run in an appalling manner for decades, the positive aspect is the parallel MNC world.

As I have said before, without FDI, think of Albania or a big Sceilig Mhichíl theme park for American tourists.

We have had some new small scale projects in the past year and employment in the sector is back to 1998 levels.

We are not likely to be very attractive to emerging economy MNCc - - so we should keep the Yanks tuned up.

Ex-Intel boss Craig Barratt said Ireland is over-reliant on FDI. However, behind all the spin about developing the indigenous sector and advice from chairborne experts to put Mandarin on the curriculum, in the medium term Ireland has nothing else to rely on but the MNCs.

I reported earlier on Finfacts that Irish goods exports to China in H1 2010 were 1.9% of the total and only 6% of that 1.9% were from indigenous firms.

In the bubble years as the Irish became the second biggest investors in commercial property across Europe, policymakers didn’t give a damn about how new markets would be developed.

The reality now is that it takes years of perseverance, as long as key variables are positive, to develop new export markets.

Irish Economy blog: thread on FDI


Finfacts article: 1) Ireland can choose a path to greatness or perdition

2) EU-China Summit: EU27 exports to China in H1 2010 rose 43%; Germany accounted
for almost 50% of total; Ireland had trade surplus