Labor | Green World Investor

Apple Supernormal Profits Reflects Super Exploitation of Global Oversupply of Labor

2 Feb, 2012

Apple recently reported astounding financial results in which profits grew by an awe inspiring 50% on a huge basis with Net Profits Margin of 30% which is crazy for a company of Apple’s size. It generates massive cash flows and has over $100 billion in its cash war chest. While there are a number of reasons which makes Apple one of the most successful and profitable companies in world history, the global oversupply of labor is one of the chief reasons which is overlooked at .

A recent breakdown of Apple’s Business Model shows that its get almost 2/3rds of the value generated by its globalized supply chain while its main manufacturer Foxconn does not even reach double digits . Foxconn the HK based global outsourcing giant employs 1 million workers and makes products for major global MNCs like Microsoft and others. The condition of the workers in its factories are pathetic with most workers getting hardly $10/day . For Apple earning more than 50% GM on its products paying $10/ day to its workers would generate massive protests. However since its exploits globalization of labor ,it escapes any public scrutiny or protests. Since it is outsourcing manufacturing to Foxconn it escapes the blame for the numerous suicides and systematic exploitation of the workers. Global Capitalism is working too well for the capitalists, corporations and too badly for the global workers.

Global Labor Cost Arbitrage

One of my theories is that a lot of distortions and opportunities for arbitrage that we are seeing in the world today is because “Labor is not Globalized while Capital and Trade are “.However the Restrictions on the “Globalization” or in other words Free Movement of Labor is being reduced through the following trends

Improvement in Communication and Transportation, that has given rise to Outsourcing
Creation of regional blocs like the NAFTA,ASEAN ,EU etc. has allowed broken the labor barriers within the bloc between the members.This has resulted in “winners” in the form of the “poorer members labor” and “losers” in the form of “richer members labor” .
MNCs like IBM,Applied Materials with operations spread across multiple countries exploiting this situation by moving most of their labor requirements to low cost locations .

Apple Results

Net income more than doubled to $13.1 billion as Apple sold 37 million iPhones and posted $46.3 billion in sales. The total ranks among the highest quarterly profits on record. Apple’s earnings were about 11 times the size of Zambia’s gross domestic product.The company’s almost $100 billion in cash and equivalents is larger than the combined market value of Boeing Co., Alcoa Inc. and Travelers Cos. — three of the 30 Dow Jones Industrial Average companies. For calendar 2011, Apple’s sales rose to $127.8 billion, bigger than the size of New Zealand’s economy, according to data compiled by Bloomberg.

Mass Suicides at Foxconn

Foxconn, which manufactures gadgets for the likes of Apple, Sony, Nintendo and HP, among many others, has had a grim history of suicides at its factories. A suicide cluster in 2010 saw 18 workers throw themselves from the tops of the company’s buildings, with 14 deaths.In the aftermath of the suicides, Foxconn installed safety nets in some of its factories and hired counsellors to help its workers.Several reports from inside Foxconn factories have suggested that while the company is more advanced than many of its competitors, it is run in a “military” fashion that many workers cannot cope with. At Foxconn’s flagship plant in Longhua, five per cent of its workers, or 24,000 people, quit every month.

Indian Wind Energy Developers to focus on Electricity Production than Accounting Gimmicks with Depreciation Removal in new Tax Code

18 Jan, 2012

Energy,Wind Energy

Subsidies of different kinds are given to the Renewable Energy Industry around the world . These incentives or subsidies which they are better known as are in the form of

a) Capital Subsidies

b) Feed in Tariffs

c) Tax Breaks in form of Accelerated Depreciation

d) Renewable Energy Certificates

e) Carbon Credits.

Wind Power in India has been wildly successful and is the 5th biggest in the world because of substantial incentives from the government. One of them has been accelerated depreciation which has made hundreds of companies and rich individuals buy small wind farms. This helps them offset their tax liabilities providing a substantial 2 digit returns. However the big drawback in this from of green subsidy is that it does not incentivize the production of wind energy. Once the wind farm is set up, the incentive to produce lots of electricity is not there unlike the case of Feed in Tariff where your returns are solely based on the electricity generatino.

India is coming up with a new Direct Tax Code in April 2012 which will substantially overhaul the current tax system in the country. In this the accelerated depreciation given to wind power turbines in India will be done away with. This might lead to a dip in the wind power production addition in the country. However in the Long Term its a plus as it would force Indian Wind Energy Developers to focus more on Electricity Production than Accounting Gimmicks

Wind Energy Companies in India that will be Affected

1) Suzlon Energy – Suzlon Energy is the biggest Wind Energy Company by far with 4-5 Gigawatts of WTG Capacity per year.Its subsidiaries Hansen Transmission and RePower are also big players in the Wind Energy in Europe.The Company has seen its revenues and profits take a huge hit in recent times but has been recovering slowly.

2) RRB Energy – The company has a long history and manufactures Wind Turbines at its plants in Tamil Nadu.The Company has a capacity of 300 MW which it is expanding to 700 MW.The Company makes only 2 models with power rating of 600 Kw and 1.8 MW.Merill Lynch has made a small investment in this company.

3) NEPC India – This company was one of the wind energy heavyweights and a stock market darling earlier.However It no longer remains an active player in the Indian market .Heavy Debt and Bad Management drove to this company to the ground despite being a pioneer in the Indian Wind Power Market.

4) Auro Mira Energy – The company is more of a Green Utility rather than a full fledged WEG manufacturer.It has made plans to manufacture Wind Turbines in the future.It has attracted funds from Baring and IFC to push forward its Green Plans.Auro Mira Energy is a Tamil Nadu based Green Utility backed by a clutch of PE investors like IFC etc.It has 2 biomass plants of 7.5 MW and 10 MW and plans to build around 100 MW of hydro and biomass capacity over the next 2-3 years.

5) Regen Powertech - It is a small scale WTG Supplier like RRB Energy which recently set up a small 300 MW manufacturing facility in Tada,Andhra Pradesh recently.The company licenses technology from Vensys to manufacture 1.5 MW gear-less Wind Turbines.The company has managed to supply both big and small wind farms over the last 2 years.The company is supported by the PE arm of Future Group.

6) WinWind – The company is not exactly a domestic company rather one with a Finnish Origin.It is owned by the Abu Dhabi Masdar ,Siva Group and the government of Finland.It has recently established a 1000 MW capacity in Venga,Tamil Nadu and also has a 500 MW plant in Finland as well.The company plans to producer 3 MW Turbines at its Indian plant as well.

7) Pioneer Wincon – The company is a JV between the Pioneer Group and Wincon of Denmark.It makes small 250 KW Turbines and is a bit player with 30 years of operations in India.The Company remains a small static player in the Wind Energy Market of India.

Chiranjeevi Wind Energy – A Small bit player like Pioneer Wincon which engages mostly in the sale of small 250 KW Wind Turbines.Like Pioneer Wincon it has sold a number of these Turbines to small companies mainly in the Southern Part of India.

9) Lietnar Shriram Limited - The company is a 50:50 JV betwen the Shriram Group of India and Lietnar of Italy.The company makes gearless turbines of 1.5 MW capacity and has supplied to small farms in Maharashtra.The company has a major inhouse customer in the form of Orient Green Power which is building a 300 MW farm in Tamil Nadu using Lietnar Shriram Wind Turbines.

10) Kenersys - The company is part of the Baba Kalyani Group which is a major forgings manufacturer in India.It was bought over in 2007,when the Kalyani Group and PE firm First Reserve bought over the German company RSB Consult.The Company mainly makes 2 and 2.5 MW turbines and has production facilities both in India and Germany.It has wind design capabilities between 1-3.6 MW and with a powerful parent, it could become a success in the future.Amongst the newer wind energy companies like Lietnar,RRB Energy,Regen and WinWind,it looks like the one with most potential

Source – http://www.bloomberg.com/news/2012-01-17/india-may-end-tax-break-for-wind-farms-this-year-official-says.html

Financial Industry in a Depression of its Own RBS Firing 45% of pre crisis Global Banking and Markets Headcount

12 Jan, 2012

Green Investing

The Financial Industry will shed another 150,000 jobs according to Richard Bove, an analyst at Rochdale Securities LLC . Royal Bank of Scotland the bankrupt UK bank that was taken over the British government is going to kill a number of investment banking divisions and will fire 3500 people. RBS has already fired thousand before in wholesale and corporate banking . Now RBS will completely exit from a number of divisions like M&A, Cash Equities etc. which will mean thousands of firings . In an environment when financial jobs are scarce , this means that the fired thousands will have a tough time getting into the workforce again.RBS is going to fire 3500 people in addition to 2000 already announced. This would bring down the 24,000 pre crisis headcount by almost 45% .

The Financial Industry is in Depression with the sector shrinking continuously as its bloated structure deflates .Can’t say its a bad thing as excess financial sector growth was partly responsible for the 2008 crisis which continues till this day globally. he Financial Industry has become too huge as a percentage of the global economy with any value creation to say something like the IT industry. The share of the market cap of the stock market had become too high during the boom boom years of 2008 and it is continuing to go down.Despite the best (some would say the worst) effort of the governments to prop up the Too Big to Fail Banks,jobs are being let go as there is not enough work. European Banks are shrinking their balance sheets as they are too leveraged and insolvent. Without the ECB crutch,almost all of them would go under.

Taxpayer-backed Royal Bank of Scotland announced on Thursday it would cut 3,500 jobs in a reorganization and rebranding of its investment banking arm as the lender reins in its ambitions to be a global financial player.

The cuts, which are to be phased in over three years, will largely affect employees in Global Banking and Markets, which had offered advice on mergers and acquisitions. The division has 18,900 employees overall. “Our goal from these changes is to be more focused for customers, more conservatively funded, more efficient and with better, more stable returns for shareholders overall,” Chief Executive Stephen Hester said in a statement.

Seeds of Dystopia being Sown by Increasing Global Income Inequality – WEF Davos Report

11 Jan, 2012

World Economy and Markets

The rising income inequality throughout the world is sowing seeds of dystopia according to a report released by World Economic Forum. The biggest risk amongst the 50 risks listed is the increasing wealth gap between individuals in all countries. Gini’s coefficient has risen in most countries developing as well as developed and this has a strong correlation to globalization. The global arbitrage of labor has tilted the scales towards capital and increasingly made wages become stagnant. Developing countries with weak institutions are showing income inequality in horrific forms with $2 billion homes existing in the middle of millions surviving on less than $2 day. US has already seen the OWS movement as a result of this increasing income gap between the have and have nots. Middle Eastern countries have also seen revolutions brought upon by the massive riches of the elite compared to the rising poverty of the poor and even the middle classes.

India Income Inequality

Income Inequality in India has been rising at an unprecedented rate in the last couple of decades.The opening of the Indian economy has led to even starker levels of income disparity among the very rich and majority of the Indian citizens.The Crushing Income Disparity is seen in the world’s most expensive $2 Billion House set amongst 42% of the world’s hungry children.The latest Forbes report lists 50 Indian Dollar Billionaires with 2 in the Top 10.A 2007 report by the state-run National Commission for Enterprises in the Unorganised Sector (NCEUS) found that 77% of Indians, or 836 million people, lived on less than 20 rupees (approximately US$0.50 nominal; US$2 PPP) per day.India Middle Class is sharply cutting down on shopping,entertainment and other discretionary expenses as food,education and medical costs go through the roof.A recent survey done by Assocham proved these anecdotal stories true as middle class has gone into a spending shell while the richer upper classes continue to spend affected.The only class that is feeling super great is the Super Rich who are going feeling gung ho and most likely in the world to spend on yachts and private jets.Note the Super Rich are seeing more billions pouring into their offshore bank accounts while poor Indians are finding it difficult in these days of high food prices to even get 2 square meals a day for their children

US Income Inequality

Once upon a time, the United States had the largest and most vibrant middle class that the world has ever seen. Unfortunately, that is rapidly changing.

#1 Today, only 55.3 percent of all Americans between the ages of 16 and 29 have jobs.

#4 Since the year 2000, the United States has lost 10% of its middle class jobs. In the year 2000 there were about 72 million middle class jobs in the United States but today there are only about 65 million middle class jobs.

#5 According to the New York Times, approximately 100 million Americans are either living in poverty or in “the fretful zone just above it”.

#6 According to that same article in the New York Times, 34 percent of all elderly Americans are living in poverty or “near poverty”, and 39 percent of all children in America are living in poverty or “near poverty”.

#7 In 1984, the median net worth of households led by someone 65 or older was 10 times larger than the median net worth of households led by someone 35 or younger. Today, the median net worth of households led by someone 65 or older is 47 times larger than the median net worth of households led by someone 35 or younger

Cybercrime has been listed as another major threat to peace as countries and individuals increasingly look vulnerable to private and government sponsored hacker groups. Even powerful organizations like Google have become victims of cyberwarfare while Iran faced an attack on its nuclear facility through a sophisticated virus.

Dystopia what it means (Wikipedia)

A dystopia is the idea of a society in a repressive and controlled state, often under the guise of being utopian, as characterized in books like Brave New World and Nineteen Eighty-Four. Dystopian societies feature different kinds of repressive social control systems, various forms of active and passive coercion.

Growing wealth divide puts globalization at risk

Rising youth unemployment, a crisis of retirement among pensioners dependent on debt-burdened states and a yawning wealth gap have sown the “seeds of dystopia,” according to the report, based on a survey of 469 experts and industry leaders.For the first time in generations, people no longer believe their children will grow up to have a better standard of living.”It needs immediate political attention, otherwise the political rhetoric that responds to this social unease will involve nationalism, protectionism and rolling back the globalization process,” said WEF managing director Lee Howell.

Offshore Wind Energy gets hit by European Debt Crisis

11 Jan, 2012

Offshore Wind

Europe has got the largest installed capacity of wind and solar energy due to the proactive policies enacted by the governments there.However the renewable energy industries have not been left unaffected by the European debt crisis. Offshore Wind Energy is a European development with most of the major offshore wind power farms located in Germany and UK. France which is tendering for 5 GW of offshore wind energy farms has seen reduced bank interest according to Areva. Offshore Wind Energy grew by more than 50% in 2010 and is expected to continue at above 50% growth rates over the next several years as the global installed offshore wind capacity multiples by more than 25 times over the next 10 years.

Banks reluctant to invest in Expensive Offshore Wind Farms

Offshore Wind Farms cost a bomb in terms of initial capital investment with around $5 million per Megawatt compared to less than $2 million for an onshore wind farm. Debt is a big component of this capex and every developer requires a consortium of banks to help with the financing.

France, which has no offshore wind power yet, proposes to install 6,000 megawat by 2020 . Bids for the first round of five zones with a combined capacity of 3,000 megawatts will require about 10 billion euros of investment .Areva is the biggest nuclear equipment company in the world is a part of one of the consortium bidding for this project.Note out of the 10 billion euros in investment around 8 billion euros will have to be debt.

Offshore Wind Farm Developers

Before we look at the major developers here is a very good interactive map of major global offshore wind farms from 4coffshore . Note Europe is leading in offshore wind energy so it is not a surprise that most of the big devlopers are giant European utilities.

Centrica - Centrica is a British company that was formed in 1997 after the demerger from British Gas.The company has a number of energy projects which it owns and operates.Centrica is involved in the operation and building of a number of offshore wind farms like Barrow etc.
DONG Energy is one of the leading energy groups in Northern Europe headquartered in Denmark.They have 1,035 MW of on- and offshore wind power in operation and 1,316 MW under construction.They are the top wind farm developers along with Vattenfall and E.ON.Dong has built the Barbo Flat,Gunfleet and Barrow offshore wind farms.They are also building the London Array and Walney Offshore Projects in the UK which will take their offshore wind portfolio to over 1 GW in the near future.
Airtricity – This Irish Gas and Electricity Utility has won a couple of contracts to build big offshore wind farms in Scotland in Crown Estate bidding Round 2.
EDF Group is one of the biggest power utilities in Europe and one of the biggest operators of nuclear power in the world.The company is also the largest producer of power in the UK which has the strongest growth plans in offshore wind energy.The company has won contracts to build offshore wind energy installations in UK
ScottishPower Renewables is part of Iberdrola Renovables, the world’s largest developer of renewable energy based out of Spain.They are UK’s leading developer of onshore wind, with over 30 windfarms fully operational, under construction or in planning.
E.ON the German powerhouse is one of the world’s largest power and gas companies.with EUR93 billion in sales in 2010.The company is developing offshore wind farms in Germany and UK.It has a long experience in operating wind farms as well.
RWE is another major German utility that is developing big offshore wind farms in Europe taking advantage its expertise after oeprating a large portfolio of land based wind farms.
Vattenfall - It is a Swedish company and one of Europe’s largest utilities.Vattenfall operates close to 900 wind power turbines in Sweden, Denmark, Germany, Poland, the Netherlands, Belgium and the UK. The world’s largest offshore wind farm, Thanet Wind Farm off the coast of the UK, came into operation in September 2010. In partnership with Scottish Power Renewables, Vattenfall has also been awarded one of the zones in the UK’s Round Three for the development of offshore wind power.
SeaEnergy PLC (formerly Ramco Energy plc) is the UK’s only quoted pure play offshore wind development company. Based in Aberdeen, Scotland.SeaEnergy PLC, through its 80% subsidiary SeaEnergy Renewables Limited, has interests in three UK offshore wind farm sites,Beatrice in a joint venture with SSE Renewables, Moray Firth with EDPR and Inch Cape. The Group has also signed a heads of terms agreement to access offshore wind farm projects in Taiwan.

Financial Jobs Killed in Tens of Thousands as Industry Shrinks, Global Oversupply of Labor Globalization Consequence

7 Jan, 2012

Green Investing

Financial Jobs are being let go in the tens of thousands by European and USA Financial Institutions. The Financial Industry has become too huge as a percentage of the global economy with any value creation to say something like the IT industry. The share of the market cap of the stock market had become too high during the boom boom years of 2008 and it is continuing to go down.Despite the best (some would say the worst) effort of the governments to prop up the Too Big to Fail Banks,jobs are being let go as there is not enough work. European Banks are shrinking their balance sheets as they are too leveraged and insolvent. Without the ECB crutch,almost all of them would go under.

London and French Banks are selling divisions and shedding jobs to become more leaner and survive till the government keeps them on life support. Major financial centers of London,New York are the worst hit in terms of financial job losses.

In a separate report, the daily said that Societe Generale was considering about 1,580 jobs cuts at its corporate and investment bank. “The job losses will include 880 voluntary departures in France, where most of the division’s employees are based, and 700 job cuts in other countries,” Financial Times said, quoting a spokesman of Societe Generale.

In a statement issued on Wednesday, Societe Generale had said it was looking at reducing the number of positions in its corporate and investment banking division by about 880 in France.

Global Oversupply of Labor

Labor in the current environment is currently totally screwed to put it mildly due to massive oversupply of labor. This is because the millions of graduates passing out each year in India and China do not have enough opportunities. The information revolution has meant that these graduates can be employed for super low wages by developed nation companies . Also while the globalization of capital and trade is almost free,the visa and immigrant restrictions means that labor cannot move freely leading to massive distortions. This favors the companies at the expense of labor.

One of my theories is the Global Labor Cost Arbitrage is that a lot of distortions and opportunities for arbitrage that we are seeing in the world today is because “Labor is not Globalized while Capital and Trade are “.However the Restrictions on the “Globalization” or in other words Free Movement of Labor is being reduced through the following trends

Improvement in Communication and Transportation, that has given rise to Outsourcing
Creation of regional blocs like the NAFTA,ASEAN ,EU etc. has allowed broken the labor barriers within the bloc between the members.This has resulted in “winners” in the form of the “poorer members labor” and “losers” in the form of “richer members labor” .
MNCs like IBM,Applied Materials with operations spread across multiple countries exploiting this situation by moving most of their labor requirements to low cost locations .

Asian White collar workers face Unemployment and Low Wages due to Increasing College Education

The spectacular growth in Asian economies like China,South Korea,HK,Taiwan over the last two decades has raised millions from poverty to a middle class life.This has led to increasing education levels among the new generation of Asians.Parents have poured a large part of their earnings into children education which was seen as a ticket to a better life.But many of these newly entered work force participants are not finding the pot of gold at end of the rainbow.This is because the population of college graduated workers has increased significantly putting the laws of supply-demand against these workers.In fact the wages of college educated workers have declined in some cases.

Perversely for the these educated Asians, the wages of Blue Collar workers has increased at a much faster pace compared to the White Collar workers.While the wages for highly in demand skill-sets and experience approach those of the western counterparts , the wages for those with little experience and “commoditized college degrees” continues to remain stagnant . This has been the experience in many countries across Asia like South Korea , India,China.Here are some examples of this wage pressures at work