Previously, locals and foreign tourists to London and New York would head to Harrods, Barneys, Bloomingdale’s when they were in town. Lately, lesser number of tourists is shopping at these grand department stores as they have been buying luxury handbags and cloths online.
A Neiman Marcus’s Department Store
The grand department stores are fighting back with an array of initiatives to draw customers in and engage them longer, according to an article in Financial Times, How to Spent It, published on October 7th, 2017.
They have been troubling times for department stores in London and Manhattan, New York, where competition from internet shopping is merely one of the challenges facing the grand old department stores. In their heyday they and their global counterparts encapsulated the spirit of their age, but that age is no more. What is left are vats edifices, which if they are to survive, have to reinvent themselves for the new times we are lining in and keep on their toes as their customers’ tastes and habits continue to evolve.
As Trevor Hardy, CEO of trend-forecasting agency The Future Laboratory, puts it, “ The department-store concept was invented for an era when consumption was inspired to-in had cultural currency. Today, the mere act of consumption is not much aspired to; the new breed of entrepreneurs notably spends very differently for the way earlier wealthy individuals used to spend, but that does not mean there is not still a lot of spending going on.”
If the reason of a department store is to sell, then it must sell those things that today’s consumers want to buy. It must also re-imagine the way it uses its space.
Mortimer Singer, president and CEO of business development and strategic consultancy firm, Marvin Traub Associates, identifies several “headwinds” that the US stores are struggling with. Firstly, there is what he calls the “new Davids”-lesser-known brands , well over 200 of them, that were born online and in many cases may only be doing about US$10 of business a year each, but collectively “are taking some US$4.2 billion out of the more established retail sector”.
Then there is the clothing and accessories rental business, which he says is booming in New York. This new business has saved consumers a lot of money a year.
Thirdly, what Singer calls the “aftermarket” is also affecting the department stores, with more and more women buying second-hand or “pre-loved” clothing and accessories from luxury websites such as Therearreal.com. Finally, Singer points to the mega-growth of the health and wellness industry, which is also taking huge sums of money that might in the past have been spent in traditional department stores.
In addition, to all that there is Amazon, which is expected to overtake Bloomingdale’s owner Macy’s this year as the seller of what in the US is known as “apparel”. Many grand department stores in New York are using new technology as one way to tackle the “headwinds”. Neiman Marcus, for instance, added features to its app that mean a friend could paragraph a pair of shoes and ask Neiman Marcus whether it stocks them or a similar design. On top of that, its stores now have “Memory Mirrors”, which offer customers 360 degree views of exactly how they look in the chosen garment.
Re-imagining Department Stores
Several department stores are beginning to offer food, while there is a recognition that their stores had not kept pace will all technology has to offer. Seamless omni-channel service is now mandatory.
Marigay McKee, former chef merchant at Harrods and former president of Saks Fifth Avenue, who now runs strategic business development company, MM Luxe Consulting, believes, “We have to bring the love and the humanity back into the experience of shopping. Stores need to concentrate on what I call ‘the three Es” – emotion, environment and experience-if they are to appeal to today’s customers.”
This means doing things like ringing up customers when an item comes in that the assistant feels the customer would like, letting people buy a dress in Chicago and change it in New York, or allowing them to buy online and return to a store ( or vice versa).
Hardy, of The Future Laboratory, identifies one of the key problems for modern-day department stored as the dramatic decline in the time customers spend in stores. “Managers need to work out how to get shoppers to stay longer, “ he says. “ They need to bring popular culture back into stores.”
One area with significant growth potential is wellness, health and beauty, and what Hardy call “self- transformation”. Saks Fifth Avenue offers skiing lessons. There are also boot-camp-style exercise classes and therapy treatments, from the natural to the high tech. Customers can also buy a Peleton exercise bicycle and follow spinning classes from home on a screen attached to the handle bars.
In London, department store, Harvey Nichols, is enticing customers into its stores and keeping them longer. It has invested a great deal in beauty and wellness, opening a new beauty lounge. As well as offering treatments such as LED facial, cryotherapy and vitamin and nutrient injections, the beauty lounge offer make-up masterclasses. It also makes a [pint of always having something exceptional to offer connected with these events.
A Harvey Nichols’s Department Store in London
The Future
Meanwhile a buying director of Liberty, which struggled for many years but is now trading profitability believes firmly that department stores are here to stay, but says they have to offer a compelling reason for customers to visit. “I try to enhance all the things that you cannot get online-this means we offer advice and in-depth knowledge about our products. It is all about eccentricity and the story behind a product. “I also see us as neighbourhood store.”
McKee, with her experience of managing retailers on both UK and US, is a believer in the future of department stores, but says they need to remember that they “have to become the host or hostess, while the customer is the guest”.
What is indisputable is that no stores can expect to survive if, as The Future Laboratory’s Hardy puts it, “all they do is to try to sell us more stuff”.
Reference: Lucia van der Post, Retail of two cities, Financial Times, How to spend it, October 7 2017.
Many businesses, including services firms, do not realize they have intellectual property rights that are valuable, such as trademarks and copyrights, and that there are means to protect them. Conversely, many businesses may think they own the intellectual property rights in work they paid for, such as custom software, when in fact they may not hold any such right at all.
Generally, there are four categories of intellectual property: trademarks, copyrights, patents and trade secrets:
Trademarks are words, symbols or phrases that are used in connection with a good or service and identify the source of the product or service. For instance, Coke is a trademark used in connection with carbonated soft drinks and the source is The Coca Cola Company.
Copyrights are rights created from an original work of authorship that is reduced to a tangible medium, such as books, artwork, even software programme and website content.
Patents encompass “inventions’-novel and non-obvious utilitarian processes, matter or articles of manufacture-and can include design patents or business method patterns.
Trade secrets are non-public information and know-how that would have a value to a competitor. Following the Coke example, the formula for Coke is considered one of the most valuable trade secrets in the world.
It is important for firms and companies to take time and efforts to review their business information to understand and grasp the value of their intellectual property and to determine what rights they actually hold and those they do not. Intellectual property lawyers assist their clients in conducting what is referred to as an “intellectual property audit” to give a business a picture of its rights.
K. S. Grimsley and P. K. Riewerts (CPA Practice Management Forum, July 2010) have suggested a list of items that such an audit might cover.
Trademarks Does the business have trademarks? Firms and companies should determine if they are using any trademarks in connection with their goods or services. For instance, do they use a design, word or phrase in connection with a product, such as clothing, or pharmaceutical product, or a service such as accounting services or consulting service?
The use of a mark alone establishes trademark rights in the geographic area of use, which is beneficial in preventing others from using the same or a similar mark in the same geographic area. Registration acts as notice to the world that you own a trademark in a mark for particular goods or services, which is an important deterrent to third parties using the same or similar mark.
Thus, when doing an audit, companies should review their websites and marketing materials to determine what trademarks they have and whether these are registered or should be registered.
Are the business’s marks available for use? Another important aspect in reviewing trademarks is to make sure the marks the company is using are actually available for it to use as such. If the company is using a mark that is the same or similar to another mark by a prior user, the company could find itself in threatened or actual litigation for trademark infringement.
Consistent use of marks and policing marks. Once a company has established rights in a mark, two important aspects are to use the marks consistently and to police the marks. Regarding consistent use, the company should use the marks on products or in connection with the services in the same manner and form in which they are registered or if not registered, as the company has always used the mark. Strength in mark is built up through consistent use, and modifications could potentially hinder the company’s rights and registration.In addition, the company should police the marks to make sure other third parties are not using them. If a company does not watch its marks and contest others who infringe upon its mark, it runs a risk of losing its rights in the mark.
Licensing. A final task on trademark checklist is to determine if it is allowing others to use its marks. For instance, does the company have third parties it allows to use the mark? If so, does it have a license agreements in place outlining its rights in the mark and the fact that it will exercise quality control over how the mark is used by the third party? Failure to manage the quality of goods and services sold under the company’s marks-referred to as naked licensing-can potentially lead to losing the company’s rights in a mark. Thus, to maintain all rights, the company should have license agreements in place containing quality-control language, and the company should actually review the quality of those goods and services.
Copyrights Does the business have copyrighted materials? Companies should investigate what works of authorship they have created. This includes works created by employees in their scope of employment. Copyrights no involve just novels and artwork. If a company has created software programmes, training manuals or articles for its website, the creation of such material in some fixed medium creates copyright right in the material. To be copyright-able, the work must be fixed in a tangible medium of expression. The idea for a software programme or advertisement is not copyright-able; however, the company can protect the expression of the idea. Therefore, the software programme or brochure promoting the business is copyright-able. Copyright owners enjoy several exclusive rights in their works, including the right to reproduce the work, to make derivative works (adaptations or transformations of the original work), to redistribute the work and the right to display and perform the work publicly.
Why obtain copyright registration? With copyrights, the company is protected under the Copyright Act the moment a work is created. However, a company may want to consider obtaining copyright registration in these works. Registration is usually inexpensive and offers several benefits. It constitutes public notice the work is protected, which may deter others from copying the work without permission. Registration is mandatory before bringing a copyright-infringement lawsuit. A third benefit of timely copyright registration is that it entitles the registrant to certain legal remedies against infringers that would otherwise be available, such as statutory damages and legal fees. Otherwise, an award will be limited to actual damages and profits, which can be difficult and expensive to prove.
Employee works versus independent contractor works. To the extent that the company had work created by employees, that work is automatically deemed to be authored and owned by the employer under the work-for-hire doctrine. However, if the work is created by an independent contractor, it is likely that the rights in the work are actually owned by the independent contractor, and at most, the company may have a license to use the work, unless the contract specifically states that the company owns all intellectual property rights in the work. This issue arises frequently in situations of customized software and website development. Thus, to the extent that the company has had works of authorship created, such as software programme, website or survey manuals, the company should review the contracts to determine ownership rights. To the extent the company dose not own the rights, it should consider negotiating with the independent contractor to assign the right to the company.
Licensing. To the extent the company allows others to use its works, the company should make sure that it has licenses in place with these parties that fully explain its ownership in the works and the other party’s right to use them under terms of the license it grants. It may also want to make sure it has the right to terminate the license in the event of a breach of the license terms. Further, to the extent the company is using work that is owned by someone else, it should review the license agreement to determine its rights and obligation under the agreement.
Patents Does the business have patents? Patents cover a variety of technology, including inventions in connection with mechanical devices, processes, scientific compound combinations, new varieties of plants, software programme and product designs. Patents can also be obtained on novel and non-obvious business methods, although these types of patents are scrutinized heavily and take much longer to issue. A patent is issued by a national government and gives the holder the right to prevent others from making, selling or importing any device or process that infringes one or more claims in the patent. In most cases, this right is limited in time to 20 years from the date it is filed with the national government authority in charge of patent registration. It is important to note that patents are negative rights-that is, they provide a right to prevent others from doing certain things; in plain English what this means is that just because you have a patent, that does not mean you can sell or make the device because doing so could still infringe a prior patent.
Processes and procedures in place. To qualify as a patentable invention, the invention must meet certain requirements. Therefore, a business should ensure it has the proper processes and procedures in place to assess an invention for patentability. Such procedures include having employees notify the proper business personnel upon development of a potential invention and evaluating the strength of such invention.
Deadlines. It is of utmost importance to consult a patent lawyer early on in the invention process regarding the scope of prior art or the possibility of infringing another’s patent. As an example, in the US, patents must be filed within one year of the date of the product or service embodying the patent is sold, offered for sale, publicly used or publicly disclosed. In most countries like Malaysia, there is no grace period and the application must be filed before any commercial use or disclosure. By consulting a patent lawyer, a business informs itself of patentability requirements, application details and filing deadlines that could prevent an inventor from securing a patent. Likewise, is a business seeks to file foreign patent applications, a patent lawyer will be able to advise on tying back foreign filing benefits to an earlier application filing date, if addressed in a timely manner.
Record-keeping. In addition, a business should retain and keep accurate records of information associated with the invention, such as research and lab notebooks and designs. These materials are essential to establish the dates of creation for the invention and will be needed if the patent application or registration is challenged.
Employee works. Furthermore, protective measures should be implemented with employees developing inventions. Unlike copyrights, there are no work-for-hire doctrine in patent law. With one narrow exception, all patent right transfer must be in writing. Thus, a business should seek assignment agreements with its employees before the work begins to secure the rights of the business in the invention. The narrow exception exists for employees that have been “hired to invent”. Agreements allow for the smooth transition of ownership from the employee to the company. As an incentive to continue developing inventions, companies will often set up a royalty or profit sharing plan for any invention that proceeds to registration. Also, non-disclosure and confidentiality agreements should be secured with anyone developing, having access to or any knowledge of the invention, or anyone who is engaged to test the invention.
Trade Secrets Keeping trade secrets a secret. Trade secrets consist of information that is of value to the business owner and would be damaging to the business owner if disclosed to a competitor. A classic example is the Coke formula. From time to time, businesses will enter into negotiations with other businesses or individuals to team up for a business venture. Two parties could agree to create a software programme together, work on research and development together or work together in a particular project. During these negotiations, each party may disclose information that is considered confidential and could harm the party if disclosed to third parties. This could include trade secrets and other intellectual property. To protect this information, a company should make sure that it has a non-disclosure agreement in place requiring both parties use the information they receive specifically for the purpose under the business deal, that they will not disclose the information to any third party without permission and that at the end of the discussion, they will return all confidential information to the other party who owns it.
Conclusion A typical company may have one or more of the four categories of intellectual property. It is important that a company lists out the inventory of the type of the intellectual property and decides the proper action plans to be implemented.
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Malaysian scientists participating in a technology exhibition
Introduction
Recently, we attended a talk by Dr. Joon Seok Lee, President, Korean Invention Promotion Association (KITA). The talk, Employee’s Patent Compensation System (EPCS) in Korea, was organized by Malaysian Association of Research Scientists (MARS). The EPCS has been a motivating factor for engineers and scientists in Korea to discover new innovations and allow their firms to commercialize these new innovations into world-beating marketable products.
We are all aware that Korea has become an advanced manufacturing nation with world-class companies. The EPCS,which was made a law, has a main objective to motivate employees who discover inventions to inform his/her companies (employers). In return the employers must decide whether to proceed with the registration of the patent and its commercialization.
Most major Korean companies have the EPCS in their human resources policies and compete for the best innovative staff and new graduates. A firm will establish a committee, comprising representatives of the firm and key employees to recommend the types of compensations to be given to employees who had developed an innovation that can be patented. Dr. Joon noted the compensations can be:
Promotion
Holidays
Share of profits
Monetary rewards
Others
Other countries that estabished EPCS are Japan and Germany. In Japan, all large companies and about 80% of SMEs have EPCS as part of the companies’ human resource policies.
Impact on Innovation in Companies
We asked Dr. Joon whether the EPCS has increased the capacity of Korean firms to innovate as employees are now more motivated to innovate. His answer was a clear Yes. In fact, many employees have received large compensations in the form of promotions and monetary rewards.
We all know that Germany, Japan and Korea have well-known manufacturing giants. These countries also have innovative SMEs with leading products in their market segments. Now we know the EPCS is one of their secret tools to motivate their scientists and engineers to develop new inventions, and, in the process, gain high rewards.
It is timely that Malaysian firms to introduce EPCS in their human resources policies. In Korea, companies that have established EPCS also enjoy government incentives in the form tax deduction.
In Malaysian universities and R&D institutions, engineers and scientists have been provided with incentives. Among the incentives include:
A share in the licensing fee generated from the licensing of the technologies discovered.
He/she is allowed to be a shareholder or director of the company formed to commercialize the technology.
He/she can for a grant from a government company, Malaysian Technology Development Corporation (MTDC) to commercialize the technology.
He/she can gain promotions.
Malaysian engineer standing with a colleague
We are not aware of incentives given by large Malaysian private companies to motivate their engineers and scientists to be more innovative besides getting promotions.
As countries such as Japan, Germany and South Korea had shown motivating their scientists and engineers to discover new innovations can strengthen their innovative capacities.
This article is one of a series of articles on how certain industries and products are upended by new entrants outside of the existing industries. This article will focus on vacuum cleaners which are now replaced by robots.
History of Vacuum Cleaners
Every house will have a vacuum cleaner which cleans dirt and dust from every corner and surface. Vacuuming a house is a major chore that my wife would like to avoid as we have seven cats living together with us.
Vacuum cleaners are electrical appliances that use an air pump to suck up dirt and dust from floors and other surfaces. The dust and dirt are collected in a bag that can be emptied later. As electrical appliances, vacuum cleaners are sold by well known companies such as Samsung, Philips, Panasonic and Electrolux.
The first technology that led to the development of vacuum cleaners occurred in Chicago in 1868 by Ives W. McGaffey. His first -hand held vacuum cleaner was manually-powered by cranking it while it was being pushed along. The first vacuum cleaner that resembled today’s vacuum cleaners was created in 1905 by Walter Griffiths. It was still a manual appliance. However, it was much smaller and portable, which made it easier for one person to operate it. The appliance consisted of a bellow that would suck dust into a removable pipe. The pipe would be cleaned for next use. It also had differently-shaped attachments so that a housewife could reach other areas of the house that needed cleaning.
In 1908, James Murray Sprangler was awarded a patent for his vacuum technology that involved a rotating brush coupled with an electric vacuuming machine. He sold his idea to the Hoover Harness and Leather Factory, a company based in North Canton, Ohio. It made several improvements and models on the idea.
The Story of Hoover Vacuum Cleaners
Like Colgate Palmolive in toothpaste, Hoover was synonymous with vacuum cleaners.The emerging car business was seriously threatening the future of horse collars. The owner of Hoover Harness and Leather Factory, William Henry Hoover, was looking to expand his company. On a hot summer day in 1908, Hoover met James Murray Sprangler on his front porch to discuss a cleaning contraption that Sprangler had sold to his cousin, who was also his wife.
Vacuum cleaners were a boon to sanitation and health in the early 1900s but they were cumbersome and required two people to operate. Sprangler was an aging, sometime inventor working as a janitor to clear his debts. He developed a portable cleaning device to minimize dust that rose from the carpets he cleaned every night.
Sprangler attached an electric fan motor atop a soap box and sealed the cracks with adhesive tape. A pillow case billowing out the back served as a dust bag. Hoover and his wife were both impressed with the new machine but not many homes then had electricity in 1908.
Hoover bought the patents anyway and started the Electric Suction Sweeper Company. He set aside a corner of his leather goods factory for the production of suction sweepers, turning six cleaners a day. James Sprangler, with his debts relieved, became Hoover’s superintendent of production.
The first Hoover advertisement appeared in the newspaper, The Saturday Evening Post, on 5th, December 1908. The ad described the simple premise of the suction sweeper: “A rapidly evolving brush loosens the dust which is sucked back into the dirt bag.” The ad went on to further state that “Repairs and adjustments are not necessary.” Finally, readers were offered a free ten-day trial at home.
Hundreds of housewives took Hoover up his offer. He shipped the suction sweepers through local dealers who received a commission if the cleaner was purchased. If not, the dealer could keep the vacuum cleaner for in-store demonstrations. Thus, he began the national network of loyal Hoover dealers in the US.
Hoover then organized an army of door-to-door demonstrators. The sales power of the skilled demonstration was Hoover’s secret weapon. No one could deny that his portable vacuum cleaner was effective and time-saving. Research and innovation followed. In 1926, Hoover patented an agitator bar which beat the carpet before brushing it. When he died in 1932, Hoover vacuum cleaners were established as the American Standard for cleaning. In 1952, the company introduced the “Hoover Constellation”. This model hovered above the floor as it cleaned the floor. This model is still found in many American.
Today this famous company is part of the appliance giant, Maytag Corporation.
The Entry of Robot into Household Cleaning
Cleaning a house of dirt and dust is such a chore that inventors are developing robots to replace housewives to operate vacuum cleaners. Enter the robotic vacuum cleaner, which was introduced in 2002. These robotic vacuum cleaners were small and roamed around the house, sucking up dust and dirt. Detectors helped these robotic vacuum cleaners avoid bumping into things. The most popular robotic vacuum cleaner is the Roomba, which is marketed by iRobot Corporation, a company based in Boston, USA. It was founded by three MIT graduates who designed robots for space exploration and military defense. The initial Roomba has been updated with new features to allow it to become an advanced robot that cleans the floor efficiently.
A robot cleaner
iRobot Corporation is late entrant to the vacuum cleaner industry, and it has overtaken the traditional appliance companies in the household cleaning sector. Although the robotic vacuum cleaners are more expensive than the conventional hand-held vacuum cleaners, they have innovative features that make floor cleaning a hassle-free activity. The robotic cleaners are expected to become cheaper and having more features as technical advances are made in mapping and navigation.
The robotic cleaning industry is upending a sector that has been dominated by the appliance industry. The traditional appliance companies are also introducing their own robotic cleaners. However, they need to acquire new know-how in advanced technologies such as navigation, mapping and artificial intelligence. At the same time, more robotic companies would be entering the household cleaning sector with more intelligent robots.
would know H. N. Ridley. As a Malaysian business and innovation historian, I had studied the development of Malaysian major industries. I noted, in each industry, there was a notable industry champion. Of all the Malaysian industries, plantation rubber had the most economic impact on British Malaya (Malaysia before independence in 1957), and the development of the rubber plantation industry can be attributed to one individual, namely H. N. Ridley.
Many historians would agree that the economic foundation of British Malaysia in late 1800s and early 1900s was built on the plantation rubber industry. When the motorcar industry was emerging in Europe and US there was a huge demand for rubber latex to produce tires. Then, the supply of rubber latex, which was tapped from wild rubber trees in the Amazon jungle in South America, was not enough to meet the need of the fast growing tire producing companies.Thus, efforts were made to produce rubber latex under plantations. British planters were already planting coffee plants in large estates in British Malaya and Ceylon.British Malaya and Ceylon had the suitable climate for the rubber trees found in the Amazon jungle. In 1876, the British government of India assisted Henry Wickham to buy 70,000 seeds (at 10 Pounds per 100 rubber seeds). He chartered a ship, SS Amazons, to export the rubber seeds, with the goodwill and co-operation of the Brazilian government, to Kew Gardens in London, where 2,800 germinated. Most of the germinated seeds were sent to Ceylon, and a few to Singapore and Java.
In 1888, H. N. Ridley came to Singapore and was appointed the Director of the Singapore Botanic Garden. During his tenure of twenty three years, H. N. Ridley became a fervent champion of the rubber plantation industry and earned him the nickname, “Mad Ridley”. There were many challenges facing the early plantation rubber industry in the late 1800s. One of them was convincing the local British and Chinese planters to switch from coffee bushes to rubber trees. Another was to extract rubber latex from the rubber trees without damaging them. Ridley spent many years promoting rubber trees as a commercial crop. He gave away rubber seeds when he met the coffee planters. Notable planters who shared his vision included Tan Chay Yan and the Kindersley brothers. These planters were the first group of planters who planted rubber trees on their estates. He also established a technique to harvest rubber latex without damaging the rubber trees.
Mr. Ridley and his assistant in front of the rubber tree in Singapore
By the early 1900s, the rubber plantation industry had significant areas planted with rubber trees. By 1910, British Malaya became an important rubber producer, riding on the rapid growth of the motorcar industry in Europe and US., and H. N. Ridley’s dream fulfilled. More important was that the rubber plantation industry opened vast areas in British Malaya where rubber trees were planted in large estates by British-owned companies. They obtained capital from the listing of their shares on the London Stock Exchange. Rubber trees were also planted by villagers in smallholdings. It seemed that everyone in British Malaya planted rubber trees, and every investor in London owned shares of rubber companies.
Lesson Learned The emergence of the rubber plantation industry showed the need of commitment and efforts of an industry champion such as H. N. Ridley who believed in the potential of the rubber plantation industry. He also helped in solving the various technical problems facing the nascent rubber plantation industry. Many industries also had such industry champions.
Rubber latex flowing into a cup
British Malaya became a prominent producer of an important industrial material in the early 1900s. Now, Malaysia can again became an important producer of products that the world needs, but we need industry champions of the calibre of H. N. Ridley. He lived long enough to see the growth of the rubber industry when he passed away on 24th, October, 1956.
We hope new Malaysian industry champions will rise!!
Buy brewers. Buy distillers. Buy restaurant companies. This was the conclusion the other day from stock market analysts at Morgan Stanley, who predicted that the arrival of the era of driverless cars would trigger a significant pick-up in alcohol consumption.
Autonomous vehicles and ride-sharing technology will enable us to glug more than ever, the American investment bank’s analysts argued. There would be “more opportunities to drink before getting into the car” and “more opportunities to drink while in the car”.
For drivers, the hours of down time spent staying dry because of the tiresome business of twiddling the steering wheel would soon be over. That would free up another 600 billion hours of potential drinking opportunity a year, they calculated, perhaps a bit too enthusiastically.
Past crackdowns on drink-driving from Scotland to China to Colombia had all led to slowing demand, Morgan Stanley said. Ergo, we should expect a boost to demand once people are liberated from that constraint. Within ten years, consumers would buy $125 billion a year more alcohol than otherwise, they concluded, lurching from not unreasonable guesswork about future behaviour to over-precise forecasting (the second gin and tonic often has that effect). Average global alcohol consumption growth would accelerate from 2.2 per cent a year to 3 per cent.
We can question the many assumptions. Who’s to say we won’t use the freed-up time to read novels or do in-car yoga? We can laugh at the focus on boozing rather than the important prizes of cleaner air, less congestion, a reduction in the 3,500 per day toll of road deaths and a more slowly warming planet. And we can shake our heads at the bogus precision.
Yet financial markets are having to grapple with what automotive innovation will mean, not only for the car industry but also for the way we live our lives and spend our money.
Technology Shifts Facing the Car Industry
Legal & General said last week that the twin technology shifts facing the car industry — electric cars and autonomous vehicles — represented the biggest change since Henry Ford pioneered assembly line working in 1913, slashing production costs and dramatically widening car ownership. Until now, the motor industry has not faced the existential shocks that have forced other sectors such as retailing, the music industry and newspapers, for example, to rethink strategy. It has made phenomenal strides since the Model T, but they have always been incremental. Now it is facing its own Kodak moment.
“Cars have the potential to become the next technology super-cycle,” according to L&G, changing behaviour in the next 20 years in the same, profound way that the smartphone has in the past ten.
For investors this kind of breathless prognostification raises as many concerns as opportunities, alongside considerable scepticism. The last “super-cycle” they were encouraged to buy into — an era of higher commodity and energy prices driven by insatiable Chinese demand — went bust in 2014. Many lost heavily backing oil explorers and miners.
Investment booms based on the promise of new technology are especially difficult to read. Some may rave about Google, Facebook and Apple. Others will recall the wreckage of crashed dotcom and telecom stocks in 2000-03.
To judge by the intensity of chatter in the equity markets, we are now getting close to peak automotive industry investing greed/fear/paranoia. Virtually every recent forecast for electric vehicle sales has been higher than the last. UBS has upped its prediction for 2025 output from nine million to 13 million to 15 million in the space of 18 months. The break-even date for when electric cars are expected to be produced as cheaply as those running on fossil fuels is constantly being brought forward as battery costs fall.
An eye-opening milestone was passed in April, when Tesla, Elon Musk’s lossmaking upstart, overtook General Motors as America’s biggest auto-maker by market value. Another symbolic moment came in July, when the British government proposed a ban on new sales of petrol and diesel cars from 2040.
There’s barely a week when regulators somewhere in the world aren’t announcing new rules to speed the push to electric, though these days this is driven more by worries about air quality than global warming. This weekend China said that it was conducting research into a ban on the internal combustion engine. This was significant because of paranoia among traditional carmakers that China, the biggest car market in the world, will leapfrog the west to auto-making dominance.
There’s barely been a week when the industry isn’t announcing a new electric model or boasting of some new breakthrough on the long, long journey to fully driverless vehicles. BMW last week announced 25 new electric models by 2025, while the Daimler-owned Mercedes Benz has promised ten by 2020. Jaguar Land Rover has said that all of its vehicles will be part-electrified from 2020.
For investors, this is not just about the choice between owning, say, newcomers like Tesla and Alphabet, the Google owner investing heavily in self-driving technology, or traditional carmakers, such as Volkswagen and Ford. The traditional incumbents are starting to look rather good value on conventional metrics. According to L&G, they now typically trade on only seven times’ profits, compared with a long-term average price/earnings ratio closer to 14.
It’s also about identifying second-order and third-order effects. Just as shovelmakers and brothels made more money than the prospectors in the 19th century gold rushes, so this seismic modern-day phenomenon is going to produce many surprise winners and losers. Morgan Stanley’s focus on drink may not be so potty after all.
the founder of Bison Consulting. He has been involved in the commercialization of technologies and the assessment of new innovation.
Dato’ Dr. Anuar has developed expertise in the valuation of new ventures during his long involvement as a private equity manager and investment analyst in Malaysia and Silicon Valley, USA. He also gained theoretical knowledge in the assessment of new innovation and venture teaching as a professor at the Azman Hashim International Business School, Universiti Teknologi Malaysia (UTM).
Dato’ Dr. Anuar has an engineering background as well as a business background. He has an undergraduate degree in Chemical Engineering from University of Birmingham, England, an MBA degree from School of Management, University of Bradford, England, an MSC in Management of Technology from Alfred Sloan School of Management, MIT, Boston, USA, and PhD in Business Management, specializing in strategic management, from Universiti Teknologi MARA (UiTM), Shah Alam, Malaysia.
He is an author of three books, Securing Private Equity in Malaysia, The Palm Oil Multinationals from Malaysia and Role of Network Relationships in Internationalization Process. The last two books are available fromAmazon.com.
It was reported recently that Shell, the oil giant, had bought a company, New Motion, a Dutch firm with 30,000 private charging points at home and offices in Europe. This is an interesting development, and it indicates that the oil giants are contemplating a business life after oil.
Profitable business selling petrol
The downstream sector, especially the retailing of petroleum products such as gasoline (petrol) and diesel, contributes a major proportion of the oil giants’ revenue. A small developing country like Malaysia has a large petroleum products retail market. The local oil giants such as Petronas, Petron and Shell enjoyed billions of RM from sales of petroleum products. The size of the petroleum products market was worth more than RM60 billion in 2014, based on the annual reports of the three companies. If sales of other smaller players like BP Petroleum and Caltex are included, the total market would be more than RM65 billion.
According to Petroleum Dealers Association of Malaysia, there are more than 3,500 petrol stations in Malaysia. As petroleum products such as gasoline and diesel are volatile and are subject to stringent safety requirements, dedicated petrol outlets are required. The first modern petrol station was established in 1913 in US.
Over the years, petrol stations have added products such as foods and drinks, and some bigger petrol stations have attached fast-food restaurants. The sales of petroleum products still make up the biggest proportion of sales of the oil giants, which result in enormous profit for them.
The Expected Withering of the Petrol Stations
The entry of Shell into the electric car charging business shows that the oil giants are facing a major disruption to its retailing of petroleum products business sector. These petrol stations have made the oil giants into well-known brands and corporate power.
The electric car revolution would have a major impact on the long-term viability of the petrol stations as a business. Electric cars will be embraced by consumers, first in the developed countries, followed by developing countries. Car manufacturers and other companies are racing each other to develop electric cars with longer range. Many countries such as Netherlands are encouraging cities and electricity generating companies to install charging stations at housing estates, homes, hypermarkets car parks and elsewhere.
Impact of the Oil Giants’ Revenue in Malaysia
Although the penetration of electric cars in Malaysia is still small, the Malaysian government is committed by international treaties to reduce toxic emission from fossil fuels. In addition, the price of electric cars will continue to decline as innovative companies such as Tesla and Nissan are developing denser batteries at cheaper prices.
Electric car being charged
The adoption of electric cars in Malaysia will be patchy initially. We foresee tax incentives may spur consumers to purchase electric cars due to various reasons, such as convenience of recharging and advanced features of electric cars such as self-driving. We foresee there would be no turning back to the adoption of electric cars in Malaysia.
The impact to the oil giants’ revenue would also be significant. At the market worth of petroleum products of more than RM65 billion per annum, a tenth reduction of consumption of petrol would amount to RM6.5 billion of lost revenue per year. The amount of lost revenue would be serious with higher adoption of electric cars. Tax revenue to the Malaysian government will also reduce as tax forms a major component of the price of petrol.
Shell believes that consumers will patronize its petrol stations to charge their electric cars. Currently, consumers have no choice but to go to petrol stations to fill-up petrol into their cars.
We expect that charging stations will be available in all sorts of locations as long as there is supply of electricity. Why should consumers go to a Shell petrol station to charge their electric cars when they can do it at homes?
Could we see the slow death of the ubiquitous petrol stations with the large logos of the oil giants standing high and can be seen from far?
