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B&E This Fortnight
 
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B&E This Fortnight

Issue Date - 10/11/2011
 
INTERNATIONAL

BUSINESS, ECONOMY & FINANCE
He end of Gaddafi

In what will probably be remembered as a landmark event in the history of dictatorships, Muammar Gaddafi, the man who ruled Libya for 42 years was captured, beaten ruthlessly and finally killed on October 21, 2011, as he tried to escape with his convoy. Although it is not clear how the tyrant was murdered, videos shot by bystanders and interviews of eye witnesses reveal the disturbing events which led to his death. Most of the videos circulating on the internet are graphic in nature and give an extremely violent account of his death. The entire drama led to an intervention by the US Secretary of State Hillary Clinton, who has even suggested a possible enquiry into the incident given its chaotic nature. However, the more important question is the risk of a power struggle, primarily because Libya has the ninth largest oil reserves in the world. According to data released by the CIA World Factbook, the country produced 1.789 million barrels of oil a day before the unrest started. This accounted for roughly 25% of the GDP. In the aftermath of these events, oil production has fallen to 400,000 barrels a day. More importantly, even if Libya does manage to restore production, it is not enough to fulfill the employment needs of all Libyans demanding jobs. The developments need to be closely monitored by the US in order to establish a healthy democratic system..

 
The netflix syndrome

‘Strategy’ has turned out to be one of the most alluring and elusive business terminologies ever conceived. What Apple has achieved through strategy, HP has destroyed. In yet another case of a strategically and financially sound company getting it wrong, Netflix has almost undone what it had managed to do over the past several years. A few weeks back, Reed Hastings, co-founder and CEO of Netflix, announced that he would be splitting up the company into two parts. While Netflix will continue to provide streaming service, the DVD rental business would be christened Qwikster. The idea has been hailed by some and criticised by many. The poorly introduced pricing and service alterations ended up upsetting customers. In fact, analysts are estimating that Netflix might have lost as many as 600,000 US subscribers since July. The announcements did not alienate the customers of its live streaming service who continued to opt for the $7.99 monthly rental plan. The backlash came from subscribers who were used to receiving DVDs in red envelopes. It appears that they perceived the streaming service as a free add-on. Now, the CEO has suddenly decided to backtrack on the plans. How the company will regain lost ground is still a question, but this was a very bad move on the part of Hastings (no wonder he’s on the board of Microsoft).

Tactics: splitting up

If one were to go by the number of businesses that have announced a split in the recent past, it would seem that it has become fashionable to do so. However, there are strong strategic reasons behind such moves. The latest one to join the ‘split-up’ bandwagon happens to be Abbott Laboratories - a US based diversified healthcare major. The decision comes in wake of the fact that investors are becoming increasingly uncomfortable with the patent crisis. As a result, they are undermining other meaningful assets that make up the company. After the split comes into effect, brand name Abbott will be used primarily for selling medical devices, diagnostics, generic drugs and nutritionals. This part of the business currently generates $22 billion in revenues. Given that Abbott had acquired generic players like Piramal Healthcare, developing markets will make up for 40% of the sales. The other part of the business will generate $18 billion in sales and is the more difficult one to manage as it solely deals with drug innovation. Although, there are significant downsides to all the growth happening with respect to R&D, it can safely be concluded that sales will sustain for some years to come.

          

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