IBS

May 9th 2007 | DELHI
From Economist.com

America apologises for killing more civilians in Afghanistan

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THE American army delivered an apology and blood money on Tuesday May 8th to the families of 19 Afghan civilians killed in March by marines. As in similar cases in Afghanistan and Iraq the killings, which took place on a road near Jalalabad in eastern Afghanistan, were discovered by journalists and initially denied by American commanders. Announcing the climb-down, an American colonel in Afghanistan told reporters: “I stand before you today deeply, deeply ashamed and terribly sorry that Americans have killed and wounded innocent Afghan people.”

This is unlikely to prevent many more such incidents. Indeed, later on Tuesday at least 21 civilians were killed in air-strikes in Helmand, according to Asadullah Wafa, the pro-American governor of the southern province. The killing of large numbers of civilians by American forces, through indisciplined firing or as a result of their heavy reliance on air-strikes, has been a bitter feature of the campaigns in Afghanistan and Iraq—just as it was in Vietnam. In Iraq on Wednesday, according to local security sources, an American helicopter involved in an attack against suspected insurgents killed a number of children at a primary school north of Baghdad.

Since the killings in Afghanistan in March, American troops in that country—mostly from a counter-terrorism contingent that is operating outside the main American-led NATO peacekeeping force—are alleged to have killed civilians on at least five occasions. Late in April at least 57 civilians are said to have been slain in American air-strikes at Shindand, in western Afghanistan.

The slaughter in Jalalabad appears to have occurred in similar circumstances to the better-known murder in 2005 of 24 Iraqi civilians in Haditha, in western Iraq. After being attacked by a suicide bomber, American marine special forces allegedly retaliated by shooting at every Afghan in sight. Another 50 civilians were wounded in their attack. As in Haditha, the marines then tried hiding their bloody tracks.

Afghan journalists at the scene had video film confiscated and digital photographs deleted from their cameras. American officials claimed that the marines had faced a “complex ambush”, with Taliban marksmen hidden among the civilians. The Taliban are capable of such tactics. Before last week’s violence in Shindand, a tally by the Associated Press showed 151 civilians had been killed in Afghanistan this year, including 100 by the Taliban. Another estimate, by Human Rights Watch, suggests that more than 1,000 Afghan civilians died in violent attacks in 2006, more than half of them the victims of Taliban assaults.

Yet there appears to be no evidence that the marines near Jalalabad came under attack after the bomb-blast. America’s Department of Defence has launched a criminal investigation into the incident. The family of each slain Afghan has received $2,000.

More such payouts could soon follow. The fighting in Shindand, between April 27th and 29th, began with a failed American special forces operation to grab a local warlord and suspected Taliban ally, Mullah Akhtar. A former Taliban commander, he had previously received support from the Afghan government (and allegedly from American forces) against another warlord, Ismael Khan. In the attempt to capture him, according to an American army press release, 136 Taliban fighters and one American soldier were killed, but no civilians.

A team of UN and government investigators sent to Shindand last week found several hundred houses destroyed by air-strikes and heard reports of many civilians dead and injured. Some 1,600 families had fled the area. Among the dead were said to be many children, including some who had drowned after diving into a river to escape the onslaught.

In response to early reports of a massacre in Shindand, Afghanistan’s leader, Hamid Karzai, warned that Afghans’ patience with the foreign troops in their midst was “wearing thin”. Mr Karzai has issued similar warnings after previous American atrocities. But there is evidence to suggest that he may be right. Last week several hundred students gathered near Jalalabad to protest against a separate, recent, incident in which civilians, including at least one woman, were alleged to have been killed by American special-forces fighters. In their slogans they held George Bush and Mr Karzai himself to blame.

Conquistadors on the beach

May 3rd 2007 | BARCELONA, LA CORUÑA AND MADRID
From The Economist print edition

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Spanish companies have gone global, but now trouble is brewing at home with concerns over a property crash

IT WAS the early 1980s and a wholesale fashion business was booming around the Balmes street market in Barcelona. Unlike the traditional rag trade, these firms were striving to serve local shops and boutiques rather than the big chains. One wholesaler was Isak Andic, who arrived from Turkey as a 13-year-old and started selling T-shirts to fellow students at Barcelona's American High School. Mr Andic thought he could make more money on the retail side and in 1984 opened the first Mango store in the Paseo de Gracia. It was another step in the remarkable transformation of Spanish business.

Mango is one of two highly successful Spanish clothing firms which have strutted onto the international stage—the other is the much bigger Zara, owned by the Inditex group. In terms of stores it recently overtook America's GAP to become the world's largest fashion retailer. Both firms have become case studies of post-modern businesses—design, marketing and retailing flair crossed with world-class information technology and logistics systems. Instead of using lead times of six months or so to mass-produce clothes that they hope will be fashionable, Mango and Zara pioneered “fast fashion”, in which they rush a smaller number of garments into shops within days when they spot new styles and appetites.

The two fashion companies are among a gaggle of Spanish conquistadors rapidly building global business empires. Many are much bigger than Mango and Zara, although sometimes less well-known abroad. Firms like Santander, a huge banking group, and Ferrovial, a construction giant, have spent billions buying foreign businesses. Often this has been financed with large borrowings. As a result, the Spanish stockmarket reflects a rising level of corporate debt (see chart).

And therein lies the worry. Spanish companies' overseas adventure has been boosted by the transformation of their home economy from an also-ran into one of the star performers of the European Union. That 14-year domestic expansion has, in turn, been buoyed by low interest rates and a construction and property boom that shows signs of suddenly receding. Does this mean Spain's new global champions will find themselves beached?

As if in defiance of last week's 3% plunge in Spain's stockmarket—caused by property worries—its firms have continued their global advance: Telefónica, already the world's fifth-largest telecoms firm (and Europe's largest doing both fixed and mobile telephony), moved to become a big shareholder in Telecom Italia (see article). It already has a string of overseas businesses in Latin America and Britain. And a subsidiary of Metrovacesa, a Spanish property company, bought the Canary Wharf headquarters of HSBC, a banking group, for £1.1 billion ($2.2 billion)—the biggest-ever single-property deal in Britain

Property prices are still rising in Spain, but the rate of increase is slowing. The housing market represents about half the total construction work. Much of the property is bought as second homes by the Spanish and by other Europeans, who move to Spain to enjoy the climate or to holiday and retire there. A lot of the market is speculative. So far there has been no sign of mortgage defaults hurting banks, as with the collapse in the “subprime” lending market in America, which was also fuelled by easy credit.

But the stockmarket wobble raises concerns. Spain has achieved one of the most rapid increases in wealth in the euro zone, but it remains stuck with an unbalanced economy and low domestic productivity. Its new global champions have built successful businesses, but only in certain industries. As a whole, Spanish business remains limited in its scope. If trouble is brewing at home, these companies need to be global enough to draw on markets outside Spain.

The new conquistadors mostly consist of a group of banks, builders and service companies. There is little manufacturing in Spain. Its steel mills and shipyards are relics of its pre-democratic days as a closed economy. Most of Spain's manufacturing is carried out by branch factories, such as those expanded by France's Renault and Germany's Volkswagen to take advantage of cheap labour when Spain entered the EU in 1986. But now cheaper labour is available in eastern Europe. Nor does Spain have much of a tradition in high-tech industries, although it is becoming a bigger contender in aerospace as a shareholder in the EADS group, which makes Airbus aircraft.

Take away construction and tourism (60m tourists arrive every year in a country of 43m people) and there is not much left. Moreover, tourism revenues have flattened as more foreigners now own holiday or retirement houses and so spend less on hotels. And there is only so much land (and, as important, water) for more development on the Mediterranean coast.

Yet the years spent by Spain using EU regional-development aid to build its own motorways and gleaming airports allowed it to develop businesses that could do the same thing abroad with services and infrastructure. A decade ago the government helped to promote this by offering tax relief on the value of the “goodwill” that Spanish companies pay when they take over foreign firms. That policy has since come under attack from the European Commission, but now that the international movement is under way, the tax break no longer counts for as much

The bigger motivation is to seek growth outside Spain, which if successful would help cushion Spanish companies from a domestic downturn. A lot has been achieved. The expansion started in Latin America, where Spanish businesses spent some $80 billion in the 1990s. Spanish banks, utilities and telecoms companies now challenge American firms right across Latin America. Their operations are spreading to North America, Europe and China. The advance party is often led by Spanish banks, particularly the two biggest, which originally hail from the Atlantic coast.

The city of Santander made its fortune trading with the Spanish colonies on the other side of the Atlantic. The Santander group put modern Spanish banking on the international map when in 2004, with the help of its long-standing ally, Royal Bank of Scotland, it bought Abbey, a British bank. The pair have teamed up again in a battle to take over ABN Amro, a Dutch bank. Santander is the biggest bank in the euro zone by market capitalisation, and number one in Latin America. It has interests in American retail banking, including a 25% stake in Sovereign Bancorp. In terms of profits, it ranks seventh worldwide.

BBVA has its banking roots in Bilbao. It owns Mexico's second-biggest bank and recently added to its American portfolio with a successful bid for Compass Bancshares. It has also announced a move into Asia through a strategic alliance with the CITIC group, a Hong Kong conglomerate that owns a bank in mainland China. BBVA has spent €1 billion ($1.4 billion) to take nearly 5% of China CITIC Bank and a 15% stake of CITIC International Holdings.

The Spanish banks have been helped in their advance by the supremacy of their IT systems. They have made great technological leaps in the past two decades with systems that build profiles of customers so that they can see who can afford to take on more loans. Francisco González, chairman of BBVA, says he does not run a bank but “an industrial financial company”.

“The bank of the future will be a distribution-services company,” predicts Mr González. Last week Santander reported a 21% increase in first-quarter net profits to €1.8 billion largely on the back of a strong expansion in loans and services fees in Europe and Latin America. Mr González believes the bank will make money from knowledge it gathers about customers to sell them products such as health care, education and even funerals.

How did Spain produce such able bankers? David Allen of the Instituto de Empresa, a business school in Madrid, identifies a combination of factors. Spanish education improved vastly in the 1960s and 1970s, providing a growing pool of talent. Given the lack of industry in which to find well-paid jobs, those who wanted more than work in construction or tourism on the Costas flocked to banking.

The other important factor was competition: foreign banks were allowed to enter Spain in the late 1970s, causing local banks to sharpen their strategies and invest more in technology. Santander and BBVA, together with Telefónica, account for more than a third of the Spanish stockmarket's total capitalisation. These three companies are also among the most actively traded stocks in the euro zone.

Following the banks were the construction firms. They not only diversified geographically from Spain, but also moved into related industries. The most swashbuckling is Ferrovial, which started out building Spanish railways in the 1950s. Its £10.1 billion takeover last June of BAA, the company that owns three of London's airports and four more elsewhere in Britain, was a spectacular deal. With two allies from Canada and Singapore, it ended up with 62% of BAA's equity. The British airports group now accounts for more than half of Ferrovial's profits—and some 70% of its €33 billion of debt, according to calculations by BPI, a Portuguese bank. Ferrovial was able to borrow heavily and put up barely £580m of its own money to take control of a company with a lock on Britain's air-travel industry through its ownership of Heathrow, the world's busiest international airport.

The justification for such a high level of debt is that airports are like public utilities with a predictable income and a pricing regime (in Britain, at least) that guarantees a reasonable return on capital. Indeed, British regulations favour capital spending, which means that BAA has a big pipeline of construction projects ahead of it.

Spanish businesses have spent nearly $60 billion snapping up British firms, culminating in the recent purchase of Scottish Power by Iberdrola, a Spanish utility. Britain's open economy has made it a happy hunting ground, because the Spanish encounter less opposition than in France and Italy. The Abertis services company last year had to drop its attempt to acquire an Italian motorway company because the government there changed the rules to make it less attractive. Now the French are shaking in their shoes over a bid by Sacyr Vallehermoso, a Spanish construction company, for the historic Eiffage construction group, which built the Eiffel Tower.

The Spanish are finding opportunities farther afield, too. Rafael del Pino, Ferrovial's boss, has teamed up with Australia's Macquarie Group to buy two motorways in America, the Chicago Skyway and the Indiana Toll Road, through its quoted subsidiary Cintra (in which it holds 62%); it also manages a motorway in Texas with the state government. Altogether Ferrovial operates 22 motorway concessions covering 2,500km (1,553 miles). The Spanish group also bought Amey, a British services and project-management business that maintains three London Underground lines. Ferrovial sold its housing and property business for €1.6 billion, plus €600m of debt, last December—apparently with perfect timing.

Other housebuilders have spread their risks. Acciona, another construction company, is, with the help of Italy's Enel, buying control of the biggest Spanish electricity company, Endesa, and in the process it is fending off a hostile bid from Germany's E.on. The attraction for José Manuel Entrecanales, who succeeded his father at the top of the company three years ago, is Endesa's hydroelectric dams and its 1,800MW of wind turbines. Mr Entrecanales points to calculations from the International Energy Agency that show hydroelectric and wind power generation each growing by more than 5% on average for the foreseeable future, compared with average growth of less than 2% for all sources of energy.

Mr Entrecanales is now chasing Iberdrola to become the world leader in wind farms. By 2009 he aims to have nearly 8,000MW of wind-turbine capacity. The company owns wind farms in Alberta, Germany, France and Australia, plus a joint venture in China. Even before its acquisition of Endesa, Acciona's energy business had grown to 38% of earnings by the end of last year, compared with less than 12% for its property business.

AFP

Reflecting a shaky building site

Energy has also attracted the attentions of Sacyr Vallehermoso, a construction firm with a 20% stake in Repsol YPF, a Spanish oil company with interests in Argentina, the Caribbean, the Gulf of Mexico and North Africa. The dealmaker is Luis del Rivero, boss of Sacyr, who has seen the stockmarket value of his construction and services company rise nearly fourfold in the past three years. Repsol operates in 30 countries, often working with national oil companies. But Mr del Rivero has his eye on Repsol's strong position in natural gas.

Privately, a number of Spanish bankers and managers worry that some of the ambitions of Spain's big companies could be riding on too much borrowed money. Their loans are sometimes backed by their stakes in other quoted companies. This means a big fall in the Spanish stockmarket, triggered by a property downturn, could have a damaging effect even to companies that have diversified.

For Spain as a whole, that is not the only concern. Martin Varsavsky, an Argentine who founded three high-tech companies in Spain, thinks that outside the big companies there is a lack of entrepreneurship. He blames neglect of science in the Franco era: he points out that Israel, with a population one-tenth of Spain's, has more business start-ups. He thinks Spaniards are generally risk-averse.

Mr Varsavsky's latest venture is a wireless-internet business called FON. Customers buy FON's routers and become “Foneros”. They get free Wi-Fi access in return for allowing free access to their router by other Foneros. He hopes to build a global network of at least 4m customers pooling their bandwidth. Such ventures have been tried before with no success, but Mr Varsavsky is backed by powerful forces, including Google and Sequoia Capital, a Californian venture-capital fund.

If Mr Varsavsky is right, Spain needs more local innovators. In many countries these tend to gather in business “clusters”, as in Silicon Valley. The nearest thing Spain has to a cluster—apart from its holiday resorts—is the talent that pours out of its famous design school in Barcelona. Both Mango and Inditex have some of their design studios in the city.

Both the fast-fashion champions have operations spread around large parts of the world. Mango follows a modern outsourcing model. It has 880 stores in 83 countries, fed by garments that speed through its logistics centres at a rate of 30,000 an hour. These generate annual sales of €1.1 billion—three-quarters of that outside Spain.

Mango's business model consists of franchises, completely outsourced production in Asia, and sophisticated IT and logistics systems to ensure goods arrive on the shelves in ten days on a sale-or-return policy. Mango's main role is to design garments and arrange their distribution. Its first overseas expansion was to nearby Portugal in 1992. A quarter of its 6,000-strong labour force is employed in its Barcelona headquarters.

Inditex, based in La Coruña in Galicia, a region in north-western Spain, does the clever bits of production—cutting and finishing—in its own factories in Spain, Portugal and North Africa. It has 3,207 shops in 64 countries. About a third are Zara stores, and the rest Inditex's other brands, such as Pull and Bear, and Massimo Dutti. Inditex has tripled sales in six years to over €8 billion, some 60% of it abroad.

Amancio Ortega, Inditex's founder, became Spain's richest man after the heavily over-subscribed stock was floated on the stockmarket in 2001 and soared by half in 12 months. Today the fit-looking 71-year-old still appears in Zara's offices most days after his two-hour workout in the gym. But the chief executive charged with rolling out new stores at a rate of over 400 a year is Pablo Isla. The first Zara store has just opened in Beijing. And with only 24 outlets in America, it still has scope for huge expansion there. “The 1970s was all about opening in Galicia,” says Mr Isla. “The 1980s and 1990s were about Spain and Europe. But since 2000 we have been pursuing true internationalisation.”

Those Spanish companies that have boldly escaped the confines of their home market are betting they can survive a domestic downturn despite their huge debts. But entrepreneurs are still needed to broaden the base of Spanish business or there will not be much else beyond tourism. As Ana Patricia Botín, head of Banesto, a retail bank in the Santander group, says: “It is all very well being the Florida of Europe, but it would be nice to be the California as well.”

Military spending

May 8th 2007
From Economist.com

Saudi Arabia's military expenditure amounted to 8.8% of GDP in 2005, according to the International Institute for Strategic Studies, a think-tank. America spent 4% of GDP, though its total was $495.3 billion, compared with the Desert Kingdom's $25.4 billion. Saudi Arabia has expensive tastes, buying military hardware, such as jet fighters, from its British and American allies. China spends less, at 1.4% of GDP, but it has the second-biggest total expenditure after America.

BAE Systems

The week ahead

May 6th 2007
From Economist.com

What may make the news

Reuters/AFP

• POPE BENEDICT XVI takes a four-day trip to Brazil, his first long-haul journey since becoming pope two years ago. At a conference of bishops from Latin America and the Caribbean, which is meant to set the course for the region’s 450m Catholics (nearly half of the world's 1.1 billion total), he may hope to ease decades of strife between progressive and conservative wings of the church. He will also canonise the country’s first native-born saint.

• MICROSOFT'S battle against the mighty Google may continue. The software giant is said to have approached Yahoo! so that the two might team up to take on the behemoth of internet searches. Yahoo! has apparently spurned advances from Microsoft over the years, the latest takeover offer coming just a few months ago. This time Microsoft seemingly wants to begin formal talks and is rumoured to have $50 billion to spend.

• AFTER months of teasing, this week Britain's Tony Blair will finally reveal his departure date. Within a matter of a few weeks he will (almost certainly) be replaced as prime minister by Gordon Brown, the permanently glum-looking finance minister. Mr Brown, who has waited for his turn to lead with some impatience, might just crack a smile for once.

• A BIG week for Europe. Envoys from the 27 member states of the European Union gather in Berlin to begin low-level talks on reviving the idea of a constitution for the continent. More fractious European in-fighting is likely later in the week at the Eurovision song contest in Helsinki. The latter is an inclusive affair (even Israel and Armenia get a go) but expect the sort of vote-trading and settling of scores more typical of EU summits.

The opposite of Wal-Mart

May 3rd 2007 | TALLAHASSEE
From The Economist print edition

A thriving grocery chain provides a telling contrast with Wal-Mart

WITH the rise of Wal-Mart, smaller supermarkets across America have struggled to compete. But not Publix Super Markets, which recently opened its 900th store, in Murfreesboro, Tennessee, and is defying Wal-Mart's market-share success in food sales. Publix is America's largest privately owned grocery chain, with revenues in 2006 of $21.7 billion, up 5% from 2005, and net profits of $1.1 billion, up 11%. Publix has a market share of more than 40% in Florida, its home state, and it is taking business from Wal-Mart and others as it expands into Alabama, Georgia, Tennessee and South Carolina. It has a competitive edge over Wal-Mart because it is strong in precisely the areas where Wal-Mart is vulnerable.

Take customer satisfaction, for example. Publix has ranked number one out of supermarkets on the American Consumer Satisfaction Index, published by the University of Michigan, since it began 14 years ago, whereas Wal-Mart ranks last. Publix employees have a reputation for going out of their way to please customers—testimony to the motivational power of employee ownership, perhaps. Publix employees put your shopping into bags, take it to the car and refuse tips—unless you offer more than once. They own 31% of the firm through an employee share-ownership plan, making Publix the largest employee-owned company in America. (The rest of Publix, established in 1930 by George W. Jenkins, is largely owned by the Jenkins family, which still runs the firm.)

Publix has also tailored its products to fast-growing local markets more successfully than Wal-Mart has, boosting sales while carving a niche for itself. The company has opened Publix Sabor stores in south Florida, seeking to attract shoppers from its large Hispanic and Caribbean populations. As well as offering packaged goods aimed at Hispanic customers, as Wal-Mart does in some stores, these shops sell prepared dishes, including red beans with pig's feet and stewed chicken, and perishables such as yucca root.

In addition, Publix has gained a cult-like following amongst Floridians for its Publix-brand goods such as chocolate-chip cookies, sub sandwiches and sweet tea. Publix began selling organic and natural products in 1996 and will open several stores devoted to such products this year. Wal-Mart began selling organic food only last year, and is now thought to be retreating from its initial ambitious plans. And although Wal-Mart has introduced around 120 Neighborhood Markets—supermarket-sized outlets intended to compete with the likes of Publix—they are far less profitable than its traditional, larger stores.

Even these larger stores do not measure up to Publix. John Heinbockel, a food-retail analyst at Goldman Sachs, an investment bank, notes that Wal-Mart's same-store food-sales growth, though in the mid-single digits, has been falling, and total same-store sales growth slipped to 1.9% in 2006. Meanwhile, Publix's same-store sales growth has been steadily increasing: this week the firm said it had reached 5.1% in the first three months of this year. In a market where margins are slim, Publix makes 40% more profit on groceries than Wal-Mart does, says Burt Flickinger III of Strategic Resource Group, a consultancy.

Publix is not the only private, family-owned regional chain holding its own against Wal-Mart. Others such as H-E-B in Texas and Wegmans in the north-east have respectable market shares within their regions. But Publix is 60% bigger by revenue than the next largest private supermarket, Meijer in the Midwest. It is opening 37 new shops this year, both in Florida and farther afield. Judging by its successful expansion into Georgia, where it has the largest number of stores outside Florida, Publix will continue to give the Bentonville behemoth a run for its money as it expands throughout America's south-east.

A battle at the checkout

May 3rd 2007 | MOUNTAIN VIEW AND SAN JOSE
From The Economist print edition

Claudio Munoz

PayPal dominates electronic payments, but Google's growing checkout service may prove a vigorous challenger

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IN HIS celebrated book, “The PayPal Wars”, Eric Jackson described how in its early years the internet firm had to battle crotchety regulators, identity thieves, volatile markets, scrappy rivals and even scheming Mafiosi. It has since gone on to become the undisputed master of online-payments processing. Now, however, to stay on top, it must leap from being merely big to ubiquitous. And it will have to do so while fending off new competitors—especially Google.

PayPal was founded in 1998 as a way of moving money between Palm Pilots. It soon became a popular way to pay for goods on eBay. So successful was it that in 2002 the auction site ditched its own payments service, Billpoint, and paid $1.5 billion to bring PayPal under its wing. It now boasts 143m accounts, double the number it had two years ago. Already international—35m of the accounts are in Europe, 15m of those in Britain alone—it is striving to become truly global. Next week it is expected to announce that the number of countries in which PayPal transfers can be made has risen to 190 from 103.

This growth has turned PayPal into the star of the eBay stable. In the first quarter its net revenues rose by 31%, much faster than those of the core auction business, to $439m. PayPal now accounts for a full quarter of group sales. But as eBay comes to rely more on PayPal, PayPal is trying to diversify away from eBay. In the past year, “off eBay” volume has climbed from 33% to 39% of the total.

Having achieved “critical mass” through its ties to eBay, the job for PayPal now is to persuade more online retailers to accept it as a form of payment, says Rajiv Dutta, PayPal's president. “We have more account holders than American Express, yet the vast majority of e-commerce sites don't offer us,” he says.

One problem is the time involved in adding a PayPal checkout function to a retailer's site. So the company has brought the code-writing part of the work down from weeks to days. Having signed up millions of small e-tailers through eBay, it is now trying to win over more large ones. Mr Dutta says one selling point is PayPal's low fraud rates, which are around a third of the norm for online merchants. Its latest security initiative is a digital key fob, linked to customers' accounts, whose security code changes every 30 seconds. This is proving popular, helped by PayPal's willingness to sell it below cost.

But safety is nothing without convenience, hence the rush to roll out services on new platforms, such as fund transfers via Skype, eBay's web-telephony arm (launched in March) and mobile phones (in beta testing). The firm has also come up with a clever, secure way to use PayPal on websites that do not have a “Pay with PayPal” button: a “virtual debit card” that pulls money from the user's PayPal account using a 16-digit number, which changes with each transaction.

Such ingenuities show that the only limit to PayPal's growth is the scope of its vision, says Mr Dutta. However, there is another threat: Google's small but potentially powerful Checkout service, which was launched last summer.

PayPal's managers play down the danger. They point out that Checkout does only a part of what PayPal does: that is, allowing users who store their credit-card details with it to buy goods at participating sites without having to key in the information each time. That makes it a mere “wrapper around Visa and MasterCard” rather than a full-blown competitor, argues PayPal's Stephanie Tilenius.

But Google has other advantages. Crucially, Google is prepared to run Checkout at break-even, or even at a loss, because it sees the service as a useful way to bring more advertisers to its all-important AdWords business, which charges retailers for search-related “keyword” ads. Checkout has already signed up a quarter of the top 500 online retailers, largely thanks to its offer of free payments processing until 2008. Once the promotion ends, every dollar a merchant spends advertising with Google will entitle it to $10-worth of free processing. “The way we think about Checkout is not as a standalone business, but as a driver of the Google network,” says Ben Ling, Checkout's boss.

This willingness to subsidise—investment is running at over $30m a quarter—makes Checkout a potentially formidable foe. Gwenn Bézard of Aite Group, a consultancy, thinks PayPal will eventually suffer if Google continues to throw money at its payments service, because many consumers will want to use one or the other system, but not both.

Hence eBay is being forced to take Checkout seriously—so seriously, in fact, that it has added Google's system to its list of prohibited payment methods. The reason given for the ban, that Checkout lacks a long enough record, rings hollow to most outsiders. Last month a group filed a class-action lawsuit against PayPal alleging, among other things, that the block on Checkout is illegal. (PayPal says it will vigorously fight the suit.) In another sign that PayPal has Google on its mind, it recently launched a payments and search advertising partnership with Yahoo! that looks remarkably like Checkout.

But not everything is going Google's way. A survey in January found that only 18% of Checkout users rated their experience as good or very good, compared with 44% for PayPal. And Checkout's share of payments on some big sites, such as Toys “R” Us and Sports Authority, has been falling since the holiday season ended, despite inducements to retailers (estimated at over $20m) to make its “badge” more prominent. It may have to increase its bribes in order to gain traction.

Furthermore, Checkout may itself face threats as it grows. At this year's Davos pow-wow, Bill Gates said Microsoft was thinking about a move into online micropayments. And then there are the established card consortiums. To the extent that PayPal and Checkout help to move cash and cheque purchases online, where they are subject to transaction fees, Visa and MasterCard welcome them. But they also worry about being cut out of the process as the payments upstarts become the “interface” with which more online shoppers deal directly. With combined annual volumes of over $6 trillion, the card companies could put up quite a fight.

The outcome of all this manoeuvring is hard to predict. What is certain, however, is that it is good for both merchants and consumers. Retailers have rarely seen processing discounts like those now being offered. Saving on transaction fees of 2-3% can add several million dollars a year to profits. As Google and PayPal compete to make the checkout less cumbersome, shoppers will find it easier to complete their purchases. And if fewer abandon their carts before paying, retailers will see an uptick in sales. Google's foray into payments may prove testing for PayPal, but it looks like being great for e-commerce in general.

Apple has recently discovered that some batteries used in its MacBook and MacBook Pro notebooks may have battery performance issues. Apple is offering a software update that is designed to improve battery performance.

The battery update is available immediately via Software Update or downloadable here.

Note: The factors causing the performance issues do not present a safety risk. You may continue to use your current battery.

This battery update should be run on all MacBook and MacBook Pro computers and extra batteries that were purchased between February 2006 and April 2007.

If, after you have installed the battery update, your battery has any of the symptoms listed below, please make a reservation to bring your computer with its battery to your local Apple Retail Store, or contact an Apple Authorized Service Provider (AASP), or call your local Apple Support Contact Center. If Apple or an AASP determines that your battery is eligible for replacement, you will receive a new battery, free of charge, even if your MacBook or MacBook Pro is out of warranty.

For MacBook and MacBook Pro systems with Intel Core Duo processors, this program extends repair coverage on the battery for up to two years from the date of purchase of the computer.


Identifying an affected battery

Affected batteries will have one or more of the following symptoms:

Battery is not recognized causing an “X” to appear in the battery icon in the Finder menu bar.
Battery will not charge when computer is plugged into AC power.
Battery exhibits low charge capacity/runtime when using a fully charged battery with a battery cycle count (as shown in System Profiler) of less than 300.
Battery pack is visibly deformed.
Note: If your MacBook or MacBook Pro battery does not have any of the symptoms noted above, your battery does not need to be replaced.


Next Steps

To participate in this worldwide program, your MacBook or MacBook Pro battery must show the symptoms noted above. If it does, please make a reservation to bring your computer and battery to your local Apple Retail Store, or contact an Apple Authorized Service Provider (AASP), or call your local Apple Support Contact Center. The U.S. support number is 1-800-275-2273. If you are located outside the U.S., please see Apple's international contact list for your local Apple Technical Support phone number. An Apple technical support representative or an Apple Authorized Service Provider (AASP) will determine if the battery is eligible for replacement, free of charge. Customers are responsible for transportation costs to eligible AASPs and retail stores.

If a replacement battery is sent to you via airmail, it is important that you return the older battery to Apple so that it can be properly recycled.

This program extends repair coverage on the battery for up to two years from the date of purchase of the computer for Intel Core Duo-based MacBook and MacBook Pro computers. Apple will continue to evaluate the battery update program and will provide further extensions as needed.    Apple also reserves the right to modify the program if other solutions that address the battery performance issues become available.

[20 Minuten] -  Grund sei eine entsprechende Nachfrage, erklärte das Unternehmen auf seiner Website. Dell hatte wie viele andere Computerhersteller mit dem Erscheinen des neuen Betriebssystems Windows Vista von Microsoft umgestellt und neue Rechner fast nur noch damit ausgeliefert. Ende März hiess es, es gebe für Heimanwender nur zwei PCs, die mit XP ausgeliefert werden könnten (Geschäftskunden haben hier mehr Wahlmöglichkeiten).

Auf der Dell-Website IdeaStorm, auf der Nutzer Wünsche äussern und auch abstimmen können, was ihnen am wichtigsten ist, erklärten mehr als 10.000, dass sie Windows XP wollten. «Wir haben es laut und deutlich gehört und bieten wieder Windows XP als Möglichkeit bei den Dell-Consumer-PC-Angeboten an», hiess es dann auf der Unternehmenswebsite. Bei vier Inspiron-Notebooks und zwei Dimension-Desktop-PCs soll es die Wahlmöglichkeit geben.

Microsoft reagierte wenig begeistert. «Dell habe auf eine kleine Minderheit» der Kunden reagiert, erklärte Microsoft-Manager Michael Burk. «Die grosse Mehrheit der Kunden will die neueste und beste Technik, und dazu gehört Windows Vista.» «Das ist wirklich seltsam», erklärte auch Michael Silver von der Marktforschungsfirma Gartner. Eine mögliche Erklärung lieferte Michael Gartenberg von JupiterResearch. Viele Kunden wollten weiter Windows XP, weil sie damit vertraut seien und weil es mit ihren vorhandenen Programmen laufe und insgesamt sei es ja auch «gut genug», sagte Gartenberg.

Apr 26th 2007 | LIUZHOU AND SHANGHAI

From The Economist print edition

Though struggling at home, General Motors is doing well in China

THE industry saw it coming, but it is a symbolic milestone nonetheless. Figures released this week show that General Motors has been overtaken by its Japanese rival, Toyota, which became the world's biggest carmaker in the first three months of this year, with global sales of 2.35m vehicles to GM's 2.26m. As it restructures itself, America's top carmaker has wisely cut back on discounted sales to car-rental firms, boosting revenue per unit but reducing overall sales. Slipping from first place, where GM has been since 1931 apart from a few strike-related blips, will dent the car giant's pride. But the good news is that GM's American business seems to be on the mend—and it is on top in China, the world's most promising car market.

Sales of cars and light trucks in China reached 7.2m in 2006, making it the second-largest national market behind America, and the fastest-growing. GM's brightest hopes now lie half a world away from Detroit in places like the southern Chinese city of Liuzhou, set against a striking landscape of steep limestone karsts. The factory operated in Liuzhou by SGMW, GM's joint venture with two Chinese firms, Wuling and Shanghai Automotive Industry Corporation (SAIC), is bright, clean and almost as efficient as any car-assembly line in the world. Each day it turns out more than 1,000 Chevrolet minicars and Wuling minivans, not much bigger than a Mini Cooper and starting at $3,500. Margins are slim but labour costs are only around $100 per vehicle, says Tom Drumgoole, SGMW's vice-president. SGMW's sales grew 36% to 460,000 vehicles last year, outpacing the wider market.

GM also has a separate joint-venture with SAIC, called SGM. Its prospects seemed dim when it was set up in 1997: the market was a tenth of its size today and was dominated by commercial vehicles, yet the Chinese government decreed that SGM would make cars, to be sold under the then-fading Buick brand. Last year, however, SGM sold more Buicks in China than GM did in America. The gap is likely to widen now that Buick is China's top car brand, says Rick Wagoner, GM's boss. SGM has doubled the size of its Shanghai plant to meet demand and will soon add a third daily shift to increase production.

Another of GM's Chinese ventures is PATAC, a sophisticated design and engineering centre in Shanghai operated with SAIC. This was where they designed the Buick Riviera, a sleek coupé that made its debut at this month's Shanghai Motor Show. Although it is just a concept car, its design is likely to influence new Buicks in both China and America, hints Ed Welburn, GM's design chief.

One danger for GM is that SAIC is starting to introduce new vehicles under its own brands, such as Roewe, outside the SGM joint venture. The Roewe 750 saloon has been well received, and at the Shanghai show SAIC displayed a prototype of the Roewe W2, a mid-market family car. It will be some time before SAIC's own brands are a match for Buick, but through its Chinese partnership GM is “supplying bullets to the enemy,” says Joe Phillippi, an analyst at AutoTrends Consulting in New Jersey. For the time being, however, China remains GM's most promising market, and one that might even enable it eventually to regain the lead over Toyota, which made a slow start in the country.

Apr 26th 2007 | MUMBAI

From The Economist print edition

The cheap and cheerful Renault Logan is a genuine “world car”

AFP

Mr Frugal and his car

ONE of Carlos Ghosn's favourite words is “frugal”. As boss of Renault-Nissan, a Franco-Japanese carmaking alliance, he likes to talk of “frugal management”. Now, as his firm rolls out the Logan, its low-cost “world car”, in developing countries across the globe, Mr Ghosn has found a whole nation to help champion his cause. “India's not just a market—it's where we learn to be frugal,” he says.

Renault-Nissan is learning from Mahindra & Mahindra, an Indian conglomerate with interests from tractor-making to financial services. Mahindra Renault, a joint venture formed in 2005, launched a new version of the Logan in India this month with a price tag of $7,100 before tax. The development of the new model cost 15% less than expected and was completed a month ahead of schedule. Compared with the original Logan, which Renault designed in Romania after acquiring the former Dacia factory near Bucharest, the new version has better styling, beefed up suspension to cope with India's poor roads and improved air-conditioning.

Patrick Pélata, Renault's product and strategy chief, likens the cheap and cheerful Logan to a basic mobile phone that just makes and receives calls. Since 2004 over 450,000 Logans have been sold in 51 countries. The car is variously sold under the Renault, Nissan and Dacia brands.

The initial sales target of 50,000 cars a year in India sounds modest, but Renault has big plans for India, where manufacturing costs are 10% lower than in Romania, says Mr Pélata. Sales of new cars are growing by 10% a year and are expected to reach 2m by 2010. Renault Mahindra is investing $950m in a new factory in Chennai that will be capable of making 350,000 vehicles a year and will build six Logan models, including an estate and a hatchback.

The new Indian-developed version of the car will also be introduced into several other countries, including Argentina, Brazil and Mexico. But perhaps the most unusual new market for the car is Iran, where it went on sale last month. Despite petrol rationing and some unkind words from the industry minister, who says the Logan is “mediocre”, customers are undaunted. The Tondar, as it is known locally (the name means “thunder” in Persian), has broken all sales records: over 100,000 pre-orders were placed within the first week, 85,000 of them accompanied by a deposit of 51% of the sale price, which starts at 82m rials ($8,870). Many buyers have not even seen the car. Deliveries start next month.

The Iranian model is being built with Iran Khodro (IKCO), the Middle East's biggest carmaker, and by Saipa, Iran's second-largest carmaker, both of which are controlled by the state investment authority. Renault's launch of the Tondar represents the biggest foreign investment in Iran outside the oil business, and will increase the country's carmaking capacity by nearly one-third. (The joint-venture agreement was signed three years ago, before Iran became embroiled in a dispute with the United Nations.)

Since Iran's economic isolation began in the late 1970s, IKCO's staple product has been the Paykan (which the Tondar finally replaces), an almost unchanged version of the Hillman Hunter, built in a 1960s factory transplanted from Scotland. IKCO and other Iranian carmakers also did deals with Peugeot and South Korean firms. But their designs were always years out of date. The Tondar marks the first time in a generation that Iranians will be able to drive a modern car built in their own country. Renault even hopes to export cars to other countries in the region, subject to UN sanctions. Designed, built and sold in the developing world, the Logan is shaping up to be the VW Beetle of the 21st century.