Unit 4 Business in Context
News Report 1
US Clears Sale of IBM Division to Lenovo
I’m Gwen Outen with the VOA Special English Economics Report.
A United States government committee has approved a deal that will make the Chinese company Lenovo Group Limited the third biggest computer maker in the world. Lenovo and the American information technology company International Business Machines announced the deal in December.
Lenovo agreed to buy the personal computer business of IBM for about 1,750 million dollars. IBM would receive 19% ownership of Lenovo in return. And Lenovo will move its headquarters from Beijing to New York. But at the time, it was not clear if the deal would be approved.
Several American lawmakers had raised concerns about the deal in a letter to Treasury Secretary John Snow in January. Three United States representatives signed the letter. It said the Chinese government reportedly controlled a main
shareholder of Lenovo, Legend Holdings.
The lawmakers asked the Committee on Foreign Investments in the United States to investigate the deal. They said the deal could involve giving China new technology. They noted that sales rights and government sales agreements could pass to the foreign-owned company.
The Committee on Foreign Investments in the United States held meetings on the deal. The meetings were not open to the public. The Wall Street Journal newspaper said the committee spent more time than usual considering the effects of the deal.
On March 9, IBM and Lenovo announced that the committee would not object to their plan. Reports say the committee did place some restrictions on the deal. Lenovo and IBM employees will work in separate buildings at a shared complex near Raleigh, North Carolina.
The Committee on Foreign Investments in the United States is in the Department of the Treasury. It has twelve members including the secretaries
of State, Defense, Commerce, and the Treasury. The Attorney General and the United States Trade Representative are also members.
The committee was established in 1975. It was formed to consider and possibly investigate foreign investment in America. Its job is to confirm that national security is not affected by the sale of sensitive businesses or investments to foreign interests.
News Report 2
Finding a Buyer for Chrysler
This is the VOA Special English Economics Report.
Who will succeed in buying Chrysler, the troubled carmaker in the United States? The competition is just getting started.
Dieter Zetsche, chairman of DaimlerChrysler, confirmed last week that his company was in talks with possible buyers for its Chrysler Group. Chrysler has been part of the German company for less than ten years.
Investor Kirk Kerkorian has offered four and one-half billion dollars for Chrysler through his investment company, Tracinda. He says he would seek a “true partnership” with Chrysler workers and labor union members.
He tried to buy Chrysler in 1995. Now Mister Kerkorian has even offered one hundred million dollars for the right to negotiate the sale with DaimlerChrysler.
But published reports suggest that
DaimlerChrysler officials have not shown much interest in his offer. Three other groups have also made offers.
Chrysler was one of America’s Big Three independent automobile makers, along with General Motors and Ford. But Chrysler joined with Daimler-Benz in 1998.
Since the merger, Chrysler has struggled. The company has lost market share in the United States to Japanese carmakers like Toyota. Last year, the Chrysler Group lost one and one-half billion dollars. The company is cutting jobs in North America.
Besides Kirk Kerkorian, two private equity groups have offered to buy Chrysler. Cerberus Capital Management has made an offer. So has a partnership of the Blackstone Group and Centerbridge Partners. The value of these offers has not been made public.
Private equity groups are specialists in what is known as taking a publicly traded company private. They buy all the stock in the company. Then they make changes to the business in an effort to add value. Finally they sell the company back to public shareholders for a profit.
Magna International, a Canadian maker of car parts, has also made an offer to buy Chrysler. Magna reportedly has offered more than four and a half billion dollars.
Labor unions are likely to play an important part in negotiations to sell Chrysler. Workers have said they will oppose any sale if it means more job cuts, or cuts in pay or retirement benefits like health care. Not only that, the company is said to have at least fifteen billion dollars to litter in its retirement plan.
And that’s the VOA Special English Economics Report, written by Mario Ritter. Transcripts and audio archives of our programs are at
News Report 1
Closing China’s Starbucks
Howard Schultz: We were invited to open up a store there. We did very well. And then all of a sudden it was reported by a local blogger that perhaps we were being disrespectful of the history and
culture of China. And I think for us as soon as that occurred, you know we took a step back and said we don’t want to do anything that would dilute the integrity of the heritage of culture of the Chinese people. And if they want us to leave, we will leave. And I think we did that very respectfully and walked away. And I think many other companies probably would have fought it, but we didn’t. And there’s lots of
opportunities for us and we don’t want to do anything that would be inconsistent with how people would view an outsider.
Anchor: I’d like to open this up now to our
audience here, the China Europe International Business School, and our first question today comes from Robert Zhang. Robert.
Robert Zhang: OK. Thank you. I’m Robert CEIBS first year student. I want to ask you a question about the price.
Howard Schultz: Price? Yeah.
Robert Zhang: Starbucks’ products are expensive but it also means a fashionable experience, right?
So can you tell me the reason can you tell me why people want to keep, er, want to get a premium? Howard Schultz: I wouldn’t say Starbucks’
coffee is expensive. I would say it’s a premium product in a premium price based on what it is we deliver to the consumer. And the price of coffee that we buy is significantly higher in price than most people in the coffee business. And then in terms of what it is we do to deliver on the experience, people really do feel that there is good value for the experience and what happens in the Starbucks store.
Aleksandra Krainski: Hi, I’m Aleksandra
Krainski CEIBS exchange student from Germany. Uh, we know that China is a nation of tea drinkers. How do you make it a nation of coffee drinkers and have you ever thought of adding a tea change to your business, Starbucks tea?
Howard Schultz: Another good question. Anchor: So you know where they came from. Howard Schultz: I think it’s, it’s, I was
talking about coming to China and being
respectful of the heritage here. Starbucks is not coming to China to displace the love that people have for tea. We are coming to China to create a complementary beverage experience. So we have been in the tea business for over 30 years, but it’s less than 1% of our sales. I don’t think that there’s an economic model that I can see for traditional tea store in our future.
Anchor: Let’s go to SherLe now. SherLe?
SherLe: My question is we’ve heard of the
cappucino and other different products you have introduced. Well I was wondering what products have not needed or any ideas that did not work? Howard Schultz: I’ll give you one idea that was
a big failure, and it was my personal idea. A few years back I had the brilliant idea that we should publish our own magazine. And you know on paper it looked like a great opportunity. All the people coming into our stores, you see them reading, uh, we sell lots of newspapers in our stores. Why don’t we just create our own magazine? You know there’s a hundred magazines or a thousand
magazines out there that are fantastic. Not good enough for us, we’ll do our own. And we got a great partner. And it was a timing. And we invested millions of dollars, fantastic-looking magazine, great editor and no one bought it. And we lost our shirt. And I have a rack of those magazines sitting permanently in my own office to try and remind myself and others a very important I think business lesson and that is: it’s one
thing to learn from your mistakes but sometimes you have to celebrate them. And the one thing that I do not wanna do at Starbucks is, is have the kind of failure where we start discouraging creativity and entrepreneurship. I’m very fond of
encouraging our people to recognize that our success is not an entitlement. It has to be earned. And we have no right to enduring success unless we continue to be relevant and close to the consumer. But there’s a real balance here. The world is changing so quickly and the consumer has so many choices that the important thing is not only staying relevant but the important thing is