Tide is turning for China

China Insurance Building (中国保险大厦), Shanghai

Image by thewamphyri via Flickr

I have touched on the subject of China many times in this blog and have warned about what can be perceived as a growing bubble. The speculation in housing has had many similarities to what we saw in Ireland, Spain and Portugal just on a much much large scale. Driven by large scale growth in the area of 10 % the Chinese economy have been a steam train without breaks or at least nobody was willing to scout for all the dangers that lay on the tracks. But now are the first signs that things are about to change and that we are after all interconnected even if we would like to think it is not the case.

Chinese has the second largest economy the world after the U.S. and in 2011 it expanded by 9.2% a figure that European governments can only dream about, but for China these represent the first figures that points in the direction of a slowdown. The economic growth in 2011 was thus lower than in 2010 and country’s statistical authorities expect a even further slowdown in economic activity.

Economic growth was in the fourth quarter, less intense than in the previous quarter but still a bit higher than economists had predicted. Production from China’s millions of factories rose in 2011 by 13.9 percent compared to 2010 but also the improvement was less than the year before. Retail sales, an important indicator of citizens’ private consumption expanded by 17.1 percent. Again also a bit slower than in 2010.

And despite the general slowdown economists do not expect a catastrophic slowdown as we saw in the US and Europe, But then again so did economists in US and Europe in 2007. As one Li Hiyong from the finance house Shenyin Wanguo in Shangha said “The actual growth in the quarter of 8.9 percent indicates that our economy remains in good condition and stable. The risk of an abrupt slowdown in economic growth is thereby diminished.”

While these figures are quite impressive they are indications that things are changing in the Chinese economy. First of all, China is still heavily relying on exports for their growth and with the slowdown in the economies in general they are vulnerable to changes in consumer behavior. Secondly, a lot of companies are taking production home or closer to their markets reversing the outsourcing flow that we have seen. One of the main reason why is because of the recession and the advantages of mass production in Asia is becoming less attractive. Third, wages in China are rising at an alarming rate some estimates puts the figures at above 20%, which have fueled the housing bubble and will eat up the advantage of producing in china. This should be compared with the 0-2% wage raise that we see in most European countries.

I will not say that the Chinese bubble will burst tomorrow but in my mind there is structural issues in the economy that will lead to a sharp corner and it is closing fast. China has a lot of money in the bank and they just might be able to pull through using their reserves to counter the downturn. However, it is imperative that the country starts to have a more conservative outlook in their economic and development of their social systems if they are not going to end up driving into a very big brick wall.

Advertisements

The beacon of CR reporting have issued their annual report

Novo Nordisk is yet again setting the standard for sustainability reporting. For year we have seen the number of pages grow and grow, and effort to make it all fairly accessible have been increasing difficult. This year however they are going new ways in order to integrate their reporting and at the same time reaching the key stakeholders effectively.

As always the company is thinking about their key stakeholder in the world of diabetes even though they have many other activities. Novo Nordisk is keeping their customers at the core of their CR activities. Many other companies have a tendency to forget why they were actually put in the world and fragment their communication and branding efforts creating a inconsistent picture of the company and how it relates to its core business concept.   

“We have continued our efforts to improve access to care throughout the world, donating a portion of income from our net insulin sales to the World Diabetes Foundation and supporting improvements in the ability of healthcare systems to diagnose and treat diabetes”

The company is also signaling that they will get into the “obesity market” by communicating that they are preparing products for phase 3 testing. Obesity is closely linked to type 2 diabetes.

One of the controversies that Novo Nordick has been faced with is the high price that has been pit on their market. In the face of global recession there has been more than one voice that has spoken out against the company and others. In the Q&A section of the report Lars Rebien Sørensen, Novo Nordisk’s chief executive officer explains the company’s position:

“We understand the budget constraints governments are facing. Medical costs can be an easy target in times of tough political choices. While there may be short-term savings, the cost to society can be greater over a longer time frame. The cost of treatment is usually a small fraction of overall spending on diabetes care, with most spending allocated to treat serious complications related to inadequate medical care. In the US and Europe, for instance, insulin accounts for 3% of the total costs associated with treating diabetes.”   

While this might be true there are still huge gaps in what premium companies take for the products and the ability of the consumers and customers’ ability to afford that extra cost. Novo Nordisk has been able to charge extra because they have a very well established brand and a significant market share. Novo Nordisk does have a program that ensures that is differentiation on price towards the least developed parts of the world, but this does not come to the benefit of Greece, Ireland or the US for that matter. Even through the recession there has not been any decrease in the ability to make a buck quite the opposite actually.

 

The report shows that Novo Nordisk continues to be consistent in the reporting maintaining a high level of commitment to their core values and at the same time show that they are able to develop their business. The core principles that the company is build on are:

  • We create value by having a patient-centred business approach.
  • We set ambitious goals and strive for excellence.
  • We are accountable for our financial, environmental and social performance.
  • We provide innovation to the benefit of our stakeholders.
  • We build and maintain good relations with our key stakeholders.
  • We treat everyone with respect.
  • We focus on personal performance and development.
  • We have a healthy and engaging working environment.
  • We optimise the way we work and strive for simplicity.
  • We never compromise on quality and business ethics.

And even though there are issues of concern and inconsistencies in what the organisation say and what they do is remaining a beacon in the world of CR reporting.