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Schumpeter – Covid-19 is foisting changes on business that could be beneficial | Business

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IN FEBRUARY 2014 a strike on the London Underground offered management theorists a lesson in resilience and adaptation. Because the shutdown closed some but not all Tube lines, frustrated Londoners were forced to rethink their commutes to and from work. Researchers at Oxford and Cambridge universities subsequently found that around 5% of passengers stuck to their new itineraries even after normal service resumed. The long-term economic gains of one in 20 travellers adopting new and improved ways to get to work turned out to be greater than the short-term costs of the disruption.

The global covid-19 outbreak presents a far greater challenge to the corporate world than striking transport workers. Profit warnings are spreading nearly as fast as the disease. Analysts at Goldman Sachs, a bank, estimate that earnings growth for firms in the S&P 500 index could grind to a halt. Gauges of business activity, such as purchasing managers’ indices, have cratered in Asia and are expected to weaken elsewhere as the coronavirus crosses more borders. Consumers are spending money on little except sanitary wipes, face masks and tins of Campbell’s Soup. Fears of a pandemic have wiped $7trn off the market value of listed firms worldwide in the past fortnight (see article).

Some companies will, like most of London’s commuters, revert to autopilot once the threat recedes. But for others the interruption will have a lasting effect, accelerating trends in business organisation that were already under way. Two are particularly important. The next few months are set to be a giant experiment in whether new technologies can allow successful mass remote working for employees, speeding up the reinvention of the office. And for firms already worried about rickety supply chains amid a trade war, the virus gives another reason to reconfigure them.

Take employees first. Companies have had to ask themselves whether to let employees travel, attend conferences or even come into the office. In all three cases the answer is increasingly “no”. Many big firms, including Amazon and JPMorgan Chase, have banned all non-essential excursions. Airlines and hotels are reporting steep falls in bookings. Corporate Travel Management, a listed Australian firm that organises business jaunts, has warned the impact could last up to six months. It has slashed its earnings forecast for the year by up to 16.5%. A survey by the Global Business Travel Association, an industry body, found that business travel, which costs companies over $1trn a year (and emits roughly as much carbon as Ukraine in flights alone), could fall by over a third while the epidemic rages.

Large corporate events are being called off. The oil industry’s biggest annual jamboree in Houston and the Geneva motor show will not take place this month. Google and Facebook have given the term “teleconferencing” a whole new meaning by moving a few of their big shindigs partly or wholly online. With Milan and Paris fashion weeks curtailed, Armani streamed its autumn/winter show from behind closed doors. This is bad news for events firms such as Informa, whose share price is down by a fifth since the start of February, especially at a time when many high-profile industry powwows are already losing their lustre.

At the same time more companies are learning to love telecommuting. On March 3rd JPMorgan Chase told thousands of its bankers in America to work from home as it tests its contingency plans. Twitter has asked its 5,000 employees to do likewise. Sony went so far as to shut some of its European offices altogether, just in case. The affected workers are nonetheless expected to toil remotely.

As well as highlighting how bloated some travel budgets are, virus contingency plans may also reveal how inefficiently office space is used. Big British and American firms pay on average $5,000 per employee in annual rental costs. Just 40-50% of desks are actually used during working hours—often not very well. Last year two in five respondents to a survey of 600,000 desk-jockeys by Leesman, a data provider, said their office prevented them from working productively. If their managers now find that productivity does indeed rise—or at least doesn’t dip—as staff self-isolate at home, the case for teleworking may look irresistible. Investors are betting it will. In the past month the share prices of Slack, a corporate-messaging platform, and Zoom, which makes videoconferencing software, have shot up by 18% and 35%, respectively.

The second way in which companies are rethinking their business has to do with supply chains. Since the 1980s these have become more complex and global, with large firms now dependent on thousands of suppliers. The embrace of lean manufacturing and just-in-time delivery of components, pioneered by Toyota in the 1970s, has made production more efficient but more vulnerable to disruption, as companies stockpile fewer and fewer necessary materials. The median firm in the S&P 500 carries only 66 days of inventory, and some have far smaller buffers than even that—Apple has just nine days, according to data from Bloomberg.

When natural disasters strike big companies usually get by, shifting production temporarily from afflicted areas to those that are not. But unlike a flood, an earthquake or even the Sino-American trade war, all of which companies have some experience in planning for, covid-19 could affect all of a firm’s actual and potential subcontractors simultaneously. In such a scenario carrying bigger inventories and having suppliers at home may no longer look wasteful. It may come to be seen as necessary.

Immune response

The coronavirus will not make business travel or lean global supply chains disappear. Chinese factories are cranking up again and high-flyers will, in all likelihood, be back in airport lounges soon enough. But the crisis offers a chance to experiment with new ways of doing things—and to question the wisdom of old habits. Chief executives should not be immune to the opportunity.

This article appeared in the Business section of the print edition under the headline “Plan V”

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Trump Records Shed New Light on Chinese Business Pursuits

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President Trump and his allies have tried to paint the Democratic nominee, Joseph R. Biden Jr., as soft on China, in part by pointing to his son’s business dealings there.

Senate Republicans produced a report asserting, among other things, that Mr. Biden’s son Hunter “opened a bank account” with a Chinese businessman, part of what it said were his numerous connections to “foreign nationals and foreign governments across the globe.”

But Mr. Trump’s own business history is filled with overseas financial deals, and some have involved the Chinese state. He spent a decade unsuccessfully pursuing projects in China, operating an office there during his first run for president and forging a partnership with a major government-controlled company.

And it turns out that China is one of only three foreign nations — the others are Britain and Ireland — where Mr. Trump maintains a bank account, according to an analysis of the president’s tax records, which were obtained by The New York Times. The foreign accounts do not show up on Mr. Trump’s public financial disclosures, where he must list personal assets, because they are held under corporate names. The identities of the financial institutions are not clear.

The Chinese account is controlled by Trump International Hotels Management L.L.C., which the tax records show paid $188,561 in taxes in China while pursuing licensing deals there from 2013 to 2015.

The tax records do not include details on how much money may have passed through the overseas accounts, though the Internal Revenue Service does require filers to report the portion of their income derived from other countries. The British and Irish accounts are held by companies that operate Mr. Trump’s golf courses in Scotland and Ireland, which regularly report millions of dollars in revenue from those countries. Trump International Hotels Management reported just a few thousand dollars from China.

In response to questions from The Times, Alan Garten, a lawyer for the Trump Organization, said the company had “opened an account with a Chinese bank having offices in the United States in order to pay the local taxes” associated with efforts to do business there. He said the company had opened the account after establishing an office in China “to explore the potential for hotel deals in Asia.”

“No deals, transactions or other business activities ever materialized and, since 2015, the office has remained inactive,” Mr. Garten said. “Though the bank account remains open, it has never been used for any other purpose.”

Mr. Garten would not identify the bank in China where the account is held. Until last year, China’s biggest state-controlled bank rented three floors in Trump Tower, a lucrative lease that drew accusations of a conflict of interest for the president.

China continues to be an issue in the 2020 presidential campaign, from the president’s trade war to his barbs over the origin of the coronavirus pandemic. His campaign has tried to portray Mr. Biden as a “puppet” of China who, as vice president, misread the dangers posed by its growing power. Mr. Trump has also sought to tar his opponent with overblown or unsubstantiated assertions about Hunter Biden’s business dealings there while his father was in office.

“He’s like a vacuum cleaner — he follows his father around collecting,” Mr. Trump said recently, referring to Mr. Biden’s son. “What a disgrace. It’s a crime family.”

In a misleading claim amplified by surrogates like his son Donald Trump Jr. and his lawyer Rudolph W. Giuliani, the president has said the younger Mr. Biden “walked out of China” with $1.5 billion after accompanying his father on an official trip in 2013. Numerous news articles and fact-checking sites have explained that the huge figure was actually a fund-raising goal set by an investment firm in which Hunter Biden obtained a 10 percent stake after his father left office. The firm did receive financial backing from a large state-controlled bank, but it is not clear the fund-raising target was ever met, and there is no evidence Hunter Biden received a large personal payout.

As for the former vice president, his public financial disclosures, along with the income tax returns he voluntarily released, show no income or business dealings of his own in China. However, there is ample evidence of Mr. Trump’s efforts to join the myriad American firms that have long done business there — and the tax records for him and his companies that were obtained by The Times offer new details about them.

As with Russia, where he explored hotel and tower projects in Moscow without success, Mr. Trump has long sought a licensing deal in China. His efforts go at least as far back as 2006, when he filed trademark applications in Hong Kong and the mainland. Many Chinese government approvals came after he became president. (The president’s daughter Ivanka Trump also won Chinese trademark approvals for her personal business after she joined the White House staff.)

In 2008, Mr. Trump pursued an office tower project in Guangzhou that never got off the ground. But his efforts accelerated in 2012 with the opening of a Shanghai office, and tax records show that one of Mr. Trump’s China-related companies, THC China Development L.L.C., claimed $84,000 in deductions that year for travel costs, legal fees and office expenses.

After effectively planting his flag there, Mr. Trump found a partner in the State Grid Corporation, one of the nation’s largest government-controlled enterprises. Agence France-Presse reported in 2016 that the partnership would have involved licensing and managing a development in Beijing. Mr. Trump was reportedly still pursuing the deal months into his first presidential campaign, but it was abandoned after State Grid became ensnared in a corruption investigation by Chinese authorities.

It is difficult to determine from the tax records precisely how much money Mr. Trump has spent trying to land business in China. The records show that he has invested at least $192,000 in five small companies created specifically to pursue projects there over the years. Those companies claimed at least $97,400 in business expenses since 2010, including some minor payments for taxes and accounting fees as recently as 2018.

But Mr. Trump’s plans in China have been largely driven by a different company, Trump International Hotels Management — the one with a Chinese bank account.

The company has direct ownership of THC China Development, but is also involved in management of other Trump-branded properties around the world, and it is not possible to discern from its tax records how much of its financial activity is China-related. It normally reports a few million dollars in annual income and deductible expenses.

In 2017, the company reported an unusually large spike in revenue — some $17.5 million, more than the previous five years’ combined. It was accompanied by a $15.1 million withdrawal by Mr. Trump from the company’s capital account.

On the president’s public financial disclosures for that year, he reported the large revenue figure, and described it only as “management fees and other contract payments.” One significant event for the company that is known to have occurred in 2017 was the buyout of its management contract for the SoHo hotel in New York, which Bloomberg reported to have cost around $6 million.

Mr. Garten would not comment on the specific amount cited by Bloomberg, but said that the contract buyout represented a “significant portion” of the company’s revenue and that the remaining money was not related to China.

Outside of China, Mr. Trump has had more success attracting wealthy Chinese buyers for his properties in other countries. His hotels and towers in Las Vegas and Vancouver, British Columbia — locales known for attracting Chinese real estate investors — have found numerous Chinese purchasers, and in at least one instance drew the attention of the Federal Bureau of Investigation.

During the 2016 campaign, a shell company controlled by a Chinese couple from Vancouver bought 11 units, for $3.1 million, in the Las Vegas tower Mr. Trump co-owns with the casino magnate Phil Ruffin. The owner of a Las Vegas-based financial services firm told The Times he was later visited by two F.B.I. agents asking about the company behind the purchases, which he said had used his office address in incorporation papers without his knowledge. It is not known what became of the inquiry.

Mr. Garten said the Trump Organization had “never been contacted by the F.B.I. and has no knowledge of any investigation.”

In Vancouver, numerous Chinese buyers of units in Mr. Trump’s hotel and tower helped increase licensing fees from that project to $5.8 million in 2016, the year it was completed, according to tax records. The project was built by a Canadian-based firm controlled by the family of Malaysia’s richest man, Tony Tiah Thee Kian, who operates hotels in China and elsewhere. CNN reported in 2018 that the Vancouver operation was the subject of a counterintelligence review related to Ivanka Trump’s need for a security clearance.

And not long after winning the 2016 election, Mr. Trump reported selling a penthouse in one of his Manhattan buildings for $15.8 million to a Chinese-American businesswoman named Xiao Yan Chen, who bought the unit, previously occupied by Ivanka Trump and her husband, Jared Kushner, in an off-market transaction. Ms. Chen runs an international consulting firm and reportedly has high-level connections to government and political elites in China.

Mr. Trump’s tax records show that he reported a capital gain of at least $5.6 million from the penthouse sale in 2017, his first year as president.

Jo Becker contributed reporting.

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Business survey to help assess future community needs

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Business owners are asked to complete one more survey to help determine how they are are recouping six months into a pandemic.

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The Algoma Workforce Investment Corp. wants to continue to assess the ongoing impacts of COVID-19 on local businesses.

Earlier this month, in partnership with the City of Sault Ste. Marie, it launched a third survey to ask businesses about their current status, what programs they are utilizing and what they need to succeed.

The uptake has been much slower than the previous two surveys, said Jonathan Coulman, executive director of AWIC.

“Certainly we’ve had a slower response than the first two survey’s and part of that speaks for itself,” Coulman said.

To date, across Sault Ste. Marie and Algoma only about 130 responses have been received. That’s well below the first survey which garnered more than 500 responses or the second which saw more than 200 responses.

He says the slower response could be as a result of a number of things.

“Some businesses may not feel they have a lot of new information to share and in other cases employers are doing what they can and completing another survey may be burdensome,” he said.

There’s also the issue of survey fatigue and the fact that business owners just can’t predict the future of their business right now.

“No one has a crystal ball and the reality is they can plan for now but they can’t plan too far ahead into the future,” Coulman said.

Tom Vair, city deputy CAO of community development and enterprise services, said the city is continuing to work with businesses to help them qualify and apply for new programs that have recently been made available.

Data from a community wide survey will also help the city determine which sectors continue to be the hardest hit or are not rebounding at the same rate.

“It really helps us identify the supports that are needed and helps us determine what we can do to help,” Vair said.

The online survey now underway is a follow-up survey designed to get updated information about business needs. The information will be used to lobby all levels of government to aid in post pandemic recovery.

Greater survey participation number will provide better quality information to analyze and assess and allow AWIC to provide better data and breakdown that data by sector, Coulman said.

“Small numbers don’t provide good data to break down by either sector or size of business. Bigger is always better and it gives us a much clearer picture of what is going on in our community and the communities around us,” he said.

Putting together a clear picture helps government better understand what programs are required, or which of the existing programs are working, he said.

Vair said his staff has been continuing to have one-on-one dialogues with local businesses and assisting where needed.

“I urge businesses to examine the new NOHFC programs. Many of them are retroactive so we can go back to March to capture some of those expenses incurred as a result of COVID,” Vair said.

He anticipates the restaurant industry is undergoing another phase of change as the weather cools down and patios will soon be shut down.

The city has extended patio licences until Oct. 30 and is working with several restaurant owners individually that will be impacted by the shut down.

“Several are looking at pick up and take out options to help them through the critical times,” he said.

The survey will remain open until Oct. 31 and business owners are urged to take 10 minutes to complete it.

“Good data really helps us better understand what is going on in our community,” Coulman said. “Everyone is in touch with what employers are going through but this is a direct way to have employers have their voices heard.”

Businesses have been asked to participate in two earlier surveys throughout the COVID crisis.

The last poll concluded that 70 per cent of the 145 respondents continued to consider their business to be at high or medium risk as a result of the coronavirus. The first survey was completed by 622 businesses.

High impact is classified as a risk of closure and medium impact is defined as having a significant financial impact. The survey showed a 40 per cent reduction in the overall workforce with certain sectors being hit harder than others.

The first survey also showed that the impact of the pandemic locally was similar to that of both provincial and national results.

The data did indicate that business owners were relying on various relief programs offered by the government.

The most recent survey for employers in Sault Ste. Marie, East Algoma and Superior East can be found at https://awic.ca/covid-19-surveys .

Information will assess how the situation has evolved since the beginning of the pandemic and how businesses are experiencing the additional challenges and changes as emergency measures are being lifted.

It also seeks information on program funding received and how the money was used and what needs are anticipated in the future.

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Thunder Bay mall headed for demolition

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Thunder Bay’s south end is in for a transformation.

City councillors voted unanimously to demolish the Victoriaville Centre and reopen Victoria Avenue, Oct. 19.

The indoor mall has run deficits since it opened in 1980, with annual operating losses projected to top $800,000 by 2025.

That means demolition and redevelopment with an estimated $10.75 million price tag.

“Victoriaville Centre has struggled since it opened and has consistently run an operating deficit,” noted a report from consultants Urban Systems.

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“The centre has multiple vacancies and many retail spaces have been converted to quasi-public uses, such as government office uses or health and social service uses.”

The full demolition option was recommended unanimously by Urban Systems’ project team over three others considered for the facility’s future.

Those included a partial demolition that would leave a renovated section of the mall along Syndicate Avenue, repurposing the centre for non-commercial community uses, or attempting to revitalize it as a retail space.

All were found to be significantly more expensive than full demolition, which scored highest on 8 of 10 evaluation criteria.

A survey completed by over 1,200 residents showed strong support for the move: 88 per cent of respondents felt Victoriaville failed to provide good value for money, while 81 per cent agreed the cost to demolish it and reopen Victoria Avenue was justified, based on a ten-year payback period.

The option endorsed by council Monday includes plans to redesign Victoria Avenue with street trees, benches, decorative lighting, and on-street water treatment.

It will also add a new public plaza on the Syndicate Avenue right-of-way south of Victoria Avenue, and revamp the existing public square north of Victoria.

The city hopes that will attract more residents to the area for events like concerts and “unique retail experiences” that could include a vendors’ market.

Demolition isn’t expected to begin until 2022.

The process will consist of an “almost piece by piece” deconstruction, city staff have said.

Redevelopment of the site is expected to take place between 2022 and 2024.

The matter will come back before council as plans are honed and tenders developed for the project. That process will also include public consultation, according to the Urban Systems report.

A separate motion passed could see the redevelopment process guided in part by a new south core renewal committee.

Coun. Andrew Foulds said while the decision to demolish Victoriaville was the right one from a planning perspective, it could negatively impact vulnerable people in the downtown if it isn’t accompanied by other actions from the city.

“What happens to the people who virtually have nothing and use Victoriaville as a place of recreation, as a place of reprieve?” he asked Monday. 

The demolition plan scored lower than other options on issues of equity and liveability, when evaluated by Urban Systems.

Foulds hoped the renewal committee would include the voices of south end social service agencies as well as businesses, to ensure those needs were met.

– TBNewsWatch.com

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