Outlook: Fresh faces for a transformed business
Wednesday 14 January 1998
Through all this ICI has managed a surprising clever evolution, first by shifting its production and marketing effort abroad, then by growing a high margin pharmaceuticals business. When it realised that pharmaceuticals is an entirely separate industry, it bravely demerged. Then last year ICI did the splits for a second time, selling off industrial chemicals and concentrating on the less lumpy, less cyclical businesses of paint and speciality chemicals.
Now it is about to change again but this time it will be management, not businesses going through the revolving door. The promotion of Charles Miller Smith to chairman next year only three years after arriving from Unilever and the recruitment of an heir apparent as chief executive in the shape of Brendan O'Neill from Guinness means that ICI will be run by a pair or outsiders for the first time since its foundation in 1926.
Although ICI's traditional strengths lie in science and technology, its future belongs as much to those who know how to market products, like Messrs Miller Smith and O'Neill. The fact that an incumbent is not being groomed for the top slots speaks volumes. Those who are passed over for the top job at ICI rarely hang around. Bill Duncan and Bob Haslam went off to run Rolls-Royce and Tate & Lyle respectively after John Harvey Jones pipped them to the chairman's job, and Robin Ibbs soon left for Lloyds Bank after coming second to Denys Henderson. Sir Ronnie may find the exodus has already started when he hands up the chairman's job next April.
Gates is trying to stifle competition
A recent survey discovered that Bill Gates has achieved role model status among children and teenagers - a position normally reserved for pop, movie and sports stars. Unfortunately, not all of what Mr Gates does deserves unqualified admiration. Like many inspired and highly successful businessmen, he is also essentially a monopolist. And like Rupert Murdoch, he is also a remarkably successful one.
Microsoft was back in the US courts yesterday arguing over whether its Internet Explorer software should be treated as a separate product from its Windows computer operating system. The arguments bear some repeating. Microsoft claims that the two are essentially one and the same thing, that its internet browser is an integral part of Windows, and that anyone who installs Windows must therefore also install Microsoft Explorer. Rival browser suppliers say Microsoft is attempting to use its near complete monopoly of the PC operating system market to dominate the quite separate and distinct market for browsers, which act as a gateway to the internet.
There has always been a powerful intellectual argument for allowing inventors an extended period of copyright over their inventions. Windows is undoubtedly Microsoft's invention, and there is no obvious reason why policy makers should yet be interfering with the company's right to profit from it. But internet browsers are not and it is plainly wrong that Mr Gates be allowed to stifle competition in a different technology in this way.
An obvious, though inexact, parallel in this country is Rupert Murdoch's TV encryption technology, which allows for the operation of subscription TV. It was Mr Murdoch's vision and commercial risk which developed the technology, but should he be allowed to use it as a barrier to entry for other pay TV operators now that digital is about to arrive? Plainly not.
Unfortunately, it is not obvious that the Microsoft problem would be solved even if the courts do succeed in forcing the company to unbundle the Windows and Explorer products. Mr Gates would still be able to cross- subsidise the browser from the monopoly profits of his operating system. An entirely different set of rules and regulations would have to be brought into play to stop him doing that.
There is nothing new about any of these issues. They are as old as the modern-day corporation. But because computer software and pay TV are comparatively recent industries with underdeveloped competition, they are cropping up in complex and unexpected ways. In this country, the new Competition Bill, with its catch-all clauses to deal with abuse of market power, goes some way to an appropriate tightening of the legislation. But until guidlines are published on what constitutes an abuse, we won't know to what extent ministers have ducked the issue.
Tricky time for inflation-busters
For all the talk of global deflation, it is often hard to remember that here in Britain we still have a comparatively high rate of the reverse - price inflation. All the same, we do seem to be moving slowly in the right direction. The latest figures show underlying inflation edging another notch back towards its target. The economy's pace of growth is slowing, and manufacturing output is showing sure signs of suffering from the strong pound. In the background, Asia's turmoil is expected both to keep the global inflation background very subdued and to prevent the Fed from raising US interest rates. All in all, the Monetary Policy Committee must be thinking that the case for not raising interest rates at next month's meeting is starting to look persuasive.
But 1998 could prove tricky for Britain's inflation-busters. The trouble is that inflation is likely to dip below its 2.5 per cent target only briefly before climbing again. The Bank of England's inflation forecast sees this starting in the autumn, although the chart conveniently ends just as the central range of its forecast hits 2.5 per cent again. Other economists reckon it could happen sooner. In fact, seven out of 31 City forecasters reckon underlying inflation will be back above target before the end of this year. Some time in 1998 there could well be an unhappy situation with growth slowing quite sharply and inflation heading higher equally smartly.
Obviously any forecast is highly vulnerable to events. What happens will depend on how quickly the economy slows, the exchange rate, how high pay settlements climb during the current round, and how much world price levels weaken. The inflation pessimists might well turn out to be wrong.
On the other hand, the Bank's own inflation forecasts have turned out to be consistently over-optimistic. What if the figures show it is still under-estimating inflation as the months go by? It is one thing to take the unpopular step of raising interest rates when you have firm evidence that growth is very robust, but what about doing so when growth is clearly slowing?
Hypothetical worries like this do not change the calculation next month. Events and figures since the last meeting suggest, so far, that the balance has tilted away from announcing another rate rise. Moreover, the policy always has to be to wait and see in the sense that it is impossible to map out the entire future profile for interest rates on the basis of what might happen to the economy meanwhile. Even so, the Bank's experts - and the wider range of members due to be appointed to the Court - need to be prepared for the worst outcome as well as the best.
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