Thursday, October 20, 2011

Going once, going twice...: Brothers to auction mansions


Two Golden Beach brothers are poised to voluntarily auction off their posh homes, hoping to rewrite the rules of how properties are sold in South Florida.

Cardiologists and brothers, Steven and Robert Fox moved to South Florida from Philadelphia to set up practice, and in 1990, they bought matching homes in Golden Beach, the exclusive oceanfront enclave.
Now retired and empty-nesters, it’s time to sell. Like most everything else, they’re doing it together.
But there’s a twist.
Instead of brokering traditional sales through a real estate agent, the Foxes have decided to auction off their multi-million dollar mansions to the highest bidder — a practice usually reserved for properties that have been foreclosed or seized.
But these sand-dune palaces are not in distress. Rather, Steve and Bobby Fox simply tired of waiting after their homes languished on the market for years, and decided to force the issue.
And so, on Nov. 10, the bargain-hunting ultra-rich can gather in Steve’s Ocean Boulevard estate home for what could be the most lucrative voluntary property auction in South Florida history.
“In these economic times, everybody is counting their money; everybody has less,” said Steve Fox, 64. “But we felt the best way to get the most flies on the wall is an absolute auction.”
Lamar Fisher, whose Pompano Beach-based company is handling the auction and will rake in a 10 percent premium — payable by the buyers — said more than 100 deep-pocketed prospectors from at least seven countries have expressed interest. Fisher expects roughly 20 registered bidders to participate in the auction, which will be conducted both in person and online.
They’ll need to make serious commitment just to get in the door. A refundable deposit of $500,000 is required merely for the right to bid on one of the houses. Those interested in both homes will need to deposit $1 million.
The winning bidder’s deposit will then be applied to the 10 percent cash down payment required to buy the home. From there, things move quickly. Closing is within 30 days — a relief to the Fox brothers and their wives.
“I’m ready to downsize,” said Helene Fox, married to Bobby. “It’s been 21 years, we’ve raised our children, but we’re ready for a simpler existence.”
But with speed comes risk.
When listed traditionally, both four-bedroom, 6,000-square foot homes had asking prices that topped $11 million. That assured Steve and Bobby the right to brush off unacceptable asking prices.
But on auction day, they have no choice but to accept the winning bid, no matter how low.
“In the last five years, the high-end market is down, but not as much as the rest of the market,” said Fisher, perched in Steve’s living room Wednesday. “The wealthiest are still willing to spend.
“There’s no more of that left,” Fisher added, pointing over his shoulder to the swelling Atlantic Ocean. “Can’t build any more of that.”
Steve and Bobby, 58, are poised to turn an enviable profit, even if their homes go for half their original asking price. Steve bought his home, a one-story with pool, private beach, wide open layout, graceful palm trees and attractive courtyard, for $1.6 million, and even with the real estate crash, the county estimates its market value is still $8.4 million.
Bobby’s two-story house has a fountain, hand-painted tiles in every bathroom and Pecky cypress ceilings, in addition to the requisite pool and private beach.
While popular overseas, non-bank auctions are rare in the United States, usually occurring in areas where property sales are not strong, said Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors.
Shuffield believes a properly priced home — regardless of its opulence — can always be sold in the traditional method.
“An auction creates a lot of excitement, but also the expectation you’ll buy something at a low price,” he said. “My experience has been that [auction homes] sell for less, but the counter side to that is they sell it very quickly. They’re going to know that they’ve sold it. For some people, that outweighs what they’re losing.”
The Fox Brothers believe they can have a sale that’s both quick and fair. Certainly, Fisher hopes so.
“We’re going to get the best possible prices for our homes,” Bobby Fox said. “We’ve advertised internationally. We’ve extensively marketed. Whoever’s interested is going to show.”

Rolls-Royce Powers Ahead in High-Wage Countries

Everything has a cycle Aivars Lode
ALESUND, Norway—While many American and European manufacturers transplanted production to low-wage countries in Asia and Latin America in recent years, British industrial giant Rolls-Royce PLC has taken a contrarian course. It gravitates to high-wage hot spots.
When it comes to shipbuilding, cutting edge engineering and high wages have helped Rolls Royce stay ahead of the competition. WSJ's Daniel Michaels reports from Ulsteinvik, Norway.
The turbine producer has factories in England, the U.S. and Germany, where it recently bought into an engine maker for more than $2 billion. In Asia, Rolls focuses on Singapore, where salaries dwarf those around the region. But few places can rival the operating costs around Alesund, a coastal town nestled amid fjords and fisheries.
Here, a can of soda costs about $4, an ordinary pair of jeans sells for $150 and hourly wages are roughly 75% higher than the European Union average. Yet Rolls runs a profitable marine operation, relying on a mix of science, local savvy and an expensive staff who can harness both. Thanks to similarly strong results across its jet-engine and energy divisions, Rolls is cranking production up higher than it ever has. Over the past five years, Rolls's revenue has jumped 55%. In the first half of this year, it posted a net profit of £842 million ($1.3 billion), compared with a £331 million loss a year earlier because of currency fluctuations.
Agence France-Presse/Getty Images
A technician tests an engine at a new Rolls-Royce facility in Germany.
Its ability to defend its turf in the brutally competitive international shipbuilding sector offers lessons in how manufacturers from developed "post-industrial" economies can counter the rise of new economic powers such as China. While Rolls has thrived by targeting niche markets, maintaining elite manufacturing jobs in high-cost countries has broader implications for battered Western economies.
Rolls is betting that its brains can match the brawn of lower-cost competitors. But the engine maker's aggressive expansion faces a growing threat. It is struggling to secure enough highly skilled employees. Even paying lavishly, Rolls battles for talent against employers ranging from banks to software companies, many of which pay even better. And in many developed countries, it also faces a shrinking pool of science, engineering and math students pursuing technical careers. In Alesund, Rolls has been forced to offer perks like free sailing lessons to retain workers plus relocate staffers from other countries to fill technical positions.
Those forces could undermine Rolls's ability to keep jobs close to home. Of more than 6,000 recent applicants at its nuclear-power division in the U.S. and Britain, for example, less than 10% had appropriate backgrounds to merit even an interview, officials say. "The skills we need to build our business just aren't there in the breadth and depth we need," said Ken Fulton, human resource director for Rolls's nuclear unit.
Bloomberg News
Rolls-Royce CEO John Rishton
In response, Rolls is training hundreds of apprentices annually and has partnered with 28 universities world-wide. It is also opening far-flung facilities, such as a new factory in Singapore, where Rolls for years has maintained jet engines.
Executives say the Singapore assembly plant will meet booming Asian demand, link into a new network of local suppliers and tap a highly educated work force. But the billion-dollar investment, slated to open soon, is also a big leap. It marks the first time Rolls will produce outside the U.K. one of its most prized technologies: titanium jet-engine fan blades. The components must be manufactured to tolerances smaller than a human hair, using advanced processes not yet found in the former British colony. To support Rolls, Singapore's government is helping train 500 new hires.
Developing skills while containing cost "is walking a tightrope," said Chief Executive John Rishton in a recent interview. "We wrestle with those issues all the time."
The talent shortage is hitting Rolls just as its peers are expanding aggressively into low-wage countries. French aerospace group Safran SA runs subsidiaries in Morocco and Latin America. European Aeronautics Defence & Space Co. is building Airbus jetliners in China.
General Electric Co., Rolls's biggest competitor, will soon open a major research center in Brazil to complement labs in China and India. GE's aerospace division in 2009 established an electronics joint venture with a Chinese state-owned aviation enterprise, AVIC, and GE secured a major role in China's first large jetliner program. "We want to be a participant in China, not just sell products there," says GE Aviation spokesman Rick Kennedy.
Rolls, in contrast, has shifted little high-value work to emerging markets. Instead, it is among a handful of companies, including Whirlpool Corp. and Caterpillar Inc., that are bringing home or keeping valuable jobs in Western countries. Most of these producers emphasize know-how and manufacturing efficiency over labor cost. That goes even for mass-market products such as plastic coolers, which Coleman Co. now makes in Kansas rather than in China, says Harold Sirkin, a partner at Boston Consulting Group. He recently published a report predicting an American manufacturing resurgence over coming years thanks to such companies, and sees similar potential in Britain.
Manufacturing at home avoids a growing problem for major corporations in China and other developing markets: protection of intellectual property. Top executives from companies including GE, Microsoft Corp., Kawasaki Heavy Industries Ltd. of Japan and BASF SE and Siemens AG of Germany have criticized China for failing to safeguard foreign companies' proprietary information, costing them billions of dollars. The American Chamber of Commerce in China recently found that 85% of its members rate China's enforcement of intellectual property rights ineffective.
Rolls-Royce officials decline to publicly discuss their views on China's protection of intellectual property, saying only that they focus on countries that foster investment. "If you want to do complicated, high-value engineering, you've got to have a good supply of skilled people and support from governments," said Mr. Rishton.
That support is vital because China and India are educating armies of engineers to help home-grown industrial firms boost the value of their products. Christian Murck, president of the American Chamber of Commerce in China, predicts Chinese engineers "will come up the curve faster than people anticipate."
As these future competitors advance, Rolls faces huge downside if its productivity or workmanship slip. That risk hit home last Nov. 4, when a Rolls-Royce engine on an Airbus A380 jetliner blew apart departing Singapore. The Qantas Airways superjumbo, with 466 people on board, landed safely. Investigators later blamed a minute manufacturing defect. A Rolls-Royce spokesman said "lessons have been learned" and noted that such an incident last occurred on one of its engines in 1994. Rolls said the incident cost it £56 million.
To sharpen its competitive edge, Rolls is boosting both the efficiency of its factories and the value of its products. In Norway, for example, Rolls's marine division is targeting big-money opportunities in the global offshore petroleum industry, which needs increasingly advanced equipment to help find and extract oil trapped far undersea.
Last year, Rolls completed the $350 million acquisition of ODIM ASA, a Norwegian firm that makes complex gear for subsea surveys and other grueling deep-ocean work. One of its systems, dragged by a specially designed ship, is a 400-ton grid of seismic probes that can spread to the size of 800 football fields. ODIM's rigs complement Rolls's engines, allowing the company to offer a range of pricey equipment that it fits into ship hulls bought from other producers.
Even propellers are getting re-engineered to boost power and cut drag. At a Rolls factory on the remote Norwegian island of Hareidlandet, workers program computer-controlled machine tools to sculpt blades for thruster pods that can hold a massive ship stationary in churning waters. The systems let supply vessels pull much closer to oil rigs in rougher seas than previously possible. Ship owners pay a premium for the Norwegian gear because it reduces collisions and allows faster loading, which cuts costs.
"We aren't very good on cost per man hour, so we have to be better on technology," said Per Egil Vedlog, a design manager at Rolls's merchant ship division.
Yet demand for specialized staff who can harness such technology outstrips supply in Norway, a world shipbuilding nexus. Rolls's design unit handling offshore vessels, based in Alesund, has 20 vacancies among 150 positions, says general manager Yrjar Garshol. Mr. Vedlog in the merchant ship unit opened a new office 150 miles from Alesund just to tap a wider labor market for his 50-person team.
Norway is a world leader in advanced shipbuilding largely because operating in brutal North Sea and Arctic conditions has made its ship owners particularly demanding. But the country also levies heavy taxes that increase the cost to Rolls of each employee, while an elaborate social security system complicates hiring and firing. Norway's strong currency eats into profit margins.
Rolls responded by automating some factory work and outsourcing low-value manufacturing. It buys ship hulls, which can account for only about 40% of the value of a completed vessel, from yards in countries including China and Malaysia. Rolls also opened design offices in Croatia and China, which now draft most of its routine blueprints, while experts in Norway do custom engineering.
Demand for designers back in Alesund is so strong that Mr. Garshol in the offshore division relocated 10 Croatian staffers and their families from the sunny Adriatic coast to wintry Norway. Several Dutch transplants have struggled to adjust to rural Scandinavia. Positions remain unfilled.
"Very often now, people are saying they can't handle the pressure" from extra work, said Mr. Garshol. To address the problem, he rotates project managers into less intense positions and offers perks including free weekend cottages for staffers and their families.
Rolls's situation is similar in the U.K. Roughly 25% of companies seeking experienced engineers or technical staff in Britain struggle to fill vacancies, according to a survey by the Institution of Engineering and Technology, a professional society. Many potential hires are going into finance. Starting salaries for investment bankers and fund managers last year were roughly 50% higher than at engineering and industrial companies, according to Britain's Association of Graduate Recruiters.
Preserving even a limited amount of high-end manufacturing in advanced economies can help stem a vicious cycle of industrial exodus that plagues parts of the U.S. and U.K. Each specialized marine or aerospace manufacturing job creates around three more jobs nearby at suppliers, maintenance operations and in services such as design or finance, according to studies.
Until the recent economic crisis, many advanced economies had looked to service industries, such as finance and information technology, as substitutes for vanishing manufacturing employment. But the spillover job creation from such services is "effectively trivial," says John Bryson, a professor of enterprise and economic geography at the University of Birmingham in England.
Rolls's aero-engine business, for example, has kept a network of suppliers in the English industrial city of Derby, where Charles Rolls and Henry Royce's original Silver Ghost motor car began production in 1908.
Within a few years, Rolls-Royce was also making engines for airplanes and boats. Even as the company's Bentley and Rolls-Royce luxury car brands grew, it remained at heart an engine—and engineering—company.
Auto production was later spun off and Rolls-Royce now licenses its brands to car makers. Rolls itself focused on using the basic turbo-jet design, in which a gas-fueled inferno spins a turbine, and developed similar systems for generating electricity and powering ships.
In 1999, Rolls significantly expanded its marine division with the acquisition of British industrial group Vickers PLC, which had big operations across Scandinavia. The deal also brought Rolls's marine division to Singapore, where its jet-engine business was growing quickly. A decade later, Rolls moved its global marine headquarters to the city-state to better tap booming maritime demand across Asia. But the division's industrial base remained in Norway.
Today, Mr. Garshol in Rolls's offshore unit says staffing shortages have forced him to decline contracts worth tens of millions of dollars and occasionally tell customers a project is weeks late. "It's very hard to explain to customers in parts of the world with unemployment," he says.
Write to Daniel Michaels at

Tuesday, October 18, 2011

Public anger and shareholder unease threaten tax havens’ tranquillity

Tax havens

Trouble island

As we saw happen in Aussie over a decade ago

UNDER intense international pressure to lift banking secrecy, the first and biggest of the world’s “tax havens”—places that charge low or no taxes to foreigners—is ceding some ground. In a deal signed on October 6th, Switzerland agreed to tax money held in its banks by British residents (it had already done a similar deal with Germany). These customers face a levy of up to 34% as well as, from 2013, a withholding tax.
That could bring the British treasury around £5 billion ($7.8 billion). But Nicholas Shaxson, author of “Treasure Islands”, a book on offshore finance (and a former contributor to this paper), calls it a “Swiss tax swizz”: the country will in effect pay a fat fee to avoid revealing clients’ names. That undermines efforts at the Organisation for Economic Co-operation and Development, a Paris-based club of mostly rich countries, to set international standards on tax evasion.
The fact that Switzerland did a deal at all reflects a changing climate for offshore finance, which has flourished for 50 years. Its defenders still have strong arguments to muster. The most controversial is the Swiss stance, which sees tax as a morally neutral battle of wits against the fiscal authorities: quite different from money-laundering or fraud. From that viewpoint, banking secrecy is a human right and states that try to overturn it are overreaching their powers.
Other less idealistic arguments abound. Some say that companies’ legal duty to shareholders necessitates using offshore finance to reduce and simplify taxes; it is all the more important when regimes and rates differ wildly in the onshore world. Offshore jurisdictions also provide the tax and regulatory competition that keeps grasping governments and officials in check. Even if a company’s profits are higher as a result of using a tax haven, that money will flow out and eventually be taxed, for example as dividends when it reaches shareholders. Offshore financial centres compete by being well run and regulated—with tougher standards (for example on knowing your customer) than some supposedly respectable countries. Rather than cracking down offshore, the need is for simpler, clearer tax regimes onshore, where companies do their real business.
Cold arguments for sunny places
As public faith in the universal benefits of markets and globalisation wobbles, and public coffers empty, such arguments pall. Small firms are angry that clever offshore schemes favour their bigger competitors. Citizens and policymakers are readier to hear a broader case: that offshore finance skews the global distribution of wealth, away from poor countries and those that levy taxes to pay for public goods (including the ones that benefit companies).
Global Financial Integrity, a campaigning group, says poor countries “lose” more than $1 trillion a year to tax havens, around ten times the aid they receive. Two-thirds of this is tax evasion and avoidance, the group says, the rest transfers by criminals and the corrupt. Another outfit of fiscal inquisitors, the Tax Justice Network (TJN), cites research by the Bank for International Settlements, the Boston Consulting Group and McKinsey to calculate that global offshore deposits amount to at least $9 trillion, some $2 trillion more than the total held at home by American banks. ActionAid, a charity, published research this week showing that the companies in the FTSE 100 index had 8,492 offshore subsidiaries.
Legal and rational though this activity may be, the results of the offshore boom can be startling. Mauritius is the largest investor in India, the British Virgin Islands one of the biggest in China. Practical worries are growing too. As blasé attitudes to financial stability give way to concern, tax havens make it harder to gain a true picture of where debt and risk lie, for example in hedge funds trading exotic derivatives. Enron’s finances were obscured by its habit of hiding debt in its hundreds of subsidiaries in the Caribbean.
Tax havens make easy money from registering companies and processing payments—in effect, earning a rent from their sovereign status. Most would otherwise be merely indifferent tourist destinations. But putting pressure on a handful only pushes business elsewhere—from the Channel Islands and Switzerland, say, to Mauritius and Singapore. Rules so far have slowed, not reversed, a race to the bottom.

One avenue for reform is to place a greater duty on companies to explain what profits they make where. That would help prevent the worst abuses of transfer pricing scams, in which tax havens play a handy role. The muddled Dodd-Frank reforms, passed by Congress in America and now being implemented by regulators, supposedly go some way towards this; so does legislation being drafted in the EU.
Campaigners also want to see more countries agree to the automatic exchange of tax information on non-residents. Bilateral tax treaties normally require such exchanges only on request. This works if the government seeking information knows precisely what it is looking for and if the host government can obtain it. As this issue has moved up policymakers’ agendas, some havens have voluntarily become more co-operative. The Isle of Man, for instance, now automatically swaps information (though Jersey refuses to follow suit for fear of losing “competitive advantage”).
Overall, however, resistance to change remains strong, not least in big Western financial centres such as Wall Street and in the City of London, which see the flexibility offered by tax havens as an essential part of their business model. Public discontent may be filling the campaigners’ sails, but political support for reforms is still patchy. France, which holds the presidency of the Group of 20 (a club of the world’s biggest economies) wants to discuss tax havens at next month’s meeting in Cannes. But other countries are less keen, and more urgent items crowd the agenda.
Perhaps the most potent pressure comes from inside the system. Company shareholders, especially ethically minded pension funds, are increasingly asking about the risks (both reputational and other) of using tax havens. Britain’s Barclays bank was publicly embarrassed in January when a British lawmaker quizzing its boss, Bob Diamond, asked him how many subsidiaries it had in the Isle of Man, Jersey and the Caymans. He didn’t know: the answer was 249. Another risk is the effects of a crackdown in home countries. Investors are “starting to calculate how it might affect equity valuations,” says one consultant. Returns, not ranting, may be the tax havens’ biggest woe.

China Could Face 2012 Trade Deficit That Threatens Social Stability And 70% Of Jobs

10/18/2011 @ 4:07PM |1,418 views

Do you think that will stop growth in Australia and Canada who's economies have boomed on a commodity boom supplying China?

China’s third quarter GDP numbers, with growth falling to 9.1% year-over-year, reveal a troubled export sector under increasing cash-flow pressure.  Employing about 70% of the China’s workforce, the export sector will face their toughest years since the early ’90s as the head of China’s official research agency warned of the serious risk of a trade deficit in 2012 for the first time in two decades.
“China’s export-reliant enterprises are facing their toughest time in years. The possibility of a full-year trade deficit cannot be ruled out next year,” said Wei Jianguo, head of the China Center for International Economic Exchanges and former vice-minister of commerce, according to China Daily.