February 2010

Strategy exams and Toyota. Is it a barrier?

Published on: 26 Feb 2010

Toyota has been in the news for all the wrong reasons recently. The company has faced strong criticism following reports of unintended acceleration and braking problems. These problems have been linked to a number of deaths. The end result is that millions of Toyota vehicles have been recalled for remedial work.

Akio Toyoda, the boss of Toyota and the grandson of the founder of Toyota, gave evidence yesterday to the House of Representatives Oversight and Government Reform Committee in the States. Whilst this is a very serious problem for Toyota in terms of the damage to its reputation there was a comment made by US congressman John Mica which reminds us of another interesting topic of discussion for ACCA P3 strategy students involving Toyota.

Mica said: “This is an embarrassing day for Toyota and for the thousands of hard-working Americans who work in Toyota plants across the US.”

Whilst Toyota is a Japanese company it can also be considered to be a truly global company. In America alone for example there are over 33,000 direct Toyota employees.

There are numerous reasons why a company may open up manufacturing operations in another country. Access to technology skills, cheaper labour and being closer to its end market are a few examples. For car manufacturers though there is a big incentive for manufacturing in certain countries. Namely, in doing so they remove a potential barrier to entry involving duties on imported vehicles.

In some countries there are excessive duties on imported cars. By manufacturing within the country the cars are built locally and therefore are not imported and hence there is no import duty. This nicely removes a barrier to entry. Of course there are other potential barriers to entry but these will be discussed in future blogs.

Anyway, back to Toyota. They are indeed a global company with recent Toyota figures showing that there are 53 Toyota manufacturing companies outside of Japan in 27 countries.

It’s ACCA exam results time so there will be…

Published on: 22 Feb 2010

It’s ACCA exam results time so there will be some nervous people waiting for an email or the post to arrive. Best of luck to all of you that are waiting for the results.

I’m probably showing my age but when I qualified a fair few years ago the results of the exams were published in the Times newspaper on the Saturday morning when the results were due to arrive by post. The early editions of the newspapers would be available the night before in London so if you lived in London you could get your results on the Friday night before the results were in the paper on the Saturday.

At that time I wasn’t living in London but the Big 4 company I worked for organized some people to pick up some papers in the evening and staff a phone help line where students could call to see if their name was in the paper. After calling and finding out that I had passed I couldn’t resist the temptation to call 10 minutes later to double check!

Before you laugh at me for calling twice, for those of you that will be getting good news in an email then I’m sure that you’ll check the email more than once!

If you’re keen on getting started on your next papers then head over to our ExPand pages and download a copy of our ExPress notes to get you started. We’re releasing some great new free learning resources on our ExPand site next month so keep watching for some really exciting developments.

Perpetual bonds, the mexican restaurant and two crazy people?

Published on: 19 Feb 2010

I had a lovely dinner last night at a nice Mexican restaurant with a good friend who is also an accountant. We’ve known each other for years and unfortunately always have a habit of talking about finance and business together. This is fine when we are by ourselves but if our “other halves” are with us then it can get a bit boring for them.

Last night we were determined not to keep on talking about finance and all was going well until some nice tortillas arrived. Within a couple of minutes the talk had switched to perpetual bonds.

Were we crazy or was it a logical step to go from tortillas arriving to perpetual bonds?

Well, in our defense the logic behind the switch was that Gruma, Mexico’s leading tortilla maker issued some perpetual bonds a few years ago. Some students have to think hard about whether a bond without a maturity (redemption) date has a (market) value. To remove any doubt, Gruma issued USD 300 million worth of perpetual bonds.

The appetite for perpetuals is starting to spread to Asia, especially among investors in search of high-yield investments.  Last year for example, the Union Bank of India (UBI) announced an issuance of such an instrument.

Back to my point of whether we were crazy or it was a logical step to go from tortillas to perpetual bonds. At the table last night two of us thought it was logical whilst the other two thought we were crazy…

Avoiding or Evading? Do the tax authorities care…

Published on: 12 Feb 2010

Taxation and football have been in the news this week in the UK.

First of all we had winding up orders threatened on Southend, Cardiff City and the Premier League team Portsmouth on Wednesday. If a winding up order happens the clubs as corporate entities will be liquidated. In simple terms this means that the football clubs cease to exist.

The courts have allowed all of them a “stay of execution” but it’s not a great deal of time. Portsmouth, for example has to prepare a “statement of affairs” by 4pm next Wednesday.

The reason for the winding up order on Portsmouth is that HMRC (the UK tax authorities) took them to court over an unpaid tax bill of over £7 million. Whilst there are lots of emotional and community issues behind winding up a football club, HMRC take the view that it is simply another business that despite repeated requests has not settled its debt.

Another tax / football story in the press this week was yesterday when Harry Redknapp, the Tottenham Hotspur manager, was charged with tax evasion. He allegedly evaded tax on a payment made to him in Monaco. The case was adjourned to April.

This leads to a point which students often get confused about. Namely, the difference between “tax evasion” and “tax avoidance”.

“Tax evasion” involves methods of illegally reducing tax liabilities. “Tax avoidance” however is legitimately minimizing tax liabilities. It should be noted though that “tax avoidance” doesn’t sound particularly legitimate (even though it is) so a number of advisers are now referring to “tax avoidance” as “tax mitigation”!

All of this could be of little interest to the supporters of Portsmouth though if they are wound up next Wednesday. We shall wait and see.

Singing, dancing, puppets and Enron. Of course it makes sense…

Published on: 08 Feb 2010

I had a great weekend and on Saturday was lucky enough to see the play Enron at the Noel Coward theatre.

Enron is arguably the best known corporate bankruptcy in recent years. The US energy and communications giant collapsed in 2001 owing approximately $60 billion. The collapse of Enron is well documented.  Jeffery Skilling, the CEO of Enron, was keen on mark-to-mark accounting systems which allowed notional value to be given to ideas which might pay off in the future. Billion dollar losses were disguised as profits. Skilling was sentenced to 24 years in jail for fraud and Kenneth Lay, Enron’s founder, died before sentencing.

Enron was also a major factor behind the introduction of the Sarbanes-Oxley Act and also the collapse if its auditor Arthur Anderson resulting in the “Big 5” becoming the “Big 4”.

Whilst on the face of it a play about accounting fraud at a US corporation doesn’t sound the most exciting thing to watch it really was very well put together. Theatre, dancing, singing and puppets all added to the drama!

The play was great and if you do get an opportunity to see it I’d strongly recommend that you do so.

My husband is in the medical profession and he is always joking that accounting and finance is easy. Unfortunately the play was so good at explaining complex financial issues in a relatively straightforward way that he is now even more convinced that finance concepts are easy to understand!

John Terry and John Adair – what’s the link?

Published on: 05 Feb 2010

Some of you may have been following the press reports this week on the alleged extra-marital affair that John Terry, the current England football captain, had with Vanessa Perroncel the ex-girlfriend of his England football team-mate Wayne Bridge. Terry is due to meet with the England football manager Fabio Capello later on today and will no doubt find out whether he will still be the England captain.

Now whilst this raises some interesting discussion points about whether he should still lead the England team some of you may well be linking this story to various leadership theories! One of the most well known theories is John Adair’s action centred leadership theory.

As a quick reminder of this theory remember that Adair argued that there are 3 core leadership responsibilities of achieving the task, managing the team and managing the individual. The fundamental principle behind this theory was that the leader should adopt each element to the particular situation. On some occasions for example the focus should be more on the team whilst on other occasions the focus would move towards one of the other responsibilities.

If Terry did in fact have an affair then I’ll leave it up to you to decide which part of Adair’s model he was concentrating on at that stage…

The ExP Group