In 1999 New Amstrad shares rose up only because the company was in the tech business, even thought they produced nothing. The stock market can sometimes be ‘stupid’ and non-representative.
The customer does not care why a product fails to work – they do not want to hear that 99.9% of it is technically ‘brilliant’. If a 0.1% fails, they will not buy the product.
When businesses are booming, premises will be rented at higher prices. Buildings in strategic locations in high streets will always maintain their value in the cycle of boom and bust. In the boom you will have the opportunity to sell at a top price, and in the bust you can buy at a bottom price (and sell later).
The success of the TV show The Apprentice did not help Alan in business – after all, he is in the electronics and real estates. While people ask for his signature and photos, the business either has a good deal to offer or it does not, irrespective of whether Alan is on TV or not.
The Apprentice boardroom scenes are edited to create tension. The actual boardroom sessions can take a couple of hours, with a lot of jokes going around. The light hearted stuff is then cut out, and we are left with only a 15 minutes of Alan banging the table.
Some people with a ‘celebrity ego’ can have what Alan calls a ‘handsome attack’.
Amstrad success in 2007 steamed from using a reliable sub-contractor named Picotronics from China. Picotronics had a smooth-running production line. All Amstrad needed to do at that point was to concentrate on reducing the bills of materials. Amstrad made a good margin of £20 million per year on TV set-top boxes.
Large companies like Samsung make money on components and not just on selling finished products. The finished products that they sell are just the icing on the profit-cake. Other divisions in the company are making big profits by supplying components of products, so the ‘extra’ profit made on selling finished goods is not always paramount to such companies.
BSkyB used two assembly plants just in case one of them went down. However these two plants relied on the same components which were customised specially for BSkyB top-box. So, in effect, if BSkyB were looking for security they needed to duplicate the component suppliers, and not the final assembly plants. BSkyB saw the big picture of using two manufacturers as insurance for continuity of supply, however they ignored the fact that both manufacturers needed customised components from specific suppliers.
Large orders are preferred by suppliers, and so they will reduce their prices. The company Pace would order on a monthly basis so to continually negotiate the price down each month. Amstrad did the opposite, ordering large volumes to begin with, and then tell the suppliers that the orders are guaranteed, thus negotiate a reduced price.
Components manufacturers are not interested in one month order with a promise for the following month’s order. Amstrad would put an order of total 500,000 units, with 50,000 delivered each month over 10 months. This prompted manufacturers to come with the right price. This also secured the currency, protecting the payment from being exposed by any variations of the US dollar. Components manufacturers would prefer such order, than a similar 500,000 unit order where the buyer puts only 50,000 unit order, promising they will order next month.
When merging companies naturally duplicates are eliminated – there is no need for two accounts departments or two logistics. When BSkyB bought Amstrad, and merged the two companies, they lost touch of who does what, and what exactly was Amstrad division strength.
The so-called ‘credit crunch’ crisis:
During 2004 – 2007 assets were being sold at high prices. The banks started lending with no regard for the value of the assets they were funding. The banks wanted to lend high amounts so to make their 2-3% margin. A new wave of people were called ‘billionaires’ where in truth they just borrowed large sums of money…
The bubble had to burst, and it did in 2008. America sold loans between the banks, but the banks could not pay each other. Many UK banks bought these loans.
The banking system is based on people’s deposits that the banks can invest elsewhere. In 2008 Northern Rock Bank was in trouble and people queue to get their money back. If ordinary people loose their money in one bank, then other people will get panicked and soon you will see them queuing at the other banks as well, asking for their money.
The government stepped in, and backed up Northern Rock, however it was the media that instilled panic in the public. Even when the government announced that they are taking over Northern Rock, i.e. that they are securing ordinary people’s money, still some media were casting uncertainty on this move, and some people were still afraid and requested their money from the other banks.
When people realised that the government is backing up Northern Rock, they knew that this bank was now secured, as it was taken by the government. So people started paying into that bank, to the extent that the bank had to stop taking deposits.
Other banks were in trouble as well, and the government bailed them out. Companies started to collapse because the banks started to recall loans they made. With companies collapsing people were being fired.
Real estates started to drop in value, and many millionaires walked away, leaving the banks with huge debts. Alan argues that Gordon Brown did well to save Northern Rock and other banks, and that Gordon is a sincere and well-meaning person.
In 2010 Labour lost the general election, and Alan’s work as government adviser came to end.
28 January 2011. Updated 29 Jan 2011.
This work © Gil and Natalie Dekel.