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In the 1950s, the city of Detroit rightfully claimed to be the American dream incarnate. People from all walks of life travelled great lengths for an opportunity to work in one of the city’s many thriving automotive factories. Thanks to the innovative vision of rising titans like Henry Ford, the city of Detroit quickly became the world’s car capital. Companies such as Ford and GM quickly consumed the competition, and the American motor industry all but conglomerated within the sprawling confines of Detroit and smaller nearby towns like Flint and Dearborn, Michigan. In the same way that Hollywood is synonymous with the entertainment industry, Detroit became a symbol of America’s booming auto trade. With the prosperity of new factories and new jobs came a surging population and better quality of life. At its peak in the early 1950s, Detroit grew to become America’s third-largest city, with 1.8m residents. It boasted one of the highest median wages in the country, and a substantially better standard of living than most other cities. This fairytale rise only made the city’s imminent and apocalyptic fall even harder.

The decline of blue collar automotive employment across the board in Detroit is the number one factor responsible for the devastation of the city and its people

Today, Detroit lays in ruin. Its population has deteriorated by over 60 percent, and the people who remain there live in misery. One in five residents are unemployed and have no prospects of work or education. Over 80,000 buildings have been abandoned, and the burnt-out skeletons of once-thriving factories are slowly being reclaimed by nature. This sprawling abandonment has led to more dynamic issues. Because of dwindling public revenues, city services in Detroit are the worst in America. The average police response time to an emergency is almost an hour, whilst only one in three city ambulances are currently in service. Forty percent of Detroit’s streetlamps don’t work, and its metropolitan area has more crime per capita than anywhere else in America. Racial tension plagues the city like a festering wound, and in July, fate added insult to injury after city officials were forced to declare the largest municipal bankruptcy in US history. Things have never been worse in Detroit, and residents are split as to whether the city has even hit rock bottom yet. What everyone does seem to agree on, however, is the source of Detroit’s decay.

“The decline of blue collar automotive employment across the board in Detroit is the number one factor responsible for the devastation of the city and its people,” says George Steinmetz, a professor of sociology at the University of Michigan. “Ford was absolutely key to Detroit’s people.”

Therein lays the problem: Detroit may be the Motor City; however, the automotive industry outgrew the city’s boundaries a half century ago. As demand spread across the globe, prolific manufacturers like Ford and GM scaled back production across Michigan and began opening factories closer to individual emerging markets. Factories were mechanised, and aggressive demands from powerful unions in Michigan led America’s great auto firms to lay off more American workers and seek help from abroad, instead.

This expansion outside Michigan brought a boom period for auto companies, whilst Detroit withered from memory. Although the American auto industry itself has gone bust its fair share of times over the past fifty years, it’s booming once again with the help of emerging markets in Asia. That makes life better for one or two people in Detroit; after all, GM’s world headquarters can still be found in the city’s dilapidated centre. It employs a good chunk of the town, too. Yet it seems most of the jobs in America’s auto industry have turned into white collar ones. In Detroit, low-skilled work in the auto industry is virtually non-existent. Meanwhile, America’s biggest car makers employ tens of thousands of blue collar workers in their shiny new Asian factories. That makes sense, as it appears the future for these once mighty traders rests weightily upon the shoulders of increasingly keen Chinese buyers.

East is east
Demand for high-quality western cars in the east has been on the rise for quite some time; however, the legendary (yet declining) automotive giants that emerged from Detroit were fairly late to the party. They’re certainly making up for lost time. Ford and GM are aggressively expanding their production capacities in China, and introduce a wider range of models to Asian buyers every year. Since 2010, the west’s biggest carmakers have invested over $38.4bn in China. It’s not hard to see why; this year, auto sales across the country are expected to surpass the 20m mark – a 16 percent gain on last year. After America’s auto giants all but collapsed in 2009, this exploding market is proving a game changer of sorts. Whilst auto sales in Europe and North America continue to shrink amidst recession, demand for western cars in China has single-handedly driven global sales figures, against all odds, to increase by 6.7 percent this year. According to Klaus Paur, the Global Head of Automotive at Ipsos, these shifting figures will only continue to rise.

We have a good plan for China and have been leveraging Ford’s global resources to deliver on that plan

“The US market is still important for Western, as well as Korean and Japanese, car makers,” he says. “Nevertheless, the current recovery in the US market will soon level out since car penetration is pretty much saturated there … Substantial growth markets are mainly in Asia, particularly in China, India, and the ASEAN region, which is why all car makers need to shift their attention to these markets in the East in order to expand their sales volumes in the longer term.”

No manufacturer has expanded into China more than Ford. America’s oldest automaker has seen its shares surge 31 percent so far this year, and its global sales have reached a three-year high. That success can be pegged almost entirely on surging demand for its models in China. Last year, the Ford Focus captured the hearts of Chinese consumers and was named the country’s single-most popular car of 2012. Ford plans to capitalise upon this popularity by introducing 15 new models in China by 2015. In order to accomplish this, Ford has invested heavily in new factories across China. Between 2010 and 2012, the American firm built five new plants in key cities throughout country, and invested almost $5bn across Southeast Asia in general. The investments have already brought in huge returns. In the first half of 2013, Ford’s Chinese sales skyrocketed by 47 percent. By 2015, the company plans to control a six percent share in China’s overall new-car market – and by 2020, executives are speculating that Chinese buyers will account for 40 percent of all the company’s global sales. If Ford continues along its current growth trend, that may turn out to be a conservative estimate.

“We have a good plan for China and have been leveraging Ford’s global resources to deliver on that plan,” says Claire Li, of Ford’s Chinese division.

Only in America
Ford’s shifting priorities illustrate a growing trend within the industry; however, it’s worth noting the manufacturer is also experiencing a resurgence of domestic sales. When Alan Mulally was asked by the Ford family to take over as CEO in 2006, the automaker was, much like Detroit, in near ruins. Yet unlike Detroit’s municipal leaders, Mulally immediately did some heavy mortgaging. He slashed costs, simplified the company’s portfolio and made increasing product quality one of his top priorities. That was easier said than done. Ford took another tumble in 2008 when the global financial meltdown hit America’s already declining automotive industry. America’s biggest automakers had grown complacent, and bad investments in volatile markets led corporate worth to plummet.

Incentives for luring manufacturing jobs back to Detroit need to be created but for that to happen the city needs to offer tax breaks, and for that to happen it needs relief from its crushing debt

Both GM and Chrysler had no choice but to accept government handouts to avoid closure. Ford was able to skate around a full-blown bailout; however, the company did secure a line of credit with the government just in case. Sales at all three companies declined, and even more jobs were shed in Detroit. That being said, the government’s auto bailout appears to have paid off. Shares in GM have increased by 28 percent this year, and Ford has reached a new era of prosperity. The firm’s latest models of cars and trucks have evolved into class leaders, and Ford’s first quarter North American profits for 2013 were the highest it’s ever had.

None of that prosperity has trickled down to the people of Detroit. Since America’s auto industry hit rock bottom in 2009, things have been worse than ever in the Motor City. After the bailouts, another 50,000 Detroit residents fled the decaying metropolis. The city government receives less than 70 percent of property taxes, and its abnormally high population of unemployed and greying residents has pushed the city to a breaking point. In July, city lawmakers officially filed for chapter nine bankruptcy. No one was surprised by the move.

“Detroit’s story has been terrible for 50 years. This is just the latest terrible thing to happen,” said Matt Fabian of Municipal Market Advisors. “This will make it hard for the city to conduct day-to-day business. It will drain a lot of time, it could put people off moving businesses to Detroit and it could last for years.”

It’s hard to say how many more years of decline Detroit can stomach. Yet if the city has any hope of prosperity, it lies in reindustrialisation. After all, only 18 percent of the city’s residents have a college education – a talent pool unable to fill desks at GM’s white collar global headquarters in downtown Detroit.

“Things will only improve if employment moves back into the city. But the city’s bankruptcy will only aggravate an already severe urban crisis,” Steinmetz says. “Incentives for luring manufacturing jobs back to Detroit need to be created but for that to happen the city needs to offer tax breaks, and for that to happen it needs relief from its crushing debt.”

Motor City no more
As the auto industry as a whole continue to refocus investments over to Chinese markets, there don’t appear to be many incentives capable of luring manufacturers back to Detroit.

Today, the city has just two car factories, and the health of America’s auto industry has little bearing on the daily lives of Michigan residents. The city’s penniless government can’t bet on receiving any additional aid from the industry it helped to build, and it has even less hope of getting any federal assistance. In fact, next year the Obama administration has proposed to give almost three times more monetary aid to the violent drug haven of Columbia – whose homicide rate per capita is actually 81 percent less than Detroit’s. For now, it seems Detroit is on its own. Therefore, if the city should ever hope to try and reverse its rampant decay, it must diversify its output.

Nearby Pittsburgh proves a rare example as to how this can be achieved. For decades, the steel capital was utterly reliant upon one industry – so when US steel crumbled under the weight of foreign imports and a declining auto industry, Pittsburgh faced rapid decline.

Between 1970 and 2006, its population plummeted almost 40 percent. Yet during this flight of residents, Pittsburgh’s municipal government adequately refocused city services and investments. Elsewhere, entrepreneurs helped the city to establish a new identity as an American capital for healthcare in technology. Residents invested heavily in higher education, and today Pittsburgh attracts skilled professionals and industry leaders from across the globe.  It’s hard to say whether Detroit still has the resolve to perform such a massive makeover.

Detroit once embodied the American dream. It was the centre of an automotive dynasty, led by a group of industrial titans that helped to herald in a new era of global transportation. Yet as the city continues to fall further into an abyss of decline, that past is visible only in the crumbling bricks of factory skeletons. Detroit is no longer directly tied to the fate of America’s once declining auto industry – in fact, the worse things get in Detroit, the better things seem to get for American carmakers. Bearing that in mind, it’s fair to say that Detroit is no longer a motor city per se. Yet if it can learn from the successes of other rustbelt cities like Pittsburgh, it doesn’t have to continue on as a textbook example of urban decay, either. In the meantime, American auto giants like Ford will only continue to explore new markets and prosper. Yet Chinese cities should be wary of the new American car factories springing up and employing their residents. After all, if any single lesson can be drawn from Detroit’s woes, it’s that the America’s thriving auto industry is boom and bust personified.

When approaching his 50th birthday, it is not uncommon for a gentleman of certain means to respond to his own mortality by purchasing an expensive sports car. Or so the stereotype goes. Since the brand’s inception in 1963, a Lamborghini has been the vehicle of choice for such gentlemen of means – but the cars are so much more than that.

After the Second World War, Ferruccio Lamborghini, a prodigious engineer, made his fortune selling tractors. He was an avid car collector but was growing increasingly disappointed with his collection of Ferrari sports cars, which he considered mere racing vehicles inappropriately adapted for the road. But when he took up the issue with Enzo Ferrari himself, Lamborghini found himself dismissed. “You may be able to drive a tractor,” said his future rival, “but you will never be able to handle a Ferrari properly.”

Legend has it the dismissal was impetus enough to drive Lamborghini to design his own car – the now legendary 350GTV. The auto-manufacturer to which he gave his name is now renowned for its exclusive, ultra-high-performance vehicles that are as beautiful as they are fast.

In the 50 years since, Lamborghini’s cars have established themselves as icons of design and motoring. As well as producing vehicles that perform to the highest specs, Lamborghini partnered with a number of influential designers to deliver the best-looking sports cars out there. The first ever Lamborghini GTV was a cooperation between Franco Scaglione – already established as a multi-faceted designer – and Carrozzeria Touring, which ensured the car was as beautiful as it was functional. The Miura was a partnership with superstar designer and car stylist Marcello Gandini – who went on to design the iconic Countach a decade later.

The Miura was a real coup for Lamborghini. Ferruccio was adamant that he was not interested in extravagant or futuristic designs, but instead wanted his products to be ultra-fast and flawless road cars. The Miura was the first road sports car to feature the engine mounted transversely behind the ‘cockpit’ – making it faster and much sleeker.

Rumour has it the designers were terrified of bringing the proposals to Ferruccio, believing he might perceive it as the type of extravagance he was vehemently against. The owner is reported to have said: “A car like this should be built because it will attract huge interest in the media, but clearly no more than 50 will ever be sold.” Over 500 Miuras were in fact sold, and the car became an icon in the automobile industry and to enthusiasts worldwide.

Though not entirely accurate when referring to the Miura, Ferruccio’s words have become somewhat prophetic as regards Lamborghini’s business style today. The company spends a lot of time and resources creating vehicles that challenge the boundaries of design and technology. Though not many of them are sold, or even made, they help to build and maintain the company’s reputation and mystique. The recently released plans for the Egoista, for example, have caused a storm of praise and criticism in the media and online, even though the silver single-seater will probably never be manufactured.

Recently, Lamborghini brought all its design in-house and stopped collaborating with partners. It is a departure from the classic creative style Ferruccio insisted upon and many have criticised the move. More importantly, some of Lamborghini’s recent models are futurist and extravagant – the opposite of what the founding father thought they should be. But they are a commercial success and continue to set design standards other sports car manufacturers can only dream of reaching.

The pessimistic noises that emanate from western economies about their inability to compete with the juggernaut that is the Chinese economy are usually centred around the sheer scale of investment being pumped into Asia’s – and the world’s second – largest economy. However, this eye-watering level of investment (around 50 percent of the country’s GDP) is unsustainable, particularly as China becomes more economically entwined with international markets.

Whereas the country was once able to profit from exports produced by low-cost labour, it is slowly having to face up to the rising wages and demands of its workforce, as well as increased pressure to respect intellectual property rights. Although it has heavily invested in research and development, China has failed to see the sorts of innovations emerge from its laboratories that the likes of the US and Germany have so successfully produced.

Itís argued that this is a consequence of the tight controls the Chinese authorities have over all aspects of what is taught and researched at its universities. Last November, the country welcomed a new leadership – spearheaded by Communist Party chief Xi Jinping ñ that it hopes will continue the economic success of its predecessors, while reshaping the Chinese economy to better suit the global marketplace it currently operates in.

Growth through investment
China’s remarkable growth over the last 30 years has been fuelled by low-cost labour, heavy state investment and a somewhat relaxed attitude towards intellectual property rights. The country’s considerable investment in infrastructure has transformed it into a modern, industrialised country, but sustaining this level of investment is impractical.

According to the World Bank, the past 30 years worth of economic growth has been dominated by government investment, with the average GDP growth of 9.8 percent over this period being partly made up of between six and eight percent investment.

The imbalance in China’s economic model will need to be addressed by the newly installed leadership. While the investment-led strategy has helped position the country as the world’s second-largest economy, the current levels of spending are unsustainable. According to a recent study by the IMF, China’s over-investment needs to be rebalanced.

The study said: “China’s capital-to-output ratio is within the range of other emerging markets, but its economic growth rates stand out, partly due to a surge in investment over the past decade. Moreover, its investment is significantly higher than suggested by cross-country panel estimation. This deviation has been accumulating over the past decade and, at nearly 10 percent of GDP, is now larger and more persistent than experienced by other Asian economies leading up to the Asian crisis.”

“However, because its investment is predominantly financed by domestic savings, a crisis appears unlikely when assessed against dependency on external funding. But this does not mean that the cost is absent. Rather, it is distributed to other sectors of the economy through a hidden transfer of resources, estimated at an average of four percent of GDP per year.”

R&D spending
According to the report ‘2013 Global R&D Funding Forecast’ by research firm Battelle and R&D Magazine, China is set to pass the US in levels of spending on R&D over the coming decade. Whereas total US investment is expected to rise 1.2 percent to $424bn this year, China will increase funding from public and private sources by 11.2 percent, to $220bn.

China is set to pass the US in levels of spending on R&D over the coming decade

Even the US government concedes China will overtake it eventually, with President Obama’s Council of Advisors on Science and Technology saying recently: “China’s investment as a percentage of its GDP shows continuing, deliberate growth that, if it continues, should surpass the roughly flat US investment within a decade.”

Multinational companies are also looking to China to conduct R&D. Last November, PepsiCo opened its largest R&D centre outside the US in Shanghai. In a recent report by McKinsey, it was shown that multinational pharmaceutical firms had invested over $2bn in R&D in the country over the past five years. The report said: “Chinese R&D sites are opening or growing almost as quickly as European and US sites are closing or shrinking.”

Stifling innovation
A recent study by Deloitte that ranked each country’s competitiveness in manufacturing placed China at number one and concluded its dominance would continue for the next five years. However, the 2013 Global Manufacturing Competitiveness Index also highlighted the country’s need to invest further in R&D, and specifically science, if it is to match the US and Germany in getting the best out of its available talent.

The report said: “At the country level, executives participating in the 2013 GMCI survey see developed nations, such as Germany and the US, as the most competitive nations with respect to their ability to promote talent and innovation. This is especially interesting when looking at specific talent and innovation metrics, which might signify that although Germany and the US have strong Innovation Index scores, countries – such as South Korea and Singapore – are very competitive on multiple measures like researchers per million of the population, and basic math and science test scores.” All this R&D spending is laudable, but the difficulty China faces is in the types of research that are conducted, and the freedom with which iys best brains are able to explore new ideas and develop fresh ways of doing things. For all its investment, the results are somewhat lacklustre.

The regime has a firm grip on its universities, with the Ministry of Education dictating what should be researched and professors very much toeing the party line. In contrast, western universities defend their intellectual independence, and it is this creative freedom that often leads to the most successful innovations.

As pioneering companies like Apple develop the latest industry-leading products in the US, they outsource much of their production to China. However, rarely is it mentioned that a Chinese firm has produced a revolutionary product from its own research. As western firms such as Apple come under pressure to keep at least some production in their domestic markets, and the labour costs in China rise, the country must develop its own innovations that it can export to the world.

Labour changes
The Chinese economy has benefited greatly from its access to cheap labour, as well as the West’s willingness to turn a blind eye to concerns over worker conditions and human rights. However, after a series of scandals in Chinese factories, including a raft of suicides at Foxconn in 2010, the country is beginning to realise it must make sure conditions improve.

China’s remarkable growth over the last 30 years has been fuelled by low-cost labour, heavy state investment and a somewhat relaxed attitude towards intellectual property rights

China is now suffering a worker shortfall because many of the rural workers shipped into factories have left the urban industrial zones to return to their farms. According to The New York Times, Hubai province alone has reported a loss of more than 600,000 workers.

Salaries have also started to rise sharply as workers demand a fairer share of the profits generated by the country. A year ago, Foxconn reported an increase in average salaries by 25 percent, while other companies were seeing average rises of around 10 percent. This trend will undoubtedly continue, and adjusting strategy so the country gets more out of its developments must be a priority for the new regime.

Manufacturing slowdown
In November last year, China’s export growth slowed to 2.9 percent: considerably lower than expected. This was followed by HSBC‘s announcement in late February that its Flash China Manufacturing PMI fell from 52.3 to 50.4 during the second month of the year. The PMI is seen as a key indicator of the manufacturing sector in China, so this continued decline has worried investors.

HSBC’s chief economist on China, Hongbin Qu, cautioned against panic, saying that, although the figures were disappointing, China was recovering. He said in a statement: “The Chinese economy is still on track for a gradual recovery. Despite the moderation of Februaryís flash PMI, the index recorded the fourth consecutive reading below the critical 50 line.”

Singapore-based economist Connie Tse, of Forecast Pte, also told reporters signs of a recovery were modest, and much depended on struggling markets like in Europe. She said: “The external sector remains fragile, although recent manufacturing activities have showed convincing signs of stabilisation and a gradual recovery. I expect export growth to pick up throughout 2013, but this is likely to be gradual and volatile in absence of a material improvement in the eurozone.”

Political changes
The new leadership has inherited an economy that is growing at its slowest rate since the turn of the millennium, and how it reacts to this changing economic landscape will have a knock-on effect for the rest of the world. As the country becomes less competitive with its exports and begins to reduce its investment in infrastructure, reforms are expected to be made in order to shift the economy to one that is both more productive and efficient.

Li Jiange, Chairman of the China International Capital Corporation, recently told reporters that he expected 2013 would see the new leadership unveil market-orientated reforms that would lead to a reduction in government spending and a breaking up of state monopolies.

It is this second point that is most interesting, as it could lead to greater changes in the direction of many important Chinese firms – which have, up until now, been forced to operate with clearly defined directives from the state. The leaderships of these companies, however, may resist any moves to break them up – especially after predecessor Hu Jintao was so supportive of public ownership. In November, Ning Gaoning, a director at leading state-owned oil and food trading company Cofco, responded to Jintao’s parting speech that outlined the next five years of economic strategy. He said: “The signal is very clear. The predominant position of public-ownership is listed among the basic premises of economic construction with Chinese characteristics.”

Focus on science
The country’s new leadership must focus on investing in science and encouraging creative and original thinking, says Peng Gong, a professor at the Department of Environmental Science, Policy and Management at the University of California. He told science journal Nature in November: China’s talent pool is increasing, but there is still a shortage of scientists who are creative and original thinkers.

“In the next 10 years, more foreign scientists must be recruited and China must enhance its own capacity to train original minds. To retain scientists from overseas, specially allocated research support should be provided for at least their first five years in China.”

Gong added that, although investment in R&D had increased over the last decade, research organisations and universities had seen a decrease in their share of investment: In terms of resources, R&D investment in China has grown more than tenfold in 10 years, from around $12bn in 2001 to about $135bn in 2011.

Investment in basic science and applied research increased more than sixfold, but the percentage of investment for public research organisations and universities dropped from 38 percent to 24 percent, indicating greater input from the private and non-governmental sectors. The new leadership should increase investment in these institutions particularly the major research universities.

Future economy
What sort of economy China has over the next decade will rest heavily on the strategies pursued by the new regime. Many believe the emphasis will shift from its industrial dominance, which currently accounts for 45 percent of GDP, towards a burgeoning service industry.

According to statistics, the service industry accounts for roughly the same proportion of GDP as industry, but is much more likely to grow in the coming years. Retailing, finance, transport and scientific research are all areas that many expect to grow – and this is a likely consequence of the move away from exports – as the general population start to consume more.

The new leadership takes over at a time when many are looking to China to prop up the fragile world economy – but if China doesn’t look inwards at more long-term reforms, it may find the constraints on its economy hinder any chance of sustaining the sort of growth it has enjoyed for the past 30 years.

Dedicating resources to research and development, within a free and creative environment, may well transform China into the sort of balanced innovative economy that could dominate for many years to come.

In Benton County, Washington stands a characterless flatland scattered with the distinctive manufactories of a Cold War arsenal. What was once a community of neighbourly Americans is now spread and underlined with 1,518 square kilometres of disused nuclear material confined by 177 colossal storage units. The Hanford site – otherwise known as the Hanford Nuclear Reservation – is a cleanup project tasked with the disposal of nuclear and chemical waste: one that was reported recently as having six, severely neglected, leaking tanks.

Each of these tanks contains disused nuclear material originating from as far back as the site’s establishment in 1943. Having been purpose-built during the Cold War to provide plutonium for the US nuclear arsenal, it was duly decommissioned, leaving 53 million gallons of radioactive waste in its wake. With 73 leaks to date, the effects of Hanford’s contamination are seeping ever closer to the Columbia River; illustrating, in part, the consequences of radioactive waste on American soil.

Currently the nation’s largest environmental cleanup, the Hanford site is one of the US’ many outdated and disconcertingly temporary solutions to the disposal of nuclear material. The country’s stance on nuclear waste disposal requires a great deal of financial investment; as well as a significant departure from the marked hesitancy with which it is currently advancing towards a more comprehensive nuclear future.

A commercial industry
Nuclear power has been, and still is, integral to the US’ status as a world superpower: at present accounting for more than 20 percent of America’s energy supply. Having carried out the Manhattan Project and developed the atomic bomb, the country built its first nuclear reactor to produce electricity at the National Reactor Station in Idaho, 1951.

Since then, the government has dedicated a vast amount of resources to the advancement of nuclear power and, in the mid-1950s, extended this opportunity to private industry. Commercial reactors in the US are almost exclusively privately owned, demonstrating a marked difference from rival nations’ predominantly state-owned nuclear industries.

Since the late 1990s, US government policy and funding practices have furthered the development of civilian nuclear capacity. However, while there is an intended long-term commitment towards the furthering of nuclear energy supply, emphasis has been lacking in recent years as alternative means of power have taken precedence. America, more so than any other nation, demonstrates a great deal of private sector participation in the production of civilian nuclear power. Regardless of its nuclear credentials, it is a nation that often finds its way obstructed by rigorous safety and environmental regulations, as well as by unwillingness to invest in precautionary measures for the far future.

Building up fast
According to the Department of Energy (DoE), in excess of 75,000 tonnes of spent nuclear fuel is currently being stored at 122 temporary sites across 39 states. At present, 104 active nuclear reactors are in operation, contributing an annual 2,000 tonnes of spent nuclear fuel to an already dangerously excessive reserve.

The Hanford site is one of the US’ many out-dated and disconcertingly temporary solutions to the disposal of nuclear material

If the US’ existing reactors were to be relicensed for a further 60 years, they would contribute a further 130,000 tonnes of nuclear waste. It is imperative that the US invests heavily in the development of a safer, long-term and perhaps more renewable waste disposal policy.

The reasons for having not committed to a better waste disposal programme are primarily financial. Though opinions on the economics of nuclear power are widely divergent and regularly contested, nuclear power plants – while having high capital costs for the building of the station – provide for low direct fuel costs and for an exemption from carbon tax.

Comparisons with alternative means of generating electricity are highly dependent on assumptions about construction timescales as well as capital financing for the plant. Estimates for the construction of the plant mandatorily include plant decommissioning and nuclear waste storage costs, but these allowances are focused more on the short-term disposal of excess materials than the permanent neutralising of radioactive waste.

The big bang
Having experienced a crisis of credibility through the latter half of the 20th century, nuclear power saw a revival from 2001 onwards. The realisation of nuclear energy as a clean, safe and readily available energy source bolstered its reputation as a worthy investment for the future, as well as instigating the building of countless new reactors and extension units across the globe.

But after this short-lived revival, the demand for electricity demonstrated a marked fall, heavily impacting the construction of large energy projects such as nuclear reactors. The proportionately high upfront costs and long project cycles carried with them high risks in substantiating the continued development of nuclear reactors.

The availability of relatively cheap gas and its guarantees for the near future pose a constant threat to the continued development of nuclear power, particularly in the US and China. In Eastern Europe, a substantial number of long-established projects have struggled to find financial backing in the face of cheap gas – notably in Bulgaria and Romania, where potential backers have withdrawn funding for such projects.

The wider implications of nuclear-related disasters can impact heavily on the perceived costs of reactor construction and development. Following the Fukushima Daiichi disaster in 2011, costs rose significantly as additional requirements were introduced, specifically in the parameters of fuel management and elevated design basis threats.

One of the more prevalent discussions of nuclear economics is focused on the accountability and financial repercussions of future uncertainties. The associated risks of power plants developed and owned by state-owned or regulated utility monopolies fall on the consumers, as opposed to the suppliers.

Many countries are attempting to liberalise the electricity market, wherein the risks and associated costs of competing energy suppliers are borne by plant suppliers and operators. As a result, the economics of constructing and maintaining nuclear reactors can vary wildly.

Those responsible for the construction of US nuclear reactors, it seems, do not consider themselves responsible for the long-term implications of improperly disposed-of radioactive waste. Both costly and technically demanding, the methods of reducing and neutralising radioactive material are unattractive to those looking to minimise financial impositions.

A national priority
At the beginning of January, head of the DoE Stephen Chu outlined a programme meant to improve the US’ capacity for nuclear waste storage and disposal. Having maintained that nuclear waste “must remain a national priority… to ensure that nuclear power remains part of our diversified clean-energy portfolio,” Chu detailed a siting process that gave greater focus to co-operation with the local community than previous efforts.

The adoption of this method is a direct result of the cancellation of the Yucca Mountain nuclear waste repository in Nevada: a deep geological facility that was to have offered securer containment for radioactive material. After 10 years of initial development and $32bn of funding, the idea was scrapped ñ to the financial cost of those involved – in large part due to the oppositional efforts of local inhabitants. Regardless of these plans having been cancelled, it’s clear – a notion echoed by the DoE – that a long-term repository is necessary for the ever-increasing levels of nuclear waste produced by the US.

Those responsible for the construction of US nuclear reactors, it seems, do not consider themselves responsible for the long-term implications of improperly disposed-of radioactive waste

The proposed strategy comes three years after the decommissioning of the Yucca Mountain site (agreed on by Stephen Chu and the Obama administration) and would entail the implementation of a ‘pilot interim store’ from 2021, meant for the recovery of unused nuclear fuel from decommissioned plants. By 2025, a further ‘full-scale interim store’ will be put into effect in order to better stabilise environmental conditions.

By 2048, construction of an underground disposal facility will have been completed to permanently store and dispose of nuclear waste. The resulting facility will be developed and constructed in strict co-operation with the local inhabitants and never to the detriment of those living or doing business locally.

Edge of darkness
The programme is scheduled in such a way as to better reduce the federal governmentís liabilities under the 1982 Nuclear Waste Act: starting in 1998, the US government was to have collected used fuel from energy companies and taken it for disposal. At present, 68,000 tonnes of used reactor fuel resides at 72 plants across the US and are largely responsible for the DoE having to reimburse power companies for meeting the costs of storage and of disposal.

The aforementioned interim facilities are to better reduce the backlog: the government having fallen behind with collections. The DoE said: “The sooner that legislation enables progress on implementing this strategy, the lower the ultimate cost will be to taxpayers.”

If approved, the DoE is to facilitate the founding of a new authority to monitor the development of the programme. The resulting organisation will survey suitable sites by evaluating the geological prospects and considering the effected community, asking the community to consider both the repercussions of the building and the potential benefit to the local economy. A similar approach has been used to great effect in both Sweden and Finland, and in both places geological disposal sites are in the licensing stage.

Waste management plans for preserving a far-off future are at a crucial stage. If the US is to better its capabilities in the disposal of radioactive waste, then it must recognise the necessity of implementing measures soon.

There has been a significant move by multinational retailers towards emerging economic regions, but a number of countries – termed the ‘hidden heroes’ – have been growing fast and under the radar. New research by Deloitte and Planet Retail has produced a list of the 10 most promising -tier two- cities: capitals or large urban sprawls that offer promising retail opportunities for companies looking to grow.

The report says: “Each of these markets merits attention from the world’s retailers for one reason or another. In some cases, it is simply a very large population, in others it is strong economic growth, and for others, it is openness to foreign investment by retailers.” It goes on to say: “When global retailers look at new markets, it is not so much countries that they investigate as it is urban centres.”

Room to grow
It is not enough to merely have a rapidly expanding populace; it is the quality of that growth that will interest investors the most. Growing middle classes, the GDP per capita compared to the rest of the country, disposable incomes and infrastructure are all significant factors that will affect an investorís decision to move into an emerging city.

There is a wealth of information about tier one cities in emerging markets, but often the most promising opportunities are beyond the obvious choices. Setting up business in Shanghai is expensive and competitive, so retailers are looking to cities with untapped potential, such as Chongqing.

The report says: “Now that retail modernisation is well along in the primary cities, there is an opportunity in the second tier, especially as economic growth is likely to be stronger there than in the centre.”

South East Asia, Western Africa and the Andes region of Latin America have all been experiencing robust growth, and are forecast to continue outdoing some of their more high-profile neighbours. Peruís economy, for instance, expanded around six percent in 2012, when Brazil only managed to grow by a meagre 1.6 percent over the same period.

Drawing investment
Many of the countries listed in the report have recently benefited from healthy domestic policies designed to attracted foreign investment and develop infrastructure. Because of such policies and investments, these cities are also likely to have high incomes per capita ñ usually far superior to the rest of the country.

When it comes to retail, the biggest draw is the income of the population, and how much of it they will be willing to spend. The report says: “As these countries develop, and as there is continued migration from rural to urban locations, the cities will expand in population quicker than the country, and incomes will likely grow faster as well.”

The cities listed in the report have big growth potential, solid industry or developing service economies guaranteeing optimistic prospects for the growing retail sector. This provides the opportunity for multinational brands to expand into new regions, but also often offers a chance to back promising local enterprises.

Modern retail infrastructure is already in place in these urban centres. While it may be difficult at first to compete with established and beloved brands, there is usually a thirst for diversification and a degree of curiosity that will make for promising returns.

The purpose of the Deloitte survey was to shine a light on cities that have often performed well financially and economically, but have failed to attract the attention of the international media and investors. The cities featured on the list are more attractive in terms of competition than more established areas and can be perceived as untapped reserves – which is good news in the oversaturated retail universe

01 Ho Chi Minh City
The city formerly known as Saigon is home to around six million people. Though that’s only about eight percent of Vietnam’s entire population, the city accounts for approximately 20 percent of the national GDP. A resident of Ho Chi Minh City has a per capita GDP almost three times higher than the average national – which makes the city an attractive retail hub. Vietnam has been experiencing formidable growth and its well-developed tourism industry also offers retail opportunities.

02 Jakarta
Indonesia as a whole has been experiencing rapid economic growth over the past few years, partly because of government policy. The capital, however, boasts a per capita average income of around $10,000 – over twice as much as the average in Indonesia. Jakarta is also experiencing a boom in its middle classes and has a small but significant number of wealthy households. As such, the capital as a whole has a relatively high level of spending power.

03 Bogota
The capital city of Colombia has changed drastically in the past decade. Over the years, the city has seen an intense influx of migrants trying to escape the drug-related violence of the jungles. The capital’s economy has consistently grown faster than Colombia’s overall economy. This is in part due to the city’s population boom and it being a hub for trade. However, the Deloitte report also cites the “considerable investment [made] in modern retailing”.

04 Chongqing
It is of little surprise that the most populous city in China is rife with retail opportunities. Though the urban core has a population of only seven million, the administrative area around it has as many as 28 million inhabitants. The city has grown into a regional economic hub (but, as in most of China, local retailers still dominate the trade). Chongqing also benefits from the government’s policy of shifting resources away from coastal urban centres, so robust economic growth has become the norm

05 Kolkata
Kolkata, though a major city in India, has not so far benefitted from the kind of media and foreign investment that the likes of Delhi, Mumbai, Bangalore and Hyderabad have enjoyed. However, as the city begins to experience healthy growth, opportunities for retail abound. The city still lacks modern retail investment, but, as its residents are lifted out of poverty, there is likely to be a boom in spending power and a greater attraction for such investment to be made.

06 Manila
Though Manila, a metropolis of 22 million people, is plagued with urban problems like traffic congestion, pollution and inadequate public infrastructure, its economic growth prospects look good. The city has benefited from national economic policies and has a young population. International investors favour the city because of the large number of English-speaking workers. There has already been substantial investment in the retail sector and the city has some of Asia’s biggest shopping centres.

07 Lima
Peru is the fastest-growing economy in Latin America, having expanded by around six percent in 2012. The capital, Lima, accounts for roughly 60 percent of the national GDP. The IMF has estimated that Lima’s per capital GDP is roughly double that of the rest of the country, which makes it a very attractive retail centre. Most affluent and middle-class Peruvians live in Lima, and the city is experiencing a remarkable shift away from street markets and small retailers towards shopping centres and other modern retail venues.

08 Nairobi
The capital and commercial centre of Kenya, Nairobi has much to offer. Though Kenya is primarily a rural nation, the capital’s population has a much higher level of wealth. The city has a tradition of trade and is the East African home of many international companies, manufacturers and agencies. As the Kenyan economy continues to grow healthily, Nairobi will inevitably benefit the most. The city is already a hub for mobile technology and there has been some modern retail investment in the past few years.

09 Lagos
Lagos may no longer be the capital of Nigeria, but it remains the country’s most important city. It is still the commercial capital and its centre of wealth, and the city’s per capita GDP is about 60 percent higher than that of the rest of the country. Strong economic growth is also on the horizon as increased investment in oil and other industries – and schemes like the Central Bank’s move toward transforming Lagos into a cashless society – opens up significant opportunities for multinational retail investment.

10 Yekaterinburg
Yekaterinburg is one of 13 cities in Russia with over a million inhabitants, but it stands out as a hub for innovation, learning and research. There are 16 state universities and countless private research institutions. It may be no surprise, therefore, that the city has a largely well-educated and skilled population. However, the city is also a major manufacturing centre, and as such the retail sector is dominated by national chains. Despite this, the infrastructure and appetite are ripe for foreign investment.

There were substantial changes in the discourse between President Obama’s first and second presidential campaigns, particularly regarding energy. If, four years ago, he seemed glib about the oil and gas sector and more than enthusiastic about the Climate Change Bill, the tables were turned on the road to his second term.

The US economy was a frequent topic of heated debate during the presidential campaign, as Obama and Mitt Romney pitted their recovery plans against each other in the hope of convincing the nation. And as expected, much was said about the energy sector. Both candidates were careful to emphasise the differences between their policies during the second debate of the campaign at the Massachusetts Institute of Technology.

Obama was keen to embrace his ‘all-of-the-above’ energy strategy, which – at least on paper – includes developing more oil and gas drilling as well as funding research in energy innovation. Though the President has been clear in his enthusiasm for renewable energy in the past, in his second presidential campaign he was keen to show his support for fossil fuels.

President and CEO of the American Petroleum Institute Jacques Gerrard said: “If you listen to what the President said during the election, he is actually a big proponent of oil and natural gas. He has indicated in his all-of-the-above strategy that oil and natural gas should play an important role.

“But if the President is serious about what he promised the American people and what he was elected on, then oil and natural gas will have to be a big part of that energy plan. We are in sync together on the role of oil and natural gas. The question before us is: will the President live up to his commitment?”

Obama has been clear on his aim to continue to develop domestic oil and gas, though the policies announced during his most recent campaign were a drastic change from the policies he pursued during his first campaign four years ago. Gerrard said: “The President has really moved 180 degrees on the issue of oil and natural gas in the past year, or year and a half.

“Two years ago, in his State of the Union address he called us [the oil and gas industry] yesterday’s energy, assuming we had no role. But we provide over 62 percent of the energy consumed in the United States and his own economists will tell you that we will continue to provide over 50 percent of the energy 50 years from now.”

A shift to shale
One of the major factors behind this change of heart has been the remarkable shale oil and gas boom America has been experiencing over the past few years. Vast reserves of both oil and natural gas have been surprising geologists, hidden under sheets of shale rock. New developments in technology are finally allowing the safe and efficient extraction of these recently discovered resources.

According to the IEA, the US’s formidable shale discoveries will help the country overtake Saudi Arabia as the world’s largest producer of oil by 2020. According to the agency, the global energy map “is being redrawn by the resurgence in oil and gas production in the United States”. Experts have suggested that President Obama’s recent U-turn on oil and gas strategy might have something to do with the abundant new discoveries.

The President has vowed to cut oil imports in half by 2020, which inevitably means developing more offshore and possibly more federal lands for oil and gas exploration. For Rob Barnett, senior utilities analyst for Bloomberg Industries, this is still a contentious issue.

Barnett said: “There is a constant debate between those that want additional energy exploration on federal lands and groups that want to see that type of land be preserved.

“The amount of land that is available for prospecting is actually a little lower under President Obama but production is actually up. So production does not equal necessarily the amount of land: it is up predominantly because of technology, not because of increased leasing and things like that. I don’t expect too much of a change on that front under a second Obama administration.”

Fracking success
As much of the newly discovered reserves are buried under shale rock, the US looks set to continue investing in fracking: the controversial technique of using chemical-infused water to drill through the shale and reach the oil and gas underneath. In the last two years, the technique has become widespread, but is still scarcely regulated. Obama’s second term is likely to bring further regulation, particularly pertaining to the use of water in the fracking process.

Barnett said: “There are potential regulations for water that we could expect at some point, most of that is handled at State level right now. The Environmental Protection Agency is looking into whether there are issues with water, but we don’t expect a report on that until 2014 and then regulation would come from that. We are years away from water issues, which are the most pertinent to fracking.”

Though the President expressed newfound support for the oil and gas industry during the campaign, he has also suggested he might be looking to eliminate some of the subsidies currently designated to the fossil fuel companies. As it stands, the federal government grants around $46bn annually in subsidies to the oil and gas industry.

Virginia Lazenby, President of the Independent Petroleum Association of America (IPAA), said the industry was vigorously opposed to the President’s plans to collect more tax from the industry. She said: “IPAA hopes President Obama will stop his call to eliminate the crucial tax provision of intangible drilling costs and percentage depletion, which are not subsidies at all, but allow independent producers to reinvest 150 percent of their cash flow into new energy products.”

First term promises, first term failures
During his first term in office, the President pushed for stricter regulation pertaining to the emission of greenhouse gases and sought to invest billions of federal dollars in green energy companies. Neither policy was particularly successful: the greenhouse gas emissions bill was killed by the Senate and the President was criticised after Solyndra, a solar panel manufacturer that had received federal investment, went bankrupt.

While the President has insisted investments in research and green energy will continue, it is unlikely any more climate change legislation will make it through the Republican-controlled Senate. Nevertheless, he is unlikely to back down on his renewable energy pledges. Barnett said: “On the other hand, energy policy is also driven by questions about the environment so right now we are looking at four years of a very active Environmental Protection Agency putting forward new regulations and things like that.”

There are currently some tax breaks and other incentives in place to help stimulate the renewable energy sector, and the President has promised even more assistance for solar and wind technology. However, Congress is under Republican control and is likely to kill further environmental protection bills. Obama will need some form of congressional support to extend tax breaks for the renewable energy sector.

One of the President’s main challenges may come sooner rather than later as the current tax credits for wind energy production expired at the end of 2012. An extension will have to go through Congress. According to one of the President’s aides, clean energy programmes and efficiency initiatives will remain a major goal during the second term.

Obama’s deputy energy and climate change adviser Heather Zichal said: “If you take a step back and look at what this administration’s done to invest in clean energy and double down on energy efficiency initiatives, we’ve made it clear that we are going to look strategically at how we use our existing authorities. We will continue to focus on that in the next administration, and obviously the big issue will remain engagement with Congress.”

Taking responsibility
Though Obama has been adamant in reiterating his commitment to fighting climate change and curbing natural gas emissions, he has not yet been specific in outlining any policy. He said: “I am a firm believer that climate change is real, that it is impacted by human behaviour and carbon emissions. And as a consequence, I think we’ve got an obligation to future generations to do something about it.”

Since Obama took office in 2008, the US has doubled its renewable energy output and it is likely the President will continue to push for these sources to play an increasingly large role in the US’s future energy independence plan.

Executive Director of the SUN DAY Campaign Kenneth Bossong says Obama’s first term policies are directly responsible for the dramatic growth in energy generation from renewable sources. He said: “non-hydro renewable sources provided 5.76 percent of net electrical generation for the first half of 2012. This represents an increase of 10.97 percent compared to the same period in 2011.”

During the second presidential debate, Obama said: “We’ve got to control our own energy, you know – not only oil and natural gas, which we’ve been investing in – but also, we’ve got to make sure we’re building the energy sources of the future. Not just thinking about next year, but 10 years from now, 20 years from now. That’s why we’ve invested in solar and wind and biofuels, energy-efficient cars.”

But what about coal?
The clear absentee from President Obama’s all-of-the-above energy strategy so far is coal. At the beginning of his administration, the President promised to invest in research into developing a clean coal technology. Nothing has materialised and miners have accused Obama of turning his back on the industry.

The US has one of the world’s largest coal reserves and proponents say the country should work with what it has. However, up to 33 giga-watts of coal-fired power generation is in line for retirement. This is due in part to the emergence of natural gas, which is not only cheaper but burns cleaner than coal.

Bill Bisset, President of the Kentucky Coal Association, has said the industry is in decline “not simply because of the low natural gases but also the impact of a federal government that has increased costs of mining at every turn”. But he added: “We are hopeful that the President’s pro-coal comments from the campaign reflect a new direction in his administration.”

Building the infrastructure
President Obama’s second term in office is also likely to hail greater investment in the energy infrastructure sector. Since he has been in office, the Department of Energy has developed the Smart Grid Investment Grant programme. It has invested $3.4bn in grid-enhancing projects and initiatives, which optimise energy consumption and help make households and industries more energy efficient.

While high-tech cities have benefited most from this technology, an additional $36.25m is being invested exclusively in bringing smart grid projects to rural areas. This can help make agriculture distribution more efficient.

Another significant investment comes in the shape of the Keystone Pipeline. The President has put the project on hold for the time being, but industry analysts expect to see it granted approval. The pipeline will allow a greater flow of crude oil from Canada to refineries in Texas and could significantly reduce the US’s reliance on oil from the Gulf region. Obama was initially reluctant to concede on the build, but seems once more to have shifted gear during the campaign.

Gerrard said: “The Keystone Pipeline will be the first real test. Even with changes in the election, there is still a majority of support both in the Senate and the House for the Keystone Excel Pipeline. The President implicitly indicated that he would approve that second leg from Canada down after the election. We are waiting to see if he follows through: that will be the first test of if his words really meant something during the election.”

We expect companies that were born digital, like Amazon, to accomplish things business executives could only dream of a generation ago. But, in fact, the use of big data has the potential to transform traditional businesses as well. It may offer them even greater opportunities for competitive advantage (online businesses have always known they were competing on how well they understood their data).

As the tools and philosophies of big data spread, they will change long-standing ideas about the value of experience, the nature of expertise and the practice of management. Smart leaders across industries will see using big data for what it is: a management revolution. But as with any other major change in business, the challenges of becoming a big data enabled organisation can be enormous and require hands-on – or in some cases hands-off – leadership. Nevertheless, it’s a transition that executives need to engage with today.

Data-driven performance
The business press is rife with anecdotes and case studies that supposedly demonstrate the value of being data-driven. But the truth, we realised recently, is that nobody was tackling that question rigorously. To address this embarrassing gap, we led a team at the Massachusetts Institute of Technology Center for Digital Business, working in partnership with McKinsey’s business technology office and with our colleague Lorin Hitt at Wharton and the MIT doctoral student Heekyung Kim. We set out to test the hypothesis that data-driven companies would be better performers. We conducted structured interviews with executives at 330 public US companies about their organisational and technology management practices, and gathered performance data from their annual reports and independent sources.

One relationship stood out: the more companies characterised themselves as data-driven, the better they performed on objective measures of financial and operational results. In particular, companies in the top third of their industry in the use of data-driven decision-making were, on average, five percent more productive and six percent more profitable than their competitors. This performance difference remained robust after accounting for the contributions of labour, capital, purchased services and traditional information technology investment. It was statistically significant and economically important and was reflected in measurable increases in stock market valuations.

New culture
The technical challenges of using big data are very real, but the managerial challenges are even greater: starting with the role of the senior executive team.

Muting the Hippo: One of the most critical aspects of big data is its impact on how decisions are made and who gets to make them. When data is scarce, expensive to obtain or not available in digital form, it makes sense to let well-placed people make decisions – which they do on the basis of experience.

For particularly important decisions, these people are typically high up in the organisation, or they’re expensive outsiders brought in because of their expertise and track records. Many in the big data community maintain companies often make most of their important decisions by relying on the Highest-Paid Person’s Opinion (Hippo).
We believe that throughout the business world, people rely too much on experience and intuition and not enough on data. For our research, we constructed a five-point composite scale that captured the overall extent to which a company was data-driven. Fully 32 percent of our respondents rated their companies at or below three on this scale.
New roles: Executives interested in leading a big data transition can start with two simple techniques. First, they can get into the habit of asking: “What does the data say?” when faced with an important decision and following up with more-specific questions such as “Where did the data come from?” and “What kinds of analyses were conducted?” Second, they can allow themselves to be overruled by the data; few things are more powerful for changing a decision-making culture than seeing a senior executive concede when data has disproved a hunch.

Five management challenges
Companies won’t reap the full benefits of a transition to using big data unless they’re able to manage change effectively. We have identified five areas which are of particular importance in that process:

Leadership: Companies succeed in the big data era not simply because they have more or better data, but because they have leadership teams that set clear goals, define what success looks like and ask the right questions. Big data’s power doesn’t erase the need for vision or human insight. We must still have business leaders who can spot a great opportunity, articulate a compelling vision, persuade people to embrace it and work hard to realise it.

Talent management: As data becomes cheaper, the complements to data become more valuable. Some of the most crucial of these are data scientists and other professionals skilled at working with large quantities of information. Statistics are important, but many of the key techniques for using big data are rarely taught in traditional statistics courses. Along with the data scientists, a new generation of computer scientists are bringing to bear techniques for working with very large data sets.

Technology: The tools available to handle the volume, velocity and variety of big data have improved greatly in recent years. In general, these technologies are not prohibitively expensive. However, they do require a skill set that is new to most IT departments. They will need to work hard to integrate all the relevant internal and external sources of data.

Decision-making: An effective organisation puts information and the relevant decision rights in the same location. In the big data era, information is created and transferred, and expertise is often not where it used to be. The artful leader will create an organisation flexible enough to minimise the “not invented here” syndrome while at the same time maximising cross-functional cooperation.

Company culture: The first question a data-driven organisation asks itself is not “What do we think?” but “What do we know?” This requires a move away from acting solely on instinct. It also requires breaking a bad habit we’ve noticed in many organisations: pretending to be more data-driven than they actually are. Too often, we saw executives who spiced up their reports with lots of data that supported decisions they had already made using the traditional Hippo approach.

The evidence from our research is clear: data-driven decisions tend to be better decisions. Business leaders will either embrace this fact or be replaced by others who do. In sector after sector, companies that figure out how to combine domain expertise with data science will pull away from their rivals.

The announcement that British defence giant BAE Systems was in talks with European Aeronautic Defense and Space Company (EADS) about a possible merger came as a shock to all associated parties. Both companies had a unique and vast reach, as well as their own reasons to benefit from the arrangement. But it was not meant to be; competing interests and political deadlock meant EADS and BAE could not join forces.

There were any number of reasons the deal fell apart. There were critics at every level, including shareholders, government officials and industry analysts who had reservations about the prospects and power of the larger corporation, and feared for their investments in a changing industry.

Analysts have been left wondering what each side could have offered, what would have happened to competitors and could it really have, as chiefs of both companies announced in a joint statement, “produced a combined business that would have been a technology leader and a greater force for competition and growth across both the commercial aerospace and defence sectors”?

Merger talks within these industries are not uncommon and this is not the first time BAE has been through negotiations to protect its future. It has reportedly had discussions with EADS’s biggest competitors in the past, including Boeing, Lockheed Martin and Northrop Grumman. The current bid for collaboration started in early September. Terms of the deal gave shareholders in BAE and EADS 40 percent and 60 percent of the combined company respectively. There was an immediate call to renegotiate terms from investors on both sides, including BAE’s majority shareholder Invesco Perpetual. It had “significant reservations” and said it did not understand the “strategic logic” behind the deal.

Further obstacles emerged as the British, French and German governments began dialogue. The British requirement for a capped nine percent for each foreign government investor was heavily contested as both European partners demanded bigger shares in the new business. German Chancellor Angela Merkel also announced fundamental objections to the creation of the largest integrated defence and aviation company, giving little hope for completion. Unable to agree any workable solution, the deal collapsed.

For each side, the prospect of collaboration was filled with opportunity. For BAE it was a route back to the thriving civil aviation sector it had left years before, access to a wider audience across the Asia Pacific and the stronger balance sheet it needed to ride out the severe cuts in defence spending that were looming from its prominent American customer base.

EADS, home to successful plane maker Airbus, did not have the fears for the future that BAE had as its commercial market was continuing to grow. It did, however, see hope for expansion through the deal, exploiting the joint client collection and benefiting from expansion into a US market which it had yet to conquer.

EADS was also partial to the deal’s terms, which would have seen a distinct reduction in the influence the French and German governments had in its operation; the US’ terms for agreement meant there was a cap on foreign investment to limit involvement in closely guarded American security files. As it turned out, though, this particular contract condition would be one of the deal breakers.

In a changing economic climate, both companies saw an opportunity in collaboration to maintain their impact and grow in new regions and reach new markets. Both BAE and EADS have proven themselves successful for many years, have expanded progressively to build up their respective reputations and fortunes, and have sought to capitalise through synergy. EADS is a European corporation that unites the capabilities of four unique manufacturers, including: Astrium, Europe’s leading space programme; Cassidian, the defence and security arm; and Eurocopter, the world’s largest helicopter supplier. But by far the biggest earner for EADS is Airbus, a leading aircraft manufacturer that accounts for around two-thirds of the corporation’s revenues. Airbus and its US adversary Boeing have taken over the aerospace market, leaving little room for competitors, and have been in a constant war to rule the skies for decades.

The merger would have given Airbus a new sword edge with which to fight this close battle; for years the US market was out-of-bounds and strictly Boeing territory. Prospective partner BAE is Europe’s biggest security contractor for air, land and naval defence forces worldwide: its biggest market being the US military. It is also heavily involved in contracting the Pentagon and other intelligence services with the systems needed to maintain national security. These include advanced electronics, information technology and support services for computers, as well as armour for defence vehicles and aircraft. BAE and EADS have collaborated in the past and the security multinational produces a significant number of the systems on board Airbus aircraft. Current projects include the world leader in missile technology development, MBDA, and the Eurofighter Typhoon, which, despite controversy over its costs, is currently being used by numerous air forces including the RAF and Royal Saudi Air Force.

What wasn’t
The multi-billion-euro merger could have been immense despite its rejection by the majority of shareholders. A corporation that size would have had a significant impact on the industrial landscape. Both EADS and BAE have offerings that could have made the alliance a formidable player: one that accomplished Airbus’s original mission statement to “strengthen European cooperation in the field of aviation technology”. It would have presented a substantial rival to Boeing: which, despite being most famous for its leading aircraft manufacturing, gets around 30 percent of its proceeds from defence operations.

Pooled revenue figures reveal the size the merged company could have been initially, and presents a case for significant growth potential that could have overtaken rivals across both security and aerospace industries: on turnover at least. Figures from 2011 show EADS had takings of £39bn and BAE of over £19.1bn. This would have meant that the merged corporation had combined returns exceeding £58bn. Boeing’s £42.7bn in 2011 sales, combined with its 1997 merger with McDonnell Douglas Corporation, make it the largest aerospace company. Airbus’s latest report also presents more growth potential, particularly if research and development funding resources are pooled. The European airspace manufacturer is expecting its commercial market to escalate, predicting that, over the next 20 years, it will deliver around 27,900 new aircraft across its designs and mount » a market value of almost £2.2trn: bear in mind these figures do not include growth into competitive US territory as a result of a merger with BAE. This figure, combined with the prospective extension into new commercial and security aircraft markets, would have meant the merged corporation exceeded even Boeing’s expected demand by 2031 (it recently announced a predicted market value of £2.8trn).

The merged company could also have become an influential defence contractor to the US Army. Merging resources and client lists would have widened growth prospects as BAE and EADS also combined manufacturing. BAE Systems has a huge American client base and is the ninth-largest supplier to the US defence sector, making £4.5bn from its Paladin howitzer, various combat vehicles and naval gun sales. Market leaders Lockheed Martin and Boeing make triple that figure. EADS is yet to make its mark on the US defence market. Although it is a frontrunner in the commercial aircraft field, it remains a fledgling competitor in security, offering just UK-72 Lakota light utility helicopters to the American army. Merging EADS’s aeroplane capabilities with BAE’s massive US presence would have made a stronger force, more capable of competing effectively with rivals for US defence contracts.

The collaboration would have created a 220,000-strong workforce across the world and new markets to tap into as geographical scope widened and market leverage strengthened. In comparison, Boeing employs just over 170,000 people across its divisions in 70 countries. EADS currently boasts growing key markets across Brazil, Russia, China, India, Australia and the Middle East. BAE’s biggest markets are based in the US and UK, with unique access to national security documents. Although these are set to decline as military forces retreat from Afghanistan, there is an emerging interest from a new Saudi Arabian market. Together, the partnership would have taken over a huge part of both sectors, building upon respective reputations in their selective markets as a more powerful alliance.

Broken ties
As well as having the scope to take over a huge geographical base, an impending collaboration would have placed a further, more personal burden on Boeing, as BAE is one of its suppliers. In fact, BAE’s efforts in providing Boeing with military and commercial aircraft apparatus were commended in a recent awards ceremony, further signifying just how deep the disruptions could have been for the wider industries as a result of the deal. President and CEO of Boeing Defence, Space and Security Dennis Muilenburg said: “There are national security questions, industrial questions, and those will have to be dealt with… [This is] a serious matter that needs to be scrutinised.”

Among other things, BAE currently supplies the American corporation with automatic flight control systems for its V-22 Osprey tilt-rotor, a touch-screen attendant control panel on the 737 single-aisle airliner, and engine-control systems on the 767 and 787 Dreamliner jets. As it shared its research and development resources with Boeing’s rival, and helped boost its own credentials rather than reduce them, the merged company would have had an advantage in the market. EADS and BAE’s relationship would also have compromised competition confidentiality, as Boeing’s interests were no longer valued. BAE would most likely have shifted any shared plans for development to Airbus, helping develop and strengthen the competition. Boeing would have to have found an equally advanced, alternative contractor to replace electronics that are currently installed in more than 6,000 Boeing planes across 181 airlines.

Despite the prospects of the larger company, negotiations were terminated, leaving BAE and EADS’s futures uncertain. Some analysts have suggested there is a chance the two companies will try to restore their pact at some point in the future. BAE chief Ian King has reportedly said he “still believes in a full merger with continental aerospace group EADS” and would consider organising further discussions if “politicians, particularly those in Germany, could be convinced to change their views”.

In light of huge cuts in defence spending by US clientele (which account for around 40 percent of the company’s revenue), much of the discussion centres on BAE. Some analysts predict BAE will attempt to merge with another firm in the near future or consider other drastic options as it continues to struggle to maintain its business model.

Financial services provider Morgan Stanley said: “While BAE’s lack of near-term growth is well known, the proposed merger could be seen as an indication that the outlook for defence is more difficult than is currently expected. We therefore believe investors will now turn their focus to BAE’s next possible strategic move (e.g. a merger with a different party or [the] break-up of BAE).” tne