Scanned with CamScanner CRITIC Bloomberg Pursuits October 7, 2019 68 Sandals Montego Bay in the early 2000s Just Add People A renovation at Sandals Montego Bay highlights a 35-year love affair with the swim-up bar. By Claire Ballentine The swim-up bar is a polarizing amenity: It’s either the pinnacle of leisure—think of lounging in a Caribbean pool watching the sunset with a piña colada in hand—or a ridiculous chain resort gimmick to siphon more dollars from hotel guests’ soggy wallets. No surprise, then, that they can be found in locations that range from the Four Seasons Resort Maui, which has panoramic views of lush tropical gardens, to a thatched-roof version serving giant pickles at a theme park in Des Moines. There’s even an indoor one at a Times Square hotel. “It goes along with the whole vacation experience,” says Eric Herman, senior editor at Aqua Magazine, which covers the pool industry. “It’s like being served cocktails on the beach. It’s a hedonistic indulgence activity.” Traditionally a swim-up bar is like a regular bar but located directly in the pool, allowing guests to order their frosé without the burden of getting out. There are usually submerged bar stools and a shallow depth, so you don’t actually have to tread while you sip. This year, Sandals Resorts International Ltd. is celebrating the 35th anniversary of the first Caribbean swim-up bar at its Montego Bay resort in Jamaica with a redesign, which was introduced on Aug. 30. Architects removed the window panels that framed the bar’s opening to break down the divide CRITIC Bloomberg Pursuits The D.I.P. Aqua Bar & Lounge is Manhattan’s only swim-up bar COURTESY RESORTS between indoors and outdoors and installed Spanish cedar and teak along the front facade. “Our pool bars are kind of the heart of the hotel—that’s where everyone pictures themselves,” says Maggie Rivera, senior vice president for strategic communications at Sandals. “This one is the iconic cornerstone.” The swim-up bar has its roots in the Las Vegas gambling scene of the ’50s, when poolside amenities began to be used to keep guests spending money while they were relaxing, Herman says. In 1952 the Sands Hotel & Casino introduced blackjack tables and slot machines near their swimming pools. Soon after, the Tropicana Resort offered floating gambling tables. “In Las Vegas, pool design was the key differentiator between resorts [at that time],” says Stefan Al, an architect and author of The Strip: Las Vegas and the Architecture of the American Dream. “If you can’t afford to have your own swimming pool at home, you could go to a resort and experience that suburban luxury.” It wasn’t until 1981, when Sandals Chairman Gordon “Butch” Stewart opened the Montego Bay resort, that serving beachside cocktails to guests became a tradition. During renovations three years later, the brand decided to push the idea further after architect Evan Williams told Stewart that he never understood why you couldn’t have bars in pools. So they decided to create one. It was an immediate hit, and it wasn’t long before other resorts waded into the category. Today you can order a cocktail from swim-up bars at the Hotel Punta Islita in Costa Rica, the Hotel Monte Mulini in Croatia, the Crystal Cove resort in Barbados, and Le Méridien Bali Jimbaran in Indonesia. Sandals has at least one in nearly all of its 15 all-inclusive resorts. Swim-up bars are having a resurgence in popularity for a simple reason: social media. The one at the Four Seasons Resort Maui is one of the hotel’s iconic features, says general manager Marc Bromley. Situated in the adults-only Serenity pool, built in 2009, it serves such signature drinks October 7, 2019 as a mojito with blueberry compote. “It’s kind of ground zero for Instagram in our hotel,” he says. They don’t have to be outside, either. Room Mate Grace hotel in New York has operated the D.I.P. Aqua Bar & Lounge since 2008. (The acronym stands for “dance in the pool.”) Hotel director Alvaro Diaz Martos says it’s the only indoor swim-up bar in Manhattan. There’s also an in-water bar at Iceland’s famous Blue Lagoon, a man-made geothermal spa steaming up a scenic rocky landscape, and the Lotus Swim-Up Bar at the InterContinental Tahiti Resort & Spa, with an infinity-edge pool. Some people choose to bring the vacation vibes to their everyday lives by installing a swim-up bar at home. Austinbased pool designer Brian Cullingworth says the average build-out can add $10,000 or $15,000 to the approximate $60,000 cost of building a home pool. This feature became popular about 20 years ago, as a pool customization trend took hold, coinciding with skittishness following Sept. 11. “People started not wanting to travel, so they started to create staycations,” Cullingworth says. “They were spending money they would normally spend traveling on a pool.” The renovations at Sandals’ Montego Bay swim-up bar include new stonework and quartz countertops, says Sarah Hartman, one of the architects who worked on the project. The hotel installed fans and chandeliers with glass imported from Spain. In addition, coral stone clads the entire building, and the floor is Spanish porcelain tile. “We wanted to enjoy the outside inside and keep the atmosphere casual yet elegant,” Hartman says. Sandals also modernized some of its classic cocktails, such as the Dirty Banana (Appleton Reserve rum, Kahlúa, Baileys Irish Cream, banana, and milk) and added new drinks like the Buffalo Soldier (Casa Noble Crystal tequila, Appleton Reserve rum, lime juice, grapefruit juice, soda, and Scotch bonnet pepper). Still, some drinks needed no improvement, says Ricky DuQuesnay, group manager for food and beverage at Sandals. “When you’re in business for 38 years and clients expect the The Four Seasons Maui rum punch to taste a certain way,” he says, “you don’t want to be changing it.” 69 Copyright of Bloomberg Businessweek is the property of Bloomberg, L.P. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder’s express written permission. However, users may print, download, or email articles for individual use. 1 16 B U S I N E S S Bloomberg Businessweek Maybe AT&T Isn’t Ready for Its Close-Up ● It’s amassed a huge media business, but an entertainment brain drain worries a big investor Edited by James E. Ellis October 7, 2019 Not long ago, an AT&T Inc. executive named Brad Bentley had a novel idea for HBO. Over the years the premium TV network had explored just about every edgy storytelling topic, whether it was the suburban mob bosses of The Sopranos or the incestuous and dragon-riding public servants of Game of Thrones. But Bentley, according to a person familiar with the matter, told network executives in a meeting that the moment had finally come for HBO to expose its millions of subscribers to the one thing that had remained taboo during its 46-year history: commercials. The suggestion didn’t go over well. HBO executives were stunned at the idea of larding down the network’s prestigious programming with ads, no matter how much money it could generate, and pushed back forcefully. “We will never carry ads on HBO,” a company spokesman said. Bentley, who didn’t respond to a request for comment, left AT&T earlier this year. Yet it’s the string of longtime Time Warner entertainment executives who’ve departed since AT&T acquired the media company for $109 billion last year that has some investors concerned—especially as the PHOTO ILLUSTRATION BY 731; PHOTOS: ALAMY (3), GETTY IMAGES (1). STANKEY: COURTESY AT&T ◼ BUSINESS Bloomberg Businessweek deal transformed AT&T into the most-indebted nonfinancial company in the world. Among those are the heads of Time Warner’s three divisions. In September activist investor Elliott Management Corp. called the high rate of leadership turnover “alarming” and a “particularly troubling pattern” given AT&T’s lack of experience in Time Warner’s business, which now represents almost 20% of its revenue. “This lack of continuity in leadership presents a real concern for investors and should be a key focus for the board,” Elliott wrote in a letter to AT&T’s board. Historically, AT&T has focused on things such as spreadsheets and spectrum, whereas Time Warner, now called WarnerMedia, nurtured relationships with celebrities and sports leagues and made creative decisions about shows and movies. Melding those two worlds is a daunting undertaking, especially because AT&T simultaneously knocked down the internal ramparts between Time Warner’s HBO, Turner, and Warner Bros. units to get the entire company working together on a new streaming service. Elliott’s criticism has raised the question of what’s more important to running a media company: the physical assets that AT&T has acquired or the entertainment executives who left, taking with them decades of institutional knowledge and client relationships? AT&T has said its combination of media creation and distribution assets is crucial to its strategy of taking on Netflix Inc. and disrupting TV advertising, while suggesting that the executives who departed won’t hinder those efforts. AT&T has held on to many of the creative executives at Time Warner, including Casey Bloys at HBO; Toby Emmerich and Peter Roth at Warner Bros.; and Sarah Aubrey, Kevin Reilly, and Jeff Zucker at Turner. The telecom giant has also brought in executives with entertainment experience such as Bob Greenblatt, the former head of entertainment at NBC and Showtime, and struck deals with Hollywood talent such as filmmaker J.J. Abrams and prolific TV producer Greg Berlanti. Still, in addition to the three division heads at Time Warner, several high-level executives with Turner’s ad sales and HBO’s distribution operations have departed. Of the top 20 employees at HBO, only a few are left. “There is no HBO anymore,” one former executive says. “There’s only a brand.” A company spokesman said the departures happened partly because the combination of Time Warner’s formerly separate divisions of HBO and Turner within AT&T created overlapping roles. In the letter, Elliott called on AT&T to consider divesting DirecTV, which it bought for $67 billion in 2015. The satellite-TV company is losing subscribers at a rapid clip. But an AT&T spokesman said DirecTV remains an important strategic asset, particularly because it will help distribute HBO Max, the company’s forthcoming streaming service. DirecTV is also crucial to AT&T’s strategy to use data from viewers within its huge base of cellular and pay-TV customers to serve up targeted advertising that can compete with Google and Facebook Inc. That bid to basically reinvent TV advertising has caused confusion both inside and outside the company, according to people familiar with the matter; one reason is that AT&T has approached ad buyers with two separate teams. Xandr, named after Alexander Graham Bell, the founding father of U.S. phone service, is a new advertising and analytics division that aims to use AT&T’s customer data to sell targeted TV advertising. And WarnerMedia’s ad sales team continues to sell TV and digital advertising on channels such as CNN, TBS, and TNT. Until recently, Xandr Chief Executive Officer Brian Lesser reported to AT&T CEO Randall Stephenson, and WarnerMedia’s ad sales team reported to WarnerMedia CEO John Stankey, making it harder for the two units to communicate, one person says. Xandr and WarnerMedia’s sales team haven’t worked closely with each other, preventing AT&T from unlocking their combined potential to serve more targeted TV ads, the people say. Donna Speciale, president of advertising sales at WarnerMedia, left the company in July, and AT&T hasn’t yet named a permanent replacement. A company spokesman disputed that Xandr and WarnerMedia don’t work closely together, saying they’ve made progress in making commercials more relevant on WarnerMedia’s cable channels with Xandr’s data. Xandr is providing “additional resources and insights” into WarnerMedia’s targeted advertising and has created ad products for other media companies, the spokesman said. The next few months could be critical for AT&T. Xandr and WarnerMedia will be under pressure to present a coherent pitch during the spring Upfront market, where advertisers buy the bulk of their TV commercials for the year. And AT&T will soon introduce HBO Max into a crowded landscape for streaming services. Elliott’s letter to AT&T’s board has only raised the stakes. “An alarm went off inside AT&T,” says John Butler, an analyst at Bloomberg Intelligence. “The urgency here to get this strategy in motion and prove it has legs is probably higher now than it was before the letter.” �Gerry Smith, with Anders Melin THE BOTTOM LINE Time Warner was supposed to give AT&T a stream of content to pump through its huge cellular and pay-TV pipeline, complete with targeted ads. Investors aren’t so certain. October 7, 2019 17 ● Stankey Copyright of Bloomberg Businessweek is the property of Bloomberg, L.P. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder’s express written permission. However, users may print, download, or email articles for individual use. Bloomberg Businessweek 46 HOW STOP SPEE TRA W TO OP A EDING AIN October 7, 2019 China’s state-owned rail car company looked like a juggernaut until competitors started talking about unfair practices— and even espionage By Bryan Gruley Photo Illustration by Justin Metz 47 Bloomberg Businessweek 48 economic and military security concern. Lawmakers from both parties have embraced these arguments, though there’s clearer evidence for the former than the latter. In either case, if you’d like Washington to help you kneecap a Chinese rival, now is a good time. FBI Director Christopher Wray told a congressional hearing in July that “there is no country that poses a more severe counterintelligence threat to this country right now than China,” a ccusing it of trying “to steal their way up the economic ladder at our expense.” Lobbyist Erik Olson of the Rail Security Alliance, which represents the four domestic freight car companies, says it’s perilous to give CRRC any benefit of the doubt. “You can’t mitigate against the threat,” Olson says. “You have to choose risk avoidance: Don’t buy the train in the first place.” O n a sunny March day in 2017, then-Mayor Rahm Emanuel plunged a shiny silver shovel into a mound of dirt 20 miles south of downtown Chicago. He, along with a few other local politicians and CRRC officials, was breaking ground for the factory. It was going up in the blue-collar Hegewisch neighborhood on a 45-acre site near a Ford Motor Co. plant, a United Auto Workers hall, and a couple of beer-and-shot joints. The project promised the community 170 jobs and the renewal of an industry that had disappeared when the last rail car shop closed in the early 1980s. “Four years from now, Chicagoans like myself will be commuting on a rail car made in Chicago by Chicagoans,” Emanuel said. That the plant would be built by a company based in Beijing didn’t seem to matter. No U.S. companies make passenger rail cars. That’s partly because Americans don’t travel on trains nearly as much as they do in automobiles. Most of the companies that make passenger rail cars for the U.S. hail from countries where personal train travel is more common: Alstom (France), Hyundai Rotem (South Korea), Kawasaki ( Japan), and Siemens (Germany). And CRRC. The company dates to 1881, when Xugezhuang Machinery Works built China’s first steam locomotive, nicknamed “Rocket of China.” Today, CRRC is effectively a subsidiary of the People’s Republic, with more than 180,000 employees working at more than 40 subsidiaries around the world. The current version of the company was formed by the merger of two huge makers of rail gear in 2015, the same year the national government issued its Made in China 2025 policy. That initiative listed 10 industries in which China seeks to become a global power. No. 5 is advanced rail equipment. China has tried to mute its ambitious tone as the trade war has heated up, but a recent report from the Berlin-based Mercator Institute for China Studies said the country “has not at all abandoned its economic—and strategic—goal of catching up with Western industrialized countries and gaining a competitive edge in high-tech and emerging technologies.” CRRC posted a profit of $1.5 billion last year on revenue of $33.1 billion. It landed its first U.S. contract in Boston five years XINHUA/ALAMY T he concrete floors shine in the new $100 million factory on Chicago’s far South Side. Towering shelves painted in blue, yellow, and red are mostly empty. The quiet is eerie, punctuated only by a forklift’s occasional beep. On a bank of 6-foot-high platforms rest the steel shells of five 48-foot-long passenger rail cars destined for the Chicago Transit Authority. Inside the cars, clutches of workers trace multicolored bundles of wire. Outside, others in safety helmets and glasses attach HVAC equipment to the undercarriages. All work for the Chicago subsidiary of China Railway Rolling Stock Corp. And what they’re doing scares the hell out of some U.S. manufacturers and Washington politicians. CRRC is the world’s largest maker of freight and passenger rail cars. Over the past decade, the state-owned Chinese company has gone from country to country underbidding rivals and taking business from giants such as Alstom, Bombardier, Siemens, and Hyundai’s rail unit, Rotem. When Siemens and Alstom tried to merge two years ago, before being blocked by European Union regulators, they cited the CRRC juggernaut as one rationale. The Chinese company effectively wiped out Australia’s homegrown rail car industry in less than a decade. Early in 2018, CRRC declared in a since-deleted tweet, “So far, 83% of all rail products in the world are operated by #CRRC or are CRRC ones. How long will it take for us conquering the Breaking ground for the Chicago factory remaining 17%?” Since 2014, CRRC has won $2.6 billion in contracts to supply subway cars to transit authorities in Boston, Chicago, Los Angeles, and Philadelphia. The Chicago factory and another in Springfield, Mass., along with a parts-making facility in Los Angeles, collectively employ about 365—including more than 150 union members earning as much as $32 an hour— and plan to add dozens more. In Chicago, production manager Brian Vasquez strolls the floor pointing out empty areas where his facility intends to expand into, among other things, double-decker commuter cars. “It kind of looks like overkill,” Vasquez says, “but CRRC is preparing for the future.” That future is uncertain, in no small measure because of the dysfunctional relationship between the U.S. and China. This is how fraught things are: In a Congress where it’s almost impossible to get anything significant done, four U.S. companies in the freight car business have persuaded the House and Senate to pass legislation that would withhold federal funds for any municipal project using CRRC cars. CRRC’s antagonists echo the Trump administration’s harangues against Huawei Technologies Co. and ZTE Corp. They argue that CRRC will use its advantages as a subsidized company to dominate not only the U.S. passenger rail industry but also, eventually, the larger freight car business. They say, too, that China will use CRRC rail cars for espionage, an October 7, 2019 Bloomberg Businessweek “So much of the conversation about China is what we think they might be up to but so far have no evidence for” ago and secured orders to build rail cars for Chicago and Los Angeles not long after. In Boston, its $567 million bid to supply 284 subway cars beat out the closest rival, Hyundai Rotem Co. Ltd., by $150 million. In Chicago, its $1.3 billion bid for 846 cars was $226 million less than the offer from Canada’s Bombardier Inc. Dave Smolensky, a spokesman for CRRC’s plant in Chicago, says Bombardier originally bid lower in a previous round in which CRRC didn’t participate, then raised its bid after a competitor dropped out. Bombardier “thought they were going to be the sole bidder,” he says. “It’s a perfect example of what happens when you lose competition.” A Bombardier spokeswoman calls this a misrepresentation, saying the requirements changed for the second bid. “We submitted a highly competitive proposal designed to win.” CRRC’s critics say the Chicago contract was the almost inevitable result of a state-owned company undercutting rivals with financial help from back home and dangling baubles like new factories before local politicians. According to the U.S.-China Economic Security and Review Commission, created by Congress in 2000, CRRC received $194 million in subsidies in 2014 and an additional $268.7 million the next year. However, a recent study by the Congressional Research Service concluded that allegations of unfair undercutting have “not been proven,” given that the company failed to win contracts in Atlanta and New York City. It wasn’t CRRC’s initial success making U.S. passenger cars that provoked the company’s antagonists, but a flop in freight cars. The freight business is decidedly different than its passenger cousin. For one, it’s a viable domestic industry—consulting firm Oxford Economics estimates that it accounts for about $5 billion in annual revenue and 65,000 U.S. jobs. While passenger cars, with their interior seating, air conditioning, and other comfort features, can cost more than $1 million apiece, a freight car rarely costs more than $150,000. But freight is a more consistent business over time, because while it’s linked to broad economic cycles, it relies less on customers’ episodic decisions to upgrade their fleets. Municipalities that use federal funds to buy rail cars must also follow “Buy American” laws dating to the Great Depression that require manufacturers to use minimum levels of parts from U.S.-based suppliers. No such rules apply to freight. CRRC’s freight car ambitions in the U.S. first became evident in 2014, when it joined with a Wilmington, N.C., rail technology company called Vertex and a Chinese private equity firm to form Vertex Railcar Corp. Vertex was to build a variety of freight rail cars in Wilmington, creating more October 7, 2019 than 1,000 jobs. The company apparently sold some cars, but legal and other troubles forced it out of business in 2018. CRRC’s involvement nevertheless caught the attention of Amsted Rail Co., a Chicago-based maker of axles, brakes, wheels, and other freight car parts. Olson, of the Rail Security Alliance, says Amsted was concerned about CRRC partly because Chinese state-owned enterprises tend to rely heavily on Chinese suppliers. Amsted had noticed with alarm that after CRRC’s two predecessor companies entered the Australian rail car industry in 2016, they took over. The largest Australian rail car maker, Bradken Pty Ltd., had 40% of the market in 2008; by 2017, it had exited the freight and passenger markets and CRRC claimed virtually all of both. Amsted sought help from Olson, a former c ongressional staffer who had joined Venn Strategies, a Washington lobbying firm. In May 2016, Olson helped form the Rail Security Alliance with Amsted and three other U.S. rail equipment makers: American Railcar Industries, Greenbrier Companies, and Trinity Industries. That’s not an especially large lobbying force, but it quickly proved effective. By September more than 50 congressional Republicans and Democrats had signed letters to the Committee on Foreign Investment in the U.S., or Cfius, urging it to review CRRC’s role in the Vertex joint venture. The lawmakers argued that the Chinese company was likely to shift purchasing to China, leaving Americans with nothing more than assembly work. They also raised concerns about cybersecurity. Cfius never acted on Vertex. But the U.S. suppliers started lobbying for legislation that would ban municipalities from accepting federal funding for contracts with CRRC. Key congressional supporters included Texas Senator John Cornyn, a Republican, and others with rail interests in their states or districts. Last year the ban on federal money made it into a government funding bill but was stripped out before the legislation reached President Trump’s desk. The companies have continued pushing for the ban, amplifying concerns that CRRC trains pose a cybersecurity threat. T he ground in Washington was fertile for such talk. As the Rail Security Alliance cranked up its spytrain campaign, the Pentagon was banning the sale of Huawei and ZTE phones on U.S. military bases, and the Army was stripping its bases of surveillance cameras made by Chinese state-owned Hangzhou Hikvision Digital Technology Co. China’s government was denying reports that it had bugged the headquarters it built in Ethiopia for the 55-nation African Union. On Capitol Hill, the alliance circulated a glossy 15-page pamphlet, authored by retired U.S. Army Brigadier General John Adams, highlighting potential economic and cybersecurity threats posed by CRRC. It raised the possibilities of China secretly monitoring military rail movements and facilitating toxic chemical spills. “I know they have the capability because we have the capability. We just don’t do it,” Adams says. “And I do believe, 49 50 based on their behavior, that they have the intent.” It was in this atmosphere that CRRC emerged in late 2018 as a possible bidder on a contract to supply rail cars to the Washington, D.C., subway system. Security hawks immediately started floating the prospect of China using secretly implanted devices to watch and listen to policymakers as they rode the rails near the Pentagon and Capitol. Congressional hearings followed. The legislation that fell short last year started moving again, and the Rail Security Alliance picked up support from the Alliance for American Manufacturing, the Railway Supply Institute, and other advocacy groups. There have been no reports of CRRC trains being used to snoop. “It’s a conspiracy theory right up there with Bigfoot,” says Smolensky, the company spokesman in Chicago. “Once a rail car is delivered to the transit authority, they have full operational control. The manufacturer does not have access to the rail car.” Robert Puentes, chief executive officer of the nonprofit Eno Center for Transportation, says transit authorities carry out regular quality inspections and it’s “ludicrous” to think a manufacturer could sneak surveillance devices into trains. “If the federal government really wanted to be helpful,” “If it isn’t CRRC, who’s it gonna be? There is no American rail car manufacturer” he says, “instead of blocking CRRC, they could give people more money to do better inspections.” It’s not always that simple. The inspector general of Washington’s transit authority found that third-party contractors and vendors could unwittingly make the subway system vulnerable to cyberattacks. In theory, as CRRC helps to maintain the cars it built, the company could create backdoors for intrusion via software updates. Those “could be turned on and off as needed,” Adams says. CRRC’s adversaries have seized on a federal indictment charging a Chinese software engineer at an unnamed Chicago locomotive manufacturer with stealing proprietary information and taking it to China. Although CRRC wasn’t implicated, the alleged theft “makes clear that the U.S. rail market is also becoming a target” of China, says a recent report by consulting firm Veretus Group. Freight cars pose a somewhat different vulnerability than passenger ones because they ferry economically valuable items such as lumber and oil, and also because they’re crucial to military mobilizations. “Rail networks are particularly at risk because they are extensive, dispersed, and complex,” says a recent report by management consulting firm Oliver Wyman. The industry is rolling out a nationwide web of Wi-Fi, GPS, and other technologies designed to smooth scheduling and prevent crashes; that, too, could be a target for bad actors, the report says. “So much of the conversation about China is what we think they might be up to but so far have no evidence for,” says Bruce Dickson, a political science professor at George Washington University. “You either are suspicious that they PHOTOGRAPHS BY TONY LUONG FOR BLOOMBERG BUSINESSWEEK (4) CRRC’s Springfield plant, where cars for the orange line of the Boston T are being built might do something and deprive yourself of a high-quality, low-cost rail car, or you can say there’s no evidence and then look like a dupe.” J ohn Scavotto Jr., business manager of Sheet Metal Workers Local 63, which represents some workers at CRRC’s Springfield plant, 90 miles west of Boston, says it’s frustrating that CRRC hasn’t gotten more credit for paying Americans good union wages. “Before this plant was here, this was a big, empty lot,” he says. “CRRC is offering Springfield a lifeline. It’s a place where you know you’re going to go every day and walk out in 20 years with a pension. There’s security.” Scavotto says he gets “wound up” at talk of CRRC building spy trains, because his members worry it could cost them their jobs. “Are we really saying to ourselves that the Chinese are smarter than us?” he says. “If it isn’t CRRC, who’s it gonna be? There is no American rail car manufacturer. We let the Germans come in here, South Korea, France—they’re all foreigners.” CRRC’s critics say the Chicago and Springfield f actories employ far fewer workers than would be required to manufacture entire rail cars—hence the relative quiet in the two facilities. The company ships prefabricated train shells to the U.S., where workers fit them out with necessary equipment. Officials at the Chicago and Springfield plants say they satisfy Buy American rules, which require 70% U.S. content. The recent Congressional Research Service study concurs. “Do we have an advantage in building shells in China? Absolutely,” says Springfield facility director Vince Conti, a 30-year rail car industry veteran who previously worked for Bombardier in China and India and elsewhere. “It feels like we’re being targeted because we’re a Chinese company.” Well, yes. The question is whether the concerns surrounding CRRC are legitimate. The Rail Security Alliance has spent $2 million on lobbying, most of it going to Olson’s firm, Venn Strategies, according to OpenSecrets.org. The two U.S. CRRC factories, which have retained lobbyists only in the past year or so, have spent at least $160,000. The Massachusetts factory recently launched a website that seeks to counter anti-CRRC claims, boasting that the plant uses parts sourced from New Jersey, South Carolina, Wisconsin, and other states. The site also links to Wall Street Journal and Boston Globe editorials casting trains as no more of a spying threat than ubiquitous Chinese-made smartphones. None of this is likely to stave off the legislation, which this time is part of a defense spending bill. Assuming that it becomes law, CRRC would be allowed to fulfill its c urrent contracts, all of which involve federal funds except the one with Boston. Any transit authorities that sign a contract with CRRC in the future would have to do without federal dollars. That could change the calculations considerably. CRRC’s spokeswoman in Springfield, Lydia Rivera, says the legislation would eventually force the factory to close. Smolensky, the spokesman in Chicago, won’t go that far. He says CRRC will continue to educate policymakers about the “unintended consequences” of the legislation: lost jobs and higher prices for rail cars. �With Chunying Zhang 51 Copyright of Bloomberg Businessweek is the property of Bloomberg, L.P. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder’s express written permission. However, users may print, download, or email articles for individual use. TO: Prof Anderson FROM: Mahmood Alyahya DATE: 9/23/2019 Re: Second Businessweek Memo In the modern business environment, interest groups and organizations have focused on the various ways of manipulating the political and legal segments of the business environment. This has led most organizations to come up with different strategies to deal with threats and opportunities and threats arising from this segment to their advantage. However, the laws and regulations set by the government influence the organizations’ competitive actions and activities. The current tariffs imposed by the United States government in the manufacturing sector has left manufacturers with limited options to survive the competitive environment. From recent reports, the government imposed 25% tariff on steel which has led to increased input cost and decreased revenues. As a way of surviving the current political environment, manufacturing industries have reduced the number of employees. The number of employees working in the manufacturing industry has dropped from 170,000 employees to 44,000 employees between 2018 and 2019. Kuhn manufacturing company has been hugely affected by the current political climate. For the past 12 months, Kuhn suffered $2.5 million more to purchase steel as compared to the previous years. The company is also expected to pay approximately $1million for tariffs. This indicates that the current political climate has led to increased production cost thus reducing revenues obtained from the manufacturing industry. Globalization is a current trend observed in many organizations. This calls for a critical analysis of both new and existing global markets. Globalization is important because it saves the organization from the effects of a declining economy. The auto industry in India is facing an economic challenge characterized by contracting automobile sales. The chairman of Suzuki explains that the situation is bad and there is a high probability that most people in the auto industry will continue to lose their jobs. The contracting sales result from the availability of transport substitutes and the stagnant income. In the case of globalization, the auto industries are less likely to be affected problems experienced in the local economy. From financial reports, India’s GDP has dropped with a 6.1% unemployment rate. For auto companies like Suzuki operating in this economy are likely to make continued losses. This leaves the global market as a major option to survive the declining economy. The demographic segment is a critical aspect of the business environment. A clear understanding of income distribution across different population informs organizations about the population’s discretionary income as well as the purchasing power. Thus, most organizations focus on employee income as a way of motivating employees to accept their international assignment. Nevertheless, Lastoria, who is the owner of a fast-food, has purposed to be the most progressive employer in the fast-food industry. To achieve this, the hourly wage of the employees must be above the set industry hourly wage which is $9.84. Reports from the casual market indicate that fast-food consumers are ready to pay more for the best foods. Despite the efforts made by Lastoria to improve employee income, the employee turnover rates have remained below the industry average.
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