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New Congress, Old Problems; Wall Street Rally Subsides; New US Congress Sworn In; US Fed Minutes Released; Transocean Oil Spill Settlement; Google Cleared Over Search Bias; Depardieu's Russian Offer; European Markets Mixed; Dollar Continues to Strengthen; Make, Create, Innovate: Compulsive Creator

Aired January 3, 2013 - 14:00   ET


RICHARD QUEST, HOST: Let the debt ceiling fight begin. A new US Congress is drawing the battle lines in Washington.

A Russian welcome. Gerard Depardieu gets an official invitation.

And four fingers of victory. Nestle wins a key trademark battle.

I'm Richard Quest. Tonight, I mean business.

Good evening. A brand-new US Congress is back to work as the stock markets have come back down to Earth. A fresh set of lawmakers is now tasked with dealing with the debt ceiling, imminent spending cuts in the aftermath of the fiscal cliff.





QUEST: And with that, the 113th United States Congress is officially in session. Vice President Joe Biden opened the Senate a few hours ago. The House will be officially sworn in anytime now, an hour or so. John Boehner's just been reelected speaker of the House.

The previous Congress will go down as the least productive in 40 years. There we have Mr. Boehner now in the speaker's chair as they're getting ready to do the oaths of office and the like, live pictures from the Capitol.

The passed 220 laws in the 112th Congress, and 18 percent of them were to do with renaming post offices. I jest not. The markets are ready for months of squabbling. These are --


QUEST: -- excuse me. The Dow is off 2.5, 13,409. Now, the significance of this, the honeymoon period is over. Bank stocks gave up the gains from Wednesday, the ADP jobs report beat expectations.

But here's the importance: the Dow may have been 300 points to the good on the day the House passed the fiscal cliff, but the speed and rapidity with which those gains have evaporated and we're bumping it on the bottom is what we'll be talking about now.

Let's move on and put this into perspective for you. Athena Jones is on Capitol Hill in Washington, Felicia Taylor is at the New York Stock Exchange. We'll come to you in a moment, Felicia, hold your fire. Let's go to Athena at the Capitol.

All right. So, the 113th Congress is underway. The core question: are Republicans going to be as bloody-minded on the question of debt ceiling and all these other issues as they were on fiscal cliff?

ATHENA JONES, CNN CORRESPONDENT: Well, it certainly seems like they're going to be, Richard. It's like you said, there's a fresh start, fresh faces, but a lot of the same ideas, and a repeat of some of the same fights we've seen.

As you mentioned, the next big things coming up, the debt ceiling, we know that this Monday, this past Monday, the government reached the debt ceiling, reached that $16.4 trillion borrowing limit, and so that ceiling, that borrowing limit, is going to have to be raised by late February or early March, possibly.

Also, this fiscal cliff deal, all it really did was push it all off, the automatic spending cuts that are just going to be so damaging to the economy, put them off --



JONES: -- we know that the Republicans are going to want to see those cuts.

QUEST: I'm jumping in here. Help me understand the political makeup of the 113th Congress. Now, although the speaker -- although Republicans may have the majority, do we still have as many of those rabid Tea Partiers?

JONES: Well, that's really the big question right now, is how many -- how much the Tea Party is going to continue to have an influence.

But even leaving aside the Tea Party, Richard, you have Senate minority leader, Mitch McConnell, who wrote an op-ed for Yahoo today where he basically threw down the gauntlet and said that the biggest issue is going to be reigning in out-of-control government spending.

And so, he's signaling right there that this debt ceiling debate that's coming up is going to be the perfect place to do that. We already heard President Obama say that he refuses to -- he's not going to be negotiating over America's ability to pay its debts.

But we already saw how that turned out a couple of years back, and we know the Republicans are going to use this debt ceiling fight to make sure that they get some of the spending cuts they didn't get in this latest deal.

QUEST: Pause there. Let's just sit in on the Congress, see what's happening.

REP. JOHN BOEHNER (R), SPEAKER OF THE HOUSE: You come here humbled by the opportunity to serve. If you've come here to be the determined voice of the people, if you've come here to carry the standard of leadership demanded not by our constituents but by the times, then you've come to the right place.


QUEST: Felicia Taylor on Wall Street. "If you've come to note the times, you've come to the right place." The markets giving its reaction within seconds.

FELICIA TAYLOR, CNN INTERNATIONAL CORRESPONDENT: Yes, absolutely, there's no question about it. The market's now down 25 points. Earlier today, we did get some good news. Ford, Chrysler, GM, all up between 2 and 10 percent in terms of sales for December. That ADP number that you mentioned with private sector payrolls, that came in better than expected. But jobless claims were up 10,000.

It's not really enough for the market to move either way, but now we just got the Fed minutes. They're literally just coming out.

QUEST: Right.

TAYLOR: You can see that January is going to be a volatile month. One analyst says to me, we only got half a loaf. We didn't get the whole thing, and that's why the market's going to be in a holding pattern and going back and forth like this for the rest of the month.

QUEST: I'm looking at these Fed minutes, long and complicated as they usually are, but they are now out, and they suggest that the Fed -- the main headline, to take several members said that it may be appropriate to slow or stop the asset purchase, now, in the event they went for open-ended asset purchases. But clearly, some thought a deadline should be set, and some thought it should be the end of 2013.

TAYLOR: Yes. And that's not what the markets wants to hear. The market has been convinced that they were going to continue to flood the market with those kind of asset purchases. That's what Bernanke has been saying, that he's ready to do it, he's done it, we've got QE4 out there.

So, that's what the market didn't want to hear in those Fed minutes, that there's no some sort of dissension within the Federal Reserve and that maybe they're going to end that bond-buying program earlier than expected.

So, obviously, that means the market's not going to get the support that we've been seeing for the last couple of years. That's what QE has done. It's all on the hands --



TAYLOR: -- of DC, and that makes the market nervous.

QUEST: OK, just tell me quickly, very quickly, what the Dow's showing at the moment. Just very quickly, the Dow is?

TAYLOR: The Dow right now is -- what? -- it's down about 25 points? Yes, down about 20 points.

QUEST: Right.

TAYLOR: So it's struggling. It's not -- it's not really sure how to look at this yet. I'm just going to -- I'm going to quote one person, Nouriel Roubini, he's always known as Dr. Doom, but he said earlier that the reality is that America has yet to wake up to the full extent of its fiscal nightmare. That is the truth.

QUEST: Roubini writing in the "Financial Times" when he pointed out that quote, and the failures of the fiscal cliff deal. Felicia Taylor, who is in New York, we'll keep an eye on what's been happening as that moves along.

The owner of the Deepwater Horizon oil rig has been fined almost $1.5 billion because of what happened in the Gulf of Mexico oil spill. David Mattingly is following the story from the CNN Center and joins me now.

OK, Transocean owned the rig. It was leased or rented, whatever you want to say, to BP, but it was operated by them, and now they've agreed that there were shortfall -- shortcomings in the way they did this. That's the gist of it.

DAVID MATTINGLY, CNN NATIONAL CORRESPONDENT: That's right. There are two significant things here. First of all, the significance that Transocean is admitting its involvement in the problems that led up to that disaster in the Gulf two years ago.

Also, the fact that they're paying a criminal and a civil fine here in their settlement with the US government. That is something that we haven't seen with the other parties yet, and that is something that the Justice Department was very happy about today, Richard.

QUEST: OK, so -- they've admitted that criminal and civil penalties. But they're still not joining in, if you like, with BP in paying any of the compensation. They haven't done a deal yet with BP to help compensate them back, and they've actually gone further than that and said that they won't.

So, how do you square that for me, David? They're admitting they've done wrong, but they're not as yet going to deal with BP.

MATTINGLY: This was the biggest deal that they had to make was with the US government. They were the ones that were imposing these fines, both criminal and civil. Yes, there's still pending litigation that could go on, possibly, for some time here with the other parties involved with that rig.

But right now, as owner of that rig, Transocean has put out a statement, as has the Justice Department. The Justice Department very clear here saying that Transocean Deepwater, Incorporated has admitted that members of its crew onboard the Deepwater Horizon were negligent in failing fully to investigate clear indications that the Macondo well was not secure and that oil and gas were flowing into the well.

Now, Transocean, for its part, also put out a statement today, a little more forward-looking, but saying this is a positive step forward. They were saying they wanted to get rid of the uncertainty associated with the accident, but it is also time to reflect on the 11 men who lost their lives aboard the Deepwater Horizon. Their families continue to be in the thoughts and prayers of all of us at Transocean. So, Transocean --


QUEST: I -- I --

MATTINGLY: -- as far as the Justice Department is concerned, the Justice Department is done with Transocean. Transocean may not be done with the other players involved in this case.

QUEST: That's what I'm getting to. That's what I -- we need to just sort of circle around. BP's share prices actually gone up because -- on its ADRs in the US, because clearly now they've done the deal with the Justice Department, they've admitted an element of negligence. As night -- as day follows night, surely a deal with BP must be on the cards.

MATTINGLY: Well, BP has already agreed to settlements with the US government in the criminal aspect of this. It was $4.5 billion that they agreed to pay in November in criminal -- the criminal aspect of this.

The civil aspect of it with the US government is still pending. We could see that going to court as early as next month.

QUEST: Right.

MATTINGLY: And billions could be on the table there as well when we start looking at the possibility of BP paying for all those gallons of oil that was dumped into the Gulf of Mexico. When it comes to the Clean Water Act, and the penalties associated with that.

So, the Justice Department clearly not done with BP, but they are done at this point with Transocean.

QUEST: David Mattingly for us tonight at the CNN Center.

Google has been cleared of any wrongdoing in the anti-trust case brought by US regulators. In the past hour, the Federal Trade Commission in the US, FTC, said it found no evidence that Google search was biased against the companies competitors. Google has agreed to share some of its SmartPhone and tablet patents with its rivals.

The State Department also criticized Eric Schmidt's plans to visit North Korea. The State Department says the Google executive's trip does not come at the right time.

You're up to date with the main headlines so far. Here's an interesting story. The actor Gerard Depardieu's complaints about French tax hikes have a sympathetic ear. When we come back, the country that's offered him a new home.


QUEST: The Russian president Vladimir Putin has offered Gerard Depardieu a new place to pay his taxes. They gave him a Russian passport. The French actor renounced his French citizenship after complaining about the government's plan for a sharp rise in the top tax rate.

Now, join me over at the CNN super screen and you'll see some super numbers. First of all, let's begin -- well, the top tax rate, we know, in France is 45 percent at the moment. It's going up to 75 percent once they've got over the Constitutional Council hurdle. In the United States, it's just gone up to 39.6 as a result of the deal done in Congress, the fiscal cliff.

Now, in Russia, the top tax rate is 13 percent. So, it's not surprising that Mr. Depardieu has decided -- maybe there. But he could also go up to Belgium, where he's also got residency and citizenship, or tax residency.

Jim Bittermann is in Paris for us tonight. Jim, is this -- I know Depardieu and Putin are old friends, but has he been given this citizenship for tax purposes?

JIM BITTERMANN, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, Vladimir Putin didn't say that, but he has the right as the president to grant citizenship in this kind of situation, and he's done so. Apparently, he sent a passport. Depardieu said before Christmas that he had received a Russian passport.

And he's also confirmed just in the last couple of hours, a letter has come out that he sent to Russian media basically saying that he had asked for the passport, that he intends to learn Russian, and that he feels very at ease in Russia.

He said -- he reminded us of something a lot of us had forgotten, and that is that his father was a Communist and he grew up listening to Radio Moscow.

Now, all of this, of course, has come down not so well on the streets of Paris. Here's some of the reactions we got today from people.


UNIDENTIFIED FEMALE: I don't know why he changed. It's his choice, but I don't get it. Completely leaving a nationality, he was such a good actor. It doesn't make sense.

UNIDENTIFIED FEMALE (through translator): I wonder if it isn't some sort of blackmail so that France gives in more easily to people's desires about not paying taxes. I find it cowardly, because after all, he owes his career to France.


QUEST: Jim, the -- it's a bit extraordinary. Surely -- all right, there may be a couple of ho ho ha ha smiles about this, but most leaders do not go and snub another country by offering a passport on a tax dispute like this. When Hollande meets Putin, as they will at the G8 in Northern Ireland later this year, or anywhere else, for instance, they're going to wonder what on Earth Putin's up to.

BITTERMANN: Well, in fact, that's right. It could lead to some other implications in terms of relations. One of the things the government spokesman said today, she went before the press, they asked her about this, then she said, this has nothing to do with the French government, this is simply Mr. Putin's gesture and it's up to him.

Of course, it has everything to do with the French government and of course the taxes that Mr. Hollande is trying to inflict, here. So, it's -- if nothing else, this is a huge embarrassment for the Hollande government and huge image problem for France.

Here's a country struggling to get and attract foreign investment, struggling to get unemployment back on the rails, and in fact this kind of thing just adds to this image problem that France has, Richard.

QUEST: The lights are still on on the Champs-Elysee, so the Christmas lights are still going. My guess is that you've probably got a couple more days of that, Jim, before they'll switch them off. Maybe the 12th night, or whatever it is. Well, maybe when they can no longer pay the bills. Jim Bittermann, who is in Paris for us tonight.

European markets had a mixed session following yesterday's exuberant rally. Just shows you what a difference a day makes. Now attention is shifting to the US debt ceiling. London and Athens finished higher. Greece's Titan Cement raised $260 million through a bond issue. Paris and Frankfurt were lower.

Tonight's Currency Conundrum. Between 1959 and 1966, the UAE, as much of the Gulf, used a currency called the Gulf rupee. Why was it replaced? A, because of inflation? B, some states disapproved of the images on the notes? Or some Gulf states became independent? The answer later in the program.

The dollar is strengthening for the second day against the pound and the euro. It's made gains against the yen. Those are the rates --


QUEST: -- this is the break.


QUEST: The Swiss watch industry was struggling when the Swatch was born. Cheap, simple, fashionable, it transformed the timekeeping trade. On tonight's Make, Create, Innovate, we meet a co-designer of the Swatch, Elmar Mock. And as Nick Glass reports, it was just the beginning of a career of -- well, frankly -- compulsive creativity.



NICK GLASS, CNN INTERNATIONAL CORRESPONDENT (voice-over): Just words on an office wall in Switzerland, but they're not chosen randomly. They hint at the working philosophy of an extraordinary company, which crystallizes ideas and makes them tangible. And they've had astonishing success. Founded by Elmar Mock in 1986, Creaholic has generated over 150 patents.

GLASS (on camera): What is Creaholic?

ELMAR MOCK, CO-INVENTOR OF SWATCH: Creaholic is something between workaholic, alcoholic, sexaholic, chocoholic.

GLASS (voice-over): The company sets out to pioneer serial innovation, with every idea filed away in a library of invention.

MOCK: You see here the history, what we did in the last 25 years, so that we can go back and be inspired by a different kind of job.

GLASS: Mock learned everything he knows about the ideas process from his first job in watchmaking at age 26. In the 1970s, the watch industry in Switzerland was in steep decline. In a decade, they lost major ground to the Japanese.

MOCK: The solution was make a new product that can be high quality, low cost, and produced in a very short time.

GLASS: Mock co-designed the Swatch watch, with half the number of parts of a normal quartz watch at a quarter of the cost, just $3.50.

With clever marketing, the Swatches went stratospheric, and today, the Swatch Group is the world's largest watch company, 300 million watches sold and counting.

GLASS (on camera): How much money has Swatch watch made?

MOCK: Seven billion dollars profit.

GLASS: That's astonishing. And how much of that did you see?

MOCK: I received $400.

GLASS: Bonus.

MOCK: Bonus.

GLASS: That was it?

GLASS (voice-over): A modest bonus, but invaluable experience.

MOCK: It was the best school I would ever be able to imagine. Such was discovering what is a product, what is a design, what is marketing, what is a name. Creaholic would never exist without Swatch.

GLASS: The company, with a team of 25, now has a turnover of $4 million a year. Ideas are batted around in a fluid, questioning, creative, holistic way.

MOCK: You must first discover what is disturbing, what is not sold correctly. A lot of people are waiting that somebody make a job description. We are looking for the job description.

GLASS: In other words, Creaholic seeks to redefine the question before finding a solution. 80 percent of their ideas are for clients, including Tetra Pak and Nestle. But Creaholic also invents things purely for itself.

A simple, hygienic, and water-saving hand wash. A miniature engine smaller than a pinhead used in cameras to steady the image.

This is a new way of fixing bone quickly in delicate operations, like those on a baby's skull. These screws briefly melt or liquify, take root like a tree, anchoring bone to bone.

GLASS (on camera): You have to do it. You're addicted to ideas.

MOCK: It's an addiction, yes. I think it's -- basically, you have serial killers, and you have serial inventors. Both are addicted to a form of pleasure. Our pleasure is a positive pleasure, the creative one.

GLASS: Yet another Creaholic creation: a training device made of sprung wood for a tightrope walker, and you could say it's a metaphor for what Creaholic do. They approach things differently, from the slightly off-balance way. And it's paid dividends.


QUEST: I'd love to have a go at that. That's something I'd want to try. You can find more on this story and other creations on the Make, Create, Innovate website, And I'm back after the break.


QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in a moment. This is CNN and, on this network, the news always comes first.


QUEST (voice-over): Five men in India have been formally charged over the brutal multiple rape and killing of a 23-year-old woman. Investigators are trying to determine if a sixth suspect is a minor. The trial is being fast-tracked and may begin as soon as this weekend. The attack has triggered massive protests demanding better protection for women.

A top Taliban commander in Pakistan is among more than a dozen people killed in new U.S. drone strikes. Pakistani officials say Mullah Nazir was killed in a northern tribal province. He had signed a peace agreement with Pakistan but was suspected of orchestrating attacks on U.S. troops in Afghanistan.

The drilling rig operator Transocean has agreed to pay more than $1 billion in fines and penalties for its role in the 2010 Gulf oil spill disaster. Transocean pleaded guilty to violating the U.S. Clean Water Act. A blowout on the rig killed 11 people and sent nearly 5 million barrels of oil into the Gulf of Mexico.

The French actor Gerard Depardieu has been granted Russian citizenship by President Vladimir Putin. The actor recently said he would give up his French passport after the government criticized his decision to move abroad to avoid higher taxes. He's yet to comment on the Kremlin's announcement.



QUEST: There's the cockpit. Now India's Jet Airways says as confirmed it is in talks to (inaudible) stake in the airline to Etihad. The deal would give Etihad a bigger presence in emerging markets and ease jet finances. If you look over here at the superscreen, you'll see what the tie-up looks like.

Starting first of all with Etihad, the Abu Dhabi national carrier, now it's clearly in the play -- just to show that again -- it's clearly in the driver's seat, the captain's seat. So we put it on the left side. And already because of the proximity to the Gulf, with the Gulf being just 8hours' flying to all major population sources, Etihad's already carrying a large chunk of traffic between India and the Middle East.

With this deal, if it goes ahead -- big if -- it goes ahead with Jet, it would have a much greater exposure and entrance to the Indian market. Etihad already has stakes in more than a 20 percent stake in Air Berlin of Germany, Seychelles and it has an agreement with Air France KLM.

James Hogan, the chief executive of Etihad, told me earlier the deal for India, which isn't necessarily (inaudible), but a deal for the Indian subcontinent was important.


JAMES HOGAN, CHIEF EXECUTIVE, ETIHAD: Taking advantage of this crossroad of the Gulf in our case Abu Dhabi and the way that we link to not only the Middle East but of the Indian subcontinent, which is this huge market in its own right. That's what we've taken advantage of. And that's been behind the acceleration of the airlines.


QUEST: So India is exceptionally important to Etihad in the left-hand seat. On the right-hand seat, for Jet Airways, the company has, of course, got a $2 billion debt burden which needs to be eased. The shares closed up nearly 5 percent on this, because it will make it -- Jet -- a stronger carrier. It will allow expansion into other parts of the world.

And it all takes advantage of the relaxed ownership rules that came into force in India. Crucially, of course, for Jet Airways, probably they would shift their hub from Brussels at the moment down to Abu Dhabi.

Now if you take the two airlines together and you put them -- they've had a code share since December. And if you just look at the agreement, Etihad operates services to nine Indian destinations. Jet flies to 125. You can see by linking these two together you create a very powerful force for Etihad and for Jet.

As for who is left outside, outside -- oops. There you are. Kingfisher probably shut out; it's grounded since October. Strikes have taken its toll. Its license has been suspended and its shares closed down 2.5 percent.

Kingfisher had been rumored to be one of those airlines talking to Etihad. Bettors' money suggests the deal will be done with Jet. And Indian government sources said Etihad will pay a 24 percent stake at $330 million. And a quick question for you: what cockpit is that? What aircraft cockpit is that? Send me a tweet @RichardQuest. There's no prize, but we might ring out -- read out the winner. What cockpit?

All right. Etihad isn't the only Gulf company with international shopping lists. Al Jazeera, based, of course, in the Gulf in Qatar, has bought Current TV, the U.S. channel cofounded by the former vice president, Al Gore.

Maggie Lake's been following the story.

Maggie, I want to take this in a fair old clip.

Why is Al Jazeera buying Current?

MAGGIE LAKE, CNN CORRESPONDENT: All about access, Richard. Al Jazeera has had a hard time getting a foothold here in the U.S. This is going to help them. They're in about 5 million households right now. This will increase at about tenfold. It's still going to be an uphill battle right now, though, and here's why.

If you look and try to turn on Al Jazeera here in New York, this is what you get today on TimeWarner Cable, one of the outfits that had been carrying Current TV. It says it is not available. They are not carrying it anymore.

And I spoke to TimeWarner Cable, and they said that basically they executed a change of ownership clause. They were clear to say this had nothing to do with politics. As you know, some in the States criticized Al Jazeera; believe it has an anti-American slant. TimeWarner's saying this is all about business.

They're going to evaluate it, see what the customer interest is, see if it's good value and then take it for there. But for right now, you can't get it. And it does look like the other cable operators are going to give Al Jazeera America a chance, though, and let it carry.

But, listen; it's a tough landscape this year.


QUEST: Maggie, hang on.

LAKE: As you know, Richard.

QUEST: Right, but Maggie, they're not planning to run Al Jazeera Arabic or even Al Jazeera English. They are planning to launch, as I understand it, a new network, open many more bureaus across the United States, and that would put them, of course, in competition with our sister network, CNN U.S.A., will put them in competition with MSNBC, in competition with FOX.

LAKE: And all the traditional broadcasters in the U.S. who also do news, and that is why cable operators have been reluctant, Richard, to grant access to or distribution to any news channel. It's a crowded field already. And unless their viewers are absolutely demanding it and hitting the phone, the cable operators don't want to do it.

So you've got to sort of prove the audience. Al Jazeera said 40 percent of the people that go to their English website are based in the U.S. They say they demand it there. But right now, they're going to have to prove that to cable operators. And it's not just news, Richard. Listen, Oprah Winfrey has had a hard time getting distribution on cable channels. So it is really tough here in the U.S. And by the way, Al Jazeera --

QUEST: All right --

LAKE: -- paying a pretty hefty price to do that as well.

QUEST: She may be the wealthiest woman in television, but she doesn't have the emir of Qatar's vast wealth churning out money every time -- all right, Maggie Lake, many thanks indeed.

Quick. It's a story we'll watch very closely.

Coming up on QUEST MEANS BUSINESS, have a break. Have a Kit Kat. The sweet smell of success for the makers of the Kit Kat. Nestle trumps the archrival Cadbury's. Is the shape of this chocolate bar, is it really trademarkable -- after the break.





QUEST (voice-over): The answer to our "Currency Conundrum," why was the (inaudible)? The answer, independence. The Gulf rupee was pegged to the Indian rupee (inaudible) pound sterling. Once Kuwait, Bahrain and other states became fully independent of Britain, they replaced it with their own currencies. Can't say I blame them.


QUEST: Here's to a legal battle you can get your teeth into. Nestle has beaten rival Cadbury in a trademark dispute. It's all about the shape -- it's all about the shape of the four-finger Kit Kat bar. Now last month, Haribo took action against Lindt over its Gold Bear name and it won. And in October, Cadbury clashed with Nestle again to protect its famous purple branding.

So you've got gold from Haribo, purple from Cadbury's and the famous Kit Kat bar with its distinctive shape. Kit Kat's been around for quite a while. Ayesha Durgahee looks at its history.


UNIDENTIFIED MALE: Have a break. Have a Kit Kat.

UNIDENTIFIED MALE: What do you think?

UNIDENTIFIED MALE: You can't sing. You can't play. You look awful. You'll go a long way.


AYESHA DURGAHEE, CNN CORRESPONDENT: Kit Kat have been giving millions of breaks for decades. Fingers of wafers and chocolate that started out as Chocolate Crisp in 1935 made by Rowntree's. The confection was renamed Kit Kat in 1937.

Then came the tagline that offered an excuse to take time out and take a bite.

UNIDENTIFIED MALE: Well, no rest for the wicked.

DURGAHEE (voice-over): Bought by Nestle in 1988, Kit Kats are still made at the original Rowntree factory in New York. Three million Kit Kat bars are produced here every day.

DAVID BROXUP, KIT KAT PRODUCTION MANAGER, NESTLE: In total, on this side, we made 52,000 tons. Twenty-seven percent of that volume is exported. The Middle East is probably our biggest customer.

DURGAHEE (voice-over): David Broxup has been working at the Kit Kat factory for 40 years and has seen a lot of changes, from hand feeding the chocolate into the machines to a completely automated process.

But what about the taste?

BROXUP: We basically have kept the original Rowntree recipe. There might have been small tweaks here and there, but predominantly, the recipes are identical to it was when Rowntree made it.

DURGAHEE: Can I have one of them?

BROXUP: You're not allowed to eat online, I'm afraid.


BROXUP: But you can taste them in our tasting room, that's for sure.

DURGAHEE (voice-over): Kit Kat is now sold in 70 countries, with different flavors to suit local taste buds. Green tea Kit Kats in Japan or peanut butter flavored Kit Kats in the U.S.

In an age of austerity, chocolate remains a small and affordable indulgence. Market research company Mintel expects chocolate sales here in the U.K. to continue to increase by 5 percent to 6 percent over the next few years, where the market could be worth as much as $8.9 billion by 2016.

DAVID RENNIE, V.P., NESTLE ZONE EUROPE: The thing about confectionary, especially in markets like the U.K., is that it's broadly recession-proof from a demand point of view.

DURGAHEE (voice-over): Whether it's chunky or caramel, orange or mint, four fingers or two, 77 years on, Kit Kat is still as sweet as ever - - Ayesha Durgahee, CNN, York, England.


QUEST: Now I would have sent the winner of our competition as to what that cockpit is a prize of Kit Kat, but I've already got me fingers over it. Delasgary Bender (ph) was the first to tweet. You're right; it's a Boeing 737.

And that's QUEST MEANS BUSINESS for tonight. I'm Richard Quest in London. Whatever you're up to in the hours ahead, I hope it's profitable. Very good.




QUEST: From Trieste on the northern Italian coast, this is MARKETPLACE EUROPE. I'm Richard Quest. Since the 19th century, this city port right on the border with Slovenia has grown to be a center for trade and transport. It is the artery for the landlocked countries of central Europe. And Trieste is perfectly positioned for the trade flows between east and west.


QUEST (voice-over): It is here through the port of Trieste that coffee first entered Europe. And where (inaudible) founder Francesco Illy developed a modern espresso machine which can been seen in the company's lobby. And so started the Illy legacy. I met his grandson, Andrea Illy, the chief executive of Illycaffe.

Would you like to have as many outlets as your competitor, Starbucks?

ANDREA ILLY, CEO, ILLYCAFFE: Not as many. Absolutely no.

I would like to have maybe 1 percent of what they have, but to reach the same awareness.


QUEST (voice-over): Also coming up, Juliet Mann is in France, looking at the nuts and bolts of the business behind an iconic (inaudible) and finding out why it's relocated 45 percent of production back to Calais from China.


QUEST: You don't have to look very far before you discover the local coffee company, Illy, a company that is more than happy to put its name into any language.

QUEST: The signs are everywhere, quite literal-Illy. They do it quite happ-Illy. No, re-Illy. It's impossible not to notice Illy, Illy, Illy, everywhere. And this CEO has a certain philosoph-Illy about his coffee. Every bean in every cup must be of the highest quality.

The moment these Arabica beans arrive in Trieste port from all over the world, they enter a ruthless selection process, from sorting to roasting, every bean goes through 125 checks to ensure only the very best beans end up in the cup.


QUEST: Where does your passion for this coffee come from?

ILLY: From probably my family, my father, my grandfather. They always have been completely mad with our Illy espresso.

QUEST: How many cups a day do you drink?

ILLY: I drink an average of four.

The challenge is for -- to compete in a more crowded competitive arena, the great opportunities that it take is becoming much larger. So the gourmet coffee, the market, the coffee market altogether was the shape of a nonfour (ph) until let's say 10-15 years ago, with a big mainstream part and very narrow, very small premium coffee segment.

And now the market is more organized like an hourglass, with a quite substantially big gourmet coffee or, let's say, specialty coffee segment. And the part of the market which is suffering more is the more mainstream so-called mass market coffee. And this is the future. It will be more and more high-quality, like wine. (Inaudible) the same process.

QUEST: Is it your gut feeling as a -- as a business chief executive in Italy that there's something fundamentally wrong within the Italian economy at the moment, and that the Italian economy is in for a nasty shock?

ILLY: The Italian economy is wrong in a sense that it's not conscious enough about how important it is to become competitive in the global arena. Let's say we don't really step up. What we have suffered until now in the last decade, also is a consequence of China and the BRIC.

So it's just the beginning of our problems. There are some other countries, Germany on top, which reacted very strongly to the new wall that --


ILLY: -- opportunities. By aggressively starting some international expansion and creating partnership, localizing the production and so on.

QUEST: And Italy didn't?

ILLY: Not to the right extent. For sure not. Not Italy; some entrepreneur did it, a few. Not enough. And in the meantime, the average size, the relative size of the Italian industries in most of the sectors has been declining.


QUEST: And today, Illy on coffee and life in Italy.

Coming up, after this short break, Juliet Mann is in France, visiting one company that's moving manufacturing out of China and back to Europe.




QUEST: Welcome back to MARKETPLACE EUROPE in Trieste in Italy. The business of making money out of models, these fiddly things that, frankly, have never really worked out how to do.

The company behind these, Meccano, is part of a new trend called backshoring, bringing production back from China into Europe. As Juliet Mann discovered when she visited them in Calais in France, backshoring means it can actually pay to bring production home.


JULIET MANN, CNN HOST (voice-over): Some of you all know exactly what all this is. Perhaps you're working out what you could make with it. For those who don't know, these are pieces of a classic toy that's been around for more than a century, Meccano.

They've been around, but over that time, the business, like these trademarked parts, became full of holes. Now they've brought a chunk of production back here to a factory in Calais, scaling back operations in China. That's where these yellow boxes were made until 18 months ago. Now they're stamped "Made in France."

UNIDENTIFIED MALE: The difference of France was not so big between China and France justified to manufacturing some goods in China and to sell those in France, U.K., Spain. So basically I moved back production to produce more for European markets.

MANN (voice-over): China is still important, catering to the American side of the business. But wages there are rising, shipping charges, too. Setting up manufacturing is Meccano flexibility.

UNIDENTIFIED MALE: That's cheaper. Costing X factory is why (inaudible) here than China. But X factory to X factory means I have to transport the goods. And I'm giving money to subcontractor in China. Here, I continue to expose my business.

But don't misunderstand. We are doing 45 percent of our product in here, 55 in Asia. But slightly our production is getting a little bit bigger here. But I'm (inaudible). The 100 percent manufacturing in France is not possible today.

MANN (voice-over): Conceived in 1898 by (Inaudible) Hornby, Meccano set the bar for creative play. Mechanics made easy became Meccano -- Meccano. The craze spread all over Europe. So did the range. Now around 1,000 compatible Meccano bits. But after the heyday of the 1930s to '50s came decades of money trouble, takeovers and a loss of focus.

UNIDENTIFIED MALE: (Inaudible) what we offer (inaudible) changed between the (inaudible) 20th century, the middle of the 20th century to today. We need to adapt.

MANN (voice-over): It's all part of a plan to be more nimble in a competitive and contrary toy world and to double in size in the next five years. In Italy's slow to see the value in licensed products which might have put them back two to three years, Meccano has now embraced the trend with several deals on the go.

UNIDENTIFIED MALE: (Inaudible) in U.K., in France, everywhere. (Inaudible) people think Meccano make you think.

MANN (voice-over): Piece by piece, Meccano is remaking itself almost as if out of one of their very own kits.


QUEST: Meccano keeping the wheels of Europe moving.

Before we go this week, time for a refresher. Know your lattes from your cappuccinos and your macchiatos?

UNIDENTIFIED MALE: We start with espresso. In this case, we (inaudible) of powder and we need to control a foam or a crema, what you prefer. This is what it's all based on.

Cappuccino time.

We need to prepare a perfect foam with microbubbles. This is the final result. (Inaudible) we don't need the foam. For the cappuccino, we need the foam.

QUEST: No foam in caffe latte. It's as simple as that.

UNIDENTIFIED MALE: Now macchiato, in this case you have the different (inaudible).

QUEST: Isn't macchiato basically a small cappuccino?


QUEST: By the time you've gone through all this, you'll need a cup of coffee.

UNIDENTIFIED MALE: (Inaudible), two different type. One in the glass and one in the cups.

It's a mix between caffe latte and cappuccino.


QUEST: And that's MARKETPLACE EUROPE for this week. I'm Richard Quest in Trieste in Italy. Whatever market you're in, I hope it's profitable. And I'll see you next week.