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French Economy Floundering; Lego's Profits Up; Did Stimulus Help?

Aired February 21, 2013 - 14:00:00   ET


RICHARD QUEST, CNN HOST: The French economy flounders. There's a slump in activity. It's now threatening the whole of Europe's recovery.

Global markets, they are tottering and the Fed's considering stalling on stimulus.

And Lego, firing up the profit. The chief exec on this program says it's all thanks to girls. I'm Richard Quest. I mean business.


QUEST: Good evening. There are signs that Europe's economic downturn is deepening and it is serious. Today's PMI numbers from markets show business activity in the Eurozone is contracting at an even faster pace.

Come over here and join me, and you will see the numbers and how they show the data. It is scary, and these are the closing numbers from Europe. They show markets like Paris down 2.25 percent, Frankfurt 1.75 percent, Zurich up 1.5 percent, London up 1.6 percent. And the reason for all of this is the PMI data, the Purchasing Managers Index. It shows what those in industry and manufacturing believe is happening and why they are worried.

At the superscreen, you'll see exactly. Think of the PMI as the way the economies are becoming dangerously out of sync, particularly France and Germany, the economic cogs, the powerhouses of Europe.

These cogs have to move in sync if Europe is to grow. But unfortunately -- or fortunately for the Germans -- their economy is moving faster. The PMI is 52.7. Now that's a small fall, that's tiny fall, but it shows the economy is still -- is still expanding.

Compare Germany's 52.7 with France's much slower 42.3, that suggests not only is the economy contracting, but it is falling even faster. And the danger is that France, along with all those other countries that are having problems, will eventually bring Europe to a grinding halt.

Markets' chief economists says this is one of the widest, one of the widest falls since the numbers became. And this is the reason why it is so serious. It is global competitiveness.

So if I come back over here, you'll see.

On global competitiveness, you have the Swiss, which are by far the most competitive on a variety of measures from the World Economic Forum. There are 12 pillars that include health, infrastructure, labor market.

Now the numbers all remain fairly high, 5.5 for the Finns, Germany, U.S.A., Great Britain. So the numbers are all over 5 point something. But when you look at France, you see quite a sharp drop down from 5.45 to 5.11.

And that very small difference -- or what might seem as a small difference -- is actually crucial because Switzerland is number one, France is number 21. Not surprisingly, this all has raised up the question, France's work ethic has been criticized across the Atlantic, according to a leaked letter, the American industry tycoon Maurice Taylor Jr. says France is putting tire workers are too lazy to save.

It's a famous letter to the French minister.

He wrote, "They get one hour for breaks and lunch, talk for three and work for three. I told this to the French union workers to their faces. They told me that's the French way!" A member of the Ministry of France Finances National Economic Community, joins me now from Paris.

We will talk more about the famous letter in a second. The PMI numbers are deeply worrying because what they suggest for European growth - - isn't that right?

PHILIPPE D'ARVISENET, CHIEF ECONOMIST, BNP PARIBAS: Yes. I mean, (inaudible) last November. And we had the hope over the last few months that things were rebounding. I mean, unfortunately, for the last number, that was published, as you said, this morning, was disappointing because improvements had seized (ph).

Now you have to understand that Europe is something; member countries are something else. When as you pointed, Germany is ahead of the rest. It is behaving a bit better. France has been a disappointment, to be honest, and if I can put one or two reasons very fast forward is the fact that when it comes to the so-called fiscal consolidation, France began a bit late.

So now we are experiencing the drag coming from the fiscal side. And people are very well aware that more efforts have to be done in the front of sexual (ph) reform, and that has, of course, (inaudible) shorter.

QUEST: The problem is the France PMI number could have a disproportionate effect, leading to a 4th quarter recession or a 4th quarter negative GDP for the -- for the Eurozone. France could be the troublesome point here when you put it into the total picture.

D'ARVISENET: Well, I mean, I don't exactly agree with what -- with (inaudible), that is in the 4th quarter we had already figures -0.3, -1.2 in American way analyzed, if you will. So the thing was down in negative territory in the 4th quarter. It was also in Germany.

Now we're talking about the beginning of this year, 2013, and this is a preoccupation, because it hasn't rebounded as opposed to a few others. That is (inaudible) probably there is a good chance that we still are in negative territory in the first quarter of this year, meaning that overall, growth would be at best flat for the whole year.

QUEST: Right. That is what I was sort of getting at. I -- when I said the 4th quarter, I mean four quarters. So the first quarter could be the latest.

Anyway, back to this -- back to this question of France -- look, I'm going to choose my words delicately and carefully. Are you offended when Mr. Taylor basically says the French are a bunch of lazy workers who aren't prepared to do a full week's work to help the economy?

D'ARVISENET: I mean, when you look at middle aged men, and you look at the working time over a year, it's not that different with Germany and others. There are problems. I wouldn't -- I wouldn't hide that.

The problem has to do with the fact that before 25 years of age or after 55 years of age, proportion of people who are working are much lower than in countries like the U.S., the U.K. or Germany. This is the real problem.

QUEST: Sir, thank you very much.

D'ARVISENET: (Inaudible) beginning to work late, this sort of thing.

QUEST: Thank you very much for joining us.

D'ARVISENET: (Inaudible), I would say.

QUEST: Thank you very much for joining us. Good discussion. We'll talk more about it in France. And whatever Mr. Taylor may say about the French, Philippe certainly bearing in mind it's 10 past 8:00 in Paris, he's most definitely working late tonight.

Coming up after the break, now the chief executive of Lego on the toymaker's record sales, after the break.



QUEST: Lego is defying a downturn. The Danish company is now the world's second largest toy producer by sales after announcing revenue up 25 percent last year.

Let me show you how that actually looks. It was about $4 billion in sales. It's the fifth straight year of growth, $1.7 billion. Now it's tripling.

(Inaudible) the important thing to bear in mind, this is pretty much to scale. So you can see the two notches there, another three notches, then one notch and then a whole wad of notches of the Lego for last year. We went and spoke to the Lego's chief executive, Jorgen Vig Knudstorp, and I asked him what was behind the toymaker's record sales.


JORGEN VIG KNUDSTORP, CEO, LEGO GROUP: Well, I remember last time we spoke, we did discuss the launch of Lego Friends, our theme targeted towards girls and there was some discussion about the relevance of it.

And I think what we've seen is that it's grown way beyond our expectations, more than twice as much as we expected. It's been a phenomenal success in Asia, India, Americas and in Europe as well.

And then in addition, we've had Lego Ninjago, which was a major theme for the boys, already in 2011, has continued to be successful in 2012.

QUEST: It proves the point, doesn't it, no matter how much unisex supporters want us to believe you can have one-size-fits-all, it proves the point that there is a difference that will appeal to young girls and young boys.

KNUDSTORP: Well, at least you can say that what is cool in the eyes of a girl is probably different than what a boy thinks is cool. But still, they both like building; they love being creative. That's something quite universal. But what they think is really cool and exciting is somewhat different, yes.

QUEST: Today we're talking on this program about the competitiveness of European companies, European factories and European workers.

Now you have moved production to factories in central Europe and outside the E.U.

KNUDSTORP: We have done that, but having said that, though, we have a major manufacturing base left here in Denmark and also we have major factories in Czech Republic and Hungary. So I'd say we're actually very much in favor of manufacturing within the European Union, for the purpose of serving European markets.

Then, of course, we have announced that we're looking to locate a factory in somewhere in the Asian region to serve that market out there. And then we have a major site in Monterey, Mexico, to serve the Americas region.

QUEST: So pulling those strands together, do you believe that Europe has -- when it -- when it comes to trading internationally, trading outside the region, has become uncompetitive in its cost basis?

KNUDSTORP: No, I actually don't think that's the case. I think many of those countries we spoke about, such as the Czech Republic and Hungary are a very competitive alternative to manufacturing in Asia or in regions such as Mexico, which, today, is on par with China.

So I do believe that Europe does have a future as a manufacturing base. But I think there are some countries that maybe lack somewhat a manufacturing base, but especially if you look to countries like Denmark and Germany, we do have the enterprises that are able to manufacture with success in Europe, also for global exports.


QUEST: That's the CEO of Lego on the issue of restructuring and competitiveness. And you can hear more discussions from chief execs of Europe right after this program. I'll be talking to the CEO of Henkel on MARKETPLACE EUROPE. That's a real turnaround story. It's at 8:45 in Berlin, 7:45. The CEO of Henkel on MARKETPLACE EUROPE tonight.

A "Currency Conundrum" for you now: Singapore is set to mint a new series of coins. (Inaudible). Which of these Singaporean icons will not be on the new coin? Changi Airport, public housing, Raffles Hotel? No idea. Good question, though.

The euro continues to weaken against the dollar, the pound slightly stronger. The yen continues its slide. Those are the rates. This is the break.



QUEST: Now you'll be aware, of course, of the Freedom Project. That is CNN's work as we move towards trying to eradicate human trafficking. It's a multiyear project that we embarked on here in this network, where we will bring to your attention whether it's sexual human trafficking, unfair labor practices, all the sort of issues that contribute to the Freedom Project.

The Central Asian state of Uzbekistan is one of the world's biggest exporters of cotton. It's also one of the world's biggest exploiters of children. Around 1.5 million are said to be working illegally in the country's cotton fields. As part of our efforts to expose modern-day slavery, CNN's Jim Clancy now reports on the children forced to do backbreaking work for nothing.


JIM CLANCY, CNN CORRESPONDENT (voice-over): The fight against forced child labor isn't being won on factory floors, but in shopping malls. More than ever before, consumers are taking their conscience to the cash register.

PATRICIA JUREWICZ, DIRECTOR, RESPONSIBLE SOURCING NETWORK: Today is an era of transparency. And people are choosing brands who are committed to not having forced labor inside their products.

CLANCY (voice-over): Case in point: cotton from Uzbekistan. In 2011, rights defenders risked jail to document on video the system of cotton harvesting in place since the Soviet era. They exposed a system that forced students sometimes as young as 5 into the fields. The students did the work; human rights campaigners say government officials harvested the profits.

Elena Urlaeva is one of the Uzbek rights defenders in the forefront, seen here last fall, protesting near the Education Ministry.

"Child labor had been widely used under the Soviet regime," she wrote to CNN. "It has been around in the 20 years of independence as well. After all, it's free.

"Children and their parents have been taught that cotton is the white gold and national pride of the country. Those who disagree have been presented as enemies of the state."

Uzbekistan is the world's second largest cotton exporter; after the expose videos, growing international pressure forced the government to officially ban the use of child labor and coercive tactics.

Fast forward to last November's harvest: human rights activists in Uzbekistan say the worst practices were easing, but local officials were still forcing older students out of their classrooms and into the fields.

"I spent exactly two weeks harvesting cotton," this young man says, adding, things had not changed. He had to walk more than a dozen kilometers some days, even to reach the fields.

The mother of another student says it was either send her child to harvest cotton or pay local politicians a $150 fine, which is more than two weeks' pay for most Uzbeks.

Uzbek rights defender Elena Urlaeva says the situation may have improved for the youngest students, but forced labor continues, hidden by heavy security. Last harvest, her rights team documented 11- to 18-year- old students picking cotton. But in order to get that evidence, she says she had to engage in car chases with police worthy of an action movie.

Uzbekistan's embassy in Washington responded to CNN in writing.

"The statements about arrests, beatings and detentions of those who are involved in the cotton harvest do not correspondent to the reality.

Uzbek cotton has a superior quality and these statements may be the result of the efforts of our competitors to create an unhealthy environment and dishonor Uzbek producers."

The embassy added, "Today 100 percent of the cotton is produced by private farmers." Trying to verify the facts isn't easy. Uzbek authorities forced Human Rights Watch to close its Tashkent (ph) office in 2011.

STEVE SWERDLOW, HRW: Without an open civil society, without international organizations able to get in and without reporters able to get in, it's going to be extremely difficult to verify what the government is doing as it said to combat the problem of forced child labor and forced labor of adults.

CLANCY (voice-over): Despite the hurdles, activist are encouraged. The number of global brands which have pledged not to knowingly use Uzbek cotton doubled from 60 a year ago to more than 120 today.

Activists concede the fight against forced labor is far from over. Companies signing the pledge have to audit their supply chains. Activists have to keep up the pressure on countries and companies alike and informed consumers must sustain their point by not buying clothes sourced with slave labor, no matter the cost -- Jim Clancy, CNN, Atlanta.


QUEST: That issue of clothing, which is manufactured using slave labor, even if the clothing is legitimately made, the question, of course, is whether some of the manufacturers can provide money to help those who are suffering.

Laurie Wirgler is the founder and CEO of Laugh. It is a children's clothing company that gives 30 percent of its profits to fighting child exploitation. Ask yourself this question: how much of the profits or the money that you spent on what you're wearing went to prevent child exploitation?

I asked Laurie what prompted her after 15 years as a fashion execute to start Laugh, and why she came up with the number 30 percent.


LAURIE WIRGLER, FOUNDER AND CEO, LAUGH BRAND: You hear a lot of corporations that will give 10 percent or 15 percent back.

But it's very small. And we wanted to do something that would really, really make a difference and you know, looking at children as over 30 percent of the world's population, we felt like that was going to be a great number for us to really stick with. And it was going to be meaningful enough to make a difference.

QUEST: How much of the Laugh brand, though, is designed for profit? And how much is designed for philanthropy?

WIRGLER: The entire line is designed as a for-profit company. And anything that we sell, whether it's on our website or at events or in boutiques or third-party retailers, any percent that we make of that amount, 30 percent, goes directly back to fighting child trafficking and exploitation.

QUEST: Is there any evidence that you can see that people knowing 30 percent goes to fight child trafficking and exploitation has brought you more business?

WIRGLER: Well, we are a brand-new company, so we are only a couple months old and still getting out there and the overwhelming response that we've had from our customers is really, initially, they are drawn to us because of what we are doing, because of the philanthropic aspect of our business.

QUEST: Is there a danger -- you've just become known as the woman who has a clothing brand that does -- that helps philanthropy causes?

WIRGLER: Sure. There's always that danger. And it's really one of the main reasons why we chose to make the type of product that we have, use the type of materials that we did, that they would be really wonderfully made in hand feel and esthetic and that we are really going after a premium market so that we can be known as an amazing apparel company that follows great trends. And we also happen to do good in the world.


QUEST: Doing good in the world, CNN's commitment to end human trafficking and fighting modern-day slavery. The details you can find at Our latest reporting on this global concern as well as information and hotlines, charities engaged in this work around the world, and of course, what can you do?

Take the stand. Join us. Come on in; the water's lovely. It's the CNN Freedom Project at

When we come back after the break, what did the Fed mean in its latest minutes? The market's given its reaction and Todd Benjamin is ready for battle. QUEST MEANS BUSINESS.




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


QUEST (voice-over): The Oscar Pistorius hearing has adjourned until Friday and there's been no decision yet on whether bail will be given.

The prosecution suffered a major blow when it was revealed that the lead police investigator was facing attempted murder charges himself in connection with another case. The South African police have assigned a new officer to head up the probe into the killing of Reeva Steenkamp.

Syrian state media say a car bombing in Damascus has killed at least 53 people and wounded more than 200. It struck near the headquarters of the ruling Ba'ath party. At least two schools are located nearby and children are feared to be amongst the dead.

Indian police aren't ruling out a terrorist attack after two deadly explosions in Hyderabad. The home secretary says the bombs were planted on bicycles in a crowded area. At least 12 people were killed and dozens more wounded. India's prime minister is promising to compensate the victims.

Tens of thousands of protesters have rallied against austerity in Brussels on Thursday. Trade unions are fighting government wage freezes and job cuts. Belgium has introduced strict spending cuts to trim the budget deficit.


QUEST: Global stock markets have slumped. And one of the reasons -- excuse me -- is the fear that the U.S. Federal Reserve may be about to scale back stimulus measures earlier than expected, raise interest rates.

The minutes of the Fed's meeting in January shows some officials were concerned about the impact of its bond-buying program, and that, quote, "might well lead the committee to taper or end its purchases." The bad damage is being done on the market is certainly, if you're long in the market, if you've shorted, you are happy.

Alison's at the New York Stock Exchange as always.

How grim is the news?

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Well, I don't know if you - - if I could say it's grim. I mean, you know, you say that initial reaction yesterday when those Fed minutes came out. The Dow has tanked; you know, over 100 points when all was said and done. Here the selloff continues today.

You know, it's not a huge selloff, but look. I mean, look where the market is Richard. Even just look at the Dow. We've been on that Dow watch, with the Dow hitting that record. We've been talking about this for weeks.

You know, but many people have said it's come too far too fast, you know, what really was the rationalization for stocks to be that high? Well it had everything to do with the Fed.

So, you know, the Fed is taking a look and saying, look, you know, us pouring in all this money into the -- into the -- into the economy, tens of billions of dollars every month; maybe we should really reconsider that.

So I think at this point, the way the market sees it, I don't think the market thinks that the Fed is going to go ahead and just take away the punch bowl. I think that they think that the Fed is going to do something different. No one knows just what, though. The warnings signs are flashing. No one knows exactly what.

QUEST: Walmart had numbers. And what's interesting about the Walmart numbers, of course, was that leaked memo previously, suggesting that the spring sales or the Christmas sales or whatever it was, was going to be a disaster. Is there any evidence in the Walmart numbers that the worst are coming to fruition?

KOSIK: Well, you know, you look at 4th quarter results. 4th quarter results were pretty darn solid. Now but those emails, aren't they really telling it? Aren't they really interesting?

The worry behind the numbers, that's really where the focus is, you know, that this -- those sales numbers for February, for January, yes, the discount shopper did take a bit of caution, did pull back a little bit.

But we can understand why, because gas prices here in the U.S., Richard, they've been going up for 35 days in a row.

The payroll tax holiday, that's gone. And also those IRS checks, those -- the rebates on their -- their refunds on their checks, rather, they were mailed out late. So that means a lot of that disposable income didn't come in fast enough for consumers to go ahead and spend it at Walmart.

QUEST: I'm charitably thinking you are calculating your own refund or worried that you haven't sent enough to the IRS, Alison.

KOSIK: I haven't even done my taxes yet. That's another worry on my list, Richard.


QUEST: I did them on time at the U.K. HMRC. Alison, we thank you.

Now, while there appears to be division within the Fed over the effectiveness of stimulus measures, central banks elsewhere are standing by them.

CNN's financial analyst, Todd Benjamin, is with me.

Hey, Tom.

TODD BENJAMIN, FINANCIAL ANALYST: Great to see you as always, Richard.

QUEST: As always. Now, listen, when we read those Fed minutes, are they -- are they getting worried that QE isn't working? Or do you think that they're getting ready to -- because they're worried about it all being too much too quickly?

BENJAMIN: No, I think what they're worried about -- two things: efficacy, as they said in their -- in their minutes, isn't really working.

And the other thing is, you know, how they're building up a bigger and bigger balance sheet, right? I mean, they're already up to $3 trillion and as they continue on this path, it could be $4 trillion on their balance sheet by year-end.

And you know, when they came out with their latest QE program in September, you know, the markets had a huge sigh of relief because they said basically we'll stay on this path until we see a substantial improvement in the labor markets, meaning unemployment getting down to 6.5 percent.

And everyone thought it was a one-way bet. Now people are having to rethink their positions. We've had artificial markets because of this quantitative easing. And now I think it becomes a bit tricky --


QUEST: It's a bit late in the day for the Fed to be wondering whether or not it was the right thing to do, particularly since Bernanke at his last press conference -- and Draghi -- have consistently said they are already formulating the exit strategy.

BENJAMIN: Well, look, I think the reason the Fed has made this statement now is because they are perhaps reevaluating. You know, some Fed watchers would suggest they're not really saying that much new. But to the markets, it was a very, very, very cold bit of water.

QUEST: So when do you -- I mean, you don't know -- not a sort of an analyst into sort of kicking the box in that sense.

But when do you realistically think they're going to start moving rates? Or are they going to do other -- many other things to tighten liquidity before we get to that final rate rise?

BENJAMIN: I think the answer is honestly no one really knows. My instinct tells me that they will stay on this policy for quite a bit longer because they don't really have an alternative. Unemployment is still a huge issue.

Housing, latest housing start numbers were disappointed. I mean, that's because December was very strong. But even given that, you know, housing, we're not getting the lending that we need to -- for people to get mortgages.

QUEST: So are you -- are you optimistic or pessimistic, bearing in mind we've got the forced spending cuts, sequestration coming up, continuing resolution. They haven't really dealt with the fiscal cliff. That's just been kicked off into the future. And we've got a president that'll be lame duck in two years, or if not sooner.

BENJAMIN: I think right now the U.S. economy is just kind of, you know, slugging along. I don't see any vast improvement. Obviously, the deal they reached at -- in early January, where the holiday from the payroll tax cut ends, that's going to impact spending, especially for lower end consumers.

The sequestering, we don't know what's going to happen there in terms of whether or not the Obama administration --


QUEST: (Inaudible) in a word?

BENJAMIN: I would say just about half empty.

QUEST: Good to see, Todd.

Coming up, so last night we told you the future vision, the playstation4, after the break, we're going to show you what Sony showed us with the PlayStation 4. We're going to show it all. (Inaudible).





QUEST (voice-over): The answer to today's "Currency Conundrum," which of these Singaporean icons won't feature on the new series of coins?

The answer, Raffles Hotel. Changi's on the 20-cent; public housing, typical (inaudible) 80 percent of Singaporeans, is on the 10-cent piece. And, well, Changi, the world's ranking airport, will be nowhere to be seen except on a flight ticket close to you.


QUEST: Now we've come to expect a lot from Sony PlayStation. When the tech giant unveiled its station for the PlayStation 4 in New York last night.

So this was number one that we showed -- (inaudible) get out me chair here. This was number one that we showed you last night. This was PlayStation 2 and this was PlayStation 3. So what did Sony reveal for PlayStation 4?

As you can see, we didn't really get much information at all about what it is Sony did promise the ps4 would have a supercharged processor and the console will be capable of incredible graphics, supporting stereoscopic 3D for high-definition TVs and greater capabilities to share your gaming experience with friends and the Internet.

The head of Sony's computer division entertainment says there's a good reason we can't see the physical console just yet.


ANDREW HOUSE, PRESIDENT AND CEO, SONY COMPUTER ENTERTAINMENT: We've tended to announce the core technology of a new platform first. I think it's important to get people excited around the games, the possibility that the content can deliver in terms of game experiences.

We take great pride in crafting great hardware design. But that's something I think we'll want to keep under the lid and for a little bit later this year.


QUEST: It's important to get people excited.

Jenny Harrison is at the World Weather -- Excitement Center.



HARRISON: Every day.


QUEST: You know to deliver over there the world's excitement center. What excitement have you got for me tonight?

HARRISON: Well, actually, I have got something for you. You're heading to Poland. I will get to that a little --

QUEST: I am.

HARRISON: -- treat for you.

Let's start out with what with treating the Gulf is, yesterday, and again today, look at all this snow. Well, that gives you indication -- let's have a look at some of the images -- the before and the after because it's a big -- one of the tournaments; not sure which one actually.

But here we go. This is obviously (inaudible) and guess what, yes. Not surprisingly, play was suspended for the rest of Wednesday and hoping to start again in about 20 minutes from now. They've been working really hard to clear all of that snow. Whilst we're looking at that, let's have a look and a listen this time to something else.

This is something we don't tend to see and hear very often. But let's roll that other video.

Yes, that is something called thundersnow. Now it's not actually that rare; we just don't often have it to show you. And it's used as an indication of some pretty intense storms that of course are bringing the snow not far away. There will be some ice and of course a little bit further away they'll be just some very heavy amounts of rain. So all of that has been heading across the U.S.

In the last 24-36 hours, and after the forecast for the golf, once they get back out there this Thursday, it promises to be a very nice few days, temperatures back up there to the mid- to high teens Celsius. Right now we have got Kansas City airport closed and Newark actually a ground stop in place. But this is the whole storm system working its way eastwards.

Severe storms in the South, ice and snow across the North and the Northeast. That will head across into the far Northeast for the bigger destinations towards Saturday. But as you can see, plenty of warnings in place, 20 different U.S. states and there's some form of watch or warning. And the snow will continue its journey eastwards and the rain as well, very heavy at times.

So as the morning's in place, flooding rains in the South, but warm in the South, which is why, of course, we've got the thunderstorms. And the rain 9 in Atlanta on Friday, just 1 Celsius in Chicago.

Meanwhile across in Europe, it is feeling pretty cold, -6 right now in Glasgow. That's how it feels. -10 in Stockholm, the same in Munich, -5 in Birmingham, -10 in Stuttgart, lots of snow already of course on the ground. The last few hours Germany has been seeing quite a bit of snow, all coming from that system in the North. But let's have a look at Poland.

Ah, yes, Mr. Quest, you're heading there, I believe, for the weekend. Well, look at this, (inaudible) another 11 centimeters expected in the next 48 hours. Nearly 8 in Warsaw. Meanwhile in Sarajevo, 24 centimeters coming down there, all coming from this storm system. But actually the moisture really is coming from this system in the south.

So it's picking up all the moisture, and then that cold air is turning it to this widespread snow, and of course the cold air filtering across the north, the northwest, a very messy picture, particularly across the south. And that cold air means temperatures well below the average for the next few days.

So, yes, bundle up, Mr. Quest.

QUEST: Thank you very much. Try not to hide your pleasure at the snow in Poland this weekend while I'm filming.

Jenny Harrison at the World Weather Center.

And that is 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. MARKETPLACE EUROPE is next.




QUEST: From the River Thames in London, this is MARKETPLACE EUROPE. I'm Richard Quest.

The story this week is of companies doing more with less. Having come out of the Great Recession, cutting costs and being more competitive, now companies have to be ready to take advantage of opportunities.

So on this week's program:



QUEST (voice-over): Saving lives and saving costs, the mobile messaging service from the U.K. which is improving efficiency in Spain.

And the CEO of Henkel tells me about how he turned the multinational consumer business around.

KASPER RORSTAD, CEO, HENKEL: The worst thing you can have is an average performing company in an average performing market, because driving a change (ph) mentality into a company that way is difficult.


QUEST: Attracting new customers is hard enough. So keeping the ones you've already got must be a priority for any chief executive. A British company now uses technology to help others and show the way so that they can keep that important relationship going.

Isa Soares went to Spain to see it in action.



ISA SOARES, CNN CORRESPONDENT (voice-over): From the inside, it looks like any ordinary journey. But this is bedeviled ph in Spain and this is no ordinary coach (ph). It's a blood donation bus. Today, the bus is staying away from small and (inaudible) towns and parking at the university center, perfect for picking up wandering students and accidental passersby.


SOARES (voice-over): But nurses need not worry about donors showing up. Like Pedra Manuela (ph), they've been alerted the bus is in town.

PEDRA MANUELA (PH), BLOOD DONOR (through translator): They sent me a message on my mobile, and I knew it would be here, as I've donated from this location before. So I came.

Manuela's (ph) message had been created by Esendex, a mobile messaging service provider more than 1,000 miles away in Nottingham, England.

UNIDENTIFIED MALE: I think in the early days, there was a sense that SMS was perhaps for children; texting wasn't necessarily a valid way for businesses to communicate. I think everybody sees that now that is a very useful way of communicating.

SOARES (voice-over): The company was founded 11 years ago. Today it continues to provide the means for clients to send a text message. And with 17,000 customers spread throughout Europe, Esendex has had to learn to be international.

UNIDENTIFIED MALE: There are regulations in each of the markets, which we need to adhere to -- France has some particularly onerous rules around spam messaging. We need to be very careful to make sure that people are opted in to receive particular messages in France, for example.

SOARES (voice-over): Even in the midst of an economic crisis in Europe, the company's signing up more international customers than ever before. As companies look to innovate their way out of trouble.

UNIDENTIFIED MALE: What we are seeing in Spain, perhaps one of the economies in Europe with a -- the toughest times at the moment, that a huge number of people are coming to us. We're signing up more customers in Spain than we are in any other market.

SOARES (voice-over): The template message provided is simple, with dates, location and time.

Here in Spain, donors receive the SMS the night before. Maria Ohese (ph) just donated blood was one such targeted donor.

SOARES: The benefits of a simple SMS are huge for a company like this one. For years, they sent out half a million letters reminding people to donate blood, but that cost them $267,000. By making a switch to a text messaging service, the company has been able to dramatically reduce their costs to just $38,000.

SOARES (voice-over): Those savings mean there's more money for medical research. And with extra cash, the company can innovate by sending much more targeted SMS messages.

UNIDENTIFIED FEMALE: We sent some text messages to (inaudible). We give them the analytic point of it's OK, the analytics. And then when we see that our staff are getting lower, we then send some text message to this target of donors.

SOARES (voice-over): It's this innovation that has Spanish businesses turning to Esendex. Last year, their turnover, total $50 million. With Spain accounting for 15 percent of those sales, from July to December alone. Their business in the Spanish market grew 39 percent.

UNIDENTIFIED FEMALE: (Inaudible) the needle.

SOARES (voice-over): This is for Esendex and client alike a painless yet profitable business strategy.


QUEST: Isa Soares reporting from Spain.

When we come back after the break, we meet the chief executive of the company whose products you know, even if you don't know the name of the company itself.




QUEST: Welcome back to MARKETPLACE EUROPE on the River Thames.

Consumer spending accounts for more than half of all economic activity in the Eurozone. These days, even those companies that make countercyclical goods, consumer products, the sort of things we used to say were recession-proof, they, too, are feeling the pinch.


QUEST (voice-over): Founded in 1876, the German household and consumer products group Henkel is the world's biggest producer of adhesives. Household names, including Loctite, (inaudible) hair products, (inaudible) detergent and Right Guard deodorant. The company has around 400 brands in its portfolio, a global workforce of 47,000 and operating profits of $2.7 billion.

RORSTAD: We are the third largest detergent company in the world, the seventh largest cosmetics company in the world, and then we are the largest adhesive company in the world. So when you fly an airplane, you use our product indirectly. When you run with your running shoes, they're bonded together; when you use your iPad or iPhone, it's bonded together with products from Henkel.

QUEST: So what do you, as the chief exec, when do you decide it's time to abandon ship on a product or abandon ship on a market?

RORSTAD: It's not a black-and-white decision. But it is an analytical decision. That is, if we, in the long term, cannot see ourselves in a position to become relevant in that market, and to make money. So even the emerging countries which are interesting, if we in the long term cannot see the way to money, we'll abandon them.

QUEST: The company you had to turn 'round from a very, very desperate state. How comfortable are you with the -- where you are now? And how much more work -- and I don't mean just the normal business, but in terms of the fundamental business, of putting the company back together again do you think that you're in the process?

RORSTAD: Today we are very well set up. We have a running rate of 14 percent margin (ph) and we have zero debt pretty much. We put very aggressive also earnings (inaudible) out for the future. So I believe that the turnaround has been done. But I think that there's still substantial headroom (ph) for us as a company. And that goes back to really getting the right team in place all the time.

QUEST: What did you learn from the turnaround?

RORSTAD: Do it quickly. Stick to your course. We didn't change our strategy between 2008 and 2012, even though we had a very, very troubled (ph) environment. But stick to the course and then just execute.

QUEST: You're countercyclical on one level. People are still going to buy detergent; they're still going to buy your products at one level and so is it easier to turn 'round in a crisis?

RORSTAD: I think for all companies it is easier to turn companies around in crisis, because you get a burning (ph) platform. The worst thing you can have is an average performing company in an average performing market, because driving a change mentality into a company that way is difficult.

QUEST: But what I'm saying is, as you started to turn 'round Henkel, and as the financial crisis starts to hit, you are trying to do just about the most difficult thing of all, restore a company at a time of great financial instability.

RORSTAD: I do believe internally there's a higher level of acceptance for change when you have a burning (ph) platform, and that's why while the financial crisis was, of course, putting a strain on us, it actually gave us a lot of, what I would say, intrinsic motivation to get things done.

QUEST: So now you're trading OK, or things are much, much better. And you look at the world and you've got 43 percent in emerging markets or faster growing markets. Is that the area you have to grow?

RORSTAD: It is. The primary area we have to grow, we have to make sure that Europe stays stable. And then when it's (inaudible) that we kept to the opportunities that we see coming in North America, I would say a company only bets on growth from the emerging markets. I think that you're actually leaving opportunities on the side.

QUEST: This reindustrialization of the United States, it is happening slowly. But it is happening, would you agree?

RORSTAD: I would agree. We do approximately 20 percent of our total business in the U.S., and we see a changed attitude in the U.S. in the last 3-4 years.

QUEST: Talk to me more about that.

RORSTAD: Well, we are seeing, as we're seeing large energy-intensive companies starting to reevaluate where they're putting their large capex investments. And we're seeing some of those going back to North America.

And I think that you will see, with the sinking energy price in North America, an increased competitiveness of the North America economy. It is still the single largest Western population, and it's a growing population.

QUEST: So America's back?

RORSTAD: I think America is getting back, is the more appropriate term

QUEST: But not back yet?

RORSTAD: Not back yet.

QUEST: And if America's getting back, Europe's still outside in the cold.

RORSTAD: I think Europe will continue to have a very, very difficult time for the next 3-6 years. With very different destiny for different European countries. I think speaking about Europe, as such, it's misleading; I think there's a number of countries that will do better. But (inaudible) Europe overall, as European Union, I think will continue to muddle along in the next 3-6 years.


QUEST: The chief executive of Henkel on changing a company in challenging times. Henkel, maker of something that has to be in every office drawer somewhere, the glue stick.

And that's MARKETPLACE EUROPE for this week. I'm Richard Quest on the River Thames. Whatever market you're in, I hope it's profitable. I'll stick around till next week.