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QUEST MEANS BUSINESS
Hollande's Vision; European Markets Mixed; Former BP CEO Back On Top; Cambodia Warehouse Collapse; Bangladesh Safety Pact; Cost of Cheap Clothes; Cyclone Mahasen; Storms in Texas; Google Grilled in UK; Tax Backlash
Aired May 16, 2013 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
NINA DOS SANTOS, HOST: One for all and all for one. The struggling fresh -- French president, sorry, demands a full economic union.
Britain accuses Google of deviant tax behavior.
And hanging up his golden boots. That's right, David Beckham is retiring.
Hello, I'm Nina Dos Santos, and this is QUEST MEANS BUSINESS.
Good evening. A grand vision for a grave situation. Francois Hollande marking his first year as French president says that he's now going on the offensive for growth, and as such, he wants a full economic union in the eurozone within two years. Pretty ambitious, isn't it?
Take a look at this. Mr. Hollande says that the bloc needs a single economic government. It would set its own budget, it would issue its own debt and, crucially, it would also have its own full-time president.
France is currently mired in its third year of recession in just four years, and Mr. Hollande's approval rating has also been plunging of late. In a news conference at the Elysee Palace in Paris, the French president set the agenda for his second year in power.
(BEGIN VIDEO CLIP)
FANCOIS HOLLANDE, PRESIDENT OF FRANCE (through translator): The attack is firstly to launch a European initiative. Europe -- and this is a paradox -- is the biggest economic power in the world, and it is still looked at as a continent that is sick in decline, in doubt.
My duty is to bring Europe out of its monotony, one that has taken it over, and to reduce the disaffection of its people, which could only compromise the future of the union.
(END VIDEO CLIP)
DOS SANTOS: Earlier today, I spoke to a key member of President Francois Hollande's administration. Fleur Pellerin is the minister for small and medium-sized enterprises as well as the minister for innovation in the digital economy in France. I asked her, is President Hollande being too ambitious here?
FLEUR PELLERIN, FRENCH MINISTER FOR INNOVATION: It's very ambitious, but I think it's totally consistent with the ambition he has expressed since he was elected last year for Europe. He has always expressed his determination to reorient the European project towards more growth and less austerity, more for the European people and less on the -- austerity policy.
So, I think it's really in line with the view of the European project that he has defended since he was appointed last year.
DOS SANTOS: But we're talking about an economic government, here, for the eurozone that would have its own president, its own budget, and a coordinated tax system. And all this coming in within a couple of years, at a time when, obviously, countries like France and other big eurozone members are in a recession. Is now the best time to be implementing this?
PELLERIN: I think it's the right time, actually, because we've had, now, two trimesters, two quarters of recession in the eurozone. France is in line, also, with the economic situation of the eurozone, and I think it's the right time to see that now you have align the economic cycles of all the countries and to create more solidarity in the eurozone.
I think it's a good time stimulate investment, stimulate solidarity, and a stronger political governance inside the eurozone. So, I think it's the right time to do so.
DOS SANTOS: OK, let's talk about the investment climate there. As the minister for small to medium-sized enterprises in France, it's your job as well to try and attract investment to France. But of course, the latest figures show that you are in a recession. Unemployment is at a record. Things aren't looking good for France these days.
PELLERIN: Yes, we are in a very difficult micro-economic situation, which is partly the result of an absence of industrial policy for the last ten years, and also an absence of responsibility in the management of public finance and tax management over the last ten years. So, we're trying to solve the situation now.
We've had a year, 2012, which was very difficult because we had to take some measures to correct errors that had been made in the past. So, that's what we did last year.
And now, we are in the second year of the mandate of Francois Hollande, and we're being more offensive right now, and we're trying to put all -- everything that is needed to create a fine environment for business -- for businesses to invest and to create jobs. So, that's the plan now.
DOS SANTOS: The reality is, many an economist would say, is that you've got to have tax incentives, especially for small to medium-sized enterprises, to hire people. And that will bring down the unemployment rate. But the reality is is that your government's actually raised taxes for the business environment.
PELLERIN: No, actually, the government had to raise taxes because, as I said, the deficit and the debt levels were too high, so we needed to restore that sovereignty and responsibility in the management of our public finance. So, that was really needed.
DOS SANTOS: Well, European stock markets ended on something of a mixed note in today's session. Disappointing US jobs data managed to pull down some of these numbers, as you can see, the CAC 40 especially in France. That market in focus today given President Francois Hollande's address, as you can see. It ended the day on something of a downbeat note.
Now, Tony Hayward is a name forever linked with the BP Deepwater Horizon disaster, and he's back now in the corporate limelight. In a dramatic return to the top, what he's done here has become the chairman of Glencore Xstrata. You may remember, Glencore being the huge commodities trader that merged with Xstrata about three to six months ago.
So, this is what led to Hayward's downfall. You may remember this very well. The former BP CEO resigned after the oil rig explosion and subsequent spill in the Gulf of Mexico three years ago. That was an incident that killed 11 people, saw literally thousands if not millions of gallons of oil gushing into the Gulf of Mexico.
Hayward, seen here giving evidence to lawmakers about deepwater drilling after that, is also the CEO of Genel Energy. That's a small oil company which is largely based in Iraq with concessions over there. He was also Glencore's senior independent deputy chairman as well, and the senior independent director on the board up until recently.
Now, the man he's going to be replacing is this fellow, here. His name is John Bond. He will step down after a shareholder revolt blocked his reelection, and Hayward will be staying at the helm until a permanent candidate is found.
But obviously, that has caught the attention of many an investor in the commodity sector, news that Tony Hayward will be joining Glencore Xstrata as their new interim chairman.
After the break, though, we're going to be focusing in on another fatal factory collapse that's been putting the pressure on Western retailers. Do stay with us here on QUEST MEANS BUSINESS.
DOS SANTOS: In Cambodia, part of a shoe factory warehouse has collapsed, killing two workers. At least six others were injured when the raised concrete walkway gave way at the Wing Star shoe company. That's just south of the capital Phnom Penh.
Well, the firm makes shoes for all sorts of brands, including the Japanese sportswear retailer Asics. The head of Cambodia's Garment Manufacturers' Association says that the walkway was built illegally.
(BEGIN VIDEO CLIP)
VAN SOU IENG, GARMENT MANUFACTURERS' ASSOCIATION CAMBODIA: I always believe that in the supply chain, everyone is responsible to the worker and also to the consumer. So, that event happened today is bad, it's very bad. It's not an excuse, but we will make sure that members of our association have knowledge of it and will take prevention action now.
(END VIDEO CLIP)
DOS SANTOS: Well, the garment industry is Cambodia's biggest exporter and they're worth around about $4.5 billion every single year. This is a sector that employs 650,000 people, according to the Garment Manufacturers' Association. So obviously, it's a key part of Cambodia's economy.
Asics says that it's now launched an investigation and also that's it offering support to those affected. And in a statement it said this, quote: "We are deeply shocked and saddened to hear of this terrible accident. Safety is paramount -- of paramount importance for Asics as company.
The deaths in Cambodia come just one month, of course, after a devastating building collapse in Bangladesh. More than 1,000 textile workers were killed in that industrial disaster. Factory employees around the country have been on strike this week, forcing the closure of hundreds of others factories. Most of those are due to reopen now on Friday.
Well, the tragedy has drawn worldwide attention to the dismal conditions that workers face in places like Bangladesh. Retailers are being urged to sign up to a new safety accord to try and improve them.
So, in the last 24 hours, what we've seen is a number of more retailers signing up to this fire and safety accord over there in Bangladesh. Abercrombie and Fitch and also Carrefour of France, which was holding out this time yesterday.
They joined the likes of other brands, such as for instance Primark in the UK and Ireland. Also Zara, which you remember is owned by the Spanish retailer and textile company Inditex as well as Marks and Spencer in the United Kingdom.
Calvin Klein also in the United States, and Tommy Hilfiger. Those are brands that are owned by PvH also onboard. But the key one here that is holding out is, of course, Walmart. It has said that it's put forward its own plan, and that calls for independent safety inspections and for companies to publicly report their own findings.
Livia Firth is a longtime campaigner for ethically-made clothing. The creative director of the consultancy company Eco Age has visited factories in Bangladesh. She told me the last time she went to see one was in 2008, and she said that those buy cheap, throwaway types of clothes are partly to blame for the kind of deaths that we've seen in Bangladesh.
LIVIA FIRTH, FOUNDER AND CREATIVE DIRECTOR, ECO AGE: We have to make sure that in generally speaking, brands are in control. Now, you mention the safety, the fire safety regulation. When I visited the factory in Bangladesh two years ago, that was one of the first things that struck me is that all these people were crammed in a building and there was no fire escape. These was one entrance to the building, usually it's guarded so the people -- the workers cannot even get out.
Women had two bathroom breaks per day, the windows were all blocked. If they had -- if they felt sick, they were fired. So, it's not only the fire escape and the bad condition in the factories, which of course they need to have.
DOS SANTOS: You've long been an advocate of ethical fashion at both ends of the price spectrum, but realistically, do you think that consumers are ready to pay more to see these kind of problems in places like Bangladesh completely eradicated by, say, the end of the decade?
FIRTH: I said it is our responsibility as consumers to stop buying in bulk things that we will never keep in our wardrobe for more than a month. So, it is in the true -- obviously, I can't speak for the economic spectrum. There are people that seriously are in conditions such as they can't afford to buy anything, and if they want to go to work dressed in respectable ways, they have.
But the problem is that we are now -- our habit as consumers is we want the latest trends right now at the cheapest possible cost, because we know that in two months' time, it's not trendy anymore and we're not going to wear it anymore. And that has to stop.
So, yes, it's our responsibility as consumers. Consumers can change the way that the brand acts as well, because they ultimately -- they need to buy the stories that the brand sells them, too. So, we now know that if we keep buying certain brands, we are responsible for the deaths of the people in Bangladesh. I feel very, very strongly about that.
DOS SANTOS: Explain to us exactly what your Green Carpet Challenge does. Obviously, you're there in Cannes for the film festival, and this is a big part of your Eco Age project.
FIRTH: Red carpets are a very powerful tool to tell stories, because this is what magazines cover, what celebrities wear, what women want to know ultimately. So, via a Green Carpet Challenge count on the red carpet, we want women to understand the real story behind the dress.
But we haven't stopped at this level. This year, we launched a Green Carpet Challenge brand mark, because we had, by doing this work already, we had special insight into the supply chain of many of the fashion houses. And so, with some of them are starting real implementation and going deep down the supply chain.
DOS SANTOS: Speaking of Bangladesh, this is a country that's also been bracing itself for Cyclone Mahasen, which has now weakened to a tropical storm. Following all the action is Jenny Harrison, who's live at the CNN International Weather Center. Hi, Jenny.
JENNY HARRISON, CNN METEOROLOGIST: Hello, Nina. Yes, of course, this came ashore Thursday night into Friday morning, and of course brought some very heavy amounts of rain with it.
The winds were pretty strong when it came ashore, but it was also going to be about the rain and the concerns, of course, about storm surge and then about the flooding that was going to likely occur across the region.
You can see in the last few hours, just a lot of cloud has been left lingering around the entire region. We've got some pictures to show you, actually, of when the storm was approaching. You can see all the people. There were many, many preparations made all the way along the coastline through northern India, through Bangladesh, along the coastline around Myanmar.
There were over 8 million people that were actually at risk from the potential arrival of this particular cyclone over the last few days, but of course, we've been talking about it over the last week, so plenty of time for some pretty good preparation.
But there was a lot of rain that certainly came down. Let me just show you some of those totals that actually came down literally in just the last 24 hours. And in particular, I want to just point you here, Agartala in India, 101 millimeters, but that's the fifth day in the month that they've actually had over 100 millimeters of rain, so over half a meter.
And that gives you an idea when we talk about saturated ground and why there's such a huge worry for flooding, that is why. Because of course when more rain comes on top of ground that is that wet, of course, it is going to lead to flooding.
Now, the next 48 hours, you can see that we have got more rain in the forecast, not really associated with the remnants of the storm. It's just typical for this time of year. So, you can see that across the entire region we could easily see, perhaps, another 10 to 30 millimeters of rain. Some areas may be picking up about 50 millimeters.
But overall, the system really has cleared out of the picture. In fact, if I just pull right the way out and show you here, you see this? That is actually the remnants of the system. So, really, just falling apart, but it's a very unsettled picture generally across much of Southeast Asia.
Then I want to head across towards the United States, in particular just focus your eye on Texas. Now, in the last few hours, things have really cleared here, but again, that was not the case as we were heading through Wednesday night.
In particular, Granbury in Texas, there was a huge thunderstorm that came through, which spawned many tornadoes, in particular, one. Have a look at these images, because this, first of all, is one of the tornadoes that was actually captured. You can hear the actual siren --
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: Oh, my God!
Oh, my goodness! Huge!
(END VIDEO CLIP)
HARRISON: This is very common across the US, there are sirens that go off all the time. There were numerous tornadoes that were spawned by these thunderstorm. One in particular was actually an EF 4. Let me just quickly show you some of the pictures of the damage.
You have to see this, Nina, because this was the EF 4, this is in Granbury in Texas. There were at least six people that were killed by this one particular tornado that came down. And as I say, this was in EF 4, and that has winds of huge strengths -- let me just show you the strength of those winds.
Here we go, 267 to over 300 kilometers an hour. That is why we saw so much devastation. It is that time of year, Nina, so we are expecting to see more of this, unfortunately, as we head into the weekend. Saturday, Sunday, and Monday, we're looking at another round of severe weather across the central and northern plains. We're going to monitor that very closely.
DOS SANTOS: My gosh, I must say, those pictures --
DOS SANTOS: -- they're absolutely amazing. Jenny Harrison, thanks ever so much for bringing us the full wrap-up of the weather forecast on both sides of the planet.
Now, coming up after the break, under pressure to explain a tiny tax bill. Google's European boss gets a hand-backing from this British lawmaker.
DOS SANTOS: "Devious, unethical, and even evil." Those are the strong words coming today from British lawmakers who are accusing Google of a calculated attempt to avoid paying corporation tax, at least a fair share of corporation tax in the United Kingdom.
In the hot seat was this man, Matt Brittin. He's Google's head of European sales. His claim that all advertising sales were completed in Ireland were swiftly rebuffed by the public accounts committee, which said that it had its own evidence showing the contrary from whistle-blowers.
Well, this is significant, because Google would have had to pay tax at a much higher rate if those sales were actually completed inside the UK. However, Mr. Brittin said that his company's done nothing wrong.
(BEGIN VIDEO CLIP)
MATT BRITTIN, VICE PRESIDENT OF NORTHERN AND CENTRAL EUROPE, GOOGLE: We comply fully with the laws that are set down by politicians, and we operate in the UK in a way that's consistent with other companies operating from a European headquarters outside the UK.
And I understand why these tough times for families there's extra scrutiny on how companies operate, and I'm happy for us to come and answer questions, and we are as open and transparent as anybody answering those questions.
(END VIDEO CLIP)
DOS SANTOS: Google's grilling comes hot off the heels of figures showing Amazon's UK tax contribution was also pretty paltry. The online retailer made sales to British customers of over 4.25 billion pounds in 2012, that's around about $6.5 billion in total. However, what it reported was a total tax charge of some 3.2 million pounds. That's just shy of $5 million.
But here's the interesting bit. That year, it actually received nearly $4 million in government grants. Earlier today, I asked the Public Accounts Committee chairwoman, Margaret Hodge, what it would take to make people like Google, as well as Amazon, pay just the right amount of tax.
MARGARGET HODGE, CHAIR, PUBLIC ACCOUNTS COMMITTEE: If HMRC can demonstrate that they are selling advertising space here in the UK, then it becomes economic activity on which, if they make a profit, they should and could be taxed.
At the moment, they say they're not doing that. I think the evidence we had today demonstrates the opposite. If I tell you we saw pay slips of UK-based salespeople, where only a third of the income came from a salary, two thirds of the income came from commission on sales. We saw --
DOS SANTOS: Which -- excuse me, a second -- which begs the question, those employees themselves are probably going to be having to pay UK income tax on that, so why is the company not paying corporation tax on it?
HODGE: I agree with you. I agree with you. And sometimes, these multinational corporations hide behind the fact that some taxes are paid in the UK to justify the fact that they're not paying corporation tax here in the UK.
I agree with you entirely. It seems to me -- common sense to me -- and I think common sense to all their customers, common sense to their staff, common sense to the public who use Google, that they are selling advertising space here in the UK. If they're doing that, if they're making money out of selling that space, they ought to then pay a tax on their profits.
DOS SANTOS: Yes --
HODGE: Can I say, one of the bits of evidence we had today was actually what their customers feel. There was a survey done of all those - - what are called media buyers. These are the guys in the middle who buy the space on behalf of companies.
The vast majority of those, 80 percent, believe that they were closing those deals with UK-based staff. So, these are the professionals. The public believes that that happens. The customers believe that happens. I believe that happens.
The only people who think -- seem to think that it doesn't happen are Google themselves. And I think HMRC are very timid in their approach to establishing whether or not there is a tax bill due by Google here.
DOS SANTOS: Coming up: why David Beckham is quitting the game he loves. We ask if the Beckham brand will live on when he goes.
DOS SANTOS: Welcome back. I'm Nina Dos Santos, these are the main news headlines here on CNN.
The leaders of the United States and Turkey have held a news conference after a meeting at the White House. Barack Obama and Recep Tayyip Erdogan took questions on a whole range of issues. Both said, though, that the conflict in Syria was at the top of their agendas, and both agreed that the Syrian president must go.
State media in Bangladesh says that at least 12 people have been killed by Tropical Cyclone Mahasen. The storm made landfall near Dhaka. It made a last-minute turn away, though, from a vulnerable stretch of Myanmar's coastline where more than 100,000 Rohingya Muslims are living at the moment in displacement camps.
France wants to see a full economic union in the eurozone within two years' time. The French president Francois Hollande proposed the creation of a single economic government that would meet monthly, led by a full-time president.
Tornadoes have destroyed dozens of homes in northern Texas. At least six people have died in the storms, and seven remain missing. A survey team says that it found damage in the hardest-hit community indicating that an EF 4 tornado had struck that area. That is the second-most severe classification on a scale of 0 to 5.
(END VIDEO CLIP)
DOS SANTOS: David Beckham is retiring. He's set to finish his fabulous footballing career with the French club Paris Saint-Germain. That will free him up for his off-the-pitch projects and there are plenty of those to talk about.
(BEGIN VIDEO CLIP)
DOS SANTOS (voice-over): He posted this on his Facebook page today, "I'm genuinely excited," he says, "about what lies ahead. I'm fortunate to have been given many opportunities throughout my career and I feel it's my time to give back."
CNN's Jim Boulden reports now on Beckham the brand.
(BEGIN VIDEO CLIP)
JIM BOULDEN, CNN CORRESPONDENT (voice-over): His career is now over on the pitch, but David Beckham should remain a pitchman for years to come. In truth his best footballing days were over years ago.
Yet he has only enhanced his brand and those of the brands he fronts, from Adidas to Pepsi to Burger King to the supermarket chain, Sainsbury's (ph). You could even argue Beckham was marketing the sport of football or soccer in the United States as a player for the L.A. Galaxy. Before moving to Paris five months ago.
PATRICK BARCLAY, "LONDON EVENING STANDARD": I don't think there's any danger that Brand Beckham will run out of legs just because he has.
BOULDEN (voice-over): Beckham also became one of the British faces of last summer's London 2012 Olympics and Sainsbury's used David Beckham as its brand sponsor for the Paralympics.
DAVID BECKHAM, FOOTBALLER: As we look forward to this massive summer of sport.
BOULDEN (voice-over): "Forbes" magazine had him the eighth highest paid athlete last year. His salary then was an estimated $9 million from football, but $4 million from endorsements. This year he donated to charity what he was paid during his five-month contract at Paris Saint- Germain.
But at the same time, he provided some good PR for the Paris team's owners, who were trying to raise the site's profile within Europe.
BARCLAY: He's a politician, much better politician than perhaps you would think from a conversation with him. He has instinct.
BOULDEN (voice-over): Brand Beckham is not just David, of course. His wife, former Spice Girl Victoria and now their son, 10-year-old Romeo, are in the spotlight. Romeo is modeling for a British fashion house, Burberry. But still the brand and the man live on, whether in the U.K. or in places like China, where the appeal of footballers only gets stronger -- Jim Boulden, CNN, London.
(END VIDEO CLIP)
DOS SANTOS: One of the most successful channels on YouTube has been bought by a major media house.
DreamWorks Animation is buying up Awesomeness TV. This is an online channel specifically marketed towards teens, and it has some 14 million subscribers worldwide. Maggie Lake spoke to Awesomeness CEO Brian Robbins as well as DreamWorks' chief Jeffrey Katzenberg about the deal and the move towards the digital investment.
(BEGIN VIDEO CLIP)
BRIAN ROBBINS, CEO, AWESOMENESS TV: Like it or not, as a filmmaker -- and maybe I don't like it -- but you sort of have to deal with the reality that my kids love to jump from thing to thing to thing. Or they could be watching television and be watching a video in their hand at the same time. And so that's sort of the world we're servicing.
JEFFREY KATZENBERG, CEO, DREAMWORKS: Well, if you had to pick a single word and say, OK, well, what is at the core of why this is happening today, then why it is explosive and why its potential is so astounding, it is mobile, mobile, mobile.
MAGGIE LAKE, CNN CORRESPONDENT: How do businesses make money in this landscape? Does it have to be about advertising? Are you able to sort of, you know, connect with viewers and get the subscriptions that you used to? I mean, have we figured that out yet?
KATZENBERG: Well, that's what I think is quickly evolving here and there are really two very natural models here that are going to, I think, quickly take root here. So the first is a traditional one, which is advertising.
And eyeballs are eyeballs in this. And whether they're eyeballs watching short content or longer content, they are valuable to advertisers. Now you have to adjust the advertising message and there needs to be as much original and creative approach to that as there is to the content itself. But there is for sure a powerful and very valuable advertising component to this.
Also the other side of it, which is really going to be the next step, and we feel very confident about that, is going to be one that involves subscription and pay when you're giving people premium content. And so both of these models, I think, you're going to find them quickly growing in value.
LAKE: Brian, as a content creator, I would think this is fantastic, that you have so many platforms in which to put yourself out there. But as a consumer myself, I mean, sometimes there's so much noise I'm not sure where to go.
Are you -- is it -- does it make it better and easier to sort of get projects made, find a home for them?
Or is it harder to break through the noise and get a hit and get a map audience?
ROBBINS: Well, it's both, right? Now, unlike ever before, anybody can make content, right? So we're discovering young, talented people every day on our platform. That's exciting. The tough part is breaking through and finding an audience. But I think it's the same as it always has been. A hit is a hit is a hit. So if you make good content, people will come.
LAKE: And Jeffrey, this is an industry, though, that is sort of addicted to the blockbuster. You know a thing or two about that from your time at Disney and DreamWorks.
Do we have to change the scale on what we talk about from numbers in terms of successful media properties?
KATZENBERG: Well, Brian talks in billions. So that seems very appealing to me. So everybody over there, YouTube is always talking about billions -- billions of hits, billions of views, billions of subscribers. I'm very excited. It's billions. Very exciting.
ROBBINS: But it is true, I mean, there's a billion (inaudible) --
KATZENBERG: See, there he goes.
ROBBINS: -- 1 billion unique viewers on YouTube every month. That's a pretty massive audience. I mean, it dwarfs television. It really does.
KATZENBERG: I'm hoping we can get those billions to see "Turbo," our next movie. Imagine if we got a billion people to see it.
(END VIDEO CLIP)
DOS SANTOS: Wow. They're bullish, aren't they?
Now let's have a look at how the U.S. markets are faring because we're not seeing too much bullish activity on the Dow Jones industrial average.
Remember that the Dow and the S&P 500 just yesterday hit another record high, as you can see, though they're more or less flat now, as you can see, up only around about 0.05 of 1 percent, which is about 8 to 9 points on the Dow at 15,283 for the moment.
Still to come here on QUEST MEANS BUSINESS, though, inside an Indian palace, the maharaja calls this place home, as well you could, too. Do stay tuned for more.
DOS SANTOS: Virgin Atlantic has revealed a full-year pretax loss of some $107 million. The U.K. carrier's blaming this slump on a drop in business travel during last year's Olympic Games.
Well, it also says that the sluggish economic conditions and higher costs have contributed to the shortfall. Virgin is pledging to turn things around from here on. And as such, its underlying plans for a return to profit in the second quarter of 2015.
Well, from planes to palaces and the chance to live like a high flyer for a price, mind you, a maharaja in the Indian state of Rajasthan has converted part of his home into a hotel and CNN's Mallika Kapur has been over to take a look.
(BEGIN VIDEO CLIP)
MALLIKA KAPUR, CNN CORRESPONDENT (voice-over): Rajasthan, known for its art and culture, vibrant colors, historical forts and palaces, the grandest Umaid Bhawan (ph) sits on top of a hill above the desert city of Jodhpur. Though it's between 1928 and 1942 by the royal family of Jodhpur, it's one of the largest private residences in the world.
The maharaja still lives here and you can, too.
We've (inaudible) palace, not a hotel.
KAPUR (voice-over): In 1972, Gaj Singh converted a part of the palace into a luxury hotel, now managed by the Taj Group of hotels. It was a hereafter the government abolished privy purses, a regular allowance the state gave royals.
GAJ SINGH, MAHARAJA OF JODHPUR: We don't need it, of course. And (inaudible) and also give (inaudible).
KAPUR (voice-over): Raymond Bickson is the CEO of the Taj Group.
RAYMOND BICKSON, MANAGING DIRECTOR AND CEO, TAJ GROUP: The palaces are for us; they are -- I guess they would be the calling card of what you represent.
KAPUR (voice-over): Royal luxury, Indian hospitality, across India, many royal families are opening up their palaces to tourists. It's an importance source of revenue and a great way to show off India's heritage.
BICKSON: It's as if you're stepping back into a period of time. And you can have that same experience, but in air conditioning and with wi-fi and of course with our (inaudible) shower head and a steam shower and all of that. So it is -- it caters to the modern traveler.
KAPUR (voice-over): A relatively well-heeled traveler. Rooms here cost $450 a night. This, the maharani suite, with its private spa, a princely $1,500. Running a 64 all-suite luxury hotel in an old building is challenging.
BICKSON: Sometimes you have to work with physical aspects of a 175- year-old building. We have three restaurants upstairs. You have little runners that have to take the food hot and make sure that it's hot when it gets there to your table.
KAPUR (voice-over): While living like a maharaja, you could run into the real one. He says he's happy to meet guests in his palace. They are the reason (inaudible) again.
(END VIDEO CLIP)
DOS SANTOS: Well, in economic news elsewhere, stay with the emerging markets and Mexico's expected to report a slowdown in growth tomorrow. Analysts expect this country's economy to decelerated in the first three months of the year.
This top emerging market has seen a gradual slowdown in growth over the recent quarters and part of the problem could be lower demand for exports as well as (inaudible).
Well, speaking of a country that's government is spending quite a bit, after years of deflation and stagnation, the Japanese economy is picking up steam. Well, the economy over there grew by 3.5 percent in the first quarter of the year compared to the same period of 2012. That's well ahead of many an analyst's forecast.
Now tomorrow here on QUEST MEANS BUSINESS, Richard will be hosting a live show from Johannesburg. He'll be speaking with the South African finance minister, (Inaudible) Gulden. He'll be examining the economic prospects of the country and the current state of mining industry which is, of course, being a hot button issue for South Africa over the last few months.
That's tomorrow, right here on QUEST MEANS BUSINESS, tune in at the usual time. (Inaudible) miss that.
And that's it for today's show. Thanks for joining me. I'm Nina dos Santos in London. MARKETPLACE EUROPE is next.
DOS SANTOS: Hello and welcome to MARKETPLACE EUROPE from Basel in Switzerland. I'm Nina dos Santos. This is Basel World, the annual showcase for anyone who's anyone in the world of watches and fine jewelry. On this week's program, we'll be looking at the prospects of this multibillion-dollar industry and examining what keeps it ticking along.
DOS SANTOS (voice-over): Coming up, the Chinese appetite for craftsmanship that's clocking up sales for Swiss-made timepieces.
And the president of (inaudible) Philippe tells me about the benefits of staying independent.
THIERRY STERN, PRESIDENT, PATEK PHILIPPE: (Inaudible) ready to do whatever I believe is right, you know. I have no shareholders pushing me, really, for a short-term vision.
DOS SANTOS: It's the networking event of the year for watch and jewelry makers, from 1,815 exhibitors from 45 countries descend upon Basel to show off their latest products. Well, the market for timepieces and fine jewelry has actually proved to be one of the most resilient sectors during the global downturn. Time now to find out what (inaudible) 2013.
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DOS SANTOS (voice-over): On the face of it, it might appear as though time has stopped at Basel World. But watches displaying 10 past 10:00 is a deliberate ploy to make people browsing the stands feel happy, the hands mimicking a smiling face. And the industry appears to have plenty to smile about. This show is an opportunity to test the appetite for new products.
CAROLINE SCHEUFELE, CO-PRESIDENT, CHOPARD: I think the most important thing about Basel is that within basically one week you meet all your clients, all from all over the world, whether it's Australians, Canadians, Americans, Russians, Chinese. And this is an incredible opportunity because we sort of get a radar look on what's going on in the market in the world in one week.
DOS SANTOS (voice-over): Luxury watch sales have been ticking along nicely, defying the economic gloom that has taken its toll on other industries. Digital Luxury Group has been monitoring the trends in the watch market for 10 years.
FLORENT BONDOUX, HEAD OF STRATEGY, DIGITAL LUXURY GROUP: (Inaudible) I think this year is how big has China become in terms of size, (inaudible) Swiss watchmaking brands, but also how fast that market has been growing.
And this actually (inaudible) we're saying it's actually shaping the Swiss watchmaking industry towards localization, towards offering (inaudible) their product, their strategy statistically to a Chinese audience.
DOS SANTOS (voice-over): According to DLG's latest World Watch Report, global interest for luxury watches grew by 3.3 percent in 2012, fueled by the BRICS economy. China's saw a 36 percent increase in demand. Brazil popped up to rise just over 29 percent, while Russia rose by 28.5 percent, India by nearly 20 percent.
The more established markets of the United States, Europe and Japan all saw a decline in demand. Luxury timepieces have long been at the heart of China's culture of giving gifts. But Beijing's recent crackdown on corruption and government presence has been to the exports of Swiss watches in 2013.
BONDOUX: On a very short-term level, brands which had the highest exposure to government giving practices might have felt slowdowns. But we think those are comparably slowdowns.
DOS SANTOS (voice-over): It's estimated that half of the luxury watch purchases by Chinese consumers take place outside of China. Watch tourism is playing an increasingly important role in bolstering sales in areas where local purchases have declined.
BONDOUX: There is a slowdown. There is some very important signs of decline from (inaudible) markets. But I think those markets are relying on the increasingly important traveling and tourism shopping from (inaudible) individuals, all across the globe, China first, but increasingly Russian, from the Middle East as well as in Brazil.
DOS SANTOS (voice-over): Wherever the customers are coming from, craftsmanship and service are the buzzwords this year as the big names try to differentiate their products (inaudible) by the price tags.
KARL-FRIEDRICH SCHEUFELE, CO-PRESIDENT, CHOPARD: We are a luxury product. We produce luxury products but most of all they're quality objects which last over time. And I think this is an important aspect of our industry and it makes us different to certain other luxury products.
DOS SANTOS (voice-over): Manufacturers can only hope that time stays on their side and the public's appetite for fine craftsmanship will continue to sparkle.
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DOS SANTOS: That is coming up, the company which says you don't really own one of their watches, you're just looking after it for the next generation. (Inaudible), that's next.
DOS SANTOS: Hello and welcome back to MARKETPLACE EUROPE from Basel World in Switzerland, a country which many (inaudible) is the spiritual home of watchmaking. It's an industry which last year cropped up a record $22 billion worth of exports for the Swiss economy.
It's also a sector which has undergone massive consolidation. Yet one Swiss company says that it's determined to stay independent.
DOS SANTOS (voice-over): Founded by two Polish immigrants, Patek Philippe has been making timepieces since 1839. (Inaudible) by the Stern (ph) family in 1932, it's the last family-owned independent watch manufacturer in Geneva. The company produces 50,000 timepieces a year. It has 450 retail outlets around the world.
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STERN: If you look at the vision of Patek, it was always the same. We are willing to do the finest watch in the world. We are willing to have also the best service in the world. And this is something well appreciated from people.
There have been training people for 29,000 hour in 2012, 29,000 hour just to train people to repair the watches but also to do like -- to answer, to explain and also to promote (inaudible) also the brand.
DOS SANTOS: Now (inaudible) quite cautious about expanding too quickly into places like China and you've actually retrenched.
STERN: I'm able to produce around 50,000 watches a year. And you can imagine that today without China, I'm already selling everything. So there was no way I could go to China and try to produce more. When you have a level of quality like this, you cannot produce more than that. And I'm not willing to do that.
So for me, I mean, really the danger was maybe to say, well, if I tried to get the watches from Europe to China, for example, I would put me myself in trouble, you know, because first I would lose my clients and my credibility because those retailers we have been working for years, sometimes 100 years with them. And this is important for me. I (inaudible) reputation, you know.
And the second, secondly, you never put all your eggs in the same basket. So I was not willing to go to China, you know, like the other one and open massively. So --
DOS SANTOS: If you look at your sales breakdown, though, China is 3 percent, Asia is still 30 percent. That's really important to the region.
STERN: Well, it will always like that. So, you know, Asia we have been working since so long with Hong Kong, Singapore, Taiwan, Thailand, all those markets. We have building up really the work through many, many years. So as an example, for example, in Singapore, I'm working now with the third generation of retailers. So we know each other very well. And of course, we know the clients also.
DOS SANTOS: If we talk about Europe, this is a region that represents about 45 percent of your sales. And obviously, as we know, the Eurozone as a whole would be lucky to grow at all this year. Many of those traditional markets are in recession. Why is it not affecting watch brands? Are you seeing it affecting Patek Philippe?
STERN: No, I don't think it can affect today for two reasons. The first one, we have been working very hard to keep the local clientele. Really, my task, as a family business, was also to travel, to explain to the retailers what we expected from them. And the word was to say, keep your watches for your local clientele.
We know you will see a lot of Chinese coming to Europe. Today, maybe, we should sell -- we have 45 percent watches, maybe 20-25 percent are sold to Chinese who are traveling. And this is what I try to say all the time.
I say, listen, you can sell to Chinese, I don't mind. But please keep the right pieces for the people coming every year, the people you have been working with for years, you know, those local people. They are the key of the business.
DOS SANTOS: Technology versus tradition? Which one's more important? How do you get the balance right?
STERN: Both, both. Today, I mean, you need to evolve, otherwise you die. And you know, the watchmakers, they have to evolve. Every time we are looking to -- really to improve the product in terms of maybe not only the movement but the case, the bracelet. If you are a real watchmaker, you need to evolve. But you also need to know where is the limit.
That means I'm not aiming for gimmicks; I'm not aiming for gadgets. I'm aiming to really have a better product. This is the key.
DOS SANTOS: So are you look after Patek Philippe for the next generation as a company?
STERN: I try, yes. I try to do my best. My father was there before me. Then I hope it will be (inaudible) after. You know, I just try to maintain (inaudible) harmony, a certain vision of Patek Philippe and what I hope is that when I will go away, the next one will say, well, he did a good job and he cleaned the room. I'm coming in. Everything looks nice. That's how I see it, you know.
And you should not have an ego. I mean, I didn't choose to be in this family. I born there and my father was lucky, because I enjoyed making watches. So I'm (inaudible) real chance with a lot of pressure, but if you have passion and you know how to be surrounded with good people, then you can do a lot of things.
DOS SANTOS: So you want it to stay a family company?
STERN: That's for sure. It will all be really to do whatever I believe is right. You know, I have no shareholders pushing me really for a short-term vision. I mean, I can really launch project for eight, 10, 20 years. And this is the beauty, really. And the retailers, they know that also. So for them, it's so nice to work with a company who says we're going to stick that way and we will not change.
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DOS SANTOS (voice-over): Thierry Stern, the president of Patek Philippe there.
Well, time's up for this edition of MARKETPLACE EUROPE. And don't forget to set your watches for next week's show. But in the meantime from Basel World in Switzerland, it's goodbye and thanks for watching.