Belgium Chocolate Industry Essay Example for Free

Belgium Chocolate Industry Essay First introduction is when Spanish conquistadors met Azctec king. 1585 first recorded shipment from veracruz to Sevilla, Spain and spread to Europe from there. The first recorded shipment of chocolate to Europe for commercial purposes was in a shipment from Veracruz to Sevilla in 1585. [17] It was still served as a beverage, but the Europeans added cane sugar to counteract the natural bitterness and removed the chili pepper while retaining the vanilla, in addition they added cinnamon as well as other spices. In Spain, it quickly became a court favorite. In a century it had spread and become popular throughout the European continent. [26] To keep up with the high demand for this new drink, Spanish armies began enslaving Mesoamericans to produce cacao. [27] Even with cacao harvesting becoming a regular business, only royalty and the well-connected could afford to drink this expensive import. [28] Before long, the Spanish began growing cacao beans on plantations, and using an African workforce to help manage them. [29] The situation was different in England. Put simply, anyone with money could buy it. [30] The first chocolate house opened in London in 1657. 30] In 1689, noted physician and collector Hans Sloane developed a milk chocolate drink in Jamaica which was initially used by apothecaries, but later sold to the Cadbury brothers in 189715] For hundreds of years, the chocolate-making process remained unchanged. When the Industrial Revolution arrived, many changes occurred that brought about the food today in its modern form. A Dutch familys (van Houten) inventions made mass production of shiny, tasty chocolate bars and related products possible. In the 18th century, mechanical mills were created that squeezed out cocoa butter, which in turn helped to create hard, durable chocolate. 32] But, it was not until the arrival of the Industrial Revolution that these mills were put to bigger use. Not long after the revolution cooled down, companies began advertising this new invention to sell many of the chocolate treats we see today. [33] When new machines were produced, people began experiencing and consuming chocolate worldwide. [34] At the end of the 18th century, the first form of solid chocolate was invented in Turin by Doret. This chocolate was sold in large quantities from 1826 by Pierre Paul Caffarel in Italy. In 1819, F. L. Cailler opened the first Swiss chocolate factory. In 828, Dutchman Coenraad Johannes van Houten patented a method for extracting the fat from cocoa beans and making powdered cocoa and cocoa butter. Van Houten also developed the so-called Dutch process of treating chocolate with alkali to remove the bitter taste. This made it possible to form the modern chocolate bar. The German company Jordan Timaeus sold the first known chocolate bar made from cocoa, sugar and goats milk in 1839. [35] In England, the company,J. S. Fry Sons discovered a way to mix some of the cocoa butter back into the Dutched chocolate, and added sugar, creating a paste that could be moulded. This led to the first British chocolate bar in 1847, followed in 1849 by the Cadbury brothers. Wikipedia In most cases, the answer will be: chocolate – surprisingly or not. But when and how did Belgium become synonymous for top-quality chocolate? The history of Belgian chocolate reaches back as far as the 17th century, when the country was ruled by the Spanish, whose explorers had brought cocoa back from South America. At the time, cocoa was enjoyed as a luxury drink for the royals, nobility and artists who visited the royal courts in Brussels. Interestingly, the story of Swiss chocolate can also be traced back to Brussels. In the late 17th century, Henri Escher, the mayor of Zurich, visited Brussels and fell in love with the cocoa drinks he was served. He was so over the moon that he introduced the idea to Switzerland. Three centuries later, Switzerland remains Belgium’s main competitor when it comes to chocolate. In the centuries that followed, chocolate became increasingly popular amongst a wide public, but it took until the second half of the 19th century for Belgium to truly indulge in its passion for chocolate. Under the rule of King Leopold II, Belgium colonised Congo, where it found its own unlimited cocoa supply. This put Belgium right at the heart of the cocoa trade. Back in Belgium, in 1857, Jean Neuhaus (funnily enough of Swiss origin) had opened a pharmaceutical sweets shop in Brussels, where he also sold bars of bitter chocolate. The first chocolate shop was born. Some 60 years later, it was Neuhaus’ grandson who invented the praline when creating an empty chocolate shell with a sweet filling. So, what makes Belgian chocolate so special, so very delicious and in a league of its own? The secret is two-fold: ingredients and process. Of course, the origin and orientation of the cacao plantation, as well as the roasting of the beans all help to determine the flavour. But the main reason for the pure and full cocoa flavour is the fact that no vegetable shortening is used. Belgian chocolate traditionally mixes cocoa paste, sugar and cocoa butter in varying proportions. Dark Belgian chocolate uses the most cocoa; milk chocolate mixes in milk; and white chocolate is made be extracting only the butter from the cocoa. On the other hand, there is the process, which to date is steeped in tradition and craftsmanship, and still holds a hint of secrecy.

Colgate-Palmolive PEST and Porters 5 Analysis

Colgate-Palmolive PEST and Porters 5 Analysis Jump to: PEST Analysis of Colgate |Â  Porters 5 Forces Analysis of Colgate Introduction Companies seeking to gain a competitive advantage in todays environment, where competition is very tough where technological improvement have pushed major companies forward are in need of a strategy development process. By using several capabilities like creativity and originality, companies can come up with a number of options and possibilities that can be used while building a strong strategic plan. Today, Companies should develop the sense of controlling and monitoring of processes, nothing should be left at random, because important losses can incurred. Many thinkers have argued that a strong strategy should consider three important factors (3C): Customers, Competencies and Competition. To begin with customers, companies should be able to distinguish between existing customers and potential customers; in addition, they have to understand customers needs for a better profitability. Competencies are perhaps the most important tool in this chain, it can raise the companys stock index or lead it to bankruptcy, and its by recognizing multi-skilled peopleÂÂ  trained and capable in a large variety of skills or activities that companies can carry on the adventure. Finally, competition is no longer a concept to be defined or explained, its becoming a double-edged sword for companies in a world where the number of firms is growing exponentially. Analysis of the areas cited above is interconnected. Who you select as your target group will have consequences on capabilities you require, which will have an impact on what the competition policy which will pressure who you choose as your target group.ÂÂ   Furthermore, a well structured strategic analysis will induce to brighter more significant goals, and a more safe future as companies are better aware of possible threats that may happen. They may be also known as (External Environmental analysis), its may be seen as the connection between going in the right track and making the appropriate decisions, a kind of trade-off established by the company. Its through strategic analysis that organizations are capable of encouraging funders for future perspectives. Funders are more likely to go for donations or loans, in case of strategic analysis environment, to enlarge the gap between the organization and its competitors. In the other hand, not considering at least a little amount of strategic analysis means losing opportunities called also (opportunity cost). A left behind status can be reached in case of ignoring strategic analysis. BNET Business Dictionary defines the strategic analysis as the way of conducting researches on the external environment or business environment where the organization performs and on the organization in the purpose of drawing a strategy. In the other hand, Professor Les Worrall thinks that strategic analysis is a fair understanding of organization surrounding, it takes into consideration the interrelation between the firm and its environment to improve organizational efficiency and effectiveness, by increasing the organizations capacity to deploy and redeploy its resources intelligently. Many studies have been conducted in this field, they may have suggested different definitions of strategic analysis but three important characteristics are commonly linked with it: Identification and evaluation of important data to strategy elaboration. Recognition of both external and internal environment to be considered. Multiple analytical methods that can be used in the analysis. Examples of analytical methods used in strategic analysis include: Value chain analysis Four corners analysis Early warning scans War gaming PEST analysis and Porters five forces analysis Analytical tools are meant to ensure the sustainability and reliability of the analysis proposed. Analytical methods are worldwide used and understood, they have reached a mature state where every organization can use them to better work However, while dealing with the analytical methods, companies should keep in mind some considerations: The tool or method should be able to answer question that may be raised by the organization. The benefit coming from using any tool or method should be clearly defined and stated. To ensure a successful analysis, organization need to go forward a great understanding of the tool used. The tools proposed are empowered if there is collaboration as input with other people surrounding the company, in addition, time should be allocated to people concerned so they accommodate the analysis. Every member of the organization must be aware that the use of any analysis tool is time and effort consuming, decision-making board and stockholders ,in the implementation phase, should be flexible and provide the necessary to complete the project. The objective of using an analytical tool is to go deeply in the analysis and to ensure a better approach more balanced and methodical. In addition, all analytical tools are using historical data, they rely on past data to better understand futures wants. Moreover, results coming from the analysis should be interpreted with caution or the analysis may lead to an influenced result, due to pressures, which look for a particular strategy. One of the important competencies of an analyst is to understand which tool or technique is most appropriate in the context. Colgate Palmolive Nature of Business Colgate-Palmolive is generating benefits from manufacturing and selling shampoo and toothpaste , 80% and 15% respectively. The remaining is shared between home care products (softeners).Colgate-Palmolive is the leader in the domestic market on the shampoo and the second on the toothpaste.ÂÂ  The battle for market share with competitors is at:ÂÂ   Shampoo with brands such as: Head shoulders / Pantene Toothpaste with brands such as: Signal CPM Company is present in several markets of consumer goods. Indeed its wide product range covers both Personal Care as the Home Care. Colgate-Palmolive operates in the market of Oral Care through Tonigencyl and Colgate toothpaste and Colgate toothbrushes. In addition the Company has a strong presence in the market with shampoo brands:ÂÂ  Cadum, Alert and Palmolive. Colgate History In 1806, Mr. Colgate William, a soap and candle maker, opened a shop where he sold candle and soap and multiple cosmetics in New York under the name William Colgate Company. In the 1840s, the company started to sell energetic bars for uniform weights. In 1857, His son took over,, when his father Samuel Colgate passed away , the company was renamed as Colgate Company under the management of Samuel Colgate, his son. In Milwaukee, B.J. Johnson Company was producing a special and famous soap by mixing only palm and olive, the formula used was developed by B.J. Johnson in 1898. The soap was very popular, thanks to the recipe originality, and took the name of Palm-Olive (Palmolive) Between 1928 and 1953 many changes occurred, they are summarized below: The merging of Peet Brothers with Palmolive to become Palmolive-Peet. Palmolive-Peet bought Colgate company form Samuel Colgate to create the Colgate-Palmolive-Peet Company.(1928) In 1953, the company changed its to the current name Colgate-Palmolive Company. Colgate-Palmolive has been competing with the worlds largest soap and detergent producer for decades. After the World War II, PG had decided to a launch a diversified range of products under the name of TIDE, many consumers turned to this new products when they used to buy Colgate-Palmolive Products. Moreover, the company faced another challenge when PG decided to add Fluoride in the toothpaste an achievement never done before, due to this fact, Colgate-Palmolive lost his first place in the toothpaste market. To compete with Procter and Gamble, CP(Colgate-Palmolive) have used television(new invention at that time)and decided to sponsor some shows so they can regain their market share against PG. In 2006, Colgate-Palmolive has intended to acquire the major part of Toms of Maine, a pioneer in the natural toothpaste maker, for US $100M. Today, Colgate-Palmolive has a number of plants and subsidiaries around the world, more than 200 countries are using Colgate-Palmolive Products. Colgate Palmolive Values Our three fundamental values-Caring, Global Teamwork and Continuous Improvement-are part of everything we do Valuing Colgate People Becoming the Best Place to Work Colgate strategic analysis PEST Analysis: Nowadays, to ensure a sustainable, competitive and successful company, managers and board of executives has to cope and operate within a rigorous macro-environment that is shaped by influences of different factors. These factors can emerge from many sources: The overall economy, population, governmental legislations and regulations, societal values, new technologies. All of these represent relevant factors that can have a gigantic impact on all the decisions the company makes concerning its direction, business model, objectives, strategy and thus, the ability to impact on the companys overall situation. Now that we have understood the importance and the impact that an external environment can have on a businesss situation, its compulsory to sort those factors into categories and assess their importance to the business. After assessing their importance, external factors can be categorized into 4 major assemblies by using the PEST or PESTLE Analysis. (P)olitical Factors The first letter in the acronym refers to Political factors and they are issues that affect the way of doing business. They can be trading policies imposed by the government or the political stability of the country in which business is conducted. Political issues can also be related to taxes and labour laws imposed by the government and labour unions. They can also be regulations directed to maintain a fair competition on honourable basis between rivals in any industry and prevent abusive actions. Moreover, the political factors can also be regulations put by the government to protect the environment in which the company is operating. This type of regulations can for example be linked to pollution issues or standard quality of their products or services that will be directed to their clients. (E)conomical Factors The second letter in the acronym refers to Economical factors and they are subjects related to the overall situation and stage of growth of the economy. These factors need to be taken into consideration for the impact they can have on the operations of a business. Managers need to assess the home economy situation and trends. Furthermore, they need also to keep an eye on changes in taxation of products services. They also need to look at the driving forces of the economy such as the purchasing power of their target market and consumer preferences and also to unemployment and wages levels. If the company is involved in foreign trade, managers have to consider the tariffs and exchange rates as well as the import and export ratios applied in that country. (S)ocio-Cultural Factors The third letter of the acronym refers to Socio-Cultural factors that any company has to consider the point of view of the general public. The publics opinion and attitude toward the companys products is also important because it plays a core role in building the image within the different constituencies. Companies also have to be in permanent contact with the media by writing press releases or opening its doors to build brand image that is known by everybody. Socio-Cultural factors can relate also to issues raised in advertising campaigns and publicity or by participating in major events to show their part of social responsibility. Social factors also include diversity of their work force employed. Companies hire disabled and elderly people to get them integrated within the society. Finally, companies need to respect and take into account ethical issues no to offend any minority in the society. (T)echnological Factors The last letter of the acronym refers to Technological factors. These factors have changed the way businesses operate. By introduction of all these technologies, companies are able to conduct their operations much easily with a better performance. Technology participated in the improvement of many aspects since it was introduced at all levels of the business, from selection process to productivity and research and development. (Jana F. Kuzmicki, 2007) Porters five analysis: Gaining Power of Suppliers One of the five forces which Porter formulated for an organization to look into in order to form a competitive advantage is gaining power of suppliers. The global reach and diverse portfolio of assets attract numerous investors. Colgate-Palmolive and other major competitors are both viewed by investors as home and oral care companies which have considerable positive investment strengths. Most often the comparison is always with PG. Although, Colgate-Palmolive is viewed by many as at par with its competitors, yet, what was lacking in their management is the lack of perceived differentiation which somehow impaired the investment decision-making process. Moreover, even though Colgate-Palmolive has no strategy that is unique or differentiating relative to the other companies, the threat of bargaining power of suppliers is low due to partnership, supply chain management, training, and dependency. Bargaining Power of Customers Customers are the lifeblood of the business. The existence and growth of a business company is dependent on customers. CP (Colgate-Palmolive) is serving globally with 25 million customers a day in over 200, 000 plant around the globe. There is a cohesive loyalty among buyers and sellers of energy in Colgate-Palmolive for several reasons like the attractive incentives and value added, partnering and supply chain management. Moreover, investors and stakeholders expressed their satisfaction on the services offered by the company. Again, this can be reflected on the 2001 case study interview which was recorded verbatim, in which two elements emerged fundamental to the satisfaction of customers technology and its diversified presence. One owns Colgate-Palmolive because of its strong diversified presence and good technology while another one noted that it is because it is cheaper, yet with a high quality of products and high returns over the course of the cycle compared to other major com panies. Moreover, significantly noted were two comments. On one hand, the reasons why many were satisfied with the performance because of its huge asset base, financial and political clout that was why they successfully covered operations in places like China, Russia, and the Middle East. On the other hand, CPs management restructuring that reduced costs focus on profitability, financial discipline and its way for shares repurchase. Threat of New Entrants In the home and oral care industry primarily on the soap and natural products and reserves, the companies management strategy reduced the friction of threat among its new competitors in the business by increasing minimum efficient scales of operations, its cohesive and good status with suppliers/distributors, retaliation tactics, protection of property and establishing a competitive and trustful image to its customers. Moreover, the role of advanced technology set them at par with other entrants in the business. In 2001, technology had differentiated CP from its competitors. Leadership in promising toothpaste from solid to gel technology that delivers new brushing sensations. There reputation was leveraged in order to establish a solid foundation against threats of the new entrants. The leverage of their reputation is build solidly on their total strengths both tangible and intangible like technology, products, adherence to business ethics, code of conduct, and corporate social responsibility that encourages consumers to brand loyalty. Threat of Substitutes The threats of substitutes in which customers switch product references are primarily caused by several external and internal factors. One of the factors in which customers tend to switch their preferences is the price cost of a product. If a product raises its cost value, customers may have a second thought of sticking into as his/her preference; therefore, the tendency is that the shift and switch of preference occurred. Most often, in this kind of business like marketing an energy reserves, the threat of substitution of customers come in the instability of a price. The price cost of a product if it increases due to social and political factors, it stand to be a threat for the company. However, the Colgate-Palmolive good strategy like increasing switching costs, alliances, customer surveys to learn about their preferences, accentuated differences and the entrance of substitute market, these reduced the threat of substitutes. Competitive Rivalry between existing players In any business price competition is significant because it attracts customers, the less you price a product, the more customers you gain, yet, in competitive rivalry, in order to reduce it, avoidance to price competition is necessary in which the Colgate-Palmolive observed. Their competition is not on price but on how to manage strategy that would best leverage a product. CP uses different strategies to market their product and be competitive. Their differentiation and different segmentation of their products set an edge for them, moreover, their healthy communication with competitors contribute positively to the competition. The competition should not be taken personally but a matter of business and professional work. Colgate-Palmolive has a competitive advantage not only due to the facts mentioned above but on the ability of managing the whole process of the business. Good financial management and diversified course of business bring them enormous customers and stakeholders.

Essay --

Racism In A Worn Path And Desiree's Baby In both of the stories A Worn Path by Eudora Welty, and Desiree‘s Baby by Kate Chopin. The encounters of Phoenix and Desiree show two different readings that deal with a common theme of impending the black and white racial issue in America. There are lots of references to racism in both of the readings. Throughout the short story A Worn Path, there are many events related to racism when Phoenix walking along an extremely difficult path to the town and get the medicine for her grandson. The first event is that when she meets the white hunter. First he appears as a kind and a friendly person , he suggested Phoenix to return home , however , she refused the hunter 's suggestion , because she is on a mature and important mission of love. Then the hunter made a racist joke to Phoenix, "I know you colored people! Wouldn't miss going to town to see Santa Claus!" Second event is that when Phoenix entered clinic, she has been treated unfairly because she is black. "A charity case, I suppose," said an attendant who sat at the desk before her."(Welty70) ,"" Are you deaf?" cried the attendant."(Welty 75). The attendant rudely asked whether she is deaf because she didn't answer her questions immediately and Phoenix referred as a charity case .Phoenix performed a great sacrifice for her gran dson, but the attendant 's behavior shows she is childish. Phoenix Jackson accepted the harsh circumstances of her life and moves on. The racism feature is the main theme in the short reading " Desiree's Baby. There are racism events happens when throughout the story. Desiree's Baby took place when racism was way too prevalent. After Desiree married to Armand , they birthed a baby. When the child grows, the ski... ...t not judge the people by looking at their races, like the old says" don't judge a book by its cover. In the reading, the pride of Armand was greater than the love for his wife and their baby, which destroyed Desiree and their baby's life and led to a sad ending. In Welty 's short story "A Worn Path", Phoenix is an old black woman who has no education after Phoenix was freed from slavery, and the racism was still way too prevalent after the Civil War. Her pride of love that she wants to get the medicine for her grandson and go through the woods no matter how difficult was it and no matter how unfair the society is ,there is nothing can able to stop her way. In both stories Desiree's baby and A Worn Path showed a great representation to the readers about the struggles of racial issues in South U.S and people went through. The world has changed when time moves on.

Macbeth :: essays research papers

A butcher is someone who brutally slaughters other human-beings. According to this definition Macbeth was a ’butcher’ by the end of the play. Macbeth becoming a butcher was brought about by his ambition for power, and how this ambition was used by the witches. Macbeth’s ambition is made obvious from the start. It is the thing the witches use get him under their spell,’All hail thee Thane of Glamis….Thane of Cawdor…..king’. Macbeth is intrigued by this greeting. When he finds out from Duncan that he has become the thane of Cawdor he whispers to the audience,’Glamis, and the thane of Cawdor, the greatest is behind.’ Macbeth is sure that he will become king. However at this stage he thinks that he will acquire it legally as he sees murder as,’fantastical’(I,iii,139). The story of how Macbeth descends into butchery starts when Duncan announces that Malcolm is to be,’Prince of Cumberland’(I,iv,39) and therefore Duncan’s successor as king of Scotland. Macbeth is now in a dilemma. He has just been told he will be king by the witches. Two of their prophesies have become true already. However, because Malcolm has just become king he cannot see how the third prophesy will come true. Macbeth’s wife solves his problem by telling him to kill Duncan. She tells him this after reading his letter to her and after hearing that the king is coming to her castle. She decides to’look like the innocent flower, but be the serpent under’t.’(I,v,63-65). Lady Macbeth plays an important part in Macbeth’s spiral downwards into becoming a butcher by persuading him to commit his first murder. Macbeth doesn’t want to kill Duncan and has strong doubts about what he should do, as shown by what he says in act I, scene vii,’He’s in double trust here…..i am his kinsman strong against the deed , then as his host, who should against his murderer shut the door, not bear the knife himself’ Lady Macbeth changes his mind by challenging his manhood,’When you durst do it, then you were a man’ and, to be more than what you were, you would be so much more the man.’(I,vii,49-51) He finally decides, after much tossing and turning that killing Duncan would be the best thing,’I am settled’. What Duncan said after the Thane of Cawdor was executed that,’there’s no art to find the mind’s construction in the face’(I,iv,12-13) is proved when Macbeth says,’False face must hide what the false heart dost know’(I,iv,82-83)

A Critical Exploration of Klein’s Discarded Factory in Connection With

There is an undoubtedly enormous influence on the world by consumerism. Consumerism and capitalism shape the nation that we live in today. Everyone knows this because they see advertisements all day long on television, on the radio, on billboards and through hundreds of other mediums. Unfortunately, what the world is not exposed to is what goes on behind the marketing and the ultimate final sale. There is a dark side to capitalism created not only by shady merchants, but the worldwide multi-national companies as well. What both of these excerpts portray is the idea that there is more to the products we buy than we are told, or unfortunately, that we bother to ask about. Through the use of interviewing, traveling, and criticism, these authors do a fine job in analyzing the relationships between branding and marketing, and more importantly, between our modern day consumption habits and hidden production processes. Based on what we see through advertising and what we are told by sales associates in stores, we assume that many of the products that we are exposed to are of high quality, which justifies the high prices. For example, we pay higher prices for a Nike shoe than a brand less shoe because from what we know, it is made better. While some people have the sense to realize that a name doesn’t make that much of a difference, the scale to which we are misled is much greater than we think. Stoller points out one instance on the streets of Harlem in the following passage: And so they traveled uptown to invest in bolts of wholesale ‘Ghanaian kente,’ which they brought to their sweatshops in lower Manhattan, producing hundreds of ‘kente’ caps at a price cheaper than one could get by buying cloth on 125th Street and commission... ...rs were buying the African image. These two authors proved in different ways that there are flaws in consumerism. While Stoller didn’t attack the market as Klein did, he shed light on an underground society that people did not know too much about, even though we see them every day. That idea is eerily similar to multi-national brands that we see every day, doing things that we as consumers unfortunately, do not know too much about. This grand scheme of giving up ethics for an increased profit is not only inconveniencing us consumers on the streets of Manhattan with fake cloth, thanks to Klein, we can see that it is literally destroying the world. Works Cited Stoller, Paul. 2002. Money Has No Smell: The Africanization of New York City. Chicago: University of Chicago Press. Klein, Naomi. 1999. No Logo: Taking Aim at the Brand Bullies. Canada: Knopf Canada.

Interpretations with Shakespearean Drama Essay

As the director of this precise production, my idea and vision for the 21st century version of â€Å"The Seven Ages of Man† is to a certain extent, altered. There is a merely different scene, so I want to set it where it rather emulates the poem. Though it cannot befuddle the audience’s attention away from the speaker and poem. However, I do want the scene to be conspicuous and speak for itself. Generally, movie producers choose prevalent places for precise movies, for example, California, New York, Atlanta etc†¦ I chose to go a different route for this movie. I chose to do this scene in the mountains of Colorado, during the fall. Furthermore, I cannot disdain the character because he or she is a vital aspect to the movie. No doubt the person I choose for this movie is Denzel Washington. I have a vast amount of confidence in him that he is a prodigious person to play the part. This 21st century movie will be similar in specific ways, for example, the mood in this movie will be the exact same as in the second video on page four in the lesson. I want it to start the same way as well with Denzel having his arm on a tree and speaking the poem with an infuriated tone. Also, there will be a guy holding a war knife looking miffed and discerning about what ensued. The only difference will be is that there will not be anyone standing expect for Denzel and that there will not be a light for him to touch and the girl will not be touching her hair. Generally speaking, my new advised version of this play is awesome!

Gold Price and Effect on Stock Exchange

Gold Price Volatility and Stock Market Returns in India P K Mishra Faculty in Economics, Siksha O Anusandhan University, Orissa, India E-mail: [email  protected] com J R Das Faculty in Management, Siksha O Anusandhan University, Orissa, India E-mail: j. [email  protected] co. in S K Mishra Faculty in Economics, TITE, Orissa, India E-mail: [email  protected] co. in Abstract The study of the capital market of a country in terms of a wide range of macroeconomic and financial variables has been the subject matter of many researches since last few decades. Recently one such variable, that is, gold price volatility has attracted the attention of many researchers, academicians and analysts. Thus, this paper is an attempt to analyse the causality relation that may run between domestic gold prices and stock market returns in India. The study by taking into consideration the domestic gold prices and stock market returns based on BSE 100 index, investigates the Granger causality in the Vector Error Correction Model for the period January 1991 to December 2009. The analysis provides the evidence of feedback causality between the variables. It infers that the Gold prices Granger-causes stock market returns and stock market returns also Granger-causes the gold prices in India during the sample period. Thus, both the variables contain some significant information for the prediction of one in terms of another. Keywords: Gold Price, Stock Market Return, BSE 100 Index, India, Volatility, Causality JEL Classification Codes: C22, C32, E44 1. Introduction The study of the capital market of a country in terms of a wide range of macro-economic and financial variables has been the subject matter of many researches since last few decades. Empirical studies reveal that once financial deregulation takes place, the stock markets of a country become more sensitive to both domestic and external factors. And, one such factor is the price of gold. From 1900 to 1971, with the global systems of gold standard and USD standard, gold price was regulated. But, since 1972, gold has been disconnected from the USD. Particularly in 1976 when the International Monetary Fund (IMF) passed Jamaica Agreement, did gold begin to evolve from currency to ordinary merchandise and since then gold price as been determined by market supply and demand. And, in India, the government started the process of globalization and liberalization since 1991 which allowed prices to be determined by the market forces. Gold Price Volatility and Stock Market Returns in India 48 Since then, the government has been taking a number of steps to reform the gold sector and ensure that India benefits from the demand-influence that it has on the gold business internatio nally. The liberalisation of the gold sector has been made in stages; first allowing a number of banks to import gold – braking the monopoly of the State Trading Corporations; then considerably reducing the import duty – destroying a lucrative parallel smuggling channel and now, allowing traders, manufacturers as well as investors to trade in gold futures in India itself. Figure 1: Annual Price Movement of Gold in Indian Market Prior to the introduction of liberalization and globalization policies, gold prices in India showed an increasing trend (Fig. 1). In the post liberalization period, the average annual prices of gold also showed an increasing trend from the year 1991 to 1996. But, it showed a decreasing trend in 1997 and 1998 and again showed an increasing trend in the year 2000. From 2000 to 2009, gold prices are continuously increasing. The domestic gold price in India is continuously increasing due to its heavy demand in the country. There are several reasons gold has high demand in India. The first reason is security; gold offers full security as long as it is retained by central banks. There is no credit risk attached to gold. Secondly, gold is able to maintain its liquidity even at times of crisis situations like high global inflation or political turbulence. The third reason for holding gold is to build a diversified portfolio. Gold also has taken the role of an asset of last resort. World Economic History shows that countries have repeatedly used gold as security against loans when they have had difficulties with their Balance of Payments and have felt the need to borrow on the international capital markets. The domestic gold prices in India are associated strongly with the import parity prices which are determined by the global spot prices, Dollar-Rupee rate and local taxes and levies. Any change in the global prices gets transmitted very quickly and gets reflected in domestic prices, particularly for countries like India who are price takers in gold with a major part of the demand met by imports. The twin factors, namely, (i) increase in global spot gold prices (as the commodity becomes dearer to those looking for safe haven during times of economic crisis, and (ii) appreciation of USD against INR, led to sharp rise in gold prices in India in the recent past. Moreover, the total annual supply of gold across the globe has also decreased from 4037 tons in 2002 to 3380 tons in 2008. India is a large buyer of gold at about 700-800 tons per annum. It also recycles about 200 tons of gold out of old jewellery. A large chunk of Indian imports is used for jewellery exports. Since the gold prices in India are influenced by international factors, its volatility is very important. Volatility involves short term – monthly, weekly or even hourly fluctuations in gold prices as measured by their absolute percentage changes during a particular period. If we look at the rolling 49 P K Mishra, J R Das and S K Mishra standard deviation of monthly gold prices since 2000, the prices are more volatile after July 2007 which is almost the same time when the slow down started in USA as a result of the sub-prime crisis (Fig. 2). Figure 2: Standard Deviation of Gold Price in India A look at the historic data brings out that when the stock market crashes or when the dollar weakens, gold continues to be a safe haven investment because gold prices rise in such circumstances (Gaur and Bansal, 2010). It is no surprise that many investors, big and small have chosen to hedge their investments through gold at the time of crises. Figure 3: Movement of Gold Price and BSE 100 Index 20000 16000 12000 8000 4000 0 92 94 96 98 00 02 04 06 08 BSE100 GOLDPRICE Gold prices have been on an uptick since 2000, while the stock market declined from 2000 to 2003 and then again in 2008 (Fig. 3). In 2008 when the market was suffering from bearish phase worldwide, gold prices spiked as panic spread across global markets. So far since March 2009 in India signs of recovery in the stock markets have emerged. At the same time gold continues to forge ahead, Gold Price Volatility and Stock Market Returns in India 50 lbeit at a slower pace. In 2008, the two assets prices – equity and gold, were moving in opposite directions, displaying the ability of the yellow metal to protect one's portfolios at the time of a dip. In fact, during each of the two prolonged bear phases (lasting at least a year) over the past decade, gold has provided an effective hedge. However, in India stocks do not seem to be perceived as an alternative to gold. The reason for holding gold is, to a large extent, guided by the individual sentiments. The gold investing habits of Indians strongly ingrained in the Indian Social Psyche. In India gold has been held by individuals for years and have passed hands of many generations. In addition, the equity culture in India is not as developed as in some other parts of the world. Gold has not yet lost its prime importance as a hedge against loss of wealth in times of crises. It is with this backdrop, this paper proceeds to investigate the direction of causality between domestic gold prices and stock market returns in India. The rest of the paper is organized as follows: Section II explains the data and methodology, Section III makes the analysis, and Section IV concludes. . Data and Methodology This paper aims at investigating the dynamic relationship between gold prices and stock market returns in India for the period 1991 to 2009. This study is mainly based on secondary data that have been collected from the database on Indian economy maintained by Reserve Bank of India. The study analyses the monthly data on domestic gold prices and stock market returns in India for the aforesaid period. Wherever data were missing, the averages of the data of the previous month and next month have been taken. The monthly stock market returns ( Rt ) based on BSE 100 Index have been calculated by the ? I ? Rt = log ? t ? ? I t ? 1 ? where I and I are the logarithmic difference change in the BSE 100 Index, i. e. , t t ? 1 closing value of monthly BSE 100 Index at time ‘t’ and‘t-1’ respectively. At the outset, the Karl Pearson’s correlation coefficient between the aforesaid time series has been calculated and its significance has been tested by the t-test. The correlation coefficient has been calculated by using the formula: N ? XY – (? X)(? Y) r= N ? X 2 – (? X)2 N ? Y 2 – (? Y)2 And, the significance of this correlation coefficient has been tested by the t-test using the tr n? 2 under the null hypothesis H 0 : ? = 0 against the alternative hypothesis of statistic t n ? 2 = 1? r2 H1 : ? ? 0 with n-2 degrees of freedom. If the calculated value of t exceeds the critical value of t, then the null hypothesis will be rejected; otherwise accepted. Then the Granger causality between the variables has been investigated in the Vector Error Correction framework. And, as the essential steps of Granger Causality test, the stationarity and cointegration between variables have been found out. The Augmented Dickey-Fuller unit root test has been used to examine the stationarity of the time series of the study and to find the order of integration between them. The ADF unit root test has been performed by estimating the regression: ? Yt = ? 0 + ? 1Yt ? 1 + ? ? j? Yt ? j + ? t j=1 p The ADF unit root test is based on the null hypothesis H 0 : Yt is not I(0) . If the calculated ADF statistic is less than the critical value, then the null hypothesis is rejected; otherwise accepted. If the 51 P K Mishra, J R Das and S K Mishra variable is stationary at level, the variable is said to be integrated of order zero, I(0). If the variable is non-stationary at level, the ADF test can be utilised and the first difference of the variable can be used for testing a unit root. In this case, the variable is said to be co-integrated of order one, I(1). In the second step, the Johansen’s cointegration test has been applied to check whether the long run equilibrium relation exists between the variables. The Johansen approach to cointegration test is based on two test statistics, viz. , the trace test statistic, and the maximum eigenvalue test statistic. i = r +1 The trace test statistic can be specified as: where ? i is the i th largest eigenvalue of matrix ? and T is the number of observations. In the trace test, the null hypothesis is that the number of distinct cointegrating vector(s) is less than or equal to the number of cointegration relations ( r ). The maximum eigenvalue test examines the null hypothesis of exactly r cointegrating relations against the alternative of r + 1 cointegrating relations with the test statistic: ? max = ? T log(1 ? ?r +1 ), where ? trace = ? T ? log(1 ? ?i ), k ?r +1 is the (r + 1)th largest squared eigenvalue. In the trace test, the null hypothesis of r = 0 is tested against the alternative of r + 1 cointegrating vectors. At the end, the Granger Causality test has been used to determine whether one time series is useful in forecasting another thereby finding out the direction of relationship between the variables of the study. In the Granger Causality test, the vector of endogenous variables is divided in two sub-vectors, Y1t and, Y2t with dimensions K1 and, K 2 respectively, so that K = K1 + K 2 . The sub-vector Y1t is said to be Granger-causal for Y2t if it contains useful information for predicting the latter set of variables. For testing this property, the levels VAR following form without exogenous variables of the model is considered. A 0 Yt = A1Yt ? 1 + †¦Ã¢â‚¬ ¦ + A p +1Yt ? p ? 1 + B0 X t + †¦Ã¢â‚¬ ¦ + Bq X t ? q + C*D*t + u t If that model contains p + 1 lags of the endogenous variables as in the above model, the test is based on a model with p + 2 lags of the endogenous variables, ? Y1t ? p + 2 ? ?11,i ? 12,i ? ? Y1,t ? i ? ? u1t ? ? ? Y ? + CD t + ? ? ? Y ? = ? ? 2t ? i =1 ? 21,i ? 22,i ? ? 2,t ? i ? ? u 2t ? as proposed by Dolado and Lutkepohl (1996). The null hypothesis that Y1t is not Granger-causal for Y2t is tested by checking the null hypothesis ? 21,i = 0, i = 1, 2,†¦. , p + 1 A Wald test statistic, divided by the number of restrictions pK1K 2 , is used in conjunction with an F(pK1K 2 , KT ? n * ) distribution for testing the restrictions. Here n * is the total number of parameters in the system (Lutkepohl, 1991), including the parameters of the deterministic term. Of course, the role of Y1t and Y2t can be reversed to test Granger-causality from Y2t to Y1t . 3. Empirical Analysis It is clear from the Fig. 3 that the direction of movements of gold prices and BSE 100 Indices in India is same. The value of Pearson’s correlation coefficient (r) between these two time series over the period 1991 to 2009 is 0. 873. To test whether this value of ‘r’ shows a significant relationship between two time series, student’s t-test has been used. The null hypothesis of the test is r = 0 against the alternative of r ? 0. Since the t-statistic at 226 degrees of freedom is 26. 9 and the critical value of t at 5% level of significance is less than it, the null hypothesis is rejected. So, it can be said that the correlation between gold prices and BSE 100 indices is statistically significant. Gold Price Volatility and Stock Market Returns in India 52 Thus, it seems that gold prices and stock market returns based on BSE 100 Index are significantly correlated. And, computation reveals that the value of ‘r’ is 0. 0143 between them which is not statistically significant for the t-statistic of 0. 217 at 226 degrees of freedom. So it can be said that although gold prices and BSE 100 Indices are significantly correlated, the correlation between gold prices and stock market returns based on BSE 100 Index is not significant. But much interesting results have been obtained from the Granger Causality test. The Granger causality test presumes that the given time series are stationary. The Augmented Dickey-Fuller unit root test has been used for this purpose. And, the results of such test are reported in Table 1. Table 1: Results of Augmented Dickey-Fuller Unit Root Test ADF Statistic -14. 61 Critical Values At 1%: -3. 459 At 5%: -2. 874 At 10%: -2. 573 At 1%: -3. 459 At 5%: -2. 874 At 10%: -2. 573 Decision Reject Null hypothesis of no unit root Variables in their First Differences Gold Prices Stock Market Returns -12. 01 Reject Null hypothesis of no unit root It is clear from the Table 1 that the hull hypothesis of no unit roots for both the time series are rejected at their first differences since the ADF est statistic values are less than the critical values at 10%, 5% and 1% levels of significances. Thus, the variables are stationary and integrated of same order, i. e. , I(1). In the next step, the cointegration between the stationary variables has been tested by the Johansen’s Trace and Maximum Eigenvalue tests. The results of these tests are shown in Table 2. The Trace test indicates the existence of two cointegrating equatio ns at 5% level of significance. And, the maximum eigenvalue test makes the confirmation of this result. Thus, the two variables of the study have long-run or equilibrium relationship between them. Table 2: Results of Johansen’s Cointegration Test Sample: January 1991 to December 2009 Included observations: 225 after adjustments Trend assumption: Linear deterministic trend Series: Gold Prices and Stock Market Returns Lags interval (in first differences): 1 to 2 Unrestricted Cointegration Rank Test (Trace) Trace 0. 05 Eigenvalue Statistic Critical Value 0. 264883 83. 69901 15. 49471 0. 062248 14. 46069 3. 841466 Hypothesized No. of CE(s) None * At most 1 * Prob. ** 0. 0000 0. 0001 Trace test indicates 2 cointegrating eqn(s) at the 0. 05 level * denotes rejection of the hypothesis at the 0. 5 level ** MacKinnon-Haug-Michelis (1999) p-values Unrestricted Cointegration Rank Test (Maximum Eigenvalue) Hypothesized Max-Eigen 0. 05 No. of CE(s) Eigenvalue Statistic Critical Value None * 0. 264883 69. 23832 14. 26460 At most 1 * 0. 062248 14. 46069 3. 841466 Max-eigenvalue test indicates 2 cointegrating eqn(s) at the 0. 05 level * denotes rejection of the hypothesis at the 0. 05 level ** MacKinnon-Haug-Michelis (1999) p-values Prob. ** 0. 0000 0. 0001 53 Table 3: Results of Granger Causality Test P K Mishra, J R Das and S K Mishra Null Hypothesis Gold Prices do not Granger Cause Stock Market Returns Stock Market Returns do not Granger Cause Gold Prices F-Statistic (73, 12) 11. 678 32. 997 Probability 0. 000 0. 000 Decision Reject Reject Now, the Granger causality test can be performed to determine the direction of causation between these two variables in the Vector Error Correction Model. The results of the Granger causality test are reported in Table 3. It is inferred that the null hypothesis of â€Å"Gold Prices do not Granger Cause Stock Market Returns† and â€Å"Stock Market Returns do not Granger Cause Gold Prices† are here clearly rejected. Thus, both the variables contain some significant information such that they cause each other. But it is very interesting to note that these two variables are insignificantly correlated, i. e. , a very low degree of correlation holds between them. During the period of global financial crisis, stock markets crashed but gold price continues to increase in the country. This could be explained as follows. The extent of holding of gold in India is widespread but stocks are not held by all, though retail participation in the Stock Markets might have gone up in the last few years. Indians consider gold the safe haven investment as a financial asset and as jewellery. World Gold Council Report says that India stands today as the world’s largest single market for gold consumption. Traditionally, gold has been more attractive than bank deposits, stocks and bonds. In developing countries, people have often trusted gold as a better investment. In many countries including India, gold remains an integral part of social and religious customs, besides being the basic form of savings. But recently many innovative financial products have been lunched relating to gold. In March 2003, the first Gold Exchange Traded Fund, i. e. , Gold Bullion Securities was launched on the Australian Stock Exchange. Now, gold exchange traded funds are being traded like shares on the major stock exchanges including London, New York and Sydney. In India the first gold ETF was launched in March 2007 by Benchmark Mutual Fund. And, the UTI gold ETF has emerged as the best performer since May 2009. The number of new accounts created by Gold ETFs in India surged 57% between March and September 2009. The overall AUM in Gold ETFs at the end of December 2009 was Rs 1,352 crore, up from Rs 717 crore in April 09. It shows that Indian investors are gradually moving into gold ETFs for investment instead of physical form. Recently derivatives such as gold forwards, futures and options have become very popular and have been traded on various exchanges around the world and over-the-counter directly in the private market. In the USA, gold futures are primarily traded on the New York Commodities Exchange. In India, the National Commodity and Derivatives Exchange introduced 100 gram gold futures in November 2006. The volume of Gold futures traded in this exchange during January to August 2007 was 4,479,114 which have been increased to 9,038,795 in January to August 2008. It is thus inferred that Indians have started considering gold more than jewellery and as good as investments on bonds and equities. Perhaps, this explains the co-movement of gold prices and stock prices in the aftermath of global financial crisis. Gold Price Volatility and Stock Market Returns in India 54 4. Conclusion This paper examines the gold price volatility and the causality between domestic gold prices and stock market returns in India for the period 1991 to 2009. The study uses monthly data on the defined time series. The required data have been collected from the database of Reserve Bank of India. The Augmented Dickey-Fuller test says that the time series of the study are stationary and all integrated of order one. The Johansen’s cointegration test reveals that there exists long run equilibrium relation between gold prices and stock market returns in India. 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