On this day in economic and business history...
April 23 was an important day in the history of two Dow Jones Industrial Average (DJINDICES:^DJI) components -- one current member and one recently removed. It's also the anniversary of one highly optimistic prediction that pundits continue to make (and get wrong) to this day. Let's take a look at how April 23 has shaped our two Dow companies and examine why this big prediction fell flat.
Mickey D's in the Middle Kingdom
The 1997 research paper Golden Arches East, edited by James L. Watson, offers this fascinating tidbit on McDonald's (NYSE:MCD) debut in Beijing:
On April 23, 1992, the largest McDonald's restaurant in the world opened in Beijing. With 700 seats and 29 cash registers, the Beijing McDonald's served 40,000 customers on its first day of business. Built on the southern end of Wangfujing Street near Tiananmen Square -- the center of all public politics in the People's Republic of China -- this restaurant had become an important landmark in Beijing by the summer of 1994, and the image of the Golden Arches appeared frequently on national television programs. It also became an attraction for domestic tourists, as a place where ordinary people could literally taste a bit of American culture. New McDonald's restaurants appeared in Beijing one after another: two were opened in 1993, four in 1994, and ten more in 1995; by the end of 1996, there were 29 outlets in Beijing. According to Tim Lai, the company's General Manager, the Beijing market is big enough to support 100 McDonald's restaurants, and McDonald's plans to open 600 outlets in China by century's end.
The giant McDonald's, and those that were built after, offered "the promise of modernization" to a long-suffering Chinese people who were only beginning to step out of the Maoist era. The standard franchise formula of McDonald's and other transnational fast-food chains also became associated with equality and democracy, because no matter which location you visit, you might expect the same level of friendly service.
Watson also interviewed a number of Beijing consumers and reported: "The stories commonly told about McDonald's have taken on a surreal, even mythic tone. For instance, it is believed among a number of Beijing residents that the potato used by McDonald's is a cube-shaped variety."
Cube-shaped potatoes! What an age we live in.
Two decades after this mega-Mickey D's appeared in Beijing, there were more than 1,400 company-owned restaurants in China, making the Middle Kingdom McDonald's third-largest national market. The company has ambitious expansion plans for China and is likely to surpass 2,000 locations soon -- if it hasn't already.
Honeywell (NYSE:HON) traces its roots to April 23, 1886, when inventor Albert Butz formed the Butz Thermo-Electric Regulator Company in Minneapolis. A year earlier, Butz had developed one of the world's earliest automatic indoor temperature controls, which worked with a room's thermostat (also one of the earliest examples of that technology in action) to adjust the heat of a furnace through a closed-loop system.
Over the years, Thermo-Electric Regulator became the foundation of ever-larger companies, beginning with a buyout in 1893. The new company would undergo several name changes before merging with a young Honeywell Heating Specialty Company in 1927. In 1999, AlliedSignal (a Dow component since 1925 through multiple reorganizations) bought Honeywell and changed its corporate name to Honeywell International. The new Honeywell remained in the Dow until 2008, becoming one of the index's longest-tenured components. Honeywell's environmental control and automation segment -- though vastly diversified over more than a century in operation -- remains its largest, accounting for more than 40% of all sales each year.
And we'll all have hoverbikes, and robot butlers...
File this one away under "optimistic but wrong." On April 23, 1983, the Worldwatch Institute boldly claimed that renewable energy would comprise a quarter of total global energy use by the year 2000. The think tank claimed that:
- Hydroelectric power-generation would double by 2000.
- Wind power might eventually supply 10% of global energy needs.
- Photovoltaic solar power would be cost-competitive by the mid-1990s.
- Wood burning would increase by 50% by 2000.
It's worth noting that renewables were calculated at 18% of total energy use in 1983, which seems abnormally high from a vantage point three decades on. By 2000, renewable energy's share of total global energy use had fallen to only 13% -- a rather dramatic reversal. That slice of the global energy pie has remained rather stable in more recent years: In 2009, renewables still accounted for only 13% of the world's energy supply. Much of the growth in global energy use, particularly in emerging markets, had nothing to do with wood: Coal enjoyed impressive adoption in India and China through their rise from economic backwaters to global powers. Will that 25% prediction ever pan out? It might, but most who try to predict the date will end up being way off.
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