Cycle & Carriage Case Study Sample Essay


1. Cycle & Carriage (C&C) was the 3rd largest car distributors in 1999 with its rich history and experience in automotive business back in 1957 where it obtained the sole rights to distribute Mercedes-Benz cars in Malaysia and Singapore. From the 1960s to late 1980s, C&C had explored from assembly of cars to distributing and retailing of cars, diversified in areas of marine, locomotives engines, medical equipment, television and radios products, and merchant banking. However these are small investments relative to the automobile operations.

During the mid-1980s recession, C&C ventured into the property market and by the late 1990s, it had focused mainly on the automobile and property markets as their two core business, with expansions into the Asia Pacific region. 2. In Sep 1999, the scene changed when Daimler Chrysler, the main manufacturer of the luxury and prestige Mercedes-Benz cars, announced to take back the distribution of these cars forced C&C to re-strategize their business plans as its stock price collapsed upon this announcement.

3. Among many plans of C&C to further diversify through acquisition and joint ventures, it seemed to have found their answer to this crisis, their viability and prospects in the early 2000. An opportunity in the huge automobile market in Indonesia was presented. PT Astra International, a very well-known automobile distributors company was facing financial problem from the 1998 economic crisis which caused it to accumulate a debt of S$3. 4 billion and had put up for bid of a 40% share.

C&C leverage on this situation and led a consortium to purchase this as it viewed that there was a great potential given Indonesia being the 4th largest populated nation and Astra’s accessibility of the extensive network. In addition, it was a business where C&C was good at. However, with the successful acquiring of the share in Mar 2000 thereafter, C&C was faced with new problems associated with Astra. The growths were not very significant due to the political instability and the devaluation of the Rupiah. C&C had to invest more into this acquisition and by end of year 2000 had 31% of the stake in Astra solely.

Nevertheless, with a strong vision of being the leader of automobile in the region, sheer perseverance, strong leadership and management team, and sound strategy planning, implementation and continuous evaluation of the strategies, C&C had gain in the long run with the latest underlying profit of US$812 million in 2010, an increase of 55% over 2009. AIM OF REPORT 4. This report aimed to analyse the strategy in a competitive and changing environment, and how C&C deal with radical changes in their underlying success factors.

The analysis is based on the process of Strategic Management as shown in Figure 1. Figure 1: The Process of Strategic Management Diagram (Source: http://www. bigbossmanagement. net/strategic-management-process/) ANALYSIS AND APPLICATION OF CONCEPTS 5. Strategy Formulation. Strategic management can be defined as the art and science of formulating, implementing and evaluating cross-functional decisions that enable an organisation to achieve its objectives (Pearson 2010).

C&C had focussed on accelerating their organic growth, overcoming their crisis and to reduce competition by venturing into the huge automobile market of Indonesia – a business which was core to them in its origin. However as in all other businesses, diversification was also one of the key considerations for C&C. They have included investment in property as their next important area of focus among others such as agriculture and mining. 80% of C&C’s total revenue was from sales of cars and the property development.

These would not happen overnight and must have been developed by the company’s strategists to bring the company to the next level as “failing to plan is planning to fail”. The acquisition of Astra fit perfectly into the company’s push for growth in the region amidst the threat of Daimler Chrysler withdrawing the distribution of Mercedes-Benz cars in Singapore and Malaysia. Astra being the biggest motor vehicle distributor in Indonesia fit the core business of C&C like “hand and glove”.

Other franchise such as Audi in Australia and the acquisition of MCL Land all fit into the company’s strategies. 6. Based on the Strategic-Management Model (Fred R. David, 1988), the strategy formulation of C&C in their acquisition of Astra is elaborated herein. a. Vision and Mission. The logical starting point for strategic management is the company’s vision and mission, and the following are that of C&C’s. (1)Vision: Aspire to be a leading automotive distributor, retailer and service provider benchmarked against the best in this industry.

(2)Mission: We will continuously strive to be the most successful distributor, retailer and service provider in automotive. In the region, providing the best customer expectations if not exceeding them, through the implementation of most competitive pricing; latest technology; the best service and support; committed to the highest ethical practices; bringing values to our investors and employee and financially accountable. The vision provides their visibility and steers the organisation in the long term (i. e. “what do we want to become”), which is being the best in automotive industry.

The mission statement is a comprehensive one which covers the components of Product/Services (automotive distributer, retailer and service), Market (the region- assumed to be the southeast region or East Asia), Technology (latest technology), Concerns for Survival/Growth/Profits (brining values to our investor and employee) and concern for public image (ethical practices). b. External Opportunities and Threats. (1)Political, legal and government forces. Acknowledging the crisis1, C&C embarked on numerous acquisitions in different countries.

The expanded markets are significant to C&C because of the dwindling market share in the domestic and Malaysia market. Going into the new market represent existing opportunities but it also had their fair share of problems (threats), because different countries have different legal requirements and different level of government support. The Indonesian legislation is one which there is various levels of bureaucracies and many “rad tapes”. The circumstances of the nationalist Groups in Indonesia who opposed the U.

S consortium (Gilbert/Newbridge) led to the latter’s break-up in their internal partnership, leaving C&C consortium competing with only Newbridge consortium. This presents great opportunities for the C&C consortium. (2)Economic Factors. Having business overseas means that C&C will trade in local currency against the import of vehicles or parts in US dollars or Euros. This will be subjected to currency fluctuation and also the fact that Singapore dollars are gaining strength will not be good for the group’s performance, especially when at that time of the Asian Economic crisis, and the devaluation of the Indonesian Rupiah.

(3)Social, cultural, demographic and environment forces. Unlike in Singapore or Malaysia, owning a luxury car in Indonesia may not necessarily portray a special status of an individual. This means different approach and marketing strategy. The rich people might not consider owning a luxurious made car. C&C saw a huge market potential in the country (such as Toyota, Daihatsu, Isuzu etc. ) and the extensive distribution network of Astra. With the calculated risk and strong beliefs that the economy will continue to improve and the people will be having more disposable income, the Indonesian market has great potential given its huge population.

(4)Technical Forces. With the continuous rising oil prices, it was not only more costly to own a car but also bring about higher cost of relating materials. This threatened the company revenues. But with good marketing strategies, it should be able to capture some market share for fuel efficient model or alternative power driven made. C&C saw the potential of other alternative or substitute products (e. g. motorcycles) which Astra also had great share of these markets. c. Internal Strengths and Weaknesses. Strengths and weaknesses are controllable activities of a company.

C&C would have analysed the strengths and weaknesses of Astra in their initial quest of acquisition of the latter. They aimed to turn their own weakness by leveraging Astra’s strength and vice-versa. However, such strengths and weaknesses may not be easily identified in open source (or within the article). Nevertheless, it is essential to identify both companies’ strength and weakness as follow: (1)C&C’s (a)Strength High level of professionalism in management Well-established name of luxury car distributor in Singapore and Malaysia Focussed automobile distribution and retailer

Leading firm of 20 – 25% of Singapore automobile market with unchallenged loyalty Strong financial ratio (b)Weakness Unfamiliar with Indonesian markets Unfamiliar with the Indonesian legalisation (2)Astra’s (a)Strength High level of professionalism management The dominating car assembler in Indonesia. A company every Indonesian knows Access to extensive distribution network throughout Indonesia Diversification of business which are “recession resistant” such as agricultural and mining Distributorship of premier automotive products Honda motorcycle assembler and distributor.

Lead in such substitute products. (b)Weakness A diversified family conglomerate Huge workforce of 90,000 employees Huge debts of the company after the economy crisis Business too diverse. d. SWOT. The SWOT analysis for C&C is summarised as shown below. Strengths: •High level of professionalism in management •Well-established name of luxury car distributor in Singapore and Malaysia •Focussed automobile distribution and retailer •Leading firm of 20 – 25% of Singapore automobile market with unchallenged loyalty •Strong financial ratio Weaknesses: •Unfamiliar with Indonesian markets

•Unfamiliar with the Indonesian legalisation Opportunities: •Astra is the dominating car assembler in Indonesia and is a company every Indonesian knows. C&C will have the share of Astra’s distributorship of premier automotive products •Alliances with Astra will also allow C&C gain access to extensive distribution network throughout Indonesia •Potential growth with Astra’s diversification of business which are “recession resistant” such as agricultural and mining •Share in substitute products (Honda motorcycle) market of Astra. Weakening Financial state of Astra

Threats: •Unstable political environment in Indonesia •Weakening Indonesian Rupiah •Daimler Chrysler’s withdrawal of distributorship of Mercedes-Benz cars from C&C •Huge debt of Astra- underperforming Table 1: SWOT Analysis of C&C e. Long-Term Objectives. C&C’s long term objective is to become a premier automotive group by providing customers with the highest quality products and services. With a focused business portfolio and dedicated workforce, they are confident of moving ahead and maintaining a strong present in the automotive market in the region.

Despite the uncertain economic conditions and the declining value of the Indonesian rupiah, C&C is confident that the acquisition of Astra is on its right course as it has a market value of 45% in Indonesia. This is the long-term objective despite of the short-term fluctuation of revenues and profits which Astra had yielded. f. Alternate Strategies. Daimler Chrysler’s decision to take back the distributorship of Mercedes-Benz from C&C had resulted its stock price to collapse almost immediately. C&C responded with a few strategies to gain the confidence of its shareholders and ways to recover the lost value.

These are some of the strategies developed in such a competitive and changing environment. (1) Bid for 20% of share in the Malaysia largest metal-can manufacturer (2)Made a $16M bid for New Zealand Government-owned Vehicle Testing Limited (3)Doubled its stakes in a Singapore-based vehicle finance firm (4)Acquisition of an Australian car distribution firm (5)A 10% stake in an online car trader Autobytel’s Australian unit (6)Purchased a New Zealand trucking firm for about $40M (7)Started a used-car business

(8)Led a consortium for a bid of S$869M for a 40% of PT Astra International, an Indonesia leading auto manufacturer. 7. Strategies Analysis. Based on the above factors, this report analysed the adopted strategies of C&C in the quest for the acquisition of Astra through their joint-venture with the consortium using the SWOT matrix and SPACE matrix as follows: a. SWOT matrix. Reference to paragraph 6 of above and the SWOT matrix is shown below. It is evident to conclude that C&C had adopted the Strength-Opportunity Strategies in the acquisition of Astra.

They have leveraged on their various strengths to take advantage of the opportunities presented by the weakening financial state of Astra. These are summarised in Table 3. Table 2: The SWOT Matrix Strength Opportunity High level of professionalism in management Well-established name of luxury car distributor in Singapore and Malaysia Focussed automobile distribution and retailer Leading firm of 20 – 25% of Singapore automobile market with unchallenged loyalty Strong financial ratio Astra is the dominating car assembler in Indonesia and is a company every Indonesian knows.

C&C will have the share of Astra’s distributorship of premier automotive products Alliances with Astra will also allow C&C gain access to extensive distribution network throughout Indonesia Potential growth with Astra’s diversification of business which are “recession resistant” such as agricultural and mining Share in substitute products (Honda motorcycle) market of Astra. Weakening financial state of Astra Table 3: The Strength-Opportunity Strategy b. SPACE matrix. With reference to both the external and internal audit listed above, another strategy that C&C would have adopted are summarised in the SPACE matrix shown in Table 4.

Figure 2 revealed that C&C have adopted the Aggressive Strategy in their acquisition effort of Astra. This was reinforced at later stage that they increased their share of Astra to about 34% solely. Internal Strategic Position External Strategic Position Financial Strength (FS) Working Capital. Strong financial ratio with high working capital (extracted from Exhibit 2 of article, C&C’s 1998 financial position have an operating profit of $182. 4M, an inventory of $374. 3M, Net tangible assets at $1555. 8M with long term liabilities standing at only $604. 8M) (+3) Cash Flow.

Sufficient cash flow (+1) [Average score: +2 on Y-axis] Environmental Stability (ES) Barrier to entry. Barriers of entry for luxury cars are high for other competitors. (-1) Demand Variability. High demand of luxury cars in Singapore and Malaysia (portrayal of high status of such car owners in these countries) (-1) Technological. Technological changes for better cars and management system (-3) [Average score: -1. 6 on Y axis] Competitive Advantage (CA) Customer Loyalty. High market share -Leading firm of 20 – 25% of Singapore automobile market with unchallenged loyalty. (-2) Market share.

Sole distributors of luxury cars in Singapore and Malaysia (before the threats from Daimler Chrysler) (-1) Product Quality. Quality products assurance (-3) [Average score: -2 on X-axis] Industry Strength (IS) Growth Potential. Have the capacity for growth in the car industry with competent employees. (3) Technological-know-how. Have the knowledge of car industry and hence have the ease of entering into the Indonesia market. (3) Profit Potential. Strategist viewed that Astra has the potential for growth given its large share of the car industry in the huge market of Indonesia. (4) Ease of entry to market.

Ability to tap on the extensive network of Astra in other line of business (e. g. the motorcycle market) (4) [Average score: +3. 5 on X-axis] Table 4: Variables and Scores for SPACE Matrix of C&C FIGURE 2: SPACE Matrix Analysis for C&C- Aggressive Strategy Approach 8. Strategy Implementation. The next stage after the strategy formulation is the strategy implementation. In this case study, we analyse how C&C implement their strategies in their acquisition of Astra. a. Annual Objectives. The Profit and Dividend of C&C from 1998 to 2000 revealed that there were significant turnover profits (from -23% in 1998 to 61% in 2000).

Appendix 1 showed the details of these reports. It is believed that the target of achieving annual profit would be one such annual objective and this is evident in these positive reports. C&C’s investments in Astra since 1999, have not only established them as a leader in Southeast Asia’s automotive sector, but has expanded and diversified C&C’s earnings base and interests with its non-automotive businesses. This is seen as a success with the turnover increments which has profited from the year 1998 to 2000. However, uncertainties such as unsettled economic conditions, value of Indonesian Rupiah, impact of the exchange rate fluctuation etc. had drove C&C‘s sales down by 22% in year 2003 and net profit reduced by 41%. b. Policy. With the new acquisition of Astra, C&C was only allowed up to 4 seats on the Astra’s supervisory boards. It was not revealed as to why C&C accepted this policy. Without intimate involvement in management roles, C&C might not be influential in certain critical decisions making. A case in point was that Astra had allocated their resources through restructuring and diversified to focus more on its operations and as a result gave up the distributions of BMW and joint ventures with Honda in the motorcycles business.

In year 2000, C&C increased its stake in Astra by 6. 4% and bought over the shares of two partners who disposed-off their investments. C&C was fortunate that within that year itself, Astra was able to boost its automobile sales by 3 folds. c. Employee Motivation. It was not stated in the case-study whether both C&C’s and Astra’s employees were motivated due to the acquisitions. However, it can be assumed that since C&C was strong in their management, and with automobile sales tripled in year 2000, employees of both C&C as well as Astra could be well-motivated to bring such results. d. Resource Allocation.

In Sep 2000, as part of the strategic implementation, C&C had increased its stake in Astra by another 6. 4% by buying the shares of the 2 consortium partners. Jardine’s success in achieving 50 per cent ownership of C&C shares increases the support programme which was outlined in 2003 with the aim of strengthening the automotive sector in the region. Hence, in the same year, C&C increased the share by another 3. 2% to 34. 3%. In essence, C&C’s implementation of the strategies were consistent with their long-term objective- which is to be the leader in Southeast Asia’s automotive sector, despite some short-term setbacks. 9. Strategy Evaluation.

It was evident that C&C had their strategy evaluation activities performed on a continuing basis so as to develop the necessary Corrective Action Plans. a. Political. The 40 percent-stake shares that were up for bid were owned by the Indonesian government. It was also a publicly-known fact that the U. S. consortium which was led by Gilbert Global Equity Partners (“GGEP”) and Newbridge Capital Ltd. (“NCL”) was the “preferred bidder” by the Indonesian government. In the process of bidding for the 40% share of PT Astra International, C&C consortium capitalised on the situation of the withdrawal of Gilbert Global Equity Partners from the U.

S consortium, joined forces with the consortium led by Lazard Freres (a French consortium) so as to reduce the number of competitors and increased the chance of winning. Eventually, this paid off and the C&C consortium won the bid with C&C owning 24. 9% of the 41. 1% of Astra share. C&C’s share prices increased by 25% in reaction to the acquisition. This episode revealed the political influences in Indonesian and C&C’s ability to change their plan to seize opportunity. b. Economic.

The devaluation of the Indonesian rupiah, which had affected the financial performance of Astra and Astra’s ability to repay the huge foreign-denominated debt within the initial two years from acquisition by C&C. The weakness of rupiah led to the sale of the 42. 5% joint venture with Honda in August 2000 by Astra, in order to settle its debts and improve their cash flow. The Indonesian government had also reduced the tariffs on imported cars in 1998, which placed great pressure on the pricing and profit margins of the sale of cars. This had led to a concentrated competition among the automobile industry within Indonesia.

Thus, these factors attributed to the tremendous increase in the debt of C&C since its acquisition of the shares of Astra. However, C&C had their long-term plan in mind and hence continued increased their shares of Astra to remain dominant in the Indonesia automotive and motorcycles markets, and the opportunity to increase shareholding at a low price by issue discount to existing share prices. c. Socio-cultural. Based on the table below, the Indonesia’s GDP per capita had declined significantly since the economic recession which struck Indonesia and Southeast Asia in 1998.

The GDP per capita declined even further when the rupiah weakened in 2000. GDP per capita is often used as a form of indicator on the standard of living of the population for the country. When the GDP per capita weakens, this signifies that the standard of living in Indonesia had dropped which could also be attributable to the weakening of the rupiah. This may have affected the ability of the Indonesian to own a car. Nevertheless, C&C saw the potential of the substitute product, the huge motorcycle market in Indonesia and hence made that calculated investment.

GDP at Current Prices GDP Per Capita Foreign Direct Investment 1996 217,343 1,100 6,940 1997 221,533 1,110 4,700 1998 130,600 640 -400 1999 125,043 600 -2,700 2000 119,900 570 -4,600 2001 145,000 680 Table 5: GDP of Indonesia (Source: Asian Development Bank) d. Technological. Astra was “extensively engaged in the assembly of cars and engines from kits imported into the country”. However, it was unknown as to why Astra had not considered manufacturing the parts of the cars and engines in Indonesia itself, since the cost would be much lower.

It was not known if this was due to the lack of technological support in Indonesia. By importing the kits of the cars and engines from other countries, Astra would have suffered a great exchange loss due to the weakening of the rupiah. C&C could have considered allocating resources, both technological and finance in developing self-manufacturing of the vehicle parts locally in the relatively cheap labour market of Indonesia. RECOMMENDATION 10. This analysis report opined that the plausible strategic choices C&C had selected and implemented could be further strengthened with the following recommendations: a.

Expanding into other regions. While Indonesia offers a huge automotive market (market share of 45%), the political instability and the fluctuations in the rupiah, C&C could consider extending their presence in other countries such as Thailand or China which are prospering bode well for automotive businesses. b. Embrace e-commerce. E-commerce on sale of cars or motorcycles or other automotive services can provide an alternative marketing or sales channels for the more tech-savvy and younger customers. c. Reducing losses due to currency exchange.

C&C and Astra had not considered manufacturing the parts of the cars and engines in Indonesia itself, since the cost would be much lower. By importing the kits of the cars and engines from other countries, Astra would have suffered a great exchange loss due to the weakening of the rupiah. d. Exploiting the motorcycle market. The traffic conditions in major cities of Indonesian make owning a car less of a preference over owning motorcycles although the cars, especially luxury cars portrays high status of the owner.

Moreover, motorcycles are affordable the average income population which itself is another huge market, not only in Indonesian but in countries like Thailand and Vietnam. (Motorcycle sales by Astra Honda Motor grew by 26% to 3. 4 million units, enabling it to maintain a 46% market share reported in the JARDINE CYCLE & CARRIAGE LIMITED 2010 FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT dated 25th February 2011) e. Increasing the influence of management of Astra. With C&C’s increased share of Astra to 34.

3% valued at $143million, it should have more dominant positions in the management roles in Astra to safeguard its interest. f. Review of strategies. Having the long-term objectives in mind since 1998, C&C would have reviewed their objectives over these years. Strategy re-formulations and new strategies implementation and continuous evaluations of these strategies will bring further success for C&C’s venture of Astra. This is especially so in the Political, Economic, Social-Cultural and Technological aspects in countries like the Indonesia. CONCLUSION 11.

Acquisitions are often made as part of a company’s growth strategy whereby it is more beneficial to take over an existing firm’s operations and niche compared to expanding on its own. C&C had implemented their chosen marketing strategy in the acquisition of Astra based on its big share of the automotive markets and extensive networks in the huge country. This well-established vehicle-distribution business complements C&C’s core business in Malaysia and Singapore automotive market. Astra had been proven as a well-run, well-diversified and a strong conglomerate if not for the difficult times during the economic crisis in 1998.

In the bid for the 40% share, C&C had chosen its alliances carefully and the success of the bid saw C&C’s share prices increased by 25% in reaction to the acquisition. C&C had leverage on its years of experiences in automobile businesses and sees a potential in the huge vehicle market of Indonesia (world’s 4th largest populated nation). It valued Astra as being the synergy for further expansion into Asia and its extensive distribution network in Indonesia. This belief did not change and the acquiring of more share of the company increased to 34% (to a total value of S$664M).

12. The vision for long-term success was evident in their strategy formulation, cautious implementation and timely evaluations of their strategies had bought success in the long run though there were various ups and downs in the initial years. C&C remained confident that they are on the right course. This is evident in C&C’s 2010 FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT. 13. In ending and a valuable lesson learnt, for any organisation, big or small, strategy planning or strategy management is the key to success in the volatile business environment.

APPENDIX 1 CYCLE & CARRIAGE LIMITED 1998, 1999, 2000 and 2011 PROFIT AND DIVIDEND ANNOUNCEMENT (Source: http://www. irasia. com/listco/sg/jmweb/news/press/js/20010221_1. html ) (Source: http://www. irasia. com/listco/sg/jm2/news/press/20000222_1. html) (Source: http://www. irasia. com/listco/sg/jm2/news/press/19990225_1. html) . JARDINE CYCLE & CARRIAGE LIMITED 2010 FINANCIAL STATEMENTS AND DIVIDEND ANNOUNCEMENT (Source: http://www. jcclgroup. com/pdf/news/20110225JCCYE2010ResultsAndSlides. pdf) CHAIRMAN’S STATEMENT Overview

Jardine Cycle & Carriage achieved a record result in 2010 as most of Astra’s operations benefited from the strength of the Indonesian economy. Performance The Group produced an underlying profit of US$812 million in 2010, an increase of 55%, while underlying earnings per share at US? 228. 34 were also 55% higher. Profit attributable to shareholders of US$944 million included a non-trading gain of US$132 million, largely due to the fair value gain attributable to Astra’s oil palm plantations, compared with the non-trading loss of US$12 million in 2009.

The Group’s net asset value of US$3. 7 billion, or US$10. 52 per share, at the end of 2010 was 29% higher than at the end of 2009. Astra’s contribution to the Group’s underlying profit increased by 62% to US$798 million, reflecting a stronger rupiah and improved performances from most of its major businesses. Underlying profit contribution from the Group’s other motor interests was, however, 5% lower at US$56 million, mainly due to reduced earnings in Singapore. Corporate costs and withholding tax on dividends received from Indonesia amounted to US$42 million.

The Board is recommending a final one-tier tax exempt dividend of US? 82. 00 per share (2009: US? 47. 00 per share). This together with the interim dividend will produce a total dividend of US? 98. 00 per share, an increase of 69%. Business Activity Astra Astra enjoyed an excellent year, achieving a record profit with improved performances from all its businesses except contract mining. The wholesale market for motor cars experienced strong growth, with Astra’s Toyota and Daihatsu marques maintaining their market leading positions.

The wholesale market for motorcycles also grew strongly, and Astra Honda Motors did well to maintain its leading position amid intense competition. Astra’s consumer finance operations achieved improved profits as they benefited from the growth in their overall loan books, stable interest margins and good liquidity in the banking sector. In December 2010, the group completed the acquisition of the 47% that it did not already own of Astra Sedaya Finance, the largest of the Astra Credit Companies. Bank Permata also reported better results in the positive economic environment.

In the last quarter, Bank Permata enhanced its capital adequacy ratio through a rights issue and also completed the acquisition of domestic credit card issuer, GE Finance Indonesia. Astra Agro Lestari saw its profit rise thanks to higher palm oil prices and increased production. United Tractors’ results were largely unchanged despite a significant improvement in Komatsu equipment sales owing to shortfalls from its coal mining subsidiary, Pamapersada Nusantara, which was adversely impacted by poor weather conditions and the weaker US dollar.

Other motor interests The Group’s Singapore motor operations produced a lower profit following a sharp reduction in the government quota for new vehicle sales. While sales of Mercedes-Benz were resilient, they were insufficient to offset the shortfalls in Mitsubishi and Kia. In Malaysia, Cycle & Carriage Bintang made an improved contribution following an increase in Mercedes-Benz sales. In November 2010, the company announced the conditional acquisition of a small Mercedes-Benz dealership in Penang, Malaysia.

In Indonesia, Tunas Ridean also had an excellent year as it benefited from growth in the Indonesian automotive market. Truong Hai Auto Corporation in Vietnam made a lower contribution due to the weaker Vietnam dong, lower margins and higher financing costs, but did well to enhance its market share in difficult trading conditions. People On behalf of the Directors, I wish to thank our 156,000 staff employed across the Group. This excellent set of results would not have been possible

without their commitment, dedication and diligence. I would also like to thank our customers, shareholders and business partners for their continuing support. Outlook Jardine Cycle & Carriage’s main businesses achieved excellent earnings growth in 2010 and the results also benefited from the strengthening of the Indonesian rupiah. While the economic outlook for the Group’s markets in Southeast Asia remains encouraging, the rate of earnings growth is expected to moderate in 2011. Anthony Nightingale Chairman 25th February 2011

Audit Planning Procedures

?AUDIT PLANNING Audit planning procedures are the first and perhaps the most important step in carrying out a successful audit. Without adequate planning, the likelihood of missing a significant risk area or encountering engagement-related problems increases considerably. As baseball great and noted philosopher, Yogi Berra puts it, “If you don’t plan on where you are going, you could end up someplace different! ” All too often the auditor does not give adequate attention to audit planning for a vast array of excuses.

This leads the auditor down the path of using the “same as last year” approach to planning, often referred to as “SALY. ” Using the SALY approach to planning causes the auditor to end up someplace different, as so eloquently stated by Mr. Berra. A meaningful audit plan considers 10 basic steps. If these basic steps are routinely followed, the audit goes much better, resulting in a higher quality audit in the minimal possible time. STEP-1 TALK TO THE CLIENT The auditor discusses the nature of the engagement and the client’s business and industry trends at the onset of planning.

Insights gained from this discussion help the auditor navigate through the remainder of the audit planning procedures. These insights set the stage for an active 2-way communication process that results in a fully engaged auditor AND client throughout the entire process, leading to the completion of a successful audit. STEP 2 GAIN A CLEAR PICTURE OF WHAT HAPPENED DURING THE YEAR Clarity includes the risks that may have changed as a result of what happened during the year. The auditor asks about recent developments in the company that may cause the audit to differ from prior years.

Developments such as mergers, new locations or new product lines may have a significant impact on the audit plan for the current year. Ideally, these discussions take place at the client location. Going on site provides the auditor the opportunity to meet with key employees or new employees and to see for him or herself any changes in the overall operations of the client. STEP 3 PREPARE A COMPLETE LIST OF ITEMS NEEDED FROM THE CLIENT The all too often used “SALY” approach copies the prior year’s list of client-prepared schedules without regard to any changes at the client.

A meaningful audit plan provides an updated list of client-prepared items that considers the following: New schedules because of changed risk profiles at the client New schedules resulting from a change in audit approach Example schedules and templates so the client prepares them in the auditors desired format Insertion of due dates for larger clients, insert the name of a person responsible for the completion of the schedule that has been agreed to by the client STEP 4

OBTAIN A CLEAR UNDERSTANDING OF WHEN THE CLIENT NEEDS THE AUDIT REPORT With this understanding, the auditor establishes a plan to meet that delivery date. Knowing the delivery date is essential during planning because it influences the timing for the client-prepared schedules and allows the auditor to plan for audit steps to be completed in ample time. STEP 5 DEVELOP A PLAN TO COMPLETE ALL OF THE WORK IN THE FIELD Leaving a client location without having all of the fieldwork complete results in the remaining work needing to be wrapped up in the office.

When this occurs, the hours put into the audit can get out of control and can also increase the possibility of delivery delays. The work remaining after the auditor leaves the field is often the most difficult and risky audit areas. The audit team is forced to sort out these difficult areas without the benefit of being at the client location with client staff readily available to assist with questions and supporting documentation. To make matters worse, these remaining areas generally get sorted out at a point in time when the auditor needs to “retool” with client knowledge.

The “retooling” process adds wasted time to the audit and increases audit risk by the simple fact that it is difficult for an auditor to fully retool to effectively complete the difficult area. STEP 6 DEVELOP A PLAN TO MINIMIZE THE NUMBER OF STARTS AND STOPS A solid plan to complete all of the work in the field and with a client who is fully engaged in dialogue with the auditor, the number of starts and stops diminish significantly. Constant starting and stopping adds significant time to the audit AND increassume the review process will catch any issues is more effective and achieves higher audit quality.

STEP 7 MATCH THE EXTENT OF PLANNING WITH THE LEVEL OF CLIENT COMPLEXITY AND RISK Most audit firms use a “one size fits all” or standardized audit approach for every audit. All audits are not the same because all clients are not the same, and the degree of complexity and risk changes with each audit. Standardized audit approaches interfere with planning because the auditor spends more time filling out forms at the expense of effective planning. The audit team customizes and eliminates forms when the audit complexity is low.

In these circumstances, the risks can be more effectively and efficiently explained through an audit risk memo. With the standardized audit approach, audits of this nature tend to be over planned, causing the audit team to question the value of planning and resort to the SALY approach. Larger and more complex audits, on the other hand, tend to be slightly under planned when using standardized audit approaches. Audits of this nature generally have numerous risks that are linked together and most standardized checklist audit approaches do not have an effective process to link the risks together.

STEP 8 PREPARE DRAFTS OF FOOTNOTES FOR NEW ACCOUNTING STANDARDS The issuance of new accounting standards is a common occurrence in the world today. Preparing drafts of footnotes to comply with the new standards allows the auditor and the client to have sufficient time to discuss and understand the new standard and to draft a meaningful footnote. STEP 9 GAIN AN UNDERSTANDING AS TO TIMING AND EXPECTATIONS FOR OTHER SERVICES The client generally expects other deliverables beyond the audit report, such as the management letter and tax returns.

Client service is positively or negatively impacted by the efficient delivery of the complete set of services that meets client expectations. Meeting one deadline is not good enough when one or more other items are delivered late. The best time to understand these expectations is during the planning discussions with the client. The auditor considers those items then and develops a plan to meet or exceed client expectations. STEP 10 PREPARE A TIME SCHEDULE AND STAFFING BUDGET THAT COVERS THE AUDIT FROM BEGINNING TO END Most audit firms schedule staff for fieldwork only.

Planning and wrap up end up occurring in “when there is time mode. ” Planning in this mode perpetuates the SALY approach to planning. Wrap up that isn’t scheduled has the tendency to become the “black hole” in audit hours build up. Scheduling the entire job from start to finish may require a culture shift in the CPA firm but the payback is worth the effort. If the entire process is scheduled, the audit team is set up for success to deliver a high quality audit, to exceed client expectations, and to dramatically reduce time on the audit. How to Design an Audit Plan

Designing an audit plan involves identifying the steps required to ensure accuracy and quality in product or service development. Audits typically determine whether a project outcome meets or exceeds established criteria. Failure to comply with requirements usually triggers a remedial action. Designing an effective audit plan helps a business professional manage risks and control operations. To design an audit program, one must fully understand the requirements, such as the scope operational work project and identify ways to test for compliance. An effective audit program provides

comprehensive guidance to auditors in testing key areas to obtain quantitative data to make an informed recommendation based on the findings. One design should specify your tools techniques, such as questionnaires, observations and flowcharts. Examining previous audit plans generated by your company can give you an excellent head start. 1. Identifying Your Objectives Objectives should be specific, measurable, attainable, realistic and time constrained. For example, design an audit to assess the physical condition of your company’s building on a daily basis to ensure the health and safety of the building’s occupants and customers.

Plan and design your approach for achieving the objective. For example, to assess the maintenance service performed at his building, an effective site manager walks around the facility and records observations, such as the cleanliness of the bathrooms, floors and kitchen operations. 2. Determining the Key Controls for Each Audit Objective Compare the actual condition to the established criteria. For example, to describe the cleanliness of a facility in concrete teams, describe the thresholds or control levels associated with a rating of poor, acceptable and excellent.

Provide examples in your plan. Pictures depicting an acceptable level of cleanliness as contrasted with failing levels of cleaning help everyone comply. 3. Developing Tests for Each Control Perform the tests to ensure they work. If your audit needs to be performed by multiple people, designing your plan must including a strategy for training all personnel so the audit gets conducted in a consistent manner that produces reliable results. Each participant must fully understand how the tests should be conducted. 4. Executing the Audit

Determine your sample size, items to select and timing associated with each test. Then, execute the audit and prepare a report of your findings. Create a document to describe your audit plan design. Use a template or develop your own format. For example, the Microsoft Office Templates website provides access to an internal audit to review computer controls. Using a template, a business professional can record and evaluate key audit areas, tests and results efficiently and consistently. How to Conduct a Quality Audit Simply put, quality audits are performed to evaluate the quality of a system.

It is the job of the auditor to carry out the tasks of the audit, comply with requirements, respect confidentiality and perform due diligence by collecting evidence about system quality. These observations should then be documented and acted upon in order to maintain the integrity both of the process and the audit. Should the process need to be refined, quality auditors must determine the appropriate policy change and how it an be best applied. 1. Review documentation regarding the process being audited. This includes perusing manuals that describe the quality-management system in place. 2. Create a quality audit plan.

This plan should be prepared by the auditor and approved by those being audited before starting. Be sure to include a time line and the location of the audit. Also, provide a list of the documents needed to conduct the audit. 3. Define the scope of the audit. Identify the specific groups to be audited. Objectives of the audit should be clear and aligned to the audit plan. Create a checklist of quality requirements to use in the evaluation. 4. Introduce auditors to auditees. Auditees will be tasked with helping the auditor to research information about the quality requirements to be audited. 5.

Provide senior management with a list of meeting times and dates. 6. Begin the audit. Have a kickoff meeting to mark the start of the audit. The meeting should have audit team members in attendance; clarify scope, goals and schedule; review how the audit will be conducted; and confirm the readiness of the auditee. 7. Interview designated groups and study records. After analyzing the data, try to verify or substantiate through more objective means. Any quality system outliers or nonconformities should be investigated and thoroughly documented. 8. Draw conclusions, discuss results with management and prepare the audit report.

The report should include recommendations, outliers and observations along with the audit plan, a review of all evidence found, conclusions and a rating of the quality of the system. The Timing of Audit Work Choosing the correct timing of audit procedures makes the difference between an audit started and an audit completed. Many businesspeople think of an audit as a process that only happens after year end, but properly planning and timing audit procedures to occur throughout the year can make audits more effective, more efficient and reduce strain on client support personnel. 1.

Year End Procedures One major objective of an audit is to verify year-end account balances. As such, some audit procedures can only be completed at year end. For example, if an auditor found it necessary to confirm a balance of a cash account on the last day of the fiscal year, then that confirmation cannot be completed until the day after fiscal year end, at the earliest. Other financial statement analytic tasks and procedures involving the balance sheet usually must wait until after the company’s financial records close for the year as the information may not be available until after close.

2. Interim For companies that have high transaction counts, auditors may be able to start gaining assurance over income statement accounts during interim testing. Interim testing is usually testing that occurs concurrent with fiscal Q3 review procedures. While the auditor is performing review procedures, he is able to perform detail testing of transactions that the company has already completed. Using this method, provided the auditor has assurance over the company’s system of internal control and information processing, he may be able to complete reduced testing at year end.

This also serves to reduce strain on client personal at the end of the year. 3. SOX Compliance Larger public companies that are required to be in compliance with Section 404 of the Sarbanes-Oxley Act must include an attestation report of the company’s internal control over financial reporting. These “SOX audits,” as they are more commonly known as, are an auditor’s concurrence with management’s opinion that internal control systems are operating effectively as of the balance sheet date. Procedures are completed during quarterly reviews, interim periods and year-end audits to support this assurance.

4. Quarterly Reviews While not technically an audit, accountants perform procedures to assess financial information that is published as part of their client’s quarterly financial filings. These procedures occur after the close of quarterly books and are only reviews of significant events and transactions that occurred during the quarter. Auditors do not attest to the accuracy of the financial statements during these reviews, but only express that they did not encounter any evidence that the company’s financial statements are materially misstated.

Because of the lower level of assurance, these procedures do not take as long to complete as audit procedures. Design of the Audit Programme Having fixed up of the audit scope and gained knowledge over the business, accounting and internal control system, the auditor needs to draw up a plan of action. The plan of action is called audit programme. Professor Meigs defines an audit programme as: “An audit program is a detailed plan of the auditing work to be performed, specifying the procedures to be followed in verification of each item in the financial statements and giving the estimated time required.

” Another writer while dealing with the objects of audit programme states: “An audit programme consists of the procedures undertaken or the particular work done by an accountant in carrying out an audit. It is a description, memorandum or an outline of the work to be done, prepared by an auditor for the guidance and control of the assistants. It provides a guide in arranging and distributing the work and in checking against the possibility of omissions. ” A specimen of such an audit programme is given. 1.

There is a complete programme on the file from which the items to be completed by a particular junior are ticked off and thus the junior knows what he has to do and by what each item is to be completed. 2. In other cases, the senior chalks out a programme for each clerk according to the nature of the client. In this case there is no previous chalked-out programme. 3. In the third case, the senior never prepares a programme in advance but may allow it grow as the work progresses. 4. While preparing the audit programme the auditor should bear in mind two points, viz.

, The points which are common to all audits and the special points relating to the particular audit. The example of the first is the verification of assets while in the second case payment insurance policies, annuities; surrender value, etc. , in the audit of insurance companies. In other words it should be a “Tailor-Made Audit Prograamme. ” Documentation of Audit Strategy 1. Purpose The purpose of determining an audit strategy is to enable the auditor Familiarize himself with the client’s business and organization as well As to obtain a preliminary understanding of the client’s accounting System.

This will entail the preliminary identification of those internal Controls on which he proposes to rely upon. The auditor should then determine and record his audit strategy before Commencing any detailed audit work. In doing so, the auditor will need To identify the optimum balance between, on one hand, relying on Internal controls and reducing the level of his substantive tests, and on The other hand, placing little or no reliance on internal controls and Seeking audit satisfaction from a higher level of validation procedures.

The purpose of making this assessment is to enable the auditor to carry Out the audit in the most effective and efficient manner. Determination of the audit strategy requires a high degree of professional judgement. Consequently, the audit assignment should be carried out by an Experienced staff, with the involvement of the audit partner. In particular, the determination of the audit strategy for a new client will usually require considerably more time and effort than for existing clients, except where the circumstances of existing clients have changed significantly since the last audit.

However, this does not mean that a formal determination of the audit strategy is not necessary for existing clients whose circumstances do not change significantly from year to year. In all cases, a formal record of the audit strategy is essential. The overall strategy should focus on a more efficient and effective audit. 2. Audit Plans and Audit Planning Memorandum In order to ensure a high standard of performance, it is important that the auditor should prepare adequately for his work. Planning for an audit, just like every human Endeavour, is essential for the smooth performance of the audit work and its successful completion.

Planning ahead for an audit work will not only guarantee a valid audit opinion but will also help the auditor to ensure that: (a) The audit objective is established and achieved; (b) The audit is properly controlled and adequately directed at all stages; (c) High risk and critical areas of the engagement are not omitted but that adequate attention is focused on these areas; and (d) The work is completed economically and expeditiously, hence, savings on audit resources. It is important to distinguish between an audit planning memorandum. Audit plan relates to preparations made by the auditor for one specific audit engagement.

While audit planning memorandum is a standing arrangement made by the auditor for the continuing engagement of a particular client. Hence, an audit plan for the audit of one client for one year while audit planning memorandu is a standing plan for the continuing audit of a client from year to year. Points for Consideration in Audit Planning Audit planning requires a high degree of discipline on the part of the auditor. In order to make the planning more meaningful, the auditor shouldtake into consideration the following matters in relation to the audit engagement: (a) Preliminary Work to be Done in Addition to the Real

Audit Work This will include such matters as stocktaking, cash count, debtors’circularisation and review of previous year’s working papers. This will remind the auditor of those matters brought forward from the previous year and any other points to be resolved in the current year or problems anticipated. (b) Changes in Legislation or any Auditing Standards or Guidelines The promulgation of the Companies and Allied Matters Act, Cap. C 20, LFN 2004, brought with it a lot of changes in accounting AUDIT PLANNING AND CONTROL ADVANCED AUDIT AND ASSURANCE and auditing requirements of companies. Such legislations

whether in respect of all companies or particular industrial group, must be reviewed ahead of the engagement in order to determine their effects on the operations or reporting requirements of the enterprise. (c) Analytical Review of Available Management Accounts and Other Management Information that Relate to the Accounts This will assist in establishing valuable ratios and indicators that will guide the auditor. For instance, the computation of the gross profit percentage compared with that of the previous year will provide a good indicator to the auditor of the accuracy and reliability of sales and cost of sales.

(d) Changes in the Business or Management The appointment of a new Finance Controller and the establishment of a new business line or the creation of a new branch are significant changes in the circumstances of the company which will necessitate changes in the existing audit plans. (e) Changes in the Accounting System The introduction of computers such that when a company introduces significant changes in its operating procedures will require a review and evaluation of the system of internal control. (f) Deadlines Established for the Submission of Audit Report

Where a client has set deadlines for its statutory activities such as the annual general meeting, it is important for the auditor to work in line with such programmes. (g) Use of Rotational Testing and Verification In practice, the auditor may not carry out a hundred percent testing or verification of the client’s transactions or segments of the business. Where rotational testing or verification is adopted, it will be necessary for the auditor to determine ahead of the date of the engagement which aspects of the business should be selected for testing or verification.

An example of rotational testing could be applied on the client’s branches to be visited. Points for Consideration in Audit Planning Memorandum Audit planning memorandum should cover the following standing matters which are designed to achieve the desired audit objectives: (a) Terms of Engagement In the case of a new audit engagement, a letter of engagement should be prepared as part of the overall plan of the audit. Even in subsequent visits,the letter of engagement should be reviewed 5

in the light of current circumstances to ensure that all aspects of the work undertaken for the client are covered in the letter especially as they relate to taxation, accountancy, staff development and executive search. (b) Audit Risk Areas The auditor should critically review all the areas of high risk in order to ensure that the planned procedures adequately cover such areas and that competent staff have been assigned to these areas. High risk areas may relate to the nature of the items, such as cash for a retail establishment with numerous collection points and outdoor disbursement locations.

Risk may also relate to a high probability of error as in the case of stocks whose quantities are subject to estimation and are susceptible to pilferage. The risk may also relate to the structure of the organisation especially in cases of joint ownership of an organisation, where the owners are not equally represented in the management. There is therefore the risk of withholding key information from some of the directors. (c) Assets and Liabilities These will require detailed plans since they are of continuing relevance to the financial statements of many years and the

relevant vouchers may not be readily accessible. The plans relating to assets should clearly disclose their history such that current movements may easily be ascertained and adequately verified. These will apply mainly to plant and long term loans. (d) Presence of Internal Auditor Wherever an internal auditor exists in an organisation, the auditor should develop suitable plans to review the technical competence of the internal auditor, his degree of independence and scope and quality of his work in order to determine the extent of reliance to be placed on his work and to identify the areas of work

overlap. (e) The Need for Specialists The auditor should determine ahead of his visit those aspects of the work that may require the services of specialists. This may be internal or external specialists as relates to stocks, specialist valuation for insurance or computer applications. (f) Audit Approach Based on the review of the system of internal control, the auditor should be able to decide on the audit approach to adopt. This will be based on the extent of reliance to be placed on the system of internal control. AUDIT PLANNING AND CONTROL ADVANCED AUDIT AND ASSURANCE

6 (g) Timetable A critical aspect of the audit is the timetable. The auditor should establish plans to ensure that for each year, the audit is completed within any stated deadline for submission of the report. (h) Staffing The auditor should plan for adequate number of staff with the required skill for the audit. The training of audit staff is a long term process which will require that even from the initial appointment of the auditor, he should take steps to train suitable staff in sufficient number to handle the audit of the client. (i) Fees

Based on plans already established in terms of time, staff and materials, the auditor should plan for his fees to cover staff salaries, overhead costs and leave a sufficient margin for the partners’ share of profit and pension scheme. The planned fees must be discussed with the client, if not already agreed. Understanding the Client’s Business The extent of the knowledge gained of the client’s industry and business organisation greatly facilitates the performance of the engagement staff. It is essential therefore that all staff engaged in the audit are encouraged to gain an understanding of the client’s business operations.

Such understanding, in addition to enhancing the overall audit performance, also facilitates communication with client’s staff and in assessing the reliability of representations from management and making judgement regarding the appropriateness of the accounting policies adopted and their disclosure. The auditor may obtain knowledge of the client’s business by: (a) Personal visits to the client’s premises and operating bases and holding discussions with key officials of the company; (b) Reading minutes of meetings and correspondence with the client; (c) Reading internal audit report;

(d) Reading previous year’s audit files and permanent audit files; (e) Reading other materials from within the firm, e. g. management consultancy reports and feasibility reports; and (f) Reading relevant materials relating to the business e. g. trade journals, investment analysis and stockbroker’s report. Other significant factors which should be considered by the auditor to determine the audit strategy are as follows: (a) The auditor’s responsibilities in accordance with the terms of the engagement; (b) The nature of the client’s business; (c) The nature and significance of items in the year’s accounts; and 7

(d) The principal features of the client’s accounting system and the extent and effectiveness of the related internal accounting controls, which may be gained from a preliminary understanding of the system. Consideration of the above factors should enable the auditor determine an appropriate audit strategy which should be set out in writing, in an audit strategy memorandum, which should be approved by the audit partner. However, the auditor should recognise that this strategy may, if necessary as a result of changing factors, be reviewed and revised as the audit progresses.

For existing clients, the auditor should have much of the information he needs to determine his audit strategy in his audit files. Nevertheless, he should still discuss with the clients management whether there have been any changes in the company’s circumstances that might affect his audit approach. The external auditor is appointed to carry out audit in accordance with specific regulatory or statutory requirements, such as the Companies and Allied Matters Act or in accordance with generally accepted auditing standards within the country concerned.

In these circumstances, the terms and conditions will not call for any special consideration when determining the audit strategy. The auditor should, however, consider whether additional responsibilities arise from request by the client’s management or because the client is required to conform to special regulatory or other requirements. Engagement Letter The Auditing Standards Committee of ICAN issued an Auditing Guideline on Engagement Letter in November 1990. The Guideline gives guidance on the procedures to be followed before the commencement of an audit.

The principles contained in the Guideline, which are highlighted below, should also be followed in the case of non-audit engagements. If purely accounting services are provided to a non-corporate client, the engagement letter should specify clearly that these services will be performed without any audit work being carried out. The principles are: (a) The purpose of an engagement letter is to define clearly the extent of the auditor’s responsibilities and so minimise the areas of misunderstanding between the client and the auditor.

It also provides written confirmation of the auditor’s acceptance of his appointment, the scope of the audit and form of his report; (b) It is in the interest of both the auditor and the client that the contents of the engagement letter be agreed. Therefore, the contents of the letter should be discussed and agreed with management before it is sent and preferably prior to the commencement of the audit; (c) The engagement letter should be addressed to the Board of Directors of a client company;

(d) Where the company has subsidiary companies, a separate engagement letter should be sent by the auditor to the Board of Directors of each company in the group which he/she is auditing; (e) Where more than one firm of auditors are involved in the audits of the group, the respective responsibilities of the holding company auditor and the subsidiary companies’ auditors should be clearly defined in the engagement letter; (f) Where there are joint auditors, the audit engagement should be explained in similar terms by each auditor.

The auditors should agree whether a joint letter or separate letters should be sent to the client. Where other services are provided by one of the firms, separate letters would normally need to be sent on the joint audit engagement; (g) The auditor should request confirmation from the Board of Directors that the terms of the engagement letter have been accepted; and (h) Once it has been agreed by the client, an engagement letter will, if it so provides, remain effective from one audit appointment to another, until it is replaced.

However, a revised engagement letter may be necessary to ensure that it continues to reflect the client’s circumstances and if there has been a significant change in the client’s management, a prior discussion and agreement with the client may also be necessary. An engagement letter should contain the following: (a) Responsibilities and scope of the audit; (b) Reference to special arrangements, for example, internal auditors, other auditors, overseas subsidiaries; (c) Representation by Management, if required before the completion of the audit; (d) Irregularities and fraud – the responsibilities of the Management

Art As Nazi Germany’s Methods Of Propagating

Often in dictatorial and imperial regimes, art has always been a powerful medium efficiently and masterfully utilized to maintain support from the public.  The different art forms are the bearers of a leader’s vision and mission for his people and for himself. Architecture is no stranger to this misuse.

The prime example of art as propaganda was that of Nazi Germany’s methods of propagating and indoctrinating to its citizens the purity of the Aryan race which paved the need for cultural and spiritual rebirth.  Painting, sculpture, music, theater, and all forms of media were tapped to bombard the nation with Hitler’s message dogmas. Architectural structures were successful tools of this cultural and spiritual propaganda because inherently they have a public nature.  They were experienced daily with a sense of pervasiveness due to their seeming permanence.  The buildings designed by Hitler’s chief architect Albert Speer were heavy on classical elements like “grand archways and symmetrical, traditional layouts” which projected Nazi power.  Some would credit this narcissistic obsession with the young Hitler’s early aspiration to be an artist, then an architect in Vienna.  However, his hopes crashed when he failed to meet the requisites for both courses (Hulme, “Hearts of Darkness”, 2006).

Hitler’s use of architecture was further promoted his political ambition of world domination.  Part of his grand scheme was to build a dome-like structure in Berlin called Germania which could have accommodated 180,000 people.  It was to have a 386-feet (about 118 meters high) Roman style arch rivaling Napoleon’s Arc de Triomphe. Hitler believed that the more massive the monument, the important the representation (Hulme, “Hearts of Darkness”, 2006).  He had a much bigger picture of himself being the ruler of the world like his idol Napoleon.  It showed in the gawdy symbols his regime’s architecture unabashedly waved.  They were designed to impress.

Part of Hitler’s drive to preserve the Aryan race is to use architecture to link the Germans to their past.  A specially-constructed outdoor amphitheater called the Thingplatz served as a gathering place and used by Hitler for festivals often featuring German history and art (“Nazi Architecture”, 2006). The gathering of the people outdoors in natural settings is called a Thing and is of an ancient Nordic/Germanic practice (“Thingplatz”, 2006)

Italy’s fascist dictator Benito Mussolini also had his personal architectural tastes. He adored ancient imperial Rome just like Hitler and “wished to be regarded as the new Augustus”. He was anticlerical and destroyed churches and buildings to the Vatican’s chagrin replacing them with fascist art and architecture. He viewed Fascism as a religious concept of life. “Many public buildings, railway stations, post offices, universities and factories were built across the country. Included were shrines to fascist martyrs, complete with memorial flames and chapels in all fascist headquarters” (Hulme, “Hearts of Darkness”, 2006).  Erecting large building just like the Roman Empire characterized the Fascist  architecture. “  This period produced monumentally imposing and chillingly stark white marble structures surrounded by classical statuary” (“Fascist architecture in Italy”).

Much of the information about ancient Egypt had been known from the carvings of the walls of their different structures such as the magnificent temples, pyramids, obelisks, and statues. Pharaohs censored news carved on the temple walls. Pharaoh Hatshepsut and Ramesses II were known propagandists who exemplified the adage that history belongs to the victors.  They rewrote their unsuccessful chapters to glorify their reigns. However, architecture evolved from the pyramids to rock-carved tombs in ancient Egypt.  This was started by Amenhotep I around 1500 BC.  The tombs were more about the occupant than about its aesthetics.  Members of royalty reflect their opulence by through their magnificent tombs.  The Valley of the Kings is the most popular tomb site (“Art and Architecture”).

If we try to understand architecture as an art devoid of any preconceived idea of the term “propaganda”, we cease to view it as just mere symbols of the whims of rulers and a strong propaganda tool (Mason, “The power of art”, 2006).  There is better appreciation of the art as it is without the peripheral considerations it is supposed to represent.  Preconceived descriptions create a bias, a one-dimensional approach in the appreciation of the structure.  If we view architecture as a kind of art it ought to be seen with fresh artistic perspective.  On the other hand, if we study architecture in relation to history, the additional information such as the reasons why it was created based on a particular style will then add more texture to any structure.  This time it would be approached with a different view in mind.

            While it is true that architecture had been abused politically, it also serves as an arrow to the past.  Architectural structures which date back to the period of the New Kingdom of ancient Egypt exemplifies the grandeur and prosperity of the age.   The Pharaohs were symbols of political and economic stability.  Their temples show their kind of religion and how lavish they paid homage to their pagan gods.  Their golden treasures explain the richness of their kingdoms.  The servants buried in the royal tombs explain a lot about social hierarchy in relation to their concept of the afterlife.

            Nazi architecture can explain the dogmatic devotion to the Nazi movement which was almost like a religion.  In Hitler’s cultural address in September 1937 entitled “The Buildings of the Third Reich,” he said, “the new buildings of the Reich were to reinforce the authority of the Nazi party and the state and at the same time provide “gigantic evidence of the community” (“Nazi Architecture”, 2006).

            The famous reshaping of Berlin based on Roman principles further cemented Hitler’s determination to follow the imperial society of ancient Rome like the placement of buildings in prominent sites to create the impression of imperial majesty.  Inspired by Rome, Nazi architecture was intimidating, “an instrument of conquest.”   Albert Speer, Hitler’s personal architect, wrote “My architecture represented an intimidating display of power” (“Nazi Architecture”, 2006).  This was the way of the ever expanding Nazi rule: to sow fear and to suppress future dissidents.

            Fascist architecture of Italy speaks a lot about the country’s history during the turbulent period in Europe.  Architecture was not just an ornament but serves as a symbolic political function at that time.  Benito Mussolini wanted to expand new Rome so he built a large complex, the Esposizione Universale Roma (E.U.R.), in 1935 which provided large-scale image of how Italy would have been had the fascist regime not collapsed during World War II.  The Palazzo della Civilta Italiana is the best representative of fascist architecture.  It is a very popular design and has been labeled the cubic or Square Colosseum (“Rome”, 2007).

            Art is part of life.  It can be an implement of oppression as much as liberation from dangerous regimes.


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