Business and Industry Review
▪ 1999

Introduction

Overview

      The world economy prospered in 1997. Total world output rose by more than 3%, with manufacturing growing by almost twice that rate and, unusually, with the economies of the industrialized countries outpacing those of less-developed nations. Though there were some warning signs by the end of 1997 of the crisis that began in mid-1997 in Thailand and then spread to other Asian economies, the rest of the world financial market remained unaffected until August 1998, when the turbulence spread following Russia's declaration of a debt moratorium. As a result, the possibility of a more generalized slowdown in the world economy became real, and international industry observers feared that Western industrial economies, having failed to avoid the contagious ailing financial market, might also "catch" recession from Asia. (See The Troubled World Economy. (Troubled World Economy ))

      In North America, where production had enjoyed a six-year increase, output accelerated in 1997. Industrial production in the U.S. rose 5% and was boosted by capital formation, which reached a 19-year high. Canada experienced similar results, with soaring business investment driving a 4.9% rise in industrial production. The strength of the industrial North American powerhouse helped produce a year of record growth in South America, most notably in Argentina, Chile, and Peru, where total output rose 7-8%.

       Industrial Production in Eastern Europe, Table In continental Europe, where the fiscal consolidation imposed by the Treaty on European Union had been implemented, activity was recovering, particularly in the peripheral regions. Industrial production rose nearly 4% in Germany and France; at least 4% in Austria, Belgium, The Netherlands, and Portugal; nearly 7% in Spain; and more than 15% in Ireland. The relative strength of the core EU economies had beneficial spillover effects in Eastern Europe (see Table II (Industrial Production in Eastern Europe, Table )), most obviously in those countries that were successfully making the transition to a market economy. In Poland industrial output rose more than 50% during the 1990s, but in countries that were struggling to make the transition from a centrally planned economy output declined by 50% during that same period.

      The official data for Asia in 1997 showed few signs of the turmoil ahead. Across the region, healthy growth rates for the year as a whole were recorded—more than 7% for manufacturing in Asia, excluding Japan and Israel. Only in Thailand, where the troubles began, did output decline. Even in Japan, which of the major economies suffered most from the Asian crisis, industrial production rose more than 4%, although overall output rose less than 1%.

      The changing pattern of activity was illustrated by patchy performances from some sectors. Even in a buoyant year output of clothing and footwear declined, whereas textiles recorded their first year of growth since 1994. At the opposite extreme, output of electrical equipment, including computers, rose 14%, faster than the 10% average of the previous three years.

      The strength of activity in 1997 carried through into the first half of 1998, and for a time it was possible to believe that Western economies and financial markets would escape the worst of the Asian downturn. That view changed with the Russian debt moratorium, which produced a complete reassessment of the international economic outlook. It also became clear that the Japanese economy was even more severely affected than was previously thought—households increased their already very high rate of savings, knowing that, in a deflationary climate, goods in the shops would be falling rather than rising in price. There was a stark contrast between the 1994 Mexican crisis, when strong U.S. demand helped boost demand for Mexican exports, and the 1998 Asian crisis, in which Japan was unable to undertake the U.S. role.

      As 1998 came to a close, a cloud hung over the global economy. Economic forecasts were downgraded, and there was a risk of recession. The Asian crisis stemmed from years of overinvestment and was compounded by a collapse in demand in that region. In addition an excess global supply of goods was forcing down prices.

GEOFFREY R. DICKS

ADVERTISING
      Worldwide advertising on all media, including Yellow Pages and direct mail, was predicted to increase 5.3% to $418.7 billion in 1998 from $397.5 billion in 1997. Despite late-year jitters in the stock market, economic uncertainty in Asia, and doubts as to whether U.S. consumers would continue their robust spending habits, spending on U.S. advertising in 1998 was predicted to top the $200 billion mark for the first time in any given year. The expected total of $200.3 billion was a 6.8% increase over the revised figure of $187.5 billion in 1997, according to Robert J. Coen, McCann-Erickson Worldwide's senior vice president in charge of forecasting.

      Advertising spending was closely watched because it was deemed a reliable indicator of the health of the economy. For instance, advertising as a percentage of gross domestic product peaked in 1987 and 1988 at 2.35% as the economy boomed. During the recession of the early 1990s it declined, bottoming out at 2.12% in 1992. Coen predicted that national advertising spending in 1998 would increase 7% to $118 billion, led by strong growth in cable television, broadcast television, and spot radio. Local advertising was expected to increase 6.5% to $82.3 billion.

      Although countries such as Brazil, the U.K., and Mexico posted strong increases in advertising spending, the Asian financial crisis offset those gains. Spending outside the U.S. in 1998 was expected to increase only 3.6% to $218.4 billion from a revised figure of $210 billion in 1997.

      General Motors Corp. rose to the rank of top U.S. advertiser in 1997, besting perennial leader Procter & Gamble Co., according to Advertising Age's annual survey of the 100 leading national advertisers. The automaker became the first U.S. firm to spend more than $3 billion on advertising in one year, totaling $3,090,000,000 for an increase of 29.9% over 1996. Procter & Gamble's spending rose 6.3% to $2,740,000,000. According to the survey the 100 U.S. marketers in the report spent $58,030,000,000 in advertising in 1997, up 8.6% from 1996; the media portion rose an even stronger 9.9% to $33.4 billion. The substantial increase was attributed to the nation's healthy economy, government initiatives, and new technologies, such as the World Wide Web on the Internet.

      The Web gained advertising ground in 1998, claiming 1.3% of overall ad budgets. Though technology companies continued to account for the largest percentage, 49.7%, of the Internet ads, governments, organizations, and retailers posted large gains. The percentage of companies advertising on-line rose to 68% in 1998, according to the second annual Web site survey conducted by the Association of National Advertisers. The survey also revealed that 47% of respondents were selling some product or service from their Web sites, up from 26% in 1997.

      NBC held onto its title of broadcasting the most expensive show on prime-time television. With an average price per 30-second commercial unit of $565,000, NBC's medical drama "ER" was the costliest production of the 1998 fall season. The "ER" price, however, was $10,000 below the record-setting "Seinfeld" average of $575,000 per 30-second unit in the fall of 1997. When the final episode of "Seinfeld" aired, advertisers spent up to $1.7 million for 30-second spots. Based on the strength of "Monday Night Football" and "The Drew Carey Show," ABC was the most expensive of any broadcast network, with an average price per spot of $172,000, a 5.5% gain over 1997.

      The "Big Four" networks—ABC, CBS, Fox, and NBC—sold approximately $6,050,000,000-$6,100,000,000 worth of commercial time during the 1998 "upfront" market, a media marketplace that occurs before a television season begins. At a time when broadcast television was besieged by viewer defections to cable networks, the Internet, and other entertainment outlets, it was considered a victory for the networks to sell about as much advance commercial time for the 1998-99 prime-time season as they did for 1997-98.

      U.S. and European multinational firms continued during 1998 to pump marketing dollars into Asia, although consumer purchasing and ad spending tumbled as the economic crisis continued to ripple throughout the region. Some companies, such as Unilever and Philips Consumer Electronics, saw marketing opportunities amid the crisis, with lowered rates charged for media time. Unilever introduced new soaps and detergents under the Sunlight and Surf brand names in Indonesia and Thailand at discounts of up to 30%. In Indonesia, where inflation topped 80% during the year, Unilever began advertising sample-sized products at a fraction of the cost of a full-sized product. Philips in September 1998 launched an $80 million integrated marketing campaign in Indonesia for its state-of-the-art electronics equipment, taking advantage of dampened demand for media time to begin a brand-building campaign.

      In one of the largest agency switches of 1998, Compaq Computer moved creative duties on its entire $200-$300 million global advertising account to Omnicom Group's DDB Needham agency from Interpublic Group's Ammirati Puris Lintas, which held the account for only a year. Agencies also continued their brisk merger and acquisition pace. Interpublic Group acquired Carmichael Lynch, which had a reputation for feisty ads; Omnicom Group agreed to acquire GGT Group of London; and True North Communications took over Bozell, Jacobs, Kenyon & Eckhardt.

      In the U.S. the Association of National Advertisers (ANA) startled advertising executives by announcing that it would for the first time open its membership to regional and national agencies from all ends of the creative spectrum. The decision opened a potential rift between the ANA and the American Association of Advertising Agencies, the organization that such agencies had traditionally joined.

      According to a study conducted by Roper Starch Worldwide Inc. consumers throughout the world were more similar than different, sharing attitudes and behaviour that advertisers and agencies could study to create more effective campaigns. The researchers interviewed 35,000 consumers in 35 countries to identify values and attitudes that crossed national borders. Consumers worldwide were found to belong to six basic groups: strivers, devouts, altruists, intimates, fun seekers, and creatives. The study was an example of recent efforts by advertisers to broaden consumer research beyond such traditional categories as demographics.

LAURIE FREEMAN

AEROSPACE
      The improvement in the economic health of the world's airlines that began in 1995 continued in 1998, though growth in traffic and revenues often masked poor profit levels. The move toward ever-bigger alliances also continued. The emergence of the Star Alliance (United Airlines, Lufthansa, SAS, Air Canada, Varig, and Thai Airways) in 1997 was matched by rival Oneworld (American Airlines, British Airways, Canadian Airlines International, Cathay Pacific Airways, and Qantas), announced in September. Both groupings were of similar size, and both were expected to attract additional partners. KLM of The Netherlands and Italy's Alitalia announced a major European partnership. Meanwhile, the proposed British Airways-American Airlines link was contested by other airlines and by the regulatory authorities as being anticompetitive. PanAm, reborn in 1996, died yet again in February, but a revised business plan to restart the once-famous name with a handful of routes was under consideration.

      The economic crisis in Asia, with the resulting loss of tourism and business traffic, jolted carriers in the region. Hong Kong's Cathay Pacific registered its first loss in 20 years; debt-laden Philippine Airlines temporarily ceased operations; Indonesia's national carrier Garuda had to return some of its aircraft, and its regional airline, Sempati, closed; Malaysian Airlines sold part of its fleet and deferred deliveries of new aircraft; and Korean Air shelved ambitious expansion plans.

      Investigation of the 1996 TWA 747 crash off Long Island, New York, ended in July without a firm conclusion as to the cause, though fuel-tank ignition was suspected. In the year's worst accident a Swissair MD-11 crashed into the sea off Nova Scotia during September with the loss of all 229 lives after the crew radioed a flight-deck fire.

      The airframe companies also continued their consolidation. Alliances between U.S. and European companies, once purely politically inspired, were seen as the most effective way of providing competitive economic solutions to future aerospace needs and sharing resources and business risks. But Lockheed Martin's proposed buyout of Northrop Grumman was blocked by the U.S. Department of Justice, which reasoned that the three existing industrial giants—Boeing, Lockheed Martin, and Raytheon—were already large enough. Boeing was busy digesting McDonnell Douglas following its 1997 acquisition of the California company, and the last of the latter's transport designs, launched by Douglas in 1995 as the MD-95, flew during September in Boeing colours as the 717-200. Not to be outdone, Airbus Industrie announced a rival for the 717, the 107-seat A318, a smaller version of the existing 124-seat A319. Boeing had earlier announced that, owing to poor sales, it would close the MD-11 trijet line.

      Airbus in its 29th year worked to form a dual civil/military giant, dubbed the European Aerospace and Defense Co., from its four European partner companies (Aérospatiale of France, Daimler-Benz Aerospace Airbus GmbH of Germany, British Aerospace PLC, and Construcciones Aeronauticas SA of Spain). France's Dassault Aviation SA scorned a linkup with Aérospatiale, but, together with British Aerospace, announced the formation of European Aerosystems Ltd. to better exploit their combined military aircraft expertise. Boeing suffered from supply problems among its subcontractors, as it endeavoured to increase production to meet demand, but later in the year announced that a loss of orders from Asia was forcing a cutback in production.

      Taking advantage of a healthy regional airline market, Fairchild Dornier prepared to launch a family of jets seating 55-90. Similarly encouraged, new Dutch company Rekkof Restart (Rekkof is Fokker spelled backward) was negotiating to resurrect airframe builder Fokker, which went bankrupt in 1996, in order to resume its 70- and 100-seat regional aircraft production. Dassault continued to assess the market for its proposed Mach 1.8, eight-seat, 6,500-km (4,000-mi)-range SSBJ (supersonic business jet), while Lockheed Martin and Gulfstream in September unveiled a rival American SSBJ design. At a lower level the business and light aviation industry enjoyed a boom, with deliveries of new aircraft up 55% from 1997 and virtually no used aircraft available.

      The problem of air turbulence came into focus when many passengers were injured and one died aboard a United Airlines 747, which subsequently had to be retired from service because of damage. The cost of turbulence to the airline industry because of injuries and damage since records began was estimated at $100 million.

      The effort to choose and field new fighters continued; military experts claimed that while the Cold War threat from the Soviet Union had vanished, top Russian fighters such as the MiG-29 and Su-27 could be sold cheaply to Third World countries and could pose a formidable threat to the West. Indeed, cash-strapped Russia was endeavouring to sell Sukhoi Su-27s and Mikoyan MiG-29s on international markets along with advanced missiles. The risk of such high-class weapons being offered at cut-rate prices to pariah nations was viewed as likely to delay further NATO arms-reduction efforts.

      The U.S. Defense Department purchased 27 MiG-29 Fulcrum Cs from Moldova for technical and operational evaluation against its own F-15 Eagles and F-16 Falcons. The package also included AA-11 Archer air-combat missiles with performance probably superior to that of corresponding U.S. weapons. Russia's ongoing financial crisis paralyzed MiG-MAPO, the Russian company responsible for the MiG-29 and stopped production of the aircraft.

      The increasing inadequacy of America's Tomahawk cruise missile against "hard" targets was demonstrated in August when a number of such weapons were launched from U.S. ships against a pharmaceutical factory in The Sudan that was allegedly making VX nerve-gas precursors and also against an Islamic terrorist/training camp in Afghanistan; the strikes were reprisals for terrorist bombing attacks on U.S. embassies in Kenya and Tanzania. The missile problem was ascribed to the inability of their nonnuclear warheads to penetrate thick bunkers.

      There was accelerating development in the U.S. of UAVs (unmanned aerial vehicles) and UCAVs (unmanned combat air vehicles), both as a response to mounting public concern in recent decades over risks to aircrews of capture and because of their low cost. U.S. Predator UAVs continued to spy on Serbian army withdrawals from Kosovo in Yugoslavia. U.S. industry was developing a family of microdrones, circular craft a few inches in diameter that could fly reconnaissance missions while being mistaken for birds by hostile forces.

MICHAEL WILSON

Apparel

Clothing.
      After several years of lacklustre apparel sales, American consumers in 1998 decided to go shopping. By August 1998 sales had already surpassed those of 1997, and all indicators suggested that year-end sales figures would be at least double those of previous years. Static and declining prices helped fuel the boom, and consumers began making serious investments in their casual Friday wardrobe for work. Before the 1998 Christmas shopping season began, sales of both men's and women's tailored clothing, including suits, jackets, and overcoats, were up 10-15% over 1997. Jean sales for girls and boys also increased substantially, and the popularity of men's golf shirts continued unabated.

      The crisis in the Asian economic markets dramatically affected apparel production and sales. With declining domestic sales Asian producers increased their exports, notably to the U.S. The most substantial import growth into the U.S., however, came from Mexico, where the effects of the North American Free Trade Agreement (NAFTA) were finally being realized. Hong Kong and China regained the market share they had lost in the early 1990s to Central American countries.

      In an effort to address accusations that manufacturers were operating sweatshops, the American Apparel Manufacturers Association began developing a comprehensive factory monitoring and oversight program. The plan was created in conjunction with several large accounting firms, which would monitor wage and employment data to ensure that all federal requirements were met.

      The changing economics of apparel production prompted the industry, once again, to lobby for free trade status for Caribbean basin nations. Many U.S. apparel manufacturers—encouraged to invest in the region as part of a U.S. economic outreach policy formulated during the administration of Pres. Ronald Reagan—found themselves at a competitive disadvantage with companies that had moved their operations to Mexico after the passage of NAFTA. By granting free trade status to Caribbean basin nations, companies would once again be on an economically level playing field. The proposed legislation, however, failed to survive the last-minute budget negotiations and impeachment frenzy that consumed the U.S. Congress.

      On the domestic front, apparel manufacturers who had built their business by providing goods to the U.S. government found themselves losing even more ground to the Federal Prison Industries (FPI) program. FPI was created to teach prison inmates useful, marketable skills that would benefit them after their release. Although prisoners were paid, the rate was substantially lower than the federal minimum wage. The lower FPI wages also allowed FPI to bid for federal apparel contracts—usually for military apparel or specialty apparel, such as biohazard suits—at lower rates than conventional apparel manufacturers. The growth of the FPI program forced dozens of plant closures and created hundreds of job losses. Though generally supportive of the FPI program, U.S. lawmakers continued to work on a solution that would be economically equitable for the FPI and manufacturers.

ALLISON WHEELER WOLF

Footwear.
      By 1998 the financial crisis in Asia prompted both Nike Inc., which reported a more than 50% decline in futures orders from the region, and Reebok International Ltd. to lower their earnings estimates for the first half of the year. Converse took a $4 million loss in the third quarter and reported that U.S. sales had dropped more than 50%, and Fila Holdings SpA also reported large losses. L.A. Gear expected to emerge from bankruptcy protection as a licensing operation by year's end. One bright spot in the athletics category, however, was Adidas America, which reported a 65.7% increase in sales in the third quarter.

      Reporting substantial declines in earnings were Nine West in the women's fashion footwear market and Nike in its athletic sector, owing to the latter's increased competition from Adidas, among others, and a backlash over its overseas labour practices. As a result, Nike announced cost-cutting measures and a job reduction of 1,600 in its global workforce. Nine West planned to keep fewer than 100 stores open, compared with the 398 it had in 1997, and, despite poor earnings, agreed to acquire U.K.-based shoe chain Cable & Co. from British Shoe Corp. Florsheim Group also reported a shrinking retail business; it closed 23 specialty stores and 10 outlets.

      Designer brand Kenneth Cole, on the other hand, posted double-digit gains during 1998. It was a good year for Stride Rite Corp., which produced Keds casual wear and Levi's and Tommy Hilfiger footwear, and for Jimlar Corp., owner of American Eagle and RJ Colt. Jimlar bought the century-old Frye footwear brand, which it had previously produced under license, and also became the exclusive footwear licensee for the upscale Coach leather-goods brand.

      The comfort and outdoor footwear sectors also prospered. The "brown-shoe" trend put some muscle in the lines of rugged outdoor footwear brands Timberland, Hi-Tec, Wolverine, Caterpillar, and Sorel. Comfort brands, such as Rockport and Eurocomfort makers such as Birkenstock, Mephisto, Wolky of Holland, and Naot, featured updated styling and were welcomed into the realm of fashionable footwear. Action-sports shoe firm Vans Inc., however, closed its last U.S. plant in Vista, Calif., and shifted production of its vulcanized footwear to factories in Mexico and Spain.

      Among retailers, Payless ShoeSource Inc. reported a 16.7% increase in earnings, opened 29 new stores in the U.S., and overhauled its 200 Parade of Shoes stores. The Venator Group Inc., the newly named parent company of the Kinney shoe chain, announced that it would shutter all of its 500 U.S. and 82 Canadian stores but would convert about 60 U.S. Kinney stores to Foot Locker specialty stores.

BONNIE BABER

Furs.
      The economic turmoil that disrupted international trade throughout much of 1998 also heavily impacted furs. Consumers in countries affected by economic downturns postponed purchasing luxury items, and continuing financial difficulties in such countries as Japan and South Korea—each of which had figured prominently in the international fur trade—forced them to the sidelines. After the Asian financial virus spread to Russia, which had recently emerged as a prominent new force in the fur trade, the country abruptly halted fur-skin purchases.

      The financial crisis was further amplified by the resultant sharp fluctuations in the world securities markets, which tended to cloud the merchandising plans of North American and Western European fur retailers and manufacturers, who had been looking forward to a healthy season. Furs had been making a strong comeback in terms of fashion and were given favourable worldwide publicity in leading publications and other media. More than 200 international fashion designers—25% more than in 1997—showed collections that included furs either as full garments or as trimmings on textile or leather apparel. The El Niño weather phenomenon, which made the winter of 1997-98 the warmest on record in some areas, caused consumers to defer purchases of furs and other cold-weather apparel, but a reverse weather pattern, termed La Niña, was expected to spur fur sales in the 1998-99 season.

      Production of ranched and wild fur skins was relatively stable, but prices soared in the first six months of 1998, owing to heavy Russian demand. When Russia's economic bubble burst and its ruble sank, Russian buying became severely restricted and skin prices began to drop. In recognition of Russia's problems, year-end auctions were either canceled or the offerings reduced in order to minimize an anticipated decrease in price.

      Animal rights organizations, despite a further decline in support from the public and the media, nevertheless stepped up their activities. There was a marked increase in the number of break-ins at fur farms in North America and the U.K., where mink and foxes were released. Increased activity by local and government authorities resulted in the arrest and conviction of additional perpetrators.

SANDY PARKER

AUTOMOBILES
      The automotive industry seesawed through 1998 with unexpectedly strong sales in some markets and surprisingly weak sales in others. During the year the industry was rocked with merger announcements that demonstrated the unmistakable march toward industrywide consolidation and led some automotive executives to predict that no more than nine automakers would survive the inevitable shakeout. Major corporate reorganizations and personnel changes took place, and labour strife paralyzed the world's largest automaker. It was also a year marked by significant outsourcing of work to suppliers by automakers.

      The industry was stunned on May 6 to learn that Daimler-Benz AG and Chrysler Corp. would merge into one company, to be called DaimlerChrysler AG. Many industry analysts had predicted such consolidations, but few had foreseen this merger. The announcement was all the more surprising because Chrysler had begun to build an engine plant in Brazil jointly with Bayerische Motoren Werke AG (BMW) and was engaged in technical exchanges exploring other business opportunities with that company. Any thoughts Chrysler may have had about merging with BMW vanished, however, during a secret 17-minute meeting at Chrysler's headquarters in January when Daimler-Benz's chairman, Jürgen Schrempp (see BIOGRAPHIES (Schrempp, Jurgen )), proposed the DaimlerChrysler merger. When the public announcement was made four months later, it set off a furious debate as to whether this was truly a merger of equals or whether Daimler was simply taking over Chrysler. For the remainder of the year analysts, pundits, and competitors all tried to divine which company was gaining the upper hand as their operations were combined. Those arguing that it was a merger of equals pointed to the dual headquarters, dual chairmen, fifty-fifty split in automotive management, and the fact that English would be the official language. Those arguing that it was a takeover noted that the dual chairmanship would end in three years with Schrempp then taking charge, that there were more Germans on the management board, and that the new company was incorporated in Germany.

      There was little doubt DaimlerChrysler would be a formidable competitor. It instantly became the world's fifth largest automaker in vehicle production and the third largest in revenue and profits. The two companies also identified first-year savings of about $1.5 billion through combined purchasing costs, a common finance department, and shared research and development. Analysts said they expected annual savings to reach $3.3 billion. Daimler-Benz planned to open up its distribution system to Chrysler in Europe and in less-developed countries where the American automaker was weak. Both companies, however, were adamant that they would keep their product brand identities separate. No Chrysler car would carry the famous three-pointed star that adorns the grille of every Mercedes, and no Mercedes would be sold in a Chrysler dealership. In 1997 Freightliner, a subsidiary of Daimler-Benz, had bought the heavy-duty truck operations of Ford Motor Co. in North America and renamed it Sterling.

      Daimler and Chrysler were not the only automakers seeking consolidation. Volkswagen AG paid Vickers PLC about $700 million (£479 million) to buy British luxury carmaker Rolls-Royce Motor Cars Ltd., only to discover that it did not get the rights to the Rolls-Royce name or the famous insignia. Instead, VW was stuck with an old assembly plant and the rights to the venerable Bentley nameplate. It turned out that the jet engine maker Rolls-Royce PLC owned the rights to the name. Much to VW's embarrassment, BMW later bought the rights to use the Rolls-Royce name for only $66 million (£40 million) and then granted VW the use of the name until 2002. In an ongoing effort to corner the market on famous high-end automotive brands, Volkswagen bought Lamborghini and Bugatti and also held exploratory talks to buy Swedish automaker Volvo.

      As the South Korean economy all but collapsed, automakers there scrambled to survive as best they could. Kia Motors Corp. was placed in receivership, and a round of bidding ensued to sell the troubled automaker. The sale went through three separate rounds of bidding before South Korea's Hyundai Motor Co. acquired a 51% stake both in Kia and in its truck-making subsidiary, the Asia Motors Co., for $951 million. Daewoo's chairman Kim Woo Choong (see BIOGRAPHIES (Kim Woo Choong )) publicly announced that General Motors Corp. was going to buy one-half of his company, but GM officials denied those claims. Meanwhile, Daewoo bought Ssangyong, which made vans, trucks, and a limousine based on an older design of the Mercedes-Benz E-class. Samsung completed building an assembly plant in South Korea capable of building 240,000 cars a year, but at the end of the year it decided to swap all of its automotive operations for Daewoo's electronics business.

      Several multibillion-dollar mergers and acquisitions in the automotive supplier industry also took place in 1998. Dana bought Echlin for $4.3 billion and later purchased FMO for $434 million. German tire maker Continental AG bought the brake and chassis business of ITT Industries for $1.9 billion. French supplier Valeo SA purchased ITT's Electrical Systems for $1.7 billion. Federal-Mogul acquired Cooper Automotive for $1.9 billion. Du Pont Co. bought the Herberts group, which made automotive paints and finishes, for $1,890,000,000. The Lear Corp. purchased the seating operations from GM's parts-making operation, Delphi, for about $450 million. General Motors later announced that it would spin off Delphi as a stand-alone $32 billion company starting in 1999.

      Canadian supplier Magna bought Steyr-Daimler-Puch AG for $398 million. The Steyr operations included two assembly plants in Austria that made the four-wheel-drive versions of the Mercedes-Benz G-class and E-class, as well as the Jeep Cherokee and Mercedes M-class. This acquisition cemented Magna's strategy to become a supplier with the capability to design, engineer, and manufacture entire vehicles.

      Throughout the year automakers announced future contracts with suppliers that would employ modular design. Rather than build cars one piece at a time in their own assembly plants, automakers increasingly ordered suppliers to make modules, groups of parts that are assembled into one entity. "Corner modules," for example, emerged as a particular favourite among automakers. Such a module consisted of the brakes, suspension, and shock absorbers, which the supplier then delivered as a unit to a car company's assembly plant. All the automaker then had to do was bolt the modules onto a car, thus greatly simplifying the assembly process and reducing costs. Ford began building an assembly plant to make modular cars under a plan it code-named the Amazon project. GM, already underway with a Brazilian project it code-named Blue Macaw, also proposed to the United Automobile Workers (UAW) that it bulldoze four small car plants in North America and replace them with smaller modular plants.

      Dana began supplying "rolling chassis" to a new Chrysler assembly plant in Campo Largo, Braz., signaling a new method for building vehicles. At a small, nearby plant of its own, Dana installed most of the components that comprise a truck chassis, including the axles, brakes, suspension, wheels, and tires. It then shipped the chassis to Chrysler's plant, where it was rolled to the assembly line. Chrysler then bolted the body to the chassis and installed the interior, and a new Dakota pickup truck was ready for sale. Other automakers announced their interest in the "rolling chassis" concept. Since a supplier would do a substantial part of the assembly work, it would allow the automakers to build smaller assembly plants with fewer workers. Analysts pointed out that the unions were likely to fight this move, viewing this outsourcing as a tactic to deplete their memberships by as much as 30%.

      Ford announced significant management changes that resulted in a member of the Ford family being named to run the company once again. William Clay Ford, Jr., a great grandson of the founder of the company, was to become chairman of the board on Jan. 1, 1999. Jacques Nasser was promoted to president and chief executive officer. Ford moved the headquarters for its Lincoln-Mercury division out of Detroit to Irvine, Calif.

      General Motors was dogged throughout the year by press reports detailing management friction between GM Europe (GME) and its International Operations (IO). GME argued that it was sacrificing too much of its engineering resources to satisfy the growing global needs of IO. GM's management reassigned the president of GME to Russia and moved the headquarters of IO from Zürich, Switz., to Detroit. It later initiated a major corporate restructuring wherein it merged its North American Operations (NAO) with IO. Richard Wagoner, the former head of NAO, was named president of the company.

      The UAW went on strike against GM in June in what became the most severe work stoppage at the company in nearly 30 years. When General Motors was unable to persuade the UAW local at its Flint (Mich.) Metal Center to agree to work changes designed to improve productivity, it transferred stamping dies from that plant to another in Ohio. That triggered an immediate strike at the stamping plant in Flint, and the nearby GM Delphi Flint East plant that made spark plugs and oil filters initiated a sympathy strike. In a matter of weeks the lack of crucial parts made by the plants on strike shut down almost all other GM manufacturing facilities. The strike lasted 54 days, idled more than 190,000 GM workers, and cost the company about 325,000 units and nearly $3 billion in net profits. GM executives said the company would be able to make up much of the lost production with heavy overtime, but by the end of the year GM was still struggling to recapture lost market share. In an effort to avoid another crippling strike, especially with its three-year labour contract due to expire in 1999, GM recalled Gary Cowger, an executive with extensive manufacturing and labour experience, back from GM Europe to run its Labor Relations department.

      One of the year's most notable product developments included the much-anticipated debut of the new Volkswagen Beetle. Based on VW's Golf model and built in Mexico, it became an instant smash hit in the American market. VW soon began exporting limited quantities to Europe, where it also received rave reviews, prompting the company to explore adding manufacturing capacity to build the car there.

      Toyota introduced the luxurious Lexus RX-300, known as the Harrier in Japan and other markets. This featured the body of a sport utility vehicle mated to a passenger-car platform. It represented a new entry in a new market segment that was dubbed "sport wagons," which many analysts expected to become a harbinger for the future.

      Cadillac introduced the first automotive application of night vision. This was an infrared device that greatly enhanced a driver's vision in darkness, fog, or rain, thanks to a screen that sat above the dashboard. Developed by Delco Electronics and Raytheon, General Motors had been working on the device for almost a decade.

      The California Air Resources Board announced that it would require large sport utility vehicles and pickup trucks to meet the same emissions standards as passenger cars by 2004. Automakers vehemently protested the ruling, arguing that these trucks were used for workloads, such as towing and hauling, that passenger cars could not accomplish. They also argued that they did not know how to meet those standards for trucks with large engines. The board countered that a large number of these vehicles were used for general driving purposes, and that their growing popularity forced the state to impose stricter standards in order to preserve its improvement in air quality. Automakers feared that if California proceeded with the regulations they might be adopted by other states, eventually depriving the car companies of a popular line of vehicles.

      Sales in Europe rose 6% to about 14.7 million units, as the passenger-car market continued to recover. The strength of the European market helped Volkswagen surpass Toyota to become the third largest automaker in sales volume behind GM and Ford. Sales in Japan, however, slid about 13% to about six million units for the year, as the economy failed to recover. Automakers in Southeast Asia and Brazil found themselves temporarily closing their assembly plants, as the economic crisis in those regions paralyzed their economies.

      As truck-type vehicles accounted for nearly half of all new vehicles sold in the U.S., large sport utility vehicles came under increasing scrutiny by the National Highway Traffic Safety Administration. The government agency worried that the large vehicles posed safety hazards to passengers of small cars and began exploring ways to force changes in bumper heights to minimize the dangers that these trucks posed.

      Strong vehicle sales in the U.S. market confounded the experts. Most automakers started the year fearing that the economic crisis in Asian and South American economies might cause the U.S. economy to slow. By early spring most automakers were increasing their sales incentives. GM, Ford, and Chrysler began offering "loyalty coupons" to former customers with the intention of luring them back into their showrooms. Most analysts pointed out that sudden surges in incentives that artificially increased demand usually resulted in a period immediately afterward when sales would dip below their normal trend and thus predicted that sales would slow later in the year. The market, however, continued to gain steam, and by the end of the year sales had reached 15.9 million units, a surprising 4% increase and the second best year in the history of the industry. Analysts credited the strength in the market to low unemployment, low interest rates, and flat car prices.

JOHN MCELROY

Beverages

Beer.
      Brewers did not just seek the right formulas for their products in 1998—they sought identities and purposes that would perk up sales and propel them toward a healthier sales environment in the first part of the new century. While Anheuser-Busch maintained its position as the world's preeminent beer marketer, it demonstrated an awareness that, despite the seemingly endless double-digit volume gains for Bud Light, its existing brand portfolio—most specifically, Budweiser—did not necessarily reflect the changing tastes of beer drinkers. Consequently, the firm began the aggressive testing of Tequiza, a tequila-flavoured brew with a hint of lime that was designed to lure U.S. drinkers away from the explosively popular Corona Extra. That Anheuser-Busch was a major stockholder in Mexico's Grupo Modelo, exporter of Corona Extra, revealed the complexity of the fight for market share. Corona's gain in the United States, while a plus for Anheuser-Busch's share in Modelo, came at the expense of its own products at home.

      Meanwhile, Corona seemed to be making itself at home in more places in 1998, usurping the number one import ranking in the U.S. from Heineken and passing several competitors to become the fifth largest beer brand in the world. The momentum of Mexican beers was felt at Modelo rival FEMSA, where the brewer of Dos Equis and Tecate increased production to meet international demand.

      Another noteworthy Corona-related development was the decision of one of its U.S. importers, Gambrinus, to buy one of the best-known American microbrewery labels, Pete's Wicked Ale. A few years ago craft beers such as Pete's were seen as the rising tide lifting imports from the U.S.; in 1998 that situation was reversed, as many U.S. consumers shifted to beers brewed abroad.

      The beer of the 21st century may well be delivered to its drinkers in a plastic bottle. Several major brewers tested different resins to determine whether such packaging would retain the product's all-important freshness. They included Bass in the U.K. with its Carling Black Label brand and Miller Brewing, which offered Lite, Genuine Draft, and Icehouse in plastic in some U.S. markets.

GREG W. PRINCE

Spirits.
      In 1998 distillers sought relevance in a beverage market that, at times, appeared to have left them behind. No company in the spirits business looked more different at the end of the year from the way it did at the beginning than Seagram—and that had little to do with any of its alcohol beverages. When the conglomerate decided to discontinue producing orange juice, selling its Tropicana Products to PepsiCo in order to finance the purchase of music giant PolyGram, it meant that one of the bedrock firms of the spirits business was shifting once and for all to emphasize entertainment, but also that spirits would get a new look from the suddenly juiceless company. Thus, Seagram announced the creation of a single senior management team based in New York City to streamline its spirits marketing. The new structure was headed by the new position of chief marketing officer, reporting directly to Seagram's CEO, and encompassed four brand groups: Crown Royal and Captain Morgan, based in New York City, and Chivas Regal and Martell, based in London.

      The effects of the last realignment that shook the worldwide spirits business, the merging of Guinness and Grand Metropolitan into the newly christened Diageo in 1997, continued to be felt in 1998, as Bacardi acquired Dewar's Scotch whisky and Bombay gin for $1.9 billion from Diageo. The deal was necessitated by antitrust provisions of the transaction that created Diageo.

      On the product front, spirits took two distinct roads. On one hand, old reliables often found new audiences. Brown-Forman reported its stalwart Jack Daniel's was meeting with increased success in Europe and Asia. Allied Domecq, meanwhile, resuscitated some previously stagnant brands like Beefeater gin, marketing them anew amid the "cocktail culture" of consumers aged 18-25. On the other hand, some firms searched for something new, different, and, increasingly, colourful. For example, Heaven Hill Distilleries released Fighting Cock Kentucky Straight Bourbon Whiskey, while Wein Brauer unveiled Bite, "the first and only sour apple liquor" distributed in the U.S.

GREG W. PRINCE

Wine.
 (For Leading Wine-Consuming Countries in 1997, see Graph—> .)

      The quality of the vintage for 1998 was generally good in all wine-growing areas. The major developments took place in marketing, with prices continuing to rise. The only segment where prices softened was the auction market, where financial problems in East Asia continued to keep bidders away.

      Because of the high quality of the 1997 vintage in Italy, prices there began to increase even before the wines were offered to the public. This trend spread to most of the other European growing areas. Prices, not including transportation costs and taxes, in Europe were at their highest levels in recent memory. In California growers who in the past would sell their grapes to premium wine makers were releasing their own labels. These new small brands, many of which were expensive, removed sources of good grapes to other producers, thereby bidding up prices for dwindling resources.

      New consumers entered the market during the year, keeping demand strong and providing an opportunity for the introduction of less traditional varieties and also products from new wine-growing areas. Champagne houses released cuvées (special-growth wines) for the millennium, causing fear that there would be a shortage of champagne during the upcoming celebrations. Consumers consequently rushed to lay in their own stocks for their celebrations so as not to be caught short. Southern Hemisphere producers continued to see their markets expand and responded with wines of greater quality and variety.

HOWARD HERING

Soft Drinks.
      The soft-drink industry, which had grown 43% in the U.S. since 1985 and was already competitive in nature, became downright combative in 1998. There was no greater symbol of the rancor between Coca-Cola Co. and PepsiCo Inc. than a lawsuit filed by Pepsi against Coke, alleging unfair practices in certain sectors of the profitable U.S. fountain business. Coke argued that the charges did not reflect market reality, and at the year's end the issue remained unresolved.

      In Europe Coke's major attempt at expanding its trade was thwarted by French regulatory authorities. In late 1997 Coke announced its intent to purchase France's leading homegrown soft drink, Orangina, from Pernod-Ricard. Pepsi, however, argued that the addition of Pernod's soda business would give Coke a near-monopoly on French distribution channels. French regulators ruled in Pepsi's favour but did give Coke a chance to revise its offer by the end of 1998.

      PepsiCo also sought to widen its product base. A year after spinning off its restaurant division the company paid $3.3 billion to buy Tropicana Products from Seagram. Pepsi was immediately hit by a lawsuit from Ocean Spray, which claimed the acquisition was at odds with the distribution deal it had with Pepsi to deliver some of its products in the U.S. The suit, however, did not prevent the deal from being completed.

      Amid these maneuvers of the industry leaders, middle-size beverage companies had to look out for themselves. Cadbury Schweppes PLC, whose Dr Pepper/Seven Up products could no longer count on being included on Coke and Pepsi bottler trucks, teamed with The Carlyle Group to buy two major U.S. bottlers and form American Bottling Co. In December Coke bought the overseas rights to the Cadbury brands for $1,850,000,000.

      After waiting almost a decade soft-drink manufacturers were encouraged that U.S. regulators approved two new synthetic sweeteners for use in soda pop. Royal Crown immediately began using sucralose in a new version of Diet RC, and Pepsi blended acesulfame-k with aspartame and created a new diet cola, Pepsi One. The industry hoped that these additives would help perk up the sagging diet segment.

GREG W. PRINCE

BUILDING AND CONSTRUCTION
      The U.S. government reported that a seasonally adjusted annual rate of $660.6 billion of construction had been completed in 1998 by September, a 6% increase over the September 1997 figure. The National Association of Home Builders reported in October an annual pace of 1.6 million housing starts, on track for a 7.9% increase over 1997.

      Several large public works projects in the U.S. made significant progress during the year. Boston advanced its Central Artery Project, a multiyear, $10.8 billion effort to relieve downtown traffic congestion. Denver, Colo., tried to improve airport access, opening two sections of E-470 in June. The privately financed toll road connected rapidly growing suburbs east and south of the city to Denver International Airport.

      Los Angeles pushed forward with the long-awaited Alameda Corridor project, a plan to ease freight deliveries to downtown from the ports of Los Angeles and Long Beach 32 km (20 mi) away. The road-and-rail combination was designed to consolidate three freight routes into a single corridor by its 2001 completion date.

      In Phoenix, Ariz., the Arizona Diamondbacks major league baseball team opened a 48,500-seat stadium in March. It was the first U.S. stadium with natural grass under a retractable roof, which was designed to open or close in five minutes. The $354 million stadium's air conditioning system was designed to cool the seating area from 110° F to 80° F (43° C to 26° C) in less than four hours. Other stadiums with retractable roofs were being planned in Seattle, Wash.; Milwaukee, Wis.; and Houston, Texas. In the November elections voters approved measures to fund new baseball parks in Cincinnati, Ohio, and San Diego, Calif., as well as a new football stadium in Denver.

      In July Hong Kong opened Chek Lap Kok Airport, the heart of a $21 billion transportation system. For the passenger terminal British architect Sir Norman Foster designed the largest enclosed space ever constructed, big enough to house five Boeing 747s tip to tip. Despite problems with the baggage-handling system on opening day, the airport soon began to serve an estimated 35 million passengers a year. It was designed to handle up to 87 million passengers a year eventually.

      Asia's financial crisis entered its second year, causing many large projects to be abandoned or scaled down. Hong Kong-based infrastructure entrepreneur Sir Gordon Wu Ying-sheung suspended work on the 1,320-MW Tanjung Jati B coal-fired power plant in central Java. The project was 70% completed, but Sir Gordon, chairman of Hopewell Holdings Ltd., said in September that Indonesia's economic depression had caused financiers to lose confidence. Hopewell paid $230 million to win the 30-year build-own-operate contract and could lose as much as $620 million. Another of Sir Gordon's high-profile projects, a railway in Thailand, was also on hold.

      In May the European Parliament opened a new headquarters building in Strasbourg, France. The complex, designed by Paris-based Architecture Studio Europe, was supported by a 45,500-cu m concrete mat resting on piles driven 14 m deep. (1 cu m = 35.3 cu ft; 1 m = 3.28 ft.) Walkways connected a 17-story cylindrical office building to the debating chamber, a 42-m-tall steel and concrete elliptical "egg" with an exterior covered with cedar and oak planks.

ANDREW G. WRIGHT

CHEMICALS
      The value of the world's chemical production climbed almost 2% in 1997 to $1,586,000,000,000. It was an outstanding year for the industry in most parts of the world, particularly in view of the financial crisis in Asia that began in mid-1997. Concerning their prospects for 1998 and 1999, however, leaders of the industry were edgy, with their primary worry the continuing economic woes of several Asian countries, especially Japan, South Korea, Indonesia, and Malaysia.

      Because of the problems generated by shifts in currency values and the fluctuations of chemical prices, some observers preferred to evaluate the industry in terms of production volumes. On that basis also, 1997 was a good year especially for most of the industrialized countries. The U.S. increased its production volume 4.3%, and Europe registered a 4.7% increase. Japan's Ministry of International Trade and Industry reported a 5% gain.

      Viewed in product-value terms, Japan's chemical industry output was $202 billion in 1997 compared with $215.9 billion in 1996; this, in part, reflected its devalued currency. Japan was, nonetheless, second to the U.S. in the output value of its chemical industry. The U.S., buoyed by a strong dollar, totaled $392.2 billion in 1997. Europe at midyear anticipated growth near 3% for 1998, and the U.S. pointed toward a 3.5% increase. These estimates hinged on hopes for improvements in the economies of Japan and southeastern Asian nations.

      Some parts of Asia were, however, prospering. China achieved an estimated $80 billion in output value in 1997, and India totaled more than $30 billion.

      Latin America, with historic market ties to Japan, was affected by the latter's problems in 1998. Nonetheless, led by Brazil, the region had a strong performance of $93.4 billion in output value in 1997. As of 1998 it held a 6.6% share of world production (4.6% in 1990).

      The European Union (EU) was by far the largest factor in world chemical trading. Its exports in 1997 totaled $278,821,000,000, and imports were $227,507,000,000. Germany was the largest element of the EU, shipping out chemicals worth $68,277,000,000 and importing $39,355,000,000. France's chemical exports were $41,064,000,000 and imports $31,311,000,000, and the U.K. exported $36,818,000,000 and imported $29,949,000,000. For the world as a whole exports and imports each grew 15% in 1997 compared to 1996.

      For more than three decades the chemical industry emphasized petrochemicals—synthetic plastics, fibres, and related products derived or synthesized from oil and gas. Such products in the U.S., for example, comprised at least 30% of the product value of the industry in 1998 and were also produced in high volumes. In particular, ethylene and propylene-based petrochemicals (typically, the olefin plastics) were the products on which the Asian nations concentrated as they began to launch their chemical industries. No country, however, profited consistently from petrochemicals, and by 1998 in much of the world profits were nowhere near as large as they had been during the mid-1990s. Producers in many of the less-developed countries were competing for markets, which had the effect of forcing down profits. This was also true in the United States, where the profit margin for the chemical industry was above 8% in 1997 but was clearly not going to reach that level in 1998.

      In an effort to diversify their product lines, many firms turned to specialty chemicals, by loose definition almost any high-cost, low-volume chemical ranging from pharmaceuticals to industrial gases to water treatment chemicals. Sometimes specialties showed startling growth, as exemplified by a new development in producing silicon chips for computers. The high-purity compounds used to prepare ultrasmooth chips had a total market in 1995 estimated at just $25 million; it reached $85 million in 1997 and was expected to keep growing at a rate of 30% per year for the next decade.

      A surge of interest in biotechnology was engaging the primary attention of management at many companies, including Hoechst AG, Bayer AG, and BASF in Germany; Rhône-Poulenc in France; and DuPont, Monsanto, and Dow in the U.S. Attracting considerable attention in 1998 were routes to the production of high-volume industrial compounds that use bioengineered bacteria and enzymes in processes that may challenge conventional chemical syntheses. Hoffmann-La Roche of Switzerland, for example, was replacing its chemical route to Vitamin B2 by a new fermentation process. DuPont was testing a fermentation method to make a raw material used for a type of specialty polyester (polytrimethylene terephthalate) with high-end plastic and fibre uses.

J. ROBERT WARREN

ELECTRICAL
      Although economic problems in Asia led to a downturn in the global market for electrical equipment in 1998, the leading multinational manufacturers reported an increase in revenues of about 13% in 1997 and remained optimistic for the long term. Indeed, General Electric (GE) reported in October 1998 that it was on target for a record financial performance with a double-digit increase in earnings. With Asia representing about 9% of the company's revenue, GE had a significant stake in this depressed market, but the firm's directors were confident that the current business uncertainty was manageable and that there was an opportunity to increase the company's presence in what they expected to be one of the great markets of the 21st century.

      While admitting that turbulence in Southeast Asia's currency and financial markets would perceptibly damage growth in the region, Siemens AG, the world's largest electrical equipment manufacturer, forecast that growth rates in the world electrical market, particularly in Europe, would continue to outpace the global economy as a whole. Asea Brown Boveri (ABB), the third largest electrical manufacturer after Siemens and GE, forecast that Asia would begin to bounce back in the next two or three years and resume growth even faster than before. ABB claimed that it was among the first to recognize both the threats and opportunities of the Asian crisis, announcing a plan to accelerate its expansion in the region as early as October 1997. The plan also involved restructuring some of ABB's operations in Western Europe, involving the loss of 10,000 jobs to make the Western factories more competitive. In late 1998 financial difficulties in Russia and South America worried the world's banking systems, but the effect on the electrical equipment market had yet to be felt.

      For the last 40 years there has been major restructuring of the electrical manufacturing industry. The past two years saw the demise of one of the most famous names in electrical engineering and the birth of a new multinational firm. With the $1,525,000,000 sale of its power plant business to Siemens in November 1997, Westinghouse Electric Corp. retired from its original role as an electrical engineering company to concentrate on broadcasting. The new multinational was Alstom, which became the fourth largest electrical manufacturing company in the world. Alstom was formed in June 1998 as a result of the flotation of 52% of GEC Alsthom, the joint venture business of the French telecommunications company Alcatel Alsthom and the General Electric Co. of the U.K. With headquarters in France, it employed 110,000 people in 60 countries.

      Another milestone in 1998 was GE's achievement of meeting what was thought to be the "impossible" target of 15% operating margin (gross profit less expenses). The company admitted that its operating margin, a critical measure of business efficiency and profitability, had hovered around 10% for decades. With its "Sigma Six—best practices" philosophy becoming more deeply involved in company operations, however, GE's operating margin passed the 15% barrier in 1997 and was approaching 16%. Groupe Schneider announced that the ambitious target of its "Schneider 2000 plan for continuous improvement" of 15% return on equity by the year 2000 was now within reach.

      The electrical manufacturing industry was particularly affected by the year 2000 computer recognition problem in both its manufacturing systems and its products. In this regard GE said that compliance programs and information systems modifications had been initiated in an attempt to ensure that those systems and processes would remain functional. While there could be no assurance that all modifications would be successful, GE did not expect any material adverse effect on its financial position. Groupe Schneider estimated that it would cost the company more than $50 million, which was only 0.63% of its 1997 revenue, to achieve year 2000 compliance. ABB was intensifying its review of all its products and systems to achieve year 2000 compliance, and, like other European companies, was devoting much effort in preparing for the introduction of the European common currency.

T.C.J. COGLE

Energy

Petroleum.
      The worldwide oil industry experienced a tumultuous year in 1998. One of the most dramatic price falls of recent times put intense financial pressure on countries that exported oil, and increased commercial competition caused some of the leading Western oil companies to join forces in the biggest industrial mergers yet seen.

      The extent and speed of the price collapse caused surprise throughout the oil world. At the beginning of 1997 the price of Brent Blend oil futures reached a recent high of $24.25/bbl. By mid-December 1998, however, the price had fallen by more than $14, nearly 60%. Several factors were involved in the collapse. The first was the impact of a slow but steady buildup of oil stocks that had been taking place throughout the world since 1995. As long as demand remained healthy, this increase was hardly noticed and posed little threat to prices. Several relatively mild winters in Europe and North America, however, caused consumption in those regions to be less than had been expected, thus reducing demand. A sharp rise in Iraqi oil exports under the UN oil-for-food program added to the growing surplus. The final factor was the East Asian financial crisis. It triggered a sharp fall in demand from a region that, until the crisis hit, had been the fastest growing oil market. Also, the impact of the Asian economic downturn began to affect other regions during the year.

      In December the International Energy Agency (IEA), the Paris-based body that monitors the global oil market on behalf of the Western world's leading industrialized countries, reported that "growth in world oil demand appears to have stalled in September and October." The IEA said the demand weakness was not confined to Asia but was evident across much of the developed world, as economies began to slow.

      The response of oil exporters to the price collapse was generally ineffectual for most of the year. In March three leading exporting nations, Saudi Arabia, Mexico, and Venezuela, met secretly in Riyadh, the Saudi capital. The three, which were also the main crude oil suppliers to the U.S., the world's single largest petroleum market, agreed to coordinate production cuts. Eventually other producers from the Organization of Petroleum Exporting Countries (OPEC) and some nations outside the group, including Norway and Russia, also agreed to take part in a worldwide round of production cuts to support prices. The effort was initially successful. Prices soon began to fall again, however, as the extent of the global supply surplus and the fall in demand in Asia and elsewhere became apparent.

      The price collapse put intense pressure on the finances of many oil exporters. In November Bill Richardson, the U.S. secretary of energy, noted that in real dollars, "we are paying about the same for oil as we paid in 1920." He predicted that the 11 OPEC countries would see their collective oil revenues fall by about one-third, some $50 billion.

      Even that level of financial pain, however, was not enough to induce all OPEC members to abide by their promised cuts. At its November meeting OPEC failed to agree on any further action, with Saudi Arabia, the dominant member and the world's biggest oil producer and exporter, demanding greater compliance with the first round of cuts before embarking on any new initiative. In mid-December new signs of price weakness prompted many OPEC governments to appeal for additional action to stem the renewed decline.

      The oil price weakness was one of the reasons behind a sudden burst of merger activity among some of the biggest Western oil companies. In August British Petroleum Co. PLC ended more than a decade of stability in the ranks of the international integrated oil sector with its takeover of Amoco Corp. of the U.S. The deal propelled the combined company, known as BP Amoco, into the "super league" of the oil industry, which until then had been the exclusive preserve of Royal Dutch/Shell and Exxon Corp. of the U.S.

      The BP Amoco deal triggered a wave of intense speculation about which companies would be next to merge or take over a competitor. Few, however, guessed that it would be Exxon that would be next to make a move. In December it confirmed that it was to take over Mobil Corp. in the world's biggest industrial merger. At the same time the first sign of oil industry consolidation in Europe appeared when Total of France announced it was taking over PetroFina.

      The logic behind the deals varied, although there were common themes. In each case the three dominant companies—BP, Exxon, and Total—were able to take advantage of relatively high share prices that allowed them to afford the takeover premiums required by the shareholders of their respective targets. All three companies also had a reputation for efficiency and cost-cutting that gave them credibility in arguing that the enlarged groups would produce substantial savings and operational synergies. Also, in the case of BP Amoco, it was argued that sheer size and financial firepower would be needed to tackle the big projects that were emerging as a result of the third dominant theme of the year, the opening of large OPEC countries to foreign investment.

      Venezuela was the first of the large OPEC producers to seek foreign capital to expand its oil industry, which until several years ago was under the monopoly control of government-owned Petroleos de Venezuela. "La Apertura," or the "The Opening," attracted billions of dollars from international oil companies as part of Venezuela's ambitious strategy to boost output from 3.7 million bbl a day currently to 6.2 million bbl a day by 2009.

      In July Iran, the world's third biggest exporter, announced a plan to open more than 40 projects to foreign participation. Although U.S. companies were barred from taking part because of unilateral U.S. sanctions on the country, European, Latin-American, and Asian companies responded with dozens of proposals.

      Among the major OPEC producers only Saudi Arabia and Kuwait remained off-limits to foreign investment. Kuwait, however, was considering limited foreign participation, and in October Saudi Arabia summoned the heads of eight American oil companies to a meeting in Washington, D.C., during which they were asked to prepare "ideas" on ways in which their companies might take part more directly in the development of Saudi Arabia's energy potential.

ROBERT CORZINE

Natural Gas.
      Global demand for natural gas, the least polluting fossil fuel, continued in 1998 to grow faster than that for oil. The International Energy Agency estimated that demand for gas was rising by 2.6% a year, compared with 1.9% for crude oil.

      During recent years gas captured a growing share in the power generation sector. Such growth was expected to accelerate, as converting to gas-fired power generation was regarded as one of the best ways for many countries to reduce emissions of carbon dioxide, a greenhouse gas, in line with commitments entered into at the Kyoto Conference in 1997. In Europe energy ministers formally adopted a directive forcing European Union nations to gradually open to competition one-third of the EU's natural gas supply industry, which in 1998 was dominated by national monopolies.

      The Asian financial crisis and collapse in oil prices in 1998 affected some gas projects. Asia was the biggest market for liquefied natural gas, and several new projects to supply the region with LNG from the Middle East and elsewhere were likely to be delayed. Low oil prices took the edge off industry excitement about developing low-cost methods for converting natural gas into virtually pollution-free diesel and other middle-distillate fuels, including kerosene.

ROBERT CORZINE

Coal.
      Key events in 1998 signified a greater future reliance on coal as a fuel to generate electricity owing to worldwide requirements for an increase in electric power. Imported oil was used primarily for this form of energy until the 1973 oil embargo, but by 1998 world coal consumption had grown by the equivalent of 20 million bbl of oil a day. Germany's rejection of nuclear power, the U.K.'s move to diversify its energy sources by tentatively reintroducing coal, and the greater use of low-cost coal by U.S. producers over high-cost nuclear output all pointed toward a higher reliance on coal.

      In 1997 U.S. utilities used a record 900 million short tons of coal for a record 57.2% of power. Preliminary figures for 1998 were somewhat higher. For the 12th consecutive year, worldwide coal consumption exceeded five billion short tons. The leading coal consumer was China followed by the U.S., India, South Africa, Russia, Poland, Japan, the U.K., Australia, and Ukraine; both China and the U.S. produced more than one billion short tons of coal annually. An ultra-advanced pulverized coal unit, reporting 47% thermal efficiency, began operating in Denmark.

RICHARD L. LAWSON

Nuclear.
      The number of nuclear power reactors in operation throughout the world decreased in 1997, the first year in which a decline had been registered. International Atomic Energy Agency (IAEA) data for 1997, published in 1998, indicated that there were 437 operational nuclear units in 33 countries at the beginning of 1998 compared with 442 a year earlier. Total operating capacity was 351,795 MW, a net increase of 831 MW over the previous year. Worldwide, nuclear power units produced a total of 2,276.32 TWh, increasing the cumulative total of electrical energy produced by nuclear plants to 31,876.42 TWh (terawatt-hours; 1 TWh=1 billion kwh). A total of 36 units were under construction in 14 countries, including five new projects on which construction began and three that began production.

      Countries with more than 50% of their national electricity production from nuclear power were Lithuania (81.5% from 2 nuclear units), France (78.2% from 59 units), and Belgium (60.1% from 7 units). The total number of commercial power reactors permanently shut down throughout the world reached 80.

      The construction starts of 1997 were in China (three) and South Korea (two), and South Korea also had one of the units that began production. The other two, Chooz B2 and Civaux 1, were in France, where only one reactor, Civaux 2, remained under construction. This unit, due to start production in mid-1999 will mark the end of the massive French nuclear construction program. Japan, another country with a major nuclear power program, also had only one unit under construction, Onagawa 3, due to begin production in 2002. The situation was the same in most countries with large numbers of reactors in service. The Canadian provincial utility Ontario Hydro closed seven of its units and faced restructuring by the Ontario government. The only new generating plant of interest to Britain's nuclear utilities was gas fired. The election in Germany in the autumn resulted in victory for a left-of-centre coalition government that declared its intention to close down the country's nuclear power plants. In the U.S. some utilities looked for new partners or buyers to share or take over the operation of their nuclear plants.

      Of the original U.S. vendors and developers of nuclear power, only General Electric Co. remained in the business. The nuclear operations of Westinghouse Corp., which pioneered the world's most popular reactor type, the pressurized water reactor, were acquired by a consortium formed by the British nuclear fuel cycle company, BNFL, and Morrison Knudsen of Boise, Idaho. These acquisitions elevated BNFL and Morrison Knudsen into major firms in the nuclear industry. Together with Ukrainian industry partners, they signed a contract for the investigation and reconstruction of the Chernobyl sarcophagus so as to achieve an environmentally safe structure.

      The delays in opening the Waste Isolation Pilot Plant in New Mexico and the construction of the spent fuel underground repository at Yucca Mountain in Nevada continued in 1998. On the other hand, progress was made in the industry's role in international nuclear disarmament, with an agreement signed by U.S. and Russian presidents Bill Clinton and Boris Yeltsin that increased the commitment of each country to convert nuclear weapons-grade materials into either nuclear power fuels or to forms that render them unusable in nuclear weapons.

      Though the original major nuclear-power countries were reaching the end of their nuclear power construction programs and had produced no significant plans for expansion, in East Asia, particularly China and South Korea, comprehensive plans were announced and orders placed. South Korea's long-term development plan called for the completion of 18 new units with a capacity of 18,600 MW by 2015. Russia signed deals to supply two reactor units for China and two for India. Russia's Atomic Energy Ministry also announced plans for new nuclear stations at home and for decommissioning some of the oldest. Three partly built units at existing stations were scheduled to be completed by 2000 and six new units including a floating plant in the East Siberian Sea by 2005. An additional five units, including the BN-800 fast breeder, were planned for completion by 2010; by the same date, however, nine units were to have been decommissioned.

RICHARD A. KNOX

Alternative Energy.
      The long-term trend toward increased use of alternative energy sources continued in 1998, although it appeared that low prices for fossil fuels such as oil and natural gas might undermine some solar and wind power projects. The latest annual report from the Worldwatch Institute in Washington, D.C., noted that capacity for generating wind power and shipments of solar cells were growing at high rates throughout the world. Worldwatch estimated that in 1997 global wind power generating capacity grew by 25%, reaching 7,630 MW, compared with just 10 MW in 1980. Shipments of solar cells rose 43% in 1997 to 126 MW. The growth in both areas was, however, from a small base. The Paris-based International Energy Agency (IEA) estimated that renewable energy (excluding hydroelectric power) accounted for only about 4% of the energy needs of its members, the world's industrialized countries. Renewable energy sources, mainly in the forms of hydroelectricity and biomass, such as firewood, agricultural by-products, animal waste, and charcoal, in 1997 supplied between 15%-20% of the world's energy demand, according to the IEA.

      The speed with which renewable sources could grow depended in large part on government policies and technological progress. In many countries conventional fuels were subsidized, and governments offered insufficient financial incentives for companies or individuals to convert to renewable sources. As the IEA pointed out, "to achieve the substantial role expected of renewables in the future, enthusiasm needs to be harnessed to specific action."

ROBERT CORZINE

GAMBLING
      In 1997 gross revenues from all forms of legal commercial gambling in the United States increased by 6.2% over the prior year to $50.9 billion, representing 0.74% of Americans' personal income. Between 1982 and 1997 revenues from legal gaming industries in the U.S. grew from a base of $10.4 billion, representing a compounded growth rate of 11.1%. Casinos, operating legally in more than 25 states in such diverse venues as resorts, riverboats, historic mining towns, and Indian reservations, accounted for more than half of the total. Lotteries, which operated in 36 states and the District of Columbia, were the second largest group, generating revenues after payment of prizes of $16.2 billion in 1997. Pari-mutuel wagering on races, both on-track and off-track, finished a distant third with $3.8 billion in revenues.

      The most visible centre of gambling in the world was Las Vegas, Nev. That city staged the opening of one of the world's most expensive hotels, the Bellagio, in October 1998. Modeled on an idyllic resort in the lake district of northern Italy, Bellagio opened with 3,000 guest rooms, an extravagant casino, and tastefully appointed shops, public areas, and grounds, not to mention a $300 million collection of fine art on display. Across the street rose other billion-dollar reproductions of Europe: the Paris, with an ersatz Eiffel Tower and Arc de Triomphe; and the Venetian, with a campanile and canals; also opening in 1999 was Mandalay Bay, featuring a tropical Pacific theme. Ceremoniously removed from the Strip were ghosts of gambling's recent past, the Aladdin, the Sands, the Landmark, and the Dunes, taken out by implosions needed to clear space for the next generation of casinos. Investors were apprehensive about the ability of Las Vegas to absorb the new casinos, and so most stock prices of publicly traded casino companies fell throughout 1998.

      Though Las Vegas experienced growth and development during the year, Atlantic City, N.J., once again saw more promises than construction cranes. Political and legal battles over the financing of a road extension into a new casino area, and concern over the future potential for growth, made it difficult to develop new projects.

      Riverboat casino gaming had become well-established in a number of Midwestern and Southern states since the early 1990s, but changing tax laws and operating rules, altered competitive circumstances, and constitutional challenges provided some of those new industries with anything but clear sailing. In Illinois the top percentage tax rate on gaming revenues was increased from 20% to 35% in 1997. In Missouri, the State Supreme Court in 1998 determined that the 1992 referendum authorizing riverboat casinos did not permit them to operate as "boats in moats," outside the actual channels of the state's navigable rivers. This ruling was rendered after the legislature and gaming commission had already authorized such facilities, affecting perhaps $1 billion in capital investment and most of the state's operating casinos. That led to an expensive but nonetheless successful initiative on the November ballot to alter the state's constitution to permit such venues.

      Of all the states that legalized casinos in the 1990s, the one that encountered the greatest difficulties was Louisiana. In 1994 indictments were issued linking the distribution of video poker machines with members of various New York Mafia families; these later resulted in convictions. In 1998 former governor Edwin Edwards was indicted for allegedly soliciting bribes and kickbacks from potential riverboat casino operators in the granting of 15 licenses. Finally, the land-based Harrah's Jazz Casino in New Orleans, burdened by high taxes and strict operating constraints, went into bankruptcy in 1995 after operating for only five months.

      South Carolina quickly became home to a 28,000-machine video poker industry scattered throughout the state in convenience stores and other retail outlets. The machines were introduced after the courts ruled that such devices were not illegal, and they quickly became a major presence in the state, generating revenues of approximately $2 billion.

      Native American gaming continued its rapid expansion, with the most significant developments of 1998 occurring in California. In March a compact was negotiated between Gov. Pete Wilson and the nongaming Pala tribe that would have limited the extent of Native American gambling in the state. The governor then declared that the Pala compact would be the model for all other tribes, who were given the choice of going along or seeing their gaming operations shut down. A rebellion ensued as a consortium of tribes was successful in getting an initiative on the November ballot. Proposition 5 would give tribes substantial autonomy and control over the expansion of Native American gaming in the state. Following the most expensive campaign in the history of ballot issues in California and the U.S., an estimated cost for both sides of approximately $100 million, the proposition passed overwhelmingly.

      Elsewhere, Native American casinos continued to have a strong presence in several states. Two of the largest and most profitable casinos in the world, Foxwoods and the Mohegan Sun, were Native American casinos in rural southeastern Connecticut. In 1998 the two casinos paid more than $250 million to Connecticut in exchange for a continuation of their exclusive right to operate casino gaming in the state. They generated gaming revenues in 1998 in excess of $1.5 billion. Besides Native American gaming, the only new U.S. jurisdiction to legalize casinos was the state of Michigan, which authorized three casinos for Detroit in a referendum in 1996. They would compete with a successful casino across the Detroit River in Windsor, Ont.

      Casinos in other countries were also affected by economic and political events. The Asian crisis substantially reduced the amount of play at baccarat, which created difficulties for high-end casinos in Australia and the United Kingdom as well as Las Vegas. Some constraints on the British casino industry were relaxed, but these were offset by increases in the tax rate on earnings from gambling. South Africa moved forward in establishing a casino industry that would ultimately have 40 licensed casinos, primarily in or around the country's major cities. The first legal casino in Israel opened in Palestinian-controlled Jericho in 1998. Operators there hoped to attract Israeli customers and take advantage of the closings of casinos in nearby Turkey earlier in the year.

      Internet gambling continued to be a subject of vigorous debate. Some countries, such as Australia, decided to move forward with legislation that would legalize, regulate, and tax virtual casinos and World Wide Web sites offering betting on sports. The U.S., by contrast, remained opposed to such gambling. Legislation moved forward in Congress that would establish criminal penalties for offering commercial gaming and wagering opportunities over the Internet.

      Generally speaking, the racing industry suffered in competition with casino-style gambling. In some states, such as Iowa, Delaware, Rhode Island, and West Virginia, racetracks were successful in persuading legislatures to allow them to offer slot machines or other electronic gaming. The result was to turn those tracks into casinos. In 1998 Iowa's slot machines at tracks generated more than $250 million, and the slots at Delaware's tracks exceeded $350 million, more than ten times the revenues from pari-mutuel wagering.

WILLIAM R. EADINGTON

GAMES AND TOYS
      Despite some 5,000-6,000 items on retailers' shelves and efforts to spread sales more evenly throughout the year, the toy industry in 1998 again witnessed a year-end frenzy of a "must-have" holiday hit toy. Furby—manufactured by Tiger Electronics Inc., a company that was acquired by Hasbro Inc. earlier in the year—was a furry, animatronic pet with six built-in sensors that allowed it to react to the presence of other Furbys, to light and darkness, being turned right-side up or upside down, and being tickled or petted. Furby responded by slowly opening and closing its eyes, wiggling its ears, and speaking phrases from a vocabulary of 200 words and sounds in English and Furbish, an imaginary language. The toy became a hot-ticket item shortly after its October debut, selling out as quickly as the toys arrived in stores, despite the more than one million units that had been shipped by the manufacturer. As early as one month after its introduction, "Furbymania" struck the Internet, with on-line consumers offering up to $200 for the $30 retail item.

      While some customers stood in lines for Furby and other hot holiday toys, others shopped from the convenience of their homes via the Internet, ringing up an estimated $13 million in toy sales. Polls indicated that nearly one-half of the 29 million American computer users utilized the information superhighway to purchase gifts during the 1998 holiday season. One of the most popular and fastest-growing cyber toy shops was at , which was launched in October 1997; acquired its largest competitor, , earlier in the year; and offered merchandise from 500 manufacturers. Besides toys, the Santa Monica, Calif.-based on-line retailer also included in its inventory books, videos, computer software, and video games. Toys R Us also joined the race to capture market share of Internet toy sales, with its July debut into World Wide Web-based retailing at . The site boasted 1,500 products, including Feature Shop, which highlighted toys driven by timely events such as newly released films and links to toy manufacturers' Web sites. In November the industry's two largest toy companies, Mattel Inc. and Hasbro, also premiered new Web sites for collectors of their most popular brands. Barbie fans could go on-line at Mattel's and create a personalized Barbie doll—selecting hairstyle, hair colour, and doll name—and certificate of authenticity. The personalized My Design dolls were shipped within six to eight weeks of ordering, and retailed for $39.99 plus shipping. A key figure behind Mattel's successful marketing strategy was Jill Barad (see BIOGRAPHIES (Barad, Jill E. )), the company's chairman and chief executive officer. For the millions of toy-collecting households, Hasbro developed , a Web site that provided information about this popular hobby and about Hasbro's collectible brands, including G.I. Joe and Star Wars action figures. In addition, collectors would be able to purchase a select number of products directly from the site. (See Sidebar (Internet Retailing ), below.)

      Other popular toys included action figures based on hit films about little creatures—Antz, A Bug's Life, and Small Soldiers. From the small screen, "Teletubbies" captured the hearts of the littlest television viewers; the newest fab four from the U.K. were a hit on TV and in toy stores. The animated puppy Blue, from the cable TV hit "Blue's Clues," charmed kids ages two to five and spawned a top-selling product line that had toy retailers happy about being blue.

      In addition to Hasbro's acquisition of Tiger Electronics, the company in September purchased another top-10 toy manufacturer, Galoob Toys, Inc. This consolidation brought under one roof two best-selling Star Wars licensed toys—Galoob's small-scale vehicles and Hasbro's action figures—which were expected to drive toy sales when the first Star Wars "prequel" movie was released (scheduled for May 1999). The force was also with the LEGO Group in 1998, as the toy manufacturer announced in April that it had entered into an exclusive agreement to market Star Wars construction toys worldwide. It was the privately held, family-owned company's first venture into licensing, but not its last for 1998. In August LEGO announced that the company in 1999 would begin producing construction toys that featured Disney characters, including Mickey Mouse, among others.

      Another acquisition in the toy industry was Mattel's purchase in June of The Pleasant Co., a Wisconsin-based direct marketer of books, dolls, clothing, accessories, and activity products bearing the American Girl brand, for approximately $700 million. In December Mattel announced that it planned to acquire The Learning Company, the largest U.S. publisher of educational software, in a $3.8 billion stock deal. Proving that hope springs eternal, in July POOF Products Inc. acquired the outstanding common shares of Slinky manufacturer James Industries Inc. More than 250,000,000 Slinkys have been sold since the product's debut in 1945.

DIANE P. CARDINALE

GEMSTONES
      The Asian economic downturn in 1997 resulted in a decline in world gemstone trade, particularly in Thailand, but by 1998 the downward trend—while showing no sign of reversal—had slowed enough to allow leading gemstone firms to trade in the finest goods. Causes for continuing concern were the confused economy in Russia, which could affect trading in Germany, and signs of instability in South America, particularly in Brazil, one of the world's chief gem-producing countries. In Hong Kong and Shanghai, however, gem markets seemed to be operating satisfactorily despite fewer supplies from Thailand, and the traditional centre for gemstone dealing and jewelry making in Jaipur, India, was operating at normal levels.

      News from gem-producing countries included the imposition of bans and controls on the mining industry in Tanzania. Only companies with a master dealer's license from the government would be able to export rough and cut material, whereas foreign companies would be allowed only to export finished products. In addition, both domestic and foreign firms were required to export annually at least $1 million worth of polished stones. The Tunduru deposit in Tanzania produced fine-coloured sapphire (blue, pink, orange, and purple), pink and orange spinel, cat's-eye alexandrite, fancy-coloured garnet, and a mint-green chrysoberyl. Sri Lanka reported a colour-change garnet (bluish-green to purplish-red), and in Brazil a deposit at Buriti in Paraíba produced a fire opal in which 80% of the material was cabochon quality. A new deposit of fine blue copper-bearing tourmaline was discovered in the Brazilian state of Rio Grande do Norte. Stones from Madagascar, particularly blue sapphire, grew in importance.

      A diamond look-alike, synthetic moissanite—a colourless transparent silicon carbide with a hardness of more than nine—was invading the jewelry world and causing considerable concern. Although there were simple instruments available for testing, it was feared that a widespread influx of stones could make testing difficult.

      In the salesroom both Christie's and Sotheby's achieved good results, particularly in the Hong Kong jadeite sales. Selected items sold during the year included a 24.44 carat Sri Lanka padparadschah sapphire ($354,500, Christie's Los Angeles); a 11.25 carat heart-shaped fancy blue diamond ($1,420,000, Christie's Geneva); a ruby necklace with untreated stones ($403,000, Christie's London); and a rare Egyptian revival bracelet by Van Cleef and Arpels, with diamonds, rubies, sapphires, and emeralds (Sw F 234,500, Sotheby's, St. Moritz, Switz.).

MICHAEL O'DONOGHUE

Home Furnishings

Furniture.
      The residential furniture industry in 1998 reflected the adage, "What's new is old and what's old is new again." On the one hand, contemporary introductions were either "retro," harkening back to another era, or were new designs by Vladimir Kagan, John Mascheroni, and Fillmore Hardy, who also found that furniture designs they had created more than 20 years earlier were selling as "modern antiques." On the other hand, the best of traditional design was based on romantic re-creations, notably Widdicomb's V&A Museum collection inspired by the Victoria and Albert Museum in South Kensington, London, and Classic Leather's Titanic reproductions.

      The most noteworthy change was the increase in the number of furniture collections tied to time-tested names or images that were identified as brands. Numerous licensing agreements were forged between manufacturers and entities from outside the industry. Previously, there had been arrangements between manufacturers and such fashion designers as Bill Blass, Ralph Lauren, and Alexander Julian and between manufacturers and historical museums in Williamsburg, Va., Charleston, S.C., and Natchez, Miss., among others. Diversity and an increased number of tie-ins abounded in 1998: there was a golf-inspired PGA Tour Home collection for Keller; a collection inspired by the paintings of Thomas Kinkade for Kinkade and La-Z-Boy; a fashion-inspired Bob Mackie collection for American Drew; and the massive theme collection devoted to writer Ernest Hemingway for Thomasville. Other design influences included an Asian "fusion" style and a West Indies and Caribbean island-inspired offering. Leather upholstery and furniture for the home office continued to expand market share.

      On the basis of 1997 figures compiled by Furniture/Today, the top three manufacturers and retailers were Furniture Brands International ($1,808,300,000), which claimed first place, a position that had belonged in 1996 to LifeStyle Furnishings International ($1,693,600,000), now second, and La-Z-Boy ($1,074,000,000), which remained third. Among the top 10 manufacturers, only Ashley moved up significantly, rising from 10 to 5. The American Furniture Manufacturers Association reported strong growth across the board; the 1997 wholesale total was $21,216,000,000, and the projected volume for 1998 was $23,700,000,000—a 12.1% increase.

      In retailing, Heilig-Meyers ($1,693,900,000), which now included Rhodes, recaptured first place. Levitz ($839.1 million) reclaimed second, and Office Depot ($779.2 million) edged out J.C. Penney ($747.2 million) for third place, which was occupied by Sears HomeLife in 1996. Both Levitz and tenth-place Montgomery Ward continued to operate under Chapter 11 bankruptcy protection. Although e-commerce and e-retail had not yet revolutionized the industry, electronic connections were being made—Furniture/Today offered a World Wide Web listing of over 1,000 furniture sites. Inducted into the American Furniture Hall of Fame were Henry Talmadge Link, Earl N. Phillips, Sr., and George Alden Thornton, Jr.

ABBY CHAPPLE

Housewares.
      The increased growth of retail supercentres and the impact of the Internet on how retailers and manufacturers marketed to consumers had a profound effect on the housewares industry in 1998. (See Sidebar (Internet Retailing ), below.)

      In 1997 American consumers spent more than $58 billion on such items as cookware, small electronic appliances, heating and cooling equipment, cleaning goods, and personal-care products, representing a 6.1% increase over 1996. The average household spent $560 on housewares, a $38 rise over 1996. The largest increase in sales occurred in miscellaneous household appliances, which rose by 34.1%. A 14.1% increase in nonelectric cookware and a 13.9% boost in closet and storage accessories were also noteworthy. Sales of smoke alarms continued to rise, though the 10.4% increase was substantially less than the 1996 huge surge in all home-safety equipment. Decreased sales occurred mainly in silver serving accessories (39.5%), window coverings (6%), and clocks (2.8%).

      The impact of the Internet continued to reshape the housewares market and affected the approach to sales. Many power retailers—i.e., top discount stores and specialty stores—offered on-line retailing, and a few product manufacturers used the Internet to sell wares directly to consumers. Using current estimates, industry observers predicted that within 10 years households purchasing goods over the Internet would increase annually from 200,000 to 15-20 million. Other virtual retailers, including mail-order catalogs and television infomercials, made up 5% of domestic housewares sales.

SUSAN DOLL

INSURANCE
      As the fourth consecutive year of record numbers of mergers and acquisitions in the insurance business, 1998 was most notable as the year of especially large-scale mergers in worldwide private insurance. Deregulation and the advent of the European Union's common currency spurred such changes, although economic downturns slowed the trend late in the year. Large insurers, including Allianz AG Holding Co. in Germany, Assurances Générales in France, and General Accident PLC in the U.K., became larger. Globalization of the U.S. market was evidenced by the fact that insurers headquartered outside the U.S. wrote 10% of the policies in 1998 and that one-third of U.S. reinsurance was written abroad. During the first half of 1998 Conning and Co. reported 263 U.S. insurance mergers with a value of $135 billion, led by the gigantic merger of Travelers Group into Citicorp ($70 billion) and by General Reinsurance Corp. into Berkshire Hathaway Inc. ($22 billion). The merger mania also affected the insurance brokerage business, as Aon Corp., J&H Marsh & McLennan, and Willis Corroon Group added smaller firms and became the three largest concerns in that field.

      In addition to ordinary mergers, insurance company changes during the year featured many demutualizations and the formation of financial services conglomerates. (Mutualization is an insurance method in which the policyholders constitute the members of the insuring company.) Four of the largest life insurers, Metropolitan Life Insurance Co., Prudential Insurance Co. of America, John Hancock Life Insurance Co., and Mutual of New York, either had demutualized or intended to do so. Other smaller mutual insurers joined mutual holding companies in order to provide additional capital. Even mutual holding companies merged, as, for example, Acacia Mutual Holding Co. and Ameritas Mutual Insurance Holding Co. The merger trend for health maintenance organizations (HMOs) slowed because of low stock prices.

      The potential benefits of combining financial services were being sought in many directions by insurers who were either buying or being bought. Examples included the GE Capital Services Inc. purchase of Kemper Reinsurance Co., Zurich Financial Services Group's merger with a unit of B.A.T. Industries PLC, American International Group's purchase of Sun America Inc. to form an insurance-retirement savings colossus with $200 billion in assets, and United Services Automobile Association's combination with a thrift bank and securities firm.

      Swiss Reinsurance Co. research attributed the worldwide growth of life insurance to reductions in government pension systems. Sales of other types of insurance increased sluggishly. Among specific markets the U.K. appeared to be the best in Europe, with other markets showing slow premium growth. After the $2.5 billion bankruptcy of Nissan Mutual Life, life insurance sales in Japan dropped about 3%. In Japan's recessionary environment residential earthquake and compulsory automobile insurance rates also fell.

      Major disasters in 1998 included the Swissair crash near Nova Scotia (estimated at $500 million in insurance costs), Hurricanes Georges ($2 billion) and Bonnie ($360 million), widespread fires in Florida, and ice storms and tornadoes in the southern and central U.S. In late October Hurricane Mitch, one of the most powerful storms of the century, devastated Honduras and Nicaragua. Damages in Honduras alone totaled at least $5 billion, but at the year's end the insured losses were still being assessed.

      In regard to specific types of insurance, comparison shopping for automobile and homeowners insurance became easier. As they competed with banks and securities brokers in the burgeoning pension rollover market, life insurers promoted the benefits of tax-deferred annuities. Variable annuity sales reached $50 billion during the first half of 1998, and variable life insurance sales rose 26%.

      Among the fastest-growing types of insurance was that covering employment practices. Coverage by employers became both more essential and more expensive. Symptomatic of the rising costs of medical care were research studies that showed Alzheimer's disease affecting some four million Americans and costing businesses more than $33 billion a year. Health insurers were divided on the question as to whether or not to pay the claims made for the use of the new drug Viagra for both medically necessary treatment as well as for its general use. (See Sidebar. (Viagra: A Second Honeymoon? ))

      The National Association of Insurance Commissioners approved a model bill for adoption by the states that would regulate the standards of conduct in replacing life insurance and annuities. New federal regulation was proposed for regulating HMO mergers, and policies that augmented Medicare coverage gained popularity, as HMOs restricted benefits in the face of much public criticism.

      Among other developments, genetic and DNA research caused a flurry of proposed legislation to limit access to and use of such information in insurance underwiting. In August the largest insurance company in Italy agreed to pay $100 million to survivors and heirs of victims of the Holocaust as payouts for life insurance and annuity policies that it had refused to honour after World War II.

DAVID L. BICKELHAUPT

MACHINERY AND MACHINE TOOLS
      According to preliminary figures for 1997, the value of the worldwide production of machine tools amounted to about $38 billion. Japan was the leading country with production totaling approximately $9,980,000,000; Germany was second with $6,790,000,000, followed by the U.S., $4.9 billion; Italy, $3,450,000,000; Switzerland, $1,990,000,000; Taiwan, $1,820,000,000; China, $1.7 billion; and the U.K., $1,380,000,000. France, South Korea, Spain, and Brazil each had production worth between $500 million and $1 billion. (All figures are for machines valued at approximately $3,000 or more.)

      For reporting purposes machine tools are typically categorized as those that cut metal, such as drilling machines, lathes, and milling machines, and those that form metal, such as forging and stamping machines, bending machines, and shearing machines. The value of metal-cutting machines produced in a given year is typically three to four times the value of metal-forming machines produced. In 1997 worldwide production of metal-cutting machines was valued at about $28 billion, while that of metal-forming machines was about $10 billion.

      Of the $4.9 billion total value of machine tools produced in the U.S. in 1997, just over 26% was exported to other countries. On a unit basis, nearly 32,000 units of the roughly 60,000 units produced in 1997 were shipped to customers in other countries. On a dollar basis, the biggest export markets for the U.S. in 1997 were, in order: Canada, which received machines having a total value of $360 million; Mexico, $232 million; and the U.K., $107 million. Worldwide, the largest exporters of machine tools in 1997 were, in order: Japan, with exports worth $6,650,000,000; Germany, $4,670,000,000; Italy, $2,090,000,000; Switzerland, $1,710,000,000; Taiwan, $1,360,000,000; and the U.S., $1,280,000,000.

      In regard to the consumption of machine tools, which consists of production plus imports minus exports, the U.S. headed the list in 1997 with a total value of $7,680,000,000. Germany was second with $4.5 billion, followed by Japan, $4,070,000,000; China, $3 billion; Italy, $2,420,000,000; the U.K., $1,790,000,000; South Korea, $1,550,000,000; France, $1,430,000,000; Taiwan, $1,320,000,000; and Canada, $1,140,000,000.

JOHN B. DEAM

Materials and Metals

Glass.
      During 1998 the Asia-Pacific region accounted for the fastest growth in the glass industry. The region's financial crisis did not discourage potential developers, as construction of new float and fibre plants began. Growth was also strong in Latin America and parts of Eastern Europe. Sales growth in North America, Western Europe, and Japan was slow. The glass industry in those areas had to contend with increased imports from less-developed countries, where production costs were lower and environmental regulations less stringent, and all three areas experienced some deterioration in their overall trade balance in glass products in 1997. In Russia the market remained severely depressed.

      Float glass production in Asia-Oceania (excluding Japan) totaled one million metric tons in 1987. By 1997 this had increased to more than 6 million metric tons. By contrast, float glass production in Western Europe in 1987 was 4.8 million metric tons and increased to 6.7 million metric tons in 1997. While the float glass and fibreglass sectors experienced some deterioration in demand in Western Europe during the past few years, the industry managed to maintain its overall trade balance for container glass and glass tableware. Production in North America declined 3.5% from 5.7 million metric tons in 1987 to 5.5 million metric tons in 1997. Container glass production in Western Europe totaled just over 18 million metric tons in 1997.

THERESA GREEN

Ceramics.
      The ceramics industry demonstrated significant growth in 1998. Strong manufacturing economies in the U.S. and parts of Latin America generated double-digit growth rates for some segments of the industry, and recovering economies in the European Union brought about improved performance there compared with 1997. Difficulties continued in Asia (notably in Russia and other countries of the former Soviet Union), which accounted for nearly one-third of the global ceramic market, and in certain areas of Eastern Europe. In the U.S., where glass (Business and Industry Review ) (q.v.) was considered part of the industry, total industry sales rose to nearly $95 billion, with glass accounting for 60% of sales, and the advanced ceramics segment continuing its growth to 28%.

      Advanced ceramics, highly engineered materials that enable the operation of many industrial and consumer processes, grew strongly in 1998. Electronic materials dominated this category (about 75%), and the high growth rate of computers and communication equipment caused electronic ceramics to be the fastest-growing major product sector. Multilayer ceramic capacitors continued to gain market share through a reduction in thickness, and demand for these widely used components outstripped supply. A new automobile, for example, used 1,000 such capacitors on average. Explosive growth in wireless communication stimulated double-digit growth in the production of capacitors, piezoelectric crystals, varistors, thermistors, and similar ceramic components, many of which were used in mobile phone handsets. On the other hand, the growth of multilayer multicomponent electronic packages was disappointing, and the production of conventional ceramic packages for integrated circuits continued to stagnate because of competition from polymer composite packages with improved heat-removal capabilities.

      Advanced structural and composite ceramics, historically limited to cost-insensitive aerospace and military applications, continued steady market penetration in industrial sectors due to lower costs and higher product reliability. The most successful approaches to achieving lower costs centred on dimensional control and net-shape fabrication to minimize machining and finishing expenses. Intrinsic reliability of materials moved incrementally forward via improved powder processing, although the unpredictable nature of ceramic strength and failure continued to limit applications. The use of silicon nitride ball bearings increased by more than 10% for a second year in a row owing to improved reliability, reduced costs, and greater customer acceptance. Ceramic turbochargers, valves and valve-train elements, and assorted combustion chamber components were gaining acceptance and were being used by automotive manufacturers principally in Japan and Europe. Ceramic catalysts, a mainstay of automobile ceramics in the U.S. since 1975, were being used to clean factory smokestacks of pollutants. This market, as with automotive catalysts, was expected to be dominated by extruded ceramic honeycomb catalyst structures with wall thicknesses as small as 50 μm (0.002 in), a value thought impossible a decade ago. The most notable examples of commercialized ceramic matrix composite materials were silicon carbide/alumina cutting tools that were used increasingly for machining cast iron and for high-velocity cutting of conventional metals. Silicon carbide/silicon carbide composites were found in specialty heat exchangers, and long-fibre composites continued to be developed for high-performance segments of advanced aircraft. The production of optical and electro-optic glass and ceramic materials, particularly devices that enabled optical switching and logic structures, was growing rapidly. The demand for these materials, which included optical fibres, sensors, and planar structures, was growing rapidly, particularly in telecommunications, automobiles, and data communication applications.

      Whiteware ceramics—principally floor and wall tile, dinnerware, sanitary ware, artware, and a large miscellaneous group—showed steady growth during the 1990s, although year-to-year effects were difficult to forecast due to substantial flux in the markets and manufacturing environments. Demand in U.S. markets appeared to be stronger than in 1997, particularly in sanitary ware and giftware. A notable milestone was passed in 1998, when more than 60% of the ceramic tile sold in the U.S. was imported. Fast firing, a standard part of tile processing, was overcoming technical hurdles in the sanitary ware and dinnerware processes and contributed to higher productivity. A principal concern among whiteware manufacturers during the year was the conversion to leadfree glazes and decorations to reduce lead-related workplace risks and to skirt difficult marketplace regulations in some states. Dinnerware and "table-top" products continued their move away from heirloom-quality items toward less-formal products for daily use and casual entertaining.

RICHARD L. LEHMAN

Rubber.
      The Asian economic crisis had a serious impact on the rubber industry in 1998—almost 75% of the world's natural rubber production came from Southeast Asia. Currency devaluations, especially in Malaysia, prevented the stabilization of rubber prices as outlined in the International Natural Rubber Agreement (INRA). The INRA pact between producer and consumer countries contained a buffer stock mechanism, whereby the manager of the stock would attempt to stabilize prices through strategic purchases and sales of natural rubber. Price increases occurred, owing to currency devaluations in Malaysia and Singapore. Though the International Natural Rubber Organization (INRO), which implemented the agreement, was able to make rubber purchases late in the year, Malaysia, the third largest rubber-producing country, threatened to withdraw from the INRO. Thailand, second in production, indicated that it would soon follow. Political instability in Indonesia, however, prevented the world's top producer from addressing the issue.

      Malaysia and Thailand began formulating a plan whereby the Association of Natural Rubber Producing Countries would oversee a production cut and set up a buffer stock to aid the producing countries. A cut in production, however, would be difficult to implement in many of these countries, owing to the dependence of small plantations on rubber production for their livelihoods.

      Legislation and litigation in the U.S. was affecting natural rubber latex products, specifically powdered latex gloves used by the medical profession. As a result of a number of allergies to latex, eight states had introduced legislation to ban or regulate powdered latex gloves, and the U.S. Food and Drug Administration was drafting rules to regulate them. By mid-1998 more than 125 cases were pending in various state courts.

      Evidence of the Asian crisis was reflected in the slowing of the growth rate in rubber consumption. The International Rubber Study Groups reported that natural rubber growth was only 2%, compared with the nearly 4% anticipated. The major consuming countries in Asia, Japan, and Malaysia, experienced declines of over 10% and 5%, respectively. World synthetic rubber consumption was 3.8% higher than in 1997 but lower than the 4.2% projected.

      The major tire companies continued to expand globally and add production plants. Bridgestone Corp., which regained its number-one ranking in tire sales, announced expansions at plants in San José, Costa Rica; Hikone, Japan; Warren county, Tenn.; and Aiken, S.C. The company announced that it would build a plant in Poznan, Pol., that it purchased a 14% interest in Chile's Neumaticos San Martin LTDA, and that it was resuming construction, suspended earlier in the year, of tire plants in Indonesia and Thailand. Second-ranked Michelin North America Inc. expanded existing plants in Nova Scotia and Ardmore, Okla.; built new plants in Reno, Nev., and Brazil; and purchased Icollantes SA of Colombia for $73 million. Goodyear Tire & Rubber Co. began expansions of its plants at Tatsumo, Japan; Topeka, Kan.; Union City, Tenn.; and locations in Turkey. Goodyear was also building a new plant in Brazil.

      The German-based company Continental AG announced plans to build a new tire facility in Brazil and expand three U.S. plants. In Slovakia, Continental set up a joint venture with Matador AS for truck tires. Dunlop India Ltd. planned to add capacity at its passenger-tire facility in Tonawanda, N.Y., and Appolo Tyres of India said it would build a tire plant in northern India.

      Bayer Corp. increased butyl capacity at its Sarnia, Ont., plant, announced plans to build a butyl plant in Russia and a polybutadiene plant in India, and closed its polychloroprene unit in Houston, Texas. Goodyear began construction of a multipurpose synthetic rubber plant in Beaumont, Texas, which was part of a $600 million investment plan and the largest one-time expansion of the chemical business in its history. Uniroyal Chemical doubled its nitrile capacity in Mexico, and DuPont Dow said it planned to open a synthetic rubber plant in The Netherlands.

DONALD SMITH

Plastics.
      World production of plastics in 1997 reached 286 billion lb and was projected to grow to 330 billion lb by the year 2000 (1 lb = 0.454 kg). In the U.S., production of 78 billion lb valued at $275 billion made plastics the nation's fourth largest manufacturing industry, one that employed 1,340,000 workers.

      World production of polyethylenes totaled 97 billion lb, projected to grow to 117 billion lb by 2000. U.S. production was 27 billion lb, and the fastest-growing segment was a new range of supersoft thermoplastic materials that provided increased comfort in sporting goods, shoes, and handles.

      U.S. production of polyvinyl chloride totaled about 14 billion lb and of polypropylene, about 13 billion lb; output of the latter was growing rapidly due in part to its large-scale use in automobiles. Polystyrene, with U.S. production at 7 billion lb, was thought likely to benefit from new technology that would make it a valuable plastic for such engineering applications as gears and structural members. Demand for polyurethane for upholstery, clothing, carpet underlay, and thermal insulation was vigorous in the U.S. at 5 billion lb. Polyethylene terephthalate was used mainly in polyester fibre, but growth in carbonated beverage bottles and other packaging helped account for U.S. usage of 4 billion lb.

      New plastic materials of special interest included liquid crystal polymers for electrical products, aliphatic polyketones for laser printers and fuel hoses, and cycloolefin copolymers for lenses, medical packaging, and colour toners. New additives to make plastics electrically conductive included very fine graphite filaments and inherently conductive polymers.

      Manufacturing processes were being computerized to permit faster production, smaller parts, greater precision, and fewer rejects. Coextrusion of multilayer films, up to 11 layers thick, combined, at a reduced cost, softness, strength, scuff resistance, heat sealability, protection from ultraviolet radiation, and controlled semipermeability. Fibreglass blended with thermoplastic fibres was compression-moulded into high-performance reinforced thermoplastic composites of value in automobile doors and bumpers, stadium seats, kayaks, and helmets.

      Leading applications of plastics in the U.S. in 1997 were packaging (29%), building (15%), transportation (5%), furniture (4%), and electrical products (4%). Packaging consisted primarily of bottles and films; major future growth areas for films were expected to be envelopes, grocery bags, and wrapping for fresh produce and snack foods. Building products included pipe, siding, windows, flooring, wall covering, wire and cable, insulation, carpet underlay, vapour barrier, panels, lighting, and bathroom fixtures. Electrical applications were primarily computers and communication equipment. Medical products worldwide used 4 billion lb of plastics, primarily polyvinyl chloride, polyethylene, polystyrene, and polypropylene. An area of potential growth was expected to be pallets, where replacement of wood by plastic resulted in easier cleaning, longer life, and improved recyclability.

      In the U.S. in 1997 recycling of plastics from solid waste, primarily polyethylene and polyethylene terephthalate bottles, totaled 2 billion lb in 1,700 plants. Recent achievements included recycling 20,000 metric tons of nylon carpet and 3,000 metric tons of polycarbonate water jugs. Other major recycling efforts included computer housings, Kodak single-use cameras, and Saturn automobiles. Europe recycled 9 billion lb of plastics waste, primarily by incineration; the European Parliament hoped to recycle 15% of plastic packaging by 2001. Germany in 1997 recycled 65% of plastic packaging and targeted 85% recycling of junked cars by 2001.

RUDOLPH D. DEANIN

Advanced Composites.
      During 1998 the market for composite materials continued to grow. The Society of Plastics Industry's (SPI's) Composite Institute estimated that U.S. shipments for polymeric composites of all types (including glass-, carbon-, boron-, and organic-fibre-reinforced polymers) totaled 1,580,000 metric tons, an increase of about 2% over 1997 and 8% over 1996; it was the seventh consecutive year that shipments increased. The 1998 increases were most pronounced in the construction, consumer products, and transportation sectors, and were reflective of the growth in infrastructure applications, the continued strength of sporting goods applications, and the growing use of composites in automobiles and light trucks.

      According to the Suppliers of Composite Materials Association, worldwide carbon-fibre shipments for 1997 were 11,800 metric tons, an increase of 25% over 1996. The industry operated at close to capacity in 1997, and materials were in short supply. It was estimated, however, that capacity would increase 80% by 1999. The industry transition from defense and aerospace applications to higher-volume, lower-cost applications led to the emphasis on the development of lower- cost tooling, materials, and manufacturing processes. For example, processes that produced lower-cost carbon fibres in bundles with increasing number of filaments (48,000-360,000 filaments) were finding applications in high-volume markets.

      The industry continued to pursue aggressively two potentially large markets that would make use of lower-cost materials and processing methods—construction and automotive. The application of advanced composite technology in construction and infrastructure renewal continued to show promise. The SPI Composites Institute estimated that composite shipments to the construction industry in 1998 totaled 334,000 metric tons, an increase of 5% from 1997.

      Composites, especially in the form of sheet molding compounds (SMCs), were becoming increasingly important in automobiles and light trucks. According to the SMC Automotive Alliance the amount of SMCs used by the automotive industry increased from 71,000 metric tons in 1993 to more than 107,000 metric tons in 1998. High-performance composites, however, were not finding significant applications in automotive structures, despite collaborative research and development efforts to develop continuous fibre-reinforced composite structures for lightweight, energy-efficient automobiles. The composites had to compete with the improved strength and toughness of metals.

      The development of ceramic matrix composites (CMCs) continued to advance, particularly in the area of ceramic fibres and fibre coatings. Silicon carbide (SiC) fibres and dual-phase SiC/titanium diboride (TiB2) fibres, essentially free from degradative impurities such as oxygen, free silicon, and free carbon, demonstrated improved property retention at elevated temperatures, but advances were needed to prevent oxidative degradation that plagued nonoxide CMCs.

THOMAS E. MUNNS

Iron and Steel.
      After five consecutive years of growth, worldwide consumption of steel declined in 1998. Greatly reduced consumption of steel products in Japan, South Korea, and several other Asian countries was counterbalanced by growth in Europe and North America, so that world consumption in tonnage terms fell by little more than 1%. Large inventories and low prices, however, testified to the turnaround in the market after a buoyant 1997.

      The Asian economic crisis that began in mid-1997 at first impacted relatively few countries, and they were not large consumers or producers of steel. By December 1997, however, the turmoil had spread to South Korea, the world's fourth largest consumer and sixth largest producer of steel, causing a 33% reduction in that country's consumption of steel products. During 1998 the "Asian flu" spread farther afield, to Russia and Brazil. Meanwhile, the Japanese economy had slipped into recession, reducing steel consumption in Japan in 1998 by about 12%. China's steel production continued to grow, but exports fell, and imports slowed by about 10%.

      As the Asian region's markets plummeted in 1998, steel exports formerly sent to Asia were diverted to other destinations; at the same time, steel producers in Asian countries, helped by the sharp depreciation in their own currencies, diverted an increasing share of their output toward the rest of the world, mainly the still-buoyant markets in North America and Western Europe. U.S. imports in the first half-year rose to 16.5 million metric tons, 12% above the year-earlier figure; this included sharply higher shipments from Japan (+113%), South Korea (+89%), and Ukraine (+45%). The European Union's imports from Asia totaled about 294,000 metric tons per month, compared with only 40,000 metric tons per month during the previous year. With such levels of imports along with high domestic production, markets moved into oversupply, inventories swelled, and prices came under severe downward pressure. By the second half of 1998, steel producers across a range of developed and less-developed countries were seeking protection from low-priced imports.

      A major development during the year was the introduction of the ULSAB (UltraLight Steel Auto Body). Following the completion of a $22 million four-year project, funded by a consortium of 35 steel companies in 18 countries, body structures were exhibited throughout the world to demonstrate the weight reduction, increased performance, and affordability that could be achieved with modern steel products and technologies.

ANTHONY TRICKETT

Light Metals.
      The commercially important light metals, aluminum, magnesium, and titanium (and to a much lesser extent beryllium and lithium), were affected in 1998 by the very low prices in the entire base metals industry. This adversely impacted the financial performance of the producing firms. To a major degree this situation was directly related to the economic setbacks associated with the financial crises in East Asia, Latin America, and Russia.

      A result of the economic events was a change in the world aluminum markets. Aluminum exports by such major producers as Australia and the Persian Gulf nations were redirected from the economically depressed areas to Europe and North America with a consequent negative impact on the price of the base metal. Aluminum pricing at the beginning of 1998 averaged 71 cents per pound, but it fell steadily to an average of 59 cents per pound by the end of the year, a 17% decline.

      The world primary aluminum production (new metal) represented only a 0.5% increase over the 1997 total of 19 million tons. The United States was the largest-producing country with 3,550,000 tons of primary metal. The total U.S. aluminum output of 10 million tons consisted of domestically produced primary metal, substantial imports of primary metal, and metal reclaimed from scrap and recycling sources. Major markets for aluminum products included transportation applications, packaging (primarily the aluminum beverage can), and the construction industry. The relatively static market demand and sluggish near-term growth prospects created excess capacity in the primary metal production sector, and several firms idled facilities that had considerable production capacities.

      The 1998 production of new magnesium totaled 356,000 metric tons, an 8% increase over 1997. (Russian and Chinese production is not included because quantity estimates are deemed unreliable.) The aluminum industry remained the largest customer, consuming 44% of the magnesium production for alloying purposes. The automotive market for magnesium alloy castings was static, as car builders continued alternating among steel, aluminum, magnesium, and plastics, depending on the price advantage offered.

      After a growth spurt in 1997 a decline occurred in the titanium industry in 1998. This was associated with inventory adjustments and a slowdown in the commercial aircraft sector, as customers requested airplane manufacturers to delay deliveries of ordered aircraft. The earlier robust growth in golf club usage subsided to a level market, and its future was uncertain as alternate materials were being appraised as possibly offering better performance and lower prices. Other important titanium applications included the petrochemical industry, the chemical industry, and racing cars and bicycles.

GEORGE BINCZEWSKI

Metalworking.
      Market and governmental pressures in 1998 forced metalworking industries to develop and deploy manufacturing processes that would cut costs, shorten delivery time, and lessen the impact on the environment. Large enterprises, such as automakers, aerospace companies, and appliance manufacturers, invested in the necessary metalworking technology and enlisted the help of small and medium-size businesses in their supplier chains.

      By compacting metal powder into near net-shape parts, manufacturers were able to eliminate many secondary machining and assembly processes and their associated by-products. Owing to advancements in materials, binders, and processing, the use of one such technology, metal injection molding, increased by about 20% and produced nearly $100 million in parts. Hot isostatic pressing was another technology that was increasingly used in making parts from specialty and high-technology metals, such as tool steels and superalloys.

      Worldwide metal powder production exceeded one million tons, and parts made from the materials were estimated at more than $3 billion. North America was the largest market, shipping 486,000 short tons of powder in 1997; $2 billion of parts were produced from the powder. North American powder shipments increased almost 12% in 1997, and shipments were expected to grow another 4%-6% in 1998. The automobile industry was using 70% of powder metal parts. As a result, parts made by the more traditional casting and forging methods were being replaced.

      To reduce weight for fuel efficiency, the automobile industry also continued looking for ways to use aluminum and other lightweight materials. The industry consumed 17% of U.S. aluminum shipments in 1997 and invested heavily in high-speed machining, welding, and other joining technologies used for working with the metal. Automakers and their suppliers sponsored original research into producing aluminum parts and adapted existing technology developed for the aerospace industry. The steel industry also worked with automakers to produce strong but lightweight components.

      As a whole, the transportation sector was the largest domestic consumer of aluminum, using 29% of output. In 1997 U.S. aluminum consumption totaled 8.9 billion kg (19.6 billion lb), and based on third-quarter data from the Aluminum Association, that figure would increase in 1998 by 2.1% to an estimated 9.1 billion kg (20.1 billion lb).

JAMES R. KOELSCH

MICROELECTRONICS
      Projected worldwide sales of semiconductors in 1998 dropped by 1.8% to $134.6 billion according to the Semiconductor Industry Association (SIA). The downturn, caused largely by Asia's economic problems, was expected to return to historic annual growth rates of 17% or more over the next few years, primarily because of growth in Internet usage. The SIA anticipated a growth rate of 17.2% in 1999, 18.5% in 2000, and 18.9% by 2001, resulting in sales of $222.3 billion in 2001. The SIA predicted that the products that would drive growth into the next millennium would be Internet-related communications and networking devices, digital signal processors (DSPs), systems-on-a-chip, microprocessors, and new consumer products, such as digital cameras and digital video (or versatile) discs (DVDs).

      By the end of the first quarter of 1998, sales had declined 10.2% in the Americas (North and South), 11.5% in Japan, and 9.7% in the Asia-Pacific markets. Though Japan's market declined by $3 billion, the decline of the yen accounted for more than half of that amount. The Asia-Pacific market (including Singapore, South Korea, China, Taiwan, and India), which was forecast to increase 24% in 1998, grew only 3.2%, due mainly to South Korea's economic problems. The European market, with growth of 5%, posted the best single-year gain to $30.5 billion, followed by the Asia-Pacific region at 2.8% ($31 billion). The Americas decreased 4.1% to $43.9 billion, and Japan, at $29.1 billion, was down more than 9% from 1997. Estimates showed that by 2001 the Americas market would represent 33.1% of worldwide sales, followed by Asia-Pacific (25%), Europe (23.2%), and Japan (18.7%).

      The one bright spot in the 1998 results was the continued growth of DSPs, which grew 23% in 1998 to $3.9 billion. It was estimated that DSP sales would reach $8.1 billion in 2001. In addition to digital cellular telephones, modems, and hard-disk drives, future uses for the DSPs included consumer electronics and home appliances, high-definition television, Internet telephony, and digital cameras.

      Microchip manufacturers saw their profits all but disappear during the first half of 1998. Motorola Inc., with over 25% of its sales in Asia, suffered a revenue drop of 7% and barely avoided the company's first loss in 13 years. In June Motorola announced a 10% reduction in the workforce, eliminating 15,000 jobs. Including the charges for the layoffs, Motorola's loss was $1.3 billion for the quarter. Semiconductor manufacturer Advanced Micro Devices (AMD) experienced its fourth consecutive quarterly loss, while National Semiconductor Corp. announced a 10% reduction in its workforce. In January Motorola and Siemens AG announced a $1.6 billion joint venture for a chip manufacturing plant in Dresden, Ger., that would become Europe's largest semiconductor facility. In November, however, Siemens announced that it would divest itself of its semiconductor division.

      Dynamic random access memory (DRAM) sales dropped 26.6% in 1998 due to oversupply problems. Hitachi Ltd. consolidated all of its DRAM manufacturing in its Singapore plant. In June Micron Technology, the last major manufacturer of DRAM in the U.S., announced an $801 million deal to acquire Texas Instruments Inc.'s memory business.

      During the year almost every major manufacturer of microprocessors unveiled plans for new 64-bit microprocessors to be made available in mid-1999 for workstations and at the end of 2000 for personal computers (PCs). National Semiconductor planned to introduce a PC system-on-a-chip by mid-1999 that would replace more than 12 separate chips.

      Using copper technology instead of aluminum in the manufacture of the next generation of chips was expected to increase the clock speed of the processors by up to three times, use less power, and need smaller dies in their manufacture. It was believed that with the copper technology processor speeds could reach 1 GHz (gigahertz) by the year 2000. In September IBM Corp. announced shipments of a 400 MHz (megahertz) copper PowerPC microprocessor.

      The use of smart cards, credit card-sized devices containing imbedded microprocessors, was projected to grow to 3.4 billion units by 2001. Holding up to 20,000 bytes of storage and costing anywhere from 80 cents to $15, these cards were popular in Europe and were being used in pay and wireless telephones, banking, health care, and pay-TV applications. In the U.S. their use had been limited to a few applications, and a major year-long trial by Citibank, Chase Manhattan Bank, Visa, and MasterCard was abandoned at the end of the year.

      In May Craig Barrett, president and chief operating officer of Intel Corp., was named CEO, replacing Andrew S. Grove, one of Intel's founders and CEO for 11 years. Intel was also affected by the downturn in the industry and posted first-quarter revenues of $6 billion, down 7% from first-quarter 1997 and 8% from fourth-quarter 1997. A 3,000-person workforce reduction was announced. Intel faced an erosion of its PC market share, particularly in the below-$1,000 PC market. Late to market with its low-priced Celeron chip, Intel saw its chief rivals, AMD and National Semiconductor/Cyrix, increase their market share to 40%.

THOMAS E. KROLL

MINING
       Indexes of Production, Mining and Mineral Commodities (For Indexes of Production, Mining, and Mineral Commodities, , see Table (Indexes of Production, Mining and Mineral Commodities ).)

      The Asian financial crisis had serious consequences for the mining industry in 1998. The demand for raw materials in that region had for years been a driving force in the industry, but in 1998 falling consumption there, owing to the financial crisis that began in Thailand in mid-1997 and then spread to Japan and China, gave rise to fears that a global surplus of metals and minerals was developing, resulting in a severe strain on prices. Several mines with high operating costs were either being forced to close or reduce their output, and by midyear the number of companies reporting losses or sharply decreased profits was increasing. The Asian crisis also served to exacerbate Russia's dire economic problems, and in the final months of 1998 it became apparent that the economies of the U.S. and Western Europe would not escape unscathed. (See The Troubled World Economy. (Troubled World Economy ))

      In the base metals sector the perception that demand would fall heralded a wave of selling on the principal market, the London Metal Exchange, an event that further aggravated the downward spiral on prices. By the end of October 1998 the price of nickel was 35% lower than it had been at the start of the year; zinc was down 14%, aluminum 13%, lead 8%, and copper 7.5%. Only tin managed an improvement, up about 2.3%. Compared with prices in mid-1997, those for nickel were 46% lower, copper 38%, and zinc 36%.

      Companies that relied heavily on one metal were especially vulnerable. Inco Ltd., the leading Western nickel producer, was forced to slash output at a number of its Canadian operations, and a leading U.S. copper producer, Phelps Dodge Corp., announced mine closures and a 10% cut in its global output. One of the world's largest and most efficient copper producers, Freeport-McMoRan Copper & Gold Inc., worried other producers when it announced that it would combat depressed market conditions by stepping up copper and gold production at its giant Grasberg mine in Indonesia to lower unit costs.

      Mining companies that produced a broad mix of commodities were not immune to the economic downturn either. Rio Tinto PLC reported that lower commodity prices had cost it $278 million in earnings during the first half of the year, in spite of production increases and improved efficiencies. The price of copper, it said, was the lowest in 65 years.

      Countries that relied heavily on mineral exports as a source of revenue also suffered. Privatization plans were thwarted in Zambia, which attempted to sell off the Nchanga and Nkana divisions, the two biggest remaining assets of the Zambia Consolidated Copper Mine, when the consortium that had made a bid withdrew its offer, citing low copper prices and uncertain demand. Similarly, Venezuela's failed attempts to privatize its aluminum industry coincided with the turning tide of the global economy.

      Among the industrialized nations, major mineral exporters Australia and Canada felt the pinch. The uncertain outlook for commodities was deterring investment, and the currencies in those countries were under constant pressure. That raised the cost of imported goods, but mining companies gained some advantage because commodities were traded internationally in U.S. dollars. For those companies producing commodities that were not traded on exchanges but sold under long-term contracts, exposure to the Asian crisis was not as critical to their operations. Big iron ore and bauxite producers in Australia and Brazil fared relatively well; however, negotiations for 1999 contracts were expected to favour buyers.

      In the energy sector China remained by far the world's largest coal producer, with annual output in excess of 1,300 million tons, or about 30% of world output. The U.S. ranked second (25%), followed by India (6.5%), Australia (6.1%), and Russia (4.7%). In Western industrialized countries concern over global warming meant that coal usage in power generation continued to come under fire, owing to the production of carbon dioxide emissions. U.S. coal producers argued that unilateral action to restrict usage and/or install expensive clean-coal technology would have only a limited impact on global carbon dioxide emissions, because less-developed countries, the largest coal consumers and producers, could not afford the cost of clean-coal technology.

      Gold had another poor year, sinking to its lowest price level in 19 years. Prices remained low, owing to the Asian crisis and a sell-off in holdings by central banks. There were numerous casualties among producers, and in South Africa the impact of low prices was proving particularly painful. South African gold producers, along with those in Australia and Canada, benefited, however, from local currency weakness.

      In recent years mining companies based in South Africa had been penalized by investors' growing disenchantment with emerging markets, and some of the largest mining houses had relocated to London in order to have better access to international capital. Billiton PLC moved there in 1997, and in 1998 Anglo American Corp. of South Africa Ltd.followed suit. The latter also announced a proposed merger with Minorco, its Luxembourg-based associate, making the combined entity potentially the world's largest mining and natural resources company.

      Another South African company, De Beers Consolidated Mines Ltd., successfully negotiated a three-year extension for the diamond-trading agreement between its Central Selling Organization and the big Russian producer Almazy Rossii-Sakha. The agreement between the world's two biggest diamond producers was extended until December 2001 and was expected to help maintain stability in the diamond market.

      Elsewhere in Africa, developments in the mineral-rich Democratic Republic of the Congo, a world leader in copper and cobalt production, were a major disappointment, owing to the civil war that threatened to destabilize the entire region. In neighbouring Angola the fragile peace accord between the government and the National Union for the Total Independence of Angola was shattered, the government seeking to regain its control of the country's rich diamond fields. On the positive side, mining investments continued apace for gold in Ghana, Mali, and Tanzania; farther south, Billiton's decision to proceed with the Mozal aluminum smelter in Mozambique marked one of the biggest-ever industrial developments for that country.

      Exploration took a battering. Metals Economics Group of Canada estimated that global spending had declined by 31%. According to its survey, Latin America remained the most popular destination for exploration spending, accounting for 29% of the world total, followed by Australia and Africa (each 17.5%) and Canada (10.9%). A survey conducted by Mining Journal, which canvassed the opinions of senior executives from 100 mining companies, found that among the emerging-market countries—Argentina, Bolivia, Brazil, Chile, Mexico, and Peru—all ranked among the top-10 most favoured for exploration. The other countries were Ghana, Indonesia, Papua New Guinea, and South Africa.

      Mining investment held up well in Latin America, especially in Chile, where the Collahuasi project was coming to fruition. Peru's piecemeal attempts to privatize the state-owned mining company, Centromin, progressed moderately well. Doe Run Co. of the U.S. purchased the La Oroya copper smelting and refining complex, Canadian companies acquired the Antamina copper-zinc property, and Centromin's largest zinc mine was offered for sale in December.

      In Australia plans to develop the Jabiluka uranium mine in the Northern Territory continued to attract environmental and Aboriginal opposition in spite of government support. The Broken Hill Proprietary Co.'s large Cannington silver/lead/zinc mine reached full capacity in Queensland, and zinc producer Pasminco forged ahead with development of its Century deposit, which at its full capacity would contribute approximately 7% of world output. Initial production was expected in 1999. Pasminco also made a hostile takeover bid for the Australian company Savage Resources. The latter's important Clarksville zinc smelter in Tennessee was the sought-after prize. Low metal prices also resulted in a reduction in the value of resource companies and presented a number of buying opportunities. Hostile bids, share buy-backs, and bids to buy up minority shareholders were common; QNI Ltd., another Australian company with major nickel interests, was the target of a takeover bid by its majority shareholder, Billiton.

      In Canada the country's first diamond mine, Ekati in the Northwest Territories, was officially opened, and progress was under way for securing a permit for the development of a second mine, Diavik. Development of one of the world's largest nickel deposits, at Voisey's Bay in Labrador, continued to be delayed, however, and the Newfoundland government was threatening to withhold a mining permit unless Inco, the developer, committed to building a smelter near the mine.

      In Europe mining was given a bad press from a tailings dam failure at the Los Frailes zinc mine in Spain. Waste from the mine spilled into a local river and threatened the Coto Doñana National Park, one of Europe's most important conservation areas. The owner of the mine, Boliden Ltd., had had an unblemished record and, although listed in Canada, had its origins in Sweden, a country extremely sensitive to environmental issues. An investigation into the cause of the spill was under way.

      Russia's economic and political problems also shared the limelight. The crisis that developed in Russia's mining industry, owing to lack of investment, had long been predicted, and the country's coal miners protested unpaid wages and dangerous working conditions. Production of minerals for export had largely been maintained, but in 1998 questions were being asked about whether Russia had the ability to increase or even maintain its mineral exports in order to earn hard currency, or whether the situation was becoming so acute that production would fall or collapse. For some commodities, notably aluminum, much of the raw material—bauxite and/or alumina—had to be imported and transported great distances within Russia. Similarly, the weak ruble and lack of access to Western credit made importing modern mining and processing equipment a major problem.

      As a major exporter of such metals as nickel and aluminum, Russia was an important contributor to world diamond output and ranked as the world's biggest palladium producer. The country also became an important contributor to supplies of world uranium based on huge stockpiles built up during the Soviet era. Reduced exports of some commodities would be welcomed by Western producers as a measure to help balance supply and demand, but if the Russian situation continued to deteriorate and civil unrest erupted, many questioned whether supplies of such commodities as natural gas, upon which the West was highly dependent, would be secure.

      The mining industry also suffered from the effects of El Niño, with operations disrupted by mud slides in the Andes Mountains caused by torrential rains and with hydropower and river transportation hampered in Indonesia owing to low water levels. Although El Niño had disappeared, the virulence of the Asian economic flu remained, and with the Russian debt situation providing an added dimension, the mining industry faced an uncertain future.

ROGER ELLIS

PAINTS AND VARNISHES
      Without doubt 1998 was the year of the megadeal, business realignments that struck at the heart of the paint industry and changed its global contours. Three acquisitions were especially significant: Akzo Nobel NV's purchase of Courtaulds for £1.8 billion (with Porter Paints in the U.S. and the worldwide packaging business sold separately to PPG Industries); Hoechst AG's sale of Herberts to DuPont Co. of the U.S. for $1,890,000,000; and the announced merger of Sigma Coatings of The Netherlands with the French Lafarge Group. (£1 = $1.65.) The first resulted in the reemergence of Akzo Nobel as the world's largest paint firm; the second made DuPont the third largest paint company and brought it global preeminence in the automotive market with a 30% share; the third created in Lafarge a third ranking in the European architectural market. Lafarge also bought Max Meyer, Italy's market leader in architectural coatings, as well as U.S. traffic paint specialist Centerline.

      Akzo Nobel also during the year acquired BASF's European architectural paints business, Reichhold's industrial coatings in Austria, nonstick coatings producer Lambda in Italy, Astral in Tunisia, and the architectural coatings business of Marshall Boya in Turkey and Oxylin in Brazil. ICI Paint spent $695 million on Acheson's electronic coatings business and £350 million for the bulk of Williams's European Home Improvement Division.

      The year was also marked by the effects of the East Asian financial crisis. While U.S. paint output proceeded apace and most European countries enjoyed a recovery, the Asia/Pacific region did not fare well. Near zero growth was expected in the region's paint market in 1998, compared with 2% in the U.S., 1.5% in Europe, and 1-2% in Latin America; world paint output in 1998 was estimated at 17.8 billion litres. (1 litre = 0.264 gal.)

      Legislation restricting the use of ozone-generating volatile organic compounds (VOCs) continued to be the main driving force behind technical change. In 1998 the U.S. Environmental Protection Agency promulgated national VOC limits for automotive refinished and architectural and industrial maintenance coatings, effective from 1999. In Europe the long-awaited solvent directive was likely to be adopted early in 1999 but would not become operational for existing installations until 2007. Meanwhile, the Dutch government set its own VOC limits for car refinishes.

HELMA JOTISCHKY

PHARMACEUTICALS
      Pharmaceutical companies poured money into direct-to-consumer (DTC) promotions of prescription drugs in 1998, accelerating their efforts of 1997. Since late 1997, when the U.S. Food and Drug Administration (FDA) liberalized brand-specific advertising on television, the U.S. industry spent an estimated $1.8 billion on DTC advertising and related communications. Companies also expanded DTC promotion into more serious disease categories, such as cancer, heart disease, and AIDS. They reaped remarkable sales gains for DTC-promoted products, as patients and caregivers besieged physicians with product-specific requests. Products most heavily promoted on DTC—Schering-Plough's Claritin, Bristol-Myers Squibb's Pravachol, and Glaxo Wellcome's Zyban—all reaped U.S. sales growth of more than 35% for the year.

      By the year's end, however, a backlash to DTC grew stronger among physicians, managed health-care organizations, and the FDA itself. The latter voiced concern that companies were soft-peddling the "fair balance" of product benefits as weighed against the risks and side effects. It announced that regulators would revisit the subject in early 1999.

      Sales for the industry as a whole grew by an estimated 16% in the United States, 9% in Europe, and 7% worldwide. Asia and Latin America experienced growth of about 8%, and Japanese sales declined slightly. Leading companies scored comparable results through the third quarter, with some notable exceptions. Net income and earnings per share (EPS) grew by 14% for Bristol-Myers Squibb, 21% for Schering-Plough, and 6% for SmithKline Beecham. Merck's net income rose 14% and EPS by 15%. American Home Products (AHP) jumped 42% in income and 39% in EPS, compared with a previous year marred by the expensive withdrawal of its weight-reducer Redux. Pfizer fell short of expectations, doubling its income but boosting earnings by only 13%. Sales growth of its impotence pill, Viagra (seeSidebar (Viagra: A Second Honeymoon? )), declined in the second half. Warner-Lambert, riding high on its leading cholesterol product Lipitor, increased revenue by 44% and earnings by 49%. Johnson & Johnson registered an 11% increase and announced that it planned to reduce its workforce by 4,100 and close 36 plants worldwide during the next 12-18 months.

      Large-scale mergers took a back seat to collaborative strategies for most of 1998. Near the end of the year, however, European companies bucked the trend and three major mergers were announced: Zeneca with Astra, Hoechst Marion Roussel (HMR) with Rhône-Poulenc Rorer, and Sanofi with Synthélabo, subject to shareholder approval in 1999. Earlier, American Home Products scuttled two proposed mergers, with SmithKline Beecham and Monsanto, due to clashes of corporate cultures. Pharmacia & Upjohn, HMR, and Wyeth-Ayerst/Lederle struggled to integrate their year-old mergers. Novartis, formerly Sandoz and Ciba-Geigy, and Glaxo Wellcome each made progress in integration but failed in their main goal of winning a greater world market share. Companies of all sizes turned increasingly to wide-scale partnerships to bolster their research, development, and marketing powers.

      New therapies on the market in 1998 were developed from a landmark synthesis of traditional pharmacology, biotechnology, and breakthrough discovery methods such as "combinatorial chemistry" (the simultaneous generation of millions of compounds likely to have biological activity) and "high-throughput screening" (quick testing of each of these compounds in complex sensing grids for a large number of specific biological activities). Genentech's Herceptin for breast cancer, Immunex's Enbrel for arthritis, and many other new products were developed through leaps in understanding the genetic basis of disease and cleverly combining old and new scientific tools. Vaccines, energized by DNA technology, took on new targets such as Lyme disease, hepatitis B, and meningitis.

      Major product withdrawals also marked the year. AHP's painkiller Duract, HMR's antihistamine Seldane, and Hoffmann-La Roche's antihypertensive Posicor were withdrawn because of side effects that emerged after they entered the market. The problems were blamed by some on FDA's new fast-track user-fee review program, which speeded up new-drug approvals. Companies and regulators each argued, however, that no safer practical alternative to the current system of clinical trials existed.

WAYNE KOBERSTEIN

PHOTOGRAPHY
      Despite the stock market's roller-coaster ride and international financial turmoil in 1998, the photographic industry produced a variety of interesting products as it vigorously sought ways to exploit a changing market. The rapid growth of digitized electronic imaging in all its aspects—hardware, software, and applications—continued to attract much attention from photographic and electronic manufacturers.

      Many of the new digital cameras were sleek, attractive models styled after popular film-using models. Prices dropped for high-resolution "megapixel" cameras (those with one million or more image-capturing pixels). Nikon's Coolpix 900, which featured three-mode metering, five-mode electronic flash, a Nikkor 3× optical zoom lens, and a 1.3 million-pixel charge-coupled-device (CCD) imaging sensor, was priced at less than $900. Kodak's DC220 zoom digital camera, with a 2× optical zoom lens, a Universal Serial Bus (USB) for faster transfer and downloading of images, and one million pixels per image, sold for less than $600. Retail prices for some entry-level digitals were as low as about $200.

      Synergistic ways to combine digital and silver-halide technology were explored and promoted. Inexpensive scanners enabled silver-halide photographs to be digitized for computer viewing or transmission by E-mail or over the Web. State-of-the-art photofinishing equipment allowed photo labs to return customer's snapshots on floppy disks along with colour prints or download them directly onto home computers.

      Manufacturers of film-using cameras introduced numerous new models. Canon and Minolta courted the advanced-amateur and professional markets with high-ticket 35-mm single-lens-reflex (SLR) cameras. Among its novel features the Canon EOS-3 provided a 45-segment autofocus system with a choice of auto, manual, or Eye Controlled Focus, in which an array of rectangles glowed red to indicate areas of sharp focus. A 21-zone evaluative metering system adjusted exposure accordingly as a moving subject shifted its position in the viewfinder. Shutter speeds ranged from 30 seconds to 1/8,000 second. The ruggedly built Minolta Maxxum 9 had a stainless-steel, zinc, and aluminum die-cast body, user-friendly controls, a film advance as fast as 5.5 frames per second, and a top shutter speed of 1/12,000 second—fastest of any current autofocus SLR.

      The so-far uncertain career of the Advanced Photo System (APS) received a boost from attractive new cameras in the 24-mm format. Nikon's Pronea S was a sleekly designed SLR hybrid that combined interchangeable-lens versatility and point-and-shoot simplicity with APS features. It came equipped with a compact zoom 30-60-mm f/4.5-5.6 Nikkor 1× lens for its Nikon F lens mount and a top shutter speed of 1/2,000 second. Ultracompact, stylish APS cameras inspired by Canon's popular ELPH included Fuji's diminutive Endeavor 1000ix MRC. Tiny enough to be covered by a credit card when folded, the titanium-finished Endeavor provided built-in flash, infrared autofocus, a choice of flash modes, and a 24-mm Super EBC Fujinon lens.

      Hasselblad, long the most prestigious name in medium-format cameras, startled the industry by teaming with Fujifilm to introduce the 35-mm Hasselblad XPan. This rangefinder camera allowed conventional 24 × 36-mm or panoramic 24 × 65-mm format exposures on the same roll of film by using special f/4 45-mm or 90-mm lenses. Polaroid sought to invigorate slipping sales and profits with new models. An upscale version of its classic instant camera, the Polaroid 600, was restyled with sexy curves and a burnished silver-platinum outer covering. The compact, low-priced JoyCam used Captiva film but a manual system to pull out exposed film, thus eliminating an expensive electric motor. The intriguing Xiao! (its market name in Japan) was a compact instant camera for kids that put postage-stamp-sized sticker prints on a manual pull-out strip.

      A bumper crop of more than a score of new or improved films were introduced by Kodak, Fuji, Agfa, and Imation. Agfachrome CTprecisa 100 and 200 provided a very high degree of pushability for colour transparency film—as much as four times their ISO ratings. Agfacolor HDC (High Density Color) print films were claimed to have better colour saturation, greater stability, higher definition, and finer grain than the previous generation of HDC emulsions. Another wide-latitude colour transparency film was Fujichrome MS 100/1000 professional, said to produce acceptable results with push-processing up to ISO 1000. Kodak brought forth four new colour negative Professional Portra films specifically for portrait photography, giving a choice of ISO 160 or 400 film speed and either natural colour (NC) or vivid colour (VC) saturation.

ARTHUR GOLDSMITH

PRINTING
      Overall, the printing industry performed well in 1998, with record revenue levels reflected in increased investments by printing firms in advanced production technology. Manufacturing increased worldwide, with only minor ruffles related to Asian market problems.

      IPEX, the annual international trade show, took place in Birmingham, Eng., in September 1998. It was the largest such event in history with more than 1,000 exhibitors and 100,000 visitors. The first digital colour presses premiered at IPEX '93 by Indigo (Israel) and Xeikon (Belgium), followed in 1996 by Canon (Japan) and Xerox (U.S.); by the end of 1998 some 19,000 such devices had been shipped worldwide.

      Traditional static ink-on-paper printing advanced as well. Progress in press automation was led by the International Cooperation for the Integration of Prepress, Press and Postpress group, which seeks to make digital workflow a standard. New presses that integrate platemaking with the printing system were introduced by Heidelberger Druckmaschinen (Germany) and Dainippon Screen (Japan). The Heidelberg Speedmaster 74-DI, a six-colour press offering on-press or off-press platemaking, water or waterless printing, and a high level of automation, was introduced at IPEX '98. New processless thermal plates were introduced by Kodak Polychrome Graphics (U.S. and Japan), Imation (U.S.), and Presstek (U.S.). More than 3,000 computer-to-plate (CTP) systems had been installed worldwide since the introduction of the technology at IPEX '93.

      The two largest stands at IPEX '98 were those of Heidelberg and Xerox, underscoring the pitched competition between traditional and electronic printing. A joint U.S.-German venture between Eastman Kodak (U.S.) and Heidelberg, NexPress Solutions, planned to introduce a high-capability toner-based printing system in 2000. Xerox advanced in all markets, from low-end three-page-per-minute office systems to colour printers churning out 40 pages or more per minute. The Xeikon web-fed 70- and 100-page-per-minute colour printer was being marketed as Chromapress by Agfa (Belgium), InfoColor by IBM (U.S.), DCP/32D and DCP/50D by Xeikon, and Docucolor 70 and 100 by Xerox.

      The consolidation of printing and prepress services accelerated during the year as more printers adopted digital printing or CTP. It was predicted that 20% of U.S. printing services and more than half of prepress services would not exist as separate firms by 2001, the losses due to mergers, acquisitions, and ceased operations.

FRANK J. ROMANO

RETAILING
      Retailers in 1998 were speculating as to whether the boom was over. For much of the past decade, stores had been bustling with shoppers, their confidence buoyed by a robust economy and ever-rising stock market. As the year progressed, however, the outlook changed dramatically. Turmoil in the global economy, triggered by the 1997 Asian financial crisis, raised fears of recession in North America. The stock market bubble burst, and suddenly everyone from Wall Street traders to retired teachers was feeling less wealthy. (See The Troubled World Economy. (Troubled World Economy )) Traditional retailers were also under pressure from the increasing use of on-line retailing, as busy consumers purchased more items, ranging from books to automobiles, on the Internet (see Sidebar (Internet Retailing )).

      With confidence ebbing, signs emerged that a retail downturn was imminent if not already under way. According to the U.S. Commerce Department, U.S. consumer spending slipped approximately 0.2% from June to July—the first drop in two years. Spending on big-ticket items such as automobiles and computers was especially weak, falling as much as 5.2%. Department stores were among the first to feel the pinch. J.C. Penney Co. suffered a 6.6% decline in sales in September, compared with 1997 September sales, and Sears, Roebuck & Co. saw sales drop 1.7%. Some discount and specialty retailers continued to post strong sales gains, but as the crucial Christmas season approached it was uncertain whether or not their holiday receipts would live up to expectations.

      Toys "R" Us Inc. worried about more than the economy. The U.S. toy retailer, saddled with bloated inventories and underperforming outlets, announced the biggest restructuring in its history. It planned to close 90 Toys "R" Us stores—50 in Europe and the rest in the U.S. and Canada—along with 31 Kids "R" Us clothing stores in the U.S. and an undetermined number of U.S. warehouses, resulting in a loss of some 3,000 jobs. The company also planned to slash prices to clear excess inventory and said it would remodel its stores to place the focus more on electronics and apparel, a move that was also designed to make it less reliant on Christmas sales and attract more year-round shoppers.

      Despite the slowing global economy, mergers and acquisitions remained a prominent feature of the retail trade. The supermarket industry witnessed one big merger after another as grocers moved to bolster their size and increase their buying power with suppliers. In the U.S., Albertson's Inc. agreed to acquire American Stores Co. for $8.4 billion, creating what would have been the largest supermarket chain in the country, with sales of $36 billion. Months later, however, Kroger Co. agreed to buy Fred Meyer Inc. for $7.4 billion, forging an even bigger company, with sales of $43 billion. Safeway Inc. was also on the acquisition trail, buying Dominick's Supermarkets Inc. for $1.2 billion to create a $25 billion chain.

      Such jockeying for dominance was not restricted to the U.S. In Canada, Loblaw Cos. Ltd., the country's biggest grocer, made a Can$1.6 billion bid for Provigo Inc. In another major deal, Empire Co. Ltd. swallowed Oshawa Group Ltd. for Can$1.4 billion. European grocers, which had started the consolidation trend several years earlier, continued to gobble up competitors at home and abroad. French supermarket operator Casino SA paid $200 million to acquire Argentina's Libertad SA. Another French retailer, Promodès SA, which in 1997 had failed in a hostile takeover bid for Casino, bought a minority stake in Belgium's largest grocer, owned by GIB SA, for $292.5 million.

      The ongoing trend toward consolidation was being driven by several factors. Apart from increased buying power, companies that merged reduced their cost structures, which was crucial in an industry characterized by low profit margins. Another impetus for merging was that bigger companies would be better able to invest in ultramodern computerized inventory management systems that track consumer purchases.

      The master of computerized inventory management, Wal-Mart Stores Inc., played a key role in forcing supermarket mergers. Wal-Mart, known primarily as a discount general merchandise retailer, was increasingly becoming a threat in the grocery business. It opened its first stand-alone supermarkets, complementing its growing chain of about 500 supercentres, which included a supermarket and discount store under one roof. Already the world's biggest retailer, Wal-Mart's rapid growth in groceries led one analyst to predict that it would become the biggest U.S. supermarket operator by the year 2004.

      Wal-Mart's progress turned up the pressure on the third-leading discount retailer—Kmart Corp.—which was looking for potential merger partners in the grocery industry. In order to build on its 100 Super Kmart outlets, which sold general merchandise and groceries much like a Wal-Mart Supercentre, analysts stated that Kmart needed a partner with national distribution capabilities if it was to have any hope of competing with Wal-Mart, which had a huge lead in the race for supremacy.

JOHN HEINZL

SHIPBUILDING
      In 1998 the world leaders among the principal shipbuilding countries were again Japan and South Korea; the only difference was that only 108,437 gross tons (gt) separated them in the world order book. According to figures released by Lloyd's Register of Shipping for the 1998 June quarter, Japan had 18,566,000 gt (33.4% of tonnage) and South Korea had 18,457,000 gt (33.2%). A comparison with the three area groupings of Western Europe 8,907,000 gt (16.0%), Eastern Europe 3,957,000 gt (7.1%), and the rest of the world 5,684,000 gt (10.2%) was not quite so one-sided as it might appear. The compensated gross tonnage (CGT) figures told a different story; CGT reflects the complexity of the structure and, therefore, the value. For Western Europe the CGT figure was calculated at 10,159,000; this was higher than Japan's calculated figure of 10,048,000 CGT, revealing that more sophisticated ships were being built in Western Europe.

      Looking at the overall position, in 1998 there were 2,668 ships of 55.6 million gt in the world order book (ships currently under construction plus confirmed orders placed but not yet started). This represented an increase of 5 million gt over 1997. The cargo-carrying component of the order book was 1,962 ships of 53.6 million deadweight tons (dwt). Of those, the principal ship types (in dwt) were: oil tankers 30,880,000; dry bulk carriers 18,370,000; containerships 7,240,000; chemical carriers 3,660,000; general cargo carriers 3,660,000; roll-on, roll-off cargo carriers 1,360,000; and liquefied gas ships 1,350,000.

      Despite these numbers the shipbuilding industry entered 1998 with concern for the future. Though they enjoyed a 54% increase in orders, shipyards were unable to force up prices. The bulk carrier and containership markets started to cut back orders early in 1998, and, as the Asian financial crisis caused many tanker investors to reevaluate their plans, orders were likely to decrease and prices remain low.

      Some ship types, however, continued to be in demand. During the past few years there was remarkable growth in high-speed ferry services. The first market was for fast ships to transport passengers and their cars, but the latest growth area was for rapid transport of cargo and containers. Hull designs included catamarans, hovercraft, hydrofoils, and monohulls.

      The containership sector also continued to flourish. Contemporary containerships, with beams wider than 32.2 m (106 ft), had capacities of more than 6,000 TEU (20-ft equivalent units). Deliveries from AP Moller's Odense Steel Shipyard for the Maersk Line reported capacities of 7,060 TEU. The classification society, Germanischer Lloyd, performed seaway and strength analyses on a projected 8,000 TEU container carrier.

      The cruise ship market remained upbeat, and vessels of 135,000 gt were projected. Many large ships were delivered during the past year, including the 77,000-gt cruise liner Dawn Princess, delivered from Fincantieri's Monfalcone yard to P&O Princess Cruises. The 74,140-gt cruise ship Grandeur of the Seas was delivered from Kvaerner Masa-Yards Inc., Helsinki, Fin., to Royal Caribbean Cruise Lines.

EDWARD CROWLEY

TELECOMMUNICATIONS
      During 1998 the U.S. Federal Communications Commission (FCC) mandated the disclosure of price information for pay phones and other public telephones before a customer completed the call. To increase privacy, all telecommunications companies, including paging and cellular providers, were ordered to obtain customer permission before releasing personal information, including length and time of calls and who was called. Standards were adapted for v-chip technology to block sex, violence, and language content based upon a television rating system, and 50% of all new televisions had to be equipped with v-chips by July 1999. In April the FCC, after receiving over 1,400 complaints, fined a small long-distance provider, the Fletcher Companies, $5.7 million for "slamming" customers (switching their long-distance providers without permission). The FCC also revoked Fletcher's license for interstate service. Another goal of the FCC, its "e-rate" program designed to provide low-cost Internet connection to schools and libraries, met resistance when long-distance providers passed fees they were being charged to fund the program on to their customers.

      Mergers were again prevalent in the telecommunications industry. During 1998 AT&T Corp. announced an $11.3 billion bid for Teleport Communications Group Inc., a provider of telephone services to businesses in 66 major U.S. markets. In June AT&T disclosed plans to buy the second largest U.S. cable-television provider, Tele-Communications Inc., for $32 billion, with the intent to upgrade and use TCI's cable to provide local phone service to their customers. The following month AT&T and British Telecommunications PLC announced they would merge their international operations into a jointly owned company. The new chairman of AT&T, C. Michael Armstrong, reported in January that the company would dismiss as many as 18,000 people, about 14% of its workforce, mostly through attrition and early retirement.

      The regional Bell operating companies formed by the breakup of the old AT&T continued their consolidation. Bell Atlantic, the U.S.'s largest local phone company, announced a $67 billion merger with GTE Corp., a long-distance and wireless provider. SBC Communications Corp. announced its intent to acquire Ameritech in a $62 billion deal. Until the Bell Atlantic/GTE deal, this was the largest merger in U.S. telecommunications history and would create the largest local telephone company, second in size only to AT&T. In late October the FCC approved SBC's acquisition of Southern New England Telecommunications Corp. for $5.8 billion. The deal reduced the number of original "Baby Bells" from seven to four. At year-end 1998 almost all of these mergers were pending FCC, U.S. Justice Department, and state approvals.

      In March Qwest Communications International Inc. bought the sixth largest long-distance provider, LCI International Inc., for $4.4 billion, thus becoming the fourth largest long-distance provider behind AT&T, MCI WorldCom, and Sprint. The MCI Communications Corp. merger with WorldCom Inc. was approved in July by European regulators and the U.S. Justice Department with the stipulation that MCI divest itself of its Internet assets, which it sold for $1.7 billion to Cable & Wireless PLC. The FCC approved the merger in September, and MCI WorldCom Inc. was formed. Within one week of the approval, former MCI chief executive Gerald H. Taylor resigned after 30 years with MCI.

      In October Teligent, a new company led by a former AT&T top executive, was formed to provide wireless digital local, long-distance, and Internet services to business customers in 10 U.S. metropolitan areas. Using 30.5-cm (12-in) antennas on the roofs of office buildings, the company claimed savings of 30% over traditional providers. They were approved to operate in 31 states.

      Two major service outages took place during the year. In April AT&T's high-speed frame relay network, the country's largest, was interrupted for almost 24 hours due to a problem caused by a software upgrade. In May a majority of the millions of pagers in the U.S. were rendered unusable when a PanAmSat satellite was knocked out of commission. Radio, TV, and ATM transmissions were also affected until a spare satellite could be moved into the malfunctioning one's orbit. Two labour disputes disrupted local telephone service, but the strikes by 73,000 Bell Atlantic workers and 34,000 employees from U.S. West were both settled without major incidents.

      The shortage of available telephone numbers caused by the increased use of fax machines, modems, Internet access, cellular phones, pagers, and multiline households continued to generate the proliferation of area codes, access codes, and toll-free numbers. Many U.S. cities were committed to area code "overlays" in which existing customers could keep their old area codes but new customers would receive a different area code, even in the same geographic area. This resulted in the need always to dial at least 10 digits when making a local call instead of the traditional 7. A new toll-free area code 877 joined the 800 and 888 codes already in use, and long-distance access codes were increased from five digits to seven.

      The Internet and World Wide Web continued to drive new technology and products to provide high-speed access to Web content over regular copper telephone lines and through cable television services (see Computers and Information Systems ). The use of the Internet for voice telephony also was being investigated by all the major long-distance providers. Called Voice-over-International Protocol (VoIP), it was estimated that calls could be placed using the traditional telephone, through VoIP services, for 7.5 to 9 cents per minute. Other innovations included Internet radio and voice access of Internet content.

THOMAS E. KROLL

TEXTILES

Overview.
      Worldwide growth in the textile industry leveled out to near zero in 1998, following high growth in 1997, when textile demand rose 6%, twice the 3% annual average. This correction created an excess of capacity at every level of the industry, and prices for fabrics and yarns fell dramatically. In addition, the fluctuation of exchange rates created winners and losers; South Korea improved its competitive edge, as did Indonesia, making Chinese exports more expensive relative to other Asian suppliers. Textiles from Asia were priced low, which caused textile mill activity to remain flat in Western Europe and increase only slightly in North America. Although most parts of Asia experienced a rise in exports, local demand was weak, resulting in a reduction in overall textile activity; production also fell in the Middle East. China registered a slight increase in production, and India boosted its output.

      In such a volatile market, retailers tried initially to increase their profit margins by buying in volume, but competition rose for them, too, resulting in lower prices for the consumer. In 1998, 48,600,000 metric tons of textiles were produced, including 1,600,00 metric tons of wool, 19,200,000 metric tons of cotton, and 27,800,000 metric tons of manufactured fibres. Quality, however, suffered as a result of the price wars, and only toward the end of the year was there any sign of a return to more stable conditions.

Man-Made Fibres.
      Following a remarkable 9% growth in mill demand for manufactured fibres in 1997, a much flatter growth of only 1% was seen in 1998. The cellulosics (mainly acetate and rayon) fell slightly to 2.9 million metric tons of textile mill consumption. Acrylic also experienced a slight drop to 2.8 million metric tons, but nylon filament and staple products were unchanged at four million metric tons. Among the polyesters, filament was up 2.5% to 8.5 million metric tons and staple stayed level at 6.8 million metric tons. Polypropylene in its textile forms of filament and staple grew 4% to 2.9 million metric tons, benefiting from a strong carpet industry in the U.S. and additional gains in market share against all the other fibres.

      A belief by many in the industry that future demand would be high was based on a long-term annual growth of just under 5% and was overoptimistic. The industry suffered from overcapacity, with worldwide production down by 3-4%. This situation applied particularly to nylon filament (running at 73% capacity worldwide), polyester filament (85%), and polyester staple (82%). International trade in fibres developed as efforts increased to off-load excess capacity from Asia into Europe and North and South America. As a result, filament and staple prices fell throughout the year, in most cases hitting bottom during the fourth quarter.

      Courtaulds PLC settled its four-year dispute with Lenzing AG over the right to market Tencel, a lyocell fibre, and Formosa Chemical and Fibre Corp. of Taiwan became the first Asian producer of this relatively new product.

PETER DRISCOLL

Wool.
      The world wool clip in 1998 was 1,438,000 metric tons clean, down slightly from 1,471,000 metric tons in 1997. The 1998 wool production was the lowest since the 1960s. Australia ruled as the dominant producer (356,384 metric tons clean), followed by New Zealand (205,000 metric tons clean) and China (184,800 metric tons clean); these three countries accounted for over 54% of worldwide wool-fibre production.

      Sheep populations in the U.S. continued to decline, resulting in production of 24,439 metric tons greasy, down 5% from 1997. U.S. wool consumption (90% for apparel and 10% for carpets) was 66,016 metric tons, down considerably from 74,197 metric tons in 1997.

      Wool demand from much of Asia remained weak, especially from Japan, South Korea, and Taiwan. Orders from these three countries were at their lowest since 1995 and down 18% from 1997, primarily as a result of the Asian economic crisis. Increases in wool demand, however, were seen in China (11%) and Europe (5.3%). Worldwide wool demand rose 1.6%, but prices were very depressed for coarse wools and finer wools, the lowest in four and eight years, respectively. In New Zealand the average price of wool fell nearly 30% against the U.S. dollar. Overall, the wool market share had risen 40% over the past five years, and by the end of 1998 wool was expected to increase its share of the fibre market 20%, nearly double the 11% increase in 1997.

EVERETT E. BACKE

Cotton.
      Worldwide cotton production in 1998 fell to 18.6 million metric tons, down from 18.9 million metric tons in 1997. Most of the decline occurred in the United States and China, where production of cotton crops was down 24% and 9%, respectively. Production in such other major cotton-producing countries as India, Pakistan, and Uzbekistan remained essentially unchanged.

      Fewer acres were planted in the U.S., owing to lower cotton prices and a change in government subsidy requirements. The Chinese crop suffered yield losses as a result of flooding and wet conditions in the Chang Jiang (Yangtze River) area. In Hubei (Hupeh) and Hunan provinces floods inundated up to one-third of the cotton fields. Some cotton warehouses were reported flooded in those provinces and in Jiangsu (Kiangsu) province.

      Cotton consumption worldwide totaled 19.2 million metric tons, with the largest gains in Turkey, Pakistan, Mexico, and Brazil; the increase in those countries slightly offset declines in China, Indonesia, and the U.S. A decline in consumption in the U.S. was attributed to slower growth in the economy and relatively cheap cotton textile and apparel imports from Asia.

      Although the U.S. continued to dominate the export markets, volume was down 34.7% from 1997, when 1.5 million metric tons of cotton were exported. China's imports of raw cotton from the U.S. were down 56% from 1997. Behind the U.S. in the volume of exports were Uzbekistan, French-speaking Africa, Australia, India, and Pakistan. Combined, these countries exported 2.3 million metric tons of cotton.

EVERETT E. BACKE

Silk.
      After many years of relative stability, the silk industry entered a period of turbulence and uncertainty in 1998. China, the major producer and exporter of raw silk, tried to regulate raw-silk prices by curtailing production, notably through the closing and/or merging of some small and inefficient reeling mills. As a result 1997 raw-silk production reached only 52,700 metric tons, compared with 59,000 metric tons in 1996 and 76,400 metric tons in 1995. Although prices were expected to rise, they tended to decline instead.

      Japanese raw-silk production continued to drop—from 3,228 metric tons in 1995 to 2,580 in 1996 and 1,980 in 1997. For many years Japanese authorities had conducted a skillful rear-guard action to preserve their raw-silk production through subsidies, but that maneuver ceased after Japan became a member of the World Trade Organization. As a result production over the past four years had declined 55%.

      Demand for silk also suffered, owing to the financial difficulties of several Asian countries that were consuming less silk, the loss of appeal of silk as a high-end fashion fibre, and the decline in demand for printed fabrics. Although demand for yarn-dyed and jacquard designs was increasing, the rise was not enough to make up for the shortfall. Many silk industry observers felt that demand for silk would increase in the future, but they were uncertain as to when the turnaround would occur, owing to the unpredictable overall economic climate.

EVERETT E. BACKE

TOBACCO
      The economic turmoil in East Asia resulted in increased cigarette prices in the United States and many European countries, factors that led to a decline in cigarette consumption in 1998. According to the 1998 edition of World Tobacco File, the decline began in 1997, when global consumption, at 5,195,800,000 cigarettes, fell by 0.4% as compared with an increase of 2.1% in 1990-97.

      The three largest multinational tobacco manufacturers, Philip Morris Inc., R.J. Reynolds Tobacco Co., and B.A.T. Industries PLC, each reported reduced profits for the second quarter of 1998. By comparison, Japan Tobacco, the former state tobacco monopoly, after years of rising profits reported a 28% decline in consolidated net profits for its 1997-98 fiscal year, largely due to a 3% decrease in cigarette sales in its domestic market. The profits of the multinational manufacturers were adversely affected by the impact of million-dollar settlements made in tobacco liability cases brought in the United States by Texas, Minnesota, and Mississippi. Three legislative issues in the U.S., however, were resolved in favour of the industry. The McCain bill, which would have imposed draconian measures on the manufacturers and forced up cigarette prices by at least $1.10 a pack, was unable to muster a majority of the Senate to bring the bill to the floor of the House of Representatives; and a North Carolina federal court ruled that the Environmental Protection Agency had wrongly classified secondhand smoke as a known carcinogen. In an even more important case, a federal appeals court decided that the U.S. Food and Drug Administration had no authority to regulate cigarettes as though they were drugs.

      In September the new Russian prime minister, Yevgeny Primakov, announced that the government planned to restore the state monopoly for tobacco. It was too early to determine how this would affect the major Western tobacco manufacturers, which had invested millions of dollars in acquiring and modernizing 9 of Russia's 27 tobacco factories after they were privatized.

      Because of the downturn in the fortunes of the tobacco manufacturers, the two largest makers of cigarette-making machinery, Körber/Hauni in Germany and Molins in the U.K., were forced to lay off workers. Tobacco farmers suffered from lower prices that resulted from reduced purchases of leaf by the manufacturers. In Zimbabwe, a major supplier of flue-cured and burley tobacco, farmers boycotted the tobacco auctions in Harare for six weeks because of the low prices. In Brazil the crop was reduced by freak weather conditions caused by El Niño. The boom in premium cigars in the U.S. faded, as stock prices fell on Wall Street and the market was inundated with cheap imports.

LAURENCE RIDGWAY

TOURISM
       World's Top 20 Tourism Spenders, 1997 (For the World's Top 20 Tourism Spenders in 1997, see Table (World's Top 20 Tourism Spenders, 1997 ).)

      Worldwide tourism posted positive results in 1998, with international travel increasing 1.5% for a total of 620 million arrivals. This compared with 2.8% growth in 1997 and 5.6% in 1996. Worldwide earnings from international tourism exceeded $450 billion. The lower growth rate for arrivals was mainly attributable to the Asian financial crisis, which resulted in five million fewer foreign tourists visiting East Asia and the Pacific during the year. The majority of the world's destinations, however, continued to experience an upward trend in arrivals.

      In Africa devaluation of its currency allowed South Africa to offer competitive prices to tourists. Tanzania's wildlife-based tourism surged by 30% as Kenya's tourism operators sought government assistance to resuscitate an industry preoccupied with security. Arrivals in Morocco and Tunisia grew by 11% and 8%, respectively, and in West Africa, Côte d'Ivoire welcomed 10% more foreign visitors. Anticipating an end to UN sanctions, Libya prepared a five-year plan for tourism development.

      In the Americas the U.S. hosted a record 24 million overseas visitors in 1997. During 1998 a modest slowdown was expected because of a decline in Asian tourists. In the absence of a federal tourism administration, U.S. states were obliged to invest heavily in travel promotion; Illinois led with $35 million, followed by Hawaii, Texas, and Florida. The weakness of the Canadian dollar helped overnight trips to Canada to surge by 11% in 1998. Spending by U.S. travelers offset lower earnings from other visitors. Mexico, where tourism surpassed oil as a foreign currency earner, welcomed 20 million foreign visitors in 1998, investing $1,625,000,000 in new tourism facilities during the year. In Chile tourism increased by 7%. Caribbean destinations experienced mixed trends; Barbados (+10%) and Cuba (+11%) reported the best results. Nicaragua was among Central American tourism destinations adversely affected by the devastating Hurricane Mitch in November.

      In East Asia and Oceania countries dependent on regional tourism were strongly affected by the aftermath of the financial crisis. They included Hong Kong (-13%), New Zealand (-10%), and Singapore (-16%). Civil unrest threatened Indonesia's five million-visitor market. Even in Bali, the country's most popular destination, hotel occupancy was down to 30%. Australia and the Philippines also reported a difficult year but experienced declines of only 5% and 1%, respectively, in overseas arrivals. Thailand, by contrast, reported a 6% increase in arrivals, a result of currency devaluation and a successful "Amazing Thailand" promotion, while in South Korea arrivals rose 7% as currency depreciation made shopping visits attractive. China welcomed 12% more tourists from overseas. Japan projected a 5% decline in overseas travel by its citizens, down to 16 million. In South Asia India planned to introduce new luxury tourist trains. In Myanmar (Burma) a new resort near Mandalay reflected the growing interest in ecotourism. (See Special Report (Ecotourism: The New Face of Travel ).) Maldives tourism surged by 9%.

      Europe continued to represent 60% of world tourist arrivals and half of global receipts. The region's prime tourist country, Germany, accounted for 56 million overseas trips and 50 million visits by tourists in 1998. The Lisbon World Exposition, which ran from May to September in the Portuguese capital, and the 32-nation association football (soccer) World Cup, which was held in nine cities across France between June and July, each boosted tourism to the host countries. The Baltic Tourism Commission, comprising nations on the Baltic Sea, met in September in St. Petersburg to review their marketing options; boating and culture were among the promising offerings. Visiting heritage sites was the most popular pastime of visitors to Great Britain, though tourists were also attracted by fashion, architecture, and the performing arts. The opening in June of Europe's longest suspension bridge linking eastern Denmark (where Copenhagen is located) with the Jutland Peninsula, increased tourism to Denmark by more than 40%. Other Nordic countries also fared well, with Norway's arrivals increasing 5% and Sweden's 8%. Despite Switzerland's strong currency the nation's hotels recorded 4% more tourist nights than in 1997. Europe's Mediterranean islands experienced a good tourist season; arrivals increased 7% in Cyprus and 5% in Malta. Among countries forming part of the former Yugoslavia, Croatia's tourism grew by 7%, as that Adriatic Sea nation drew up a long-term strategy to upgrade tourism facilities and services. Romania's hotels reported a 6% increase in occupancy. Although tourism had been among the fastest developing sectors during the 1990s, Russia's economic crisis left its travel sector badly crippled. Finally, Spain experienced a boom tourism year in 1998 with 10% more foreign tourists.

      In the Middle East the political situation continued to affect tourism. Israel began the year below 1997 levels, though Jordan reported a recovery of 13% above the previous year. The opening in November of the new Gaza International Airport was seen as bringing tourism benefits to the Palestinian people.

      Nearly 70% of users of the World Wide Web were said to have clicked onto a travel-related site in 1998. Information about airlines was especially popular.

PETER SHACKLEFORD

Wood Products

Wood.
      A continued strong housing market in 1998 allowed the wood products industry in the U.S. to begin the year on a positive note. As was normal, markets slowed in May and June for the summer holidays. A resurgence of demand for softwood lumber during the third quarter of the year was attributed to the continued strength of housing. For the first 10 months of the year housing sales were 9% over the same period in 1997, and, aided by low interest rates and strong consumer demand, they were expected to remain strong until early 1999.

      During fiscal 1998 (Oct. 1, 1997-Sept. 30, 1998) the U.S. Forest Service sold 7,067,000 cu m (1 cu m = 423.8 bd ft) of timber from the national forests, 20% less than during the previous fiscal year. Environmental objections to timber harvesting virtually stopped all new timber sales from national forests. Some were concerned that the reduction in harvest would place the forests at a higher risk of catastrophic fires because dead or dying timber would generate a buildup of fuel.

      U.S. lumber production maintained a strong pace in spite of the continued slowdown in sales from federal forests. For the first nine months of 1998 softwood lumber production was 61,731,000 cu m, down 1.3% from 1997. Production of structural panels, including plywood and oriented strand board, totaled 2,964,000,000 sq m (31.9 billion sq ft), 6.3% ahead of 1997. Hardwood lumber production was at a record pace of approximately 33 million cu m, and hardwood flooring production in 1998 was expected to reach 1,038,000 cu m, the highest level since 1968.

      Affecting all parts of the U.S. wood products industry was the decline in exports, caused mainly by the Asian economic crisis. During the first nine months of 1998 softwood lumber exports overall declined 35.6%, but exports of softwood lumber to East Asia fell 60.3%. Hardwood lumber exports declined 15.8% during the same period, while shipments to Asian markets were down 41.4%. Imports into the U.S. of softwood lumber from Canada were slightly greater than in 1997, in spite of the quota agreement limiting the volume of lumber that could be shipped duty-free to the U.S.

      Though exports declined in 1998, the long-term outlook was that more lumber from North America would be required to meet the world's demand. Eastern European production of lumber increased, but that region's forests were not expected to be able to meet the growing demands for housing, furniture, and flooring. China was forced to stop most of the logging in the Chang Jiang (Yangtze River) watershed because of heavy floods there during the summer. Environmental concerns in a number of tropical timber-producing countries led to reductions in harvests. Also, the unstable economy and widespread inefficiencies in Russia led to a decline in timber harvests and lumber production in that country.

      During the third quarter of 1998 lumber exports began to improve, as the major Asian economies showed signs of improvement. The demand for hardwood lumber was growing, as high consumer confidence combined with strong housing markets led to increased furniture manufacturing.

GEORGE BARRETT

Paper and Pulp.
      The 300-million-metric-ton level of world paper and paperboard (P&B) production was almost reached for the first time in 1997 with a total of slightly over 299 million metric tons, an astonishing performance and an increase of 5.8% over 1996. The U.S. remained the largest P&B producer in 1997 with 28.9% (86.5 million tons) of the total and an increase of more than 5.3%, more than twice the 2.5% average annual growth during the previous 10 years. Including Canada, North America remained the leader in P&B production (105,446 million metric tons) in spite of the fact that strikes affected many of Canada's mills. An increase in 1998 seemed unlikely, however, in large part because of the financial crisis in East Asia.

      The largest increases in P&B production and pulp production in 1997 were reported by Indonesia, with gains of 19.7% and 16.3%, respectively, over 1996. In 1998, however, the nation's economic and monetary crisis and a long dry season that resulted in major forest fires seemed certain to result in a sharp decrease in production. In Europe Finland turned in a 16.3% rise in P&B output and a 14.4% gain in pulp production. Sweden registered increases of 8.5% and 6.6%, respectively. Other large P&B increases in Europe were Germany (8.3%), France (7.2%), Italy (8.3%), and Belgium (12.3%).

      Asia's P&B output increased 5.1% in 1997, with Japan and China as the continent's two top producers. It seemed unlikely, however, that this pace would be maintained in 1998. In Japan growth rates were slowing down, and the depreciation of the nation's currency resulted in an increase in exports and decrease in imports compared with the previous year. The Japan Paper Association estimated that domestic demand for P&B in 1998 would increase by 1.5%, a smaller growth than in 1997. In China, despite increased production, profits declined though the industry remained profitable.

      Financial results worldwide in 1997 were well below the records set in 1995. Industry restructuring was underway in many areas. Sweden's giant Stora Kopparbergs Bergslags AB merged with Finland's Enso OY in midyear. Consolidation was taking place in the North American paper industry, as U.S. and Canadian firms sought to concentrate on a narrower range of products.

H.-CLAUDE LAVALLÉE

▪ 1998

Introduction

Overview

      The slowdown in world output in 1995-96 raised doubts about the long-term recovery of the economy, but in 1997 they were laid to rest. Although the world economy was some way from firing on all cylinders, 1997 and 1998 seemed likely to register the fastest growth in world output in a decade. Despite their relative longevity, the recoveries in the United States and, to a lesser extent, in Great Britain seemed robust. In continental Europe the deflation imposed by the Treaty on European Union, with its provision for a common currency, was ending now that most of the likely monetary union members had put their fiscal houses in order. In the developed world, only Japan continued to struggle against a chronic lack of confidence in its domestic economy. In the less-developed world, growth continued to be strong, though future prospects in Southeast Asia were threatened by the turbulence of financial markets there; Latin America, however, had emerged from an equivalent crisis in 1995. Finally in the former communist economies, where transition to a market system continued to prove painful, there were increasingly encouraging signs that the process was working.

      Nowhere was growth proving more resilient than in the U.S. The recovery that began in 1991, though showing signs of flagging in 1995-96, demonstrated renewed strength in 1997. Commentators began to talk of a "new paradigm" in which an underlying trend of rapid increase in productivity enabled fast growth of gross domestic product (GDP) to be combined with low inflation. With Federal Reserve Board Chairman Alan Greenspan, who seemed to endorse the paradigm, keeping a steady hand on monetary policy, the talk was of a "Goldilocks" economy—neither too hot nor too cold.

      In continental Europe, a lagging area in the world economy, growth slowed sharply in 1996 as the major economies pursued the fiscal rigour that was required for getting their budget deficits below the 3% necessary to qualify for economic and monetary union (EMU), which was scheduled to be inaugurated on Jan. 1, 1999. In the major economies of the EMU core, especially France and Germany, activity was sluggish; the little growth that took place was derived from the export sector, whose competitiveness was enhanced because of a strong dollar. Even in the face of very low interest rates, domestic demand remained weak.

      In the European periphery it was a different story. The British recovery, having started a year later than that in the U.S., was gaining momentum, though for manufacturing the strength of sterling against the European currencies was a significant handicap. The major success story, however, was Ireland, which during the 1990s increased its manufacturing output as fast as any other country and where total GDP was growing annually at rates nearing double figures.

      Fueled in part by exports of Japanese capital and in part by an innate dynamism, the economies of the Pacific Rim recorded the fastest rates of growth during the 1990s. Expansion spread from the first phase of "tiger" economies (Hong Kong, Singapore, South Korea, and Taiwan) to other countries around the Pacific Rim and into South Asia. At the same time, growth moved away from the traditional heavy industries to electronic goods, clothing and footwear, and even automobiles. The rate of progress was not without problems, however, and in 1997 concern over rising current-account deficits spread from Thailand across the region. Speculation forced currency devaluation, and interest rates rose, which increased the cost of overseas borrowing and restrained domestic demand. For the rest of the world, the troubles of the region were a mixed blessing. On the one hand, the developed economies enjoyed a continuing stream of consumer goods that were even cheaper in dollar terms than before, whereas on the other, exports to the area were held back by weaker domestic purchasing power.

       Industrial Production in Eastern Europe, TableFor the former communist countries taken as a bloc, the process of transition, while undoubtedly painful, was beginning to show results. Progress was uneven, with Poland, Hungary, and the Czech Republic advancing most rapidly. As a general rule, however, those countries that pursued comprehensive stabilization and reform policies were beginning to experience economic growth, which they were combining with reasonable rates of inflation; increasingly, those nations were being rewarded with reintegration into the world financial system. There were backsliders on reform (Belarus and Slovakia) and major problems with inflation (Belarus, Bulgaria, and Romania), but on balance the outlook was good. (For Manufacturing Production in Eastern Europe and the former Soviet Union, see Table II (Industrial Production in Eastern Europe, Table).)

GEOFFREY R. DICKS

Advertising
      The buoyant economy and the continued growth in consumer confidence contributed to strong gains in advertising spending in 1997. Worldwide advertising on all media, including direct mail and the Yellow Pages in telephone directories, was expected to climb 6.2% to $411.5 billion in 1997, according to Robert J. Coen, McCann-Erickson Worldwide's senior vice president in charge of forecasting. Total U.S. ad spending in 1997 was expected to reach a record $186 billion, an increase of 6.2% from the 1996 total of $175.2 billion. Coen estimated that expenditure on advertising within the U.S. would rise 6% to $109.2 billion, led by strong growth in television, local radio stations, newspapers, and magazines. Spending on overseas advertising by U.S. firms was forecast by Coen to total $225.5 billion, up 6.3% from $212.1 billion in 1996 and led by strong growth in Brazil, Great Britain, China, Mexico, and South Korea.

      By late in the year there were indications that spending by U.S. advertisers in 1998 would increase about 5.6% to $196.5 billion, fueled by interest in advertising during the Winter Olympics in Nagano, Japan. An early indication that spending would continue its robust pace came from advance sales of network television time for the 1997-98 season. Sales hit a record $6 billion, up roughly 6% from $5.6 billion a year earlier, even though the network share of the television viewing audience continued to shrink. One consequence of the brisk sales was that "clutter" on television—the time devoted to commercials and promotions—reached a new high in 1996, according to a report sponsored by the American Association of Advertising Agencies and the Association of National Advertisers. The report found that clutter accounted for one-fourth to one-third of all network television time during all parts of the broadcast day in 1996.

      Commercial time on Super Bowl XXXI, broadcast by the Fox network on Jan. 26, 1997, sold at somewhat higher prices than those charged by NBC for Super Bowl XXX. The fifty-six 30-second commercial units that were aired during the game went for a record average price of about $1.2 million each, about $100,000 more than in 1996.

      Account change activity reached record levels in 1997 as a wide variety of companies made decisions affecting their advertising. Eastman Kodak Co. dismissed the J. Walter Thompson Co., its agency for over 65 years, and consolidated all its consumer photography accounts, with annual spending of about $300 million, at Ogilvy & Mather Worldwide. McDonald's Corp., after intense creative competition between its two national agencies, selected the Chicago office of DDB Needham Worldwide as its lead domestic agency, relegating the Leo Burnett Co., Chicago, to a secondary role after 15 years. Other major firms changing agencies included Delta Air Lines, which moved its $100 million account to Saatchi & Saatchi Advertising Worldwide from BBDO Worldwide; Taco Bell Corp., which chose TBWA Chiat/Day in Los Angeles to handle the $200 million creative portion of its account; and Saab Cars USA, which selected the Martin Agency in Richmond, Va., to handle its $50 million account.

      Despite the many account changes and agency roster realignments, there was during the year a surprisingly strong improvement in the relationship between advertising agencies and clients, according to the results of the 1997 Salz Survey of Advertiser-Agency Relations. In the survey 39% of agencies said there was more teamwork with their clients, a large gain from the 23% that reported that result in the 1996 survey. The percentage of advertisers who said there was more teamwork with their agencies also rose, from 49% in 1996 to 54%, the highest level since the 63% response in 1992.

      An annual survey by the American Association of Advertising Agencies reported that the average cost of producing a 30-second national television commercial rose nearly 6% in 1996 to $278,000 from $263,000 in 1995. That increase represented a reversal from the previous year, during which the cost decreased 2% from 1994 to 1995. Advertisers continued to demonstrate their support of television shows that touched on controversial subjects, such as the "coming out" story line in which the character portrayed by Ellen DeGeneres (see ) (DeGeneres, Ellen ) on ABC's sitcom "Ellen" announced that she is gay. Companies that ignored the pressure from conservative groups not to advertise on the show won their bet of taking advantage of the hoopla surrounding the episode, which scored a 23.4 rating, compared with the season's average of 9.6 for the series.

      Advertisers aggressively increased their spending in cyberspace during the first half of 1997. According to Cowles/Simba Information, a unit of Cowles Business Media, advertising revenue on the World Wide Web reached $217.3 million through the first six months of 1997, more than triple the $61 million that the company reported was spent in the first six months of 1996. Forrester Research of Cambridge, Mass., estimated that $400 million would be spent on Web advertising in 1997.

      Ad pitches on the Web moved during the year beyond simply displaying advertisers' names or products. AT&T introduced Web ads that "talk," incorporating dialogue and motion video. Other sites, including Talk City, a chat site, introduced "intermercials," long-form communications lasting up to four minutes. The name, intermercials, is based on interstitials, a form of Web advertising in which a message automatically pops up in front of a user while the browser is downloading a page within a site. Interstitials generally appear for a certain period of time, usually seconds, and then disappear. Toyota and Sears Roebuck and Co. were among the first to use them.

      A landmark settlement between the U.S. Food and Drug Administration and the nation's tobacco marketers pushed such familiar icons as Joe Camel and the Marlboro Man off outdoor billboards. The settlement banned cartoon characters and human images from tobacco advertising and prohibited tobacco signs in outdoor sports arenas and on store signs visible from the outside. Europe's health ministers later agreed on an even stricter ban.

      Advertisers were expected to concentrate on promoting their brand names in 1998. A study by Corporate Branding Partnership LLC found that a strong corporate brand may be a public company's best defense against a volatile stock market. The stocks of the 20 U.S. public companies with the strongest brand power gained market value during the October 1997 stock market gyrations, whereas the stocks of the 20 companies with the weakest brand power lost a combined $19.8 billion in market value, the company estimated. "Brand power" was Corporate Branding Partnership's measure of a corporation's reputation and recognition among key audiences. Companies with the strongest brand power included Coca-Cola and Microsoft.

LAURIE FREEMAN

      This article updates marketing.

AEROSPACE
      In 1997, after the worst recession in aviation history, most airlines experienced business upturns, some of them vigorous, though often the revenues had to be used to help liquidate debt that had accumulated during the lean years. Pooling arrangements continued to benefit the companies, though the agreement between British Airways and American Airlines caused European Union (EU) officials and smaller airlines to voice fears of monopoly over the North Atlantic. Europe's airline industry began a profound change as deregulation became effective during April, opening competition to smaller operators within a region long dominated by national flag carriers.

      Demand for new equipment rose as business improved. Airbus Industrie planned to increase production to 220 aircraft per year in 1998, up from about 185 in 1997 and 126 in 1996. Unlike Airbus, Boeing had already been operating at full capacity and could not immediately meet demand. This was caused partly by the inability of equipment and raw-materials suppliers to meet Boeing's needs. Many such suppliers, cynical because of earlier predictions of an upturn that had failed to materialize and therefore cautious about risking investment, were swamped by the sudden wave of demand. Aircrew hiring was also brisk, and the U.S. Department of Defense became concerned about the drain of expensively qualified military pilots to the airlines.

      Encouraged by the upturn, notably around the Pacific Rim, both Boeing and Airbus continued work on their respective "jumbo" designs. Airbus proposed the 550-seat, four-engined A3XX, to be launched in 1999, and Boeing finally abandoned further development of the 747 to concentrate on new, long-range variants of the twin-engined 777. One of these, the 777-300X, would have about the same size and weight as a 747 and was aimed at Pacific Rim operators.

      The decision by McDonnell Douglas in 1996 to terminate the Douglas MD-XX trijet airliner, its proposed competitor to the top-of-the-range Boeing and Airbus transports, marked the end of the line for this company as an independent airframe supplier. Boeing and McDonnell Douglas then announced a collaborative deal by which Douglas Aircraft would become a major subcontractor to the Seattle, Wash., firm, and the merger was formally signed in August 1997. Production of the existing MD-11 and MD-90/95 families would continue until demand dried up. With the retreat of Lockheed from the large transport aircraft field in 1983 and the disappearance of Douglas, Boeing remained the sole U.S. supplier.

      Boeing again made news when it reached agreement with three airlines to buy its aircraft in return for favourable financial deals. The 20-year agreement with Continental Airlines, finalized in June, followed similar arrangements with Delta Air Lines in March and American Airlines in May and resulted in objections from EU officials, already upset by what they saw as unfair competition by the Boeing-McDonnell Douglas merger.

      Consolidation of the aerospace industrial base continued rapidly, most notably in the U.S. European aviation experts criticized the reluctance of their national governments to streamline their still-fragmented industries so that they could compete more effectively with such U.S. companies as Boeing-McDonnell Douglas, Lockheed Martin, Northrop Grumman, and the major electronics giant Raytheon. European efforts to integrate businesses were particularly hampered by the return of a Socialist government in France and the subsequent reversal of a French policy designed to speed both privatization and collaboration with other European partners. The new French government clearly intended to keep aerospace in its own hands and so protect national assets. In particular, an earlier agreement by Airbus consortium partners to restructure the firm into a limited liability company by 1999 was thrown into doubt.

      Concern for air safety continued to mount in the face of increasingly crowded skies. Worries were expressed over the lack of adequate—or even any—air traffic control over Africa. A report by the International Federation of Air Line Pilots' Associations describing the situation throughout the region as "critically deficient" noted 77 near collisions involving commercial aircraft in 1996. Fears were justified in September when two large military transports, one German and the other American, collided off Namibia with the loss of all on board.

      Poor command of English by many air traffic controllers was also cited as the possible cause of at least two accidents: one in Colombia in December 1995 and the other in Indonesia in September 1997. Meanwhile, detective work continued in an effort to pin down the exact circumstances leading to the TWA Flight 800 disaster off the coast of New York in July 1996, thought to be due to a fuel-tank explosion.

      U.S. ambitions to launch a supersonic transport (SST) took a new turn as Boeing teamed with the Russian company Tupolev in a NASA program to refurbish a TU-144 as a flying laboratory. Data returned from the laboratory would help U.S. industry develop a 300-passenger SST with a 12,900-km (8,000-mi) range early in the next century. The 14-strong TU-144 fleet had been abandoned after one crashed at the Paris Air Show in 1973.

      In the military field the new Lockheed Martin/Boeing F-22 Raptor made its first flight. This next-generation U.S. Air Force fighter would replace the 1960s-era F-15 Eagle as the top U.S. combat aircraft. Meanwhile, other programs, such as the U.S. Navy's F/A-18E Hornet, the Lockheed Martin/British Aerospace Joint Strike Fighter (JSF), and the Northrop Grumman B-2 stealth bomber, competed for funding. McDonnell Douglas, the longtime leading builder of U.S. fighters, was eliminated from the JSF competition. Consideration was given to a future—unmanned—version of the best-selling U.S./European F-16 fighter.

      Europe's Eurofighter 2000 continued in its flight-test program, but German doubts about its cost continued to stall award of a production contract. India stepped up its defense capabilities with the operational deployment of its first squadron of Soviet-designed Sukhoi Su-30 long-range fighters, and plans were made to acquire Russian-made aerial tankers to support them. India also launched a $2.3 billion program to develop and build its own stealth combat aircraft. In the face of a continuing financial crisis, Russian aerospace officials were selling production rights for top-line military planes in order to maintain both a home industry and a national defense capability. Overall, the European aerospace industry reversed five years of decline with a 12% revenue increase in 1996, and an even better result was expected for 1997.

MICHAEL WILSON
      This article updates aerospace industry.

APPAREL

Clothing.
      After several years of lacklustre sales in the apparel-manufacturing industry, there was an upturn in sales and profits in 1997. Whereas many industry experts attributed this positive change to improved consumer confidence, it was also likely that consumers had satisfied their demand for other products, especially electronic ones. Clothing also became a consumer bargain. Efficiencies in production and "quick-response" inventory controls kept apparel prices constant and thereby provided a greater value compared with other goods.

      Industry employment in the U.S. continued to decline in 1997, falling to about 800,000 workers. Two factors contributed to the downtrend: low unemployment and increased productivity by U.S. workers, who had twice the capability of workers of the 1970s as a result of new technologies. Unusually low U.S. unemployment forced apparel factories to compete for workers with the service sector and other manufacturing industries. Traditionally, the industry had relied on immigrant labour for assembly work, but tighter immigration laws and a shift to manufacturing in rural communities, where there were usually fewer immigrants, effectively eliminated this resource. A majority of the members of the American Apparel Manufacturers Association, which represented 80% of U.S. production, reported problems in attracting and keeping an adequate workforce.

      Owing to labour shortages and price pressures, U.S. apparel companies expanded assembly operations in countries where they could take advantage of lower labour costs and a large workforce. Under the North American Free Trade Agreement (NAFTA), apparel assembly skyrocketed in Mexico. Production also increased in nations in the Caribbean basin, where U.S. legislators considered extending NAFTA-like benefits. Overall, apparel imports into the U.S. increased 17% in the first seven months of 1997.

      The globalization of the apparel industry, in both production and sales, prompted the U.S. Federal Trade Commission to test a symbol system for apparel-care labels that was similar to an existing system in Europe. The symbols would appear for 18 months with written care instructions, which would allow consumers time to familiarize themselves with the symbols. The use of symbols would eliminate the multilingual instructions required for products marketed in any of the three NAFTA countries. If the pilot program was successful, the apparel industry would consider switching exclusively to symbols in January 1999.

      Criticism of the apparel industry in regard to wage and hour abuses continued. The White House Apparel Industry Partnership, an industry-government-labour task force created by the administration of U.S. Pres. Bill Clinton, attempted to develop recommendations for improving domestic and international labour standards, including the creation of an international monitoring program to inspect apparel factories worldwide. In October U.S. federal investigators found that 63% of the garment companies in New York City that were under suspicion had violated overtime or minimum-wage laws.

      Simultaneously, the Smithsonian Institution's National Museum of American History announced plans for an exhibit on "sweatshops" to be centred on the 1995 discovery of an illegal factory in El Monte, Calif. Apparel and retail industry associations criticized the planned exhibit both for its strong bias toward labour and for its focus on one industry.

ALLISON WHEELER WOLF
      This article updates clothing and footwear industry.

Footwear.
      It was a year for big deals in 1997 as footwear makers signed licensing agreements, pursued designer alliances, and negotiated endorsement contracts. Stride Rite Corp., owner of the rights to the Tommy Hilfiger and Levi's footwear labels, landed its third licensing deal with Nine West Kids. Meanwhile, Stride Rite sought to reestablish its classic Keds brand by joining forces with high-profile shoe designers Todd Oldham and Cynthia Rowley, who produced modern collections inspired by Keds' 82-year-old Champion Oxford style. Nike, Inc., launched Jordan, a signature brand of basketball footwear and apparel named for superstar Michael Jordan. A midyear downgrade of Nike stock, however, caused industry watchers to worry that the whole athletic category would spiral downward. Nike also came under fire from human rights groups because of its overseas labour practices.

      Florsheim Group Inc. reported increased sales and revenues ($28.7 million) in the first quarter, and Steve Madden Ltd. posted higher second-quarter earnings, up $357,000, compared with a $431,000 loss in the first quarter of 1996. Reebok International Ltd.—owner of the Rockport Co. subsidiary and the Ralph Lauren footwear license—had modest growth in the second quarter, and the Timberland Co. returned to profitability after losses in 1996. Wolverine World Wide Inc., maker of Hush Puppies, Caterpillar, and Wolverine Wilderness, reported net earnings up as much as $9.2 million and revenues up $162.2 million.

      Action-sports and skate-shoe products were hot sellers. The success of companies like Vans Inc., Airwalk, Etnies, and Reef Brazil was boosted by unprecedented levels of participation in extreme sports, and the ease and casual styling of this footwear took the market by storm.

      Wolverine World Wide purchased Merrell Footwear for $17 million and announced the creation of a new outdoor-footwear division. LaCrosse Footwear Inc. paid $6.5 million for Lake of the Woods. Meanwhile, German footwear giant Adidas AG purchased control of Salomon SA in a deal worth almost $1.5 billion.

      Payless ShoeSource Inc. acquired the nearly 190-store Parade of Shoes from J. Baker Inc. and proposed an expansion of the chain into locations left open after the 1996 shuttering of J. Baker's 357-store Fayva chain. Payless also opened five stores in the greater Toronto area, its first move into Canada. Nine West Group Inc. closed the deal for about 60 British Shoe Corp. concessions, which brought its total retail units in Great Britain to 180.

BONNIE BABER

      This article updates clothing and footwear industry.

Furs.
      The winter of 1996-97 was a disappointing season for retail sales of furs, along with other cold-weather apparel. Abnormally mild temperatures throughout much of the Northern Hemisphere contrasted sharply with the previous harsh winter, which had encouraged retailers to prepare for a repeat of that season's brisk business. As a result, stores were left with excess inventory, and there was a decline in fur-skin purchases at the international auction houses in the spring of 1997, which forced a substantial fall in prices. A year earlier there had been strong demand from the new Russia and China, which competed for supplies with South Korea, but reduced pressure from Russia and China coupled with economic problems in South Korea forced buyers to be more conservative.

      In the U.S. the price of a mink pelt fell from $53.10 in 1996 to an average of $35.30 in 1997. Nevertheless, world production of ranch-raised mink increased 7% to a total of 26,295,000 pelts that would be earmarked for sale in 1998. Denmark accounted for 14.8 million of that total, or 56.2%. Although the U.S. crop was up 8%, it accounted for only 2.7 million pelts. World production of ranched foxes declined 5% from the previous year, with a total of 4,453,000 pelts. The leading producer was Finland with 2,550,000 pelts.

      There was also a sharp upturn in the popularity of fur among leading fashion designers and the media. According to the Fur Information Council of America, about 160 designers incorporated furs into their collections in 1997, either as entire garments or as trimmings or linings to complement textile or leather apparel.

      Animal rights activists persisted during the year in their often violent efforts to close down the fur industry. Although the FBI, which had branded the Animal Liberation Front a domestic terrorist organization, stepped up law-enforcement activities, vandals broke into ranches and allowed thousands of pedigreed mink to run free into nearby forests. Although many arrests were made and convictions obtained, the violence continued.

SANDY PARKER

Automobiles
      The performance of the automobile industry in 1997 very much mirrored the economic performance of the different regions of the world. In the United States a stable economy produced vehicle sales that, though down 1% from 1996, exceeded 15 million units for the fourth year in a row. In Europe, except for occasional bright spots, sluggish economic growth produced a flat market that barely exceeded 13 million units. The Japanese auto market, reeling from a tax increase imposed early in the spring, fell 2% but was off as much as 7% in the later months of the year. The less-developed nations, particularly in Southeast Asia and Latin America, showed strong sales growth through the early part of the year but virtually collapsed when those regions suffered currency and economic crises in the second half.

      In Europe automakers worried about the health of the auto market. Weak economic conditions in many countries dampened sales. Analysts pointed out that were it not for tax incentives offered by the Italian government to scrap older, more polluting cars in favour of newer, cleaner ones, the market would have dropped below 13 million units. They forecast that sales would fall below that level in 1998. Nonetheless, certain sectors of the European market performed well. Sales of so-called monocabs—subminivans—were particularly strong, led by the Renault Mégane Scénic. The company had to triple production to meet demand. Mercedes-Benz also unveiled its revolutionary tiny city car called the A-class, which initially enjoyed explosive sales. Mercedes was caught by surprise, however, when a group of Swedish automotive journalists, conducting an emergency swerving maneuver, or what they called the "elk test," managed to flip one over. The ensuing negative publicity forced Mercedes to stop production until it could provide a hasty engineering fix.

      In Southeast Asia the collapse of the currency markets in many countries brought car production to a halt. Toyota announced that it would close its plants in Thailand for the year, while other automakers cut back production severely. In South Korea Kia lost a bid with bankers to avoid bankruptcy when it could not cover interest payments on its debts, and the government announced it would nationalize the automaker. At the same time this was happening, Samsung readied plans to jump into the market, which led many auto executives to worry that their fears of excess capacity in the industry were beginning to be realized.

      In Japan Suzuki had the best-selling car in the country, the Wagon R, displacing the Toyota Corolla, which had held the position for more than a decade. Honda surpassed Mitsubishi to become Japan's third largest automaker, behind Toyota and Nissan.

      In Latin America the repercussions of Southeast Asia's currency problems reverberated through the Brazilian economy. A steep hike in interest rates, combined with a new tax on automobiles designed to shore up the Brazilian currency, brought growth to an end in what had been one of the strongest markets in the world. Because of the sudden drop-off in sales, virtually all automakers there announced immediate production cutbacks to reduce inventories. Brazilians hoped that their strong economic medicine would prove to be an invigorating tonic in the long run, and they pointed to Mexico as a hopeful example. Three years after the collapse of Mexico's peso, the country was able to post solid double-digit increases in sales.

      In the United States the market continued its seemingly inexorable swing toward light trucks. Sales of pickup trucks, minivans, and sport utility vehicles reached 45% market share, up from 43% the year before. Many market analysts projected that this share would reach 50% in a few years.

      After having lost market share in the U.S. during the previous five years, Japanese automakers were able to regain 1.1 points of share, owing to a weakening yen and new products. The yen, which lost about 13% of its value, allowed Japanese automakers to cut costs on the imported vehicles and parts they brought in from Japan. New designs allowed them to cut costs further. Toyota, for example, introduced an all-new Corolla with a new 1.8-litre engine that, thanks to clever design, used 200 fewer parts than the motor it replaced. These design changes, in conjunction with the weaker yen, allowed Toyota to cut $1,500 from the base price of the Corolla to $11,908. Sales of the subcompact car, by contrast, jumped 6%. Other Japanese automakers also either introduced new models at reduced prices or did not increase the prices of carryover models. American car buyers reacted positively to these alluring prices and pushed up sales figures of most Japanese automakers. Both the Toyota Camry and Honda Accord surpassed the Ford Taurus, which had been the best-selling passenger car in the U.S. for the previous five years. On the other hand, Japanese automakers Nissan, Mazda, and Suzuki saw sales drop 3.5%, 7%, and 21%, respectively.

      The European automakers enjoyed impressive increases in sales in the U.S. Mercedes-Benz posted its highest totals ever, surging 27% to more than 100,000 units, thanks largely to the introduction of several new models. The ML320 sport utility vehicle, made at Mercedes-Benz's new assembly plant in Vance, Ala., allowed the prestigious German brand to enter a new segment in the American market, and it scored an instant hit. The first year's production quickly sold out, and the showroom traffic generated by the ML320 carried over to the rest of the Mercedes-Benz line. It was able to capitalize on this momentum and relay that success across its product line.

      Audi, BMW, and Porsche also enjoyed solid, double-digit increases in U.S. sales. Market analysts said baby boomers entering their peak earning years were increasingly gravitating to the luxury car market, and most European makes represented the "boutique" type of brands those consumers were after. Even Volkswagen, which competed in the middle part of the market, held its ground as it awaited new replacements for the Golf and Jetta. VW also began laying careful plans for the introduction of the new Beetle, which was first exhibited in early 1998.

      While the U.S. Big Three automakers lost more than two points of share to the Japanese and European automakers in passenger cars, they continued to dominate the light truck segment. This strength in trucks, along with various cost-cutting measures, helped General Motors' North American Operations (NAO) to return to profitability for the first time in the 1990s. Even so, GM NAO's performance was hampered by United Automobile Workers of America (UAW) strikes that cost the company more than half a billion dollars in net profits. Future clashes with the union seemed virtually assured when the company announced its goal to shed more than 40,000 hourly workers over the next five years. GM also announced that it would close its Buick City assembly plant in Flint, Mich., in 1999; the plant employed 2,900 workers.

      Ford reported record earnings for the year. In North America this was largely due to the immense popularity and profitability of its large sport utility vehicles and pickup trucks. The company introduced a new full-size sport utility, the Lincoln Navigator, which became an instant sales hit and which analysts estimated earned up to $15,000 per unit in gross profits. To bring its production capacity for passenger cars in line with demand, Ford announced that it would close the assembly plant in Lorain, Ohio, that made the Ford Thunderbird and Mercury Cougar. Unlike the GM announcement to close Buick City that unleashed a torrent of bitter condemnation from the UAW, Ford's announcement to close the Lorain plant provoked no such outcry. To ease the pain of this plant closing, Ford quietly told the UAW that it would invest close to $2 billion for a new paint shop, a new gas tank plant, and a new engine plant at its River Rouge Plant manufacturing complex in Dearborn, Mich. This, Ford told the union, would ensure the viability of the facility and the jobs it provided well into the 21st century.

      Chrysler ran into several bumps in the road. After years of speculation, the company announced that it was going to drop its Eagle division, owing to sagging sales. Chrysler was also hit by a strike in the late spring at its Mound Road engine plant in Detroit, Mich., which in turn delayed deliveries of its hot-selling trucks. Sales and profits were additionally reduced owing to the massive retooling of two assembly plants. The Bramalea plant in Brampton, Ont., was shut for months, preparing for the introduction of the all-new Dodge Intrepid and Chrysler Concorde. The Newark, Del., plant was shut to convert to production of the all-new Dodge Durango sport utility vehicle. Production of Chrysler's pickup trucks also slowed as the company readied its plants to produce the Dodge Ram Quad Cab, the first pickup in the American market with four doors. Although the press focused on GM's market-share loss, Chrysler actually lost more share; on a percentage basis it lost nearly twice as much share as GM. Chrysler executives said they expected their new models to regain market share and improve profitability. Analysts agreed with this assessment, pointing out that the Quad Cab pickup alone would likely generate an additional $200 million in revenue.

      The large consolidation in the automotive supplier community continued throughout the year. For $625 million Tower Automotive bought A.O. Smith's Automotive Products Co., which specialized in stamping. BREED Technologies, Inc., bought the safety restraints business, including air bags and seat belts, from AlliedSignal for $710 million. Federal Mogul launched a $2.4 billion effort to purchase the British supplier T&N PLC., and Lear Corp. bought the seating component business from ITT Automotive. Rockwell International spun off its automotive operations as a $3.1 billion stand-alone company that was renamed Meritor.

      Ford reorganized its components operations on a global business into a new $16.4 billion business entity called Visteon Automotive Systems, with a goal of quadrupling its non-Ford business to 20% from 5% within five years. Financial analysts predicted Ford would ultimately prepare Visteon for a partial stock spin-off, much as GM planned to do with its Delphi Automotive Systems. GM launched a new program for suppliers to assume more responsibility for warranty expenses, which were estimated to cost the automaker about $600 per vehicle. Previously, GM picked up most of the warranty costs of defective components. Now, it told suppliers, they would have to pay the warranty costs on any defective parts they produced.

      The so-called revolution in automotive retailing in the U.S. picked up steam throughout the year. Ford launched a new retail initiative in Indianapolis, Ind., wherein it tried to persuade dealers in that market to join forces. Studies by marketing analysts and automakers alike showed that most new car buyers disliked the treatment they received at dealerships. The company's plan involved buyouts that would reduce its 24 or so dealerships in the Indianapolis market to only 5. Ford reasoned that fewer, but larger, stores would reduce the competition between its dealers, allowing them to obtain better transaction prices. The larger stores would also be expected to provide customers with a better selection of products. Ford also hoped to improve the retail-buying experience of its customers in these new stores. After initial interest, however, the dealers balked at the prices Ford offered for their stores, which they considered too low. Consequently, that effort failed, but Ford launched a new plan in Tulsa, Okla., along the same lines, and the company left little doubt that it wanted to revamp its retail network.

      Toyota and Honda fought to almost no avail to prevent Republic Industries, the "megastore" retailer owned by billionaire Wayne Huizenga, from purchasing dealerships in the quantity and time frame it wanted. Soon after Huizenga called a press conference with 25 state's attorneys to state his legal position regarding these purchases, Toyota announced it would drop its legal actions against Republic. By the end of the year, Republic had emerged as the single largest automotive retailer in the U.S., with over 150 stores, more than three times larger than the next largest retailer.

      The Internet emerged as a significant source of information for car buyers. Ford's Web site, for example, received more than 650,000 visits a day. Auto-By-Tel, an Internet automotive information service that provided information on new vehicles and where they could be purchased, announced in November that it had reached its millionth request for purchase information.

      Automakers and suppliers began to develop the capability for delivering Internet services directly into automobiles. Mercedes-Benz was the first to unveil a prototype to demonstrate the feasibility of such a system. Visteon demonstrated a voice-activated system that would allow drivers to dictate and send E-mail, as well as a speech synthesis system that would allow them to listen to their E-mail. IBM, Delco, Netscape, and Sun Microsystems teamed to produce a similar product. Both these systems allowed for other telecommunications capabilities, such as navigation and emergency services. United Technologies Automotive licensed Microsoft's CE operating system to develop capabilities that would allow consumers to use multimedia products from any company in their cars, instead of just those installed by the factory. Industry observers saw these moves as the first real effort by the consumer electronics industry to break into the auto business.

      Honda announced a prototype for a new gasoline engine that could almost meet the zero-emission-vehicle levels proposed by the state of California. While the engine produced some emissions, they were barely higher than the equivalent emissions produced by a plant producing electricity for an electric car. By carefully controlling the combustion in the engine with a more powerful computer, and with a special catalytic converter designed to reduce cold-start emissions drastically, Honda achieved this milestone. Honda also announced its plans to build a five-passenger jet airplane, and it unveiled an anthropomorphic robot designed to cater to the needs of an aging population. As Japan had the oldest average age of any industrialized nation, Honda saw this as a new market opportunity to exploit.

      At the end of the year, all automakers were focused on the conference on global warming that took place in Kyoto, Japan. GM, Ford, and Chrysler proposed that the U.S. increase the tax on a gallon of gasoline by 50 cents to steer car buyers into smaller, more fuel-efficient cars. Chrysler chairman Robert Eaton said his company was willing to abandon its full-size pickups and sport utility vehicles in favour of a European-type lineup of smaller vehicles—provided it could charge European-type prices, which were higher than those in the U.S.

      With the industry under pressure to produce cleaner cars at lower prices, and with the markets it was relying on for growth sputtering to a stop, the year ended on a far more uncertain note than it started.

JOHN MCELROY
      This article updates automotive industry.

Beverages

Beer.
 (For Leading Beer-Consuming Countries in 1995, see Graph—> .)

      A true milestone was achieved in 1997, the year that the United States took Germany's place as having the most breweries in the world. By midyear the U.S. boasted 1,273 breweries, whereas Germany had "only" 1,234. This surge in the American total was directly attributed to the microbrewery boom of the 1990s. All but 23 of the U.S. production sites were classified as craft-beer plants. Although the numbers continued to mount, analysts believed that consumers might be tiring of variety and were likely to veer back toward tried-and-true beers. In terms of consumption, the European nation still set the standard; on a monthly basis the average Bavarian family of four consumed 15 litres (4 gal.) of beer, which was half a litre (one pint) more than they drank in milk. In terms of production, however, it was the U.S.—long looked down upon by Old World brewers as a hopeless neophyte—that led the world.

      As craft brewers nervously awaited a shakeout of their suddenly crowded ranks, the largest U.S. brewers showed less interest than in previous years in that segment of the industry. Miller Brewing and Adolph Coors, the number two and three companies, experienced significant growth in 1997 by emphasizing top brands like Miller Genuine Draft and Coors Light to the general exclusion of experimentation with start-up labels. Top market brewer Anheuser-Busch pressured independent distributors to drop micro products and concentrate solely on Anheuser-Busch beers.

      Decisions by Anheuser-Busch and Miller to discontinue selling their respective European-pedigreed brands Carlsberg and LöwenbrŠu represented an opportunity for Labatt to expand its presence across North America. The Toronto-based brewer picked up U.S. rights for both brands, which thereby strengthened the company's position in the "specialty" (craft plus imports) category and raised the profile for those two labels, which were neglected in the houses of Budweiser and Miller Lite. Meanwhile, Anheuser-Busch invested in American Craft Brewing International, a U.S.-based company that built microbreweries in Mexico, Hong Kong, and Ireland and imported on a limited basis some of those beers into the U.S.

      This article updates beer.

Spirits.
      A new colossus took shape in 1997, creating a force that could dominate the spirits industry well into the 21st century. Guinness PLC and Grand Metropolitan PLC (Grand Met), two gigantic British companies in their own right, in May decided to merge into a single behemoth. The merger, the largest ever by British firms, had an estimated value of $38 billion. Guinness produced such brands as Tanqueray gin and scotch whisky brands Johnnie Walker and Dewar's, and Grand Met, which had the world's largest distilling operation, produced Smirnoff vodka, Bailey's Irish Cream, and J&B Scotch whisky. Other properties in the deal included Guinness beers, Grand Met wines Almaden and Inglenook, and such nonbeverage interests as Pillsbury and Burger King. The deal was held up several months by the French company LVMH Moët Hennessy Louis Vuitton, which held a significant stake in Guinness and was eventually made part of the new organization. The new conglomerate was dubbed Diageo PLC, a combination of the Latin word for "day" and the Greek word for "world."

      In the U.S., advertising of all spirit brands continued to infiltrate the television airwaves following the 1996 decision by sellers of distilled spirits to abandon their voluntary 60-year practice of avoiding such advertising. Major TV networks, however, maintained their own prohibition on liquor commercials, and cable and local stations were left as the only outlet for spirits advertising. The Federal Communications Commission (FCC) was petitioned by 10 states to ban spirits advertising, and U.S. Pres. Bill Clinton, in the stated interest of protecting children, implored the industry to restore its previous stance. Corporate heads, however, refused to put the genie back in the whiskey bottle, citing the freedom of beer and wine producers to advertise anywhere they pleased. By year's end the FCC had not taken definitive action on the matter.

      The vodka field in particular proved to be fertile territory. France, a noted wine country, jumped into this segment with Grey Goose Vodka; Poland offered a musical tribute with Chopin Vodka; and Canada launched Inferno Pepper Pot Vodka, which was bottled with a pair of fresh, flaming red peppers.

GREG W. PRINCE
      This article updates distilled spirit.

Wine.
      Vintage 1997 was generally received with optimism for the quality of the harvest. The quantities, however, were a concern. Italy continued a decline in yield dating back to 1980 with the harvest more than 15% below the average. The only area not suffering from low yields was California, which set records for its volume.

      In France the Bordeaux harvest started earlier than it had since 1983, with the picking of the white varietals beginning on August 18 and the reds during the first week of September. In Burgundy the grapes displayed great ripeness, which promised wines of soft fruit. Most of the nation's wine merchants and growers judged the 1997 Beaujolais nouveau, rushed to the market in late November, to be better than the 1996 product. According to Henri Sornin, whose family owned the Domaine des Ronze in the Beaujolais region, "It's nicely fruity; it has very strong violet colour, with a little tart taste of fruit-drop candy."

      The Italian harvest promised very good quality despite the low yields. South of the Equator, the story was generally the same. Australia, South Africa, and Chile all harvested smaller-than-average crops. Chile continued its fourth year of drought, which affected the grapes. South Africa experienced a late cool spell that allowed the grapes to hang on the vine longer and develop the fruit. There was some concern about harvesting all the grapes before the rains began, but this turned out not to be a problem.

      The entire wine world was shocked and saddened by the sudden death on July 25 of Gerard Jaboulet, of the Rhone firm of Paul Jaboulet. The company would continue to operate, but Jaboulet's guidance, humour, and leadership would be missed. Also dying during the year, on November 3, was Edmond de Rothschild, owner of one of the first mail-order wine services.

      Toward the end of the year, financial troubles in Asia caused auction prices to moderate, slowing an almost unbroken upward spiral. Wine publications continued to hold sway over the marketability of the products. One publication declared "co-winners" of its Wine of the Year awards, rating two 1994 Ports equally.

HOWARD HERING

      This article updates wine.

Soft Drinks.
      Although Snapple was the soft-drink brand that during the 1990s redefined "New Age" in general and iced tea in particular, the drink lost some of its lustre when it was sold by its entrepreneurial founder in 1994 and became part of the corporate culture at Quaker Oats. In 1997 Quaker lost faith in its $1.7 billion investment and sold the struggling portfolio of ready-to-drink teas and juices to a New York-based upstart conglomerate, Triarc Companies Inc., for the bargain price of $300 million. Many felt that Snapple would revive under the care of a smaller, hungrier company.

      Coca-Cola introduced Surge, an energy drink, to about one-half of the U.S. market in an effort to challenge PepsiCo Inc.'s stalwart Mountain Dew, which owned the "heavy citrus" category. Coca-Cola hoped that young consumers would "Feed the Rush" with its "fully loaded citrus soda" (charged with scads of caffeine, sugar, and drink-till-you-drop drive). By far, the top soft-drink brand in the world continued to be Coca-Cola, flagship of an international empire unmatched for reach and recognition in any consumer category. Roberto Goizueta, the company's chairman and chief executive officer and the man responsible for having spurred the company to its greatest heights in its 111-year history, died in October after a brief bout with cancer. .) (Goizueta, Roberto Crispulo ) When Goizueta became head of the company in 1981, Coke was valued at $4 billion; at the time of his death, that figure was $145 billion. His successor, M. Douglas Ivester, was expected to continue to steer Coke along its impressive growth curve.

      Among the most intriguing newcomers of the year were O2 Water, a "superoxygenated" packaged product that promised to improve athletic performance; Java Juice, a beverage that injected the previous buzz-free domain of orange juice with a shot of caffeine; and Nutz, a sparkling drink available in four nut flavours.

GREG W. PRINCE

      This article updates soft drink.

Building and Construction
      Construction, fueled by the longest sustained period of U.S. economic expansion since World War II, began to lose momentum in 1997. The National Association of Home Builders reported 1.4 million housing starts for the first three quarters of the year, signaling an annual decline of 2.5% from 1996. In August the U.S. government announced that $601.8 billion of construction had been completed, a 5% increase from the 1996 level. Annual spending on public infrastructure continued to grow at a modest pace of 2.3%.

      In California the $1 billion, 5.6-km (3.5-mi)-long Cypress Replacement Project opened to freeway traffic in the San Francisco Bay area. The highway connector replaced a double-decked expressway that had collapsed in the 1989 Loma Prieta earthquake. The six-lane seismically resistant replacement was scheduled for final completion in 1998. The Metropolitan Water District of Southern California continued work on the $1.9 billion Eastside Reservoir Project, which was designed to double surface-storage capacity for a system that supplied water to 16 million residents from Los Angeles to San Diego. A 986,800,000-cu m (800,000-ac-ft) lake would provide a six-month water reserve if an earthquake severed feeder aqueducts from either the Colorado River or northern California. The utility also continued work, begun in 1995 and scheduled for completion in 1999, on three dams to contain water in a valley 145 km (90 mi) southeast of Los Angeles.

      U.S. government proposals for tighter emission standards from power plants, coupled with state and federal moves to deregulate the sale of electricity, spawned the construction of more efficient power plants and retrofits to control emissions from existing coal-fired units. A consortium that was building a 520-MW combined-cycle power plant in Bridgeport, Conn., claimed that the natural-gas-fired unit would emit fewer pollutants than the 80-MW coal burner it was replacing.

      American architect Frank Gehry's striking $100 million Guggenheim Museum opened in Bilbao, Spain, in October. A cluster of 11 titanium steel-covered building blocks rose in irregular double curves around a 50-m (164-ft)-high glass atrium.

      The world's largest public-works project, Hong Kong's Chek Lap Kok Airport, stayed on schedule despite Hong Kong's change in political status in July. The new airport, built on an island, had road and rail links to the city; it was scheduled to open in the spring of 1998. On the Chinese mainland the first phase of the controversial Three Gorges Dam, the largest flood-control and hydropower project in the world, neared completion. (See Sidebar. (Three Gorges Dam )) Currency fluctuations imperiled Thailand, which was forced to renegotiate contracts with several international engineering and construction firms for work on Bangkok's massive wastewater-treatment upgrade after the baht went into a tailspin in midyear. Malaysian Prime Minister Dato Seri Mahathir bin Mohamad postponed the start of work on the Bakun Dam, a $5.5 billion hydropower project on the island of Borneo. Critics charged that the structure would have generated 2,400 MW of unneeded power while displacing 10,000 indigenous people and destroying large tracts of rain forest.

      In sub-Saharan Africa, where 70% of the population was without running water, several components of the Lesotho Highlands Water Project, a joint multiyear effort by Lesotho and South Africa, neared completion. Botswana embarked upon a $330 million, 30-year effort to bring water to its agrarian-based economy. It completed the Letsibogo Dam in its eastern sector and advanced the North-South Pipeline, an aqueduct that would transport water some 360 km (225 mi) south to Gaborone, the nation's capital.

ANDREW G. WRIGHT

Chemicals
      Even though the world chemical industry increased the value of its output to $1,570,000,000,000 in 1996 and rolled strongly into the next year, 1996 was somewhat disappointing in that the growth from 1995 was only 0.2%—as compared with a 1986-96 average of 6.3%. Much of the slowdown resulted from slumps in several of the major chemical-producing nations, including Japan, Germany, and The Netherlands.

      These dips more than offset the slight gains of others in the ranks of the top 10 chemical-producing nations, which were, in order, as tabulated by the U.S.-based Chemical Manufacturers Association (CMA): the United States, Japan, Germany, France, China, Great Britain, Italy, Russia, South Korea, and Spain. Of these, only Italy and possibly China increased the value of their production by more than 4%.

      Much of Western Europe enjoyed an excellent economic climate in 1997, and the chemical industry predicted late in the year that it might well surpass the expected 2.5% annual growth for the region and reach a level of 4-5%. The fast tempo at the year's end led the European Chemical Industry Council members to predict that 1998 would be almost as good.

      Japan's chemical sales in 1996, at $216 billion, were down 13% compared with the volume in 1995. Chemical makers were cautious about the 1997 prospects. The country was plagued by financial problems, but there was one helpful aspect; the low yen-to-dollar value was viewed as aiding chemical exports.

      The U.S. chemical industry, according to a late-1997 survey by the CMA, was estimating a 5.5% rise in revenues (compared with 1% in 1996), with after-tax profits jumping by 10%. Export markets, predicted to rise 12% over the 1996 level, were credited with stimulating the growth, and small companies were particularly optimistic about the future.

      Compilations from the CMA showed that sales of chemicals totaled $57.5 billion in 1995 in Central and Eastern Europe, down from $64.9 billion in 1994. Responsible for most of the dip was Russia, estimated to have done a 1994 business of $33.6 billion and just $23.9 billion in 1995. Asian nations with emerging industries had targeted their chemical industries for growth, but the countries' attractiveness to outside investors was limited by their shaky economies and a currency collapse in mid-1997.

      National economies were not the only problems of chemical makers in the industrialized nations. The unrelenting pressures applied by the international financial community on every industry pushed chemical companies into trying to find the most immediately profitable products and to trim workforces. It also led to the continued reevaluation of the best mixes of businesses and products. The major companies in 1997 swapped assets, closed plants, opened new plants, tried new markets, and retreated from other markets at the same fast pace that had marked 1996. Despite the wild stock market gyrations in the fall of 1997, the chemical industry was not immediately hurt badly, although long-term effects were not easily predictable.

      One of the largest changes in the structure of a chemical company took place in Britain when Imperial Chemical Industries (ICI) purchased the specialty chemical businesses of Unilever for $8 billion. ICI announced in May that it planned to pay for part of this move by reducing its stake in bulk chemicals and selling off $5 billion in assets of this type.

      A number of companies were viewing relatively high-priced, low-volume specialty chemicals as important profit boosters. One such specialty area was labeled "life sciences," and many companies were expanding in this arena. As applied by the companies, the term included biotechnology, pharmaceuticals, and new types of agricultural chemicals. In June Rhône-Poulenc of France began a new degree of commitment to life sciences by organizationally and financially separating them from its more conventional chemical businesses and basing an entirely new firm on its Rhône-Poulenc Rorer pharmaceuticals unit. A few months later the U.S.-based Monsanto Co. announced plans to spin off to stockholders its conventional chemical businesses, with annual sales of $3 billion, under the corporate name of Solutia. The Monsanto name was retained for its advanced bioscience products, which included "genetically engineered" forms of molecules that would, for example, stimulate milk production in cows and alter the susceptibility of crops such as corn and cotton to pests or pesticides.

      South America and the Middle East continued to strengthen their roles in the chemical industry. Data for 1995—the latest available from the CMA—revealed that South America's domestic sales reached $94 billion, nearly 21% above the 1994 mark of $77.8 billion. Firm figures on the countries of the Middle East were unavailable, but industry experts, noting the continued petrochemical industry expansions there, believed that the region's production was increasing faster than that of Europe.

      In Western Europe Germany was the largest producer, with about one-fourth of the region's chemical sales volume. France had 1996 sales of $84.1 billion ($84.6 billion in 1995—although in local currency terms its sales were up) and accounted for more than 17% of Europe's chemical business. Sales in Britain increased to $56 billion in 1996 from $55 billion a year earlier. Italy's sales in 1996 rose 4.3% to $53.1 billion from $50.9 billion in 1995.

      World trade in chemicals rose in 1996. Western Europe exported chemicals valued at $294.6 billion and imported $238 billion, with exports up slightly (0.2%) and imports down somewhat more (1.7%). The U.S. in 1996 exported chemicals valued at $48.7 billion (compared with $46.4 billion in 1995) and increased its imports 17%, to $36 billion from $30.7 billion. Japan saw its chemical exports dip to $28.7 billion from $30 billion, and its imports declined to $25.3 billion from $29.5 billion.

J. ROBERT WARREN
      This article updates chemical industry.

ELECTRICAL
      Sales of electrical power plants, appliances, and lighting fixtures in the Americas and the Asian-Pacific region showed modest growth in 1996 but were offset by a stagnant market in Europe. This sluggish demand cycle continued into 1997, and by late in the year a downturn in sales in East Asia was beginning to be felt by some of the large electrical equipment manufacturers. Competition in all product ranges was so intense that the industry was increasingly dominated by a handful of large multinational firms. To counteract falling profit margins, even the largest multinationals were adopting innovative methods of increasing productivity.

      The solution conceived by the General Electric Co. was probably the most speculative. The company introduced a "Six Sigma" quality level, defined as fewer than 3.4 defects per million operations in a manufacturing or service process. Six Sigma was regarded as particularly significant for preserving the reputation of GE's domestic appliances division. In the company's power systems division, 300 people were hired, trained, and certified to lead quality improvement projects. Many smaller manufacturers would consider this to be an unjustifiable expense, but GE claimed that for most U.S. companies defects can cost up to 10-15% of their revenues. Six Sigma was costing GE $90 million in the power division alone, but the division expected to achieve almost $1 billion in cumulative savings over the next four years (the division's 1996 revenue was $7,257,000,000).

      Siemens AG, the world's largest electrical equipment manufacturer, had launched a "top" program in 1993 to increase productivity and encourage innovation. In 1996 total productivity gains were up more than 8%, and the cumulative gain over the previous three years was nearly 25%. Gains in 1997 were expected to reach 10%.

      Despite its name, GE did not restrict its business to electrical equipment and ranked third in the electrical industry, after Siemens and ABB Asea Brown Boveri Ltd. GE's revenue in 1996 totaled $79,179,000,000, but of that only $28,734,000,000 came from electrical equipment manufacturing. In comparison, total revenue at Siemens in 1996 was $53,817,000,000, and at ABB it was $34,574,000,000.

      Innovation appeared to be ABB's top priority to gain competitive advantage. The company stated that it had successfully countered intense price competition in developing power plants through a strategy of utilizing new designs of high-efficiency plants to cut costs and construction times. ABB also found that improvement in production economics was a natural result of its expansion program under way in Asia and Eastern Europe.

      Expertise in all aspects of financing was rapidly becoming another important competitive factor. As a result of the privatization and deregulation of the public electricity supply companies in many parts of the world, private investors and operating companies began ordering many new power-generating plants. This was a promising market for those suppliers willing and able to invest in such projects, and beginning in 1995 Siemens invested heavily in power-plant projects in Spain, Portugal, India, Pakistan, Indonesia, and China. In 1996 GE coarranged debt and equity financing for the first large privately funded power project in Mexico and formed a joint venture with Shanghai Power to fund and operate China's first long-term nonguaranteed commercially financed power project.

      Maintenance and repair contracts and spare part sales, particularly for power plants, were also becoming increasingly important for the industry. For GE those services brought in $8.4 billion in 1996, an increase of 11% over 1995. The Anglo-French major plant manufacturer, GEC Alsthom, stated that its service and maintenance activity represented about 25% of sales and extended to equipment manufactured by other companies.

      One innovation from ABB could have wide sales appeal, as it might make it economically feasible to supply electricity from the public mains to isolated consumers. It could also be viable to connect small isolated generating equipment to the public electric distribution system. Those prospects were based on the development of compact cost-effective equipment to convert alternating current into direct current and vice versa. Such converters would link the consumer and the small generators to the public power networks. Until recently economic considerations had limited direct-current power transmission to the transport of very large amounts of power over long distances, notably in Russia and Canada.

T.C.J. COGLE

Energy

Petroleum.
      Crude oil producers continued to benefit from relatively high prices in 1997, as robust economic growth in a number of regions drove global petroleum demand. World oil markets started the year in strong shape when a cold snap in the Northern Hemisphere sent the price of Brent Blend, the North Sea crude that serves as an international price bellwether, as high as $25 a barrel in January. The early price hike caused some industry analysts to predict that the rising price trend evident in 1996—when Brent rose 21% over 1995 to average more than $20 a barrel—would carry over to 1997. With the onset of milder weather, however, spot prices quickly drifted down to an $18-$21-per-barrel range for much of the year.

      Iraq continued to be the main wild card in the international oil market. In the summer Iraqi concerns about the slow delivery of food, medicines, and other relief supplies under the United Nations oil-for-food deal resulted in the temporary suspension of Iraqi oil exports. Shipments were later resumed, but a showdown that began in late October with the U.S. and UN over the presence of Americans among UN arms inspectors in Iraq added new uncertainty to oil markets.

      The uncertainty surrounding Iraqi exports had a marked influence on world prices, as the amounts were large enough to tip markets into imbalance. Factors that helped underpin prices in 1997 included lower-than-expected output from producers outside OPEC. Continuing delays in bringing new fields into production accounted for much of the problem.

      A shortage of skilled workers and key pieces of equipment, including drilling rigs, also plagued the international oil industry during the year. Even with such problems, however, some of the biggest non-OPEC producers remained optimistic about the prospects for production growth. In September Norway, the world's second largest oil exporter, after Saudi Arabia, said its peak output might be higher than the official forecast of 3.7 million bbl per day.

      High oil demand from major consuming countries such as the United States also helped support prices. U.S. oil demand grew at an annual rate of approximately 1.5%, a modest level when compared with fast-growing countries such as China, which in September recorded nearly a 15% year-on-year increase. The U.S., however, remained the world's most important oil market in regard to volume, consuming nearly 19 million bbl a day, of which 9.8 million were imported.

      World economic growth continued to be a key determinant of overall oil demand, and the financial turmoil that struck a number of Asian countries toward the end of the year added yet another element of uncertainty to petroleum markets. OPEC, which included some of the world's biggest producers, such as Saudi Arabia and Iran, decided in late November to increase by 10% its long-neglected production ceiling of just over 25 million bbl a day. The timing of the decision, in the midst of the Asian economic crisis, was seen as negative for prices, which fell below $18 a barrel shortly after the group concluded its discussions.

      The number of OPEC countries that had begun to rely on foreign oil companies to finance ambitious oil expansion plans continued to climb. Venezuela, the only Latin-American member, proved successful in attracting billions of dollars of investment into its oil industry, with much of it coming from U.S. oil companies eager to have a large source of supply only a few days away by ship from the numerous refineries along the U.S. Gulf of Mexico coast.

      In November Iran, which had previously offered foreigners only limited access to its oil industry, signaled that it too would be relying more heavily in the future on international investment to boost oil output. For the first time since before the Islamic revolution in 1979, Iran decided to allow foreign companies to explore and develop onshore oil deposits within its borders.

      The growing interest of the international oil industry in Iran angered the U.S. government, which imposed unilateral sanctions on foreign companies that invested in oil and gas sectors in Iran, charging the nation with promoting international terrorism. The decision by Total of France, Petronas of Malaysia, and Gazprom of Russia to begin developing Iran's giant offshore South Pars gas field in the Persian Gulf triggered a formal U.S. investigation, which could lead to U.S. sanctions against those companies.

      The European Union and other governments objected to the threatened use of unilateral U.S. sanctions. They claimed that oil companies operating in Iran were not breaking any international agreements or domestic laws in their respective home countries.

      U.S. oil companies responded to the U.S. government's growing use of unilateral sanctions by mounting a lobbying campaign in Washington. The companies feared they would be increasingly excluded from deals in a number of countries because of the sanctions.

      The foreign operations of U.S. oil companies also came under the scrutiny of domestic pressure groups; during the year Texaco decided to withdraw from a controversial gas development in Myanmar (Burma). The Texaco withdrawal allowed Petronas, the Malaysian state oil group, to step into the deal. Petronas exemplified another trend that emerged in 1997, that of state-owned oil groups from less-developed countries competing directly with the established Western firms for new exploration or development rights. The China National Oil Company was similarly successful in using its political influence to win two multibillion-dollar oil-development deals in Kazakstan against fierce competition from Western companies.

      During the year a broad commitment to developing the reserves of the Caspian Sea region emerged from the international industry. Some observers believed the area might one day rival the Persian Gulf region in output.

      Azerbaijan and Kazakstan signed a series of agreements with international oil groups to open big reserves to development. Many of the deals were in large part politically inspired, as both countries were eager to secure diplomatic support from the U.S., Europe, and China for their independence in a region still dominated by Russia.

      Russia remained a priority area for many Western oil companies, which were lured by the country's large number of discovered but undeveloped oil fields. Political opposition within Russia to foreign companies' playing a major role in such a strategic sector and the lack of adequate legal safeguards kept foreign investment levels low, however.

      Another region that drew substantial interest from the international oil industry in 1997 was the deep water off the west coast of Africa. Several large discoveries were announced during the year, especially in Angola.

ROBERT CORZINE
      This article updates coal.

Natural Gas.
      Natural gas in 1997 continued to make inroads into energy markets previously dominated by oil. The fuel received a big boost in December when countries attending the international climate-change conference in Kyoto, Japan, voted to impose legally binding targets for the reduction of greenhouse gases. One of the main ways to reduce such emissions was to replace coal-fired electricity-generation plants with those that used natural gas.

      In December European Union energy ministers approved a plan that would open the $1 billion-per-year European natural gas market—presently dominated by national monopolies—to limited competition over a 10-year period. Consequently, many expected European gas prices, which were higher than those in North America and much of Asia, to fall, which would thereby improve the EU's industrial competitiveness.

      In the United States, which in 1997 was the world's biggest natural gas market, increasing demand for gas triggered a wave of new proposals to build large-capacity pipelines. Industry figures revealed that U.S. demand for natural gas had risen by almost 3% per year over the past five years.

ROBERT CORZINE
      This article updates natural gas.

Coal.
      During 1997 the world increased its reliance on an old fuel, coal, to obtain more of its most modern and versatile energy, electric power. Production reached an all-time high of 5.4 billion short tons in 1996, and preliminary statistics for 1997 showed continued strong demand. Coal was the primary fuel for generating electric power, providing almost 40%. Worldwide economic growth raised electricity requirements among nations in all stages of development: industrialized, especially the United States; industrializing; and less-developed, especially China and India. Coal generated more than 55% of the electric power in the U.S. economy, the global economy's largest component, and more than 70% in both China and India, the most populous countries. Preliminary statistics put 1997 U.S. production at a high of about 1.1 billion short tons, the fifth billion-ton year, and consumption for power at about 895 million short tons, another record. Other nations that produced more than 200 million short tons were China, Russia, India, Germany, Australia, South Africa, and Poland.

RICHARD L. LAWSON
      This article updates coal.

Nuclear.
      The International Atomic Energy Agency statistics for 1996, published early in 1997, indicated that there were 442 nuclear units operating in 33 countries at the beginning of the year, a net increase of five over 1995. Total operating capacity was 350,964 MW, an increase of 7,172 MW over the previous year. Worldwide during 1996 nuclear power units produced a total of 2,312.06 TWh, which brought the cumulative total of electrical energy produced by nuclear plants to 29,600.1 TWh (terawatt-hours; 1 TWh = 1 billion kw-h). A total of 36 units were under construction in 14 countries, including 3 new projects on which construction began and 5 that began production. Five units were scheduled to begin production during 1997.

      Countries with the largest proportion of the national electricity production from nuclear power in 1996 were Lithuania (83.4%, from 2 nuclear units), France (77.4%, from 57 units), Belgium (57.2%, from 7 units), and Sweden (52.4%, from 12 units). The total number of commercial power reactors permanently shut down throughout the world remained at 71 (Bruce 2 was shut down in Canada but might be restarted).

      The second world environmental summit, held in Kyoto, Japan, at the end of the year, provided a platform for countries to renew their pledges to reduce the production of greenhouse gases, made at the 1992 Earth Summit in Rio de Janiero and subsequently largely broken. Thus, in 1997 politics, rather than technology, had been making nuclear power's potential for reducing greenhouse gas production even more difficult to achieve.

      Sweden ranked fourth in the world for dependency on nuclear power. Its long-standing political commitment to phasing out nuclear power by 2010 presented the government with several dilemmas. The country was to lose more than 10,000 MW of base load power stations, more than half its generating capacity, which could be replaced only by more expensive, less reliable, and much more environmentally damaging fossil-fuel capacity, including imported electricity. This would result in a dramatic increase in greenhouse gases and other pollution produced by electricity generation and cancel any achievement the country had made toward meeting the commitments made at the Rio conference in 1992.

      Ontario, the leading nuclear power province in Canada, continued to suffer the crisis of confidence from the mishaps that had toppled its units from their position of a few years earlier as the world's best-performing nuclear reactors. Ontario Hydro announced that it would shut down 7 of its reactors to allow resources to be concentrated on bringing the remaining 12 back up to the previous levels of excellence.

      Progress with nuclear power was still to be found, however, particularly on the eastern Pacific Rim. North Korea became a nuclear energy nation when several protocols signed in New York City cleared the way for construction to start on two reactors at Sinpo, 240 km (150 mi) from Pyongyang. The agreements were between North Korea and the Korean Peninsula Energy Development Organization, a multinational consortium formed to implement the earlier agreements between North Korea and the U.S. and to help organize the project.

      General Atomics won a $133 million contract from Thailand to design and build a nuclear energy research centre for Thailand's Office of Atomic Energy for Peace. The centre was to include a 10-MW research reactor, an isotope reprocessing facility, and a waste-treatment plant. A Thai government committee was appointed to study the possibility of building that country's first nuclear power plant.

      Progress was made with the Shelter Implementation Plan (SIP), the internationally supported effort to finally deal with the deteriorating Chernobyl 4 "sarcophagus." The site of the wrecked reactor was to be rendered environmentally safe in an eight-nineyear project costing about $750 million. Ukraine's minister of environment and nuclear safety, Yury Kostenko, said in early July that the closing of the remaining operating unit at the station would be delayed if the promised financing did not materialize. Further help was needed with the financing of new units at Khmelnitsky and Rivne to replace the Chernobyl generating capacity. Ukraine's contribution was already at the limit of what it could afford; the government had to find $1 billion to deal with the consequences of the accident. The Group of Seven leading industrial countries, meeting at about the same time, set up a new multilateral funding mechanism and agreed upon a $300 million contribution to the SIP.

RICHARD A. KNOX

Alternative Energy.
      The public profile of alternative energy rose in 1997 when two of the world's biggest petroleum companies—the Royal Dutch-Shell Group and British Petroleum (BP)—announced large investments in the sector. Shell designated alternative energy as one of five core businesses for the group, the Western world's largest energy company, and promised to invest $500 million over the next five years to expand its presence in solar energy and sustainable forestry projects.

      BP said it aimed to increase its sales of solar panels from $100 million in 1997 to $1 billion over the next decade. The company believed that solar power could compete with conventional power sources to meet peak electricity demand within the next 10 years.

      Alternative energy also received a boost from the conference in Kyoto on climate change and global warming, although many experts warned that it would take years, if not decades, before energy sources such as solar, wind, and biomass could make deep inroads into the global energy market. A Shell study predicted that alternative energy could provide 5-10% of the world's energy needs within 25 years and account for half of global energy consumption by the middle of the 21st century.

ROBERT CORZINE

Games and Toys
      The toy industry in 1997 saw its share of "must-have" items not only during the holiday shopping season but also throughout the year. Tyco Toys, Inc., followed its previous year's holiday success, Tickle Me Elmo, with Sing & Snore Ernie, whose actions included yawning and tummy movements. Similar and also popular was Tyco's Real Talkin' Bubba, a fuzzy bear with a Southern accent. Both disappeared rapidly from store shelves. Elmo remained on the market and was joined by such other Tickle Me toys as Big Bird and Ernie. Another of the year's introductions was the Microsoft Corp.'s interactive ActiMates Barney, which could move, sing, play games, and—with the use of a transmitter plugged into a computer or a videocassette recorder—interact with videotapes or episodes of Barney's TV show. This Barney did not come cheap, however; the basic retail price was at least $100, and additional equipment could raise the cost to as much as $250.

      Early in the year electronic "virtual pets" made their entrance into the U.S. First introduced by Bandai Co., Ltd., in Japan in November 1996, Tamagotchi—"cute little egg"—soon was in demand worldwide. Displayed on a tiny liquid-crystal screen, the pet would hatch and then grow up over a period of days. When it needed care—food, medicine, play, sleep, discipline, or cleaning—it would beep, whereupon its owner had to push a button that would attend to its needs. If it was not taken care of, it would "die," though another push of a button would bring forth a new pet. Caring for the pets became an obsession with some owners, and parents, teachers, and even employers were becoming annoyed by the disruptions the toys caused, some going so far as to ban them altogether. Later versions, though, had a pause button that gave owners a break. Bandai received orders for at least 70 million of the cyberpets during the year, and such knockoffs as Tiger Electronics, Inc.'s Giga Pets were also on the market.

      Electronic games continued to grow in number and popularity. There was no lack of violent action games aimed mostly at males, but an increasing number of new titles were designed to appeal to young girls. On the Internet, multiplayer games were attracting ever-increasing numbers of participants. Instead of playing against a computer program, users could compete with or against each other. The biggest seller, Ultima Online by Origin Systems, Inc., recorded as many as 9,000 simultaneous players on some occasions. To investigate what computer technology would mean to the future design of toys, the Massachusetts Institute of Technology Media Laboratory in October announced a five-year research project—Toys of Tomorrow.

      The perennially popular Barbie—credited with having helped propel Mattel Inc. to the position of world's biggest toy maker—continued to make news in 1997. In May her newest friend, her first one with a disability, was introduced. Share a Smile Becky came equipped with a bright pink wheelchair. Also in May, 16 elegantly costumed limited-edition Chinese Empress Barbies, commemorating the handover of Hong Kong to China, were auctioned, and 5,000 other Chinese Barbies were later offered for sale. Talk With Me Barbie had CD-ROMs and a workstation that could be connected to a real computer; Dentist Barbie had a dentist's chair and instruments; and the 10th annual Happy Holiday Barbie was—for the first, and only, time—a brunette. Perhaps most surprising was the news that one of the 24 new Barbies released in 1998 would have more realistic proportions.

      Sales of other traditional toys remained high. The yo-yo was making a big comeback, and Duncan Toy Co. officials thought that 1997 sales figures could match the 1962 record of 25 million. Whereas some of the yo-yos were the basic models of yesteryear and retailed at about $10, others were made of aircraft aluminum, boasted such advanced technology as light-emitting diodes and centrifugal clutches, and sold for as much as $90. Action figures, especially Hasbro, Inc.'s toys tied in with such popular motion pictures as the Star Wars and Batman series, were popular as both toys and collectibles. The craze surrounding another collectible, the already established Beanie Baby, was heightened by McDonald's distribution of Teenie Beanie Babies in a Happy Meals promotion. (See Sidebar.)

      Toys "R" Us Inc., the world's largest toy retailer, made news in September when a federal judge ruled that it had violated U.S. antitrust laws and kept prices of certain popular toys artificially high by pressuring manufacturers to refuse to sell some lines to discounting warehouse clubs if they wanted to keep Toys "R" Us as a customer. The discounters could obtain selected toys only in combination packages, and consumers thus could not compare prices. Ordered to cease making those deals with toy suppliers, Toys "R" Us maintained that it had a right to determine what toys it would sell and planned to appeal the ruling.

      Hasbro, the maker of such toys as Mr. Potato Head and the board games Monopoly and Trivial Pursuit in addition to its popular action figures, announced in December the biggest restructuring in the company's history. It planned to cut costs, reduce its workforce, and buy back stock in an effort to regain the number one status it had once enjoyed.

      GameBoy designer Gumpei Yokoi and Bandai founder Naoharu Yamashina died during the year. (See OBITUARIES (Yamashina, Naoharu ).)

BARBARA WHITNEY

Gemstones
      Although sales of gemstones increased during 1997, difficulties arising from a currency crisis in some of the leading Asian economies, notably in Thailand, seriously affected some parts of the trade in those countries. Sales of rough diamonds by De Beers Consolidated Mines Ltd. declined 4% from 1996. The crisis in the markets also resulted in lower prices, even for the finest specimens. Thailand, long the cutting and dealing centre for many of the important gem-producing countries, was in short-term danger of losing its role. Reports reaching London indicated that fine blue sapphires and rubies, perhaps the best-known Thai specialties, were in some cases changing hands for half the amount they would have obtained prior to the crisis.

      In late October share prices in Hong Kong dropped severely, and the pegging of the Hong Kong dollar to the U.S. dollar appeared under threat. This would affect sales at auction and in particular those of top-quality jadeite jewelry traditionally held by the major auction houses in October-November. Those items were finer and much more plentiful than in previous years; top estimates at Christie's reached HK$5 million for a jadeite cabochon set in a ring.

      Christie's was also offering in Asia the largest D-flawless diamond (weighing 22.13 carats) and the largest chrysoberyl cat's-eye (396.59 carats) ever to be sold at auction. At least three "named" diamonds were featured at various auctions; at a Christie's Geneva sale the 26.14-carat cushion-shaped Rajah carried an estimate of $1,500,000, and at Sotheby's New York the Jonker No. 7 diamond (19.74 carats) fetched a top estimate of $1,000,000 and the Presidente Vargas No. 4 diamond (28.03 carats) had a top estimate of $800,000. Christie's Geneva offered probably the finest ruby, an untreated stone of Myanmar (Burmese) origin, weighing 42.98 carats.

      The diamond trade in India came under scrutiny after reports of widespread use of child labour in the diamond-cutting factories of Seurat, where some 20,000 children were reportedly working. The employer, De Beers, promised to investigate the matter. In October De Beers agreed to buy at least $550 million in rough-cut diamonds from Russia.

      The fine emerald from Zimbabwe (the Sandawana emerald) was again being produced after supplies had long been scarce.

MICHAEL O'DONOGHUE

Home Furnishings

Furniture.
      While industry watchers were determining whether the furniture industry was undergoing a shake-up or was simply having a shaky period, sales proved that 1997 was not a spectacular business year. Despite an increase of about 5% in the sales of furniture at wholesale and a 7% increase for the top 100 retailers, the industry appeared unsettled. Most notable were the Chapter 11 bankruptcy filings of two retail giants, Levitz and Montgomery Ward, which together owed creditors over $90 million.

      On the basis of the 1996 figures compiled by Furniture/Today, the top three U.S. manufacturers remained in the same positions as a year earlier. LifeStyle Furnishings International claimed first place ($1,733,300), followed by Furniture Brands International ($1,696,800) and La-Z-Boy ($985,200,000). According to the American Furniture Manufacturers Association, the wholesale total was $19,960,000,000 in 1996 and was projected at $20,978,000,000 for 1997, a 5.1% increase. In retailing, Heilig-Meyers, which placed second a year earlier, moved up into the number one spot nationally. The company was also rated the fastest-growing retailer in the U.S., with 944 stores and sales that amounted to $11,021,500. It replaced the troubled Levitz ($960.7 million), which came in second. Sears HomeLife was third, with $657 million in sales.

      The furniture styles were varied. There was a surge in Modern, a newer, more-formal Continentalism, and a smattering of Mediterranean (now called Medi-Mix). The best Mediterranean-style group was Lane's Hearst Castle Collection, which was based on authentic Spanish antiques. As part of the retro movement, Bexley Heath Ltd. reintroduced the Widdicomb Collection designed by T.H. Robsjohn-Gibbings from 1946 to 1960, and Baker reintroduced c. 1940 and 1950 pieces by famed Danish Modern designer Finn Juhl. Two new big names entered the market: Bill Blass designed a collection for Pennsylvania House, and Eddie Bauer created a collection for Lane. Bob Timberlake created Timberlake House, using his designs for Lexington. An innovative, complete design program, it consisted of several packages that included house plans, interior designs, furnishings, and landscaping ideas. In addition, leather continued to gain market share, with new distressed textures and engraved patterns. Inducted into the American Furniture Hall of Fame for 1997 were John R. ("Jack") Gerken, Jr., Norwalk Furniture Corp.; Clyde Hooker, Jr., Hooker Furniture; and Albert G. Juilfs, Senco Product, Inc.

ABBY CHAPPLE

      This article updates furniture industry.

Housewares.
      During 1996 houseware expenditures decreased by 7.1%, with American consumers spending $54 billion on such items as cookware, cleaning goods, heating and cooling equipment, tabletop appliances, and personal-care products. In 1996 the average U.S. household spent $522 on housewares, a $45 decrease from the previous year. Despite the slight decline in sales, some retail channels for housewares enjoyed high growth levels. Specialty chains expanded rapidly and opened new stores across the country. Virtual stores—those outlets not requiring a physical space (television, catalogs, and direct mail)—contributed to the state of flux. Television shopping networks and infomercials accounted for $4 billion in housewares sales, and consumers purchased $1 billion worth of household merchandise over the Internet. Some predicted that Internet sales of housewares would be five times that amount by the end of the decade.

      Most items experienced at least a slight decline in sales. Clocks, hair-care products, and telephones and telephone accessories witnessed the severest decreases, with the latter falling by 62.3%. The 1995 boom in outdoor equipment leveled out and declined, with sales falling by 20.5%.

      Expanded sales in safety-related products reflected an increased awareness of home-safety issues by consumers. Much attention was focused on alarms that combined smoke detectors with carbon-monoxide sensors. Smoke-alarm sales increased by an astounding 45.7% in 1996, and purchases of water softeners and filters went up by 18.9%.

SUSAN DOLL

INSURANCE
      The three "C's"—computers, consolidations, and competition—highlighted the insurance industry in 1997. While companies scrambled to prepare for the "year 2000" computer problem, mergers and acquisitions created more global giants in insurance and financial services. Competition remained intense, particularly in the commercial field. A fourth "C," catastrophes, caused fewer weather-related insured losses, though uninsured losses were high as a result of flooding on the northern U.S. plains, hurricanes in Mexico, and earthquakes in Italy.

      In 1996 worldwide insurance sales topped $2 trillion for the first time, with the U.S. accounting for 40% of the total, followed by Japan (14%), Germany (10%), and Great Britain (6%). Emerging Asian markets were relatively stagnant, and uncertainty surrounded the long-term effects of restrictions on competition as Hong Kong was returned to China.

      During the first six months of 1997, U.S. property-liability profits were excellent, with net income after taxes up more than 50% to $18 billion. Warmer weather caused by El Niño reduced hurricanes on the Atlantic coast but increased Pacific windstorms. While auto-insurance results were generally favourable, changing demographics, including a declining number of households, hurt life insurers' sales. In the first six months of 1997, however, life-insurance sales increased a strong 6.3%, and annuity sales hit $41 billion, with assets up to $573 billion.

      Better communication through E-mail, pagers, faxes, and toll-free telephone numbers brought significant changes. Advanced technology created new opportunities for agent interaction with customers, and the electronic world intensified the search for better methods of administration, asset and document management, claims handling, and underwriting. On-line sales, estimated at $300 million, were generally disappointing, but the Internet was useful for providing consumer information and generating sales leads.

      Nearly 60 million people were covered by managed-care plans, and three of every four doctors participated in at least one of these programs. Aggressive pricing by health maintenance organizations raised questions about the relationship of costs to the quality of care and also caused dramatic changes in medical malpractice insurance. Long-term-care insurance received a boost from U.S. Department of the Treasury regulations that permitted taxpayers to deduct the cost of premiums and allowed nontaxable benefits for qualified plans.

      Mergers dominated insurance news in 1997. The consolidation trend grew beyond insurance companies and agencies and brokers to encompass the entire financial services business, including banking, securities, accounting, and legal firms. The number of merger transactions was estimated to have been the largest ever in a single year. Large mergers included the acquisition of American States by Safeco Corp. for $2.8 billion, American International Group's purchase of American Bankers Insurance Group for $2.2 billion, and Lincoln National's buyout of CIGNA Corp.'s life and accident business for $1.4 billion. Smaller mergers included purchases of Colonial Penn Insurance Co. by General Electric Capital Services and Acceleration Life by the Frontier Insurance Group, In Canada, Great-West Lifeco offered to buy the London Insurance Group for $2.1 billion, and in Europe the merger activity heated up, with the Zürich Group's pending acquisition of Scudder, Stevens & Clark for $1.7 billion and its plans to acquire B.A.T. Industries of London. ING Group of The Netherlands purchased Equitable of Iowa for $2.2 billion. Assicurazioni Generali also launched a $15 billion takeover bid for Paris-based AGF. Japan, the leader in the world's life insurance market, suffered its first failed life insurer in 50 years, Nissan Mutual, which lost $1.6 billion.

      Lloyd's of London returned as a competitive force in the global insurance market. In January Lloyd's introduced a new internal-monitoring system designed to prevent huge financial reverses like the $12.4 billion it lost between 1988 and 1992. Lloyd's renaissance was spearheaded by new investments from foreign insurers and almost 100 other corporate groups. The company's claims-payment ability remained highly rated.

      The U.S. courts handed down several important decisions affecting insurance. National banks would no longer be restricted from selling insurance in places with populations of 5,000 or less. Broadening the banks' authority to write insurance, however, became a federal versus state debate as regulators wrestled with how to limit and oversee this change. In September the House Commerce Committee postponed indefinitely the creation of an omnibus banking bill that would have dismantled many of the industry restrictions.

      Several major class-action settlements made big news. The U.S. Supreme Court set aside a landmark $1.3 billion asbestos settlement fund established in 1993, ruling that the agreement did not provide for the legal interests of all the plaintiffs. The fate of the proposed $368.5 billion settlement offered by the tobacco industry to be paid out over 25 years was uncertain; states sought to recover Medicaid costs, and lawmakers put off taking legislative action until 1998. Settlements for deceptive sales practices could cost Prudential Insurance Co. of America up to $2 billion and John Hancock Mutual Life Insurance Co. about $350 million. Consumers could also benefit from the increased spending ($650 million) by insurers for fraud detection and prevention.

DAVID L. BICKELHAUPT

      This article updates insurance.

MACHINERY AND MACHINE TOOLS
      Worldwide sales of machine tools increased 5.4% to about $38 billion during 1996, the last year for which figures were available. Japan was the largest producer, with total production valued at $9.2 billion, followed by Germany ($7.8 billion), the United States ($4.9 billion), Italy ($3.8 billion), and Switzerland ($2.1 billion). Countries with at least $1 billion in production included Taiwan ($1.8 billion), China ($1.8 billion), United Kingdom ($1.3 billion), and South Korea ($1.2 billion).

      Metal-cutting machine tools, such as milling machines, drill presses, and lathes, made up the bulk of the machines produced worldwide. In the United States they accounted for about $3.1 billion in shipments. Metal-forming machine tools, such as bending machines, shears, and punch presses, accounted for about $1.4 billion of U.S. production.

      The U.S. solidified its position as the largest consumer of machine tools. Sales to the U.S. shot up 7.4%, to $7.2 billion. Germany placed second, with consumption valued at $4.5 billion, and was followed by China ($4 billion), Japan ($3.5 billion), Italy ($3 billion), South Korea ($2.5 billion), France ($1.5 billion), the U.K. ($1.4 billion), Canada ($1.3 billion), and Taiwan ($1.1 billion).

      Manufacturers in the U.S. purchased nearly $4 billion in machine tools from other countries. Japan, the major exporter to the U.S., sent $1.8 billion in machinery, and Germany sent $530 million worth of machinery.

      The total export market for U.S.-built machine tools grew by nearly 14% in 1996 compared with 1995, reaching a total of over $1.3 billion. The principal export market for U.S.-made machine tools was Canada, which received $320 million in machinery, followed by Mexico with more than $200 million, China with $110 million, and Brazil with $100 million. Exports accounted for 26% of total U. S. production.

JOHN B. DEAM

Materials and Metals

Glass.
      It appeared in 1997 that between the years 1997 and 2007 the strongest growth within the glass-packaging industry would take place in India and China, where production could increase by over 160%. Production in China at that time would be far higher than in the two largest markets as of 1995—the U.S. (10.3 million metric tons) and Japan (10.2 million metric tons). Strong growth in South America was also forecast, as investment in new machinery and a substantial increase in end-user markets could lead to a near doubling in capacity. In Peru, for example, glass packaging for carbonated soft drinks increased by 180% between 1991 and 1996. By contrast, domestic demand for glass containers in Japan was likely to contract, as growth in the end-user sectors would remain slow because of increased competition from other packaging materials. In the U.S. demand remained static, as it had since 1990.

      As predicted, growth in Eastern Europe remained strong, with Poland, Hungary, and the Czech Republic all expected to experience growth in excess of 22%, owing to strong end-user markets, primarily in the beer and soft-drink sectors. The potential for growth in glass packaging was massive in Russia—provided that the political and economic environment remained stable. In comparison, the rate of growth in Western Europe slowed considerably, totaling 6% in 1994, 4% in 1995, and just below 3% in 1996, owing to pressure from competition from other packaging materials. European container-glass producers were heavily involved in cross-border mergers and acquisitions in Western, Central, and Eastern Europe. Following the expansion of the European Union to 15 member states in 1995, the EU accounted for more than 96% of the total Western European production. In the EU container sector, capacity utilization was approximately 92% in 1996, and EU glass recycling was up 2%, just under 150,000 metric tons, from 1995. The total glass collected for recycling in the 17 countries was 7.6 million metric tons. Germany was the clear leader in terms of tonnage, with 2.8 million metric tons. Switzerland had the highest national recycling rate, with a record level of just under 90%, followed by The Netherlands with 81%.

      By the year 2000 the countries of the Pacific Rim region should have a significant lead in the worldwide production of flat glass, mainly owing to continued development in the automotive and construction industries. China and India were also expected to experience strong growth. In Japan increased imports from surrounding neighbours signaled a relatively slow growth rate. Flat glass production in Eastern Europe was expected to remain attractive to Western investors as a result of its low cost. The completion of new float glass plants in Saudi Arabia, Turkey, Egypt, and Iran would make the Middle East and North Africa self-sufficient in flat glass manufacture but would add to the global oversupply.

THERESA GREEN
      This article updates industrial glass.

Ceramics.
      The ceramics industry experienced substantial overall growth during 1997, although manufacturing and environmental issues contributed to mixed performances in some sectors. Strong manufacturing economies in the United States, Asia, and parts of Latin America generated double-digit growth rates for some segments, despite financial problems in Asia during late 1997. Growth in Europe mirrored relatively weak economies there. In the U.S., where glass was considered part of the industry, total sales rose to nearly $90 billion; glass accounted for 59%, and the advanced ceramics segment continued to grow in share to 26%.

      Persistent economic expansion in the U.S. and other markets drove flat glass production to record levels for both automotive and architectural use. In addition, new product technologies based on surface coatings, tempering, and improved fabrication methods for special shapes were stimulating demand. The glass container market grew modestly on a worldwide basis in 1997, although certain key markets continued to suffer from strong competition from polymer containers. Recycling of glass, long an important technology and practice in Europe, gained momentum in the U.S. Both regions set records for using recycled glass during 1997, and improved melting technology aided glass manufacturers in producing containers from recycled glass.

      Production of advanced ceramics grew strongly in 1997, accounting for over a quarter of the ceramics industry. Electronic materials dominated this category (about 75%), and the high growth rate of computers and communication equipment caused electronic ceramics to become the fastest-growing major product sector. Multilayer ceramic capacitors featured reduced thickness and gained market share, and demand for these widely used components outstripped supply. Every new automobile, for example, used 1,000 such capacitors on average. Explosive growth in wireless communication stimulated double-digit growth in most sectors supplying this industry. They included capacitors, piezoelectric crystals, varistors, thermistors, and similar components, many of which were used in mobile phone handsets. On the other hand, the growth of multilayer, multicomponent electronic packages slowed after the fast start in 1996, and the production of conventional ceramic packages for integrated circuits continued to stagnate because of competition from polymer composite packages with improved heat-removal capabilities.

      Advanced structural and composite ceramics, historically limited to cost-insensitive aerospace and military applications, continued steady market penetration in industrial sectors owing in part to low costs and high product reliability. Three application markets—silicon nitride ball bearings, certain automotive ceramics, and ceramic composite cutting-tool inserts—showed solid growth during the year. The use of silicon nitride ball bearings increased by more than 10% owing to improved reliability, reduced costs, and greater customer acceptance. Advances in ceramic machining technologies dramatically reduced costs and brought many components in line with traditional materials on a value basis. The most notable examples of commercialized ceramic matrix composite materials were silicon carbide/alumina cutting tools that continued to grow in the markets for machining cast iron, superalloys, and high face-velocity cuts of conventional metals. The production of optical and electro-optical glass and ceramic materials was growing rapidly and became the focus of major capital investments during 1997. The demand for these materials, which included optical fibres, sensors, and planar structures for electronic applications, was expected to increase substantially during the next five years.

      Demand in the U.S. for whiteware ceramics—principally floor and wall tile, dinnerware, sanitaryware, artware, and a large miscellaneous group—was relatively flat compared with substantial growth in some global markets such as Mexico and the Pacific Rim nations. Fast firing, a standard part of tile processing, was overcoming technical hurdles in producing sanitaryware and dinnerware and contributed to higher productivity. A principal concern among whiteware manufacturers during the year was the conversion to lead-free glazes and decorations to reduce lead-related workplace risks and to skirt difficult marketplace regulations in some states. Dinnerware and so-called table-top products moved significantly away from heirloom-quality items toward less-formal products for daily use and casual entertaining.

      The transition of some manufacturing facilities to low-cost locations in Mexico and Asia had a major effect on many segments of the traditional ceramics industry. The labour-intensive nature of sanitaryware manufacturing, for example, coupled with strong price pressure from bulk retailers, markedly affected U.S. production. With European sanitaryware manufacturers under similar pressure, mergers or proposed mergers between major manufacturers resulted in consolidation during the year.

CAROL L. ERON; RICHARD L. LEHMAN

      This article updates industrial ceramics.

Rubber.
      The rubber industry, led by a strong growth in the U.S. tire market, continued its worldwide expansion in 1997. Most regions of the world were posting gains, with the exception being portions of Southeast Asia because of currency devaluations there.

      In the U.S. a slight decrease in shipments of original-equipment automobile tires was more than offset by strong gains in shipments of replacement and truck tires. Tire shipments were up more than 3.5% in the U.S. and 1.4% in Canada, according to the Rubber Manufacturers Association. Tire- manufacturing capacity increased in the U.S. as Michelin North America Inc. began production at one of its C3M units in Reno, Nev. The Michelin C3M process purportedly reduced overall manufacturing time by 85%, and the Reno facility was the sixth such plant built for the company. Michelin also announced that it would enter the North American agricultural tire market. Bridgestone/Firestone, Inc., said that it would build a new tire plant in South Carolina and chose Aiken, S.C., for a $435 million facility that would be producing 25,000 passenger car and light-truck tires daily by 2000.

      Southeast Asia was once again the area of interest for many of the multinational rubber companies and their suppliers. The currency devaluations that were forced on several of the area's economies, coupled with overcapacities in many markets, only slowed the rush to establish manufacturing presence in the region. The combination of an abundant supply of natural rubber and inexpensive labour catapulted Southeast Asia into the position of largest producer of rubber in the world.

      The Bridgestone Corp. was especially active in the Asia-Pacific region, announcing plans to build a second tire plant in Indonesia, to double the capacity of its Thailand tire plant, and to enter a joint venture in China; it also purchased the Firestone Tyre & Rubber Co. of New Zealand Ltd. Also in the area, Hankook Tire Mfg. Co., Ltd., announced plans to invest $600 million in China over the next seven years. Hankook would buy an existing plant and modernize it, build a new tire plant, and quadruple capacity at an existing plant. Yunnan Tire Co. opened a tire plant in Kunming, China, with a capacity to produce two million tires per year.

      In other major tire industry news Avon Rubber PLC of England was purchased by Cooper Tire and Rubber Co. of the U.S. Italy's Pirelli SpA was spending $170 million to expand its Brazilian tire facility, which would make it the company's largest, and Goodyear Tire & Rubber Co. bought a 60% stake in the Slovenian-based Sava Group and a 75% share in its engineered products operation. Sava had two tire plants with a combined annual output of five million tires.

      Synthetic rubber supplier Bayer AG shut down its polychloroprene plant in Houston, Texas, shifting production to its German facility. Bayer also announced plans to expand its polybutadiene rubber and solution styrene-butadiene rubber output at its Orange, Texas, complex, and it was investigating establishing a synthetic rubber plant in India.

      Recognition during the year of additional allergies associated with latex products, namely examination gloves and prophylactics, prompted legislation in various parts of the world, especially Europe and the U.S. Natural rubber latex contains antigens to which more than 1% of the people are allergic. In combination with powder, like corn starch, commonly used in the health profession, the possibility that the antigens will spread increases. U.S. health officials estimated that 10-12% of the nation's health care workers were affected by the allergy.

DONALD SMITH
      This article updates papermaking.

Plastics.
      In 1997 the world used 130 million metric tons of plastic materials. In terms of volume, the most common plastic was high-density polyethylene (HDPE), used mainly in the manufacture of bottles and grocery and trash bags; it accounted for 13%. Industry analysts predicted that the use of plastics was likely to continue to grow at an annual rate of about 5% and that Asian countries would continue to play an important role in plastics manufacturing and imports. In less-developed countries such as China, Malaysia, and Thailand, the growth rate in the production of plastic products in 1997 was more than double that of industrialized countries. Commanding 25% of the total international trade, China was the largest importer of plastic materials.

      New developments in 1997 led to many product improvements, especially the protection of plastic materials. Because of its sensitivity to damage by sunlight, nylon had been limited to indoor use. The application of a special hindered-amine light stabilizer (HALS) to nylon materials now provided protection against the harmful rays in sunlight. The outdoor durability of plastic products also was increased by weather-resistant coatings—in particular, pigmented fluoropolymers and acrylics.

      In Japan the barrier properties and transparency of food packaging were improved by the addition of a thin silica-glass layer on plastic packaging film. U.S. food packagers were expected to make use of this innovation in the near future. In the meantime, continuing improvements in packaging materials made of metallocene and multilayer linear low-density polyethylene (LLDPE) helped control water and gas transmission in foods and added six to eight weeks to the shelf life of fresh produce. Engineers also developed ethylene-vinyl acetate stoppers to replace corks in wine bottles, an innovation that preserved the taste and odour of wine while controlling its cost.

      Several new developments in manufacturing processes lowered the costs and improved the performance of plastic products while minimizing environmental damage. German and Japanese manufacturers showed that halogen heat lamps were faster and more efficient than conventional quartz lamps for preheating plastics for processing. Manufacturers also continued to look for alternatives to ozone-depleting chlorofluorocarbons (CFCs) in the foaming of plastics. Europeans favoured the use of hydrocarbons, whereas U.S. manufacturers leaned toward hydrofluorocarbons and liquid carbon dioxide. Lasers and heat-transfer decals made the printing of information or decorations on the surface of plastic products more efficient and environmentally sound than the conventional wet-ink printing process.

      Outlets for recycled plastic materials continued to grow. Sixty companies in North America, for example, were producing millions of board feet of plastic lumber per year. Another growing outlet for recycled plastic was flexible polyurethane foam. The material could be mixed with virgin polyurethane binder and converted into carpet underlay and automobile headrests, armrests, and door liners.

RUDOLPH D. DEANIN
      This article updates plastics (plastic).

Advanced Composites.
      During 1997 the market for composite materials continued to grow, as indicated by shipments of materials. The Society of the Plastics Industry's Composite Institute estimated that U.S. shipments for composites of all types totaled 1,550,000 metric tons, an increase of about 6% above 1996 levels and 8% above 1995 levels, for the sixth consecutive year of increases. The 1997 gains were most pronounced in the consumer products and transportation sectors, which was reflective of the increased use of composites in sporting goods and of the upturn in the commercial aircraft market.

      The market for advanced polymeric composites, primarily carbon fibre-reinforced polymeric composites, had recovered since the early 1990s, a period characterized by a reduced military market due to the end of the Cold War and a worldwide economic recession. From 1992 to 1995 worldwide carbon fibre shipments increased 50% to 8,900 metric tons. In 1996 and 1997 the carbon fibre industry operated at close to capacity. The industry transition from defense applications to higher-volume, lower-cost applications led to an emphasis on the development of cost-effective materials and manufacturing processes. For example, processes that produce low-cost carbon fibres in fibre bundles with an increasing number of filaments were finding applications in high-volume markets.

      The industry continued to pursue aggressively two potentially large markets that would make use of lower-cost materials and processing methods—construction and automotive. The applications of advanced composite technology in construction and infrastructure renewal seemed certain to increase. Examples of technologies that were being evaluated included composite bars for reinforcing concrete, composite reinforcement and overwrap for seismic and structural upgrades and repairs, and composite-reinforced wood laminates for beam structures. Composite applications in construction increased significantly in Europe and Japan. Several evaluation programs were under way in the United States, but acceptance of composites continued to be slow.

      Composites, especially in the form of sheet molding compounds (SMCs), were becoming increasingly important in the production of automobiles. The amount of SMCs used by the automotive industry had increased more than 70% since 1990. High-performance composites had not, however, found significant application in automotive structures, despite collaborative research and development efforts to develop continuous fibre-reinforced composite structures for lightweight, energy-efficient automobiles. The use of high-performance composites in automotive applications was inhibited by concurrent improvements in strength and toughness of metals (including aluminum alloys, magnesium alloys, and steel alloys), the relatively high cost of composite materials and manufacturing processes, and the difficulty experienced in recycling advanced composites.

THOMAS E. MUNNS; ROBERT E. SCHAFRIK

Iron and Steel.
      (For World Production of Pig Iron and Crude Steel, see Graphs.)

      World consumption of steel products grew by 30 million metric tons, or 4.5%, to 695 million metric tons in 1997, the fifth consecutive year of growth and 81 million metric tons more than in 1987. During the past five years consumption in the nations that constituted the former Soviet Union had fallen by 42 million tons, but this was more than offset by the increase of 75 million tons in Asia, of which 30 million tons were accounted for by China. Consumption in North America rose 29 million tons.

      The continued buoyancy of the U.S. economy, marked by high automobile production and strong growth in residential construction, accounted for a large share of North America's steel use. Consumption in the U.S. plateaued, but at the very high level of 106 million metric tons, and there was double-digit growth in the Canadian and Mexican steel markets. Sixteen million tons of new production capacity came onstream in North America during 1995-97, mainly to make flat steel goods, and all of the new plants used the primarily scrap-based electric furnace process. South American steel use was rising, boosted by automotive demand in Brazil and the construction sector in Argentina.

      The strengthening of the dollar and pound sterling against the major European currencies resulted in an export-led revival in the steel industries of the countries of continental Europe, with the automotive and machinery sectors leading the recovery. Construction remained generally weak, depressed by the fiscal and monetary restrictions imposed by governments as they sought to qualify their nations for membership in the European monetary union. Western European steel consumption grew by 10 million tons, or 7.7%, in 1997. The steel consumption of the formerly communist countries of Central and Eastern Europe grew more slowly, at about 5%, whereas that of the former Soviet Union remained in the doldrums.

      In Japan steel usage in the construction sector was declining. Steady growth in China's steel consumption took it back above the 100 million-ton threshold, and Taiwan's demand for steel products rose 10%. There was little growth in the other Asian markets, however, owing in part to a currency crisis that affected several countries in the middle of the year. Growth in this region, which accounted for 45% of world steel consumption, was expected to resume in the future, however.

      In industry developments the Hanbo Steel Corp., which had planned to become South Korea's second largest steel producer, defaulted on debt payments in January and sought court protection from its creditors. In August steelworkers in the U.S. ended a 10-month strike against the Wheeling-Pittsburgh Steel Corp. The workers received a raise, a signing bonus, and guaranteed pension amounts, and the company was able to implement workplace efficiencies and some job reductions.

ANTHONY TRICKETT

      This article updates iron (iron processing).

Light Metals.
      Light metals are generally those with densities less than five grams per cubic centimeter. Light metals of primary commercial significance include aluminum, magnesium, titanium, and beryllium.

      World primary (new metal) aluminum production in 1997 was reported at 19 million tons, a significant increase over the 16 million tons reported for 1996. The apparent increase was, however, a statistical aberration associated with a change in the method of accounting for global production by the reporting agency. Approximately 40 countries produced primary metal, and national production rates varied from the top producer, the United States with 3,600,000 tons, to countries with rates as low as 10,000 tons. Actual world production increased 3%, mostly attributable to the reopening of some plants that had been idled by the industry as a consequence of the 1994 Memorandum of Understanding, an agreement of the major producing countries to curtail production.

      The top five primary-metal-producing countries accounted for 60% of world production. In order they were the U.S., Russia, Canada, China, and Australia.

      The price of aluminum averaged 73 cents per pound in 1997, but by December it had fallen to 68 cents. It is strongly influenced by the store of the metal in the London Metal Exchange worldwide warehouses. During the year this storage quantity dropped by 300,000 tons to 650,000 tons in December, a trend that countered the decrease in price.

      Significant changes were occurring in the U.S. aluminum industry. Reynolds Metals, for 50 years the second largest producer, after Alcoa, ceased making fabricated products and began selling its mills, reclamation facilities, and beverage-can-production plants.

      The 1997 production of new magnesium increased 3.5% to 320,000 metric tons. By the end of the year, inventories were depleted, and delivery was tight. Western world production, which excluded Russia, was 240,000 tons. The aluminum industry consumed 42% of the available magnesium for alloying purposes, down from the traditional 50%. This was primarily attributable to the decreasing use of the high-magnesium-content alloy for beverage can ends, which had been redesigned in a smaller diameter. The automotive market increased to 6.4 lb per vehicle, a 15% increase over 1996. The price per pound generally varied between $1.62 and $1.80, though lower prices were sometimes available.

      The titanium market was bullish in 1997, and some concerns were being expressed by the aerospace industry, which took 60% of production, about the adequacy of future supplies. World production was estimated at 50,000 to 60,000 tons, but the reliability of the figures from sources outside the U.S. was questionable. The successful transition from an overreliance on the defense industry at the beginning of the decade continued, and sports equipment, represented by golf clubs and premium bicycles, was increasing product applications.

      Beryllium production remained in the range of 650 to 700 metric tons, with U.S. consumption approximating 230 tons. Base metal price ranged from $165 to $290 per pound, and this confined its usage to niche markets in aerospace, nuclear, and special electric products. Vacuum-cast ingots of greater than 98% beryllium ranged from $290 to $340 per pound, depending on purity.

GEORGE J. BINCZEWSKI

Metalworking.
      Most businesses providing metal parts in 1997 were small or medium-sized companies that specialized in specific markets or metalworking technologies. Because these companies were normally part of a supplier chain for large enterprises, such as automakers or aerospace companies, they reacted to the business needs of the larger companies. During 1997 the dominant need was shortening the time it took to bring both new and existing products to market. One result of that need was an interest in buying parts either cast or pressed to a near-net shape to reduce the number of operations in the manufacturing process. Such near-net-shaped parts required little additional metal removal and assembly.

      Consolidating powder metals was an important near-net-shape technology. Worldwide metal powder production exceeded one million tons, and the North American powder metal parts and products industry estimated its sales at more than $3 billion. Shipments of iron- and copper-based powder metal parts, roughly 70% of total U.S. demand, grew an estimated 8%, mostly because of increasing demand from the automobile industry. By 1997 a typical U.S. five- or six-passenger car contained more than 13.5 kg (30 lb) of powder metal parts.

      Another business trend in the automobile industry was the use of lightweight materials, such as aluminum and plastic, to reduce a vehicle's overall weight in order to meet government regulations for reduced fuel emissions. The transportation sector was the largest producer of aluminum parts in 1996 and was expected to be the largest consumer of aluminum.

      Even with the proliferation of lightweight metals and plastic, the metalworking industries were projected to receive 107 million net tons of iron and steel shipments in 1997, 6% above the previous year. Shipments to the automobile industry, however, fell 1.9% in 1997 to 14.4 million net tons.

      Because near-net shapes required the removal of very little material, manufacturers could remove metal from those parts very quickly. Demand for high rates of metal removal and for short times to bring products to market spurred machine-tool builders to increase spindle speeds, sometimes to more than 60,000 rpm, and to add increasingly sophisticated computer technology to their machines.

JAMES KOELSCH

      This article updates mineral processing.

Microelectronics
      At year-end 1997 the microelectronics industry was commemorating its birth 50 years earlier on Dec. 16, 1947, when Bell Telephone Laboratories, then the research and development arm of AT&T, invented the transistor as an alternative to the vacuum tube. The invention was patented in 1948, and its inventors—William Shockley, John Bardeen, and Walter Brattain—received the Nobel Prize for Physics in 1956. By 1997 microprocessor technology was producing chips containing as many as 7.5 million transistors.

      Projected worldwide sales of semiconductors in 1997 rose by 7% to $138 billion, according to the Semiconductor Industry Association (SIA). After a 10.5% drop the previous year, the projected gain was still below 1995's sales of $144.4 billion. Because of the increasing worldwide use of microprocessors in household appliances, cellular phones, and personal computers (PCs), the SIA anticipated an annual growth rate of 20.1% in 1998, 21.9% in l999, and 21.6% by the millennium, which would result in sales of $245.7 billion in 2000. Microprocessor revenues alone were expected to account for $44.9 billion in sales. In 1997 microprocessor sales exceeded the revenue from dynamic random access memory chips. The metal-oxide semiconductor chip market, including digital signal processors (DSPs) and microprocessors, reached $49.1 billion in l997 and was projected to reach $89.3 billion in 2000.

      The Asia-Pacific region, including India, South Korea, Taiwan, China, and Singapore, remained the fastest-growing market for semiconductors and replaced Europe as the third largest market after the Americas (North and South) and Japan. The Americas represented one-third of the world's market share, a figure that it was predicted to retain through 2000. The Asia-Pacific market was expected to increase its share of the world chip market to 24.3% in 2000, exceeding Japan at 21.5%. Intel Corp., under its aggressive chairman and CEO, Andrew S. Grove ) (Grove, Andrew S. ), controlled 85% of the market for microprocessor chips.

      On May 12 rival chip manufacturer Digital Equipment Corp. filed suit accusing Intel of 10 cases of patent infringement. Digital charged that Intel had used designs from Digital's Alpha chips in its Pentium II and Pentium Pro processors. Later that month Intel countersued, and in August it filed a suit accusing Digital of infringing on 14 Intel patents. The two companies eventually settled out of court, with Intel purchasing Digital's semiconductor development and facilities, Digital developing future systems based on Intel's new IA-64, 64-bit architecture, and patent cross-licensing allowed for 10 years.

      During the year Intel introduced its new line of Pentium II processors that incorporated the company's new MMX multimedia technology, included 7.5 million transistors, and ran at high speeds of up to 300 MHz. In July the company broke ground on a new $1.3 billion plant in Fort Worth, Texas. Intel also acquired Chips and Technologies of San Jose, Calif., a maker of graphic accelerator chips for mobile PCs. Meanwhile, Intel competitor Cyrix Corp. agreed to be acquired by National Semiconductor for over $500 million. Motorola, Inc., maker of the PowerPC chip used in Apple Computer Inc.'s Macintosh computers, shipped its new PowerPC 750 (or G3) chip, which was comparable to the Pentium II.

      In September IBM announced that it would begin using a new manufacturing process that employed copper instead of aluminum in its semiconductor manufacturing. The new process would produce more powerful, lower-cost chips that used less power to operate. One week later Motorola announced a similar process. It was predicted that the design, initially created for large mainframe computers, would find its way into consumer products within two to three years.

      By 1997 DSP chips that converted analog signals such as video or sound into compressed digital form had found wide usage in communications devices such as wireless products, modems, and answering machines. Potential uses for DSPs, which were increasing in quantity by about 30% per year, included the new digital versatile (or video) disc and set-top boxes for Internet connections via the television set. It was anticipated that DSPs would replace the microcontrollers used in many modern consumer products.

      Also experiencing worldwide growth was the memory- and microprocessor-based smart-card market. It was estimated that over three billion smart cards would be issued by 2000. Already popular in Europe, the smart cards were beginning to be used by companies in the U.S. to track employee travel expenses more accurately. Other potential uses for smart cards included banking transactions, medical history storage, and electronic commerce.

THOMAS E. KROLL

Mining
       Indexes of Production, Mining and Mineral Commodities(For Indexes of Production, Mining and Mineral Commodities, see Table (Indexes of Production, Mining and Mineral Commodities).)

      For much of 1997 the mining industry benefited from a buoyant world economy, with China and the newly industrializing "tiger" economies of Southeast Asia serving as the dynamo. Ominous signs emerged in the final quarter of the year, however, as a currency crisis spread through Southeast Asia, but it was too early to gauge the extent to which the crisis would slow economies and affect the demand for metals and minerals. The countries of the former Soviet Union showed some signs of economic improvement in 1997, but domestic consumption of metals and minerals remained far lower than before the Soviet breakup. For the most part, mineral production was also lower because of a lack of investment, but for some commodities, such as aluminum and nickel, output was maintained at a high level.

      Exploration throughout the world continued to flourish, and Nova Scotia-based Metals Economics Group, after making a survey of 279 companies, estimated that worldwide spending on the search for nonferrous metals rose 11% in 1997, to about $5.1 billion. Regionally, Latin America accounted for 29% of the total, followed by Australia (17%), Africa (17%), Canada (11%), and the U.S. (9%). In Indonesia the huge gold discovery by Bre-X Minerals Ltd. turned out to be a fraudulent claim. (See Sidebar (Bre-X Minerals Scandal ).)

      Activity in sub-Saharan Africa was particularly noteworthy. With the exception of South Africa, the continent as a whole had long been regarded as a poor relation, but a number of positive developments occurred in 1997. Angola began to attract greater foreign investment in its diamond sector, and the change of leadership in the Democratic Republic of the Congo (formerly Zaire) triggered considerable interest in that country's huge untapped resource potential. The world-class Tenke-Fungurume copper deposit was being developed, and a $1 billion deal was struck with a U.S. company to revitalize Gécamines, the government-owned copper producer. In neighbouring Zambia, Falconbridge of Canada and Anglo American Corp. of South Africa were involved in a feasibility study for the Konkola Deep mine, and in November an international consortium agreed on terms for the acquisition of Zambia Consolidated Copper Mine's (ZCCM's) Nchanga and Nkana divisions, all key components of the privatization of ZCCM.

      A number of new mines came into production. In the copper sector these included Bajo de la Alumbrera in Argentina, Radomiro Tomic in Chile, and Ernest Henry in Australia. There were also major capacity expansions, including at the huge Grasberg mine in Irian Jaya province, Indon., where an eventual expansion to 900,000 metric tons per year of copper and 2,750,000 oz of gold was under consideration. The El Niño weather phenomenon had some impact on copper-mining activities during 1997, with heavy rainfall disrupting some operations in the Andes Mountains and drought conditions in Papua New Guinea precluding the use of vital river transport for the important Ok Tedi mine.

      The Australian company BHP had a busy year, developing its new Hartley platinum mine in Zimbabwe, bringing a major new silver mine in Australia onstream, and forging ahead with the development of Canada's first diamond mine. Its Cannington mine in Queensland cost nearly $A 450 million and would contribute about 6% of world silver production. The Lac de Gras diamond mine was estimated to have resources totaling 66 million metric tons at an average grade of 1.09 carats per metric ton and an average value of $84 per carat. The mine would become the largest employer in northern Canada. The final development cost was expected to approach Can$900 million.

      More privatizations took place in 1997, notably in Brazil. There the government sold its 42% controlling stake in CVRD, one of the world's largest mining companies, for $3.1 billion.

      In general, the mining industry was able to keep pace comfortably with the demand for metals and minerals. Demand for iron ore and steel-alloy metals strengthened in conjunction with the buoyancy in the steel sector; the Organisation for Economic Co-operation and Development forecast that world steel consumption would rise by some 3% to a record 670 million metric tons in 1997 and production by 3.1% to 775 million metric tons. Supply and demand for coal maintained an upward trend, but prices remained highly competitive.

      Base metals were characterized by a series of supply squeezes, whereby a metal was deliberately withheld from the market by some participants in order to drive up its price. This activity occurred on the London Metal Exchange (LME), where more than 90% of the world's base-metals trading took place. Aluminum, copper, and zinc were all subject to squeezes, and those short of metal and unable to deliver against their contractual commitments were forced to "borrow" metal and pay a considerable premium to do so. The LME authorities felt obliged to intervene and impose daily limits on the premiums. Describing the squeezes as unwelcome market "aberrations," the LME took action in October when it began to publish, alongside its regular metals stocks figures, the volume of metal held in LME warehouses that was not available for sale.

      The copper market was unsettled for much of the year by forecasts that a substantial supply surplus was developing because of increasing mine production. The debate was over the size of the surplus and how soon it would occur. China remained a key player. Its domestic demand for the metal far exceeded its own production capacity, and if it entered the market as a major buyer, the supply-demand balance would be transformed, which would have a major impact on prices. China acted with considerable restraint, but some suspected that its State Reserve Bureau, which held a large copper inventory, was, in effect, operating a buffer stock as a means of limiting price movements.

      Nickel had a mediocre year. Despite healthy demand for stainless steel (the main end use for nickel), the market for primary nickel was disappointing, and it appeared that many stainless-steel producers were using up their primary nickel stocks and relying on an abundance of secondary nickel derived from stainless-steel scrap.

      Aluminum enjoyed a steady growth in demand, and prices for the metal held up well. Two or three years earlier, the world had been awash with aluminum, stocks were at record levels, and metal prices had slumped. Consequently, under a memorandum of understanding, major producers idled much of their production capacity in order to reduce stocks to manageable proportions.

      In the precious metals markets, gold had a dire year. Following sales of gold by central banks from their reserves, the sentiment was that gold was no longer vital for backing currencies. Without this special role, gold became just another commodity. The most publicized sale was by Australia's reserve bank in July, when it sold two-thirds of its total reserves. Australia was one of the world's leading gold producers, and the news plunged the gold price to a 12-year low. The market was rocked again in October by a proposal by Swiss gold experts that the country sell more than 50% of its reserves. The price fell to $308 per ounce, $80 less than the 1996 price average, and by year's end the price had fallen below $300. The low prices were putting a number of gold mines at risk, especially some large, high-cost deep mines in South Africa. The industry there employed almost 500,000 people. Although silver demand had exceeded the newly mined supply for several years, above-ground stocks were considerable, and the price remained anchored close to $5 per ounce until December, when investment fund interest pushed the price sharply higher.

      The platinum-group metal palladium, an element of growing importance in the manufacture of autocatalysts (used to reduce vehicle exhaust emissions), attracted much interest. This was mainly because the principal supplier, Russia, citing bureaucratic problems, made no shipments during the first half of the year. Russia had more than 70% of the world supply of palladium, and for a time supply shortages drove up prices.

      The main interest in diamonds focused on the efforts of De Beers Consolidated Mines to secure a new marketing agreement with Russia (which in 1996-97 accounted for some 16% of world output by value). The previous agreement had expired in 1995. De Beers, through its Central Selling Organisation, dominated the world's rough-diamond market and had continued to purchase Russian rough diamonds on an ad hoc basis, but reportedly Russian diamonds "leaked" onto the market in excess of an official quota. A new agreement was finally made in October. It took effect in December and would run until the end of 1998.

      Nongovernmental organizations (NGOs) continued to exert pressure on mining companies to ensure that adequate environmental safeguards were in place, and the NGOs also provided considerable support and publicity for the interests of indigenous groups affected by mining. The industry became more aware that these groups, with their own social-economic culture, were important stakeholders in new mining projects. By the beginning of the year, Rio Tinto of the U.K. had lost patience in its protracted negotiations with local Aboriginal groups regarding plans to develop the Century and Dugald River zinc deposits in Queensland and sold its interest to Pasminco for $A 345 million. The latter managed to secure an agreement to develop what would become the world's largest open-pit zinc mine.

      In Canada the Voisey's Bay project in Labrador was scheduled to become the world's richest open-pit nickel mine, but it too ran into problems. The owner of the deposit, Inco Ltd., failed to resolve all the outstanding issues concerning the local Inuit people, who blocked access to the site and forced Inco to concede that project development would be delayed by at least one year. Nevertheless, early in the next decade, Voisey's Bay should be producing copper and cobalt and the equivalent of about 18% of current Western mine output of nickel. The project could pose a serious threat to some of the existing high-cost nickel producers.

      The debate about global warming, in anticipation of the UN climate summit in Kyoto, Japan, in December, put coal producers on their mettle. It was widely believed that the carbon dioxide produced by burning fossil fuels was affecting the climate and that emissions of the gas should be curbed. The U.S., which possessed the largest coal reserves, was also the biggest energy consumer. Coal producers in the U.S. were opposed to restrictions on coal use. The U.S. National Mining Association undertook a vigorous lobby, insisting that if global warming was proved, the technology could be developed to burn coal more efficiently without restricting its use. It was doubtful, however, that less-developed countries such as China and India, which relied on coal and where per capita consumption of energy was still very low, would be able to afford such technology. The nuclear industry and uranium miners watched the debate with considerable interest.

ROGER ELLIS

      See also Earth Sciences .

      This article updates mineral processing.

Paints and Varnishes
      In the paint industry, 1997 seemed certain to be remembered for a technical breakthrough—an acrylic powder coating for automotive topcoats. The first such car, a BMW with a powder-coated clear coat over an aqueous base, was shown at the International Motor Show in Frankfurt, Ger. The feat was all the more astounding because waterborne, rather than powder, systems had been considered the most likely winner for automotive applications. Indeed, Herberts, which had earlier developed a complete water-based paint range—from primer to topcoat—was working on a two-pack waterborne system. In the event, it was Herberts—as well as PPG Industries—that claimed this breakthrough in powder-coating technology. The new system was expected to eliminate 1-1.5 kg (2.2-3.3 lb) of solvent per car. Nonetheless, the competition between waterborne and powder coatings was by no means over; market victory would ultimately be decided by consumers, with the coating's performance as the ultimate arbiter.

      For the paint industry, the automobile had always been of critical importance—serving as a technical catalyst, a benchmark for quality, and a source of demand. It was the carmakers who pioneered globalization and forced their paint suppliers to follow the same path; global manufacture of cars required the global production and distribution of car paints. Only a few paint makers could sustain such global strategies, so their number was eventually reduced to just six.

      Packaging coatings represented another global market. BASF withdrew from this market during the year by exchanging its $150 million packaging operation for PPG Industries' surfactant business. Dexter Corp. of the U.S. accelerated its push into Europe by adding Kolack of Switzerland and Stolllack of Austria to its existing European packaging business. Dexter also bought Akzo Nobel's can coatings business in Brazil and entered into a 60-40 joint venture with Plascon in South Africa. Earlier Herberts had acquired can coatings producer Plastocoat of Italy.

      Economically, the industry experienced variable fortunes. In the U.S. it failed to match the record growth of 1996. Paint shipments during the first half of the year were nearly 5% lower than in 1996. European results were mixed. Germany's building boom in the eastern part of the country ended, which reduced demand there. The U.K., however, proceeded with its recovery, with foreign carmakers contributing to demand.

HELMA JOTISCHKY
      This article updates surface coating.

Pharmaceuticals
      Direct-to-consumer (DTC) promotion of prescription drugs swept the pharmaceutical industry in the United States in 1997. New, more liberal guidelines from the Food and Drug Administration (FDA) for television advertising opened the floodgates—allowing the airing of commercials that made claims for specific brands along with abbreviated references to side effects. Commercials had to provide a toll-free number or cite a print advertisement where consumers could obtain more information. By the year's end dozens of the new DTC commercials had premiered on U.S. television, and the industry had spent an estimated $1 billion on all forms of DTC promotion, up from $80 million in 1992.

      Increased industry involvement with consumers had its pitfalls, however. American Home Products' obesity medicine Pondimin became highly popular as part of the fenfluramine-phentermine ("fen-phen") combination touted by some weight-loss clinics. The company was exposed to widespread litigation, however, when heart-valve problems affected some fen-phen patients. American Home responded by withdrawing the product and related diet pill Redux from the market, promising more studies while attempting to distance itself from the fen-phen controversy.

      Despite the FDA's comparatively liberal policies on consumer promotion—and its increasingly faster performance in reviewing new medicines—the agency remained a target of congressional reform attempts. Late in the year Congress linked modest reforms to renewed industry user-fee legislation, and U.S. Pres. Bill Clinton signed it into law.

      Managed-care organizations (MCOs) continued to give U.S. pharmaceutical companies a boost in sales, even for high-priced medicines. As the MCOs began to experience the limits of cost containment combined with an influx of patients with serious illnesses, however, they showed impatience with the industry's boost in consumer promotion and newly inflated sales forces. It appeared that if pharmaceutical companies' fortunes continued to rise above those of their customers, the MCOs might return to cutting pharmacy budgets and thus depress sales.

      During the year another market shared centre stage with the United States—Asia. With the return of Hong Kong from Great Britain to China, coupled with boom times for other Asian nations such as Singapore and Malaysia, the industry began to concentrate on the fast-developing region as one of tremendous potential growth. Later in the year stock and currency crashes throughout the area made it appear far less attractive for industry investment in the short term. Most global companies, however, remained committed to building their businesses in step with local economies, whatever the difficulties. Meanwhile, Japan began health care reforms that could promote industry growth.

      Europe struggled with its own economic woes, and large companies such as Hoechst and Roche finally broke from the old "lifetime employment" tradition, laying off thousands of employees to cut costs. While most European firms turned their attention to the U.S., Asia, and South America for growth opportunities, the European Union continued to remove regulatory impediments to industry innovation and encouraged companies to share more information with patients.

      In all, it was a growth year for the industry, especially in the United States. By mid-November U.S. pharmaceutical stocks had withstood a major global upheaval and advanced 44% for the year. Most large companies reported net income growth of 15-19% through the third quarter. Merck registered 19%, Bristol-Myers Squibb 15%, Pfizer, 16%, and Novartis, 12%. Warner-Lambert sales grew 19%. Currency exchanges, restructuring charges, and other costs eroded worldwide corporate earnings for many companies, however.

WAYNE KOBERSTEIN

      This article updates pharmaceutical industry.

Photography
      New technologies and marketing opportunities considerably reshaped the photographic industry in 1997. Most dramatic was the rush to participate in the continuing explosive development of digital cameras, along with their accessories, software, and Internet connections, for the mass market and professional applications. Digital cameras, which captured and stored images electronically rather than on film, were introduced by virtually every major camera maker and many electronics manufacturers during the year. Eastman Kodak in particular aggressively attempted to develop and promote digital imaging in all its ramifications, although that heavy commitment failed to generate enough income to offset a substantial loss of market share in conventional film to archrival Fuji.

      Kodak's DC120 ZOOM was claimed to be the first point-and-shoot digital camera for less than $1,000 to offer million-pixel (picture element) image quality. The binocular-style camera had a 3 × autofocus zoom lens equivalent to 38-114 mm f/2.5-3.8 on a 35-mm camera and both an optical viewfinder and a colour liquid-crystal-diode (LCD) monitor for reviewing, reorganizing, or deleting images. Exemplifying modestly priced entry-level digitals was the Agfa ePhoto 307, a simple point-and-shoot camera with a 640 × 480-pixel resolution, optical viewfinder, automatic flash with red-eye reduction, and fixed-focus 6-mm lens. The Panasonic PV-DC1000 PalmCam, measuring only 9 cm (3.5 in) in its longest dimension, provided a 640 × 480-pixel resolution, a fixed-focus 5.7-mm f/3.8 lens, and a built-in 4.6-cm (1.8-in) colour preview and playback monitor.

      After a sluggish start the previous year, the conventional-film, 24-mm-format Advanced Photo System (APS) picked up some speed during 1997. Numerous new second-generation APS point-and-shoot and single-lens-reflex (SLR) models from leading manufacturers filled in or expanded existing lines. Taking advantage of APS's smaller-than-35-mm format, the Pentax IQZoom 2001X was a pocketable camera about the size of a pack of cigarettes. It featured an autofocus 24-48-mm f/4.5-8 zoom lens (equivalent to 30-60 mm in 35-mm format), shutter speeds of 1/ 3 - 1 /300 second, and an easy-to-read dial for flash and exposure modes. Olympus adapted the easy-to-operate noninterchangeable zoom-lens SLR concept of its IS-10 to the APS format for its new Centurion. The camera included a 25-100-mm f/4.5-5.6 zoom lens (equivalent to 31-125 mm in 35-mm format), shutter speeds from 4 seconds to 1/ 2000 second, and a wide variety of flash and exposure modes.

      New 35-mm point-and-shoot cameras included a number of attractively styled compact models loaded with useful features. Among them was the Olympus Infinity Stylus Epic. Slightly smaller and lighter than the original ultracompact Stylus, the Epic included a new, faster four-element f/2.8 lens that focused down to 36 cm (14 in), a 2- 1/ 1000 -second shutter, and automatic red-eye-reducing and fluorescent-compensating flash. The 35-mm SLR cameras introduced in 1997 included no major breakthroughs in design or performance; for the most part they represented refinements or modifications of existing models.

      Significant improvements in silver halide film fostered its continuing appeal, vis-à-vis electronic means, as the prime image-capturing medium. Kodak introduced a new family of colour print films: Kodak Gold 400, 200, and 100 and Kodak Gold Max. The last was given no ISO film-speed rating but was said to "self-adjust" to a wide range of lighting conditions. It was actually an ISO 800 film whose extended exposure latitude tolerated meter settings from ISO 25 to 3200, with good results at both extremes. Kodak's T-Max T400CN was a special chromogenic film that produced black-and-white negatives with C-41 processing by any colour photofinisher.

      Fujichrome Sensia II 100 established itself as a highly rated ISO 100 colour transparency film in terms of colour saturation, natural skin tones, and resolution. Kodak introduced its Professional Ektachrome E200, claimed to deliver high-quality results even in changing lighting conditions and with push-processing up to ISO 1000. Kodak and Fuji both introduced APS-format colour transparency films: Kodak Advantix Chrome (based on Elite II 100) and Fujichrome 100ix.

ARTHUR GOLDSMITH

      This article updates photography (photography, history of).

PRINTING
      The printing industry reported exceptional expansion during 1997, with growth in all print products, especially advertising and packaging printing. Evidence of the expansion was provided by equipment sales of more than $300 million at the international Print 97 exhibition held in Chicago in September; with about 100,000 visitors, it was the largest such exhibition ever held in North America.

      Digital colour printing advanced as the Xerox (U.S. and Japan) DocuColor shipped almost 4,000 systems, and Canon (Japan) shipped more than 3,000 CLC 1000 systems. Xeikon (Belgium) introduced a 50-cm (20-in)-wide toner-based colour printer/press that was competitive with lithographic printing. A major market evolved for personalized colour printing that produces direct mail and marketing materials from databases of text and images.

      Presses that integrate platemaking on press by applying Presstek (U.S) technology sold record numbers, as printers worldwide applied totally digital workflows that eliminate graphic arts film, manual assembly, and labour-intensive processes. Scitex (Israel) and KBA Planeta (Germany) joined forces with a new joint venture (Karat Digital Press) to develop and sell new on-press platemaking and press combinations.

      Digitally exposed plates and thermal processless (no chemistry) plates gained high levels of acceptance. The result for printers was a reduction in production times for an increasing number of short-run jobs (under 5,000 copies) to meet requirements for on-demand, just-in-time delivery of printed products. The portable document format (PDF; Acrobat software from Adobe Systems) was enhanced by a feature that allowed PDF files to be placed in pages of PageMaker (Adobe Systems, U.S.) and QuarkXPress (Quark, Inc., U.S.) for advertisements to be incorporated into publications electronically.

      Mergers and acquisitions continued to create very large printing firms in the U.S. The graphic arts division of Eastman Kodak (U.S.) merged with the Polychrome division of Sun Chemical (owned by Dainippon Ink and Chemicals, Japan) to create Kodak Polychrome Graphics, an independent company. Heidelberger Druckmaschinen (Germany) contracted to build and distribute digital platesetters from Creo Products (Canada), and the Agfa division (Belgium) of Bayer acquired the Du Pont film and plate division. Kodak also partnered with Heidelberger to form a company dedicated to the development of an advanced toner-based press for personalized and customized printing.

FRANK J. ROMANO

      This article updates printing.

Retailing
      Competitive forces continued to reshape the retailing industry in 1997, a year that marked the passing of one of the oldest, most familiar names in the business. Woolworth Corp. announced the closing of its 400 F.W. Woolworth five-and-dime stores and the layoff of 9,200 workers, ending an era that dated back to 1879. Once a fixture of downtowns across the U.S., the chain had become an anachronism in an industry dominated by giant discount stores and warehouse clubs and was losing money. About 100 of the stores were expected to reopen as sportswear outlets such as Foot Locker. The parent company, Woolworth Corp., remained one of the largest U.S. retailers, nevertheless, operating more than 7,000 stores worldwide.

      Consumer spending was generally buoyant, particularly in North America and Great Britain. As consumers flocked to newer and bigger stores, however, many older retailers stumbled. T. Eaton Co. Ltd., one of Canada's largest department-store chains, obtained bankruptcy protection after a string of losses. The 128-year-old company closed unprofitable outlets, reorganized its debts, and hired a new chief executive officer. Britain's largest book retailer, W.H. Smith Group PLC, said it would sell its Waterstone's book chain and a music retailing business in a bid to turn the company around. It had absorbed a loss in 1996—the first in its 204-year history. In the U.S. the 125-year-old Montgomery Ward Holding Corp. filed for Chapter 11 bankruptcy protection, having lost ground for years to nimbler department stores such as Sears, Roebuck & Co.

      Wal-Mart Stores Inc., the world's biggest retailer, seemed largely immune to the troubles affecting competitors. The U.S. discount chain paid $1.2 billion for a controlling interest in Cifra SA, Mexico's largest retailer, and in December it announced that it was buying Wertkauf, a chain of 21 large stores in Germany that sold food, clothing, and other general merchandise. These moves underlined Wal-Mart's growing international ambitions. With about 2,800 stores worldwide, it was preparing to add some 200 more in 1998. The firm had a few setbacks, however. In the U.S. it closed 48 of its 61 Bud's Discount City stores, which had not lived up to expectations. The notoriously antiunion company was also faced with its first unionized store, in Windsor, Ont. Although that store's employees had voted against unionization, the Ontario Labour Relations Board, in a controversial decision, overturned the vote. It concluded that management had intimidated employees by creating the impression that the store would close if the union was successful.

      Wal-Mart's chief competitor, Kmart Corp., began to see the fruition of its efforts to revive its long-struggling discount chain. The company posted a profit for the first six months of 1997, following back-to-back annual losses. The improvement reflected cost cutting and a new merchandising strategy that featured more high-turnover items such as soft drinks, snacks, and paper towels. Seeking to rid itself of operations that were not core to its business, Kmart sold its Canadian operations and its U.S.-based Builders Square home-improvement stores. Kmart was aiming to remodel 1,600 of its 2,200 stores by 1999 and outfit them with new lights, better layouts, and updated products.

      Acquisitions and mergers were common as retailers battled for dominance in an increasingly competitive industry. CVS Corp. acquired rival Revco D.S. Inc. for about $2.9 billion to create the second largest U.S. drugstore chain, one of several big mergers in that field. In France's supermarket industry, Promodès SA offered about $5.5 billion for Casino Guichard-Perrachon SA, the biggest-ever takeover bid in French retailing. The European Commission regarded the proposed merger as being compatible with European Union antitrust rules. The outcome, however, was far from certain because of a competing offer from Rallye SA, which owned a minority stake in Casino. Not all mergers were viewed favourably by competition regulators. Staples Inc. and Office Depot Inc. called off their proposed merger after a U.S. federal judge granted an order blocking the deal. Had the merger been approved, it would have created the largest U.S. office-supplies retailer. The Federal Trade Commission (FTC) had filed suit, charging the merger would reduce competition and lead to higher prices for paper, pencils, and other such items.

      In another FTC ruling with broad implications, Toys "R" Us Inc. was found to have violated U.S. antitrust laws in the late 1980s and early '90s by pressuring manufacturers to keep popular toys off the shelves of competitors. An FTC administrative-law judge ruled that the largest U.S. toy chain, with about 20% of the market, used its clout to demand that manufacturers sell certain toys to warehouse clubs only in more expensive combination formats, which made it impossible for consumers to compare prices. The judge barred Toys "R" Us from making deals that prevented the sale of products to other retailers, but the company planned to appeal the ruling.

JOHN HEINZL

Shipbuilding
      There were few surprises in the 1996-97 rankings of the world's principal shipbuilding countries, with Japan and South Korea leading the field again. According to figures released by Lloyd's Register of Shipping for the June quarter of 1997, Japan and South Korea headed the world order book with, respectively, 15,147,000 gt (gross tons) and 14,926,000 gt—30.9% and 30.5%, respectively of the world total. By comparison, Western Europe totaled 8,649,000 gt (17.7%), Eastern Europe 4,565,000 gt (9.5%), and the rest of the world 5,574,000 gt (11.4%). There were 2,548 ships totaling 48,861,000 gt in the world order book (ships currently under construction plus confirmed orders placed but not yet started). The cargo-carrying component of the order book was 2,008 ships of 67.5 million dwt (deadweight tons), with oil tankers leading the way at 24.1 million dwt.

      Japanese order books were healthy, and major yards were booked until 1998. The depreciation of the yen from about 90 to the U.S. dollar in 1995 to about 114 in early 1997 helped secure orders. Japan's main rival, South Korea, had to contend with higher inflation and a strong currency. As a result, the 10% price advantage that South Korea had enjoyed in 1993 had been eliminated by 1997. Throughout 1996 South Korean yards invested in extra capacity, which prompted concern over the possible effect of lowering prices for ships. Consequently, Japan and South Korea held negotiations on limiting their shipbuilding.

      In the European Union new orders for shipbuilders in 1996 fell by 29%, and some builders faced possible closing. The European Commission voted to maintain through 1997 its 9% subsidy for the construction costs of large ships. The hope was that this would enhance prospects at those yards where competitive, profitable pricing had proved elusive.

      The cruise ship market remained buoyant with the delivery of several new vessels, including the 77,000-gt cruise liner Dawn Princess delivered from Fincantieri's Monfalcone yard to P&O Princess Cruises. The world's largest cruise ship, P&O's 109,000-gt superliner Grand Princess, was floated out of Fincantieri's yard. The 2,600-passenger-capacity ship was to sail from Southampton, Eng., to Istanbul on her maiden voyage in 1998. The 74,140-gt cruise ship Grandeur of the Seas was delivered from Kvaerner Masa-Yards in Finland to the Royal Caribbean Cruise Lines. The 2,440-passenger liner was equipped with diesel-electric propulsion having a total output of 50,400 kw. Meyer Werft delivered the 77,713-gt cruise ship Galaxy to Celebrity Cruises.

      A noticeable building trend was the increasing popularity of floating production, storage, and off-loading units (FPSOs). Demand for FPSOs had grown quickly in recent years, and shipyards and their suppliers responded well. FPSOs in 1997 were dominating the development of new oil fields throughout the world because in many cases an FPSO was much less expensive than a fixed offshore platform, which was burdened with long construction times, inflexibility, and high capital, operating, and abandonment costs. In the North Sea alone, FPSOs were to be used to develop many fields. In other parts of the world, FPSOs were being employed in fields at Terra Nova off the coast of Canada, Zafiro off the coast of Equatorial Guinea, Bayu-Undan and Laminaria/Corallina in the Timor Sea, and Liuhua 11-1 and Lufeng 22-1 in the South China Sea.

EDWARD CROWLEY

      This article updates ship construction.

Telecommunications
      At year-end 1997, what was to have been the largest takeover of a U.S. corporation by a foreign company instead became the largest merger in U.S. corporate history. A deal between MCI Communications Corp., the nation's second largest long-distance company, and British Telecommunications PLC (BT) for almost $21 billion fell through after MCI experienced unexpected losses. In the end, the MCI board agreed to be acquired by WorldCom, Inc., the fourth largest long-distance company, for a $51-per-share stock offer worth about $37 billion. In addition, WorldCom, Inc., agreed to a cash buyout of BT's 20% stake in MCI.

      Also at the end of the year, a U.S. federal judge struck down sections of the 1996 act that deregulated the telecommunications industry, ruling that the law unfairly prevented the regional Bell companies from entering the long-distance business. In Europe as of Jan. 1, 1998, telephone customers in most countries would for the first time have a choice of service providers, and the U.S. agreed to provide foreign companies with greater access to its markets.

      Telecommunications mergers continued in 1997. In April the U.S. Justice Department approved the merger of Bell Atlantic Corp. with the NYNEX Corp. It was followed by Federal Communications Commission (FCC) approval of the deal in August. AT&T Corp. and former Bell operating company SBC Communications, Inc., entered merger discussions that were soon aborted.

      Lucent Technologies, Inc., formerly part of AT&T, and Philips Electronics NV combined their consumer products divisions. The joint venture, to be called Philips Consumer Communications, would be 60% owned by Philips to Lucent's 40%. The joint venture would have $2.5 billion in revenue and be the largest provider of both corded and cordless phones.

      The Internet and World Wide Web continued to change the face of the on-line access industry. Driven by new high-speed modems, the Web was quickly becoming the interface to information retrieval. America Online, Inc. (AOL), the world's largest on-line access provider, in late 1996 introduced $19.95-per-month flat-rate pricing for unlimited access to the Internet, which resulted in the overtaxing of their network. An electronic-mail (E-mail) outage occurred in April for three days, and other outages were experienced in November, as AOL subscribers expanded to eight million and the amount of time customers spent connected to the services increased. In September WorldCom agreed to buy CompuServe, the second largest service provider, for $1.2 billion in stock; transfer CompuServe's 2.6 million subscribers to AOL; and pay $175 million cash for AOL's ANS networking facilities.

      Other Internet glitches occurred when Experian, Inc., provided on-line access to credit histories. Consumers reported receiving other people's reports, and the system was quickly shut down. The International Ad Hoc Committee, an international coalition, proposed adding seven new Internet domains to handle increased demand. In addition to .com, .org, .edu, and .net, new names would include .firm, .store, .web, .arts, .rec, .info, and .nom.

      Using the Internet for placing telephone calls, introduced in 1995, by 1997 had led to the formation of the Computer Internet Telephone Industry and to the use of the Internet for video conferencing, faxes, and voice telephone services, with Internet conference software available for under $100. Service providers were able to provide international long distance at prices far below existing long-distance rates for service that used the traditional infrastructure. Although Internet telephony gained the support of Pres. Bill Clinton's administration, several foreign countries moved to ban or severely limit its use. Other companies were using the Internet to transmit both audio and video over their Web sites.

      To provide the high-speed data networks needed to transfer information, new telecommunications products and services were being developed. Both Rockwell Semiconductor Systems and U.S. Robotics demonstrated new 56-kbps (kilobits per second) modems. Motorola, Inc., and Lucent soon joined Rockwell in support of their modem technology, which was incompatible with the U.S. Robotics product. Meanwhile, U.S. Robotics was sold to networking hardware manufacturer 3 Com Corp. for $6.6 billion. In October Motorola announced that it was seeking a buyer for its low-end modem business. A standard for 56-kbps modems was expected to be agreed upon by the International Telecommunication Union in 1998. Consumer versions of other high-speed alternatives were also becoming available, including digital subscriber lines, which could download at speeds of up to 256 kbps, and cable modems that connected one's television directly to the Internet and downloaded information at speeds of up to 40 Mbps (megabits per second).

      Alliances, where cable and telephone companies eyed one another's traditional business, appeared to have slowed from the 1996 pace until Microsoft Corp. announced in June that it would invest $1 billion in the fourth largest cable company, Comcast Corp. Earlier in the year Microsoft had also purchased WebTV, maker of TV set-top boxes for Internet connections.

      In March the U.S. Supreme Court ruled that the federal government has the power to make cable television companies provide access to local stations. According to the 1992 cable TV law, one-third of a provider's capacity must be set aside for local broadcasts.

      The FCC set aside 300 MHz of free radio spectrum called the Unlicensed National Information Infrastructure for high-speed wireless local area network applications over distances of less than 4.8 km (3 mi). During the year the FCC tackled access charge reform, universal service to poor and rural customers, the entry of regional Bell operating companies into long-distance service, and phone number portability; in a move that triggered some controversy, it allocated extra spectrum for high-definition television transmission. The FCC also provided more than $2 billion in subsidies to connect schools, libraries, and hospitals to the Internet. Some of the companies that had winning bids for the 1996 FCC auction of wireless spectrum for personal communication services had encountered financial difficulty. The FCC suspended collection of $10 billion from smaller companies until it could decide on four options, three of which would require the reauctioning of some or all of the licenses. The year marked Reed Hundt's last as chairman of the FCC. He was replaced by the FCC general council, William Kennard, its first African-American chairman.

THOMAS E. KROLL
      This article updates telecommunications system (telecommunication).

TEXTILES

Overview
      In 1997 the textile industry showed increased confidence in its business prospects but continued to wrestle with environmental and ecological problems, especially concerns about the toxicity of dyes and the breakdown of products. Cone Mills Corp., which had a disappointing 1996, embarked on major cost-cutting programs expected to save $20 million, explored business alliances with manufacturers in Asia and South America, and projected capital expenditures of $40 million. Loom sales in the United States in the first quarter of 1997 increased substantially over the corresponding period in 1996.

      In response to projections that the annual demand for spandex fibre would increase by 8% worldwide, Bayer Corp. and the Du Pont Co. each completed major U.S. expansions in production capacity. Burlington Industries, Inc., also invested heavily in its fabric divisions for apparel and expected that its export business would grow and account for more than 10% of production.

      The worldwide demand for textile products continued to edge upward, with the greatest rise in less-developed countries (LDCs). Increases in Western developed countries and Japan were much less dramatic. Per capita, however, consumption in LDCs was still only about one-quarter of the level of that in developed nations.

      The textile chemical business continued to expand into overseas markets. Monsanto Chemical (now Solutia, Inc.) explored joint ventures in Brazil, South Korea, Argentina, China, Mexico, and Thailand. The Dow Chemical Co. acquired Sentrachem Ltd. in South Africa, and Exxon was chosen to develop a Chinese refinery and petrochemical installation with the Fujian Petrochemical Co. Hoechst AG announced plans to transfer its European polyester-filament and staple-fibre business and the trademark Trevira to a joint venture with Multikarsa Investama of Jakarta, Indon.

      This article updates textile.

Man-made fibres.
      During 1997 worldwide demand for man-made fibres increased slightly, with production (excluding olefins [polypropylene]) at about 19.5 billion kg (43 billion lb), compared with 20 billion kg (44 billion lb) in 1996. Business was particularly competitive in the specialty-fibre field. Hoechst phased out its para-aramid Trevar; Lenzing AG ceased production of high-performance fibres in Austria; and Du Pont terminated production of its polyether ether ketone fibre in Europe. Akzo Nobel NV sold its share in Tenax carbon fibre to Toho Rayon. Toyobo's high-performance Zylon, however, seemed to prosper, and the company expanded its carbon-fibre capacity to 5,000 tons per year.

      Tencel, the relatively new lyocell fibre by Courtaulds PLC, continued to enjoy strong worldwide demand except in the U.S., the weakest market. Overall, however, the fibre helped boost the company's operating profits by about 14%. Courtaulds announced plans to open a second manufacturing facility in Grimsby, Eng., and several plants in Asia.

      Emphasis throughout the world was, however, placed on using traditional rather than exotic new fibre types, with fine-count nylon yarns used for novelty effects and Du Pont's Tactel nylon appearing in evening wear and other apparel. The market for superabsorbent fibres also showed a strong upward trend, with increasing use in disposable hygiene products.

DENNIS BALMFORTH
      This article updates fibre, man-made.

Wool.
      The world wool clip in 1997-98 was estimated at 1,471,488 metric tons clean, down from 1,476,000 metric tons in 1996-97. Australia reigned as the dominant producer, followed by New Zealand, Eastern Europe, and China; these four accounted for over 60% of world production. As a result of a reduced sheep population, U.S. production was 25,700 metric tons, down slightly from 1996. Global activity (new production and carryover) grew by 3.5% to 1,780,000 metric tons clean, the first increase in five years. Raw wool prices rose an average of 15% owing to an interest in lighter-weight fabrics suitable for spring and autumn wear.

      In 1997 U.S. wool-fibre consumption was 61,100 metric tons, down from 64,900 metric tons in 1996. Apparel accounted for 91% of the volume, and carpets made up the remainder. Globally, consumption exceeded production by more than 2.5%, which caused concern about the depletion of merino wool stocks to satisfy demand. Despite the increase in consumption, the wool-fibre share of the apparel market remained low, at slightly over 8%.

      A technology was introduced to provide wool carpets with a finish resistant to moths, beetle larvae, and dust mites. In the procedure an insect-resistant agent contained in a low-melt powder was applied during the manufacturing process directly onto the carpet-pile surface. The powder was then fused to the wool fibres at the same time that the backing on the carpet was dried.

Cotton.
      Worldwide cotton production fell 1.6% in 1997 to 18.9 million metric tons. The five major producers were the U.S., followed by China, India, Pakistan, and Uzbekistan. Production in the U.S. was down owing to a decrease in planted acreage, lower yields, and a change in the 1996 Federal Agricultural Improvement and Reform Act cotton bill that reduced government incentives to plant cotton.

      Cotton consumption worldwide was 19.2 million metric tons, up 2.1% from 1996. The largest gains were in China and India, and there was essentially no change in the U.S., Pakistan, Europe, and Asia. In the U.S. cotton continued to claim over 60% of the apparel and home-furnishings market; worldwide, cotton claimed slightly less than the 45.1% share it enjoyed in 1996. The decline was attributed to the inroads into cotton's traditional markets made by man-made fibres, particularly polyester.

      The United States continued to dominate the export markets, with exports of 1.5 million metric tons of cotton, primarily to China, Turkey, Mexico, South Korea, and Japan. The volume was up from 1.4 million metric tons in 1996. The other major cotton exporters included Uzbekistan, the countries of French-speaking Africa, Australia, and Argentina.

      Genetic engineering played a major role in cotton research. In the U.S. five herbicide-resistant cottons were available for commercial planting, as well as a number of medium- and short-staple cotton varieties that were resistant to butterflies, moths, and certain viruses.

EVERETT E. BACKE

Silk.
      World silk production in 1996 was estimated at 81,098 metric tons. China was the leading producer, with 58,000 metric tons, followed by India (12,384), Japan (2,579), and Brazil (2,270). In China the 1997 spring cocoon crop was 20% lower than the 1996 tonnage, which was 40% less than that for 1995. The quality, however, was good. With reduced Chinese production, prices were expected to rise, but the size of the increase was likely to be small and largely the consequence of the introduction of export regulations for raw silk. The quality of Brazilian silk remained excellent, and prices continued to outpace those for Chinese silk.

      Worldwide demand remained generally flat, with the exception of India and Great Britain, where much of the silk went into necktie fabric for the U.S. market. Elsewhere, the image of silk was still suffering from the widespread sales of cheap silk garments during the early 1990s. International efforts were made to bolster silk's image, and items made of silk began to reappear in the Paris fashion collections. Spun silk returned to fashion. Unfortunately, several mills in East Asia had to cease production in May and June owing to a shortage of silk waste used for spinning. Operations resumed in July, with noils unaffected and remaining plentiful.

      The outlook for the future was uncertain. With production down, a shortage was likely to occur in 1998, but much depended upon demand in such major consuming countries as Japan and India. Much of India's domestically produced silk was unsuitable for use in the warp of machine-woven fabrics. As a result, India was the largest importer of raw silk, at 4,195 metric tons.

ANTHONY H. GADDUM

Tobacco
      In spite of a worldwide increase in antitobacco sentiment, and a marked rise in legislation designed to curb smoking, global sales of cigarettes rose in 1997 by 0.9% to an estimated 5,370,000,000,000, according to World Tobacco File. The continuing decline in consumption in the United States and most Western European countries was more than offset by increased sales of cigarettes in the Middle East, the Asia-Pacific region, and some Eastern European countries, a reflection of rising incomes and an enhanced lifestyle. To meet the demand, output of tobacco leaf rose in almost all the major producing countries to a global figure of 7,513,370 metric tons, the highest total since 1993.

      The worldwide trend toward the American-blend type of cigarette, which incorporates Oriental, Burley, and Virginia leaf, continued. It accounted for 25% of global sales in 1990 and about 38% in 1997. The brand leader of this type was Marlboro, made by Philip Morris Inc.; it was the world's best-selling cigarette. Sales of the other most popular type, Virginia blend, grew in the same period but only from 48% to an estimated 52%, primarily because the Chinese, who bought nearly a third of the world's cigarette sales, favoured that variety.

      Growing health concerns drove manufacturers in the former Soviet Union and some less-developed countries to produce more filter-tipped cigarettes, which were dominant in the rest of the world. Similarly, sales of light and ultralight cigarettes, with lower tar and nicotine content, rose, particularly in the U.S., Western Europe, and Japan. Meanwhile, Philip Morris and the R.J. Reynolds Tobacco Co. test-marketed new cigarette products designed to eliminate smoke from the burning end of the cigarette.

      In the U.S. tobacco manufacturers, led by Philip Morris, R.J. Reynolds, and Brown & Williamson Tobacco Corp. (a subsidiary of B.A.T Industries PLC), sought congressional approval for a landmark settlement, announced on June 20, under which they would gain immunity from costly tobacco liability lawsuits in exchange for payment of $368.5 billion over 25 years and accept restrictions on the way they manufactured, marketed, and sold cigarettes. In October the firms settled a class-action lawsuit concerning the effects of smoking on nonsmokers by agreeing to spend $300 million for the study of tobacco-related diseases.

      Ironically, while the cigarette manufacturers were enduring pain, the manufacturers and importers of premium-quality cigars in the U.S. were basking in an unprecedented sales boom, encouraged by two elegant lifestyle magazines focusing on fine cigars.

LAURENCE RIDGEWAY

Tourism
       World's Top 20 Tourism Spenders(For Leading International Tourist Destinations, see Table (World's Top 20 Tourism Spenders).)

      In 1997 the number of international tourist arrivals grew by 5%, reaching 595 million, while revenues from tourism rose 7%, to $425 billion. This steady global expansion continued throughout 1997. The strong U.S. dollar continued to attract North American visitors to overseas destinations, whereas the long-delayed Japanese economic recovery and setbacks in Southeast Asian economies caused the Asia-Pacific region to underperform. A strong pound sterling encouraged the British to visit continental Europe, but the resulting high prices in Great Britain discouraged European visitors from traveling to the U.K.

      The hotel sector benefited from tourism's strong 1996-97 recovery. Occupancies in London hotels rose from 82% to 84% as 1996 profits soared by 26%. In New York City occupancy reached 82%, a 5% increase over 1996. Airlines belonging to the International Air Transport Association saw growth of 7.5% in air traffic during 1997. They were concerned, however, about safety issues, fearing that with a projected doubling of air traffic by the year 2010, major jet crashes could increase to an average of one per week.

      In Africa the Indian Ocean island of Mauritius had a 12% rise in arrivals, chiefly from Europe, and Tunisia's desert resorts, especially Tawzar, featured prominently in promotions. In Zimbabwe, where tourism accounted for 5% of gross domestic product, the government took initiatives to support indigenous investment by black Zimbabweans. Tanzania emphasized cultural tourism. Tourism in Kenya's popular coastal resorts fell 70% after violence broke out in May prior to elections and continued throughout the summer.

      Brazil, which welcomed some 2.2 million tourists each year, launched a campaign to attract more foreign visitors and stepped up security by introducing new tourist-friendly police stations. In Canada the tourism sector employed 500,000 persons, a record level, but the strong Canadian dollar caused foreign expenditure to level off even as domestic demand surged. In Cuba international tourism overtook sugar as the leading currency earner, with the Caribbean island acting as host to 1.2 million foreign visitors. Mexico saw a good summer vacation season, with hotel occupancy 2-4% higher than in 1996; a fall hurricane, however, damaged Acapulco resorts. Eruptions of the Soufrière Hills volcano on the Caribbean island of Montserrat caused thousands to flee and halted tourism. A survey showed that although U.S. residents had doubled their long-distance travel between 1977 and 1995, foreign travel accounted for only 4% of those trips; one-half of those journeys ended in Canada or Mexico.

      Australia, looking forward to serving as host for the 2000 Olympic Games in Sydney, saw in that event an outstanding potential for growth and exports. Australia also found that in comparison with other tourists, backpackers spent more, stayed longer, traveled more widely, and thus created more jobs. Among Hong Kong's new projects following its return to China were 40 new hotels, a film city, a virtual-reality theme park, and a new airport at Chek Lap Kok. The 45% devaluation of Thailand's currency, the baht, was welcomed by the nation's tourism industry, which expected to be host to one million Japanese visitors in 1997. In the Philippines tourism soared by 11%, with the U.S. and Japan providing the most visitors. India earned 11% more from foreign tourism in 1997, whereas Indonesia, which welcomed five million tourists in 1996, experienced a decrease of 26% in foreign arrivals owing to a haze problem that emanated from forest fires in the archipelago.

      In Europe, Bulgaria established a visa-free entry for citizens of most nations, and Estonia did so for its Nordic neighbours. Croatia's tourism minister planned to extend both the tourist season and Croatia Airlines' operations to Great Britain and Germany, its main tourism sources. The number of foreign overnight visitors in Croatia rose 72% in 1997. Cyprus expected two million visitors, a 5% increase. On October 26 and Dec. 1, 1997, Italy and Austria, respectively, became members of the Schengen group of border-control-free states for travelers from other European Union countries. Portugal's expected 10.5 million visitors in 1997 were seen as a good omen as preparations were under way for the 1998 Lisbon World Exposition. Spain, the second most popular tourist destination in the world, after France, expected more than 45 million tourists in 1997, with an increase in receipts of 4%. Istanbul was host of the biggest-ever general assembly of the World Tourism Organization; 98 tourism ministers from 131 countries were in attendance. Russia and neighbouring nations continued to develop tourism on market-economy principles, and Silk Road tourism grew as Uzbekistan and its neighbours built new hotels and modernized airports.

      Despite bright prospects for business tourism in such Middle East destinations as Dubayy, Abu Dhabi, Egypt, Saudi Arabia, Bahrain, and Kuwait, the menace of terrorism cast a long shadow over the region. Travel to Israel was subdued following suicide bombings in Jerusalem, and the November 17 attack that killed more than 50 German, Japanese, and Swiss tourists in Luxor, Egypt, dealt a severe blow to that nation's tourism industry.

PETER SHACKLEFORD

Wood Products

Wood.
      In 1997 the wood products industry got off to a vigorous start following a surge in prices and demand at the end of 1996. By the middle of the year, however, the market had slowed. U.S. lumber production enjoyed a boost in the first six months of the year owing to the availability of more private timber in the West and record volumes being produced in the South. American timber prices later dropped, however, to an 18-month low as a result of increased production in most supplying regions in North America and increased exports from Scandinavia. Moderate housing starts and reduced export demand, especially from Japan, also contributed to the slump.

      The Canada-U.S. lumber quota agreement, which limited duty-free entry of Canadian lumber to the U.S. market, had less impact on the volume of trade between the two countries than was expected but caused uncertainty in the market. Canada, nevertheless, exported a record 42 million cu m (17.8 billion bd ft) of softwood lumber to the U.S. in 1996, the first year under the pact.

      In mid-1997 an environmental coalition successfully lobbied a federal judge in California to halt imports of logs and wood chips from Siberia, New Zealand, and Chile by arguing that imported unprocessed wood posed a health risk to U.S. forests. Tropical hardwoods and products from the borders of Canada and Mexico were not included in the order. Although no short-term market impact was expected from this legislation, some exporters in New Zealand, Chile, and Brazil viewed the development with caution.

      The use and acceptability of engineered wood products and new wood-based panel products continued to strengthen the main wood products market. Nevertheless, greater production of some goods, such as oriented strand board, was reaching overcapacity, depressing prices and forcing the closing of some older plants in North America.

      Europe moved from importing forest products to self-sufficiency after Austria, Finland, and Sweden joined the European Union in 1995. The European lumber market started strong in 1997, but it slowed as the year progressed owing to reduced demand in Europe for saw timber and the near-complete halt of exports to Japan after the first quarter of the year. Although demand in the U.K. did not decline significantly, major markets in Germany, France, and Italy remained sluggish after the middle of the year. In addition, excess production resulting from a strong market at the end of 1996 and the beginning of 1997 coupled with reduced demand later in the year led to oversupply and a drop in prices.

      Low demand for wood products in Japan caused oversupply problems for European and North American exporters. This important export market suffered from a weak yen, a sales tax increase, and low housing starts, which dampened consumption. In Japan the supply of and demand for logs, lumber, and panels were not expected to regain a balance until the end of 1997—or, for many items, not until 1998.

      By the middle of the year, falling currencies in Southeast Asian countries such as Thailand, Malaysia, and the Philippines had reduced the timber trade for Asia's main exporting countries. There was weak demand from such major consumers as Japan, Taiwan, and South Korea, which also began substituting tropical hardwood species from Southeast Asia with softwood imported from Russia and New Zealand. Competition from African log species and cheaper supplies from South America also hampered the Asian timber trade. Both Japanese and Southeast Asian traders were pessimistic about a price and demand upturn by the end of the year.

WORLD FOREST INSTITUTE
      This article updates wood.

Paper and Pulp.
      Although world paper and board production increased by only 1.3% in 1996, the rise was enough to establish a new world record of 281,960,000 metric tons. It was the 14th consecutive year that output had increased.

      Asia was again a star performer, with gains of 5.7% over 1995. Its production, at 82 million metric tons, represented 29% of worldwide paper and board output. Although small mills were closed in China for environmental reasons, production there rose by 2 million, to 26 million metric tons. Japan, with 30 million metric tons, snared the number two position from Europe as the world's second largest producer of paper and board. European production fell by almost 10%, with Russia's output declining 21.1% and accounting for only 3.2 million of Europe's nearly 81 million metric tons.

      The United States remained the undisputed leader, with output of 81.8 million metric tons. In North America, which accounted for 35.6% of world output, producers for the first time surpassed 100,000,000 metric tons, reaching 100,260,000.

      Pulp continued to lose ground to wastepaper as a raw material. Although pulp represented 62.5% of all basic raw materials used in the paper industry, it had once accounted for 65% and appeared to be in a downward spiral. As a result, total pulp output declined almost 4% in 1996, to 174 million metric tons. Despite decreases from 1995 of 2.4% for the U.S. and 4.1% for Canada, the two nations remained the top producers in 1996, with 58.2 million (U.S.) and 24.3 million metric tons (Canada). Indonesia achieved the sharpest growth, 30.3%, adding more than 600,000 metric tons in output, almost all targeted for export.

      Although paper recovery was expected to continue until at least 2005, global demand and supply patterns were changing. By 2005 total paper-recovery levels throughout the world could grow by more than 60% above 1995 levels. The U.S. became the world's leading exporter of surplus recovered paper, whereas fibre-hungry Asia became the world's leading importer.

H.-CLAUDE LAVALLÉE

      This article updates papermaking.

▪ 1997

Introduction

      As became clear in 1996, the previous year had been a disappointment in business and industry. Particularly in the industrialized countries, the acceleration of 1994 had faded away as fast as it had appeared. Even then the slowdown that took place in industrial production in 1995 was not fast enough, for demand fell even more rapidly and inventories built up that in many countries continued to act as a drag on output into 1996. Nowhere was this more evident than in the main European economies, where industrial production, having grown about 50% more rapidly than total output in 1994, slowed to a snail's pace in the course of 1995 and early 1996.

      Manufacturing production increased by 3.1% in 1995, a sharp deceleration from the 4.7% growth of 1994. The slowdown was more pronounced in the industrialized countries, where it fell from 4.6% to 2.7%. The less-industrialized economies, by contrast, managed to repeat their 5.1% growth of 1994. Even so, there were some spectacular failures, notably Mexico, where output tumbled in 1995 as the cumulative effects of the previous year's currency crisis took hold.

      Across the main industrial countries, while the deceleration in activity was common to all, performance varied markedly. The U.S., which might have been expected to show signs of flagging, since it was into its fifth year of recovery, was a surprise on the upside. The growth of industrial production slowed from a near 6% rate in 1994 to a little over 3% in 1995, but, helped by a boom in industrial investment and a resilient consumer, the inventory problem proved short-lived.

      The U.S. also benefited from a weak currency, which helped exports outpace imports. It was the opposite in Japan, which suffered a surge in the value of the yen in the first half of 1995. Added to this were the Kobe earthquake, the weakness of consumer spending, and the import penetration that market liberalization, given extra impetus by a strong yen, provided.

      The situation was similar in Europe, where the main economies, which had benefited from strong export-led growth in 1994, were taken by surprise by the slowdown in demand. Throughout Europe inventories built up and held back output, not just in 1995 but also into the first half of 1996. For the main economies of continental Europe, an additional factor was the preparation of the economic and monetary union for convergence of the members' currencies. The need to reduce budget deficits to below 3% of gross domestic product made fiscal deflation the order of the day and held back domestic demand. Given the interdependence of the economies of the European Union (EU), where demand in one country resulted in exports from another, the slowdown in domestic demand was reinforced by a weaker trade performance.

       Manufacturing Production in Eastern Europe1, TableAnother factor holding back the EU economies was the drift of new production to the low-cost economies of Eastern Europe, especially those farthest down the road toward economic reform. The Czech Republic and Poland, and to a lesser extent Hungary, were the main beneficiaries of investment from the EU, the effect of which was beginning to be demonstrated by a rapid growth in industrial production in their economies. Even Romania recorded strong growth in 1995. (For Manufacturing Production in Eastern Europe, see Table II (Manufacturing Production in Eastern Europe1, Table).)

      Elsewhere in the industrializing world, the Asian economies continued to grow rapidly as the search for lower-cost locations moved away from the Pacific Rim into northeastern and southern Asia. While some of the original so-called tiger economies showed signs of their age—manufacturing output had been flat in Hong Kong for a number of years, and South Korea was experiencing the problem of a widening trade gap—the baton had been taken up by China, the biggest of them all. There industrial production rose by more than 20% in 1993 and again in 1994, though it slowed to a more sedate 16% in 1995. Chinese exports rose more than 50% in 1994-95 combined.

       Ta ble IV. Index Numbers of Production, Employment, and Productivity in Manufacturing IndustriesAs shown by Table IV (Ta ble IV. Index Numbers of Production, Employment, and Productivity in Manufacturing Industries), since 1990, the base year for the indexes, U.S. industry had raised its output by 17%. The contrast with the other G-7 (Group of Seven major industrial countries) economies was stark. In Japan and Germany industrial output was languishing some 5% below its 1990 levels, while in France, the U.K., and Italy it had barely changed in the five-year period. Only Canada, where output was up 10%, came anywhere close to matching the U.S. performance and that presumably because of the close trading relationship between the two economies.

      (GEOFFREY R. DICKS)

ADVERTISING
       Most Valuable Brands Worldwide(For a ranking of the Most Valuable Brands Worldwide, see Table (Most Valuable Brands Worldwide).)

      Bolstered by the traditionally heavy spending associated with both an Olympic Games and a U.S. presidential election year, spending on advertising increased significantly in 1996, with those two events alone pumping as much as $1 billion into the media marketplace.

      Total U.S. advertising spending in 1996 was expected to climb 7.4%, to $172.8 billion, from $160.9 billion in 1995, according to forecaster Robert J. Coen of McCann-Erickson Worldwide. He estimated that national advertising spending would rise 7.9%, to $101.7 billion, led by strong growth in television and magazines. Local advertising was expected to increase 6.8%, to $71.1 billion.

      Political advertising had the greatest impact on local television stations in the U.S. in 1996, while the Olympic Games boosted spending nationally. NBC, a unit of General Electric, sold a record $675 million in advertising for the Olympics, with the average spot airing in prime time costing advertisers $550,000. Many advertisers bought package deals for $3 million to $20 million. Worldwide, advertisers spent an estimated $5 billion on Olympics-related campaigns, promotions, and events, a total that moved the trade publication Advertising Age to declare the 1996 Summer Games "the marketing event of the century."

      For 1996 ad spending outside the U.S., Coen predicted a total of $213.1 billion, up 7% from $199.2 billion in 1995. In all, worldwide advertising in all media, including Yellow Pages and direct mail, was expected to climb 7.2%, to $385.9 billion. Much of the increase was attributed to significant growth in spending in countries like China and Mexico.

      Signs that 1996 would be a robust year in the U.S. became clear in June when advertisers began buying time for the 1996-97 broadcast television season. Even as its audience was eroding, broadcast TV remained the ad industry's dominant force, with more than $5.6 billion of advertising time sold in what is known as the up-front market. According to Nielsen Media Research, the total share of audience commanded by the six broadcast networks declined from 78% to 74% during the 1995-96 season. The chief reason cited for the decline was that viewers were being attracted to a growing list of alternative programs on cable television.

      Still, "Seinfeld" and "ER," both airing on NBC, became the first regularly scheduled network TV series to break the $1 million-per-commercial-minute barrier. "Seinfeld" commanded $550,000 per 30-second spot, while "ER" fetched $500,000 for 30 seconds of commercial time.

      Advertisers continued flocking to the World Wide Web, the Internet's most user-friendly area, with scores of start-up companies creating Web advertising for firms like Levi Strauss, Saturn, and Colgate-Palmolive. Web-based advertising came in two forms; a company could set up its own Web site or buy an ad on someone else's site. Web expenditures were still tiny compared with the advertising dollars spent on newspapers, magazines, and TV. Only $37 million was spent on Web advertising in all of 1995, although the figure jumped to $66.7 million in the first half of 1996, according to Jupiter Communications. Long-term growth, however, might be stalled until the ad industry agreed on a way to measure the number of Web users who saw ads and the impression they made.

      Another controversy over audience measurement methods erupted when Advance Publication's Condé Nast division publicly dismissed Mediamark Research after complaining that the firm's audience surveys were outmoded and unwieldy. An industry task force convened by the Magazine Publishers of America joined with advertisers and media research companies to find ways to make the data more stable.

      Seagram officially ended the liquor industry's almost five-decade-old self-imposed practice of not advertising on television by airing a series of 30-second commercials for Chivas Regal and Crown Royal Canadian whiskeys on stations in Boston and Corpus Christi, Texas. The company's stance was that it was seeking to level the playing field with beer and wine, which advertised freely on television. There never had been a federal prohibition of advertising distilled spirits on television.

      One of the year's largest advertising campaigns came from McDonald's, which in May launched a $75 million introduction of the Arch Deluxe, the signature sandwich of a new line. The so-called deluxe sandwiches were aimed at increasing the chain's adult patronage.

      Tough new restrictions on the advertising of tobacco, proposed by U.S. Pres. Bill Clinton, would ban all imagery on outdoor advertising, in most magazine ads, and at points of sale. Tobacco companies would be barred from giving away brand name merchandise and from using brand names in sponsoring events or sports teams. Advertising trade groups claimed that the restrictions, which would become effective in 1997, would have an impact of $1,140,000,000 annually in spending on tobacco marketing, and they opposed the ban on the basis that it would restrict the advertising of what were legal products in the U.S.

      Consolidation among ad agencies continued in 1996. Paris-based Publicis acquired a controlling interest in BCP, the seventh largest ad agency in Canada, and also bought 51% of Romero y Asociados, in Mexico City, and 60% of Norton Publicidade, based in Brazil. D'Arcy Masius Benton & Bowles, meanwhile, agreed to buy N.W. Ayer & Partners, which was the oldest U.S. advertising agency, founded in 1869 in Philadelphia. Omnicom Group acquired Ketchum Communications, a specialty business marketing firm.

      Despite some progress, women remained unhappy with the way they were depicted in advertising, according to a survey by Saatchi & Saatchi Advertising, a unit of Cordiant. The ads that appealed to the women polled reflected values they considered important, such as the ability to be both caring and competent. This suggested that if advertisers created messages celebrating these values and accurately conveying women's changing roles, they were more likely to succeed. (LAURIE FREEMAN)

      This article updates marketing.

AEROSPACE
      The economic health of airlines generally continued to rise throughout 1996. Predictions were that profits for the U.S. industry would break all records, despite a substantial rise in spot fuel prices as a result of Middle East tensions and the failure of Iraqi oil to come on-line. Improvements were attributed to severe cost containment, closer control between traffic and capacity, more stable fares, and the pruning of unprofitable operations. British Airways, which maintained its standing as one of the world's most efficient operators, said that it would cut 5,000 jobs (10% of its workforce) and reduce cabin staff wages by 40%.

      Because airline revenues had improved, there came a surge of orders for new aircraft as well. By August backlogs stood at 1,114 for Boeing, 211 for McDonnell Douglas, and 651 for the European consortium Airbus Industrie. Boeing announced plans to take on an additional 10,000 workers by year's end, although hiring was difficult as workers began to rebel at the continuous stop-and-go pattern of employment characteristic of the aerospace industry.

      The two principal commercial transport builders, Boeing and Airbus, began positioning themselves for the next round of orders. Boeing's major new project was the 500-seat 747-500/600, to succeed the 747-400, with the company projecting sales of some 350 aircraft through the year 2014. Also a priority was the Boeing 777-100X very-long-range twin-engined transport. Boeing hoped to launch both types by the end of the year. Airbus was looking for international partners—perhaps a consortium of South Korea, Taiwan, and Singapore—to launch the 540-seat, double-deck A3XX long-range, wide-body transport during 1997-98, at an estimated cost of $8 billion. Russia was viewed as another potential A3XX partner, with perhaps a 20-25% stake. Meanwhile, to broaden its product base, McDonnell Douglas was studying the MD-20, a project midway between its 300-seat MD-11 trijet and the 150-seat MD-90 "twin."

      To power the new U.S. and European four-engined transports, the two U.S. big-engine companies, Pratt & Whitney and General Electric, agreed to pool their resources to produce a more efficient engine of approximately 76,000 lb of thrust. Given the huge cost of developing the new high-bypass power plants, they felt that the big-engine market was not adequate to support three companies (the third being Great Britain's Rolls-Royce).

      The industry's most spectacular news—the $13 billion acquisition of McDonnell Douglas by Boeing—was announced in mid-December. Moving quickly after McDonnell Douglas had been eliminated from the bidding on the Pentagon's huge Joint Strike Fighter project, Boeing concluded the largest aerospace merger in history and created a behemoth of a company with 200,000 employees and $48 billion in estimated revenues for 1997.

      The European regional aircraft business consolidated when British Aerospace joined with ATR (itself a consortium of France's Aerospatiale and Italy's Alenia) to form Aero International Regional, a marketing company, for their range of such aircraft.

      In January Germany's Daimler-Benz AG group abandoned its historic but ailing Dutch subsidiary, aircraft builder Fokker. The Dutch government gave the company short-term funding to continue work on its backlog of regional transport aircraft while potential purchasers were sought; the manufacturer, however, declared bankruptcy in March. By year's end hopes had fizzled that the Korean Samsung group might buy in. Daimler-Benz also disposed of Dornier, another historic name, to a holding company with an 80% share held by Fairchild of the U.S.

      The French industry also continued in crisis, and the government requested that Aerospatiale and Dassault merge to form a single, national airframe group, with a view toward privatization. Thomson SA would become the core of the national defense and electronics group.

      The Arab and Pacific Rim countries continued to expand their aerospace visibility by means of the burgeoning number of international air shows in Dubai, Malaysia, Singapore, Indonesia, South Korea, and China. Berlin and Farnborough, Eng., constituted Europe's shows.

      Farnborough was notable for the first appearance of the experimental Russian Sukhoi Su-37 long-range fighter. It demonstrated an amazing tumble maneuver that in combat would enable its weapon sensors to lock on to an adversary regardless of its position relative to the enemy fighter. Also at Farnborough, Britain signed up to launch production of the Eurofighter 2000—Europe's biggest military aircraft program—and waited for partners Italy, Germany, and Spain to do likewise. The Northrop B-2 stealth bomber flew direct to Farnborough from the U.S. on the first day, circled the show but did not land, and returned to its base. It represented the kind of strategic, long-range operation that U.S. Air Force B-52s had achieved earlier in the summer, operating against Iraq from a U.K. airfield in the Indian Ocean because no other country would base them.

      The most famous name in U.S. airline history came to the fore again in 1996 when, during September, a revived Pan Am (the original had gone bankrupt in 1991) began scheduled services with three aircraft. The new company, however, intended to operate only an internal, long-haul U.S. route network, a far cry from the international visibility of the famed flag carrier of earlier times. (MICHAEL WILSON)

      This article updates aerospace industry.

APPAREL

Clothing.
      Allegations of widespread sweatshop and labour abuses, both in the U.S. and elsewhere, plagued the apparel-manufacturing industry in 1996. The discovery of an apparel factory in El Monte, Calif., where undocumented Thai immigrants were being forced to work off the cost of their passage to the U.S. galvanized government and union activists. The issue exploded into the public consciousness when television talk show host Kathie Lee Gifford was accused of using sweatshops in Honduras and New York City in the manufacture of women's apparel bearing her name. Gifford made tearful protestations of innocence and indignation. Such celebrities as Michael Jordan, Jaclyn Smith, and Kathy Ireland were also accused of using sweatshops in the manufacture of their apparel and footwear lines.

      The U.S. apparel-manufacturing industry struggled to adapt to increased foreign competition brought about by the North American Free Trade Agreement and by the gradual elimination of trade barriers under the World Trade Organization. Apparel manufacturing in the U.S. continued its employment decline, dropping to 833,000 workers by September 1996. Increasing competition from low-wage countries caused more U.S. companies to consolidate their domestic operations and, in some cases, to move production facilities offshore to Mexico and Central America.

      U.S. consumers again split their apparel dollars equally between U.S.-manufactured and imported clothing. The source of imported apparel continued its shift from traditional suppliers in East Asia (China, South Korea, Taiwan, and Hong Kong) to Mexico and Central America. The adoption of "quick-response" manufacturing practices by U.S. companies, in answer to retailers' demands for short-cycle production and just-in-time inventory, prompted greater U.S. investment in manufacturing facilities in the Western Hemisphere. The recurring spectre of a trade war with China, reinforced by a proposed U.S. government sanction list of apparel and textiles from that country, also caused many U.S. importers to look for more reliable sources of apparel products.

      Price deflation made consumer apparel one of the best values for disposable income in 1996, yet spending did not increase demonstrably. Among the bright spots were garments appropriate for casual office wear, a category that appeared to confuse many consumers and that prompted huge retail promotions. A survey conducted by Levi Strauss & Co. indicated that as many as 90% of all U.S. workplaces had adopted a casual policy, with more and more companies, such as IBM and the Ford Motor Co., switching to a full-time casual policy. Another interesting shift in apparel consumption was an apparent shift to "investment" purchases; consumers during the 1995 holiday shopping season seemed to buy a few comparatively expensive luxury items, rather than ordinary apparel.

      (ALLISON WHEELER WOLF)

      This article updates clothing and footwear industry.

Footwear.
      Faced with a dwindling number of merchants and dramatic decreases in same-store sales in the fourth quarter of 1995, many shoe companies were faced in 1996 with the strategy of wooing retailers and sacrificing margins. Such name brands as Converse, L.A. Gear, K-Swiss, and Stride Rite's Keds division recorded losses. While third-quarter profits sank for Reebok International, which sold its Avia brand, growth was seen by fashion brands Nine West Group and Wolverine World Wide—maker of Hush Puppies, Caterpillar, and Wolverine Wilderness—which posted soaring third-quarter results. Timberland, after suffering losses in the second quarter, reported that third-quarter earnings more than doubled. Giants Nike and Fila Holding had record-shattering sales.

      The Olympic Games, held in Atlanta, Ga., marked one of the biggest promotional blitzes ever put forth by athletic footwear companies, with Nike, Reebok, Adidas America, and Fila spending more than $100 million on advertising. Nike spent a record $35 million, and Reebok spent about $30 million plus the $20 million it laid out as the official footwear supplier.

      Footwear stocks were dragged down by disastrous performances by companies such as Edison Brothers Stores, operator of Bakers and the Wild Pair stores, which was in bankruptcy proceedings. Woolworth received a shareholder proposal to spin off its athletic footwear chains, including Foot Locker. Melville spun off its footwear operations to shareholders, creating an entity named Footstar that would include FootAction USA and Meldisco's leased shoe departments in Kmart stores. In addition, Melville disclosed plans to close down its remaining Thom McAn stores by mid-1997.

      May Department Stores decided to spin off its Payless ShoeSource operation. As part of the deal, Payless closed or relocated about 450 stores in the second quarter of 1996. Herman's Sporting Goods liquidated, but Finish Line reported that it planned to open 75 stores in two years, and Melville said that it would convert up to 100 of its former Thom McAn sites to FootAction stores. Sports Authority said that it also planned to add 55 to 60 locations within a year. (BONNIE BABER)

      This article updates clothing and footwear industry.

Furs.
      Retail sales of fur apparel bounced back strongly in the frigid early months of 1996 as one of the harshest winters on record boosted fur sales by 10-20% over the previous year's sales of $1.2 billion and brought industry inventories to their lowest levels in years. Animal rights organizations had claimed credit for having put a damper on U.S. fur sales, which had peaked at $1.9 billion in 1987 before falling to half that amount and then rising steadily.

      Furriers witnessed the sharpest increases in skin prices in memory. World production of both ranched and wild furs had dropped precipitously since 1987, when the market collapsed because of oversupply and a decline in demand as a result of worldwide economic recession and a series of mild winters. Not only were there fewer pelts to supply the traditional markets, but there was also a tremendous increase in demand from Russia and China, two large fur consumers that had historically relied on their own domestic supplies. Sudden economic growth in those countries was accompanied by a major upswing in consumer demand for luxury items. The two countries became new competitors for the world's fur supplies, joining South Korea, which had entered the market a few years earlier.

      Another positive factor was the increased use and promotion of furs by major international fashion designers, many of whom had never used furs before and were now using them as trimmings on their textile and leather outerwear and for such accessories as hats—in such countries as Russia and China. At the same time, there was an increase in favourable media coverage, which featured furs in fashions and downplayed coverage of antifur demonstrations.

      Members of the Animal Liberation Front raided 22 mink farms, liberating animals and causing millions of dollars in damage. An agreement was reached in December that would enable Canada and Russia to continue to ship furs into the European Union (EU), which had legislated a ban on such items from countries that had not outlawed the use of steel-jawed leghold traps. The U.S., the world's largest fur source, was still balking at year's end and faced the prospect of having its goods alone banned from EU countries. (SANDY PARKER)

AUTOMOBILES
      The year 1996 represented a milestone for U.S. automakers and their suppliers. The U.S. industry celebrated its 100th anniversary, tracing its roots to the 13 cars built by the Duryea brothers in 1896 rather than to any of the single vehicles that had preceded the series they produced. Yet while the industry trumpeted its centennial with a number of celebrations, it did not burden itself with sentimentality. General Motors abandoned its longtime headquarters in midtown Detroit, which had been built by its first chairman, William Durant, and which had been the largest office building in the world when it was completed in 1920. Ironically, GM moved into the glass towers of the Renaissance Center in downtown Detroit, which had been built by Henry Ford II, and quickly notified the Ford Motor Co. that it would not renew Ford's leases in the office complex.

      From a more immediate standpoint, 1996 marked the greatest period of prosperity the U.S. auto industry had enjoyed in 30 years. Not since the 1960s had there been such ongoing strength in the market. The industry entered its fourth straight year of solid sales, strong employment, and robust earnings, largely thanks to the resilience of the U.S. economy and the continuing boom in the truck segment, which continued to be dominated by the Big Three.

      Sales of new vehicles in Japan, however, were up only 1.5%, and they still had not recovered their levels of the late 1980s. In Europe sales were slightly stronger, but they were well below the record set in 1992. Several less-developed markets such as China and Argentina struggled through rough economic conditions. The Mexican market, while showing great percentage gains, continued to run far below the sales levels it had enjoyed just a few years earlier.

      The length of the U.S. automotive recovery prompted many analysts to wonder how long it could last. The growth of gross domestic product came under increasing scrutiny, since the U.S. consistently devoted about 4.5% of its GDP to the purchase of new vehicles. As long as the U.S. economy continued to grow, analysts reasoned, the automotive market would too. During the year the economy continued to post ongoing, albeit modest, growth, with low levels of inflation, interest rates, and unemployment. These conditions led economists at the Big Three to conclude that the strong auto market would continue well into 1997, and they forecast a sales rate of slightly over 15 million units, compared with about 15.3 million units in 1996.

      While some industry observers also began wondering how long the truck segment could continue to grow, it showed no signs of abating. Whereas the total U.S. market grew more than 3% in 1996, truck sales jumped more than 8%. Passenger car sales were essentially flat. The truck segment accounted for 43% of the total market, and there were few analysts who doubted that by the end of the decade trucks would account for one of every two vehicles sold. (Of course, the fact that vans and sport utility vehicles, not just pickups, were classified as trucks affected these numbers.)

      The domestic U.S. automakers benefited tremendously from their dominance in the truck segment, which stood at an impressive 86% share. Not only was the segment growing strongly, but it also generated a disproportionate amount of U.S. automakers' profits. On some top-of-the-line vehicles, such as the Ford Expedition, Chevrolet Suburban, and Jeep Grand Cherokee, financial analysts estimated that each automaker was earning as much as $10,000 in variable profits.

      General Motors, Ford, and Chrysler each offered a mix of truck products that greatly appealed to customers, but they also continued to benefit from U.S. gasoline prices, which by world standards were extremely low. Gasoline prices in Europe and Japan were two to three times more than they were in the U.S. The low price of fuel in the U.S., about $1.30 per gallon, continued to encourage buyers to opt for full-size trucks, vans, and sport utility vehicles with large V-6 and V-8 engines. Since there were few other markets in the world where such vehicles were competitive, few foreign automakers were willing to make the huge investment needed to develop these types of trucks and engines. Those foreign automakers who chose to sell pickups in the U.S. also had to make them in the U.S. or pay a 25% import duty. In late 1995 Japan's largest and richest automaker, Toyota, announced that it would build a new plant in Princeton, Ind., to make 100,000 full-size pickup trucks annually. No other foreign automaker revealed plans to do the same, however.

      That did not stop Japanese automakers from trying to find their own niche in the truck segment, with smaller sport utility vehicles priced under the more popular U.S. models. Toyota began importing the RAV4 to the U.S. market, and its immediate sales success prompted Honda to announce that it would import the CR-V. Subaru also announced that it would bring in the Streega from Japan. The South Korean automaker Kia also introduced the Sportage, which was priced below the Japanese entries. The Sportage also pioneered the first application of a knee air bag. The air bag deployed quickly just below the steering column and pushed the driver's knees back, thus straightening the torso and putting the driver in a better position for the chest air bag, which deployed a fraction of a second later.

      Upscale sport utility vehicles were not the only products to attract affluent buyers. Most European luxury cars enjoyed a double-digit sales growth in 1996, while their U.S. and Japanese counterparts floundered. BMW, Mercedes-Benz, Audi, Porsche, and Jaguar all benefited from new models, most of them aggressively priced, that stole sales away from the Japanese luxury brands. Volkswagen, too, enjoyed a healthy sales surge. Yet despite their recent success, the European brands were just starting to get back to the sales levels they had enjoyed in the mid- to late 1980s.

      The year was also marked by strikes and labour negotiations. In March the United Automobile Workers struck two General Motors plants in Dayton, Ohio, that made brake parts. The union objected to GM's buying antilock brakes from Robert Bosch GmbH, an outside supplier, instead of building them in-house. The practice of buying parts that formerly had been made in-house, commonly called outsourcing, was a particularly contentious issue between manufacturers and labour unions. The shortage of brake parts from the idled Dayton plants quickly forced most other GM plants to close as well. The strike lasted only 17 days, but before it was over, GM had lost 96,000 vehicles, and the company blamed a $900 million loss in the second quarter on the lost production. Most analysts felt, however, that General Motors had showed a new resolve in taking on the union, something it had been reluctant to do earlier, when its balance sheet was weak and it was losing money in North America.

      Later, in the fall, each of the Big Three and many of their suppliers had to negotiate a new three-year labour contract with both the UAW and the Canadian Automobile Workers. Ford and Chrysler breezed through their negotiations with virtually no disruptions, but GM ran into difficulties, especially with the CAW. Once again the issue centred on outsourcing and job security, and once again the company lost significant amounts of production. GM's troubles with its unions stemmed from the fact that it needed to negotiate a contract that would allow it to shed a staggering 50,000 to 60,000 workers in order to match the productivity levels that Ford and Chrysler had achieved. The difficulty was compounded by the fact that Ford and Chrysler had completed most of their outsourcing during the severe automotive recession of the early 1980s, while General Motors was trying to reduce its workforce drastically during a prosperous period, something the unions resisted.

      At first blush the contracts settled with each of the unions seemed to be decidedly pro-labour. They guaranteed that each automaker would retain 95% of its workforce during the length of the contract. Every hourly employee was given a $2,000 signing bonus, and over the life of the contract each employee would earn an additional $10,000 in wages and benefits. Each automaker also committed itself to looking for opportunities to bring more work in-house to preserve jobs.

      As more details of the contracts began to leak out, however, it became apparent that the automakers had negotiated enough loopholes to allow them to achieve ongoing reductions in the cost of labour. It was learned, for example, that the 95% job guarantee applied only to outsourcing. Any plant that was able to reduce its workforce by means of productivity improvements would not be held to the 95% level. Nor did the guarantee apply to contract workers or to plants that were sold, and it would not apply during an economic downturn. Moreover, any new workers hired to make automotive parts, as opposed to those involved in vehicle or power train assembly, could be paid a substantially lower wage.

      The Office for the Study of Automotive Transportation (OSAT), affiliated with the University of Michigan, released a study showing that over 30% of the automotive workforce was already more than 50 years old. The study predicted that more than 40% of this hourly and salaried workforce, representing several hundred thousand people, would retire by 2003.

      As automakers continued to outsource more work to supplier companies, those companies in turn experienced a great increase in their business. The larger supplier companies embarked on a major buying spree during the year, trying to acquire smaller companies. They did so for several reasons. First, they were trying to broaden their technical capabilities and product lines. Second, they were essentially buying new customers by acquiring firms that did business with other automakers or even other suppliers. Third, they were trying to expand their presence in overseas markets. A report from Morgan Stanley showed that during the period from February 1995 through February 1996, there were 75 acquisitions of publicly traded supplier companies, nearly two a week, representing $17 billion in transactions.

      Some of the more notable mergers and acquisitions during the year included the giant German supplier Robert Bosch, which paid $1.5 billion in cash for the brake business of AlliedSignal (the company that had long been known as Bendix). Hayes Wheels International and the Motor Wheel Corp. merged in a $1.1 billion deal. Lucas Industries and the Varity Corp. merged to form a $6.7 billion company.

      The giant seating supplier Lear bought Automotive Industries and Masland. Lear's formidable competitor Johnson Controls purchased the Prince Corp. for $1,350,000,000. Tenneco bought Clevite for $300 million, snatching it away from Mayflower at the last moment. Sweden's Autoliv acquired the auto-safety division of the U.S.-based Morton for $750 million to form a giant air-bag supplier. Finally, Textron bought Germany's Kautex Group for more than $300 million.

      All of this activity led several executives at Chrysler and Ford to denounce it as "merger mania." They warned suppliers that it was not necessary to own other companies and that they could get the same benefits by cooperating with them instead of buying them. The automakers worried about supplier executives being distracted by their acquisition activity. They also openly wondered how suppliers would manage their debt loads during the next economic downturn.

      For their part, however, many supplier executives suspected that the automakers simply did not like the fact that supplier companies were becoming so big and powerful. They assumed that the automakers opposed their growth because suppliers would be in a better position to resist pressures to cut prices. Besides, they argued, mergers and acquisitions enabled them to achieve better value for their stockholders. The facts seemed to bear them out. The stock of the publicly traded automotive supplier companies actually outperformed the Standard & Poor's 500 index, including the stock performance of the automakers themselves.

      Elsewhere in the supply business, General Motors and Ford studied the possibility of selling parts to each other as they tried to increase their presence in the Southeast Asian market. Rather than have each company build components for itself in this part of the world, GM's Delphi and Ford's Automotive Parts Operations discussed how they could coordinate their activities to prevent any overlap. They were especially interested in not duplicating factories that required heavy capital investment. The companies also studied how they might locate their supplier plants close to one another's assembly plants. Japanese automakers already did much the same thing in some Asian countries. Toyota, for example, made engine cylinder blocks for Nissan and Isuzu in Thailand. Nissan, in turn, made engine cylinder heads for the others, while Isuzu made connecting rods and camshafts.

      Toyota and Honda also introduced cars designed specifically for the Southeast Asian market that were not just stripped-down versions of existing cars. Toyota's car, called the Affordable Family Car, or AFC, was derived from the company's four-door Tercel. To hold prices to affordable levels ($12,000 to $16,000), Toyota dropped certain equipment such as antipollution devices, a heater, and some safety beams. Nonetheless, it offered air-conditioning, a modern design, and the possibility of optional air bags on higher-priced models. Honda introduced the City, a four-door subcompact that was developed exclusively for the region and was powered by a 1.3-litre engine.

      Ford increased its equity in its Japanese partner, Mazda, to 33.4% from 24.5%, effectively taking legal control of the company. Ford also named Henry Wallace president of Mazda, the first time in history that a non-Japanese executive had run a Japanese auto company. The need for Ford's financial involvement was clear. Mazda's debt had swelled to $7 billion, and it had lost money. Ford also pulled several product-development programs out of the U.S. and Europe in favour of Mazda. Specifically, it yanked development of a new engine family (known as the I-4/I-5 program) out of Europe and gave it to the Japanese company. It also killed a small sport utility vehicle being developed in the U.S. in favour of a joint Ford-Mazda program that was already under way. This undoubtedly helped Mazda, but several European and U.S. supplier companies that had invested in the projects were angry at being left out.

      General Motors became the first major automaker in the modern era to offer a mass-produced electric-powered vehicle. Called the EV1, it became available for lease at Saturn dealerships in Los Angeles and San Diego, Calif., and in Phoenix and Tucson, Ariz. The move was part of a deal that automakers had reached with the California Air Resources Board. The CARB agreed to drop its 1998 mandate that 2% of automakers' sales in California had to be electric vehicles, provided that automakers agreed to introduce electric vehicles. The CARB did not, however, rescind its mandate that 10% of all vehicles sold in 2003 had to be electrics. Toyota and Honda quickly announced their own plans to make electric-powered vehicles available in 1997. Other automakers were also expected to announce similar plans.

      Air bags came under scrutiny in 1996 when they were identified as potentially lethal devices for children and for short drivers, especially small women. To protect unbelted occupants in a car, as required by law, air bags needed to deploy very quickly. Because they deployed at nearly 325 km/h (200 mph), they were dangerous for anyone who was too close to them and potentially lethal for anyone small enough to be flung back by them. Air bags were identified as the cause of death for a small number of children and adults involved in minor accidents and as the cause of abrasions, bruises, and broken ribs for some adults.

      Safety advocates called for the introduction of so-called smart bags that would sense how quickly or powerfully they had to deploy, depending on the size and position of the occupant. Automakers countered that the technology for smart bags was not yet reliable. They argued instead in favour of air bags that would not deploy as quickly yet would protect passengers who wore seat belts. Both sides urged parents to keep their children belted in the backseat. The National Highway Traffic Safety Administration contemplated issuing a regulation mandating a more stringent warning label in cars. At the end of the year, however, the issue had not been resolved. (JOHN McELROY)

      This article updates automotive industry.

BEVERAGES

Beer.
      The largest U.S. brewers were determined to be as many things to as many people as possible in 1996 in an effort to generate more than marginal growth. Anheuser-Busch, Miller Brewing, and Adolph Coors all made no secret of their desire to cut in on the booming craft beer market, and, just as they had in 1994 and 1995, all three indulged in an upscale, low-volume strategy, trying to pluck off microbrewing's relatively few but valuable consumers.

      More important, however, the large brewers paid close attention to their mainstream marketing efforts. Reasoning that the premium segment was the biggest of all, Coors relaunched its Original Coors brand as "the last real beer." Similarly, Miller lent its trademark to a new label simply called Miller Beer. Each was trying to siphon off shares from Anheuser-Busch's Budweiser, the sales leader.

      Anheuser-Busch, the world's largest brewer, took shots at its much-smaller competitors in 1996. The company introduced dating to remind drinkers that Budweiser was fresh, not "skunked" (stale), as some imports tended to be. When Budweiser radio ads lambasted a competitor for not being what it said it was, the competitor was not Miller or Coors. It was instead the comparatively small Boston Beer, the marketer of the leading microbrew, Samuel Adams, which Anheuser-Busch criticized for not brewing in Boston. By year's end Anheuser-Busch had come up with Pacific Ridge Pale Ale, just for California.

      As for the craft-style beers that had led the revolution in taste, they continued to increase their sales in double-digit percentages in 1996 while at the same time proliferating in numbers. It was estimated that by year's end there were 4,400 brands of beer available in North America, most of them created by small brewpubs (restaurants that made their own beer) for limited clientele. Still, the many beers available continued to affect tastes, whether they appealed to the traditional consumer or to those willing to experiment, even with fruit flavours. So-called alcopops, like an alcoholic lemonade, became popular in Australia and the U.K., and several companies were exploring their possibilities in the U.S.

      This article updates beer.

Spirits.
 (For Leading Spirits-Consuming Countries in 1995, see Graph—>.) The marketing development of 1996 involved advertising practice in the U.S. After 60 years of voluntarily avoiding the airwaves, the sellers of distilled spirits in the U.S. declared that they would change their policy. Liquor, like beer and wine, would seek customers through radio and television advertising, a common practice elsewhere in the world.

      The spirits industry called it a matter of equity. Beer companies called this a specious argument (given the difference in the alcoholic content of a glass of spirits and a mug of beer) and did not care to be lumped with the so-called hard liquor industry. Would-be guardians of morals, from Pres. Bill Clinton on down, fretted that whiskey commercials would be bad for children. The chairman of the Federal Communications Commission, Reed Hundt, talked about new regulations; others planned to turn to Congress for a solution. The major broadcast networks declared that they did not want to run such ads anyway, but local stations and cable operators did not seem to mind. One thing was apparent. By running almost no advertising but merely talking about it, the spirits industry had probably gained more publicity than at any time since the repeal of Prohibition in 1933. Ironically, the talk of instituting new advertising regulations for alcoholic beverages came at a time when there was relatively little pressure to enact prohibitionist legislation. Drunk-driving figures had steadily declined over the previous decade, and some watchdog groups had come to recognize that alcohol marketers were taking a substantial measure of responsibility for the use of their goods.

      The sales of spirits continued to lag. Demographers pointed to an aging population that was not as interested as its parents were in traditional bar drinks. The industry responded in 1996 by unleashing wave after wave of unique products. Among the spirits introduced were Teton Glacier Potato Vodka; Rain Vodka, the first American vodka to be distilled from organically grown ingredients; a zesty line of liqueurs from Belgium called Smeets FruitJenever; and, in a nod to craft brewers, Jacob's Well, billed as "the world's first micro-bourbon." The most unusual package was for Rohol, a German whiskey drink that came in a miniature crude-oil can. (GREG W. PRINCE)

      This article updates distilled spirit.

Wine.
      Vintage 1996 provided the usual roller-coaster ride of good and bad results. In California and Oregon the vintage was generally fairly good, continuing a trend of the entire decade of the 1990s. The real problem there was of supply and demand. As more Americans consumed a more varied selection of wines, the demand for premium-quality wines drove prices generally higher if suitable grapes could be found at all. This was exemplified by merlot, whose prices soared as supplies dwindled.

      In Europe the outlook was generally optimistic. French growers had to deal with rains just prior to harvest, but these were not a great problem except for the "right bank" wines of Pomerol and Saint Emilion in Bordeaux and in the wines of the southern Rhone Valley.

      Medoc was promising a good vintage; Burgundy growers were enthusiastic, especially about their whites; Alsace should prove an exceptional vintage; and the northern Rhone Valley should produce some fine wines. Champagne producers were expected to declare a vintage and were excited about the quality of the grapes. In Italy Tuscan producers promised a good vintage, while their colleagues in the Piedmont were happy with the results of the harvest.

      Southern Hemisphere producers continued to improve the quality of their wines. Australia was plagued by drought, and so the crops were small. The increased demand for wine in Australia, therefore, led to less wine being available for export. South American wines continue to become more available and were of improved quality. South African wines gained in availability and popularity.

      Sales continued strong, with a more international flavour to consumption. Increasing numbers of producers on both sides of the Atlantic were sending their products overseas, giving consumers a more varied selection. (HOWARD HERING)

      This article updates wine.

Soft Drinks.
      People could not miss Coca-Cola in 1996 if they watched the Olympic Games, held in the carbonation giant's headquarter city, Atlanta, Ga. The company invested an estimated $500 million to plaster its name all over the world's most watched event. Later in the year Coca-Cola swooped into Venezuela, one of the few markets where it was outsold by Pepsi-Cola, and reversed the situation by signing with Pepsi's powerful bottler, the Cisneros Group. Pepsi struck back in November by signing a deal with Polar, the Venezuelan brewer and packager, to bottle and distribute its goods.

      As U.S. soft drink consumption continued to increase at a better than 3% annual clip, both Pepsi and Coke managed to enjoy good fortunes at home. Pepsi inaugurated "Pepsi Stuff," a promotion that allowed consumers to save "points" from packages and receive apparel and sporting goods with the Pepsi logo. Outside the U.S., the company began Project Blue, which included a newly designed blue can.

      While colas remained king throughout the world, there was no shortage of contenders for "next big thing" in 1996. At a time when Snapple and AriZona iced tea sales were lagging, a vacuum was waiting to be filled. There were soft drinks with names like Black Lemonade and exotic ingredients like ma huang and ginkgo biloba. Energy drinks included Guts, made with guarana, a South American extract said to offer beneficial effects. Even cola was not safe from spice, whether it be sodas spiked with coffee (including one marketed by Pepsi) or the U.S. debut of the British sensation Virgin Cola. In December Coca-Cola introduced Surge, a high-calorie and high-caffeine citrus drink targeted at Pepsico's Mountain Dew market.

      Clearly Canadian grabbed a wave of publicity in 1996 by floating gelatinous spheres in a juice drink and calling it Orbitz. Yet for all the effort that many entrepreneurial companies invested into gaining the spotlight, the most publicity went to a simple product: bottled water. The hottest new product of the year, much imitated in North America, was Water Joe, uncarbonated water with caffeine. (GREG W. PRINCE)

      This article updates soft drink.

BUILDING AND CONSTRUCTION
      The pace of new construction eased slightly in mid-1996 in the U.S., but it rebounded strongly in September. Total new construction spending rose in September to a record annual rate of $573.4 billion, according to U.S. Department of Commerce figures. Strong third-quarter support came from nonresidential building. The major stimulus was government spending, with gains in highways, schools, urban public housing and redevelopment, hospitals, and water-treatment plants. By contrast, housing starts declined after a brisk pace in the first quarter. According to the National Association of Home Builders, new residential single- and multifamily dwelling starts would total nearly 1.5 billion for the year, 7.7% above the 1995 pace.

      The U.S. Congress reauthorized the Safe Drinking Water Act, allocating up to $9.6 billion to ensure that the nation's 60,000 water treatment plants were brought into compliance. Some operators began to develop alternatives to chlorine disinfection. Milwaukee, Wis., upgraded its system to ozone disinfection, an $89 million improvement. Seattle, Wash., began competition between four design-construction teams for the proposed 120 million-gal-per-day Tolt River treatment plant (1 gal = 3.79 litres). In the area of wastewater treatment, the $3.5 billion Boston Harbor cleanup passed a milestone in September when a 15.3-km (9.5-mi) outfall tunnel was completed to discharge 1.3 million gal per day of treated effluent 30.5 m (100 ft) below the surface of Massachusetts Bay.

      Canadian nonresidential construction fell 8.6% during the first quarter of 1996, but residential construction surged as monthly housing starts for the period averaged 113,000 units, a pace that would mark a 4.2% increase for the year. Contractors made significant progress on the $500 million Northumberland Strait Crossing, which would connect Prince Edward Island and New Brunswick.

      Construction in Mexico rebounded in the second quarter of 1996, advancing 7.8%, after having slumped 23% in 1995. Traditional construction remained weak overall, but the telecommunications sector continued to attract infrastructure investment from carriers preparing to compete for long-distance customers in January 1997.

      Like many other less-developed nations, Argentina was raising capital for infrastructure by privatizing government businesses. A French-led consortium was investing $4 billion in improvements to the Buenos Aires water- and wastewater-treatment system in return for a 30-year operating concession. Brazil was also following the privatization path, encouraging investment in the previously monopolized transportation, telecommunications, oil, and utility industries. Some 1,100 water and wastewater concessions across the country were up for sale.

      In Indonesia a favourable investment climate attracted capital to finance a $1 billion petrochemical plant and a $2.5 billion 1,230-MW power station on Sumatra. The current five-year plan called for expenditures of $20 billion for transportation and $9 billion for water supply and treatment. China began to turn its attention to environmental pollution, an unwelcome consequence of rapid development. During the first two quarters of 1996, the central government closed 1,000 small paper plants on the Huai River, its most polluted waterway. The country was seeking to increase the budget for environmental protection above the current level of 0.7% of gross domestic product. Disastrous floods during the summer gave impetus to the massive Three Gorges Dam project, a $25 billion flood-control and hydropower project that would displace well over a million people. (ANDREW G. WRIGHT)

      This article updates building construction.

CHEMICALS
      The high production and plant-operating rates seen in 1995 continued to mark most of the world's chemical industry in 1996. The high and rising sales levels reflected the generally healthy economies of countries around the globe. The high volume of products sold, however, did not always translate into record profits, particularly for the makers of big-volume petrochemicals. While employment rose in the chemical industry in the U.S., added personnel was not as visible in industrialized countries as was higher productivity—fewer workers turning out more products.

      Countries in Asia, South America, and the Middle East continued to strengthen their roles in chemical production, and as the economies of many of the nations of Eastern Europe continued to improve—notably Poland, the Czech Republic, and Hungary—they were beginning to surpass the production marks set before the breakup of the Soviet bloc. The few records from Russia itself gave little evidence of recovery.

      There was concern, however, as to whether some of the capital expansion projects slated for the latter half of the 1990s—many to come into operation beginning in 1997 and 1998—might be ill-timed. This was particularly the case with crackers for the production of ethylene, propylene, and butadiene and for facilities making pure terephthalic acid, used in polyester fibres, film, and bottles. It was being asked if the industry had once more been overly ambitious. The new plants could lead to even more serious market competition that would shrink profit margins.

      It was competition and the search for higher profits that kept up pressures for mergers and the reshuffling of business units at major companies around the world. The big three German firms, for example—BASF, Bayer, and Hoechst—were reevaluating their operations and selling some business units and merging others. These developments also were seen among other companies in Europe and in the U.S. Even in Japan, where the merger pace remained slower, two chemical units of the Mitsui group announced plans to combine in 1997.

      The strong performance that developed in the chemical industry in 1996 came from a powerful 1995 base, the last year for which figures were available. The dollar value of world chemical shipments reached an estimated $1,545,000,000,000 in 1995, up 12.2% from 1994. Production indexes, however, were not as impressive. U.S. production rose by just 1% in 1995 after having gained 5% in 1994. The U.S. chemical industry remained the largest in the world, turning out 23.8% of the world's production in 1995, but its dominance was slipping, for in 1985 it had held a 28.4% share.

      Western Europe's production increased 2.5% in 1995, but performance varied greatly among countries. Germany's production index, for example, was 102.7, compared with its 1994 mark of 105.2. Germany remained Europe's largest producer, with 8.1% of the world's sales in 1995, worth $125.4 billion. France raised its chemical sales to $85.3 billion, up 8% in 1995, and its production index was at 119.2, up from 117, almost 1.8%. France had about a 5.5% share of the world's chemical business. The U.K., with a 4% share, saw its sales volume rise to $61.6 billion, up 10%, and its production rise to 3.6%.

      Italy showed a striking growth in sales, to $50.9 billion, up 15%. Its production rose about 3%. It had 3.3% of world production. Belgium, Spain, and The Netherlands all registered sales above $30 billion in 1995.

      Large increases were seen in Poland, Turkey, and Hungary in 1995. Poland's sales rose to $6.7 billion, up more than 45%, and production increased 12%. Turkey had sales of $6 billion, an even more impressive jump of 76.4%. Hungary, still well below its production level of 1991 and not growing as fast as it did in 1994, nonetheless raised its production by 1.6% and hiked sales to $3.3 billion, a gain of 50%.

      Although South America's chemical industry experienced good growth in the 1990s, only Brazil had a domestic sales volume that put it in the ranks of the large European countries. In 1995, for example, the latest year for which figures were available, its total sales volume was $39,390,000,000. Next largest in South America was Argentina, with sales of $13,110,000,000. Mexico's sales totaled $19.7 billion, only slightly less than Canada's, at $23,520,000,000.

      The picture in Asia continued to change with remarkable speed. Japan, with an output valued at $255.1 billion in 1995, had 16.5% of the world's chemical business. Chemical production was up 7%. Because Japan's plants were generally too small for serious competition in the export field and had high costs (Japan had to import naphtha as raw material for most key petrochemicals), the country's large chemical producers were increasing investments elsewhere in Asia, including Taiwan, South Korea, and China.

      Taiwan, which was relatively early to draw Japanese investors, had a 1995 sales volume of $28,570,000,000, which put it in the ranks of major European countries. Although dwarfed by Japan, South Korea's chemical industry, with domestic sales of $43,120,000,000 in 1995, was behind only four countries in Europe. The chemical enterprises of China, with domestic sales at $84,550,000,000 in 1995, exceeded those of all but one nation of Europe, Germany. China's expansion in chemicals continued at about 10% per year.

      International chemical trade in 1995 was valued at $437 billion, some 15% above the 1994 mark. The falloff in trade that was seen in the latter part of 1995, however, carried into 1996.

      Many of the leading exporters continued to be strong importers. Countries of the European Union, for example, exported $158 billion in chemicals, up 12%, in 1995 and imported $132 billion, up 14%. Germany retained its position as the world's export leader, shipping goods valued at $70.5 billion, up 6%, and importing chemicals valued at $43 billion, up 11%. Italy made the biggest gains, raising exports 29%, to $20 billion, and increasing imports 23%, to $28 billion.

      The U.S. in 1995 shipped out chemical goods valued at $62 billion, up 20%, and increased imports to $40 billion, a 19% change over 1994. Japan had a 19% export gain, to $30 billion, and imported 16% more than in 1994, or $25 billion.

      Stimulated by the need to exploit new technology effectively, a number of business alliances were announced in 1996. These included links between Germany's BASF and E.I. Du Pont de Nemours & Co. (Du Pont) of the U.S., which would work on a venture in China to capitalize on a new way to make key raw materials for the two most common types of nylon (nylon 6 and nylon 6/6).

      In the U.S., Exxon Chemical Co. and Union Carbide Co. combined their skills to cooperate on the commercial development of the new metallocenes, or single-site catalysts, which produced superior-quality polyolefins. Exxon also joined Netherlands-based DSM in exploiting metallocene technologies for types of specialty rubber made primarily of ethylene and propylene.

      Dow Chemical Co. and Du Pont set up Du Pont Dow Elastomers, with Dow's expertise on metallocenes a central factor. Similarly, Dow and Montell Polyolefins, the European polypropylene giant created in 1994 by the combined interests of the Dutch and British conglomerate Royal Dutch/Shell and Montedison of Italy, joined forces. Dow also formed links with the U.K.-based BP Chemicals, a subsidiary of the British Petroleum Company PLC, in polyethylene process cross-licensing.

      Less-spectacular technological advances continued to come as part of the chemical industry's efforts to minimize pollution, to find processes that employed less-hazardous intermediates, to emphasize recycling, and to find ways to clean up water and soil that had been contaminated. Much of the environmental research had been entered into reluctantly to meet regulations that the industry felt were not justifiable. Having gained greater plant efficiencies, in part as a result of research done to meet stricter laws, however, the industry appeared willing to live with many of the regulations that had brought environmental improvements. (J. ROBERT WARREN)

      This article updates chemical industry.

ELECTRICAL
      Global demand for the products of the electrical manufacturing industry were at an all-time high throughout 1995, but by August 1996 a perceptible slowdown had been detected. This was especially the case in Western Europe and particularly in Germany, where the strong Deutsche Mark and high wage settlements dampened the economy. Little change was expected in Europe in 1997, because of pressures on national economies to meet the stiff monetary convergence requirements of the move to a common currency in 1999. In North America the market was affected by uncertainty about deregulation of the electric power industry, which delayed equipment orders.

      These minor market losses were largely balanced, however, by increased business in East Asia. Expansion of the Asian Pacific economies continued apace, led by a small number of giant corporations that manufactured a vast range of goods, from cars and electrical power products to cameras.

      Although multinational companies in the developed countries continued to specialize, acquiring complementary specialist firms and divesting uneconomical or disparate subsidiaries, the top priority was shifting to the redistribution, or globalization, of their manufacturing bases. The electrical equipment manufacturing industry was leading the way in this development. For example, the head of the German electrical multinational Siemens pointed out that nearly 60% of its business was with customers outside Germany, while most production took place inside, an imbalance the company was working to change.

      Although globalization would help cut production costs, constant innovation also was vital for success in the electrical and electronic engineering industry. Organizational changes in electrical companies had been aimed primarily at ensuring that innovations in basic technologies were applied across the complete product range.

      ABB Asea Brown Boveri (ABB), which ran a close second to Siemens, the world's largest electrical equipment manufacturer, was even farther down the road toward globalization. Nearly 17% of its total sales were in the Asia-Pacific area, compared with less than 10% at Siemens. ABB had manufacturing bases in 46 countries. Partly as a result of the company's globalization (employment had increased by 7,000 in Asia and declined by 4,000 in Europe), its personnel costs, for the first time, fell below 30% of adjusted revenues. Personnel cost reduction had been a main contributor to improvement in the company's operating margin.

      Globalization was also being taken seriously at General Electric (GE). The U.S. company said that it was accelerating its globalization by approaching joint-venture partners, including sovereign states, as multibusiness teams, sharing knowledge among countries, and assembling supportive financing packages from its subsidiary GE Capital. Global revenues over the previous 10 years had increased from 20% to 38% by 1995, and in the next four or five years the majority of GE revenue was expected from outside the U.S.

      Unlike Siemens and ABB, however, GE continued to be a multibusiness company. Only 39% of its total revenue in 1995 came from electrical equipment manufacturing; most of the remainder was from broadcasting, plastics, and aircraft engines. GE thus dismissed one of the hottest trends in business—breaking up multibusiness companies and spinning off the components because of the idea that size and diversity inhibited competitiveness.

      One multibusiness company that had been undergoing a breakup for several years was AEG, the once huge German conglomerate. The company was now owned by Daimler-Benz, but its domestic appliance business had gone to Electrolux, GE had taken over its low-voltage business, and much of its automation business was now in French hands. The latest move was the sale of the company's electric power transmission and distribution business to GEC Alsthom in September 1996. GEC Alsthom, an Anglo-French manufacturer of power equipment, was fourth in revenue in the electrical industry. Its policy of globalization had resulted in sales in Asia reaching 26% of the total, with 11% in the Americas.

      In November Westinghouse announced that it would divide its multibusiness company into two parts. One company would take the industrial businesses, including power generation; the second, CBS and the other broadcasting businesses.

      After 30 years of meetings and debate, the International Electrotechnical Commission was expected in 1997 to finalize a standard design of a 230-v plug-and-socket system for domestic and commercial application. The publication of the standard would have wide implications. As well as the whole of Europe, much of East Asia and Africa were expected to adopt the new standard. (T.C.J. COGLE)

ENERGY

Petroleum.
      The price of crude oil rose strongly in 1996 as the generally buoyant world economy underpinned energy demand. The price of Brent Blend, the U.K.'s North Sea crude oil that serves as a global price benchmark, surged to a post-Persian Gulf War high of more than $25 per barrel in mid-October. The average for the year was expected to be about $20, an increase of about $3 per barrel over 1995.

      The strong performance of oil prices came in two waves. In April the demand for crude oil surged as refiners in the U.S. were caught short of supplies during a late cold snap. That caused the administration of Pres. Bill Clinton to release stocks from the Strategic Petroleum Reserve as a move to stem a sharp rise in the politically sensitive retail price of gasoline. Crude oil prices then retreated during the summer before rising strongly again starting in late August.

      The second and strongest buying wave was triggered in part by the suspension in September of the United Nations oil-for-food plan with Iraq, under which the Iraqi government was to be allowed to export $2 billion worth of oil every six months to cover the cost of buying food, medicine, and other essential items for civilians. Events occurring in the Kurdish areas of northern Iraq caused the UN to suspend the program, however, shortly before it was due to begin.

      The suspension of the agreement with Iraq came at a time when global oil demand was particularly buoyant. It also coincided with delays in production at some of the new fields in the North Sea. During the autumn there was also very strong demand for heating oil in the U.S. and in Western Europe during the period before winter, a factor that underpinned the particularly sharp rise in crude oil prices in October.

      The volatility of crude and refined product prices during the year also was exacerbated by changes in oil company policies on inventory management. In the past refiners had tended to maintain large stocks of crude oil. The relatively low profit margins in recent years in the refining industry, however, had caused oil companies to seek substantial reductions in their operating costs, and reducing inventories proved to be one of the quickest ways for companies to make savings. In the U.S., where oil companies had made the deepest cuts, crude oil stocks fell dramatically. In September 1994, for example, storage tanks at U.S. refineries held 330 million bbl of crude oil. The figure fell to 303 million bbl by September 1996, however, as just-in-time techniques of inventory management took hold.

      The impact of such changes was to increase price volatility. Any sudden surge in oil demand or unforeseen interruption in supplies tended to cause refiners to enter the market en masse in 1996. The fact that they all were scrambling to secure additional stocks at the same time pushed prices up sharply. The same volatility could be seen at times of price weakness. In those circumstances refiners tended to put off building up their stocks until as late as possible in the hope that prices would fall even farther.

      The poor commercial performance of much of the West's refining industry in recent years caused several of the largest oil companies to announce partial mergers during 1996. British Petroleum and Mobil of the U.S. announced that they would combine their refining and marketing operations in Europe, while Shell Oil, the U.S. division of the Anglo-Dutch oil group, Texaco of the U.S., and the Star joint venture between Texaco and Saudi Arabia announced plans to merge their refining operations in the U.S. Higher oil prices, however, provided a financial bonanza to members of OPEC, which accounted for about 25 million of the nearly 72 million bbl of oil consumed across the world each day.

      The OPEC basket price, an average of seven international crude oils, was comfortably above the group's target price of $21 per barrel for much of the second half of the year. The average for the full year was expected to be just shy of the target, at around $20.30 per barrel.

      By November OPEC members were reported to be producing more than one million barrels a day over their self-imposed production ceiling of 24,520,000 bbl a day. Strong demand, especially in fast-growing economies in Asia and Latin America, however, caused the overproduction to have little impact on prices. Strong demand and the high price of oil also helped to paper over political cracks in the organization.

      A number of OPEC states persistently cheated on their production quotas. This was done much to the annoyance of Saudi Arabia, the group's dominant producer, which had kept its output steady at eight million barrels per day in recent years, even though it had idle capacity capable of producing an additional two million barrels per day. Saudi Arabia and other large Persian Gulf producers, such as the United Arab Emirates and Kuwait, were increasingly worried that other OPEC members were following production policies that undermined the group's efforts to support prices.

      Venezuela, the only Latin-American member of OPEC, came under strong criticism for overproducing in 1996. Its output of 3 million bbl per day toward the end of the year was well in excess of its OPEC quota of 2.3 million bbl per day. A series of policy initiatives by the Venezuelan government in 1996 to open its oil industry to large-scale foreign investment as part of an ambitious plan to increase oil production to six million barrels per day by 2005 triggered market speculation that the country might eventually leave OPEC. The Venezuelan government, however, denied such suggestions. At its November meeting OPEC voted to maintain a production ceiling of 25,030,000 bbl a day until June 1997.

      Other issues confronting OPEC during the year included the strengthening of the unilateral U.S. sanctions against Iran and Libya, both members of the organization. Moves by the U.S. government to limit individual foreign investments in Iran's oil industry to $40 million were widely criticized, particularly in Europe. The Iranian government had opened its offshore oil sector in the Persian Gulf to foreign investment, although only one project, organized by Total of France, was under way by the end of the year.

      Because of strong demand the eventual return of Iraqi oil to world markets in December under a revitalized oil-for-food program had little negative impact on prices. Nor did Iraq have any difficulty in securing buyers for its crude oil. The long-term status of Iraq as a leading oil exporter remained in doubt, however.

      The full removal of the UN oil embargo on Iraq was expected to trigger massive investment in the country from Western oil companies, many of which were struggling to replace reserves. UN arms inspectors, however, said that the Iraqi government was still some way from meeting the demands that it cooperate fully on the dismantling of its ability to manufacture weapons of mass destruction.

      Advances in technology continued to drive down the costs of oil production during the year and to make previously uneconomic small fields commercially viable. Schlumberger, a French-U.S. group that was one of the world's largest oil service companies, predicted that average worldwide recovery rates could be boosted from 35% to 50% within 10 years because of steady technological progress.

      One of the most vivid examples of how technology had revolutionized the oil industry was the continuing rise in output from deepwater areas of the U.S. sector of the Gulf of Mexico. Ten years earlier few in the industry believed that oil could be recovered from water depths approaching 1,525 m (5,000 ft). By the end of 1996, however, there were 39 confirmed discoveries in the deep water of the Gulf of Mexico, with 11 fields producing and another 10 under development. Individual wells were drilled in water depths approaching 2,440 m (8,000 ft), and engineers were studying how to produce oil and gas in depths as great as 3,050 m (10,000 ft).

Natural Gas.
      The popularity of natural gas grew in 1996 because of its environmental advantages and the new uses found for it. Exxon, for example, announced progress in converting natural gas into middle distillates, a group of fuels that included diesel and kerosene.

      There was progress in 1996 in liberalizing natural gas markets in various countries. Plans to allow Great Britain's 19 million residential consumers a choice of supplier advanced with the successful start of a test among 500,000 households. Full competition was due to begin in 1998. In the U.S. nearly 12 million natural gas users, or about a quarter of all households connected to gas networks, would be able to select their supplier by the year 2000.

      Progress was also made during the year in liberalizing continental European natural gas markets. In December the energy ministers of the European Union set the summer of 1997 as a target for reaching agreement on allowing large consumers of gas to shop around for their supplies. EU states remained divided, however, between those, such as Britain and Germany, that wanted a rapid opening of the market and those, such as France, that favoured a more gradual approach. (ROBERT CORZINE)

Coal.
      World hard coal production in 1996 was estimated to be about 3.7 billion metric tons, only 60 million metric tons more than in 1995. In the U.S., however, coal production increased by more than 2%, to some 1,055,000,000 short tons (1 short ton = 0.9 metric ton) owing to strong demand for steam coal. U.S. coal exports increased to 88 million short tons (of which 40% was steam coal and 60% coking coal).

      China and India remained large coal producers (about 1.3 billion and 240 million metric tons, respectively) although not important exporters. Australia remained the number one coal exporter. South African coal production was estimated to have risen less than 1% in 1996, but exports were expected to be 62 million metric tons. Coal production in the European Union was expected to fall to 128.4 million metric tons. In Russia and Poland production in 1996 was similar to that of the previous year.

      Environmental legislation continued to have a strong impact on new coal facilities, making the cost of coal-fired power plants more expensive and making natural gas and other fuels more attractive. It did not appear, however, that stricter legislative requirements were imposing insurmountable obstacles to new coal power plants and mines. (ROBERT J.M. WYLLIE)

Nuclear.
      Statistical data for 1995, released by the International Atomic Energy Agency early in 1996, indicated that there were a total of 437 units operating in nuclear power stations in 31 countries at the beginning of the year, with a total capacity of 343,792 MW. This compared with 432 units with a total capacity of 340,347 MW one year earlier. There were 39 units under construction in 14 countries, and 4 of these were connected to the grid for the first time during the year. Four new reactor construction starts were scheduled for 1996. Worldwide during 1995 nuclear power units delivered a total of 2,223.56 TWh (terawatt-hours; 1 terawatt-hour = 1 billion kilowatt-hours). Countries with the largest proportion of national electricity production from nuclear power were Lithuania (76.4%), France (75.3%), Belgium (55.8%), and Sweden (51.1%). The total number of commercial power reactors shut down throughout the world reached 71.

      Engineers continued to concentrate on extending the working life of nuclear units. Total lifetimes of up to 60 years were being considered for a typical plant after a thorough refurbishment. Calder Hall, the world's first commercial nuclear power station in Great Britain, which celebrated the 40th anniversary of its opening in October, was authorized to continue operating for another 10 years. After a study of its 54 pressurized-water reactor (PWR) units, EdF, the French national utility, concluded that its reactors could achieve 40- or possibly 50-year lives.

      Privatization of the U.K. electricity industry was completed with the sale of British Energy, previously Nuclear Electric, together with the country's fleet of advanced gas-cooled reactors and the new Sizewell B PWR. British Energy announced before the sale that it had no plans for further nuclear units. The company intended, however, to maintain its export collaboration in the nuclear power area with Westinghouse. Meanwhile, in Canada plans to privatize Ontario Hydro excluded the utility's 19 nuclear units, which would be run by four subentities on a competitive basis while being held in public ownership.

      Public opinion continued to run strongly against new nuclear projects. In the first local referendum to be held on the construction of a new unit in Japan, residents of the town of Maki rejected a proposed station. There also was continuing lack of progress on plans for the disposal of radioactive materials in the U.S. A bill to require the Department of Energy to move irradiated fuel stored at power plants to an aboveground storage facility in Nevada failed to move through Congress. A U.S. Court of Appeals, however, ruled that the Department of Energy had to take possession of the spent fuel by the end of January 1998.

      General Electric won a $1.8 billion order from Taiwan Power for the two reactors at Lung-men. They were to be GE's advanced boiling-water reactor (BWR) design. Lung-men would be Taiwan's seventh and eighth nuclear units.

      The China National Corporation awarded a contract to Atomic Energy of Canada Ltd. for two CANDU 6 pressurized heavy-water reactors to be built on the same site as the Chinese-constructed Qinshan PWR power station. A new nuclear power nation, Romania, started up its first Canadian-designed CANDU-type pressurized heavy-water reactor at Cernavoda after a troubled history that had led to the delay of the first unit, construction of which started in 1981. This marked the first CANDU-type reactor to go into operation in Europe.

      International pressure to find a solution to the problems of cleaning up the Chernobyl site in Ukraine continued during the year. The work included the decommissioning of blocks 1, 2, and 3; waste management on-site and in the exclusion zone; the storage of spent fuel and high-level waste; and the enclosure of the destroyed unit 4. A group of international companies led by SGN of France were discussing the problem with institutions that might finance the project. It was agreed that unit 1 would be shut down at the end of November, ready for decommissioning and dismantling over the next five to six years. Ukrainian authorities complained, however, that none of the $2.3 billion of Western aid, promised in return for the government's commitment to closing Chernobyl completely by 2000, had been received. (RICHARD A. KNOX)

Alternative Energy.
      A study published in 1996 by the International Energy Agency (IEA), the Paris-based group that monitors energy developments on behalf of the Western industrialized countries, concluded that the demand for alternative energy sources would grow strongly in the coming years. Even so, these sources would account for only a small portion of the world's energy mix by 2010. The IEA estimated that fossil-based fuels would account for almost 90% of total demand in 2010. Nonhydroelectric renewable sources, such as biomass, wind, wave, solar, and geothermal power, however, were expected to register the highest growth rate. The IEA predicted that renewable sources would account for only about 1% of the total supply by 2010, compared with almost 3% for hydropower.

      The World Energy Council, a nongovernmental international group that promotes sustainable energy policies, estimated that renewable sources could provide 5-8% of the world's power requirements by 2020 but only with additional spending on research and development. The current levels of government support for alternative energy sources had resulted in steadily declining costs. The cost of photovoltaic cells, for example, had fallen from tens of thousands of dollars per watt in the 1960s to about $6. The world market for solar power remained small, however. (ROBERT CORZINE)

      This article updates energy conversion; petroleum.

GAMES AND TOYS
      The 1996 holiday season in the U.S., like those in previous years, saw the frenzy caused by shoppers' desperate search for a "must-have" toy. The "hot" commodity in 1996 was Tyco Toys Inc.'s Tickle Me Elmo, a Sesame Street character that wiggled, giggled, and talked when tickled. It retailed at about $30. Even after about one million of the toys had been shipped, stores sold out of them in minutes and could not keep them in stock. A number of people who had earlier managed to purchase Elmo attempted to take advantage of the situation, and offers to sell at highly inflated prices—sometimes to the highest bidder—began appearing in newspapers and even on the World Wide Web.

      A new version of an old favourite also made news late in the year. Cabbage Patch Snacktime Kids dolls—about 700,000 of which had been distributed by Mattel Inc., the toy's manufacturer, since its introduction in August—had battery-powered movable jaws designed to "eat" plastic carrots and french fries. After Christmas, however, reports began to emerge that the doll was chewing on children's hair—sometimes down to the scalp—and fingers. At the end of the year, Mattel advised the removal of the batteries and announced that future dolls would carry warning labels, but it was likely that the company would soon take the toy off the market.

      Mattel and Tyco had both been in the news earlier in the year. In January Mattel disclosed that it had been holding merger talks with another toy manufacturer, Hasbro Inc., since the preceding April. Mattel had offered $5.2 billion in stock in a deal that would have joined the two largest toy makers in the U.S.—and brought together such classic products as Scrabble, Monopoly, Mr. Potato Head, Barbie dolls, and G.I. Joe—but Hasbro rejected the offer, fearing antitrust difficulties. Mattel, which had hoped that Hasbro's stockholders would pressure the board into negotiating, withdrew its offer in February, citing Hasbro's "unbending stance" against the merger.

      In November Mattel made another surprise announcement—that it would buy Tyco, the third largest toy company in the U.S. and the maker of the miniature Matchbox cars. Holders of Tyco stock would be given Mattel stock worth $12.50 for each Tyco share in the $737 million deal, which was to be finalized in 1997. The acquisition would give Mattel worldwide sales of $4.3 billion and solidify its number one position.

      Another merger that made headlines was the purchase of Baby Superstore by Toys "R" Us, the world's largest toy retailer, in hopes of improving both the stock price and the Babies "R" Us unit's growth. The company had been seeking opportunities for growth since its previous fiscal year's 72% earnings nosedive. It also had been hit with accusations of having used its influence to prevent discount stores from obtaining certain popular toys from manufacturers. Toys "R" Us's business expansion would include putting Babies "R" Us into Baby Superstore spaces and constructing superstores that would combine various businesses under one roof.

      In addition, in March it was announced that the Melville Corp. would sell the Kay-Bee Toys chain, the second largest U.S. toy retailer, to the Consolidated Stores Corp. for $315 million. This move was expected to lower prices, attract more shoppers to Kay-Bee's more than 1,000 stores, and make Consolidated, a seller of closeout merchandise at a discount, one of the largest small-toy retailers.

      Electronic games continued to be important both as toys and as educational tools, and some 2,000 programs were available. The speed, diversity, and interest level of computer games were increasing, and studies were showing that these games had a positive effect on children's mental and neurological development. Many games could be played on the Internet. A network version of Parker Brothers' Monopoly allowed competition between players in different countries, and subscribers to the San Francisco-based Total Entertainment Network's Web site could choose among a number of games to play against each other. FormGen Inc.'s Duke Nukem 3D and id Software Inc.'s Quake were also extremely popular.

      The number of console video game users was diminishing, but sales remained high, and the major game makers—Nintendo, Sega, and Sony—still produced fast, entertaining games. The Nintendo Co.'s new Ultra 64, with three-dimensional images and the power to handle 64 bits of information at a time, was especially successful. Expectations were that 1996 sales of the unit would reach one million, largely on the strength of what was considered the company's best game ever, Super Mario 64. Sales of Sony Corp.'s PlayStation reached 10 million units by year's end; popular games included Sony's Crash Bandicoot and Eidos Interactive's Tomb Raider, with its gun-toting heroine Lara Croft. Sega, bundling three games with its Saturn unit, expected to reach one million in sales during the year.

      The perennial favourite Barbie, which in Japan had always been greatly outsold by a doll named Licca, designed to look younger than the teenager Barbie, finally began to catch on there. Mattel's softened look for that market's doll, as well as Japanese girls' changing tastes, was responsible for the inroads Barbie was making.

      (BARBARA WHITNEY)

GEMSTONES
      During 1996 the recession that had lasted for several years in the jewelry business, traditionally one of the last to recover from slowdowns, began to lift. In Western countries sales began to rise, and among European countries the U.K. had a reasonably confident jewelry and gemstone trade once more. The high end of the gemstone and jewelry market had stood up well to long-persisting trade conditions.

      In the salesroom demand for the finest gemstones was never higher, and the increased size of London salesroom jewelry catalogs was perhaps the clearest sign of recovery in this area. Demand from Asia for the finest stones continued to rise, and Middle Eastern buyers were still prominent, though perhaps to a slightly less extent.

      For gemologists the problem of treated stones had still not been resolved. While evidence of treatment (for example, the use of glass and plastic infillings in rubies and diamonds and the oiling of emeralds) was becoming more widely recognized, the question of disclosure had not been settled. More serious was the gradual spread of synthetic gem-quality diamonds; at least one stone, on reaching a laboratory for grading, turned out to be a completely unsuspected synthetic. The San Francisco firm of Chatham, long celebrated for its synthetic emeralds, was negotiating with Russia for the establishment of a synthetic-diamond-making plant. Russia continued to produce good-quality synthetic alexandrite, emeralds, and red spinel.

      Newly located deposits of gemstones include a site in Mali, from which attractive yellow-green garnets came on the market. An orange-red garnet was reported from Kashmir. The supply of fine gemstones from the countries of the former Soviet Union appeared less plentiful than in previous years, but Vietnam was providing good-quality red spinel and blue sapphire. Madagascar was producing gemstones again, with blue sapphires of reasonable quality, as well as emeralds, coming on the market. There were reports of Canadian diamonds' achieving commercial gemstone status, but exploration was still in progress.

      De Beers apparently achieved a working agreement with Russian diamond producers but announced that it wanted a signature on the contract from either Pres. Boris Yeltsin or Prime Minister Viktor Chernomyrdin. The Western Australian Argyle diamond producers broke away from De Beers late in the year and began selling stones directly. (MICHAEL O'DONOGHUE)

HOME FURNISHINGS

Furniture.
      In a survey conducted by Brian Carrol and published in Furniture/Today, the number of furniture sites on the World Wide Web skyrocketed in 1996. In April, Carrol found 98 entries; three months later the number was 242. It was not clear if this was simply a fad or if those who were first in the electronic marketplace would earn a great deal of money from it. The National Home Furnishings Association, the national organization for furniture retailers, also went on-line in 1996.

      In manufacturing the three leaders for 1995 were, according to surveys by Furniture/Today, Masco ($2,014,000,000 in revenues, up 6.8%), Furniture Brands International ($1,073,900,000), and La-Z-Boy ($914.9 million). The first and third rankings were the same as in 1995, but this apparent stability was misleading. By August 1996 Masco Home Furnishings had become a new company, Lifestyle Furnishings International, in a $1,050,000,000 deal, and La-Z-Boy changed its name to the La-Z-Boy Companies. Furniture Brands International, which formerly was Interco, acquired Thomasville late in 1995. According to the American Furniture Manufacturers Association, factory shipments for 1996 were expected to reach $20.1 billion, a growth rate of 5.9%.

      In retailing Levitz ($1,008,400,000 in revenues), Heilig-Meyers ($844.2 million), and Pier 1 Imports ($459.2 million) held the same top three positions as a year earlier, but by October 1996 the picture was changing. Heilig-Meyers had taken over the fourth-ranked company, Rhodes, to increase its number of stores to some 1,000, and Levitz, having suffered a $7.2 million loss in September, was struggling with a reorganization.

      Retailers' earnings had nose-dived in 1995, and, consequently, 1996 was a year of "no" promotions (no down payments, no monthly payments, no interest). The focus on price was the antithesis of the approach advocated by many, particularly the Home Furnishings Council, an umbrella organization.

      Unlike years past, when the market had a dominant theme—French, say, or country casual—the trend in style in 1996 was to diversity. Overall, designs were formal, with a hint of classical elements. The style to watch seemed to be the Latin look, a rustic version of the Mediterranean style. This coincided with the introduction of MarketPlace Mexico, a cooperative exhibit of 14 producers, at the Furniture Exposition in High Point, N.C.

      Leather continued to garner attention, while fabric upholstery featured combinations of materials and textures on a single piece. Improved designs of futons made them more appealing. Home offices and ready-to-assemble categories were hot, but home theatres were not.

      The American Society of Furniture Designers presented the first-ever Pinnacle awards to nine designers, with Berry & Clark Design Associates being named Designers of the Year and Ethan Allen receiving special recognition. Four people were inducted at the eighth annual Furniture Hall of Fame banquet: Hollis Siebe Baker of Baker Furniture, Mary McKenzie Henkel of Henkel-Harris, J. Wade Kincaid of Kincaid Furniture, and Joseph E. Richardson II of Richardson Brothers.

      (ABBY CHAPPLE)

      This article updates furniture industry.

Housewares.
      During 1995 U.S. consumers spent nearly $58 billion on items included in the general category of housewares, a 6.3% increase over 1994. The average U.S. household paid $567 for such items as tabletop appliances, health and beauty aids, cleaning equipment, and plates and dining utensils. That figure was nearly as much as the amount paid for medical services and more than was spent on education or on fruits and vegetables.

      Small appliances, floor-cleaning tools, sewing machines, electric kitchen devices, portable heating and cooling equipment, and microwave ovens represented more than 9% of the housewares market. During the year sewing machine sales dropped a dramatic 50%, while microwave purchases shot up 18% and cookware sales fell by 26%. The trend for ease made store-bought items more attractive to consumers and overrode a strong movement toward a "simpler" life—making instead of purchasing goods. The "back to nature" boom, however, resulted in dozens of new gardening publications and a 65% increase in sales of lawn and garden equipment.

      Television shopping networks reached more than 50 million households; 13% of purchasers bought small kitchen appliances. Though retailing via the Internet was beginning to take hold, concerns about electronic security, dull Web sites, and unreliable technologies were holding back sales in this medium. (KIRA GOULD)

INSURANCE
      World insurance news in 1996 was again highlighted by losses from catastrophes. The crash off Long Island of TWA Flight 800, which caused 230 deaths, had $600 million of potential liability. By 1996 the insurance payouts for weather-related disasters for the 1990s had reached $48 billion, compared with $16 billion for all of the 1980s. Hurricane Fran topped U.S. losses in 1996 as it slammed into the North Carolina coast to cause an estimated $1.6 billion in insured damages. A spectacular $300 million fire in Paris devastated a Crédit Lyonnais bank.

      Deregulation, privatization, and liberalization of international insurance markets provided new marketing opportunities. A 10% growth rate in Asia outpaced the global average of 4%. In the U.K. the Lutine bell at Lloyd's of London was rung an unprecedented three times on the news of government approval of a $5 billion recovery plan that ended lengthy litigation. After five years of losses totaling more than $12 billion, Lloyd's reported earnings of about $2 billion for 1993. Canadian insurers encountered hardening markets, with problems plaguing Ontario's auto insurance, and they also saw banks entering the life insurance business, as well as rising costs for new technology. Global reinsurance rates were generally continuing a decline that had begun two years earlier.

      In the U.S. property insurers hoped that gains on automobile insurance and workers' compensation would offset windstorm losses. Sales of ordinary life insurance were again disappointing, having remained flat for the past 10 years at approximately $10 billion of new annualized premiums and $1 trillion of face amount. Life insurers posted a 4.7% gain in total surpluses for the first six months of 1996. Individual annuities recovered from the decline in 1995, following an average growth rate of 15% in each of the preceding 10 years. In comparison with first-half results in 1995, variable annuity sales were up a sharp 62%.

      The role of technology had escalated rapidly in insurance. For example, brokers and companies formed new electronic exchanges for global communication and price information through the Internet and other networks. Sparked by rising claims for sexual harassment and wrongful termination, interest grew in employer liability insurance with high limits and large deductibles. Wal-Mart spurred sales of a new product called corporate-owned life insurance by purchasing $20 billion payable to itself on 325,000 employees.

      Integrated financial planning had become the driving force for many changes in personal insurance sales. New U.S. Supreme Court rulings allowed more banks into insurance. At midyear one large stockbroker began direct life insurance sales. Managed-care plans, which restricted patient and doctor choices, slowed the escalation of health insurance and workers' compensation costs.

      Consolidations of insurers continued at a rapid pace in 1996, following 1995's record $27 billion of assets in merged firms. In the U.S., after having sold its property and casualty unit to the Travelers Insurance Group for $4 billion in 1995, Aetna Life and Casualty announced plans to purchase U.S. Healthcare for almost $9 billion. General Electric acquired First Colony. In the competitive reinsurance field, two giants became even larger. Munich Reinsurance (Re) Co. bought American Re for $3.3 billion, and Swiss Re agreed to purchase Mercantile & General Re for $2.7 billion. Allstate Re sold its U.S. business to Skor-Paris, and General Re acquired National Re. The multibillion-dollar merger of Royal Insurance Holdings and the Sun Alliance Group formed the largest composite insurance company in the U.K. In Mexico, Seguros Comercial America (Group Pulsar) acquired the government-owned Aseguradora Mexicana.

      Sales of insurance company stock more than doubled—to $4.6 billion—from 1995. American Mutual Life Insurance became the first mutual life company under a new Iowa law to convert to a stock company while creating its own parent holding company. In a controversial trend, Cigna received regulatory approval for dividing its subsidiary Insurance Company of North America into two corporations in order to alleviate pending asbestos and other liability claims.

      With the encouragement of state regulators, U.S. insurers phased in expanded underwriting guidelines for property and liability insurance in urban areas. In contrast, some insurers announced plans to curtail sales in coastal areas. A new earthquake insurance program was approved in California in order to make such protection more widely available. The potential liability of businesses and insurers for the cleanup of 1,300 hazardous-waste sites identified by the Superfund was estimated to include $41 billion of unfunded costs. A federal appeals court approved an asbestos claims payment plan that could total $3.3 billion. In the wake of several large fines for misleading sales practices, including fines against Prudential, a compliance program supported by the industry for self-regulation began. Model sales illustration and disclosure laws in many states were to go into effect early in 1997. Federal antitrust and price-fixing agencies showed increasing interest in the large number of mergers by health maintenance organizations and other insurers in the health care field.

      (DAVID L. BICKELHAUPT)

      This article updates insurance.

MACHINERY AND MACHINE TOOLS
      The worldwide production of machine tools in 1995 was valued at $36.5 billion, considerably above the 1994 total of $28.2 billion. In both years the countries that were the top five producers were, in order: Japan, Germany, United States, Italy, and Switzerland. The 1995 and 1994 production totals for the five countries were, respectively: Japan, $9.1 billion and $6.7 billion; Germany, $7.6 billion and $5.3 billion; the U.S., $4.9 billion and $3.8 billion; Italy, $3 billion and $2.3 billion; and Switzerland, $2.2 billion and $1.7 billion. As can be seen, these countries significantly increased their 1995 production over that of 1994. This occurred in response to increased worldwide demand for such equipment. The four additional countries that had 1995 machine-tool production in excess of $1 billion were Taiwan and China, each with $1.6 billion; South Korea, with $1.2 billion; and the United Kingdom, with $1 billion.

      Worldwide in 1995 metal-cutting machines accounted for $26 billion of the $36.5 billion total. Metal-forming machines accounted for the balance.

      Countries having a trade surplus in machine tools in 1995 included Germany, Italy, Japan, Switzerland, and Taiwan. Japan exported machine tools valued at $6.2 billion, while its imports totaled $530 million. Germany's exports were valued at $5.4 billion and its imports at $1.7 billion.

      The U.S. was the leading installer of machine tools in 1995, with consumption valued at $7.1 billion. Germany ranked second with $3.9 billion. Japan and China each had consumption levels of approximately $3.5 billion. The other countries with levels over $1 billion were: Italy, $2.4 billion; South Korea, $2.3 billion; France, $1.3 billion; Taiwan, $1.2 billion; and Canada and the United Kingdom, each with approximately $1.1 billion. (JOHN B. DEAM)

MATERIALS AND METALS

Glass.
      Glassmakers around the world experienced mixed fortunes in 1995, the last year for which figures were available. Although not considered a bad year, with a slight but steady increase in the volume of production, it was not as good as 1994 for some sectors, especially flat glass. Container glass fared satisfactorily in 1995, while special glass was influenced by the worsening of general industrial demand later in the year.

      On the other hand, the fibreglass sector continued to grow, reaching record production and shipment figures. Demand for reinforced fibreglass continued to soar during 1995, a boom that started in 1994 and was felt throughout the world, even leading to temporary shortages. The demand for optical fibre also continued to increase. The global market for optical fibre and cable expanded by 20% per year between 1990 and 1995, and the production of reinforced fibres went up by more than 25% in the countries of the European Union (EU), from 370,000 metric tons in 1994 to more than 460,000 metric tons in 1995.

      The EU produced almost 25.7 million metric tons of glass in 1995, an increase of 2.7% over the previous year. Of this figure, the glass container industry produced 16.4 million metric tons, showing only a 3.5% growth for 1995, down from 6% in 1994. Production of flat glass in the EU remained stable at 6.2 million metric tons. No increase in sales was expected for 1996 for this sector, and growth estimates for the following years were low, at about 1% per year.

      In the U.S. demand for window and windshield glass for cars and trucks continued to increase, totaling about seven million metric tons in 1995. Container glass production in 1995 totaled about 20 million metric tons in the U.S. and in Canada was about one million metric tons.

      An international survey of almost 1,000 primary glass manufacturing companies found that two-thirds of the respondents were considering the implementation of new technology to meet environmental requirements. Use of oxygen-based fuel, which had been widely discussed and promoted in the industry for several years, was the technology most likely to be implemented by those companies seeking to reduce air pollution.

      Sales of machine-made and hand-gathered glassware were recovering well after a poor performance during the previous two years. With a trend toward informal dining, machine-gathered glass had gained ground. New lightweight designs were leading crystal manufacturers to adapt themselves to catering to more casual dining. This sector was expected to grow about 2% annually until the year 2000.

      The long-established growth trend in European glass recycling was sustained in 1995. A new all-time high was reached, with 7,487,000 metric tons being collected. (THERESA GREEN)

      This article updates industrial glass.

MATERIALS AND METALS: Ceramics.
      Business activity in the ceramics industry mirrored the performance of national economies in 1996. New processes and technologies continued to have an impact on all segments of the industry, and environmental and energy issues influenced operational strategies.

      The growth in construction and high automobile sales were strong motivators for the production of flat glass in 1996. Evolving technologies continued to reduce the cost of the float process, and surface-coating technologies that controlled ultraviolet, visible, and infrared transmission and reflection were key factors affecting competition in the industry. Electrochromic (undergoing a change in colour upon the passage of an electric current) research made significant advances, and small components such as rearview mirrors were already in production. The glass container market continued to slide in 1996, although specialty markets in pharmaceuticals and cosmetics and in some beverage segments grew. Technologies focusing on weight reduction, surface treatments for durability and strength, and bulk and ion-exchange strengthening processes held the potential for improved market penetration against polymers.

      Advanced ceramics had grown to more than $20 billion in sales by 1996. Electronic materials continued to dominate the category (75%), and the high growth rate of computers and communications equipment made electronic ceramics the fastest-growing major product sector. Multilayer ceramic capacitors gained market share by improving their cost-effectiveness through a reduction in thickness, which increased the efficiency of the material to sustain a steady electric field and serve as an insulator. Multilayer, multicomponent (MLMC) electronic packages were also beginning to enter the market. The technology, which significantly reduced the cost of complex devices, permitted several electronic components, such as capacitors and inductors, to be built into a multilayer ceramic package, thereby producing circuits for use in the large-volume consumer market. Fuzzy-logic circuits, for example, which were already in use in military equipment, emerged in consumer products such as camcorders. Because of competition from improvements in the heat-removal capabilities of polymer packages, there was a sharp decrease in the production of conventional ceramic packages for integrated circuits.

      Advanced structural and composite ceramics, historically limited to aerospace and military applications, continued a slow but steady market penetration in the industrial sector because of lower costs and higher reliability. Demand was particularly evident for heat- and wear-resistant structural ceramics for industrial equipment and engines. Biologically compatible materials continued to gain market share as a result of advances in biocompatible surface technologies, such as those based on hydroxyapatite and derivative compounds. Orthopedic and dental implants were a majority of this segment.

      The newest and fastest-growing group of high-technology materials was optical and electro-optical glass and ceramic materials, particularly active devices that enabled optical switching and logic structures. These materials, which included optical fibres, sensors, and planar structures, were in high demand for electronic applications.

      Whiteware ceramics, principally floor and wall tile, dinnerware, sanitaryware, and artware, continued to show steady growth over the long term. There was substantial growth in areas such as the Pacific Rim. Fast firing, a standard part of tile processing, was overcoming technical hurdles in the sanitaryware and dinnerware processes and was contributing to higher productivity. Raw-material quality, availability, and costs continued as a concern for all segments. A principal concern among whiteware manufacturers during 1996 was the conversion to lead-free glazes and decorations to reduce workplace risks and to skirt marketplace regulations in some states. Continued strong development and implementation of pressure casting continued in whiteware production as a result of improvements in equipment and successes of plant trials.

      Environmental issues continued to be a strong factor in all segments of the industry. Of particular note were product regulations and recycling policies that motivated the development of disassembly, material recovery, and recycling processes, particularly for ceramics containing hazardous elements such as lead and cadmium. Cathode-ray tubes and lead and cadmium compounds in contact with food were two examples. The enormous amounts of glass obtained from municipal recycling programs continued to motivate research on the potentially high value in reusing ceramic products.

      (RICHARD L. LEHMAN)

      This article updates industrial ceramics.

Rubber.
      The labour side of the rubber industry took centre stage in 1996 as one of the longest strikes in U.S. history came to an end and plant closings announced in Austria and Greece brought violent reactions. In the U.S. the 27-month contract dispute with Bridgestone/Firestone ended when a tentative pact was achieved in November. The workers voted in December to ratify the proposal. The strike was begun by the United Rubber Workers of America and settled by the United Steelworkers of America, which absorbed the URW during the strike. It was a bitter dispute that saw the union take its case to Bridgestone's Japanese headquarters and file numerous charges of unfair labour practices.

      In Traiskirchen, Austria, Continental's plans to cut production at its Semperit tire-manufacturing facility met with strong opposition from both the workforce and government leaders. A boycott of Continental products was called for by the union and the Austrian chamber of commerce after the company announced plans to move production machinery to another subsidiary plant in the Czech Republic. A compromise kept 1,200 of the 2,300-person workforce and halved tire production to two million units per year. The company left capacity available to increase production if warranted.

      The announced closing by Goodyear of the last tire-manufacturing facility in Greece caused employees to occupy the site for a time. Some of the 350-person workforce threatened to stop the movement of equipment out of the plant in Thessaloníki. Goodyear was moving the production to other European facilities.

      Changes in plants and equipment to increase efficiency and, therefore, profitability were taking place throughout the world. Toyo Tire announced that it was transferring tire production from its facility in Itami, Japan, to a newer plant in Kuwana. Pirelli SpA closed its tire plant in Nashville, Tenn., and Mark IV Industries announced that it was closing down five plants—four in Europe and its Dayco hose and belt plant in North Carolina. Continental closed its tire facility in Dublin and laid off 500 workers at its tire plant in Mayfield, Ky. Two condom manufacturers closed U.S. plants; Carter-Wallace shut down its facility in Trenton, N.J., and London International Group announced plans to close its plant in Anderson, S.C.

      Major acquisitions that took place in 1996 included the Michelin purchase of majority control of Taurus Rubber from Hungary's state privatization agency. Taurus had two tire and three industrial rubber products plants. Michelin later sold the industrial plants to Germany's Phoenix. Other acquisitions included the purchase by Tomkins of Great Britain of U.S.-based Gates Rubber, which was purchasing Nationwide Rubber Enterprises of Australia. Norton Performance Plastics bought two silicone product manufacturers in France and two in Germany. Sweden's Trelleborg was buying rubber product manufacturer Horda and its five Swedish plants, and Trelleborg also purchased Michelin's hose and rubber sheeting business in France. Goodyear bought the assets of Sime Darby in the Philippines, which included a shut-down tire plant. Mark IV bought hose maker Imperial Eastman, and Tenneco bought Clevite Elastomer, a maker of automotive suspension parts.

      Asia was the primary location for many of the expansion projects announced in 1996. Among the major announcements was a Chinese tire plant with an annual capacity of 1.6 million tires in Hainan province. South Korea's Kumho announced that it would build a three million-per-year tire facility in India. Hankook Tire of South Korea opened its Kumsan plant and announced that it would be part of a tire and tube plant to open in China in 1998. India's MRF planned to have a radial tire plant in operation in 1997 in Pondicherry, and Yokohama Rubber said that it intended to have a Philippine passenger tire facility operating by 1998 near Manila. Outside Asia, Michelin began construction on a passenger tire facility near Göteborg, Swed. Dunlop India, with technical support from Pirelli, was involved in a project to construct the first tire-manufacturing facility in the Middle East, to be located in the United Arab Emirates. Titan Tire was building an off-the-road tire facility in Texas, and Bridgestone/Firestone was expanding its Joliette, Que., plant by almost 30%.

      Rubber industry suppliers made plans to add capacity in Asia to keep pace with demand. Bayer announced plans to build two polybutadiene (BR) and styrene butadiene (SBR) rubber facilities with capacities of between 100,000 and 120,000 tons annually. China and India were the likely locations. Hyundai Petrochemical opened a SBR-BR-nitrile facility in Daesan, S.Kor. Synthetics & Chemicals increased the SBR capacity at its India facility. A plant that would produce 100,000 tons of SBR per year was planned for Thailand by Bangkok Synthetics, and a similar plant was scheduled for Nantong province in China.

      The International Natural Rubber Agreement was ratified by China and the U.S., the last two signatories. The agreement would attempt to stabilize prices and supplies. In India the government said that it would keep import controls on natural rubber to help protect local growers. Many manufacturers complained of shortages. (DONALD SMITH)

      This article updates elastomers (elastomer).

Plastics.
      The plastics industry, relatively immune to the business recession of the early 1990s, continued its healthy growth during 1996. In terms of production, the major plastic materials in 1995, the last year for which figures were available, were low-density polyethylene (with the largest use being packaging film), polyvinyl chloride (pipe), high-density polyethylene (bottles), polypropylene (fibres), and polystyrene (food-packaging containers). Overall, more than 40% of the markets and products for plastics were in packaging and in building and construction, but they were also used widely in a variety of other products, including motor vehicles, aircraft, household appliances, and furniture. The projected growth rate worldwide to the year 2000 was 3.8% per year.

      Plastics continued to replace conventional materials because they were easier to manufacture, were tougher, and provided thermal and electrical insulation. Other attractive characteristics included their wide range of rigidity/flexibility, adhesion/self-lubrication/nonstick behaviour; their transparency/opacity and colour possibilities; and their resistance to water, rust, and rot.

      Improvements in materials were led by the development of metallocene catalysts for the production of polyethylene and polypropylene, which provided improvements in rigidity and flexibility, toughness, scuff and heat resistance, and clarity. New grades of polystyrene demonstrated improved performance, which made them competitive with expensive specialty plastics. New polyethylene naphthalate was superior to conventional polyester for such products as fibres, bottles, and films. Deposition of a thin inorganic silica surface on plastic films produced transparent packaging film with barrier properties that made it competitive with aluminum foil.

      Improvements in machinery and processes continued in many areas. Polyethylene polymerization by new vapour-phase technology resulted in major increases in productivity at British Petroleum, Exxon, Shell, and Union Carbide. The coextrusion of multilayer film, of up to eight different layers, was facilitated by the design of stackable dies for blown-film extrusion, combining the best qualities of all the layers.

      New products made from plastics included body panels, grilles, and under-the-hood parts in autos; disposable medical products for diagnostic and treatment kits; high-barrier and selectively permeable containers and films for food packaging; suspension bridge cables that were superior to steel; bicycle wheels; outdoor lumber more durable than wood; and auto fenders that would not dent or rust. Plastic products that continued to show rapid growth included kitchen, bath, and commercial interiors (25% per year); house siding (20%); polyethylene pipe for natural gas transmission and other fluids (8.5%); reinforced polypropylene for washing machines, dishwashers, ovens, and refrigerators; replacement for glass in appliances; molded interconnects for electronics, compact discs, and CD-ROMs; and wood-grain-vinyl structural foam that would outlast natural wood.

      Recycling technology continued to improve, but the economics of recycling were limited by the reliance on voluntary manual collection and sorting. In the U.S., plastic bottle recycling reached 22% of new production, plastic packaging 7%, and total plastics 2%, and it was growing at a rate of 21% per year. European Union targets were considerably higher. While thermoset plastic scrap was usually considered unrecyclable, the conversion of flexible polyurethane foam into rug underlays was a dramatic example of successful recycling.

      (RUDOLPH D. DEANIN)

      This article updates plastics (plastic).

Advanced Composites.
      During 1996 the market for composite materials continued to increase. It was estimated that shipments of composites of all types reached 1.5 million metric tons, an increase of about 3% above the level of 1995. It was the fifth consecutive year that shipments of composites had increased. The 1996 increases were consistent across all markets except for the aircraft-aerospace-defense sector, which had remained fairly constant.

      The market for advanced polymeric composites, primarily composites reinforced with carbon fibres, had stabilized since the early 1990s, a period characterized by a reduced military market after the end of the Cold War and a worldwide recession. After 1993 the recovery of the commercial aircraft market and the increased use of composite materials in the sporting goods and industrial equipment sectors helped the industry make a transition from defense to higher-volume, lower-cost applications. This transition led the industry to emphasize the development of cost-effective materials and manufacturing processes. For example, processes that produced low-cost carbon fibres in bundles with an increasing number of filaments were finding applications in high-volume markets. In addition, innovative automated processing methods—such as pultrusion, robotic tow placement, and resin transfer molding—were successfully demonstrated and beginning to find wider acceptance.

      The industry was attempting to make greater penetration into two potentially large markets that would make use of lower-cost materials and processing methods—construction and automobiles. The application of advanced composite technology in construction and infrastructure renewal continued to show promise. Examples of technologies that were being evaluated included composite bars for reinforcing concrete, fibre-reinforced composite civil engineering structures, composite reinforcement and overwrap for seismic and structural upgrades and repairs, and composite reinforced wood laminates for beam structures.

      Composites in the form of sheet molding compounds (SMC) were becoming especially important in the production of automobiles. The amount of SMC used by the automotive industry had increased more than 70% since 1990. The application of high-performance composites in automobiles was inhibited, however, by improvements in the strength and toughness of metals (including aluminum, magnesium, and steel alloys), the relatively high cost of composite materials and manufacturing processes, and the difficulty of recycling advanced composites. (THOMAS E. MUNNS; ROBERT E. SCHAFRIK)

MATERIALS AND METALS: Iron and Steel.
  The iron and steel industry had a good year in 1995, the last year for which complete figures were available, although there were considerable regional variations. (For World Production of Pig Iron—> and Crude Steel—>, see Graphs.) The North American steel market remained strong, with a buoyant automotive industry and a strong residential sector, and the European market rose to a peak in the first half of the year, led by the automotive industry and by machinery and equipment. Elsewhere conditions were quieter. China's demand was subdued after the import binge of 1993 and 1994, and the recovery in Japanese steel consumption was hesitant. The decline in consumption in the countries of the former Soviet Union continued but at a much more moderate rate than in previous years.

      World crude steel output rose by more than 3%, to 753.4 million metric tons. Japan remained the leading producer, with 101.6 million metric tons. Reflecting the strong domestic market and the installation of new capacity, the U.S. returned to second place, with 95.2 million metric tons, ahead of China, where production stagnated at just under 93 million metric tons.

      The underlying rate of steel consumption remained firm throughout 1996, but excess inventories that had built up in Europe and Japan in 1995 caused a slowdown in deliveries to those markets. Reflecting this, crude steel production in the European Union in the first nine months of 1996 was 7.7% below that in the same months of 1995, while in Japan the decline was 5%. Reduced export potential affected the output of the Central European steel producers (down 11.5%) and, compounded by declining domestic demand, that of the countries of the former U.S.S.R. (down 2.2%).

      Steel producers in other regions fared better. Despite some technical problems in the United States steel industry, continuing growth in capacity (especially from casting technology that permitted the production of flat goods, using the electric arc furnace) allowed crude steel output to grow by 1.3% in the first nine months of 1996 compared with 1995, while production growth resumed in China (5% in the first nine months). Despite slowing domestic demand, production also increased during this period in Taiwan (11.1%) and South Korea (7.1%). World output, however, was down 1.4%.

      Toward the end of 1996, there was optimism that the excess inventories in Europe and Japan had been reabsorbed and that, despite stagnation in the former Soviet countries and in Japan, global steel consumption would resume its growth in 1997. (ANTHONY TRICKETT)

Light Metals.
      The production of aluminum in 1996 was 16 million metric tons. The industry was not able to sustain the price recovery that took place in 1995. A generally flat product market and an increase in the London Metal Exchange inventory contributed to the lower prices. With the expiration in 1996 of the two-year memorandum of understanding signed by major producers in 1994, some capacity was restarted. Nonetheless, much production capacity remained idle.

      Cans for the beverage industry remained the largest single product market for aluminum, consuming 2.1 million tons of metal in the U.S. alone. During 1996, however, the market remained static, the first time in its 35-year history that it had not exhibited growth. Several production facilities in the U.S. were closed, and some European lines switched from aluminum to steel can production. Growth potential still existed in the Middle Eastern, Asian, and South American areas, however, where new plants were being built.

      Transportation continued to be the second largest aluminum market. During 1996 the use of aluminum in new U.S. motor vehicles increased 4%, to an average of 94 kg (203 lb).

      Magnesium production in 1996 totaled 310,000 metric tons. During 1996 a new plant in Israel began production, with an annual capacity of 27,000 metric tons. The price of magnesium was lower than in 1995, but it varied widely, depending on the source and purity of the metal.

      The titanium industry appeared to be continuing a difficult but successful transition from a market dominated by military aerospace to a more balanced one that included such consumer products as golf clubs and tennis rackets. There also were increasing applications in the commercial aircraft market, especially as in the Boeing 777. Total world production figures remained elusive in 1996 because many suppliers declined to report data that they considered confidential. The U.S. titanium industry, which produced 20,000 metric tons and was effectively sold out for 1996, announced capacity expansions.

      Beryllium production remained in the range of 650 to 700 metric tons in 1996. Its use continued to be limited by the relatively high price, which confined it to niche markets in nuclear reactors, aerospace items, copper alloys, and specialty electronic components.

      Lithium continued to emerge as an addition to aluminum alloys for use in space programs. Its relatively high price could be justified by use in a space vehicle or station, where the reduction of payload was critical. (GEORGE J. BINCZEWSKI)

Metalworking.
      After double-digit annual growth during the first half of the 1990s, there was stagnation in the shipment of metal parts in 1996. Sales of ferrous castings dropped by an estimated 4%, to 16.5 million tons, owing primarily to slowing machinery sales, while aluminum and magnesium castings showed slight gains. Shipments of powder metal parts were up only 2.6%, to 375,000 tons, after early 1996 losses caused by strikes at General Motors. Forging sales continued to increase, but at a reduced rate of 7.5%, to a total of 1.6 million tons. Shipments of extruded aluminum shapes dropped slightly, to 1.7 million tons, owing primarily to increased competition from plastics and roll-formed steel sheet in construction products. Copper and copper alloy extrusions, meanwhile, maintained hefty growth because of strength in electrical and welding products.

      In general, the markets for metal parts were expected to rebound to a growth rate of 3-5% in 1997. Powder-forged connecting rods were now being used in 13 different engines of the Big Three U.S. automakers and could capture 50% of the market by the year 2000. The metal injection moulding sector of the powder metallurgy industry was increasing at a 25% rate, with market expansion from medical, firearm, business, automotive, cutting tool, and eyeglass applications. Growth in domestic forging shipments was expected as the improved competitive posture of U.S. forge shops helped attract orders for automotive parts that were currently being imported.

      While the projected continuation of a weak U.S. dollar would allow increased sales of metal parts to foreign markets, a greater influence on growth would be the revived global competitiveness of U.S. manufacturers and the adoption of new technologies. In response to inroads from plastics and composites, new alloys with higher strength, resulting in metal parts with reduced weight, were being brought to market. As an example, General Motors developed a new generation of zinc alloys for die casting. In addition to higher strength, the aluminum-copper-zinc alloys had greater resistance to creep (slow deformation) and wear than traditional zinc alloys. Additional levels of competitiveness resulted from the expanded use of computer-aided engineering tools. Progressive foundries and die casters, for example, integrated solid modeling, process simulation, and rapid prototyping to speed up product delivery and improve quality. The overall health of the $31 billion North American metalworking market was best indicated by the record number of attendees and exhibitors at metalworking equipment and process trade shows in 1996.

      (HOWARD A. KUHN)

MICROELECTRONICS
      Projected worldwide sales of semiconductors in 1996 fell by 10.5% to $129.2 billion, according to the Semiconductor Industry Association (SIA). This was the first time in 11 years that the industry had experienced negative growth. As telecommunications and consumer products made greater use of semiconductor products, the SIA expected a growth rate of 7.4% in 1997, 17.1% in 1998, and 21.6% in 1999 (to $197.6 billion).

      Although the Americas (North and South) experienced an 11.1% decline in 1996 to $41.7 billion, that market was expected to retain its lead in the world chip markets into the year 2000. The Americas market represented about one-third of the world market. The Japanese supplied another 26.1%, down 14.8% from 1995 to $39.6 billion. The Asia-Pacific market, including South Korea, Taiwan, China, and Singapore, despite a 9.2% decline to $26.8 billion, continued to be the fastest-growing market. The European market declined only 4.8% in 1996 to $26.8 billion but should reach $40.2 billion in 1999, retaining approximately 20% of the world chip market.

      In spite of the decline, several manufacturers were planning to construct new facilities. Motorola, Inc., announced plans to build a $40 million corporate campus for its Messaging Information and Media Sector in Elgin, Ill. National Semiconductor proposed to spend up to $270 million to upgrade its plant in Greenock, Scot. Taiwanese semiconductor maker Mosel-Vitelic and Siemens AG of Germany planned a $1.7 billion manufacturing plant in Taiwan.

      Motorola, attempting to increase demand for its PowerPC chip, and Apple Computer, Inc., announced a licensing agreement in February whereby Motorola could sublicense the Macintosh operating system (Mac OS) to other manufacturers that bought Motorola motherboards as well as allow Motorola to market the OS under its own name. Hyundai Electronics Industries Co., and Fujitsu Microelectronics, Inc., announced a joint venture involving co-development and technology licensing.

      The downturn in the semiconductor industry resulted in a number of companies, including Motorola, Advanced Micro Devices, Inc. (AMD), and Texas Instruments, Inc. (TI), announcing plans to reduce their workforce. TI announced an 85% drop in profits through the third quarter of 1996, while Motorola's third quarter showed a 58.5% drop in revenue. Intel Corp., however, posted record earnings.

      A new company, Lucent Technologies, Inc., was formed by a spin-off of AT&T's manufacturing business and its Bell Labs research facilities. Among those moving to the new company was the former AT&T Microelectronics Division, to be called Lucent Technologies Microelectronics Group.

      In November 1996 the industry celebrated the 25th anniversary of the introduction of the first computer chip, Intel's 4004 microprocessor, a 4-bit chip with 2,300 transistors. In late 1995 Intel announced its 200-MHz Pentium Pro 200 processor, with some 5.5 million transistors. IBM and Motorola jointly introduced their 200-MHz PowerPC chip in 1996. Mac OS systems using PowerPC chips that would run at 225 MHz and above were also announced.

      The U.S., Japan, and the European Union (EU) completed negotiations on an Information Technology Agreement in December. The EU agreed to eliminate its 7% tariff on semiconductors; the U.S., Canada, and Japan had already eliminated tariffs on chips. The U.S. and Japan finally reached accord on a semiconductor trade agreement, which expired on July 31. The countries agreed that the SIA and the Electronic Industries Association of Japan would take over statistical reporting and monitor trade flow.

      A relatively new technology, the flash memory chip, became one of the fastest-growing semiconductor markets. Intel was the largest provider of flash memory, followed by AMD. The cards, which were about the size of a book of matches, were available in capacities of up to 64 megabytes and could be used to store images or data in digital cameras, digital wireless messaging, audio voice recorders, personal digital assistants, and solid-state hard drives.

      Another new technology, "smart cards" (credit-card-sized cards with embedded memory), was being driven by the credit-card, airline, and travel and leisure industries as an alternative to cash. Motorola became the first company to manufacture the required microchip in the U.S. The cards were already popular in Europe, where applications included fingerprint identification cards and health care cards.

      New applications for digital signal processing chips, which were widely used in image and sound compression, included drive positioning, error correction, and tracking accuracy for portable CD-ROM drives, supporting V.34 digital simultaneous voice data modems and full duplex speaker phones, and providing the functions of a base transceiver station in cellular networks.

      Owing to the popularity of the Internet and World Wide Web, faster modems were required for downloading the larger amount of image and graphic data. New modems with speeds of 56,000 bits per second were being developed by a number of vendors to work over analog phone lines. The first such modem was announced by U.S. Robotics Corp. of Skokie, Ill. New cellular chip technology was expected to provide for the new personal communications service and other digital cellular applications.

      (THOMAS E. KROLL)

MINING
       Indexes of Production, Mining and Mineral Commodities(For Indexes of Production, Mining and Mineral Commodities, see Table (Indexes of Production, Mining and Mineral Commodities)).

      The mining industry had an unsettling year in 1996. With few exceptions the strong commodity prices seen in 1995 moved lower as the world economy stumbled and demand lessened. Corporate profits fell accordingly, and there was considerable uncertainty about the level of demand for raw materials in 1997.

      The economies of China and India continued to show vigorous growth, however, and the demand for metals and minerals throughout the Asian region remained strong. In addition, despite uncertainties surrounding the country's leadership, there were signs in 1996 that Russia's economy was beginning to recover.

      It was the second consecutive year of exploration successes by comparatively small mining companies. A little-known Canadian firm, Bre-X Minerals, sprang to prominence following its announcement of a spectacular gold find at Busang on the island of Borneo. In Peru an impressive gold find at Pierina by another small Canadian firm, Arequipa Resources, caused excitement. Such successes contributed to a market boom in exploration shares.

      The merger in 1995 of the U.K.-based RTZ with its Australian subsidiary CRA to form the world's largest mining company led to a major streamlining of its international exploration activities in 1996, including a substantial reduction in its staff. Nevertheless, the group was the largest exploration spender in 1996, according to the Metals Economics Group (MEG), with a budget of some $280 million, slightly ahead of BHP Minerals and Barrick Gold. On the basis of a survey of 223 companies, the MEG estimated that worldwide exploration spending for nonferrous metals in 1996 rose by 30%, to some $4.6 billion. South America attracted most attention, followed by Australia and Canada. In the diamond sector a feature of exploration activity was the interest in marine deposits off the coast of Namibia and South Africa.

      In those countries with state-controlled mining organizations, privatization continued to be seen as an effective means of increasing efficiency and raising fresh capital. In 1996 privatization went ahead in Peru, and in Poland the government prepared to sell off KGHM Polska Miedz, Europe's biggest copper producer. In Brazil the government's advisers prepared a lengthy document for the proposed privatization of Companhia Vale do Rio Doce, one of the world's largest and most successful mining and industrial conglomerates.

      Plans to privatize the Zambian copper mining industry were deferred until after the November general elections. In Zaire political uncertainties and economic malaise limited the private sector's interest in that country's copper mining industry. The privatization of Ghana's Ashanti Goldfields was an undoubted success, however. The company subsequently acquired two additional gold mining companies and maintained an active exploration program in several other African countries.

      The base metals markets were dominated by the Sumitomo affair. In June the Japanese company revealed that it had incurred huge losses over a 10-year period as a result of unauthorized futures trading by its then chief copper trader, Yasuo Hamanaka, much of it conducted on the London Metal Exchange (LME), the world's largest base metals market. The price of copper plunged as a result of Sumitomo's revelations, and the scandal cast a shadow over the copper market for the rest of the year.

      Sumitomo's losses, first estimated at $1.8 billion and then revised to some $2.6 billion, demonstrated the need for proper management control and highlighted the financial risks involved in options and derivatives trading. Inquiries were launched in London and Tokyo, and in the U.S. lawsuits were filed against Sumitomo, Hamanaka, and two brokerage firms. The LME, which was strongly criticized, insisted that it had not acted improperly and requested that the Securities and Investments Board, the U.K.'s regulatory watchdog, conduct a review of its business.

      Copper's cause was not helped by uncertainties about the reliability of supply and demand, with apparent discrepancies between reported changes in stock levels and production and consumption estimates. Instead of a large market deficit in 1995, it appeared that there may have been a small surplus. The market seemed to be closely balanced for much of 1996, but supply in 1997 was expected to outstrip demand substantially as new mining projects came onstream and expansions of existing projects continued. In Irian Jaya in Indonesia, Grasberg, the world's largest copper mine, raised its daily ore-treatment capacity in 1996 to 125,000 metric tons in order to produce more than 500,000 metric tons of copper over the full year.

      Despite lower demands from the principal user, the stainless steel industry, declining stocks on the LME ensured a reasonable price level for nickel in 1996, and the market was able to absorb the continuing high level of exports from Norilsk in Russia, the world's largest producer. Nickel prices weakened significantly at the year's end, however, as consumers used up their excess stocks.

      There was a battle for the control of the giant Voisey's Bay nickel-copper-cobalt deposit in Labrador, which had been discovered in 1994 by the small Canadian firm Diamond Fields Resources. There were numerous suitors, but the contest eventually narrowed down to a fight for control between Canada's two major nickel producers, Falconbridge and Inco. Falconbridge made a Can$4 billion bid in February, but Inco eventually emerged as the winner after a complex counterbid in March worth Can$4.3 billion.

      Low stocks helped to buoy prices for lead despite a big increase in exports by China, and in late March the metal was trading at its highest price in more than five years. A steady fall in stocks helped support the zinc market, and although prices showed no major improvement, producers were optimistic about prospects for 1997. Aluminum consumption fell by 4% in the first half of 1996, and, while demand subsequently began to improve, the price fell steadily, to the puzzlement of many producers.

      Gold supply and demand remained tightly balanced in 1996; speculators showed little interest, and by the end of 1996 the price of gold had dipped to a two-year low. In South Africa, the world's dominant producer, productivity continued to be impaired by unrest at the mines as the workforce pressed for better pay and conditions. Since South Africa's political transformation, the number of public holidays had been increased, which also affected productivity. Nevertheless, the production decline of about 5% in 1996 was not as severe as the 10% fall in 1995. Offsetting the decline in South Africa were increases in the U.S., Australia, and Canada. Anglo American Corp. of South Africa made progress in 1996 in developing a large new open-pit mine at Sadiola in Mali, and Randgold Resources acquired control of the Syama mine in Mali from the Australian firm BHP.

      Platinum-group metals enjoyed another good year in 1996, with industrial demand the driving force. The supply of platinum-group metals was more than sufficient to meet the demand, and market prices remained steady. South Africa was the dominant producer, but Russian exports of both platinum and palladium continued to be maintained at levels believed to be far in excess of the country's production capability, which implied that much of its sales was from stocks. The size of Russia's stockpile was a closely guarded secret.

      The commissioning of Hartley, a new platinum mine in Zimbabwe, began in April, and the Australian owners of the $264 million project, BHP and Delta Gold, expected that production would start in mid-1997. At full production the mine would produce some 4,245,000 g (150,000 oz) of platinum per year.

      Also in April the European Commission announced that it was blocking the planned merger of the platinum mining interests of U.K.-based Lonrho and the South African company Gencor. The commission said that the merger would have been against European Union interests, since it would have established a duopoly in the platinum market between Lonrho-Gencor and Anglo American. Together the two groups would have had a 63% share of the platinum market and control of about 90% of the world's platinum reserves. In October, Anglo American became the main shareholder in Lonrho, whose assets included South African platinum mines. The move triggered another anticompetition investigation by the commission.

      The De Beers Consolidated Mines monopoly in rough (uncut) diamonds came under pressure during 1996. In February a memorandum of understanding was reached with Russia concerning an extension to the marketing agreement that had expired in 1995, but there was dissatisfaction in Moscow about some of the proposals. No formal agreement was finalized, and substantial quantities of Russian diamonds were reported to be "leaking" onto the market. Russia accounted for 26% by value of the world's supply.

      A clear challenge to the De Beers single marketing channel, its Central Selling Organisation (CSO), arose in midyear when the Argyle joint-venture partners in Australia announced that they would not renew the marketing agreement with the CSO and would sell their diamonds independently. Although the Argyle mine was the largest diamond producer by volume, accounting for almost 40% of the world's supply, it contributed only 6% of the CSO's intake by value.

      Iron ore producers secured significant price increases for the second successive year in 1996, and there were expectations that production would exceed the record one billion metric tons achieved in 1995. China had become the world's biggest producer, with annual production of approximately 250 million metric tons, but its ore was generally of low grade. Brazil and Australia continued to dominate world trade in iron ore.

      For several years uranium producers had suffered from low prices, with annual mine production no more than 33,000 metric tons. Despite the supply shortage, prices remained low because of the abundance of uranium held in inventories. With these stocks being depleted, however, the price revived during the year. By mid-May the spot price was double the 1991 low, which encouraged producers.

      In the U.S. low-cost projects involving in situ leaching of uranium were being reconsidered. The method, used widely in the uranium-producing republics of the former Soviet Union, involves sinking wells and injecting acid solutions to dissolve the uranium, which is then pumped to the surface. In Canada, which accounted for 30% of global uranium output, innovative technology was being tested at the high-grade underground deposit at Cigar Lake. High-pressure water was injected into frozen ground to reach the ore, which was then pumped to the surface in a slurry; human contact was thereby eliminated.

      The new government in Australia indicated that it would end that country's long-held three-mine uranium policy. This gave rise to expectations that in the Northern Territory one of the world's largest deposits, Jabiluka, would at last be developed. Uncertainty remained about the uranium-production capabilities in the republics of the former Soviet Union and about how much of the uranium that they previously used for military purposes could be converted to civilian use.

      Despite concerns that carbon dioxide produced by coal burned in power stations was contributing to the greenhouse effect and thus contributing to climate change, the demand for coal to generate power continued to increase. The opportunities offered by the Asian market encouraged producers in Australia and Indonesia to expand production, and efforts to raise output were also being made in such countries as Colombia and Venezuela.

      In the U.S. environmental regulations, including the country's 1990 Clean Air Act, had served to increase the attractiveness of the low-sulfur-coal deposits of the Powder River Basin of Wyoming and Montana. Wyoming had become the leading U.S. coal producer, with its mines producing in excess of 240 million metric tons annually, equivalent to more than one-quarter of the total U.S. output.

      Perhaps the most significant environmental incident in 1996 took place on Marinduque Island in the Philippines. Marcopper Mining suspended operations in March after material that eventually totaled approximately four million metric tons was released into the local river system when a concrete plug failed in a drainage tunnel leading from a mined-out open pit used to store tailings. No human life was lost, but three senior mine officials were charged with criminal offenses, and a public outcry led the Philippine government to review the environmental provisions of its new mining law.

      The global interdependence of mining and its implications for employment were demonstrated during 1996 by the Century zinc saga. RTZ-CRA, which had discovered a major zinc deposit in Queensland, Australia, was frustrated in its attempt to develop the Century mine there because of an impasse in negotiations with local Aboriginal groups. The Australian government sought to intervene in a bid to expedite the project.

      Meanwhile, in The Netherlands the government was worried about environmental problems at the Budel zinc smelter, which would be forced to close unless it could be fed with zinc concentrates low in iron content. Century could provide such feed, but there were doubts as to whether the mine could be developed in time.

      (ROGER ELLIS)

      See also Earth Sciences .

      This article updates mineral processing.

PAINTS AND VARNISHES
      The U.S. paint industry did well in 1996. The volume of paint shipments jumped by 12.5% during the first half of the year, following record sales during 1994 and 1995. European demand was flat and in some countries even receded. Japan failed to return to its output peak of the late 1980s. The Asian Pacific paint industries, particularly China, remained the star performers, however.

      Acquisitions in 1996 included Imperial Chemical Industries's (ICI's) $390 million purchase of Bunge Paints of South America and Valspar's $125 million gain of the Coates can coatings business from the French company Total SA. The Bunge holdings raised ICI's share of the South American market from 2.5% to 15% and confirmed ICI as the world leader in paint. Valspar's acquisition of Coates gave it 40 sites worldwide, including entry into Europe.

      Sherwin-Williams, ICI's rival for Grow Group in 1995, also turned its attention to South America, buying a string of companies there, among them Productos Quimicos y Pinturas in Mexico and its licensee Sherwin-Williams in Argentina, followed by Elgin, Lazzuril, and Globo, all in Brazil, and the Stierling Group in Chile.

      In Europe, PPG Industries acquired the German Schwaab, a producer of commercial transport coatings, while Du Pont bought its U.K. licensee Carr Paints. Akzo Nobel purchased paintmaker Nobiles of Poland. In the Asian Pacific region, China continued to act as a magnet for Western technology and investment. PPG opened its first manufacturing facility at Tientsin, while BASF of Germany and Kansai and Nippon of Japan were among the companies embarking on joint ventures there.

      Environmental considerations continued to be the major driving force behind technical innovation, typified by the search for technically viable coatings with little or no solvent content. The battle among the alternatives was being fought in the automotive original equipment market. U.S. paint manufacturers were pushing for powder coatings, European for water-based paints. Herberts, the market leader in the field, had begun to supply Opel's plant at Eisenach, Ger., with a complete water-based range, from primer to top coat. Market victory, however, was far from assured.

      Environmental regulation continued in 1996, though at a somewhat gentler pace. The Environmental Protection Agency issued rules for architectural and maintenance coatings in the U.S., and the shelved solvent directive in the European Union was revived. (HELMA JOTISCHKY)

PHARMACEUTICALS
      The U.S. pharmaceutical industry failed to benefit from a more conservative Congress in 1996. The industry's long-sought reform of the Food and Drug Administration was not enacted. After the U.S. elections in November, it seemed clear that any future reform legislation would be moderate.

      The industry in the United States received an unexpected boost from managed health care. To compete for patients, some managed-care organizations (MCOs) added drug coverage. This raised the consumption of, if not the profit margins on, many pharmaceuticals. A shift of Medicare patients into managed care further expanded volume. Results from large companies with a majority of their business in managed care reflected the trend. For the first three quarters of the year, Merck gained a 16% rise in net income, Schering-Plough 45%, and Johnson & Johnson 20%. Pfizer and SmithKline Beecham achieved double-digit growth, partly based on new products.

      MCOs also demonstrated more acceptance of new, innovative medicines at premium prices and of partnerships with pharmaceutical companies. Pharmacia & Upjohn's Greenstone unit formed an alliance in disease management with Cigna's Lovelace Healthcare Innovations. Still unknown, however, was the ultimate effect of a large settlement between a number of drug companies and a coalition of retail pharmacists. It was thought that the deal, which could allow many retailers to obtain the same discounts as large health maintenance organizations, might suppress company earnings.

      Perhaps the year's biggest scientific surprise was the good news concerning the treatment of AIDS. It was found that cocktails of new protease inhibitors and older antivirals could reduce HIV in patients' blood to undetectable levels, and new studies indicated similar results in other tissues. Problems with manufacturing, distribution, pricing, and reimbursement plagued the newer medicines, however. Merck, maker of the leading protease inhibitor, Crixivan, struggled to keep pace with exploding demand worldwide.

      The European Agency for the Evaluation of Medicinal Products claimed a successful year, evaluating dozens of new products. Europe continued a sobering debate about pharmaceutical prices, however.

      In Japan government ministers and industry officials reeled from a scandal that involved some 2,000 hemophiliacs infected by HIV-tainted blood transfusions. Meanwhile, liberalization of government pricing controls developed slowly. Global flight was the industry response to the tightly controlled domestic market. Lesser-known companies such as Eisai, the developer of a new Alzheimer's medicine, joined better-known firms such as Fujisawa Pharmaceutical and Takeda Chemical Industries in developing a business presence in the U.S. and Europe.

      Worldwide, many companies entered a period of postmerger restructuring and strategy. Some recent mergers, like Pharmacia & Upjohn, lost profits to greater-than-expected restructuring costs. Nonetheless, merger fever continued unabated, with the behemoth in 1996 being Novartis under president Daniel Vasella (see BIOGRAPHIES (Vasella, Daniel Lucius )), a merger of the Swiss giants Sandoz and Ciba-Geigy, which became the second largest company in the industry worldwide after gaining approval from the U.S. in December. (WAYNE KOBERSTEIN)

PHOTOGRAPHY
      In 1996 the photographic industry ushered in two major developments, the Advanced Photo System (APS) and digital cameras designed and priced for the mass market. Developed as a joint effort by Kodak, Fuji, Canon, Nikon, and Minolta, APS was an ambitious, totally new system of photography integrating a 24-mm film format, cameras, and photofinishing equipment. APS film, provided in a leaderless cassette about 60% the size of a 35-mm cassette, allowed APS cameras to be made smaller or include more features in the same space. The cassette provided virtually foolproof drop-in loading and unloading, during which the user never touched the film. Three print formats—standard, moderate wide-angle, and panoramic—could be interchangeably selected on the same roll of film, which also magnetically recorded data designed to aid photofinishing and imprinting picture time and date. After processing by an APS-equipped photofinisher, prints were returned with the uncut roll of negatives in the original cassette and a colour index print (similar to a proof sheet) for reference and reordering.

      APS got off to an uncoordinated start with ineffective advertising, shortages of film and cameras, and a lack of properly equipped photofinishers. As the year continued, however, Kodak, Fuji, Nikon, Minolta, Agfa, Olympus, Samsung, and others introduced a wide array of APS products, including many point-and-shoot cameras and a few single-lens-reflex (SLR) models. Canon's innovative ELPH 490Z was an ultracompact, aluminum-clad point-and-shoot APS camera that included a 4-to-1 zoom 22.5-90-mm lens, a novel clamshell lens cover that swung up to position a flash head, and a hybrid active-passive autofocus (AF) system. Elegantly styled and finished in stainless steel, Canon's EOS IX SLR combined APS features with a comprehensive array of advanced technology including three AF and 13 metering modes.

      Digital cameras that captured images electronically rather than on film broke into the mass consumer market with many new models priced to compete with conventional cameras. The newcomers, whose image resolution was low compared with the multimillion-pixel (picture element) capability of costly digital cameras designed for photojournalism and industrial photography, were targeted mainly at the burgeoning population of computer fans who wanted to send personal pictures over the Internet. An economy-level entry into the field was the Kodak DC20, which had a resolution of about 146,000 pixels and provided simple programs for adding pictures to greeting cards, stretching or squeezing images, and designing and sending Internet postcards. Sony's DSC-F1 was claimed to be the first digital camera with a built-in infrared transceiver for transferring images directly from its four-megabyte memory to a nearby computer or printer without intermediate cables or disks. More than a digital camera, Nikon's CoolPix 300 was a three-way multimedia device that recorded images, written text, and as much as 17 minutes of sound.

      Nikon added the F5 as its new top-of-the-line 35-mm SLR for professionals. The camera's dazzling array of features included a maximum eight-frames-per-second film advance, versatile five-sensor autofocusing, a new type of metering system using a 1,005-pixel colour-identifying charge-coupled diode (CCD), and 24 customizing function settings. Fuji introduced the GA645, the first medium-format camera with autofocus. The camera's relatively light, compact design provided the image quality of 120- or 220-size roll film with point-and-shoot convenience. Its 60-mm f/4 Super EBC Funinon lens switched automatically from passive AF for distant subjects to active infrared AF for nearby ones.

      (ARTHUR GOLDSMITH)

      This article updates photography (photography, history of).

PRINTING
      The printing industry continued to expand during 1996, aided in large part by the easing of paper shortages and the growth in print advertising, publications, and packaging on a worldwide basis. Technology had an impact on every aspect of print production, with major advances occurring in prepress document control for output to virtually any device for monochrome or colour preparation or reproduction.

      The introduction of Acrobat version 3.0 from Adobe Systems (U.S.) created a portable document format (PDF) that provided an intermediate file between layout programs and the raster image processors that are used to drive film, plate, printer, and direct-to-press printout. The PDF allowed viewing on computer monitors or digital distribution over the World Wide Web or via new digital video discs. PDF publishing allowed one file format to serve most requirements for information dissemination in print or electronic publishing form. It also provided a standard mechanism for allowing advertisements to be incorporated into publications electronically for digital reproduction.

      Digital printing advanced as the Scitex Spontane (Israel), Xerox DocuColor 40 (U.S.), and Canon CLC 1000 (Japan) brought colour printing to a price and performance point half that of Indigo (The Netherlands) and Xeikon (Belgium), the latter of which had improved quality and reduced costs in order to be more competitive with lithographic printing. Hybrid presses that integrated platemaking on press by applying Presstek (U.S.) technology and marketed by Heidelberg (Germany) and Omni-Adast (Czech Republic) sold record numbers of systems as printers worldwide moved aggressively into totally digital work flows that eliminated graphic arts film, manual stripping, and other labour-intensive processes.

      Ink jet and dye sublimation colour proofing systems became able to support computer-to-plate approaches from Gerber Scientific Products (U.S.), Creo (Canada), and other suppliers. Digital plates, led by the Eastman Kodak (U.S.) thermal and Agfa (Germany) silver halide plates, achieved high levels of acceptance. The result for printers was the ability to reduce production times and handle an increasing number of short-run jobs (under 5,000 copies) to meet customer requirements for on-demand, just-in-time delivery.

      Acquisitions continued in 1996. Heidelberger Druckmaschinen acquired Linotype-Hell (Germany), and the Agfa division of Bayer acquired the Hoechst (Germany) Enco plate division. (FRANK J. ROMANO)

      This article updates printing.

RETAILING
      It was survival of the fittest for retailers in 1996, a year marked by mergers, takeovers, and cutthroat competition. Big companies got bigger by gobbling up rivals, opening new stores, and expanding into international markets. Smaller chains scrambled to boost sales by offering new products and services. Companies that did not adapt quickly enough went out of business, victims of a crowded marketplace and tightfisted consumers.

      Exemplifying the atmosphere, Petsmart, the largest pet food and supply retailer in the U.S., bought the U.K.'s Pet City Holdings for $239.1 million in stock. Petsmart, whose stores carried products ranging from gerbil food to dog sweaters, was looking for additional acquisitions.

      Staples, the second largest U.S. office products chain, proposed to acquire number one Office Depot for $3.5 billion in stock. The combined business would have more than 1,000 stores and sales of about $10 billion. The proposed deal raised antitrust concerns.

      Rite Aid, the biggest U.S. drugstore operator, agreed to buy Thrifty PayLess Holdings, the leading chain on the West Coast, for $2.3 billion in stock and assumed debt. Rite Aid had withdrawn a $1.8 billion takeover bid for Revco D.S. after the Federal Trade Commission (FTC) said that a combination of the two largest drug chains would drive up prices. J.C. Penney, meanwhile, said that it would buy Eckerd for $3.3 billion in cash, stock, and assumed debt, which would put Penney's Thrift Drug business into the number two spot.

      Toys "R" Us agreed to buy competitor Baby Superstore for $376 million. Toys "R" Us had opened a handful of stores geared to infants and toddlers, and the acquisition of Baby Superstore gave it a major presence in the market.

      Meanwhile, Toys "R" Us faced charges from the FTC that it used its buying power to keep hot-selling toys out of competitors' stores. The FTC accused Toys "R" Us of refusing to stock certain toys carried by discount-oriented warehouse clubs and thereby pressuring manufacturers to stop selling to the clubs or lose Toys "R" Us as a customer. Toys "R" Us, which controlled an estimated 20% to 30% of the U.S. market, acknowledged that it did not sell toys available in warehouse clubs but said that the practice was not illegal.

      Consumer spending remained under pressure in many parts of the world. In Germany and Japan retail sales through the first half of 1996 were flat compared with the same period in 1995. Sales rose, however, in the U.S., Great Britain, and, to a lesser extent, Canada. Canadian consumers, despite the lowest interest rates in decades, were reluctant to spend because of worries about layoffs and weak economic growth. The dearth of consumer spending was a key factor in the bankruptcy of one of the country's biggest retail chains, Consumers Distributing. Christmas sales in the U.S. were generally disappointing.

      Not all retailers were struggling. U.S. gourmet coffee purveyor Starbucks said that it planned to open more than 300 stores in the fiscal year that began in September, which would bring its total outlets to 1,000. Blockbuster Video, the fast-growing U.S. chain of rental stores, broke into the Scandinavian market by acquiring Christianshavn Video of Denmark.

      Wal-Mart Stores, the world's largest retailer, opened its first discount stores in China and Indonesia. It had previously expanded into Mexico, Puerto Rico, Canada, Argentina, and Brazil. It was not immune to the difficulties affecting other retailers, however. The company reported a drop in profit for the quarter that ended January 31, the first time since becoming a publicly traded company in 1970 that profits had not increased. Kmart, the number two U.S. discounter, secured about $4.7 billion in new financing, which restored stability at the company after a difficult 1995.

      As competition intensified, retailers searched for novel ways to win customers. In the U.K., supermarket operator J. Sainsbury joined with the Bank of Scotland to provide deposit, lending, and other banking services beginning in 1997. U.K supermarkets had sought other means of generating business, including selling gasoline. In the U.S., Wal-Mart, in an alliance with Microsoft, was one of many retailers to begin selling products over the World Wide Web. Outdoor clothing retailer Eddie Bauer, a unit of Spiegel, began offering tours to Peru, Nepal, and other exotic destinations. The tours, with activities that included archaeological digs and white-water rafting, were priced from $1,975 to $4,995.

      One type of retailing establishment, the cigar store, had no trouble ringing up sales. Many retailers faced shortages of premium cigars, thanks to the newfound popularity of stogies, which were glorified in glossy magazines. The Cigar Association of America said that sales of premium cigars were set to double in 1996, to 257 million units.

      (JOHN HEINZL)

SHIPBUILDING
      Figures produced by Lloyd's Register of Shipping for the June quarter of 1996 showed little change in the leading shipbuilding countries. Shipbuilding continued, in terms of tonnage, to be dominated by Japan and South Korea, which had 30.2% and 28.2%, respectively, of the world order book. If China, Taiwan, and Singapore were included, the East Asian shipbuilders had 66.5% of the world order book. The order book, in millions of gross tons (gt), for the principal shipbuilding areas of the world was as follows: Japan, 13,594; South Korea, 12,668; Western Europe, 7,892; Eastern Europe, 5,835; rest of world, 5,018.

      In addition to gross tons, Lloyd's Register now included the unit compensated gross tonnage. This unit reflected not only the size of the ship but also the complexity of the work involved in building a sophisticated and high-value vessel such as a liquefied-gas carrier as compared with, for example, a bulk carrier. For any ship type the coefficient decreased with increasing ship size—the larger the ship, the smaller the man-hour requirements per gross tonnage. Thus, when the order book figures were calculated in compensated gross tonnage, a different picture emerged: Western Europe, 8,404; Japan, 8,229; South Korea, 6,494; Eastern Europe, 4,903; rest of world, 4,016. These figures confirmed that European builders were concentrating on sophisticated high-value tonnage and leaving tankers and bulk carriers to the assembly lines of East Asia.

      This was not to say that there was no European interest at all in very large crude carrier/ultralarge crude carrier (VLCC/ULCC) tonnage. The E3 tanker design, a collaborative venture by Fincantieri, Bremer Vulkan Verbund, HDW, AESA, and Chantiers de l'Atlantique, was intended to return VLCC/ULCC building to Europe. AESA obtained an order for one vessel from the Spanish owner Navierra Tapias, with an option for another.

      During 1995 there was a generally strong freight market in shipping, which led to a high level of ordering (25.5 million gt). This equaled the level of ordering in 1994 and was double the orders reported a decade earlier, in 1985. Ore and bulk carriers represented 10.2 million gt of the orders, general cargo and containerships 8.1 million gt, and tankers 3.3 million gt.

      By June 1996 there were 2,589 ships of 45 million gt in the world order book (ships under construction plus confirmed orders placed but not started). The cargo-carrying component of the order book was 2,012 ships of 44.5 million gt (62.9 million deadweight tons) and of these the principal ship types, in millions of gross tons, were dry-bulk carriers, 15; containerships, 9.2; oil tankers, 8.8; general cargo ships, 2.4; liquefied-gas ships, 2; passenger ships, 1.7; and chemical carriers, 1.7.

      The cruise ship market remained buoyant with the delivery of several new vessels, including the largest ever, Carnival Cruise Lines' 101,353-gt Destiny from Italy's Monfalcone yard. In some quarters there were fears that berth capacity could exceed demand. In 1990 there were 93,452 international cruise ship lower berths available. By 1996 there were 147,484, and it was estimated that by 1999 there would be 185,632.

      In East Asia, Japan moved to a partial deregulation of its building facilities. All of the main Japanese yards had suffered from the strong yen, which made them less competitive. The situation began to improve, however. At 80 yen to the dollar Japanese yards could not compete, but at 105-110 yen they could just about manage.

      South Korea brought more of its shipbuilding capacity on stream. Yard capacity in South Korea had been built on the assumption of cheap and abundant labour. This situation, however, was replaced with a high-wage economy and strikes by workers. The remedy was productivity increases and cuts in costs. (EDWARD CROWLEY)

      This article updates ship construction.

TELECOMMUNICATIONS
      In February 1996 the U.S. Congress passed and Pres. Bill Clinton signed a bill designed to deregulate the telecommunications industry. The act would eventually allow long-distance and regional phone companies and cable companies to offer any service provided by the others. One stipulation in the bill was that no company currently providing local service could carry long-distance services until it had met a checklist of 14 conditions, including full interconnection with its competitors and telephone number portability when a customer changed carriers. In addition, the bill would deregulate rates for all cable TV customers by March 31, 1999. In November the U.S. Supreme Court upheld an appeals court ruling in favour of the local carriers, freezing the rules of the Federal Communications Commission (FCC) that were being used to implement the act at least until January 1997. The rules addressed interconnections, universal service, and access charges.

      As a result of the telecommunications act, a number of industry mergers were announced. In February the former Bell company US West bought the third largest cable operator in the U.S., Continental Cablevision, for $10.8 billion. Continental provided service to more than four million subscribers in key markets in Florida, Georgia, Michigan, Ohio, and the Chicago area. US West planned to upgrade the cable facilities to provide two-way telephone service by the year 2000.

      In April SBC Communications (formerly Southwestern Bell) purchased Pacific Telesis (formerly Pacific Bell) in a deal worth more than $16 billion. The merger created the second largest phone company, after AT&T. The new company planned to retain the name SBC Communications. Later in April, NYNEX and Bell Atlantic announced a merger valued at more than $20.5 billion. In June the terms of the merger were changed so that Bell Atlantic would purchase NYNEX. The combined company, to be known as Bell Atlantic, would service the East Coast from Maine through Virginia.

      In August a new company, MFS WorldCom, was proposed from the purchase of MFS Communications by LDDS WorldCom, the number four long-distance provider. Worth $12.4 billion, the new company would provide local and long-distance services and Internet access via high-speed fibre-optic networks to business customers in major metropolitan areas. Before its merger with WorldCom, MFS had completed a $2 billion purchase of Internet provider UUNET Technologies.

      The second largest long-distance provider, MCI Communications, shocked the industry on November 3 when it agreed to be bought by British Telecommunications for about $21 billion. It would be the largest takeover ever of a U.S. corporation by a foreign firm. The new company, to be called Concert Global Communications, would require the approval of regulators in the U.S., the U.K., and the rest of Europe. It would have more than 43 million customers in over 70 countries.

      While many telecommunications companies were in the process of merging during 1996, AT&T was in the process of completing the divestiture of its equipment-manufacturing business, renamed Lucent Technologies, and its computer division, renamed NCR (its name before it was bought by AT&T in 1990). In April an initial public offering of Lucent stock on the New York Stock Exchange resulted in the largest number of shares ever traded on a corporation's first day. The spin-off of Lucent was completed on October 1, and the divestiture of NCR was completed at the end of 1996.

      AT&T Wireless introduced ground-to-air calling on a number of domestic and international airlines. Motorola and others began providing their mobile-phone customers with E-mail and text-based Internet access. In addition to using the Internet to place phone calls, several companies were providing facsimile capabilities, eliminating the costly telephone charges associated with international faxes. Two major outages on on-line services occurred in 1996. On August 7 America Online, the largest provider, went off-line for 19 hours, stranding its six million users. On November 7 AT&T WorldNet, the number two Internet provider, was unable to deliver E-mail to many of its customers.

      In May the FCC completed its auction of personal communications services licenses on the 30-MHz broadband spectrum for $10.2 billion. The 500 licenses were aimed at small businesses in basic trading areas.

      New products introduced in 1996 included a compact 249-g (8.7-oz) digital, portable handset that integrated cellular calling, two-way radio, and alphanumeric paging into a single device. New 56-Kbit/sec modems were announced in October. Meant to work over voice-grade lines, the modems operated at almost twice the speed of previous models. Global Village Communication introduced its NewsCatcher, a wireless device that used radio transmission to provide information via on-line resources and news and sports wires.

      (THOMAS E. KROLL)

      This article updates telecommunications system (telecommunication).

TEXTILES
      The textile industry in 1996 was coming out of a depressed market. Asia was the only area where markets had not experienced a slump, and they continued to grow.

      Individual companies were entering into joint ventures in various countries to gain better market positions. Egypt's cotton and textile industry, for example, was initiating joint ventures with companies such as Benetton and Wrangler. Japanese firms were starting to produce acrylic, nylon, and polyester fibres and yarns and to do dyeing and printing operations in China. Japanese spinning operations and woolen fabric production were also being moved there, and the Taiwanese and U.S. industries were developing cooperative efforts with Chinese companies.

      The textile chemicals business was also experiencing this shift in focus. Amoco was developing joint ventures in various countries. Ciba-Geigy's joint venture with Atul of India was producing polyurethanes, and Atul entered into an agreement with BASF to export vat dyes. Mitsui Sekka of Japan was joining with Amoco in Indonesia to produce terephthalic acid. In the dye industry Ciba-Geigy merged with Sandoz to form Novartis. The dyestuffs businesses of Bayer and Hoechst Celanese merged.

      Biotechnology continued to exert its influence on the textile industry. Monsanto, Du Pont, and Bayer were among the companies working on genetically altered cotton, with improved fibre performance and properties as well as resistance to pesticides and disease.

      This article updates textile.

Man-Made Fibres.
      The capacity for production of man-made cellulosic filament fibres worldwide was 953,000 metric tons in 1996. The capacity for man-made cellulosic staple and tow fibres was 2,450,000 metric tons, for acrylic and modacrylic fibres 3,191,000 metric tons, for nylon and aramid fibres 5,427,000 metric tons, and for polyester fibres 15,387,000 metric tons. The total noncellulosic man-made fibre production capacity, excepting olefins, was at a level of 24,309 metric tons. It was reported that olefins (polypropylene) were produced at a level of 18,386,000 metric tons, an increase over 1995.

      The U.S. Federal Trade Commission received four applications for generic fibre types in 1996. Teijin of Japan received a classification for a fibre named Rexe with stretch properties similar to spandex but composed of polyester and polyether segments. Courtaulds applied for a classification for its lyocell fibre trademarked Tencel, a highly crystalline microfibre with high wet and dry strength. Du Pont applied for a classification for its polytetrafluoroethylene fibre, which had low friction and abrasion-resistance properties. BASF received a temporary classification for its Basofil, a fibre with high flame- and heat-resistance properties useful in protective clothing and textiles. Japan's Asahi Chemical Industry and Toray Industries produced fibres that absorbed some of the odours in cigarette smoke. Asahi's product was named Smoklin and Toray's product Cinagon. Kanebo's Bellfresh deodorant fibre decomposed odours of the kitchen and bathroom. (DENNIS LOY)

Wool.
      The world wool clip in 1996-97 was estimated at 1,437,000 metric tons clean, down from 1,454,000 metric tons in 1995-96. Raw wool prices continued to drift lower. Australia remained the dominant producer, with 445,000 metric tons clean, essentially the same as in 1995-96. New Zealand's clip was 195,000 metric tons clean, down 2%. Both Australia and New Zealand had an approximate 16% reduction in raw wool exports during 1996, with the major reductions being to Japan, by 43%, and to the major countries of Western Europe, by 15.4%. Factors contributing to the decline included high unemployment and extraordinarily mild weather from September to November in Western Europe and bargain buying by consumers. Demand for wool worldwide amounted to 8.64% of the total natural fibre and 4.27% of the total fibre. Purchases of wool apparel grew by 1% in Western Europe, 2% in North America, Japan, and China, and 8% in South Korea and Taiwan.

      New technology made spun lamb's and soft Shetland wool available for licensing by Woolmark spinners in 1996. Enzymes were being used to improve the appearance and feel of wool fabrics, and there were technological advances in the dyeing of wool. One process used a chemical that allowed wool to be dyed either below the boiling point of water or at the boiling point for less time. Among new sportswear products was Sportwool, a double-faced knitted fabric with wool on the inside and polyester on the outside.

TEXTILES: Cotton.
      Worldwide cotton production reached 19.3 million metric tons in 1996. The four major producers were the U.S., China, India, and Pakistan. Only the U.S. showed an increase over 1995. Production in China, India, and Pakistan was lower because of insect infestation and leaf virus and a decrease in planted area.

      World consumption of raw cotton was 18.6 million metric tons, up 1.1% from 1995. Consumption increased in the four major cotton-producing countries. In the U.S., cotton had 67% of the apparel market; worldwide, cotton claimed 45.1% of the total textile fibre market. Demand for casual wear, denim, and specialty fabrics was the primary reason for increased use.

      The U.S. continued to dominate the export markets. In 1996 the U.S. exported 1,437,000 metric tons of cotton, primarily to Mexico, Japan, South Korea, and Indonesia. The amount was down from 1.7 million metric tons in 1995. The three other major cotton exporters were Uzbekistan, French Africa, and Australia.

      For the first time, commercial cotton growers in Australia and the United States planted genetically engineered cotton, developed by Monsanto. The cotton contained the Bollgard gene derived from Bacillus thuringiensis, a soilborne bacterium that was toxic to heliothis caterpillars. A new genetically altered cotton that was resistant to Buctril herbicide was available in 1996.

      (EVERETT E. BACKE)

TEXTILES: Silk.
      In 1996 worldwide demand for silk declined, and prices eased slightly. As a result, there was a 40% reduction in the spring crop of high-quality cocoons in China. Because the stock of silk was already small, industry observers feared that only a slight upturn in demand would cause it to disappear and thus lead to a rapid increase in prices. Some mulberry trees in the more developed provinces were dug up or neglected.

      China made an effort to regularize the export prices of raw materials, including silk, through a system of export licenses. This slowed trade, but whether it helped regulate prices was debatable.

      Meanwhile, business in Europe was stagnant. Demand for silk neckties was good, but silk was not in fashion for women's wear—with the exception of fabrics with a nubby surface effect. Arrangements for licensing the import of silk garments from China seemed to be effective, but some of the quotas established by the European Union were not entirely filled.

      Silk noils were also out of fashion, and as a result, the supply was plentiful. Spun silk showed signs of revival with a slight increase in prices.

      In 1995 China produced 76,400 metric tons of raw silk. India's production was estimated at 15,045 metric tons and Japan's at 3,228. Total world production was approximately 99,000 metric tons.

      (ANTHONY H. GADDUM)

TOBACCO
      The production and consumption of tobacco did not in 1996 respond to the ever more intense antismoking movement. Manufacturers produced some 5,569,000,000,000 cigarettes in 1996, close to a record, with consumption edging up in some key markets, including the United States. In much of the less-developed world, smoking increased wherever economic well-being improved and tobacco taxes were comparatively low.

      The world production of raw tobacco, at approximately 6,330,000 metric tons, was the largest since 1993, with China, the U.S., India, and Brazil the top producers. The consumption of raw materials by the makers of cigarettes, cigars, and other tobacco products was likewise high, with manufacturers running down carryover stocks from previous harvests. World stocks continued to be down heavily, partly because manufacturers refined "just-in-time" production methods.

      On August 23, U.S. Pres. Bill Clinton approved regulations declaring nicotine an addictive drug and giving the Food and Drug Administration the authority to regulate the marketing and sale of tobacco products to young people. The FDA's regulations were being challenged in court, however, which delayed their implementation. Other U.S. antitobacco activity, which inspired like movements elsewhere, focused increasingly on seeking legal redress from cigarette manufacturers. There was only limited and mixed success, however, for claimants in U.S. courts in 1996.

      In East Asia, where almost half the world's cigarettes were smoked, the World Health Organization admitted that its objective of making the region smoke-free by the year 2000 was unattainable. WHO intensified its efforts to eliminate tobacco advertising there by 2000 by trying to persuade governments to ban promotionals.

      (MICHAEL F. BARFORD)

TOURISM
       Leading International Tourist Destinations(For Leading International Tourist Destinations, see Table (Leading International Tourist Destinations).)

      As 1996 began, contradictory trends influenced international tourism. On the one hand, the stronger dollar and the Wall Street boom favoured outbound travel from North America. On the other, the continuing recession in European Union nations such as France and Germany and Japan's hesitant economic recovery made consumers there unusually cautious. Countries with strong currencies or those beset by political uncertainty tended to suffer.

      Under the circumstances, Africa fared quite well. Morocco's tourism increased 11%, while 6% more Europeans visited Tunisia. South of the Sahara, Malawi's move to democracy spurred plans for a tourist revival based on park lodges and Lake Malawi. Tourism was also profitable for Africa's island destinations, where Mauritius welcomed 11% more visits. During October, at a conference held in the Comoros, Indian Ocean nations such as Mauritius, Seychelles, and Madagascar agreed to joint marketing. While Tanzania expected 326,000 visitors in 1996, Kenya, where tourism fell back to 690,500 arrivals, moved to rehabilitate infrastructure and promote safaris through a new Kenya Tourist Board.

      With some exceptions the countries of the Americas recorded a good tourist season in 1996. Foreign tourism accounted for 10% of all jobs in the U.S., and tourism earnings, growing at 4% per annum, contributed $80 billion to the economy. While the weak Canadian dollar slowed cross-border travel in North America, the strong growth of U.S.-bound tourism from such Pacific Rim countries as South Korea compensated. In The Bahamas tourism grew by 5%, in Canada by 4%, in Ecuador by 9%, in Jamaica by 16%, in Mexico by 14%, and in Nicaragua by 13%. Tourism, however, marked time in some Caribbean destinations, such as Antigua and St. Martin.

      The Asian-Pacific region continued to be the powerhouse of international tourism in 1996, accounting for 15% of world arrivals and 20% of receipts. Leading destinations were Singapore, with a 36% growth in arrivals, China with 17%, Hong Kong with 16%, Japan with 15%, and Australia with 14%. Thailand's international tourist nights grew by 15%, and the country welcomed many new visitors from Eastern Europe.

      Tourism along the Silk Road was promoted by fairs and forums held in China, Uzbekistan, and Turkmenistan. The Japanese government granted a credit of $140 million to modernize airports at Samarkand, Uzbekistan, and elsewhere along this fabled tourist route. In South Asia tourism moved ahead in India (11%) and the Maldives (6%), but political events in Pakistan and Sri Lanka overshadowed foreign travel, which decreased 8% and 20%, respectively.

      Europe presented a mixed picture in 1996. Arrivals continued to decline in established destinations with strong currencies, as in Austria (-1%), France (-3%), and Switzerland (-9%). Holiday travel sales in Germany, the key European outbound market, stagnated as the German government proposed welfare cuts and adopted a tight budget. Tourism prospered in other European countries, however, including Poland (5%), Spain (10%), Turkey (12%), and the U.K. (11%). There was also a spectacular recovery in tourism to Croatia, formerly part of Yugoslavia, as a result of the regional peace accord. The Euro '96 football (soccer) championships attracted an extra 100,000 travelers to Great Britain during June, while the country's fashion and heritage attractions drew a record three million tourists during August. In September at Thessaloníki, Greece, Hyatt International opened Europe's largest casino. The peak season was too much for Italy's heritage city of Florence, however, which moved to control a rising tide of tourists by limiting to 225 the daily number of touring buses admitted and introducing reservations procedures at the legendary Uffizi Gallery. Portugal's tour operators opted to diversify their products, emphasizing golf and sailing holidays and introducing wine tours of the Douro Valley.

      Pressure on margins led to mergers and acquisitions—among others, the purchase by Granada of the multinational hotelier Forte in the U.K. In the U.S., AAA (American Automobile Association) and Thomas Cook, two of the most recognized names in the industry, announced plans to form the world's largest leisure travel alliance, with nearly 3,000 retail outlets. Doubletree acquired the Renaissance Hotel Group.

      Middle Eastern tourism continued to reap a peace dividend in 1996. In Egypt arrivals soared 25% and receipts 24%. Jordan (6%) and Syria (9%) also experienced a boom. In Israel tourism grew by 4% but was not without setbacks, one being an Arab-Israeli dispute during September over a new entrance to a tourist tunnel on Jerusalem's Temple Mount. (PETER SHACKLEFORD)

WOOD PRODUCTS

Wood.
      The year 1996 was one of contrasts for the wood products market. While traditional sources of timber continued to experience heavy pressure, there was also a drop in prices for many forest products, especially pulp, panels, and nonstructural lumber. The contrast was a result of increasing long-term demand from a growing world population and a scarcity of raw materials coupled with short-term oversupply as technology improved the efficiency of manufacturing processes.

      Scarce raw materials spurred technology to make better use of both traditional and alternative sources of fibre. Such products as laminated veneer lumber, oriented strand board, and medium-density fibreboard, which used smaller trees and wood waste, enjoyed gains in consumer acceptance and manufacturing capacity. In North America alone, new capacity in oriented strand board in the first quarter of 1996 exceeded the first-quarter levels of 1995 by five times.

      Constraints on federal timber harvests continued to pummel U.S. lumber manufacturers, although 1996 brought some relief. A strong economy led to a 14% increase in housing starts in the first half of 1996, pushing Western lumber demand up 2.1% over 1995. The closing of mills in the West, less timber from federal forests, and near-capacity production in the South, however, limited the ability of producers to increase output significantly. The forecast for 1996 was a modest increase in lumber production, to 76,690,000 cu m (1 cu m = 423.8 bd-ft). The balance would be imported, mainly from Canada.

      Tropical timber producers, particularly in Asia, suffered shortages of raw materials, low prices, and increased international competition in 1996. Indonesia, the world's largest tropical plywood producer, expected production to fall 7%, to nine million cubic metres, and exports to fall 8%, to eight million cubic metres, by 1996. Malaysia, in line with an international agreement among tropical producers to reduce harvests to sustainable levels, announced that it would cut annual harvests 19%, to 30 million cu m, by 2000.

      Japan's economic recovery strengthened the demand for wood products, but there was also a shift in consumer preferences. Japanese imports of hardwood logs from Southeast Asia shifted to imports of softwood logs from Russia, and imports of tropical plywood were being replaced with softwood plywood. Japan also expected to see a doubling of imported housing from the U.S., Europe, and Australia, to 11,325 units, in 1996.

      Owing to slow economic growth, European imports of wood products were weak in 1996. Oversupply was also a factor, as high-producing nations in Scandinavia joined the European Union, which made it easier for those countries to supply continental Europe. The U.K. was increasing production from forests planted in the north after World War II.

      The U.S. and Canadian governments reached agreement on a quota system to limit Canadian imports of lumber into the U.S. In 1996 Canadian lumber imports were expected to reach 39,640,000 cu m, marginally below the level reached in 1995. Late in the year U.S. home builders experienced sharply rising prices for lumber, which they blamed partly on import quotas for spruce from Canada.

      Russia, with about 57% of the world's softwood reserves, had seen lumber output fall drastically since 1989, from 80 million cu m to 22.3 million cu m in 1996. Although the allowable cut for 1995 was 490 million cu m, only about 120 million of this was achieved. Poor infrastructure continued to make access to Russian forests difficult, and political instability made large capital investments unfavourable. Some stabilization in Russia's lumber production, which was forecast to fall only 1.1 million cu m short of 1995 production levels, was expected in 1996, however.

      (WORLD FOREST INSTITUTE)

      This article updates wood.

Paper and Pulp.
      Trends in 1996 showed that output would grow only marginally and that the year might see the end of the record set in 1995, the 13th year in a row that world pulp, paper, and board output had increased. World production in 1995, the last year for which figures were available, rose to 277.8 million metric tons, an increase of 3.4% over 1994.

      The U.S. industry was set for a robust 2.5% growth rate each year for the foreseeable future. Growth would come from heavy investments in productivity improvements, rather than in new machines, setting the stage for enhanced competitiveness. China, however, remained the world's fastest growing country, and there were other rapidly expanding capacities on the Pacific Rim. Pulp production in Indonesia, for example, rose to more than two million metric tons, and it was estimated that Indonesia might be one of the top 10 pulp and paper producers in the world by 2005. The U.S. remained the largest producer and consumer per capita, making 29.1% of the world's output.

      Eastern Europe, especially Russia, made a noteworthy comeback. Paper and board output increased by more than one million metric tons, and pulp production grew even faster, up 1.4 million metric tons, or 22.5%, mostly in Russia. Elsewhere in Europe growth was modest. The industry in Germany was profitable in 1995, but it was adversely affected by vast increases in pulp and wastepaper prices in the second half of the year. In Canada operating rates declined in 1996, but producers had returned to profitability in 1995 after cumulative losses of Can$5.1 billion between 1991 and 1994. At the end of 1995, the Canadian pulp and paper industry completed a significant investment program to comply with environmental regulations. Newsprint production declined, while manufacturers were shifting toward printing and writing papers.

      For the past three years, pulp prices had been on a roller-coaster ride. Aggressive pricing by pulp producers was the result of a bid to maintain market share in East Asia in the face of new low-cost competition from Indonesia and substantial U.S. expansion in the deinked market. In 1995 recycled paper prices topped in June at approximately $200 per ton but were down to $25 per ton in December.

      Because the world had shrunk, and pulp, paper, and board had become truly global commodities, it was expected that there would be even greater consolidation between competitive companies, a process already clearly under way. Such a development could improve environmental standards around the world as the best practices were transferred between paper industry supergroups. From an environmental perspective, North American mills would have to minimize the waste generated through the life cycle of paper to remain competitive during the next 5 to 10 years. (H.-CLAUDE LAVALLÉE)

      This article updates papermaking.

▪ 1996

Introduction

Overview
      With very few exceptions, 1994 was an excellent year. The world economy finally put a lingering recession behind it, and a vigorous recovery, accompanied by low inflation, was in train. Led by an unexpected double-digit growth in world trade volumes, output expanded rapidly, with manufacturing, buoyed by export-led growth, outperforming gross domestic product (GDP) in most economies.

       Annual Average Rates of Growth of Manufacturing Output, 1980-94, Table Index Numbers of Production, Employment, and Productivity in Manufacturing Industries, TableManufacturing increased its production by 4.6% in 1994, a welcome recovery from two years of recession and stagnation. (See Table I (Annual Average Rates of Growth of Manufacturing Output, 1980-94, Table) and Table IV (Index Numbers of Production, Employment, and Productivity in Manufacturing Industries, Table).) In the industrialized countries, which had been the worst affected, growth was 4.4%; in the less developed economies, where the slowdown had been barely perceptible, growth picked up to over 5%.

      The main industrialized economies were at different phases of the economic cycle. At one extreme the U.S. was into its fourth year of a recovery that retained its vigour through 1995; at the other Japan, beset by financial difficulties and with an exchange rate pushed to new levels of uncompetitiveness, was struggling to reorient its economy away from the traditional dependency on exports. U.S. industrial production rose more than 5% in 1994 (up from 4% in 1993), while in Japan growth was 0.8%, contrasted with a decline of more than 10% in 1992-93 combined.

      In between these two extremes the U.K., lagging a year behind the U.S. in recovery and helped by another strong year of North Sea oil production, attained a 5% increase in industrial production. In continental Europe, where the cycle lagged yet another year, growth was typically slower than in the U.S. and the U.K. Because they were also driven by exports, it was the devaluing economies such as Italy that enjoyed the lion's share of buoyant intra-European trade. Even the high-exchange-rate economies such as Germany, however, were boosted by a surge in investment demand, concentrated on high-tech capital goods.

      The dynamic economies of Asia enjoyed another successful year. In terms of GDP, double-digit growth was achieved in China and Singapore, while South Korea, Malaysia, Thailand, and Vietnam were not far short of the 10% mark. In industrial production, the main impetus behind the expansion, growth was as high as 20% in China. Such a pace of advance did not, however, prove sustainable. Inflationary pressures emerged in a number of economies—prices rose 24% in China and 14% in Vietnam in 1994—and monetary policy was tightened, which resulted in Chinese industrial production slowing to a growth rate of 16%.

       Manufacturing Production in Eastern Europe, TableSuch rates of growth were the envy of the rest of the less industrialized world, particularly in the formerly communist countries of Eastern Europe and in those of the former Soviet Union. In Eastern Europe (see Table II (Manufacturing Production in Eastern Europe, Table)), however, the corner was turned. Output rose in 1994 in all economies, with those more advanced in the reform process, notably Hungary and Poland, beginning to pick up speed. In Russia, in contrast, there was little good news. Output fell 15% in 1994 (after a 12% decline in 1993), and the Organisation for Economic Co-operation and Development forecast that Russia would suffer another decline, of 5%, in 1995.

      For Latin America 1994 was generally a good year. With the exception of Brazil, inflation fell to lower, more sustainable levels throughout the region, which underpinned stronger output. Fundamental problems, exemplified by the Mexican financial crisis, were still prevalent, however. In most economies output growth slowed in 1995, while in Mexico output fell.

       Pattern of Output, 1991-94, TableOn a sectoral basis the pattern of output (see Table III (Pattern of Output, 1991-94, Table)) in 1994 reflected the nature of the cycle. Led by exports and investment, heavy industries outperformed the lighter industries more dependent on consumer demand. Textiles and clothing and footwear missed out on the upturn, and in the industrialized economies these sectors stagnated. Across the less industrialized group, output expanded on a broad front.

      In retrospect, 1994 appeared to have been the peak of the cycle in the world economy. In 1995 demand slowed, producing an inventory buildup that took its toll on manufacturing. The impetus from trade also diminished. With inflationary pressures modest in most countries, however, there was scope for policy to adjust.

      (GEOFFREY R. DICKS)

ADVERTISING
       Most Valuable Brands Worldwide in 1994, TableDespite concerns about the economy, spending on advertising surged ahead in 1995, with large companies spending aggressively to get their messages to the public. (For Most Valuable Brands Worldwide in 1994, see Table V (Most Valuable Brands Worldwide in 1994, Table).) Industry forecaster Robert J. Coen predicted that overall advertising expenditures in the U.S. in 1995 would top $157.7 billion, a 5.1% increase over the $150 billion spent in 1994. He estimated that spending outside the U.S. would top $193 billion, up 8.2% from $178.4 billion in 1994, led by strong growth in large ad markets like Britain, France, and Germany and with double-digit percentage gains in emerging markets like China and Vietnam.

      U.S. advertisers, optimistic that consumers would continue spending through much of 1996, invested heavily in network television's "upfront," or advance sales, market. More than $5.6 billion was committed to shows for the 1995-96 season, up 27.3% from the $4.4 billion worth of commercial time sold in advance of the 1994-95 season. Advertisers doled out up to $1 million per minute for commercials that aired during "Seinfeld," NBC's top-rated comedy. "Seinfeld" was the first regularly scheduled series to come close to the $1 million-a-minute mark, something that previously had been attained only by events such as the Super Bowl. NBC sold a record $600 million in advertising for its coverage of the 1996 Olympic Games in Atlanta, Ga., a 20% increase from the $500 million the network had sold for the 1992 Summer Games in Barcelona, Spain.

      One of the biggest advertising splashes in 1995 was the worldwide introduction of Microsoft Corp.'s Windows 95. Supported by an estimated $700 million in advertising, $200 million from Microsoft itself, and most of the rest from retailers and hardware and software companies, the launch on August 24 more closely resembled the release of a blockbuster movie than a computer operating system. Microsoft estimated that more than one million copies of Windows 95 were purchased by consumers in retail stores in the software's first four days on the market. The enthusiasm for new computer software came during a rush by consumers and advertisers alike to gain a toehold on the Internet. Through on-line services such as America Online, CompuServe, and Prodigy as well as through direct links to the Internet, approximately 24 million people in the U.S. and Canada signed onto the worldwide network. Some 17.6 million people regularly used the World Wide Web, a subset of the Internet designed for multimedia use, where many corporations and advertising agencies had created "home pages" for their products and services.

      An unprecedented effort by U.S. Pres. Bill Clinton and the Food and Drug Administration to outlaw cigarette ads pitched at young people drew an immediate response from advertising and tobacco groups, which filed suits in a U.S. district court in Greensboro, N.C., challenging the agency's right to regulate tobacco as well as alleging violations of the First Amendment protection of free speech. Federal regulators asserted that aggressive tobacco marketing was the most influential factor in persuading young people to start smoking.

      In September the FBI and the U.S. Department of Justice launched an investigation of designer Calvin Klein's controversial jeans campaign that featured young people in suggestive poses, even though the ads had been pulled from distribution. The legal issue was whether any of the models were under the age of 18, which was found not to be the case.

      Vietnam continued to expand its consumer markets, and advertisers and agencies from the West poured into the country. Advertising had already helped some American brands such as Pepsi, Kodak film, and Oral B toothbrushes become dominant with Vietnamese consumers. American brands also were becoming popular in China, although advertising continued to be sporadic and concentrated on the three largest markets—Shanghai, Beijing, and areas in southern Guangdong province.

      After being squeezed out of Saatchi & Saatchi Co., the ad agency he and his brother had cofounded, Maurice Saatchi opened the New Saatchi Agency, with billings of more than $211 million from former clients such as British Airways, Dixons consumer electronics, Qantas, and Mirror Group Newspapers. Actress Candice Bergen was ranked again in 1995 as the top entertainer in Video Storyboard Tests' 10th annual rating of celebrity presenters. For the seventh time in eight years, basketball star Michael Jordan was the top-rated athlete for commercial endorsements.

      A study by Yankelovich Partners found that only 25% of 1,000 consumers questioned said a television ad would induce them to try a new product or brand. Only 15% said that a newspaper ad would entice them to buy, while only 13% said that a magazine ad would influence them. A global survey by Roper Starch Worldwide found that 73% of consumers believed that advertisers regularly misled or exaggerated a product's benefits. Consumers in the former Soviet Union proved to be the most suspicious of advertising. Only 9% of Russian and Ukrainian consumers felt that advertising provided accurate information, while 10% said that they felt advertisers respected their intelligence.

      (LAURIE FREEMAN)

      This updates the article marketing.

AEROSPACE
      The dilution of revenues and profits resulting from overcapacity and duplication of products in the aerospace sector in the West was aggravated in 1995 by the growing influence of capable players from Asia, Russia, and the countries of the Commonwealth of Independent States (CIS) as they jostled for markets. In the U.S. and Europe the industrial shakeout continued, with buyouts, mergers, and partnerships proliferating in efforts to reduce costs, streamline production, exploit common resources, and facilitate access to new opportunities. As an example, Daimler-Benz Aerospace of Germany and Alenia of Italy sought an alliance to consolidate work and to alleviate their financial difficulties. Western companies increasingly sought new business through joint ventures with CIS countries and by expanding coproduction with China, the latter seen as a huge but tough market. The industries of both France and Germany declined, in Germany's case largely because of the high costs of reunification and in France because of severe military budget cuts.

      The airline sector generally continued a slow recovery in 1995, taking with it the world's three major airframe companies, Boeing, Airbus Industrie, and McDonnell Douglas. Of the airlines themselves, TWA sank into bankruptcy again for two months in the summer and remained in a weak financial state and saddled with the oldest fleet of aircraft of any U.S. operator. The mostly state-owned European airlines—apart from the privatized and now sharply competitive British Airways—recorded sluggish business as a result of financial weakness, a shortage of slots, and nationalistic protection. Air France's situation was characterized as "dreadful" by its chairman, Christian Blanc. The global freight business continued to grow, however. In 1994 it increased by 12%, and similar growth was anticipated for 1995.

      Boeing maintained its status as the number one commercial transport supplier. Its 777 "big-twin" rival to Airbus's A330, the first all-new Boeing design since the 767 and 757 of 1982 and 1983, entered service in June and was demonstrated at the Paris Air Show during the same month. Predictions were that 1995 sales would reverse a company decline that had begun in 1991. This was borne out in November when Boeing won a record $12.7 billion contract from Singapore Airlines, which was followed in December by a large order from Philippine Airlines. Prospects were helped by two large orders placed by the California-based aircraft leasing company ILFC and by the Saudi Arabian airline Saudia. In the latter case U.S. Pres. Bill Clinton personally intervened to secure a sale over Airbus. Airbus, however, was set to nearly match Boeing's 1995 orders. In a policy statement Airbus managing director Jean Pierson set a goal of securing 50% of the global market for large transport aircraft. McDonnell Douglas struggled with its small product base of MD-11s and the MD-90 family. Launch of the short/medium-range MD-95, seen as essential to the company's viability, was threatened when SAS—a longtime customer—and Saudia both chose Boeing. The MD-95 finally went ahead, however, with a 50-aircraft, $1 billion order from Valujet.

      Anticipating an eventual upturn, the three major players continued to investigate new aircraft of jumbo-plus size. Boeing looked to "stretch" its currently biggest transport into the 747-500, along with developing a longer-range, higher-capacity 777, the pair to be launched more or less simultaneously. It was also studying a 600-seat project called the New Large Aircraft. At the same time, Boeing and Airbus suspended their collaborative examination of the Very Large Commercial Transport project because the U.S. company wanted more time to study the market. Airbus continued to refine its own proposal for an 850-seat transport called the A3XX.

      Meanwhile, Russia continued to probe Western markets with its Tupolev Tu-204 airliner and heavyweight Antonov An-124 freighter, both built at the vast new Ulyanov production plant. Certification to Western standards and the substitution of U.S. and European power plants and avionics were held to enhance the appeal to Western and Pacific Rim airlines. Britain responded to intense lobbying by industry and the Royal Air Force by becoming the launch customer for both a new version of the 40-year-old Lockheed C-130 Hercules and Europe's Future Large Aircraft (FLA), a replacement for the C-130. Previously a supplier exclusively of airliners, Airbus began establishing a military subsidiary to manage and market the FLA.

      The U.S. Joint Advanced Strike Technology program, intended to demonstrate the technology for a next-generation strike fighter to replace the F-16 AV-8B and F/A-18, was restructured to become the Joint Strike Fighter. The program was no longer concerned with just technology, since an actual aircraft was now in view, for entry into service in about 2007-2010. Military aircraft upgrades continued, with earlier fighter types such as Douglas Skyhawk, Northrop F-5, General Dynamics F-16, and Mikoyan MiG-21 being favourite candidates for new avionics to extend their life and effectiveness. An extraordinary demonstration of how far East-West rapprochement had developed since the end of the Cold War was the dialogue between Russia and the U.S. regarding the acquisition by the U.S. Department of Defense of the former's AA-11 Archer short-range air-to-air missile for top U.S. fighters such as the F-15 and F/A-18. The AA-11 was widely regarded as the world's most effective such weapon, and with export versions being sold to less developed countries, the U.S. and other Western nations equipped only with the Sidewinder would face serious threats.

      The civil war in Bosnia and Herzegovina provided an opportunity for NATO to deploy new or upgraded aircraft and systems, in particular the "smart" weapons that could be guided by radio and laser links to their targets. Amid controversy, Tomahawk cruise missiles were used against Bosnian Serb targets. Most of the weapons displayed improved target accuracy over earlier versions used in the Persian Gulf War. Bosnia also saw the introduction, after some 25 years of equivocation by the U.S. military, of a full-fledged American unmanned air vehicle (UAV) system for reconnaissance and target spotting. Predator UAVs could monitor movements of the warring parties for up to 24 hours at a time and remain largely undetected. A growing intelligence gap, however, forced plans to bring the Mach 3 Lockheed SR-71 strategic reconnaissance aircraft back into service five years after it had been retired. (MICHAEL WILSON)

      This updates the article aerospace industry.

APPAREL

Clothing.
      In 1995 the apparel industry continued its slump as consumers directed discretionary income toward the purchase of cars and home-related and electronic products. Both Martha Stewart (see BIOGRAPHIES (Stewart, Martha )), who was held responsible for the "Martha Stewartization" of America, and the aging of the baby-boom generation were cited as reasons for the shift. Also, women—who continued to make nearly 80% of all clothing purchases—seemed less susceptible to fashion fads and preferred to use personal and household disposable income for family-oriented purchases.

      Women's intimate apparel sales surged, however, following the introduction of the Wonder Bra and its many competitors. Brassiere sales rose more than 25% from 1992 to 1994, while sales of other intimate apparel also increased substantially. Fibres like DuPont's Lycra improved the comfort and appearance of foundation garments, causing a resurgence of interest in "body slimmers" and other body-control garments. Swimwear also benefited from the use of these new fibres and a growing emphasis on figure-flattering designs.

      Corporate culture's acceptance of "casual Friday" also sparked apparel sales. Men, especially, bought casual sport slacks and shirts at an unprecedented rate, which caused a decline in sales for men's suits. Levi Strauss, which boasted annual sales of about $800 million from its Dockers men's line of casual pants and shirts, added a Docker footwear line and Docker lines for women and children.

      The retail industry underwent significant changes as consumer price sensitivity resulted in more sales at discount stores, as financially troubled retailers were absorbed by larger companies, and as apparel companies struggled to compete for fewer retail accounts as bankruptcies and plant closures loomed in 1994 and 1995.

      In 1994 U.S. consumers spent $172 billion on apparel, half of which was imported. U.S. apparel manufacturers, competing with the low-wage producers in the Far East, stayed competitive by relying on automation and technology to streamline production—a concept known as quick response—and by moving some assembly operations to the Caribbean Basin and Mexico, where labour was less costly. Though some jobs were created despite these changes, the overall result was a loss of 100,000 manufacturing jobs from 1994 to 1995 and the lowest level of employment since 1939.

      Shrinking membership in the International Ladies' Garment Workers' Union and the Amalgamated Clothing and Textile Workers Union prompted a merger of the two into the Union of Needleworkers, Industrial and Textile Employees. Both that union and John Sweeney, the newly elected head of the AFL-CIO, called for the eradication of garment industry sweatshops that were again proliferating.

      (ALLISON WHEELER WOLFF)

      This updates the article clothing and footwear industry.

Footwear.
      In 1995 such name brands as Timberland, Reebok, and Keds recorded losses, while Nike Inc. and Nine West Group Inc. posted record gains. In May Nine West purchased U.S. Shoe Corp. for over $600 million, creating a footwear empire boasting eight fashion and three comfort brands, over 850 retail stores, and nearly 14,000 employees. Nine West projected that 1995 sales would total $1.5 billion. Meanwhile, athletic footwear giant Nike reported record-shattering sales of $4,760,000,000 and a 34% increase in earnings for fiscal 1994, ended May 31. In October Nike sealed a deal with the National Football League (NFL), worth $200 million over five years, to outfit several NFL teams and sell NFL-licensed merchandise.

      Others posting gains were: Wolverine World Wide, maker of Hush Puppies, Caterpillar, and Wolverine Wilderness, with earnings up 52.4% through the third quarter; and Italian shoe and apparel manufacturer Fila, which scored a marketing/sales coup with the introduction of a shoe worn and endorsed by Grant Hill of the Detroit Pistons professional basketball team.

      Reebok International Ltd. entered an earnings slump amid an executive shuffle at the top; the Timberland Co. posted second- and third-quarter losses totaling $32 million; Converse Inc. folded licensed apparel manufacturer Apex One three months after acquiring it; and the Stride Rite Corp. was beset by sagging sales and the fallout from a 1994 distribution snafu in its Keds division.

      In retailing, Woolworth Corp., parent of Foot Locker and Kinney, brought in department store guru Roger Farah as chairman and Payless ShoeSource veteran Dale Hilpert as president of a reorganized shoe division. J. Baker Inc. pulled the plug on its 357-store Fayva chain; Melville Corp., parent of Thom McAn and FootAction and the operator of shoe departments in 2,176 Kmart stores, planned to spin off its footwear operations; and the 2,700-store Edison Bros., operator of Bakers, the Wild Pair, and Precis stores, filed for Chapter 11 bankruptcy. In the U.S., Brown Group Inc., the Timberland Co., and Vans Inc. closed their remaining footwear factories.

      (DONNA HEIDERSTADT)

      This updates the article clothing and footwear industry.

Furs.
      Mild winter weather in 1994-95 put a major damper on the retail fur season in the U.S., where sales remained near the 1993-94 level of $1.1 billion. As a result, the international industry adopted a less-than-optimistic mood for the remainder of 1995 because retailers left with stock were expected to curb spending on new merchandise and the unpredictability of the weather was expected to deter spending among consumers accustomed to making purchases when needed and to taking advantage of year-round discounts.

      Pelt merchants and manufacturers, however, received huge orders from South Korea, Russia, and China. The developing Korean market gained new momentum after Jan. 1, 1995, when South Korea slashed its heavy taxes on luxury items. Although Russia and China traditionally had used furs as trimmings and accessories, relied on their own ample domestic supplies, and exported their surplus to earn hard currencies, both countries became fur importers after economic changes brought an increase in consumer disposable income and unleashed a pent-up desire for luxuries. As a result of the increased demand, prices of virtually all types of skins held steady or increased. Some, including blue fox and certain colours of ranched mink, experienced extraordinary price increases because of limited supply. By year's end, stocks were almost depleted of ranch-raised furs and wild furs. The generally higher prices encouraged ranchers to increase production and trappers to expand traplines.

      As the year ended, the international fur trade was gearing for an upheaval as a result of a ban, scheduled to take effect on Jan. 1, 1997, on imports of wild furs into the member countries of the European Union. The ban affected the skins and products of 13 animal species from countries that either permitted the use of steel leghold traps or had shown little progress in developing more humane harvesting methods. The principal countries affected were the U.S., Canada, and Russia, and the banned furs included beaver, otter, coyote, wolf, lynx, bobcat, sable, raccoon, muskrat, fisher, badger, marten, and ermine. (SANDY PARKER)

AUTOMOBILES
      In many ways, 1995 was a major disappointment for the automobile industry. The Chrysler Corp. predicted that sales in the U.S. market would top 16 million units, while Ford Motor Co. projected sales of 15.9 million and General Motors (GM) Corp. 15.6 million. In the event, the industry's high expectations were not met, and sales for the year fell 1.7% behind 1994. The so-called Big Three were not alone in their disappointment. In Mexico the collapse of the peso crippled the market. In South America, especially in Brazil and Argentina, the "tequila effect" of Mexico's crisis stalled the economy. Europe also showed surprising weakness, despite what looked like a good start to the year. Only in Japan, where sales increased about 5% from their weak levels of the year before—thanks largely to sales of multipurpose vehicles—did the industry show any sign of strength. Even so, Japanese automakers continued to run with at least 3.5 million units of overcapacity, which caused most of them to post losses.

      This poor performance forced the industry to focus on expansion in less developed countries. Ford and Chrysler announced plans to begin building cars in Vietnam. Chrysler announced that it was developing a $3,600-$6,000 minicar for developing markets. Toyota began building an assembly plant to make 20,000 Hilux trucks per year in Argentina. GM began assembling Blazers from kits in Indonesia, with plans to increase production gradually to 16,000 units annually. Ford announced plans to build small cars (the Fiesta and Escort) in conjunction with Mahindra & Mahindra Ltd. in India, and Volkswagen (VW) AG, Honda, and Hyundai announced their intentions to enter the Indian market.

      Virtually all automakers fought to get into or expand their presence in the Chinese market. For every winner, however, there was a loser. In 1994 China had announced its plans to permit three or four automakers to build large assembly operations and three or four to establish small ones. In the melee that followed, Chinese authorities proved adept at pitting one automaker against another. Mercedes-Benz landed a major contract to build minivans (the Viano), beating out Chrysler. General Motors beat out Ford to build an executive-class passenger car (the Buick Regal). Ford was not left out of the market, however, as it landed a contract to build a truck version of its Transit van in China in 1997, and Chrysler maintained a toehold with its joint-venture Beijing Jeep. In a move that could provide a backdoor entry to China, Toyota doubled its equity holding in Daihatsu to 33.4%. Daihatsu made 50,000 small cars annually in China, while Toyota had no presence there. Analysts speculated that Toyota would begin building its own car in China, using Daihatsu's operations there to gain entry to the market.

      Chinese authorities were specifically interested in selecting automakers that promised to produce large numbers of components in China and not just assemble vehicles from imported parts. They also prodded automakers to transfer their latest technology and commit to exporting their Chinese-made vehicles to other markets. Some industry observers warned that Chinese exports could undermine a world market already saddled with overcapacity.

      Automakers also learned that developing markets operated in a state of flux. The collapse of the Mexican peso, for example, caught the industry completely by surprise. Car and truck prices skyrocketed as credit dried up, and sales fell more than 75%. In Brazil import taxes doubled to 70%, which reduced the country's trade deficit but also caused Toyota to cancel plans to build a major assembly plant there. Ford and VW terminated their joint venture, called Autolatina, in Brazil and Argentina. In the late 1980s, when the two markets were closed and sales were stagnant, it made sense for both companies to pool their resources and split costs. When Brazil and Argentina opened their markets to more competition, however, the joint venture proved slow in introducing new products, which allowed GM and Fiat SpA to gain market share. It was not clear if Ford and VW would maintain AutoEuropa, their joint venture in Portugal.

      For all the clamour to get into developing markets, the U.S. proved to be an attractive place to build cars. Toyota announced that it would build a new assembly plant in Indiana to make pickup trucks, and it increased engine production in Kentucky. Peugeot SA continued to make rumblings that it would build a plant in the U.S. capable of making 200,000 vehicles annually. Adding fuel to the rumours were reports that Peugeot had begun testing its sedans, minivans, and convertibles in Chicago, California, and Texas.

      Mercedes-Benz announced studies on building a passenger car in its plant in Alabama, which would build its All Activity Vehicle. The company cited the strong value of the Deutsche Mark and rising labour costs in Germany as reasons for moving more production to the U.S. beginning in 1998. The E-class and C-class, which sold about 25,000 units annually in the U.S., were considered prime candidates.

      When Japan's currency hit 90 yen to the U.S. dollar early in the year, Japanese automakers took drastic measures to reduce their production at home and build more vehicles overseas. Toyota, Nissan, and Honda all announced plans to increase production in Europe. Toyota said that it would double its capacity in Britain, and Honda and Nissan said that they would increase production there by 50%. Meanwhile, Ford announced that it would build cars for Mazda in Europe (a Mazda version of the Fiesta) to help the Japanese company offset the strong yen without having to invest in its own manufacturing facility.

      The increasing Japanese presence in Europe was not always welcome, however. European suppliers formulated plans to force Japanese automakers to buy more parts from them. The Paris-based supplier organization known as CLEPA (Liaison Committee of the European Automotive Components and Equipment Industry) specifically issued demands for Japan to import more parts from Europe and for Japanese transplants in Europe to buy more parts from its members. In a show of solidarity, the British SMMT Components Group and Swedish Automotive Suppliers organization voiced their support for CLEPA's efforts.

      The U.S. and Japan collided once again on trade talks, with automobiles playing a major role in the negotiations. The administration of Pres. Bill Clinton threatened to impose 100% tariffs on 13 Japanese luxury cars—a move that would almost certainly have driven Lexus, Acura, and Infiniti dealers out of business. The administration demanded that Japan open its markets to more U.S. cars and parts, while the Big Three demanded more dealerships. For their part, Japanese negotiators countered that their market was already open, and they refused to accept U.S. demands to set quotas as a yardstick for measuring trade progress. A new agreement was reached, at the eleventh hour, with both sides declaring victory. Japanese negotiators trumpeted the fact that the accord did not include numerical targets, while U.S. negotiators hailed the accord as a breakthrough for their "get-tough" policies. Meanwhile, the Big Three began to take advantage of the weakening dollar by cutting the prices of the vehicles they sold in Japan. Chrysler, for example, cut the price of a Cherokee in Japan by 10% and service parts by 30%.

      At the 1995 Tokyo Motor Show, Toyota unveiled the Cavalier—a car made by GM in the U.S. to be sold by Toyota dealers in Japan. Toyota's desire to sell the car was widely regarded as an effort to reduce trade tensions. Toyota, however, said that it planned to use the Cavalier to attract Japanese buyers who preferred imported cars with bigger engines and more flamboyant styling. The move could be an important strategy. Toyota's market share in Japan had sagged to historically low levels (38%), and sales of imported cars represented the greatest growth segment in Japan.

      U.S. automakers, showing increasing willingness to use their political muscle in trade disputes, also got the Clinton administration to pry open the South Korean market, which was more closed than Japan's. South Korea shipped more than 200,000 vehicles to the U.S. during the year, while U.S. exports to Korea numbered fewer than 2,000. Meanwhile, South Korea demonstrated that its aggressive investments in new capacity were beginning to pay off. Production increased to about 2.6 million units, and South Korea surpassed Canada as the fifth largest automotive producer in the world.

      As the average price of a new vehicle in the U.S. rose to more than $20,000, the issue of affordability emerged as a major issue. The 1995 Harbour Report, an annual study that compared the manufacturing efficiency of each automaker in North America, showed that the Big Three still had ample opportunity to cut costs. If Chrysler ran at Toyota's level of manufacturing efficiency, for example, it would cut costs by $1.4 billion. Ford would save $1.7, billion and GM would save $4.1 billion. Even so, when all costs were taken into account, the Big Three had lower costs than Toyota or the other Japanese automakers.

      Ford launched its global reorganization, known as Ford 2000, with a goal of cutting costs by at least $3 billion a year. The Big Three also jointly announced a program to use common design standards for simple parts such as light bulbs, jacks, and radiator caps. By eliminating duplicate engineering and development on parts on which they did not compete, GM, Ford, and Chrysler hoped to reduce investment and achieve greater economies of scale.

      The need to cut costs even led Toyota to modify its famous lean production system. The new process chopped the traditional long assembly line into 11 smaller production lines, with only 15 to 20 workers on each subline. Similar or related tasks, such as installing all electrical wiring, were performed in each line. To compensate for the speed it took to complete the tasks in the different lines, a slight amount of inventory was allowed to accumulate between them. Though the system might not be as "lean," the buffers allowed the line to move faster.

      In Brazil, VW executive Inaki López introduced a radical new assembly process at a bus plant near Rio de Janeiro. The bus was assembled from modules that suppliers built inside the VW plant. Each module was put together in a manufacturing cell that was totally managed by the supplier. As the bus moved down the assembly line, the supplier bolted its module onto the vehicle. While a typical assembly plant employed 2,000 to 3,000 people, López said that his new system would need only 200 to 300. While this clearly would reduce costs, it was not expected to spread quickly through the industry because of resistance from labour unions.

      The growth in the used car market in the U.S. persuaded one large retailer to open franchised outlets. The retailer, called CarMax, began building outlets that offered hundreds of used cars of many brands. Each vehicle came with a 30-day warranty and a nonnegotiable price that eliminated the haggling many buyers found distasteful. Owners were also allowed to return their cars for a full refund within five days if they had not driven them more than 400 km (250 mi). CarMax caused considerable concern among new car dealers, who thought that it could steal their used car business. Automakers were also concerned that CarMax could become an outlet for new automakers trying to break into the U.S.

      Brand management became the industry's hottest buzzword in 1995. While brand management was a marketing technique that had been around for decades and had been honed to perfection by companies such as Procter & Gamble, it had not been used by mass-market automakers. When using the technique, automakers planned to emphasize each nameplate in their marketing, such as Mustang or Camaro, rather than the name of the company or division that sold the vehicle. To launch its brand management program, GM reorganized its North American operations to establish more than 30 brand managers. Not to be outdone, Ford established brand managers for every model in each country where it was sold. Ford had to face a disappointing consumer response to the redesign of its Taurus, which had been the best-selling car in the U.S.

      Chrysler faced a major issue when billionaire Kirk Kerkorian, chairman of Tracinda Corp., made a bid to buy the company. At first, because he had no line of credit and no financial backers, few people treated his effort seriously. That later changed, however, when Kerkorian hired Chrysler's former chief financial officer, Jerry York, to lead his takeover attempt. Kerkorian also enlisted former Chrysler chairman Lee Iacocca.

      Kerkorian claimed that he was out to protect stockholder interests and accused Chrysler's management of hoarding too much money for a future recession ($7.5 billion). He also berated the company's quality as below average. (Almost as if to underscore his point, Chrysler was forced into a safety recall to fix faulty rear latches on the liftgates of about 4.5 million minivans.) After conducting a detailed financial analysis of the automaker, York announced that Chrysler was hoarding at least $2.5 billion too much, a fact that caused institutional investors on Wall Street to sit up and take notice. As the year drew to a close, Kerkorian was demanding that York be given a seat on the Chrysler board.

      Kerkorian and York were not the only ones eyeing Chrysler's cash hoard. Steve Yokich, who replaced Owen Bieber as president of the United Automobile Workers, promised that the union would make sure a portion of the cash ended up in the pockets of its members when negotiations began on the 1996 contract.

      An announcement by Englehard Corp. about a system that would reduce air pollution from automobiles attracted considerable attention. Called PremAir, it consisted of a specially coated radiator that converted ozone and carbon monoxide into oxygen and carbon dioxide. The coating was made from materials similar to those used in catalytic converters and was sprayed onto the radiator. As a vehicle traveled along, it cleaned the air passing through the radiator, more than offsetting the emissions discharged through the tailpipe. Ford entered into a long-term evaluation test with Englehard to verify the system's capabilities. (JOHN MCELROY)

      This updates the article automotive industry.

BEVERAGES

Beer.
      With the ongoing success of craft brewing in 1995, Anheuser-Busch, Miller, and Coors continued their efforts to convince consumers that their products were just as good as those of their tiny competitors. For Anheuser-Busch, the world's largest beer purveyor, the effort manifested itself in American Originals, a trio of beers said to hark back to recipes from the turn of the century. Miller Brewing took on partners with pedigrees in microbrewing, inking strategic alliances with Celis Brewing of Texas and Shipyard Brewery of Maine. Miller spent much of the year, however, trying to revive the fortunes of Miller Lite, which had lost its number one ranking in light beers to Bud Light in late 1994. Coors Brewing, whose Coors Light also was a competitor, tried to carve its niche among little beers with a product dubbed Blue Moon, which was distributed by Coors but made by the much smaller F.X. Matt.

      Microbrewers themselves capitalized on the 50% rise in business of 1994. There were some 600 craft breweries operating in North America by the end of 1995, about 20 times more than a decade earlier. The most successful among them—Boston Beer, Redhook Ale Brewery, Pete's Brewing Co.—found themselves the darlings not only of drinkers but also of investors when each made public stock offerings. The fever even spread as far as the Pacific Rim, where Asia's first independent craft brewer, South China Brewing, opened in Hong Kong.

      The most significant global transaction in 1995 involved Belgium's Interbrew, which purchased Canada's John Labatt Ltd. Heineken continued to reach beyond Dutch borders, buying Interbrew Italia from Labatt's new owner and a majority stake in Zlaty Bazant of Slovakia. From the U.K. came word that Guinness would make its world-famous stout in China after having exported it there for 15 years. Leaving England was Australia's Foster's, which sold its Courage brewing unit to Scottish & Newcastle. The profits of China's Tsingtao beer unexpectedly fell 49% in the first half of 1995.

      The U.S. beer industry struggled toward year's end to mount a 1% increase over 1994 sales and volume totals. Europe, on the other hand, saw volume decreasing from that of the previous year at about a 1% rate. (GREG W. PRINCE)

      This updates the article beer.

Spirits.
      The demographics of the 20-something generation that so fascinated marketers of products during the 1990s got the attention of the distilled spirits industry as well. Conventional wisdom had it that this attractive age group might be beyond the reach of a business whose reputation was rather stodgy, but companies in the spirits industry were intent on turning that thinking around in 1995.

      Tradition got shaken up in several ways. The leading distiller Bacardi had not disturbed its basic rum recipe since its creation in 1862. In 1995, however, the company introduced Bacardi Limón, a 70-proof citrus spirit, whose flavour came from a blend of lemon, lime, and grapefruit. Bacardi called its release a matter of "being in touch with the marketplace of today's consumers." Likewise, another grand old spirit marketer, Brown-Forman, gave its product line a new treatment with the introduction of low-alcohol Tropical Freezes, the first blended freezer cocktails designed to give drinkers "an easy, convenient way to enjoy great-tasting slushy bar drinks" at home.

      Jim Beam, a proud name in the pantheon of spirits, celebrated its 200th anniversary in 1995. Eager to prove that it had not reached its bicentennial without keeping up with trends, Beam subsidiaries introduced a pair of alcoholic beverages that would have been most out of place in the late 18th century: Mad Melon Watermelon Schnapps and After Shock Liqueur. The latter promised drinkers "an initial blast of hot, fiery cinnamon followed by an icy cool sensation when you inhale." After Shock proved hot indeed, selling one million bottles after only three months on the U.S. market.

      Reaching into the past also proved popular. Mexico's most notable export was Encantado Mezcal, a spirit whose heritage dated to the 19th century, when the "cognac of Mexico" was imbibed solely by the colonial aristocracy. Mexico was also the focus of an industrywide controversy, namely a debate over what could and could not be called margaritas. Mexican officials wanted companies like E&J Gallo and Seagram to stop marketing items as margaritas if they continued to make them without tequila. In Russia a court was no more generous with its heritage, keeping Grand Metropolitan from using the Smirnoff name to sell vodka there, where the name had originated in the tsarist era.

      The U.S. spirits market continued to sag, suffering a 1.8% decline in 1994. The prospects appeared brighter in Asia, however, where the demand for liquor translated into a 50% sales increase between 1991 and 1995. (GREG W. PRINCE)

      This updates the article distilled spirit.

Wine.
 (For Leading Wine-Consuming Countries in 1994, see Graph—>.)

      The 1995 harvest reports indicated mixed results. French producers were mildly optimistic for wines of good to superior quality, with moderate yields after an extremely hot summer and a harvest troubled by early rains. Bordeaux and Burgundy producers who were able to harvest after the rains were not greatly affected. Alsace and Loire producers were able to take advantage of late summer conditions to bring their grapes to ripeness, conditions that were repeated in Germany.

      Italy, however, had an off vintage, leaving producers concerned about the size and quality of the crop or wondering whether they would be able to produce vintage wines at all. The early season experienced drought conditions, which stressed the vines, followed by high summer heat and humidity. Later, hailstorms further damaged vineyards. The Italian press tried to save the reputation of the vintage, saying that growers who had waited harvested a small crop of superior quality, but only time would tell.

      In California the early season was plagued by flooding, but this gave way to a moderate summer and a harvest later than usual, with the promise of another vintage of high-quality wines. The demand for certain varieties continued to drive grape prices upward, particularly in merlot and bulk juice.

      In sales, auctions continued their strong performance for wines of high price or limited availability, with older Bordeaux setting new price records. In London a case of 1945 Mouton-Rothschild in pristine condition brought the incredible price of $46,630. New York City showed a great increase in auction activity in 1995 owing to relaxed sales restrictions.

      Exports of wine continued to show growth on a worldwide basis as more countries sought markets beyond their borders. Wines from South America, New Zealand, Australia, and South Africa became widely available and gained acceptance for quality. Late in the year a major wine publication gave an Australian wine its top honour as wine of the year. Eastern European wines grew in distribution with a reputation for acceptable wines at moderate prices. At the same time, the so-called wine lake in Europe continued to shrink, owing in part to restrictions on production by the European Union. A surprisingly mild backlash occurred against French exports as a result of that country's nuclear tests in the Pacific. (HOWARD HERING)

      This updates the article wine.

Soft Drinks.
      The Pepsi-Cola Co. extended its reach farther beyond carbonated soft drinks in 1995 than ever before. Among the products it tested were Smooth Moos, a flavoured dairy drink; Aquafina, a bottled water; Mazagran sparkling coffee, part of a joint venture with Starbucks; Josta, a high-caffeine drink based on the South American guarana berry; and Sierra, billed as a nontraditional "ice soda." The Coca-Cola Co., meanwhile, relied more on tradition, trying to add even more to the already global recognition enjoyed by its flagship product. Just as it had adapted the original contour shape to an updated Coke bottle in 1994, the company took packaging a step farther in 1995, experimenting with a similarly curved can in Germany. The Arizona brand of iced teas and fruit drinks attempted to challenge both Coke and Pepsi by introducing carbonated drinks: three flavoured colas and a root beer in its "Cowboy Cola" line. Observers were uncertain whether Arizona would be able to find a profitable market niche in this venture, though the company felt its unique marketing strategy would make it a competitor.

      While Coke was not as quick as Pepsi to develop new products, it was not shy about buying other soft drinks, acquiring Barq's Inc., a root beer specialist based in Baton Rouge, La. The biggest acquisition in soft drinks, however, was the long-awaited transaction that saw London's Cadbury Schweppes complete its takeover of Dr Pepper/Seven-Up. The deal immediately made Cadbury a serious competitor in the U.S. for the first time. Both Coke and Pepsi tried to gain advantage outside the U.S. Coke decided that one of the best ways to build its business was through establishing "anchor bottlers," franchisees that would serve as the springboard for inundating entire regions with their product. Coke created such ventures with Panamco in Latin America and Sabco in southern Africa.

      Other companies were willing to do the same thing. Cadbury took Dr Pepper to Argentina for the first time. In the U.K. the private-label producer Cott made real inroads by supplying the concentrate for Sainsbury's Classic, the country's leading store brand, which through lower prices grabbed a 7% share of the market in just one year. Another Cott client, the Virgin Group, infiltrated Japan with its private-label offering.

      As 1995 came to a close, the U.S. soft drink market was growing in retail establishments at an annual rate of about 1.5%, while the industry as a whole was expected to increase by 2% over 1994. North America was estimated as accounting for 46% of soft drink consumption during the previous year, with Western Europe representing 31% and Asia 18%. (GREG W. PRINCE)

      This updates the article soft drink.

BUILDING AND CONSTRUCTION
      The pace of U.S. construction trailed off in 1995. Housing starts declined sharply during the first quarter before rebounding in the second and third quarters. The U.S. Department of Commerce adjusted the annual rate to 1.4 million units, the same number as in 1994. The U.S. government reported the value of all new construction as of August at an annual level of $530.4 billion, a 5% increase over the previous year's level. In nonresidential construction the overall pattern was essentially flat compared with a steady 8-9% increase during 1992-94.

      The U.S. Congress pushed for reduced federal spending, which threatened to tie up public-works funding for infrastructure. Delays in appropriations slowed plans for bridges and highways. Upgrades of water and sewer systems in Boston, Los Angeles, Miami, Fla., and Houston, Texas, worth at least $1 billion in each case, continued, but many other localities waited to see if federal legislation would rewrite environmental standards to shift financial responsibility to the states. Sports and hotel construction continued their robust trends of recent years, and the $4.2 billion Denver (Colo.) International Airport finally opened, $2.1 billion over budget and 16 months late.

      In Canada a nationwide construction strike in July dampened housing starts, but the number rebounded by 11% in August. Economists predicted 163,000 monthly starts for the year, below the average for the previous 10 years. Although tight fiscal policy restrained massive public-works start-ups, a number of innovative engineering and construction endeavours already under way continued. In Newfoundland the Can$6.2 billion Hibernia offshore oil production platform, the first concrete gravity-base structure of its type to be built in North America, continued to take shape.

      As Mexico's economy had its worst performance since 1941, private citizens deferred spending on residential construction. The government cautiously continued a privatization initiative aimed at attracting foreign investment in infrastructure projects. Japanese, British, French, and U.S. firms invested in water and sewer projects in Mexico City and other municipalities.

      With aggressive construction in most major cities, China expected private development to add 137,000 MW of new power capacity by the year 2000. Despite a reputation for imposing bureaucratic obstacles, the government was showing greater willingness to consider what were called build-operate-transfer projects. The national strategy was based on large coal-fired generating units in the north, nuclear plants along the eastern seaboard, and hydropower in the south. China and Britain also smoothed out financial agreements that allowed continued construction of the $20.9 million Hong Kong airport project, which had begun in 1991.

      The January earthquake that struck the Kobe area of Japan was expected to stimulate construction, but the overall effects proved marginal at best. After a first-quarter surge pushed residential construction up 8.6%, housing starts quickly trailed off to 1994 levels. The heady expansion of the 1980s was only a memory for most major Japanese contractors, who looked offshore for work on large projects. One impressive exception was the Tokyo International Forum, a $1,650,000,000 convention centre and theatre complex designed by the New York architect Rafael Viñoly.

      (ANDREW G. WRIGHT)

      This updates the article building construction.

CHEMICALS
      Despite the good records compiled in 1994, the world's chemical industry began 1995 with a cautious attitude, largely because of worries about the economies of the U.S. and Europe. As the year wore on, however, the industry became more confident that both output and profits would be strong. Among encouraging signs were projections of continued stability in the Middle East, relatively low oil and gas prices, and political stability in China, Indonesia, and Malaysia.

      In 1994 Europe's growth rate had generally caught up to that of the U.S., and data for the first three-quarters of 1995 showed Europe again to be roughly matching the pace of the U.S.

      The seven major European countries in the chemical industry—Germany, France, the United Kingdom, Italy, Belgium, Spain, and The Netherlands—expected to raise their output in 1995 by 4% and sales by 10%, with the U.S. anticipating about the same rates of growth. This followed a strong 1994, when the major European nations had hiked their output by 5.9% and sales by 8.7%, while the U.S. racked up a 4.2% growth in output and an 8.8% sales gain. There were indications that countries in Eastern Europe were improving production and increasing sales.

      Japan, hobbled by the high yen and a variety of internal problems, nonetheless found 1995 to be a decided improvement after a disappointing and essentially flat 1994. Elsewhere in Asia many nations—particularly Indonesia, Singapore, Malaysia, India, the Philippines, and even Vietnam—had plans for developing their domestic petrochemical strength to a point where they could export products as well as meet domestic needs. As an engineering company executive reflected, "Asia in 1995 is involved in 40 percent of the world's expansion contracts in petrochemicals, while it made up just 25 percent two years ago."

      Germany's BASF AG planned to make major investments in Southeast Asia in the next 15 years, expecting the area to grow at double the rate of the worldwide chemical market. Within a short time, according to an international market consultant, Asia would represent almost 25% of the world's petrochemical capacity. Further, it was predicted that Asia would be the largest producing and consuming area of the world, although Japan would lose its dominance there. Even China, despite its unresolved leadership problems, its lack of capital, and its poor roads, rails, power, and transport, had posted a 15.8% rise in the value of its chemical output in 1994.

      Because the chemical industry was increasingly becoming global, the importance of chemical producers in areas of low-cost hydrocarbons continued to grow. Sold the best technology by international engineering firms, nations in the Middle East such as Saudi Arabia and Kuwait (and, potentially, Iran) often were able to offer commodity chemicals at lower prices than established makers in the U.S. and Europe.

      The chemical industry encompassed a wide range of products, however, not just a handful of high-volume commodities, and for that reason both the U.S. and Europe continued to have powerful import and export markets worldwide. In 1994 the nations of the European Union, for example, built the value of their exports to $204 billion, 15% more than in 1993, and their imports rose to $163 billion. In the same year, the U.S. expanded its export market to $52 billion, while its imports were $33 billion. Midyear data supplied by the Chemical Manufacturers Association of the U.S. showed that by mid-1995 the U.S. chemical industry had exports of $30.5 billion and imports of $20.3 billion, increases of roughly 15% in both categories.

      Nonetheless, the chemical industry was continuing to become important in other regions of the world. In Central and South America, for example, the prospect of increasing the number of participants in the North American Free Trade Agreement (NAFTA) was encouraging countries such as Argentina and Chile to expand their industries. Only Brazil, however, had a substantial chemical industry, including such basic facilities as large ethylene crackers that could compete with those in the U.S. and elsewhere in the Western world.

      In this climate of growth, several important technological changes had taken place. Perhaps the most significant were two developments affecting the production of polyethylene, the most common plastic. A new method of altering processing conditions (called "super condensing") had the potential for almost doubling the capacity of gas-phase production plants (as most in the industry were). The other innovation, which applied to polyethylene, polypropylene, polystyrene, and some other lower-volume polymers, involved new catalysts. The so-called single-site, or metallocene, catalysts, which had been expanding their commercial base from specialty grades into commodity-grade materials, were the centre of growing interest among companies. These catalysts had the advantage of allowing producers to tailor products to meet highly specific needs. This development could lead to the manufacture of better plastics, since the lower-cost polyethylenes and polypropylenes, for example, might be able to compete against other, more expensive and complex specialty plastics.

      One of the characteristics of the chemical industry was that, as it increased the productivity of its plants, used more advanced equipment, and pushed its profits to new highs, its need for personnel declined. The total employment of major chemical companies was down 41% from that of a decade before. (J. ROBERT WARREN)

      This updates the article chemical industry.

ELECTRICAL
      The significant rises in raw material prices that began in 1994 continued to hit the electrical manufacturing industry in 1995. Copper, the industry's most important raw material, cost 60% more in January 1995 than 12 months earlier; aluminium almost doubled its 1993 price; and polyvinyl chloride, a major insulating material, reached twice its mid-1991 price.

      Manufacturers were forced to absorb the bulk of these price hikes because intense competition kept output prices low. Heinrich von Pierer, president and chief executive officer (CEO) of Siemens, the world's largest multinational electrical manufacturer, blamed rapid globalization of the market. He noted that the cost of skilled labour in Germany was very high at DM 44 per hour, while in the neighbouring Czech Republic the cost was DM 5 per hour. Wages were even lower in Southeast Asia, Pierer said, and the competitiveness of that region was enhanced by innovation and regular replacement of old plants with new equipment.

      Innovation was the single most important key to success, Pierer claimed, and he pointed to Siemens' sales history: in 1980 barely half of the company's worldwide sales were of products that had been developed less than five years previously, and in 1995 the figure was two-thirds.

      Siemens and another large company, ABB Asea Brown Boveri Ltd. (ABB), continued to spend a large proportion of their revenues on research and development (R and D). ABB had 17,000 scientists and engineers employed in R and D and in 1994 spent about 8% of revenue, approximately $2.4 billion. Siemens spent around 8.5% of its revenue, about $5,280,000,000. In contrast, R and D spending by General Electric (GE) fell by 11% in 1994 to $1,741,000,000.

      Competition and technological changes continued to reduce employment in the industry. GE, for example, which had been downsizing to become more globally competitive, announced on Jan. 1, 1995, that the total number of employees was 221,000, a net loss of 77,000 over five years. At Westinghouse jobs declined 18% in 1994.

      Employment in the electrical industry had been subject to a geographic shift as well. ABB reported that personnel costs had been reduced from 34% of total sales in 1991 to 30% in 1994, a result of a 6% improvement in productivity and a shift in production to low-wage countries in Asia and Central and Eastern Europe. ABB's total number of employees on Jan. 1, 1995, was 207,557.

      Another employment trend that had recently hit the industry was the decrease in full-time positions. Siemens reported phasing out 21,000 full-time jobs from its worldwide workforce in 1994 while increasing part-time employees by the same number. Siemens' total workforce was 382,000 on Sept. 30, 1994.

      Both ABB and GE reported an increase of 7.5% in the sale of power-generation, transmission, and distribution plants during 1994. Total sales at Siemens fell by 9.9%, which reflected the exceptionally high activity of the previous year and signaled the end of the boom generated by Germany's reunification. Sales in Westinghouse's energy systems sector (mainly nuclear) fell by 6%, and its power-generation-sector sales dropped by 4% in 1994.

      Overall, the worldwide electrical market expanded by around 7% in 1994. While demand rose by about 14% in North and South America and Southeast Asia in 1995, sales in Europe rose by a more modest 3%. ABB predicted that more than half the world's investments in electrical power generation over the next 10 years would be made in Asia.

      Significant innovation in power generation, following the recent trend toward the small combined-cycle gas-fired power plant, came from a small Californian company, Exergy, which developed a technique, the Kalina Cycle, that used a mixture of working fluids with different boiling points. This was said to boost efficiency by up to 40%. GE already had a license to use the technology in combined-cycle plants, and Ansaldo Energia of Italy planned to use it in geothermal plants. ABB and a Japanese power utility, Ebara, agreed to collaborate with Exergy to develop the cycle for use in direct-fired plants.

      Siemens predicted that output prices were likely to fall farther in the immediate future and, although sales would rise, pressure on employment would continue. Percy Barnevik, president and CEO of ABB, agreed that low-wage countries would remain very competitive for a long time and was looking to new markets stimulated by the economic reemergence of South Africa.

      (T.C.J. COGLE)

      This updates the article energy conversion.

ENERGY

Petroleum.
      A continuing surge in oil production from outside OPEC was the dominant feature of world oil markets in 1995. Much of the growth in non-OPEC supplies came from offshore fields in the Norwegian and British sectors of the North Sea. There was, however, a worldwide trend toward greater production from many existing oil-producing countries, as well as new supplies from countries not normally thought of as oil producers. The increase in non-OPEC output was such that the organization was forced to maintain the production ceiling of 24,520,000 bbl a day it had imposed on its members in September 1993. Total world oil production in 1995 was about 70 million bbl a day.

      The rise in oil production during 1995 could be explained by a number of factors, with technological progress foremost among them. New seismic techniques offered geologists a three-dimensional view of oil fields, which in turn gave them greater confidence about where to drill new wells. Advanced drilling techniques enabled much more oil to be recovered from reservoirs. Recovery rates had jumped from about 25% or so 10 years earlier to more than 50% in some cases. Some industry executives believed recovery rates might eventually reach 70% or so as new ways were found to enhance oil production in both older and new fields. Rising recovery rates and the lower cost of technology also enabled oil companies to tap smaller fields. This was one of the main reasons for the growth in output from the North Sea, Western Europe's largest oil-producing area.

      The impact of such developments could be seen in the U.S., where a rapid decline in oil production in the 1990s had been predicted. Oil output had fallen at a rate of 2-3% for some years, with the Department of Energy estimating 1995 production at 6,520,000 bbl a day, compared with peak production of about 9 million bbl 10 years earlier. The government predicted that production could fall to 5,350,000 bbl a day by the year 2000, although industry experts expected that technological progress would substantially slow the rate of decline in key fields, such as those located on Alaska's North Slope. In addition, new fields in the deep water of the U.S. sector of the Gulf of Mexico had proved particularly prolific, a development that could slow the decline in what was the biggest producing area in the continental U.S.

      Another trend during the year was the change in attitude of many governments toward the international oil industry. Countries that had previously been closed to the industry because of the Cold War, or that had nationalized Western oil interests in the 1970s and 1980s, welcomed new foreign involvement in their oil industries. Competition to attract international investment was fierce, and many countries relaxed tax laws and introduced liberal regulatory regimes to encourage exploration and production. Success at attracting foreign investment was not universal, however. New legislation in Russia that would allow a number of large Western-sponsored projects to proceed became bogged down in bitter debates in the parliament. Other former Soviet republics, such as Azerbaijan, were more successful in encouraging new investment. An $8 billion project to develop three offshore oil fields in the Caspian Sea passed a major milestone in October when the companies and the countries involved agreed on the export routes for the initial oil from the area to Western markets. During the year other big international oil companies moved into the Caspian region, and some industry executives predicted that it could rival the Persian Gulf within the next 20 years or so.

      The liberalizing trend extended to OPEC countries, many of which were finding it hard to balance the need to fund additional investment in their oil industries with other demands for state revenues. Venezuela, for example, a founding member of OPEC, signed agreements with Western producers to develop existing fields and explore for new ones. Many smaller OPEC producers entered into similar deals, although Saudi Arabia, OPEC's dominant member, showed no sign of allowing international oil companies to operate there other than as technical advisers to Saudi Aramco, the state oil giant.

      During the year Iraq announced that it would rely on international oil companies to help rehabilitate its industry once UN sanctions had been removed. Agreements in principle were reached with French and Russian oil companies to develop existing oil fields. Iraqi oil exports had been banned since Pres. Saddam Hussein invaded Kuwait in 1990. The UN said that it would allow Iraq to export $1 billion worth of oil every three months to fund purchases of food and other humanitarian supplies, but the government refused to accept the conditions attached to the offer. The oil embargo was due to be lifted fully when the UN determined that the Iraqi government was in complete compliance with demands that it dismantle all capability to manufacture weapons of mass destruction.

      Oil also figured in other foreign policy moves during the year. In May U.S. Pres. Bill Clinton ordered Conoco, the oil subsidiary of E.I. du Pont de Nemours & Co., to abandon plans to invest in an offshore oil and gas field in Iran, which the U.S. government said was guilty of supporting terrorism in the Middle East. Clinton later banned U.S. companies from buying Iranian crude oil, although his appeal for broader international support for the embargo was largely ignored. There were also moves late in the year to organize an oil embargo against Nigeria, Africa's largest oil producer, after the military government executed nine minority rights activists from Ogoniland, one of the centres of Nigeria's onshore oil industry. Initial attempts to impose a full oil embargo did not appear to have international support, however.

      Oil prices remained within a narrow range, with the price for the benchmark Brent Blend trading between $16 and $18.50 a barrel for much of the year. Such prices were seen as soft by many in the industry, but they did not prevent large international companies from reporting strong growths in profits during the year. Most U.S. and European companies had gone through large-scale corporate restructurings in which tens of thousands of jobs and millions of dollars in costs and overhead had been eliminated.

      Environmental issues continued to pose problems for the industry. In June the Royal Dutch/Shell Group found itself at the centre of a bitter controversy over its plan to dump Brent Spar, an obsolete oil-storage installation, in deep water off the Atlantic coast of Britain. (See ENVIRONMENT: Sidebar (Brent Spar ).) The environmental group Greenpeace led a successful campaign against the dumping. Greenpeace activists occupied the installation as it was being towed out to sea, while violent attacks were launched by environmental extremists against Shell stations in Germany and elsewhere in Europe. Shell's decision to abandon the sinking defused the confrontation, but the issue of how to dispose of oil platforms located in deep water was likely to remain controversial.

      (ROBERT CORZINE)

      This updates the article energy conversion.

Natural Gas.
      Demand for natural gas outside the former Soviet Union continued to grow strongly in 1995. The increasing use of gas for power generation was one reason behind a surge in consumption in North America, which accounted for a third of total world demand. U.S. consumption rose by 3.9% in 1995, according to the American Gas Association. Asia, however, remained the fastest-growing market, with much of the supply being in the form of liquefied natural gas.

      Trade in liquefied natural gas continued to be buoyant in spite of the relatively high prices needed to justify the liquefaction process. In 1994 world trade in liquefied natural gas increased by 5%, although demand grew by 11% in the Asia-Pacific region. Proposals were made, however, for new long-distance pipelines that might eventually link the vast gas reserves in the Middle East and central Asia to the fast-growing markets in South and Southeast Asia. (ROBERT CORZINE)

      This updates the article energy conversion.

Coal.
      World hard coal production in 1995 was estimated to be about 3.7 billion metric tons, about 200 million tons higher than in 1994. It was estimated that production would grow to nearly four billion tons by 2010. The reversal of coal's fortunes with the transition from a buyer's to a seller's market was maintained through 1995.

      The U.S. was expecting record production of 1,033,100,000 short tons (1 short ton = 0.9 metric ton) and an increase in coal exports to 77 million tons from 72 million tons in 1994. Output also continued to increase in other major producers, including China (1.2 billion tons raw coal) and India (240 million tons). South Africa produced more than 235 million tons in 1995, with exports at about 60 million tons. Australia remained the world's largest coal exporter, with 137 million tons exported in 1994-95. Production in the European Union and in Eastern Europe (with the exception of Poland) continued to fall.

      (ROBERT J.M. WYLLIE)

Nuclear.
      Statistical data released by the International Atomic Energy Agency in 1995 indicated that at the beginning of 1994 there were a total of 432 units operating in nuclear power stations in 31 countries, with a total capacity of 340,347 MW. There were 48 units under construction in 15 countries, 4 of which were connected to grids for the first time during the year. No new reactor construction was started during 1994. The total number of reactors shut down throughout the world increased to 70. Worldwide, nuclear power units had a total net production of 26,054.1 TWh (terawatt-hours; 1 terawatt-hour = 1 billion kilowatt-hours).

      Lithuania continued to be the country most heavily dependent on nuclear power, with 76.4% of its production of electricity coming from the two nuclear units at Ignalina (2,370 MW net). Nonetheless, the government announced the start of a decommissioning program and set 2010 as the target for completing the closure of the station. France had a 76.3% stake in nuclear power amounting to 58,493 MW from 56 units, followed by Belgium (55.8%) and Sweden (51.1%).

      Slovakia decided to finance continued work and guarantee existing loans on the four-unit Mochovce station. Discussions with the European Bank for Reconstruction and Development ended because of the bank's condition that Slovakia close two pressurized-water reactor (PWR) units at Bohunice. The units were of an earlier Soviet design and were widely considered by Western engineers to be unsafe. (Ukraine agreed in late December to close the plant at Chernobyl.) China's negotiations with Russia over the building of two 1,000-MW reactors in Liaoning province reached the concluding stages, and China ordered two 985-MW PWR units from Framatome of France to be built at Lin-ao. China also signed a memorandum of understanding with Atomic Energy of Canada Ltd. for the construction of two 700-MW Candu-type reactors and began building its own high-temperature reactor.

      Japan's 280-MW fast breeder reactor at Monju began producing electricity during commissioning tests, but it was not due to produce full power until 1996. A water leak at the Onagawa reactor led to a shutdown of operations in December. Meanwhile, in France further problems at the 1,200-MW Creys-Malville fast breeder reactor, Superphénix, kept the plant shut down for more than half the year. Prolonged delays over the Tennessee Valley Authority's construction at Watts Bar, Tenn., and Bellefonte, Ala., ended with the announcement that the three units would not be completed. The two Bellefonte units could, however, be completed after conversion to another fuel, probably natural gas.

      In Germany Siemens decided to close its fuel fabrication plant at Hanau in Lower Saxony and move the operation to its plant in Richland, Wash. The company blamed the closure on excessively strict licensing requirements. PreussenElektra decided to decommission the Würgassen station, where the GE-designed 640-MW boiling-water reactor had a troubled history.

      Changes in Germany's policies on irradiated fuel reprocessing, allowing direct storage of spent fuel, resulted in cancellation of contracts with British Nuclear Fuels Ltd. (BNFL). Cancellation penalties with four German stations protected their contracts. The loss of business for the controversial new British reprocessing plant spurred sales efforts by the company to win contracts in the growing Asian markets. A long-awaited deal between BNFL and Nuclear Electric was signed, however, giving BNFL long-term contracts worth $20 billion. Final plans for the privatization of Britain's nuclear industry were announced. The two existing state-owned companies, Nuclear Electric and Scottish Nuclear, would be privatized subsidiaries of a holding company, whose headquarters would be in Scotland. The new company would take over the 14 advanced gas-cooled reactors and the newly commissioned Sizewell B PWR, while a new government company would take responsibility for the Magnox stations. (RICHARD A. KNOX)

      This updates the article energy conversion.

Alternative Energy.
      It was predicted in 1995 that the increasing economic competitiveness of energy sources such as solar, biomass, wind, geothermal, and tidal barrages would not be dependent on technological breakthroughs. Within 20 years, it was thought, some alternative energy sources should reach competitive parity with oil priced at $15 a barrel. Limited market demand and the economics of production continued to restrict the large-scale development of alternative sources in 1995, however.

      Commercial applications of alternative energy generally remained confined to remote locations or areas in which it had a distinct competitive advantage, as in solar-powered heating or the generation of electricity in sunny climates. Even the international oil industry, however, began to use alternative energy to bring down operating costs. The U.S. oil company Amoco, for example, began installing wind-powered electrical generators on offshore natural gas platforms in the North Sea. There also was growing interest in combining alternative energy sources with more conventional methods of power generation. In the U.S. there was interest in using the high-quality gas produced at urban landfills, and natural gas companies were looking into ways in which biomass gathered from land or aquatic plant material could be processed to produce gas energy. (ROBERT CORZINE)

      See also Dams (Architecture and Civil Engineering ); Urban Mass Transit (Transportation ).

      This updates the articles energy conversion; petroleum.

GAMES AND TOYS
      There was no doubt that 1995 would go down in history as the year the Mighty Morphin Power Rangers refused to lie down and die. It would also be remembered as the year the toy industry tied the knot with the wider world of children's entertainment. Television and movies dominated the toy scene, and the industry's major manufacturers rushed to forge strategic alliances and partnerships with the so-called content providers, those companies responsible for creating the shows that continued to enthrall children the world over.

      Sky Dancer flying fairies and the toys introduced in the film Toy Story, notably the action figures of Woody, the cowboy, and Buzz Lightyear, the spaceman, were runaway hits. The Power Rangers were supposed to have bowed out gracefully in 1995. Buoyed by a hit movie, however, they hung on to record yet another year of tremendous sales the world over.

      In their bid to knock Bandai Co.'s Power Rangers off their lofty pedestal, two toy companies announced that they were going into show biz. The first, Hasbro, Inc., forged a strategic partnership with DreamWorks SKG, the new entertainment studio created by Steven Spielberg, Jeffrey Katzenberg (see BIOGRAPHIES (Katzenberg, Jeffrey )), and David Geffen. Although the deal would not produce any toy products until at least 1997, few people were willing to bet against the fledgling studio's coming up with the entertainment and Hasbro's reaping the game and toy rewards. In the second deal a resurgent Lewis Galoob Toys, Inc., profitable again because of the hit girls concept Sky Dancers, announced that it had first option to market toys based on Fox Entertainment properties, beginning with a forthcoming television sci-fi series called "Space: Above and Beyond" and a full-length animated movie titled Anastasia.

      Elsewhere in the U.S., Star Wars again hit the headlines. Hasbro's line of action figures and vehicles based on the famous trilogy of movies—remastered and rereleased on video during the year—raced out of stores as the year came to an end, and Lewis Galoob produced Star Wars miniature figures and vehicles under its successful Micro Machines brand. The race was now on between the two companies to land the master toy license for the eagerly awaited trilogy of new Star Wars movies to be made by George Lucas back-to-back in 1997 and set for release one every 12 months until the year 2000.

      It was another movie that kept the Mattel Inc. show on the road in 1995. With Barbie sales still growing rapidly all over the world and the preschool Fisher-Price brand producing real results since its acquisition in 1993, Mattel confirmed its position as the world's largest toy maker and was able to sit back and bask in the reflected glory of the Disney movie Pocahontas, for which it was master toy licensee, producing dolls and action figures based on the Native American princess.

      Saban Entertainment, producers of the Power Rangers programming, failed to emulate the success of its first major toy venture with the disappointing VR Troopers but ended the year with another new spin-off series called the Masked Rider. Again, Bandai was the master toy licensee. Other key licenses for the year included Batman, flying high on the back of the third and, in terms of toys, best movie to date; Spider Man, which made a triumphant return to television animation; and even Barbie, which got in on the act with a doll based on the television series "Baywatch," which proved to be even more successful in Europe than in the U.S.

      In retailing, Toys "R" Us still led the way around the world but faced stiff competition in Europe and in the U.S., where Wal-Mart Stores, Inc., increased its market share. Taking the attack to its competitors, Toys "R" Us announced details of plans to open a new chain of Babies "R" Us stores and a new megastore concept, the latter designed as the ultimate children's shop.

      Toys "R" Us also learned a valuable lesson in Europe when it took on shop employees unions in Sweden and found itself on the receiving end of a boycott by staff members who refused to participate in collective bargaining. Although finally resolved satisfactorily, the dispute did little to engender a warm feeling toward the U.S.-based multinational toy giant.

      Computer games came back with a vengeance in 1995 after a lean 18-month period. PC-based products got a firm grip in households the world over, and Sega Enterprises launched its Saturn system and Sony its PlayStation platform. Nintendo Co. was to join the fray with its next-generation machine, the Ultra 64, in 1996.

      The jury was still out on the likely impact of new computer games on traditional playthings. Market analysts would be brave indeed, however, if they were to predict the demise of traditional toys after having witnessed the phenomenal sales that powerful concepts like Cabbage Patch Kids, Teenage Mutant Ninja Turtles, and Mighty Morphin Power Rangers had recorded over the years. (JONATHAN M. SALISBURY)

GEMSTONES
      Though the recession was beginning to lift in Europe and the U.S. by early 1995, the jewelry trade showed little increase in revenues and profits. Activity levels remained brisk in the salesroom, however.

      De Beers Consolidated Mines Ltd., the South African concern controlling approximately 80% of the world trade in uncut diamonds, faced twin threats to its long domination of that market. In Angola maverick operators smuggled uncut stones out of the northern provinces and took advantage of a fragile cease-fire that had left the fate of diamond mining uncertain. In Russia a large number of diamonds were mined in the Sakha (Yakutia) area and sold through a centralized Russian organization. Though De Beers contracted in both instances to buy and market most of the stones, the firm feared that this uncontrolled production along with major alterations in the existing system of price maintenance could seriously affect the world diamond trade.

      Vietnam continued to produce good-quality rubies and blue sapphires; Thailand exported some $300 million in rubies, almost all smuggled from Vietnam via Cambodia or Laos; and Myanmar (Burma) introduced high-quality rubies from its newly opened Mong Hsu mine. Pakistan and Tanzania both produced fine green peridot, while the latter also offered good-quality rubies from the Morogoro area and zircons in a variety of unusual colours.

      A "diamond rush" in Canada lost impetus in August 1994 when RTZ/Kennecott indicated that the quality of diamonds in the Lac de Gras area of the Northwest Territories would be low-grade. Investors on the Canadian markets lost an estimated Can$500 million. In March 1995 De Beers abandoned exploration in Lac de Gras.

      Top salesroom news included $16,548,750 paid for the 100.10-carat Star of the Season, the largest D-colour (top-colour), internally flawless pear-shaped diamond ever to be sold at auction; £ 4.7 million for a 19.66-carat pink diamond, a new record for that colour stone; £4 million for a 19.2-carat blue diamond; Sw F 1,131,000 for a 10.37-carat fancy heart-shaped intense yellow diamond; and Sw F 1,323,500 for a 12.34-carat cushion-shaped ruby from Myanmar.

      Jewelry regulators remained undecided about a disclosure policy regarding gems that underwent an artificial colour-enhancement treatment. (MICHAEL O'DONOGHUE)

HOME FURNISHINGS

Furniture.
      If a single piece of furniture could serve as a symbol for an entire year, the 1995 furniture industry could be visualized in the Coda, an origami chair designed by Dakota Jackson for Lane. Jackson chose the name because coda is the musical term for a concluding section of a piece that serves to summarize what has gone before. The Coda chair, created by folding paper, demonstrated innovative technology and styling that looked forward to the 21st century.

      Similarly, the industry as a whole embraced new technology and focused on the future. The major new design trends were strong colour instead of natural and neutral shades (exemplified by Craftique's painted mahogany and vivid upholstery from Preview, Directional, and Stanley) and "contemporized" traditional rather than the long-popular country and Americana (Lexington's Arnold Palmer Home Collection, Bassett's Bermuda Run, Drexel Heritage's Bel-Aire, and a most important group, Baker's Archetype Collection).

      Computer capabilities were applied to advancing the industry instead of being used solely as a tool within the industry; Lexington produced the first CD-ROM press kit, and for the first time, a handful of retailers (Furnitureland South, Hickory, Furniture Mart) and manufacturers (Lexington, Hickory Chair, and Bernhardt, among others) established World Wide Web on-line services. The year also saw the first-ever technological conference, which focused on new strategies for the 21st century.

      Another novel development was that major manufacturers were divesting instead of consolidating (LADD and Masco), and major retailers were buying and expanding (Heilig-Meyers, Haverty's, Rhodes). Case goods manufacturers expanded their lines by adding upholstery (Millennium and Stickley). AKTRIN, a furniture research company, foresaw continuing movement toward globalization and growth of ready-to-assemble furniture.

      The American Furniture Manufacturers Association reported that economic indicators rose for the fourth year in a row. The trade group projected at the end of the third quarter of 1995 that revenues would reach $19,693,000,000, an increase of 3.4%. Exports were up by 8%. Business was soft, however, and there was much discussion about the decreasing margin of profit in light of discounting practices and speculation that this would be standard operating procedure for the future.

      Furniture/Today's surveys of top manufacturers and stores showed no repositioning. Levitz ($1,036,000,000 in revenues) was still in the number one spot, followed by the burgeoning Heilig-Meyers ($697.2 million), with over 600 stores, Pier 1 Imports ($442.5 million), and Art Van ($385 million). Its survey of top manufacturers placed Masco ($1,945,000,000) first, with a 14.5% increase, followed by Broyhill/Lane ($1,072,700,000) and La-Z-Boy ($856.9 million).

      Home-office and home-theatre furniture represented a growing share of the market; an environmentally conscious new material, water hyacinth, was introduced (Bernhardt and Hickory Chair); and a relatively new industry showcase in Tupelo, Miss., garnered attention. The four inductees into the Furniture Hall of Fame were Charles Tomlinson, Patrick Norton, Hyman Meyers, and Harold Braun. (ABBY CHAPPLE)

      This updates the article furniture industry.

Housewares.
      In 1995 U.S. consumers spent more than $50 billion on housewares such as furnishings, appliances, kitchenware, storage and cleaning items, and personal-care products. As incomes declined, however, shoppers also made a point of looking for value; one-third of houseware purchases were made in discount stores. Consumers were willing to pay for cooking products that would last longer, especially those made of commercial-grade stainless steel and those having premium nonstick surfacing. Products that were designed for durability and space efficiency and served an "essential" purpose had the highest appeal, though such specialty items as bread makers, which evoked a sense of nostalgia, made a strong showing.

      Though high-tech styling still had appeal, buyers were looking for dual-purpose and multifaceted products. The 46 million Americans who worked full- or part-time at home (the self-employed, moonlighters, and telecommuters) found a need for such desktop items as electric pencil sharpeners, calculators, and telephone answering machines. And, though the overall home consumption of coffee was declining, some 32 million adults at home were drinking more than five cups per day, spurring the market for specialty coffee products. Interest in cooking sparked sales of rotisserie grills and pressure cookers, while avid gardeners caused sales to blossom for seed-storage bins and ergonomically designed garden tools. Closet organization systems and space maximizers, including boxes, crates, and shelf dividers, remained popular. (KIRA GOULD)

INSURANCE
      Sharp price and product competition characterized the private insurance world in 1995, enhanced by company consolidations and restructurings to reduce expenses. Catastrophes of many kinds tested the loss-paying abilities of insurers, from devastating earthquakes in Japan and Mexico to an unusually large number of hurricanes in the Americas. The Caribbean islands were badly hit, and Hurricane Opal, with insured losses exceeding $2 billion, became the third worst windstorm loss in U.S. history. Only Hurricane Hugo, at $4 billion in 1989, and Hurricane Andrew, at $15 billion in 1992, were larger. The most severe flood losses ever occurred in California.

      First-half results for U.S. property-liability insurers were quite favourable, with net income up 270%, surpluses up 17% (with large realized capital gains), and net underwriting losses down 39%. Catastrophes for the first nine months were costly, a record 29 totaling $5.7 billion in insured losses. After several decades of spiraling losses in workers' compensation, state reforms lowered costs by 5%.

      Universal life insurance premiums in the U.S. for the first half of 1995 gained 18% over the same period in 1994, while variable life premiums were down an equal percentage. AIDS deaths curtailed improvements in longevity, but the $5 billion in AIDS-related life insurance claims paid up to 1995 were much less than earlier predictions, and health claims dropped to $450 million. For the first time in many years, general health care costs rose less than inflation.

      The number one insurance issue noted in a survey by the Society of Insurance Research was the debate over banks in insurance. The issue continued to cause rifts between both businesses, and federal legislation proposed a five-year moratorium on actions by the comptroller of the currency. Banks in several states, including Florida and Connecticut, gained the right to sell annuities. New automated underwriting systems using credit-risk evaluations were gaining favour. Insurance companies led 10 industry groups surveyed in their use of telecommuting with personal computers and modems. At the same time, high-technology thieves were costing insurers $8 billion a year. Environmental-impairment liability insurance rates were down 5-20%, and the expanding market offered wider coverage options.

      Term life insurance rates sank to all-time lows. Better information for policyholders was the aim of a new questionnaire recommended by Chartered Life Underwriters to determine whether existing policies should be canceled. Life insurers moved substantial surpluses to fund requirements for new "asset valuation reserves." In the U.K. telephone marketing of motor and household insurance increased competition. Some 25 companies, including subsidiaries of all the principal groups, were doing such business. The market leader, Direct Line, owned by the Bank of Scotland, was highly profitable.

      Mergers continued at a record pace for insurers around the world. In the U.S. consolidations under way or completed included Metropolitan and New England Life, Massachusetts and Connecticut Mutual Life, Jefferson-Pilot and Alexander Hamilton Life, Manulife and North American Life, Phoenix Home Life and Duff and Phelps, CNA and Continental Insurance, Kemper and Zurich, Humana and Emphesys, and MetraHealth and United Health Care. A new insurer, Prudential Select Life, began to sell level-commission life insurance contracts. Risk Capital Holdings, a new reinsurer, traded publicly after raising $240 million. Two large reinsurers, General Re and Employers Reinsurance, bought German reinsurers. Cigna boosted its asbestos and environmental liability reserves by $1.2 billion following sizable increases by other companies, including Aetna Life and Casualty, Fireman's Fund, and Swiss Re America.

      Lloyd's of London showed improving results in 1995, but turbulence continued. As the number of individual underwriting members and syndicates fell amid the market restructuring, corporate risk takers provided 23% of the coverage. Bermuda's international market readied for a renewed boom with a new premier and a vote rejecting independence.

      In the U.S. bitter debates raged over how to contain the burgeoning costs of Medicare. Related issues included the projected savings of managed-care plans, cuts in benefits, medical malpractice liability limits, and tax changes. Extension beyond year-end of Superfund financing for environmental cleanup was also a major controversy involving insurers, centring on who should pay for future and retroactive costs. Life insurers rallied to oppose legislation that would have taken away the tax deductibility of interest on loans for company-owned policies. Insurance commissioners in various states weighed legislative action to alleviate problems such as new limits in California earthquake insurance, overwhelming growth in the Florida windstorm market, and insurance fraud. Tort reform bills made slow progress in some states, restricting claims for noneconomic, punitive, and product liability awards. The bills were attacked as limiting the right of injured consumers to redress.

      Elsewhere, regulations aimed to protect insurance policyholders by promoting reasonable competition. The U.K., for example, sought to control growing national health service deficits by encouraging private insurance, which 11% of the population already had for medical and hospital expenses. (DAVID L. BICKELHAUPT)

      This updates the article insurance.

MACHINERY AND MACHINE TOOLS
      The world's leading producer of machine tools in 1994, the last year for which figures were available, was Japan, with a total output worth $6.7 billion, followed by Germany with $5.3 billion. The United States, at $3.7 billion, was third in total value. Italy was estimated to have built machine tools worth $2.3 billion, while the countries of Switzerland, China, Taiwan, and the United Kingdom were each reported to have produced machines worth a total in excess of $1 billion.

      Of Japan's $6.7 billion machine-tool production in 1994, $5.4 billion was in metal-cutting machines and $1.3 billion was in metal-forming machines. Japan exported metal-cutting machines worth $3.2 billion and metal-forming machines worth $1.1 billion. Consumption by Japan (the value of machines installed in Japanese factories) totaled $2.7 billion in 1994.

      Of the U.S. total of $3.7 billion in 1994, $2.4 billion, or approximately 65%, was accounted for by metal-cutting machines, and the rest, $1.3 billion, was attributed to machines used for metal forming. During the year the United States imported machine tools valued at $2.6 billion and exported machines worth $1.1 billion. The value of machine tools installed in U.S. factories in 1994 was $5.2 billion, a record high for installations by U.S. manufacturers. Imported machine tools accounted for 50% of the installations, which was also a historical high.

      In 1994 the principal export markets for U.S.-built machine tools were Canada, China, and Mexico, with the United Kingdom, South Korea, Germany, and Japan also being important buyers. Exports to Canada more than doubled from a year earlier, to $380 million. Imports to the U.S. in 1994 were mainly from Japan, which sold three times as much in the United States as did second-place Germany. In third place was Switzerland, followed by Taiwan.

      (JOHN B. DEAM)

MATERIALS AND METALS

Glass.
      Worldwide economic recession in 1993 and 1994 meant continuing difficult times for the glass industry overall in 1995. Slight growth was evident from the second half of 1994. While production capacity exceeded demand, price levels continued to be depressed, although less severely than in 1993. Currency fluctuations and inexpensive imports adversely influenced price levels and profitability in Europe. Although many could point to strong growth areas in 1994, most believed that the market in 1995 would show little, if any, change. In addition, the price of raw materials in 1995 was expected to increase, creating an inflationary situation within the industry.

      Manufacturers of expensive crystal glassware were in recession much earlier and to a far greater extent than producers of low-priced noncrystal glassware. This sector was also the slowest to show signs of recovery. In the domestic sector this was partly because the Western world succumbed to cheap imports, particularly from the Far East and Eastern Europe.

      Glass container production in Europe rose by 6% in 1994 (from a 2.4% decline in 1993). In response to the substantial overcapacity in Europe that had affected this sector in 1992, manufacturers took the steps necessary (closure of lines and even the shutdown of furnaces) to achieve a better balance between supply and demand. These efforts started to bear fruit in 1993, the overcapacity and stock situation having improved, but results were unsatisfactory overall. The situation improved in 1994, however, reflecting the sector's recovery. European production in 1994 stood at almost 25 million metric tons, and the industry employed over 208,000 workers.

      Legislative matters continued to dominate in Europe, and in December 1994 the Directive on Packaging and Packaging Waste was finally adopted in the U.K. Among its many provisions, the directive called for packaging-recovery targets of 50-60% by June 2001; packaging-recycling targets of 25-45%, with a minimum of 15% for each packaging material, by 2001; concentration limits set for heavy metals in packaging and their release into the environment from incinerator emissions or from leaching in landfill from waste glass; and provision for a committee to decide on the identification and marking of packaging.

      In the flat-glass sector, world demand was expected to increase annually by 5% until 1998. The key to this growth would be healthy expansion in the major end-use industries of construction and motor vehicles. The flat-glass market also benefited from demand created by an array of new products, such as solar control glass. Flat-glass demand remained steady in North America, Western Europe, and the developed nations of Asia and Oceania. In North America the market was benefiting from strong growth following the recession of 1991. In Western Europe and Japan flat-glass markets enjoyed a rebound. The industrializing nations of South America and the Pacific Rim (especially Brazil, China, and South Korea) provided the most rapid increases in flat-glass demand. In Eastern Europe the outlook was also favourable owing to an infusion of Western and Japanese capital and technology dedicated to upgrading outdated flat-glass capacity. New, upgraded float plants were already in operation in the Czech Republic, Hungary, and Poland. (THERESA GREEN)

      This updates the article industrial ceramics.

Ceramics.
      In 1994 the ceramics industry continued to show strong sales in products such as tile and sanitaryware, primarily because of the strength in building construction and in the overall economy. Worldwide sales of ceramic materials in 1994 were estimated at $88 billion by Ceramic Industry, with the U.S. market share at approximately one-third of the total. Because the survey did not include much of the production of China and the former Soviet bloc, however, its sales estimate was low. Ceramic Forum International, for example, estimated worldwide whiteware sales alone at $34 billion, three times the Ceramic Industry total.

      The U.S. market for advanced ceramics in 1994 was estimated at $4.9 billion by the Business Communications Co. The market was expected to grow at a rate of 9.8% to $8.5 billion by the year 2000. It was further estimated that the electronic segment of the market would be 79% of the total, with advanced ceramic coatings 11% and advanced structural ceramics 10%.

      Multilayer ceramic capacitors were gaining market share by improving their cost-effectiveness through a reduction in thickness, which increased their dielectric efficiency. Multilayer multicomponent (MLMC) electronic packages were also beginning to enter the market. This technology permitted several electronic components, such as capacitors and inductors, to be built into a multilayer ceramic package, thereby producing circuits for use in the large-volume consumer market. Fuzzy-logic circuits, for example, which had already been used in military equipment, could become available for use in consumer products since MLMCs significantly reduced the cost of such devices.

      Porcelain enamel sales were flat in 1994 at approximately $6 billion. Because of customers' preferences in North America, the U.S. enjoyed an estimated 75% of the world market. The volume depended heavily on the sales of home appliances. U.S. sales of whitewares (including tile, dinnerware, sanitaryware, and electrical porcelain) remained strong in 1994, with a total of approximately $3 billion.

      One of the interesting developments in ceramic fabrication was solid freeform fabrication, also known as rapid prototyping. This new technology allowed net-shaped ceramics to be formed directly from a computer-aided design (CAD) file. Several different techniques were being developed under contracts from the U.S. Department of Defense. One of the techniques was the fused deposition of ceramics, being developed jointly by AlliedSignal and the Center for Ceramic Research at Rutgers University, New Brunswick, N.J. This technique, by building the part one layer at a time, could be used to fabricate complex-shaped components of advanced ceramics such as silicon nitride engine components or advanced functional ceramic components. One of the advantages of the technique was that an experimental design could be fabricated from a CAD file in a few days. Using conventional technology, it might take several weeks to fabricate the same component.

      Another interesting development in advanced ceramic research was bio-inspired processing. This research was based on discovering the way in which plants and animals designed and built materials and structures. For example, some animals were known to be capable of growing single oriented crystals of inorganic materials. Considerable progress had been made in the understanding of the organic and inorganic chemistry by which animals grow such crystals, opening up a whole new direction in advanced materials research that was expected to lead to exciting new materials and processes. (DALE E. NIESZ)

      This updates the article industrial ceramics.

Rubber.
      Amid increasing demand for rubber products worldwide, numerous expansions began or were announced in 1995. Spurred by strong growth in the Asian and Pacific regions and by moderate growth in North America, worldwide consumption of rubber was expected to reach nearly 15 million metric tons, a 4% increase over 1994 levels.

      China continued to pace the Asian region, with expansion projects for eight tire-manufacturing facilities and four new plants announced. Among these undertakings were a $120 million radial light truck and truck and bus tire plant by Nan Jing Kumho, which was to produce three million units a year; a $50 million tire plant in Shanghai by Cheng Shin Rubber; and a $120 million project by Tianjin Kumho Tire to modernize and add off-road radial capacity at its Tianjin facility. Sumitomo announced that it would build a $120 million passenger tire and golf ball facility in Indonesia with the capacity to produce 1.5 million tires annually. In Malaysia, Sime Tyres was expanding production by 66% for passenger radials.

      Strong activity was under way in India as well, with four new plants and six expansions announced during the year. New plants were announced by Dunlop India (a $235 million facility with an annual capacity of 1.2 million passenger and truck tires), Modi Rubber (a $97 million truck tire plant with a capacity for 500,000 units a year), and Modistone (a $21 million truck tire plant). In addition, Apollo Tyres announced that it would build a $161 million passenger tire plant and purchase Premier Tyres, with plans to modernize the Premier facility and double its radial output. In Egypt Pirelli opened the largest truck tire plant in North Africa and the Middle East. The Alexandria facility cost $150 million and had a capacity of 350,000 tires annually.

      The world's largest tire company, Michelin, announced that it would build two tire plants in France and undertake a number of expansions at facilities worldwide. Michelin also was negotiating a joint venture with Germany's Continental AG to manufacture low-end tires, with the alliance under review by the European Union. Goodyear, the third-ranked tire company in terms of sales, announced expansions for its facilities in Lawton, Okla., Quebec, and Luxembourg. The Luxembourg expansion was tied to an attempt to put the factory on a seven-day work schedule, a practice being adopted by tire manufacturers throughout Europe but one that was meeting resistance from unions and some governments. With funds nearly depleted from the strike against Bridgestone/Firestone and with the company hiring replacement workers, the United Rubber Workers of America called off its action and later announced a merger with the United Steelworkers of America.

      Suppliers were active in 1995 in trying to alleviate tight supplies and in creating better processes. Metallocene catalysts, which enabled chemical engineers to create tailor-made elastomers based on ethylene or propylene, were having an impact. Two joint ventures, one involving Dow Chemical and Du Pont and the other joining Exxon and DSM, had metallocene chemistry as a basis. Another joint venture, between Akzo Nobel of The Netherlands and Monsanto and titled Flexsys LP, created the top supplier of rubber chemicals and instruments, with expected sales of $700 million for 1995.

      There were significant additions to suppliers in the rubber industry in 1995. Bayer AG was constructing an accelerator plant and expanding antiozonant production by 50% at a South Carolina facility and was adding synthetic rubber capacity for polybutadiene at two North American sites and doubling hydrogenated nitrile rubber production in Orange, Texas. Goodyear announced a 10% increase in polybutadiene capacity at its Beaumont, Texas, facility, and Du Pont was increasing worldwide production of fluoroelastomers by 50%. Exxon increased the capacity for polyisobutylene at its Bayway, N.J., facility by 50%. Synthomer Chemie of Frankfurt, Germany, and Doverstrand of Harlow, England, merged to form a company with 200,000 metric tons of capacity for styrene-butadiene rubber (SBR) and natural latex. Taiwan Synthetic Rubber increased its thermoplastic elastomer (TPE) output to 100,000 metric tons, ChiMei opened a 120,000-metric ton TPE plant in China, and Taiwan Synthetic Rubber was building a 100,000-metric ton SBR plant in China.

      Prices for natural rubber peaked during the first quarter of 1995 and plateaued during the fourth quarter. Synthetic rubber prices rose throughout the year as tightness for the major feedstocks was felt throughout the world. The International Natural Rubber Agreement (INRA), the UN-brokered pact to stabilize natural rubber prices and encourage continued cultivation, was renegotiated during 1995 but not ratified. Both producers and suppliers were debating the efficacy of the agreement. (DONALD SMITH)

Plastics.
      Although economic growth continued in both the U.S. and Europe in 1995, with plastics somewhat outpacing the overall trend, the materials manufacturing industry was again taken by surprise by an unexpected reversal of the balance between supply and demand. The year began with acute shortages of the major thermoplastics and with prices at very high levels. By midyear, however, stability had largely returned, with improved product availability and rebuilt inventories. An upturn in prices was expected after the summer slowdown, but instead they fell sharply through the autumn as plastics converters, which had earlier had acute difficulty in passing on increased costs to endusers and now had adequate stocks, felt the weaker position of their suppliers.

      This radical change in the business climate was especially noticeable in Europe. In May the Chinese government suddenly decided to effect a major cutback in plastics imports. The loss, even if temporary, of this important market served to upset the delicate global supply balance. At the same time, the pricing structure of the European industry was destabilized by internal currency fluctuations, while many of its products seemed comparatively expensive to the rest of the world. As a consequence, exports from Europe fell and imports diverted from the Asian-Pacific region rose.

      Much was done in 1995 toward the continued rebuilding of the polymers industry in eastern Germany, technically outdated and environmentally unsound at the time of the country's reunification. By agreement with the German government, the U.S. company Dow Chemical was in the process of acquiring 80% of BSL Olefinverbund, an olefins/polyolefins complex formed by the merger of three major chemicals combines in the former East Germany. Another important move was the further development by BASF AG of its large Schwarzheide complex in the east for compounding engineering plastics.

      The most interesting development in the materials sector during 1995 was the emergence of metallocene catalysts, which enable grades of polyolefins (both polypropylene and polyethylene) to be manufactured with more uniform polymer chain lengths. The molecular weight distribution is consequently narrower, which leads to improved properties—for example, in toughness, clarity, and processibility. Metallocene-based polyolefins were produced on a pilot scale by the Exxon Corp. in 1995, and several firms indicated their interest at the K'95 exhibition in Düsseldorf, Germany. It was predicted that by the year 2005 such materials would gain a 10% share of the market for polypropylene, now produced with the original Ziegler-Natta type of catalyst.

      Among other significant advances in polymers technology shown at K'95 were cyclic olefin copolymers, developed jointly by Hoechst AG of Germany and Mitsui of Japan. Shell Chemical introduced aliphatic polyketones with characteristics unlike those of earlier ether-containing aromatic polyketones and displaying a broad range of engineering properties. BP Chemicals International Ltd. also entered the field, with a new pilot plant at Grangemouth, Scotland. In processing K'95 demonstrated the growing importance of injection moulding machines constructed without tiebars, which facilitated access to the mould area and allowed the use of smaller equipment.

      (ROBIN C. PENFOLD)

Advanced Composites.
      During 1995 polymer matrix composites (PMCs) continued to be the most widely used advanced composites. It was projected that by the end of the 20th century, the industry would produce 90,000 metric tons of PMCs worldwide, with gross sales totaling $5 billion. Although the high costs of raw materials had been faulted for the slow growth of PMCs, materials typically accounted for only 8-10% of the overall cost of composite components. In fact, the processing of composite components was the single largest contributor to overall costs. Thus, the development of innovative processing technology, along with affordable materials, could significantly reduce PMC costs. Promising processing technology for producing continuous fibre-reinforced components included advanced tow placement, pultrusion, resin-transfer molding, resin-film infusion, in situ consolidation, and out-of-autoclave curing. Whether sufficient reduction could be made to meet the demands of large-scale applications remained uncertain.

      The low number of applications for metal matrix composites (MMCs), especially for continuously reinforced MMCs, continued to fail to stimulate the development and implementation of low-cost manufacturing methods. One exception was discontinuously reinforced aluminum. MMC specialty materials, such as titanium matrix composites, would enable significant advancements in high-performance applications, such as advanced gas turbine engine components. The use of MMCs would surge considerably if an automotive application (e.g., a brake caliper, piston, or engine valve) became cost-effective. MMCs were forecast to develop into a billion-dollar industry by the end of the 20th century.

      The development of ceramic matrix composites (CMCs), which had advanced significantly during the past 10 years, continued to lack a mature technical foundation. As a result, the industrial base had not reached the level at which competitive market forces prevailed. CMCs were being developed for critical hot section components that could reliably operate in severe environments beyond the capability of existing metallic materials. The market for such a material was not expected to be large, but CMCs would permit important new products, such as highly efficient heat exchangers and high-performance turbine engines. A few large companies had decided to commit substantial resources to CMC development to commercialize existing technology. The market for CMCs was projected to develop to $500 million by the end of the 20th century.

      (ROBERT E. SCHAFRIK; THOMAS E. MUNNS)

Iron and Steel.
  (For World Production of Crude Steel—> and of Pig Iron—>, see Graphs.)

       Steel consumption in the U.S. in 1994 increased by 14% from the previous year to reach 103 million metric tons, a level not achieved since 1974. With domestic steel producers operating close to capacity, the result was a rise in imports, from 11 million to 27 million metric tons. Demand from the automotive sector was particularly strong, reinforced by the fact that booming demand for vehicles was being met increasingly by cars produced in the U.S.

      In Western Europe the automotive sector also led the revival in several countries, although the construction sector remained weak. Vehicle exports were an important element in the U.K. recovery, and France and Spain tried to encourage the purchase of new cars. The German recovery was export-driven, with the machinery sector benefiting from strong Asian demand. Apparent consumption of steel products in the European Union recovered by 13% from the low 1993 figure, to 108 million metric tons. The EU's production of crude steel rose by 5%. Turkish steel use suffered a setback owing to that country's economic difficulties.

      In Eastern and Central Europe 1994 brought an 8% recovery in steel consumption, after years of precipitous decline, which continued in the countries of the former Soviet Union, where steel consumption dropped to around 43 million metric tons.

      The Japanese economy grew by less than 1% in 1994, and steel consumption remained depressed. The high yen was a handicap for Japan's steel-using manufacturing sector, which now tended to build capacity outside Japan. Although the residential-construction sector was firm, the civil engineering sector remained weak.

      Taiwan's residential sector was in a downturn, and there was slippage in civil engineering contracts, but elsewhere in Southeast Asia strong growth continued in steel demand, notably in South Korea, which registered 20% growth.

      Authorities in China let it be known that inventories of steel were very high, and imports were expected to fall to around 10 million to 12 million metric tons. As it turned out, almost 25 million metric tons were imported, and apparent consumption remained above 100 million metric tons. It became clear that there had been a considerable buildup of inventories.

      Australia and New Zealand saw an 11% growth in steel consumption, and the growth in steel consumption in Latin America averaged 14%, with Mexico posting a 25% rise. Before the financial crisis began in December 1994, Argentina and Brazil experienced increases in steel demand of 21% and 14%, respectively. (ANTHONY TRICKETT)

      This updates the article iron (iron processing).

Light Metals.
      For the light metals, 1995 proved to be a year of recovery. The group continued to be dominated by aluminum, with 1995 world production of 15 million metric tons, followed by magnesium at 300,000 metric tons, titanium at 33,000 metric tons (U.S. ingot), and beryllium at 6,800 metric tons.

      The aluminum industry had largely recovered from the oversupply that began in 1992 with a massive surge in exports from the Commonwealth of Independent States, whose internal markets, particularly in the defense industry, had collapsed. In early 1994 the market price of aluminum fell to its lowest level in history (when adjusted for inflation), at $1,035 per metric ton. In response, the governments of the world's six major producing regions (Australia, Canada, the European Union, Norway, Russia, and the U.S.) agreed to reduce production for a two-year period, and by early 1995 the price of aluminum had recovered, to $2,100 per metric ton.

      Speculation on the London Metal Exchange (LME) complicated the problems in the aluminum industry. During the early 1990s, 2.6 million metric tons of aluminum accumulated in LME warehouses, but the amount had fallen to 500,000 metric tons by the end of 1995. As producers began to restart smelter capacity that had been idled, the market price of aluminum settled into the range of $1,700 per metric ton.

      Cans for beverages continued to represent the largest single product market for aluminum, with the nearly 100 billion produced annually in the U.S. alone utilizing more than two million metric tons, or 50%, of the country's new smelter metal. The world transportation sector accounted for 24% of the market, with the average amount in automobiles in 1995 reaching about 90 kg (200 lb) per vehicle.

      The price of magnesium hovered in the range of $3,700 per metric ton in 1995. World figures for titanium ingot and sponge production were not available because of unreliable data from some producers, but the industry was clearly recovering from the cuts in defense spending that had taken place earlier. Newer applications included roofs, domes, golf clubs, tennis racquets, eyeglasses, and watch cases.

      Beryllium production remained in a narrow range in 1995. The price ($352 per kg) continued to restrict its use to speciality markets in nuclear reactors, aerospace, alloys, and electronic components.

      (GEORGE J. BINCZEWSKI)

      This updates the article aluminum processing.

Metalworking.
      Metal parts sales continued to increase in 1995 because of the ongoing demand for consumer goods. Capital equipment production and a weak U.S. dollar kept the demand for parts sturdy, the supply tight, and lead times lengthy. Mill shipments of castings, forgings, powder metal parts, and extrusions, which had improved 9% in 1993 and 11% in 1994, were expected to grow 2% in 1995. Open market sales of ferrous and nonferrous metal castings rose 5%, to almost 9.1 million tons. Sales of forged steel, aluminum, titanium, and high-temperature alloys grew by almost 10% in 1994, to 1,250,000 tons, and they grew another 5% in 1995. Similar growth was seen in extruded aluminum shapes, an industry that was benefiting from the adoption of technology that previously had been developed for military aircraft. Much of the growth in powder metal shipments was due to the expanding use of powder metal bearing caps and powder forged connecting rods by the three major U.S. automobile manufacturers. The auto industry's consumption of steel for frame and sheet metal parts was expected to increase by at least 60,000 tons in 1996, following the continuing trend toward upsizing, strengthening, enhancing comfort, and providing greater performance.

      It was announced that a consortium of 32 steel companies would invest $20 million to construct ultralight auto bodies, demonstrating steel's continuing viability in the automotive industry. In a move that reflected the auto industry's shift from cast iron to wrought steel drivetrain components, International Crankshaft was doubling its steel crankshaft forging capacity to 1.5 million per year at its Georgetown, Ky., plant. Alcoa was building a $32.5 million facility in Hungary to produce forged aluminum wheels. Cerro Copper Tube Co. combined its cold pilger rolling mills with a 4,000-ton extrusion press, which produced defect-free hollow copper tubes. Metal injection molding, a process that was used to produce highly intricate shapes from metal powders, was undergoing explosive growth. Remington Arms Co., for example, designed a .22 rifle around the advantages of the process. Another promising trend, intended to improve the quality and the speed of delivery of new components, was the use of rapid prototyping and process modeling by parts producers. This advance was made possible by the decreasing cost of computing power and the greater availability of easy-to-use software. (HOWARD A. KUHN)

MICROELECTRONICS
      Because of increased demand for the microprocessors used in personal computers and the additional speed and memory needed for a new generation of computer operating systems, projected worldwide sales of semiconductors in 1995 rose by 43.7% to $146.4 billion, according to the Semiconductor Industry Association. As telecommunications and consumer products made ever-greater use of semiconductor products, the industry expected global sales to reach $261 billion by 1998, an average annual growth of 21%.

      Once again North America led the world's major semiconductor markets, with 1995 shipments of over $47 billion, a growth rate of 40.2%. The U.S. supplied almost one-third of the world's supply; the Japanese supplied another 27.7%, up 38% from 1994. The Asian Pacific market, including South Korea, Taiwan, and Singapore, replaced the European market as the third largest provider, with a growth rate of more than 57%. The two largest growth products were memory at a 66.7% growth rate and microprocessors at a 41.4% rate.

      To keep pace with this increasing demand, chip manufacturers were planning modern plants. Motorola, Inc., planned to spend over $700 million to build a wholly owned semiconductor plant in the city of Tianjin, China. The 280,000-sq m (3 million-sq ft) plant would manufacture chips used in cellular phones, pagers, personal computers, and other electronic products produced in China. A similar plant was planned for Hong Kong to serve the Southeast Asian market. Motorola also announced plans to build a $3 billion plant near Richmond, Va., to produce its PowerPC chip and was considering a joint venture with General Motors' Delco Electronics Corp. for a $1 billion plant in Israel. Intel Corp. anticipated spending $3.2 billion for plants in Ireland and Malaysia in addition to a scheduled expansion in Israel. IBM expected to spend $1 billion to expand its existing chip facility in Essonnes, France, and Japanese firms Hitachi, Ltd., and Mitsubishi, Ltd., planned to spend $400 million and $3 million, respectively, for expanding facilities in Irving, Texas, and Durham, N.C.

      In late 1994 Intel had reluctantly admitted that its new Pentium chip had a problem in its floating point unit. After IBM and other computer manufacturers decided to replace the chips, Intel finally agreed in January 1995 to replace defective chips at a cost estimated to be $475 million. Surviving that setback, the Pentium quickly replaced the 486 family of chips in new computers. Intel also introduced the next-generation chip, the Pentium Pro (formerly known by the code name P6), in 1995. This new chip, priced under $1,000, would be available at speeds up to 200 MHz and had 5.5 million transistors—80% more than its predecessor. Intel also produced an upgrade chip, the 83-MHz Pentium OverDrive processor to improve the performance of 486 chips by over 50%.

      In the meantime, Intel's competitors, Advanced Micro Devices, Inc., and NexGen, Inc., merged and planned to produce a Pentium Pro alternative by the late 1990s.

      In October IBM, Motorola, the German multinational corporation Siemens AG, and Toshiba Corp. of Japan confirmed that they were discussing joint development of a new random-access memory chip.

      Digital Signal Processors (DSP) continued to advance the functionality of add-on boards and chips used for fax, modem, answering machine, graphics, sound, and digital wireless applications. Texas Instruments, Inc. (TI), announced a 32-bit floating point DSP for under $10. TI also reached an agreement with Motorola to share technology to allow TI to embed pager functionality into microchips for use in wireless portable computers.

      Another challenge for the semiconductor industry in 1995 was the question of how to reduce the voltage requirements of chips used in portable devices. Devices that once required 12 v to operate had come to require 3.3 v or less.

      MPEG-2 (Moving Picture Experts Group), a digital video compression-decompression standard for high-definition television (HDTV) and other high-speed-transmission applications, had been imbedded into chips that would be used in HDTV and other digital video applications, in the future.

      Smart cards, credit card-sized microcontrollers with memory, were being used to provide added features, such as encryption, to cellular technology. These cards, which were also used for phone cards and identity cards, were already popular in Europe and were expected to grow in popularity in the U.S. (THOMAS E. KROLL)

      This updates the article electronics.

MINING
       Indexes of Production, Mining and Mineral Commodities(For Indexes of Production, Mining and Mineral Commodities, see Table (Indexes of Production, Mining and Mineral Commodities).)

      The mining industry enjoyed a good year in 1995. The economic recovery that had got under way in the United States in 1994 continued, Europe staged a strong recovery, and Japan's recession proved to be shallower than anticipated. Consequently, the demand for mineral commodities held up well, outpacing production in some sectors, and this helped to reduce surplus stocks substantially. The strength of the demand also helped offset the debilitating impact on the market, experienced in recent years, of large-volume, low-priced exports of metals and minerals from China and Russia.

      Although such exports continued, in Russia—for the first time since the collapse of the former Soviet Union—there were signs that the economy was beginning to recover. In China rapid economic growth made it an increasingly important commodity importer as well as an exporter. Both countries were seeking to attract foreign investment into their mineral sectors, as were many of the former Soviet Asian republics. For international mining companies, the opportunities had become truly global.

Exploration.
      Activity continued at a high level in the less developed countries in 1995, particularly in South America, where Chile and Peru headed the list. Argentina, a comparatively new entrant in mineral exploration, also proved a major attraction in the first nine months of 1995, when more than 180,000 m (590,500 ft) of exploration drilling were completed, mainly for base and precious metals. Only three years earlier, prior to new mining legislation, the annual total drilled by private companies had been near 7,000 m (23,000 ft). A welcome development in Brazil was the long-awaited revision of the 1988 legislation that had restricted foreign mining activity.

      West African countries, including Ghana, Guinea, Burkina Faso, and Mali, proved popular destinations for exploration teams, although in these countries the focus was almost entirely on gold. Indonesia, too, attracted interest, much of the excitement being directed toward Irian Jaya, where the American company Freeport-McMoRan Copper & Gold Inc. was exploiting one of the largest and richest copper and gold deposits ever discovered. The U.K.-based mining giant RTZ purchased a substantial interest in the company during 1995. In addition to metals, Indonesia's coal resources continued to attract much exploration activity. The country had rapidly emerged as a significant coal producer, with three-quarters of the production being exported.

      Among the developed countries, Australia's gold-exploration boom continued, but Canada stole the limelight; initial reports late in 1994 of a significant discovery of nickel, copper, and cobalt in Labrador were rapidly confirmed, and the deposit at Voisey Bay proved to be the biggest base metals find in Canada in decades. Previously ignored by the exploration fraternity, Labrador was witnessing one of Canada's biggest-ever claim-staking rushes. The activity largely eclipsed the diamond rush in the Northwest Territories.

      Within the less developed countries, the competition to attract risk capital for exploration was intense. Some 75 nations had revised or introduced new mineral legislation tailored to attract the foreign investor, and during 1995 the Philippines and Pakistan were significant additions to the list. The wealth of mineral opportunities evident, particularly in the Southeast Asian and the Pacific regions, was one of the reasons RTZ and its Australian associate, CRA, announced in October their intention to merge. The combined group would have a market capitalization in excess of $20 billion.

      Few countries continued to insist on majority government equity participation in mining projects, and several, like Peru, moved farther along the road to privatization of state-owned mining companies. A new entrant in 1995 was Indonesia's state-owned PT Tambang Timah, the world's largest tin-mining company. The government chose to retain 65% ownership and sold the balance to domestic and international investors.

      In Brazil, however, a government plan to privatize the country's mining giant Companhia Vale do Rio Doce met with opposition. The company not only was the world's largest iron ore miner and a substantial producer of other important minerals, such as bauxite and gold, but also operated railways and had its own oceangoing fleet of ore carriers. Its operations were efficient and highly profitable, and for many Brazilians selling the company was an emotional issue.

      Privatization was not on the agenda for the world's largest copper producer, Codelco in Chile. Approval was being sought, however, for the company to undertake new mining projects in joint venture with private partners on ground it held.

      State-owned copper companies in central Africa had long been starved for investment. Production was falling, and many saw privatization as the solution to the problem. Zambia Consolidated Copper Mines urgently needed funding in order to embark on a new deep mine project, as reserves at its existing mines would be depleted by the end of the decade. The government had indicated its wish to privatize, but the timing and form remained unclear. In Zaire economic and political problems continued to deter investor interest.

      In South Africa the government was giving priority to the minerals sector, and new mineral legislation was being prepared. Mineral rights ownership remained a key issue. The government was concerned that ground held by the major mining houses was not being explored fully. The mining companies contended that the transfer of mineral rights to the state would severely dent investor confidence. Analysts predicted that the gold industry in South Africa was heading for one of its worst years ever, with output dropping 10% from 1994.

      In West Africa mineral sands mining in Sierra Leone was halted at the end of January when the operations were overrun by rebels opposed to the government. The mine, operated by Sierra Rutile, Ltd., was the world's largest producer of the titanium mineral rutile. The operation remained closed throughout the year, and the world price of rutile rose by 50%.

Commodities.
      The recovery in demand for metals and minerals that had developed in 1994 continued into 1995, and although the base metals markets lost some of their lustre when speculative interest by investment funds faltered, the recovery from economic recession in Europe and elsewhere ensured that consumer demand was sustained. Demand outpaced supply for a number of metals, and the huge surpluses accumulated during the recessionary years continued to decline, thereby ensuring that prices for most base metals stayed high in the first eight months of the year. The average prices received by some copper and nickel producers were as much as 40% above those received in the equivalent period in 1994.

      Nickel and other steel-alloying metals enjoyed good demand. Molybdenum was a spectacular performer. The price of the metal had been trading at close to historic lows for much of the 1990s, when many mines were forced to close. A severe squeeze on supplies saw prices spiral in early 1995, however, and the average price for the year was expected to be double that of 1994. The demand for stainless steel showed signs of faltering during the final quarter of 1995, with oversupply in the Asian market and with consumers in North America and Europe beginning to reduce their stocks.

      The demand for aluminum in 1995 was such that the high stock levels that had severely depressed prices only two years before depleted rapidly. This called into question whether the voluntary two-year agreement reached in early 1994 between several major producing countries, including Russia, to cut annual production was still necessary.

      There were similar sentiments in the tin market. Since the price of tin collapsed 10 years earlier, leading producing countries had agreed on annual export quotas as a means of limiting supplies and reducing surplus stocks. Prices improved markedly in 1995, and producers agreed to end the export quota system in June 1996.

      Despite strong demand, zinc prices continued to languish against a background of high stocks and large amounts of metal reaching the market from China. Nevertheless, substantial new production capacity was planned. One of the largest new mines, McArthur River in Australia's remote Northern Territory, came on stream in September. The project cost $A 250 million and would produce 160,000 metric tons of zinc annually over a mine life of 30 years. The mine was operated by MIM Holdings, which had discovered the deposit 30 years earlier. In Queensland, BHP announced that it would develop a major silver-zinc-lead mine at Cannington, and CRA was expecting a favourable decision for its huge Century zinc deposit.

      In the precious metals sector, gold had a quiet year in 1995. The price showed little movement, but at around $380 an ounce, compared with an average cost to produce it near $240 an ounce, it still offered one of the best and most rapid investment returns. South Africa remained the largest gold producer, and it contributed about 25% of the world output.

      Because of platinum's growing use as a catalyst to reduce exhaust emissions in motor vehicles, the demand for it rose to record levels in 1994, and in 1995 the demand rose again, albeit less sharply. South Africa and Russia continued to dominate the supply. In South Africa two companies, Lonrho and Gencor, merged their platinum interests to rival Rustenburg as the world's largest producer. Russia's ability to maintain the production of platinum at a high level was doubted in some quarters, and much of its sales in 1995 were believed to have been from government stocks. The size of the stockpile, however, remained a closely guarded secret.

      The South African company De Beers Consolidated Mines maintained a monopoly on the marketing of uncut diamonds through its Central Selling Organisation, which bought about 80% of the world's production, but its ability to control supply and hence prices was becoming more difficult. Its marketing agreement with Russia, the source of 25% of the world's diamond production by value, came under strain. The agreement came up for renewal at the end of 1995, and there was uncertainty whether it would be extended. Russia was seeking better terms, and during 1995 substantial quantities of Russian rough diamonds, estimated to be worth as much as $800 million, "leaked" onto the world markets outside the De Beers' marketing channel.

      Because of record steel output, the demand for iron ore saw world exports reach a new peak in the first half of 1995, with imports into Japan during the period jumping by 10%. In 1994 world iron ore production and exports both rose by 30 million metric tons to 970 million and 430 million metric tons, respectively. Australia and Brazil remained the dominant exporters, providing almost 60% of the total.

      In contrast, a report published in 1995 by the International Energy Agency (IEA) noted that the coal trade was essentially local. The proportion traded internationally amounted only to about 11% but was expected to increase significantly. The Asian and Pacific markets would grow in importance, and the IEA suggested that by the year 2010 the region could account for 70% of the world's imports, or some 500 million metric tons. Colombia, Venezuela, and possibly Vietnam could all post significant export increases, but Australia should remain the dominant supplier.

      In 1994, after four years of decline, world coal consumption staged a modest recovery, and production rose by nearly 2% to 3.2 billion metric tons, with China and the United States consuming 50% of the output. The improved consumption appeared to have been maintained during 1995.

Safety and the environment.
      Cave-ins, rockslides, flooding, and methane gas explosions all took their toll during 1995. One of the worst mine accidents occurred in May at the Vaal Reefs gold mine in South Africa, where more than 100 people died when an underground locomotive plunged down a shaft.

      The safe storage and disposal of waste material continued to be one of the industry's principal environmental problems. Conventionally, the liquid waste, or tailings, from mining had been impounded in ponds behind a retaining wall made from compacted earth and rock. When a tailings dam at a large gold mine in Guyana failed in 1995, the local river was polluted by some four billion litres (about a billion gallons) of cyanide-bearing waste, and although the cyanide concentrations were low and were rapidly diluted, the incident was quickly labeled an environmental disaster. The mine remained closed pending investigations into the cause and appropriate remedial action.

      In Papua New Guinea a large copper and gold mine located in a remote mountainous area where construction of a tailings dam proved impracticable had dumped waste into the local river for years. Landowners campaigned for compensation for the pollution and damage caused, and in a new departure an Australian legal firm launched a $A 4 billion damages suit on behalf of the landowners against the Australian majority owner of the operation.

      The threat, perceived or real, of environmental pollution had halted development of one of Canada's largest unworked copper deposits, in northwestern British Columbia, in 1994. The provincial government halted the project by the simple expedient of converting the area into a national park. In 1995 the project operators received compensation.

      During 1995 the environment was also an issue in Madagascar. Plans by a multinational company to mine mineral sands for titanium in an ecologically unique coastal area spurred strong opposition from outside the country.

Technology.
      Much of the new technology being developed within the mining industry had environmental benefits. In mineral processing the use of solvents to extract copper directly from ore, which obviated the need for smelting, was gaining in popularity, while in the gold sector the use of bacterial cultures to recover the metal without recourse to roasting became a reality. Bio-oxidation to recover gold was being employed at a large new project at the Ashanti mine in Ghana, and in South Africa, Gencor, the company that pioneered the process, was developing the technology to process nickel ores.

      It also was thought that biological techniques might be used to clean up old mine sites. The use of bacteria to prevent or tackle the problem of acid mine drainage was being investigated, as was the use of certain types of plants able to absorb metals for the extraction of heavy metals from waste dumps. (ROGER ELLIS)

      See also Geology and Geochemistry (Earth and Space Sciences ).

      This updates the article mineral processing.

PAINTS AND VARNISHES
      For paint manufacturers 1995 marked a return to economic equilibrium. In the U.S., after a record year in 1994, paint output rose 2.6% during the first half of 1995. In Europe demand from the automotive and building markets boosted volume, though not necessarily profits. Asia and the Pacific regions, however, continued on their course of hearty growth, with China the main magnet for foreign investment. Only the Japanese paint industry remained in the doldrums.

      Raw material prices exploded everywhere. The price of xylene jumped by 60% in January alone, and titanium dioxide prices soared as well. Prices peaked in the first quarter of the year but began to level off thereafter. Paint prices failed to keep pace with those of raw materials. Shortages of some chemicals reached crisis proportions. Methyl methacrylate was tight, as was phthalic anhydride.

      In the U.S. a contest between Sherwin-Williams and ICI ensued over the Grow Group. By raising Sherwin-Williams' $320 million bid to $350 million, ICI won Grow and thus became the fifth largest paint company in the U.S. Sherwin-Williams, in turn, made several smaller purchases—FLR Paints, White Lightning Products, Con-Lux Coatings—before acquiring Pratt & Lambert, the company that itself had taken over United Coatings only a year earlier. Not only did this strengthen Sherwin-Williams' architectural coatings and distribution businesses on the East Coast, but it also gave it a stake in general industrial, powder, and aerospace coatings.

      There were two notable acquisitions in Europe. The merger of Kalon with Total's paint interests brought Kalon, Johnstone's, Manders, and Windeck in the U.K. and Euridep and La Seigneurie in France under a single umbrella. ICI purchased PPG's architectural coating business in France. In the Pacific Rim expansion proceeded via joint ventures. Nippon Paint (Japan), PPG (U.S.), and ICI (U.K.) were among the companies establishing paint factories in China, a second plant in the case of ICI. ICI also moved into the markets of the Philippines and Pakistan. Akzo Nobel entered the Vietnamese market by acquiring a 51% share in Sapina Denzo Saigon Co. Ltd.

      The course of new technologies in paints appeared more uncertain in 1995. Earlier projections of the growth of waterborne and other coatings that complied with environmental regulations underwent a radical revision. A new European study predicted that as much as 53% of industrial coatings would still be solvent-based by the year 2004. The U.K. industry reported that compliant products were 5 to 10 years away. Investments in water-based automotive coatings continued, with Herberts and BASF pointing the way. At the same time, voluntary initiatives acquired a new urgency. A program initiated by the International Paint and Printing Ink Council was being developed both in Europe and in the U.S. to ensure consistency in what had become a global industry. (HELMA JOTISCHKY)

PHARMACEUTICALS
      In the United States in 1995, the pharmaceutical industry faced reform in the private sector driven by the growth of managed care. Moreover, Congress planned to trim spending on Medicare and Medicaid. The industry seemed to be entering an era of increasing pressures.

      Meanwhile, the pharmaceutical industry supported congressional calls to rein in the U.S. Food and Drug Administration (FDA). Some industry groups called for the end of the FDA or a ban on its regulation of the promotion of pharmaceuticals. The Pharmaceutical Research and Manufacturers of America proposed measures that would speed review of new drugs and allow companies more freedom to disseminate product information.

      In Europe, however, pressure on the industry grew. Germany and France cut consumption and prices, and only Britain adopted pro-industry policies. Still, regulatory relief loomed as the European Medicines Evaluation Agency set up shop in London. Worldwide, the industry began to face the rise of new health threats such as antibiotic-resistant diseases.

      Despite tightening market conditions throughout the year, the pharmaceutical industry accomplished a major rebound on the U.S. stock market by climbing an average of 44% by November. Leading companies posted healthy earnings, with growth and profits in the double digits, thanks to a combination of restructuring, partnering, and new products.

      The industry pursued two new approaches—vertical partnering and regionalization—to the problem of adapting to a customer base that showed ever-greater power and complexity. Rather than acting merely as suppliers of medicines, companies offered managed-care organizations (MCOs) additional services and collaborations, including evidence of their products' cost-effectiveness, educational programs for patients and professionals, and risk-sharing contracts that compensated companies on a per-patient basis. To get closer to their customers, large companies created regional or strategic business units. Companies such as Bayer of Germany also began to apply the U.S. model to their global operations.

      Some companies encountered problems over their mergers with pharmacy benefits management organizations (PBMs) and over other vertical initiatives. Medco settled with 17 states that sued the PBM for favouring products of its owner, Merck. MCOs also remained skeptical of new "disease-management" programs offered by pharmaceutical companies or by separate entities such as Lilly's Integrated Disease Management subsidiary. Zeneca went beyond offering such programs into actual care with its $195 million purchase of oncology company Salick Health Care, Inc.

      Backed by a weak dollar, European acquisitions of U.S. companies led industry consolidations. Germany's Hoechst AG bought Marion Merrell Dow for $7 billion, and Switzerland's Roche Holding AG completed its absorption of Syntex Corp. Upjohn and Pharmacia formed a $7 billion transatlantic merger. Marrying two British companies, Glaxo purchased Wellcome for about $15 billion. Companies also made many smaller investments to capture new technologies and markets. Sandoz AG entered a host of alliances in gene therapy, and Bayer repurchased its U.S. aspirin line and extended an alliance with the generics company Schein. (WAYNE KOBERSTEIN)

      This updates the article pharmaceutical industry.

PHOTOGRAPHY
      In 1995 two photo industry giants, Eastman Kodak and Fuji Photo Film, clashed over alleged marketing restrictions in Japan. Kodak filed a petition in May under section 301 of the Trade Act of 1974 and requested that the U.S. government investigate and remedy "decades of anti-competitive trade practices in the Japanese market for consumer photographic film and paper." The charge of abuses included price-fixing, anticompetitive rebate schemes, and the "systematic denial of access to essential distribution channels." According to Kodak, the practices particularly involved Fuji and at times were conducted with the knowledge and participation of the Japanese government. Fuji vigorously denied the charges and blamed Kodak's "own poor business decisions in Japan" for the company's less-than-10% share of the Japanese film and photographic paper market, compared with Fuji's 70%. The U.S. government promised an investigation, and as the year ended, both parties were aggressively defending their positions with barrages of documentation.

      Photographic manufacturers continued efforts to exploit the explosively growing field of digital imaging with 35-mm still-camera models adapted for electronic image capturing. Canon in conjunction with Kodak introduced its EOS DCS 3 in three configurations: colour, black and white, and infrared. It linked its multifeatured Canon EOS-1N single-lens-reflex (SLR) camera with Kodak's DCS digital-imaging camera back and a high-resolution (1.3 million-pixel) charge-coupled device (CCD) imaging sensor. Chinon introduced an ES-3000 digital still camera with autofocus and a 3× zoom lens; it was available in three models delivering a range of resolution from normal (76,800 pixels) to superfine (179,200 pixels). Kodak's relatively low-priced DC 40 digital camera was a compact electronic "snapshooter" for real estate agents and other commercial users. It provided a resolution of 381,024 pixels, had a speed corresponding to ISO 84 (i.e., approaching ISO 100 film), and stored up to 48 images.

      Camera design for conventional photography showed little that was strikingly novel. Canon introduced the EOS-1N RS, which was claimed to provide the fastest continuous shooting speed—10 frames per second—of any 35-mm autofocus SLR as well as the shortest shutter-release lag time (six milliseconds) while maintaining constant visibility through the viewfinder. Those superlatives were achieved with the aid of a fixed pellicle mirror, which passed some of the light to the film plane and reflected the rest to the viewfinder—a method used for an earlier SLR and revived by Canon for its current top-of-the-line model.

      The trend among point-and-shoot cameras was to extend zoom range while maintaining compactness. The 28-90-mm f/3.5-9 lens of the Pentax IQZoom 928 was claimed to be the longest 28-mm-to-telephoto zoom available on a compact 35-mm camera, while the Pentax IQZoom 140 had an f/4.1-10.2 lens that zoomed from 38 mm to an impressive 140 mm. Konica's Big Mini Zoom TR, with a 28-70-mm f/3.5-8.4 lens offered an unusual feature: a built-in folding minipod for supporting the camera during self-portraits. Leica entered the elite category of titanium-clad point-and-shoot compacts with its Minilux, manufactured in Japan and having a six-element 40-mm f/2.4 lens that revived the classic Summarit name, a top shutter speed of 1/400 second, and numerous automatic and electronic features. Canon introduced its Sure Shot del Sol, advertised as the first fully automatic solar-powered camera. A 35-mm compact with a 32-mm f/3.5 lens and a 1/250-second top shutter speed, the new model used an array of amorphous silicon solar cells to charge a secondary lithium ion battery.

      A factor leading to a wait-and-see attitude from photographic manufacturers during the year was the anticipated introduction in 1996 of the Advanced Photo System (APS) from Kodak, Fuji, Canon, Nikon, and Minolta. The group released a brochure that revealed some new facts and emphasized expected benefits for consumers and photofinishers. Smaller than the current 35-mm cartridge and containing 24-mm film, the APS cartridge was designed to be completely lightproof and provide foolproof loading. Other advantages included data-carrying magnetic strips on the film for camera and processor use and improvements in various processing and reordering steps. (ARTHUR GOLDSMITH)

      This updates the article photography (photography, history of).

PRINTING
      The worldwide printing industry continued its expansion in 1995 even though the U.S. was troubled by shortages of paper in some markets. The international DRUPA exhibition in Germany in May saw the introduction of advanced computer-to-plate and digital printing technology as well as highly automated presses at virtually every level.

      Over 30 new digital plates for laser imaging were announced, especially "thermal" plates from Eastman Kodak and Presstek that had the potential for dry, nonchemical processing. Other dry-film products were shown by Eastman Kodak, Polaroid, and Xerox.

      Worldwide installations of Indigo (Israel) and Agfa/Xeikon (Belgium) digital colour-printing systems totaled 800 units. New digital printers were shown by Scitex/Fuji-Xerox (Israel and Japan) and Canon (Japan), ushering in the second wave of high-productivity digital colour printers. High-speed ink-jet printing was shown by Scitex on-line with web and sheetfed presses for customized printing as well.

      The increasing ability to output directly to film, plate, and paper was supported by the worldwide trend to on-demand digital document production. Over 65% of all printed pages were now produced on electronic workstations and output as page description coding based on the PostScript language developed by Adobe Systems, Inc.

      Digital page production also had advanced because of the proliferation of high-quality image scanners, the availability of digital cameras, and advanced software for art creation, image manipulation, and page design and production. New digital proofing devices, such as Polaroid DryJet ink jet, Scitex Iris ink jet, 3M Rainbow dye sublimation, and Eastman Kodak Approval ablation technologies provided simulated representations of colour printing prior to film, plate, or paper output.

      Although worldwide print volume was growing, there appeared to be challenges to traditional print on the horizon. In 1995 more encyclopaedias were distributed on CD-ROM than in print, and most major publishing companies had created new media divisions to develop products for interactive multimedia. The growth in desktop colour printers was significant—pundits predicted the future might see the reproduction of one page on a million printers instead of a million pages on one press.

      (FRANK J. ROMANO)

      This updates the article printing.

RETAILING
      For many of the world's biggest retailers in 1995, the real action was in the boardroom and not on the sales floor. Numerous chief executives resigned or were forced out, hundreds of stores were closed, and entire divisions were sold. Growth had come easily in the spendthrift 1980s. With the 1990s having ushered in an era marked by frugal consumers and intense competition, however, it was time to retrench and refocus.

      Nowhere was the trend more apparent than at Kmart Corp. as the second biggest U.S. retailer struggled to revive its sagging fortunes. Under fire from shareholders for declining market share and profits, Joseph Antonini resigned as Kmart president and chief executive officer (CEO) in March after having been ousted as chairman in January. He was replaced by Floyd Hall, a retailing veteran who in the early 1980s had served as CEO of the successful discount merchant Target Stores. Hall faced a herculean task at Kmart. Plagued by outdated stores, sloppy customer service, and chronic stock problems, Kmart was losing ground rapidly as competitor Wal-Mart Stores Inc. raced ahead. In 1987 Wal-Mart's sales were roughly half of Kmart's. By fiscal 1995, however, Wal-Mart's annual sales of $82.5 billion were more than double Kmart's, at $34 billion.

      Kmart's turnaround strategy was to shed noncore assets and use the proceeds to spruce up its discount stores and to build more Super Kmarts, which featured a discount store and supermarket under one roof. Kmart sold its 860 auto service centres and its stake in three specialty retailers, Borders Group (books and music), OfficeMax (office products), and Sports Authority (sporting goods). It also announced the closing of nearly 200 of its more than 2,100 discount stores. Over 18 months Kmart raised approximately $3 billion, a sum that seemed sure to rise as it considered selling a fourth chain, Builders Square (home-improvement goods). As Kmart's troubles mounted and its stock plunged, the corporation avoided bankruptcy by reorganizing its debt and forgoing a common-stock dividend.

      Kmart was coming to grips with its troubles just as Sears, Roebuck and Co. was putting the finishing touches to its own sweeping restructuring. The third-ranked U.S. retailer sold its 80.3% stake in insurer Allstate Corp. for nearly $10 billion, the biggest in a string of asset sales that returned Sears to its roots as a department store retailer. Much of the credit for Sears's successful turnaround, which began in 1993 with the closing of more than 100 stores and the venerable Sears catalog, went to Arthur Martinez, who had been hired away from Saks Fifth Avenue to head Sears's retailing operations. He was rewarded with a promotion to chairman and CEO, replacing Edward Brennan, who retired after 39 years with the company.

      The revolving door to the executive suite was spinning outside the U.S. as well, often pushed by institutional shareholders who were unhappy with the way companies were being run. In Canada, for example, one of the biggest specialty clothing store operators, Dylex Ltd., filed for court protection from creditors after years of losses. Nearly 200 of its 877 stores were closed, and Dylex's controlling shareholder, the Posluns family, was pushed out, its investment reduced to almost nothing. In Australia institutional investors forced the resignation of Solomon Lew, chairman of the country's largest retailer, Coles Myer Ltd. Lew, who remained a significant shareholder, had been dogged by controversy arising from questionable transactions between his private companies and Coles.

      Around the world consumer spending rebounded somewhat, but shoppers remained cautious. Many Japanese retailers endured their worst year in recent memory in 1995 as consumers, their confidence already shaken by the sputtering economy, faced the horror of terrorist attacks and a powerful earthquake that devastated the city of Kobe. Japan's biggest supermarket operator, Daiei Inc., posted its first-ever loss for the year that ended in February.

      After a burst of expansion in the early 1990s, many retailers paused to catch their breath. Home Depot Inc., the U.S. home-improvements chain, put a planned foray into Mexico on hold and said that it would add 5 instead of 10 stores in Canada in 1996. The U.K.'s Body Shop International PLC said that it would slow the pace of U.S. expansion. Not everyone was scaling back, however. Wal-Mart, the world's largest retailer, with about 3,000 stores, forged ahead with plans to open more than 200 discount stores, supercentres, and Sam's Club stores in 1996 in the U.S. and abroad. Meanwhile, the U.S.-based Toys "R" Us Inc. said that it would open a chain called Babies "R" Us to sell everything from bibs to cribs, going head-to-head with Baby Superstore Inc. and others. (JOHN HEINZL)

SHIPBUILDING
      By the second quarter of 1995, according to figures produced by Lloyd's Register of Shipping, there were 2,367 ships of 44.1 million gt (gross tons) in the world order book, of which the cargo-carrying component was 1,800 ships of 43.7 million gt. Nearly 400 of the latter were dry-bulk carriers. The preponderance of dry-bulk carriers in the order book was perhaps explained by the previous year's shipping activity. During 1994 there had been an increase in ore and bulker orders because of a firming of freight rates in the dry-bulk markets.

      These developments were reflected in the 1995 second-quarter cargo-carrying order book figure of 43.7 million gt, with the largest categories by ship type as follows: 398 dry-bulk carriers of 14.3 million gt, 245 oil tankers of 11.8 million gt, 315 container ships of 7.4 million gt, 59 liquefied-gas ships of 2.2 million gt, 388 general cargo ships of 1.8 million gt, 125 chemical carriers of 1.6 million gt, and 108 passenger ships of 1.8 million gt. The delivery schedule of the 1,800 cargo ships in the order book was, in 1995, 844 ships of 14.4 million gt; in 1996, 720 ships of 20.5 million gt; and, in 1997 and beyond, 236 ships of 8.6 million gt.

      The principal shipbuilding areas continued to be Asia and Europe, though Denmark's Burmeister & Wain was forced to close. For the second quarter of 1995, South Korea, with 30% of the world's order book in terms of gross tonnage, overtook Japan, which had 29%. Together these two Asian shipbuilding countries accounted for nearly 60% of the total world order book. In contrast, Western Europe took 17.6% and Eastern Europe 13.1%.

      South Korea overtook Japan in 1995 both in the volume of its order book and in the number of orders reported, perhaps as a result of expanding its shipbuilding facilities. This development obviously affected the competitive position of Japan, as did the value of the yen. The very large crude carrier and bulker markets appeared to have been left by European shipbuilders to Asia, while Europeans concentrated their efforts on sophisticated high-value tonnage such as cruise ships, container ships, liquefied-gas carriers, chemical carriers, and refrigerated cargo ships.

      Efforts were in hand to revive the fortunes of U.S. shipyards, which had previously relied heavily on defense contracts, to make them internationally competitive for new commercial building. The Maritech program, coordinated by the U.S. government's Advanced Research Projects Agency, awarded a number of research projects to 18 U.S. shipbuilding companies. Another measure to assist U.S. shipyards was the introduction of Title XI financing, which provided a federal guarantee for up to 87.5% of a project's financing over 25 years at attractive interest rates.

      The expanding shipbuilders of South Korea and Japan continued to be challenged by China. Shanghai's Pudong area was to be the site of the largest shipyard in China, capable of building six 150,000-dwt (deadweight ton) vessels a year. The yard would have facilities for steel processing, hull welding, pipe production, painting, and computer-aided design. The owners were Jiangnan Shipyard, which had been building ships for 130 years.

      Chinese banks were behind an operation to finance the building in China of six ships for the merchant fleet of The Sudan. The combined tonnage of the ships would be 23,000 dwt, and they would be built over a six-year period. Wang Rongsheng, general manager of the China Shipbuilding Corporation, forecast that the country would be building 2.5 million gt of ships by the end of the 20th century. (EDWARD CROWLEY)

      This updates the article ship construction.

TELECOMMUNICATIONS
      AT&T surprised the telecommunications industry in 1995 when it announced that it would voluntarily split itself into three publicly held companies. Occurring just 11 years after the breakup of the old Bell System, when AT&T divested itself of its regional telephone companies, this latest restructuring represented the largest voluntary breakup in U.S. history and isolated AT&T's profitable core business—long-distance and wireless communications. It also paved the way for AT&T to enter into the local phone service market. Two new companies would be formed from its equipment manufacturing and its AT&T Global Information Solutions (GIS), formerly NCR Corp. By spinning off its computer division, AT&T retreated from its attempts over the previous 10 years to become a major player in the computer business. AT&T also kept its profitable AT&T Universal Card Services, which in five years had grown to more than 15 million credit card accounts. Also in 1995, AT&T announced that it was the first U.S. long-distance company to offer service from the U.S. to every country in the world.

      The U.S. Federal Communications Commission (FCC) continued its public airwave auction in 1995. After announcing bids of almost $500 million for 30 regional advanced paging, or narrowband personal communications services (NPCS), licenses in late 1994, its March 1995 auction for 99 personal communications services (PCS) spectrum licenses brought in more than $7 billion. This next generation of portable telephone service saw bids from 18 different companies go as high as $493.5 million for the Los Angeles region and a bid price per potential customer of almost $32 for one Chicago license.

      As the largest spenders, the Sprint Corp., in partnership with cable firms Tele-Communications, Inc., Comcast Corp., and Cox Cable Communications, formed Wirelessco and bid more than $2 billion for 29 licenses. AT&T Wireless was the next highest bidder, at $1.6 billion, for 21 licenses. Only the right to use the spectrum was awarded, and winning companies had to provide the equipment needed to deliver the services as well as the cost of moving the current users of the spectrum to other areas. Additional PCS auctions aimed at small businesses were scheduled to take place in 1996. MCI Communications Corp., the number two long-distance carrier without partners in the bidding for PCS licenses, announced its plans to purchase Nationwide Cellular Services, Inc., a reseller of cellular service, for $190 million.

      In September, SkyTel Corp. introduced the first NPCS product—SkyTel 2-Way—a two-way paging service that allowed customers to respond to paging messages with 500-character messages. Also in September human error rendered millions of pagers useless when thousands of satellite receivers were inadvertently turned off.

      Modems with speeds of 28.8 kilobits per second became available at prices below $500 in 1995. Future modems were expected to be able to transmit video over analog phone lines. The Internet and its World Wide Web pages were the most dynamic telecommunications service of 1995. In addition to providing text-based information, the Internet was providing sound, animation, and electronic commerce. It was also being used to place long-distance telephone calls between the U.S. and Israel. Integrated Services Digital Network, a digital switching technology, surfaced as a high-speed alternative to modems for Internet access.

      Because of the increased use of fax machines, modems, and cellular phones, countries such as the United States and Britain found themselves running out of phone numbers. In North America the middle digit of the area codes, once restricted to 0 and 1, was expanded to allow other digits. By the end of 1996, 22 new area codes were planned. Because toll-free 800 numbers were also being used up, an 888 prefix was added, to be followed by 877, 866, and so on down to 822. The U.K. increased from two digits to three its geographic area code.

      The U.S. House and Senate passed their own versions of telecommunications reform bills in 1995, and disputes over the final shape of the legislation continued through December. It was expected that the final bill would provide long-distance companies access to the local-exchange market, until now monopolized by the Regional Bell Operating Companies, and would allow the RBOCs to provide long-distance services. In addition, telephone numbers would become "portable" so that customers could change service providers without changing their telephone numbers.

      New products introduced in 1995 included a 110-g (3.9-oz) cellular telephone, a pager the size of a fountain pen, a cross between a cordless and a cellular phone, and a wireless programmable sign that provided news, stock quotes, and sports results in public places. (THOMAS E. KROLL)

      This updates the article telecommunications system (telecommunication).

TEXTILES

Overview
      Problems in the world textile trade continued in 1995, although in the United States there was some upturn in the retail trade. American manufacturers continued to search for partners to participate in joint ventures, usually aimed at making products that would find a ready market in the United States but that could be produced in Mexico or elsewhere at a lower cost. In Europe there was a continuing decline in the numbers employed in textiles. The liberalization of trading conditions in Asia, however, had led to explosive growth. Vietnam, emerging from virtual isolation, continued its ambitious plans to develop textile production, one such scheme being a project in partnership with South Korean interests to build a polyester fibre plant and then to convert its production into goods, most of which would be exported.

      There was movement among textile machine builders to transfer their production to be nearer customers in the Pacific and Indian Ocean areas. Production of shuttleless looms had started in Pakistan, for example, with technical assistance provided by a South Korean partner. In Indonesia one large textile-manufacturing company was now building its own looms. In India partnerships with various European equipment makers were being forged, and one Austrian company had transferred all its production of drive belts to that country, while a German machinery maker neared completion of a plant in India to make ring spinning machinery.

      Despite the talk of automation replacing people and contributing to a more level playing field in terms of competition, labour costs remained a key factor throughout the world textile industry. Although the trend toward complex and sophisticated electronically programmed automation continued in garment making, it remained very much a cottage industry. It was a labour-intensive industry, but it did not demand particularly high skills or high capital investment to produce quality products.

Man-Made Fibres.
      Figures issued by the International Rayon and Synthetic Fibres Committee showed that in 1994, the most recent year for which figures were available, man-made-fibre production was 21,102,000 metric tons, compared with cotton at 18,982,000 metric tons and wool at 1,544,000 metric tons. Asia showed no slowdown in the production of the major synthetic fibres.

      There was a constant flow of news in 1995 about projects to build new fibre plants, almost all for the making of polyester filament yarns and the staple fibres that emulate silk, cotton, and wool. Almost unnoticed, however, was the astonishing rise in the production of olefin fibres, particularly polypropylene. Although the output of nylon in 1994 in Western Europe rose slightly, it was matched almost exactly by polypropylene. Based on a polymer made by converting the inflammable waste gases (propylene) from oil refineries into a meltable polymer, the fibre could be extruded in comparatively simple plants.

      Polypropylene producers thus tended to be comparatively small companies, often units within large organizations that used all the fibre they could make within their own company. Very low in its specific weight, the fibre floated in water and had immense strength and durability, making it ideal for marine uses such as ropes, hawsers, and fishing nets. Because it did not rot or otherwise degrade, even in damp environments, polypropylene also had largely supplanted jute as the backing material for carpets.

      In the developed countries there had been a move away from making fibres such as polyester, acrylic, and nylon and toward highly complex fibres. In Britain, for example, an acrylic fibre had been made that incorporated microcapsules containing phase-change materials, which absorbed and released heat as they changed from one environmental state to another. The development was seen as having potential for use in making lighter-weight blankets.

      In Switzerland one maker had started to produce a synthetic fibre based on starch, which, being biodegradable, might have uses in agriculture. Exotic fibres continued to be developed for highly specialized applications such as the aerospace sector, where high cost was not as important as performance. (PETER LENNOX-KERR)

Wool.
      The year 1995 started well for wool. Prices had risen strongly in 1994, with Australia's representative eastern market indicator (EMI) accelerating from its 1993 recession low of less than 400 cents (Australian) per kilogram (1 kg = 2.2 lb) to exceed 800 cents in September 1994. It held on to most of the increase into the opening weeks of 1995. By then China, the leading customer for Australian wool, had become an active buyer, and an EMI price peak of 842 cents was reached in April. Even when Chinese buying later declined because of stricter import duties and credit restrictions, there was no immediate loss of confidence. Wool-production estimates were down, and Chinese interest was expected to revive later in the year.

      Wool prices declined at an accelerating pace during the opening months of the 1995-96 season, which began in July. Further reductions in Australian production estimates failed to check the decline. A later forecast for Australia in 1995-96 was 448,000 metric tons clean, compared with 477,000 metric tons in 1994-95. World wool supply, including stocks, was estimated at 1,647,000 metric tons in 1995-96, compared with 1,658,000 metric tons in 1994-95.

      Australia's stockpile-disposal policy, with Wool International required by legislation to sell a quarterly quota of about 190,000 bales, proved disruptive in a falling market. Stockpile wool was offered privately at a discount, and it failed to sell adequately when offered at auction in October. The EMI reached a low point of 582 cents before demand revived and stockpile sales improved.

      Apart from China's erratic and uncertain situation, Western Europe and Japan were affected by disappointing retail sales and orders. The year ended with the market outlook difficult but with hopes of a steadier price trend. The longer-term outlook—with wool supplies declining and the stockpile liquidated and with the Commonwealth of Independent States becoming a consumer instead of a maverick supplier of wool—was for improving demand and rising prices. (H.M.F. MALLETT)

      This updates the article textile.

Cotton.
      Despite a somewhat gloomy outlook, there was a general increase in cotton consumption in 1995. According to the International Cotton Advisory Committee, economic growth was expected to lead to higher levels of cotton use, with world consumption estimated at 19 million metric tons in 1995-96.

      The disaster among cotton farmers in Pakistan, where heavy rains and flooding caused immense damage in Punjab and Sindh provinces, continued in 1995. It was estimated that farmers lost about $4 million over the season and that about half the entire crop was damaged. There also were serious insect infestations of cotton fields. Another area hit by bad weather was southern Africa, where, in contrast to Pakistan, the problem was drought. In the 1994-95 season, production in South Africa dropped by 5,000 metric tons to 22,000 metric tons, while in Zimbabwe the fall was far worse, by 21,000 metric tons to only 39,000 metric tons. There was also a serious shortfall in Tanzania.

      The adjustments following the collapse of the Soviet Union continued to be reflected in low cotton crops. In Russia alone the consumption of cotton by mills was only 350,000 metric tons in 1994-95, a fall of 100,000 metric tons. Uzbekistan was granted a World Bank credit worth $66 million to develop cotton farming. The money was to be used in the production of cotton seed, in the resolution of irrigation difficulties, for treatment of plants, and in the marketing and certification of cotton. In Syria a drop in production was blamed on a lack of irrigation together with excessively high summer temperatures.

      In Australia, however, where the area under cotton cultivation in 1994-95 declined, an increase in yield resulted in an overall rise of 6,000 metric tons to a total of 335,000 metric tons. In the United States, expansion continued in the cultivation of very long-fibre Pima cottons in the Southwest.

      In Peru, after years of serious political problems, the economy was beginning to recover, with special attention being given to revitalizing cotton growing.

      (PETER LENNOX-KERR)

      This updates the article textile.

Silk.
      The worldwide supply of and demand for silk were nearly in balance during 1995, as concern about a drop in demand was followed by news of a poor cocoon crop in China that resulted in a shortage of the high-grade silk needed for modern processing machinery.

      The industry malaise in Europe came to an end. Old stocks were absorbed in Italy and France, and demand for such silk accessories as ties and scarves was good. The restriction on silk garment imports imposed by the European Union (EU) in March 1994 did not appear to create a shortage and resulted in an improvement in the quality of imported silk and an enhanced image for the fibre.

      In January 1995 China and the EU signed trade agreements regarding future silk quota levels and licensing arrangements. More Chinese goods were allowed into the EU than in 1994 but fewer than in 1993.

      China remained both the largest consumer and the largest producer of silk, while in Japan, for the first time, silk used in the manufacture of Western-style clothing exceeded that used for making kimonos. The Indian industry continued to flourish, and raw silk was imported to meet demand. Brazilian quality continued to improve, and certain grades of silk were priced 25% higher than Chinese silk.

      Silk waste and noils continued to be scarce, while the market for knitted garments from noil yarn contracted. World silk production for 1994 was estimated at 100,935 metric tons. The top three producers were China (72,500 metric tons), India (13,500 metric tons), and Brazil (2,535 metric tons). (ANTHONY H. GADDUM)

      This updates the article textile.

TOBACCO
      Contrary to expectations, the antismoking movement reduced neither world manufacture nor consumption of tobacco products in 1995. The world consumed 5,342,991,000,000 cigarettes during the year, almost as many as in 1990, the year of peak consumption. The downward drift in some markets—notably the United States—showed a temporary reversal. World production of raw tobacco, however, was lower in 1995, at 6.4 million metric tons because of large carryover stocks from previous harvests.

      There were profound changes continuing in the structure of the world market for tobacco products in 1995. The large private tobacco groups in the West had formerly been denied entry to the huge market in the Soviet bloc. With the breakup of the Soviet Union, these companies positioned themselves to purchase controlling interests in what had been monopoly government enterprises. In new and modernized factories throughout the former Soviet empire, they were producing modern-style cigarettes, including many bearing international brand names. While Western manufacturers had been largely restricted to domestic trade and a small export business, they now were virtually global, although China slowed their spread there.

      The most significant change this westernization was bringing to Eastern Europe was the introduction of milder tobacco blends. State monopolies previously had made cigarettes of whatever local farmers grew and what the factories could import cheaply. The result was rough, harsh cigarettes (many without filters), with no pretensions to elegance or modernity. National tastes were changing, however, to favour blends in which mild flue-cured and Burley tobaccos were dominant and the role of pungent dark tobaccos diminished. Together with consumers' preference for cigarettes with low tar and nicotine, this affected the leaf market by increasing the demand for mild tobaccos.

      The industry's critics lauded the decision of the U.S. Food and Drug Administration in 1995 to begin the process of classifying nicotine as an addictive drug, a status that would allow the agency to assert jurisdiction over the sale of cigarettes. The move was part of a larger program proposed by U.S. Pres. Bill Clinton to put further restrictions on the tobacco industry. (MICHAEL F. BARFORD)

TOURISM
      World tourism saw only moderate growth in 1995 when compared with record levels in the previous year. Consumer caution and a slow climb out of recession in main origin countries, including the U.S., Japan, Germany, the U.K., and France, explained this trend. Prospects for international air travel looked bright, however; the International Air Transport Association estimated scheduled passenger growth at 7% for 1995, with Asia-Pacific the fastest-growing region. While the world's largest tour operator, Touristick Union International of Germany, showed an 8% growth in clients and a 9% growth in revenue for 1995, U.K. majors such as Thomson and Airtours found that flat demand put growth in jeopardy.

      A regional analysis showed that Africa's tourism industry was showing good growth in 1995. Sub-Saharan Africa showed the most promise, with South Africa's arrivals up by 24%. Tunisia welcomed 6% more tourists than the previous year, but Morocco, the region's leading destination, continued to decline.

       Leading International Tourist DestinationsThe U.S. expected a 4% decline in visitor numbers owing primarily to weakness in neighbouring markets Canada and Mexico. (For Leading International Tourist Destinations, see Table (Leading International Tourist Destinations).) Canada, however, moved ahead by 8%, and Mexico grew 2%. Greg Farmer, undersecretary for travel and tourism in the U.S. Department of Commerce, reported that while international visitors would spend $77 billion in the U.S. during 1995, poor advertising undermined tourism potential. Argentina's tourism expanded by 5% and Jamaica's by 7%. Caribbean destinations were repeatedly battered by hurricanes during the fall, which damaged facilities at Antigua, St. Martin, and St. Thomas. Costa Rica, visited by 800,000 tourists annually, remained Central America's prime ecotourism destination, welcoming visitors to its 28 parks and reserves. Guatemala, Honduras, and Mexico cooperated in the development of the "Maya Trail" linking of the archaeological sites in the three countries.

      India's tourism market grew 3%, Sri Lanka's 5%, and Maldives' 15%. Myanmar (Burma) relaxed entry formalities to welcome tourists during "Visit Myanmar Year 1996." Generally there was strong growth in Pacific Rim countries: the Philippines 18%, Thailand 15%, Australia 11%, China 8%, South Korea 5%, and Singapore 3%. Japan's tourism fell by 4%, however. Australia's Tourism Minister Michael Lee announced a $550 million investment in new tourist accommodations, as well as help for ecotourism development on Pacific islands.

      With the apparent arrival of peace in the region and despite continued security problems, the Middle East reaped a sizable tourism dividend; Egypt expected three million tourists in 1995, a 20% increase over 1994. Israel and Jordan anticipated 20% and 16% growth in tourist numbers, respectively. Syria began to market its rich history and scenery with $900 million for new hotel investment in 1995.

      In Europe tourism continued to decline in Austria, Germany, and Switzerland. Despite excellent snowfall in the Alps, Switzerland's winter sports season weathered a 6% drop. Spain saw a 3% growth in arrivals, France 6%, the United Kingdom 7%, and Turkey 15%. The U.K. welcomed a record 2.6 million visitors during an exceptionally warm July and promoted London as a good tourist value. Fierce competition between English Channel ferries and the new Channel Tunnel (Eurotunnel) continued as Eurostar announced lower fares and hourly shuttles on its London-Paris/Brussels services. Starting July 1 seven countries (Germany, Spain, Portugal, Belgium, The Netherlands, Luxembourg, and France) were grouped in a border-free zone in the hope of increasing tourism within the European Union.

      On Sept. 5, 1995, the World Tourism Organization (WTO), the World Travel and Tourism Council (WTTC), and the Earth Council launched Agenda 21 for travel and tourism in London. The WTO secretary-general, Antonio Enríquez Savignac, the WTTC president, Geoffrey Lipman, and the Earth Council chairman, Maurice Strong, revealed priority issues for governments and the industry to address in order to meet Rio de Janeiro Earth Summit guidelines. In October the WTO general assembly in Cairo celebrated the 20-year anniversary of the intergovernmental tourism association, whose membership numbered some 130 states and 304 private-sector affiliates in 1995. During the Cairo conference, the WTO adopted a declaration for the prevention of organized sex tourism. Germany was host to an international meeting to combat the growing problem of sex tourism and juveniles. Australia, France, Germany, Norway, Sweden, and the U.S. had already adopted laws allowing tourists to be prosecuted for traveling abroad and committing sex crimes. (PETER SHACKLEFORD)

WOOD PRODUCTS

Wood.
      The global wood supply remained tight in 1995, prompting producers to rely more on wood products such as panels that used wood residues and on smaller-diameter trees. U.S., European, and Asian markets looked to South America and Russia for alternative forest resources.

      Environmental restrictions continued to force lumber mills to close in the western United States as companies struggled to find sufficient raw materials. In 1994 there were 421 sawmills operating in the western U.S.; in 1995 the number had fallen by 9% to 383 mills. Some companies were moving to the southeastern U.S., where the timber supply from private plantations was more stable.

      The wood panel industry enjoyed increasing production and plant capacity in 1995. Construction of medium-density fibreboard plants rose globally, with 51 expansion projects in Asia, 25 in North America, 18 in Europe, and 7 in Oceania. European and U.S. producers hoped that Asia's furniture industry would absorb much of the new capacity. Taiwan, Japan, China, and South Korea alone generated an import demand of 1 million-1.2 million cu m (1 cu m = 423.8 bd-ft) per year. Natural disasters, such as the earthquake that struck the Kobe, Japan, area, was also expected to raise the demand for prefabricated homes using structural laminated lumber, which had withstood the quake well.

      Tight wood supplies in the United States and Europe, coupled with strong demand in Asia, led to increased interest in the forest resources of South America and Russia. Brazilian softwood log exports—mostly to Europe—reached 780,000 cu m in 1995, up from 185,000 cu m in 1993. Chile's forest products exports were expected to grow by 50% in 1995. Russia's vast Asian timber resources attracted U.S. investors, but political instability and the lack of data and infrastructure remained strong impediments.

      The movement to certify timber from sustainable forests gained momentum internationally. Movements in the U.K. and the U.S. spawned several certification initiatives in Indonesia, Brazil, Africa, Scandinavia, Italy, and Canada. The International Standards Organization was working on the establishment of international certification criteria. Other efforts were more local, with individual groups setting standards for specific regions of the world. Although the forest products industry was starting to explore certification, it was unclear whether consumers would pay more for certified wood products.

      There also were developments in the international regulation of the forest products trade. Japan approved the abolition of regulations affecting a wide range of wood products. With new membership in the European Union, Finland and Sweden, Europe's largest exporters of wood products, would have voting rights in deciding future wood-trade policies for EU countries. A long-standing dispute over Canadian exports of softwood lumber to the U.S. was resolved after a bilateral consultation process was established, although there were indications that the U.S. might file another complaint. Canada offered in December to cut such shipments to the U.S. by imposing an export tax on lumber companies in British Columbia. Their share of the U.S. market was expected to decline.

      (WORLD FOREST INSTITUTE)

      This updates the article wood.

Paper and Pulp.
      The North American pulp and paper industry in 1995 was enjoying the best market conditions in five years. All sectors of the marketplace, from newsprint to recycled fibre, saw price increases. Pulp moved to record demand and prices, and several factors indicated that the market would remain strong well into 1996.

      World pulp, paper, and board production in 1994, the last year for which complete figures were available, was 268.5 million metric tons, an increase of 16,840,000 metric tons, or 6.7%, over 1993. Western Europe showed an impressive 8.2% increase in total production in 1994, with Germany taking the lead. Germany would no doubt increase production again in 1995 as three new newsprint machines reached full capacity. Eastern Europe appeared to have reached bottom as Asia rose sharply, with production increases in 1994 of 27.3% in Thailand and 17.5% in Indonesia. China produced 21.4 million metric tons in 1994, up from 18.7 in 1993. Asia as a whole recorded an 8.4% increase in 1994 and was steadily expanding capacity.

      Pulp production rose to 171.5 million metric tons in 1994, a 5.4% increase over 1993. The share of pulp in papermaking, however, continued its steady decline of 1% a year. The trend toward the use of recycled fibre in deinked pulp would undoubtedly continue, but obtaining even recyclable fibre proved to be more difficult as it became a premium-priced product.

      The start-up of recycling operations in North America and Europe continued to affect the availability of wastepaper for export, as evidenced by the record prices for all grades of wastepaper. The increase in North American and European demand was not likely to be offset by a significant increase in recycling rates, since the supply was not building fast enough.

      As demand continued to exceed supply, pulp mills in both North America and elsewhere were running at full capacity, with many customers on waiting lists. Worldwide pulp capacity was expected to grow by less than 1% in 1996 and by 2% in 1997, with Indonesian and South American projects starting up. The biggest impediment to expansion was the lack of the wood fibre, which had become increasingly difficult to obtain, needed to supply existing mills. Because of the shortage of raw materials, the industry was looking at low-fibre and even at "tree-free" paper.

      The U.S. industry was awaiting the final outcome of the Environmental Protection Agency's cluster rules. The industry claimed that the regulations, as written, would impose significant economic hardships on pulp producers, forcing them to install unproven, expensive technology with no significant environmental benefits.

      (H. CLAUDE LAVALLÉE)

      This updates the article papermaking.

▪ 1995

Introduction

Overview
      The world recession finally ended in 1993 and, for the first time since 1990, output in all of the major economies advanced in the first quarter of 1994. By the end of the year, recovery was in progress across the industrialized world.

       Annual Average Rates of Growth of Manufacturing Output, 1980-93, Table Index Numbers of Production, Employment, and Productivity in Manufacturing Industries, TableIn the case of the G-7 economies (Group of Seven: the U.S., Japan, Germany, France, Italy, the U.K., and Canada), the economic cycle remained desynchronized. U.S. output had risen steadily since 1991; in the U.K. recovery began a year later. In continental Europe it was only at the end of 1993 that the turnaround definitely arrived; in Japan it was not until the second half of 1994 that recession finally came to an end. For the industrialized world as a whole, 1993 marked the fourth successive year in which the manufacturing industry had contracted (see Table I (Annual Average Rates of Growth of Manufacturing Output, 1980-93, Table) and Table IV (Index Numbers of Production, Employment, and Productivity in Manufacturing Industries, Table)).

      The differing cyclical experience was reflected in the policy stance of the G-7 economies. In the U.S., where inflationary concerns were becoming more important than the need to support demand, the long period of monetary ease came to an end in 1994, starting with an upward move in interest rates in February. The U.K. followed with a severe fiscal tightening in April and an interest-rate hike in September. In Germany and across the core economies of the European exchange-rate mechanism (ERM), interest rates continued to fall. In Japan both fiscal and monetary policy eased.

      Still, the U.S. dollar remained weak, falling in the course of 1994 to new post-World War II lows against the Japanese yen. Its weakness was exaggerated by the fall in world bond markets after the U.S. Federal Reserve Bank began to raise interest rates. While the U.S. authorities were happy to have a low dollar, since this improved the competitiveness of U.S. industry, it caused major problems for Japan, which traditionally relied upon exports to drive its economy forward. Japan was struggling to redirect demand away from exports in favour of domestic spending, especially consumption. Meanwhile in the U.S., domestic manufacturers reveled in the heightened competitiveness with the Japanese; nowhere was this more evident than in Detroit, Mich., where the U.S. automobile industry won back market share.

      Perhaps the major surprise in the world economy in 1994 was the speed with which continental Europe turned around. By midyear it was clear that recovery had begun and that exports were the main factor. German capital goods exporters in particular were taking advantage of the strength of the yen to steal the march on their Japanese competitors, especially in Far Eastern markets.

      One reason why the U.S. government was so keen to secure a move away from export dependency in Japan was the way in which many Pacific Rim economies followed the Japanese strategy of export-led growth and developed rapidly as a result. The recession in the G-7 barely touched upon the dynamic Asian economies, which continued to record double-digit rates of growth in manufacturing output. In this they were helped not only by the strength of the yen—since many of these economies pegged their currency to the dollar—but also by the outflow of Japanese capital looking for more profitable opportunities in the low-wage economies elsewhere in Asia. Here the main development was the speed at which China was industrializing, especially in the provinces adjacent to Hong Kong.

       Pattern of Output, 1990-93, TableThe world economy was experiencing a major shift in the centre of gravity of industrial production (see Table III (Pattern of Output, 1990-93, Table)) —away from Europe and North America and toward the newly industrializing, dynamic economies of Southeast Asia. Vietnam, in particular, seemed to have begun the next great boom in the area. Newly privatized local industries were making an impressive turnaround, and foreign investors and aid agencies were lining up to assist. Coping with the competition from Asia was a key determinant of growth elsewhere in the world. One encouraging feature was that many of the economies of Latin America were responding well, throwing off their hyperinflationary past. (See Latin America's New Economic Strategy (Spotlight: Latin America's New Economic Strategy ).)

       Manufacturing Production in Eastern Europe and the Former Soviet Union, TableFor the former communist economies, now in transition to a market-based system, the challenge from Southeast Asia was an extra hurdle. So far the more reformist economies of Eastern Europe were meeting the challenge because they benefited from their proximity to main European markets and their low wage costs. For the less reform-minded and those economies farther from Western Europe, however, huge difficulties remained (see Table II (Manufacturing Production in Eastern Europe and the Former Soviet Union, Table)). (GEOFFREY R. DICKS)

ADVERTISING
      The advertising industry in 1994 saw a rebound in ad spending that made industry executives optimistic that the "lean and mean years" of the early 1990s were permanently in the past. Ad spending by the 100 leading national advertisers, which account for more than a quarter of all advertising in the U.S., reached $37.9 billion in 1993, up 5.2% from the previous year. The Procter & Gamble Co. retained its title as the nation's leading advertiser, with total 1993 ad outlays of $2,397,500,000, up 10.8% from 1992. Consumer products and tobacco giant Philip Morris Co. ranked second, and General Motors Corp. placed third.

      Widespread recovery of ad spending elsewhere lagged somewhat behind the U.S. Worldwide ad spending in 1994 was expected by one analyst to be up 5.7% to $318.3 billion, with ad spending in the U.S. alone increasing 7.3% to $148 billion. Chief among the reasons for the renewed interest in advertising was a growing sense among corporations that brand-name products were their greatest long-term assets.

       Most Valuable Brands Worldwide in 1993, TableThe annual brand value report issued by Financial World magazine rated Coca-Cola as the world's most valuable brand, with a value of $35,950,000,000. (See TABLE V (Most Valuable Brands Worldwide in 1993, Table).) The magazine made its valuations on the basis of each branded product's worldwide sales, profitability, and growth potential minus costs such as facilities, equipment, and taxes. A brand with huge manufacturing expenses and a big sales shortfall could slip into a negative valuation, as was the situation with computer giant International Business Machines Corp. (IBM), which ranked last on the list of 290 brands.

      Concurrent with the increased ad spending and brand values, the big four television networks—CBS, NBC, ABC, and Fox—also posted record-setting gains. Advance sales of commercial time for the prime-time season, known as the upfront market, climbed 22% to a record high of $4.4 billion in the summer. The spending frenzy was led by new product introductions, and IBM alone spent at least $150 million in the last three months of 1994 to introduce the Aptiva personal computer.

      "Seinfeld," the NBC-TV megahit, commanded an average $390,000 per 30-second commercial, a 32% price increase over what it charged in 1993. In contrast, ABC's "Home Improvement," the number one rated show, charged only $350,000 a spot for the 1994-95 season. "Roseanne" (ABC) followed with $310,000; "Murphy Brown" (CBS) charged $290,000; and "Monday Night Football" (ABC) rounded out the top five, charging $285,000 per 30-second spot. The suspension of the major league baseball season and the delay in the National Hockey League schedule helped fuel prices for 30-second spots to air during the Super Bowl in January 1995 to more than $1 million, up from $950,000 during the 1994 Super Bowl. Advertisers usually avoided controversial programming, but the demand for advertising time was so strong in 1994 that even gavel-to-gavel television coverage of the O.J. Simpson hearings and trial generated plenty of paid advertising.

      The advent of multimedia entertainment on CD-ROM and interactive, on-line media was much discussed in 1994. The opening to commercial users of the Internet global computer network, as well as commercial services such as CompuServe, Prodigy, and America Online, brought a rush of consumers interested in accessing information through their personal computers. Advertising was still in its infancy on the on-line services, with much debate taking place among advertisers and ad agencies as to how commercials should be presented.

      Maurice Saatchi was forced out in December as chairman of Saatchi & Saatchi, the international advertising group he founded in 1970, under pressure from U.S. stockholders.

      Regulatory agencies worldwide began placing restrictions, some of them outright bans or severe constraints, on the advertising of consumer products, particularly alcohol, tobacco, and children's toys and games. China, the world's largest cigarette market, in October banned all tobacco advertising, while Philip Morris took action against Australia and California for their strict limitations on tobacco ads. In Australia, a country that many advertising executives regarded as a bellwether of social change worldwide, the government was considering tight regulation of advertising on children's media. Broadcasts of "The Mighty Morphin Power Rangers," an animated children's program, were banned in New Zealand after kindergarten teachers complained that children who watched the show were becoming increasingly aggressive and hard to discipline in the classroom. In late October, Greece prohibited toy commercials on TV between the hours of 7 AM and 10 PM. Consumer groups hailed the bill as a major step toward the "preservation of life quality" in Greece and said that it would help protect parents from being pestered by their children to buy the toys they saw advertised on TV. Investment spending in Vietnam by U.S. corporations sharply increased in 1994, led by dueling soft-drink giants Coca-Cola Co. and Pepsico. (LAURIE FREEMAN)

      This updates the article marketing.

AEROSPACE
      The Western aerospace manufacturing companies and airlines began to climb out of the worst-ever cyclical downturn in 1994, but often at savage cost to the social factors involved. Mergers, consolidations, and collaborative agreements continued apace throughout U.S., European, Russian, Indian, and Far Eastern companies in efforts to maintain or increase market share or merely to survive. In the U.S., airframe manufacturers continued to reduce the number of equipment suppliers in order to cut administrative costs and overheads. As a result of enforced slimming, many defense firms began to regain strength and stock prices started to rise.

      The airlines also began a fragile recovery, and the International Air Transport Association predicted that 1994 would see a return to profitability and the end of a five-year slump for its 224 members. Reform of U.S. bankruptcy law was invoked to protect financially sound airlines against unfair competition from tottering operators, such as Eastern and TWA, whose health was being nursed prior to relaunch. In Europe, however, privatization stalled, and governments were still reluctant to liberalize controls and withdraw subsidies. Major examples were Air France and Germany's Lufthansa. The French government's efforts to bail out its national airline—Europe's biggest-ever financial rescue operation of a state-owned company—prompted threats to sue from the British government and seven European carriers.

      The proposed merger between Lockheed Corp. and Martin Marietta showed how far U.S. industry was prepared to go to ensure global economic and technical ascendancy. The resulting Lockheed Martin Corp. was predicted to be the world's largest defense company and, after Boeing, the top Western aerospace company. Lockheed had previously acquired General Dynamics' Fort Worth division, builder of the top-selling F-16 military aircraft, while Martin had bought General Dynamics Space Systems (builders of Atlas) and GE Aerospace (Titan) space-launcher businesses to become the West's top rocket company.

      Northrop Corp., meanwhile, bought out Grumman Corp., a leader in U.S. naval aviation, after an abortive bid by Martin Marietta only months before. In September Northrop Grumman Corp. announced layoffs of 9,000 employees. Later in the year, Northrop Grumman also moved to buy out Vought Aircraft Co.

      Boeing continued as the world's ranking commercial aircraft builder, delivering about 260 aircraft during the year, although production rates generally declined. Boeing's 777 "big twin," a rival to the Airbus A330 that entered into service in 1993, made its first flight in June. The first airliner to be designed entirely on computer, it would also be—controversially—the first aircraft to be certificated for long-range overwater operations from the date it entered into service.

      With 1994 deliveries of around 130, Europe's Airbus Industrie remained the number two aircraft builder. During September the company claimed that it would eventually take 50% of the world's commercial aircraft market. U.S. Pres. Bill Clinton had earlier lobbied the Saudi Arabian royal family, however, and extracted a promise to buy Boeing and McDonnell Douglas aircraft. Aérospatiale, the French group that owned 37.9% of Airbus Industrie, received a $341 million subvention from the government in February.

      McDonnell Douglas, almost bankrupt two years previously, was reborn back in business, a feat accomplished through the slashing of its workforce in half to reduce manufacturing costs. With just two families of airliners (the MD-80/90 series and the MD-11), however, it remained a niche player, and its future was still in doubt.

      While demand for new airliners in the West remained sluggish, big industry growth was to be found among the Pacific Rim nations. Boeing and McDonnell Douglas both sought collaborative agreements with China to satisfy the requirements of the 400 airlines in the region. China's many airlines, already enjoying a growth rate of 25% a year over the past decade, increased that to about 30% in 1994. So phenomenal was the growth that airport capacity was predicted to be a limiting factor. Singapore Airlines took advantage of a still-depressed market to place orders and options for a staggering 52 Boeing 747-400 jumbo jets and Airbus A340-300Es worth in total $10.3 billion.

      Both China and Russia experienced bad accident records. Some 320 operators sprang up in the Commonwealth of Independent States after the breakup of the U.S.S.R.'s national carrier Aeroflot, and safety suffered. Most of the aircraft operated in the CIS had long exceeded their service lives, but deliveries of new aircraft produced locally, such as the Tupolev Tu-204 (with Rolls-Royce engines) and the larger Ilyushin Il-96, remained delayed.

      The military aircraft industry was likewise a scene of struggle. Perceived lessening of world tensions, along with slashed national budgets, resulted in sharp downturns in new equipment purchases. The four-nation Eurofighter 2000 finally made its first flight, but because of development delays at least one customer—Spain—was facing the likelihood of having to acquire stopgap aircraft. The other major European project of immediate interest was the seven-nation Future Large Aircraft. Its sponsors proposed it as a replacement for the 40-year-old Lockheed C-130 Hercules. A bitter marketing struggle ensued with Lockheed to secure the business of the Royal Air Force, which would launch the project. The battle lines were drawn at the usual place: the trade-off of old but available, well-known, and inexpensive technology versus new and more expensive technology with likely development delays but with established European infrastructure. The RAF chose Lockheed on December 16, a $1.3 billion order.

      Small, cheap unmanned aerial vehicles were used increasingly for clandestine surveillance of global trouble spots. The South African air force used them to watch that country's elections, while the CIA planned to introduce them over Croatia and join those already used over Bosnia and Herzegovina to monitor the progress of aid convoys and warn of ambushes.

      Pentagon demands for new defense cuts put at risk such new programs as the V-22 Osprey tilt-wing transport, the F-22 fighter, and the RAH-66 attack helicopter and threatened cutbacks on the B-2 stealth bomber. Meanwhile, such impressive Russian fighters as the MiG-29 and Sukhoi-27, commercial and military threats to top Western fighters, continued to be flown with verve, imagination, and commercial success in search of customers at air shows. Russia completed its crucial deal with Malaysia for 18 MiG-29s. (MICHAEL WILSON)

      This updates the article aerospace industry.

APPAREL

Clothing.
      In 1994 U.S. garment workers, already concerned about the competitive impact of the North American Free Trade Agreement (NAFTA), which went into effect on Jan. 1, 1994, were confronted with the news of the signing in April of the General Agreement on Tariffs and Trade (GATT), a global pact that could have even more far-reaching effects on job security.

      The International Ladies' Garment Workers' Union, which boasted more than 1.2 million members at its peak in 1973, had its membership shrink to only 800,000 by June 1994.

      Though apparel sales were stronger in 1994 than in 1993, they did not meet the expectation of retailers, who had overstocked inventories and were offering deeply discounted merchandise at year's end.

      Simint, the Italian sportswear company that manufactured jeans for Italian designer Giorgio Armani, reported losses in 1994 of 226.5 billion lira. Armani, who held a 22.5% major stake in the concern, infused it with 120 billion lira and placed his firm's financial director, Giorgio Gabbiani, at the helm of the troubled firm. As chairman, Gabbiani orchestrated the sale of the firm's U.S. subsidiary, Simint U.S.A., and its network A/X Armani Exchange stores. The Singaporean group of Ong Beng Seng purchased A/X Armani Exchange for $20 million in October but agreed to license the line under Armani's name.

      Fruit of the Loom Inc., the largest supplier of blank T-shirts in the U.S., bought financially bankrupt jeans manufacturer Gitano Group Inc. Fruit of the Loom paid $100 million for the firm, which reportedly owed creditors $130 million. Particularly attractive to Fruit of the Loom was Gitano's high-profile, 96% name-recognition rate among consumers of jeans and the opportunity to offer Fruit of the Loom knit tops and other apparel to the Gitano line. U.S. designer Liz Claiborne expanded her clothing empire by establishing operations in Dubayy, United Arab Emirates.

      Cross Colours, one of the hottest U.S. manufacturers of hip-hop clothing—apparel with a black urban attitude—nearly vanished from sight in 1994. Its parent company, Threads 4 Life Corp., had reported revenues of $89 million in 1992, up from $15 million in 1990. The Cross Colours factory on the edge of south-central Los Angeles was sold, and clothing production was farmed out to manufacturers through joint ventures and licensing agreements, after the Merry-Go-Round retail chain, which had accounted for some 60% of Cross Colours' revenues, filed for bankruptcy protection.

      During the year some environmentally conscious manufacturers created recycled fabric by melting down clear plastic soft-drink bottles into raw polyester. The polyester was formed into fibres and spun into yarn to produce clothes or heavy-duty material suitable for jackets, hiking boots, backpacks, and shoes. This "green gear" carried the universal recycling symbol and cost a little more than its virgin counterpart. (KAREN J. SPARKS)

      This updates the article clothing and footwear industry.

Footwear.
      The catchword in footwear during 1994 was acquisitions. In the U.S., Nine West Group Inc. twice attempted to add U.S. Shoe Corp. to its empire. On July 27 Nine West offered $425 million to U.S. Shoe for its footwear division alone, which represented about 27% of the company's business. The offer was rebuffed by U.S. Shoe, but in December Nine West sweetened its bid by offering to pay $600 million in cash and warrants convertible into 1,850,000 shares of its own stock, approximately 80% of U.S. Shoe's market value. Investors urged U.S. Shoe to reconsider the deal, which, if completed, would create a nationwide, 800-store retail chain. The joint earnings of the combined companies were estimated at $1.4 billion, about twice Nine West's 1994 revenues.

      Crédit Lyonnais, the distressed French banking company, announced in late December that it would sell its 19% stake in Adidas International Holding, which owned 95% of German sportswear giant Adidas AG, to an investment group headed by Robert Louis-Dreyfus, former senior executive of Saatchi & Saatchi PLC. The move left the state-owned Crédit Lyonnais with a 4% stake in Adidas AG, although it planned to sell that holding as well. Louis-Dreyfus controlled 28% of Adidas, which had revolutionized the design of sneakers but faced increasingly strong competition from such rivals as Nike and Reebok. Adidas was expected to increase sales by 20% in 1994, however. In late December the French manufacturer Z Groupe Zannier sold its Kickers footwear brand to Flavio Briatore, director of the Benetton-Ford Formula One auto racing team.

      (KAREN J. SPARKS)

      This updates the article clothing and footwear industry.

Furs.
      Retail sales of fur apparel continued their upswing in 1994. Sales in the big United States market registered a third consecutive year of increase following five years of decline attributed to the recession that began in 1987. Estimates as the year ended were that U.S. fur sales would be up 10-15% to about $1.4 billion. Showing slower recovery, however, were the important Italian and Japanese markets. Still, 1993 found the supply-and-demand situation much more in balance. In fact, prices of mink and most other furs recovered sufficiently to cause ranchers and trappers to consider increasing production again. A major factor was the strong demand for pelts and apparel to supply not only rapidly growing markets in South Korea and Russia, which heretofore had been net exporters of furs, but also a new and potentially tremendous market in China.

      Mink continued to be the dominant fur, by far, throughout the world, accounting for three-quarters of furs purchased by consumers in the U.S. About 20 million mink pelts were marketed internationally in 1994, and average prices of pelts climbed 43%.

      Imports of manufactured fur apparel into the U.S. continued to rise in 1994, continuing the previous year's upward trend that followed a five-year decline. The increase reflected not only the uptrend in retail sales but also continued shrinkage in the U.S. fur-manufacturing industry, which paralleled declines in other apparel and related trades. Antifur activities appeared to subside somewhat. (SANDY PARKER)

AUTOMOBILES
      The automotive industry experienced significant structural changes in 1994, brought on by growing global competition. Automakers and suppliers alike were forced to undertake massive cost-cutting programs to remain competitive in their traditional, mature markets. At the same time, they were lured to the growth opportunities offered by the surging economies in many less developed nations.

Globalization.
      Ford Motor Co. announced a sweeping reorganization that combined its North American and European automotive operations under one umbrella. Instead of designing separate vehicles for different markets, the company would now develop common vehicle platforms and power trains to be sold worldwide. This was expected to slash costs by eliminating duplication of effort but would also result in hundreds if not thousands of employees being pushed into early retirement. Meanwhile in Japan, Honda was moving in the opposite direction by creating autonomous regional organizations in the Americas, Europe, Southeast Asia, and Japan, each with design and engineering as well as assembly responsibilities.

      Germany's Bayerische Motoren Werke AG stunned the industry with its sudden $1.2 billion takeover of British automaker Rover Group PLC that doubled the size of BMW overnight. The Munich-based manufacturer instantly joined in the low-priced market and the line of sport utility vehicles with the most upscale image in the industry: Land Rover. In late December it was announced that BMW would also collaborate with British Vickers on a new generation of Rolls-Royce and Bentley autos.

      Daewoo in South Korea unveiled plans to double its capacity to two million units a year, which would vault it into the top 10 list of global manufacturers. It also announced a joint venture with a Romanian firm to build up to 200,000 cars by 1998. Samsung, the Korean electronics firm, announced it would enter the automaking business assembling cars in Korea with Nissan.

      General Motors announced plans to use facilities in one place of the world to fill niches in another. Cadillac, for example, would sell a future model based on a platform built by Opel in Germany; Buick toyed with the idea of importing an Australian-built Opel; and Saturn was to get a new model based on the Opel Vectra. Meanwhile, GM's North American operations announced they would export vans to Opel in Europe and agreed on a plan to assemble pickup trucks with body panels made by GM do Brazil to be sold by Isuzu dealers in the U.S.

      GM president Jack Smith announced that he would pull out of the day-to-day details of running North American operations to devote more time to increasing GM's global presence and overseeing its nonautomotive businesses. In a similar move, Louis Hughes was promoted to president of GM's international operations to devote more time to operations outside Europe.

      During the year Detroit's big three automakers began taking advantage of the weak dollar to increase their sales in Japan. Not only did they lower prices, but they introduced several models with the steering wheel on the right-hand side, moves that critics had exhorted them to do for years. Ford bought the Autorama dealerships from Mazda and then announced plans to double sales in Japan every year for the next five years. Chrysler sold over 10,000 vehicles in Japan, small numbers by industry standards but a milestone in terms of the big three's efforts in the Japanese market. GM announced plans to sell 20,000 Chevrolet Cavaliers a year in Japan through Toyota dealers.

      Not all the moves to globalize went well, however. Rumours of a split at Autolatina, the Ford-Volkswagen joint venture in South America, began to circulate about midyear. Though it seemed like a reasonable business deal in the mid-1980s when South America's highly protected markets suffered from few sales and exorbitant inflation rates, Autolatina floundered when South America's economies began to boom, and some of them opened the door a crack to imported vehicles. VW and Ford enviously watched as GM and Fiat racked up record sales in Brazil.

      The joint-venture frenzy that began in the 1980s began to taper off. In Europe the AutoEuropa joint venture between VW and Ford to make minivans in Portugal hit a snag as VW reportedly cut its commitment to buy vans from the plant. Renault and Volvo officially broke off their attempt to merge.

      China drew attention from automakers and suppliers as it unveiled a new five-year automotive plan to carry it into the 21st century. The Chinese government planned to attract two to three high-volume manufacturers and six to seven medium-sized ones by the end of the decade. Shortly after the turn of the century, three or four globally competitive companies would have survived the competition. The government engaged Chrysler and Mercedes-Benz in a race to see which would build minivans on a grand scale in China. The negotiations seesawed back and forth during the year. The government also encouraged automakers to establish parts-making operations in China, as it wanted a full-fledged automotive industry and not just a collection of assembly plants using parts made elsewhere.

      The North American Free Trade Agreement focused tremendous attention on Mexico and opened the Mexican market to more imports. Exports of U.S.-made vehicles to Mexico increased ten-fold over 1993 levels even though Mexico struggled through a recession during the year. European and Japanese companies also laid plans to enter the Mexican market, knowing that in 10 years they would be able to export vehicles tax free into the U.S. and Canada. BMW, Honda, Fiat, and Volvo all announced plans to build assembly plants in Mexico.

Cutting Costs.
      Automakers came under increasing pressure to reduce prices, which, in turn, forced them to cut their costs to protect profit margins and market share. GM completed the sale of all its rear-wheel-drive axle manufacturing plants and sold its heavy-duty alternator and engine-starter business. VW attempted to reduce labour costs by adopting a four-day workweek in Germany. The trade unions accepted this measure only after VW threatened to lay off 30,000 workers. VW also announced it was cutting 43% of its U.S. workforce in a pitched effort to make its American operations profitable.

      In a move that was quickly being emulated throughout the industry, VW announced it would develop all future cars from three basic platforms, down from the current more than a dozen. By increasing parts commonization, the company expected to increase economies of scale and cut costs.

      Pressures were also passed down to the supplier industry. The automotive components groups at GM and Ford were given mandates to expand their sales to other car companies. GM's group was instructed to sell 50% of its components outside the corporation's North American operations, while Ford put plans in place to double its non-Ford business in components to 20% of sales. Chrysler announced that in the next five years it would slash the number of tier one suppliers (suppliers that deliver directly to the factory) it used to 150, down from the current 1,200. Many tier one suppliers announced they would reduce the number of suppliers they used, too.

      GM announced a major reorganization of its North American operations, with an eye to reducing layers of management. GM also created a Small Car Group that included Saturn, ending that division's corporate autonomy, but tried to ensure that Saturn's unique culture was not completely lost by naming Saturn president Richard G. ("Skip") LeFauve to run the Small Car Group. Despite previous attempts at efficiency, GM lost $328 million in North America during the third quarter, even though it was completely sold out of cars and trucks.

Marketing and Sales.
      Chrysler announced that its new Neon compact car would be priced at $8,975. Competitors recognized they could not profitably produce a vehicle at such a low price. Chrysler was thought to earn nearly $1,000 per vehicle. Showing its confidence in the future, the company announced it would boost capacity to 3.2 million units from 2.6 million by 1996.

      U.S. automakers remained bullish throughout the year. Economists at the big three predicted the industry would enjoy strong sales through 1996. Chrysler, the most optimistic of the automakers, predicted the industry would achieve sales of about 17 million units a year by 1996, eclipsing the 16.3 million unit-a-year record set in 1986. Even so, suppliers cautioned there may not be enough manufacturing capacity to reach a 15.5 million sales rate, pointing to shortages in antilock brakes, iron castings, rear-wheel-drive axles, automatic transmissions, and V8 engines. On top of that, American steel companies began to run into capacity problems, which threatened to increase prices up to 10%. The industry also began to run into problems with heavy overtime schedules. Not only did this create labour problems in some places, but there was a growing feeling that the industry was simply working its people and machinery too hard. Gross pay for an average hourly worker in the U.S. reached $48,000 a year, with over $11,000 of that due to overtime pay.

      As in 1993, trucks were the major force driving the increase in the U.S. market. Indeed, trucks (including minivans and sport utility vehicles) now represented 42% of all sales. Chrysler, Ford Division, and Chevrolet were now selling more trucks than cars.

      By midyear most Japanese automakers showed surprising resilience in the U.S. market, despite the strength of the yen, which forced them to raise prices several times. While this adversely affected earnings, they were able to increase their market share beginning in the second quarter and kept on gaining during the rest of the year, thanks to aggressive lease programs.

      Japan's home market, however, struggled through its third year of recession. By year-end the first glimmers of a turnaround began to appear, but not before vehicle production sagged below that of the U.S. for the first time in 15 years.

      The European market also continued to be extremely weak. With the hope that a stronger market was just over the horizon, Fiat, Lancia, Peugeot, and Citroën unveiled four new minivans that they produced jointly. Auto sales continued their strong increase in South Korea, up 18.5% to two million units, and China, up 18.5% to 1,280,000 units. Sales increases in Latin America, though not in double-digit figures, continued at a robust rate.

Foreign Car Makers in the U.S.
      To escape the higher costs imposed by the rise of the yen, Japanese automakers announced they would increase their production in U.S. plants and buy more from U.S. suppliers. Honda, for example, announced plans to increase its North American capacity by 110,000 units a year and to make a new Acura luxury car in Ohio. Fuji announced it would begin assembling 2.2-litre engines for the Subaru Legacy in the U.S. in 1995. Toyota opened its second assembly plant in Kentucky, increasing its capacity in the U.S. by 200,000-250,000 units, and began laying plans to build a front-wheel-drive minivan at its new plant. On the other hand, the company bluntly warned its U.S. parts suppliers that their quality, response time, and costs were still not good enough. BMW hinted that production at its assembly plant in Spartanburg, S.C., would double to 150,000 units, and more models would get added than the company had originally announced.

      Japanese automakers were irked by a U.S. content label law that was introduced in the fall for 1995 models. The label identified the percentages of U.S. and Canadian parts, the two countries that provided the most non-U.S./Canadian parts, the point of final assembly, the country source for the engine, and the country source for the transmission. The Japanese automakers objected to the label because it allowed the big three to count a component as 100% U.S. if it was sourced from one of their in-house suppliers—even if that component was made in Mexico. This deliberate provision in the law resulted in virtually identical cars built in the same plant exhibiting different levels of local content.

Research and Development.
      Major automakers poured millions of dollars into research and development of aluminum cars, spurred by fears of higher gasoline prices in the future and by concerns of stricter fuel economy and emission legislation. In the U.S. the big three and the federal government refined the goals of the government's Partnership for a New Generation Vehicle (PNGV), popularly known as the 80-mi-per-gal Super Car program. Almost all automakers continued to argue against the electric vehicle mandate in California, saying it would result in vehicles that had limited range and were very expensive to manufacture. California served notice that it would not back off the mandate, and 11 other states were considering analogous legislation.

      The auto industry bullishly mobilized its marketing muscle behind navigation systems. These in-car guidance systems, which relied on either satellite positioning or an inertial guidance system, allowed motorists to follow computer directions to their destinations. The devices were already selling by the tens of thousands per month in Japan and promised to do the same in the U.S. and European markets. Oldsmobile was the first to offer a factory-installed navigation system in the U.S.—a $2,000 option available in the Eighty-Eight.

      Sadly, one of the greatest growth markets for new automotive technology was theft deterrence. Antitheft devices were expected to create a $160 million-a-year market in North America by 2000—and a $1 billion market in Europe. (JOHN McELROY)

      This updates the article automotive industry.

BEVERAGES

Beer.
 Though brewers' main ingredients are hops, malt, yeast, and water, the leading beer marketers spent 1994 searching for a magic concoction that would spark sales for their beverages, as growth for the business in the United States and Europe remained sluggish, hovering in the 1% range. (For Leading Beer-Consuming Countries in 1993, see Graph—>.)

      The tonic of choice throughout the industry was ice beer. A second-year phenomenon now embraced by every major brewer, ice beer grew to represent 6% of the North American beer market and made inroads in Japan (where Anheuser-Busch was importing contract-brewed Kirin Ice from the U.S.). While such brands as Miller Lite Ice and Ice Draft from Budweiser left little doubt as to the identity of their makers, brand names such as Red Dog and Red Wolf Lager were a little more mysterious. Nonetheless, both of these varieties came from the brewers of Miller and Budweiser, and each represented an effort to make these behemoths of brew seem a little more craft-oriented. Meanwhile, microbrewers, led by Boston Beer Co. and its Samuel Adams line, continued to set the fashion trend in the industry.

      Brewers were not content to stick to their home turf in 1994 but restlessly prowled other markets. Anheuser-Busch continued to seek a greater presence in Europe, negotiating either to secure the Budejovicky Budvar name from its Czech owner, maker of the "other Budweiser," or to acquire a minority stake in the brewery. Among 1994's notable cross-border alliances were an agreement between Canada's John Labatt Ltd. and Mexico's Fomento Economico Mexicano, S.A. (Femsa), to provide imports for the U.S., and the entry of Japan's Asahi into the Canadian market through Molson. Vietnam sent its first-ever brew to the United States in the form of Hue Beer, while Stroh from the U.S. sought to return to Vietnam as the U.S. trade embargo was lifted. Nearby, Heineken made plans to begin brewing in Cambodia.

      (GREG W. PRINCE)

      This updates the article beer.

Spirits.
      In the spirits industry, where growth in 1994 was disappointing (the sector struggled to keep pace with 1993 sales in both the U.S. and the U.K.), gains were made by flavoured spirits. Goldschläger Cinnamon Schnapps Liqueur and Finlandia Arctic Cranberry Vodka were in the vanguard of the new breed of spirits designed to tempt taste buds in the 21-35 age range. These brands succeeded on the strength of aggressive marketing and a lighter touch. Finlandia's cranberry offering kept the alcohol level down to 30% by volume, versus 40% for standard vodkas.

      Vodka continued to be a spirited arena for all competitors. Boris Smirnov of Russia, grandson of Petr Smirnov, distiller to the tsar, won the latest round in a trademark war with Grand Metropolitan's Smirnoff's brand to sell in the homeland of the beverage. Longtime category leader Absolut vodka settled in with new distributor Seagram. Its former U.S. importer, Carillon, took on the Stolichnaya business from PepsiCo and created a flavoured line of its own, featuring Stolichnaya Ohranj—an orange variety. There was also action in the tequila business, another place where younger drinkers were attracted. Led by mainstays like Jose Cuervo and comers including El Tesoro, the Mexican spirit continued enjoying 5%-plus growth.

      More traditional spirits were not without their devotees in 1994, however. Scotch whisky celebrated its 500th anniversary in May. Distillers showed that an upscale-oriented marketing program could add lustre to established labels and cultivate the terrain for new "alternative" pours such as J.E.T., a product of the Paddington Corp. In response, the Isle of Arran in Scotland opened its first legal distillery in more than 150 years. In March Allied-Lyons, parent of Allied Distillers, a major player in the Scotch market, announced it was buying Spain's Pedro Domecq group for £739 million; the new concern, Allied Domecq, became the world's second largest spirits producer. Though not the U.S. force they were in the early 1990s, prepared cocktails showed that convenience could still be alluring to consumers in the U.K.—for example, a canned gin and tonic featuring Gordon's, the world's top-selling gin. (GREG W. PRINCE)

      This updates the article distilled spirit.

Wine.
      World wine production fell 9% in 1993-94 compared with the previous season, reaching 260 million hl (hectolitres; 1 hl = 26.4 U.S. gallons). This was essentially attributable to a 17% fall in production in the countries of the European Union (EU). Italy remained the top producer, with 62.8 million hl, followed by France (54.8 million hl) and Spain (27.5 million hl). A slight recovery was noted in the United States, where production reached nearly 17 million hl.

      Estimates of world exports showed an increase of 2%, to 46 million hl, of which nearly 90% represented trade within the EU. Imports fell in 1993 in both developed and less developed countries, with a worldwide drop of more than 2 million hl. The decline in global production in 1993-94 was generally more than offset by the fall in consumption, however. Wine reserves actually grew somewhat despite the uprooting of some 320,000 ha (768,000 ac) of vineyards in the EU between 1988 and 1993. A project to reform the EU market mechanism that was proposed in 1994 would strengthen regional controls with the goal of absorbing overproduction until the recommended production ceiling of 154 million hl had been achieved.

      Worldwide reaction to "neo-Prohibition" found a focal point with the formation of a Nutrition and Health unit in the International Vine and Wine Office, which would gather and circulate worldwide research on the relationship of wine and health. The General Agreement on Tariffs and Trade, containing provisions in the fields of agriculture and intellectual property, was signed in 1994 and was also expected to have a significant impact on wine growing and production. Australia, whose wine exports—mainly to EU countries—were expected to reach $700 million by the year 2000, signed an agreement with the EU to stop using European geographic names such as Champagne and Burgundy for its wines. (YANN JUBAN)

      This updates the article wine.

Soft Drinks.
      The global cola wars continued in 1994 as both Coca-Cola and Pepsi-Cola regained their beachheads in South Africa and Vietnam, which had been closed by political and trade barriers. Coca-Cola took its brand of refreshment to Uzbekistan, signing a joint venture agreement in March, and opened a new bottling plant in Albania in May.

      Coca-Cola also persuaded the British grocery chain J. Sainsbury to redesign Coke-lookalike cans for its proprietary cola to avoid customer confusion. Even so the name-brand colas in the U.K. were gradually losing market share to the "supermarket" brands, which had won well over 30% of the market by December. These brands included Sainsbury's Classic, Safeway's Select, and Richard Branson's Virgin Cola—all produced by the Canadian firm, Cott's.

      Pepsi introduced new consumer-readable "freshness dating" on its diet soft drinks in April. By admitting that low-calorie soda with aspartame tends to lose its taste over time (and being the first to offer "fresh" beverages), Pepsi hoped to revive sagging Diet Pepsi sales. Johnson & Johnson, meanwhile, introduced a new, more stable sweetener generically called sucralose. In the name of residual trademark recognition, Coca-Cola reinvented its hourglass-shaped bottle to fit plastic technologies of the 1990s. It also redesigned its Diet Coke can.

      In the "sports drink" category, Quaker Oats Co. (maker of Gatorade) introduced fruit-flavoured, lightly caffeinated Sun Bolt in June. Meanwhile, Red Bull, the high-caffeine product of a tiny Austrian concern, captivated German youth and seemed poised to repeat its success elsewhere in Europe. Coca-Cola marketed its new OK Cola to young adults through a cool, "negative presence" campaign and introduced noncarbonated, fruit-juice-based Fruitopia through its Minute Maid subsidiary to fend off threats from the likes of New Age sensation Snapple. Coca-Cola and Nestlé announced that they were revamping their joint tea agreement after they placed a distant third behind Pepsico-Thomas J. Lipton and Snapple (which was sold to Quaker Oats in November) in that market. In 1994 the brand to watch seemed to be two-year-old Arizona Iced Tea. U.S. carbonated soft drink sales increased at about 5%, somewhat ahead of the rate in the U.K.

      (GREG W. PRINCE)

      This updates the article soft drink.

BUILDING AND CONSTRUCTION
      After shaking off a slight decline during the first quarter of 1994, the monthly value of new U.S. construction put in place continued the strong upward trend dating back to 1992. At a seasonally adjusted annual rate, the U.S. Department of Commerce reported $515 billion in new construction for the first nine months of the year, a 9% increase from the previous year.

      Public construction was sluggish, running only 3% ahead of the previous year's pace. Educational spending matched this level, industrial and military work were well down, and water and sewer expenditures were well ahead of the total for the first nine months of 1993.

      Private side spending carried the day, running 12% ahead of 1993 figures. Spending on new housing units continued to increase on a monthly basis from the beginning of the year, despite a series of short-term interest rate hikes by the Federal Reserve, which was trying to keep strong economic growth from fueling inflation. The Fed jumped the rate by 3/4 of a point—to 5.5%—after the November elections, the largest increase since 1981 and the sixth during 1994. Fixed rates for 30-year residential mortgages, below 7% at the first of the year, had climbed to over 9%. Consequently, economists predicted that spending on new housing units would continue to fall off from the peak reached in May. Rising interest rates also slowed an upward trend in housing costs, according to the National Association of Home Builders. The median price during the second quarter of 1994 was $153,000, up from $148,000 for the second quarter in 1993.

      In Canada the economic recovery strengthened, with a first-quarter growth rate of 4.2%. By June housing starts had hit 166,600 units, the highest level in 18 months and well above May's 158,400 units. Unemployment fell to 10.3% in June, the lowest rate in almost three years. The growth in full-time employment was expected to boost consumption. But higher interest rates and expectations of a slowdown in U.S. economic growth led economists to lower predictions for real gross domestic product (GDP) growth to 3.7% for 1994 and 3.2% for 1995.

      In the U.K. GDP growth continued above 1993's 2% level. It was running at an adjusted annual rate above 3%. By the end of the second quarter, the unemployment rate stood at 9.4%, down from the 1993 cumulative rate of 10.3%. Housing starts hit 50,800 for the second quarter, some 10% above the annualized rate from the previous year. House prices fell by 2% from March to September and stood below the level of September 1993, indicating low consumer confidence in the economy. Despite an absence of inflationary indicators, the authorities boosted interest rates by 50 basis points in September, the first increase in five years.

      GDP growth in France pushed toward 2.2% for the year, thanks to improved private consumption and investment patterns. Employment growth was expected to offset any slowdown in consumption as government incentives expired and moderate wage and price inflation kept the recovery on a solid track. Germany came out of recession at a rapid pace during the first half of 1994. GDP growth predictions for the year were raised to 2.3%. Although exports were the main driver of the recovery, increased construction investment also played a role.

      Japan's GDP growth rate for 1994 was running at a 1% level. Residential construction provided one exception to the bleak overall economic picture. Housing starts, stimulated by low interest rates and land prices, increased almost 12% in the second quarter from the 1993 level for the same period. (ANDREW G. WRIGHT)

      This updates the article building construction.

CERAMICS
      In 1993 the ceramics industry showed both strong growth and significant change. The growth was due to the strengthening economy and the strength of the building, home appliance, and automotive industries. The change resulted from fluid markets, especially for advanced ceramics, with the reduction in defense spending having the most significant effect.

      The defense sector had long been a major driver in the development of advanced ceramics because of their key role in modern military systems. With the decrease in U.S. government funding for research and development in this area, as well as a projected decrease in future military markets, ceramics-manufacturing companies found themselves downsizing in 1994 and trying to change their focus toward competing in civilian markets, which required lower-cost, higher-volume products.

      Worldwide sales of ceramic materials and components in 1993 totaled over $90 billion, according to a survey by Ceramic Industry. This survey included captive production of ceramic materials and components, a growing percentage of total production, especially in advanced ceramics. Worldwide sales of advanced ceramics were over $18 billion in 1993, an increase of almost 25% over 1992, although this figure included some electronic devices based on electronic ceramics. Approximately one-third of these sales were capacitors, electronic substrates, and electronic packages, which continued to be the largest segment of the advanced ceramics market. Engineering ceramics now accounted for approximately 25% of the advanced ceramics market, however.

      U.S. shipments of refractories in 1993 were estimated at $2.7 billion, which was well above the 1992 level of $1,950,000,000. Worldwide sales were about $6 billion in 1993. Orders and shipments in 1994 were running well above the 1993 levels because of strong steel production as well as increased capital spending in the glass industry and other thermal process industries.

      Porcelain enamel sales showed a strong increase in 1993 due to increased appliance sales, which accounted for approximately 85% of porcelain enamel sales. Sales in 1994 were expected to increase at least 5% over the 1993 level of more than $6 billion.

      U.S. sales of whiteware (including tile, dinnerware, sanitaryware, and electrical porcelain) increased in 1993. Tile was especially strong, with 8% growth in shipments, and another 10% growth was projected for 1994. Sanitaryware sales also showed strong growth. The increase in sales in both of these areas was primarily a result of the strong increase in residential and commercial construction.

      Perhaps the top technical news of the year was the report that Hoechst CeramTec in Germany had developed a manufacturing process for silicon nitride valves for automobile engines. These ceramic valves could be processed at a cost equal to that of metal valves. The primary advantages of silicon nitride valves for passenger car engines were reduced noise (diesel engines) and improved fuel economy. Because of their lower density (about 35% of that of current metal valves), silicon nitride valves have been widely used in racing engines, but their cost had been too high for use in passenger cars. Now several European automobile manufacturers were planning to use silicon nitride valves. The significance of this development went beyond valves, since cost had been the major factor keeping silicon nitride and other structural ceramics from entering a number of other markets.

      The Electrofuel Manufacturing Co. of Canada developed a diesel igniter based on silicon nitride. Because of their high cost and a life expectancy of only a few cold-weather start-ups, igniters were not often used for diesel buses in Canada; rather, the engines were kept running 24 hours a day during cold weather. With the new igniters, the engines could be cold started (at -40°) in 15 seconds. The lifetime of the igniter would be comparable to the life of the engines. A better fuel economy and reduced soot emissions would be obtained if the igniters were left on while the engine was running. (DALE E. NIESZ)

      This updates the article industrial ceramics.

CHEMICALS
      Major product volumes were up in the world chemical industry in 1994—handsomely in the U.S. and encouragingly for European companies. Japan, too, was showing signs of recovery, although its chemical industry looked good only in comparison with other domestic industries. In the U.S., chemical plants as a group were operating at 90% of rated capacity. Generally, indications were that the boom would last through 1995—most welcome news after several years of plant closings, huge corporate employment cutbacks, and company consolidations. Factors that encouraged industry leaders included the seemingly more stable world economy, successes in trade matters (the conclusion of the General Agreement on Tariffs and Trade and the formation of its successor, the World Trade Organization), and the stability of hydrocarbon products at moderate levels.

      In financial terms the U.S. chemical industry had a fine year, easily the best in the past three, and companies reported outstanding profits. Production in 1993 was up 3%, with the gains in organic chemicals—the big petrochemicals—up 9%. The chemical units of E.I. du Pont de Nemours & Co. (which owns an oil company), the largest U.S. concern, for example, had third-quarter 1994 results 97% above 1993, and many others had reports nearly as good. Financial analysts were confident that overall, U.S. chemical company earnings would be 40% above the 1993 marks. Specialty chemicals (narrow use, relatively costly compounds) did well in 1994.

      The commodities (lower-cost bulk items such as plastics, fibres, caustics, and sulfuric acid), partly because of their strong catch-up pace, enjoyed extraordinary growth that seemed probable to carry well into 1995. This pattern was likely to be followed in Europe and the Far East.

      Europe's chemical producers recovered more slowly but nonetheless had a good year in 1994. The largest chemical company in the U.K., Imperial Chemical Industries PLC, saw its third-quarter profits up 59%. In March representatives of the chemical industry in several European countries met in Brussels and agreed on a program of collaboration in chemical research and development to help combat challenges from North American and Japanese industries.

      The reunification of Germany wrought huge changes in its chemical industry, but there were complaints in that country that too much money had been poured into re-habilitating East German plants. Data from the European Chemical Industry Council showed that Germany's chemical workforce shrank by 46,100 in 1993 compared with that of 1992. In mid-October it was announced that the Dow Chemical Co. would obtain control of three large chemical complexes in former East Germany.

      A more significant degree of rationalization was accomplished in Eastern Europe. Chemical production indexes in Bulgaria, Hungary, Poland, and Romania inched up in 1993 compared with the previous year's indexes but remained well below their marks of five years earlier, and job losses continued. Volume of sales in the Czech Republic and Slovakia dropped by about 10% in the period after their separation. Countries of the former U.S.S.R. saw their chemical industries still in turmoil, with Russia's 1992 chemical production index tumbling 21% and Ukraine's almost 25%.

      The Far East—especially China—emerged as the region with the greatest growth potential for chemicals. Even hobbled by a shaky political outlook, aging leaders, severe inflation (27% in mid-1994), and an extraordinarily poor infrastructure, China nonetheless saw five years of success in moving toward industrialization. This boom reflected both the country's large population and the government's willingness to encourage private enterprise.

      Western chemical companies, following the lead of firms in Japan and Taiwan, initiated joint ventures with enterprising Chinese partners. By 1991 foreign cooperative industry (all types) had grown 55%, while state-owned company growth was 8.4%, and that at collectives was 16%. According to government figures, Chinese industry had reached a value of $18 billion in late 1994, 22% ahead of the output mark for 1993.

      Japan in 1993 was in the depths of its recession, and its chemical production index dipped 1% compared with that of 1992 (not too bad, since the all-manufacturing figure slid 5% in 1993). South Korea, whose chemicals drive dogged Japan's producers, cranked up a 10% chemical production index gain (it was a 4% gain for all manufacturing). The value of its exports climbed 7%. Taiwan also managed a 7% 1993 gain in chemical production index, about three times that of its total manufacture picture.

      The rising yen was part of Japan's economic trouble. In 1993, for example, its all-manufacturing category slipped 5%; chemicals did a bit better, with only a 1% dip in production index. Among Japan's problems were its dependence on foreign-produced oil and gas and its generally high-cost industrial structure. Japan's high-cost operations and small plants were exploited by Taiwan and South Korea, with the latter country's buildup in the key raw material ethylene particularly threatening.

      Two Japanese giants, Mitsubishi Kasei Corp. and Mitsubishi Petrochemical Co. Ltd., merged to form Mitsubishi Chemical Corp., whose $10 billion-a-year sales would put it among the 15 largest chemical companies in the world.

      India, despite some major political problems, built a chemical industry that far outpaced the rest of its industrial growth. In 1993 general manufacturing grew just 1%, but the chemical industry rose 5%. The chemical industry was India's largest (valued in 1988 at $1.2 billion), some 30% larger than textiles and 50-75% bigger than India's other most important industries.

      On the world scene, performance of a handful of high-volume chemicals showed that this "mature" industry could be surprising. Polyester resins and fibres, for example, showed unexpected growth in 1994 and were expected to do so again in 1995. Polyester's hot growth area in Europe and the U.S. was its use in bottles. A cotton shortage in India and China in 1993 and 1994 imperiled their textile industries, and they turned to polyester fibres to keep mills turning. (J. ROBERT WARREN)

      This updates the article chemical industry.

ELECTRICAL
      In North America and Great Britain, signs of a moderate recovery in the market for the electrical goods manufacturing industry began to appear in late 1993 and continued into 1994. Continental Europe was still in the grip of a recession, however. The electrical multinational Siemens reported that "during fiscal 1993, Germany slid into a severe recession, while growth in Western Europe and Japan ground to a halt. One of the few bright spots was the U.S., which continued its slow but perceptible recovery." In July Siemens warned that its 1994 profits would almost certainly be lower because of falling interest income (which accounted for one-third of net profit in 1993) and the continuing recession in Germany.

      Siemens' views were echoed by Groupe Schneider, a new electrical multinational conglomerate formed by the pooling of the operations of two French companies, Merlin Gerin and Telemecanique, and the U.S.-based Square D.

      Rebuilding the electrical industry in the former communist bloc was taking longer than expected. Siemens operated 29 joint ventures with Eastern European companies but did not expect a substantial expansion of business in the near or medium term because progress to a market-driven economy was proving slow. Percy Barnevik, president and CEO of Asea Brown Boveri (ABB), which had the majority share in 45 joint-venture companies in Central and Eastern Europe, saw the opening up of this market as "an historic opportunity, not as a threat to Western Europe."

      For most electrical equipment manufacturers, the period of stagnation was not wasted. Managements learned how to rationalize operations and improve manufacturing efficiency. None fared better than General Electric (GE), where operating margins rose to a historic high of 12.5% in 1993 and a "stretch" target of 15% was set. ("Stretch" was the latest management idea devised by GE. It meant "using dreams to set business targets—with no real idea of how to get there. If you do know how to get there—it's not a stretch target.") The company also aimed at an inventory turnover of 10 times in a year (it was 4.7 in 1991, 5.3 in 1992, and 6 in 1993).

      ABB set more modest targets. During 1993 ABB reported an increase of 6% in productivity, and its operating margin rose to 7.7% from the 1992 figure of 6.1%. ABB's target was a 10% operating margin and a 25% return on capital.

      Electrical manufacturing revenue figures (excluding ancillary businesses) were $26,499,000,000 for Siemens, $24,419,000,000 for ABB, and $23,592,000,000 for GE, followed by GEC Alsthom with $9,786,000,000, Westinghouse with $7,407,000,000, and Groupe Schneider with $7,225,000,000.

      The largest employer in the industry was also Siemens, with a total payroll at the end of 1993 of 391,000—down from 413,000 in 1992. ABB employed 206,490, down from 213,407 in the previous year. These figures hide radical changes that were taking place in the geographic distribution of the industry, however. For example, driven by weak growth in demand, major restructuring, and productivity gains, ABB's workforce fell in the industrialized world by some 47,000. At the same time, the company added 35,000 new personnel, chiefly in the Asia-Pacific region and Central and Eastern Europe, markets with good growth rates and lower costs.

      Similarly, Siemens' president and CEO Heinrich von Pierer reported steady expansion in Southeast Asia, "a dynamic market for our products as well as an attractive production location for our global business activities." Siemens' annual reports were unusual in the amount of space devoted to employee affairs. The company invested DM 1.1 billion in basic and in-service training of its workforce in 1993. Siemens also had 15,000 young people worldwide undertaking industrial and commercial apprenticeships. During the year, 135,000 suggestions were made by the employees that benefited the company by DM 140 million.

      Both Siemens and ABB were said to be interested in a new form of electric motor demonstrated at the 1994 Hanover (Germany) Fair by Reto Schob of the Swiss Federal Institute of Technology in Zürich. The motor had no bearings; the rotor was suspended magnetically, avoiding friction and the need for lubrication. The motor's potential was immense, notably in applications where bearing lubricants can cause contamination, such as blood pumps and devices for transporting food and pharmaceuticals. The bearingless motor could be built from standard motor parts with an additional winding and a few sensors. (T.C.J. COGLE)

      This updates the article energy conversion.

GAMES AND TOYS
      Despite its commissioning of 33 manufacturing plants in locations as disparate as Thailand, Japan, Mexico, China, and Malaysia, Japanese toy company Bandai Co. still failed to meet massive global demand for the Mighty Morphin Power Rangers, its runaway hit toy of 1994. Power Rangers fever gripped the world and elevated the product to the all-time top five list—up with the likes of the Teenage Mutant Ninja Turtles and Cabbage Patch Kids. As 1995 approached, there was little sign that demand was slowing. In the U.S. alone, sales reached over $400 million, but they could have been much closer to $600 million if anyone had been able to predict just how obsessed children were going to become with the 10-year-old live-action TV series originating in Japan and repackaged with new U.S. footage based around five wholesome, all-American kids.

      Supply and demand were very much the buzz words of the year in the games and toy business. In the U.S., demand for 16-bit video game machines such as Nintendo Co.'s Super Nintendo and Sega Enterprises' Genesis fell by as much as 30%, although this was viewed as a temporary stall in the popularity of TV gaming as people eagerly awaited the arrival in 1995 of new hardware platforms, such as Sony's PlayStation, Sega's Saturn, and Nintendo's Ultra 64, all of which were set to debut in Japan before going to Europe and the U.S.

      In Europe the supply-and-demand debate centred around the European Union's vote in February to restrict imports of certain Chinese toys. Britain alone voted against a motion to impose quotas on three product categories (most noticeably soft toys and nonhuman figures) and found itself isolated as nations such as Spain and France showed their protectionist colours in the name of saving European jobs. The quotas were to damage the European toy business to the tune of $3 billion as local importers were granted licenses that allowed them to import far fewer toys than they needed to keep store shelves stocked. Rather than revitalize employment in the European toy industry, importers found ways around the quotas by switching their sources of supply to countries such as Macau and by recategorizing their products to avoid punitive restrictions. Ironically, Belgium's existing import license scheme took precedence under EU regulations, and the country became a major new route for Chinese imports.

      Toys "R" Us strengthened its global grip on the retail toy market in 1994 by entering Scandinavia and announcing its intentions to launch in the Middle East. Meanwhile, manufacturers Hasbro, Inc., and Mattel Inc. continued their dominance of the global toy industry in 1994. While Hasbro failed to reproduce its hit performance of 1994, when Barney and Jurassic Park generated massive revenues, the company still expanded with an international joint venture with the Connector Set Toy Co., producers of the successful K'NEX construction toy.

      Mattel, meanwhile, was on a roll. Record revenues and profits came from increasing global sales of its "power brands" such as Barbie (who celebrated her 35th birthday in 1994; see BIOGRAPHIES (Barbie )), Fisher-Price, and Disney movie merchandise such as the all-conquering Lion King (the movie was re-released for the holidays in late 1994), and the company was again very active on the acquisition front, swallowing the Power Wheels electric ride-on brand and the Cabbage Patch Kids during the year.

      Mattel was also triumphant in a hotly contested takeover battle with Hasbro for the little-known British games manufacturer J.W. Spear & Sons PLC, whose main claim to fame was the international rights to the game of Scrabble outside North America. Hasbro already owned 27.5% of Spear and seemed to have the company in the bag when it launched its long-awaited takeover pitch. Mattel responded with a bigger offer. Hasbro countered, but Mattel's hunger for a major games brand eventually won the day.

      Having eaten, Mattel the Lion King, slept—on December 19 the company announced that it was eliminating about 1,000 jobs in a move that industry analysts saw as an effort to cut costs and raise efficiency after a few years of major acquisitions. In the meantime, Hasbro contented itself with acquiring the series of top board games from the British firm John Waddington for £50 million. The games included the British version of Monopoly (Hasbro already had the U.S. Monopoly), Subbuteo, a football (soccer) game, and Cluedo (Clue in the U.S.). The Guardian speculated about how Colonel Mustard and Miss Scarlet would fare in the U.S. and wondered if the popular game's more genteel players might fear the appearance of serial killers blowing away their victims in the billiard room.

      (JONATHAN M. SALISBURY)

GEMSTONES
      The worldwide recession had forced companies, traditionally small in any case, to downsize or even to close, according to a report from Idar-Oberstein, European centre for gemstone marketing and cutting. By late 1994 gem trade in Europe was improving overall—but from a much lower base than for many years. As always, the highest section of the trade seemed to have been relatively unaffected by the recession. International salesroom prices remained high for exceptional stones, and major sales proceeded much as always. Nonetheless, consumer confidence was shaken—as well as unsettled by changing interest rates—and many buyers were disposed to save rather than spend.

      New technology continued to cast a shadow over the industry. The prospect of synthetic gem diamonds' appearing on the market undetected had yet to cause serious anxiety in the trade, but the question of disclosure of artificial colour alteration or enhancement was a major topic at conferences where regulatory issues were discussed. No solution was formed in 1994, and in light of ever increasing degrees of sophistication in manufacture, a regulation, backed with sanctions, that would be binding on jewelers and stone dealers did not seem imminent. Many dealers seemed to be in general agreement that if the colour of a treated stone was known to be stable, disclosure was not necessary. Others regarded this as unethical, holding that all known treated stones (notably rubies, sapphires, and emeralds) should be advertised as such.

      No new synthetic products were placed on the market, but the strength of cubic zirconia as the best diamond simulant yet known was established. India was the world's largest user.

      Top salesroom news included Sw F 2,863,500 paid for the step-cut 40.46-carat Jonker II diamond found in 1934 as a 726-carat crystal; $6.4 million for the Archduke Joseph diamond, the largest D-colour (top colour) diamond with historical importance ever to come onto the market; and $1,050,000 for a fancy pink diamond of 6.32 carats ($165,000 per carat).

      The General Electric Co., De Beers Centenary A.G., and two European businessmen were indicted in the U.S. in February on charges of price fixing in the industrial diamond industry; the case was thrown out in December. Russia, meanwhile, was reportedly reconsidering the deal it struck in 1990 with De Beers Consolidated Mines Ltd., under which it sold 95% of its uncut diamonds through the South African cartel. (MICHAEL O'DONOGHUE)

GLASS
      Increased competitiveness and a somewhat idle economy in industrialized countries still impeded glass manufacturers in 1994 and made long-term viability as challenging as ever. Production capacity overall continued to exceed demand in almost all areas. In the Americas and the Asia-Pacific region, composites growth was expected to lead the worldwide demand for fibreglass-reinforced composite materials in 1993-94. North American growth in this area was expected to increase by 7.2% in 1994, while sales were expected to grow 8% in the Asia-Pacific region, excluding Japan.

      Japan had enjoyed steady market growth in the glass industry for the past 45 years but in 1993 suffered a slight setback, with sales declining. China, one of the largest glassmakers in the world, was hit hard by a three-year austerity program from 1989 to 1991, but now was enjoying unprecedented prosperity. Markets in Southeast Asia and South America continued to expand, with solid investment in new plant and technology. Glass container shipments in the U.S. exceeded expectations, rising 4% in 1993 and totaling over 300 million gross units.

      The glass industry in the European Union (EU) produced 22.9 million tons in 1993, representing a decrease of nearly 2% from 1992. Employment levels increased slightly, by 1%, however, the first positive trend since 1989.

      EU price levels were severely depressed (between 20% and 40%), according to the various sectors, and the foreign trade balance (especially imports from Eastern Europe) had a negative impact on the industry's overall situation. EU demand for flat glass remained relatively stable in the first half of 1992, the second half of the year showing a decline that continued in 1993, especially in the context of demand from the automotive sector. Exports by EU countries to the rest of the world increased by approximately 15% compared with 1992 and were expected to remain stable. The EU flat-glass industry had moved from high capacity utilization in 1988 (90%) to increased surplus capacity, lowering the utilization rate to nearly 81% in 1993. In the domestic tableware market, glassware sales from Eastern European suppliers fell slightly in 1993—about 7% to $127 million in 1993. Exports by the former Czechoslovakia amounted to $50 million for glassware in the EU countries in the first nine months of 1993, down from $55 million in the same period in 1992.

      Container manufacturers worldwide continued efforts to reduce waste. In Europe some countries had over a 60% national recycling rate, with levels increasing every year. Weight reductions approaching 50% were achieved for many types of container; this trend, called "lightweighting," was set to continue. New coatings made containers stronger and made further lightweighting possible. In the U.K., the proposed Directive on Packaging and Packaging Waste gave rise to concern by container manufacturers because of the inclusion of regulations from the U.S. Coalition of North Eastern Governors to reduce or eliminate heavy metals in packaging and packaging materials. (PETER N. SMITH)

      This updates the article industrial ceramics.

HOME FURNISHINGS

Furniture.
      The furniture industry recorded its third successive year of improvement in 1994. Statistics provided by the American Furniture Manufacturers Association reported $17,985,000,000 in revenues, slightly higher than projected. The projection for 1994 took a big jump to $19,837,000,000. As of April, exports were up 6%, with over half of U.S. shipments going to Canada and Mexico and credit going to the North American Free Trade Agreement.

      The lists of top manufacturers and retailers reported by Furniture/Today also reflected the movement upward. Each of the top three manufacturers posted significant gains in revenues over the previous year, with a net income increase of 70.3% for all manufacturers. In the same positions as last year, the top three companies were: Masco Home Furnishings ($1,698,000,000), Broyhill/Lane ($980.5 million), and La-Z-Boy ($762.2 million). Klaussner Furniture Industries moved into the fourth spot, knocking LADD Furniture down to fifth.

      Retailers reported that revenues grew 13.5% and net income gain was up 38.2%. Fueling this change was significant expansion, led by Heilig-Meyers, which increased its number of stores by 196, putting it in the number two retailing position. Levitz Furniture ($985.6 million in revenues) was still in first place; Heilig-Meyers ($864 million) was followed by Pier 1 Imports ($663 million). Ethan Allen, dropping to 31st place, nonetheless seemed poised for a comeback under the leadership of CEO M. Farooq Kathwari and a new, modern look.

      In U.S. design issues, Contemporary began to challenge the long dominance of Americana. Homespun styles were not gone, however, as evidenced by the introduction of a Norman Rockwell collection, Thomasville Furniture Industries' "American Revival," America Drew's "American Traveler Series," and an expansion of Lane's Museum of American Folk Art collection. On the Contemporary front, important introductions included Thayer Coggin's Retro Modern by Milo Baughman, Lane's "New Rhythms" by Dakota Jackson, Universal's "Home Colours" by Alexander Julian, and Directional's Larry Laslo collection. Most significant, however, was the initiation of cause-related groups. In April Masco introduced "Made with CARE," inspired by the many countries served by the humanitarian organization CARE. In October Lexington Furniture Industries introduced Bob Timberlake's environmentally conscious "Keep America Beautiful," tied to the national organization of the same name.

      British retailer Courts (Furnishers) PLC was reporting success in its outlets throughout Southeast Asia and the Caribbean, while Swedish firm IKEA announced that it planned to open as many as 10 stores in China by the end of 1996.

      Three design groups—Council of Federal Interior Designs, Institute of Business Designers, and the International Society of Interior Designers—unified into one organization: International Interior Design Association. The American Furniture Hall of Fame inducted four: Robert George Culp, Sr., Gustav Stickley, Thomas Franklin Wrenn, and Rose Blumkin, its first woman member. (ABBY CHAPPLE)

      This updates the article furniture industry.

Housewares.
      Residential security was of great concern to U.S. consumers in 1994. The New York Times reported that a survey of 428 builders in February found that security systems were being installed in 13% of new houses and listed as options in 63%.

      Staber Industries Inc. began production of a European-style horizontal-axis washing machine with a hexagonal, vertically mounted tub that reportedly saves both water and energy. In August the U.S. Department of Energy proposed new regulations on ranges, microwave ovens, and air-conditioning units to increase their energy efficiency. Manufacturers pointed out that production costs would increase and that new designs such as windowless oven doors would likely result in wasted energy.

      Products using nonstick coatings such as Du Pont's Silverstone and Whitford Corp.'s Excalibur accounted for some 70% of cookware sold in the U.S. Embedded microchips were providing memory and control functions in appliances such as microwave ovens, coffeemakers, and exercise equipment.

      Styles for housewares paralleled those for furniture and inclined toward early-20th-century nostalgia. Antique dealers reported great interest in early electric housewares, and new shops specializing in old-time appliances—the big item seemed to be toasters—popped up. Manufacturers such as Hamilton Beach, Sunbeam-Oster, and Waring were quick to introduce small appliance lines with what was termed "retro appeal." (KAREN J. SPARKS)

INSURANCE
      Land, sea, and air disasters shook the insurance world in 1994. The year started badly with a severe earthquake in California and widespread winter storm damage on the East Coast. Later, tragic airline crashes shocked Charlotte, N.C., Pittsburgh, Pa., and rural Indiana. Floods devastated parts of Texas, Italy, Egypt, India, and South America. One of the worst ferryboat sinkings in history left 900 dead in the Baltic Sea. These and other disasters meant uneven operating results for insurers, with revenues generally up but profits down.

      U.S. property-liability insurance sales were up 5%, but profits plunged by 78% in the first half of 1994, largely owing to record catastrophe losses of $10 billion. Homeowners, particularly in California and eastern coastal states, faced restricted markets and sharply rising rates. Most life insurers continued the near-constant 3.5% operating gain of the past five years, with lower investment yields, higher taxes, and reduced general expenses.

      The distinction between banks and alternative providers blurred. Some life insurers began to concentrate primarily on higher-income clients. Health insurance rates, increasing at an 8% rate in recent years, fell to about 5% in 1994. Annual U.S. marine insurance premiums hit $1 billion for the first time as rates began to increase.

      Reported results in the U.K. were also mixed. General insurance and life insurers both earned a trading profit, but Lloyd's of London, on its three-year accounting system, suffered another heavy loss, exceeding £2 billion.

      Advances of the new computer and communications age streamlined some insurance services. Cellular phones appeared in the cars of sales, claims, and management personnel. "Expert" systems for underwriting and other tasks remained high on the list of new cost controls. In the U.S., Continental Group experimented with an "electronic mall" for shopping through the CompuServe on-line network. Metropolitan Life Insurance began some sales in automated kiosks featuring video conferencing with agents. Through employers' payroll-deduction plans, several insurers expanded group life-health options to include auto and homeowners insurance in "multichoice voluntary plans."

      Some encouraging signs of growth appeared in the new unified European Union (EU) common market for insurance, although it remained competitive with few companies dominant in more than two countries. International prospects for U.S. insurers rose as the North American Free Trade Agreement aided entry into Mexico, and new trade bills promised access to Japan.

      The merger trend continued in the EU and elsewhere as companies consolidated for distribution and financial benefits. Confederation Life Insurance, a Canadian company, collapsed on August 11 amid much confusion as to how U.S. trust funds and state guaranty plans protected policy values. Investors Equity Life of Hawaii faced liquidation proceedings. American International Group rescued earthquake-ravaged 20th Century Insurance from insolvency, thus gaining entry into automobile insurance markets. Metropolitan Life and Travelers Insurance merged their group health operations. American United Life and State Life formed a strategic alliance. Agreements to merge were also reached by Central Life Assurance and American Mutual Life, as well as by Kentucky Home Capital and Keystone State Life. Sales practices of two life insurance giants, Metropolitan Life and Prudential Securities, caused class-action lawsuits, but state regulators tabled action on model laws for policy illustrations. Enrollment in health maintenance organizations passed 45 million. Managed care plans increased cost controls. Two developments in liability insurance were significant: a multibillion-dollar worldwide proposal for settling breast-implant litigation and a $750 million settlement on behalf of six million homeowners who had had leak-prone plastic piping installed more than 10 years earlier.

      In the U.K., life insurers and pension funds now accounted for more than half of all personal savings. Lloyd's of London's heavy property-liability losses, however, were compounded by continued litigation by hundreds of individual members suing underwriters and managing agents for negligence or fraud. One of the largest-ever preliminary cash awards in the U.K., £ 500 million, was won against the Gooda Walker agency.

      Insurance CEOs listed the regulatory, legislative, and judicial environments as their top concerns in 1994. The U.S. news was highlighted by Pres. Bill Clinton's unrealized health care reform plan. General distrust and uncertain cost projections scuttled mandated care by employers. Proposals for increased insurer taxes for Superfund pollution cleanup also met strong resistance. A $36 million antitrust settlement with 20 states promised considerable changes in insurer controls of the Insurance Services Office and other rating agencies.

      Bermuda proposed sweeping amendments to its 1978 act regulating insurance. The EU initiated free choice of insurers as of July 1, but some inconsistencies in taxes remained, to be leveled by such new laws as the first U.K. 2.5% premium tax. Also in the U.K., a new Personal Investment Authority replaced self-regulation of independent and affiliated financial institutions.

      (DAVID L. BICKELHAUPT)

      This updates the article insurance.

MACHINERY AND MACHINE TOOLS
      Machine tools—generally categorized as either material-cutting machines or material-forming machines—are used to produce manufactured products directly or to produce other machines upon which manufactured components and products are made.

      Japan was the leading world producer of machine tools, with 1993 production worth nearly $7 billion. It exported machine tools worth an estimated $3.7 billion, slightly more than the $3.6 billion in consumption recorded for the year. Production of metal-cutting machines ($5.3 billion) far exceeded that of metal-forming machines. Metal-forming machine-tool production had a value that totaled about $1.6 billion.

      Germany's $5.4 billion in machine-tool production made it the world's second largest producer. Of that figure, $3.5 billion was for metal-cutting machines and $1.9 billion for metal-forming machines. Germany exported machines worth a total of $3.6 billion and imported $1.6 billion worth.

      Ranking third, the U.S. produced metalworking machine tools worth a total of $3.1 billion and consumed metalworking machine tools worth a total of $4.3 billion in 1993. Imports were valued at $2 billion, exports at $800 million. After nine consecutive years of growth in U.S. machine-tool exports, such shipments declined in 1993, although export sales continued to grow at an annual rate of about 13% over the past 10 years. The major export markets were Canada, China, and Mexico. Exports to China more than doubled those of the previous year.

      Machine-tool imports to the U.S., meanwhile, rose in 1993 after having fallen in each of the preceding three years. In 1993 Japan was again the major source of U.S. imports, accounting for about one-half the total value, followed by Germany, Switzerland, Taiwan, and Canada.

      Other leading producers in 1993 were Italy ($2.3 billion), China ($1.8 billion), Switzerland ($1.4 billion), and Taiwan ($1.1 billion). Canada produced machine tools worth $340 million and put $550 million worth into production. Mexico produced machine tools worth $27 million but installed machines worth over 10 times that amount, an impressive $287 million.

      (JOHN B. DEAM)

METALS AND MATERIALS

Iron and Steel.
      Given the improved general economic situation in 1994, world steel product consumption was expected to increase by over 2%, reaching nearly 630 million tons by year's end and over 650 million tons in 1995. North America's 1994 steel consumption (in product tons) would be more than 111 million tons, an increase over 1993 of almost 13% for Canada and 9% for the United States. The strong steel market, mainly led by the automotive industry, the building sector, and appliances sales, was likely to continue also in 1995. Steel consumption expanded further in Latin America in 1994, exceeding for the region as a whole the 30 million-ton mark. Most of the increase was in Argentina, Brazil, and Mexico.

      Western European steel consumption was expected to rise from the low point of under 94 million product tons in 1993 to nearly 100 million tons in 1994 and further to 104 million tons in 1995. Steel demand was starting to rise in most of the Central European economies, albeit from a very low level; an increase by 6% in 1994 and some acceleration in the following year would bring steel product consumption back to more than 15 million tons in 1995. Use of steel in the former republics of the U.S.S.R. was expected to decline by 5 million tons in 1994, to 54 million tons; 1995 might bring stabilization at this level.

      In Japan gross domestic product growth remained far below the long-term trend of the past 20 years. Steel consumption in the country was depressed and in 1994 would see a low of 73 million tons, with little hope for improvement in 1995. Elsewhere in the Asia-Pacific region, steel consumption in 1995 was forecast to exceed 100 million tons. China was a powerful driving force for the area, and continued economic expansion would raise steel consumption to 100 million tons in 1995 from 95 million tons in 1994.

 World crude steel production stood at 730 million tons in 1993, compared with 724 million tons in 1992. The year 1994 would be slightly less, reflecting further decline of output in the former Soviet Union although production in the Eastern European industries had all mostly begun to increase by late 1993 and 1994. Production of pig iron had risen marginally in 1993 to reach just over 500 million tons. (For World Production of Crude Steel and Pig Iron, see Graphs—>.)

      In one of the largest steel transactions in years, in December Norway awarded orders totaling about $1.2 billion for 1.5 million metric tons of natural gas pipe to producers in the U.K., Italy, France, Germany, and Japan. (D.F. ANDERSON)

      This updates the article iron (iron processing).

Light Metals.
      The end of the Cold War, combined with a worldwide recession, had a negative impact on the light metals industry. The primary light metals titanium and aluminum suffered most owing to large excesses in world production capacity and the emergence of the countries of the former Soviet Union onto the market. World supply excesses led to a 20% decline in price for titanium and a 45% decline in revenues since 1990. This in turn resulted in plant closings and joint ventures (mergers). In the mid-1980s there were 11 titanium sponge plants worldwide. In 1994 there were only six, two each in the U.S., Japan, and the former Soviet Union.

      Most major aluminum producers had also lost money during the past few years, with the primary metal exports from the former Soviet Union again the key factor. Most aluminum companies, including Alcan, Alcoa, Alusuisse-Lonza Holding Ltd., Kaiser, and Reynolds Metals Co., responded by reducing production in 1993-94 relative to 1992. Third-quarter 1994 profits were generally up.

      Much of the decline in market demand for titanium was due to reduced military hardware procurement and a depressed aerospace market, which accounted for 50% of sales. The future health of the industry depended on the development and expansion of nonaerospace markets, including automotive applications (e.g., heavy truck springs), sporting goods, and medical applications. Aluminum companies also sought to develop and expand new markets. Although the aerospace market traditionally consumed only 5% of the production, it was a significant source of revenue. Numerous companies worked with automakers to develop new applications. An example was the aluminum spaceframe that was developed in a joint venture between Alcoa and Audi. The resulting automobile, introduced in late 1994, had stiffness and crash-durability characteristics exceeding those of current steel designs.

      (EDGAR A. STARKE, JR.)

      This updates the article aluminum processing.

Metalworking.
      Metalworking industries provide components (e.g., fasteners, drivetrain parts, structural parts, and sheet metal parts) that are assembled into products by the appliance, aircraft, automobile, and machinery industries. These parts are produced by casting (solidifying liquid metal), powder metallurgy (consolidating metal powders), forming (of solid metals), and machining (metal removal).

      The metalworking industry primarily comprises a diverse group of small- and medium-sized enterprises. Business trends are best indicated by the activities of other industries in the supplier chain, the material producers and parts users. For example, major appliance shipments in 1994 exceeded the 1993 pace by 11.5% and likely would top the 1987 record of 50,650,000 units. Automotive shipments were up 10.5% to a level of activity not seen since 1979. Steel shipments were up 17.1% to automotive suppliers and up 9.6% to industrial equipment producers. Powder metal production, nearly all of which was used for automotive and appliance components, was running 15% ahead of 1993, a record year. Use of powder metals in components of automotive drivetrains was expected to double the use of powder metal parts from their current level of 11.3 kg (25 lb) per car in the next 10 years.

      Semisolid forming emerged as a viable process for small parts production. Alumax Inc. was building a $75 million plant in Tennessee for production of aluminum automotive parts by semisolid forming, and Japan Steel Works marketed a newly developed machine for semisolid forming of magnesium parts. Wyman-Gordon Co. was producing the largest titanium closed-die forgings ever made, bulkhead components for the Lockheed/Boeing F-22 advanced tactical fighter airplane. In a joint venture between Alcoa and VAW Aluminium AG, an integrated casting, extrusion, forging, and tube-forming plant was being constructed in Hannover, Germany.

      (HOWARD A. KUHN)

Advanced Composites.
      Much like the case with metalworking, the advanced composite industry is actually an amalgam of industries that includes producers of synthetic fibres and specialty polymers, composite materials suppliers, and component fabrication industries. Significant capability and user markets exist in Japan, the European Union, and North America. The major application industries have been civil and military aerospace and recreation.

      In the 1990s, because of an unexpected reduction in commercial aircraft orders and large military aerospace programs, the producers of aerospace materials experienced a significant decline in the market for their products. Worldwide carbon fibre capacity in 1993 was 11.3 million kg (24.9 million lb), while the demand was 6.2 million kg (13.6 million lb). Producers consolidated operations, closed plants, temporarily shut down facilities, and laid off workers to balance inventories.

      An increase in commercial aircraft orders was anticipated by the end of 1995 as the airline industry began to recover. This, along with the supplier industry's rationalization of excess capacity, was expected to alleviate some of the oversupply problems. Both commercial and military aerospace customers were placing great emphasis on affordability, however, so the life-cycle cost advantages of advanced composites might not justify their high material and manufacturing costs. In new applications the emphasis would be increasingly placed on automated processes such as resin transfer molding, automated tow placement, and pultrusion, as well as on design methods that optimize components for producibility and maintainability, rather than primarily for mechanical performance. Advanced composites should be able to find high-volume markets outside of aerospace: recreational applications, lightweight automotive structures, transportation, and civil infrastructure. In order to compete with existing technologies, producers would need to shift their emphasis substantially in order to lower costs of materials and processing methods. (ROBERT E. SCHAFRIK;

      THOMAS E. MUNNS)

MICROELECTRONICS
      Because of increased demand for the chips used in personal and notebook computers, projected worldwide sales of semiconductors in 1994 rose by 29% to just under $100 billion, according to the Semiconductor Industry Association (SIA). North America again led the world's major semiconductor markets with 1994 shipments of $33.1 billion, a growth rate of 33.7%. The North American and Japanese markets supplied 62.1% of all semiconductors (33.1% and 29%, respectively). The Asia-Pacific market, including South Korea, Taiwan, and Singapore, with a growth rate of 32%, was expected to replace Europe as the third largest provider by 1997.

      The SIA also expected the industry to invest more than $150 billion over the next few years on research and development to develop the technology to produce chips of 0.25 micron (micrometer) or below. (For comparison, Intel's Pentium chip was 0.8 micron.) New products and services such as interactive television, intelligent or "smart" automobiles, and wireless electronic devices were expected to increase the demand for microprocessors beyond the traditional computer-based applications.

      Japanese semiconductor companies increased production capabilities in the U.S. in response to the strong Japanese yen, making production in the U.S. economically advantageous over the manufacture of chips in Japan. To keep pace with this increasing demand for smaller, faster, less power-hungry chips, modern plants would need to be built. Construction estimates for these new state-of-the-art plants ran as high as $1 billion or more each. Intel Corp. spent just under $2.5 billion for capital expenditures in 1993.

      The joint venture of IBM Corp., Motorola, Inc., and Apple Computer, Inc., that produced the PowerPC microprocessor announced a new 64-bit version called the PowerPC 620. Among the anticipated uses of the 64-bit chips were new high-performance video games, due to arrive in the marketplace in 1995. In order to boost the sales of the PowerPC chip, Motorola reentered the computer-manufacturing business after an absence of a decade.

      Neural-network and fuzzy-logic chips were being used in applications such as fingerprint recognition, antilock braking systems, voice recognition, and even a "smart" hair dryer that automatically adjusted its speed and temperature.

      Digital signal processors (DSPs) were the leading-edge technology in microelectronics. These chips added functionality to personal computers, integrating data communications, telephony, audio, and multimedia capabilities. Texas Instruments, Inc., introduced the multimedia video processor chip, which incorporated four digital signal processors with a Reduced Instruction Set Computer (RISC) processor on a single chip. The chip's main uses would likely be in video processing and teleconferencing.

      Augmenting the portable and laptop computers were the Personal Computer Memory Card International Association (PCMCIA) devices. These cards plug into portable computers to function as data/fax modems, local area network (LAN) adapters, audio cards, hard disks, and solid-state memory cards that replace or augment floppy disks and memory. The solid-state memory cards use SRAM (static RAM) chip or flash technology memory, a cheaper and smaller alternative. It was hoped that a new PCMCIA standard released in November would solve some of the compatibility problems of these products.

      Digital Equipment Corp. (DEC) announced the Alpha AXP 21164, a new chip being added to its 64-bit RISC technology product line. This chip was capable of processing more than one billion instructions per second (BIPS), more than twice as fast as current designs provided in the Pentium and PowerPC chips. It contained over nine million transistors and would run at a speed of up to 300 MHz. Comparable products from Intel and PowerPC ran in the 150-160-MHz range. In November a flaw in Intel's Pentium chip was made public. (See Information Processing and Information Systems .)

      Motorola and DEC announced embedded processor versions of their PowerPC and Alpha lines. These processors were to be installed in laser printers, telecommunications devices, and consumer products such as video games.

      There was some movement in the court battles between industry giant Intel and Advanced Micro Devices, a rival chip manufacturer. On December 30 the California Supreme Court ruled that AMD was entitled to use Intel intellectual property in the manufacture of its 386-type microprocessors, reversing a lower court decision in October that had gone against AMD. Other suits between the two were still pending at year's end.

      Motorola, IBM, and AT&T Corp. formed a joint venture with Loral Corp. to develop a new generation of computer chips using X-ray microlithography technology to make more circuits with finer lines. The venture was named the Proximity X-ray Collaborative Association. New devices called RDRAM (Rambus Dynamic Random Access Memory) were introduced by NEC Electronics, Inc. Able to transfer data at a rate of 500 megabytes per second, these devices would be used in graphics and multimedia workstations. (THOMAS E. KROLL)

      This updates the article electronics.

PAINTS AND VARNISHES
      Growth in the paint and varnish industry had largely been restored in North America by 1994, remained rampant in Asia Pacific, but stagnated in Europe and Japan. The U.S. reported an increase of 6.5% in volume shipments and of 8% in sales by June, thus promising to surpass the 1,090,000,000 gal ($12.9 billion) recorded for 1993 as a whole. At 4%, industrial factory-applied coatings showed the lowest growth, signifying perhaps a permanent loss in volume due to higher spray efficiency and lower solvent usage.

      Markets in Europe remained largely static. Those for automotive coatings dipped, while coil and powder coatings offered one of the few bright spots. In Germany the decline in industrial and automotive paint demand was compensated by a building boom in its eastern states. The Japanese paint industry continued to stagnate; financial results of its top companies to March 1994 were particularly dire. Buoyant growth characterized the Asia-Pacific region, with paint production there now rivaling that of Europe. China had become the new focal point for Western investment and joint ventures. Other emergent areas of interest were Vietnam, India, Turkey, and Latin America.

      Profitability remained a problem, especially in the wake of serious price increases for paint raw materials during the second half of the year. Prices of titanium dioxide and petrochemical precursors rose steeply in both Europe and North America.

      Globalization strategies by the major players continued to dominate the corporate scene, especially a narrow specialization in a few key sectors and the divestment of noncore business areas. Both ICI and Akzo Nobel, the world's largest paint company, left the automotive original equipment manufacture market during the year. ICI disposed of its 50% interest in IDAC to DuPont, while Akzo sold its European business to PPG. American transactions included the acquisition of Rust-Oleum by RPM, Old Quaker Paint by Sherwin-Williams, Koch-PTI by HB Fuller, and Sinclair Paint by the Grow Group. Fuller also became a leading contender in the U.K. powder coatings market with the purchase of the Evode business from Laporte.

      Reduction of volatile organic compounds (VOC) remained the prime target of environmental action, but under its newly proclaimed "common sense" approach, the U.S. Environmental Protection Agency shifted its focus from pollutants to industries. The U.K. cautiously moved toward a less-stringent compliance regime under its Environmental Protection Act by examining the extension of the deadline and the upward revision of the VOC limits for certain compliant coatings. The European Ecolabel, promised for 1994, reached deadlock. (HELMA JOTISCHKY)

PHARMACEUTICALS
      The U.S. pharmaceutical industry began 1994 with a good deal of trepidation, aware that it was likely to absorb much public criticism for prices and profiteering when Congress began considerations on a new health care bill. Drug manufacturers had been singled out as villains for being major contributors to the problem of health care costs, but intense lobbying, combined with briefings by drug executives of members of Congress and community leaders across the country, turned the tide.

      Drug price pressure grew intense and was translated into still more downsizing, slashes in the workforce, and continued pressure to close nonprofitable or marginally profitable plants. Name-brand-drug companies moved more resolutely into the generic-drug business, sometimes by buying their generic competitors. The pace of conversion of prescription to over-the-counter (OTC) status for important drugs was accelerated, as a remedy for avoiding the inevitable slashing of prices that happened with expiration of patents. The year saw a flurry of acquisitions of pharmaceutical benefit management firms: SmithKline Beecham PLC bought Diversified Pharmaceutical Services and Eli Lilly & Co. agreed to buy PCS Health Systems. Among other mergers and acquisitions, unprecedented in number and size, were American Home Products Corp.'s $9.7 billion bid for American Cyanamid Co. and Roche Holding AG's $5.3 billion bid for Syntex Corp. Eastman Kodak, which bought Sterling Winthrop Inc. in 1988, began selling off the various parts in 1993: the prescription-drug business went to Sanofi SA, French pharmaceuticals/cosmetics giant, for $1,680,000,000, and the worldwide OTC drug business to SmithKline Beecham for $2,930,000,000—which in turn sold the North American OTC drug business to Bayer AG, Germany, for $1 billion. This put the German company back in control of the Bayer Aspirin trademark it had lost in a World War I takeover of German companies' possessions by the U.S. government.

      Ivax Corp., which in January spent $440 million in stock to acquire McGaw, Inc., agreed to pay $593.7 million to buy Zenith Laboratories, Inc., one of the major generic-drug makers. Johnson & Johnson, which ranked first in worldwide sales of OTC drugs, said it would pay $924 million for Neutrogena Corp., a cosmetics company, thus reversing a 10-year trend that saw Eli Lilly, American Cyanamid, and SmithKline Beecham all sell off cosmetics properties.

      There were signs that the industry's more aggressive stance on advertising and pricing was drawing regulatory attention. The Federal Trade Commission acknowledged that it was investigating discounting to hospitals and institutions, as well as possible reductions in competition when a brand-name drug company bought a generic manufacturer. The Community Retail Pharmacy Health Care Reform Coalition, a coalition of retail pharmacists, criticized drug makers for "arbitrary" pricing practices, probably with an eye toward getting Congress to hold hearings on special discounts not given to pharmacists. Bergen Brunswig Corp., a giant drug distributor, petitioned the Federal Trade Commission to halt Eli Lilly's bid to buy PCS Health Systems as anticompetitive. (DONALD A. DAVIS)

      This updates the article pharmaceutical industry.

PHOTOGRAPHY
      In 1994 the new head of Eastman Kodak, George M.C. Fisher, announced a major shift in the industry giant's direction: Kodak would sell its diversified nonphotographic operations and concentrate only on photography in both its traditional chemical-based and emerging electronic aspects. Kodak introduced a new digital camera for professional applications, the DCS 460, claimed to be the world's highest-resolution, single-shot colour device designed for studio and on-location use.

      The most widespread advances in electronic photography, however, involved not image capture, which remained dominated by conventional photography, but the technology for processing, controlling, and outputting digitized images from conventional or electronic sources. (See Sidebar (PHOTOGRAPHY: Digitally Altered Photography: The New Image-Makers ).) In what some observers called an "explosion of digital technologies," the photo lab business was experiencing its greatest transformation since the shift from black-and-white to colour.

      Design changes in 35-mm single-lens-reflex (SLR) cameras were evolutionary rather than radically innovative. Canon introduced the hybrid EOS-1N, which combined the sturdy construction of the EOS-1 with advanced electronic features from the EOS A2. Its multitude of features included a five-sensor autofocusing system with two modes, a rewind claimed to be eight times quieter than that of the EOS-1, and a 16-zone evaluative metering system that also provided centre-weighted, 9% partial, spot, and fine spot metering. Nikon updated its top-of-the-line professional SLR, the N90, as the N90S with changes that included faster autofocus tracking, shutter-speed adjustments in increments of 1/3, and increased weather resistance. Contax rekindled interest in 35-mm interchangeable-lens range-finder cameras with its elegantly designed, titanium-finished G1, which married traditional values of unobtrusive compactness with electronic automation. Samsung's latest entry into the crowded field of point-and-shoot cameras was the ECX 1, whose unconventionally shaped Porsche-designed body made it the most unusual-looking new camera of 1994.

      The fastest-growing segment of the camera market continued to be 35-mm preloaded single-use cameras as manufacturers strained to devise novel new features. Polaroid's talking SideKick had a "speech chip" that made such comments as "Smile and say cheese!" Lightning Bolt flash models were designed to provide red-eye reduction. A new Fuji Super Tele single-use camera (available only in Japan) used a mirror-path optical system to accommodate a 100-mm f/9.5 telephoto lens that did not protrude from the body.

      Film manufacturers once again provided a bountiful harvest of new high-performance colour products. Kodak introduced Royal Gold, a line of premium-priced print films that claimed greater colour accuracy, higher saturation, and finer grain than Ektar or regular Gold films. (Ektar 25, widely recognized as the sharpest, finest-grain colour print film available, was repackaged as Royal Gold 25.) Fuji announced a professional line of Fujichrome Provia transparency films and an amateur series of Fujichrome Sensia transparency films. Agfa added an Agfacolor Optima 400 print film to its professional line and a new series of Agfacolor HDC print films for the amateur market. New Agfachrome CTx100 and 200 transparency films were described as having increased colour intensity and improved grain and sharpness.

      The most persistent topic of speculation was the proposed Advanced Photo System being evolved by Kodak, Fuji, Canon, Nikon, and Minolta and scheduled to be launched in 1996. Leaks to the press in Japan and the U.S. indicated that it would include a new compact film cartridge (as slim as an AA battery) loaded with 24-mm film that had an ultrathin magnetic coating for conveying important read-out information to the camera and photofinisher. (ARTHUR GOLDSMITH)

      This updates the article photography (photography, history of).

PLASTICS
      The recession in Europe ended in 1994. In Germany, by far the most important plastics market in the area, accounting for nearly a quarter of total usage, demand grew during the year by 3-4%, to around 5.4 million metric tons. This recovery followed a decline of the same order in 1993. The picture was similar in other European countries, resulting in critical supply shortages for all commodity thermoplastics by the autumn.

      These shortages were quite unexpected and due to a number of reasons. With plastics demand in the Asia-Pacific region continuing its headlong expansion and sucking in imports, there was much less polymer available for other markets from usual exporters in such areas as the Middle East and Eastern Europe. U.S. domestic demand also remained very strong. There were also production problems in several parts of the world, ranging from a major explosion at an Exxon ethylene plant in the U.S. to climatic extremes in Japan, Taiwan, and Korea, and technical failures in Italy.

      Processors hastily attempted to rebuild depleted inventories as the shortfalls became evident. Prices rose very sharply as suppliers seized the opportunity to recover some of the losses sustained during the recession. In short, the industry set off anew on the familiar and violent roller coaster of imbalanced supply and demand. It was generally felt, however, that despite short-term relief, the underlying malaise of huge overcapacity for polymer production—especially in Europe but also in the U.S.—had not been cured.

      Two important new company names to appear in 1994 were Borealis, the merged petrochemicals and polyolefins interests of Neste of Finland and Statoil of Norway, and Montell Polyolefins, the joint venture between Royal Dutch/Shell and Montedison of Italy, which included the latter's Himont subsidiary. This new concern controlled polypropylene plants in 15 countries—making it easily the biggest world producer of what was still the fastest-growing large-tonnage polymer—as well as substantial polyethylene facilities. Shell Oil Co.'s polyolefins business in the U.S. and joint ventures in Germany, Singapore, and Japan were excluded, however.

      Imperial Chemical Industries (ICI) in the U.K. and EniChem in Italy reviewed the future of EVC, their jointly owned subsidiary, which was the largest polyvinyl chloride producer in Europe. ICI expressed the intention to sell its stake in the business. Following the disposal of its polypropylene interests to BASF of Germany earlier in the year, when the sale was final, ICI's withdrawal from commodity-plastics manufacture would be complete. Union Carbide, which made a surprise exit from European (but not U.S.) polyethylene manufacture in 1978, decided to return to the area, however, with a large-scale joint venture with EniChem, using its updated Unipol technology.

      Engineering plastics, which for the first time were as much affected by recession as were commodities, also began to recover in 1994. New applications continued to emerge steadily, not least in the automotive sector, ranging from engine components to connectors in a multitude of electronic devices. (ROBIN C. PENFOLD)

PRINTING
      The world printing industry appeared to be moving out of the recession cycle in 1994. U.S. and British companies, as well as those in Southeast Asia, Mexico, South America, and Australia, undertook substantial capital investments, and China became an important market for equipment.

      Major equipment sales were brisk. Twenty M-3000 "Sunday" gapless blanket extra-high-speed web offset presses were sold, three each to U.S., U.K., Germany, and Italian printers. "Tubeless" web presses were announced by MAN Roland and Mitsubishi.

      Even before the official launch of its Speedmaster 74 series, Heidelberg Harris sold out production of 1,000 sheetfed units. Romania's Imprimerie Nationale ordered a printing line from Stevens Graphics Tricolor for the production of passports, stamps, share and bond certificates, and other security documents. Stevens had sold a simular system earlier to the Banque de France. The U.S. Bureau of Engraving and Printing, which used Stevens-Hamilton presses, ordered a second commercial security press.

      Digital printing machines, notably from Indigo and Xeikon/Chromapress, entered short-run markets for colour. Competition was introduced by Xerox's launch of a new range of high-speed colour printers and aided by colour profile and management computer programs from Agfa and Electronics for Imaging. Stochastic (frequency-modulated random screening) took the world of prepress by storm.

      Now active on five continents, industry giant R.R. Donnelley & Sons reported that $500 million of its sales derived from CD products. A fast short-run book print service using personal computers and Docutech presses targeted at customized textbooks and university course materials was inaugurated by Courier Epic in the U.S.

      At the end of May, more than 400 of the world's leading printers and publishers met at Comprint in Cannes, France, to evaluate the changes brought about by the new customer-driven marketing strategies.

      (W. PINCUS JASPERT)

      This updates the article printing.

RETAILING
      The retail marketplace continued to undergo dramatic change in 1994 as competitors battled for supremacy in an increasingly global industry dominated by powerful chains. For many, international expansion was the preferred growth strategy, and the world's biggest retailer, Wal-Mart Stores, Inc., was certainly no exception. Seeking to conquer new territory outside the U.S. and Mexico, the huge discount chain pushed north by acquiring 122 Woolco stores in Canada from Woolworth Corp. Wal-Mart later announced expansion plans for Argentina, Brazil, Hong Kong, and China. The company, with about 2,700 discount stores, supercentres, and Sam's Club warehouse stores at year-end, was expected to report sales of $84 billion in 1994, up from $67 billion in 1993. Wal-Mart was poised to top the $100 billion sales mark in 1995.

      Spurred by the North American Free Trade Agreement, the Home Depot, Inc., the Sports Authority, Inc., and several other U.S. chains followed Wal-Mart into Canada, which was viewed as a market ripe for competition. Mexico was another popular destination. Border hopping was not restricted to North America, however. With little room to grow in the U.K., where a price war was raging, supermarket operator J. Sainsbury PLC bought a 50% voting share of Giant Food Inc. of Landover, Md., complementing Sainsbury's previous acquisition of the Shaw's Supermarkets, Inc., chain in New England. Lidl & Schwarz GmbH of Germany, meanwhile, became the latest discounter to plant itself in the U.K., where it was expected to put further pressure on Sainsbury and other traditional grocers.

      U.K.-based Body Shop International PLC also made headlines but for other reasons—amid allegations that its environmental record was not as squeaky clean as it would like customers to believe. The skin-care products chain denied the charges, but its stock took a bath. The troubled Kmart Corp. announced store closings and layoffs in the U.S. as well as plans to sell its 21.5% stake in Coles Myer Ltd., the largest retailer in Australia.

      In the U.S. another retail giant was created when R.H. Macy & Co., Inc., operating under bankruptcy court protection, agreed to a $4.1 billion merger with Federated Department Stores, Inc. The new company would have annual revenues of over $13 billion and control 330 department stores, including the prized Macy's and Bloomingdale's chains. Federated agreed to sell six stores in the New York City market to settle antitrust complaints. The merger looked set for approval late in 1994.

      Big was not considered beautiful by everyone. Across the U.S. Wal-Mart met with opposition from small towns that feared that the retailer would disrupt their way of life. Wal-Mart reportedly dropped plans to build in some of these communities, but in Vermont, the only U.S. state it had not yet entered, it reached an agreement to locate in St. Johnsbury after promising to limit the store's size and to sell some local products.

      As the economic recovery took hold, consumers in many countries appeared more willing to spend. U.S. retail sales, including automobiles, rose 6% in 1993 to $2,080,000,000,000. Sales also rose in Canada and the U.K. but fell in Germany and Japan, which had slipped into recession later than North America. U.S. stores that specialized in building supplies, furniture, electronics, or sporting goods continued to post strong sales gains in 1994, but clothing and grocery stores struggled in the face of stiff competition from discounters. Perhaps the biggest worry for supermarkets was the proliferation of supercentres. These hybrid retail outlets, which included a discount store and supermarket under one roof, were expected to be major engines of growth in the future for the big-three U.S. discounters, Wal-Mart, Kmart, and Dayton Hudson Corp.'s Target chain.

      Companies were also lining up to catch the next wave in retailing: interactive home shopping. J.C. Penney Co., Inc., and Nordstrom, Inc., were among the numerous retailers that signed on to interactive services such as U S West Inc.'s "U.S. Avenue." Expected to debut by year's end in 1994, it allowed consumers to stroll through an electronic shopping mall and order merchandise by clicking their television remote controls.

      Nordstrom also launched a 24-hour electronic-mail shopping service for computer users. In November 2Market and Contentware, two collections of multimedia mail-order catalogs on CD-ROM with connections to computer networks, made their debut. It was far too early to judge the impact of these new technologies on traditional retailing, but Americans had already demonstrated their enthusiasm for armchair shopping, having spent about $30 billion on mail-order purchases in 1994.

      (JOHN HEINZL)

      This updates the article marketing.

RUBBER
      The rubber industry ended 1994 with the dilemma of rapidly rising material costs and its main customer, the automotive industry, demanding price cuts. It was the auto industry, however, that was fueling a strong demand for rubber as consumption worldwide was up 2% over 1993 and was projected to reach 14.7 million metric tons. Most of the gain came from North America, where consumption rose nearly 4%. Rubber consumption in the U.S. was running at an eight-year high, even though the tire manufacturers were hit with several strikes.

      Natural rubber prices dramatically increased during the year. Tapping was hindered in Thailand and Malaysia because it was too wet, but Indonesia was experiencing a drought that led to rubber plantation fires. The rapid rise in pricing put the International Natural Rubber Agreement (INRA) in jeopardy. INRA was ostensibly set up under UN auspices to guarantee a continuous supply of natural rubber and to stabilize prices. After years in which natural rubber was bought to bolster prices, however, the entire buffer stock was sold off during the summer of 1994, with little or no effect on the holding down of prices. Prices, which hovered around the 200-Malaysian/Singapore-cents-per-kilogram mark in October 1993, went over 330 cents in July, and by October 1994 they were at 280 cents. In the U.S., prices for ribbed smoke sheet were 45 cents a pound in January and 69 cents a pound in September.

      Synthetic rubber prices also rose, with styrene-butadiene rubber (SBR), the major tire elastomer, experiencing five increases through October. Sharp price hikes for the major feedstocks, styrene and butadiene, plus shortages were the cause. Prices for SBR 1712 in the U.S. went from near 40 cents a pound in January to near 50 cents in September.

      Tire shipments increased 9% in the first half of 1994 despite strikes at numerous tire-manufacturing facilities in the U.S. In August more than 8,000 United Rubber Workers (URW) members were on strike at 10 different plants owned by four different companies. Agreements between Yokohama Tire and its 800 workers and Dunlop with its 1,500 employees were reached in the fall, but more than 4,000 at five Bridgestone/Firestone locations and 1,000 at two Pirelli Armstrong plants were still striking.

      Having begun on July 12, the action at the Bridgestone/Firestone strike was the longest and most acrimonious. The URW accused the company of organizing a conspiracy to gain deep concessions and filed unfair labour charges with the U.S. National Labor Relations Board. Bridgestone/Firestone charged that the union had brought racism into the bargaining.

      Numerous plans for expanding tire-production capacity were announced, particularly in Asia. In China, Shanghai Tyre said it would double tire output to 6 million units by 1995; Hualin Rubber Factory was constructing a 1.8 million-unit radial tire plant; Yunnan Tire planned a 2 million-unit-per-year passenger and light truck radial plant; Gulin was adding capacity for 1 million radial passenger/truck tires; and Goodyear, in a joint venture, announced it would build a factory with a capacity of 1 million tires per year. Goodyear also announced that its Indonesian plant would increase capacity from 7,000 to 11,000 tires daily. Pacific Dunlop said it was going to build a tire plant in Indonesia. In South Korea Hankook said it would build a factory with an annual capacity of five million units. Bridgestone announced plans for a new plant in Thailand, and Ceat said it would build a tire plant in Vietnam. Dunlop planned a new tire facility in the U.S., while Cooper Tire and Yokohama added significant U.S. capacity. Sumitomo bought Pneumant Reifen & Gummi Werke in East Germany for $35 million and planned to invest $65 million in its two factories. Continental of Austria was expanding tire capacity by 10%. Continental and Michelin each closed a truck tire plant in France, and Pirelli closed one in the U.K.

      On the supplier side, Taiwan Synthetic Rubber (TSR) announced a joint-venture SBR plant in China to produce 100,000 metric tons per year; TSR also announced a major debottlenecking of a thermoplastic elastomer plant in Taiwan along with a 20% SBR expansion; Jilin Chemical planned to build the first ethylene-propylene plant in China; BASF formed a Chinese joint venture to build an SBR latex plant; Dinamika Erajaya was building an SBR plant in Indonesia; Hyundai Petrochemical said it would build a plant to produce polybutadiene, SBR, and nitrile in South Korea; and Yung Chemical was building two plants in Taiwan. Du Pont was increasing fluoroelastomer capacity, Dow Plastics increased thermoplastic polyurethane capacity, and Uniroyal announced plans for a new ethylene-propylene elastomer facility. Pirelli announced it would leave the U.S. farm tire market. (DONALD SMITH)

SHIPBUILDING
      According to Merchant Shipbuilding Return issued by Lloyd's Register, as of June 1994 there were 1,098 steamships and motorships being built around the world. They represented a gross tonnage of 15,844,647 gt (gross tons), up 149,823 gt from the previous quarter. There were also 1,050 ships that had been ordered but on which building had not yet started. If they were all built, their tonnage would amount to 24,997,199 gt, an increase of 1,621,252 gt over the previous quarter. These combined figures, 2,148 ships of 40,841,846 gt, constituted the total world order book, which was 1,600,081 gt more than the 1993 world order book. The principal types of ships in the order book were oil tankers (13,151,800 gt), bulk carriers (13,756,934 gt), and general cargo vessels (7,291,487 gt). Of the total order book, tankers represented 32.2%, bulk carriers 33.7%, and general cargo ships 17.9%. The proportion of the order book tonnage that was to be registered in countries other than the country where it was built rose to 77.9% (31,819,128 gt—an increase of 2,080,401 gt).

      The major players in world shipbuilding were Japan, South Korea, and China (both the People's Republic and Taiwan). At June 1994 these countries together accounted for 64.38% of the world's shipping order book. European countries and Brazil also had significant percentages of the total.

      In mid-July—after negotiations at the Organisation for Economic Co-Operation and Development in Paris—Japan, South Korea, the European Union, the U.S., Finland, Norway, and Sweden agreed to halt subsidies for their shipyards. The move was expected to avert a new round of subsidy grants.

      Competition from shipbuilders in South Korea and Europe forced Japanese builders to take drastic action to cut costs. Hitachi Zosen Corp. laid off 10% of its 2,000 workers, and NKK Corp. planned to reduce costs by 30% at its Tsu shipyard by amalgamating its design and construction departments. South Korean competition also forced Mitsubishi Heavy Industries, Ltd., to cut 900 jobs from its workforce of 7,000.

      South Korea was not without its own labour problems, and Hyundai Heavy Industries Co. locked out 15,000 workers. The trade union was seeking a guaranteed monthly salary plus a series of improvements in working conditions. Demands amounted to a 13% increase, well above the government's 5% incomes-limit policy.

      The sinking of the Baltic "roll-on, roll-off" ferry Estonia, with the loss of some 900 lives, revived concerns over the safety of this type of ship. Taken together with the loss of the Herald of Free Enterprise off Zeebrugge, Belgium, in 1987 with the loss of 188 lives, this incident caused serious doubts about a ship design that incorporated large open car decks. (See Transportation .) Britain's Royal Institution of Naval Architects rebuked ferry operators for being slow to install stabilizers or watertight bulkheads on their ships. Losses of bulk carriers and oil tankers also continued despite some remedial action. A notable example was the loss with all 24 crew of the 93,355-deadweight ton bulk carrier Iron Antonis off South Africa. Some light was thrown on bulk carrier losses by the finding of the wreck of the Derbyshire, which had sunk in 1980 without trace. A remotely operated submersible provided evidence that the vessel broke apart at frame 65 and the aft accommodation section sank immediately. Photographs indicated that the bow fell off the carrier before the remainder of the vessel sank. This might suggest a previously unknown stress point at a quarter of the ship's length on this and other similar bulk carriers. (EDWARD CROWLEY)

      This updates the article ship construction.

TELECOMMUNICATIONS
      The year 1994, which marked the 10th anniversary of the breakup of the old Bell System, was also the year of partnerships and mergers among cellular, land-based telecommunications and cable companies. Among them was the $12.6 billion acquisition of McCaw Cellular Communications, Inc., by AT&T. Although announced in 1993, the merger was not completed until September 1994.