The Mech Touch Chapter 979
977 Ministry Of Economic Developmen
"WHAT?!" Ves erupted. "The Ministry of Economic Development bestowed 21 percent of the LMC's shares to the TNC Holding Group in exchange for permits and approval!?"
"Those permits aren't worthless." Marcella told him. "In fact, every large mech manufacturer with ambitions to sell a large volume of mechs per year needs to have the consent of the Bright Republic. Any company that doesn't play along will be stymied by the various government institutions that issue those permits and approvals."
"Why didn't you tell me?"
"The LMC scaled up much faster than I anticipated. I always intended to inform you, but you were already off before I knew it. No matter. Even if you were still around, you'd surrender to the inevitable. Besides, it's not as if they paid for your shares for nothing. That girl Calsie you put up as your representative managed to negotiate a sum of around 13 billion credits in exchange for 21 percent of your shares to the LMC. For now, that money is stored in a trust fund in your name."
Ves blew his top off. "What kind of biased evaluation is that?! The LMC may not have been around for long, but a fifth of my company is worth a lot more than 13 billion credits in my judgement!"
"The auditors in the employ of the Ministry of Economic Development don't think so. Are you questioning their judgement?" She sent him a deprecating smile.
Properly speaking, MinEcDev should have hired impartial auditors to determine the worth of the shares of the LMC. Yet according to Marcella, the ministry set its own rules so whatever it did was absolutely legal!
It was utter nonsense of course!
Using their own people to inspect the finances of the LMC in order to determine how much they should pay for its shares was like a kid pointing to a toy and saying that it's worth nothing so that he could get to play with it for free!
"What a scummy ministry." Ves muttered. "If they're already like this at the start, I am dreading what I'll hear next."
They moved on to the current share structure of the LMC. Marcella summoned up a flat projection that listed the current shareholders of the LMC to this date.
VES LARKINSON: 49 percent.
LARKINSON ESTATE: 25 percent.
TNC HOLDING GROUP: 21 percent.
BOLLINGER MECH TRADE: 5 percent.
Overall, the front for the Ministry of Economic Development wrangled just enough shares out of his hands to lose absolute control over his company.
He didn't think that was a coincidence.
"Why leave me with 49 percent?"
"If the ministry takes any more, you'd be less invested in your own company." The mech broker explained. "Who won't say you'll neglect the LMC and start up a new company instead? The purpose of the MinEcDev isn't to drive you away, but to bind you and your company to the state. Every company that has gained some influence in the economy is a tool to enhance the power and prosperity of the Republic. They don't want this tool to fall into other people's hands."
Marcella briefly explained the rationale behind this policy of taking a substantial minority stake in major companies. Not only did the Bright Republic wanted to keep the company in their clutches and prevent them from transferring their headquarters to another state, they also wanted to rein in the absolute control of the founders of the company.
"The Bright Republic isn't the exception here." She said. "Many states have adopted similar industrial policies at the higher level. The states don't care about startups and small businesses within their borders. However, it is critically irresponsible to let their larger companies do what they want. Companies pursue their own interests and the interests of their CEOs and shareholders. Sometimes, those interests conflict with the interests of the state."
Ves understood the logic of the inherent solution adopted by the states. Even if he didn't entirely agree with them in his position as a business leader, he could see why the states did not wish to be at the mercy of the whims of the companies within their borders.
"You can't fight against the Republic on this point, Ves." Marcella warned him. "Many have tried and failed. Free market economies are out of vogue these days."
They moved on to the role of the TNC Holding Group. Even though only a portion of the members of the board directly represented their interests, the other members actually deferred to the TNC and in extension the Ministry of Economic Development!
As someone who took liberties with power himself, Ves knew that the Ministry of Economic Development was throwing their weight around, making it difficult for others to refuse their demands.
According to Marcella, MinEcDev wielded a substantial amount of power in shaping the Republic's economy! Anyone who didn't play ball with them would find their business environment constrained while the conditions of their competitors eased up. In that fashion, MinEcDev's policy of holding only a minor say in matters within the company effectively morphed into a voice that couldn't be ignored.
Ves glowered at the description of the infamous ministry. While he heard some things about their overbearingness in the mech industry, he didn't think they took so many liberties and that his company would fall within their clutches so soon after he founded his company.
"It's actually remarkable how fast they moved to acquire a stake in your company." Marcella half-complimented him. "That means they are paying special attention to you. MinEcDev sees promise in your career prospects and remain hopeful about the LMC's growth trajectory. To that end, they pushed aggressively to expand the Mech Nursery's production capacity."
"And thereby piling mountains of debt on the LMC's balance sheet."
"That as well." Marcella smiled sardonically at him. "MinEcDev is making a gamble that sales of the LMC's silver label mechs will continue to grow in volume and popularity over time."
"From what it sounds like, they've gambled and lost."
"Not entirely. The operation is still profitable, just less so than usual. The main problem is that MinEcDev never expected the ongoing war to impact Bentheim so directly. With the Vesians encroaching on the Bentheim region, many trade routes are cut off and the supply of raw materials has decreased. Along with the economic depression, it costs significantly more to produce the same mechs."
"Have prices of mechs risen as well? A lot of mech companies ought to have gone out of business by now."
"Only the small players. The bigger, more established mech manufacturers with strong financial muscle can easily bear the temporary difficulties. They're led by far-sighted CEOs and mech designers who have accumulated an abundant war chest during the good times. Not only have they snapped up some of the more attractive failing businesses, they're also outright selling mechs at no profit in order to maintain and expand their market share!"
Ves really had to hand it to the bigger players. They certainly knew how to exploit this crisis, especially when they predicted years or even decades ago.
The conduct of the larger and more established mech companies meant that it was completely unviable for the smaller players who struggled with rising production costs to jack up the prices of their own products.
"The bigger fish are increasing the pressure on the smaller fish." He remarked in an exasperated tone. "Are they deliberately trying to drive the smaller mech companies out of business?"
"Yup. And before you ask, the Ministry of Economic Development not only condones their behavior, but actively encourages it. In their perspective, any mech company that succumbs to a little difficulty like this does not deserve to stay in business."
"Well, there's a problem there. Companies that fall into the middle like mine are small enough to be affected by the market actions of the bigger players, but also large enough for them to obtain a minority stake! Isn't there an inherent contradiction there? Shouldn't they lend a hand to the LMC or something to tide it over?"
Marcella shrugged. "MinEcDev is so large and possesses a minority stake in thousands of companies across multiple industries. Just because they are invested in the LMC doesn't mean it cares for the company to the point it will stop it from failing. Companies fail all the time. The officials at the ministry aren't inclined to subsidize failure. However, that doesn't stop them from profiting off the successes of the companies in their sphere of influence."
It all sounded delightfully opportunistic on the part of the ministry. Ves couldn't help but laugh a bit helplessly at their shrewdness. If companies under their supervision went bust, then all they lost was other people's tax money. Yet if some of them went on to enjoy an explosively growth, then they stood to rake in a lot of money that falls directly under their control!
"The way you paint the ministry makes it sound as if it's a giant patronage center." Ves remarked.
"Oh, the Bright Republic is fairly moderate in that regard." She idly dismissed his concerns. "There are states where the equivalent government institutions have a much lighter touch, but there are even more states where the government is much more involved with their own companies. However, you have to remember that the most precious asset of a mech company are their leading mech designers. MinEcDev may want to push you around, but they don't dare to drive you away."
Even if he'd be enormously disadvantaged for doing so, as a last resort Ves could always pack his bags and emigrate to another state.
He'd have to start over again, though, and compete in a completely unfamiliar market environment that usually favored their domestic producers over foreigners.
Even if his second company grew successful again, he'd still have to deal with the same government interference all over again, putting him back to square one.
"Alright, alright, I get it. It's not a good idea to fight against the Ministry of Economic Development at this point." He concluded. "Let's move on, then. So the company's in debt and profit margins are slumping. How are our mech sales, by the way?"
"There's at least some good news there, Ves. While the bronze label mechs aren't being made anymore because there's no profit to be gained, sales of the silver label mechs are actually stable and have steadily grown over time as more mech pilots begin to appreciate them. The LMC sells two very good products, and word of mouth has continued to grow."
Marcella handed over a data pad that described the overall sales patterns for his two main mech models.
The Blackbeak offensive knight mech model earned a reputation for being hardy, dependable and mobile enough among the mercenary community.
The Crystal Lord on the other hand became a small hit among well-off mech pilots specialized in rifleman mechs.
Due to the war, sales of both models in the domestic market rose steadily. Even though the mercenary corps and other outfits operating in the Bright Republic didn't fight at the frontlines, they were still tasked with protecting mines and production facilities not important or strategic enough to warrant attention from the Mech Corps.
These mercenary corps therefore experienced sporadic fighting against the Mech Legion or some of the more daring Vesian mercenary corps contracted to raid Brighter properties.
Both the Blackbeak and the Crystal Lord models acquitted themselves well in actual combat. The mostly positive combat footage spread around in the galactic net continued to raise people's interest, though their premium price tags scared most potential buyers away.
The overall decrease in quality that Marcella briefly touched upon also started to discourage some buyers. Mechs produced later exhibited a notable difference in quality compared to the LMC's earlier products.
The toadies from the TNC Holding Group constantly pushed to expand the LMC's production volume and speed at the detriment of quality.
"Overall, the situation of the LMC could be worse." Marcella said in a lackadaisical manner, as if Ves was making too big of a deal out of the ministry's shenanigans. "The key takeaway here is that the LMC has managed to stay above water under the economic malaise. Although the government has tasked the company with allocating several production lines towards the producing military supplies at cost prices, at least you have a company to return to after the war. Many mech designers don't enjoy that particular luxury."
In other words, Ves should count his luck. The problem was that he didn't feel so fortunate.