The Great Debate UK

UK needs to look beyond BRIC markets to emerging CIVETS

By Torrie Callander, Global Reach Partners. The opinions expressed are his own.

The world’s mighty are currently meeting in Davos, Switzerland to discuss the progress – or lack of progress in some cases – of the global economic recovery. The financial crisis and resulting recession has brought many of the world’s major economies into the same boat. Subsequent years have seen a shift towards collective policy making in order to aid recovery. Here in the UK there has been a major shift in economic policy during that time, as a result of both collective world policy and a regime change at home. But this refocusing of our economic policy has to be taken further.

The UK of the industrial revolution was renowned as the “workshop of the world”. Now, with the overwhelming focus on a world-leading services sector, the UK is barely a workshop at all. This has got to change if we are to meet the Government’s ambitious growth plans.

Britain needs to recalibrate its commercial offering and refocus on manufacturing in order to vastly grow the export sector. The government is making gestures to achieve this aim. Already they have set a target of 100,000 UK businesses entering the export market for the first time within the next five years.

We are already making progress. Exports to the EU – our primary market place – were up 18.3% year on year in May 2011. We are making gains in the emerging markets too, with exports to China up 43.7% and India 43.4% in the same time period.

However, the BRIC markets (Brazil, Russia, India, China), are now well established as market places for UK exports and, although these relationships must be kept , UK businesses would be wise to realign some of their focus onto the CIVETS (Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa).

The CIVETS are the emerging markets most widely tipped for sustained growth over the next decade. As a collective, these nations have shown excellent economic growth in recent years. They share in the opportunity presented by a young population and they all have increasing levels of personal wealth. As such, these countries are the ideal marketplace for commercial and consumer offerings from the UK.

A crisis of trust is at the heart of global uncertainty

By S. D. Shibulal, CEO of Infosys. The opinions expressed are his own.

During the first day at the World Economic Forum yesterday, we witnessed delegates arriving with two things on their minds — how heavy the snowfall was and the realisation that new business models are needed to overcome global economic pressures. (It goes without saying that the mood at Davos hasn’t been helped by the IMF downgrading world growth targets). We all agree that we’re living in a volatile world and it cannot go ignored that there are many uncertainties we face, including currency volatility and high unemployment.

The euro zone crisis will undoubtedly be at the centre of the discussions concerning “uncertainty” but what the attending business leaders, governments and global organisations must understand and discuss, is what they can do together to put in place measures to transform and change, so we can better safeguard our future.

The discussions I had at Davos yesterday support my fundamental belief that corporations have a critical role to play in creating a future where opportunities are abundant and growth inclusive. Moreover, at the heart of the global macro-economic uncertainty is the crisis of trust. Leaders across businesses and governments alike need to work together to rebuild that trust. Creating jobs and fostering sustainable growth is the first step in this journey. While businesses will need to look at measures to manage their short term crises and be truly evolved, smart enterprises will have to balance their focus between “short term needs” and investing for “long term growth through innovation”. We must also recognise that the emerging  future is being shaped by global mega trends in business and society, along with changing demographic profiles.

In view of these trends and the events that led to the recent economic crisis, leaders have their work cut out. Balance the short term versus long term, create a frame of reference to drive growth and innovation, and envision and create a sustainable future. All the views that I shared above resonated strongly with the panel that debated the critical issue of “the role of the CEO” at the Infosys Lunch Panel discussion yesterday. The panel also concurred that talent, which will be at the centre of these strategies is in short supply. Organisations therefore, not only need to look at new hubs of talent but also at retraining and reskilling existing talent pools. Businesses increasingly need to work in partnership with governments and educational institutions to ensure the mobility of talent and the career development of generation Y so tomorrow’s workers are in line with business demand.  Finally, there was unanimous agreement that leadership by example, client centricity and healthy balance of choices are the need of the hour.

Image — A visitor walks past WEF logos at the venue of the World Economic Forum (WEF) in Davos, January 26, 2012. REUTERS/Christian Hartmann

from The Great Debate:

Yemen needs an insurgent democracy

After months of uncertainty around whether Ali Abdullah Saleh has been sincere about stepping down from his post as Yemen’s president, Sunday brought confirmation that he has left the country to seek medical treatment in the United States. Under a deal brokered by the Gulf Cooperation Council with United Nations, United States and United Kingdom assistance, Saleh is barred from partaking in the Feb. 21 elections for an interim president. In exchange, he received immunity in an unamendable law -- both nationally and internationally highly controversial -- passed by Yemen’s parliament the day before his departure.

And yet Saleh made it immediately clear that he intended to return to Yemen before the elections to lead his General People’s Congress party, which holds a majority of seats in parliament. This is, of course, somewhat reminiscent of the last time Saleh left Yemen for medical treatment in June 2011. Following a bomb attack on the presidential palace which left several senior government officials dead and Saleh and others seriously injured, he sought treatment in Saudi Arabia amid hopes he would step down from office. He returned to Sana’a as president at the end of September. While Saleh will not be able to hold this office again, his intention of continuing to play a major role in the future of Yemen taints the otherwise good news of his departure.

But now what? We’ve seen leaders who had desperately tried to hold on forced from power in Arab countries before. Zine al-Abidine Ben Ali was run out of Tunisia. Hosni Mubarak, under withering domestic and international pressure, stepped down from Egypt’s presidency. And Muammar Gaddafi wouldn't leave and was finally killed.

Yemen, though, is different. Its crisis goes much deeper than socioeconomic and political dissatisfaction. It has insurgencies to worry about.

There are two: the al-Houthi uprising in the north since 2004 and the increasingly secessionist rebellion in the south that, while tracing its origins back to the brief 1994 north-south civil war, has gained violent momentum from 2007 onwards. Both insurgencies are reactions to political marginalization and economic neglect by Sana’a.

But these insurgencies have telling differences. The situation in the north has been destabilized by past military operations against a Shi’ite rebellion that allegedly received support from Iran (doubtful as it may be in its significance). For years on-and-off fighting had seen little gain for either side until the government launched operation "Scorched Earth" in 2009. That push involved Saudi forces, but the insurgency, although reduced in strength, continued. To date, a number of ceasefire agreements have been signed, and broken, most recently in 2010.

In the south, meanwhile, a battle with secessionist forces is complicated by the significant and growing presence of al-Qaeda in the Arabian Peninsula (AQAP). This fight has garnered significant international attention, not least because of two failed international terrorist plots that originated in Yemen — the attempt to bring down airplanes with explosives hidden in printer toner cartridges in October 2010 and the Christmas Day bombing plot in 2009. The alliance between AQAP and the southern secessionists, however, is one of convenience above all else. The southern movement is deeply divided among different factions and has limited military capabilities. It thus relies to an extent on AQAP to challenge the regime without sharing the terrorist network’s religious fundamentalism or anti-Western agenda. For the regime, southern secession is unacceptable given that most of Yemen’s dwindling oil resources are located there. Internationally, too, there is broad support for Yemen’s unity and a fear that instability in the south will further enable and embolden AQAP.

from The Great Debate:

The strange, rocky beginnings of DHL

This is an excerpt from King Larry: The Life and Ruins of a Billionaire Genius, published this month by Scribner.

With over a quarter million employees and a network of more countries than the U.N., DHL remains the largest express shipper in the world. Contrary to conventional wisdom, it was also the first, beating FedEx by several years. By some measures, the little-known (in the U.S., at least) DHL remains the fastest growing corporation in history and was certainly the most visionary. DHL instigated the destruction of the centuries-old tradition of the postal monopoly and invented its own word processor in the mid-1970s. Anticipating e-mail, it employed the grandfather of the Internet as its president in the early 1980s.

And yet if DHL’s official corporate history is to believed — and we really have no choice here, since only two men were there and both are long gone — the company was conceived during a chance encounter in a grocery store parking lot between Larry Hillblom and a salesman from a small courier firm where both men worked, a silver-haired, gray-suited 58-year-old bon vivant named Adrian Dalsey. Dalsey was the opposite of Hillblom — an impeccably groomed smooth-talker who lived in a suburb of San Francisco with his loyal wife of thirty years; by his mid-fifties, the silver fox had spent enough money on other women that none remained for his and Marge’s golden years. Hillblom’s conservative politics and his work ethic would have endeared him to a man of Dalsey’s generation, but he lacked the older man’s finesse, meaning that their encounter was probably more intense than respectful. Customers who happened to push their shopping carts by that fateful meeting might have mistaken them for a wealthy father tolerating an obnoxious child.

But they eventually agreed that their boss had left a lot of low-hanging fruit unpicked. Insurers were not the only ones with time-sensitive documents. There was tremendous value to be captured if, for example, a shipping company could forward its bills of lading to customs in advance of a ship’s arrival, saving days or even weeks in port. Ditto for banks, which could only begin collecting interest on deposits once the original, cancelled check, was received by the Federal Reserve, or a law firm that needed a physical signature in order to effect a contract. Sending these documents via the postal service might take two weeks, if they reached their destination at all. At a time of double-digit interest rates and looming postal strikes, both men knew that the market for a fast, reliable courier service was huge — and growing. They understood that their skills complemented one another almost perfectly. And they disliked each other immensely.

“Larry and Dalsey had a visible acrimony,” an old friend of Hillblom’s told me. “Dalsey liked to snipe and he had this, he was a bit unctuous, he had this — it wasn’t a lisp, but an impediment — speech pattern that was distinctive and a little bit patrician. He was a distinguished-looking guy, a ladies’ man, and thought himself so. He used to snipe at Larry in a scornful, patronizing way, and it annoyed you. So here you have these two people with totally different worldviews and different functions within the company at loggerheads, creating the nascent IBM — unknowingly.” The friend paused for a moment and smiled. “Or maybe not.”

Regardless of the natural tension between two very different people from two very different generations, Hillblom and Dalsey ultimately understood that they needed one other in order to make a go of it. Hillblom was overflowing with ideas and energy; he was willing to work twenty-four hours a day and could do a lot of the legal legwork. Plus, he had saved up six-thousand dollars, which would become the company’s seed capital. Dalsey had the client connections. They incorporated in September, using the initials of their last names and adding that of Robert Lynn, a real-estate investor friend of Dalsey’s who had promised to help them raise capital. Lynn, however, dropped out of DHL immediately, sniffing that the company would never succeed.

Dalsey quickly signed DHL’s first client — the shipping giant Seatrain, which needed to courier bills of lading between Los Angeles and Honolulu — then hit a wall. Hillblom and Dalsey had hoped that Lynn’s financing would carry them through the lean months but now they were forced to rely on a trickle of cash to survive. Marge, Dalsey’s wife, became the corporate secretary and kept the books on her dining room table. Hillblom was forced to not only travel with DHL’s bags but also to pick them up at Seatrain before boarding the plane and drop them off after he arrived. During the few hours he was not working, he slept or studied for the bar exam. And he waited for his super-salesman to sign one of their dream clients. But Dalsey, scouring the Bay Area in an old Plymouth Duster whose unmatched doors were salvaged from a junkyard, had stumbled on the first in a long line of catch-22s: DHL needed banking clients in order to become profitable but they could not afford the expensive insurance that banking clients demanded. While the value of the checks that the banks were sending was, on its face, negligible — nothing more than paper and ink — if even a single, large check became lost or delayed for more than a few days, the interest lost could be substantial. Nearly a year would pass before an insurance agent offered up a solution. In the meantime, Hillblom nearly starved to death in paradise.

from The Great Debate:

The frugal revolution

General Electric’s healthcare laboratory in Bangalore contains some of the company’s most sophisticated products—from giant body scanners that can accommodate the bulkiest American football players to state-of-the-art intensive-care units that can nurse the tiniest premature babies. But the device that has captured the heart of the center’s boss, Ashish Shah, is much less fancy: a handheld electrocardiogram called the Mac 400.

The device is a masterpiece of simplification. The multiple buttons on conventional ECGs have been reduced to just four. The bulky printer has been replaced by one of those tiny gadgets used in portable ticket machines. The whole thing is small enough to fit into a small backpack and can run on batteries as well as on the mains. This miracle of compression sells for $800, instead of $2,000 for a conventional ECG, and has reduced the cost of an electrocardiogram to just $1 per patient.

In Chennai, 202 miles farther east, Ananth Krishnan, chief technology officer of Tata Consultancy Services (TCS), is equally excited about an even lower-tech device: a water filter. It uses rice husks (which are among the country’s most common waste products) to purify water. The device is not only robust and portable but also relatively inexpensive, giving a large family an abundant supply of bacteria-free water for an initial investment of about $24 and a recurring expense of about $4 for a new filter every few months. Tata Chemicals, which is making the devices, hopes for an eventual market of 100 million.

GE and TCS are doing something more exciting than fiddling with existing products: they are taking the needs of poor consumers as a starting point and working backward. They are producing radically simpler products in order to reduce costs: instead of adding ever more bells and whistles, they strip the products down to their bare essentials. But there is more to frugality than simply cutting costs to the bone. Frugal products need to be highly adaptable.

Anurag Gupta, a telecom entrepreneur, has reduced a bank branch to its essence—a smartphone and a fingerprint scanner—so that banks can take ATMs to rural customers. These products also need to be tough and easy to use. Nokia’s cheapest mobile handsets come equipped with flashlights (because of frequent power cuts), multiple phone books (because they often have several different users), rubberized key pads, and menus in several different languages. Nor does frugal mean second-rate: emerging-market consumers are obsessed by both value-for-money and the latest trends. GE’s Mac 400 ECG incorporates the latest technology. Many inexpensive mobile handsets allow users to play video games and surf the net.

The fortune at the bottom of the pyramid

Frugal innovation is not just about redesigning products; it involves rethinking entire production processes and business models. Companies need to squeeze costs so they can reach more customers, and accept thin profit margins to gain volume. Three ways of reducing costs are proving particularly successful.

A global bright spot: Sub-Saharan Africa

By Kathleen Brooks. The opinions expressed are her own.

For the last three years talk about the global economy has been decidedly negative. Firstly there was the sub-prime housing crisis in the U.S., then the sovereign debt crisis, now we wonder whether the euro will survive and whether China will suffer a “hard” economic landing.

But amidst all of this doom and gloom, there seems to be a bright spot: Sub-Saharan Africa. For the bulk of the last thirty years the focus has been on famine, civil war or piracy, which has left a decidedly negative impression of the continent. However, in recent weeks there has been a growing number of optimistic reports about Africa, with some even thinking it could continue to grow while the rest of the world stagnates.

So why all the positivity? The media might be behind the curve on this one since Sub-Saharan growth has outperformed the global average for most of the past decade, according to data from the International Monetary Fund (IMF). What is even more astonishing is that it has managed to sustain its growth rates even during periods of crisis. Last year growth averaged more than 5 percent even  though the sovereign debt crisis ravaged Europe and exports stayed high. Now that global food and energy inflation is starting to level, the continent is in a solid position.

The IMF predicts that Sub-Saharan Africa will grow at a faster pace than Brazil – one of the BRIC economies – between 2010 and 2015. So how has the continent managed to divert the narrative from famine and war to growth and prosperity?

There are a few reasons for this: firstly, demographics, secondly, natural resources and thirdly, its lack of exposure to developed world banking sectors. Looking at demographics first, a growing middle class is starting to emerge and now makes up approximately one third of the population of Sub-Saharan Africa. This class of people want to spend money and have helped to lift domestic demand as a share of GDP across the region. Added to this, 70 percent of the middle class is under the age of 40 so have many “spending” years ahead of them.

The Middle Class has been helped by some expedient political decisions in the region, debt relief and peace returning to parts of the continent. This helped to nurture a private sector that has also benefitted from intra-regional trade. A growing middle class brings with it societal benefits: rising education standards and aspirations, which may eventually filter down to poorer parts of society. There is no denying that poverty is a reality in Africa and by 2060 one third of the population is expected to be still living on $1.25 per day, but at the same time more and more people are expected to lift themselves out of poverty.

from Africa News blog:

100 years and going strong; But has the ANC-led government done enough for its people?

By Isaac Esipisu

Although the role of political parties in Africa has changed dramatically since the sweeping reintroduction of multi-party politics in the early 1990s, Africa’s political parties remain deficient in many ways, particularly their organizational capacity, programmatic profiles and inner-party democracy.

The third wave of democratization that hit the shores of Africa 20 years ago has undoubtedly produced mixed results as regards to the democratic quality of the over 48 countries south of the Sahara. However, one finding can hardly be denied: the role of political parties has evidently changed dramatically.

Notwithstanding few exceptions such as Eritrea , Swaziland and Somalia , in almost all sub-Saharan countries, governments legally allow multi-party politics. This is in stark contrast to the single-party regimes and military oligarchies that prevailed before 1990.

After years of marginalization during autocratic rule, many African political parties have regained their key role in democratic politics by mediating between politics and society. Multi-partyism paved the way for genuine parliamentary opposition and the strengthening of parliaments in decision-making. However, several shortcomings still remain: many African political parties suffer from low organizational capacity and a lack of internal democracy.

Dominated by individual leaders, often times lifelong chairpersons and “Big Men”, youth and women remain marginalized within party structures.

Hungary: The Greece of Eastern Europe

By Kathleen Brooks. The opinions expressed are her own.

It used to be Greece that was the canary in the coal mine, these days it’s Hungary. The new year got off to a bad start for the Eastern European nation after it experienced a failed bond auction, causing its bond yields to surge.

This caused major jitters across global financial markets and once again a small, relatively unknown economy is dominating the headlines and causing a massive headache for the European authorities.

But while there are many similarities, the reasons for the panic in Hungary’s debt markets are different from Greece’s problems. Athens borrowed too much and public spending spiralled out of control. However, Hungary’s problems were not based on the size of its budget deficit, which was a fairly manageable 4.2 percent of GDP at the end of 2010, but the amount of debt in its public and private sector that was denominated in foreign-currency.

While the post-Communist era in Hungary helped to modernise the state, its capital markets did not keep up to date. Borrowing costs were lower in the euro zone and other parts of Europe where banks were willing to lend relatively cheaply across the Eastern European bloc, especially to Hungary. While the Hungarian forint was strong it was fine to have liabilities in euro and Swiss franc, however, since the start of 2011 the forint has deteriorated at a rapid pace. Since August alone the forint has lost more than 17 percent of its value against the euro.

Here is the problem: when your liabilities are in euro but you earn forint, all of a sudden servicing your debts becomes much more expensive and bad debts start to rise.

That’s where the similarities with Greece start. If bad debts start to rise then Austria and Italy could be on the hook. Austrian banks hold a whopping $40 billion of Hungarian liabilities, while Italian banks have a slightly more manageable $20 billion.

from The Great Debate:

The year of the newspaper paywall

By Clay Shirky

The views expressed are his own.

This may be the year where newspapers finally drop the idea of treating all news as a product, and all readers as customers.

One early sign of this shift was the 2010 launch of paywalls for the London Times and Sunday Times. These involved no new strategy; however, the newspaper world was finally willing to regard them as real test of whether general-interest papers could induce a critical mass of readers to pay. (Nope.) Then, in March, the New York Times introduced a charge for readers who crossed a certain threshold of article views (a pattern copied from the financial press, and especially the Financial Times.) Finally, and most recently, were a pair of announcements last month: The Chicago Sun-Times was adopting a new threshold charge, and the Minneapolis Star-Tribune said that their existing one was working well. Taken together, these events are a blow to the idea that online news can be treated as a simple product for sale, as the physical newspaper was.

For some time now, newspaper people have been insisting, sometimes angrily, that we readers will soon have to pay for content (an assertion that had already appeared, in just that form, by 1996.) During that same period, freely available content grew ten-thousand-fold, while buyers didn’t. In fact, as Paul Graham has pointed out, “Consumers never really were paying for content, and publishers weren’t really selling it either…Almost every form of publishing has been organized as if the medium was what they were selling, and the content was irrelevant.”

Commercial radio is ad-supported because no one could figure out a way to restrict access to radio waves; cable TV collects revenues because someone figured out a way to restrict access to co-axial cables. The logic of the internet is that everyone pays for the infrastructure, then everyone gets to use it. This is obviously incompatible with print economics, but oddly, the industry’s faith in ‘every reader a customer’ has been largely unshaken by newspapers’ own lived experience of the move to the web.

from Ian Bremmer:

G-zero and the end of the 9/11 era top 2012 risks

In a video for Reuters, Ian Bremmer discusses the biggest risks facing the markets in 2012 and says the next phase in the Middle East and the post-9/11 environment pose the greatest uncertainty:

As we begin 2012, political risks dominate global headlines in a way we’ve not experienced in decades. Everywhere you look in today’s global economy, concerns over insular, gridlocked, or fractured politics affecting markets stare back at you. Continuation of the politically driven crisis in the eurozone appears virtually guaranteed. There is profound instability across the Middle East. Grassroots opposition to entrenched governments is spreading to countries such as Russia and Kazakhstan that were thought more insulated. Nuclear powers North Korea and Pakistan (and soon Iran?) face unprecedented internal political pressure... Read the full top risks report here.