Inside Enterprise Issue 7: "Renewal" by Inside Enterprise

EDITOR'S MESSAGE Editor-in-chief Jenny Chen Deputy Editor-in-chief Erica Liu General Editor Edmund Zhang Editors Angela Cartwright Cameron Bestwick Polina Nesterova Tess Lynch Designers Garnet Chan Grace Zhong Kate Xu Board of Advisors Jenny Huang Howell Sze Marina Yang James Pyo

o say that 2016 was an eventful year would be an understatement. The seventh issue of Inside Enterprise explores the new ways of thinking that have emerged from the disruptions and developments within our economic, political and social environments over the last year. Our writers explore how rapid advancements in technology have revolutionised the contemporary field of tissue engineering but also renewed our love for the vintage vinyl record. They also investigated organisations that have adopted new approaches to digital advertising and business models in order to keep up with societyâ&#x20AC;&#x2122;s ever-changing interests and needs. Despite the global uncertainty triggered by events such as Brexit and the election of Donald Trump as US President, these articles demonstrate that after disruption comes an exciting period of growth, renewal and evolution. The interviews in this issue reveal how being undeterred by disruptions, and sometimes even causing these disruptions, can reinvigorate the industry and result in a rewarding career. Steve Harker, former CEO of Morgan Stanley Australia, talks about the Banking and Finance Oath and how he came to be the longest-serving CEO in the Australian financial services industry. Harrison Uffindell, the Australian Country Manager of Tilt, discusses the delights and challenges that he encountered when launching the Silicon Valley funding platform in Australia. Nathalie Rafeh shares her Student Story of how her desire to bring students together led to the launch of her timetable sharing app, Kooee. Finally, we celebrate the achievements and opportunities of organisations including BusinessOne, the UNSW Accounting Society and Investing for Charity. As always, Inside Enterprise is a labour of hard work and devotion. It is the product of an extremely dedicated and passionate team. I would like to sincerely thank our writers, editors, designers and executive team members for their commitment. I would also like to thank our sponsors, both new and old, for offering their support to this publication. We deeply appreciate your generosity. 2017 marks the fourth year of Inside Enterprise and Issue 7 is our biggest issue yet. We will continue to grow across New South Wales and expand our inter-state operations, and thus look forward to hearing from students interested in getting involved. We welcome all students interested in writing, editing, or being part of the executive team. Information on how to apply is available on our website.

Jenny Chen

Editor-in-chief

For advertising and sponsorship opportunities, please contact editor@insideenterprise.org

COPYRIGHT AND DISCLAIMER ÂŠ 2017 Inside Enterprise. All rights reserved. The views expressed in Inside Enterprise are those of its contributors alone. Neither Inside Enterprise nor its Board of Advisors take responsibility for any material published. All pictures remain the properties of their respective copyright owners. www.insideenterprise.org | 3

CONT E NT S REGUL A RS New Ideas China's 13th Five-Year Plan Nikki Liang

The Social Contract and the Banking Service Revolution

Photovoltaic Solar Power

Disruptions in the Financial World

Anita Chao

Jason Ye

Jenny Kang

Radical Macroeconomic Policy: Searching for a Solution to Stagnation

Aleksa Ozegovic

Student Story Kooee: Won’t You Come? Annie Wang

F EATURES Tissue Engineering Ben Ferguson

A Song of Angry Men Denny Chen

The Business of Fashion Laura Armenian

It’s All in the Groove Edmund Zhang

16 20 26 32

Alibaba: The (Sesame) Seeds of Success

Resurrection through Reverse Takeover

Lyn Chen

Sam Pham

From Stale to Superstar Jessica Smith

4 | www.insideenterprise.org

I NT ER EST S The Digital Dilemma Anthony Makragelidis

The Changing Face of Australian Property Lending David Hogan

50 54

Busting the Bamboo Ceiling

Business Models Renewed

Jonathan Soerjoko

Marco Pascale

The Role of Urban Renewal Jack Gelabert

INTE RVIEWS Interview with Steve Harker

Interview with Harrison Uffindell

Tiffany Wu & James Pyo

Ricky Chan

S T U DE N T R O OM BusinessOne: Revolutionising the Student Experience Mark Jeyaraj

UNSW Accounting Society Tahsin Haque

Investing for Charity: Behind the Charity Illusion Rebecca Ching

72 74 75

ONLIN E For many more articles and to contribute your own, visit www.insideenterprise.org

St ay c on ne c te d www.facebook.com/insideenterprisejournal Tweet @IE_online

www.insideenterprise.org | 5

NEW IDEAS

China's 13th Five-Year Plan

raditionally seen as an economic powerhouse reliant on manufacturing and sheer population size, the Chinese government is seeking to adopt a more innovative, sustainable and open economic base with the adoption of its 13th Five-Year Plan (FYP), which is to be implemented from 2016 to 2020. This 13th FYP aims to shift China further along its metamorphosis by striving for technology, coordinated green development and international trade openness. As Chinese demand progressively shifts from raw materials to complex goods and services, Australia’s role as one of China’s main trading partners, investment destinations and competitors also needs to evolve to adapt to these new consumption patterns.

Australia as a trading partner

As the cost of labour in China rises, Chinese products risk being edged out on both sides by cheaper products from South-East Asian countries and higher quality products from advanced Western economies. In response to this, China’s ‘Made in China 2025’ initiative sets out national goals for Chinese 6 | www.insideenterprise.org

Nikki Liang manufacturers to move up the value chain by focusing on quality rather than quantity. Although the plan aims to upgrade Chinese industry as a whole, it sets out ten focus areas for high-end manufacturing. These focus areas are: new information technology, robotics and automated machine tools, aerospace equipment, oceanengineering equipment and high-tech ships, railway equipment, energy saving and new energy vehicles, electrical power equipment, new materials, biomedicine and advanced medical apparatus, and agricultural equipment. In addition, China is attempting to move towards green development by encouraging the implementation of renewable energy and cracking down on outdated power plants dependent on fossil fuels. As such, we can expect the growth in China’s demand for Australia’s commodities, such as coal, gas and iron ore, to slow in the future. On the other hand, China’s burgeoning middle class ushers in greater demand for more sophisticated goods and services, such as medical equipment, tourism and education – all of which match Australia’s competitive

advantages. In any case, China’s 13th FYP cannot be realised without stronger financial, government and education systems, and Australia is well-positioned to provide these relevant services. For example, Australia has strong expertise in government and financial services; our health and social security systems are comparatively efficient, and Australian banks are amongst the world’s safest. Such expertise may be exported through developing stronger financial and investment ties.

Australia as an investment destination

Australia is currently China’s second largest recipient of foreign direct investment after the United States, with real estate comprising 45% of total Chinese investment in 2015. However, following the 13th FYP, Chinese investment in the renewable energy industry should grow, as China conducts a ‘war on pollution’ to reduce its carbon intensity by 18%. In fact, China has already taken steps towards this goal in 2015, with its State Power Investment Corporation

(SPIC) acquiring Australia’s Pacific Hydro Group, IFM Investor’s renewable energy portfolio, in one of the highest valued deals made by a Chinese investor in Australia. China’s aim in shifting its key economic drivers from manufacturing to consumption should also be reflected in its investment trends – we can expect investment in healthcare and agriculture to increase as China’s rising middle class demands high-quality healthcare and food. 2015 saw significant growth in both industries, with Chinese company Biostime acquiring Swisse Wellness for $1.38 billion, and investments into large cattle and cotton stations increasing significantly.

Australia as a competitor

China has traditionally been a displacer rather than a disruptor in squeezing Australia’s manufacturing competitiveness through low prices. The 13th FYP ushers in an era that values entrepreneurship and innovation, meaning that China could soon compete not only in low-cost manufacturing but also in technology, processes and business models. The Chinese e-commerce titan, Alibaba, is a notable example of this development. Instead of generating revenue through customer subscriptions and sales commissions as Amazon does, Alibaba is an entirely fee-free marketplace for retailers and buyers that brings in revenue through its business model, which allows sellers to

pay fees to rank higher on the site’s search engine. In 2014, Alibaba floated in the New York Stock Exchange for US$24 billion in the largest ever IPO, and accounts for more e-commerce than eBay and Amazon combined. Other Chinese giants that dominate their sectors include Tencent, which owns social media platform WeChat, and Haier, which manufactures household appliances. The common essence underlying each firm’s success is their efficiency in adapting to consumer needs, and flexible organisational processes that accelerate marketing and customer reach. These disruptive advantages should be emulated by Australian firms in order to gain a competitive edge and survive in an increasingly crowded global market.

in China also poses a risk to both foreign and local firms seeking to gain competitive strength in China. Adjusting to the decline of the resource boom and adapting to new trends emerging in the wake of China’s redefined goals will also prove difficult for Australian businesses, but embracing such challenges will give unfettered access to the opportunities abound. n

Challenges ahead for China and Australia

Whilst China has historically overachieved each of its previous Five-Year Plans, there remain key challenges in the areas where President Xi Jinping hopes to develop China as a global leader. In manufacturing, China remains reliant on importing and adapting core technologies to suit Chinese needs. Innovation could also be hindered by the cumbersome and slow nature of processes in state-owned enterprises, and strict domestic standards that limit creativity and entrepreneurship. Comparatively poor enforcement of intellectual property law

The Social Contract and the Banking Service Revolution

he social contract between banks and the public outlines three crucial moral obligations banks must uphold: transparency, accountability and customer-centricity. Recent bank scandals highlighting customer mistreatment have led both politicians and the media to claim that this contract has been continually violated. Opposition Leader Bill Shorten emphasises this erosion of consumer trust in banks as a “systematic problem.” The Australian Labor Party’s push for a royal commission into banks has divided public opinion over government intervention. However, the issue of consumer trust and accountability is not just a political football, but also the catalyst for a service revolution within the banking sector.

Anita Chao

Product manufacturers or financial advisers?

To most banks, the service revolution involves transforming the customer experience through digitalisation. The 2016 Edelman Trust Barometer, a global survey that measures trust in institutions, highlights that trust in retail banks is largely attributed to the safety and convenience of digital banking. Digitalisation has allowed banks to personalise products and enhance the overall banking experience using technological innovations, including personal finance management tools, mobile apps and the eWallet. However, the forefront of digital banking has fundamentally changed. Previously advocated for its convenience, ease of use and operational cost savings, digital banking www.insideenterprise.org | 7

is now an effective marketing platform that enhances customer engagement. Deloitte Partner Jenny Wilson argues that digitalisation has rendered banks "product manufacturers" rather than mediums for financial guidance. With digitalisation increasing as new entrants present more innovative products, the banking sector should shift away from its traditional advice-driven business model towards digital product generation.

Cross-selling, not misselling

As the number of products soar, the banks’ increasing focus on cross-selling multiple products to the same customer is a major concern. Curbing cross-selling is on the global agenda as the industry faces increasing criticism following the scandal around Wells Fargo’s creation of false customer accounts without the customer’s knowledge in order to meet cross-selling targets. Recent regulatory changes uphold the fundamental idea of ensuring that customers remain informed. The UK’s Financial Conduct Authority (FCA) recently banned opt-out insurance sales, where customers must manually opt-out of add-ons. Meanwhile in Australia, the 2016 review submission of the Code of Banking Practice paid particular attention to regulating the sale of extras. The Review’s recommendations, including a compulsory time limit between product sales, provide opportunities for customers to deliberate and prevent aggressive marketing by banks. The shift away from commission-based

8 | www.insideenterprise.org

pay to rewarding the sale of add-ons is evident globally. Although the Future of Financial Advice (FOFA) reforms have banned commission-based pay on the sale of wealth products, commissions are still rewarded for the sale of other financial products, including mortgages. However, alternatives to increasing products per transaction using commissionbased pay have been well-executed. Peoples Bancorp, a United States financial services company, has successfully increased the average number of products per customer from four to six by streamlining internal referrals rather than implementing an aggressive sales culture. Westpac’s decision to remove all product-related incentives is also highly commendable, whilst its decision to award bonuses on the basis of customer feedback and quality ratings also communicates customer-centricity. Throughout the banking sector, it is perhaps time to review traditional pay schemes and operational structures in order to increase service standards and maintain the social contract.

Nature versus nurture

While regulatory and legislative bodies are attempting to improve regulation to ensure transparency, accountability and customercentricity, there is a limitation on the effectiveness of government and regulatory intervention. Banking scandals often arise from the bank’s internal culture and employee expectations. The CEO of Commonwealth Bank

of Australia, Ian Narev, states that many accusations of customer mistreatment are from “unreasonable” and “unhappy” customers, much a case of nature. However, it is this dismissal of customer mistreatment as mere exceptions that fuels public distrust. As a highly scrutinised industry, the belief that banks simply need to be given the freedom and independence to exercise commercial decisions communicates arrogance and reduces bank transparency. The expression ‘change starts from within’ has never been more fitting. On the political field, many have criticised the Government’s requirement for banks to appear before parliamentary committees every year as a ‘soft’ attempt to increase transparency. However, imposing stricter regulations on an already heavily regulated industry may not reap the desired results. Instead, building a robust banking culture should be initiated by standardising expectations across all stakeholders. Former Reserve Bank Governor Glenn Stevens recommends that banks should maintain authoritative power over its operations, with reference to benchmarks set by regulators. The Government’s increased funding to financial regulators, including ASIC, presents an opportunity to set these benchmarks to ensure accountability and integrity. Nurturing a sense of unison across all stakeholders should be encouraged as a more effective and sustainable measure of enforcing the social contract than strict enforcement. n

Photovoltaic Solar Power

Jason Ye

It may be surprising to note that for a country renowned for its sun, only 2.4% of Australia’s electricity generation in 2014-15 came from rooftop solar. What are the factors preventing more households from embracing rooftop solar panel technology? How far away is a future where households will be able to generate all their electricity through renewable energy?

espite the increased uptake of renewable energy in recent years, which accounted for 15% of Australia’s electricity generation in 2013-14, the electricity grid still remains heavily dependent on fossil fuel such as gas and coal. While the Australian Government’s Renewable Energy Target has mandated that 33,000GWh of electricity must be generated by renewable sources such as solar and wind power by 2020, the viability of an electricity grid completely powered by renewable energy sources is limited by the intermittency of renewable energy. Indeed, the amount of power that photovoltaic (PV) rooftop solar panels can generate varies depending on weather conditions, including the length of daylight periods and the amount of cloud cover. PV solar panels are constructed using semiconducting material, traditionally crystalline silicon, and generate electricity through the photovoltaic effect. This is where the sun’s solar energy is absorbed and converted into electrical energy in the form of a DC electrical current. An inverter connected to the solar panel converts the DC current into AC electricity for household usage.

Needless to say, PV solar panels cannot generate electricity at night, when household electricity demand usually peaks. During the day, however, electricity generation often exceeds household demand. This mismatch between supply and demand is usually addressed through two methods; selling surplus generated power back to energy grid operators through feed-in tariff schemes, and the installation of battery storage systems.

Feed-in tariffs

To encourage the uptake of PV solar technology, various state governments across Australia have introduced mandatory feedin tariff schemes. These allow households to sell excess energy produced by their solar panels back to their electricity retailer, thereby reducing their electricity bill. Initially these schemes were very generous. NSW households received a 60c/kWh subsidy in 2009-10, potentially reducing the payback period for installing PV systems to eight years. In recent years, however, the mandated feed-in rates have fallen significantly to around 6-8c/kWh, and the NSW government has permitted

retailers to set their own tariffs. This large drop in feed-in tariff rates has been driven by the belief that PV solar systems have become more affordable and no longer require heavy subsidies. Political opposition to feed-in tariff schemes has also grown, given that tariffs effectively subsidise those with PV panels through increased power prices for all households.

Potential of the battery storage

Given that lower feed-in tariffs significantly reduce the incentive to sell electricity back to the grid, most household savings are now generated through consuming all the power generated from their PV panels. While the launch of Tesla’s Powerwall, a lithium-ion battery system with an effective capacity of 6.4kWh, received large fanfare, there are many existing battery storage systems offered by companies including Samsung and Panasonic. These solar power batteries utilise lead acid and other hybrid batteries to ensure that electricity generated during the day can be stored for usage at night. Any battery storage system needs to be connected to both the household’s existing solar array and an inverter. Proponents of www.insideenterprise.org | 9

battery storage systems argue that in the future, solar panels and batteries may allow households to become completely energy independent, with grid electricity either eliminated or used as a back-up power source.

Payback period

Realistically however, the high initial capital cost and long payback periods of buying solar panels currently prevent most households from embracing rooftop solar technology. The Tesla Powerwall alone costs $8,000, while energy retailers such as Origin are offering an integrated solar panel, inverter and battery storage package for around $16,500. Assuming a 6c/kWh feed-in tariff paid for any excess power fed back to the grid, and savings of 20c/kWh for using battery-stored power instead of grid electricity, the payback period for a typical household ranges from 15-25 years. The payback period will also increase if additional expenditures like the replacement cost of batteries are incurred. A lower payback period can be achieved through shifting electricity-intensive activities to the day while consuming battery-stored, solar-generated electricity at night.

Manufacturing costs falling through the roof

However, the forecast for the solar panel industry is more positive in the long run. What is often overlooked when discussing the financial viability of solar power generation is the fact that the costs of manufacturing PV solar panels and battery systems

Disruptions in the Financial World

have fallen significantly in recent years, and are forecast to fall even further in the future. With the construction of Teslaâ&#x20AC;&#x2122;s Gigafactory, increased economies of scale will see battery systems like the Powerwall become much cheaper. Deutsche Bank estimates that the cost of producing PV solar panels in China have more than halved from $1.31/Watt to $0.50/W between 2011 and 2014. Combined with technological and efficiency improvements to PV technology, this has seen the lifetime installation and operating costs of rooftop solar in Australia fall from US$0.35/kWh to US$0.17/kWh in 2014, according to the International Renewable Energy Agency.

Conclusion

While a future where all households can meet their electricity needs through solar panels and battery systems remains some years away, falling costs, improved technology and reduced payback periods will make solar technology increasingly attractive to household consumers. Government regulators, energy retailers, and electricity generators should begin planning now for a future where increasing numbers of customers opt to go off-the-grid, and instead meet most of their electricity needs through rooftop solar. These stakeholders will have to collaborate to create future-proof business models and strategies. Successful collaboration will prevent a perpetuating cycle of fewer customers and high grid maintenance costs driving higher retail electricity prices, hence encouraging more customers to go off-the-grid. n

Jenny Kang

The financial sector is currently embroiled by disruptive forces on all sides. Fintech start-ups threaten existing commercial structures, whilst the Brexit vote plunged the world into global uncertainty and central banks have overseen an era of ultra-loose monetary policy and historically low interest rates. With all these challenges ahead, how can large financial institutions not only survive these threats, but also turn them into opportunities?

Fintech

Fintech refers to any technological innovation, usually disruptive, that changes or reinvents an aspect of the financial sector. Fintech stretches across all financial fields, including retail and investment banking, equity markets and even crypto-currencies such as Bitcoin. Fintech start-ups are renown for being agile, innovative and customer-oriented. 10 | www.insideenterprise.org

Although fintech poses obvious challenges to large established banks, in a landscape where negative interest rates challenge traditional banksâ&#x20AC;&#x2122; profits, fintech-driven innovation should not be seen as a threat, but an opportunity for traditional banks to innovate and increase market share. Fintech innovations can help banks avoid the path taken by Wells Fargo, which engaged in illegal sales practices, enrolling customers

in programs without their knowledge or consent, in order to meet cross-selling sales goals. Traditional banks can improve efficiency using fintech by using technology to discover new areas of lean operations and reduce overhead costs. If heavily regulated large-scale banks can collaborate with innovative smallscale fintech companies, this symbiotic arrangement can help large banks maintain

synergies and competitive advantages in increasingly difficult economic conditions, whilst focusing on constant innovation and process improvement.

Brexit

With the success of the ‘Leave’ vote in June’s referendum, the UK is now set on an irreversible path towards leaving the European Union. British Prime Minister Theresa May recently confirmed that Britain will exit from the European Union by the end of March 2017. Even though prolonged negotiations mean that the full effects of Brexit will take several years to emerge, global financial markets already face major instability, helping drive negative bond yields in some countries. The ongoing Brexit negotiations may produce two possible outcomes: a hard Brexit or a soft Brexit. A hard Brexit occurs if UK gives up full access to the EU single market. This will prioritise trade controls and new trade deals, potentially allowing the UK to become a truly global trading partner. However, hard Brexit means that the UK loses all customs tariff benefits and will face full trade barriers when trading with EU nations. This means that established trade relationships with EU nations will suffer as UK exports are placed at a disadvantage

relative to other European nations. Arguably, London’s financial hub will also be negatively impacted – indeed, some international banks are already preferring to set up their headquarters in EU-member nation cities such as Berlin. Soft Brexit, on the other hand, attempts to leave all the UK’s relationships with the EU, both financial and non-financial, as close as possible to existing arrangements. This would see the UK join the European Economic Area (EEA), similar to Norway. Consequently, Britain would still have full access to the EU’s internal market, allowing it to trade most goods with EU states without customs fees. Therefore, under soft Brexit, goods and service exports from the UK will still be traded on a tariff-free basis, which significantly minimises the economic risks of Brexit but prevents the UK from achieving true globalisation. However, under soft Brexit, the UK still loses all decision powers over how EU rules are drafted, and is still bound by most EU regulations.

Central Banks and Monetary Policy

Globally, central banks have recently implemented quantitative easing measures in conjunction with ultra-loose monetary pol-

icy. The Bank of Japan is keeping 10-year government bond yields at 0%, whilst simultaneously buying ¥80 trillion of bonds every year. The US Federal Reserve has kept its cash rate at historic lows, with no clear indication of when rates will rise. In Europe, the Bank of England’s cash rate lies at 0.25%, its lowest level in 300 years as Brexit sparked an eruption of uncertainty. Internationally, low interest rates mean that money invested in bank or Treasury accounts generate almost no interest – a preposterous concept merely a decade ago. Furthermore, the Bank of Japan and some European Central Banks are charging retail banks a small fee to hold cash reserves. All of these policies are built on a fear of economic stagnation and recession, and aim to encourage lending to stimulate economic growth. Keynesian economics states that lower interest rates should boost household consumption and business investment, drawing economies out of years of sluggish growth. Some argue that by keeping the interest rate low, loose monetary policy benefits the economy as low interest rates reduce the cost of holding liquid assets including bonds, increasing liquidity during financial crises. Others argue that low interest rates are the new norm, with the ageing population encouraging a glut of retirement savings and superannuation, hence driving interest rates down.

www.insideenterprise.org | 11

However, it is arguable that loose monetary policies produce a vicious cycle – as long as central banks keep interest rates low, investors will continue to fear a bearish market, resulting in reduced investment and prolonging economic recession. Many fund managers and industry experts believe that these approaches by central banks have turned the global financial market into a ‘casino’, and have encouraged endless and somewhat forced speculation from all investors.

UBS’s APAC chief Matthew Grounds told investors “Don’t buy the index,” and stressed that despite their positive historical returns, market indices are now high-risk and volatile due to the chaos of external shocks like Brexit. Instead, investors are frantically switching between gold stocks, small cap stocks, and ETFs. These constantly shifting holdings highlight the uncertainties that investors face in finding a safe haven to preserve their capital.

However, it is becoming increasingly clear that these ultra-loose monetary policies have failed, with more and more drawbacks as interest rates fall further towards zero. Therefore, many economists now urge fiscal policy through microeconomic reforms, with a shift away from blindly increasing spending to increased investment in productive infrastructure, including health and education services. n

Radical Macroeconomic Policy: Searching for a Solution to Stagnation

Aleksa Ozegovic

round the world, economic policymakers and central banks are worried. The recovery from the Global Financial Crisis has been one of the weakest since the Great Depression. Sluggish global trade and weak business investment have failed to convince economists of any impeding recovery, with the International Monetary Fund revising down its projected global growth rate for 2017 for the fourth consecutive time to 3.4% p.a. Economists naturally look towards macroeconomic policy, particularly expansionary monetary policy, to stimulate consumption, stave off stagnation and calm rising economic anxieties. As per Keynesian economic theory, many countries including the US and Australia have lowered interest rates to historically low levels. But what happens to countries like Japan and Sweden, where interest rates have hit zero and still fail to stimulate consumption and demand? As central banks implement increasingly radical macroeconomic policies that would have appeared ridiculous only a decade ago, these new policy instruments require close examination to understand how policymakers intend to combat weak growth. What can central banks realistically do to stimulate growth, and what implications do they have on the global economy?

Negative interest rates

The most notable and popular strategy is negative interest rate policy (NIRP), where central banks set their target policy rates to negative values and hence force private banks to pay the central bank to deposit money. The logic is that this forces private 12 | www.insideenterprise.org

banks to lend money to individuals since the alternative, keeping money in the central bank, costs money. Consequently, this strategy should result in greater investment, more consumption and higher economic growth, assuming that banks do not simply pass some of these deposit costs on to their customers. NIRP initiatives have already been implemented in Japan, Sweden and the European Central Bank to little effect. In Sweden, inflation remains particularly low, and some households have reportedly begun withdrawing bank deposits and hoarding cash. In Japan, negative interest rates have not only failed to boost growth, but have also reduced bank lending. Although

theoretically sound, negative interest rates have failed to dent the economic issues faced by advanced economies.

Fiscal policy

Some heterodox economists, including HaJoon Chang and Lawrence Summers, have suggested that the focus on monetary policy is misleading, and believe that governments should focus on using fiscal policy to reshape their economic structures. They argue that spending on infrastructure projects, such as roads and highways, and redistributive income policies to reduce inequality, are what is truly needed to save major advanced economies from stagnant growth. The hope is that infrastructure-driven de-

velopment and income redistribution can revive investment and employment in advanced economies. Complementing this idea, other economists argue that advanced service-oriented economies should revive their industrial and manufacturing sectors, and reverse the current trend of outsourcing manufacturing to developing Asian economies. This position has been endorsed by both leftwing and right-wing politicians in the 2016 US presidential elections, since former Democratic presidential candidate Bernie Sanders appealed to recapturing New Dealstyle Keynesian economics whilst Donald Trump promoted economic isolationism and protectionism. US President-elect Donald Trump has also promised pro-growth fiscal policies, including corporate tax cuts, bank deregulation and increased infrastructure spending. With the US and UK political establishments strongly against fiscal stimulus, instead implementing austerity measures that cut government spending

by dismantling social security, the stakes of macroeconomic policy debate are higher than ever. Although Donald Trump’s election inspired confidence in the US government’s use of fiscal stimulus to spur growth, which resulted in a massive rally in the Dow Jones, sceptics including noteable American economist Paul Krugman caution that this may simply amount to the privatisation of public assets. Either way, fiscal policy’s effectiveness in kick-starting the ailing US economy will remain uncertain for the near future.

A completely new direction?

Perhaps the most extreme suggestion so far was raised at the prestigious Jackson Hole Economic Symposium in 2016, where Carnegie Mellon University professor Marvin Goodfriend suggested that interest rate policy be removed from the zero-bound framework completely through the complete abolition of paper currency and transition to entirely electronic-based currency. Although Goodfriend notes that “the

public is likely to resist the abolition of paper currency,” this may prove to be an understatement given the public’s current scepticism towards the financial and banking industries. Although Sweden’s experience with households hoarding cash may seem exaggerated, it reflects a very real public anxiety that increases household demand for liquid cash and may seriously hamper any ongoing macroeconomic policy. Similarly, many investors are rushing to gold in economies where policies like negative interest rates have proven unpopular, as gold is traditionally seen as a safe asset. This public wariness is a major obstacle to any macroeconomic policy option, let alone one as ambitious as Goodfriend’s proposal. As the debate in economic policy circles continues, it is inevitable that numerous policy options will be devised and tested in hope of solving the global economy’s ongoing stagnation. Whatever the solution is, it is clear that the next few years will deliver a truly exciting and wide-ranging renewal of economic theory and policy strategy. n www.insideenterprise.org | 13

STUDENT STORY

Kooee: Won’t You Come? By Annie Wang

Imagine that a new semester of university has just begun. Many students would have screenshots of their friends’ timetables stored on their phones. However, it is far too inefficient to scroll through them all and correlate free periods, whereas contacting each individual friend to find out their schedules is also cumbersome and time-consuming. So how can this problem be solved?

athalie Rafeh, one of the co-founders of mobile timetabling app Kooee, may have the solution. Nathalie experienced this exact problem when she was sitting alone in Wentworth food court at the University of Sydney, scrolling through her photos and trying to find her friends’ timetable screenshots in order to stay connected. Seeing many others students also eating alone, Nathalie realised that this was a widespread issue, and the idea for a platform that would help students connect was born.

14 | www.insideenterprise.org

What is Kooee? Kooee is an exclusive social app for university students that strengthens both face-to-face student interactions and promotes the university’s sense of community through timetable sharing and live streaming of campus and society events. The name ‘Kooee’ appropriately aligns with the start-up’s long-term objective. Kooee is a slight alteration of the Australian slang ‘cooee’, which is used in the Australian bush to attract attention, find missing people or indicate one’s location. Nathalie explains how the mobile app performs the same function in the Digital Era through timetable sharing. "Students can call their friends together, and turn campus moments into memories," she says.

Sydney Genesis Nathalie’s vision to create an app to help university students enhance their social lives was realised when she joined the Sydney Genesis start-up program. This program provided weekly workshops and mentorship opportunities with outstanding entrepreneurs and business leaders. Nathalie reached the Genesis finals and met her co-founder, which allowed her to solidify her ideas and establish the foundations for Kooee’s growth. Since its soft launch in September 2016, Kooee has already received positive feedback due to the flexibility it provides, beating out competitors such as TimeWeave. Users are able to discover and remain involved with the myriad of campus events through its live feeds, and are also able to stay connected with their friends through Kooee’s chat function. Currently available to students from the University of Sydney, the University of New South Wales and Macquarie University, Kooee proves to be not merely a tool, but also a voice for students on campus, bringing them closer to their community. With the start of the academic year bringing in an influx of new university students, Kooee is expected to officially launch in March 2017. Launching to success Surprisingly, Nathalie’s most memorable moments of her start-up experience were not the successes, but the challenges of launching Kooee. Reflecting back on the journey, Nathalie considers customer acquisition as the toughest obstacle she faced. As a final-year Bachelor of Commerce student, Nathalie found it difficult to find various mediums to market the app, especially due to the restrictions that stem from Kooee still being in its soft-launch stages. However, with Kooee’s recent success, these challenges have been overcome. "The best thing is when people tell you, ‘Yes, this is what I actually need.’” Nathalie says. "Kooee isn’t just a normal app – here we’re solving a problem and providing students with value."

Nathalie’s motivation comes from her role models, Sam Walton and Sylvester Stallone. Nathalie sees Walton, an American entrepreneur who founded Walmart, as a symbol of persistence due to his passion for excellence and his determination to provide the best value for customers. While admitting that Sylvester Stallone is an odd choice of role model, she explains that "upon further reading about his character, his resilience in never giving up despite criticisms and discouragements from others really moved me." Kooee has been a tremendous learning curve for Nathalie, and through this journey, she has learnt three crucial lessons that she would like to pass down to future young entrepreneurs who are thinking of creating the next successful start-up. Firstly, utilise the vast networks developed at university, as interactions with intelligent people with completely different perspectives and complementary strengths can be especially advantageous when building a team. Secondly, contact the many people on campus who are willing to help, such as the Sydney Genesis program. Lastly, do not be distracted or hesitant when doing something that other people are not – be driven by your own passions and strengths, not by those of others. n

www.insideenterprise.org | 15

T I S S U E ENGINEERING The New Frontier in Medicine by Ben Ferguson

Throughout the world, an ageing population combined with a global shortfall in donor organs has driven an urgent need for next generation medical solutions to many chronic diseases. Although over 10% of the global population suffers from some form of kidney disease, there is no known cure for acute kidney failure, forcing patients to wait indefinitely for kidney transplants while undergoing renal dialysis in hospital for hours every day. How can this all change if doctors could regrow any part of the body?

16 | www.insideenterprise.org

he rapidly emerging field of tissue engineering is revolutionising the way modern medicine is practised. Though still transitioning from academic research to commercial reality, fullscale human tissue regeneration is the holy grail of future medicine, and has become a beacon of hope for curing disease, permanent injury and disability. As academic research in this field of bioengineering accelerates, so does government funding and

Dollar Man’, a bionic product of melding man and machine. Currently, the biomedical industry makes this fiction a reality for patients by integrating patients’ bodies with man-made electronic and mechanical implants, such as cardiac pacemakers and neural prostheses. These man-made solutions have done much to ameliorate the disabling effects of disease and injury. However, in reality implanting synthetic biomaterials into the human body

drives antibiotic drug demand, as seen with externally worn catheter systems. Immunological rejection of donor organs and animal-to-human transplants require continuing immunosuppressant drug therapy to prevent the body’s immune system from perceiving these ‘foreign’ organs as pathogenic and rejecting them. These all represent additional costs to the patient, making biomedical implants very expensive in the long-term. Durability issues with many

venture capitalist investment. Contrary societal attitudes towards tissue and organ engineering are gradually shifting as the potential benefits of effectively repairing, or even regenerating, parts of the human body are fast becoming a reality.

can have numerous unwanted side effects and biocompatibility issues. Biomedical implants can be viewed as merely band-aid solutions; in extreme cases, the natural disease is traded for a prosthetic disease. For example, the risk of thrombosis on blood interfacing devices, including prosthetic heart valves and pacemakers, forces patients to remain on life-long anti-coagulative drug therapy to reduce the risk of blood clots. Infection risk management

medical devices also adversely affect patient health. One highly publicised case saw the medical recall of the DePuy ASR cobalt-chromium hip implant. Many recipients were left with severe cases of metal poisoning through wear debris leeching into the surrounding tissue as the artificial cartilage degraded and the bare metals rubbed against each other. This led to numerous high profile lawsuits filed by patients suffering from severe metallosis.

Limitations of Current Medical Practice In the 1980s, science fiction writers created the idea of the ‘Six Million

www.insideenterprise.org | 17

Acute failures of mechanical or bioprosthetic heart valve devices are even more severe, often associated with high mortality rates even when it is promptly recognised and treated. The back-end costs of drug therapy, repeat surgery, hospitalisation and long-term out-patient care place a huge economic burden on an already stretched healthcare system, and place biomedical treatment out of reach for many low socioeconomic level patients. In response, the biomedical community is entering a new solution space – tissue engineering. What is Tissue Engineering? Tissue engineering is an emerging multi-disciplinary field of life sciences, engineering and computing technology that aims to facilitate the growth of new living tissue, known as neo-tissue. Standard medical practice currently uses symptomatic treatments such as pharmaceuticals to reduce the signs and symptoms of the disease, providing short-term comfort and wellbeing to the patient. Tissue engineering, on the other hand, replicates nature in its regenerative approach, resulting in a long-term cure for patients as lost or damaged tissues, organs and limbs are repaired or recreated. To grow any living tissue in the human body, be that neural, muscle, or skin tissue, tissue engineers use four fundamental building blocks – stem cells, scaffolds, growth factors and mechanical stimulation. Researchers are continually exploring new ways to optimise these individual components and tailor their properties to specific tissue and organ types. Recently, groundbreaking advances have been made in stem cell and scaffolding technology. Induced Pluripotent Stem Cells Stem cells are the fundamental building blocks of the human body, and are first created in the womb. Embryonic stem cells, which together form the initial embryo, eventually multiply and differentiate into skin, bone, muscle and organ cells that together form the human body. This ability also enables stem cells to repair damaged or diseased tissue, as well as regrow tissue from scratch. From the 1960s, research and development in tissue engineering was impeded by ethical arguments 18 | www.insideenterprise.org

surrounding the harvesting of embryonic stem cells, with concerns surrounding the destruction of a human embryo and hence the destruction of human life. This controversial argument was circumvented by groundbreaking advances in alternative sourcing of pluripotent stem cells. These cells have the ability to become any cell type. Most notably, the discovery of induced pluripotent stem cells (IPS cells) by Nobel Prize winning Japanese scientists Kazutoshi Takahashi and Shinya Yamanaka in 2006 was a crucial leap forward. The genius of IPS cells lies in their inception; they start as adult cells taken from skin or other body parts, and are then reprogrammed to an embryonic-like state to use as stem cells. This revolutionary discovery removed the need to harvest embryonic stem cells directly from embryos, and gave tissue engineers a potentially unlimited supply of pluripotent stem cells. Stem cell therapy is currently being trialled in certain cosmetic procedures such as breast augmentation and facial rejuvenation through the formation of natural tissue. Touted by celebrity plastic surgeons in Beverly Hills, many clients have highlighted their preference for stem cell therapy for breast augmentation and facial cosmetic procedures, as it harvests stem cells from fat tissue in the thighs to produce real adipose (fat) tissue. This allows for a more natural and smoother look compared to fake silicone implants or Botox. Novel Scaffold Technology Tissue engineers need to employ a scaffold matrix to provide the stem cells with a structure on which to grow, similar to how building scaffolds are required to support the building’s construction. Osseous ‘bony’ scaffolds have been developed in response to an ageing population afflicted by osteoporosis and bone fractures. In many cases of bone cancer removal or a large bone breakage, bones may not necessarily fuse back to their original state. Tissue engineered bone scaffolds can be used to bridge the missing bone, and can be tailored to the specific type of fracture. This application has attracted biotech industry interest with Australian companies such as Allegra Orthopaedics marketing porous biocompatible bone scaffolds to catalyse bone

ingrowth and healing. Decellularised organ scaffolds are an alternative to the ‘bottom-up’ approach to constructing scaffolds. Decellularised organs can come from either a human or animal donor. The donated organ is stripped of the original host’s tissue cells so it can be implanted into a new recipient, whose immune system will not reject it. Although this method still requires a donor, it does provide a viable short-term solution for patients with organ failure. However, tissue engineering remains the idea long-term solution, as it completely regenerates the organ. Liquid Hydrogels Recent advances in hydrogel scaffolding have catapulted commercial interest in tissue engineering. Hydrogel is a soft gelatinous fluid that can be injected using syringes into areas of diseased or damaged tissue. As well as being minimally invasive, using hydrogels for catheterbased delivery effectively protects the stem cells by encapsulating them in a soft protective medium, thus promoting tissue regeneration. Dr Ali Fathi has been recently recognised by the Institution of Engineers Australia as one of Australia’s most innovative engineers for his research and development of the Temperature Responsive Modifiable Peptide Hydrogel (Trimph). The Journal of Engineers Australia noted that “Trimph is an injectable biomaterial capable of aiding the regeneration of damaged body tissues such as cartilage, spinal cord and bones. It reduces the need for (and risks of ) open surgery.”

3D Printed Tissue and Organs

In tissue engineering, the potential of 3D printing is being realised through 3D bioprinters, which are being developed to print living tissues and organs one layer at a time. Although still in its infancy, scientists from the University of Sydney, Harvard, Stanford and MIT have made rapid progress in growing basic tissue sections and vascularised templates of human organs. The rapid pace of development resulting from this promising research is providing hope for people awaiting organ transplants. Dr Luiz E. Bertassoni at the University of Sydney imagines being able to “walk into a hospital and have a full organ printed with all the cells, proteins and blood vessels in the right place, simply by pushing the 'print' button on your computer screen.” A major challenge still facing scientists is creating a highly vascularised and innervated structure to supply the necessary nutrients and oxygen needed by body tissues to grow and function. A Commercial Reality? While some tissue engineered products are beginning to appear on the market, most are still at the research and development stage or are undergoing clinical trials. Regulatory approval for bioengineered products is a costly and arduous process, and by necessity is both rigorous and thorough. However, researchers continue to make breakthrough advances in the field, and the emergence of these products will in the near future translate into unprecedented benefits for patients with currently incurable illnesses. The author would like to thank Dr Jiao Jiao Li, Professor Hala Zreiqat, Professor Andrew Ruys and Young Jung No for their invaluable knowledge and editorial insight. n www.insideenterprise.org | 19

A Song of Angry Men By Denny Chen 20 | www.insideenterprise.org

Donald Trump’s victory in the 2016 US Presidential Election marked the crowning moment of populism in living memory. Met with incredulity, disdain and ridicule throughout his campaign, Trump's rise was fuelled by passionate ideas of populism and nationalism. His ascendency emulates a radical renewal of right-wing populist ideologies in the Western post-GFC political landscape, and is echoed in the UK’s Brexit referendum and even One Nation’s resurgence here at home. So how did this all occur, and what does the future hold? To answer this, we must first look at what populism entails.

opulism is a political ideology based on the idea that the general public has been wronged by a small group of powerful elites, and that this power imbalance can be corrected through the collective will of the people. Populism can be traced from Ancient Rome, where the ‘Populares’ were a political faction in the Roman Republic that supported reforms for the poor and used public referenda to overrule the Senate’s rule of power. Throughout history, populism has manifested itself at both ends of the political spectrum. Leftwing populism rallied around anti-capitalism, antiglobalisation and social justice, and is currently prevalent in parts of Europe, including Syriza in Greece, and in former Democratic presidential candidate Bernie Sanders’ income inequality-focused rhetoric. Conversely, right-wing populism championed antiimmigration, anti-elitism and nationalism. Global events including the Global Financial Crisis (GFC), rapid globalisation and mass immigration have proved fertile breeding grounds for right-wing populism. In essence, populism is an umbrella term for the views

and desires of the people – this common focus on ‘the people’ straddles the ideological contrasts between left and right-wing populism. But what has sparked the recent renaissance of right-wing populist parties globally?

The GFC or: How I Learned to Stop Worrying and Love Money German economists Funke, Schularick and Trebesch found that in the past 150 years, every financial crisis was followed by a 10-year surge in support for populist parties, with right-wing votes increasing on average by 30%. What differentiates the present populist surge from past surges is that the GFC was the worst global economic collapse since the Great Depression almost a century ago. Governments all around the world bailed out large financial institutions that had effectively become too greedy. Almost a decade onwards, advanced Western economies are still recovering from the GFC, with negative interest rates, sluggish economic growth and high unemployment creating widespread economic angst. It is clear why this economic angst exists – the GFC was primarily caused by the greed of the financial elite, who nevertheless still reaped large bonuses from government bailouts while at the same time the working class, the so-called ‘99%’, suffered higher unemployment, stagnating real incomes and worsening government services. Many working and middle-class Americans today believe that the postGFC recovery has overwhelmingly benefitted the wealthy, whereas most Europeans have not seen any sustained post-GFC recovery at all. This economic anger at entrenched income inequality initially manifested itself through the ‘Occupy Wall Street’ movement. The movement expressed dissatisfaction with the political establishment, which has been increasingly seen as out of touch and handin-hand with the business elite. This has created a perfect environment for populist doctrines to renew themselves as mainstream ideologies and reinvigorate the Western political sphere.

www.insideenterprise.org | 21

The losers of globalisation Globalisation is founded upon international integration, with global trade leading economies to specialise in what they are most efficient at producing. However, this has resulted in high human costs in advanced Western economies, as manufacturing industries such as car manufacturing are increasingly offshored to cheaper overseas locations, creating growing structural unemployment and stagnating workingclass wages. The economic hardships burdened on blue-collar workers have created vast disenchantment with globalisation within industrial cities and towns. This has especially exacerbated the income gap between blue-collar manufacturing and the booming services and technology industries, filled with the educated elite. Anti-elitist right-wing populism seeks to restrict international trade and promote protectionism by keeping domestic manufacturing jobs. Populism therefore allows those disillusioned with globalisation to express their anger at this perceived unfair economic system.

Border Patrol Immigration has consistently been a divisive topic globally. From America’s supposed problems with illegal immigrants from Latin America to the refugee migration crisis in Europe, immigration has become an omnipresent issue throughout the developed world. Combined with the effects of globalisation, immigration has seen many working-class voters, statistically likely to be older, white and male, blame immigrant workers for stealing their jobs and irreparably damaging their national identity. Even though immigration has been proven to improve economic growth, the benefits of immigration arguably do not flow to these working-class voters, who instead see increased unemployment and government services redirected to assisting immigrants. Antiimmigration is nothing new – Australia only abolished the discriminatory White “Populism therefore allows those Australia Policy in 1973 disillusioned with globalisation to – but its return to the political spotlight has express their anger at this perceived tapped into many people’s unfair economic system.” inherent fears of other cultures. Furthermore, fears of radical terrorism caused by migrants from Islamic countries has enabled right22 | www.insideenterprise.org

“These angry working-class voters ultimately swung the Electoral College in Trump’s favour, despite losing the popular vote by 2 million votes.” wing populism to become a viable solution to the fears of many. In 2016 alone, we have seen three highly consequential events that will shape our future for years to come, with the election of Donald Trump as the US President, Brexit and the resurrection of One Nation.

Make America Great Again The seeds for Donald Trump’s victory were sowed long before he announced his candidacy at Trump Tower. For decades, the American working class had been increasingly squeezed by the closure of historically strong industries such as car manufacturing and coal mining. Stagnant post-GFC economic growth and high structural unemployment in manufacturing sectors fuelled widespread disillusionment within workingclass voters. This anger was especially directed at globalisation and free trade agreements such as NAFTA,

which arguably destroyed America's manufacturing landscape. Critically, the Republican Party, which had long championed the working-class white American, had seemingly betrayed its roots through increased bipartisanship with the Democrats on immigration. Furthermore, both major parties had seemingly sold themselves out to Wall Street lobbyists. The solution to many was a businessman named Donald Trump. Trump perfected his appeal to the grumblings of many workingclass voters by strategically casting himself as the political outsider and the anti-elite businessman. These working-class voters, traditionally older, white and uneducated males, have historically formed the bedrock of both populism and the US Republican Party. Trump’s success in sweeping almost all of the 'Rust Belt' states, Wisconsin, Michigan, Indiana, Ohio, and Pennsylvania,

suggests that he successfully energised neglected working-class voters in these industrially declining states to come out in droves and vote for change. These angry workingclass voters ultimately swung the Electoral College in Trump’s favour, despite losing the popular vote by almost 2.9 million votes. Throughout his campaign, Trump used a textbook blueprint of the core pillars of right-wing populism. He claimed that illegal Mexican immigrants were bringing “drugs, crimes and rapists” into the country, and promised to “build a wall” to keep immigrants out. He called for a “total and complete shutdown of Muslims entering the United States,” and also promised to renegotiate trade deals and ease climate change regulations to stimulate America’s declining energy and manufacturing industries. Very tactically, Trump portrayed himself as the ultimate, self-funded www.insideenterprise.org | 23

outsider, free from special interests and lobbyists – something that he repeatedly attacked both Hillary Clinton and other Republican presidential candidates about. Trump’s media campaign was also perfect for his key supporters. Trump’s experience in reality television through The Apprentice effectively created a highly entertaining and controversial campaign that generated billions in free media coverage and made his key policies more accessible to the masses. Trump’s simple language, including his use of memorable epithets like ‘Lyin’ Ted’ and ‘Crooked Hillary’, allowed him to present himself as the ‘people’s man’. This differentiated him in the Republican primaries from Ted Cruz, who had also cast himself as a political maverick, but who was successfully portrayed by Trump as yet another Washington politician. Trump also benefited from the fact that Hillary Clinton could not have been a more perfect opponent in the presidential election. The embodiment of the political elite, Clinton represented so many of the ideals that working-class Americans had grown to resent. As a career politician, Clinton reaped the benefits of her status, and was paid millions by investment banks to give talks at corporate functions. Her husband Bill Clinton signed NAFTA – the free-trade agreement that Trump characterised as America’s single greatest job killer. Clinton appeared cold and representative of the typical politician, with little concern for the struggles of everyday Americans. Clinton’s failure to see the importance of the working class vote after the surge of Bernie Sanders in the Democratic primaries 24 | www.insideenterprise.org

was ultimately a costly mistake. Combined with the perception of her as untrustworthy, due in no small part to her use of a private email server whilst she was Secretary of State, Clinton struggled with enormously high unpopularity ratings. Trump out-thought Clinton by focusing almost exclusively on the powerful and engaged workingclass population, allowing him to pull off the greatest political upset in modern history and go down in history as the 45th President of the United States.

and Algeria have ever left the EU, with the last occurrence being in 1985, the UK enters murky political waters, creating economic uncertainty that will inevitably affect its economy and markets. So why did the majority of the UK vote against its own economic interests? Brexit succeeded because voters tended to vote more with their hearts instead of their heads. The government’s failure to ensure that the benefits from any post-GFC recovery were distributed to the lower classes led many working-class Brits to feel sceptical about the EU and oppose the EU’s immigration policies due to fears of job stealing and xenophobia. The ‘Leave’ Campaign played to these discontents perfectly, advocating for the UK to take back its borders. The high proportion of older and low-wage workers that voted to leave illustrates the populist undertones of the ‘Leave’ campaign, which focused heavily on the losers of globalisation and fears of immigration.

One Nation A painful and bitter Brexit The United Kingdom referendum’s shock decision to leave the European Union is fraught with economic dangers. Immediately after the vote, the UK lost its AAA bond rating and the British Pound dropped to its lowest level in years. Leaving the EU will essentially remove Britain from the EU’s single market system, and foreign investment and trade into the UK are expected to fall as the UK becomes subject to the same high import tariffs as other nonmember nations. Considering that only Greenland

Pauline Hanson and One Nation roared back in 2016’s Australian Federal election, winning an unprecedented four seats in the Senate. The revival of One Nation speaks more about Australian voters than it does about the party, whose views have remained consistent since its inception in 1997, with small updates including the substitution of Asians for Muslims as Australia’s greatest threat. Whilst economic conditions are favourable and Australia still records positive economic growth every quarter, many Australians have developed a xenophobic attitude

towards immigrants, especially after the Lindt Café Siege in 2014. A recent poll in 2016 found that 49% of Australians supported a ban on Muslims entering the country, which propelled Hanson’s resurgence on the back of anti-Islam criticisms. Economically, Hanson supports agricultural populism, strongly criticising foreign investment in Australian farms as an attack on our land. It remains to be seen how critically Hanson’s populist economic and social agenda affects government policy, with the Turnbull Government facing a minority in the Senate and hence being reliant on One Nation to pass major legislation.

Uncharted Waters Whether the resurgence of right-wing populism reflects a fundamental global renewal of the political system, or instead reflects a situational reaction to current economic and social conditions, remains to be seen. The incoming Trump administration’s early actions have been unpredictable, wavering between emotional instability and revoking many of his populist campaign promises. A Trump administration therefore promises to be unpredictable and uncertain, yet marks the crowning moment of right-wing populism in modern history. Brexit has already damaged large parts of the British economy but the full effect is yet to be seen, with British Prime Minister

Theresa May confirming that official exit proceedings will begin in 2017. In Australia, Pauline Hanson’s resurgence echoes her initial rise to power in 1998, yet the continuing presence of religious-based terrorism may cause One Nation’s right-wing populism to remain a staple of Australian politics well into the future. Whilst we enter uncertain political landscapes defined by forces that we do not completely comprehend, reflecting on 2016 reveals one of the most unpredictable, unusual and thoroughly interesting political periods in living memory. Without a doubt, the song of angry men has been heard throughout the world. The people are back. n

www.insideenterprise.org | 25

THE BUSINESS O By Laura Armenian

26 | www.insideenterprise.org

OF FASHION Carrie Bradshaw, lead character of TV show ‘Sex and the City’, was not entirely incorrect when she said “I like my money where I can see it – in my closet.” Carrie’s perception of the value in fashion is an astute one. In an era where Australian private equity firms have bled dry investment in traditional sectors such as technology, infrastructure and healthcare services, why have they not ventured into luxury-end retail?

The international case

Although traditional financial sponsors and luxury retail firms are strange bedfellows, with the latter often resenting relinquishing operational control to the former, the relationship is not unusual. Global private equity players such as the Carlyle Group, Blackstone and Permira have acquired luxury-end retail players including Moncler, Versace and Hugo Boss respectively. Traditionally, most investments occur in North America and Europe. In 2015, luxury goods and apparel accounted for 38.1% of mergers and acquisitions in the EMEA region, with an average deal value of US$296 million. The bidders in 86.7% of instances were venture capital or private equity firms, who invest based on capital growth or buyout strategy, with the aim of acquiring a controlling stake in the target. This global activity therefore supports the proposition that there is an appetite for such acquisitions.

The modern luxury retail brand

Breaking down the rationale underpinning this buying strategy, we can see that the modern luxury brand has identical or superior value drivers compared to traditional sectors. Luxury brands are founded on value-driven culture, history, product integrity, marketing and endorsement. These brands are generally the pinnacle brand in a particular niche, or otherwise market themselves to be so. This brand loyalty and marketing takes years to build, and major labels often have cult-like followings based on celebrity endorsements. For example, Olivier Rousteing’s Balmain Army is spearheaded by the Kardashian family, Rihanna and Antoinette Marie (also known as Sydney Fashion Blogger). This renders the brand continuously relevant in an era of social media and fast fashion. Luxury brands therefore satisfy two of the attributes sought after by sponsors in targets: high barriers to

www.insideenterprise.org | 27

entry and market-leading positions. Moreover, leading firms in the industry such as Louis Vuitton MoĂŤt Hennessy (LVMH), Bottega Veneta and Yves Saint Laurent have strategically managed their brands to increase annualised sales growth by 5.0% on average. This demonstrates to shareholders that they have successfully balanced creative demands, timelessness and modernity with the commercial demands of profitability and rapid growth. These luxury brands still maintain the ability to grow organically and nonorganically in the future, and often achieve higher valuation multiples than regular retail companies due to their propensity for greater customer loyalty. This means that every dollar of earnings growth may convert into more value for investors when investors implement their exit strategies. For example, TowerBrook Partners, Lion Capital and Equinox Luxury Holdings exited Jimmy Choo in 2011 by selling to trade buyer Labelex for over ÂŁ500 million, achieving annualised growth exceeding 30% during its four-year holding period despite the effects of the Global Financial Crisis (GFC). Furthermore, luxury retailers, much like the legal industry, have embraced technology to drive growth and customer accessibility. A prime example is Net-a-Porter, the original

28 | www.insideenterprise.org

tech-fashion disruptor, which has rolled out proprietary technology such as the Net Set – the equivalent of Google or Shazam but for outfits – and partnered with IBM to combine IBM’s commercial products with the Yoox-Porter Group’s personalised data. The company’s history of running hackathons allows it to capture and retain some of the world’s best software developers and programmers. The speed and agility of these luxury retail brands in responding to changes in their operating environment have allowed them to capture the essence and strategic vision of a tech company whilst retaining its consumer roots.

From the design room to the board room

But in order to make this a ‘good buy’, the timing must be right. No sponsor wants protracted negotiations with a Board or to overpay for an acquisition. Luxury brands, like any distressed listed company, can also make for easier acquisition targets given their susceptibility to ownership and execu-

tion problems, family feuds and succession issues. We can take heed from investors like Bernard Arnault, an engineering giant, who exploited a family feud in LVMH between Louis Vuitton and Moët & Chandon executives. The feud concerned a joint venture agreement with Guinness proposed by Louis Vuitton’s chairman and met with hostility by Moët & Chandon’s executive board. Arnault, who shared an investment bank with Louis Vuitton, Lazard Frères & Co., was able to seize a controlling stake and purge the largest luxury-retail conglomerate of its owners. But for every firm that has profited from private equity investment, there is a cautionary tale that warns against such investment. Permira’s acquisition of Valentino is one such tale. The 2007 buyout was one of the largest leveraged buyouts the industry has seen, valuing a 29.9% stake in Valentino Fashion Group and Hugo Boss at £2.6 billion. Investors should have been wary from the beginning when founders Valentino Garavani and Giancarlo Giammetti retired following strategic differences with Permira and their direction for the company. Succession planning was poor, and Alessandra Facchinetti, the creative

director appointed after their retirement, was dismissed two seasons later for lack of consistent creative leadership. Poor creative direction in conjunction with the GFC catalysed a stint of losses, which saw the Group’s revenues fall by 9%. Ultimately, Permira was forced to renegotiate the terms of Valentino’s bank loans and impair the value of its investment by more than 50%. The value of the buyout had plunged dramatically, and Permira were fortuitous enough to solicit interest from Mayhoola For Investments, a Qatari investment vehicle of the former Sheikh’s wife. Permira exited for £700 million in 2012 – a loss of £1.9 billion on their original investment. In the years since, Valentino has returned to its former glory, assisted by an investment partner that has a long-term view of the company, and an expansive global retail plan to rollout flagship stores in New York, Hong Kong and Rome. The case of Valentino is one that echoes Tamara Mellon’s experiences as founder of Jimmy Choo. Although Jimmy Choo is often cited as a prime example of private equity value-add, Mellon revealed the tension that often exists between the creative forces in one helm and the financial sponsors at the other end. In an interview with UK’s Telegraph newspaper, she has been noted as saying that investors are often too focused on the robust profit margins and when to commence their exit plan, which goes against the creative

www.insideenterprise.org | 29

helm’s focus on long-term growth and sustainability. The diverging outlook that both parties have on the company’s future stifles a designer’s innovation and creativity, preventing company growth. What is apparent from Mellon’s experiences is that financial sponsors lack either an appreciation or understanding of this basic fact – that creativity and innovation, not economic factors, are the key drivers of growth. Revenues are not grown because of a burgeoning Chinese middle class, or because of a radical marketing campaign. At the heart of their investment is creative capital; without this creative leadership, a brand’s “desirability

30 | www.insideenterprise.org

and products can suffer dramatically.”

The Australian story

However, this same worldwide phenomenon towards investing in luxury retail is stifled at best in Australia, with few success stories. L Catterton Asia, the private equity vehicle of LVMH, represents the only Australian fund with a mandate for mid-market or luxury-retail. Even then, their investments have been limited to 2XU, Giuseppe Zanotti, R.M. Williams and Seafolly. More recently, in early 2016 Nicky and Simone Zimmermann struck a minority shareholding deal with General Atlantic that will see the firm’s investment expedite Zimmermann’s US expansion plans. However, this

is by no means the same level of investment experienced in our North American or European counterparts, especially given the number of up-and-coming designers available in Australia. It is interesting to question why sponsors have not run the ruler on Josh Goot, who in February 2015 went into voluntary administration and would have been perceived as an opportunistic buy in this sector. Alternatively, brands such as Dion Lee or Michelle Aznavorian’s Misha Collection, which have extreme global growth potential and were both showcased at New York Fashion Week 2016, would be optimal investments by private equity

firms. So why is there such little private equity investment into luxury retail brands in Australia? Arguably, either Australian private equity houses have bought less into the growth story of luxury-end retail, or they have been scared off by too many cautionary tales of failure. It may be the case that the revenue turnovers of these mid-tier luxury retail firms are too small, such that it would take a large number of acquisitions to do a roll-up strategy required to make it worthwhile for even a mid-tier sponsor to make an investment. In the tradeoff between time, effort and returns, the negotiations and hassle of investing into a

luxury-end designer, some of which canâ&#x20AC;&#x2122;t read a profit and loss statement, is often for naught, especially when comparable internal rate of returns can be made in other industries. Private equity is efficient and they have a focus on their investment horizons. This means that whilst creative solutions are embraced, the creative process may not be. However, it is time for Australian private equity firms to think outside the box. The future doesnâ&#x20AC;&#x2122;t necessarily revolve around commodities or products but customer experiences. The consumption model has evolved and the new millennial generation is pursuing rare, unique and fashionable

items. The luxury-retail industry has marketed their products so that we do not just buy a product, but an accompanying experience of prestige. It is the reason why we choose a craft beer over a Victoria Bitter; or a vintage Yves Saint Laurent over a Michael Kors. The shifting consumption pattern aligns with innate features of the luxury retail industry. It presents the opportunity for barriers to entry, production differentiation and margin optimisation. Undeniably, this renders the luxury-end retail sector a playground for financial sponsors, and Australia, unlike its American and European counterparts, is ripe for development. n

www.insideenterprise.org | 31

It's All in the Groove How vinyl became the comeback kid of the music industry By Edmund Zhang

The story of vinyl was, until recently, one of obscurity and obsolescence, with the bulky, expensive and easily tarnished records seen as a quaint artefact of a bygone era. Yet since 2007, vinyl has staged a stunning comeback. Sales have skyrocketed globally, with record stores experiencing levels of interest unseen since last millennium. As global record labels start moving into vinyl, questions arise â&#x20AC;&#x201C; what caused this boom, and where does the vinyl industry go from here?

32 | www.insideenterprise.org

www.insideenterprise.org | 33

What is a vinyl record?

The vinyl record predates most recorded music formats, being invented in 1877, 85 years before the compact cassette and over 100 years before the CD. A vinyl record is a disc of PVC plastic inscribed with precisely cut concentric spiral grooves. Vinyl records are played on a gramophone, where a pin is dropped onto the spinning disc. The record’s grooves move the pin and send electrical signals that are converted into sound. Although outdated, vinyl’s use of physical grooves to store data produces a uniquely pure form of analogue sound, undistorted by digital conversion or transmission.

Breaking records – The global growth of vinyl

Since 2007, global vinyl record sales have experienced a staggering revival. The Australian Recording Industry Association (ARIA) recorded sales skyrocketing from just 17,996 in 2007 to 374,097 in 2015 – a 21-fold increase. Internationally, Japanese sales have risen six-fold in five years, whilst US sales have exploded from 988,000 in 2007 to 11.9 million in 2015, including a counter-intuitive doubling of sales during the GFC. Interestingly, this explosion in sales has been driven primarily by small independent record stores, which account for 45% of US vinyl album sales. Due to high demand, low supply and high manufacturing costs, vinyl records sell at a significant premium, up to twenty times the price of an online download. Yet sales continue to boom, driving significant revenue despite comparatively low sales volumes. Such impressive growth raises the question: what is causing this vinyl renaissance?

The hipster, the audiophile and the nostalgic collector – Breaking down demand

At first glance, vinyl’s resurgence appears to be driven by ‘hipsters’ – millennials seeking alternative or ‘new’ ways to enjoy music. Arguably, the worldwide vinyl renaissance began with the inaugural Record Store Day in 2007, where independent record stores celebrated vinyl records with special celebrity events, music exhibitions, limited edi-

34 | www.insideenterprise.org

tion re-issues and sales promotions. Since its inception, annual Record Store Days have sparked large media interest in vinyl records, launching an indie cultural phenomenon and introducing vinyl to a generation of eager millennials. However, a deeper look reveals that many ‘hipster’ customers purchase vinyl merely as trophies. In fact, a YouGov survey states that 7% of all UK customers do not even own a record player, suggesting that this market segment may disappear if vinyl falls out of vogue. Perhaps a more sustainable customer base consists of self-described ‘audiophiles’ – customers who highly value sound quality and will pay a premium for rich, undistorted analogue recordings. Vinyl’s fundamental advantage remains its ability to deliver warmer, richer sounds, since unlike digital MP3, it does not compromise sound quality or strip its depth by translating music into digital 0’s and 1’s. The physical grooves expose both the record’s and the artist’s imperfections, providing listeners with a more authentic atmosphere. Vinyl’s ability to bring music to life, emphasising elements of instrumentation that are otherwise hidden on digital formats, underpins vinyl’s cultural and commercial renaissance. However, a closer inspection of the ‘audiophile’ demographic reveals a significant overlap with ‘nostalgic collectors’ – middle-aged customers who are experiencing a nostalgic urge to repurchase the vinyl albums that soundtracked their youth. Indeed, this middle-aged demographic is the main driver of growth, with a YouGov survey finding that the largest customer demographic in the UK is customers aged between 45 and 54. But what drives this nostalgia? Fastpaced technological change, especially the evolution of digital music, has created a desire to return to the slower familiarity of vinyl. Furthermore, the transition to compressed digital MP3 and digital streaming has replaced tangibility with convenience, which removes the satisfaction of owning a tangible product. This therefore has driven a strong nostalgic reactionary push back to physical vinyl records.

These nostalgia-driven customers are also attracted by the unique charm of traditional record stores, with the act of self-discovering and sampling albums from walls of records, many from the 1970s-1990s, being a distinctive and sentimental experience. The revival of the independent record store thus rejects the impersonal nature of online music purchases. It is therefore unsurprising that the rock genre, which peaked during the 1970s-1990s, accounted for 68% of US vinyl sales in 2015, with box sets and classic album re-issues selling strongly. As the last bastion of old-fashioned analogue music, the renaissance of vinyl is underpinned by its nostalgic appeal and ability to evoke a sense of timelessness.

Scratching a new groove – How the music industry has reacted to this resurgence

The response of the mainstream music industry, which is reliant on digital downloads, streaming and CD sales, has passed through various stages of indifference, eagerness and hostility. Before 2012, many large global music labels viewed the niche vinyl industry’s renaissance with indifference. This allowed small independent labels to thrive, establishing strong supply chains with musicians and manufacturers, and creating personalised, tangible customer experiences. Many small independent record labels such as Rough Trade and Domino rebooted their sales strategy by offering complimentary digital downloads, allowing customers to experience both digital music’s convenience and vinyl’s pristine quality. However, since 2012 the vinyl industry has seen significant disruption as large players such as Universal Music Group (UMG) and Sony Music Entertainment aggressively attempt to commercialise the niche market through a two-pronged approach. Firstly, these global record labels have begun selling vinyl records through large retail chains like Tesco and Walmart. Secondly, the vinyl industry has become flooded with ‘mainstream pop’ records – the two highest selling vinyl albums in the US in 2015 were Adele’s 25, which sold 116,000 copies, and Taylor Swift’s 1989,

www.insideenterprise.org | 35

which sold 74,000 copies. Although disruptive, the push towards pop vinyl records and mass retail bodes well for the vinyl industry. The success of 25 and 1989 suggests that radio-friendly pop vinyl albums can coexist with classic rock albums. This sustains vinyl’s growth by broadening its appeal to include large mainstream audiences and attracting more popular retailing channels. Despite these advantages, such rapid change creates significant challenges. How large are these challenges, and can they be overcome?

Scratched records – Challenges facing the vinyl industry

Having experienced such explosive sales growth, the greatest challenge facing the vinyl industry lies in its supply constraints. Only forty vinyl pressing plants remain worldwide, and with a vinyl press producing only two records a minute (2880 records per day), the sudden upswing in demand has left manufacturers scrambling to 36 | www.insideenterprise.org

meet global demand. Vinyl manufacturers face 12-month backlogs, and such bottlenecks greatly hinder the industry’s ability to scale up and meet demand. However, arguably vinyl’s limited supply creates a sense of prestige and quality, and allows retailers to justify their inflated prices. Furthermore, vinyl’s persistent decline during the 1990s meant that the industry failed to invent modern presses or properly maintain existing machinery, and is instead reliant on run-down, patchwork Soviet-era presses. The exorbitant cost of manufacturing new presses makes purchasing one a long-term investment – one that most manufacturers cannot afford, and one that lenders view as too risky. Can vinyl manufacturers continue relying on antiquated machinery? Probably not, but the alternative remains elusive. Ironically, the most interesting challenges facing the vinyl industry are a direct result of its success. As global record companies like UMG flood the market with cheap modern pop records, the vinyl industry has become increasingly commercialised.

This risks alienating existing customers and losing the nostalgic charm driving its renewal. Furthermore, the high cost of producing vinyl records means that large record labels are increasingly reluctant to take risks and press unknown or new indie artists, preferring to reissue reliable classic rock bands and modern pop artists. This fundamentally shifts vinyl away from its competitive advantages in its traditional, independent indie music niche and towards mass market consumption. However, even the transition into mainstream pop is not guaranteed, with the price premium placed on pop records somewhat short-sighted as it may discourage potential customers and stifle any attempts to broaden customer demographics. Given their inexperience in this niche, the entry of global record industry giants risks muddying the vinyl renaissance with low quality recordings. This is exacerbated by some major labels producing vinyl records off digital MP3 master recordings, which removes the unique authenticity of purely analogue records. The loss of

vinyl’s authentic sound may alienate the ‘audiophile’ market segment, for whom sound quality is vinyl’s core competency. Hence, exposing the vinyl market to mass consumption risks destroying its product differentiation, diluting the customer experience and driving away core customers. "The truth is in the groove" –

Where does the vinyl industry go from here?

The above quote, chanted by music executives in a 1981 music industry conference in Athens, failed to prevent vinyl’s decline as CDs rose to prominence. Nowadays, the vinyl industry must assess the truth of its revival to answer the question: should the vinyl industry maintain its niche standing, or should it try to expand into the mainstream music industry? Despite phenomenal growth in recent years, vinyl sales still account for a very small percentage of total music sales. In Australia, the $8.9 million revenue from vinyl in 2015 comprises only 2.7% of the music industry’s $333.8 million in total

revenue. Vinyl revenue is dwarfed by the $132.6 million revenue in digital tracks and albums and the $46.3 million in digital streaming services. Overseas, vinyl constitutes only 1.5% of total sales in the UK and 4.9% of total US sales. Vinyl’s low market share strongly suggests that any prediction of vinyl becoming a major industry player is somewhat premature, and that the vinyl industry should focus on short-term consolidation instead. The vinyl industry should learn from the substantial decline of physical CD sales. The clear advantages of digital albums and streaming services over CDs, including convenience and ease of purchase, have caused digital sales revenue in Australia to skyrocket from $40 million to $208 million between 2007 and 2015. Over the same period, total physical sales plummeted from 52 million units to 12.5 million units. This trend suggests that vinyl should not compete directly with digital music for large market share, and should continue consolidating its niche market position. Perhaps the greatest argument in favour

of the vinyl industry maintaining a niche market strategy stems from the industry’s extensive current challenges. Supply constraints and reliance on outdated machinery strongly suggest that vinyl manufacturers lack the production capacity to scale much further, and any rush to growth is unsustainable. Any rush to mass commercialisation risks destroying vinyl’s core product advantages by producing inauthentic, low-quality recordings, by losing the unique customer experience of small independent record stores and by destroying the nostalgic and indie charm that originally attracted customers. The vinyl industry is therefore best consolidated as a niche market. To quote British economist E. F. Schumacher, “small is beautiful.” The remarkable renewal of the vinyl record industry presents a lesson in the power of perseverance, carving out a niche market and harnessing customer demographics. The story of vinyl is ultimately one of resurgence, and looks set to continue well into the future. n www.insideenterprise.org | 37

Alibaba: The (Sesame) Seeds of Success By Lyn Chen

ounded in 1999 during the emergence of China’s Internet Age, Chinese e-commerce giant Alibaba has been one of the world’s greatest success stories in recent years, shooting into fame with the largest IPO in history in 2014 at US$25 billion. The name ‘Alibaba’ carries a universal connotation to ‘Open Sesame’ due to the character Ali Baba in the Arabian tale One Thousand and One Nights, and also holds a quirky link in that the ‘ba’ sounds very similar to the Mandarin Chinese word for the number eight, a number that is traditionally associated with luck and fortune. Dubbed by founder Jack Ma as the ‘crocodile in the Yangtze’ (as opposed to eBay’s description as a ‘shark in the ocean’), Alibaba’s success stems from its focus on the Chinese middle class, who constitute the majority of the marketplace’s 439 million active users.

38 | www.insideenterprise.org

The Chinese middle class

Despite concerns of a slowing Chinese economy, Alibaba’s revenue of US$5.14 billion in the fiscal second quarter, a 55% increase from the previous quarter, reflects the firm grip of online retail on this growing Chinese middle class. Furthermore, analysis by consulting firm McKinsey & Company estimate that the middle class is forecasted to reach over 75% of China’s urban population by 2022 (equivalent to 550 million people), making it the world’s third-most populous country if it was counted independently. This demographic change acts as a core driver of demand for Alibaba. Unsurprisingly, around three-quarters of Alibaba’s current online shoppers are

those aged 35 and under who grew up with the internet at their fingertips and are increasingly exposed to social media. Such exposure to social media arguably creates a culture of instant gratification and impulse buying in the pursuit of materialist goods. Alipay, Alibaba’s own payment system, utilises this to their advantage by connecting customers’ Alibaba accounts directly with their bank accounts. This works well for Chinese consumers, especially middle-class consumers, who tend to purchase goods in cash to avoid incurring credit card liabilities. Moreover, the B2C (business to consumer) and C2C (customer to customer) platforms Tmall and Taobao (‘treasure hunt’ in Mandarin Chinese)

gives customers access to a wide range of products and sustain high levels of activity in the online marketplace.

Retail as 'entertainment'

In order to sustain long-term growth, Alibaba now seeks to expand both domestically into rural areas and internationally, as global retail and wholesale constitute a mere 8% of current revenues. ‘Country pavilions’ in the Tmall Global channel are used to showcase curated products from Alibaba’s global partners. Technologywise, Alibaba hopes to extend its technological arm by adopting cloud computing and strengthening their digital marketing channels. The shopping experience itself is

www.insideenterprise.org | 39

envisioned as an entertainment-based customer experience. The Taobao app has created a flourishing marketplace that does not mask the traditional anonymity amongst buyers and sellers. Buyers can gather in micro-communities through more than one thousand shared interest chat groups, ranging from sport to ordering take-away food. In the spirit of traditional retailing, customers are also able to ‘meet’ their merchants through live video streaming. China’s ‘Singles Day’, held annually on November 11th, has notoriously become a centrepiece of Alibaba’s marketing strategy. Originally concocted by students in the 1990s to celebrate single-dom, Singles Day has morphed into the world’s largest shopping sales festival. In the much-hyped countdown towards Singles Day 2016, Alibaba presented a glittering show featuring dance performances, fashion shows, virtual reality shopping and Western celebrities including Scarlett Johansson, Kobe Bryant and the Beckhams – all in an attempt to make the customer experience more entertainment-oriented. US$1 billion in sales were recorded in the first five minutes, with US$14 billion sales revenue collected in a single day.

Counterfeiting thieves

However, Alibaba’s attempts to branch out to entertainment and media face unique challenges, including the notorious amount of counterfeit activity operating 40 | www.insideenterprise.org

within its digital channel. Roughly half of all e-commerce transactions in China are C2C, making it especially susceptible to counterfeit goods. Despite spending US$160 billion in efforts to protect the intellectual property of brands through anti-counterfeiting measures, including creating flagship stores in Tmall for luxury brands, Alibaba remains a target for counterfeiting activity much to the dismay of many brands, especially luxury brands. This is because these anti-counterfeiting measures are not concrete ways of preventing fake goods slipping into the online marketplace. For example, flagship stores may not even appear as the top results in search engines. Hence, the trade groups American Apparel & Footwear Association and Unifab, which collectively represents 1400 brands, have successfully pressured the US Trade Centre to returning Alibaba into its list of counterfeiting marketplaces, after Alibaba was removed from the list in 2012. Whether Alibaba can implement measures to again take itself off this list remains to be seen.

Opportunities for Australia

Counterfeiting issues aside, what does Alibaba’s popularity mean for Australia? For Australian businesses, Alibaba can provide opportunities to internationalise its customer base. This is especially the case for health brands, who can ‘open sesame’ the Alibaba marketplace as increasing numbers of Chinese consumers begin to

distrust their domestic food and health industries. In particular, a high-profile infant milk formula scandal in 2008 saw six infants killed and 54,000 hospitalised from melamine-laced baby powder, creating a surge in demand for Australian infant milk formula. Alibaba Australia’s managing director Maggie Zhou notes that a "clean and green" country such as Australia can neatly position itself to take advantage of surging Chinese demand for healthcare and natural products. Indeed, it is through Australia’s association with ‘premium’ high-quality products, coupled with growing health-conscious consumers in China, that have allowed vitamin and healthcare companies such as Blackmores and Chemist Warehouse to experience an explosion in sales. In the hype and frenzy of Singles Day, Chemist Warehouse amassed $12 million worth of sales in the first 13 minutes. The Australian government already recognises the glittering prospects of the Chinese online market and China’s

growing appetite for foreign produce; half of Tmall Fresh, the fresh food channel in Tmall, is already stocked with food from Australia. This is especially as online sales eliminate the complexities and costs involved in exporting products directly or creating physical stores. On 6th September 2016, Prime Minister Malcolm Turnbull forged an Austrade deal with Alibaba that centred on promoting the online delivery of fresh Australian produce such as dairy, seafood and fruit. To bolster the presence of Australian produce in the online market, promotional and marketing materials are channelled into the popular Chinese video website Youku. The explosion of both Alibaba and China’s health consumer culture could also create opportunities for small to mediumsized Australian businesses. Many small Australian businesses that have struggled to grow domestically have found greener pastures in online channels. For example, the Gold Coast coconut oil company Banaban has used Alibaba as a launch pad for international expansion. Harnessing

the coconut oil craze, Banaban generated revenue of AU$6 million last year by selling products through Alibaba to countries beyond China, including Germany and Mongolia. Melbourne pharmacist and entrepreneur Danielle Di Pilla has found similar successes. Her organic soap and skincare brand The Goat Skincare has amassed a following in China, contributing to AU$1 million in sales during Singles Day 2016. This success can be attributed to the effectiveness of the soap on sensitive and eczema-prone skin, as well as Di Pilla’s strategic collaboration with Chemist Warehouse. Ultimately, it is this exploitation of both online digital channels and current Chinese consumer trends that has allowed Alibaba to become so successful. This success has further created countless opportunities for Australian businesses to seize the possibilities presented by this new e-commerce era. n

www.insideenterprise.org | 41

Resurrection through Reverse Takeover By Sam Pham

Although an Initial Public Offering (IPO) is the most recognisable and spectacular method of achieving Australian Securities Exchange (ASX) listing, the reality is that many post-IPO companies struggle to find their legs and meet prospectus expectations. Coupled with the extensive costs of floating, it is easy to see why companies are shying away from IPOs in favour of alternative avenues. One such ‘back-door’ listing is the reverse takeover (RTO) of a shell company.

enerally, when one imagines a takeover, it is a large company acquiring a smaller one. But an RTO works in reverse. The ASX defines the RTO process as one where a bidder acquires a larger target company by offering its shares as consideration. This typically results in the target’s shareholders acquiring a majority ownership of the bidder. Shareholders of the smaller private company then undergo a merger, exchanging their private shareholdings in the smaller company for the pub-

42 | www.insideenterprise.org

lic company’s shares. It is not unusual for the public company to have scant operating activity and be little more than a shell company; that is, one that only has the organisational structure remaining. In fact, these shell companies will often actively seek out potential RTO bidders and use their remaining cash reserves to conduct due diligence on potential projects. Shell companies are attractive because it is easier to change operations after the merger.

Upsides of reverse takeovers An RTO reduces the time taken to list from one year to a matter of months or weeks; some industry estimates range from 15 to 20 weeks. As the shell company already has a base of shareholders, the need to conduct time-consuming and expensive activities such as investor roadshows and bank underwriting is eliminated. However, this is not always the case. Research conducted in 2011 by the UTS Business School found that it is actually the opposite in Australia, where on average RTOs take longer than IPOs. The success of an RTO is largely dependent on the execution of an agreement between the management of the private and public companies. Reduced listing time means that the transaction suffers less exposure to market conditions. Given that the success and degree of investor subscription for a public offering is at the whim of market conditions and investor appetites, over which management have no control, a reduction in this risk is highly attractive. This is especially the case for tech companies seeking to raise capital, making RTOs more accessible for smaller companies. In contrast, Bloomberg suggests that for shareholders of the shell company, RTOs present an opportunity to make capital gains on a ‘dormant’ asset. Given that shell company stocks are generally illiquid, an RTO allows shareholders to either liquidate their holdings or go through the share exchange process and potentially experience capital gains as the shell company is revitalised. Recent trends Other than the benefits of cost and speed, there are a few key reasons why Australia has recently experienced an influx of RTOs. Firstly, the decline of the mining sector has reduced a swathe of junior mining explorers to mere shell companies, particularly in Western Australia. This is primarily attributed to the difficulties that junior explorers face in securing funding, with advisory firm BDO finding that most surviving exploration companies had sufficient cash for only one or two more quarters of operation. Furthermore, depreciating commodity prices have forced management to question the economic viability of exploration programs, and boards have opted to abandon programs entirely due to lack of profitability. In fact, during the December 2015 quarter,

25 junior explorers delisted from the ASX, with 14 being consumed by backdoor listings in the hope of seeking out alternate business models to generate shareholder returns. Secondly, Australia’s technology industry has also entered a new phase of growth, with many small ventures seeking more capital to fund their projects. As noted by Deloitte, Australian tech start-ups currently struggle to raise early-stage funding. In fact, Silicon Valley-based start-ups raise on average 100 times more than Sydney-based start-ups. In an ABC interview, venture capitalist John Dyson stated that although local start-ups were able to raise the initial $500,000 to $1 million, securing the next round of Series A funding of between $2 million to $5 million was extremely difficult. This is consistent with a survey by Startup Muster, which found that 23% of start-ups raised insufficient capital via private sources, whilst 28% failed to secure any funding at all. This chasm in capital is one of the key hindrances facing tech companies seeking to commercialise and achieve scale, forcing them to seek public listing through an RTO at too early a stage. Thirdly, adverse market conditions and the softness of the IPO space have solidified a trend towards backdoor listings. Although some companies have succeeded post-IPO and become market darlings, for every successful float, such as Japara Healthcare, oOh!Media and Spotless Group, many others fall by the wayside, barely treading water above their offer prices. In addition, some spectacular IPO flops have also contributed to the aversion to IPOs. A prominent example was the pulling of Greenstone’s $900 million float in 2015. Poor market timing bears much blame for this, with the market entering a technical selloff phase and institutional investors consequently lowering their risk profiles. The Greenstone case also demonstrates the fickleness of investors, who shied from the high offer price of $2.00 to $2.50, representing a 15 to 19 times multiple on forecasted profits. Consequently, the offering was heavily undersubscribed. Failures like these are certainly not rare, and reveal the ruthlessness of equity capital markets. It is therefore no surprise that companies seeking low levels of capital are avoiding this risk through RTOs.

www.insideenterprise.org www.insideenterprise.org || 43 43

Factors for survival Recent studies have identified a number of key metrics that significantly explain the survival of RTO firms. A 2012 KAIST Business School study found that RTOs have a stronger chance of survival if the shell company has strong financial performance, indicated by high interest coverage ratio, high cash to total assets ratio and high return on assets ratio. However, this study also observed higher probabilities of post-takeover survival if the CEO is replaced during the RTO process and if there is a stable board of directors with long tenures. The importance of corporate voice and strong corporate governance was confirmed in another KAIST study, which stressed the importance of corporate governance to post-RTO survival. It was also observed that, given the merger-like characteristics of the RTO process, RTO firms are more likely to survive if the shell and private company operate in the same industry, as this creates synergies and adds value. However, Berger and Ofek noted in their article in the Journal of Financial Economics that RTOs are undertaken for financing reasons rather than synergy ones, making this argument debatable. Lastly, as with all public offerings, post-takeover survival is dependent on investor interest and demand. This factor is more prominent in the Australian RTO space, with investors less willing to gamble on companies with small capitalisations and untested business models. As a result, stock delisting is often voluntary, due to shares being illiquid or trading below company net asset values. To address this, companies planning a reverse takeover must be able to demonstrate the validity of their business model.

Notable examples Arguably, the most famous and successful reverse takeover is that of Berkshire Hathaway, a Maine textile manufacturer that was taken over by Warren Buffett. Observing its declining stock price in the 1960s, Buffett purchased shares to a point where he held a 49% stake and used his voting power to take over the company and use it to purchase insurance firms. Although

44 | www.insideenterprise.org

the company’s extraordinary rise in share price from $19 in 1964 to $200,000 in 2016 could be attributed to subsequent acquisitions, the success of this initial transaction should not be neglected, especially since it involved the appointment of a new company president – which as previously mentioned, is a key factor for post-RTO survival. More recently in Australia, the Intiger Asset Management (IAM) and Star Striker Resources deal has grabbed serious market attention for its meteoric stock price rise. This transaction embodies some of the typical characteristics of the Australian RTO trend – a speculative tech company generating low cash flows taking over the shell of a once profitable resources explorer. Like other tech RTOs, IAM’s stock price has accelerated on the back of investor hype and ‘blue sky’ speculation, quadrupling from $0.02 to $0.08 in three months. Much of this can be attributed to bullish expectations of the FinTech space in which IAM operates and IAM’s promises of a disruption to the financial advisory sector. Notably, this theme of disruption has being extremely common among tech RTOs, but it is yet to be seen whether these promises hold any future viability or whether this RTO is simply another elaborate pump-and-dump scheme.

Dangers for investors The chief danger of RTOs is that their accessibility and reduced regulatory scrutiny will attract shaky companies and ‘swindlers’. This disturbing side to RTOs was recently witnessed in the US in 2011 - 12, during which a slew of Chinese companies collapsed or were delisted shortly after RTO listing, mostly due to fraud or accounting issues, causing investors to lose millions.

Locally, the Australian experience has been eerily similar, with uninformed investors experiencing extraordinary gains before market rationality returns and share prices go into freefall. One notable example of this is the 1-Page Limitedâ&#x20AC;&#x2122;s reverse takeover of InterMet Resources, another much-hyped tech company which, after rallying hard, fell victim to market rationality. After failing to meet prospectus expectations, 1-Pageâ&#x20AC;&#x2122;s share price fell from a high of $4.44 to $0.17 in less than a year.

Thus, although there is evidence of incredible gains upon announcement of an RTO, people searching for a credible investment rather than shortterm trade should undertake thorough fundamental research. One consistent message from this examination is the importance of company management as a key consideration. This is especially the case for micro-cap tech companies given their notorious history of burning through investor contributions, leaving a devastating wake of equity raisings and share dilution. But that is not to say that all investors of RTO tech companies will face the same fate.

Outlook Despite this recent rush towards backdoor listings, proposed ASX regulatory changes are set to make the outlook for prospective RTOs less rosy. Reforms were made in 2014 with the intention to inject new capital and bring fresh life into the faltering mining sector. These included the reduction of the minimum listing share price from $0.20 to $0.02. However, a recent ASX consultation paper revealed that these lower thresholds had attracted lower quality companies and consequently increased failure rates. To address this, new ASX rules enforced on 1 September 2016 tightened RTO requirements by

raising the minimum Net Tangible Assets threshold from $3 million to $5 million and increasing minimum market capitalisation from $10 million to $20 million. These measures will certainly damage the prospects of private, usually small, tech companies seeking to list on the ASX. The resurgence of RTOs has placed them under great scrutiny. Investors should be wary of the dangers attached to investing in a shell company in anticipation of a reverse takeover. Nonetheless, RTOs still provide an opportunity for budding private companies to grow whilst injecting new life into the husks of dead public companies. n

www.insideenterprise.org | 45

From Stale to Superstar JESSICA SMITH

46 | www.insideenterprise.org

How Adidas combined heritage and innovation to strike a chord with fashion-focused millennials

n an age of fast fashion trends and e-commerce businesses, incumbent brands are finding it increasingly difficult to maintain relevance with younger consumers. Brands that once symbolised and guaranteed quality, integrity, service and expertise are now viewed by younger customers as old, stale and representative of clothing worn by their parents’ generation. Adidas has successfully solved this problem, repopularising its classic sneaker styles by reinvigorating its brand storytelling, capitalising on the current ‘athleisure’ trend and combining a fruitful heritage with modern innovation. However, will a fashion trend be enough for Adidas to produce sustainable growth and take down Nike? Heritage: building blocks of a strong brand Adidas was founded in 1924 by Adi Dassler, who had the simple mission of providing athletes with the best possible sport equipment. The 1950s and 1960s saw Dassler release some of the company’s most iconic products – shoes designed with the famous 3 stripes, tracksuits and screw-in studs for lightweight football boots, which were said to assist Germany in its 1954 World Cup victory. With this established product range, Dassler sought the trust of athletes by requesting their feedback. The 1970s saw Adidas reach its pinnacle. The company unveiled the Trefoil logo, a symbol still syn-

onymous with the Adidas Originals collection, and also expanded into broader streetwear clothing. Adidas first became synonymous with street fashion via celebrity partnerships including with American hip-hop group Run-D.M.C., who released a song called ‘My Adidas’ in 1986. Despite these successes, the surging popularity of Nike in the 1970s and 1980s scared Adidas into pursuing incoherent expansion without a meaningful objective or direction. By 1992, Adidas was close to bankruptcy. An IPO in 1995 was enough to stabilise the company, but it wasn’t until Herbert Hainer was appointed CEO in 2001 that the company refocused on innovation. Hainer initiated Adidas’ slow revival, renewing the brand by introducing more lifestyle-focused products and sports-inspired streetwear. Lucrative partnerships with celebrities and designers, such as Stella McCartney and Y-3, contributed further to Adidas’ resurgence.

Back from the brink Adidas has staged a stunning comeback, and Adidas sneakers now adorn the feet of every second fashion blogger. Consumer interest in retro-style shoes, combined with a strong demand for celebrity labelled items, have renewed Adidas’ sales and brand equity. Classic shoe styles have become modern fashion staples, with Adidas reviving Stan Smiths, Superstars and Gazelles, the last being featured in a campaign with Kate Moss. Adidas’ collaborations with celebrities such as Kanye West have generated hype with celebrity-obsessed millennials, who are willing to pay full price or even price premiums to secure these ‘exclusive’ limited-issue celebrity-branded products. Such powerful branding means that these products often sell out almost immediately upon release. Yet reinvigorating classic styles and capitalising upon a celebrityfixated culture are merely the most easily discernible explanations for

www.insideenterprise.org | 47

Adidas’ renaissance. Understanding the company’s underlying strategic manoeuvres provides a much more complete picture of Adidas’ future sustainability. Adidas possesses a strong heritage and product portfolio that allows it to diversify and link together brand heritage and innovation. The successful balancing of these opposing elements has become a fundamental aspect of winning modern consumers. This means that Adidas has been careful to avoid any overly strong emphasis on history for fear of portraying the brand as old and deterring millennial customers. Although Adidas has looked to its past for inspiration, especially in reviving its classic sneaker styles, its key focus remains on leveraging its capabilities and consumer insights in order to stimulate the brand’s reinvigoration with younger customers in the future.

between design and shop floor from a traditional average of 18 months to a matter of weeks. As CEO Herbert Hainer states, “this flexibility opens doors for us to be closer to the market and to where our consumer is. Ultimately we are at the forefront of innovating our industry by expanding the boundaries for how, where and when we can manufacture our industry-leading products.” In developing Speedfactory, Adidas acknowledges the rising trend of individual customisation, and envisions a future where customers can design their own custom shoes and receive the finished product within a few hours. Adidas’ strategic focus on swift but measured actions centred around urban culture and the customer experience has allowed it to surpass Under Armour and establish itself as the second-largest US sports apparel and shoe brand, behind only Nike. Despite the longevity of Adidas’ brand in ‘Creating the New’ the US, Adidas lacks Nike’s home market advanImplemented in 2015, Adidas’ five-year strate- tage and possesses only one-ninth of Nike’s market gic business plan ‘Creating the New’ is Hainer’s share. Furthermore, Adidas must also improve its vision for Adidas’ future, connecting legacy with operating margin of 7.5%, which is half of Nike’s. innovation to generate sustainable growth and longevity. The plan has already proven beneficial, Futuristic footwear catapulting the business near the top of the sports After being the worst performing German stock apparel industry. in 2014, Adidas’ strategic manoeuvring has pro‘Creating the New’ is underpinned by three pelled momentum in both the company and key pillars: ‘Speed’, ‘Cities’ and ‘Open Source’. the brand, driving its share price up 62% in just ‘Speed’ sees Adidas attain Zara-like status as a two years. With the appointment of new CEO sports company – “Fast in satisfying consumer Kasper Rorsted in late 2016, the company is now needs, fast in internal decision-making.” ‘Cities’ at a crucial and fascinating juncture in its histoidentifies Adidas’ plan to grow its share of “mind, ry. Rorsted has impressive shoes to fill left by his market and trend” in the key cities of New York, predecessor Hainer, and it is hoped that Rorsted Los Angeles, Shanghai, Tokyo, London and Paris. will repeat the increased profitability achieved ‘Open Source’ expresses Adidas’ desire to be the when he was CEO of consumer goods company first sports company to invite athletes, consumers Henkel. Rorsted’s task is helped by the fact that and partners to be part of its brand. his leadership of Adidas begins early in the realiPerhaps the most fascinating aspect of the stra- sation of the ‘Creating the New’ strategy and in a tegic plan to have already materialised is Speed- context of growing brand momentum. factory, Adidas’ innovative and flexible manufacAdidas’ recent successes and strategic conquests turing process that decentralises the design and leave the company well-poised for a strong future. development process of sporting apparel and Although already chipping away at Nike’s market goods. Speedfactory cuts down the process time share, Adidas’ US$877.6 million in annual sales

48 | www.insideenterprise.org

during the first quarter of 2016 pales in comparison to Nike’s US$3.74 billion. By 2020, Adidas plans to expand its current store network of 2,722 by 500 –600 new stores, in conjunction with a goal to quadruple e-commerce sales. Increasing operating margins to levels comparable with Nike and selling its ownership of the underperforming brand Reebok will further minimise costs and increase profitability. However, the brand’s resurgence has been limited to larger cities and the lifestyle market segment, driven by a 60% increase in Adidas Originals sneakers. Adidas must continue expanding outside of urban areas and in the performance sports segment. The apparent fast fashion and urban focus of ‘Creating the New’ may be cause for concern, but Adidas’ largest opportunity and challenge lies in converting its immense social media following (11 million Instagram followers and 25 million Facebook likes) into paying customers.

More than a fad While it may appear that Adidas’ resurgence is based upon the unsustainable appeal of fashion, trends and fads, this could be no further from the truth. Whilst leveraging brands with a strong heritage to resonate with millennial customers is notoriously difficult, Adidas is an exemplar case. With the success of Adidas Originals, we can only wait to see what other fashion icons Adidas’ use of innovation, such as Speedfactory, will produce. Adidas’ resurgence from the verge of bankruptcy has been two decades in the making, and the company has learnt to avoid chasing short-term gains and instead pursue long-term growth. Adidas’ next greatest challenge? Taking down Nike – a seemingly optimistic goal, but one the company is poised to begin achieving. n

www.insideenterprise.org | 49

The Digital Dilemma By Anthony Makragelidis The digital landscape is rapidly evolving, and today many consumers are suffering from ‘promotion overload’ due to the overwhelming amount of digital advertising that crowds every aspect of their lives. Superfluous amounts of poorly executed digital content is both inefficient and may weaken brand equity rather than leverage competitive strengths. In today’s advertising-saturated, tech-driven marketplace, how can businesses use digital channels to renew their customer engagement and branding communication?

s internet users, we’ve all clicked the ‘Skip Ad’ button on YouTube videos, and many people have installed ad blockers onto their internet browser. The tendency for us as customers to easily dismiss or ignore digital advertising means that online ads are on average only glimpsed for two seconds. Furthermore, the success rate for digital advertising, measured by click-throughs, is a mere 0.2%. This is the Digital Dilemma – a predicament many firms currently confront or will irrefutably encounter as they attempt to remain relevant and competitive in heavily saturated industries. This dilemma is not new; television advertising has faced this issue for decades, as viewers can easily skip 50 | www.insideenterprise.org

ads by changing broadcast channels. All that has changed is the content medium and the number of firms affected. An ineffective response would be to simply move the ‘Skip Ad’ button from the right side of the screen to the left, in order to confuse the viewer into watching the ad for a few more seconds. A more appropriate response from advertisers involves giving consumers the power to essentially choose the content they wish to watch as a powerful opportunity to become more creative and engaging in their promotions. Success and social strategies Socially-driven campaigns that embody creative, emotional or engaging content present a reward-

ing opportunity for companies to reach and captivate large parts of their target audience in a short period of time through the power of social sharing. Online campaigns have the ultimate end-goal of going ‘viral’, reaching millions of viewers almost instantaneously. However, there is a common misconception that this can only be realised through audacious and out-ofthe-box advertisements. Refreshing and intriguing advertising may be enjoyable and interesting to watch, but too often meaningful associations with the brand are lost in the creativity. The intention of advertising shouldn’t be to merely capture mass attention; this should come organically through producing content that

resonates with a human truth. Considering the consumer’s perspective when producing advertising allows transformative insights to be revealed, generating newfound value for the brand. At this junction, market research plays a crucial role. Even the biggest household brands have seen campaigns crumble by failing to appreciate what truly engages their target audience. Advertisements rooted in human truths are fundamentally the most fruitful; the ‘real’ and ‘true’ connection formed compels viewers to take action. As Brian Sheehan, Associate Professor of Advertising at Syracuse University, once said, “People remember, share, and talk about advertising when it speaks to who we are. It tells the story of how we got here and what we aspire for in the future.” Informative research that captures the audience’s underlying motivations is key to realising the command that creative yet evocative advertisements have, and its effect on encouraging brand consumption and loyalty. Renewing digital strategies off the basis of

market research is a step in the right direction to developing captivating and widespread advertisements. In saying this, advertising content isn’t the only way of appealing to target audiences; the method of presenting the digital campaign now provides opportunities to effectively engage consumers. But are companies maximising all these potential promotional platforms?

"MASS ATTENTION SHOULD COME ORGANICALLY THROUGH PRODUCING CONTENT THAT RESONATES WITH A HUMAN TRUTH." Facebook’s new ability to integrate immersive 360-degree videos allows companies to form ‘authentic’ connections with their target audience. Nestlé pioneered this innovative technology with their ‘Good Morning World’ campaign, allowing viewers to rotate their smartphones to explore “real experiences in an innovative way.” The

campaign’s success can be credited to addressing core human truths that transcend cultural boundaries, whilst entertaining audiences in a world-first approach. Interactive campaigns have also made appearances on YouTube. Tipp-Ex’s interactive ‘Hunter Shoots a Bear’ campaign in 2000 promoted Tipp-Ex’s correction tape by allowing viewers to rewrite the video by replacing the word ‘shoot’ with any other action. The result? Within 100 days, the campaign received more than 35.5 million YouTube views and was shared 380,000 times across Facebook and Twitter with a 500% virality rate. Over 60,000 online articles across 217 countries reported on the endless video possibilities that could be enjoyed through this user-generated content, and sales subsequently increased by 35%. It is therefore clear that both engaging content embedded in human truths and innovative executions are key ingredients that foster organic viral advertisements across social media networks. www.insideenterprise.org | 51

Next phase of ad-supported content However, the ability for advertisements to go viral does face obstacles. Given that consumers are aware of ways to avoid ads altogether, either through adblockers or by paying for ad-free access, how viable is ad-supported content in the long-term? Figuratively speaking, consumers are actually paid to watch ads. By publishing branded promotions alongside content such as articles or videos, companies that produce publically available content are compensating for what would otherwise be free access to content. Where a subscription fee would otherwise typically apply, consumers replace this fee with watching ads. For example, YouTube is free only because viewers are forced to watch an advertise-

millennials, will undeniably continue to avoid ads where possible. In a study, Accenture revealed that 42% of interviewed consumers intended to remove ad interruptions by purchasing new solutions or subscriptions, with the majority of these consumers aged between 14 and 17. Why is this so? Because advertisers are failing to address the disenchantment consumers feel towards the ads currently presented to them. In the same survey, 73% of participants stated that promotions didn’t align with their personal interests and values. Most teenagers don’t appreciate how diversifying an investment portfolio can ensure that their longterm financial ambitions are met, just as how most middle-aged men aren’t fascinated by Kylie Jenner’s new make-up collection.

"ADVERTISERS ARE FAILING TO ADDRESS THE DISENCHANTMENT CONSUMERS FEEL TOWARDS THE ADS CURRENTLY PRESENTED TO THEM." ment before every few videos. This keeps the content free to the consumer, whilst also allowing the content platform and producer to generate revenue. Whether consumers appreciate this implicit transaction or not, a further question that must be asked is whether advertisements frustrate consumers enough to make them pay for ad-free access. Many consumers, particularly

52 | www.insideenterprise.org

Forcing irrelevant products onto consumers is an unpleasant experience, and it is this disconnect that deters consumers from engaging with advertisements and spurs their adoption of ad-free paid content. Unsurprisingly, empirical market research suggests that viewers find personalised ads more engaging and memorable. In order to deliver targeted

and appropriate advertisements, brands must consolidate relevant consumer behavioural data involving web activity with individual customer signals through trigger messages. The first few seconds of any advertisement are crucial as they determine whether consumers enjoy a promotional campaign or not. Instant gratification is therefore critical, especially when consumers are swamped with advertisements. Appealing to the unique behaviours of individuals through tailoring advertisements increases loyalty and engagement. In fact, personalisation of advertising has proved to significantly reduce acquisition costs whilst lifting sales revenue and the efficiency of marketing spend. This sustains the use of ad-for-content models by ensuring that appropriate ads are made visible only to the intended audience. For example, HitBliss Earn, a video-streaming site similar to Netflix, encourages users to provide key pieces of personal data such as demographic information and search engine queries to present more specialised advertisements. The more valuable the information disclosed, the better targeted the advertisement will be. But here is where it gets interesting. When watching desired content, viewers are given the choice of either paying using credit card or through credits accumulated by viewing targeted

advertisements. This approach explicitly discloses the implicit ‘transaction’ by encouraging users to engage with ads and rewarding each second watched with credits. Now that ads are personalised to the viewer’s unique interests, payfor-content models may no longer be considered a worthwhile course of action. Privacy and the ethics of neuromarketing Personalising the advertising experience inherently involves compromising the viewer’s personal information. Whether it’s completing a questionnaire or filling in personal details, private data is conceded. So are marketers becoming too invasive when it comes to ensuring promotional relevance? Accenture’s study found that two-thirds of respondents were acquiescent to or impartial towards such information being sourced for targeted advertising purposes. But consumers often struggle to articulate and discern their true feelings, and unconscious motivations represent the most powerful influence on decision-making behaviours. As such, marketers are now experimenting with neuromarketing – the study of the brain’s different responses to a variety of marketing stimuli. Advanced medical tech-

nologies such as functional Magnetic Resonance Imaging (fMRI) and quantitative electroencephalography (QEEG) allow for an individual’s reactions to advertisements or marketing features to be registered and analysed. By avoiding consumer biases, this information is often more revealing and truthful than data collected through conventional collection methods like surveys, and assists in developing more powerful campaigns that positively resonate with consumers. With a growing dependence on neuroscience to overcome the Digital Dilemma, government regulators and consumer protection activists suggest that these practices infringe basic rights to privacy and provoke consumer deception. Such techniques render consumers vulnerable to being misled into believing they require unnecessary products by prompting subconscious impulses. Moreover, seeking to understand an individual’s brain functions by intruding upon their

thought processes raises privacy concerns. Therefore, it is imperative that when utilising neuromarketing techniques, promotional campaigns must be developed in ways that meaningfully engage targeted consumers without exploiting their vulnerabilities or eroding consumer rights. Ultimately, heightened competitive landscapes should prompt firms to adopt more creative promotions with innovative executions to regain the spotlight in saturated industries. But in failing to ensure advertising relevance and engagement with intended audiences, firms will struggle to overcome the Digital Dilemma well into the future. n .

www.insideenterprise.org www.insideenterprise.org ||53 53

David Hogan

The Changing Face of Australian Property Lending Everyone seems to remember the more visible impacts of the Global Financial Crisis (GFC) on property markets; families being dispossessed and seemingly invincible banks becoming insolvent. Yet the GFC continues to create many subtle, long-term effects, including a shift in the attitudes of major banks and lending institutions internationally when lending to individuals. Since 2008, Australian property development loan applications have been made more stringent as lenders look to minimise risk, with many individuals forced to consider new lending sources, such as smaller lenders. These smaller lenders benefit from higher flexibility that allows them to lend money where the Big Four banks loathe to even consider. In a sense, the money lending industry has experienced a renewal, although there are significant risks for those attempting to seize such opportunities. Overview of property loan process For most individuals and small businesses, property development requires external financing from institutional lenders. Usually, the individual or business pays a down payment on the property and the remaining purchase price is covered by the loan.The amount loaned as a ratio of the total property value is known as the Loan to Value Ratio (LVR). In theory, lenders only finance projects with an acceptable degree of risk, largely based on the individual or businessâ&#x20AC;&#x2122; ability to repay the loan, their credit history and the viability of the project. In order to provide lending institutions with more security and increase the likelihood of loans being repaid, pre-sales are often required, especially for apartment developments. For example, for a mediumsized residential project, the developer may be required to fund an initial 20%-30% of the equity. This equity input margin and pre-sales level varies depending on the size of the project, with larger projects often requiring substantially higher equity inputs and pre-sales. New participants in property development are often limited by 54 | www.insideenterprise.org

a lack of reputation and experience, which makes banks unwilling to lend without an established track record of successful projects. Once the loan is approved and construction has commenced, the institutional lender must be updated regularly with details such as building progression reports and cash flow statements, in addition to recurring loan payments. Assuming successful completion of construction, the borrower should pay back the loan in full, usually having

received full payment from the individuals who engaged in pre-sales. Disputes often arise over property value and cost estimation, where the expected yield for the development has changed substantially. This distorts the LVR and jeopardises the viability of the loan, potentially making the loan untenable. Local and Global economic circumstances Industry experts such as David Potts from Sydney Morning Herald note that a major attraction of smaller institutional lenders is their ability to offer flexible rates and less stringent repayment conditions, which may otherwise have prevented potential property developers from raising enough capital to enter the market. The GFC in particular encouraged small lenders to enter the market and capture the demand of less creditworthy individuals. Consequently, falling interest rates and the strength of the property market presented many developers with lucrative opportunities and increased demand for property loans, creating the need to gain financing quickly through less stringent smaller institutional lenders.

However, despite the emergence of nonbank and smaller institutional lenders during the volatility of the GFC, those institutions are generally perceived as being more reliable during strong growth and more vulnerable during times of financial hardship. The vulnerability of non-bank and smaller institutional lenders during tougher financial times arises from its less stringent lending criteria and greater exposure to less creditworthy borrowers. Notably, 2008 saw a relative decline in the Australian loan and property industries due to the GFC and a collapse of investor confidence. RAMS Home Loans, for example, were confronted with financial ruin following a lack of loan applications. The company was eventually bought by Westpac for $140 million. Australia’s position and reputation as a politically, legally and financially stable country has made it an attractive investment destination. This has resulted in a number of foreign banks boosting their presence in the institutional Australian lending market in recent years. Since 2014, there have been major moves by numerous Chinese and Japanese institutional lenders, with the likes of China Construction Bank having recently established and consolidated sizeable branches in Sydney and Melbourne and loaning over $1 billion per annum. A flow-on effect of the rise of Asian institutional lenders in Australia has been that the prospects for individual property developers have improved on the basis that significantly increased competition has solidified borrower bargaining power and provided a greater variety of sources to consult for loans. In regards to Chinese property investors in Australia, who spent $24 billion from mid 2015-2016, recent Chinese Government restrictions have limited residents to moving roughly only $50,000 out of the country per year. University of Queensland property expert Dr Clive Warren has speculated that “if China really does crack down on money flowing out, there could be some real pain for developers” as Chinese demand may diminish. Predictions? It is likely that in the future there will continue to be opportunities for nontraditional institutional lenders, given the continuing strength of the Australian property market, particularly in Sydney and Melbourne. The November 2016 REA

Group Property Demand Index found that property demand in Australia had “hit the highest level ever recorded,” with Australia’s reputation as a “safe haven” in the wake of events that have created market uncertainty such as Brexit, meaning that increased international investment is more likely. Such strong demand, both domestically and internationally, should ensure that the need for institutional lenders to fund property ventures remains firm. However the extent to which these ‘nontraditional’ lenders expose themselves to risk by taking on riskier loan projects rejected by larger institutions is a delicate balancing act. In particular, the impact of potential interest rate rises on individual’s desire to borrow remains to be seen. Concurrently, an interest rate rise may also result in non-institutional lenders varying their rates, potentially driving away individuals. The impact of higher interest rates on non-institutional lenders during the 2008 GFC was apparent, with the likes of RAMS unable to remain an attractive alternative for individuals. There is also uncertainty regarding how larger banks and lenders such as the Commonwealth Bank of Australia will respond to individuals turning towards non-institutional lenders. Large banks may try to win them back by providing more flexible options although they are potentially more risky for banks. Furthermore the RBA stated in the October 2016 Financial Stability Review that “risks to financial stability from lending to households have lessened a little over the past six months” as lenders becoming more stringent. While it may be too early to hypothesis whether such circumstances will prompt a return to widespread and less-

stringent property development lending practices from larger Australian institutional lenders and banks, it nonetheless highlights how prone banking and lending confidence are to fluctuations in market and riskexposure trends. The report also noted that “the share of new high LVR lending and interest-only loans has fallen; high LVR lending is now at its lowest share in almost a decade.” This reflects the widespread change in practices, where lenders now focus far more on the viability and creditworthiness of individuals repaying loans, while the emphasis on increasing profits through maximising the number of loans distributed has lessened. The extent to which the Australian Government will regulate the activities of foreign lenders in Australia is also uncertain. Foreign property buyers currently face a number of restrictions, such as only being able to buy new properties. In the event of domestic institutions being overwhelmed by the number of lenders, foreign institutional lenders may still face comparative Federal Government regulations. Nonetheless, there is hope that the Coalition Government will choose to uphold the principles of economic liberalism and small government upon which it is historically based, and will seek to encourage foreign investment and industry competition by refraining from an overly restrictive approach to foreign institutional lenders. n

www.insideenterprise.org | 55

Jonathan Soerjoko

Busting the Bamboo Ceiling The phrase “If you work hard then you will be successful” is one that is familiar to many readers, having been reinforced throughout society from school classrooms to dinner tables. This idea underlines the modern work ethic, pushing students into studying hard and pushing graduates into choosing work commitments over friends and family. But how true is this idea, and does it apply equally to everyone?

key assumption underlying Western society is the notion of the ‘level playing field’. This term, often appropriated by politicians and businesses, refers to an environment in which people of similar ability have an equal chance of succeeding because they are subject to the same rules. Also reflected in good sportsmanship, the level playing field is really about fairness and equal opportunity. Australians often hold this idea close to their heart, mirroring the nation’s cultural value of the ‘fair go’. Sadly, this notion is a myth for many. In May 2016 the Sydney Morning Herald highlighted the ‘bamboo ceiling’ –individual, cultural and organisational barriers that hold back Asian-Australians from leadership roles across society and business. According to the Sydney Morning Herald, “Asian-Australians make up 12% of the country’s population but only four members of Federal Parliament.” In the ASX 200, over 75% of CEOs come from AngloCeltic backgrounds, with only 5% coming from non-European backgrounds. The lack of cultural diversity at the board level comes in stark contrast to that of the “junior and middle sections of the hierarchy,” as identified by Dr Tim Soutphom56 | www.insideenterprise.org

masane. So whilst diversity does exist at the graduate level, further up the hierarchy this diversity dissipates. This lack of diversity prevents senior leadership from experiencing a range of cultural and professional viewpoints, preventing them from making better executive decisions. “We don’t know them. We need to understand them.” These statistics are made even more alarming by the importance of Asia in Australia’s competitive future. A 2014 PwC’s report Passing Us By estimated that by 2025 half of the world’s economic output will come from Asia. Despite this, in 2012 only 12% of Australian companies had experience in doing business in Asia. Many of the businesses surveyed cited “problems in relation to culture” as one of the core issues holding them back from the region. Indeed, Harold Mitchell AC, Founder of Mitchell & Partners, suggests that “We don’t know them. We need to understand them.” This raises interesting questions about the role of Asian-Australian employees in these companies. Undoubtedly, there exists organisational barriers to engaging with Asia, but would these attitudes be as common if

there were more Asian-Australian leaders of Australian businesses? Dai Le Dai Le, a former award-winning journalist, film-maker and broadcaster with the ABC and former councillor at Fairfield City Council, believes that a general adversity to change at both the individual and organisational level is a significant factor driving the lack of diversity in leadership. To put it simply, Dai says that human beings tend to operate on automatic pilot and are not used to challenging the status quo. Indeed for many Asian-Australians, this lack of diversity has become so normalised that it is common, even expected, for the upper echelons of politics and business to be primarily dominated by men and women of Australian or European heritage. "Challenging the status quo is about changing a mindset, which itself takes time." This widespread perception discourages Asian-Australians from seeking top leadership positions, and instead of going for a partner position, many professional Asian-Australians will ‘step outside’ the

organisation and start their own businesses. At the top of the hierarchy, she believes that those in positions of power and influence will not relinquish their position readily and therefore also have an interest, consciously or subconsciously, in maintaining the status quo. This adversity to change from both sides of the divide reinforces the bamboo ceiling. Enter DAWN It was with the mindset of challenging this status quo that Dai established DAWN in 2014. DAWN is a professional and social network that aspires to build an “inclusive Australia with culturally diverse leadership across the public and private sectors.” The network promotes its mission through tailored development, mentoring programs and forums that discuss the need for culturally diverse leadership. “Essentially, DAWN harnesses the power of the network,” Dai says. From spending her early childhood in refugee camps across South East Asia to directing, producing and broadcasting for the ABC, Dai understands the importance of networks in getting ahead. In the same way that private school alumni have access to Old Boys/Girls networks, DAWN aims to provide a powerful and mobile network for Asian-Australians in the professional sphere. Dai believes that challenging the status quo is about changing a mindset, which itself takes time. DAWN’s approach therefore takes a long-term view focused on two core areas. The first involves enhancing the conversation of cultural diversity at senior leadership level. Recently, DAWN has worked on this through their leadership series with Westpac. The goal of these events is to make issues of diversity more

salient at the board level in the hope that senior leadership will set an example that trickles down to lower levels of corporate and political hierarchies. Thanks to the efforts of DAWN and other organisations, corporations have started responding to the issue of the bamboo ceiling. The Australian Human Rights Commission recently released Leading for Change – a blueprint for cultural diversity and inclusive leadership. Chaired by Dr Tim Soutphommasane, the working group includes Westpac, PwC, Telstra and the University of Sydney Business School. Together, the group argued that a “more diverse workforce makes for better decision-making.” The work of this group will become increasingly important in the Asian century, whereby successful engagement with Asian businesses necessitates cultural sensitivity. Dai believes that there is still room to grow, as she still meets business executives who only seek ways to ‘access’ and ‘succeed’ within the Asian market. Dai believes that this is short-term thinking that does not seek to genuinely harness homegrown Asian-Australian talent. "University students and those entering the workforce should be resilient and kick down the doors.” However, the main draw of DAWN lies in its second core area – its focus on developing Asian-Australians into capable, emerging leaders through programs such as the Emerging Leaders Development Program. Amongst other goals, these programs have a particular focus on identifying psycho-cultural barriers to leadership. For example, Dai is critical of the oft-repeated

adage that ‘hard work equals success’. In an Asian context, she believed that this is often interpreted as ‘put your head down’ and ‘work hard’. Dai believes that this approach, commonly reinforced in many Asian families, is ineffectual in challenging the status quo. The goal of these programs is for Asian-Australians to become aware of these issues and respond at an earlier stage at all leadership levels. Dai reiterates that “changing a set pattern takes a long time,” and she would like to see awareness at much earlier stages, including primary education. DAWN’s approach is also informed by her experience as a local councillor, as the network functions like a supportive community rather than a professional association. With a goal of working collectively, Dai hopes that DAWN will be a vehicle for change by bringing together Asian-Australians from multiple walks of life. Advice for university students In reality many people, not just AsianAustralians, live their professional lives on a permanent slope. It may be that the notion of a level playing field is misleading and unrealistic. However, the examples of Dai and DAWN show that these challenges should not dampen your aspirations. In her parting advice, Dai called on university students and those entering the workforce to “be resilient” and to “kick down the doors.” The fact that the playing field is not level does not mean that students should not strive to make it so. Dai reinforced that, “It’s up to you to push that door open because no one is going to push it for you. And if that door closes then make another one.” n www.insideenterprise.org | 57

Marco Pascale

Business Models Renewed The E-commerce Landscape It should come as no surprise that the internet has caused enormous technological landscape shifts that constantly affect all aspects of business operations. Increasingly, businesses are forced to adapt their business models to accommodate everchanging e-commerce trends. One interesting aspect of this shift is how tried and tested business models have been renewed and appropriated onto e-commerce platforms, and the implications this has on the broader e-commerce market. Rise of internet franchising One growing phenomenon is the increased use of internet franchising. Franchising facilitates growth by allowing external business owners to build and manage branches under the same brand, and sell the same products and services whilst paying a fee to the franchiser for using their brand. Despite predating the web, this business model has been significantly boosted by the internet, which assists the franchiser in collective marketing, franchisee quality control, franchisee training and product development. Moreover, online platforms have created opportunities for new franchisers, who can disseminate and expand quickly through internet channels, increasing customer exposure and boosting brand visibility. Reinvention of B2B E-franchising also reflects shifts to business-oriented interactions beyond just customer-oriented front-end sales. Consequently, business-to-business (B2B) operations make up one of the largest func58 | www.insideenterprise.org

tions of e-commerce, with US$5.5 trillion in worldwide sales in 2012. B2B involves selling products or services between businesses through online sales portals, thereby improving efficiency compared to manual order processing. Generally, this entails large orders of products such as raw materials or components from which additional profit is derived later down the value chain.

trends, with worldwide sales predicted to hit US$12 trillion by 2020.

"B2B is one of the fastest growing e-commerce trends" Alternatively, many B2B companies focus on services, such as brokerage or â&#x20AC;&#x2DC;infomediariesâ&#x20AC;&#x2122;, specialised information websites such as Morningstar or Bloomberg, which provide industry-specific data, or utility tools including Dropbox. These functions create a virtual supply chain, streamlining the entire value chain right up to the front-end customer sale. The biggest portion of B2B comes from international e-commerce, as the utility aspects and scale capabilities heavily favour multinational corporations. Overall, B2B is one of the fastest growing e-commerce

New era of crowdfunding Various crowdfunding platforms such as Kickstarter also serve as renewed financing methods, exposing businesses whose products strike a chord with consumers to an enormous potential funding pool. For example, Pebble Technology raised over US$20 million in 2015 to build their first

smartwatch, which is remarkable given a fundraising target of US$500,000. Fidget Cube, a desk toy designed to calm those who fidget, raised over US$6 million in October 2016 despite an initial fundraising goal of US$15,000. Furthermore, these crowdsourcing campaigns typically encourage customers to purchase the product well in advance of delivery or even production. Provided firms can later manufacture and sell their products, crowdfunding is much less risky than traditional debt or equity solutions since there are no loan repayments or equity issuances. Furthermore, the company maintains its own creative licence, as managerial control is not ceded to external crowdfunders. The customer is always right The bottom line is that all businesses are consumer-centric. Customers expect e-commerce to make customer interactions quicker, easier and cheaper. In a new era of e-commerce, optimal design, functionality and style are the norm, and customers are increasingly willing to switch products or brands if these expectations are not met. One fascinating incident in 2016 reveals how fickle online customers can be. As YouTube becomes more of a media outlet for both individuals and corporations, large YouTube channels can earn millions annually through pay-perview, advertisement revenue or sponsorship business models. One such channel is Fine Brothers Entertainment, which boasted 14 million subscribers and averaged over $3 million revenue annually without advertising revenue. In 2016, the channel attempted to implement a franchising system, where other channels could purchase a licence and create entertainment under its brand, similar to TV shows like The Voice or MasterChef. Although common in other entertainment media, within a week of the franchising announcement, almost 500,000 people unsubscribed from the channel in protest. The core reason behind this mass exodus was fear by consumers that the internet was being corporatised, and that content would be affected by trademarks they did not truly understand. Although these same fears and misunderstandings lie in all industries, the internet is uniquely exposed to two important factors. Firstly, active consumer participation ensures that

widely held opinions can be easily voiced and spread. Secondly, mob mentality is heightened through the anonymity of YouTube and social media channels such as Reddit. Combined, this resulted in very large numbers of subscribers turning off the brand. Customer satisfaction and customer opinions are undoubtedly becoming increasingly impactful in this e-commerce era. A 2015 study found that 90% of customers read online reviews before visiting a business, while 72% will only take action after reading a positive review. Furthermore, 86% of respondents will hesitate to purchase a product after reading a negative review, and customers are willing to spend 31% more on businesses with excellent reviews. These numbers are simply too high for businesses to ignore. Indeed, the impact of these customer experiences are not limited to just reviews, but to broader information. The ‘Bend-gate’ scandal surrounding the iPhone 6 bending when placed in customers’ pockets became a public relations emergency for Apple because of how quickly negative customer opinions spread through social media. Such broad exposure damaged Apple’s brand,

producing a negative consensus over the iPhone’s quality. Although Fine Brothers Entertainment may seem like an extreme example, the underlying concept of the power of customer opinions reflects online consumer behaviour towards all products and services. As such, businesses need to focus on limiting downside factors and mistakes as opposed to simply maximising upside factors through sleek advertising. Conclusion Understanding renewed business models and customer interactions in the internet era is one of the most challenging and fascinating issues facing modern businesses. This structural change demands attention and provides a new wealth of opportunities to businesses that react quickly to changing customer expectations. However, there is no formula for assured success. Every year, new risk-takers leap forward whilst other incumbent businesses fall behind. Only time will tell how future businesses push the e-commerce market into creating a competitive edge and advancing the internet age even further. n

www.insideenterprise.org | 59

Jack Gelabert

The Role of Urban Renewal In a world faced with overpopulation and increasingly crowded cities, the key challenge facing modern cities is sustainability. As cities sprawl both horizontally and vertically, expanding into new suburbs and taller skyscrapers, city councils and governments face a difficult dilemma: how do they balance the need to provide more and more housing with the need to maintain high-quality public amenities and protect historic and cultural buildings?

he urban concentration currently experienced in major metropolises is only set to increase in the future. This population influx has put urban infrastructure under unprecedented and growing strain, whilst the need for increased housing has placed a premium on urban space. This in turn puts greater pressure on government and city councils to make more intelligent use of public land. Australian cities lie at a critical juncture: how do we combine the need for increased housing in inner city suburbs with the need to maintain public facilities and historical landmarks that are so important to Australiaâ&#x20AC;&#x2122;s cultural and community wellbeing? Can urban renewal rejuvenate historical landmarks and increase their cultural impact whilst maintaining their historical significance and allowing for greater housing development? To answer this, we must take a deeper look at the current Australian property market. Property boom raises the question of true value The recent property boom in Sydney and Melbourne has driven phenomenal increases in property prices. In fact, houses in Sydney

60 | www.insideenterprise.org

are now more expensive per square metre than global metropolises such as Tokyo and Shanghai â&#x20AC;&#x201C; cities usually synonymous with overpopulation and high-density housing. Housing affordability in Sydney, measured by median property prices as a multiple of median wages, is the second lowest in the world, behind only Hong Kong. It is doubtful that these exorbitant property prices reflect true property values, but instead point to a housing bubble that could burst at any moment. "The benefits of increased housing may only be a guise for the disadvantages of urban sprawl." It is no secret that short-term gain is the primary focus of property developers and investors worldwide. This means that the construction projects built, as well as the type and density of the housing created and the amenities offered, depend on what is most profitable for the property developer. The pressing question is therefore how property developers will adapt to growing imbalances between housing affordability and amenities, services and lifestyle. Indeed, all Australian cities are seeing

a shift towards high-density housing, largely concentrated within inner city suburbs, whilst developers neglect other housing options such as semi-detached midrise apartments and townhouses. This means that home buyers face a choice of

extremes between high-density living in inner city suburbs or newly constructed homes in outer suburban ‘growth areas’. Although the supply of new apartments in outer suburban areas can be well planned, it is questionable whether overall quality of life is improved. The benefits of increased housing may only be a guise for the disadvantages of urban sprawl, including traffic congestion, under-equipped hospitals and poor council planning. Rampart redevelopment versus renewing heritage What is the monetary value of a nation’s culture, long history and character? The answer is intuitively unclear, vague, and possibly unanswerable. The inability to price buildings with cultural and historical significance threatens the way we decide how and where to redevelop urban inner city suburbs – most of which have long histories and many culturally significant locations.

The demolition of Lee Tung Street in Hong Kong is an example of where community opposition in advocating the preservation of the area’s cultural heritage was overrun by the need for increased housing and redevelopment. The area was a hub in Hong Kong’s early days as a trading port city, and was famous for selling traditional custom wedding cards and traditional Chinese calendars. Despite lobbying and even a counterproposal that preserved part of the area’s historic value, the area was entirely redeveloped, with historic 19th century buildings replaced with new luxury shops and high-rise apartments. This resulted in the relocation of many businesses, causing business owners to lose their social networks, access to suppliers, and most importantly irreplaceable connections with close-knit customers. This loss of community and customs was inadequately compensated through government financial assistance. In Sydney, the CBD is replete with Victorian era sandstone buildings standing in tandem with modern skyscrapers. The key to the preservation of the building’s historic exteriors has been the transformation of their interiors to suit modern commercial usage, with the historic

Commonwealth Bank of Australia building in Martin Place transformed into retail shops while still maintaining its preserved exterior. The General Post Office at No 1 Martin Place still retains its tall sandstone pillars, providing a unique visage for the restaurants and banks that operate on its ground floor. York Street is another example where the city’s changing commercial and housing demands have been balanced with conservation efforts in retaining the appearance and character of many sandstone buildings. On 2 York Street residential apartments have been built on top of the old five-storey neoclassical arched building, allowing for the preservation of the classical façade whilst providing more housing. "Over the next 20 years, urban sustainability must become top priority. Significant heritage buildings serve an important role in a country’s preservation of collective memory, customs and culture. However, this shared appreciation extends beyond just an internal communal celebration of heritage and culture, but also impacts tourism. By allowing tourists to appreciate both historic landmarks and artefacts showcased within, the preservation of historical buildings drives both internal and external tourism, drawing tourists to the city. Sydney’s Town Hall serves as an iconic meet up spot, and is actively visited due to its range of free year-round galleries and exhibitions. In Hong Kong, old colonial establishment buildings have also been renewed to utilise the neoclassical architectural style that remains so popular with citizens and tourists alike even today. The old Marine Police Headquarters

www.insideenterprise.org | 61

in Hong Kong’s Victoria Harbour waterfront, now called the Heritage 1881, creatively encapsulates the Victorian era’s traditions and architecture whilst its refurbished interior provides high-quality facilities where customers can shop and dine in its exhibition hall and stay in the building’s hotel. The inclusion of old exterior façades surrounding modern interior facilities represents a distinctive and appealing shift away from Hong Kong’s otherwise dominant modernist landscape. Through preservation and revitalisation of historic buildings, unique experiences are cultivated for visitors, who are able to appreciate the historic value of these cultural mixing points. What does renewal guarantee? The NSW Department of Planning and Environment expects in the next 15 years that Sydney’s population will grow from the current 4.7 million to around 6 million, increasing the pressure already felt by Sydneysiders from overpopulation and congestion. This clearly poses enormous challenges for urban planning, and places even greater emphasis on increasing housing supply to accommodate urban migration without creating urban sprawl. However, populations have other integral needs beyond just housing. At its heart, a community requires not just access to services and good amenities, but also a vibrant culture to maintain. Property development and urban renewal ultimately produces more significant long-term effects on communities. Melbourne’s Docklands region stands as an example of poor execution. Government-owned land was carved and distributed to multiple developers in large split lots, resulting in a failure to provide adequate amenities for the existing and future communities of Melbourne. The 62 | www.insideenterprise.org

widespread criticism of the developers’ failure to build meaningful links between the precincts has left the area characterised by disintegration and disunity. The long-term view The fundamental principal of renewal lies in providing the balance between economic opportunities through increased housing and good living environments that meet the population’s cultural needs. Singapore’s long-term planning acts as an exemplar to Sydney. Although with a comparable population and population growth (5.61 million in 2016 growing to 6.9 million by 2030) and similar land size, the Singaporean government uses land scarcity as their leading mindset when planning land use, allowing the government to prioritise long-term community benefits over short-term private gains. While Singapore’s 1971 concept plan created a strong financial district at the core, it also impressively sets up the founding groundwork for securing better transport infrastructure. This allowed for the planned development of new suburbs and recreational facilities, and increased quality of life for the entire city. Integrating transport with renewal Throughout the world, governments and city councils are coming to the realisation that transport infrastructure, whether it be roads, trains or buses, cannot be evaluated merely by distance covered. Instead, the quality and locality of transportation will only become more important as overpopulation and urban sprawl increase, with new and existing public transport and roads needing to be both accessible and targeted in addressing key transport bottlenecks. Otherwise, transport networks will reach capacity, resulting in crippling congestion, productivity loss and lower

quality of life. Starting from 1975, Singapore has begun adopting strategies to reduce private vehicle ownership through increasing the costs of car ownership and by improving its public transport system. The MRT rail serves as the iconic backbone of Singapore’s public transport network, and is supplemented by smaller feeder networks comprising of Light Rail Transit, bus and taxis to allow for even greater coverage and services. Importantly, Singapore’s MRT has resulted in community-wide benefits. Bus interchanges often form the basis for business parks and shopping malls, and transit networks are seen as seeds for urban growth and development. Even today, land usage plans prioritise the continual capacity and accessibility of transit, and aims to bring at least 85% of Singaporean households within 10-minutes’ walk of a train station by 2020. The bottom line Over the next 20 years, urban sustainability must become top priority. Otherwise, urban sprawl and overpopulation threaten to make urban life unmanageable, both economically and socially. Unlocking the potential of our cities through urban renewal is both promising and challenging, involving collaboration between government, developers and community. In particular, shifting the outlook to a longer-term perspective and shifting investment towards amenities, infrastructure, housing diversity and community unity appears to be the greatest challenge to ensure that metropolitan cities continue to soar and develop. As Enrique Peñalosa said, “The next phase of urban development must emphasise who we want to become, rather than what we must do to endure.” n

an interview with

S T E V E HARKER by Tiffany Wu and James Pyo

n the 39th floor of Chifley Tower, looking out at Sydney’s glimmering harbour and the boats cruising along the bright blue water, we met Steve Harker, Australia’s longestserving financial services CEO who recently stepped down from his position as CEO of Morgan Stanley Australia. As the man who built Morgan Stanley’s Australian investment banking division from the ground up to such remarkable heights, we were eager to meet this incredible industry leader and learn more about his career, his support of the Banking and Finance Oath and his definition of success.

64 || www.insideenterprise.org www.insideenterprise.org 64

« Education

oreshadowing his career achievements and involvement with the Banking and Finance Oath, Steve not only excelled academically but also possessed a passionate interest in public policy. Having undertaken a double degree in Economics and Law at the University of Sydney at a time when double degrees were far rarer than they are today, he enjoyed the combination of subjects while placing a high significance on his grades. “I was a reasonably academic student. I was always interested in trying to excel at whatever I did. To me, getting good grades was an important component of that.” Steve also embraced extra-curricular activities whilst in university. “I clearly enjoyed my time at the University Sydney. It’s a wonderful institution. But at the same time, I was interested in broader public policy and politics and played an active role in non-academic activities.” His interest in broader society was evident in his involvement in Young Labor during the Whitlam Government. Interested in a career in either economics or law, Steve immensely enjoyed his year working at the RBA but ultimately decided that he did not want to remain an academic researcher. He contemplated a career in law during his three years working in industrial law at the Iron Workers’ Union, but his interest in stockbroking led him to work in the financial services industry.

« Morgan Stanley

fter enjoying his time in London as the Head of Global Equities at Barclays de Zoete Wedd (BZW), Barclays’ first investment banking division, Steve was approached by Morgan Stanley in 1998 to build its presence in Australia. “When I first started, Morgan Stanley Australia would have been no more than a dozen people, and really functioned as a representative office. The investment banking side was very nascent and there was clear underleveraging in a market as sophisticated as this with Morgan Stanley’s global brand and reach,” Steve reflects. He saw this as a wonderful opportunity to build a strong domestic presence for one of the great global investment banks. For Steve, the internal functions of the business were the most important considerations in building Morgan Stanley’s Australian investment banking division. He focused on building up the product base in equity and capital markets and attracting talented, experienced bankers who could give strategic, M&A and capital raising advice. He then expanded the business into the secondary equity research and coverage base, sales trading base and research sales team. Steve was instructed early on to take time building the organisation and not to rush into the market. Indeed, their firm philosophy of taking the best of the best has created a 600-person domestic business that has withstood both

www.insideenterprise.org www.insideenterprise.org || 65 65

the tech bubble and the GFC. “We proceeded to do this with the help of a number of senior executives, many of whom are still here, so it was a great journey.” When asked about the firm’s ability to traverse difficult economic times, he credits senior management. Though admitting that the GFC caused some losses due to the subprime mortgage crisis, Steve held that Morgan Stanley’s P&L was in solid shape and the underlying business was not at risk. Despite trying times, Steve always felt as though Morgan Stanley would survive, citing the great leadership from the US team that kept the firm intact. When asked why he stayed as CEO for 18 years, longer than any other CEO in the Australian financial services industry, he replied with a simple answer: “I stayed for a long time as I enjoyed the firm and what I did immensely.” He shared that since accepting the CEO position at the age of 43, he enjoyed the challenge of building Morgan Stanley during each market cycle and has been endlessly inspired by the culture of this dynamic global firm, especially the way in which it recruits, trains and develops its employees. Steven valued working with some of the smartest people he’s ever met, but feels that after 18 years, the time is right to pass Morgan Stanley on to the next generation of leaders.

« Banking and Finance Oath

s a Board Member of the Banking and Finance Ethics Panel, established in 2010, Steven also elucidated the rationale behind the newly introduced Banking and Finance Oath.

The Oath Trust is the foundation of my profession. I will serve all interests in good faith. I will compete with honour. I will pursue my ends with ethical restraint. I will help create a sustainable future. I will help create a more just society. I will speak out against wrongdoing and support others who do the same. I will accept responsibility for my actions. In these and all other matters; My word is my bond. 66 | www.insideenterprise.org

The oath is underpinned by notions of personal responsibility and accountability. Formed due to issues arising over the past decade within the financial services and banking industries, this voluntary oath is much like the Hippocratic Oath of the medical profession. It seeks to influence and shape organisations from the inside out, by encouraging ethical individual actions and running parallel to each organisation’s own code of conduct. “Businesses are agglomerations of individuals. Ultimately in all the episodes I’ve seen in my life, it is up to the individual to draw the line and say if this is appropriate or not appropriate. The industry is aware of poor episodes of behaviour, but the issues are individual rather than cultural and endemic. The vast majority of people have high integrity and high values and are driven to do the right thing.”

« Advice to university students

hen asked about his thoughts on finding the ideal career path, Steven provided very holistic gems of wisdom. “There’s nothing wrong with a few career changes. It’s not until you get to your late 20s or early 30s that you can be somewhat certain about the path you want to go down. I always took a position not for what it does for me now, but what it does in five to ten years – the long-term.” On the day-to-day level, Steven’s schedule is highly flexible and balanced. He leaves time for meeting people, whether it be in face-to-face client interactions, deal team meetings or interaction with offshore offices. Now "What as Vice-Chairman, he plans to spend more time organisations would travelling and enjoying time with his family while be and should be still being involved in senior executive relations looking for is whether and mentoring. Though he unabashedly admits you can you use your to working long hours, he advocates for working hard but having the discipline to spend time with smarts in a way to family and friends. He also encourages university operate in a team students to relax to maximise productivity. “If you environment." don’t, you may be driving the engine too hard until it breaks.” Steven espouses more of his balanced perspective in his advice for students tackling interviews, especially those aspiring to secure internships in the financial services industry. “When you are looking to join a high-performing organisation and get to an interview, don’t try to prove you’re smart. You wouldn’t be there if the organisation hadn’t already figured out that you are smart. What organisations would be and should be looking for is whether you can you use your smarts in a way to operate in a team environment.” Indeed, Steven’s vision of success is centred on people and long-term improvement. “I like to think that I’ve left a job or a function in a better place. I like hiring talented people. I like hiring people who are smarter than me, I think that’s a sign of good management. Life is a continuous journey, and I like to think I’m on a path where I can leave anything I get involved in as a better place.” n

www.insideenterprise.org www.insideenterprise.org | |67 67

An Interview with Harrison Uffindell By Ricky Chan

68 | www.insideenterprise.org

“You should look at yourself as a start-up. Surround yourself with intelligent, like-minded people, strive to learn continuously, set aggressive goals and hold yourself accountable. If you’re learning and growing 20% month over month, in a year’s time you will have developed a lot more than somebody who grew a total of 20% over the course of the year.” Harrison Uffindell’s attitude is a reflection of his own career, which has seen him traverse the legal and corporate worlds before settling into the start-up world in his current role as the Australian Country Manager of Tilt.

aving graduated from the University of Otago with degrees in law, finance and economics, Harrison began his career as a lawyer for one of New Zealand’s top tier corporate law firms, Bell Gully. Reflecting on his time as a lawyer, Harrison explains that “When working in law, I felt like I was on the wrong side of every transaction. To me, all the fun things of the business world happen and then the lawyers are called to dot the i’s and cross the t’s. I wanted to learn why these decisions were being made and how they came to their conclusions.” Nevertheless, Harrison recognises that his time in the legal profession prepared him for what was to come. During his time with Bell Gully, he developed a

strong eye for accuracy and attention to detail. “The meticulous checking, line after line, ensuring that there were no errors when checking a contract, putting together a presentation or even sending a simple email, was in hindsight, incredibly valuable. Things like the quality of your writing, grammar or spelling can leave a lasting impact on some people, so it’s good to nail down these core skills early.” After leaving Bell Gully, much to his parents’ dismay, Harrison returned to work on his own start-up Meatmail, a fresh food local delivery service. After building the company, Harrison made a successful exit to a local competitor later that year. He then moved to Sydney and started

work in management consulting, specialising in strategy and performance improvement. Working in management consulting allowed him to be more involved in front-line business decisions. “I learned how to understand and implement frameworks, develop business cases, and even became well-rehearsed on tools such as Excel and Powerpoint.”

Start-ups and Tilt

Despite this rewarding career change, Harrison was still in search of something that would make him jump out of bed in the morning. So he went back to what he knew best – start-ups. “I thought about what I wanted to

www.insideenterprise.org | 69

achieve, what I envisaged myself doing in five, ten or twenty years, and what I ultimately wanted my life to be about. Although the corporate world is a safe and well-trodden path, I knew it wasn’t going to get me where I wanted to be.” In 2015, Harrison joined San Franciscobased start-up Tilt, the world’s largest funding platform that makes it easier for groups and communities to raise money, as the first on-the-ground employee in Asia. He later went on to become the Country Manager in Australia. “Diving into an international start-up from Silicon Valley was a huge change and the start of an incredible journey,” he reflects. It comes with no surprise that Harrison relishes his time with Tilt, and doesn’t expect to be making a move anytime soon. He says it all comes down to two big reasons. “I love my job. I’m solving a really challenging problem and changing the world for the better.” The other reason? “I get to work with the smartest, most driven and incredible people I have ever met. I probably learned more in 12 months

70 | www.insideenterprise.org

with Tilt than in my five years at university and three years in the corporate world combined.” In his time with Tilt, Harrison led the initial launch in Australia – the fastest of any international market at the time. Reflecting on Tilt’s decision to enter the Australian market, Harrison explains there were many factors that were considered, including the payments processes currently available, smartphone penetration, the willingness to transfer money online, market size, competitors in the market and how Tilt could effectively position itself. Despite all the research that has been done, “There’s always the element of surprise,” Harrison muses, “Each country presents its own sets of challenges.” In France, the concept of online group funding is well-known. The Australian market, however, is much younger and requires a stronger emphasis on educating the market about group funding and how it could be used in everyday life. “Our vision is to power the collective creation of the world,” Harrison says.

“We want to be the world’s leading social payments platform – the one platform for any payment-related activity, whether it’s a one-to-one payment, organising a weekend activity for close friends, collecting money for a group holiday or birthday, or even selling concert tickets to tens of thousands of people.” Tilt came one step closer to achieving this vision when it held the first ever fan-sourced music concert with charttopping music group, The Chainsmokers. Underpinning Tilt’s success has been its ambassador program, or what Harrison likes to refer to as the ‘Tilt community’. ”If you take a really influential and social bunch of power users, build a social and competitive team environment, then all of a sudden you have dozens of amazing students using Tilt, educating their friends and really evangelising the product and helping us reach larger audiences.”

Students and the way of the future

Despite Tilt’s undeniable success, Harrison’s job is not done yet. With growth con-

tinuing to take off globally, Harrison’s next challenge is to maintain this growth and ensure that Tilt becomes the “Facebook for payments.” Understanding the difference between good and bad growth, Harrison believes the key to expansion is to build a sustainable and scalable growth model. In his eyes, this involves creating a snowball effect, rather than “throwing fuel on fire to keep it burning.” With Tilt looking to expand its operations in Australia, Harrison and his team have set their sights on students who are potential users in the market, but also possess a burning entrepreneurial desire. “Although the skills sets for a graduate looking to join either a start-up or a corporate firm are largely the same, it’s important to distinguish yourself because there are so many applicants,” he says. “When you apply, there are going to be a lot of students just like you. Good university, degrees and marks, and the odd

society or two,” Harrison explains. “Good marks unfortunately aren’t enough to set yourself apart from everyone else.” What’s his recommendation? “Start a business. If it works out, that’s great. If it fails miserably, you will probably still learn more than you ever would from a textbook. You have to show that you’re driven, that you want to learn and that you’re willing to push yourself. When I read the CV of someone who has tried their hand at a startup, or attempted something incredibly difficult and failed, I get excited. I know that person probably has a whole list of big ideas and ambitions. That’s the person I want to meet and have a conversation with,” he says. Harrison also recommends students learn basic coding. “If you ever want to start your own business, it’s highly advantageous to know how to build a basic landing page. Even being able to talk to developers and understand what they’re saying is

invaluable!” Harrison’s final piece of advice for students is to back yourself. “Have the confidence to reach out to people. Don’t be intimidated or afraid of putting yourself out there. You’ll learn a lot from it. You might not see instant rewards from these conversations, but the more people you talk to, the more you will learn. Opportunities will present themselves and more doors will begin to open for you.” For students interested in getting a taste of an international tech start-up, applications for Tilt’s elite Ambassador Program can be found at: http://ambassador.tilt.com/en-au/ apply. University societies have also been moving rapidly to use Tilt for memberships, events and merchandise. To find out how Tilt works and why societies, colleges and sports teams use Tilt, go to: http://www.tiltpartners.com.n

www.insideenterprise.org | 71

Student Room BusinessOne: Revolutionising the Student Experience By Mark Jeyaraj

University should be seen as a transformative experience through which students can develop the right mindset and skills to succeed in their many and varied career roles. Mark Jeyaraj, Co-Founder of BusinessOne at the University of Sydney, discusses how the organisation is helping create a revolutionised student experience; one where going to university is no longer a rite of passage but a well-considered investment, and where universities consider students as learning partners who can control and shape their own academic and personal development.

usinessOne Group was co-founded by Sun-Yong Kim, Richard Guan and Andy Chu â&#x20AC;&#x201C; three passionate student entrepreneurs who realised that there was a need and a potential for students to provide their valuable consulting skills to SMEs, social enterprises and start-ups. In 2014, BusinessOne became

72 | www.insideenterprise.org

independent of Enactus and became its own organisation at the University of New South Wales. From there, BusinessOne has overcome hurdles and celebrated successes to become one of the leading student consulting and professional services organisations. It continues to provide a range of pro-bono consulting services, empowering businesses by converting innovative ideas into tangible and marketable business models. Spanning across several universities, the organisation has ambitions to expand throughout Australia in 2017. Addressing a severe shortfall Australiaâ&#x20AC;&#x2122;s graduate employment is the lowest itâ&#x20AC;&#x2122;s been since the 1992-1993 recession. The latest Graduate Careers Australia survey shows only 71.3% of bachelor degree graduates had found work within four months of completing their studies.

BusinessOne does not exist just to provide consulting services to clients, or a name for students to put on their resumes. BusinessOne’s overarching aim is to address a serious shortfall where university graduates are unprepared for the workforce and lack practical experience and soft skills. These attributes take practice and understanding, and cannot be taught in a classroom. The reality is that firms want employees who can not only take the initiative in finding solutions and undertaking tasks independently, but also collaborate within their project-based team to communicate and get tasks done effectively. The core issue If students are to take charge of their own development, the role of school and universities must be reassessed. A well-known issue in high schools in the increasing ‘syllabisation’ of students’ learning experiences. Students expect to be told what to learn and how to learn it, instead of discovering for themselves what they need to learn. Many students rote learn information for the HSC exams, and whilst the structure of numerous university degrees have shifted students out of this study habit, there is still a tendency for students to subliminally continue rote learning information instead of truly understanding the content. “Throughout the client engagement, various workshops were organised to help improve our soft skills and enhance our impact. Our team worked hand-in-hand with the client to produce a welltailored strategy.” - Young Hong, USYD (PhD, Chemical and Biomolecular Engineering)

Australian universities should increase their encouragement of inter-disciplinary learning, online learning and co-curricular activities, which are currently insufficient compared to universities in other developed countries including the US. Engagement with non-academic pursuits is not only beneficial to student development, but is also highly valued by employers. Rather than only recognising academic achievements, Australian universities, like their US counterparts, need to build programs designed to enhance student experience. UNSW and UTS have taken this on board with their current initiatives, from the Co-Op program at both universities to the Michael Crouch Innovation Centre at UNSW.

Platform to make a difference Although internships and part-time work are important, it is another thing to be involved in an organisation that provides a holistic experience to students eager to understand what it takes to be an entrepreneurial-inclined consultant. BusinessOne provides this platform, offering consulting projects each semester, sponsor-run training workshops, intervarsity case competitions and sponsored case study days and social events. “My project provided me with an opportunity to learn about areas of US Business Law and Business Registration, knowledge that was not covered during my MBA studies.” - Yury Popov, UTS (MBA, Strategic Management and Finance)

BusinessOne does not just help non-profits raise revenue, but it also focuses on a wider field of impactdriven programs such as market research and feasibility studies, branding strategy, software and application development and legal advice. BusinessOne consultants work in a wide range of industries, including Chemical Engineering, Marketing, Financial Planning, Retail and Education.

Applications for team member (associate consultant), team leader (managing consultant), and program director (directing consultant) open at various times. At the University of Sydney, they open in the weeks before each semester commences, and at UNSW and UTS, they open in the weeks after each semester has concluded for projects during the ensuing semester. Find out more information at: http://businessoneconsulting.org or https://www.facebook.com/B1Usyd.

www.insideenterprise.org | 73

UNSW Accounting Society By Tahsin Haque

ounded in 2011, the UNSW Accounting Society’s (AccSoc) main goal has been to inform students of the importance of accounting, develop students’ technical skills in software such as Excel and to strengthen soft skills such as communication and networking. This ensures that students are able to effectively work in collaborative and communication-intensive professional environments, whether in accounting or other business environments. AccSoc also keeps students up-to-date with relevant trends in accounting, advertises career opportunities and workshops, and helps students improve their networking and interview skills. With an engaged, excited and empowered team, AccSoc have many new initiatives in place for 2017, including a mentoring program and mock assessment centres to help students find their ideal career path and develop a terrific portfolio of skills. Excel workshops One of AccSoc’s keynote events is its Excel Fundamental Skills workshop taught by UNSW alumni Keerthi Prasad, an Executive Manager in the Financial Services industry who has worked across both Corporate Finance and M&A disciplines. A lack of Excel proficiency is common amongst accounting and finance interns and graduates, which often creates difficulties in completing work in pressure-intensive and data-heavy professional environments. Moreover, the ability to understand and perform fundamental Excel functions

74 | www.insideenterprise.org

helps interns stand out in the workplace, and accelerates their ascent of the learning curve. The workshop features a how-to session where students learn key shortcuts and navigation tools in Excel, before learning and practicing key Excel functions. The Excel workshops also include practical business examples in the form of problem-solving exercises. Step-bystep solutions help students understand not only the Excel methodology of these functions, but also their business applications. The interactive Q&A workshop format encourages students to ask questions. At the conclusion of the workshop, students received an Excel workbook, ensuring retention and easy recollection of the information learnt in the workshop. Information and networking sessions AccSoc had great success last year with its premier information and networking sessions. These sessions equip students with the knowledge necessary to determine whether a career in accounting is right for them and also provide a medium to help attendees develop the soft skills necessary to communicate and network in a high-intensity professional environment. These information sessions begin with a detailed overview of each company’s recruitment process, the various positions and programs on offer and exclusive tips for succeeding in each recruitment stage. The latter half of the session features networking with company representatives. Attendees are given the opportunity to gain a more in-depth and personalised understanding of what a career in accounting entails, and the culture and values of each firm. Representatives are often able to provide advice following their own corporate journeys, and act as invaluable role models and advisors for students.

AccSoc provides a comprehensive support base for all accounting students. To find out more, visit: https:// accsocunsw.com

Investing for Charity: Behind the Charity Illusion By Rebecca Ching

t first glance, the charity sectorâ&#x20AC;&#x2122;s annual income of $100 billion reflects well on everyday Australians' generosity and philanthropy. However, less than 8% of this income actually flows from direct public donations. Instead, a large majority is derived from government grants, or self-earned by charities via their own activities. This situation is exacerbated by the fact that the percentage of direct public donations has stagnated over the past two decades, despite considerable increases in both median income and average standard of living. This subdued growth is primarily attributable to a lack of recurring giving. Pitfalls of direct public donations Arguably the biggest issue that limits recurring public donations is the large number of charities to choose from. On average, ten new Australian charities are established each every day, adding to the existing pool of over 50,000 charities. Furthermore, With the rising number of charities that address similar causes, selecting one charity to support out of many comparable

charities is only going to get harder. Another pertinent reason why Australians may not donate on a recurring basis, especially to large charities, is the proximity issue: a small individual donor cannot â&#x20AC;&#x2DC;feelâ&#x20AC;&#x2122; the real impact of their donation when it is merely part of a much larger pool of money. This is especially the case for international charities such as Amnesty International, which mostly conducts aid operations overseas. A related issue for large charities is the perception of poor financial efficiency. In Australia, 10% of charities represent 90% of the assets in the not-for-profit sector. Although these organisations are perceived as financially robust by virtue of their superior fundraising capabilities, they also spend significant amounts of funding on marketing, administration and other corporate costs. Indeed, it is not uncommon for a large charity to spend up to 15% of its budget on marketing. This compounds the proximity issue for prospective donors as they would much rather their donations go to more worth-while causes. www.insideenterprise.org | 75

Transparency issue Additionally, charities often lack transparency, which raises doubts of their social impact. A 2014 Choice survey found that 81% of Australian donors do not know how much of their donation actually reaches their chosen charity’s beneficiaries. This is due to the time-consuming nature of finding and analysing such information. Although all charities registered with the Australian Charities and Not-forprofits Commission are required to report Annual Information Statements, such documents typically contain limited information regarding the breakdown of actual spending. As a result, without unbiased research comparing different charities for each specific cause, it is only understandable that donors will refrain from committing higher levels of recurrent donations. The solution: Investing for Charity To address these problems and to advance the vision of a more philanthropic society, Matthew Fitzpatrick founded Investing for Charity, a non-for-profit organisation with a mission to “facilitate effective giving through the responsible management of charitable donations.” Originating at the University of Sydney in 2009, Investing For Charity works directly with donors to ensure that every dollar donated makes the greatest desired impact. First, the donor nominates a social cause, and then a team of analysts will identify highly effective charities in that charitable space. This involves analysing the charity’s social impact, transparency, macro risk and financial sustainability, before reporting back to the donor. Another innovative way Investing For Charity facilitates effective giving is through its investment process. The not-for-profit sector holds over $30 billion dollars in cash reserves as a safety net, earning very low returns. Donations to Investing For Charity go much further and are much more impactful – all donations are invested into a mixture of Australian equity products and other high-yielding assets, with a target of 5% annual return which is then distributed to selected charities. Led by a team of socially-aware, outsourced investment professionals, it is envisaged that the fund will experience modest long-term capital growth after paying out annual 5% distributions to charity. This cre-

76 | www.insideenterprise.org

ates the possibility that donors can “donate once and give forever.” The process of providing continuous and growing donations through investment returns also addresses the problem of charities being heavily reliant on regular donations to sustain charitable programs. Unlike one-off direct donations, donors now have the opportunity to maximise every dollar donated and achieve the highest long-term social impact possible by giving to high-impact charities every year into the future. Investing For Charity is a zero-cost charity run entirely by volunteers. The charity’s operating model involves university students, young professionals as well as experienced professionals in various industries who all volunteer their time and contribute their services for free. Additionally, Investing For Charity benefits from the generosity of numerous service providers, and thus does not pay any legal, accounting, audit, banking and brokerage fees. Calling for volunteers Investing For Charity’s core operations lie in its team of volunteer Charity Analysts. Charity Analysts undergo a Learning & Development Program, which teaches the principles of fundamental analysis applied to charities as well as listed Australian equities. Each volunteer develops the skills to understand financial statements, industry dynamics and company strategies, as well as to ultimately compare and rank charities within a specific cause. These skills are then applied in the Charities Analysis Program to evaluate registered charities for the Public Ancillary Fund. Volunteers build on their experience to gain both technical and soft skills as they work towards improving not just their own careers, but also the lives of others.

Investing For Charity is always looking for volunteers to join its Learning & Development Program. For further information, please visit Investing For Charity’s website at: i4c.org.au. If you would like to donate, please contact Matthew Fitzpatrick at: matthew.fitzpatrick.i4c@gmail.com.

Work in startups abroad.

INNOVATION.

IF YOU WANT TO GET SOMETHING DIFFERENT YOU NEED TO DO SOMETHING DIFFERENT Develop your leadership. Create global networks. Challenge your perspeccves.

aiesecaustralia.org/innovate

Image Sources Links to full terms of licenses Attribution 2.0. http://creativecommons.org/licenses/by/2.0 Attribution-NonCommercial 2.0 Generic https://creativecommons.org/licenses/by-nc/2.0/ Attribution-NonCommercial-NoDerivs 2.0 Generic https://creativecommons.org/licenses/by-nc-nd/2.0/ Attribution-ShareAlike 2.0 Generic https://creativecommons.org/licenses/by-sa/2.0/ Attribution 3.0 Unported https://creativecommons.org/licenses/by/3.0/deed.en Cover Geren de Klerk https://unsplash.com/@geran?photo=WJkc3xZjSXw Page 6 Stanford Engineering “Battle ‘Bots – “Fiscal Cliff Face-Off”” https://www.flickr.com/photos/stanfordeng/8577875937/ Page 7 Trey Ratcliff “The Runner of Blades” https://www.flickr.com/photos/stuckincustoms/6474655359/ in/photostream/ Attribution-NonCommercial-ShareAlike 2.0 Generic 401(K) 2012 “Money” https://www.flickr.com/photos/68751915@ N05/6355360253/ Attribution-ShareAlike 2.0 Generic Page 8 MomentsForZen “Parliament House - 20141005 @ 06:02” https://www.flickr.com/photos/momentsforzen/15469961286/ Attribution-NonCommercial-NoDerivs 2.0 Generic Page 9 Chris Kantos “Solar Panels” https://www.flickr.com/photos/chriskantos/2351716097/ Attribution-NoDerivs 2.0 Generic Page 10 Windwãrts Energie “Solarpark Neukirchen I - Windwärts Energie GmbH” https://www.flickr.com/photos/windwaerts/7038695077/ Attribution-NonCommercial-NoDerivs 2.0 Generic Greens MPs “Solar Installer” https://www.flickr.com/photos/greensmps/9180614416/ Attribution-NonCommercial-NoDerivs 2.0 Generic Page 11 Pixabay https://www.pexels.com/photo/100-euro-bills-beside-mastercard-210745/ Page 14 Francisco Osorio “University Life 85” https://www.flickr.com/photos/francisco_ osorio/8425548570/ Attribution 2.0 Generic Page 16 Geralt https://pixabay.com/en/robot-artificial-intelligence-woman-507811/ Qimono https://pixabay.com/en/blood-cells-red-medical-medicine-1813410/

78 | www.insideenterprise.org

Page 20 Gage Skidmore “Donald Trump” https://www.flickr.com/photos/gageskidmore/5439999805/ Attribution-ShareAlike 2.0 Generic Page 22 Gage Skidmore “Donald Trump” https://www.flickr.com/photos/gageskidmore/25927626806/ Attribution-ShareAlike 2.0 Generic Page 23 Darron Brigenheier “Donald Trump in Reno, Nevada” https://www.flickr.com/photos/darronb/24224402311/ Attribution-ShareAlike 2.0 Generic Page 24 MO “United Kindgoms EU Referendum 2016” https://www.flickr.com/photos/54046845@ N07/27574594903/ Attribution-NonCommercial-NoDerivs 2.0 Generic Page 25 Bernard Spragg “Lica Maersk.FZ200” https://www.flickr.com/photos/volvob12b/14418030435/ Page 26 “Ralph Lauren FW 1989” https://www.flickr.com/photos/51528537@ N08/20650795645/ Attribution-NonCommercial 2.0 Generic Page 28 Calvin Merry “London Fashion Week” https://www.flickr.com/photos/calvinmerry/16467946137/ Attribution-NonCommercial-NoDerivs 2.0 Generic Haldane Martin “Google Umbono Workspace” https://www.flickr.com/photos/haldanemartin/8631197122/ Attribution 2.0 Generic Page 30 Mike Mozart “Louis Vuitton” https://www.flickr.com/photos/jeepersmedia/19001820442/ Attribution 2.0 Generic Page 31 Jason Hoang “Jimmy Choo” https://www.flickr.com/photos/jayhoang/3546378569/ Attribution-NonCommercial-NoDerivs 2.0 Generic Page 32 Lubomir Panak “Vinyls” https://www.flickr.com/photos/drakh/4069179708/ Attribution-NonCommercial-ShareAlike 2.0 Generic Page 33 Photographer “Old Vinyl” https://www.flickr.com/photos/fensterbme/102458936/in/ Attribution-NonCommercial 2.0 Generic Page 35 Ian T. McFarland “Shopping” https://www.flickr.com/photos/pedestrianrex/3194400137/ Attribution-ShareAlike 2.0 Generic Spencer Hickman “Record Store Day @ Rough Trade East 09” https://www.flickr.com/photos/donnierobot/3503062679/ Attribution 2.0 Generic Page 36 Nina “Vinyl” https://www.flickr.com/photos/sedagenvakna/5127877151/ Attribution-NonCommercial-NoDerivs 2.0 Generic Page 40

https://www.uggadgets.com/wp-content/uploads/2016/11/ s4.reutersmedia.net_.jpg Page 42 Marlon Cureg “Winding Road” https://www.flickr.com/photos/orphicpixel/5601234906/ Attribution 2.0 Generic Page 45 Chris Waits “Full Load” https://www.flickr.com/photos/chriswaits/17923953870/ Page 46 古天熱 “Adidas Peter Su” https://www.flickr.com/photos/sop220/16518567812/ Attribution-NonCommercial-NoDerivs 2.0 Generic Page 47 Coletree “Adidas” https://www.flickr.com/photos/coletree/2929928268/ Attribution-NonCommercial-NoDerivs 2.0 Generic Page 51 Pixabay “Close-up of Computer Keyboard” https://www.pexels.com/photo/close-up-of-computerkeyboard-247780/ Page 53 Pixabay https://www.pexels.com/photo/laptop-technology-ipadtablet-35550/ Page 54 John “Commonwealth Bank Tenterfield” https://www.flickr.com/photos/shebalso/14172125856 Attribution-NonCommercial-ShareAlike 2.0 Generic Page 55 Jorge Láscar “Melbourne CBD (HDR)” https://www.flickr.com/photos/jlascar/11884349374/ Attribution 2.0 Generic Page 57 Davidlohr Bueso “EXPLORE 2011-05-05 – standing tall” https://www.flickr.com/photos/daverugby83/5690963522/ Attribution 2.0 Generic Page 58 WDnet Studio “Person Using Black and White Smartphone and Holding Blue Card” https://www.pexels.com/photo/person-using-black-andwhite-smartphone-and-holding-blue-card-230544/ Page 59 JÉSHOOTS “Personal computer motherboard” https://www.pexels.com/photo/technology-computer-chipsgigabyte-4316/ Page 60 Daniel Lee “1881 Heritage” https://www.flickr.com/photos/dlee13/8477370087/ Attribution-NoDerivs 2.0 Generic Page 62 James Murty “GPO Building” https://www.flickr.com/photos/jcmurty/3284124544/ Attribution-NonCommercial-NoDerivs 2.0 Generic Page 75 Marco “EXPO 2015. Mangiare tutti” https://www.flickr.com/photos/scatto_felino/15870148015/ Attribution 2.0 Generic

I AM PASSIONATE

OPEN TO IDEAS. OPEN TO GROWTH. DISCOVER OUR GRADUATE AND SUMMER INTERN OPPORTUNITIES. WE ARE COMMBANK. commbank.com.au/graduate