BRICS Business Magazine English Edition No.3(7)

brics business magazine · №. 3(7) · 2014

The World and BRAZIL · RUSSIA · INDIA · CHINA · SOUTH AFRICA

BUSINESS MAGAZINE

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How a Breakthrough Economy Works

Moore’s Law states that the number of transistors on integrated circuits doubles every 24 months. And while Gordon Moore, one of the founders of Intel, said the rule would cease to operate due to strictly physical limitations regarding the speed of light and molecular structure, he correctly forecasted the exponential growth of computer processing speeds. Unfortunately, the progress inherent to microelectronics does not hold in other industries, yet some scientists find it applicable in the theory of evolution. They are calculating the growth of organism complexity, finding that organisms emerged long before the advent of the solar system.

Regardless, technological progress is one of the most obvious phenomena, which nearly everyone can verify based on their own experiences. We are unable to predict exactly where technology will bring us, yet, barring any catastrophic scenarios, it is inevitable it will continue developing. This is a boon for thinking about the future in a more concrete way. It is interesting to think that in 300 to 400 years, the world could be as different from today as ours is from the Middle Ages.

In this picture, man himself proves to be somewhat technological. We see that technology far outpaces moral progress. People still harbor animosity for each other, remain wary of each other, and avoid trying to understand each other. And a slight relaxation of mores, caused by long-standing prosperity, easily translates into war and crisis. I think the magnitude of this challenge has yet to be grasped. Self-improvement, however trifling it may sound is just as essential for humanity today as quantum mathematics and human spaceflight. This work is just as inevitable as development.

Ruben Vardanian Chairman of the Editorial Board of BRICS Business Magazine

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Innovation is now more important than ever to drive growth and profitability. I have no doubt that if you were to ask CEOs worldwide what represents the biggest opportunity to drive growth, ‘innovation’ would be a frequent answer.

It’s hotly debated which innovation model is superior – incremental or disruptive. When The Economist posed this question to its readers, the latter had more support. But one must remember that without optimizers, disruptive innovation is never going to succeed mainstream, and it is arguably the successful implementation of breakthrough inventions that matters most. Sid Caesar, an American actor, used to say: “The guy who invented the first wheel was an idiot. The guy who invented the other three, he was a genius.”

According to a 2013 Thomson Reuters study, domestic innovation in Russia is at a substantially higher level than in Brazil or India, but only a fraction of that of China. However, in terms of innovation subject to global patenting, the current hot topics are usually tobacco, explosives, and fire-fighting technologies. Isn’t there room for incremental improvement as well? I certainly think so.

Joe Watt, Chairman of the Management Committee and Managing Partner, EY, CIS

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Chairman of the Editorial Board Ruben Vardanian

BUSINESS MAGA ZINE

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EXPERTS AND CONTRIBUTORS

Anatoly Chubais

Kishore Mahbubani

Chairman of the Executive Board, RUSNANO Corporation

Dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, author of The Great Convergence: Asia, the West, and the Logic of One World

Mohamed A. El-Erian Chief Economic Adviser at Allianz and a member of its International Executive Committee, Chairman of President Barack Obama’s Global Development Council, previously served as CEO and co-Chief Investment Officer of PIMCO

Dennis J. Snower President of the Kiel Institute for the World Economy and Professor of Economics at the Christian-AlbrechtsUniversität zu Kiel

Vladimir Korovkin Oleg Sienko

Head of the Digital Technologies at the SKOLKOVO Institute for Emerging Market Studies

CEO of JSC Scientific Production Corporation UralVagonZavod

Boyd Cohen Xavier Trias

Climate and urban strategist and the author of annual ‘smart city’ rankings

Mayor of Barcelona

Andrew Sheng Andrei Degtyarev

Distinguished Fellow of the Fung Global Institute and a member of the UNEP Advisory Council on Sustainable Finance, former chairman of the Hong Kong Securities and Futures Commission, adjunct professor at Tsinghua University in Beijing, and the author of From Asian to Global Financial Crisis

Chairman of the Board at Absolut Bank

Vitaly Fridlyand Director General of Fujitsu Russia and CIS and Vice President of Fujitsu

Sanjeev Sanyal Gleb Davidyuk

© ITAR-TASS

Deutsche Bank’s Global Strategist, and a World Economic Forum Young Global Leader; author of The Indian Renaissance: India’s Rise After a Thousand Years of Decline

Managing Partner, PhD, iTechCapital Venture Fund

Fulvia Montresor Evgeniy Nadorshin

Director and Head of Technology Pioneers for the World Economic Forum

Chief Economist at Sistema Joint Stock Financial Corporation 8

CONTENTS

№.3(7), 2014

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The use of nanotubes in basic construction materials and at the level of mass technological processes may yield dozens, or even hundreds, of breakthroughs in the real economy. I believe that Russia can reach the global level in this area, if not become world leader.

OPINION

12 14 16 18 22 26 28

The Fragmentation of Bretton Woods The Coming CLASS War India’s East Asian Dream Asia’s Reform Trinity?

The Looming Death of Homo Economicus A Simple Course An Age of Careful Decisions

Mohamed A. El-Erian Andrew Sheng Sanjeev Sanyal Kishore Mahbubani Dennis J. Snower Evgeniy Nadorshin

T E C H N O L O GY

30 40 46 66 70 72

A Breakthrough Industry Technology in 2020 Creators of the Future A Vital Step The Invisible Force Ideas for Export

Fulvia Montresor Vladimir Korovkin Vitaly Fridlyand Gleb Davidyuk

100 AIR

74 76 92 98

Close Ties Aces High!

The Terminal Ground Flight Economics

S PAC E The presence of technology is becoming more important. Some of the technology will be obvious and in your face, like real-time billboards and things that you can see. On the side of a road or in a plaza, you might have digital signs that provide information in real time about traffic, where the nearest bathrooms are, where the nearest street performance is happening, and so on.

100 106

The Dragon vs. The Elephant A Gateway to Space

URBANISM

110 114

Growing Smart Solar City

120

Larry Page’s Theory

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Evgeniy Pakhomov

OPINION

Mohamed A. El-Erian ——

The Fragmentation of Bretton Woods By now, it has become obvious that the International Monetary Fund and the World Bank are not entirely up to the tasks assigned to them some 70 years ago. If no immediate action is taken to reform these organizations, the world will be looking at exceedingly bleak economic prospects.

Moreover, by encouraging better policy coordination and the pooling of financial resources, the Bretton Woods institutions boosted the effectiveness of international cooperation. And they enhanced stability by offering collective insurance to countries facing temporary hardship or struggling to meet their development-financing needs.

It is difficult to identify more than a small handful of countries that have not benefited in some way from the IMF or the World Bank. Yet countries seem hesitant to contribute to the reform and strengthening of these institutions. In fact, a growing number of systemically important countries have taken measures that are undermining the Fund and the Bank, albeit largely inadvertently.

In recent years, mounting domestic political pressure has driven Western governments to adopt increasingly insular policies. And, just a few weeks ago, the BRICS countries acted to bolster a currency-reserve pool to help ease shortterm liquidity pressures and to establish their own development bank – a direct challenge to the IMF and the World Bank.

Indeed, unlike existing parallel arrangements, which have always been regional in nature and intended to complement the work of the IMF and the World Bank, the BRICS’ New Development Bank and contingent reserve agreement are not based on cultural, geographical, or historical links. Instead, they are founded on a shared frustration with the outmoded entitlements to which the US and Europe are clinging – entitlements that are diminishing the Bretton Woods institutions’ credibility and effectiveness.

The world has changed considerably since political leaders from the 44 Allied countries met in 1944 in Bretton Woods, New Hampshire, to create the institutional framework for the postWorld War II economic and monetary order.

What has not changed in the last 70 years is the need for strong multilateral institutions. Yet national political support for the Bretton Woods institutions – the International Monetary Fund and the World Bank – seems to have reached an all-time low, undermining the global economy’s ability to meet its potential and contributing to geopolitical insecurity.

When the Bretton Woods conference was convened, its participants understood that the IMF and the World Bank were integral to global stability. Indeed, both institutions were designed to discourage individual countries from adopting shortsighted policies that would harm other economies’ performances, incite retaliatory action, and ultimately damage the entire world economy.

In other words, they were intended to prevent the kind of beggar-thy-neighbor policies that many major economies adopted during the Great Depression of the 1930s.

Mohamed A. El-Erian is Chief Economic Adviser at Allianz and a member of its International Executive Committee, Chairman of President Barack Obama’s Global Development Council. He previously served as CEO and co-Chief Investment Officer of PIMCO. He was named one of Foreign Policy’s Top 100 Global Thinkers in 2009, 2010, 2011, and 2012. His book When Markets Collide was the Financial Times/Goldman Sachs Book of the Year and was named the best book of 2008 by The Economist.

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The Fragmentation of Bretton Woods

© Project Syndicate

It is the countries that spearheaded the creation of the Bretton Woods institutions that pose the greatest threat to their legitimacy, impact, and, ultimately, relevance. After all, emerging economies cannot reasonably be expected to support institutions that offer unfair advantages to countries that so often preach the importance of meritocracy, competition, and transparency. That is why they are now determined to use their collective economic weight to circumvent these institutions

political cooperation, reduced interdependencies, and, in turn, growing geopolitical risks. One need look no further than the current turmoil in Ukraine or Iraq to understand what can happen in the absence of credible multilateral structures capable of shaping developments in crisis situations.

So much for the problems. What about the solutions? Simply put, the IMF and the World Bank urgently need self-reinforcing reforms.

With a few key measures – none of which is technically complicated – the Bretton Woods institutions can move beyond the mindset of 1944 to reflect today’s realities and enhance tomorrow’s opportunities. Such reforms include the elimination of nationality-based hiring; adjustments to representation, with emerging economies gaining more influence at the expense of Europe; and more equality and evenhandedness in lending and economic-surveillance decisions.

The challenge will be to overcome political resistance – no small feat at a time when domestic polarization has made politicians wary of publicly supporting economic multilateralism. The repeated rejection by the US Congress of a much more limited set of reforms – which was approved by most other countries in 2010-12, imposes no incremental financial obligations on the US, and implies no reduction in America’s voting power or influence – is a case in point.

Enlightened self-interest must overcome such political obstacles. The longer that world leaders resist the overwhelming need for reform, the worse the world’s future economic and financial prospects – not to mention its security situation – will be.

Most important, Europe and the US continue to resist the full dismantling of a nationality-based appointment system that favors their citizens for the highest leadership positions at the IMF and the World Bank, despite offering the occasional promise of change. Moreover, they have stifled efforts to recalibrate the balance of representation even marginally. As a result, Western Europe enjoys a massively disproportionate level of representation, and emerging economies, despite their increasing systemic importance, barely have a voice. And, during the eurozone’s debt crisis, European leaders showed little hesitation in bullying the IMF into flouting its own lending rules.

In this sense, it is the countries that spearheaded the creation of the Bretton Woods institutions that pose the greatest threat to their legitimacy, impact, and, ultimately, relevance. After all, emerging economies cannot reasonably be expected to support institutions that offer unfair advantages to countries that so often preach the importance of meritocracy, competition, and transparency. That is why they are now determined to use their collective economic weight to circumvent these institutions.

Another challenge to the international monetary system lies in the proliferation of bilateral payment agreements. By bypassing more efficient and inclusive structures, these arrangements undermine multilateralism. In some cases, they even conflict with countries’ obligations under the Bretton Woods Articles of Agreement.

The consequences of this gradual process of fragmentation extend well beyond lost economic and financial opportunities, to include weaker No.3(7), 2014

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OPINION

Andrew Sheng ——

The Coming CLASS War The 18th century German military strategist Carl von Clausewitz defined war as the continuation of politics by different means, and, like the ancient Chinese strategist Sun Tzu, believed that securing peace meant preparing for violent conflict. As the world becomes increasingly tumultuous – apparent in the revival of military struggle in Ukraine, continued chaos in the Middle East, and rising tensions in East Asia – such thinking could not be more relevant.

untenable, as different tribes and ethnic groups attempt to carve out their own territorial spaces.

And the conflict in Ukraine mobilizes the longsimmering frustration felt by ethnic Russians who were left behind when the Soviet Union collapsed.

The third potential source of conflict consists in the fundamental cultural differences created by societies’ unique histories and institutional arrangements. Despite accounting for only oneeighth of the world’s population, the United States and Europe have long enjoyed economic dominance – accounting for half of global GDP – and disproportionate international influence.

But, as new economic powerhouses rise, they will increasingly challenge the West, and not just for market share and resources; they will seek to infuse the global order with their own cultural understandings and frames of reference.

Of course, competition for resources will also be important, especially as the consequences of the fourth factor – climate change – manifest themselves. Many countries and regions are already under severe water stress, which will only intensify as climate change causes natural disasters and extreme weather events like droughts to become increasingly common. Likewise, as forests and marine resources are depleted, competition for food could generate conflict.

This kind of conflict directly contradicts the promise of globalization – namely, that access to foreign food and energy would enable countries to concentrate on their comparative advantages.

If emerging conflicts and competitive pressures

Wars are traditionally fought over territory. But the definition of territory has evolved to incorporate five domains: land, air, sea, space, and, most recently, cyberspace. These dimensions of ‘CLASS war’ define the threats facing the world today. The specific triggers, objectives, and battle lines of such conflicts are likely to be determined, to varying degrees, by five factors: creed, clan, culture, climate, and currency. Indeed, these factors are already fueling conflicts around the world.

Religion, or creed, is among history’s most common motives for war, and the 21st century is no exception. Consider the proliferation of jihadist groups, such as the Islamic State, which continues to seize territory in Iraq and Syria, and Boko Haram, which has been engaged in a brutal campaign of abductions, bombings, and murder in Nigeria.

There have also been violent clashes between Buddhists and Muslims in Myanmar and southern Thailand, and between Islamists and Catholics in the Philippines.

The second factor – clan – is manifested in rising ethnic tensions in Europe, Turkey, India, and elsewhere, driven by forces like migration and competition for jobs. In Africa, artificial borders that were drawn by colonial powers are becoming Andrew Sheng is Distinguished Fellow of the Fung Global Institute and a member of the UNEP Advisory Council on Sustainable Finance, a former chairman of the Hong Kong Securities and Futures Commission, and currently an adjunct professor at Tsinghua University in Beijing. His latest book is From Asian to Global Financial Crisis.

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The Coming CLASS War

© Project Syndicate

A recent example of the disaffected seeking an alternative to US leadership is the establishment of a New Development Bank and a contingent reserve arrangement by the BRICS. The problem for the US is that, in this case, the disaffected are five of the world’s major emerging economies, wielding combined resources that exceed those of the Bretton Woods institutions. It is highly unlikely that BRICS bank transactions will be denominated in US dollars

European banks to re-think their compliance costs and the profitability of operating in the US. Meanwhile, American courts have forced Argentina into another national default.

But perhaps the strongest message is being sent via targeted sanctions on Russia’s oil, finance, defense, and technology industries, as well as on Russian officials. With this approach, the US and its allies are sending a clear message to anyone who may disagree with US policy: avoid using the dollar and dollar-denominated bank accounts. Some financial activity has already been driven into the shadows, reflected in the use of Bitcoin and other currencies that are beyond the reach of US regulators.

A recent example of the disaffected seeking an alternative to US leadership is the establishment of a New Development Bank and a contingent reserve arrangement by the BRICS. The problem for the US is that, in this case, the disaffected are five of the world’s major emerging economies, wielding combined resources that exceed those of the Bretton Woods institutions. It is highly unlikely that BRICS bank transactions will be denominated in US dollars.

In a recent speech, US President Barack Obama declared that the question is not whether the US will lead, but how it will lead. But, as creed, clan, culture, climate, and currency cause the world to become increasingly alienated from the UScentric international order, such declarations may be excessively optimistic. Indeed, in the coming CLASS war, no one seems quite sure whom to follow.

lead to, say, economic sanctions or the obstruction of key trade routes, the resulting balkanization of global trade would diminish globalization’s benefits substantially.

Moreover, the social unrest that often accompanies economic strife could cause countries to fragment into smaller units that fight one another over values or resources. To some extent, this is already occurring, with Iraq and Syria splintering into sectarian or tribal units.

The final key risk facing the world concerns currency. Since the global economic crisis, the expansionary monetary policies that advancedeconomy central banks have pursued have caused large-scale, volatile capital flows across emergingeconomy borders, generating significant instability for these countries and fueling accusations of ‘currency wars.’

The extra-territorial use of regulatory and tax powers – particularly by the US, which has the added advantage of issuing the world’s preeminent reserve currency – is reinforcing the view that currencies can be wielded as weapons. For example, the US has effectively balkanized global banking by requiring all foreign banks operating there to become subsidiary companies and requiring international banks with US-dollar clearing accounts to comply fully with US tax, regulatory, and even, to some degree, foreign policy (for example, refraining from trading with US enemies).

Hefty fines imposed by US regulators for breaching the rules – notably, the recent $8.9 billion settlement by BNP Paribas – are already causing No.3(7), 2014

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OPINION

Sanjeev Sanyal ——

India’s East Asian Dream Under the new Prime Minister, India’s domestic and foreign policy priorities are changing drastically. Now, India seems to be looking to the countries of East Asia as its new role model.

at the heart of a centralized resource-allocation process. Its successor, the National Development and Reform Commission, will probably function more as a think tank – providing ideas and ensuring policy coherence, but with no power to allocate.

Modi also argued for a new economic-growth model based on export-oriented manufacturing.

This means encouraging domestic entrepreneurs to manufacture goods for export and inviting the world’s top companies to relocate production to India. This effort is important, because India’s economy and exports are dominated by services, which have grown steadily relative to overall output, now accounting for almost 60% of GDP. By contrast, the industrial sector’s share of GDP has remained unchanged, at around 26%, for the last three decades (the manufacturing segment is even smaller, at 14.9% of GDP).

When Modi’s emphasis on export-led manufacturing is viewed in the context of his government’s focus on heavy infrastructure projects – ranging from power generation to railways – it becomes clear that his growth model, with its mass deployment of labor and capital in industry, looks similar to East Asian countries’ strategies. It is also consistent with his frequent references to the need to create

On 15 August, Narendra Modi delivered his first Independence Day speech as Prime Minister. Though he continued the tradition of addressing the country from the ramparts of Delhi’s historic Red Fort, the speech broke with convention. Shunning a written text, Modi extemporized for an hour, mapping out an explicit vision for India, including an economic model that constitutes a clean break from India’s past.

Since 1991, India has been slowly changing its policy framework away from the socialist vision of its first prime minister, Jawaharlal Nehru.

However, for political reasons, the changes were always justified in an almost apologetic way.

Indeed, many Nehru-era institutions continue to exist – and even thrive.

In one fell swoop, Modi announced the abolition of one of the most important of these institutions: the powerful Planning Commission, which had continued to churn out Soviet-style ‘Five-Year Plans’ and remained Sanjeev Sanyal is Deutsche Bank’s Global Strategist, and a World Economic Forum Young Global Leader. He is the author of The Indian Renaissance: India’s Rise After a Thousand Years of Decline (Penguin 2008) and Land of the Seven Rivers: A Brief History of India’s Geography (Penguin 2012).

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India’s East Asian Dream

© Project Syndicate

Another major problem will be the migration of tens of millions of people as they are sucked into the expanding industrial economy. India does not have China’s sociopolitical controls, such as the hukou residential-permit system, to manage such a large-scale movement of people. Japan and South Korea are perhaps too small to serve as useful precedents. Narendra Modi may be hoping to preempt the problem through his project to create 100 ‘smart cities,’ though how the program will be implemented remains unknown

over its rapid-growth phase. China is currently investing almost half of its GDP. India’s fixedinvestment ratio, by contrast, has declined in recent years to around 30% of GDP. Foreign capital can play a role in supporting rapid growth, but international experience shows that domestic savings are key to sustaining high investment rates. Mobilizing these savings will require careful thinking about how the domestic financial system can be expanded by an order of magnitude without risking a future crisis.

Another major problem will be the migration of tens of millions of people as they are sucked into the expanding industrial economy. India does not have China’s sociopolitical controls, such as the hukou residential-permit system, to manage such a large-scale movement of people.

Japan and South Korea are perhaps too small to serve as useful precedents. Modi may be hoping to preempt the problem through his project to create 100 ‘smart cities,’ though how the program will be implemented remains unknown.

Despite all of the obstacles and risks, Modi has articulated an explicit economic vision for the first time since Nehru. Unlike the apologetic reforms of the past two decades, Indians have been promised a confident new beginning. It is now a matter of implementation.

new cities, because urbanization is the spatial manifestation of industrialization.

The shift to an ‘East Asian’ growth model should not be surprising, given India’s demographic pipeline. India needs to create jobs for the 10 million people per year who join the working-age population. It also needs to accommodate the millions who wish to shift away from agriculture, which still employs half of the workforce. Although the service sector was able to generate growth in the past, it has proved to be a poor job creator and only employs 27% of workers, far lower than its share of the economy.

By contrast, construction and manufacturing are rightly seen to be more promising outlets for the mass deployment of semi-skilled workers.

There are, of course, many obstacles in Modi’s path. India’s tax and regulatory regime is widely regarded as unfriendly to business, but Modi’s track record in government suggests that he is sensitive to this problem and will be able to make significant improvements.

The greater challenge for Modi will be financing his growth model. The success of the East Asian model was predicated on a sharp increase in the investment rate. Beginning with Japan, every rapidly growing East Asian economy sustained investment rates in the range of 38-40% of GDP No.3(7), 2014

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OPINION

Kishore Mahbubani ——

Asia’s Reform Trinity?

member of the Politburo Standing Committee, China’s highest government body.

But the long-term fight against corruption cannot depend on Xi alone. It will succeed only if strong institutions are created to protect and nurture the rule of law long after Xi is out of power.

If Xi chooses to establish such institutions, he has a strong legal tradition upon which to call. As former US Ambassador to China Gary F. Locke reported in a speech early this year, the concept of equality before the law has deep historical roots.

Indeed, in the fourth century BC, the statesman and reformer Shang Yang famously asserted that, “When the prince violates the law, the crime he commits is the same as that of the common people.”

Building on this tradition, Xi can create strong institutions that will stand the test of time. If he does – recognizing that, to be credible, the rule of law must apply even to the Party’s most influential figures – he will become modern China’s third strongest leader.

In India, Mahatma Gandhi rejuvenated the country’s soul, which had been battered by colonialism, and Jawaharlal Nehru established its democratic political culture. Modi now must lay the foundations for India’s emergence as a global economic power.

Replicating the 10% annual growth rates achieved in Gujarat under Modi’s leadership from 2004 to 2012 would obviously be a boon to India’s development prospects and global standing. But achieving such high growth rates in a sustainable way will demand far-reaching, sometimes painful reforms, such as the removal of wasteful subsidies,

Asia is poised to enter a historical sweet spot, with three of its most populous countries – China, India, and Indonesia – led by strong, dynamic, and reform-minded leaders. In fact, China’s Xi Jinping, India’s Narendra Modi, and Indonesia’s Joko ‘Jokowi’ Widodo could end up ranked among their countries’ greatest modern leaders.

In China, Mao Zedong united the country in 1949, while Deng Xiaoping was responsible for engineering its unprecedented economic rise. For Xi to join their ranks, he must create a modern, rules-based state. That requires, first and foremost, slaying the massive dragon of corruption.

Over the years, corruption has become endemic in China, with regional party leaders and bosses in state-owned enterprises wielding their vast privileges and authority to accumulate personal wealth. This has severely undermined the Chinese Communist Party’s legitimacy, while hampering the kind of market-based competition that China’s economy needs to propel the country to highincome status.

So far, Xi seems to be up to the challenge. He has been boldly pursuing major figures who were previously considered ‘untouchable,’ such as General Xu Caihou, a former vice chairman of the Central Military Commission, and Zhou Yongkang, a former Kishore Mahbubani is Dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, is the author of The Great Convergence: Asia, the West, and the Logic of One World. He was selected as one of Prospect magazine’s top 50 world thinkers in 2014.

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© Project Syndicate

Leaders with new ways of thinking have come to power in Asia’s three giants – China, India, and Indonesia. If these leaders are able to realize their ambitions, it will herald an unprecedented era of prosperity never before seen in Asia.

OPINION

Over the years, corruption has become endemic in China, with regional party leaders and bosses in stateowned enterprises wielding their vast privileges and authority to accumulate personal wealth. This has severely undermined the Chinese Communist Party’s legitimacy, while hampering the kind of market-based competition that China’s economy needs to propel the country to high-income status

October, must implement policies that address rising inequality, unsustainable fuel subsidies, entrenched corruption, inadequate infrastructure, and restrictive labor laws – all while rebuilding trust in Indonesian institutions.

The challenges facing Jokowi are compounded by the fact that his ruling coalition holds only about one-third of the seats in Indonesia’s parliament, with the rest loyal to the coalition of his rival in the presidential election, Prabowo Subianto. So, in introducing a new style of governance, exemplified by merit-based cabinet appointments, Jokowi must be careful not to alienate the political and business elites who have long benefited from their tight grip on power.

In short, if Jokowi is to form a national consensus on the institutions that Indonesia needs, he will have to reach across this political divide. To this end, Mexican President Enrique Peña Nieto’s cross-party ‘Pact for Mexico’ could serve as a useful model.

Promisingly, Jokowi has a reputation for independence from partisan and religious politics, and a talent for communicating with the people.

And, as a political outsider, he is in a unique position to direct Indonesia toward a more prosperous, united future – and vault himself into the country’s pantheon of great leaders.

China, India, and Indonesia are all well positioned to take important steps forward. A commitment by Xi, Modi, and Jokowi to do what is needed would bring rapid, far-reaching progress to their respective countries, Asia, and the global order.

especially for fuel, in order to free up resources for, say, increased health-care expenditure. Other imperatives include shrinking the budget deficit, removing internal barriers to trade, and encouraging private investment.

To win the support needed to implement these reforms without undermining political stability or social cohesion, Modi must demonstrate that he is an inclusive leader capable of cooperating with Indians outside of his Hindu nationalist base – including the country’s 150 million-plus Muslims.

If he succeeds, he, like Xi, will become his country’s next iconic leader.

In Indonesia’s case, the two most influential leaders so far have been Sukarno, who used powerful rhetoric to foster a sense of national unity in one of the world’s most diverse countries, and Suharto, who overthrew Sukarno and created a strong economic base that lifted millions out of poverty.

Jokowi must now lay the institutional foundations for good governance.

Jokowi has risen from humble beginnings to the apex of power without compromising his image as a ‘man of the people’ or his reputation for pragmatism and honesty. Jokowi has a long track record of good governance, having implemented effective policies during his stint as Mayor of Surakarta (such as refurbishing markets, relocating slum dwellers, and cutting bureaucratic red tape), and as Governor of Jakarta (where he broadened access to health care and education).

But replicating this success at the national level will be no easy feat. Jokowi, who takes office in 20

OPINION

Dennis J. Snower ——

The Looming Death of Homo Economicus

shifts, or property-rights upgrading – to offset the costs and benefits for which the market cannot compensate. And when the changes give rise to particularly high levels of inequality, redistributive measures are needed.

This approach is based on the assumption that, if everyone is fully compensated for the net benefits that they confer on others, individuals pursuing their own self-interest will, as Adam Smith put it, be led, ‘as if by an invisible hand,’ to serve the public interest as well. According to this view, everyone is Homo economicus: a self-interested, fully rational individualist.

But, as past ‘great transformations’ demonstrate, this approach is inadequate, because it neglects the social underpinnings of market economies.

In such economies, contracts tend to be honored voluntarily, not through coercive enforcement.

What makes these economies function is not a policeman protecting every shop window, but rather people’s trust, fairness, and fellow-feeling to honor promises and obey the prevailing rules.

Where this social glue is lacking – such as between Israelis and Palestinians – people cannot exploit all of the available economic opportunities.

This link is apparent in the deep social significance of most of an individual’s economic transactions. When people acquire expensive cars, designer clothing, and opulent houses, they generally seek social recognition. When couples or friends give gifts to one another or take vacations together, they perform economic transactions inspired by affiliation and care.

This is a transformation on the scale of the shift, more than 8,000 years ago, from nomadic hunter-gatherer societies to settled agricultural ones, which eventually led to the rise of cities. A similar transformation occurred in Europe in the 10th century, with the emergence of guilds – associations of skilled workers who controlled the practice of their craft in a particular town – which paved the way for the Industrial Revolution.

The particular characteristics of the impending transformation remain unclear. It may well involve revolutions in bio-, nano-, and digital technology, together with a social-networking revolution that eliminates geographical and cultural barriers. What is already clear, however, is that, like previous transformations, this one will involve a fundamental change in all of our economic relations and the social relations that support them.

Mainstream economics offers a straightforward analysis of and policy response to such a transformation. Whenever technological or other changes allow for people to be compensated for the benefits that they confer on one another (minus the costs), the price-based market system can adjust. When the changes create externalities, economic restructuring is required – say, adjustments in taxes and subsidies, regulatory Dennis J. Snower is President of the Kiel Institute for the World Economy and Professor of Economics at the Christian-AlbrechtsUniversität zu Kiel.

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© Project syndicate

The world seems to be on the verge of another ‘great transformation,’ with changes that will be far more profound than Asia’s news-grabbing economic rise or the geopolitical fires in the Middle East. The coming changes will fundamentally redefine the nature of our economic interactions – and their underlying social dynamics.

OPINION

The problem lies in deeply ingrained – and divisive – perceptions of identity. The world is divided into nationstates, each controlling many of the instruments of public policy. People’s social allegiances are divided further by religion, race, occupation, gender, and even income bracket. Where social barriers are sufficiently strong, economic barriers are certain to appear. These can range from protectionist trade policies and increasingly strict immigration controls to religious wars and ethnic cleansing

idea – which is firmly rooted in neuroscience, psychology, anthropology, and sociology – implies that an individual has significant latitude in shaping his or her identities.

This is not to say that national and religious identities are not profoundly important. Rather, it implies that we are co-creators of our identities.

Instead of choosing identities that divide us, making it impossible to tackle multiplying global problems, we can shape identities that extend our sense of compassion and moral responsibility.

A growing body of scientific evidence shows that compassion, like any other skill, can be ingrained and enhanced through teaching and practice.

Educational institutions can thus work to develop students’ capacity for caring in tandem with their cognitive abilities.

More broadly, societies everywhere should be driven by a common goal that transcends their diverse backgrounds. Resolving problems that extend across borders is a good place to start, with strategies involving specific tasks for various groups and countries to undertake that advance the greater good. Initiatives like conflict-resolution workshops, reconciliation commissions, crosscultural education programs, and compulsory civic duty for school leavers could also help.

The mainstream view that people are wholly selfinterested economic actors denies our innate capacity for reciprocity, fairness, and moral responsibility.

In deepening social affiliations, we can lay the groundwork for a new form of economy in which many more opportunities can be seized.

In short, mainstream economics – and the concept of homo economicus – recognizes only half of what makes us human. We are undoubtedly motivated by self-interest. But we are also fundamentally social creatures.

This oversight is particularly crippling in view of the impending transformation, which will upend the underpinnings of contemporary society.

Indeed, at present, despite unprecedented economic integration and new opportunities for cooperation, our social interactions remain atomized.

The problem lies in deeply ingrained – and divisive – perceptions of identity. The world is divided into nation-states, each controlling many of the instruments of public policy. People’s social allegiances are divided further by religion, race, occupation, gender, and even income bracket.

Where social barriers are sufficiently strong, economic barriers are certain to appear. These can range from protectionist trade policies and increasingly strict immigration controls to religious wars and ethnic cleansing.

Clearly, economic success vitally depends on how people perceive their social affiliations. One view is that our identities are immutable, impermeable, exogenously generated, and intrinsically opposed to one another. This classic ‘us versus them’ dichotomy leads to sympathy for one’s in-group and implacable conflict with out-groups – a bottomless source of conflict throughout history.

But another view is possible: each person has multiple identities, the salience of which is shaped by one’s motivations and circumstances. This 24

OPINION

Evgeniy Nadorshin ——

A Simple Course While politicians on both sides of the Russia-Ukraine conflict continue to keep business communities in a state of suspense, the financial sector is bracing itself for impact. Until now, Europe has been the primary source of long-term investment and a genuine development partner. Finding new long-term investors would be a task that the state and the business community will not be able to accomplish quickly.

financial market, was precisely the kind of tool that many European banks and other financial investors used to balance their investment structure with little to no effort. From this perspective, we used to be a very convenient country for investments.

Now these, or other similar risks, would have to be made all over again in Africa, Asia, Latin America, Canada, and the United States. That is why the same European banks would now have to step up their efforts globally to find investment opportunities.

European intermediaries will also lose a portion of their clients, along with the commissions they used to receive from Russian issuers.

© ITAR-TASS

The sanctions banning public financing instruments from foreign markets has directly affected key Russian borrowers, including both state-owned and private companies. But the United States and the European Union placed private companies in greater peril by cutting them off from the lending market. Fearful of another wave of sanctions, foreign businesses are reluctant to enter into new contracts with Russia. This applies both to public and private companies and has made interaction between business communities more difficult – not only because of formal sanctions, but also due to a number of informal restrictions. The decisions made by politicians affected not just the ongoing activities of Russian companies, but also their ability to raise the long-term resources needed to foster development. Their access to technologies has also been curtailed.

Up until now, Russia has been convenient for Europe for investment resource diversification.

European financial organizations have traditionally had a high concentration of assets with intrinsic risks, which does little good for portfolios, especially now when many EU countries are struggling to maintain economic growth. Russia, on the other hand, with its extractive risks and relatively large

THE CHINESE CONUNDRUM

Today, the share of funds borrowed by the largest Russian banks on the European market through Eurobonds alone is estimated at $50 billion. This accounts for approximately one-quarter of the total foreign debt in the national banking sector.

In speaking about alternative capital markets, Russian politicians tend to mention the East more and more often. However, the seemingly easy road to Asia might turn into a bumpy ride. For instance, there are many large companies in China’s financial sector, and they are visible and proactive on the trading floor. Yet they are closely linked with the same European and American businesses that are affected by the sanctions. That is why, when we talk about China, we need to bear in mind that we would have to look for potential investors among purely Chinese companies. Naturally, there are many of those too. The problem lies in the fact that for us this market is absolutely new, unexplored,

Evgeniy Nadorshin is Chief Economist at the Sistema Joint Stock Financial Corporation.

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A Simple Course

alternate financing, which is often not as quick or efficient. However, minute revenue losses are not the main problem at all. What is worse is that the Russian banking sector will fall backward in a technical sense. While we used to be safe in the knowledge that we could fall back on the Anglo-Saxon system of financing, with its advanced and efficient logistics and well developed infrastructure, today we are forced to take a step back because not all transactions are available to us in the new environment.

In Asia, one of the idiosyncrasies of doing business is the local attitude toward a signed contract. In essence, it is not treated as a definitive document for closing deals. Instead, it is common practice for a contract’s terms and conditions to be modified after the final handshake. If you wanted to force a Chinese businessman to live up to the terms and conditions of a contract signed under Chinese jurisdiction, you would most likely lose in court. Russians have learned to interact with companies in a certain way; these well-oiled mechanisms were developed over the last 20 years within the European domain. We no longer feel comfortable in semi-formal business environments, which is common to Asia and many other emerging markets. The Chinese and Brazilian business cultures are based on a different playbook, which we are not very familiar with; they do not teach these rules in our business schools. We would have to start from scratch to adapt to these new rules.

Furthermore, Russia does not have the tools to sustain its companies abroad. These would have to be developed because no government commission could protect a small or medium size business owner. The same could be said about many larger organizations, but perhaps this is irrelevant. While state-owned companies can be shut down ‘manually,’ privately owned entities could hardly count on that. All of these factors would put a damper on the Russian private sector’s ambitions in the East, or many other emerging economies for that matter.

Undoubtedly, the length of time required for Russia to weaken its close financial ties with Europe and to find a common ground with other regions depends both on the government and the country’s private sector. However, no matter how quickly either side tries to separate, weakening ties with the West will be a gradual process that is likely to take many years. At the end of the day, these ties will never be severed completely – we both need each other too much.

and, to a certain extent, wild. It is far from what one might call a stock exchange-driven market, and a lot depends on personal contacts and networking.

Russian borrowers will already run into their first difficulties building their client base; after all, at this stage, Chinese domestic investors know almost nothing about us. Trips across the country, countless meetings, networking, and socializing (and not necessarily in English, as many Chinese people do not speak it) are all tasks that take up a lot of time.

Add to that long distances, regions that are not always accessible by plane, and the poverty that is common for both our countries – all of these factors make this an ever more expensive proposition.

It took us 20 years to get our economic relationship with Europe to the level it is at today.

Let us assume we will be able to build relationships with our Asian counterpart more quickly – even so, it will still take time and may well require another 10 years of hard work.

Domestic Russian investors are yet another option that politicians put forth when talking about alternative sources of funding. People started to make money around 2000, and now one can safely assume that this money is still there. Russia has a relatively high level of savings, even with the growing demands from its people. However, an imperfect financial infrastructure and growing risks make the savings barely accessible for Russia’s financial system. The recently frozen pensions provide yet another reason for mistrust. Long-term funds will once again be lost in the short term, ending up in banking accounts or slipped away to overseas banks, perhaps even pension funds. Given this situation, it is difficult to expect that the lack of funds for long-term investments from abroad could be compensated with domestic resources. This means that the demand for externally sourced long-term resources is here to stay, and to avoid a complete investment breakdown, they would have to be proactively sought out.

THE BANKING SECTOR: SETTING BACK THE CLOCK

Naturally, the sanctions are inflicting damage on current banking transactions. A number of instruments that the business community has now internalized – swaps, forward agreements, and letters of credit – are mostly available from large international banks. By restricting access to these instruments, the sanctions force companies to seek No.3(7), 2014

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OPINION

An Age of Careful Decisions The global economy is going through a period of radical change that may alter the rules of the game. Not surprisingly, financial institutions will always be influential stakeholders in these transformations. Andrei Degtyarev, Chairman of the Board at Absolut Bank, talks to BRICS Business Magazine about how the roles of banks have changed over the last few months and what important developments are taking place in Russia today.

that of the bank itself. Banks are finally becoming financial institutions in the classical sense – establishments that provide financial services, but do not support the interests of their shareholders.

In light of the changes in the foreign economic climate, which industries have become more prominent and gained more clout?

Because these changes are still gaining traction, many trends have not clearly manifested themselves yet. But one thing is certain: the industries that are now spearheading the import replacement efforts will grow exponentially. This primarily applies to the consumer, food, and agriculture industries. There are some expectations that the sectors connected with the military will grow as well, which is logical.

It is an open secret that many things used to be manufactured overseas and imported from the socalled ‘near’ and ‘far’ abroad. Today, for obvious reasons, that is no longer possible and the industry must be developed domestically. This demand may boost production within the country. Industries engaged in the manufacturing of equipment and hardware for the oil and gas industry will also show upward growth. These are exactly the industries that were hit during the ‘trade war’ with western countries, but they will need to develop their own technologies and manufacturing capabilities.

During the last BRICS summit, the member nations signed an agreement to set up a BRICS Development Bank as an alternative to the World Bank, as well as to pool their reserve currencies to create their own version of the IMF. How will this step affect the global financial system?

To be honest, I do not think that this will change the global financial system. This bank’s capital of $100 billion is not that high against the backdrop of the total volume of transactions, which is measured in trillions of euros and dollars. The fact

Against the backdrop of recent foreign economic developments, what changes have taken place in Russia’s financial industry? Has it become less significant?

The world is volatile and difficult to predict, especially as of late. However, the banking system remains the economy’s primary blood vessel; both in Russia and in Western countries, nothing has changed in this respect. There are certain fundamental elements that simply do not change overnight. It is an entirely different matter how banking institutions, and the banking industry as a whole, are losing the mystery that used to surround them. This trend persists as the very notion of ‘banking secret’ becomes more diluted and banks assume the role of mediators acting on behalf of governments or tax authorities to identify people engaged in questionable transactions or tax evasion.

This trend is characteristic of all countries – not just Russia. Banks used to be safe havens where people could hide capital and store their wealth in secret, but they are turning into transparent financial institutions.

How did the role of financiers change along with the industry?

Perhaps the most obvious manifestations of these changes can be seen in Russia. If we take the period when our banking system was coming of age, we can see that most of the players on the market were essentially financial and industrial groups. To put it simply, there was always a group of companies around each bank that it financed, whereas the bank itself was generally just an entity to support their development. The 1998 and 2008 crises changed this dramatically.

Regulations in recent years have made the model I just described no longer viable. There is now a strict line between the business of proprietors and 28

An Age of Careful Decisions

that this bank exists would, of course, provide more diversified opportunities for the BRICS countries, but it would not shift the balance in any significant way. Moreover, even the BRICS countries’ heavyweights are not interested in upsetting the existing balance, that is in displacing the dollar or the euro. Take China, for instance, with its enormous foreign exchange reserves denominated in dollars – it is highly unlikely that they would want to devalue this currency and undo years of China’s efforts to boost its manufacturing and export capabilities.

Today, the world is busy looking for new technologies and alternative energy sources that could end the dependency on foreign resources that many countries and economies suffer from. How will the global landscape change when these are found?

By and large, all of these alternative sources have already been found. And it did not happen yesterday. However, the resources owned by the entities, corporations, and states that act as exporters of raw materials are quite significant, and it is in nobody’s interest to drastically change the situation. Alternative energy sources have a high production cost and can only be turned into a mass product capable of replacing the known types of raw materials if large investments are made. Nobody is rushing to invest in this project and until that happens, alternative sources will never become mainstream – no matter what anyone says.

If we talk about Europe in the context of new technologies, things are quite straightforward, A new raw materials supplier that could replace Russia has already been found. This is why it is highly unlikely that they would be searching for any alternative sources in the foreseeable future.

They would simply import a more expensive kind of shale gas from across the ocean.

Russia’s economy is stagnating. How are bankers coping?

Their response is quite predictable. Bankers become more conservative when it comes to the assets they want to invest in or the projects and entities they want to debt-finance. More cautious positions and behavior have become a common trend in the banking community. A significant safety margin is being generated, both in terms of regulations and liquidity. Larger market players have started paying more attention to costs – they No.3(7), 2014

are trying to cut them, rather than venture into new inflated capital investments. In other words, a period of moderation and prudence is upon us.

Nobody is planning any significant expansion or development – an age of careful decisions and actions has arrived.

Will the Russian economic system be able to function normally without foreign investment?

It is difficult to imagine a country capable of surviving without foreign investment. As far as I know, even North Korea does not function without them. The question is: What kind of countries and investors are we talking about?

Today, Russia is faced with a situation where only Western Europe and the United States have closed their doors, but it does not go any further. It does not translate to the entire world; there are other markets in Latin America, in the Arab world, in India, and in China, which is why foreign investment will continue. Moreover, as time goes by, Western investors will realize that they let go of a large market share and the subsequent profits.

This will be a compelling argument to return.

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TECHNOLOGY

A Breakthrough Industry Anatoly Chubais has formerly been Deputy Prime Minister of Russia, Minister of Finance, and CEO of Russia’s RAO UES. Today, he is one of the country’s most renowned economists and politicians, dealing with projects ranging from innovative medicine and microelectronics to metallurgy and new materials. To sum up, he is in charge of RUSNANO – a company that is paving the way for technological achievements that will change the world as we know it in the years ahead.

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A Breakthrough Industry

After taking over as Director General and then Chairman of the Board at RUSNANO, you assumed responsibility for Russia’s entire innovation economy, or at least that is how it is often portrayed. Do you have counterparts in other countries?

To be honest, that is not entirely the case. Deputy Prime Minister Arkady Dvorkovich is responsible for innovation economy in the government. Looking at key state development institutions, you’ll also find SKOLKOVO, the Russian Venture Company, and the Small Business Development Fund, which deals with science and technologies. We do not believe that one person can be in charge of everything, and I am really happy that my colleagues and I have established such a positive working relationship.

How does the rest of the world look? At least 15 leading countries – including the United States, China, South Korea, and Finland – took the initiative to develop their nano industries at the national level. Russia jumped on the bandwagon slightly later, in 2007, but we are still trying to win a place amongst the leaders of the pack. In this sense, there are other countries facing a situation similar to ours, though there are some notable differences. For instance, the American nano technology initiative revolves exclusively around science, or funding the part of the innovation cycle that would otherwise be unable to find alternate sources of funding. We, on the other hand, wanted to build a competitive industry from the very outset and our chief objective was to expand the scale of the nano industry in Russia.

To achieve this goal, we will need serious resources and funding – on a far greater scale than what the American program requires.

Can we then deduce that the infrastructure for Russia’s nano industry is better prepared than that of the countries trying to assert leadership in this area?

Our innovation infrastructure is obviously less prepared – in 2008 and 2009, it was at a zero level or even ‘negative one.’ It simply didn’t exist.

I would describe the situation as follows: In the orthodox model, scientific achievements find their application in production, which provides science with the funding required for further research. In our case, this process already stops functioning at the initial stage. Why is that? The reason is that apart from science and production, there is No.3(7), 2014

Chronologically, nano technologies developed as follows: sometime in the 1980s and 1990s, a number of scientific papers were published on the subject, followed by the first nano technology breakthroughs. As Richard Feynman famously said in 1961, “There’s plenty of room at the bottom.”

What he was referring to was the matter below the micro level. In the 1990s, after we realized that we could manipulate matter at this level, we saw the discoveries of key elements and structures, such as fullerene, grapheme, and nanotubes. Andre Geim and Konstantin Novoselov received a Nobel Prize for discovering graphene much later, in 2010

another world called ‘innovation economy.’ This world is comparable to science and production in terms of industry differentiation, constituent elements, legal frameworks, a legislative basis, and the required competency levels. We had science and we had production, but an innovation economy did not exist in our country at all. Mind you, internal differences between innovation cycles are enormous. For instance, the innovation economy transition from science to production in the pharmaceutical sector is completely different from that in microelectronics. There are dozens of subdivisions in the world of an innovation economy and each of them operates based on their own laws. Thus, we were missing the necessary baseline categories, including legislation, infrastructure, and competencies.

Naturally, we had an implementation process for scientific achievements in our command economy. However, very few of these mechanisms were viable in a free market economy. Moreover, it just so happened that during my ‘civilian life’ prior to my political life, I spent ten years working in this area, and I understood how things worked in the Soviet Union. So the innovation economy is being built virtually from scratch.

Could we once again revisit the goals of RUSNANO? Why are its objectives important to the entire world?

Let us begin with the very word ‘nano.’ We all remember that some 30-40 years ago we first became acquainted with the prefix ‘micro’ (as in microelectronics and so forth), which was not a function of pure science but rather that of technologies.

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It turned out that a targeted effect on matter could successfully be achieved in the micro range (10 to the power of -6). These technologies were first used at the laboratory level and then graduated to the industrial level, at which point microelectronics turned the world upside down.

Incidentally, even as early as the end of WWII, scientists had managed to get inside the nucleus to create nuclear technologies. Industrial application was implemented in the 1940s and 1950s, while micro technology did not truly start until the 1960s and 1970s. It would have been logical to start at the micro level and then move on to nanosize objects and then on to nuclear technologies, but it turned out otherwise. Why? Perhaps one of the reasons was the military application of nuclear energy, which turned out to be a driving force behind its development.

One way or another, the place of nano is somewhere between micro and nuclear technologies. Nano technologies mean the ability to produce a targeted effect in the range measured between 1 and 100 nanometers, and in so doing radically change the properties of the material in question.

Chronologically, nano technologies developed as follows: sometime in the 1980s and 1990s, a number of scientific papers were published on the subject, followed by the first nano technology breakthroughs. As Richard Feynman famously said in 1961, “There’s plenty of room at the bottom.”

What he was referring to was the matter below the micro level. In the 1990s, after we realized that we could manipulate matter at this level, we saw the discoveries of key elements and structures, such as fullerene, grapheme, and nanotubes. Andre Geim and Konstantin Novoselov received a Nobel Prize for discovering graphene much later, in 2010. But during those earlier years, 1980s, baseline and technological breakthroughs were becoming ubiquitous at the nano level. We are talking about an interdisciplinary trend – dealing with construction materials, coatings, pharmaceuticals, nano electronics, optics, etc. – which is one of the basic properties of nano technologies. It turned out that the methods for manipulating material at the nano level were beginning to find industrial applications. That is why it was such a positive and important step when, in 2007, Russia started a nano initiative based on a proposal from Mikhail Kovalchuk, Director of the Kurchatov Institute.

There are nano industries that do not require trying to conquer the world – like nano electronics. As an example, a company called TSMC is essentially a giant automated assembly line, performing relatively homogenous mass production. There are some high-level technologies where it is unlikely that we will become leaders – not because we lack qualified specialists, but because of the very nature of some of these activities. If we revert back to electronics, there are breakthrough areas where we have a rather dynamic track record

How many projects are you financing? Who are your partners and co-investors and what are the results today?

We have two areas of activities: business and infrastructure. I will start by addressing the latter.

It falls within the purview of the Infrastructure and Education Programs Fund (IEPF), which forms part of the RUSNANO group. The Fund deals with building nano centers (veritable startup factories), engineering centers, standardization, certification, metrology, and education projects – in other words, creating the infrastructure that the business needs. When it comes to the commercial area, our objective is to invest in projects that will facilitate the development of the nano industry. Its scale is one of the most important performance indicators for us; by 2015, it should reach 900 billion rubles ($22.5 billion).

These project companies will manufacture 300 billion rubles ($7.5 billion) worth of products.

An additional 600 billion rubles ($15 billion) of products will be manufactured by companies that have no direct ties to RUSNANO, but will have received infrastructure solutions from us, which amounts to indirect support.

It should be noted that our business component is growing stronger. The return on investments requirement is an important reason driving our latest changes. This year, we created a managing company and are essentially becoming a family of private equity funds that are investing into the Russian nano industry, provided that we get returns and a profit margin on our investments.

Today, we are running 94 projects ranging from metallurgy and tool manufacturing to pharmaceuticals and electronics. A total of 140 billion rubles ($3.5 billion) has already been 32

A Breakthrough Industry

States, South Korea, Japan, Taiwan, Finland, and a number of European countries. Naturally, China is also a leader and they are moving ahead at a rapid pace. You could also say there is specialization within the BRICS group. For example, India’s strong suit is obviously aircraft building and the pharmaceutical industry – that even includes pharmaceutical innovations, although they place a greater emphasis on generics. Regarding nano electronics, the United States and Taiwan are the first countries that come to mind.

Does Russia not have a specialty?

Russia began developing its nano industry relatively recently. Not all of the companies that emerged between 2008 and 2010 managed to survive. But those that did are boasting $100-300 million in revenues today. While this is certainly a success, it is still far from global leadership, though there are some rare exceptions.

Still, if we were to appraise the scope of engineering competencies that Russia has today, what sort of specialty is Russia developing?

Our specialty is slightly off the beaten track.

There are nano industries that do not require trying to conquer the world – like nano electronics. As an example, a company called TSMC is essentially a giant automated assembly line, performing relatively homogenous mass production. There are some high-level technologies where it is unlikely that we will become leaders – not because we lack qualified specialists, but because of the very nature of some of these activities. If we revert back to electronics, there are breakthrough areas where we have a rather dynamic track record. As you know, transistors operate based on electromagnetic interaction – they store information in the form of electric charges – but there is a new platform based on magnetic effects. It is called Magnetoresistive Random Access Memory (MRAM), which stores information in the form of magnetic charges.

The traditional computer Random Access Memory constantly needs electrical power to store information. If you turn off your computer, your content is erased, so you must save information in advance – on a hard drive, for example. However, with magnetoresistive memory, electrical power is only required to rewrite memory cells. You can save information and it will be stored virtually forever – this sort of memory is completely energy independent.

invested. What is particularly important is that on top of this amount, we raised much more (170 billion rubles [$4.3 billion]) from private investors involved in our projects.

Do you already have examples of successful or unsuccessful IPOs? Yes, we have had several IPOs. The scale may vary, but generally speaking, these are success stories with a good profit margin. Let us take one example: about six years ago, we found a company called IPG Photonics that had been built by a Russian professor named Valentin Gapontsev.

The company’s shares were listed on NASDAQ and it became one of the world’s leading laser makers. We invested in this company under the condition that a production facility would be opened in Russia at our expense. It was set up in Moscow Oblast in the town of Fryazino. Today, the plant we built there plays an important role in the company because historically all business grew out of this town. We withdrew from the project when we reached a 20% rate of return.

Which Russian nano products are exported?

Out of the total 522 billion rubles ($13.1 billion) worth of nano products manufactured in Russia in 2013, exports accounted for 94 billion rubles ($2.4 billion). I will cite the example of a company called Novomet based in Perm. A group of engineers who built pumps for the oil industry came up with two ideas. The first idea was to use powder metallurgy – utilizing nano-dispersed powder sintering, they make ultra-strong parts for the most complex nodes on submersible pumps.

The second idea was to create nano-coatings. The company’s initial revenue of just $3 million has grown to $350 million, and they are now competing with Schlumberger on the global market. Novomet exports a great deal of its products and is now moving into service functions for oil companies. It has shown consistent and dynamic development, so we were eager to invest in Novomet.

Is there any unspoken country-based specialization when it comes to nano technologies? For instance, Country A holds first place in developing biomedical nano materials, while Country B holds second place in nano electronics?

In part, specializations do exist. However, the number of countries developing a nano industry is limited and the leaders are well known: the United No.3(7), 2014

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producing nano cosmetics in Ufa – they make a decent cream, but we have already gotten out of it. There is another good cream called Flexiseq, which helps relieve rheumatic pains. Or take, for instance, a recent start-up producing water repellent cream for windshields that is based on a hydrophobic substance – it is both very efficient and resistant to environmental effects.

This substance can be used to protect an entire vehicle or even to protect windows in a building.

Development is well underway in this area, and some consumer products do appear, but there are not that many of them. This is not a six-month job, or even something that can be accomplished with just a year’s worth of work. Even with the ‘micro’ industry, it took 20 to 30 years.

What are your threshold values? At what stage does a project become interesting to you?

The RUSNANO group has a non-commercial part – the Infrastructure and Education Programs Fund. There we start with a zero threshold; we create start-ups out of nothing. I already mentioned the nano centers – these are factories of start-ups. We commissioned the first nano center only two years ago. Today, 11 such centers are operational in Russia, along with 275 start-ups that span from Tatarstan and Kazan to Mordovia and Novosibirsk.

What is the growth rate of these start-ups?

What is their quality?

Of course there are strict KPIs. Each nano center has a scheduled number of start-ups that have to be created by the end of the year. Indeed, their mortality rate is rather high – around ­70-80%. At the same time at RUSNANO, we look at them through our investor goggles – a young, up-andcoming company that shows dynamic growth is a potential for future investments.

Until 2016, you will be intentionally sustaining losses. Given today’s climate, do you get the feeling that this deadline should be moved ahead two to three years?

I do not think so. There is an objective side to all these figures, as much as there were some mistakes on our part. The objective side is simple – any private equity fund first looks for projects, then selects them, makes investments, and begins to build. The foundation, the walls, the equipment followed by assembly, and then … the launch!

After the project has started, production needs to

All electronics use a lot of power. Google selected the locations for its data centers based on the need to minimize the cost of electrical power and, to a greater extent, to minimize the cost of cooling.

MRAM could become a major breakthrough as it operates at relatively high temperatures, which opens new avenues for its application. That is why we, in conjunction with French partners, used Technopolis Moscow as a platform to launch our first MRAM-based production. Our competencies helped a great deal in this respect.

There may be instances when our competencies could help in medicine. Our projects include two unique American companies: BIND Therapeutics and Selecta Biosciences. They offer brand new technological platforms for the development of new medicines and vaccines. We invested in them on the condition that they would open branches in Russia. There was a great deal of reluctance and resistance, but they still opened the branches. In time, specialists working in BIND’s and Selecta’s labs in Russia proved that they could play a fullyfledged role in the development of technological platforms.

Most people are still not entirely aware of the fact that a nano industry is taking shape.

It seems that the ‘micro’ industry needed less time before it was recognized by the public, but perhaps this is what happens with every new industry. What discoveries have already taken place? What is noticeable to the naked eye?

I am not sure that the ‘micro’ industry needed less time. Computers first came about in the 1960s, but when did they enter our lives? The first time I held a laptop was in 1992. It is important to understand that there is a certain waiting time between the moment a project first appears on the industrial market and when it makes its way to the consumer market. I think it is more likely that microelectronic products reached mass consumers in the 1990s, even though they were invented some 30 years earlier. In a certain sense, the same thing is taking place in the nano industry. The absolute majority of our projects today are not B2C. However, this is a natural process and one of the reasons we get criticized – ‘Where is your nano? The money is lining someone’s pockets, that much is clear, but we do not see any nano.’ Indeed, only a very small portion of our products target consumers. There is a small start-up company 34

A Breakthrough Industry

To be able to give your money away so you can make more money? That takes an incredible amount of trust.

People from the Forbes list would certainly ask you, “Can you make more money than me? Why aren’t you on the Forbes 100 list? Who are you anyway?”

Our domestic mentality is not at a place where we comprehend that private equity is a stand-alone type of operation that shapes professional competencies. In this sector, it is not money that is sold, but the ability to invest. This takes time, authority, and reputation. All of this is only starting to take shape – not only when it comes to managers, but also to investors

and lost money. Nevertheless, at this stage we are not moving our target dates for reaching a selfsustained level and I would not want us to do so in the future.

How does the direct investments industry work in Russia?

This is a very interesting area. It first appeared in Russia 10-15 years ago and since then, we have seen domestic companies emerge and make a name for themselves. For instance, Baring Vostok has a reputation for being the strongest team and enjoys such a high level of trust that raising money comes very easy to them. Over those same 10-15 years, the private equity sector has not become a mass industry and very few managing companies

be fine-tuned, products need to be marketed, and only then will it become profitable. At that time, we may withdraw from the project. In ordinary circumstances, this process takes at least five years; given the environment in Russia, everything that has to do with the real economy is much more complex and takes more time and effort. In this sense, you continue to invest nonstop for five years and cannot make any profit. This is what makes our business unique, which is something we are still having a hard time communicating to the public.

But isn’t your 2016 target a bit too optimistic?

I hope not. Apart from the objective aspects of our business, there have also been mistakes.

We mistakenly invested into certain projects No.3(7), 2014

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Non-State Pension Funds are worth 2 trillion rubles ($50 billion) and 1% of these funds is 20 billion rubles ($500 million). This money is renewable and it is clear that it will radically change the whole situation.

Then there are the endowments, target funds for non-commercial use in education, medicine, and culture. Of course, these are few and far between in our country: SKOLKOVO, the Moscow State Foreign Relations Institute, and the Higher School of Economics. We should also be reminded of the family offices owned by wealthy Russians who have to invest their money somewhere. This group of limited partners is only beginning to take shape in Russia. I think that we are at the starting point and the money available to this industry will go up dramatically over the next five years.

If institutional investors in Russia experience problems, what sort of difficulties do private investors encounter?

Mindset. To be able to give your money away so you can make more money? That takes an incredible amount of trust. People from the Forbes list would certainly ask you, “Can you make more money than me? Why aren’t you on the Forbes 100 list?

Who are you anyway?” Our domestic mentality is not at a place where we comprehend that private equity is a stand-alone type of operation that shapes professional competencies. In this sector, it is not money that is sold, but the ability to invest.

This takes time, authority, and reputation. All of this is only starting to take shape – not only when it comes to managers, but also to investors.

At the last St. Petersburg International Economic Forum, we held our first panel discussion on this subject. We brought limited and general partners together. I have a great deal of respect for Baring Vostok and other companies who are older than us – they have 15 years of experience, after all. But now we have all agreed to work together to build a non-commercial association that will promote the private equity industry in Russia.

So far, the Russian industry has been lagging behind the other BRICS countries.

If we are talking about the whole world, it is going through a post-revolution stage. The president of The Carlyle Group spoke at the latest private equity conference, where he offered some alternatives on basic notions. Today, private equity

Of course, China makes the most interesting case. What we see there is a veritable tempest, an onslaught of sorts. Every two to three years, everything changes. Entire industries are born where they never existed in the past. Sometimes, they are born so violently that their explosive growth destroys the global market. Take, for example, RUSNANO’s tragic story with polycrystalline silicon. When we began to build the polycrystalline silicon plant in Kursk Oblast, China’s manufacturing capacity was virtually non-existent. When we finished building the plant, China commissioned production facilities whose capacities were comparable to the global market volume

have come of age on the market. Moreover, the industry itself is built in a completely paradoxical manner, which is difficult to wrap your mind around – professional managers raise money in the West to invest in Russia! In other words, they raise no money in Russia at all. This means that many investors are unable and unprepared to invest in private equity. Granted, it is a very special kind of business, which did not even have a legal framework in the past. We finally managed to pull it off, together with the Ministry of Economic Development, and now we have finally established a legal foundation that enables private equity funds to do business in Russia using the proper legal channels. The Russian investment partnerships have become the equivalent of private equity funds.

The Russian private equity investment sector is only beginning to take shape. Who are the classical investors in this area?

First of all, there are pension funds. By Russian law, pension funds are not allowed to invest in private equity. A similar situation used to exist in the United States – for 20 years, the American industry maintained itself at a level of $100 million per year, and in the late 1970s when US pension funds were allowed to invest in private equity, this sector started growing at an exponential rate.

Today, it is much bigger than the banking sector.

Not so long ago, the Russian Prime Minister instructed the Central Bank and the Ministry of Finance to develop a proposal with us, which would open the doors for the Russian pension system to invest in private equity. Today, Russia’s 36

A Breakthrough Industry

plant, China commissioned production facilities whose capacities were comparable to the global market volume. Naturally, the market collapsed and caused a disaster – dozens of bankruptcies among the largest companies. Our project went belly up too – we started with the price of $400 per kilo of polycrystalline and ended up with a price of $16 per kilo. We could not sustain a 25fold drop, and as a result the project had to fold as well. A number of Chinese companies also went bankrupt because they did not expect any of this.

At this stage, our relationship with China is not at a point where we are both interested in the same investments and potential projects. RUSNANO plans to radically step up its efforts on the Chinese front. We hope that in the foreseeable future we will create a venture fund together with Chinese and Korean partners.

Out of all those things that have been developed inside RUSNANO, what is slated for mass production in the coming years?

Nuclear medicine. It is an area that is going through global dynamic development, but it is still in an embryonic stage in Russia. Several months ago, we opened a positron tomography center in Ufa, which proved highly efficient. The Bashkortostan government and its president, Rustem Khamitov, helped us a great deal. The center can diagnose diseases at a very early stage, at a point when no other method can. The center’s specialty is oncological and cardiovascular diseases, the two leading causes of death in Russia.

With both diseases, an early diagnosis radically improves the chances of recovery. This year we are planning to launch similar centers in Bryansk, Voronezh, Lipetsk, and Oryol. These will be followed by another wave in nine other regions spanning an area all the way to the Far East. This is precisely the B2C commerce that we spoke about earlier. That is why we find our cooperation with Rosatom exceedingly promising and interesting.

Turning to B2B (business-to-business), it is widely known that if you add nanotubes to aluminum, its strength approximates that of titanium. A combination of copper and nanotubes still has the conductivity of copper, but can withstand an electric current that is 100 times more powerful. Plastic materials become conductive and their strength increases dozens of percentage points. Nanotubes can radically change

falls under the alternative investments category, but are they really alternative? The scope of these alternative investments is 1.5 times greater than that of the so-called classic investments.

Speaking about the BRICS countries, I do not know any serious Brazilian companies. I see several Indian companies, and a huge number of Chinese companies. I think the latter are measured in hundreds. In Russia, there are very few of them.

I know one or two in South Africa. In this sense, Russia is a middleweight player. It is weaker than China, but stronger than her remaining BRICS neighbors.

Which Russian regions are ready to work with foreign investors that are interested in scientific and technological businesses?

We put together a list of approximately 15 regions that have proven serious in fostering innovations in general, and in the nano industry in particular, regardless of politics. The list of leading regions includes Moscow, Tatarstan, Mordovia, Novosibirsk, Tomsk, Penza, and Ulyanovsk. Their work in this area is structured systemically. Samara has shown some positive dynamics lately as well.

How closely does Russia cooperate, if at all, with the emerging markets when it comes to science and technologies?

Overall, I would describe the level of this cooperation as insufficient, with the obvious exception of China. There, we are stepping up our cooperation, including on the part of RUSNANO. India is a very interesting country, but our relationship with them still remains weak.

I see no serious interactions with Brazil at all.

We have contacts with South Africa in the fast growing solar power sector, but they are also quite weak. But all of these are exceptions to the rule.

Of course China makes the most interesting case. What we see there is a veritable tempest, an onslaught of sorts. Every two to three years, everything changes. Entire industries are born where they never existed in the past. Sometimes, they are born so violently that their explosive growth destroys the global market. Take, for example, RUSNANO’s tragic story with polycrystalline silicon. When we began to build the polycrystalline silicon plant in Kursk Oblast, China’s manufacturing capacity was virtually non-existent. When we finished building the No.3(7), 2014

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I am a firm believer in the future of nano materials, or to be more precise, in nanotubes.

Imagine the whole world or the entire technosphere consisting of metal, plastic, and cement. These are materials produced in millions of tons – just by adding nanotubes, you can increase their mechanical strength by 20-50%. Greater strength leads to reduced mass, which translates to reduced fuel consumption during transportation.

Moreover, the entire manufacturing chain produces multiplier effects that combined make the entire human technosphere radically more energy efficient and less material intensive. What makes it particularly important is its potential mass application in Russia’s traditional industries, such as metallurgy, industrial materials, electrical and technical products, and plastics.

I am happy to cite a specific example. We have joined forces with tire manufacturers from Lower Kama and are about to complete a project where nanotubes would be used to manufacture tires.

When it comes to tire parameters there is a golden triangle: brake path length, fuel efficiency, and wear and tear. It really feels like there is some sort of sorcery there because if you improve one parameter, another one gets worse – they are in contradiction.

The introduction of nanotubes in these new tires will bring an improvement to all three parameters of anywhere between 10% and 25%, which is a unique result. We hope that trial production will commence next year. Adding nanotubes to plastic or composite materials holds a great deal of promise as well. One of the main issues we have been having with these materials is their color. To paint ABS plastic or SMC composites – the kind that are used for manufacturing millions of car parts per year – they need to be primed first, simply because they do not conduct electricity. With nanotubes, they can be painted in a cheap and environmentally-friendly manner using electrostatic powder coating, together with metal parts based on the same technology. The application of nanotubes in composite materials used in aircraft building could solve the lightning protection problem in the near future.

Overall, the use of nanotubes in basic construction materials and at the level of mass technological processes may yield dozens, or even hundreds, of breakthroughs in the real economy.

I believe that we can reach the global level in this area, if not become world leaders.

the properties of rubber, paints, ceramics, and cement, as well as those of lithium ion batteries and composites. The latter is of fundamental importance for many sectors, including the automotive industry.

This knowledge has been accumulated over the last 20 years. Over 18,000 international patents have been registered that use nanotubes to improve various materials, but two fundamental problems have remained. The first problem is the lack of mass production technologies that can yield nanotubes with stable properties.

The second problem is injecting nanotubes into a specific material – if you add nanotubes to aluminum alloys, they simply pop up on the surface or dissolve. We have reason to believe that we have managed to solve the first problem once and for all – we developed a unique technology to produce single-wall carbon nanotubes, which will solve the problem of their mass production.

In terms of the price-to-quality ratio, it is the best in its class. And now we are getting closer to resolving the second problem with respect to a broad range of materials.

I am referring to OCSiAl, a company based in Novosibirsk and headed up by a savvy entrepreneur Yuri Koropachinskiy and a talented scientist Mikhail Predtechenskiy. They have a very strong team that is on the verge of another breakthrough.

Production is well under way at the Novosibirsk State Technical University and the development of new applications is in full swing. I think that Russia can claim global leadership in this area. It seems that our project team has reached a stage that nobody else has been able to achieve – putting this technology on an industrial scale. We expect to yield tangible results by next year.

What new discoveries are you looking forward to most? And which technologies are being tested right now that particularly interest you?

I find regenerative medicine interesting. The ability to grow human organs may bring about colossal breakthroughs – I think this will happen around 2020. I am interested in everything that is based on bioinformatics, which is when the knowledge of the human genome, for instance, makes it possible to come up with individualized pharmaceuticals that factor in specific characteristics of each patient’s body.

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Technology in 2020 Fulvia Montresor Every year, the World Economic Forum recognizes leading start-ups that are blazing new trails to change the world. In 2014, there were 24 of these ‘technology pioneers,’ and we sat down with a few of them to hear their predictions for the near future.

personalization. What we refer to as the ‘internet of things’ will be central. However, more than simply connecting humans with devices, the next stage in connectivity will include ‘humanized’ interfaces that constantly evolve to understand the user’s patterns and needs and, in a sense, self-

THE ‘HUMANIZED’ INTERNET

The evolution of modern connectivity is often summarized as: the internet, the world wide web, mobile devices, big data/the cloud, and the internet of things. Going forward, it seems inevitable that there will be even more 40

Technology in 2020

funding and only a basic education had a vision, and a will to invent. And in 1903, thanks to the determination of these two unsuspecting inventors, humans flew. The distance of the first human flight was 120 feet. Years later, one of these inventors would marvel if he saw the wingspan of modern airplanes, which are now longer than the entire distance his first plane flew. Technology’s potential is limited only by our imagination and our will. An abundance of water, food, clean air, and even peace – the end of scarcity in the supply of our basic needs is possible. Perhaps that won’t happen by 2020, but it starts with a dream, the determination to turn dreams into reality, and the understanding of a truth embodied in the invention and development of human flight: all things are possible.

Mark Herrema, CEO of Newlight Technologies

Fulvia Montresor is Director and Head of Technology Pioneers for the World Economic Forum.

optimize. This would include the functions and features on our devices, as well as the selection and curation of information we receive. It may not be the kind of artificial intelligence found in science fiction, but I expect this injection of personalization will bring monumental changes as our level of connectivity continues to grow.

Sirgoo Lee, Co-CEO of Kakao THE END OF THE 19TH-CENTURY GRID

One of the biggest changes we will see by 2020 (or at least have made substantial progress towards) is global electrification. In the US and Europe, most people take electricity for granted. But that is not the case in many parts of Latin America, Africa, and Asia. More than 1.3 billion people are still not connected to the grid. More than 1.5 billion people still lack regular access to electric light; they use oil lamps, which are a safety hazard. Even where the grid exists, it is fragile; power blackouts are a major problem in many megacities. Power theft also plagues Brazil, India, and South Africa. Safe, reliable power will have a transformative effect on these countries. Not only will there be near-term benefits such as greater productivity, but we will see long-term quantum leaps in educational achievement, healthcare, and quality of life. These communities do not have power now because our 19th-century grid is too expensive. The advent of new technologies is changing both the business models and use-case scenarios to make it possible. In a few years, the world will finally be truly wired.

Amit Narayan, CEO of AutoGrid

FEWER FANCY PHONES, MORE FULFILLMENT

The world we live in is changing at an exciting pace. Innovation is generating new gadgets, more convenient services, and greater opportunities.

But many of these changes target only a small percentage of the world’s population. In the villages I’ve worked in, nobody has seen an iPhone or can download an app. However, there is tremendous room for entrepreneurs to adapt innovations intended for the wealthy to serve the world’s poor. Solar panels and LED lights, designed for sale in rich nations, are stimulating growth in commercial off-grid electrification in India and Africa. Mobile telecommunication is being used to facilitate financial inclusion in developing countries across the world. Onceexpensive medical procedures can now be done amazingly cheaply. Even the financial sector is innovating in order to reach the world’s poor – investors are looking for opportunities that not only help them increase their net worth, but also improve the world. Better financing opportunities are opening up for social entrepreneurs who build businesses to serve the poor profitably. I see a slight but significant shift in innovation: instead of producing fancier phones, we will create more fulfilling lives for people who were previously ignored.

Nikhil Jaisinghani, Co-founder, Mera Gao Power

THE END OF SCARCITY

The world said humans were not meant to fly.

Hundreds of years of human invention were unable to achieve such a feat. But in a small bicyclerepair shop, two brothers with no government No.3(7), 2014

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CHEAPER, MORE WIDESPREAD SOLAR POWER

NEW CURES FROM BACTERIA THAT LIVE IN THE HUMAN BODY

By 2020, solar technologies could account for a significant portion of global power generation, helping economies and businesses guard against rising energy costs and the impact of climate change. However, finding opportunities to further reduce the cost of solar technologies will be crucial to unlocking this potential.

Because polysilicon, the primary raw material used by solar module manufacturers, is the single largest cost in the solar supply chain, it represents the most significant opportunity for cost reduction. Over the next several years, new lower-cost methods of polysilicon production will commercialize, providing the solar industry with a more affordable source of raw material. In turn, these cost improvements will trickle down the solar supply chain, accelerating the adoption of solar energy around the world and helping the industry realize its global potential.

Terry Jester, CEO of Silicor

In life sciences, we’ll soon have a greater understanding of how our microbiome – the tiny organisms, including bacteria, that live in the human body – influences various systems in our body, including our immune systems and metabolic processes. This will result in seminal discoveries related to a variety of conditions, including autoimmune diseases, pre-term birth, and how our metabolism is regulated.

Regenerative medicine approaches to creating new tissues and organs from progenitor cells will expand significantly. Finally, the long-awaited ability to employ precision medicine, providing specific treatments to specific patients, will become much more common.

Mark Fischer-Colbrie, CEO of Labcyte THE BEGINNING OF THE END FOR CANCER

By 2020, the emergence of real-time diagnostics for complex diseases will mark the beginning of the end of their debilitating reign. The ability to monitor cancer, the dynamic immune system, intestinal flora, and pre-diabetes in real-time will change the nature of medicine and usher in a new era of human health, where wellness is protected instead of illness treated. As a result, fundamental shifts in healthcare will occur, causing it to become largely preventative rather than about putting out fires. It’s far more productive and economical to stop a fire from happening in the first place than to rebuild something after the fire has taken its course.

Helmy Eltoukhy, CEO of Guardant Health

THE INTERNET OF THINGS NO LONGER ABOUT THINGS

Just about every business will become an ‘internet of things’ (IoT) business. The convergence of the digital and physical worlds makes this inevitable.

When the products that companies sell are connected 24/7/365, dynamic and ever-improving value can be delivered to customers throughout the product’s life cycle. This will become the norm. Therefore, launching a successful IoT business requires a fundamental shift, a transition from product-centric to service-centric business models. Companies looking to capitalize on IoT will become IoT service businesses. Operations dependent on one-time product sales will become obsolete as business value moves from products to the experiences they enable. This transformation will fundamentally change how businesses operate, interact with customers, and make money. Those who recognize that the internet of things isn’t about things but about service will be positioned to meet these new customer demands, unlock new sources of revenue, and thrive in this connected world.

Jahangir Mohammed, CEO of Jasper Technologies

DATA-DRIVEN HEALTHCARE

The amount of data available in the world is growing exponentially, and analyzing large data sets (so-called ‘big data’) is becoming key for market analysis and competition.

Analytics will shift away from reporting and towards predictive and prescriptive practices, dramatically improving the ability of healthcare providers to help the ill and injured. Even more importantly, it will create the possibility for truly personalized healthcare by allowing providers 42

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Water is one of our most precious resources, yet our infrastructure is failing. By 2020, I predict that a new class of distributed systems – powered by advances in our ability to use biotechnology to extract resources, such as energy from waste, and the dropping cost of industrial automation – will begin to change our approach to global water management. Rather than a liability, wastewater will be viewed as an environmental resource, providing energy and clean water to communities and industry, and ushering in a truly sustainable and economical approach to managing our water resources

to have an impact on the biggest determinants of health – including behaviors, genetics, and environmental factors.

John L. Haughom, MD, Senior Advisor, Health Catalyst

companies, resulting in the identification of safer and better drug candidates and fewer failures in clinical trials.

Keith Murphy, CEO of Organovo

PRINTABLE ORGANS

Today, we are already at a turning point in our ability to 3D ‘bioprint’ organ tissues, a process that involves depositing a ‘bio-ink’ made of cells in precise layers, resulting in a functional living human tissue for use in the lab. These tissues should be better predictors of drug function than animal models in many cases. In the longterm, this has the potential to pave the way to ‘printing’ human organs, such as kidneys, livers, and hearts. By 2020, our goal is to have the technology in broad use by pharmaceutical No.3(7), 2014

THE ‘INTERNET OF EVERYWHERE’

We are on the verge of the ‘internet of everywhere.’

It will be far more democratic – accessible to everyone, rich and poor. The excitement of the internet of things will be a small footnote in history as the internet of everywhere becomes 43

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LEARNING ON THE JOB WILL NEVER STOP

What we refer to as the ‘internet of things’ will be central. However, more than simply connecting humans with devices, the next stage in connectivity will include ‘humanized’ interfaces that constantly evolve to understand the user’s patterns and needs and, in a sense, self-optimize.

This would include the functions and features on our devices, as well as the selection and curation of information we receive. It may not be the kind of artificial intelligence found in science fiction, but I expect this injection of personalization will bring monumental changes as our level of connectivity continues to grow

The skills gap is actually an information gap. The problem is not that workers are unskilled; it’s that workers don’t know what skills employers need.

Technology is already disrupting existing jobs, and creating new jobs that never existed before. In fact, the top 10 in-demand jobs in 2010 did not even exist in 2004. Change is happening so rapidly that 65% of today’s grade school kids in the US will end up at jobs that haven’t even been invented yet.

How will our educational institutions keep up?

Today, there is a disconnect between education providers and employers.

In the future, however, technology will enable education and training to respond dynamically to real-time labor market changes. With widespread access to training and courses online and available on-demand, workers can be informed of skill updates while they work, and will regularly top up their education with the skills they need to remain relevant in the workforce.

Alexis Ringwald, Co-founder and CEO of LearnUp

our reality. Do you remember the old movie, Minority Report, with Tom Cruise? It predicted that ultra cheap, internet-enabled, solarpowered screens with HD resolution would be at bus stops, in shopping centers, at tables in restaurants – and all operating on a centralized advertising model. Gone are the days of the static acetate poster on the wall of a shopping mall.

And eventually, since these HD monitors have beacons, they will dynamically change content as your phone passes by, telling the monitor all your preferences.

Yobie Benjamin, COO of Avegant

WASTEWATER IS AN ASSET, NOT A LIABILITY

Water is one of our most precious resources, yet our infrastructure is failing. Driven by global population growth and rising water scarcity, the UN reports that 75% of the world’s available freshwater is already polluted. Underinvestment in water management is exacerbating the problem, causing serious impacts on human health and the environment. A key challenge is the high capital cost, and high energy requirements, of current wastewater treatment and management systems.

By 2020, I predict that a new class of distributed systems – powered by advances in our ability to use biotechnology to extract resources, such as energy from waste, and the dropping cost of industrial automation – will begin to change our approach to global water management. Rather than a liability, wastewater will be viewed as an environmental resource, providing energy and clean water to communities and industry, and ushering in a truly sustainable and economical approach to managing our water resources.

Matthew Silver, CEO of Cambrian Innovation

RENEWABLES WILL POWER MOBILE NETWORKS

We have become dependent on mobile communications in our daily lives, but the dirty secret is that mobile networks around the globe are notoriously energy inefficient. In fact, we are stuck with outdated mobile network technology that basically performs as poorly as incandescent light bulbs, resulting in 70% of the energy used being wasted as heat. By 2020, we predict that pioneering innovations in radio engineering will have a positive impact on the world’s economy, environment, and quality of life. We even foresee a time when advances will allow renewable energy to power the mobile industry, helping to bridge the digital divide and extend communications to the 1.7 billion people living off-grid.

Mattias Astrom, CEO of Eta Devices 44

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Creators of the Future Vladimir Korovkin Coming up with goods or services that nobody else on the market can offer is what makes a breakthrough technology and determines the future. But is this sort of future meant for the BRICS countries? Vladimir Korovkin, author of the BRICS Innovations Stars report, is confident that it does, and to prove his point, he cites examples of the most accomplished companies in the BRICS countries. They are all privately owned, successful on the global and domestic markets, and promote innovation.

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a corresponding influence on the issues of power and politics. Still, there is limited research and literature on this topic.

We set out to study BRICS innovations on two levels, macro and micro, and tried to paint a holistic picture of the trends we noted and also understand the driving force behind these innovations – the companies. For the macro view, we rely on meta-analysis of available research projects with a focus on corresponding authoritative indexes. For the micro level, we looked at the case studies of BRICS companies that have made innovations their lifeblood to achieve commercial success not only on the national level, but also in the global arena.

Through those case studies, we explored and discovered the underlying tools of innovative companies in emerging markets.

The outcome of both components of our research should inspire managers to develop their corporate expansion strategies, and also to help policymakers create institutions and environments that will boost the innovative capabilities of the BRICS countries (and others).

Vladimir Korovkin is Head of the Digital Technologies division at the SKOLKOVO Institute for Emerging Market Studies.

The idea of innovation is quite new. Even half a century ago, the majority of the world’s population – even in the so-called ‘developed countries’ – focused on perfecting existing methods and approaches, and placed little value on change. There was even an old Chinese curse that said, “May you live in changing times.” It would appear as though we are all thoroughly cursed – we now live in a time of turbulent changes. However, adapting to these changes is the key to success. This holds true on a personal level, in corporate development, and in national policy.

BRICS countries are responsible for a significant and growing portion of the world’s economic development. But until recently, most people associated these countries with supplying natural resources and cheap labor to the global market, and they supposedly lagged behind in the innovative sectors of the global economy.

There is growing recognition of the huge leap that BRICS companies have made in the last decade. Many of them have reached leading global positions for products and services traditionally dominated by ‘developed’ economies, such as computer equipment and software, high-precision industrial equipment, new material development, etc. This success is more and more often achieved through factors other than price competitiveness derived from a lower cost base.

BRICS innovations are likely to become a formative trend of the global economy in the 21st century. They have the potential to reestablish trade routes and re-define the notions of cultural similarities and differences with No.3(7), 2014

BRICS COUNTRIES: INNOVATIONS MEASURED AND COMPARED

The annual Global Innovation Index (which we will refer to hereafter as ‘GII’) was developed jointly by the Johnson Graduate School of Management at Cornell University, INSEAD, and WIPO (World Intellectual Property Organization), and is the key international source for comparing different countries’ innovation capabilities and results. The index combines over 80 metrics seeking to measure both ‘input,’ which describes a country’s potential, and ‘output,’ which is the end result Singapore, Hong Kong, and South Korea provide a more holistic picture of innovation metrics.

Each country has substantial strengths. Singapore is first in business sophistication, human capital, and infrastructure, and is fourth in market sophistication. Hong Kong leads the world in infrastructure and is third in market sophistication.

South Korea is third in human capital, fifth in infrastructure and sixth in knowledge and technology output 47

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The idea of innovation is quite new. Even half a century ago, the majority of the world’s population – even in the so-called ‘developed countries’ – focused on perfecting existing methods and approaches, and placed little value on change.

There was even an old Chinese curse that said, “May you live in changing times.” It would appear as though we are all thoroughly cursed – we now live in a time of turbulent changes. However, adapting to these changes is the key to success.

This holds true on a personal level, in corporate development, and in national policy

be the best operating mode within the complex set of relationships between state-level measures and actions, and between the initiatives of private companies and entrepreneurs.

The 2014 BRICS economies have a wide dispersion of ratings and do not cluster around one set of scores. While China is ranked 29th and Russia has entered the global top 50 for the first time (at 49), South Africa ranks 53rd, followed by Brazil in 61st and India in 76th place. Four of these countries have made considerable progress over the last year; in 2013 China was ranked 35th, South Africa was 58th, Russia was 62nd, and Brazil was 64th.

Regrettably, India fell 10 places, and is now in 66th place. The picture is somewhat different using the ‘efficiency’ measure. China was among the world’s top performers in 2014 in 2nd place (a leap from an already respectable 14th place in 2013), India was 31st (but with a sharp decline from 11th in 2013), Russia was 49th (another impressive leap, from 104th), Brazil was 71st (slipping a bit from 69th), and South Africa, while improving by six positions, was still in 93rd place. These statistics are directly related to policy issues. It would be quite understandable if BRICS countries were largely in the middle of world rankings due to innovation problems, institutes, and infrastructure, but it looks like with the exception of China they are not succeeding in getting enough output from the resources they have. This hypothesis requires

of that potential. Their relationship is the measure of a country’s innovation efficiency.

It is important to note that ratings like this – unlike credit ratings, which imply direct consequences – are constructed in an attempt to reflect reality. However, we believe that they are great tools for practical lessons when comparing the strengths and weaknesses of the BRICS economies as related to each other and the ‘outer world.’ This analysis can be instrumental in formulating approaches to solve the key issues of macro innovation management, which seems to

1 Chinese companies were analyzed, but we chose not to cite Chinese case studies because their global scale significantly surpasses that of the other BRICS countries. Factors that created large global players like Huawei or Lenovo in China were entirely different from their counterparts in Russia, India, Brazil, and South Africa. That is a separate subject, but one that should be studied in depth.

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Innovation Factors

METRIC

BRAZIL

RUSSIA

INDIA

CHINA

SOUTH AFRICA

2013

2014

2013

2014

2013

2014

2013

2014

2013

2014

Quality of Institutions

98

96

87

88

102

106

113

114

44

44

Human Capital and Research

75

62

33

30

105

96

36

32

102

70

Infrastructure

51

60

49

51

89

83

44

39

83

84

Market Sophistication

76

89

74

111

49

88

35

54

16

8

Business Sophistication

42

37

52

60

94

93

33

32

71

68

Knowledge and Technology Output

67

65

48

34

37

50

2

2

68

70

Creative Output

72

64

101

72

60

43

96

59

79

62

The global rankings of BRICS countries using the key metrics of the Global Innovation Index. Red: below 71st place (the bottom half of the 142-country sample), Green: above 36th place (top 25% of the sample)

more examination, but if proven true would require serious action.

Part of this lack of efficiency may come from a lack of overall balance in innovation development. A pattern emerges if we look at specific Index metrics. That is, every country has its strengths, and are even world leaders in certain regards. China ranks second in the world in ‘technology output’ and is a leader in ‘education,’ India is first in ‘communications, computer, and information exports’ (a sub-metric of ‘technology output’), South Africa leads the world in ease of obtaining credit (and is in the top 10 in overall ‘market sophistication’), Russia is traditionally strong in tertiary education (an important factor in ‘infrastructure’) and also in domestic patent and utility model applications (‘technology output’), and Brazil is strong in ‘knowledge absorption’ (‘business sophistication’) as measured by royalty and license fee payments, high-tech imports, or computer and information service imports.

Nevertheless, the BRICS countries fall below global averages in many other areas, making for an uneven overall picture. It is this imbalance that clearly distinguishes the current state of innovations in BRICS markets from the more innovative countries.

No.3(7), 2014

POSSIBLE ROLE MODELS

To set clear goals and develop roadmaps to reach them, it is useful to look beyond the BRICS countries for models of quick innovation (not discounting China’s progress as one of the global leaders in technological output). Three of the top 20 countries stand out in this respect: Singapore (7th), Hong Kong (10th), and South Korea (16th). Much has been written in business and academic literature about these countries’ path to innovation leadership, and there seems to be wide consensus by the BRICS countries that this success can be replicated more effectively than the paths of other top performers, such as the countries of Western Europe or the United States.

Singapore, Hong Kong, and South Korea provide a more holistic picture of innovation metrics. Each country has substantial strengths: • Singapore is first in business sophistication, human capital, and infrastructure, and is fourth in market sophistication.

• Hong Kong leads the world in infrastructure and is third in market sophistication.

• South Korea is third in human capital, fifth in infrastructure and sixth in knowledge and technology output.

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The Overall Direction and Strategies of BRICS Companies

High base RUSSIA BRAZIL

Development of human resources (education, marketable skills), scientific and technological capabilities, and the degree to which technology is used in manufacturing

CHINA

SOUTH AFRICA INDIA

State

Control of economic resources, opportunities, and decisions

Market

but has to overcome the ingrained patterns of a state-run economy to build business models that are internationally competitive.

China was starting from a relatively low technology base and lacked a skilled labor force, but it was this deficiency that allowed for rapid improvement. Chinese companies had room to learn and did not have to waste their energy overcoming existing systems – their imperfections and inadequacies were fully recognized on the state level.

India and Brazil shared a tradition of mixed economic environments. They both had a largely free market for small and medium businesses, and big corporations faced considerable intervention from the state, including protectionism on the domestic market. Of the two, Brazil tended to have a higher technology and human development base, and both countries thought it essential to bring more private initiative and competition into the corporate sector. Yet in human development, India had the advantage of a largely English-speaking population, which permitted the country to quickly integrate its vast labor force into the global market. The two countries also have large agricultural resources and rural populations in common, and both had some innovative strategies that capitalized on this.

South Africa came from a rather liberal market environment, but had a striking divide in human capital between its different social

More importantly, none of these countries have substantial weaknesses. They are in the top 25% of virtually all aspects of innovation. It would not be an overstatement to say that these possible role models have created fully balanced systems, resulting in synergy between all the institutions and actors involved. This widereaching approach is what the BRICS countries currently lack and what they should adapt to develop their innovativeness. СOUNTRY AND COMPANY STRATEGIES

If we jump back to the BRICS countries to further study their ‘innovation’ profiles, it would be impossible to ignore the differences in their economic and social history. These variances force companies to develop different approaches to market success, though the underlying pattern is the same: to find an area of relative strength in the country’s environment and to determine a way to make it productive domestically and globally. The differences in environments can be evaluated along two axes: ‘market control vs. state control’ and ‘high base vs. low base,’ using the time period of the 1990s (not taking into account complex cycles of economic development on the long historic horizon).

This map shows the overall direction and strategies of BRICS companies: Russia could take advantage of a relatively high technology and human development base, 50

Creators of the Future

groups (this problem is also relevant to India, where affirmative action on the constitutional level has been necessary to overcome the legacy of the caste system). Its overall technology and human development base was low, but there were groups with development levels that were high compared to the rest of the continent. As a result, the country enjoyed the position of being the undisputed leader of one of Sub-Saharan Africa’s large and resource-rich regions – albeit a turbulent one. Many of South Africa’s business strategies were successful because they were able to take advantage of this opportunity.

Case studies of BRICS companies confirm and build upon these findings. The Russian companies which achieved international prominence, or even dominance, through innovation share remarkably similar histories.

A typical Russian ‘high-tech star’ is not at all a product of the internet era – even companies like Yandex, ABBYY, or Kaspersky, which are globally recognized for their online services, actually date back to the early 1990s. Those were the formative years, when the scientific advances of Soviet schools met with the enthusiasm of the first Russian entrepreneurs. The high level of Soviet science and technology, combined with a strong educational infrastructure, was strong enough to overcome the deficiencies in the market and business institutes. This resulted in strong technological output, as demonstrated by the cases of Infowatch, Speech Pro, Diakont, and Skif-M. These companies all managed to obtain a significant export share of high-tech products in fields where the USSR was a global pioneer, such as laser systems, fiber optics, and cryotechnology, and also in the development of software that was booming in the early 1990s. The same concentration of innovative industrial efforts can also be observed among state-controlled actors (large corporations and research institutes) that were beyond the scope of our study. However, it is likely this focus that prevents the large state-run corporations – operating in natural resources like oil and gas, and essentially multi-national players – from becoming important global innovators.

Chinese companies initially had little more to rely on than the industriousness of their people.

In theory, they had every strategic opportunity No.3(7), 2014

The Russian innovation champions are about to celebrate their silver jubilee, or the 25th anniversary of their launch. They are privately owned and operated (though sometimes with institutional shareholding from specialized funds), have a host of international patents and awards, and boast sales ranging from $30 million to $300 million. There are a few exceptions to this rule – the public company IPG Photonics is now headquartered in the US and has sales over $700 million, and Yandex has sales topping $1.5 billion – but most of the companies that met our research criteria prosper as solid medium businesses

for industrial development. But to build up their industrial base they had to find the money to acquire the necessary modern technology.

However, they had the sheer size of the potential market on their side, even though the market had to be created out of tightly administrated distribution systems for that potential to be realized. This dilemma was solved with ‘technology in exchange for labor and market access’ deals. The bargain proved to be beneficial for Chinese companies; they gradually became tech-empowered suppliers to the domestic market, and eventually made many technical breakthroughs as well. Lenovo and Huawei are the most high-profile cases, and there are much more in different market segments. Nowadays, China is among the global leaders in R&D investment and patent applications, which is reflected in its ‘technology output’ standing.

Considerable challenges lies ahead, however.

Observers note that ‘creative output’ will not be that easy to crack; many cultural traditions serve as barriers against ‘disruption’ and ‘disregard for authority,’ which are often seen as the foundation of modern creativity.

India and Brazil managed to create a narrow but strong group of ‘national champions,’ who combine cost and innovation in their competitive propositions. This is not an easy feat, but the cases of companies like Wipro and Braskem show that both countries are prepared to meet the challenge. While the general level of human development in these countries is below the OECD level, they have managed to 51

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$1 billion sales range, but they are still quite far from that target. To make this leap, they need to simultaneously expand their breadth and depth by increasing their global market niches, expanding into related fields, and becoming fullservice suppliers. Both of these goals could be achieved through M&A in countries where there is enough ‘market sophistication,’ but Russia lacks non-organic growth opportunities. The 1990s and early 2000s were bad years to launch new companies in Russia (aside from those in e-commerce), so there is currently a vacuum of possible acquisition targets in the local market.

Screening for possible acquisition targets abroad requires a whole different set of management skills and a sufficiently higher level of financial capabilities. The cost of credit in Russia is also close to being prohibitive for financing bold deals, but without those deals a company is likely to meet a glass ceiling before it can grow into a big business. This is an important problem, which gets surprisingly little attention in the Russian business world. Still, the timeframe may be limited – in a decade or so, the founders of the ‘innovation champions’ may start to think about retirement, and then their companies are likely to go to the target side of the M&A market.

The key finding from our research is that Russia differs from the emerging markets in its innovation development trajectory, in that it has trouble bringing innovation down to relatively simple, yet mass produced, things. However, the recent success of local internet companies indicates that this barrier can be overcome. In the modern world, there is little difference between producing an effective digital user interface and an equally effective physical product. If Yandex can defend its domestic market from Google by creating a number of world-class products, there is no reason why a Russian car company could not do the same in its market.

It is crucial to get Russian innovators to think big and get out of the comfort zone of market niches. They may need some macro support and encouragement, but that will not completely eliminate market risks and challenges. It is through stubborn competition where it pays, not where it is easy, that innovative economies have been built. As for country-level policy

create and exploit ‘advanced megacities,’ like São Paulo or Mumbai, which have attracted some of the most innovative businesses in the world. As mentioned above, Indian companies were able to take advantage of the abundance of low-cost, middle-skilled English-speaking workforce to step up as providers of all types of outsourcing services. Brazil’s contribution to the world economy likely lies in innovative approaches to agriculture, reinforced by the recent global movement for ‘greener’ technologies.

South Africa was effective in capitalizing on its strong market environment to nurture the global e-commerce mega-player Naspers, now worth almost $50 billion, and in making investments all over the world, including substantial holdings in BRICS markets (like Russia’s Mail Group, Slando, and Avito). Strategies also arose from the country’s unique position in Africa. Dimension Data is but one example – it managed to position itself as a gateway between Sub-Saharan Africa and the modern IT world.

RUSSIAN INNOVATION CHAMPIONS

Let’s go back to the ‘collective biography’ of the Russian innovation champions, who are about to celebrate their silver jubilee, or the 25th anniversary of their launch. They are privately owned and operated (though sometimes with institutional shareholding from specialized funds), have a host of international patents and awards, and boast sales ranging from $30 million to $300 million. There are a few exceptions to this rule – the public company IPG Photonics is now headquartered in the US and has sales over $700 million, and Yandex has sales topping $1.5 billion – but most of the companies that met our research criteria (truly innovative, private, successful globally or dominant on the domestic market) prosper as solid medium businesses. Another remarkable quality is the narrow technological field where our champions are concentrated; they did not usually extend beyond the strongholds of Soviet science.

At the moment, it is important to learn how to increase private innovation in Russia and how to help existing mid-size innovators grow bigger. They would be privy to a whole host of new opportunities if they could leap into the 52

© RIA Novosti

Creators of the Future

China was starting from a relatively low technology base and lacked a skilled labor force, but it was this deficiency that allowed for rapid improvement. Chinese companies had room to learn and did not have to waste their energy overcoming existing systems – their imperfections and inadequacies were fully recognized on the state level.

The bargain proved to be beneficial for Chinese companies; they gradually became tech-empowered suppliers to the domestic market, and eventually made many technical breakthroughs as well

making, it has an important role in creating the institutions and infrastructures that are conducive to innovation and economic success.

BRICS: AN INNOVATIVE FUTURE

BRICS countries have made impressive progress in the world of innovation. There are many statistics that support this, but personal stories may better illustrate this point. Back in 2004, none of the BRICS countries were home to global innovators. But now we are no longer surprised to see companies from Brazil, China, Russia, India, or South Africa at the top of global ratings.

It is important to observe and analyze the challenges and shortcomings of innovative developments in the BRICS countries, both on the macro and micro level. Measures could be taken to maximize current input, and there is still more potential in expanding the innovation development base. Human development is No.3(7), 2014

the key issue – there needs to be a focus on increasing the general education level as well as improving technical and business creativity in the global arena. Here, the BRICS countries can strengthen their futures by joining together in economic and humanitarian cooperation and sharing their remarkable diversity of resources.

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TATA MOTORS INDIA

THE COMPANY Tata Motors Limited manufactures and sells commercial and passenger vehicles, primarily in India but increasingly around the world. After starting with mostly heavy commercial vehicles, the company’s product mix has evolved over the last 50 years to include utility vehicles and midsize, small, and compact passenger vehicles.

The company also makes and sells vans, trucks, buses, and all-terrain vehicles. More recently, the company has expanded its offering to luxury and sports cars and even defense vehicles. At the forefront of innovation, the company has been experimenting with electric and fuel cell vehicles. Upstream, the company has captured a growing market in vehicle components – providing engineering, design services, machine tools, and factory automation services to other auto companies. Downstream, the company has expanded its offerings through its own dealerships, sales and service forces, finance and spare parts branches, and affiliates in Southeast and South Asia, Africa, the Middle East, South America, the Former Soviet Union, and Europe.

The company is based in Mumbai (India) with production facilities in Lucknow, Dharwad, Jamshedpur, Pantnagar, Sanand, and Pune, as well as in Argentina, South Africa, Thailand, and the UK.

SECTOR: Auto REVENUES: $32 billion ASSETS: $28 billion EMPLOYEES: 66,000 TICKER: TTM (US)

THE INNOVATION(S) The Nano brings cars to the masses. The car’s retail price of $1,700 represents one of the lowest prices for a passenger vehicle anywhere.

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Creators of the Future

Its price comes in at slightly more than the annual salary of the average Indian – explaining average yearly sales of about 60,000 units since its introduction in 2009. The car benefits from new design and technology techniques (embodying over 30 design patents and almost 40 process and product patents).

Three things make the Nano – and Tata Motors by extension – radically innovative. First, the design reflects blank-slate re-engineering proposed by management gurus like MIT professor Michael Hammer. The car rethinks automotive design (from making the truck accessible only from the inside to three lug-nuts on the wheels rather than the traditional four).

The designers clearly accepted nothing from the usual design tenets with this car. Second, using what academics and management gurus call ‘modularized sourcing,’ the car represents the assembly of parts and modules made by others.

Suppliers from Bosch to ZF Friedrichshafen produce and supply almost everything the car uses. Third, and as a consequence of the first two points, the Nano’s price comes in at 5-10% of typical cars in the developed world. Such pricing threatens, and promises, to have the same effect on the motor industry that RyanAir had on the airline industry.

Methodology of the Case Studies GENERAL APPROACH • Approach structured on the ‘Oslo Manual’ by OECD • Focused on innovations in products and processes (production and delivery) RESEARCH SAMPLE • Privately or publicly (non-state) owned companies • Focused on innovations (no a priori industry filter) • Companies that achieved global market success through their focus on innovations DATA COLLECTION • Performed by an international team of researchers with significant contributions from Professor Bryane Michael (Hong Kong University), Alexey Andreev (Russian Foreign Trade Academy), and Alexander Svetlov (Dentsu-Smart, Advertising Agency) • Overall, over 1,200 companies were sampled and more than 40 were studied extensively

THE FUTURE Tata has plans to sell the Nano in markets like the US. If the Nano captures even 1% of the US automotive market in 2016, the company would sell 150,000 units. The US already represents India’s largest export market for cars – a trend the Nano would certainly accelerate (if it could).

Tata also has plans to make electric power train and fuel cell versions. The company’s dedication to innovation is beyond doubt – it uses its own ‘Innometer’ to measure innovative output aimed at achieving domestic and global sales and other benchmarks.

Yet Tata’s (and the Nano’s) success remains far from guaranteed. Suzuki’s (Maruti Suzuki in India) Maruti Alto 800 still represents one of India’s most popular cars – with sales far

No.3(7), 2014

ahead of the Nano despite its 50% higher price.

Moreover, the car deliberately seeks to go head-to-head with India’s booming, entrenched, and cheap two-wheel (scooter and motorcycle) industry. Both Bloomberg and Businessweek report that the Nano has “flopped” and “sputtered” respectively. Car fires and safety issues have also plagued the upstart car. Will management scholars look back and see the Tata as the next Ford or Toyota? A couple of year’s sales should tell…

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TECHNOLOGY

BRASKEM BRAZIL

THE COMPANY Braskem represents Latin America’s largest petrochemical maker, and a leading chemical maker worldwide. The company produces complicated-sounding things like ethylene, propylene, polyethylene, and so forth. At the risk of over-simplifying the company – it works in five major segments. Its basic petrochemicals segment deals in a range of fuels, it has a plastics segment, a vinyls segment, a chemical distribution segment which deals largely in solvents, and a general purpose chemicals segment, dealing with a range of specialty chemicals (like pharmaceuticals).

The company also trades in utilities like water and gas as well as provides industrial services.

Traditionally (until the last 10-20 years), Braskem has represented just another petrochemical maker.

Yet a range of innovations have separated this company from the petrochemical pack.

SECTOR: Petrochem REVENUES: $18 billion ASSETS: $20 billion EMPLOYEES: 8,000 TICKER: BAK (US)

THE INNOVATION(S) The plastics you see in the room around you come from barrels and barrels of crude oil. The plastic bits covering your computer, much of your chair’s body, and even structural components in the building you are sitting in come from ‘cracking’ oil. Breaking down oil into plastics results in atmospherepolluting carbon dioxide and usurps scarce oil supplies from other uses (like air and car travel).

What if we could make oil from plants instead of fossil fuels? Plants remove CO2 from the atmosphere and the products could be recycled as easily as

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Creators of the Future

Braskem’s Production of Plastic Alternatives Derived from Sugarcane

1

hectare земли of land

82.5

3

7,200

tons of sugarcane

tons of green ethylene

liters of ethanol

Braskem’s Green PE: 200 kton/year;

3

tons of green PE

Source: CNN

460,000,000 liters of ethanol = approx. 65,000 hectares =

=

~1.7% of Brazilian ethanol production

~0.02% of Brazilian arable land

uses. Imagine if sugarcane served our energy production, chemical production, and travel needs in the future. Robert Cantrell has argued that competition between companies in the future will consist of competition between patents. As Braskem jumps on an important new industry, its patents and un-patentable organizational skills will redefine at least one industry: plastics.

their petroleum-based counterparts. Braskem has invented such a process. As shown in the figure above, Braskem’s process uses sugarcane – rather than fossil fuels – as the input in the plastics-making process. The company produces about 0.25% of the world’s 80 million tons of plastics.

Braskem’s process represents a groundbreaking innovation for three reasons. First, the sugar-cane plastics industry represents the perfect example of Professor Anita McGahan’s ‘radical industry change.’ Braskem has found a new and better input into a $700 billion worldwide industry.

The processing machines used to turn ethanol into ethylene do not even need modification to handle sugar cane-sourced ethanol. Second, Braskem’s process represents social (as much as economic) entrepreneurship. Braskem capitalized on increasing environmental awareness to find an input that actually reduces greenhouse gases.

By tackling a social issue and an economic issue simultaneously, the company could likely ask for a price premium. Governments will like the lower negative externalities associated with a non-petrol plastics production process. Consumers will like the lower prices (oil is far more scarce in the long run than sugarcane). Third, if other parts of the oil refining and production industry open to radical innovation from using sugar cane, Braskem’s patents could find their way into a number of other

No.3(7), 2014

THE FUTURE If Braskem’s future looks like its past, it will likely be called Worldkem in the future. Acquisitions made around 2010 have already made Braskem a leading polypropylene producer in the US and given the company a presence in Europe (headquartered in Germany). The company’s acquisition of Quattor (Brazil’s second largest petrochemical company) has made the company the world’s eighth largest petrochemical company. But despite its important advances in sugarcane plastics, ethanol still represents only 5% of the company’s raw materials.

Braskem is still an oil company – and not even one of the world’s top 10 (yet!). Can Braskem stand toe-to-toe with giants like Germany’s BASF, the US’s Dow Chemical, China’s Sinopec, or the UK’s Ineos Group? These companies’ sales of almost $200 billion dwarf Braskem’s – as do their patent profiles. Will sugarcane help Braskem break into the global petrochem giants?

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THE COMPANY Wipro represents one of India’s best-known success stories. Based in Bangalore, the company weighs in as the world’s 7th largest information technology (IT) services firm.

The company operates two main segments – IT services and products. Its IT services segment offers a wide-range of business process outsourcing and other solutions.

Some of these include software application development and maintenance services, research and development services for hardware and software design, and business analytics and intelligence. The company’s consulting services include product engineering, enterprise-wide applications, and cloud services. Some of its clients come from financial services (including banking and insurance), healthcare, retail, industrial, energy, media and telecom, and the list goes on. The company sells its own branded desktop computers, servers, and notebooks.

The company has made a major push in recent years to become a green computer company – minimizing its environmental footprint.

WIPRO INDIA

SECTOR: IT REVENUES: $7 billion ASSETS: $8 billion EMPLOYEES: 146,000 TICKER: WIT (US)

THE INNOVATION(S) Each day, Wipro’s employees invent millions of solutions to companies’ IT challenges worldwide. They also perform other ‘back office’ operations, which solve problems for millions more customers. Collectively, these daily innovations add up to one of the most important innovations in international business in the late 20th century – business process outsourcing. British Airways, General Electric, and American Express represent only some of the better-known companies using Indiancentered business process outsourcing. The sector comprises roughly 1% of Indian GDP – and is a model many other emerging markets have longed to copy. Wipro started it all.

Wipro’s model represents a unique innovation for three reasons. First, Wipro represents the first major case of ‘flexible standardization.’

Many management gurus have written

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Creators of the Future

Wipro Share Price

14 Source: Yahoo Finance (2014)

12 10 8 6 4 2

2007

2008

2009

2010

2011

2012

2013

2014

engaging in business process outsourcing.

Wipro’s size stamps such a large footprint in Bangalore that the company has attracted talent and fostered the creation of a local cluster. The creation of Bangalore’s IT cluster in many ways owes its existence to Wipro.

And Wipro continues to benefit from the cluster it helped create. We’d say Wipro’s innovation consists of innovating innovation.

about Toyota’s ‘flexible specialization,’ the company’s ability to change its standardized assembly lines to fit custom orders. No one has written about Wipro’s converse business model – its ability to take highly specific tasks and standardize them thousands of miles from where the service is being delivered.

Second, Wipro flies in the face of almost 40 years of organizational theory. Management theorists like Chandler and Williamson told us that companies should develop specialized IT functions as they grow. Companies will find it cheaper and more reliable to make their software and run their own enterprise applications. Only a super-cost competitive service could disrupt the logic of corporate IT internalization. Wipro has seemed to defy the experts, providing prices that make IT outsourcing cheaper than doing it in-house.

Third, its multi-line focus (from computers to services) has created a business cluster in its Bangalore hometown. Wipro had helped create an innovation cluster long before management gurus like Porter and Florida started writing about Silicon Valley and its rivals. The company’s 146,000 strong staff does everything, from making computers to

No.3(7), 2014

THE FUTURE Wipro looks likely to tread water into the foreseeable future – existing in an industry where innovation has become banal. The company’s share price has just about doubled since 2005. Yet competitors like Infosys and their US rival Cognizant have made inroads into the industry Wipro helped create. Wipro’s recent spin-off of its noncore businesses make the company less diversified – and more focused. Wipro’s recent innovations have focused on getting companies ready for the Internet of Things and Everything Digital revolutions. If Wipro can capture global mindshare in these spaces as effectively as in outsourcing, the company could shine again.

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THE COMPANY Dimension Data represents one of South Africa’s IT success stories. Dimension Data focuses on its service offerings more than its products. Its revenue comes mainly from systems integration (77%), requiring an extensive understanding of the relationships between its users and its data. In theory, product revenue came in at 59% of the company’s 2012 revenue. However, such a ‘product’ consists of software and IT as a service-based solution. Managed services come to 28% of revenue and professional services are 13% of the firm’s revenue.

Relationships become particularly important in software as a service (SaaS) model. In such a scheme, the user only pays for services they use – encouraging the company to be as ‘sticky’ as possible.

Founded in 1983 as an information technology (IT) company, Dimension Data was listed on the Johannesburg Stock Exchange just four years later. In the early 1990s, the company became a Cisco Gold Partner – starting a relationship that endures to this day. The company also expanded into software and service-provision in Sub-Saharan Africa. The company’s 2000 listing on the London Stock Exchange echoed the push into the North American, European, and Asian markets. By launching its globally standardized managedservices offerings (its proprietary Global Services Operating Architecture) the company helped solidify its service orientation – by providing clients with 24/7 remote network monitoring and maintenance services.

Throughout the 2000s, the company grew quickly both organically and through acquisitions, in cloud computing in particular.

The company bought OpSource Inc. and BlueFire, rebranded them as Dimension Data companies and introduced its new Cloud Solutions Business Unit, and became one of the strongest global players in the segment. This was recognized by Gartner, which positioned the company in the ‘Leaders’ part of its Magic Quadrant for Cloud Infrastructure as a Service.

DIMENSION DATA SOUTH AFRICA

SECTOR: IT REVENUE: $6 billion ASSETS: N/A EMPLOYEES: 23,000 TICKER: NTT (parent since 2010)

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a ‘relationship surrogate’ – managing relationships with Microsoft and Cisco, by providing services and technical support for these global giants at the grass roots level. The company manages these relationships almost ‘by proxy.’ Second, Dimension Data partitions off specific relationships into subsidiaries – both by technology type and location. That means a Brazilian airline interested in talking to the company’s Brazilian cloud services person can make the right connection.

Such divisions keep the company from becoming a monolithic bureaucracy. Third, by focusing on relationships, the company can branch out into any area or industry it wants. From networking to mobile telephony, the company can provide advice on almost any subject. By having strong relationships, the company can capitalize on its ‘relationship capital’ to cross-sell its 11 ‘solutions,’ 5 ‘services,’ and 40 ‘technologies.’ Close relationships also help the company market its services – as it often knows its clients needs before they do.

It even became the target of a global major itself. Recognizing the depth of its relationships worldwide, Nippon Telegraph and Telephone bought Dimension Data in 2010.

THE INNOVATION(S) Dimension Data’s main innovation consists of Service as a Service. Yes, you read that correctly.

The company must figure out how to integrate network, voice and data communications, data centers, contact centers, security, and Microsoft software – along with cloud and internet – for each of its clients. Its reach into 114 countries requires forming ongoing relationships with literally millions of companies in these jurisdictions. Most businesses work on an armslength basis – the Coca-Cola Company can sell millions of cans of Coke without understanding each customer and Facebook can sell automated advertisements to millions of companies across borders because the company does not need to engage in a deep and serious long-term understanding of what the customer wants.

Dimension Data, on the other hand, must reach deep into each client’s business – understanding their goals and psyche in order to put them within digital’s reach. Who would think IT and computer ‘geeks’ could value people as much as hardware?

Service as a Service (namely focusing on building long-term relationships with customers to adapt to their IT needs) represents an innovation for three reasons. First, the company acts as

No.3(7), 2014

THE FUTURE The company sits in an uncomfortable position – providing both a weakness and an opportunity.

On the one hand, Dimension Data competes in the upper-income jurisdictions against cloud services providers like Amazon, Apple, IBM, Microsoft, and Google – just to name a few heavy-weights.

Millions of small and medium-sized companies vie to advise companies on network integration and remote computing in the developed world. On the other hand, Dimension’s inroads into Sub-Saharan Africa make this company a bridge between the North and South. Internet penetration rates on much of the continent still remain too low (less than 10% of the population) to make Dimension’s services extremely profitable. The prospect of infrastructure, business, and other development leading to an internet revolution in Africa appear exceedingly dim. If the company could present a compelling strategy for cornering networking and cloud computing markets in Nigeria, Kenya, Ghana, and Tanzania at their next Investors Day, that would attract some attention!

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R U SS IA’S M OST PROM I S I N G I N NOVATIVE COM PAN I E S programs. Those were protecting personal or corporate systems from external threats – infiltration, viral attacks, etc. – while DLP systems look at the corporate networks (the product does not make sense for an individual) to find illegal actions by authorized users.

The company’s flagship product is called Infowatch Traffic Monitor and it permits control over all types of user actions within the network, from e-mail and on-line forum usage to printing out and copying of documents to data storage devices. Since 2012, the product has been on the Gartner Magic Quadrant, meaning it is recognized as one of the 12 top global solutions in its field.

The company is dominant on the Russian market with 39% of market share. The market in itself is dynamic enough to provide for double-digit sales growth (36% in 2013), yet the company actively seeks out opportunities for international expansion. It sees its core markets to be Europe, the Middle East, and, of course, the ex-USSR countries. Unlike many other Russian innovators, the company does not rely solely on organic growth; it has a story of successful acquisitions, which led to the formation of a holding in 2011. Besides the ‘original’ InfoWatch Ltd., which focuses on the DLP software, the Infowatch group includes German EgoSecure GmbH (end-point security software) and Canadian Appercut (business application source code analysis).

The company also seeks to expand its markets down from the big enterprises (its client list includes Gazprom, Lukoil, Transneft, VympelCom, Sberbank, and Raiffeisen Bank, to name a few) to small and medium businesses.

Another prospective area of development is the mobile DLP – increasingly important as corporate users frequently employ personal mobile devices for business purposes. Thus, Gartner forecasts the global market of DLP

INFOWATCH

SECTOR: Software ESTABLISHED: 2003, as spin-off from original company established in 1997 ORIGIN: Moscow HEADQUARTERS: Moscow REVENUE: $15.5 million EMPLOYEES: 130 GLOBAL PRESENCE: main company in Russia, with additional companies in Canada and Germany

In 2003, Kaspersky Anti-Viral software was already a household brand in many markets beyond Russia (now it is used by over 300 million users around the world), when the company found itself in an unusual business circumstance. The founders and owners decided to divorce, and in this case the word was not a metaphor. Evgeny and Natalya Kaspersky, a husband and wife and also the top managers of Kaspersky Lab, had to find a way to split their estate.

Natalya (who is now among the most successful Russian businesswomen and was ranked fifth in Forbes’ Richest Russian Women in 2013) opted for the smaller part of the business that was targeting the corporate market with a solution for Data Leak/Loss Prevention (DLP). These systems are designed to detect potential data breaches or data ex-filtration transmissions and prevent them by monitoring, detecting, and blocking sensitive data. In a sense, this is the ‘reverse’ task of the one traditionally solved by information security 62

Creators of the Future

‘speech editor’ – a computer program which could process and analyze human speech.

Software like that can be easily downloaded from the internet now, but at that time, realtime speech analysis posed many research and programming challenges. The product, called SIS, proved successful and was effectively used as the ‘core’ for creating numerous applications.

At the end of the 1990s, the company started exporting its product, presenting SoundCleaner Solution in Western Europe and the United States. This program used sophisticated sound processing to distinguish a signal – usually the human voice – from many noises, making it possible to understand a message from one person speaking amidst a very loud background. The excellent technical quality, combined with an attractive price, conquered the market; in 2001, the Madrid police ordered the system to process emergency calls.

Among the landmark achievements of Speech Technology Center was deciphering the recordings made by the crew of the Kursk submarine, which sank in a tragic accident in 2002. The tape recording spent nearly a year at sea in 100 meters of water and was assumed to have been destroyed. In 2004, the Speech Technology Center provided some of the key evidence in the case of a serial killer in Belgium, which had been under investigation for eight years.

In 2003, the company managed to attract investment from the European Bank of Reconstruction and Development, which provided resources for further expansion in the international markets (the company now officially sells and supports its products in 75 countries). A key achievement was the development of a language-agnostic system of identification through voice, which is in the core of the VoiceNetID range of products. In 2008, the company’s noise cleaning technology was recognized as the best in the world at the Audio Engineering Society convention in Denver (USA). In 2010, STC’s Smart Logger II (a system that manages call recording and monitoring for small offices and distributed contact centers) was named Communications Solutions Product of the Year by Technology Marketing Corp.

Overall, the company is ranked second in the

solutions to grow by 25% in 2014 to $830 million. The Russian market demonstrates an even higher rate of growth, so the dominant position that Infowatch has already managed to secure makes the future of the company bright. In 2014, Infowatch was recognized as one of the 20 most promising enterprise security companies in the world by CIO Review magazine.

SPEECH TECHNOLOGY CENTER SPEECHPRO

SECTOR: ICT: audio forensics and voice biometrics ESTABLISHED: 1990 ORIGIN: St. Petersburg HEADQUARTERS: St. Petersburg REVENUE: $30 million EMPLOYEES: 350 GLOBAL PRESENCE: subsidiary office in the USA, partners in Belarus, Finland, and Germany.

Sales in 74 countries

The Speech Technology Center is number one in Russia and one of the key global players in the audio forensics and voice biometrics market, those products that allow people to be recognized by their speech in real time. The bulk of the applications lie in the sphere of security, including the post-9/11 national anti-terrorism systems.

The company was founded in 1990 in St. Petersburg by a group of young researchers from the applied acoustics department of a state-owned telecommunications equipment producer. Their first office was just a typical two-room apartment shared with a fellow group of young businessmen. They managed to get the police interested in the new technology, and in 1993 they got a contract from the Ministry of Internal Affairs for the development of the No.3(7), 2014

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Russia, but also in the US and other countries with developed nuclear energetics. General Electric, which is the largest American operator of nuclear power plants, buys up to half of its monitoring cameras from Diakont. The total number of installations in the US market is over 100 – an impressive figure in this very specialized field.

One of the founders of the company, Mikhail Fedoseevsky, acquired his advanced knowledge of the problems of electronic equipment radiation protection while working in a state military institution engaged in developing the Soviet response to Reagan’s Strategic Defense Initiative (aka ‘Star Wars’). During perestroika, he founded a company to design, manufacture, and market the radiation-resistant TV cameras. The first order came from the operator of the Soviet fleet of nuclear-powered Arctic icebreakers.

The system permitted visual monitoring of the reactor, which radically decreased the cost of maintenance and repairs. Later versions of this product permitted remote control of the camera through a special manipulator capable of moving it to any part of the reactor.

In 1997, the first export contract followed, with ABB TRC from Sweden. The hard currency flow finally turned the innovative company into a fully profitable venture – prior to this, the founders had to engage in trading in consumer goods in order to keep afloat. In 2001, the company started selling in France, and a year later, it ventured into the US, the biggest potential market for its equipment in the world.

There, Diakont managed to sell not only to GE, but also to its archrival Westinghouse, as well as to a subsidiary of French AREVA. Now, the company commands 60% of the US market for radiation-resistant cameras (and 90% of the Russian market).

Nevertheless, the company’s operations are limited by the narrowness of this niche market.

The company produces systems in a total global market that only consists of dozens of installations a year. Finding another market that utilizes the same set of competencies is not an easy task. The company is currently investing in the development of complex steering systems – consisting of precise mechanics, electronic meters and processors,

world for voice identification systems by the American SpeechTEK magazine.

Speech Pro USA, which operates in New York, is an established player on the American market. One of its most innovative – though very targeted – solutions is a miniature device which enables communication between NASCAR drivers and their coaches and teams.

It eliminates the roaring of the engines, saving precious seconds of time – and also saving lives.

The new technological developments permit the company to start to target the end-consumer market. They have introduced the VoicePin app for mobile phones, which prevents anyone else from using your device. Innovations like these permit the company to grow its sales by 20% a year, with a target of making two-fifths of its revenue from exports. The global voice recognition systems market is expected to more than double in the next two years to over $2.5 billion in 2016. To capture a share of this growth, CST has just released it new recognition and synthesis version in English, the most popular language in the international software world.

DIAKONT

SECTOR: Safety systems in the nuclear and gas industries ESTABLISHED: 1990 ORIGIN: St. Petersburg HEADQUARTERS: St. Petersburg REVENUE: N/A EMPLOYEES: 600 GLOBAL PRESENCE: subsidiary office in the US

Diakont specializes in television systems with a high resistance to radiation, creating products that are setting quality standards not only in 64

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The Russian companies which achieved international prominence, or even dominance, through innovation share remarkably similar histories. A typical Russian ‘high-tech star’ is not at all a product of the internet era – even companies like Yandex, ABBYY, or Kaspersky, which are globally recognized for their online services, actually date back to the early 1990s.

Those were the formative years, when the scientific advances of Soviet schools met with the enthusiasm of the first Russian entrepreneurs.

The high level of Soviet science and technology, combined with a strong educational infrastructure, was strong enough to overcome the deficiencies in the market and business institutes. This resulted in strong technological output, as demonstrated by the cases of Infowatch, Speech Pro, Diakont, and Skif-M

and analytical software – to replace the outdated hydraulic systems in cars, planes, and ships. The potential size of the new market is billions of dollars – and Diakont considers itself to be in the global top five for technology quality and market readiness. We will soon see if this estimate is correct.

SKIF-M

SECTOR: Machine building, instrument engineering,

to produce aerospace industry tools. The company’s engineers managed to produce some of the designs and technologies that were rejected by plant management, and found their own clients among the leading domestic aircraft manufacturers, like MiG, VSMPO-AVISMA (the world’s biggest titanium company), and the Boeing plant in Russia’s Urals.

Now over 30% of the company’s output is exported to industrially developed countries like Austria, Belgium, France, Germany, Italy, the US, and also to India’s expanding automotive makers.

Their competitive edge lies in high product customization – over 50% of the tools are made to customers’ unique specifications.

Skif-M tools are internationally recognized for their effectiveness in complex metal processing, which is based on two streams of research: the constantly improved geometry of their blades and successful experimentation with their coating, now employing nano-technological materials.

The company is not just involved in manufacturing. Much of the production is now performed by computer-controlled machines, which developed their own engineering center that is responsible for technological process designs and software development. Here lies the foundation for future strategic growth – building ‘turn-key’ solutions to the specifications of some of the world’s most demanding clients.

and electrical engineering ESTABLISHED: 1993 ORIGIN: Belgorod HEADQUARTERS: Belgorod REVENUE: N/A EMPLOYEES: N/A GLOBAL PRESENCE: exports to Austria, Belgium, France, Germany, India, Italy, and the US

While the majority of innovative Russian companies are concentrated in or around Moscow and St. Petersburg, there are some important cases that prove that both genuine private enterprise and technological skill are in no way limited to these two cities.

Skif-M comes from the midsize city of Belgorod (population: 350,000) in the south of European Russia, some 700 kilometers from Moscow. The company specializes in cutting tools for metal and wood processing, such as drills, saws and replaceable blades. The company’s specialty is tools for those materials that are notoriously difficult to cut like tough stainless steels, aluminum alloy, titanium, and nickel.

The company was founded in 1993 in the research laboratory and experimental manufacturing unit of the Belgorod Mechanical Plant, which was founded in the Soviet era No.3(7), 2014

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A Vital Step Structural problems and Western sanctions have put the Russian economy in a tough spot. Russia must continue integrating with the BRICS countries – particularly by creating a common financial system and a single currency – to avoid stagnation, guarantee access to critical technologies, and ultimately become one of the world’s technological powerhouses.

Oleg Sienko, Director General of UralVagonZavod Research and Production Corporation, discusses this topic in an interview with BRICS Business Magazine.

In late September, the World Bank published three medium-term scenarios for Russia’s economic development, the best of which predicts low GDP growth in coming years.

Among other things, the Bank’s experts point out that further economic growth acceleration will not be possible simply by maintaining the current fiscal stimulus policy. Do you agree with their findings? How would you assess the current situation in Russian economy?

It is far from simple. It is already obvious that the sanctions have caused serious problems. It is difficult to argue with the World Bank experts – there will be no major growth, especially in brick and mortar sectors of the economy.

However, it is equally obvious that the country will need to take steps to stimulate the economy today – regardless of budgetary limitations. Other countries have managed to find their way out of similar crises by injecting money into the economy.

In my opinion, there is another aspect that is important in this case. If we want to get out of the crisis quickly, the government must be much more proactive than they have been. Slow decisions mean that efforts to combat the crisis have to be doubled.

How is the government’s slowness manifested?

There are key economic sectors that need immediate support. We ourselves created some of these problems – we have been adopting laws left 66

A Vital Step

companies based in countries that have introduced sanctions against us cannot continue to work with us. But this presents a problem not just for us, in that we have to delay the release of new products, but also for those Western companies – they put a lot of effort into building the technologies required for these projects.

However, all of this pales in comparison to the potential damage the West could suffer if Russia decided to introduce real sanctions in response.

Given such an eventuality, Europe would feel the impact first. They would not be able to make up for the huge volumes of raw materials that they receive from Russia. Forests cannot be grown overnight. It is equally unlikely that oil or gas would begin to flow in abundance.

However, even if that does not come to pass, the qualitative changes in the relations between Russia and the West, and those between the so-called ‘developed’ and ‘developing countries’ have been a long time coming. It is particularly vital for the emerging markets to move away from dependence on the Western financial system and the dollar hegemony. Apart from resolving obvious security issues, this would enable our countries to tackle other development goals in a much more efficient manner.

and right, such as the government procurement act, and now we are valiantly trying to overcome them. For some reason, nobody seems to care about this kind of policy inconsistency, even though it is quite a critical point. But it does not stop there.

Government help should not be limited to simply injecting money into the economy; it should also focus on protecting and preserving the domestic market. So far, it has been just the opposite. When Russia joined the WTO, nearly everyone gained access to the Russian market.

Could you cite any specific examples?

Take the automotive industry. The 50% localization target, which is built into agreements with overseas automotive corporations and governs industrial assembly, is still as unattainable as ever. Russian metallurgical companies manufacture auto body sheets, but they are not used, or at least not to the extent that they could be. By not producing the parts domestically, we fail to stimulate other sectors of our economy, such as the mining industry, metallurgy, the construction sector, and the list continues down the chain. This should be given more thought.

Are you calling for restricting access to these markets?

Take India, for instance. This country has been a WTO member since 1995, but I dare you to try to import cotton products there. You will end up paying a customs duty of between 50% and 100%.

Try importing a car to Cyprus, an EU member country – you will have to pay a 100% duty. There are endless examples of this kind.

This does not even include the infamous antiRussian sanctions, which run contrary to all rules of global commerce, and our WTO membership has no influence on them. This just goes to show that these things were implemented with one goal in mind – to open up our markets.

Before the sanctions were introduced, UralVagonZavod was proactively involved in a number of joint projects with its Western partners. These included the development and manufacturing of new railway locomotives, together with US-based Caterpillar, and a joint project with Bombardier of Canada to build the rolling stock for metro trains. What is the current status of these projects?

Unfortunately, all of these projects have been put on hold for the time being. Obviously, No.3(7), 2014

UralVagonZavod is a leading Russian state-owned mechanical engineering and defense company, specializing in the development and manufacturing of military armored vehicles, road construction equipment, railway rolling stock, tractors, and drilling rigs.

2012 REVENUE

127,500,000,000

RUR

$3,200,000,000 PROFIT

7,000,000,000 $176,500,000

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the ‘progressive’ camp, which would include BRICS countries and the emerging markets aligned with them, and the ‘pessimists,’ which would include the United States, Europe, and the countries associated with them.

That is why creating our own currency is a vital step. The earlier it happens the greater the advances we will make in our economic development and the better our chances to build a powerful and independent alliance to counterbalance the United States.

AN ALTERNATIVE TO THE DOLLAR

You have championed a rapprochement between the BRICS countries, including the creation of a common currency. Why is it so important? And most importantly, how feasible is it?

It is entirely feasible. The BRICS countries account for one-half of the planet’s population, and have already made an important step toward creating an independent financial mechanism of their own. I am referring to the recent agreement to create a BRICS Development Bank and a currency pool to counterbalance such institutions as the IMF. The next logical step would be to create a common currency for the BRICS countries. In my opinion, such a step would enable us to move away from the dependency on Western financial centers and the US dollar as the main international transaction and reserve currency. This is the most realistic step, which could herald economic improvement in all the BRICS countries, Russia included.

In your opinion what mechanism would be required to create such a currency?

They would have to select a ‘BRICS currency’ for all transactions between the BRICS countries and peg it to the euro to make the conversion easier, then create monetary and transaction centers and their own payment system.

I am sure that many countries in Latin America, Southeast Asia, and Africa would subsequently transition to this currency as they are getting increasingly tired of the hegemony of the dollar and euro – the only two currencies in which things are bought and in which investments are made. Mind you, people are fully aware that these investments are the function of a printing press, and not a product of a real economy. If this happens in the next three years, this new global payment system would include at least 70% of all countries, in terms of global population, which would get us off the US dollar once and for all.

How would a common BRICS currency be different from the dollar or the euro?

The difference would be that the BRICS currency would be backed by real assets and resources – including human, natural resources, and raw materials – which our countries are rich in. In all likelihood, once these measures are introduced the world will be split into two camps:

CRISIS AS AN OPPORTUNITY

In this regard, what do you think about Russia’s recent pivot to the East, a step largely spurred on by the sanctions? Specifically toward China, whose meteoric rise presents a cause for concern for some of Russia’s elite.

I think it is a very positive move. We have always maintained friendly relations with China. Even though we have faced political problems at certain points in our history, we have always managed to overcome them. What is important is that China is a huge market with a colossal demand for resources. If the wealth of the average Chinese citizen increased by as little as $10, it would result in an explosive growth of demand for everything from consumer goods to construction materials, and ultimately raw materials. Meanwhile, wages continue to grow in China, so the fact that Russia’s political and economic vectors are turning eastward is a step in the right direction. China signifies great opportunities for us.

Would Russia’s role in this alliance be reduced to shipments of raw materials?

Of course not. We have a number of areas of common interest such as space exploration and military and technological cooperation. We have technologies that are sought after in China, and they will continue to be sought after in the future.

When it comes to nuclear power, space exploration, mechanical engineering, and especially our military and technical abilities, we give more than we receive from China. We have common projects building equipment that could be sold not just in our markets, but in developing countries as well.

Because there are certain areas where the Chinese are stronger and there are other areas where we are stronger, the marriage of our respective technical abilities will enable us to advance further.

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countries in the West that have adopted a more sober outlook; they have the technologies we need, but they do not possess raw materials of their own.

We need to negotiate and find ways to reach out and explore opportunities for mutually beneficial exchange.

Obviously, we need to build technologies ourselves. Russia boasts a great tradition in this area and is already well underway to create new ones. For instance, we are the leading producer of nuclear-powered icebreakers and arctic oil platforms. We are also engaged in shelf development in the Arctic. We need to activate our brains.

Finally, the third step deals with infrastructure, and perhaps this is the most important area.

Infrastructure would spur other industries into action because it is the foundation on which everything is built – from a nail to the most complex piece of equipment. To make this happen, we need to adopt a new way of thinking and start tackling these issues. We need to do it right away, and not procrastinate as old habits dictate.

Finally, I want to stress once again that a rapprochement with China is a step toward creating a single economic and financial space for the BRICS countries, which will become a powerful incentive in fostering our development.

The current crisis may, and should, provide an impetus for Russia to transform itself. The Chinese word for crisis is composed of two characters – ‘danger’ and ‘opportunity.’ We should not be fearful of the current situation; instead, we should seek new opportunities to accelerate development.

And these opportunities do exist.

So could you summarize the key steps that Russia and the BRICS countries should take to offset the consequences of the sanctions and, more importantly, to bring their economies to a new technological level?

As I said before, the first move would be to create a common currency. The second would be refitting our technological base in combination with our partners. Not all critical technologies are available from the nations that introduced sanctions against us. Furthermore, there are No.3(7), 2014

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The Invisible Force Vitaly Fridlyand We live in the age of an IT revolution. Information technology has become ubiquitous and human-centric, offering much sought-after services that are safe, analytical, and invisible.

analysis leads to value-added innovations based on scientific methods.

The second trend revolves around safety and security. Information is a currency of sorts, that may be accessed by unauthorized users. If access to personal data is money-driven, what sort of protection needs to be deployed to realistically make such information safe? In today’s world, one does not need to have nuclear weapons to paralyze a country’s infrastructure – all it takes is a couple of serious cyber attacks.

The third pillar of today’s information society is mobility. This phenomenon pervades every aspect of our business and daily life. We have a situation where every manager, businessman, and user has access to every part of the globe.

Back in 2006, I could hardly imagine not coming in to work every day. Today, it no longer matters where people are located, and the notion of vacation has become very relative. Mobility gives rise to a new quality of management.

The fourth trend is literally hidden behind the first three – information technology is becoming invisible, as ordinary as a TV or refrigerator in our home. The vast majority of people would not be able to explain how these things work, but what would happen if we were to disable IT? For instance, what if Wi-Fi were to disappear?

How do we feel if we call someone and they don’t respond in a matter of hours even though we know they should be available? Panic sets in.

IT CHALLENGES

Four core trends dominate today’s information technology domain. The first trend relates to the analysis and use of unstructured data that cannot be described using one specific algorithm. The world is overflowing with data like that, which is often referred to as ‘big data.’

Let’s use pictures as an example since everyone loves taking them. It would be virtually impossible to find a specific photo in your archive, even if your wife used a description like, “We were on vacation in Thailand or the Philippines – I guess it was back in 2006 – and I was wearing my red blouse and standing next to a big rock.” And could you tell Baroque and Rococo architecture apart just by taking a picture of a building?

Today, there are new ways to find, analyze, save, and safely transfer data. This information may help you manage your work and household, and organize your daily life. You can use this information to analyze everything from traffic to cyclones and make decisions accordingly. For instance, public transport and taxis in Tokyo use specific tracking devices to collect terabytes of road traffic data. The system automatically manages traffic light response and timing to optimize traffic flow. In other words, big data

Vitaly Fridlyand is Director General

VULNERABILITIES

of Fujitsu Russia and CIS and Vice

The IT world is not without its problems, chief of which is the lack of qualified specialists with the proper education, knowledge, and skills. No

President of Fujitsu.

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Russia’s economy has its own unique characteristics; it finds itself in a world on the other side of the looking glass. I can’t think of a single sector of the economy that is not plagued by corruption. For a customer in this country, information technology is an economic hurdle.

Imagine if information technology became truly ubiquitous – financial transactions would be fully transparent and low tax jurisdictions would become obsolete. Who would stand to benefit from that? To an extent, this problem also exists in the other BRICS countries.

India and China are a separate chapter. If the middle class in these countries, estimated at 200 to 300 million people, produced at least one million innovators, it would result in a technological explosion. These countries are capable of shedding their dependence on Western technologies; it is dangerous that we are all ‘addicted’ to Windows and Linux, sitting and waiting for new chips to be produced in Thailand, Taiwan, or the Philippines.

matter what we teach students today, five years from now technologies will be far more advanced.

But while in the past solid IT specialists were few and far between, today universities offering IT degrees are experiencing unprecedented demand, and many experts have even been trained abroad.

Furthermore, IT capitalizes on human potential regardless of experience. I know around 80 specialists, aged 15 to 17, who have become successful in the IT sector and now overseas companies are fighting to snatch them up.

The second difficulty is that this area remains largely unexplored. We are learning just as technology continues to develop and new challenges emerge. Information technology is a fickle friend – it is impossible to predict what will be needed tomorrow. That is why, often times, there is no return on the investments we make.

Companies invest millions, confident that they are building a cutting-edge information system, when all of a sudden someone comes up with a different solution. In the end, it turns out that there was no need to build your own data center, but instead should have set up an application that enabled you to use the data center as a service.

I am convinced that two to three years from now, social networks as we know them today will become defunct. They will change and evolve, and will most likely be re-organized into specific communities. It will become easier for me to send a message to a specific group of people.

Another challenge relates to innovation.

If innovation does not yield profits, it is not innovation, but a waste of money. In this sense, information technology is a tool that needs to be used. Gone are the days when new discoveries were made in a lab. Today’s geneticists and pharmacologists make breakthroughs through simulations using molecular genetics databases and deciphering genome sequences. This is the only way to find a cure for modern diseases, and soon enough they will probably find the cure for AIDS or cancer this way.

The BRICS countries also have their fair share of IT problems. Brazil and Russia are suffering from the resource curse – both countries have huge potential but limited populations. On the one hand, there are people to divert skills toward, but on the other, there are many education challenges.

No.3(7), 2014

A WORLD WITHOUT COUNTRIES

Still, I remain convinced that there are no developed or developing countries. In today’s world, where borders are becoming ever fuzzier and communications continue to evolve, we need to build our discourse around a global community. When it comes to the standard of living and levels of consumption, the developing countries are certainly different from the developed world. However, when it comes to the IT sector, the function of consumption remains the same: everyone needs a computer, communication, and access to specific resources.

Information technology is an invisible tool and a brick in the foundation of a new reality.

I am confident that everything moves in a spiral – both the sanctions and difficult times will pass. However, the world will no longer be ruled by countries, parties, classes, or interests – it will be ruled by science, innovation, and new technology. This will be a human-centric society in which the identity of each member will exist in harmony, and not in conflict with the rest of humanity. This will be a world characterized by a multitude of analytical models created by a supercomputer. This is what the 21st century is going to be all about.

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Ideas for Export Gleb Davidyuk It is difficult to predict what will happen in the world in the next year and a half and how the geopolitical balance of power could change. The one thing we know for certain is that the digital economy will continue to grow. After all, it knows no political or geographic barriers, or so believe Russian investors.

Russian assets tomorrow. More likely than not, the allocation of institutional capital will change inside the emerging markets – more money will flow into India and Brazil and less will flow into Russia. For a professional Russian investor, it will be better to have money in Russia than in Brazil – projects will be competing for money in Russia, whereas money will be competing for projects in Brazil.

In the next five to ten years, the digital economy will remain one of the few growth drivers. The online economy offers more mobility and dynamism than the offline economy, and is more adaptable to change as it is less affected by politics.

Internet traffic in the emerging economies will inevitably grow, and it will be easier for ready-made products to gain access to these markets rather than to developed economies. However, there is a risk that certain products could be too complex for these markets, and would not be successful until the target demographic learned how to use them. Either way, a large group of eager new users will demand a growing number of services. But the key question is: will it be possible to ‘extract’ money from the Latin Americans, Asians, or Africans by offering them something new?

When investing in a product, one needs to understand who will need it in two to three years and at what price. Unfortunately, given the current economic environment, nobody knows for certain whether anybody will be interested in

AN OUTSIDER’S PERSPECTIVE

Two to three years ago, Russia was overcome with a copy-paste wave much like the rest of the world – every entrepreneur wanted to clone successful global projects on the local market. Today, one can say with certainty that this approach does not always work in the emerging economies. The number of ‘dead’ models is too great and those that managed to ‘survive’ have been adapted significantly to specific local requirements.

For example, we made plenty of mistakes with one of the companies in our portfolio in Thailand.

We underestimated certain local market traits and were too reliant on the copy-paste approach.

The Thai market has an extensive capacity, but has not yet adopted the same view of the Internet as the Russian business community. For them, the Internet is more of a toy than moneymaker.

For our fellow countrymen, the Internet is a minimum requirement in the business process.

But in Thailand, people still do not see the point

Gleb Davidyuk is Managing Partner, PhD, iTechCapital Venture Fund.

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with Internet speed, cloud technologies become easier to understand for average users. We have started consuming so much information that our mobile devices are no longer capable of processing and storing that information, and the volume continues to grow while the devices we use shrink. In this equation, the money variable will inevitably gravitate toward external servers or databases where such data could be stored. That is why we see the development of various data protection, encryption, storage, compression, data transfer, and logistics technologies – they will be much sought after in the user community.

The Internet of things is also gaining traction.

While yesterday the Internet was exclusively a social network, today and tomorrow it will be the required minimum application for any offline product – be it an automobile, a watch, or anything else. Soon, the Internet will become a part of our household – your fridge will start giving you useful tips and ‘smart’ devices will become increasingly widespread.

This development will affect the healthcare, education, and automotive industries, and all other domains where analytical data and information sharing are required. The range of investment opportunities will be measured by the limits of people’s imagination.

The Internet of things is still in its infancy and it is too early to talk about specific projects.

Everyone wants to be the new Google Glass or Oculus Rift, and the industry will continue to evolve. That is why we have to keep an eye on what is already going on today and know who is doing what in order to find the right investment opportunity in a timely fashion.

Unfortunately, the probability of project failure remains high in emerging economies.

Implementation complexities and risks are moving to the offline domain. You can create innovative technologies, develop applications, or write advanced source code, but it still requires the ability to manufacture products and integrate them into a technological production value chain.

In this respect, the offline world should catch up with the online domain in terms of flexibility and decision-making speed. This sort of integration will be of greatest interest to those who want to be more agile than the rest.

in having a website when you can just have a page on Facebook instead.

The Internet market in Russia is well developed.

In many ways, the Russian Federation is a trendsetter when it comes to technologies, tools, analytical data, and means of making money, to give just a few examples. That is why the country may prove interesting as an exporter of its own digital experience to less developed markets. By the same token, the ‘Ru-Net’ (or the Russian Internet segment) is five years ahead of the Thai-Net, which means that if we transfer all of Russia’s expertise to the Thai market, we can potentially profit on arbitrage since we are familiar with the prevailing trends, which are still largely unfamiliar to local Thai players.

Investors are without a doubt interested in Asia. On the one hand, we understand what we can export to this region. On the other hand, this market has a tremendous capacity and is very intensive. Our point of entry could be Malaysia, Thailand, Vietnam, or Indonesia. Our next objective would be to take a closer look at China as a stand-alone community with its own rules of the game, its own market, and its own demand.

However, there is one problem: the mentality of Asian buyers is still difficult for a Russian to grasp and the Eastern approach to decision-making is not as familiar to us as the American or European approach. By the same token, we are far removed from Africa, which is also developing at its own modest pace.

Local markets offer broad opportunities to investors. If you are ready to offer something unique and locally relevant, your chances of survival increase exponentially. It is difficult to compete with Google – there is little incentive to use a local service when there is a more interesting global one. Before getting mixed up in this fight, the small foot soldier should consider the size of his wallet. Breakthrough ideas have long become a thing of the past – the era of technology, operational results, and good performance indicators is upon us.

WHERE SHOULD WE EXPECT A BREAKTHROUGH?

In the future, everything that has anything to do with cloud technologies will be of interest.

As Internet access continues to evolve along No.3(7), 2014

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Close Ties

ST. PETERSBURG MOSCOW

Air travel between the BRICS countries or destinations with non-stop flights

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YAKUTSK

NOVOSIBIRSK

IRKUTSK

KHABAROVSK VLADIVOSTOK HARBIN

CHENGDU

BEIJING SHANGHAI KUNMING

DELHI

GUANGZHOU

MUMBAI

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HONG KONG

AIR TR AVEL BET WEEN CAPITAL S WITH L AYOVERS

HYDERABAD BANGALORE CHENNAI ROUTES MOSCOW MOSCOW MOSCOW MOSCOW MOSCOW ST. PETE RSB U RG ST. PETE RSB U RG ST. PETERSBURG ST. PETE RSB U RG ST. PETE RSB U RG ST. PETE RSB U RG ST. PETE RSB U RG ST. PETE RSB U RG SHANG HAI SHANG HAI SHANG HAI SHANG HAI B E IJ ING B E IJ ING B E IJ ING HONG KONG HONG KONG HONG KONG SÃO PAU LO SÃO PAU LO SÃO PAU LO B R ASILIA B R ASILIA B R ASILIA CAPE TOWN M U M BAI DE LHI DE LHI

No.3(7), 2014

J OHAN N E S B U RG CAPE TOWN B R ASILIA SÃO PAU LO M U M BAI J OHAN N E S B U RG CAPE TOWN BRASILIA SÃO PAU LO S HANG HAI HONG KONG M U M BAI DE LHI B R ASILIA SÃO PAU LO J OHAN N E S B U RG CAPE TOWN B R ASILIA CAPE TOWN M U M BAI SÃO PAU LO B R ASILIA CAPE TOWN M U M BAI DE LHI CAPE TOWN CAPE TOWN M U M BAI J OHAN N E S B U RG DE LH I CAPE TOWN J OHAN N E S B U RG B R ASILIA

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ACES HIGH! WH O IS RU LIN G TH E AIRLIN E IN DUSTRY?

Many emerging markets are betting heavily on advancing their aircraft-building and airline industries in an attempt to diversify their economies. The countries that have been successful are becoming powerful players in a domain that has traditionally been dominated by the West. BRICS Business Magazine presents 15Â airline industry heroes from the developing world that will determine whether these gambles ultimately pay off.

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Aces High!

Rohit Nandan

Chairman of the Board of Directors, Air India India

My first priority will be to work on Air India’s turnaround and cut financial losses. Second will be to raise employee morale at all levels, and third to upgrade service quality to match the expectations of the traveling public

No.3(7), 2014

Three years ago, when Secretary of the Civil Aviation Ministry Rohit Nandan took over as CEO of Air India, the only stakeholder in the nation’s flagship carrier who could still project optimism was Maharaja, the company’s ever-upbeat mascot. The economic recession, growing competition, business miscalculations, the devaluation of the rupee, and inefficient destination network management had put India’s national carrier in a very awkward financial position.

“My first priority will be to work on Air India’s turnaround and cut financial losses. Second will be to raise employee morale at all levels, and third to upgrade service quality to match the expectations of the traveling public,” the newly appointed CEO was quoted as saying.

Now it appears as though this approach has paid off, as has the company’s choice of Nandan, a trained historian with an MBA from Britain’s University of Hull who previously managed Air India’s low-budget subsidiary, Air India Express, and Air Mauritius. By the end of the 2013-2014 fiscal year, Air India showed operating profit for the first time in six years and its EBITDA went up nearly 20% to reach INR 192 billion ($2.4 billion).

According to Nandan, the company will continue to work on reducing costs and pursue an aggressive expansion policy while proactively developing its lowbudget airline segment (to keep up with the demand of the rapidly growing Indian middle class), open new destinations, and upgrade and expand its fleet. Currently, Air India operates 99 aircraft, including state-of-the-art models, such as the Boeing 787 Dreamliner. Going by the number of orders placed by the company, it will soon acquire 33 additional jetliners. In the foreseeable future, Air India plans to complete negotiations to join the Star Alliance. Nandan will probably have time to get traction in this area; in August the country’s government, which holds a controlling stake in Air India, extended his tenure for extra three months.

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R. K. Tyagi Chairman of the Board of Directors, Hindustan Aeronautics Limited (HAL) India

R. K. Tyagi represents what is indisputably India’s most refined industrial and economic elite. He graduated from the prestigious Indian Institute of Technology Roorkee, the country’s oldest university in its field, majoring in electrical engineering and telecommunications, and then struck out on a career trajectory that led him to the very top.

In the spring of 2012, after he took charge as Chairman of Hindustan Aeronautics Limited (HAL), Tyagi became one of a select few ‘outsiders’ chosen to head up the largest Indian defense and aircraft-building company. In this light, it hardly comes as a surprise that Tyagi is pushing so hard to make his company a member of the global corporate elite. “I want HAL to be among the top 20 global aerospace and aviation industries in the world in five years. I want it to be in the league of Maharatna companies [a privileged status within public sector units] in India,” he was quoted as saying in an interview published last year by Biz@INDIA Magazine.

In order to achieve this objective, Tyagi’s organization aims to capitalize on its advantages as a technological company; nearly 12% of its $2 billion turnover goes to R&D, so it will promote innovative projects and new equipment design. This will require that HAL move up to an entirely new qualitative level. Having passed through the licensed manufacturing stage, it will now have to become a fullyfledged independent developer and manufacturer of state-ofthe art equipment.

The company’s progress with this objective is already evident. HAL’s successful completion of a contract to build 222 Russian Sukhoi Su30MKI jet fighters in India paved the way for developing cutting-edge products in-house, including a multi-purpose transport aircraft and an advanced fifth generation fighter jet. In developing these products, Tyagi’s corporation maintains close cooperation with Russia’s United Aircraft Corporation (UAC). It may well happen that cooperation with the UAC will enable Tyagi’s company to gain access to yet another elite club, this one made up of countries capable of building modern civil aircraft. Last July, the company began developing India’s first regional jetliner with 70 to 100 seats. Tyagi promises that his company will be able to rise to these new challenges.

I want HAL to be among the top 20 global aerospace and aviation industries in the world in five years. I want it to be in the league of Maharatna companies in India

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LOW

He Dongfeng President, Commercial Aircraft Corporation of China (COMAC) China

We will strengthen the co-operation with Airbus in areas like global interoperability, sustainability, and aircraft safety, and deepen the understanding of the world’s latest concepts and operations, best practices, and methodologies

No.3(7), 2014

China has the chance to join the premiere global aircraft-building league and tap into a market measured in billions of dollars. According to early estimates, Chinese companies alone are likely to show demand for 5,300 new civil aircraft in the next 20 years, and Beijing is certainly not prepared to cede such an opportunity to overseas competitors. The Commercial Aircraft Corporation of China (COMAC), which was founded in 2008 and is helmed by 48-year-old He Dongfeng, is precisely the powerhouse that is needed to drive China forward in this industry.

The Communist party chose Dongfeng for this responsibility, but he may discover that it is more difficult than initially envisaged. The lack of expertise and the technical complexities of marketing in-house designs have caused delays. Thus, the first flight of the regional ARJ21 jetliner – a debut product presented by the corporation – did not take place until 2008, three years behind the original schedule, and its certification has still not been completed. The same factors may delay the release of COMAC’s second model, the C919 medium-range jet, which was scheduled to be commissioned for commercial operation by 2016.

COMAC counts on the assistance of its overseas partners to overcome its numerous difficulties and acquire the needed technical competencies. Alliances with global industry leaders are an important part of Dongfeng’s strategy. Relevant agreements were recently signed with the largest Western companies, including France’s Safran Labinal, Canada’s Bombardier, Boeing, and Airbus, though a Memorandum of Understanding with the latter was only signed this February. “We will strengthen the co-operation with Airbus in areas like global interoperability, sustainability, and aircraft safety, and deepen the understanding of the world’s latest concepts and operations, best practices, and methodologies,” said COMAC’s president commenting on the Memorandum.

Shortly thereafter, in May, COMAC and UAC signed their own memorandum, opening the door to cooperation on the joint design and development of an advanced, wide body, long-range passenger jet.

If Dongfeng’s strategy yields the desired results, COMAC may challenge the Airbus and Boeing duopoly in a not-so-distant future – not just in China, but on the global market – and the name of its president may find its rightful place in the Pantheon of modern day Chinese heroes.

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Peng Zhao ARJ21 Chief Test Pilot China

A well-developed civil aviation industry is an elite status that only a few nations could boast – until recently. Their ranks started swelling in 2008 with the debut flight of the regional ARJ21 aircraft, the first civil jet developed and built in China. In line with the momentous occasion, the project’s chief test pilot, Peng Zhao, was behind the wheel. “When I was about to land, my co-pilot suddenly slapped my hand on the control stick and said, ‘We succeeded!’ with tears of joy on his face,” was Zhao’s recollection of this one-hour flight.

It is difficult to accuse him of being too emotional – the ARJ21 had a long and difficult path to completion. Work on the jetliner, which COMAC hopes will command 60% of the rapidly growing Chinese market for medium-size regional jets, began back in 2002. By 2007, the ARJ21 was supposed to commence regular flights. However, due to technical difficulties and problems with manufacturing and certification, the ARJ21 release date was postponed many times.

Certification tests are still underway and should be completed by the end of this year; in the meantime, there are already 252 orders for the ARJ21. According to the plan, the first two jets, built in December 2013 for Chengdu Airlines, will be shipped out no later than the spring of 2015.

Whether this ambitious goal will be realized is something that depends on Peng Zhao. The project’s chief test pilot is to play a key role in fine-tuning and certifying the jet. Meanwhile, COMAC hopes to use this experience to perfect a new family of regional jetliners. Time is of the essence as there are many competitors from Russia, Brazil, Canada, Japan, and India vying for the same niche market as the ARJ21.

When I was about to land, my co-pilot suddenly slapped my hand on the control stick and said, ‘We succeeded!’ with tears of joy on his face

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Aces High!

Kevin Parker Assistant Chief Designer, Chief Pilot at the Commercial Aircraft Corporation of China (COMAC) China

This is China’s third attempt at expanding their aviation industry.

The Chinese excel at learning from the past and everyone here feels they are on the right track this time. Everyone here is excited about the challenge of going head-to-head with Airbus and Boeing

No.3(7), 2014

Motivated, personable professional pilot with a long list of aircraft types flown. Quickly able to adapt to clients needs. Flexible and versatile – able to maintain a sense of humor under pressure. Poised and competent with a demonstrated ability to easily transcend cultural differences. Thrives in deadlinedriven environments. Excellent management and teambuilding skills.

This profile summary posted by Kevin Parker on a professional social network page, speaks volumes about his extraordinary character and equally outstanding career path. Born in Ontario, Canada and a graduate of Sault College with a major in Aviation Technology, Kevin Parker began his career as a pilot and instructor in the Canadian Air Force. He continued to work as a civil aircraft pilot for Air Canada, followed by eleven years running a small business called Aircrew Training Systems, a company he founded to train flight crews.

Parker’s subsequent work as a flight training director at CAE’s office in Zhuhai was his gateway to China, and a choice that turned out to be a lucky one.

In 2009, Kevin Parker accepted an invitation to take over as Assistant Chief Designer and Chief Pilot at COMAC. Though he joined the ranks of thousands of Western specialists invited by the Chinese government to help develop various industries, he was the first ‘foreign expert’ to be hired by COMAC. Today, Parker is one of the central figures in China’s emerging civil aircraft-building industry. The success of COMAC’s two key programs – the new ARJ21 regional jet and the advanced C919 medium-range jetliner, designed to compete with the world’s aircraft-building heavyweights – are a function of his expertise and competence.

Does Kevin Parker believe in success? “Absolutely!

This is China’s third attempt at expanding their aviation industry. The Chinese excel at learning from the past and everyone here feels they are on the right track this time,” said Parker in an interview with Wings Magazine.

“Everyone here is excited about the challenge of going head-to-head with Airbus and Boeing.” Parker will no doubt do everything within his power to rise to this challenge.

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Wencong Song General Designer, J10 China

If China did not have Wencong Song, then it might never have had its own air force, a pillar of China’s military power as it tries to assert itself as an Asian leader.

The Chinese Air Force would have been equally impossible if Song had not survived the horror and humiliation of the Second Sino-Japanese War – including eight years of unanswered airstrikes – to see the liberation of China by the resistance forces.

Song graduated from the Harbin Engineering University with a major in Aircraft Engineering. Then, in 1980, he found himself spearheading China’s efforts to reduce the crippling gap in military aircraft engineering between themselves and the world’s leading powers. In 1986, he founded the Chengdu Aircraft Design Institute in the southeastern province of Sichuan – it later became the main talent factory for the J10 third generation fighter program, which was launched the same year. The Institute went on to become the main training center for China’s entire military aircraft engineering industry.

Song and his team were rewarded for their tenacity and professionalism on 23 March 1998 when the first J10 all-weather multipurpose fighter completed its first flight. Despite accusations that they had copied foreign technologies, Song insists that the machine was entirely the product of China’s national aircraft industry. “The external design and aerodynamic configuration of our new fighter is completely Chinese. It makes me very proud that we did not receive foreign assistance,” said the 84-year-old in one of his interviews.

No matter what happens next, Wencong Song has already been written into the annals, not just as a creator of the first truly successful fighter jet in modern China, but also as a founder of the national military aircraft engineering school and an entire industry. Now that very program is about to build a fifth generation fighter, an achievement matched only by two other countries in the world – the United States and Russia.

The external design and aerodynamic configuration of our new fighter is completely Chinese. It makes me very proud that we did not receive foreign assistance

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Aces High!

Sun Cong Chief Designer, J15 carrier-based fighter China

The J15 project started without a solid technical base … but now it has caught up to the technical level of the US’s most advanced, thirdgeneration, carrier-based aircraft, the F18 Hornet

No.3(7), 2014

Alexander III of Russia once famously said, “Russia only has two allies: the army and the navy.”

Perhaps Sun Cong never heard this quote, but he certainly understands the sentiment – particularly as it applies to China today. His country is in the throes of an aggressive re-armament program and its defense budget is the second largest in the world, with the lion’s share of it being spent on the Navy. In 2012, China commissioned the Liaoning, the first aircraft carrier in its history. The Liaoning’s main striking force will be its multi-purpose, carrier-based J15 fighter jets, which is Sun’s pet project.

Before the program was launched, China had never had the required expertise or technology to build carrier-based fighter jets. That is why the J15 fighter that completed its first flight in August 2009 was based on the Russian SU33, whose selected systems and nodes were either upgraded or replaced by Chinese technologies, including the radar and avionics.

Sun is happy with the results thus far and, despite a rather modest starting position, he is confident that his aircraft is capable of competing with the best fighters in the world, down to the bombs on board, their combat range, and mobility. “The J15 project started without a solid technical base … but now it has caught up to the technical level of the US’s most advanced, third-generation, carrierbased aircraft, the F18 Hornet,” Sun told the Beijing Times in an interview published last spring.

One way or another, the J15 Chief Designer knows full well that fine-tuning the fighter to perfection will require a lot of work. Among other things, Sun will have to teach his baby to engage ships and ground targets, which will require tapping into technologies enabling fighters to be launched from the deck using a catapult, a feature that the new generation of Chinese aircraft carriers will be equipped with. In January, a source in the Chinese government reported that the second aircraft carrier out of four slated to be built in the next four years was already laid down in the shipyard. A super aircraft carrier in excess of 100 tons is also being designed and is scheduled to be commissioned by 2020.

It is quite possible that on board this giant, which is based on the design of a Soviet aircraft carrier that was able to accommodate 60 jets, the J15 will have to share deck space with the J31. The J31, an advanced fifthgeneration carrier-based fighter, is being developed by the Shenyang Aircraft Corporation with Sun Cong as the project’s Chief Designer.

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Ozires Silva Dean of Unimonte University, founder of Embraer Brazil

Only one fact is needed to understand how much Ozires Silva has contributed to Brazil’s development and its economy – that Silva is the founder of Embraer.

After graduating from the Instituto Tecnológico de Aeronáutica (ITA) in 1964, Ozires became a lead engineer on a project to build Bandeirante, a regional jet that completed its first flight in October 1968. At that time, attempts to convince private investors to launch production of the new plane fell on deaf ears.

But one year later, the state-owned Embraer had been created, and Ozires headed it up for more than a quarter of a century. After a brief stint as President of Petrobras and the Minister of Infrastructure Development, Silva returned to the helm of Embraer in 1991 and stayed on for four more years. This time, his mandate was to prepare the company for the privatization that later marked the beginning of its heyday.

Today, Embraer is the third largest aircraft-building corporation in the world, with over 17,000 employees, assets in the United States, Portugal, and China, and an $8.5 billion turnover. Since then, Silva has left his career and business to become the dean of one of the largest private universities in Brazil, Unimonte.

The quality of education in Brazil is the chief concern for the 83-year-old patriarch. Silva believes that the entire future of his country is at stake. “Nowadays, global competition hinges on high competence and knowledge.

In this respect, you have to produce the best labor force,” Silva noted in an interview published by MarcoPolis in April 2012. “Competitors are no longer in your own country, and if we fail to improve our education, Brazil will have very serious economic and social problems in the future.” Any state that hopes to be successful in the future should heed his advice.

Nowadays, global competition hinges on high competence and knowledge. In this respect, you have to produce the best labor force. Competitors are no longer in your own country, and if we fail to improve our education, Brazil will have very serious economic and social problems in the future

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Aces High!

Claudia Sender Director General, TAM Airlines Brazil

There’s no way we can be a profitable and sustainable airline if we don’t have a slim and efficient cost structure, And it’s a challenge for the region because there are a lot of regulations that make our cost bar higher than our competitors’ costs bars abroad

No.3(7), 2014

Even though innovation and cutting-edge performance are two qualities that are revered in the airline industry, conservatism still lingers in one respect – until recently, it was uncommon to see a woman at an airline’s helm. Claudia Sender is one of the rare exceptions to this rule – in May 2013, she took over at TAM Airlines, the largest operator in Brazil.

The 39-year old CEO could not have imagined that her future career would take such a dramatic turn. A specialist in chemical engineering with a diploma from the University of São Paulo, Sender planned to continue in her father’s footsteps and dedicate her life to medical research. But she ultimately chose a much different path; after her graduation from Harvard Business School and spells as Vice President of Marketing at Whirlpool Latin America and a consultant at Bain & Company’s Brazil office, she joined TAM Airlines in 2011. She started as Vice President of the Brazilian branch and one year later accepted the offer to head-up the corporation.

One of Sender’s key objectives has been to prepare the company for the 2014 FIFA World Cup and the upcoming 2016 Summer Olympics. Another objective is to finalize TAM’s full integration with Chile’s leading airline carrier, LAN. Their merger was announced in June 2012. Once combined, LATAM Airlines Group gained control of around 40% of Latin America’s air transportation, for an enormous potential market of over 10.5 million passengers per year in Brazil alone.

With that comes the need to improve service and increase business profitability. “There’s no way we can be a profitable and sustainable airline if we don’t have a slim and efficient cost structure,” Sender said in an interview. “And it’s a challenge for the region because there are a lot of regulations that make our cost bar higher than our competitors’ costs bars abroad.”

Addressing these issues will become the main focus for TAM Airlines’ CEO in the foreseeable future.

However, according to Sender, there is a broader strategic objective: to make Brazil the most attractive destination on the planet. Her business certainly stands to profit from it.

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Sheikh Ahmed bin Saeed Al Maktoum President of the Dubai Department of Civil Aviation; CEO and Chairman of the Board of Directors, Emirates Airlines and The Emirates Group United Arab Emirates

Sheikh Ahmed bin Saeed Al Maktoum has a dream, or to be more precise, a vision: to turn Dubai into a city where the aspirations of all his people come true. A member of the royal family and uncle to the current Ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, he has been working his entire life to achieve this goal.

But among his many accomplishments, one in particular stands out – Emirates Airlines. Sheikh Ahmed managed to turn this company, which was created in 1985, into a leading airline in the Persian Gulf, and now the world over, in just 25 years. The success of Emirates Airlines contributed to the success of the UAE’s capital city, and vice versa. “The incredible success of Emirates and Dubai are intricately linked. Dubai is a dynamic and vibrant city, and it has played a key role in shaping Emirates into the carrier that it is today,” Sheikh Ahmed bin Saeed Al Maktoum declared in a speech last year. “In the last 27 years, Emirates and Dubai have grown alongside each other. With its vast network of global destinations, all connected via its Dubai hub, Emirates has helped to showcase the unique vitality of the city.”

Emirates Airlines’ achievements have a very tangible economic dimension – for the last 26 years, the company’s revenues have exceeded its costs. During the fiscal year that ended in late March, its net profits increased to $1.1 billion and revenues totaled $23.9 billion, while the number of passengers carried went up a whopping 13% to reach 44.5 million people.

In keeping with Dubai traditions, Emirates Airlines has generously enabled others to profit from their business success as well. Last November, the airline signed a record contract to buy 200 Boeing and Airbus jets for $99 billion, bringing the total portfolio of its orders to 385 aircraft, the catalogue price of which is estimated at $166 billion.

And they still have not reached their limit – says Sheikh Ahmed bin Saeed Al Maktoum.

The incredible success of Emirates and Dubai are intricately linked.

Dubai is a dynamic and vibrant city, and it has played a key role in shaping Emirates into the carrier that it is today, In the last 27 years, Emirates and Dubai have grown alongside each other. With its vast network of global destinations, all connected via its Dubai hub, Emirates has helped to showcase the unique vitality of the city

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Aces High!

James Hogan President and CEO, Etihad Airways United Arab Emirates

The one thing we’ve been able to do is we move fast, we don’t have the bureaucracy of an alliance. Because we have ‘skin in the game’ of our equity partners, we’re as focused on their profitability as our own profitability.

Whereas in the alliances, they’re all competing with one another

No.3(7), 2014

Abu Dhabi may be second to Dubai when it comes to oil reserves, but it does not fall behind where ambition is concerned. Following the example of Emirates Airlines in 2003, Abu Dhabi’s ruling family acquired its own carrier – Etihad Airways. Three years later, James Hogan, an outsider from Australia, was brought in to transform Etihad into a ‘global brand.’

What was then an unknown company with only nine aircraft to its name has become a flag carrier airline that transports 1.5 million passengers a year.

Hogan, an experienced manager with a 30-year track record in the airline, travel, and hospitality industries, proposed a new growth strategy when he came on board in the fall of 2006. His idea was to get the company to invest its capital in various airlines around the world and to improve their operations and profitability. Over the next few years, Etihad acquired stake in Air Berlin, Aer Lingus, Virgin Australia, and Air Seychelles. This August, the company closed a deal to buy 49% of the loss-making Alitalia for €560 million ($721 million), which Hogan promised to make profitable again by as early as 2017.

Etihad’s CEO claims that this ‘equity alliance,’ as he himself terms it, is much more efficient compared to the industry’s traditional airline alliances. The exponential growth that the company has been showing under his leadership only goes to prove his point. Today, Etihad is UAE’s national carrier, servicing 87 passenger and cargo destinations worldwide with a fleet of 66 aircraft.

Why did this strategy prove so effective? “The one thing we’ve been able to do is we move fast, we don’t have the bureaucracy of an alliance. Because we have ‘skin in the game’ of our equity partners, we’re as focused on their profitability as our own profitability.

Whereas in the alliances, they’re all competing with one another,” the 57-year old CEO was quoted as saying in the Telegraph.

The rapid drive to conquer new markets will be supported by a fleet expansion program the scale of which will put Etihad back into competition with Emirates Airlines. In July 2008, Etihad placed an order for 205 new aircraft with a catalogue price of $43 billion. This unspoken rivalry between the two Emirates airlines continues today, and Hogan is not the type to settle for second best.

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Robert Ting Chief Pilot, Singapore Airlines Singapore

Even though Captain Robert Ting is not a household name, he is something of a global celebrity in his own right. He reached that status on 25 October 2007, when the world’s largest commercial aircraft – the Airbus A380 – embarked on its first scheduled flight.

The 468-ton giant had the Singapore Airlines logo on its side and 455 passengers and 35 crewmembers on board – and it was piloted from Singapore to Sidney by Captain Ting.

It was certainly no accident that Captain Ting was entrusted with the A380 . He went to work for Singapore Airlines in 1971, and by the time his historic flight took off, he had nearly 15,000 flight hours under his belt as well as 36 years of professional experience, including 21 years as an instructor with a license to pilot six different types of aircraft.

Captain Ting admits that his experience flying other jumbo jets from the Airbus family, such as the A340-500 or A330, made his job of flying the A380 much easier.

“Even though the plane is heavier, once you’re in the air you don’t feel the size – you don’t feel the wings,” he said with admiration following the flight. “Although it is bigger and heavier, the airplane’s response is fantastic.

It is very agile.”

Needless to say, if Captain Ting is impressed, then it is for good reason. Singapore Airlines is not just a leader on the Asian market; it is also one of the largest aircraft purchasers. Early last year, the airline closed a deal to buy five A380s from Airbus (on top of their existing 19 A380s) and 20 A350-900 jets, with a total price tag of $7.5 billion. The deal will help Singapore Airlines assert its leadership in the region. The airline operates out of Changi International Airport, the largest aviation hub in Southeast Asia, and faces rapidly growing competition from China and the Middle East. Captain Ting’s role in this competition will continue to be crucial.

Even though the plane is heavier, once you’re in the air you don’t feel the size – you don’t feel the wings.

Although it is bigger and heavier, the airplane’s response is fantastic. It is very agile

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Aces High!

Akbar Al Baker CEO, Qatar Airways Qatar

Things are very different now. We have become a major global carrier in a short span of just over 10 years, and we are going to be even stronger and most certainly will be in the league of airlines that are very profitable

No.3(7), 2014

Anyone who has ever dealt with Akbar Al Baker knows that he is a tough nut to crack, especially when the interests of his company are at stake. During such instances, the head of Qatar Airways is unlikely to curb his fiery temper or to mince words – he publically scolds those who dare to ‘violate the status quo’ as he sees it.

Targets of the CEO’s sharp tongue have included contractors who failed to complete Doha’s new airport on time (it opened its doors this May and is also run by him), regulators (“they think the sun shines out of their a**holes”), and Lufthansa (“their strategy is to kill competition”).

Yet it was Airbus (“they are still learning how to make airplanes”) and Boeing (“when you put companies in the hands of accountants, you will always end up with garbage”) who ‘benefited’ the most from the CEO’s straight talk.

Akbar al Baker directed his latest verbal lashing at global leaders in the airline industry this July during the Farnborough International Airshow. This time around, the CEO of Qatar Airways – a major buyer of long-range A350 jetliners, A380 super jumbo jets, B787 Dreamliners, and B777 jets – was “deeply frustrated” with delayed shipments and low quality aircraft. In particular, flaws were discovered in the A390 paint texture, along with defects in cabin décor, imitation wallpaper, and galley flooring.

Though some might call him capricious, the 52-yearold does not find his attention to detail excessive. He has already earned the right to have his own ‘unique point of view.’ Born in Doha, Akbar al Baker received a degree in economics in India where his family roots lie. Prior to joining Qatar Airways in 1997, he worked in Qatar’s Civil Aviation Department and Tourism Department. In just two decades, he has transformed Qatar Airways from a local operator with only four aircraft to a global industry leader flying to 130 destinations on five continents.

However, Akbar al Baker’s mandate is much broader.

Qatar Airways is one of the key components in a strategy designed to diversify the economy of his country, a nation that is literally built on hydrocarbons. In January, the government of Qatar announced that it was planning to spend $45 billion by 2030 on tourism development.

Akbar al Baker will certainly do everything within his power to make sure that the millions of visitors coming to his country do it aboard Qatar Airways.

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AIR

Andrey Alekseev Commanding officer of the Russkiye Vityazi (Russian Knights) Pilot Group Russia

Andrey Alekseev admits that after his first trial flights in a diamond formation – a dense line of SU27 heavy fighter jets piloted by the Russkiye Vityazi group, which he joined in 2001 – he was constantly haunted by one thought: he picked the wrong job.

“Because all of this was so difficult, I constantly had the feeling that it was impossible to learn. It was both physically and mentally difficult – for a pilot, it is completely counterintuitive to see a plane identical to yours one meter away from you.

During my early flights, just like during the ones that followed, my suit was always soaked with sweat,” Alekseev said in April 2011, while giving an interview on Russian television in honor of the Russian Knights 20th anniversary.

It is clear now that these initial difficulties did not scare away this graduate of the Kachin Higher Military Aviation College and a second-generation fighter pilot. In May 2008, Andrey Alekseev, who piloted the right-hand trail aircraft, became the commanding officer of the Pilot Group. He remains the group’s CO to this day. Russkiye Vityazi, just like any other pilot group in the world, serves two main objectives, explains the 41-year-old Honorary Guard Colonel. First, it demonstrates the skill of the pilots, which are used as a yardstick of the Russian Air Force’s overall level of airmanship.

And second, it showcases the unique capabilities of the Su27, the base model for all of the latest Russian heavy fighters, which Colonel Alekseev admits are unmatched.

The Russian Knights rise to the occasion on both counts, as do their partners, the Strizhy (or the Swifts). This second group of Russian pilots flies lighter MIG29s, but shares the Kubinka airfield with Russkiye Vityazi and flies with Alekseev’s ace pilots in their famous diamond formation.

Exhibition performances by the Vityazi group – the only unit that can perform aerobatics in head-on formations and in groups comprising three, four, and six heavy combat fighters – are always a major highlight at any airshow. The high demand for Russian military aircraft further proves this point; based on the figures from 2009 to 2012, Russia became the world leader in multi-purpose fighter jet exports (384 aircraft totaling nearly $17.8 billion in sales) with the United States a distant second. There is no doubt that much of this is thanks to Colonel Alekseev and his brothers is arms.

Because all of this was so difficult, I constantly had the feeling that it was impossible to learn. It was both physically and mentally difficult – for a pilot, it is completely counterintuitive to see a plane identical to yours one meter away from you. During my early flights, just like during the ones that followed, my suit was always soaked with sweat

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Aces High!

Mikhail Pogosyan President of the United Aircraft Corporation (UAC) Russia

We want to be a leading international player.

Today, the competition does not boil down to individual countries – it comes down to large international corporations. If we truly want to create competitive products, we need to join forces

No.3(7), 2014

By 2025, the total output of civil aircraft at UAC – Russia’s largest aircraft-building group – should equal that of their military equipment. This goal is part and parcel of UAC’s business diversification strategy, which Mikhail Pogosyan himself calls “super ambitious” (until 2010, the company’s share of military aircraft output was in excess of 90%), but he does not doubt for a second that it can be achieved.

Last year, UAC manufactured 111 aircraft, including 32 civil jetliners. The corporation’s total order portfolio consists of 700 units, and non-military aircraft account for 360 confirmed orders.

These achievements would have been impossible without the successes demonstrated by the new regional SSJ100 jetliner.

Pogosyan oversaw its development from the day the program was first launched – initially as CEO of the Sukhoi Aviation Military Industrial Combine and the Sukhoi Design Bureau that won the contract to develop the aircraft in 2003, and then as President of the UAC from 2011 onward.

It is envisaged that the SSJ100, which is being developed in broad cooperation with overseas partners, should claim at least 15% of the world market for narrow body aircraft with up to 100 seats. According to UAC estimates, the market capacity will reach approximately 6,000 units by 2020. At the same time, the SSJ100 will serve as the foundation for an entire family of new civil aircraft. Additionally, UAC is now developing the new MS21 middle-range passenger jet, which will compete directly with the Chinese C919 built by COMAC. According to Pogosyan, all of these efforts will enable Russia to realize its ambition of becoming a world leader in aircraft building. He plans to work on achieving this objective in close cooperation with other stakeholders from the BRICS countries.

“We want to be a leading international player. Today, the competition does not boil down to individual countries – it comes down to large international corporations. If we truly want to create competitive products, we need to join forces,” Pogosyan said to BRICS Business Magazine. “Only together can we build planes that meet the highest reqirements of the global market and, in so doing, take our rightful place among the leading industrialized nations.”

Today, UAC already runs several major joint civil and military aviation programs with its BRICS partners, including a project to develop a fifth generation fighter jet and new transport aircraft in cooperation with Hindustan Aeronautics Limited of India. In May, UAC and COMAC signed a memorandum to begin joint development of a family of widebody, long-range jetliners. The resulting product will enable the partners to ‘invade the territory’ traditionally controlled by Boeing and Airbus. The 58-year-old UAC President makes no promises that his ambitions would stop at that.

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AIR

THE TERMINAL GROUND An airport is almost a city in itself, with its own architecture and atmosphere, shops and restaurants, medical centers, and hotels. Passengers with long layovers can practically live in them. Skytrax, a leading reviewer of airline services, surveyed travelers from more than 160 countries and came up with its own list of the top 100 airports worldwide.

BRICS Business Magazine picked fifteen of the most impressive airports from emerging economies to highlight here.

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The Terminal Ground

HONG KONG INTERNATIONAL AIRPORT It took six long years and $20 billion to build Hong Kong International Airport, located on the island of Chek Lap Kok. Construction even involved creating an artificial island, and was included in the Guinness World Records as the most expensive airport project ever. It was recognized as one of the 10 most important construction achievements of the 20th century.

Today, this airport is one of the busiest in the world.

It works with 100 airlines to service 180 destinations.

To ensure greater passenger mobility, the airport offers three kilometers of moving walkways as well as unmanned trains.

The Hong Kong airport boasts a number of cafes, restaurants, and shops. Here, you can find an IMAX movie theater with 350 seats and an aviation center where one can not only delve into the history of aviation, but also try one’s luck as a pilot.

Children can be left in the Dream Come True Education Park, where they can learn the fundamentals of natural science through trial and error. Adults can unwind on the SkyCity Nine Eagles Golf Course, which is a nine-hole golfing facility.

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Shoudu International Airport

SHOUDU INTERNATIONAL AIRPORT This airport, nicknamed ‘China’s No. 1 Gateway,’ is the busiest in Asia and second in passenger traffic on the planet. Every day, 1,700 flights operated by 92 airlines connect Beijing with 236 destinations around the world. Terminal 3 alone is 986,000m2 and is the second largest of its kind in the world. An electric train that covers 2.5 kilometers in just two minutes connects each terminal. Passengers can also save time by using 243 elevators, escalators, and moving walkways.

A foreign national can spend 72 hours inside the airport without a visa – and without getting bored.

Shoudu boasts 130 shops offering more than 60,000 items – from books to bags and watches, and from consumer goods to luxury brands. Those who do not want to take their purchases with them can have them sent anywhere in the world at no charge or collect them in-store on their return flight. While shopping, passengers can leave their children in a childcare zone filled with toys and comic books.

Shoudu’s ‘Digital Gugun’ interactive equipment offers passengers a chance to see selected masterpieces of Chinese culture.

Shoudu is considered one of the most high-tech airports in the world, and the Terminal 3 building is environmentally sustainable. Skylights and glass walls utilize the energy of the sun to provide lighting and heating, and reduce energy consumption when the building needs to be cooled.

Hong Kong, China

Hong Kong International Airport

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Position among other emerging economies

No.3(7), 2014

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Position in the overall rating, 2014

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Beijing, China

Position in the 2013 rating

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Kuala Lumpur International Airport

the concept was to build ‘an airport in a forest with a forest in an airport.’ Kuala Lumpur is surrounded by greenery, and a good portion of the rainforest was replanted in the central terminal to create the perfect marriage of nature and technology. Two terminals are connected by an automated passenger transfer system. In early May, a new low-cost terminal opened its doors, causing a sensation in this market. For those travelers not hunting for bargains, there is a massage and reflexology center where they can relax and recharge.

SHANGHAI HONGQIAO INTERNATIONAL AIRPORT In 2010, the airport opened its newest terminal and built a second runway, measuring 3.3 kilometers.

The airport is now capable of accommodating the world’s largest aircraft, including the Airbus A380 superjumbo jet. Every couple of minutes, there are free buses that can take people between terminals in just 15 minutes. Hongqiao offers 15 waiting lounges, 18 VIP lounges, and 15 baggage claim belts. There are even a number of nice hotels near the airport. The Shanghai International Airport Hotel allows remote check-in for flights to Japan and has a hotel shuttle to the international terminal. The Shanghai Marriott Hotel Hongqiao, located less than two kilometers away from the airport, offers great fitness rooms for the weary traveler to restore their biorhythms.

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Kuala Lumpur, Malaysia

ABU DHABI INTERNATIONAL AIRPORT Abu Dhabi’s extravagance starts in the airport with its sumptuous architecture and friendly staff.

Travelers can even pre-order an assistant to meet them on arrival, escort them through the airport, help them check-in, and skip the queues at passport control, customs, and baggage claim.

In case of lengthy layovers, Six Senses Spa has soothing treatments specifically designed to

Shanghai, China

KUALA LUMPUR INTERNATIONAL AIRPORT This airport bills itself as a cozy spot offering a tranquil environment. At the time it was designed, 94

The Terminal Ground

improve travelers’ wellbeing. They offer a variety of treatments, ranging from facial and eye care to massages and back support. The Abu Dhabi airport is one of the fastest growing hubs in the world, and efforts are being made to increase its capacity.

A new X-shaped Midfield Terminal Complex is being built to meet its growing demand. The building will be commissioned in 2017 and will be able to accommodate up to 30 million passengers per year.

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sleep in a comfortable bed. Each day, 140 airlines operate more than 7,000 flights to 230 destinations, connecting every continent except for Antarctica.

By 2020, the airport’s passenger traffic may exceed 100 million people, which is why ambitious expansion plans are already in place.

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Dubai, UAE

O. R. TAMBO INTERNATIONAL AIRPORT This is one of the busiest airports in Africa and one of only a few in the world that offers non-stop flights to all of the populated continents. By 2015, its capacity will reach 24 million passengers per year.

The airport is located 1,700 meters above sea level, which has left a mark on its architecture.

One of the two runways is the longest in the world (at 4.4 kilometers).

There is a 24-hour chapel for Christian passengers and a prayer room for Muslims.

Abu Dhabi, UAE

DUBAI INTERNATIONAL AIRPORT The Dubai airport is famous for having the largest airport terminal in the world. There are three terminals in total, and the city is accessible from any one of them by metro. The local Duty Free is particularly popular; it knows no equals in terms of sales turnover. Among the many cafes and shops that can be found here, there are also some very atypical airport features, including a swimming pool, a fully equipped gym, a Jacuzzi, and a sauna. Or take, for instance, the Zen Gardens where silence and tranquility are in abundance. For passengers waiting for a connecting flight, there is a Snoozecube where they can get a good night’s

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Johannesburg, South Africa

CAPE TOWN INTERNATIONAL AIRPORT Located on Africa’s Atlantic coast, this city in the Table Mountain foothills is one of the greatest tourist attractions on the continent. Visitors can take a closer look at Cape Town from the observation tower located on the top level of the main airport terminal. The central terminal offers 10 air galleries, which are the first thing passengers see when they disembark.

The airport hosts a medical clinic and offers baby care rooms in all ladies’ rooms. Hotel Verde is located some 400 meters away from the airport, and its guests can enjoy a swimming pool and fitness center.

Dubai International Airport

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Cape Town, South Africa

KING SHAKA INTERNATIONAL AIRPORT The Durban airport opened its doors in 2010. It has 34 aircraft parking spaces, 16 jet bridges, 72 checkin desks, 18 information desks, and 52 points of sale.

Airport visitors can benefit from a full range of banking services, rent a car, or enjoy a great variety of restaurants, bars, and duty-free shops. Souvenirs even include beaded crafts and mementos made of sharks’ teeth.

The 3.7-kilometer runway can accommodate planes as large as the Airbus A380. The airport is also proud

Position among other emerging economies

No.3(7), 2014

Position in the overall rating, 2014

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Position in the 2013 rating

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of its special radiolocation system, which provides information on bird activity near the runway.

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America. It is relatively small and easy to navigate, even for those who are coming here for the first time.

It consists of one terminal and one runway, all signs are in English and Spanish, and the majority of airport staff is bilingual. The airport offers full accessibility for disabled and hearing- or vision-impaired passengers.

Airport guests can also enjoy three 24-hour VIP lounges, where they can watch TV, read a newspaper, or enjoy a drink.

The lower floor is home to a medical center where passengers can obtain vaccinations.

South Africa

HAIKOU MEILAN INTERNATIONAL AIRPORT The airport’s new international terminal opened its doors in 2013, offering 45 check-in desks, 11 security checkpoints, and two VIP lounges. A broad variety of luxury articles are available from the local shops.

The building itself offers a glimpse of the culture and history of China, and specifically Hainan Island.

Haikou Meilan is equipped with state-of-the-art runway lighting, baggage handling systems, and communications and navigation equipment.

A brand new terminal is under construction and is expected to be completed by 2020.

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Lima, Peru

ISTANBUL ATATÜRK AIRPORT This is one of the fastest growing airports in the world.

Over the last 14 years, its passenger traffic has gone up by a factor of 3.5 to reach 51.3 million. The terminal building is designed to ensure a streamlined passenger flow. The airport offers state-of-the-art technologies and automated systems facilitating expedited security, customs, and passport control.

Hainan Province, China

JORGE CHÁVEZ INTERNATIONAL AIRPORT This airport, located just 15 minutes away from Lima’s historic center, is considered the best in Latin Abu Dhabi International Airport

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The Terminal Ground

The international departures level is home to the luxurious CIP lounge, where passengers can relax, take a shower, or change their clothes. Entertainment options include television, music, newspapers, a library, a pool table, and internet.

TAV Airport Hotel is also located within the airport’s terminal, offering 130 rooms equipped with flight information screens, stereo systems, and minibars.

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Istanbul, Turkey

GUANGZHOU BAIYUN INTERNATIONAL AIRPORT In 2013, this airport’s passenger traffic reached 52.5 million, making it the second busiest in China and the 16th busiest in the world. The third runway is expected to be put into operation soon and the second terminal will open its doors by 2018.

Cutting-edge technologies and materials were used to build the airport. Windows in the main building’s two-tier, curved roof transport travelers into a theater of light and shadow, and after dark the building transforms into a ‘crystal city.’

The terminal contains a variety of shops where passengers can buy leather goods, cosmetics, fruit, clothing, toys, books, electronics, wine, jewelry, and selected local products.

A luxurious five-star hotel is just a stone’s throw away and a more modest three-star hotel is just five minutes away by car.

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Bangkok International Suvarnabhumi Airport

BANGKOK INTERNATIONAL SUVARNABHUMI AIRPORT The Bangkok airport can be reached in just 17 minutes by train. Suvarnabhumi is one of the ten largest airports in the world, and is capable of handling 76 departing and arriving aircraft per hour. One terminal services both international and domestic destinations, including regular and charter flights. It has two runways, 120 aircraft parking spaces (five of which are designated for Airbus A380s), and 51 jet bridges.

Novotel Suvarnabhumi Airport Hotel is only a fiveminute shuttle ride away or a 10-minute walk through an air-conditioned, underground passage. The hotel offers all modern amenities, plus sound insulation so that plane noises do not disturb weary travelers.

The airport also offers free Wi-Fi and lounges for transit passengers. Children can spend time in the fourth floor playroom, where various forms of entertainment and rest are offered. Thanks to its unique design and long, glass and steel corridors, the airport became the most photographed location on Instagram in 2012.

Guangzhou, China

BAHRAIN INTERNATIONAL AIRPORT Bahrain’s main airport has two runways capable of accommodating even the Airbus A380.

Shopping is made easy here. Shoppers can pre-order various articles online from a 24-hour Duty Free shop, which also offers discount cards and lotteries.

A new service called Shop & Collect is particularly popular. Shoppers can buy products before departure and collect them upon arrival. The airport also has three VIP lounges. From the main hall, passengers enjoy a panoramic view of planes taking off and landing. A special room for children even offers the Microsoft Xbox and its latest games.

Passengers can also relax in quiet rooms with lounge chairs, or take a shower.

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Position among other emerging economies

No.3(7), 2014

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Muharraq, Bahrain

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Position in the overall rating, 2014

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Bangkok, Thailand

Position in the 2013 rating

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Flight Economics Airline ticket prices often seem unreasonably high, but airlines claim that their profit margin on a given flight is less than 1% of the value of the tickets sold. BRICS Business Magazine found out where the rest of that money goes.

airlines, who said, “At any airline, fuel costs account for at least 40% of our budget.” More often than not, the term ‘aviation fuel’ refers to aviation kerosene or so-called ‘jet fuel.’ It is what airlines all over the world use today, and it is very expensive. “When I am asked about fuel prices, I often repeat an equation I learned when I was a student in the USSR: The amount of fuel used during a single Tu-22 missile carrier regiment flight is equal to that budgeted by the Byelorussian Soviet Socialist Republic for an entire month,’ recalls the source.

Today, fuel consumption is one of the key indicators of aircraft operational efficiency.

Naturally, the lower it is the smaller the costs incurred by the airline. “Oil prices are constantly

Those who work in the airline business often describe it as sheer madness. The expenses this industry incurs trying to make money, literally out of thin air, are incomparable. Even trivial things like wind speed can mean profit losses for an airline. To plan just one flight, airlines have to factor in a variety of different expenses, the likes of which are not encountered in other sectors. Ordinary passengers often wonder how airlines can charge so much money when flights have become more frequent and the industry has not undergone any radical changes or innovations.

The most obvious answer, and the easiest to understand, is fuel. BRICS Business Magazine spoke to a source at one of the largest Russian 98

Flight Economics

on the rise and airlines have to switch to more fuel efficient aircraft,” the source told BRICS Business Magazine. “Often times, airlines reduce the number of flights as they increase the size of the aircraft. In other words, frequent flights operated by small planes are being replaced by less frequent flights and larger planes.”

Back in 2011, the Wall Street Journal published a study conducted jointly by US Airways and Oliver Wyman (a consulting company), in which they used a hypothetical flight to illustrate airline costs.

For this hypothetical US Airways flight, it was assumed that the plane was fully booked with 100 passengers, and that each passenger had paid $146 for their one-way fare (based on the company’s average annual data). The company’s profit margin corresponded to the price of one ticket, i.e. 1% of the value of all the tickets. By extension, the amount paid by the remaining 99 passengers was spent on other flight-related expenses.

For instance, fuel costs amounted to nearly one-third of the total, or were ‘covered’ by approximately 29 passengers. Oliver Wyman found that airline fuel costs can reach 34%.

The second largest expense is crewmember salaries. The US Airways and Oliver Wyman study showed that these expenses were paid by another 20 passengers.

Another equally important expense item is aircraft leasing or purchase. Sixteen out of 100 passengers pay for an airline’s fleet ownership cost. Approximately the same number of passengers (14%) cover taxes, duties, safety costs, terminal use, and other airport services.

Aircraft require a great deal of attention.

Scheduled maintenance is performed every few months and major overhauls are needed every two to three years. Repairs, maintenance, and spare parts are covered by the tickets of approximately 11% of passengers. This amount also factors in costs resulting from ‘auxiliary mechanism’ failure, such as gangways, baggage carriers, aircraft tugs, and so forth.

The revenue from 9% of tickets will cover miscellaneous expenses, including lost luggage insurance, the lease of airport check-in desks, and in-flight catering and drink service. According to the researchers, the latter accounts for nearly 2% of all costs incurred by the carrier. Another 2% of passengers will have to cover the cost of No.3(7), 2014

How Much Does a Flight Cost?

Number of seats

29 20 16 14 11

Fuel

Airline employee salaries Fleet ownership costs Taxes and duties Maintenance

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Allocation of passenger ticketing revenues based on a hypothetical US Airways flight carrying 100 passengers

Source: US Airways Group; The Wall Street Journal

boarding, rental fees for gangways, and the use of taxiways. Additionally, in the event of an emergency landing, the airline would also cover all of those associated costs.

‘Miscellaneous expenses’ are an area where passengers can save money. For instance, the low cost airlines that have recently become so popular are less expensive because they do not offer business class service or in-flight catering, they lease the parking spaces that are located the farthest from the terminal, and they use a bus instead of a gangway for boarding and deplaning the aircraft. However, even they cannot avoid the remaining flight costs.

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The Dragon vs. the Elephant An orbital encounter Evgeniy Pakhomov India and China - the two perennial rivals vying for leadership in Asia, and perhaps the world – have always been jealous of each other’s successes. Today, the rivalry between the two ambitious Asian superpowers has moved into space, where New Delhi and Beijing have no intention of giving each other any ground.

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The Dragon vs. the Elephant

It is hard to imagine now that New Delhi and Beijing were once considered good friends, and even spoke amiably of a close partnership.

In 1951, India turned a blind eye to the Chinese army’s takeover of Tibet and limited its reaction to formal statements – bilateral relations seemed to be more important to New Delhi. The famous slogan, Hindi-Chini bhai-bhai! (Indians and Chinese are brothers!), that remained popular for many years first appeared during that period. However, the Chinese dragon and the Indian elephant soon abandoned that brotherly sentiment – each country started taking decisive steps to assert their right to leadership in Asia.

As early as 1962, the first armed conflict broke out on the Chinese-Indian border when each country began to carve up the Himalayan foothills and it became clear that the ‘bhai-bhai’ era had run its course. Military forces on both sides of the border even now continue to monitor each other nervously. From time to time, there are reports of border violations in mountainous areas by troops from both sides. At the official level, India and China still speak of cooperation, but in reality, it is the People’s Republic and not Pakistan that India views as its most serious potential adversary.

Yet in recent years, neither of these two Asian heavyweights has ventured to sever relations entirely, and the standoff has extended to the economic domain. After becoming the world’s biggest ‘assembly line,’ China moved ahead, owing to its ability to copy nearly any Western technological novelty. India, on the other hand, has left China behind in offshore programming, thanks to its successes in the IT sector. Meanwhile, both countries are making a great effort to maintain the image of a superpower – they have both acquired nuclear weapons and aircraft carriers and are now building their own supersonic fighter jets and ballistic missiles, each with a watchful eye on the other. And now, the dragon and the elephant are poised to move their rivalry into space.

The deadline for deploying the Chinese orbital station was not chosen arbitrarily. Many believe that at around that time, the International Space Station is likely to encounter some serious funding difficulties. The Chinese are getting ready to fill this gap if the International Space Station (ISS) program is phased out. Beijing has already stated that cosmonauts and astronauts from other countries would be allowed to work aboard their complex

to prove to the rest of the world that it was capable of accomplishing such a complex, technical task.

Media outlets across the globe noted that the Chinese spacecraft bore a suspicious resemblance to the old, Soviet-made Soyuz rocket, and that this launch failed to achieve any research or commercial objectives. The main outcome of the mission was that the list of cosmonauts and astronauts had now expanded to include ‘taikonauts.’

Yet the dragon managed to achieve its goal, becoming the third world power to send a man into space without any outside assistance, even if it was 40 years later than the United States and the USSR. However, it has become apparent that China not only wants to catch up with the old space superpowers, but also to surpass them and leave them light years behind. The Chinese government bet heavily on its space program, relying on a number of powerful, state-owned corporations in the hopes of quickly achieving what had taken the American and Soviet space programs decades to complete.

“The Chinese do not fly into space as often as the Americans or the Soviets did during the space race era. However, none of their flights repeat what they have already learned, but instead become a new stage in the development of their own space industry,” said Indian journalist Vinod Trivedi.

Indeed, after their first manned mission, the PRC’s space program took a two-year break. Then in October 2005, not one, but two astronauts – Fei Junlong and Nie Haisheng – were sent into space aboard Shenzhou-6. In September 2008, three more taikonauts were put into orbit on board Shenzhou-7.

One crewmember, Zhai Zhigang, performed an EVA (extravehicular activity) – commonly known as a spacewalk – to test a new extravehicular space suit developed in China. Each launch served as a new step in a race to catch up with the old space powers.

VANITY OF COSMIC PROPORTIONS

Many observers used these exact words in response to reports that China had sent a man into space – in October 2003, the Chinese Shenzhou-5 spacecraft was put into orbit, piloted by Lieutenant Colonel of the People’s Liberation Army Yang Liwei. At the time, it seemed as though Beijing had decided No.3(7), 2014

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park and museum, enjoy arcade games, and even try orbital flight simulators.

The spaceport is being built specifically to accommodate China’s new generation of heavy lifting Long March 5 rockets. These powerful launch vehicles have been designed to play the role of the main ‘workhorse’ in the service of China’s ambitious space program. They will be shipped to Wenchang by sea directly from the space equipment manufacturer located in the city of Tianjin.

“The new Long March generation is not the only state-of-the-art rocket system that China has.

They are already building their own space shuttle vehicle,” says Trivedi. Regional press is full of reports indicating that Beijing is already conducting atmospheric tests of its Shenlong space plane system.

“Even though China has been very economical when it comes to disseminating any information about this project so far, it is clear that the country still has a long way to go before it can build a fully operational Chinese shuttle,” says Trivedi. This means that in the decades to come, Long March 5 will likely remain the leading Chinese rocket that the country can fall back on to develop a lunar program and conduct near and outer space research.

But most importantly, the new booster rocket is meant to strengthen China’s hand on the international commercial space launch market.

While it is entirely possible that the country’s prestige was an important consideration for Beijing in the early stages, now the country’s authorities tend to speak about commercial space exploration.

It is obvious that seats on China’s orbital station will not be made available to crewmembers from other countries free of charge. Furthermore, what China has in its sights is a leading role in the field of commercial launches.

The first foreign satellite was launched as early as 1987 using a Chinese booster rocket, and such launches have been taking place on a regular basis since 2005. China’s launch vehicles have also been used by Venezuela, Nigeria, Pakistan, and other countries. It is reported that by 2020, when the new booster rockets are commissioned on a wider scale, China will try to claim a 15% share of this market.

And that is merely the beginning.

China launched another commercial space project designed to support a new generation of rockets – the BeiDou (the Big Dipper) Navigation Satellite System. China intends to compete with

Following this launch, the taikonauts took another break. Their next move came in 2011 when Shenzhou-8 was put into orbit as a part of an unmanned mission in which the spacecraft docked with the automatic orbital module Tiangong-1.

Later, the Chinese authorities announced that the mission was part of their efforts to build their own orbital station. This preparation is now in full swing; in June 2012, Shenzhou-9 – carrying three crewmembers, including the first female taikonaut – performed the country’s first piloted docking with the Tiangong-1 module. Also for the first time in the nation’s space exploration history, both crewmembers entered the orbital module.

In June 2013, Shenzhou-10 also docked with the module, and three taikonauts spent a total of 15 days in space. Going forward, the Chinese plan on sending two larger orbital modules into space – Tiangong-2 and Tiangong-3 – and in the not so distant future (tentatively in 2020), China intends to build its first multi-module, manned space station.

A LEAP INTO ‘INTERNATIONAL SPACE’

The deadline for deploying the Chinese orbital station was not chosen arbitrarily. Many believe that at around that time, the International Space Station is likely to encounter some serious funding difficulties. The Chinese are getting ready to fill this gap if the International Space Station (ISS) program is phased out. Beijing has already stated that cosmonauts and astronauts from other countries would be allowed to work aboard their complex. If this happens, China would take the de facto lead in international orbital research. It is still unclear, however, whether the ‘old’ space powers would agree to such an arrangement.

The scale of China’s space program can be observed without even leaving Earth. A new Chinese spaceport (their fourth) is being built on the island of Hainan in the South China Sea. China’s first three spaceports, which were built primarily for military purposes, no longer meet today’s requirements. The new Wenchang Space Center is supposed to become China’s very own Cape Canaveral. The complex will include several launch pads and a visitor space center. The authorities expect to receive numerous visitors, both from China and abroad, who would have the chance to observe rocket launches, visit a theme 102

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similar existing systems, including American GPS and Russian GLONASS. The project continues at full speed – since 2012, a 16-satellite system has been offering navigation services covering a territory stretching from China to Australia, and by 2020, the BeiDou orbital group is supposed to become a global system and grow to include 35 spacecraft.

China also plans to bill its new rockets and spaceships as an alternative to the Russian-made Soyuz to service the ISS. In the West, many analysts believe that if China chooses to cooperate with the United States on space projects, it may strip Russia of its monopoly over manned missions, which it has been enjoying since NASA’s Space Shuttle Program shut down. This idea is widely promoted by the well-known American astronaut of Chinese origin, Leroy Chiao. “China is the only power apart from Russia that is now capable of sending astronauts into space,” he was quoted as saying in a recent interview published by Forbes magazine.

The dragon managed to achieve its goal, becoming the third world power to send a man into space without any outside assistance, even if it was 40 years later than the United States and the USSR. However, it has become apparent that China not only wants to catch up with the old space superpowers, but also to surpass them and leave them light years behind

Rakesh Sharma, who was a crewmember on Soyuz T-11, launched by the Soviet Union some thirty years ago in 1984. Granted, India still considers female astronaut Kalpana Chawla to be one of their own. She was born in India and later moved to the United States, where she became a naturalized citizen and went to work for NASA. Chawla was the second astronaut of Indian origin to fly into space and her first mission took place in 1997 on board the Space Shuttle Columbia. In 2003, a second mission aboard the Columbia ended in tragedy when the shuttle exploded and Chawla and her seven crewmembers died.

For a long time, India’s manned space missions remained on a slow track while the country placed a greater emphasis on satellites. However, the gamechanging moment came when a Chinese taikonaut

VYOMANAUTS AT THE BEGINNING OF THEIR JOURNEY

When it comes to manned missions, India is still lagging behind China. So far, the 1.2 billion-person nation has officially produced only one astronaut – No.3(7), 2014

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an Indian crew into orbit without any external assistance. “A full scale unmanned module is already being prepared for an experimental launch using GSLV Mk-III as a booster rocket.

The objective of this mission is to study ballistic properties of the module to facilitate its safe reentry,” Mr. Radhakrishnan stated at the time.

Still, the exact date of the manned mission has not been mentioned. Local media are still hopeful that the Indian crew would be put into orbit by 2020.

In the meantime, discussions are well underway in India to come up with a proper name for the space travelers who will represent the world’s largest democracy. Philologists delved into ancient archives to study Sanskrit texts in an attempt to come up with the appropriate term. Initially, they came up with the word ‘aakashagami’ (meaning, ‘he who travels through the sky’). Later, the media started referring to them as ‘gaganauts’ (a term derived from the word ‘gagana,’ or ‘heaven’) and ‘antariksha yaatri’ (‘antariksha’ means ‘sky above the Earth’ and ‘yaatri’ stands for ‘traveler’). But as of late, the most commonly used term has been

was sent to space; the news sent the Indian media reeling. The Indian public demanded that the government bridge the gap and catch up with China, while the outraged government opposition said that the country had squandered its prestige.

The government in New Delhi agreed that their country should have its own astronauts, and during an historic session of the Indian Space Research Organisation (ISRO) in 2006, it was decided that the manned space exploration program should be bolstered by launching a short, piloted spacecraft mission.

The objective of the program was to create a manned capsule carrying two crewmembers that would be capable of remaining in orbit for at least one week before returning to Earth. Plans are now in place to land the module in the Bay of Bengal near the East Coast of India upon re-entry. The program will rely upon the Indian-made GSLV MkIII launch vehicle, operating on cryogenic engines also developed in India.

Last August, head of the Indian Space Research Organisation Koppillil Radhakrishnan announced that the country would soon be ready to put 104

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India would soon be ready to put an an Indian crew into orbit without any external assistance.

A full scale unmanned module is already being prepared for an experimental launch using GSLV Mk-III as a booster rocket. The objective of this mission is to study ballistic properties of the module to facilitate its safe re-entry. Still, the exact date of the manned mission has not been mentioned. Local media are still hopeful that the Indian crew would be put into orbit by 2020

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‘vyomanauts’ (from ‘vyoma,’ the word for ‘space’).

The lack of consensus indicates that discussions are still far from over.

It has also been reported that new space suits are being designed and that a company based in the city of Mysore has already started developing specialized food for India’s cosmonauts.

While the vyomanauts are waiting for their turn in space, unmanned Indian satellites and orbiters are already flying through the solar system. In late September, India’s Mangalyaan spacecraft entered orbit around Mars. The system was launched in November 2013 as a part of the Mars Orbiter Mission, making the ISRO the sixth space agency in the world to send its own research station to the red planet. “If all goes well, India stands to become the first country that managed to complete the project [of putting an unmanned space vehicle into Mars’ orbit] on the first attempt,” said Radhakrishnan proudly.

In 2008, India launched its Chandrayaan-1 lunar mission. The unmanned spacecraft reached the Moon’s orbit, remained there for 312 days, and sent an impact probe to the Earth’s satellite. A new Chandrayaan-2 mission is now being prepared. It is envisaged that a research spacecraft would land on the moon and even deploy a small lunar surface vehicle. Initially, the program was planned as a joint project with the Russian Space Agency. However, in recent months, India has said that it intends to complete the project on its own. The preliminary moon mission launch date has been set for 2016.

Local specialists place a great deal of emphasis on commercial satellite launches. India has long been a proactive player on this market and has already launched dozens of satellites commissioned by Germany, Israel, South Korea, Singapore, and other countries. In June of this year, an Indian rocket

launched from the Satish Dhawan Space Centre put into orbit as many as five satellites owned by various companies from France, Germany, Canada, and Singapore. New Delhi plans to significantly increase the number of such launches in the next five years.

In 2006, spurred on by China’s example, India also began to develop its own satellite navigation system called IRNASS. The first two satellites were already put into orbit in 2013 and 2014, forming part of the new system that will initially cover India and its neighboring states. “Traditionally, India has lagged behind China in the initial stages, as was the case with the national nuclear program, for example. Beijing managed to acquire a nuclear bomb before New Delhi. This was also the case with the construction of the country’s own long-range ballistic missiles, aircraft carriers, and submarines,” says Trivedi. “The same thing happened with the space program, but history shows that India always catches up eventually.” Only the future will tell whether history will be repeated this time as well.

One thing is clear, however – the long-standing record of rivalry between India and China has grown to new, cosmic proportions.

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A GATEWAY TO SPACE Futurologists predict that space flight will become as common in the 21st century as air travel was in the 1920s and 1930s, which is why spaceports are being built across the planet at an accelerated pace. The first of these launch centers were constructed in the 1950s; now there are nearly thirty of them around the world, though not all of them are operational. Among these ‘gateways to space,’ the BRICS countries have many they can call their own.

RUSSIA

The ISS crew members: US astronaut Kevin Ford (center), Russian cosmonauts Oleg Novitskiy (bottom) and Evgeny Tarelkin (top)

BAIKONUR Of all the former Soviet launch sites, Baikonur is the most well-known due to its status as the largest launch facility in the world. This famous cosmodrome was built in the Kazakh Steppe near the village of Tyuratam, but may have been named after the mining town of Baikonur to the northeast to mislead potential adversaries. Construction began in 1955, and the first successful launch took place in 1957. It was from Baikonur that Earth’s first cosmonaut Yuri Gagarin was sent into space, and it was subsequently the base of all Soviet and Russian manned space missions. In recent years, however, Moscow has been gradually scaling down its presence in Baikonur, which is located in present-day Kazakhstan. Russia is widely expected to relocate its main space center to Amur Oblast’s Vostochny Cosmodrome, a planned spaceport that is currently under construction.

KAPUSTIN YAR This first Soviet rocket test site was built in Astrakhan Oblast in 1946 to test Soviet ballistic missiles.

YASNY This launch site, located in Orenburg Oblast, saw its first launch in 2006. The facility currently services Dnepr rockets, jointly developed by Russia and Ukraine based on RS-20 intercontinental ballistic missiles (called the SS-18 Satan by NATO).

Using these rockets to put civilian satellites into orbit is considered to be one way of reducing ICBMs under the START-1 treaty.

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SVOBODNY This government test site, used by the Ministry of Defence of the Russian Federation, was built in Amur Oblast. The first launch took place in 1997, but the site is currently out of commission.

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Russian cosmonaut Elena Serova attends preflight training in the Baikonur cosmodrome

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PLESETSK This rocket test site, built in Arkhangelsk Oblast, is considered to be the northernmost launch center in the world. Construction began in 1957, and the facility was converted into a full-fledged launch site in 1966 with the launch of the Kosmos 112 satellite. Plesetsk is currently used for testing rocket equipment and launching multi-purpose satellites into space.

VOSTOCHNY Russia currently has plans in place to build a cosmodrome in Amur Oblast near the village of Uglegorsk. The facility is slated to have several launch pads, some of which will be capable of accommodating heavy Angara-5 booster rockets.

Vostochny will be ready to launch its first unmanned missions as early as a few years from now, and may eventually become Russia’s main launch site.

BR AZIL

Brazilian-made booster rockets. The Center has had setbacks though – in 2003, a Brazilian VLS-1 booster rocket prototype exploded on the launch pad, killing 21 people. In the future, Brazil plans to make this location available as a launch site for foreign-made booster rockets. In particular, Ukrainian-made Cyclones and Israeli-made Shavits are likely to be launched from Alcântara. Negotiations are also underway to use this site for Russian-made Protons as well as Chinese rockets.

ALCÂNTARA LAUNCH CENTER This facility offers one major advantage – it is located close to the equator, making it easier for spacecraft to reach geostationary orbit. The construction of this Brazilian launch site began in 1982 and took eight years to complete. The first rocket launch took place in 1990 when a Brazilian Sonda 2 was sent into space. Soon thereafter, the site was also used to launch research and meteorological spacecraft made in Canada and the Unites States as well as 108

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the Chandrayaan-1 automatic station was sent to the moon in 2008, and the Mangalyaan spacecraft embarked upon its voyage to Mars in 2013. The first Indian astronauts are expected to be put into orbit from this center as well.

SRIHARIKOTA This site, officially known as the Satish Dhawan Space Centre, is located on Sriharikota Island in the Bay of Bengal. One of this launch site’s greatest advantages is its proximity to the equator. It was from here that

CHINA

WENCHANG This spaceport is currently under construction on the island of Hainan in the South China Sea. What makes this site unique is its proximity to the equator and the convenient location of nearby bays, which makes it easier to deliver booster rockets by ship directly from the manufacturer. It may eventually become China’s main launch site for manned missions.

XICHANG The construction of this space center in the Sichuan province began back in 1967. Initially, progress was slow, as construction was interrupted by the Cultural Revolution. The site was finally commissioned in 1984 is today used to launch commercial satellites.

TAIYUAN This spaceport, located in the Shanxi province, was built in the late 1960s. In the early stages, it served as a major missile base for the Chinese armed forces.

The first space launch took place here in 1988.

Currently, the site is used to launch meteorological and research satellites.

JIUQUAN This satellite launch center, located in a desert area in the Gansu province, is often referred to as the Chinese Baikonur. It is the best-known spaceport in the People’s Republic. The facility was built under Mao’s orders in the late 1950s and designed for military purposes. It has been the launch site of all Chinese manned missions, and will remain so until the Wenchang Satellite Launch Center becomes fully operational.

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Jiuquan Satellite Launch Center 109

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Growing Smart How can modern cities use new technology to become better places to live? Dr. Boyd Cohen, climate and urban strategist and the author of annual smart city rankings, shared his view.

become more efficient, but I believe in a more holistic vision. To me, a city is not a smart city if it is not also on a green path and trying to be more sustainable – and that’s through technology and non-technology.

Everything from more progressive green building strategies to developing renewable energy to using energy monitoring systems – all of those things fit very clearly within the scope of a ‘smart city.’

How can cities profit from a transition to a lowcarbon economy?

I actually wrote a book in 2011 called Climate Capitalism, which looked at how companies, cities, and governments are already profiting from a lowcarbon economy. We looked at several different sectors of the economy – energy, buildings, transportation,

Why is the smart city movement impor­ tant to you?

The world is urbanizing. Over 50% of the world’s population is currently living in cities, and we’re heading to 70% or 80% in the future. This is creating a lot of challenges for cities around the globe. We’re also seeing cities having an increasing impact on the environment, ecological systems, and climate change.

Cities are the source of many of the challenges society is facing today, but they’re also a likely source of innovation and opportunity to change how we live in a way that’s more sustainable for the future.

Is a smart city necessarily a green city?

In my opinion, yes. Some people want to define smart cities as cities that are using technology to 110

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a lot of the upfront investment in the project, but then it gets more of the long-term returns on investment instead of the city itself.

An example is the ESCO model, the energy service company model, which a lot of cities have adopted.

A private sector energy company comes in and assesses buildings in the city – municipal buildings, for example – and comes out with a program for enhancing energy efficiency. The private company essentially finances the retrofitting of the buildings, but in return, they get a percentage of the savings from the energy cost over a long period of time. That allows the private company to get a good return on investment, but still saves the city money.

There are a lot of examples like that that are emerging in the smart city space where you can try to find a win-win between the private and public sector, and the public sector might get away with not even having to pay any upfront investment.

What smart city technology do you personally consider to be the most important/interesting/ promising today?

I’m very interested in everything around mobility.

For example, applications using real-time data to facilitate smarter decisions from citizens about the right way to move around the city. I’m very interested in the electrification of the local transit infrastructure – by electrifying public transit as well as supporting the adoption of electric vehicles and car-sharing and bikesharing programs. I’m very interested in the whole range of mobility solutions that are emerging or have been implemented.

But across the board, you probably have seen my ‘smart cities wheel.’ I have six components to that wheel, and that’s basically how I define a smart city. In each of those areas, there is emerging technology and nontech. I think that’s an important factor, too. To me, a smart city isn’t just about using more technology, but it’s also just about being smarter and more innovative about its business - whether that’s better participation of citizens in co-creating solutions or whether it’s the emergence of procurement for innovation. That is where cities change their procurement process to make it less bureaucratic and focus more on securing innovative solutions to their challenges rather than using basic off-the-shelf solutions.

What do you think of Moscow, or Beijing, or Delhi – do they have the potential to become smart cities? Do you even consider them when rating cities?

agriculture, and carbon markets – to explore this specific question. But I think it is the least sexy solution that makes the most sense, and that is investment in energy efficiency – whether in lighting or in building efficiency. The return on investment is usually quite quick for cities, so that’s an easy example of a way cities can profit from a low-carbon economy.

I think there are a lot of other areas that may be more interesting. One example is how cities can work to promote clusters of green technology and development in the city. They can use the city as an urban laboratory to test new solutions, and have local technology companies gain access to global city markets by proving the case for their technology in their local city. I like that idea because it obviously can improve the sustainability performance of the city they’re in, and they can also pay tribute to local economic development.

There’s an interesting project in Amsterdam right now that I’m following called AMS Institute. They have four Dutch universities partnering with the city of Amsterdam and several multinational companies, and their plan is to co-create solutions around energy, building, water, and food systems. They are testing them in Amsterdam, and will export the best solutions around the world.

Why do so few cities in the world try to adopt smart technologies?

It’s the same thing in the private sector. The private sector has also been very slow to embrace a lot of these things, and it is sometimes confounding or surprising that they’re not more proactive in embracing things like energy efficiency when the business case is so clear. I think part of it is that it’s just not where their attention is. I’ve discussed some of these topics with private sector companies – they’ve basically just got different priorities. Even if there is a good return on investment – for example, implementing energy building retrofits – there’s more offside potential in investing that money in R&D for creating a new product or service that might generate more revenue and profit.

In the public sector, I think there are a lot of challenges. One is a lack of knowledge from the public officials. Another problem is the lack of financing instruments. Even if it makes financial sense, they don’t always have the ability to make investments in these projects. And that’s where I think some innovative public-private partnership models emerge, where the private sector maybe takes more of the risk and puts No.3(7), 2014

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of thinking about what the future of the city could or should be.

Eventually, that should include indicators. This year, I’m using 62 indicators. Let’s say Moscow used 62 indicators, and they have a baseline of where they are in 2014. They should look at 2040 or 2050 and say, ‘‘Okay, only 1% percent of daily trips are done by bicycle. By 2050, we’d like that to get to 15% or 20%.’’

And you have that for all of the indicators. Again, that should be co-developed with some citizen involvement.

Then you can start prioritizing projects based on where you’re weak and where your priorities are.

Why do you think the future of capitalism lies in green innovations? Why is it good for the economy, apart from saving the planet?

Again, my book looks at that in a lot of detail. The future of industry has to be greener than it is today; there’s really no alternative. As the population of the world continues to grow over the next couple of decades, the overexploitation of natural resources and the declining supply of fossil fuels will require rethinking our development and industry in a way that is more sustainable. In my opinion, the future of all industries is going to have to be more sustainable than it is today, and so is the future of our cities.

That is going to have to come from either citizens, or stakeholders, or city requirements, or because there’s not much of an alternative. As we start running out of fossil fuels, we’re going to have to look for alternatives.

I think the companies and countries and regions in the world that recognize that, and begin to invest in more sustainable innovation and technology, are going to be in the best position for long-term economic success.

Could you give some examples of a quick/efficient transition from a traditional city to a smart city?

I’ve written recently about two of my favorite cities.

When you look at a fast transformation, I think that’s Medellín in Colombia and Singapore in Asia. You can find an article I wrote in UBM’s Future Cities where I describe the transformations of those two cities in a lot of detail. Both of them were basically like third-world countries about 30 years ago (Medellín is not a country, but it was like it was in a third-world country), and they transformed over the last few decades. Medellín, for example, was named the most innovative city in the world last year. There are really interesting things happening in some of these cities, and not always the capital cities – Medellín is a good example. Sometimes innovations come from smaller, secondary cities.

I do rankings of regions – Europe, North America, Latin America, and Asia-Pacific – so I basically chose 30 cities in each of those regions. Some of those cities, like Beijing, were eligible in this year’s ranking. There are buckets of innovations that you’d expect to have in a smart city that are happening in all those cities, but there are many challenges as well. Beijing is a good example – with such a large population, air contamination, and other challenges, it’s not easy for them to achieve some of the things I find in Vienna or Barcelona or Boston.

To me, the smart city thing is a journey to be a smarter, more efficient city. I think every city is either on that journey or they should be. I don’t actually believe that any city is really ‘smart’ – I think they all are just trying to be smarter. Beijing, Moscow, and every other city in the world has just as much opportunity to improve where they are now, be smarter about how they use their resources, how they engage with citizens, how they interact with the natural environment, and what they do to promote innovation in the private sector and support new enterprise. All the cities you mentioned are doing these things, but they can always do more.

As for Moscow, I haven’t looked at it in detail, but of course I’ve studied the Skolkovo project. I think it’s a fascinating example of new, greenfield smart city development. The case of Skolkovo is an example of what you’re doing when you’re near massive capital cities or very large cities, and what you might want to do when you can start with a clean slate and think about the role of the university, think about the role of innovation and technology, and think about infrastructure from the beginning, without having to retrofit things. I think there’s something to look at, particularly in that example, that’s being replicated or adopted or explored in other countries around the world. And that’s something I’m certainly following and interested in.

What should a traditional city begin with to become a smart city?

That’s a good question. My opinion is, the first thing is to do some sort of baseline diagnostic of where they are. The rankings I do are designed to provide that benefit. I publish the indicators that I use, so cities that are not even ranked can use them. I think doing measurements to understand where they are across all aspects of a smart city is really important before they try to start making decisions. One of the next steps is co-developing strategies for the future involving citizen groups and other stakeholders in the process 112

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It is the least sexy solution that makes the most sense, and that is investment in energy efficiency – whether in lighting or in building efficiency. The return on investment is usually quite quick for cities, so that’s an easy example of a way cities can profit from a low-carbon economy.

There are a lot of other areas that may be more interesting. One example is how cities can work to promote clusters of green technology and development in the city. They can use the city as an urban laboratory to test new solutions, and have local technology companies gain access to global city markets by proving the case for their technology in their local city

© TED

culture with a lot of museums and galleries, and cultural activities in the streets. The street thing is big for me. I think cities that have a really vibrant street culture are the ones that feel most alive – cities that are very pedestrian-friendly, where the streets are fun to walk down, and where interesting things are always going on somewhere.

What do you mean by ‘dense’ – does it have to be highly populated?

It doesn’t necessarily have to be highly populated, but the population is in a denser, more compact area of the city. The city isn’t sprawling over hundreds of miles, but instead covers a much smaller territory.

People live in denser neighborhoods and buildings, not just single family homes with gated communities.

How do you picture an ideal city in 20 years?

Cities don’t transform that fast normally, so I don’t think you’ll see radical change. But you’re clearly going to see the presence of technology becoming more important. Some of the technology will be obvious and in your face, like real-time billboards and things that you can see. On the side of a road or in a plaza, you might have digital signs that provide information in real time about traffic, where the nearest bathrooms are, where the nearest street performance is happening, and so on. Other technology will be working behind the scenes – sensors, video cameras, things that work to improve security, mobility, and traffic flow, things that monitor energy in real time, and all the mobile applications people use to be ‘smarter.’ I think we’re going to see much more sharing in the economy – where people use technology to share resources rather than buy new things. Some things we see will be different, I think.

What is an ideal city to you?

Wow, that’s a good question. It’s dense. We haven’t talked about this yet, but urban planning around the world is not very good, and you find that cities continue to sprawl, and that’s far from ideal.

An ideal city is dense, it’s walkable. The best forms of transportation are walking and biking. So it’s a city you don’t even really need to use public transportation in. I guess it’s a city where cars are basically nonexistent or not used very often, and the ones that are used are electric. I think it’s a city that’s inclusive – that doesn’t have major problems with inequality and doesn’t have a lot of really poor neighborhood slums.

Everybody – wealthy or non-wealthy – has access to the high-quality basic services that people deserve and need, like healthcare, quality education, and access to jobs and food. It has a strong local food system, so it doesn’t depend on importing food from thousands of miles away. It’s a low-carbon city. For me, it’s a city that has a lot of green space and incorporates nature.

My dream cities are the ones that have mountains and water nearby, cities that you can enjoy, exercise in, and take your family out for activities in. It has a vibrant No.3(7), 2014

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Solar City In recent years, Barcelona has scored higher and higher in ‘smart city’ rankings due to its innovative solutions in solar energy, electric vehicle adoption, and bold experiments in public-private collaboration. The mayor of Barcelona, Xavier Trias, tells BRICS Business Magazine what these changes are all about.

Why do you support the global ‘smart city’ movement? Why do you think this is important?

As Mayor of Barcelona, I firmly believe that a ‘smart city’ strategy is essential to foster economic progress and improve people’s wellbeing and quality of life. We support the main ideas that this movement promotes because it means moving towards a provision of better public services, a more sustainable social, economic, and urban development model, and more efficient management of city

resources. Moreover, we understand technology to be the urban revolution of the 21st century, the main enabler for the transformation of city management and planning.

There are different definitions of a ‘smart city.’

Which one do you use?

In Barcelona, being smart is about always finding the best way to reach our goals and, in our case, our main priority is to develop a new city model for the 21st century where economic and social progress go hand-in-hand.

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quality of life through more efficient and sustainable management of the city resources and service provisions. Within Barcelona’s Smart City Strategy, we have 22 programs, including initiatives ranging from Smart Water Management to Smart Mobility or Open Government.

Although most of these programs are based on technological innovations, there are three main programs that are pivotal: the Telecommunications Network, Urban Platform, and Smart Data programs. These programs have the greatest potential to be truly transformative since they are becoming the foundation for the development of many other solutions.

Is there the potential of introducing new technological solutions in the security sphere?

The City Council is interested in exploring new technological possibilities in the sphere of security and is already in talks with security companies to explore new collaboration possibilities.

What will change in Barcelona in the coming three to four years?

As Mayor, I understand the city as a network of integrated elements. This holistic approach aims to challenge the traditional discrete functional silos in which cities are typically divided, just as Barcelona aims to progressively evolve to a coordinated system where information flows more freely. This would allow city officials to make the best possible decisions.

In Barcelona, we also realize the potential that technological solutions and international collaboration will have in changing this. That is why we are building public-private partnerships and supporting international collaboration through organizations like the City Protocol Society and with active participation in international city networks.

What do you think of Boyd Cohen’s ‘smart cities’ ratings and Barcelona’s place in it?

Barcelona actively promotes open government and open data, and Professor Cohen’s annual ranking is one of the clearest examples of that. As one of its participating cities, we provide the most up-to-date information from all the different departments within the City Council. We believe that Barcelona is among the smartest cities in Europe and worldwide, precisely because of its holistic approach to city development, which is proven by this ranking across six different criteria (environment, mobility, government, economy, people, and quality of life).

This implies promoting efficiency and sustainability within the city by enhancing coordination among different departments and promoting cross-cutting solutions, innovating, and learning from others to always find the most suitable solution to each urban problem and putting these technological developments at the service of the people.

Does your scientific background as a medical doctor help you understand what technological solutions can and should be put into place in Barcelona?

Yes, of course. From the beginning of my career as a doctor, I understood that it’s essential to place new technologies at the service of the people to improve their wellbeing and quality of life. In Barcelona, we develop innovative solutions with sensors and mobile applications, in areas as diverse as security, public transport, cleaning, lighting, parking, management of waste and water, and health and social care.

Barcelona was awarded the 2014 Mayors Challenge Grand Prize for Innovation by Bloomberg Philanthropies to create a digital and community trust network to combat elderly isolation. The project, VinclesBCN, utilizes tablets and mobile phones to facilitate member communication and assistance. It combines the informal care of family, friends, and neighbors with the expertise of formal caregivers in health and social services.

How do history and Barcelona’s unique architectural heritage interact with the newest technological solutions? Don’t these things contradict each other?

Far from contradicting each other, they actually reinforce one another. Technological solutions help to improve the living conditions in the oldest neighborhoods of the city. Since we are not building a city from scratch, we need to design solutions to our challenges in harmony with our unique architectural heritage. This doesn’t mean that it has to have a negative visual impact on them. The Born neighborhood, for example, is a test bed of smart solutions and is one of the best examples of how technology is integrated into everyday life and respects the area’s atmosphere and heritage.

What technological innovations in Barcelona do you personally consider to be the most interesting/important/promising today?

The solutions we are testing and deploying in Barcelona are all aimed at improving people’s No.3(7), 2014

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Google’s founders say that the problem for many big corporations is that their CEOs make short-term plans and leave their positions after about only four years, while big projects need about 20 years. Is it the same in city planning?

Barcelona’s aim to be a ‘smart city’ is strongly based on long-term thinking – you cannot change a city within a mayoral term. You have to get results in the short term, but also set goals for the medium and long term. We are working to achieve a deep urban transformation that, of course, will take time and involve projects and plans designed for the longer run.

How do you picture an ideal city? What should it be like in terms of technology and everyday life?

The city is a social dream designed to make our life easier, healthier, happier, and more affordable.

We are working to turn this dream into a reality by building a smart city that is locally self-sufficient and globally connected – a zero-emission city with productive neighborhoods, designed at a human scale for living and working in the same area, and where people can move easily by foot, public transport, bike, or electric vehicle.

Are there any benchmark cities that are models for Barcelona?

Despite our different characteristics, all cities face the same challenges these days, and it makes perfect sense to try to solve them in a collaborative way, regardless of borders. We know that we can learn from many other cities, find synergies, and establish common approaches to similar problems.

This is one of the reasons why Barcelona strongly supports the City Protocol Society’s vision.

To what extent is Barcelona’s experience universal, in your opinion? Can it be ‘translated’ into other languages and used in other countries?

Barcelona is constantly receiving international delegations, not only during city events but also throughout the year. These delegations are interested in learning about our city’s experience, our vision, and our projects, and they typically ask for advice to replicate them in their cities.

Moreover, one of the ways in which Barcelona is actively participating in the City Protocol Society is by sharing its projects and approaches, which have the potential to transform cities worldwide. Thus, scalability and replicability are two of the most important criteria so that they can be discussed, shaped and, ideally, adopted by other cities.

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Solar City

BARCELONA’S ‘SMART CITY’ INITIATIVES Barcelona is very serious in its smart city strategy. It has dozens of smart city projects in different areas – public and social services, the environment, mobility, the economy and business, research and innovation, communication, infrastructure, tourism, and citizen involvement. Here are some of the most interesting projects: ECOLOGY Barcelona is implementing the LIVE Barcelona (‘Logistics for Electric Vehicle Implementation’) program, designed to boost electric transport in the city. To date, there are around 250 electric charging points, some 500 hybrid taxis, 300 public electric vehicles, 130 electric motorbikes, and 400 private electric vehicles on its streets.

It also has a bike-sharing project with more than 6,000 bikes.

In 2000, Barcelona introduced a solar thermal ordinance that makes it compulsory for new buildings to use solar energy to supply 60% of running hot water.

SMART MOBILITY The city has one of the largest free public Wi-Fi networks in Europe: there are 461 access points at 193 municipal facilities and at 276 street sites. To navigate the city using Wi-Fi, there is a special portal called Apps4Bcn (www.apps4bcn.cat), providing all kinds of applications that can help its users discover new places, learn about events or campaigns held in the city, and much more.

Moreover, there is a crosscity program called Barcelona Contactless that provides local information via access points (with QR-codes, for example) spread throughout the city. It tells visitors and locals about the area they are in at the moment.

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SOCIAL CARE More than 70,000 elderly Barcelonans a day use Telecare service. A special device is installed in the individual’s home that connects them to a social care call center with the press of a button.

This year, Barcelona won the Mayors Challenge Grand Prize for Innovation and €5 million ($6.4 million) toward its proposal to create a digital network of family members, friends, neighbors, social workers, and volunteers who make up ‘trust networks’ for elderly residents.

EDUCATION A simple but innovative way of socializing schoolchildren, there are school routes painted on pedestrian crossings and sidewalks that children can use to find their way to and from school. mSchools is an educational program designed to get secondary-school students to use mobile technology while studying in the classroom.

Fabrication Laboratories is a set of open spaces where one can learn the basics of digital fabrication, as well as anything else about science and technology, in an experimental and entertaining way.

OPEN GOVERNMENT The Barcelona City Council provides public data so that

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everyone can access and use it.

The information provided ranges from the age of cars in the city to bakery supply policies, and includes much more. mobileID app makes it possible to access government services and complete many administrative procedures via smartphone. Finding a car that was towed, learning when and where to vote, and getting copies of tax documents are some of the things that can be done with this app. Another useful e-government app is ApparkB that allows users to pay for car parking instantly via smartphone.

INNOVATION HUB Gaudi’s city also boasts an innovative district called 22@Barcelona. It’s a ‘smart city campus,’ or a cluster where companies, universities, entrepreneurs, and researchers can work together to create new technological solutions for the city.

Barcelona is not only trying to become smarter itself, but also advancing the global smart city movement. It holds a global event for smart city stakeholders, the Smart City Expo World Congress. It also started the City Protocol, which seeks to connect cities from all over the world in order to solve universal problems.

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概述 科技进步——这是当今社会最明显的特征之一，每个人都能从自己的生活当中切 身地感受到它的存在。我们无法准确地猜测出未来科技会发展到何种程度，当然， 如果不考虑那些灾难片的电影剧情，我们能肯定的是科技的发展将是必然的趋势。 这的确是件好事，因为它肯定了一些我们对未来的构想。这也是一件有趣的事，不 妨想想三四百年后的世界和现在的区别，会不会像如今的我们和中世纪时的区别 呢。金砖国家商业杂志编委会主席鲁本瓦尔达尼扬在序言中如此写道。 在这样一幅未来的画面下，人们自己或多或少也会变得科技化。我们可以 看到，科技的进步要远远超过人类的道德进步。所以审视自我，听起来可能微不足 道，但却是需要我们比量子计算和载人航天飞行投入更多的精力。自我审视是不可 避免的，正如同科技的进步一样。 创新工业 安纳托利 丘拜斯，作为俄罗斯上世纪90年代自由改革之父的一员，在不同时期 曾担任俄罗斯联邦总统办公厅主任、财政部部长以及俄罗斯“统一电力”公司董事长， 本人一直专注于高新科技技术。如今，他作为俄罗斯纳米技术股份公司的掌门人， 首要面对的问题就是建立俄罗斯的创新产业基础，并刺激整个创新领域的发展。在 金砖国家商业杂志对安纳托利 丘拜斯的专访中，他会向我们详细讲述创新领域遇到 的难题，取得的成就，以及这个新兴产业未来的发展前景。 未来的缔造者 如今很难想象，关于创新和创新发展的理念其实是很年轻的，即便是在发达国 家，这些理念的提出也不超过半个世纪。而在以金砖五国为首的新兴市场中，这 些概念更是刚刚才兴起。即便如此，我们已经成功地培养出这个领域的很多《冠 军》——那些创新发展领域的民族企业领袖。那么这都是些怎样的公司，他们的成 功秘诀又是什么，巴西，俄罗斯，印度，中国和南非是如何走出自己的经济特色之 路的——所有问题的答案您都能在俄罗斯新兴市场研究所(SIEMS) SKOLKOVO商务 学校的最新调研中找到。 2020年的科技 《人工智能》网络，价格低廉的太阳能，新一代抗菌和抗癌药物，3D《生物打 印技术》——这些目前都仅是一些对未来科技的构想，但在不久的将来定会融入到 我们每个人的生活中。金砖国家商业杂志向您介绍蓬勃发展中的创业公司——2015 年世界经济论坛(WEF)评选出的《科技先锋》和他们革命性的创业发展之路。 天空的主人 飞机制造和航空运输业——新兴市场在这个领域的投资主要是为了实现其经济多 元化。但是个别国家的在这块产业中取得的成就却是如此引人注目，以至于他们甚 至超越了这一行业的那些老牌劲旅——一直掌控着主导地位的西方。金砖国家商业 杂志给您介绍来自发展中国家航空产业的15位英雄，他们未来的成败很大程度取决 于能否实现自己的雄心壮志。

BRICS Business Magazine thanks correspondent of China International in Moscow Yang Jin for the translation into Mandarin.

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RESUMO DA E DIÇÃO O progresso técnico e um dos fenômenos mais visíveis, um fenômeno que afeta a vida de cada um de nós.

Nós não somos capazes de prever com toda a precisão o que nos mais vai trazer o desenvolvimento e difusão de novas tecnologias, mas podemos constatar sem qualquer duvida, a não ser que aconteça algo catastrófico, que tal progresso é inevitável. Uma das vantagens consiste em que este fenômeno nos proporciona um certo grau de certeza em relação as nossas visões do futuro. É curioso imaginarmos que em 300 ou 400 anos o mundo será diferente do mundo em que vivemos hoje da mesma maneira como o mundo de hoje não parece ao mundo da época da Idade Media, conforme destaca na sua nota introdutória a esta edição da BRICS Business Magazine o seu redator-chefe Ruben Vardanian.

No meio destas mudanças revolucionarias e armado com tecnologias cada vez mais sofisticadas, mesmo o homem não deixa de se “tecnologizar”, por assim dizer. Já podemos ver que o ritmo do progresso tecnológico está ultrapassando o ritmo das mudanças na psicologia humana. Por mais banal que esta idéia possa parecer, mas o homem precisa de auto-aperfeiçoamento nada menos que a computação quântica ou vôos espaciais tripulados. E este esforço mental é inevitável de modo similar ao desenvolvimento e progresso universal.

INDÚSTRIAS DE VANGUARDA TECNOLÓGICA As altas tecnologias é uma das paixões mais fortes de Anatoli Chubais, um dos “pais fundadores” das reformas liberais conduzidas na Rússia no inicio dos anos 1990, o ex-chefe do Gabinete presidencial, o ex-ministro de finanças e o ex-diretor da empresa maior geradora de energia elétrica na Russa. Atualmente ele está ao leme da ROSNANO, uma corporação controlada pelo governo cujo objetivo principal consiste em desenvolver a infra-estrutura de I&D e inovação estimulando assim o desenvolvimento das indústrias inovadoras na Rússia. Na sua entrevista exclusiva dada à BRICS Business Magazine o número um da inovação russa compartilha com o leitor as suas visões acerca das realizações, desafios e perspectivas de futuro que tem a indústria de inovação.

CRIANDO O FUTURO… Hoje em dia já nem se pode imaginar que os conceitos de inovações e desenvolvimento inovador sejam ainda bastante novos: mesmo nos países desenvolvidos este conceito só começou a surgir há uns 50 anos. Já há algum tempo que os mercados emergentes e, sobretudo, os países BRICS também apóiam esta idéia com muito entusiasmo. Alem disso, os BRICS têm conseguido muitos êxitos na formação dos seus campeões – seus lideres nacionais do desenvolvimento inovador no sector empresarial. Quais são estas empresas, quais são os segredos do seu sucesso, quais são as características especificas do desenvolvimento dos negócios de IQ elevado no Brasil, Rússia, Índia, China e África do Sul? Respostas a estas e muitas outras perguntas o nosso leitor encontrará nos materiais sobre os resultados das pesquisas mais recentes realizadas pelo Instituto Russo de Estudos das Economias Emergentes da Escola Superior de Gestão SCOLCOVO (Moscou).

TECNOLOGIAS 2020 Uma Internet “humanizado”, a energia solar barata, os novos medicamentos antibacterianos e ontológicos, “impressão biológica” 3D – são apenas alguns exemplos das tecnologias mais avançadas de futuro, que, porém, não tardarão muito a invadirem as nossas vidas habituais. A BRICS Business Magazine apresenta alguns startups de alta tecnologia e inovações incluídos pelo Fórum Econômico Mundial (WEF) na lista dos chamados “Technology pioneers 2015”, bem como os seus produtos inodavores revolucionários.

OS DONOS DO CÉU A aeronáutica e o transporte aéreo são sectores chave para muitos mercados emergentes que buscam diversificar as suas economias. Ao alcançarem êxitos muito impressionantes, alguns países já se estão tornando atores muito influentes num campo historicamente dominado pelo Ocidente. A revista BRICS Business Magazine apresenta 15 personagens da indústria aeronáutica das economias emergentes cujo desempenho vai determinar em grande parte o destino dessas ambições.

BRICS Business Magazine thanks Victor Bereznoi for the translation into Portuguese.

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Larry Page’s Theory Modern airport efficiency is one of the issues that Google co-founder Larry Page plans to tackle in his quest to build a perfect world. Apart from the obvious question of how it will be done, another one remains: is it effective to invest billions of dollars into upgrading and building new airport facilities?

Still, it is difficult to overestimate the timeliness of the research that Page has begun. According to data published last May by CAPA, an international aviation analytical center, the total volume of active global capital investments into airports and auxiliary infrastructure is estimated at a whopping $415 billion. This figure includes $70 billion in construction and design costs for 229 new airports. The largest of these projects was Istanbul’s third airport – construction on the $37.5 billion project was launched early this year and the airport will have a capacity for 150 million passengers when finished. The most ambitious construction project, however, was unveiled in China; according to plans, the number of civil airports will increase from the current 183 to 224.

If Larry Page’s theory is correct, the enormous amount of resources being invested in airport projects will be spent inefficiently, and even a small increase in efficiency could save a lot of money. How can such ideas be conveyed to the international community and simultaneously address the many concerns shared by governments, investors, and construction contractors? This is the question that Larry Page and his team will really have to ponder.

It is not news that Google and its cofounders, Sergey Brin and Larry Page, work hard to improve daily life. The American internet giant has long been investing in technologies meant to better the world – in areas ranging from extending longevity by way of HealthMap and a ‘youth elixir’ to ‘smart’ transportation, such as driverless cars that would solve transportation problems and unmanned cargo aircraft that could deliver vital supplies to hard-to-reach areas and disaster-struck regions.

To facilitate this work, the company set up the Google X lab, which is supervised by Brin and remained hidden from the public eye until recently. In late September, Amir Efrati of The Information reported that Larry Page had also put together his own project – Google 2.0.

Made up of approximately 100 researchers, the group’s objectives is to develop a new airport model, as the efficiency of existing air traffic facilities is something that Page categorically disagrees with. In particular, he is not happy with the fact that passengers have to spend the lion’s share of their travel time on the ground instead of on a plane. It is still unknown how the Google 2.0 project is going to achieve their objective.

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