Portfolio
Issue 98 ■ February 2014
Exclusive to Emirates First Class and Business Class
ANDROID TO ROBOTS Google’s New Direction
Norbert
Reithofer BMW’s Driving Force
ASIAN INDUSTRY Being Green Pays SOUND OF MUSIC Korea Plays Broadway
This issue FEBRUARY 2014
Portfolio
Exclusive to Emirates First Class and Business Class
Cover Story 22 Driving Force Norbert Reithofer, the CEO of the BMW Group, has managed to maintain the Munich-based company’s lead in global luxury-car sales. But, as the launch of BMW’s first electric car proves, he is also investing in the future.
Features 28 Green for Profit
48 Poland’s Outsourcing Success
Factories in Asia are finding that environmental certification
Around 110,000 people work in Poland’s business services
makes financial sense and for good PR.
industry and that number is growing steadily.
32 Google’s Robotic Future
52 Ireland’s Ghost Estates
The acquisition of seven technology firms shows that Google
The bursting of Ireland’s housing bubble resulted in 1,300
is serious about robots.
so-called ghost estates and hundreds of thousands of
36 Toxic Gold Indonesia’s small-scale gold miners are facing serious
unoccupied new homes.
56 Fashion and Responsibility
health risks due to their high exposure to mercury.
The collapse of Rana Plaza in Bangladesh exposed the murkiness and lack of accountability in the global supply
40 Scotland’s Energy Lifeline The threatened closure of the Grangemouth petrochemical complex raised some stark questions about Scotland’s bid
chain for clothes.
60 A Tentative Start
for independence.
Japanese entrepreneurs, after years of institutional neglect, are finally receiving some support.
44 Uneasy in the Lead Samsung Electronics, with $190 billion in sales last year, has become a market leader instead of a follower.
32
52
3
Portfolio
4
Exclusive to Emirates First Class and Business Class
Essentials 63 Tigers and Dragon Boats Taiwan is famous for its work ethic, but behind its industrial face there’s also a realm of soaring mountains, tranquil lakes and coral reefs.
68 Korean Cash Takes Broadway Bow South Korean money is funding Broadway plays, but the long-term target is for Seoul to be the bridge between
63
Western and Asian markets.
72 Spain’s New Olive Oil Rules Olive oil served in Spanish restaurants now has to come in sealed, non-reusable bottles instead of the traditional cruet.
76 Subsea Engineering Excellence Aberdeen has become the centre of subsea engineering thanks to expertise gained in North Sea oil fields.
68
80 Saving a Ferocious Predator The Orinoco crocodile, South America’s largest predator, was nearly hunted to extinction. Now efforts are underway in Venezuela to save the reptile.
84 African Artists on the Rise Lifted by the promises of democracy and the internet, a new generation of African artists is being seen and heard around the world.
80
88 Other Business Portfolio takes a light-hearted look at the latest business news.
Departments
84
7 Notebook World business in a nutshell.
13 Observer Spotting and analysing business trends.
20 Column: Alex Andreou Trickle-Down Economics
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Notebook
7
AFP/grAPheAst
BUSINESS NEWS IN BRIEF
Clean Energy Investment Falls Global investment in clean
BNEF’s founder, Michael Liebreich,
Clean energy investment was even
energy fell for the second year in a row
said there were some bright spots in
down in China – for the first time in a
to $254 billion last year, with green
the decline. He said the sharp fall in
decade – with a 3.8 per cent drop. In
investment in Europe crashing by 41 per
investment in Europe was partly the
America, investment in clean energy and
cent, according to figures released on
result of declining costs for solar panels,
technologies fell by 8.4 per cent to $48.4
January 15.
bringing down the costs of rooftop
billion, Bloomberg said. The biggest exception to the downward
The drop cast a pall over a high-profile
solar. Even with the lower figures for
investor summit at the United Nations on
clean energy investment, global solar
trend was Japan, where clean energy
the same day. The summit, organised by
installations grew by 20 per cent last
investment rose 55 per cent to $35.4
the Ceres investor network, was supposed
year. There was also new investor
billion last year, as the country tried to
to build momentum for the shift to a
interest in electric vehicles and renewable
replace its nuclear power plants.
clean energy economy – a transformation
power projects.
requiring global investment of some $1
But with big economies such as
The UN’s climate chief, Christiana Figueres, urged global financial
Germany, Italy and France scaling back
institutions to triple their investments
government support for new projects,
in clean energy to reach the $1 trillion
headed downwards last year, according
clean energy investment fell from $98
figure needed to avoid a climate
to the figures released at the summit by
billion to $58 billion in Europe, a drop of
catastrophe. But with the latest figures
Bloomberg New Energy Finance (BNEF).
41 per cent.
from Bloomberg, Figueres’ task became
trillion a year by 2030. But investment in clean energy
It was the second year of declining
Germany saw the biggest decline, from
even more difficult. It appears that
investment in clean energy from a record
$26.2 billion in 2012 to $14.1 billion last
clean energy investment will now have to
$318 billion in 2011, the research showed.
year – the lowest since 2006.
grow four-fold. n
February 2014
Notebook Investors snap Up UK Farmland
Numbers Game
$3
billion has been offered by a trio of
bidders made up of a private equity firm tpg, Ontario teachers’ pension plan and
Estate agents are reporting
Kuwait Investment authority in
a big increase in investment
a bid to buy royal Dutch shell’s
buyers – some from as far
australian service stations.
away as China – trying to buy
shell plans to sell its refinery
swaths of British farmland. Rich buyers spent £54
in geelong plus several import terminals and 900 branded
million on Scottish estates last
service stations.
year, according to the estate agency Savills. One world-
€1
renowned grouse-shooting
billion has secured Fosun International,
which is China’s largest private conglomerate, control over portugal’s state-owned Caixa seguros. Fosun is the third Chinese investor to buy large-
£2
billion cash deal earns google rights over Californiabased Nest Labs, maker of “smart” thermostats and smoke alarms for homes. the bid was google’s second largest after its 2012 acquisition of Motorola Mobility and marks another expansion move stretching beyond its search and advertising business.
country requested a €78 billion international bailout in 2011.
The World In Figures
£4
in North america by
german carmaker Volkswagen over the coming five years as
for between £8 million and £10 million. The influx has sent the price of farmland to a record high cent jump on this time last
$47
million deal has
year. That compares with an
earned total sa, a
eight per cent increase in UK
French-based oil and gas firm,
average house prices and a 30
stakes in two exploration areas
per cent decrease in the price
billion spent on the
in eastern england. total sa
of gold over the same period.
22nd Winter Olympic
is looking to explore for shale
The 210 per cent rise in the
games in sochi, russia, has
gas outside France, where the
price of farmland over the past
made it the most-expensive
hydraulic fracturing method for
10 years is significantly more
Olympics ever. When russia was
extracting natural gas and oil is
than that for the FTSE 100 –
bidding to host the event the
banned. the deal makes total
the index of leading shares has
government pledged to spend
sa the largest oil company to
risen by 51 per cent.
$12 billion on sochi to turn it into
invest in UK shale gas.
$51
billion will be invested
million and two others sold
of £6,882 an acre – an 11 per
scale portuguese assets that have been privatised since the
estate changed hands for £20
“a world-class resort”.
6,000
miles of high-speed
rail network has been built by
it looks to boost its sales in
China since 2008, and now
the region. the firm, currently
it’s set to double the size of
the world’s third-biggest
its high-speed network with a
manufacturer, aims to become
further investment of £60 billion
the world’s biggest carmaker by
this year. the programme forms
launching new sUVs and selling
a key part of the country’s drive
a million Volkswagens and
to modernise, urbanise and to
audis in the Us by 2018.
eliminate poverty.
gettY IMages
8
Portfolio
Notebook US YoUth ESchEwS carS
decline? Those aged 16 to 34, who drove
drivers aged 40 and over remained steady
23 per cent fewer miles on average in
between 1983 and 2008 but fell for every
2009 than in 2001.
younger age group.
One probable reason is money worries.
They also found a significant
The recession hit the young harder than
relationship between higher online
most. The unemployment rate fell to a
activity and reduced rates of licensing for
five-year low of seven per cent last year
younger adults. Another study linked falls
but for those aged 16-19 it was still over
in driving to the use of social media and
New car purchases by those aged 18-34
20 per cent. Those with jobs are often
apps for public transport, car sharing and
dropped by 30 per cent in the US
underemployed and credit has been
trip planning via bike or walking.
between 2007 and 2012, according to
harder to come by. Recent studies by
com. Many American under-35s are now
Michael Sivak and
not even getting their licence. Given
Brandon Schoettle of
that so called “millennials” – those born
the Transportation
between 1983 and 2000 – are now the
Research Institute
largest generation in the US, the trend is
at the University of
worrying car firms.
Michigan have shown
Meanwhile the number of miles driven
that fewer young
by Americans each year has also started
people in the US are
to drop – they now drive fewer miles per
even bothering to get
capita than at the end of Bill Clinton’s
their driving licences,
first term, according to a report released
let alone buy cars.
last year by US PIRG Education Fund.
The pair found the
And the age group showing the biggest
percentage of licensed
getty images
the car shopping website Edmunds.
IBM Expands Cloud Services By some estimates,
getty images
the global cloud market
IBM has announced plans to invest over
America, Europe, Asia and Australia. IBM will open 15 new centres
is set to grow to $200
worldwide adding to the existing global
billion by 2020 driven
footprint of 13 global data centres from
largely by businesses
SoftLayer and 12 from IBM. Among
and government
the newest data centres to launch are
agencies deploying
China, Washington, D.C., Hong Kong,
cloud services to
London, Japan, India, Canada, Mexico
market, sell, develop
City and Dallas.
products, manage
With this announcement, IBM plans to
their supply chain
have data centres in all major geographies
and transform their
and financial centres with plans to expand
business practices.
in the Middle East and Africa in 2015.
This year, IBM plans to deliver cloud
Since 2007, IBM has invested more
$1.2 billion to expand its global cloud
services from 40 data centres worldwide
than $7 billion in 15 acquisitions to
computing service footprint in countries
in 15 countries and five continents
accelerate its cloud initiatives and build a
like India, the UK and the US.
globally, including North America, South
high value cloud portfolio.
February 2014
9
10
Notebook DUBAI EVENT: GULFOOD WEBSITE: GULFOOD.COM DATE: 23-27 FEBRUARY VENUE: DUBAI WORLD TRADE CENTRE With 20,000 brands, 4,500 exhibitors and additional registration halls and fast track lanes for pre-badged visitors this five-day trade show is bigger and better. Taking centre stage this year is the World Cuisine Show where international chefs will prepare signature national dishes on stage. Running alongside it is the Halal Heroes forum that, along with the Gulfood-Halal conference and Halal Development Council, will identify producers and update information on standards of food products under the Halal brand. The region’s successful food and drink companies and professionals will be honoured at the popular Gulfood Awards on February 23.
EVENT: MIDDLE EAST RAIL 2014 WEBSITE: TERRAPINN.COM/EXHIBITION/MIDDLE-EAST-RAIL DATE: 4-5 FEBRUARY VENUE: DUBAI INTERNATIONAL CONVENTION & EXHIBITION CENTRE On the back of continuing large investment in the rail sector and major on-going projects the rail expo provides a timely opportunity for companies serving the rail industry to showcase their products and services. In addition to extensive networking seminars, conferences and a gala dinner there is the newly launched 1-2-1 partnering programme, where participants will be assigned their own dedicated networking manager to help them set up meetings and introduce them to prospective business partners.
DUBAI
United Arab Emirates
EVENT: AIRCRAFT INTERIORS MIDDLE EAST WEBSITE: AIME.AERO DATE: 5-6 FEBRUARY VENUE: DUBAI WORLD TRADE CENTRE Now in its 5th year, this event focuses on presenting cutting-edge designs and innovative cabin fittings, with a special focus on in-flight entertainment and connectivity that enhance passenger experience. The two-day event also features conferences, workshops and hosted buyer programmes for key buyers. This event is held parallel with MRO Middle East, the chief aviation maintenance exhibition and conference in the region. Last year there were 3,245 attendees from 70 countries and 226 exhibitors.
EVENT: SOLAR MIDDLE EAST WEBSITE: SOLARMIDDLEEAST.AE DATE: 11-13 FEBRUARY VENUE: DUBAI INTERNATIONAL CONVENTION & EXHIBITION CENTRE This annual high-level conference – aimed at boosting the solar energy industry in the region – brings together key stakeholders, policy makers, financiers and suppliers. Featuring an extensive programme of conferences and seminars covering technical, scientific and policy topics the event is designed to educate commercial businesses and solar industry professionals in the latest trends.
EVENT: MIDDLE EAST TRADE FINANCE WEEK 2014 WEBSITE: EXPORTAGROUP.COM/EVENTS/CONFERENCES/MIDDLE-EASTTRADE-FINANCE-WEEK DATE: 25-27 FEBRUARY VENUE: JUMEIRAH EMIRATES TOWERS The region’s major trade gathering is a grand business opportunity for top international and regional banks, commodity traders, and insurers involved in the region’s market. With over 350 delegates expected to attend and emphasis placed on networking throughout the week it offers an excellent opportunity for gaining market insights. This year’s highlights include the ICC regional banking commission, Mena technology forum, and the EMEA Finance Middle East Banking Awards. Portfolio
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Observer
13
BUSINESS NEWS IN BRIEF
Mark Hemsley, chief executive of BATS Chi-X, a stock exchange in London.
A New Broker in Town BATS Global Markets is set to become the biggest stock exchange company in the US and is already Number 1 in Europe, reports Nathaniel Popper.
way of trading, focusing on low costs, competition and high-speed trading. In the rest of the world, older exchanges and some established trading firms have pointed to the recent market crashes and problems that have occurred in the United States as evidence of flaws in the US model. But BATS is winning over enough traders and banks to keep the expansion going.
The face of The global stock
Paul Squires, the head of trading at AXA Investment Management in London, said
proportioned exchange building on Wall
complete its merger with another upstart
that initially he was sceptical of BATS and
Street. In the future, it may well be a
company, Direct Edge, in a deal that will
the changes it brought to Europe, including
squat suburban office building in Lenexa,
turn it into what will most likely be the
the opening it provided for the much-
Kansas, outside Kansas City, where BATS
biggest stock exchange company in the
maligned high-speed trading sector. Over
Global Markets is based.
United States (at least on some trading
time, though, Squires said that the company
days). In Europe, BATS is already the
had been more responsive to his questions
has recently been swallowed up by the
largest exchange after a rapid, and mostly
and concerns than the old exchanges ever
InterContinental Exchange, a company
overlooked, ascent that now has it hosting
were. He has also found BATS to be half or
that gets most of its revenue from trading
trading in nearly all the big economies
less of the cost of the big exchanges.
derivatives, BATS, which was founded in
on the Continent. As it continues to push
2005, has been doubling down on plain-
in those existing markets, it is looking to
initial judgment,” Squires said. “Now
vanilla stock trading and global expansion.
take on other parts of the globe, including
it doesn’t bother me at all if there is an
That steady business has quietly moved it
Canada and Japan.
Americanisation of our markets.”
While the New York Stock Exchange
© 2014 New York Times News service
terms of the value of shares traded. In the coming months, BATS is set to
market used to be the classically
closer to the top of the list of the largest stock exchange operators in the world in February 2014
Everywhere it goes, BATS is aiming to serve as an evangelist for the American
“We’ve overcome that psychological,
BATS has been taking advantage of the difficult conditions prevailing in the stock
14
Observer for it,” Domínguez said. But Domínguez is the rare local broker who is not sceptical. Jesús SánchezQuiñones, the managing director of the brokerage firm Renta 4, said that the main people rooting for BATS’ success were Wall Street banks. No one has fought the newcomer harder than the national exchange in Madrid, Bolsas y Mercados Españoles, and its chairman, Antonio Zoido Martínez. He said he was afraid to see Europe moving closer to the stock trading paradigm in the United States, where 13 exchanges and dozens of dark pools allow banks to trade without revealing their hand. Zoido Traders work at the offices of BATS Chi-X in London.
world, where daily trading volumes have been falling for a long time, along with the
BATS Chi-X in recent months. In the United States, BATS and Direct
acknowledges that BATS does offer cheaper trading, but he argues that BATS does not partake in the most basic social functions played by exchanges. BATS does not list new stocks, for
fees that exchanges are able to charge. That
Edge together hosted around 20 per cent
has made it a difficult business for historic
of all trading in the last month, compared
instance, which is what allows companies
companies with staff and infrastructure
with the New York Stock Exchange, which
to raise money from investors. BATS also
built up during an earlier era.
had a little less than 22 per cent on its
tends to shut down when the main national
three exchanges.
exchanges are down, suggesting that BATS
BATS has a relatively small staff of about 170 people and a basic technology that can
BATS began in Spain, as in most other
is relying on the national exchanges to determine the proper price of stocks.
be exported anywhere. It has succeeded
places, by bringing in the big global banks
with this formula despite the company’s
that wanted a cheaper and more seamless
most embarrassing moment, when it had
way to trade stocks across national
dangerous for society, and for the things
to call off its own initial public offering in
boundaries. Citigroup, Bank of America
that exchanges exist to do in society,”
2012 because its software went haywire.
and Credit Suisse are among the banks
Zoido said.
The company’s latest big campaign was in Spain, one of the last European countries to open its doors to alternative
that have ownership stakes in the privately held BATS. Now, though, the exchange is pressing
“If it moves to another degree then it’s
Hemsley fights back against those accusations, and says BATS’ limitations are primarily a result of barriers put up by
trading platforms. Over the last year BATS
hard to woo local brokers. The chief
the existing exchanges. The company has
Chi-X, as it is known in Europe, has gone
executive of BATS’ European operation,
recently begun, for the first time, listing
from about four per cent of all trading in
Mark Hemsley, recently hosted an event
exchange-traded funds in London – a first
Spain, to almost 20 per cent at some points
at a private club in Madrid to which all
step toward listing stocks.
in December.
the members of the Spanish exchange
That is about where it is for the Continent as a whole, in the value of shares traded. The next biggest exchange operator in
were invited. One of the first Spanish brokers to seek membership in BATS was Javier Domínguez, the managing partner at
Hemsley said that his company’s expansion in Europe had given traders choices and made it cheaper for almost anyone trading on the Continent. The existing exchanges in Europe were
Europe is the London Stock Exchange,
Auriga Global Investors. He said that he
“monopolies that were willing to work
which also owns the main Italian
was attracted to the new exchange because
together by not going into each other’s
exchange and has had a market share
of its reliable technology and low prices.
backyards,” Hemsley said. “We put our feet
about one percentage point lower than
“They have huge muscle and they can go
in everyone’s backyard.” n Portfolio
Observer O N E 2 W AT C H TExT: HildA d’sOuzA
Mary Barra American car manufacturer General Motors Company (GM) appointed Mary Teresa Barra as its chief executive officer on January 15. The appointment makes Barra part of a group of just 23 women currently heading Fortune 500 companies. Barra, 52, is the first woman to lead a major automaker. She succeeds outgoing CEO Dan Akerson, who moved up his retirement plans by several months due to his wife’s health. Barra has had a fascination for cars since she was 10 years old. That, together with her long-time association with GM, makes the appointment a natural progression for her. A Michigan native, Barra grew up in Detroit, the heartland of America’s auto industry. She is the daughter of a car engineer who worked for GM for nearly 40 years. Barra followed in his footsteps by studying electrical engineering at Kettering University, which was a General Motors Institute in 1985. In 1988, GM awarded her a fellowship to earn an MBA from Stanford Business School. Barra joined GM as an intern at the age of 19. She scaled the ranks working in nearly every aspect of the company business from managing the Detroit-Hamtramck assembly plant to being promoted to vice president of global manufacturing engineering and even heading GM’s human resources department. Barra’s appointment will be closely watched, especially as GM is now free from US government ownership almost half a decade since the bailouts in 2008 and 2009. The firm has seen some modest recovery in the past year and announced its first dividend in nearly six years on January 15, the day Barra took office. The company’s shares rose three per cent on the announcement, signalling a positive start for Barra. This year GM is introducing 15 new or refreshed vehicles in the US and 17 in China. Since the announcement, Barra has revealed a clear vision for GM’s future. At the unveiling of the 2015 GMC Canyon at the Detroit auto show last month she said, “We’re going to continue with the strong momentum that we have, and we’re going to stay focused on the customer. And we’re going to stay focused on strong cars, trucks and crossovers, making sure we design, build and sell the world’s best vehicles.” GM performs well in the US and China – the two most important markets in the world. However, it needs to deal with its underperforming non-China international businesses where the company faced a “very tough year” in 2013 according to Chuck Stevens, GM’s new chief financial officer.
Regaining a Competitive Edge Spain is on the leading edge of a move toward competitiveness, together with other hard-hit EU countries such as Greece and Portugal. Unit labour costs in Spain fell for a fourth year in 2013, according to the Organisation for Economic Cooperation and Development (OECD) in Paris. That has contributed to a 10 per cent decline in households’ average income since 2008, while exports surged to a record last year amid signs demand is stabilising. In 2014, the OECD forecasts unit labour costs will fall by 1.3 per cent in Spain, 0.2 per cent in Ireland and 5.9 per cent in Greece. That compares with increases of 1.6 per cent in Germany, 1.2 per cent in France and 1.3 per cent in the UK. Falling wages has allowed countries such as Spain to narrow the cost gap with China. This has benefitted the textile industry as large retailers are turning to domestic suppliers to avoid China’s longer delivery times and rising labour costs. Automakers are also expanding in Spain as wage costs fell in 2012 for the first time in three years. Textile manufacturers say their best chance to compete is on middle- or higher-end products, while the lower-value range is lost forever. Tailoring currently employs about 54,000 people in Spain, half as much as in 2008 and less than one-third of what it was in the early 2000s.
getty images
16
Portfolio
Philippines Nickel Boom
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The ban on mineral-ore exports from Indonesia, the world’s biggest nickel producer, is poised to benefit neighbouring miners in the Philippines, who are predicting an increase in sales. The Indonesian ban is intended to promote local processing, increase investment and spur output of higher-value products. The two largest mined-nickel producers in 2012 were Indonesia and the Philippines, accounting for a combined 38 per cent of the supply of the metal used in stainless steel, data from the
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mean producers in China would have to process 30 per cent more material to make the same amount of nickel pig iron. That could raise costs as much as $4,000 a ton, according to Citicorp. China, the world’s top nickel user, stockpiled ore before the ban and it may take as long as six months to work off that extra inventory. RBC Capital Markets estimates that Chinese stockpiles
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of ore are large enough to sustain the output of nickel pig iron through until at least the final quarter of this year. Nickel pig iron is a lower-grade substitute for refined metal. February 2014
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Observer The World
CompIled by Hilda d’souza
Top 10
BMW Still Number 1
WoRld’s MosT-PRoFiTaBlE HEdGE FuNds RaNK
FUND
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
SAC Capital International Viking Global equities oZ master elliott International oculus Citadel Kensington/Wellington Tiger Global Siler point Capital pine River Fixed Income Greenlight Capital
pRoFit $m 789.5 456.5 402.6 284.1 278.6 262.5 254.5 219.7 210.0 196.7
SoURCe: bloombeRG, HedGe-FUnd FIRmS And dATAbASeS, InVeSToRS
ReUTeRS
18
Bayerische Motoren Werke held on to the lead in global luxurycar sales for the ninth straight year. Sales at the BMW brand increased 7.5 per cent to a record 1.66 million cars in 2013,
ToP-PERFoRMiNG laRGE HEdGE FuNd WiTH assETs aBoVE $1 BillioN
fuelled by demand for the 3-Series sedan and X1 compact sport-
RaNK
FUND
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Glenview Capital opportunity, US matrix Capital management, US paulson Recovery, US lansdowne developed markets SIF, UK The Children’s Investment, UK owl Creek overseas, US Glenview Capital partners, US Trian partners, US palomino, US pelham long/Short, UK
rose 6.4 per cent to 1.96 million vehicles last year.
total REtURN (%) 84.2 56.0 45.0 44.5 39.7 38.1 37.4 34.9 31.5 30.3
SoURCe: bloombeRG, HedGe-FUnd FIRmS And dATAbASeS, InVeSToRS
utility vehicle. Including Mini and Rolls-Royce, the group’s sales Audi reported an 8.3 per cent rise in global sales in 2013 to a record 1.58 million cars, driven by the revamped compact A3 model and the brand’s growing line-up of SUVs. Mercedes, which lost the lead in luxury-car sales to BMW in 2005, delivered 1.46 million cars last year, up 11 per cent. Mercedes, the world’s third-largest maker of luxury autos, sliced into No. 2 Audi’s sales advantage last year as its compact cars won new buyers. The company plans to further narrow the gap this year and is forecast to overtake Audi in 2015, according to forecasts from IHS Automotive.
ToP-PERFoRMiNG MidsizE HEdGE FuNd WiTH assETs oF $250 MillioN To $1 BillioN RaNK
FUND
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
Senvest partners, US marlin, US SFp Value Realization, Japan perceptive life Sciences, US pegasus, UK Jabcap multi-Strategy, Switzerland Jabcap Global balanced, Switzerland Cambrian, US broadfin Healthcare, US Cheyne Total Return Credit I, UK
SoURCe: bloombeRG, HedGe-FUnd FIRmS And dATAbASeS, InVeSToRS
Demand for BMW’s 3-Series surged 23 per cent to more than
total REtURN (%) 58.8 57.8 56.5 54.6 54.1 37.8 37.5 36.5 36.4 36.1
500,000 vehicles. The world’s best-selling luxury car will face tougher competition when Mercedes rolls out an overhauled version of the C-Class starting in March. All three German luxury-car brands posted sales records last year as they tap into rising wealth in countries such as China, India and Russia and a rebound in spending in the US. This year, the manufacturers are again expected to grow. BMW is forecast to retain its lead with sales of 1.77 million vehicles, beating Audi’s 1.66 million and Mercedes’s 1.56 million, IHS Automotive forecasts. Portfolio
Commentary
20
Alex Andreou
Trickle-Down Economics The richesT 85 people in The world have as much wealth as the poorest
become as a society, the faster the top’s
incentive to grow the pie?
earnings diverge from the bottom’s.
This applies to both companies and
3.5 billion – or half the world’s entire
individuals. Small business gets clobbered
“When so much of the purchasing power,
population – put together. This is the
by taxes and business rates, while big
so much of the economic gain, goes to
stark headline of a report from Oxfam.
business turns around and says to the
the very top,” Bill Clinton’s former labour
state: “This is how much tax I fancy
secretary Robert Reich explains in the
view that neoliberal philosophy was
paying this year”. The rich no longer create
film Inequality For All, “There’s simply
simply naive or misguided in thinking
jobs – through a process of consolidation,
not enough purchasing power in the rest
that “trickle down” economics would
takeover and merger, they actually
of the economy.” At the same time, there
work infinitely, then evidence that it
destroy them. Zero-hours contracts are
is far too much loose cash sloshing around
doesn’t should be cause for concern. It is
the way of the future; in a society that is
at the top, leading to unwise risks and
If one subscribes to the charitable
a fundamental building block of supply-
toxic investments. Wealth inequality in the
side economic theory – the tool of choice
US was at its highest levels, historically,
these past few decades for those in charge
in 1928 and 2007, one year before its two
to make adjustments. The realisation
biggest financial crises, notes Reich.
that governments have been pulling at
Then why are most governments
economic levers which, for some time,
continuing to fiddle with supply-side
have been attached to nothing, should be
levers in order to revive the economy,
a wake-up call.
when it is abundantly clear it does not work? The simple answer is in two
Even if one subscribes to the cynical view that the elite knew what they were
parts. First part: habit. The second was
doing all along, observing that the “rising
perfectly expressed by the creator of
tide” is lifting fewer and fewer boats –
American crime drama television series,
both at a personal and national level
The Wire, David Simon: “That may be
– is cause for concern. Concentration is
the ultimate tragedy of capitalism in our
rampant. Credit Suisse estimates that
time, that it has achieved its dominance
the world will have 11 trillionaires within
without regard to a social compact,
two generations.
without being connected to any other metric for human progress.”
It is not so much that the supplyReUTeRS
side principle “if you build it, they will come” is no longer true. It is more that we appear to have passed a tipping point, where so much wealth has been
Bill Gates, the world’s richest man, is worth $78.5 billion.
their wealth, spending power and other assorted trappings. We do the same with the economic success of governments;
concentrated at the top, they no longer
© 2014 GUARdiAn newS & MediA
We have come to measure, to an increasing extent, individuals’ success by
need bother to “build” anything. In short,
hungry, desperate and devoid of political
measuring it by an aggregated data set
it has become more economically efficient
engagement or unionism, why would
that fails to take into account wealth
to buy countries’ economic policy than
anyone offer terms and conditions that
distribution, educational achievement,
to create value in order to sell it on. If
give individual workers any standing?
innovation, or even the welfare and health
one can control government to favour
And yet, the realisation must dawn
of the population they claim to represent.
the richest, while raising barriers for
soon – one hopes – that this model is
We must shift this perspective. It will be
new entrants, thus increasing their share
unsustainable because its effects are
the hardest, simplest thing we have ever
of the pie exponentially, what is the
uncontrollable. The more unequal we
had to do as a species. n Portfolio
ROGER FEDERER ARTIST Enjoy responsibly – www.moet.com
Profile
22
Driving Force Norbert Reithofer, the CEO of the BMW Group, has managed to maintain the Munich-based company’s lead in global luxury-car sales. But, as the launch of BMW’s first electric car proves, he is also investing in the future, reports Guido Duken. Portfolio
Profile
23
NORBERT REITHOFER LIKES TO tell a story about the three years, from 1997
impression on me.” Reithofer, who has spent his whole
renewal guarantees he will remain in his post until 2016. That is good news for BMW’s
to 2000, that he spent overseeing BMW’s
career at BMW, joined the company in
factory in Spartanburg, South Carolina.
1987 shortly after writing his thesis on
shareholders as the company has done
manufacturing as part of his doctoral
well under his leadership. BMW managed
managers there with a list of problems.
work at the Technical University of
to hold on to its lead in global luxury-car
They corrected him. “Norbert,” they said,
Munich. Since then he has had a stellar
sales for the ninth straight year in 2013.
“here in the United States we don’t have
career. He required only 13 years to rise
That is despite the challenging conditions
problems. We have challenges. And every
to the executive board, the top level of
of the global financial meltdown in 2008
challenge is an opportunity.”
management, which he joined in 2000
and the EU crisis in 2011.
Soon after arriving, Reithofer presented
That expression of American can-do
as head of production. He became chief
spirit, said Reithofer, “left a deep, deep
executive in 2006 and his 2010 contract
February 2014
Sales at the BMW brand increased 7.5 per cent to a record 1.66 million cars in
Profile
24
2013, putting Reithofer’s sales target of
sales, Reithofer returned to Germany
in what is now its biggest market. The
two million by 2020 within reach. This
and persuaded the company’s board of
company sold a record 390,713 BMW and
year’s outlook is also positive with BMW
management to cut production in a “very
Mini cars in China last year, up 19.7 per
forecast to retain its lead with sales of
turbulent meeting” even though evidence
cent from a year earlier.
1.77 million vehicles, beating Audi’s 1.66
of a downturn was only anecdotal at that
million and Mercedes’ 1.56 million.
point. History proved his decision right.
The BMW Group Middle East also
Reithofer trimmed the payroll by 11,000
This year a new factory is set to open in Brazil, which will produce up to 30,000 vehicles per year. BMW is also set to
achieved its best-ever annual sales result
workers and set a goal of reducing costs
invest more than ¤200 million over the
last year, with 24,596 BMW and Mini
by $8.2 billion by 2012. Yet at the same
coming years in the country. Spending
cars sold across 12 Middle East markets.
time he was willing to invest money and
on research and development was also
This was an increase of 15 per cent over
push the development of electric cars –
increased by 15 per cent. “Progress has
the previous record year in 2012, with
a step he saw as essential to ensure
to be imagined, earned and paid for. The
the UAE remaining the biggest regional
BMW’s long-term future.
future belongs to those who dare to take
selling market.
Reithofer says that the 2009 downturn taught him a very important lesson, namely
bold actions,” Reithofer said at a 2013 shareholder meeting.
BMW MANAGED to weather the two
that it pays to continue investing in future
financial crises better than many of its
growth. Even as BMW cut production
raised grave doubts about the future of
competitors thanks to decisive action
back then, it expanded its factory in South
automobile manufacturing in Western
by Reithofer. Warned in late 2007 by a
Carolina and added a second factory
Europe. This was familiar territory for
BMW dealer in the United States that
in China. The move paid off as BMW
Reithofer, who had argued in his 1987
the subprime crisis was beginning to hurt
continues to post phenomenal sales growth
treatise that the only way manufacturers
The European economic crisis
“PROGRESS HAS TO BE IMAGINED, EARNED AND PAID FOR. THE FUTURE BELONGS TO THOSE WHO DARE TO TAKE BOLD ACTIONS.”
Portfolio
25
in a high-cost country with few natural
worries a lot about the future. His main
possibility. Furthermore, young people are
resources could survive was by becoming
fear is that carmakers could be blindsided
increasingly apathetic about cars, which
the most flexible and efficient in the world.
by a technology shift, which has happened
must compete with mobile phones and
so often in the computer and software
video games for their attention and money.
Back home in Germany, the Munichbased car manufacturer invested ¤2
industries. “I have to get the message
billion from 2011 to 2012. Reithofer says
across to the organisation: people, things
with a two-pronged approach: evolution
he remains committed to Germany, even
are changing,” Reithofer said.
and revolution. “Today, more than ever
though most of BMW’s growth is outside
He is right in this regard. Governments
Reithofer is tackling these problems
before, our industry is undergoing
Europe and they are busy expanding their
are tightening fuel economy and emission
dramatic change. New technologies,
international capacity. Currently, roughly
standards to the point where it will be
business fields and service offerings
60 per cent of BMW’s vehicles are built in
difficult to manufacture big luxury cars
for customers are opening up new
high-cost Germany. The company currently
that have the highest profit margins. The
perspectives and growth opportunities.
sells its vehicles in 140 countries and has
EU, for example, has set an emission
This fundamental transformation requires
29 production plants in 14 countries.
average of 95 g CO2 per kilometre by
innovative strength, flexibility and new
These investments give a clear picture of
2020. There is talk that by 2025 CO2
ways of thinking. But most of all, it
Reithofer’s business philosophy that can be
emissions should be down to between
requires the determination to act. It’s
summed up in his own words. “With regard
68-70 g per kilometre, which Reithofer
a question of finding the right balance
to the future, a few areas of focus are:
characterises as “wishful thinking” that
between evolution and revolution –
developing new technologies; investing in
has little to do with technological reality or
and being innovative in both.”
our facilities and production plants; creating innovative mobility services and offering the right training for our associates. We are making these investments from a position of strength. And we are making them early. This is consistent with the long-term focus of the BMW Group.” Reithofer is a CEO who thinks and BMW’s first totally electric car, the i3, was released last year.
February 2014
REITHOFER IS A CEO WHO THINKS AND WORRIES A LOT ABOUT THE FUTURE. HIS MAIN FEAR IS THAT CARMAKERS COULD BE BLINDSIDED BY A TECHNOLOGY SHIFT, WHICH HAS HAPPENED SO OFTEN IN THE COMPUTER AND SOFTWARE INDUSTRIES.
26
FROM THE evolution standpoint,
To get the i3 into production took a
has never been tried before, BMW built
Reithofer is referring to enhancing the
massive investment. For example, the i3
a $100 million carbon-fibre factory at
efficiency of BMW’s conventionally
features a passenger compartment made
Moses Lake in rural Washington.
powered vehicle range through its
of carbon-fibre-reinforced plastic (CFRP),
Efficient Dynamics programme. Since
which has until now been the preserve
BMW i3 sets new standards in the field of
1995, the BMW Group has reduced its
of super expensive cars like the Bugatti
lightweight construction. The i3 weighs
fleet CO2 emissions faster than any
Veyron. The reason for that is that one
20 per cent less than the Nissan Leaf, the
other European car company. Currently,
kilogram of carbon fibre costs around
world’s best-selling electric car. That helps
BMW customers can choose between 36
$20 compared to $1 for steel. In order to
the vehicle accelerate to 100km/h in 7.2
models with 120 g CO2 per kilometre or
make mass manufacturing viable, which
seconds, more than four per cent faster
Together with an aluminium chassis, the
less. The company’s fleet average currently stands at 138 g CO2 per kilometre. But with the tighter 2020 emission standards not far away, it is imperative that the fleet average shrinks even further. That necessitates a revolutionary approach. In this context Reithofer is referring to the i3, BMW Group’s first allelectric vehicle that was introduced last year in New York, Beijing and London simultaneously. “The decision to enter the world of electric mobility was made with our long-term business success in mind. It’s part of our strategy that will take us to 2020,” explained Reithofer.
BMW’s iconic “four-cylinder” headquarters in Munich.
The i8 is a plug-in hybrid under development by BMW.
Portfolio
Profile
27
than the Leaf. In other words, it is a real BMW as Reithofer likes to stress. According to chief financial officer Friedrich Eichner: “The investment in carbon fibre isn’t about a single vehicle, but about future-proofing our entire portfolio and therefore our entire business. There’s no way around making cars lighter, and steel is reaching its limit.” Reithofer echoes this view. “In this way, we are preparing for the company’s next phase of growth and making the BMW Group more competitive for the future. Anyone who wishes to shape the mobility of tomorrow must make the necessary BMW is able to take a more long-term view than some of its competitors as it is essentially a family-owned company, which makes it more immune to the demands of fund managers and bank analysts focused on short-term profit. About 47 per cent of BMW shares are
CORBIS/ARABIAN EYE
investments today.”
Chairman of Daimler AG Dieter Zetsche (R), Norbert Reithofer (L) and the president of the automobile association VDA, Matthias Wissmann, present the book Automobile Country Germany – A Success Story with a Future in Berlin.
owned by the widow and children of Herbert Quandt, who acquired a majority stake in BMW in 1960 when it was close to bankruptcy, and oversaw its revival. The i3 received 10,000 orders in the first six weeks of being on sale in Germany. After its launch in Detroit earlier this year, around 100,000 people expressed interest in the car. How many of these will turn into actual orders remains to be seen. BMW executives won’t say how many i3s they
“WE ARE PREPARING FOR THE COMPANY’S NEXT PHASE OF GROWTH AND MAKING THE BMW GROUP MORE COMPETITIVE FOR THE FUTURE. ANYONE WHO WISHES TO SHAPE THE MOBILITY OF TOMORROW MUST MAKE THE NECESSARY INVESTMENTS TODAY.” February 2014
Reithofer will be CEO of BMW until 2016.
want to sell in the first year, but Reithofer
“BMW will always stand for dynamic
did say at the car’s unveiling they expected
and fun driving,” said Reithofer, “and
about 10,000 i3 sales in 2014.
to that we can add sporty and efficient.
That is, of course, only a small
BMW naturally stands for futuristic
percentage of BMW’s overall sales. Its
design, the highest production standards
bread and butter remains in the evolution
and innovation.”
of its conventional vehicles, with its model
And that sums up both Reithofer and
range set to triple in the 15 years from
BMW’s challenge in the years ahead. The
2005 to 2020. Last year the company
company, like every other car manufacturer,
rolled out 11 new models. And regardless of
needs to boost its green credentials while
its power train, each BMW is still designed
maintaining its reputation based on
to be the ultimate driving machine.
superlative driving dynamics. n
Sustainability
28
Green for Profit
© 2014 New York Times News service
Factories in Asia are finding that environmental certification makes financial sense and creates good PR, reports Mike Ives. When Intel Went about settIng
are typically regulated by the
16 kilometres from downtown Ho Chi
up its chip factory in Vietnam, it found an
Environmental Protection Agency. In
Minh City – embraces environmental and
oddity: Local laws did not govern every
fact, local officials asked Intel whether the
sustainability measures far beyond those
aspect of the building.
company had any ideas on the subject that
required by Vietnam’s laws. Opened in
might be useful to other manufacturers
2010, the complex has the country’s largest
operating in the country.
operating array of solar panels. Company
The government had no comprehensive standards, for instance, on refrigerant chemicals which, in the United States,
Yet, today, Intel’s $1 billion plant – about
officers say a new water-reclamation Portfolio
getty images
29
Solar panels are gaining traction in Asia as factories strive to be more energy efficient.
Efficiency consultants in Asia say it is difficult to estimate how much energy or money an average multinational saves by having a greencertified factory building.
Efficiency consultants in Asia say it is difficult to estimate how much energy or money an average multinational saves by having a green-certified factory building. But the certification trend is potentially significant in Asia because so many consumer and industrial goods are manufactured in the region, offering enormous potential for energy savings if the practice becomes widespread, experts say. A trickle of factory data suggests the energy savings at certified facilities are significant. Intel, for example, has reduced its global energy bill by $111 million
A landscaper works at Intel’s chip factory, which was built with environmental and sustainability measures far beyond those required by Vietnam’s laws.
manager, Sherry Boger: “It turns out,
since 2008 as a result of $59 million
what’s good for the environment is also
worth of sustainability investments
good for business.”
in 1,500 projects worldwide, Boger
Western multinationals – and in some
said. The projects have offset carbon
cases, their Asian suppliers – have, in
dioxide emissions equivalent to the
the last five years, started to build more
amount produced by 126,000 American
environmentally sound factories in
households per year, she added, and Intel’s
developing countries, green-building
$1.1 million solar array at the Vietnam
system could soon help the plant reduce
experts say. However, the US Green
facility offsets each day an amount of
water consumption as much as 68 per cent.
Building Council, a leading global certifier,
carbon dioxide equivalent to that emitted
The plant is also vying for certification by
reports that only about 300 manufacturing
by about 500 of Vietnam’s motorbikes.
the US Green Building Council.
facilities in Asia are certified or waiting for
In 2011, an efficiency survey found that
certification through its rating tool, called
compared with a typical factory, a LEED-
but the motivation for these measures
Leadership in Energy and Environmental
certified shoe factory in southern Vietnam
is simple, said the complex’s general
Design (LEED).
that produces exclusively for Nike uses 18
Intel didn’t have to go to these lengths,
February 2014
getty images
Sustainability
30
A Nike shoe factory in southern Vietnam uses 53 per cent less water thanks to sustainability measures.
Intel has reduced its global energy bill by $111 million since 2008.
per cent less electricity and fuel and 53
lowered water and energy use. Clark
per cent less water, according to Melissa
added that four more such factories
Merryweather, the lead sustainability
were under construction, and the
consultant for the project. The factory is
company’s website shows that its 11 LEED
owned by Taekwang Vina, a joint venture
projects worldwide – five of them in
of the South Korean manufacturer
Asia – represent about one-third of the
Taekwang and a Vietnamese partner.
company’s manufacturing sites.
Some are building greener, however, or investing in efficiency retrofits as a way of reducing energy consumption or in response to pending government regulations.
Stephanie Clark, a spokeswoman for
Malaysia’s government has certified
the American consumer products giant
about 69,677 square metres of factory
Mo, director of the China buildings
Colgate-Palmolive, provided statistics
space since 2009, according to the
programme at the Energy Foundation,
indicating that the company’s seven
Malaysia Green Building Confederation,
a San Francisco-based non-profit, said
LEED-certified factories worldwide
representing about one per cent of its
the Chinese authorities had included
had reduced construction waste and
total building certifications. And Kevin
eight factories among the 742 buildings Portfolio
31
corporate images or improve their chances of earning an international certification like LEED. Consultants say Western multinationals typically apply for independent certification of factory structures, not as a way of complying with local laws, but because sustainable building design is a corporate policy in the United States and Europe. From a marketing perspective, a certified factory in Asia presents a positive contrast to events like the collapse last year of a poorly built garment factory in Bangladesh and dozens of reports of chemical spills and other manufacturing mishaps over the years. “These big corporates have decided to push through a policy of seeking independent certification for their global manufacturing facilities,” said Michelle Malanca, vice president of the Torontobased World Green Building Council. “It has a lot to do with risk mitigation.” Such risk typically takes the form of a public relations disaster that might result from environmental accidents or An engineer views the solar panel array at Intel’s chip factory.
scandals, and Western multinationals are seeking factory certifications out of self-interest, rather than good will, said Damien Duhamel, managing director at
certified by the end of 2012. Most of the
independent certification, sustainability
Solidiance, a Singapore-based consulting
others were residential or commercial, he
experts say. Some are building greener,
firm that specialises in Asia’s green-
said; other factories were in the pipeline.
however, or investing in efficiency
building sector.
A market for industrial-efficiency
retrofits as a way of reducing energy
Duhamel said many of the companies
upgrades is also growing in India, where
consumption or in response to pending
– especially American corporations that
many factory owners worry about power
government regulations.
sell directly to consumers, rather than to
outages, said Prashant Kapoor, principal
Jackson Seng, professional services
businesses – had in recent years cleaned
industry specialist for green buildings
director at the Singapore office of
up their labour practices in response to
at the International Finance Corp, the
Schneider Electric, a French energy
campaigns by Western advocacy groups.
private sector arm of the World Bank. He
consulting firm, said he fielded four or
But companies’ environmental policies
added that demand for upgrades was now
five times as many requests for efficiency
are fast becoming the next target of such
consistent enough that a few domestic
upgrades at factories as he did five
campaigns, he added, and the potential
contractors were beginning to make it
years ago. Upgrading typically includes
risk to a global brand is heightened by
their specialty.
energy audits and installation of energy
the growing importance of social media,
monitoring software, as well as replacing
which can amplify negative publicity.
In contrast with Western
electric motors, which often consume a
multinationals, whose target consumers
vast proportion of a factory’s power supply.
value a green approach, most domestic
Seng said that 90 per cent of his clients
“The next battle will be here,” Duhamel said of corporate environmental standards. “This is why some smart
manufacturers in Asia typically do not
were motivated by a desire to reduce
companies – Intel, for example – took the
see palpable benefits in applying for
energy costs, rather than to polish their
steps of being proactive.” n
February 2014
Innovation
32
GeTTY imAGes
Court Edmondson readies a NASA robot at the DARPA Robotics Challenge Trials.
GooGle’s Robotic FutuRe
© 2013 New York Times News service
The acquisition of seven technology companies shows that Google is serious about its robotic effort, reports John Markoff.
In an out-of-the-way GooGle
automated Google Car and race to your
television interview the evening before
office in Palo Alto, two life-size humanoid
doorstep to deliver a package?
one of the biggest online shopping days of
robots hang suspended in a corner. If
Google executives admit that robotic
the year. Over the last half-year, Google has
Amazon can imagine delivering books
vision is a “moonshot.” But it appears to
by drones, is it too much to think
be more realistic than Amazon’s proposed
quietly acquired seven technology
that Google might be planning to one
drone delivery service, which Jeff Bezos,
companies in an effort to create a
day have one of the robots hop off an
Amazon’s chief executive, revealed in a
new generation of robots. And the Portfolio
33
Andy Rubin is the engineer heading Google’s robotic effort. He built the Android software for smartphones.
engineer heading the effort is Andy Rubin, the man who built Google’s Android software into the world’s dominant force in smartphones. The company is tight-lipped about its specific plans, but the scale of the investment, which has not been previously disclosed, indicates that this is no cute science project. At least for now, Google’s robotic effort is not something aimed at consumers. Instead, the company’s expected targets are in manufacturing – like electronics assembly, which is now
A realistic case, according to several specialists, would be automating portions of an existing supply chain that stretches from a factory floor to the companies that ship and deliver goods to a consumer’s doorstep.
companies that ship and deliver goods to a consumer’s doorstep. “The opportunity is massive,” said Andrew McAfee, a principal research scientist at the MIT Centre for Digital Business. “There are still people who walk around in factories and pick things up in distribution centres and work in the back rooms of grocery stores.” Google has recently started experimenting with package delivery in urban areas with its Google Shopping service, and it could try to automate portions of that system. The shopping service, available in a few locations like
largely manual – and competing with
San Francisco, is already making home
companies like Amazon in retailing, according to several people with specific
specialists, would be automating
deliveries for companies like Target,
knowledge of the project.
portions of an existing supply chain
Walgreens and American Eagle Outfitters.
that stretches from a factory floor to the
Perhaps someday, there will be automated
A realistic case, according to several February 2014
Innovation
34
delivery to the doorstep, which for now is dependent on humans. “Like any moonshot, you have to think of time as a factor,” Rubin said. “We need enough runway and a 10-year vision.” Rubin, the 50-year-old Google executive in charge of the new effort, began his engineering career in robotics and has long had a well-known passion for building intelligent machines. Before joining Apple Computer, where he initially worked as a manufacturing engineer in the 1990s, he worked for the German manufacturing company Carl Zeiss as a robotics engineer. “I have a history of making my hobbies into a career,” Rubin said in a telephone interview. “This is the world’s greatest job.
Meka Robotics was acquired by Google.
Being an engineer and a tinkerer you start thinking about what you would want to build for yourself.” He used the example of a windshield wiper that has enough “intelligence” to operate when it rains, without human intervention, as a model for the kind of systems he is trying to create. That is consistent with a vision put forward by the Google co-founder Larry Page, who has argued that technology should be deployed wherever possible to free humans from drudgery and repetitive tasks. The veteran of a number of previous Silicon Valley startup efforts and twice a chief executive, Rubin said he had pondered the possibility of a commercial effort in robotics for more than a decade.
Bot & Dolly specialises in robotic camera systems.
companies in the United States and
He has only recently come to think that
Rubin compared the effort with the
a range of technologies have matured to
company’s self-driving car project, which
Japan. Among the companies are Schaft,
the point where new kinds of automated
was started in 2009. “The automated
a small team of Japanese roboticists
systems can be commercialised.
car project was science fiction when
who recently left Tokyo University to
it started,” he said. “Now it is coming
develop a humanoid robot, and Industrial
within reach.”
Perception, a startup here that has
Earlier last year, Rubin stepped down as head of the company’s Android smartphone division. Since then he has
He acknowledged that breakthroughs
developed computer vision systems and
convinced Google’s founders Sergey Brin
would still be necessary in areas like
robot arms for loading and unloading
and Page that the time is now right for
software and sensors, but said that
trucks. Also acquired were Meka and
such a venture, and they have opened
hardware issues like mobility and moving
Redwood Robotics, makers of humanoid
Google’s chequebook to back him. He
hands and arms had been resolved.
robots and robot arms in San Francisco,
declined to say how much the company would spend.
Rubin has secretly acquired an array of robotics and artificial intelligence startup
and Bot & Dolly, a maker of robotic camera systems that were recently used to Portfolio
35
of creating technologies needed to
today’s robotic technologies, and that they
A related firm, Autofuss, which focuses
build a mobile, possibly humanoid,
were clear opportunities.
on advertising and design, and Holomni,
robot. Rubin said he was pursuing
a small design firm that makes high-tech
additional acquisitions.
create special effects in the movie Gravity.
wheels, were acquired as well. The seven companies are capable
The Google robotics group will initially be based in Palo Alto, with an office in Japan. In addition to his acquisitions, Rubin has begun hiring roboticists and is bringing in other Google programmers to assist in the project.
Unlike Google’s futuristic X lab, which
of a tech company. It has already shaken
does research on things like driverless
up the world’s automobile companies
cars and the wearable Google Glass
with its robot car project. Google has
device, the robotics effort – moonshots
not yet publicly stated whether it intends
aside – is meant to sell products sooner
to sell its own vehicles or become
rather than later. It has not yet been
a supplier to other manufacturers.
decided whether the effort will be a new
Speculation about Google’s intentions
product group inside Google or a separate
has stretched from fleets of robotic
subsidiary, Rubin said.
taxis moving people in urban areas to
The Google robotics group will initially be based in Palo Alto, with an office in
automated delivery systems. Rubin said that one of his frustrations
Japan. In addition to his acquisitions,
about today’s consumer electronics
Rubin has begun hiring roboticists and is
industry was its complexity. He is hoping
bringing in other Google programmers to
robotics will be different.
assist in the project. While Google has not detailed its long-
“I feel with robotics it’s a green field,” he said. “We’re building hardware, we’re
term robotics plans, Rubin said that there
building software. We’re building systems,
were both manufacturing and logistics
so one team will be able to understand the
markets that were not being served by
whole stack.” n
Boston Dynamics, which has also been bought by Google, is the maker of the Big Dog robot. February 2014
This is not the first time that Google has strayed beyond the typical confines
Mining
36
I
N THE REMOTE MOUNTAINS of West Java, workers like 15-yearold David Mario Chandra are an
integral part of Indonesia’s gold industry. A workshop next to his family’s house in Cisitu, in Banten province, contains machinery that turns gold ore into usable nuggets. The procedure seems simple enough: The crushed ore is tumbled with other ingredients in cylinders called balls until the valuable stuff is amalgamated. But there is a crucial material – and a final step – that alarms environmental and health experts around the world. “We put 15 kilograms of gold ore and water into each ball, and we use 100 grams of mercury per ball,” said David, who runs the family’s workshop. Workers then purify the nuggets using an open flame, burning off the mercury in sites among residential areas throughout the village. Yuyun Ismawati, an environmental campaigner based in Britain, says the scope of the problem is evident in the amount of mercury being exported from around the world to Indonesia, her home country. Most of it, she says, is brought in illegally. According to the Indonesian Ministry of Trade, the country imported slightly less than one metric ton of mercury in 2012 through two local companies, primarily for commercial manufacturing, including the production of light bulbs and batteries, and for use in hospital equipment. According to UN trade statistics, however, 368 metric tons of mercury were legally exported to Indonesia in 2012 from countries that included Singapore, the United States, Japan and Thailand. The yawning gap between what Indonesia officially reported as receiving
© 2014 NEW YORK TIMES NEWS SERVICE
and what was actually exported to it is not an anomaly. In 2011, the country officially imported 7.8 metric tons of mercury, while the UN reported that 286 metric tons was exported to Indonesia. The same disparity is evident for numerous other recent years. The only data that added up for Yuyun, 49, a graduate school alumna of Oxford,
A gold miner holds ore containing gold that was processed with mercury.
TOXIC
GOLD Indonesia’s small-scale gold miners are facing serious health risks due to their high exposure to mercury, reports Joe Cochrane.
Portfolio
37
get money – and you get poisoned.” The quick and dirty production process emits mercury into the atmosphere. The metal has also seeped into soil, rivers, fish ponds and rice fields. Mercury is known to cause health problems, which may not appear for years, that include brain damage; kidney, skin and eye problems; miscarriages; and dysfunctional neurological development in infants and children. Then there are the environmental effects. According to the UN Environment Programme, small-scale gold mining is responsible for 37 per cent of global mercury emissions and is the largest source of air and water mercury pollution. According to a study by the Blacksmith Institute, a non-profit research organisation in New York that focuses on pollution, one-tenth of global mercury emissions from such mining originate in Indonesia. Those emissions can spread from country to country and continent to continent. Parts of Indonesia, including the resort
was not about mercury but global gold prices, which nearly doubled from an average of $872 per 28.3 grams in 2008 to $1,669 in 2012. Gold ended 2013 at just more than $1,200 per 28.3 grams. To Yuyun, the conclusion was obvious: Hundreds of tons of mercury had been smuggled into Indonesia for illegal, smallscale miners in a modern gold rush that analysts and activists say is causing major environmental and health crises. “It’s quick cash,” she said. “You dig, you February 2014
A gold miner pushes a sack of ore out of a tunnel in Banten Province.
38
Cisitu, a remote village, is comtaminated by mercury.
island of Lombok, where illegal gold
environmental organisation of which
mining is rampant, have the highest
Yuyun is a co-founder, estimates that
mercury contamination readings on
illegal gold mining and production
Earth, according to studies by Blacksmith
areas across the sprawling Indonesian
and other groups.
archipelago ballooned to as many as 850
Industrial gold mining companies in
in 2013 from 576 in 2006, while the
Indonesia are forbidden to use mercury
number of miners rose to one million
during processing, government officials said.
from 50,000 during the same period.
They would not anyway, as they can afford
Indonesia is one of the world’s biggest
safer, more effective alternatives. But the
gold-producing countries. The Grasberg
country does not ban mercury use outright
gold mine in Indonesia’s easternmost
in small-scale gold mining operations.
province, Papua, is the largest anywhere.
A villager heats a gold nugget in Cisitu.
The Ministry of Environment is drafting a regulation that it hopes will go into effect this year, said Rasio Ridho Sani, the deputy minister of environment for hazardous substances, who is responsible for authorising official import requests for mercury. But Lana Saria, head of environmental protection in the minerals and coal directorate at Indonesia’s Ministry of Energy and Mineral Resources, said, “We can’t track illegally imported mercury because it can enter so many ports around the country.” BaliFokus, an Indonesian
A villager uses mercury to process crushed ore at a so-called ball mill. Portfolio
Mining
39
The country produced 60 metric tons of gold in 2012, said Saria of the energy ministry. She estimated, however, that 65-100 metric tons of gold were illegally produced in 2012 by small-scale gold miners who use mercury, costing Indonesia billions of dollars in royalties and taxes. Officials and environmental observers say it is nearly impossible to track the illegal gold; it can be easily traded or sold. Many illegal mining operations are funded by businessmen based in the capital, Jakarta, and protected by corrupt local government officials, soldiers and police officers, according to environmental groups and researchers. In some areas, local environmental groups say, the
Uun Adang, who is 4½ months pregnant, has a mercury reading of 25.3 parts per million.
Indonesian military and police are directly involved in gold mining. “It’s a health problem, a criminal problem, an environmental problem,” Saria said. Last May, Indonesia’s Constitutional Court issued a landmark ruling giving indigenous ethnic groups the right to manage forests where they have traditionally lived. According to activists, the ruling will increase small-scale gold mining. Uun Adang, 32, with her husband, runs a gold burning workshop, attached to her home in Cisitu. “My husband used to do mining, and then we had a ball mill, but now we just purify gold and sell it,” she said, adding that they use nitric acid and other chemicals to burn off the mercury. The economics of such small-scale operations can be a gamble; mill operators pay about 150,000 rupiah ($12.45) for
Hair samples of Cistu residents, some of whom recorded mercury readings nearly 10 times the normal limit given by the World Health Organisation.
Uun had a reading of 25.3 ppm. Several
inhaling it during the mercury burning
male residents of Cisitu who also gave hair
process to get gold.”
samples had readings of up to nine ppm. Studies done in other regions of
Outdoor air samples taken by BaliFokus in various parts of Cisitu
a sack of ore and sell the resulting gold
Indonesia, including work by the
showed mercury readings of 5,000 to
amalgam to burning workshops for
University of Mataram on Lombok Island,
50,000 nanograms per cubic metre.
roughly half the current market price
showed elevated mercury levels in people
According to the US Environmental
for pure gold.
processing gold and dysfunctional motor
Protection Agency and World Health
skills among local children. “The youngest
Organisation guidelines, communities
agreed to give a hair sample to BaliFokus
victims were children between 10-12
should be prepared to evacuate based on
researchers in November to test for
years old,” said Baiq Dewi Krisnayanti,
indoor air readings of 1,000 to 10,000
mercury. The World Health Organisation
a lecturer and researcher in soil science
nanograms per cubic metre.
defines a normal level at one part per
at the university. “The way they were
million, and the US Food and Drug
affected by mercury was through mining
chemicals like they’re water,” said
Administration defines it as two ppm.
it from tailing ponds in their area and also
Yuyun, the BaliFokus co-founder. n
Uun, who is 4½ months pregnant,
February 2014
“They are playing with dangerous
Energy
40
SCOTLAND’S ENERGY LIFELINE The threatened closure of the Grangemouth petrochemical complex raised some stark questions about Scotland’s bid for independence and its economy as a whole, reports Stanley Reid.
A refinery complex lights up the night sky in Grangemouth. Portfolio
41
T
HE VAST PETROCHEMICAL
and accepted some of the pay and pension
to secede from the United Kingdom and
complex at Grangemouth is a
changes sought by Ratcliffe, the plant
make its own way in the global economy,
constellation of lights and glowing
reopened. But the episode made clear
the face-off with Ineos was a stark
plumes of steam west of Edinburgh that has
the vulnerability of Grangemouth as the
reminder of the uncertain financial path
become a shimmering symbol of Scotland at
capital of the Scottish petrochemical
an independent Scotland might tread.
an economic and political crossroads.
industry. Although that industry vies
The closure of such an industrial linchpin
with whisky as the biggest contributor to
could heighten doubts about whether the
went dark when James Ratcliffe, the
the country’s export economy, it is under
government is up to piloting the economy
chairman of Ineos, a Swiss multinational
pressure from global forces that now make
on its own or whether it could continue to
giant that owns much of the Grangemouth
other parts of the world better bets for the
provide generous social benefits like free
operation, ordered it shut down. Ratcliffe,
refining of petroleum into fuels and the
university tuition.
during labour negotiations, was trying
processing of its byproducts into plastics
to shock the workforce into “accepting
and chemicals.
© 2014 NEW YORK TIMES NEWS SERVICE
In mid-October, some of those lights
changes to bring the site into the modern world,” he said in a recent interview. After the union quickly backed down
February 2014
And because it occurred as
“Everyone is still reeling,” said Joan Paterson, a Labour Party politician who represents Grangemouth on the Falkirk
Scotland was preparing for a vote
Council regional government and is
this September on a referendum
sceptical about independence. “It was
42
dark driving down there without the flares
chemical maker in the area. “There was
and cooling towers.”
the risk of a domino effect.”
The shuttering of the country’s largest
Salmond, Scotland’s first minister, is
industrial complex would have been a
banking on North Sea oil to underpin the
blow to Alex Salmond, the nationalist
country’s economy. His government claims
leader who is trying to convince voters
that more than 90 per cent of Britain’s oil
that an independent Scotland would be
reserves might become Scotland’s after
able to continue to provide social benefits
independence because they lie under
that are more generous than those
Scottish territorial waters. GETTY IMAGES
available to most Britons. “The Ineos crisis brought home what a big impact it would have if they were to go,” said Doug Edwards, an executive at CalaChem, a
Alex Salmond, first minister of Scotland, supports independence from the UK.
Either way, one of the reasons that the Ineos plants are running up losses is that production from the North Sea is declining. These days, new refineries and petrochemical plants are being built in places like Saudi Arabia and China, which are much closer to sources of still-abundant petroleum and natural gas reserves or near fast-growing markets. The closure of Grangemouth, the only refinery in Scotland, would have left it embarrassingly dependent on imported fuel. In many ways, a blow to Salmond might seem a win for the British prime minister, David Cameron, who opposes Scottish independence. But in this case, losing Grangemouth while Scotland is still part of Britain would also have undercut one of Cameron’s main arguments to the Scots – that they would be better off economically by remaining in the United Kingdom. As a result, both sides on the
Workers at Grangemouth refinery agreed to a three-year pay freeze.
independence debate are trying to generate political capital by investing in Grangemouth. The Scottish government agreed to provide Ineos with a grant of £9 million (or $14.7 million) for new investments at the site, while the much wealthier British government is leaning toward guaranteeing a £125 million loan. INEOS, A global company with $43 billion in revenue last year, including its joint ventures, and 15,000 employees worldwide, is the largest of several big chemical businesses operating in the area. It bought the Grangemouth plants in 2005 from BP in a $9 billion deal. The refinery there, now run in partnership with PetroChina and called Petroineos, is Scotland’s only
Housing originally built by BP near the vast refinery in Grangemouth.
domestic fuel producer, meeting 70 per cent Portfolio
Energy
43
to 80 per cent of the country’s needs for petrol, diesel and jet fuel. The Falkirk Council, the regional government, estimated that closing the plants might cost 6,500 jobs in the short term. The collateral damage to the broader petrochemical industry over time would be harder to predict. “Once you take out petrochemicals and refining, then the case for the other plants would decline,” said David Bell, an economist at the University of Stirling, near Grangemouth. That threat seems to have diminished, at least for now. A few hours after Ratcliffe said he was shuttering the petrochemical unit, Gordon Grant, the Ineos plant manager at Grangemouth, received an email
The Grangemouth refinery produces chemicals for other plants.
from a union representative agreeing to the terms of a so-called survival plan that the
UNDER THE new deal, salary levels at
union had spurned a few days earlier.
Grangemouth, which the company says
The Falkirk Council, the regional government, estimated that closing the plants might cost 6,500 jobs in the short term. The collateral damage to the broader petrochemical industry over time would be harder to predict.
average about £55,000 a year – more than twice the Scottish average – will be frozen for three years. A generous pension plan that Ineos says cost it the equivalent of about 65 per cent of employees’ pay per year will be replaced by an employee pay-in system, with some matching money from the company, similar to a 401(k) in the United States and to plans that many other British companies have adopted. The Unite union, whose walkout in 2008 shut the Forties pipeline for two
Gordon Grant is the Ineos plant manager at Grangemouth.
days, halting about 40 per cent of Britain’s North Sea production, agreed not to strike for three years. After the deal, Pat Rafferty, Unite’s Scottish secretary, issued a statement, saying, “Obviously today’s news is tinged with sadness – decent men and women are being asked to make sacrifices to hold on to their jobs, but the clear wish of our members is that we work with the company to implement its proposals.” But Ratcliffe said the changes were necessary. “What has happened,” he said by phone, “has enabled us to move forward with Grangemouth and pursue a
The shutdown by Ineos of parts of its refinery highlighted Scotland's uncomfortable reliance on the oil sector. February 2014
strategy that will give Grangemouth the potential for a very bright future.” n
reuTers
Technology
44
Uneasy
Lee Kun-hee, the man who built the most successful, most admired and most feared business – a $288 billion behemoth that is among the most profitable in the world – had a message for his employees last year: You must do better.
in the
At other companies, congratulations might have been in order.
Lead
this was Samsung, the South Korean industrial group that Lee, an elfin man with a stubborn will, transformed from a secondrate maker of household appliances into a conglomerate with a flagship electronics business that has left most rivals eating its silicon dust. There would be no pat on the back for Samsung’s 470,000 employees. Instead, last June, he sent a company-wide email sternly urging them to raise their game. “As we move forward, we must resist complacency and thoughts of being good enough, as these will prevent us from becoming better,” Lee, who is 71, wrote. Samsung’s management, he said, “must start anew to reach loftier goals and ideals.” © 2013 New York Times News service
Samsung Electronics, with $190 billion in sales last year, has become a market leader instead of a follower. And that is exactly why the electronics giant’s management is worried, report Eric Pfanner and Brian Chen.
His companies were headed to another extraordinary year. But
Two decades earlier, having taken over the company from his father, Lee met with dozens of his executives and gave them a similar order, one that remains embedded in company lore: “Change everything but your wife and children.” That message was effective. Samsung’s sales are equal to about one-quarter of South Korea’s economic output. Samsung Electronics, the flagship, posted $190 billion in sales last year – Portfolio
45
about the same sales as Microsoft, Google, Amazon and Facebook combined. In 2012, Samsung shipped 215 million smartphones, about 40 per cent of the worldwide total, analysts estimate; last year, it was expected to ship more than 350 million. Interbrand, a marketing consulting firm, ranked Samsung as the eighth-mostvaluable brand in the world. Lee is one of
”As we move forward, we must resist complacency and thoughts of being good enough, as these will prevent us from becoming better.”
the world’s richest men.
“There’s a feeling of elation and paranoia at Samsung – ‘Look at how well we are doing, and look at what might happen,’” said Benedict Evans, an analyst at Enders Analysis in London. So Lee is pushing the company to think more boldly. Developing new products is no longer enough; Samsung wants to create devices that define whole new categories. And it wants to develop the
The company’s sweet spot has become
software that makes them work, something
electronics: It makes chips, display panels
it has mostly left to others.
and many other electronic parts, and then
author of Sony vs. Samsung: The Inside
Much of that work is happening in
assembles its own smartphones and other
Story of the Electronics Giants’ Battle for
Digital City, the Samsung Electronics
devices. This kind of vertical integration
Global Supremacy.
headquarters campus at Suwon, about 40
has fallen out of fashion in the West, where
Smartphones have been the major driver
kilometres south of Seoul. Like all things
it is considered unwieldy. While Apple
of Samsung’s growth in recent years, and
Samsung, Digital City is massive, with
designs its hardware and software, for
it doesn’t take the instincts of Lee to grasp
room for 40,000 workers, not to mention
example, the company buys chips from
the fleeting nature of mobile phone leaders.
the biggest parking lot in Asia. Inside its
other companies, including Samsung,
The brands that plunged after reaching
walls are many of Samsung’s most tightly
and outsources the assembly of iPhones,
the summit are etched in the minds of
guarded secrets. The inner sanctum is
iPods and iPads. But many years ago,
everyone at the company: Motorola,
R5, a pair of new 27-storey office towers,
Lee prodded his lieutenants to see the
Ericsson, HTC, Nokia, BlackBerry.
where the company’s mobile research and
company’s deep reach into the supply chain
Moreover, upstarts from China are
development programme resides.
as a competitive advantage, not a burden.
gaining ground with smartphones that cost
So far, it has worked for Samsung.
hundreds of dollars less than Samsung’s
room, Lee Young-hee, head of marketing
popular Galaxy S4 or an iPhone.
for the mobile division, showed off
“I don’t think people realise how effective
A few months ago in an R5 conference
a machine Samsung is in terms of how quickly they can turn around products in response to market change,” said Chetan Sharma, an independent analyst who advises mobile carriers. So why the crabby email? What is Lee Kun-hee so worried about? Lee is worried about what might be called the fast-follower problem. Samsung is a well-oiled machine: If it spots a trend and decides to compete, it can outspend and outpace practically anyone. Its everything-included, research-tomanufacturing-to-marketing model allows it to obliterate the competition. But Samsung has become so good at executing that few moneymaking areas exist where it doesn’t already dominate. Suddenly, the company is the leader, with the onus of creating the next trend. “If you are on the peak and looking where to go next – this is something new for them,” said Chang Sea-jin, February 2014
Visitors check out smartphones at the Samsung d’light electronics showroom in Seoul, South Korea.
Technology
46
The entrance to Samsung’s Digital City research campus in Suwon.
getty images
Lee Kun-hee is the owner and chairman of Samsung.
Engineers work on a group project at the Samsung Design Membership in Seoul.
newer Samsung devices.
some new products, including a new
smartphones. Legal decisions have
smartwatch, the Galaxy Gear. “We would
underscored that reputation. Apple has
Devices like the Galaxy Gear
like to create a new trend,” she said. “If
successfully argued in one major case in
smartwatch are meant to position
you wear Galaxy Gear, it’s a cool thing for
California that Samsung infringed on a
Samsung as a trendsetter, not a follower.
young people.”
series of its patents, and now Samsung
Apple has been working on such a device,
must pay Apple $930 million in damages.
according to people briefed on the project.
SamSung executiveS bristle at the
Both companies are set to go to trial in
But it has yet to show off a device bearing
notion that its products are imitations.
California again in March, for a case
that name. With Galaxy Gear, Samsung
Yet many of them acknowledge that
in which Apple accuses Samsung of
beat Apple to the market.
their company followed Apple into
infringing on a separate set of patents on
Technology analysts and consumers Portfolio
47
”For several years, Samsung has been conducting research on mobile operating systems. Last year, Samsung merged that work with an industry project called Tizen, whose partners include Intel and other technology and telecommunications companies.”
operating system soon, in partnership
the pack. Of course, no one blames the
with mobile operators like NTT Docomo
rigidity of Finnish or Canadian values for
of Japan.
the downfall of Nokia or BlackBerry. Those
So far, deeply embedded Confucian
companies were simply blindsided by
values like a respect for family, tradition
Apple. Samsung was, too, but it managed
and hierarchy have helped Samsung
to accomplish something they did not – it
play catch-up by instilling discipline and
bounced back, stronger than ever.
dedication in its workers. What remains to
And one thing is certain: No matter
be seen is whether those same values will
what, Lee will find reasons to worry – and
prevent the company from stepping outside
his employees will hear about it. n
often compare Samsung to Apple. But the elephant in the room in any discussion of the Korean giant is another American technology company: Google. The vast majority of Samsung’s phones run on Android, Google’s operating system. Together, Samsung and Google have quickly taken over the global smartphone market. In the third quarter of the year, Android was installed on 81 per cent of the mobile phones shipped worldwide,
Commuters mind their smartphones as they wait to board a bus in Seoul.
according to IDC, a research firm. That compared with 12.9 per cent for Apple’s iOS and 3.6 per cent for Windows, the nearest rivals. “Google created a product that helped Samsung make more money than all of Google,” said Horace Dediu, an independent analyst in Helsinki, Finland. That has been great for Samsung so far, but the downside is that the company has become more and more reliant on Google’s software. For several years, Samsung has been conducting research on mobile operating systems. Last year, Samsung merged that work with an industry project called Tizen, whose partners include Intel and other technology and telecommunications companies. Samsung is expected to introduce phones running the Tizen February 2014
Sunghae Park explains the workings of semiconductor components at Samsung’s Nano City Giheung campus.
Outsourcing
48
© 2014 NEW YORK TIMES NEWS SERVICE
Infosys employees attend a meeting at their office in Lodz.
POLAND’S OUTSOURCING SUCCESS Around 110,000 people work in Poland’s business services industry and that number is growing steadily, reports Jack Ewing. Portfolio
49
N
OT LONG AGO, THE ONLY way a young Pole like Piotr Wegielewski could find a job
multilingual workforce. In midsize cities like Wroclaw and Gdansk, Poles are doing back-office work
worthy of his two master’s degrees would
not only for Indian outsourcing companies
have been hopping on one of the budget
like Infosys, Wipro and Tata Consulting
flights from the airport near Lodz to go to
Services, but also for major corporations
Western Europe.
like IBM and banks including Citigroup
Instead, Wegielewski, 29, found a job close to home in an industry that has
and Bank of New York Mellon. About 110,000 people work in what is
become one of the largest employers
broadly known as the business services
in Poland: outsourcing. He is a project
industry in Poland. The category includes
leader in data and system analysis for
outsourcers like Infosys that take over
Infosys, the Indian outsourcing giant with
such functions as finance or information
a big office in Lodz that serves clients
technology for customers, as well as banks
in Amsterdam, London and New York,
and other companies that set up in-house
among other business capitals.
operations to do their own back-office work.
Infosys, based in Bangalore, has its
At current growth rates it is conceivable
largest site outside India in Lodz. About
that in a few years business services in
2,000 people work in a new office
Poland could overtake the auto industry,
building overlooking a traffic circle named
which employs about 140,000 people, as
for Solidarity, the trade union movement
a leading source of private-sector jobs.
that led Poland out of Communism.
(The public sector, employing about a
“A lot of my colleagues left,” Wegielewski said in English. “I wanted to stay.” In fact, Lodz, a former textile
quarter of Poland’s 15.7 million workers, is still the country’s largest source of jobs.) Business services are part of the
manufacturing centre with a population of
explanation for Poland’s steady economic
about 740,000, is just one of several Polish
growth in recent years, even amid stagnancy
cities that have become service hubs for
in the 17-nation Eurozone, the country’s
an international corporate clientele that
largest market. Part of Poland’s edge derives
values Poland’s well-educated and often
from the fact that it has yet to join the euro
At current growth rates it is conceivable that in a few years business services in Poland could overtake the auto industry, which employs about 140,000 people, as a leading source of private-sector jobs. SWEDEN Baltic Sea
LITHUANIA
Gdansk
POLAND GER. CZECH REP. AUSTRIA
February 2014
Lodz
BELARUS Warsaw
Wroclaw Krakow UKRAINE SLOVAKIA HUNGARY
ROMANIA
THE NEW YORK TIMES
Poland’s Infosys employees take care of an international clientele that includes Canada and the US.
50
From left: Piotr Wegielewski, Ivan Guadalupe Luna and Agnieszka Wieciorska are part of Infosys’ international and multilingual staff.
currency union. Its currency, the zloty, has
“THE QUESTION for Poland is, ‘How
among the nearly three-dozen member
been relatively stable against the world’s
do I move up the value chain?’” said
countries of the Organisation for Economic
reserve currencies in the past year.
Peter Schumacher, chief executive of
Cooperation and Development. (The
Value Leadership Group, a management
United States, at 35 per cent, ranks 11th.)
But Poland’s enviable perch is nonetheless precarious. It faces rising
consultancy based in Frankfurt, Germany,
competition from other countries in Eastern
and New York. “How can I go from basic
been willing to modify their curriculums
Europe, like Bulgaria and Romania, and
process management work to more
to produce graduates with the skills
educated enclaves elsewhere, like Spain.
sophisticated creative work?”
sought by companies like Infosys.
That is why industry specialists say Poland
Poland’s well-regarded universities have
In Poland, 39 per cent of people 25 to
“There is a strong correlation between
must move into more sophisticated services,
34 years old have university degrees or the
education and the success of Poland,” said
like research and development, to continue
equivalent. This puts the country in second
Anurag Srivastava, a New Delhi-based
attracting investment and corporate clients.
place behind Norway in that category
practice director at Everest Group, which advises corporate clients on managing outsourcing and back office operations. With competition for skilled workers rising in major cities like Warsaw and Krakow, companies have been opening business service centres in smaller cities like Lodz. That benefits the Polish economy, because the smaller cities tend to have higher unemployment than big cities like Warsaw, which has a jobless rate of only 4.8 per cent compared with a national figure of 13 per cent. Even management-level employees in Poland earn substantially less than their counterparts in the United States or Western Europe, while offering comparable
The Lodz Infosys office is the largest outside India.
levels of competence, analysts say. A Polish Portfolio
Outsourcing
51
accounting manager earns an average of 44 per cent of the pay of his American counterpart and 41 per cent as much as an accounting manager in Germany, according to the Hackett Group consultancy. Martijn Geerling, a senior director in London for Hackett, said Poland’s main rivals were neighbours like Romania and Bulgaria, where wages are even lower but education levels are high. “Poland and any country needs to understand competition is mostly with Eastern European countries,” Geerling said. NOT ALL the Infosys workers in Lodz are Polish, and the operation also serves clients outside Europe, including the United States and Canada. Iván Luna Aparicio Guadalupe is from Monterrey,
Employees order lunch at the Infosys cafeteria in Lodz.
Mexico, who started with Infosys in Mexico and transferred to Poland when his unit was moved there. Besides Spanish, Aparicio Guadalupe, 29, who has a master’s degree in administration, is fluent in English, Italian and French. He was part of a team that, to serve a customer based in Quebec, was being trained to speak with a French Canadian accent. “I love languages,” said Aparicio Guadalupe, who may illustrate how outsourcing has become highly globalised and mobile. The work, and increasingly the people, go wherever there are good broadband connections. Places like South Africa and Argentina have become major outsourcing centres, and Infosys is making big investments in China. In Poland’s case, its business-services future still looks bright, despite the
Poland’s well-regarded universities have been willing to modify their curriculums to produce graduates with the skills sought by companies like Infosys. February 2014
Poland has become a hub for an international corporate clientele that values the country’s well-educated and often multilingual work force.
global competition. Jacek Levernes,
New York Mellon, which has a centre in
president of the Association of Business
Wroclaw with 350 people. “They are able
Service Leaders, a Polish industry group,
to pick up financial skills very quickly.”
predicted the sector would add 15,000
But Schumacher of Value Leadership
to 20,000 jobs every year. Lately, banks
Group said the next goal for Poland
and investment funds, under regulatory
should be a higher link on the value
pressure and eager to cut costs, have been
chain: for Poles to establish their own
setting up centres in Poland.
business service providers so that the
“It’s really a deep pool of highly motivated graduates,” said Martin Ring, managing director in Poland of Bank of
country is less dependent on the whims of foreign investors. “That,” he said, “is where the future lies.” n
Real Estate
52
Ireland’s Ghost EstatEs The demoliTion geTTing
the complex that once promised idyllic
but none have gone as far as Ireland,
underway in Athlone recently was in a
living. “The cost to finish them would
which is aiming to tear down about 40
housing complex where a two-year-old,
be too high. There is no market like that
troubled developments by the end of this
probably chasing a dog, had climbed
here. There are no jobs. And leaving them
year, with more demolitions possible in
through a fence last year and drowned
unattended is dangerous.”
the future, officials say. But in a nation
in a pool of water behind a dozen partly
that by the government’s estimate still has
economy a decade ago than its housing
1,300 so-called ghost estates and possibly
market, which saw prices and construction
hundreds of thousands of unoccupied
marvelled that the half-built houses he was
surge. And nothing better illustrates the
new homes, the razing programme is
about to bulldoze once carried a price tag
costs and complexities of cleaning up after
only nibbling at the problem. The pace of
of more than $450,000. He estimated that
the bursting of that bubble than what to
development was so huge in the 2000s
he was about to grind $500,000 worth of
do with the thousands of homes that were
that at one point per capita housing
abandoned construction into gravel.
never finished or, if they were occupied,
completions were four times as high as in
have proved to be substandard.
the United States.
constructed homes. John Burke, hired to do the job,
© 2013 New York Times News service
Nothing more typified Ireland’s roaring
“You can’t do anything with these houses,” he said, as his workers made neat
Other countries with similar problems,
piles of the billboard posters surrounding
like Spain, are also dealing with the issue,
During that time, Ireland allowed a kind of honour code building inspection.
Unoccupied houses line the streets in Cloonfad, a small town in the county of Roscommon. Portfolio
53
The bursting of Ireland’s housing bubble resulted in 1,300 so-called ghost estates and hundreds of thousands of unoccupied new homes. Now the government is starting to raze them, reports Suzanne Daley.
surrounded by chain-link fences.
The result is that many people paid high
$95,000 for her property today. Most of
prices for houses that are fire hazards or
the other homes in her housing complex,
sinking in bogs or are built with faulty
Hawthorn Meadows, about two hours
Ireland’s real estate market is bad. As
foundations or missing drainage systems,
by car from Dublin, have been rented for
Ireland becomes the first Eurozone
a problem that is even harder and more
about $500 a month, while she pays about
country to officially emerge from an
expensive to solve.
$1,100 a month just for her mortgage.
international bailout programme in
However, not all the news about
“I don’t think Ireland is fixed,” she said
December, experts say that demand for
about $255,000 for her semidetached
one recent evening. “Not at all. What about
homes is up in Dublin, particularly for
house in 2005. But when it rains hard,
people like us?”
houses in certain neighbourhoods.
In nearby Ballymahon, Debbie Cox paid
the smell of sewage outside her home has
Overall, Irish property prices remain
But most of the ghost estates are in
sometimes been overwhelming. She gave
nearly 50 per cent below their peak in
western or central counties including
away her garden furniture, because it kept
2007. Even on the outskirts of Dublin
Cavan, Donegal, Roscommon and
sinking into the mud in her backyard. Her
it is easy to find housing developments
Longford, often in the countryside where
water pipes, buried too close to the surface,
with many vacancies. Most of those who
developers received tax incentives to build
have frozen in very cold weather.
do live in them are renters. In many
and where the aftereffects of the economic
cases, they have views of half-built houses
crisis are still plain to see. Village main
Cox doubts she could get more than
February 2014
At the height of the boom only 12 per cent to 15 per cent of new developments were ever visited by inspectors, experts say, compared with 100 per cent in the United States and most of Europe. reuters
Real Estate
54
streets are full of boarded-up stores. And the local authorities are frustrated. County Longford, where Cox lives,
Rhoda Brogan walks around the show home which neighbours her own home in the village of Borris-in-Ossory.
received about $1.4 million from the
destabilising cracks and deep fissures in
More recently, government officials
central government to make repairs in
foundations, walls and ceilings and was
identified about 2,000 unoccupied or
developments like hers last year. But Brian
widely used during the boom. The bill for
incomplete developments. Since then,
Ross, the county’s senior executive engineer
the 1,000 worst cases is expected to be
officials said, remedial measures have
who is in charge of troubled housing
about $70 million.
reduced the number to about 1,300. About
complexes, says he needs at least 10 times that much to “sort out half of it.”
The National Institute for Regional and
40,000 households live in them. But
Spatial Analysis at the National University
even when housing complexes have been
of Ireland in Maynooth concluded in
identified as unlikely to ever be completed
over the public spaces. And there is
2010 that there were more than 300,000
or inhabited, tearing them down may not
no money for issues inside the homes,
vacant new homes in Ireland, and 621
be so easy. Many of them are tangled in
like a lack of insulation. An estimated
housing developments with more than
lawsuits and bankruptcy proceedings.
12,500 homeowners are also dealing with
12 houses that were either unoccupied
pyrite damage, a substance that creates
or not fully built.
The county’s jurisdiction is only
At the height of the boom only 12 per cent to 15 per cent of new developments were ever visited by inspectors, experts say, compared with 100 per cent in the United States and most of Europe. Most experts believe the cost of clearing up the problems will most likely fall to the taxpayers. “The developers are not going to tear these things down,” said Rob Kitchin, the director of the National Institute for Regional and Spatial Analysis. “They are bust or they probably would have finished them.” In Longford, troubled housing complexes abound, Ross said. One part of a development sinking into a bog already has been torn down. But nearby, the rest of it looks in sorry shape. Even
Debbie Cox, a Hawthorn Meadows estate homeowner, lost property value because of defective infrastructure.
from the outside, the houses of Gleann Riada show signs of mould. Tall weeds are Portfolio
55
growing in some of the gutters. One homeowner there said that the local authorities had recently paved the
reuters
An electrical cable is used to secure a fence surrounding an empty housing development in the village of Drumshanbo.
talking about problems in the complex.
to Britain to take advantage of easier
“You just have to make do.”
bankruptcy laws there. Recently, Ireland
Experts say some owners of
made its bankruptcy laws easier as well,
road and put in surveillance cameras. But
substandard homes may eventually stop
though still not as easy as Britain’s. Jan
for a time, he said, the sewage system was
paying their mortgages, causing more
O’Sullivan, Ireland’s housing minister,
in such a bad state that methane gas was
problems for the country’s troubled banks.
said that in many cases the banks
collecting under the houses. There were
The number of people falling behind in
were simply going to have to offer debt
two explosions, and residents were told not
the mortgage payments on their homes
forgiveness to homeowners.
to close their windows, even in winter, and
continued to grow last quarter to 99,189,
In the meantime, Cox and her husband
not to light any fires.
up 1,315 during the three months ending
said they felt abandoned and are not sure
in September, according to Ireland’s
what their next step would be. “It’s been
Central Bank.
such a huge disappointment,” she said.
“What can you do?” the homeowner said, declining to give his name because his neighbours might be angry at him for A demolition crew destructs unfinished houses in Glenatore housing estate, a development in the town of Athlone.
February 2014
Some Irish homeowners have moved
“The show house was so beautiful.” n
Manufacturing 56
Portfolio
57
Fashion and Responsibility The collapse of Rana Plaza in Bangladesh exposed the murkiness and lack of accountability in the global supply chain for clothes, reports Jim Yardley.
From a sleek grey distribution
for clothes. Under intense international
centre near Barcelona, global fashion brand
pressure, four brands agreed in December
Mango ships 60 million garments in a year.
to help finance a landmark $40 million
Automated conveyor belts whir through
compensation fund for the victims.
the building like subway lines, sorting and
have so far refused to contribute to the fund.
to be shipped around the world. Human
Mango argues that it is not responsible
hands barely touch the clothes.
because it had not “formalised a commercial
Nearly 8,500 kilometres away in
officials say that Mango was still conducting
the industrial suburb of Savar was a hive
quality inspections and factory audits of
of human hands. Hundreds of men and
Phantom Tac and that the factory had not
women hunched over sewing machines
started producing samples for an order of
to produce garments in an assembly line
25,000 items. months, supervisors and other employees
work faster.
from Phantom Tac said work to make samples for Mango had already begun when
global expansion plans, Mango turned to
Rana Plaza collapsed. Fabric was being
Phantom Tac to produce a sample order
marked and cut, and workers say some
of polo shirts and other items. Then, on
sample shirts were already being stitched.
April 24, the Rana Plaza factory complex
© 2014 New York Times News service
But in interviews conducted over several
essential, but that just meant people had to Last spring, as it pushed forward with
February 2014
relationship” with Phantom Tac. Company
Bangladesh, the Phantom Tac factory in
system unchanged for years. Speed was also
A fashion designer works inside Mango clothing company’s Hangar design centre near Barcelona.
But many other brands, including Mango,
organising blouses, sweaters and other items
“There was an urgency among the bosses,”
collapsed, killing more than 1,100 people in
said Mohammed Mosharuf Hossain, 28,
the deadliest disaster in garment industry
who worked in a cutting section. “The
history, and destroying Phantom Tac and
managers told us to finish the Mango
other operations in the building.
products urgently. They said if we could
Now, the question is what responsibility Mango and other brands should bear toward the victims of Rana Plaza, a disaster
finish this work quickly, we might get more orders from Mango.” For global brands and retailers, Rana
that exposed the murkiness and lack of
Plaza has forced a reckoning over how to
accountability in the global supply chain
reconcile the mismatched pieces in their
Manufacturing
58
getty imAges
The collapse of Rana Plaza, which killed more than 1,100 people, put the spotlight on working conditions in garment factories.
supply chains. Technology and investment
had experimented with creating a website
other distribution centres in China, Hong
are transforming the upper end of the
to allow consumers in the West to connect
Kong and Turkey, and it has broken ground
industry, enabling Mango and other brands
virtually with the workers sewing their
for a massive complex in Spain. Last year,
to increase sales, manage global inventories
clothes. But the pressures on Phantom Tac
Mango produced a total of 110 million
with pinpoint precision and introduce
to meet deadlines and make money made
garments and accessories; within a decade,
clothes faster than ever – all as consumers
those social goals difficult to achieve.
company officials hope, the company will
expect to see new things every time they visit a store. But these brands depend on factories
Now, Mayor has disappeared. He did not
produce 300 million garments and roughly
respond to email requests for interviews,
quintuple annual sales to ¤10 billion
and his family in Spain declined to
(about $14 billion).
in developing countries like Bangladesh,
reveal his whereabouts. His Bangladeshi
where wages are very low and the pressure
business partner, Aminul Islam, is in jail in
In Bangladesh, the business
to work faster and cheaper has spawned
connection with the collapse.
environment presents a sharp contrast.
Factories like Phantom Tac in Bangladesh
Phantom Tac was on the fifth floor of Rana
substandard work conditions and repeated
and the Mango operations in Spain are part
Plaza, which was named after the family of
wage and labour violations. Consumers
of the same supply chains but might as well
the building’s owner, Sohel Rana. Rana, in
know little about these factories, even as
be from different worlds.
jail awaiting charges in the collapse, was a
familiar problems: unsafe buildings,
global brands promise that their clothes are made in safe environments. Phantom Tac could be regarded as an
In Spain, visitors to Mango’s design centre, a short drive from the distribution warehouse, are greeted in the lobby by
local political strongman, with close ties to officials in Savar. David Mayor was a buyer when he
unlikely attempt to prove that a Bangladeshi
an installation from Spanish artist Jaume
met Aminul Islam, who was operating a
factory could be socially responsible and
Plensa. A Picasso hangs in the office of
different factory in the centre of Dhaka, the
make a profit. It was partly owned by a
Mango’s chairman, Isak Andic. Employees
national capital. They started Phantom Tac
Spaniard, David Mayor, who had won
eat in a light-filled cafeteria or can relax
together, which seemed like a good fit, since
orders from several Spanish brands. He
in an upstairs area filled with ferns called
Mayor had connections with foreign brands,
had teamed with a Vatican missionary
“the greenhouse.”
especially those in Spain.
in rural Bangladesh to offer a training programme for female workers. And he
These state-of-the-art facilities are just the beginning: Mango already operates
Mayor also had a social agenda. In 2007, Mayor joined with Brother Massimo Portfolio
59
The clothing industry is a major employer in Bangladesh.
AFP/GRAPHEAST
People pass a Mango clothing store in Barcelona.
Cattaneo, a Roman Catholic missionary, and financed a training programme for young girls from rural Bangladesh. He eventually hired about a dozen of the graduates into his own factory. He also wanted to give consumers a better understanding of how their clothes were made. Ashley Wheaton, who had worked for a non-profit group in Dhaka, was hired to develop a website where consumers could type in a code taken from the sales tag of an item and then learn about the Bangladeshi women who made the garment they had bought. “He had this idea about what he wanted to accomplish,” Wheaton said. “He really did want to change the way things are done.” But money became a problem. Wheaton
Workers inside the clothing company Mango’s distribution centre near Barcelona.
position in the factory.
shirts and some children’s items.
By January 2013, Phantom Tac had
In a recent interview at Mango’s design
began tightening expenses. Eventually,
corrected the child labour issue and was
centre in Spain, Jose Gomez, vice president
Mayor also stopped funding the training
trying to win new business, including from
of international business development, cited
programme, which Massimo has kept afloat
Mango. Mango had sent buyers to the
Mango’s involvement in a major consortium
through church money and donations.
factory as well as inspectors to conduct an
of brands that have agreed to help finance
audit of working conditions, workers say.
safety upgrades to Bangladeshi factories as
left after about seven months, as the factory
Workers at Phantom Tac said deadline pressures were relentless. Margins were
“We all knew about Mango’s audit team,”
evidence of the company’s commitment to improve conditions.
so tight that several workers say midlevel
said Hossain, the man from the cutting
managers used two sets of accounting
section. “There was an announcement on
ledgers to hide excessive overtime or
the loudspeaker. They told everyone to work
compensation for victims, Gomez denied
other wage violations. Workers also said a
properly. They wanted to impress them.”
that Mango had started production at
problem with child labour arose in 2012
It worked. Labour activists searching the
But on the separate issue of
Phantom Tac. Asked if he was certain no
after a buyer discovered several teenagers
rubble of Rana Plaza found order forms
work was underway, Gomez said, “What I
working as helpers, the lowest-level
from Mango to Phantom Tac for adult polo
understand is what I told you.” n
February 2014
Entrepreneurs
60
Entrepreneurs at Samurai Startup Island, a start-up incubator.
report that hundreds of new internet and technology-related companies have sprung up in the last two to three years, creating an ecosystem of incubators like Samurai Startup Island and new accelerator venture investment funds, which invest in early state startups in hopes of cashing in. Some top universities – the same ones that have long defined success as a job in an established company or elite government ministry – have begun not only to create their own incubators and venture funds, but also to develop curriculums on birthing startups. And while some young entrepreneurs say real progress will come only if Prime Minister Shinzo Abe acts as promised to shake up Japan’s hidebound corporate culture, they say the stock market rally and broader optimism created by the economic plan known as Abenomics are already making it easier to find investors and customers. “This is the beginning of something that could rejuvenate Japan,” said Mitsuru Izumo, the founder of Euglena Corp., a biotechnology startup valued at $1 billion, and one of the country’s most prominent new entrepreneurs. “If we don’t unleash
reUTers
Japanese entrepreneurs are building businesses based on 3D printing.
our youth, then Japan will become too weak to survive another blow like Fukushima. Entrepreneurship is Japan’s last chance.”
A TenTATive STArT Japanese entrepreneurs, after years of institutional neglect, are finally receiving some support, reports Martin Fackler.
For years, sagging entrepreneurial spirit has been cited as a major reason for Japan’s inability to save itself from a devastating deflationary spiral. The nation that produced Sony, Toyota and Honda has created few successors. Although Japan has a long tradition of entrepreneurship in blue-collar trades like manufacturing, it has had limited success
© 2013 New York Times News service
in extending that to more knowledgeThe 20-someThings in jeans
Japan from its long malaise, the young
based industries like software or
sipping espresso and tapping on laptops
men and women here at Samurai Startup
computing, at the forefront of the digital
at this Tokyo business incubator would
Island represent a crucial component: a
age and where competitors like South
look more at home in Silicon Valley
revival of entrepreneurship.
Korea have sped ahead.
than in Japan, where for years the surest
The signs of that comeback are still new,
A decade ago, under then-Prime
signs of success were the grey suits of its
and tentative enough that the statistics on
Minister Junichiro Koizumi’s effort to
corporate salarymen. But for those hoping
startups and initial public offerings have
revive the economy, Japan appeared for
the nation’s latest economic plan will drag
not caught up. But analysts and investors
a time to embrace young entrepreneurs. Portfolio
61
But the resurgence was mostly snuffed out when the most prominent of these newcomers, a brash young internet mogul named Takafumi Horie who roared around Tokyo in Ferraris, was imprisoned for securities fraud. For other young entrepreneurs, his guilt or innocence was not the story. They saw his downfall as a cautionary tale of how Japan’s greying establishment would crush those who challenged its rules. The Samurai Startup Island, in a lowrent office district built on a landfill on Tokyo Bay, is at the vanguard of what many hope is a new generation of innovators, and a world apart from Japan’s highly conformist corporate world. The most prominent of several startup incubators that have sprung up in Tokyo, it offers a variety of services, including free legal advice, cheap office space, espresso machines and bunk beds for all-nighters.
Mitsuru Izumo, CEO of Euglena Corporation, at the University of Tokyo’s “entrepreneurial plaza”.
2000s, when a dearth of new jobs and opportunities left many young people
downfall of Horie, they said. “Horie gave entrepreneurship a negative
Having grown up immersed in an
underemployed or unemployed, and
image, as something too greedy,” said the
online world that stretches beyond national
downwardly mobile.
enthusiastic Izumo, who was sporting a
borders, young Japanese appear more
“Japan has said, ‘Enough,’ to being
bright green necktie. “Young entrepreneurs are out to change that mind set.”
willing to draw inspiration from foreign
depressed, time to unleash our animal
role models like Steve Jobs, the founder of
spirits,” said Robert Eberhart, a professor
Perhaps the greatest sign of change is
Apple. And having seen Sony cede market
of management at Santa Clara University
the number of elite university graduates
share to South Korea’s Samsung, many
in California who has studied startups
– the type who can still get high-level
no longer share their salarymen fathers’
in Japan and Silicon Valley. “Now, I
corporate jobs if they want – among
belief in the permanence of established
think there is more excitement about
startup founders. Izumo and Fukushima,
corporations or lifetime jobs.
entrepreneurship in Japan than in the US.”
the internet entrepreneur, are graduates
“In a world where everything is risky,
Some warn that Japan has a way to go to
of the University of Tokyo, which is among Japan’s top colleges.
it’s better to be your own boss, in charge
become a hotbed of break-the-boundaries
of your own destiny,” said Yoshinori
venture behaviour. Noriyuki Takahashi,
Fukushima, 25, whose year-old internet
who specialises in entrepreneurship at
are being incubated in what it calls
company has grown to 14 employees.
Tokyo’s Musashi University, pointed to
its “entrepreneur plaza.” And Tokyo’s
comparative global surveys that place
prestigious Waseda University, which
software engineering, Fukushima founded
Japan at the bottom among leading
in 2013 introduced a programme for
his company, Gunosy, to sell an app he
Western and Asian economies in social
supporting startups, says it has already
wrote that analyses social media pages
acceptance of entrepreneurs.
produced five new businesses.
While seeking a master’s degree in
to find news stories of potential interest
For Silicon Valley-style venture
The university says 25 companies
Those numbers might seem small,
to users. He says he turned down job
capitalism to truly flourish, he and others
said Shigeo Kagami, a business professor
offers at established firms before starting
said, deep-seated prejudices against
who helps run the University of Tokyo
his business.
entrepreneurs – who are seen as too
incubator, “but the fact this is happening at
Others were driven by the fear of
greedy or self-promoting in a culture that
all is a big chance for Japan.
becoming yet another “lost generation”
abhors displays of unrestrained ego – must
like people who came of age during
be overcome. The biggest hurdle is the
takes one or two success stories to change
Japan’s long downturn in the 1990s and
stigma placed on entrepreneurship by the
the world.” n
February 2014
“As Steve Jobs showed,” he said, “it only
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Essentials
63
THE BEST OF LEISURE AND LIFESTYLE
The Dragon and Tiger Temple overlooks Kaohsiung’s Lotus Pond.
TIGERS AND DRAGON BOATS Taiwan is famous for its work ethic, but behind its industrial face there’s also a realm of soaring mountains, tranquil lakes and coral reefs, reports Graham Simmons.
PHOTOS: GETTY IMAGES, GRAHAM SIMMONS
FROM THE 1970S TO THE EARLY
In Taipei, the hard-work ethic has now
2,250 years ago – but the music could belong to any time or place.
2000s, Taiwan was one of the four
segued into a recreation ethic. The China
“Asian Tigers” and the Taiwanese capital
Pa Bar, which combines classical Chinese
Taipei resembled a giant building site on
décor with the coolest jazz vibes, could
world’s most crowded cities. But of late,
steroids. When the global financial crisis
be a metaphor for the new Taipei, where
there is a real commitment to establishing
hit in 2008, Taiwan was fortunately not
traditional cultural values blend seamlessly
garden corridors throughout the city.
as badly affected as the other “tigers”;
with the fluidity of constant improvisation
Nowhere is this more apparent than
nevertheless, the impact of the crisis
and change. The bar’s sumptuous antiques
around the base of Tower 101, the world’s
has led to a re-evaluation of what the
and brocades celebrate the life of Emperor
tallest building until it was “upstaged” by
Taiwanese really want out of life.
Qin Shi Huang, who ruled China some
Dubai’s Burj Khalifa. But even the Burj
February 2014
Taipei has a reputation as one of the
64
Essentials
Travel
Taipei’s Tower 101 dominates the city’s skyline.
Khalifa doesn’t have “the world’s fastest
largest collection of classical Chinese art,
the Philippines, amongst others. “We’re
elevator”, as boasted by Tower 101. Shin
ceramics and sculpture. Much of it was
here because Johannesburg and Taipei
Yen 101, a highly rated restaurant on
taken by Chiang Kai Shek’s army upon
are sister cities,” explained South African
Tower 101’s 85th floor, has extraordinary
its hasty departure from China following
team coach Craig Seymour.
views over the city.
the Communist takeover of 1949. But the
The atmosphere at Dajia Park is
mainland government seems in no hurry
totally relaxed. No-one minds when
laid on the ground, a little taller than it is
to come and take it back – and today, the
the crowd cheers on its favourites – the
wide. At the northern tip is the National
“live and let live” formula adopted by the
combined high schools team and the
Palace Museum, at the lower left Longshan
“Two Chinas” seems more robust than
Taipei University team. And it also seems
Temple, and at the lower right Tower 101.
ever, with rapidly increasing trade and
that nobody really cares who wins as the
These three landmarks virtually define the
tourism ties between the two.
spectacle is the main attraction.
To get a feel for Taipei, imagine a triangle
city, with north-south and east-west subway
Nothing is more symbolic of the
Some other things to do in Taipei? You
lines meeting at Taipei Main Station, just
“unwind” mentality of today’s Taiwanese
could write a whole guidebook about any
northeast of Longshan Temple.
than the Taipei International Dragon
one precinct of the city. But here are just
Boat Championships, held in Dajia
three suggestions:
Museum rightly attracts rave reviews. On
Riverside Park. The races attract teams
• Get the best foot massage of your
four levels, the museum houses the world’s
from Canada, Singapore, South Africa and
In the north, the National Palace
life at the Giwado Chinese Medicine Portfolio
65
Longshan Temple is one of Taipei’s defining landmarks.
The National Palace Museum has the world’s largest collection of classical Chinese art.
United Clinic. All staff are highly trained
Somewhat bafflingly, the train from Taipei
in Traditional Chinese Medicine;
arrives quite some distance from downtown
is the focus of the city with manicured
• Drop in at the Eslite Bookstore, a
In downtown Kaohsiung, the Love River
Kaohsiung. But near Kaohsiung railway
gardens lining its banks. Hot-air balloons
huge establishment with books on
station is one of the city’s main attractions
glide overhead as people jog or stroll the
three levels (including a wide range of
– Lotus Pond, a delightful expanse of water
riverbanks, or sit quietly contemplating the
English-language books on Taiwan)
dotted with ancient pagodas, temples and
river view. On occasion dragon boats glide
and a five-level shopping mall, one
statues of bodhisattvas.
past, filled with exhausted-looking rowers
whole floor devoted to CDs and DVDs; • Visit the eclectic Museum of
The Spring and Autumn Pavilion, also in Lotus Pond, is well worth a visit.
preparing to take on the world. While Kaohsiung is more laidback than
Contemporary Art and the funky VT
Presiding over the complex is a giant
Taipei, visitors can be overwhelmed by
Art Salon, a gallery and lounge run by
figure of the bodhisattva Kuan Yin, the
the exhilarating attractions of both these
video artists and DJs.
Goddess of Mercy. Further along in the
cities. Fortunately, getting out of town is
lake, like a genie just sprung out of a giant
both easy and rewarding. It often comes as a surprise to find that
TAIWAN’S SECOND city, Kaohsiung, is
bottle, is a huge, gaudily painted statue
said to be the world’s third-largest port. It
of Zhenwu, the Supreme Emperor of the
Taiwan is one of the most nature-blessed
lies just 90 minutes by high-speed train
Dark Heaven, also known as the inventor
parts of Asia. This bonsai country, little
from Taipei – at speeds of up to 300 km/h.
of martial arts (especially Tai Chi).
more than half the size of Tasmania, has no
February 2014
66
Essentials
Travel
The Taipei International Dragon Boat Championship is a hugely popular event.
The Dragon and Tiger Pagodas at Lotus Pond were built in 1976.
fewer than 258 mountains, each over 3,000 metres high. Parts of the country look on a relief map like a giant green rollercoaster. FOR THOSE with limited time, here are three suggestions for quick “green” breaks from Taipei: Visit the Yehliu Seashore. Right on the northern ocean shore about two hours by road from Taipei, Yehliu GeoPark is a stunning display of bizarre rock formations, which could have been sculpted by a Salvador Dalí. Some of the rocks look like a bulbous nose on a person’s face. Others look like bloated, inverted golf clubs, while others totally defy description. Near the picturesque Yehliu Harbour,
The Spring and Autumn Pavilions are dedicated to Kuan Kung, the god of war.
Tatung Volcanic Mountain dominates
of them rising to over 3,740 metres. Of the
Trail. Walk along the road and take in
the skyline. The Governor-General Hot
many rivers within the park the Liwu is the
the river-gorge far below, which seems to
Springs near Jinshan Beach are said to
biggest, running a total of 58 kilometres
have been cut through the limestone and
have healing properties, curing everything
from its highest point at over 3,400 metres
marble rocks with a sulphuric-acid sword.
from arthritis to sinusitis. The different
to the ocean. On its way, the river surges
baths vary in heat from lukewarm through
through Taroko Gorge that is a staggering
means “echo” in the Taroko aboriginal
to lobster thermidor.
19 kilometres long and in places more than
language), the Taroko people have
900 metres deep.
established a very comfortable lodge, the
GET AN early start (7:08 am to be precise)
Alongside the Taroko Gorge runs
Near the village of Buluowan (which
Leader Hotel Taroko. The dinner menu
and take an express train from Taipei
the trans-Taiwan highway, its many
features such aboriginal delicacies as
Station to the east coast city of Hualien (a
cantilevered sections running precariously
betel nut soup with wild boar, mountain
trip of about three hours); and then travel
on ledges high above the river and in
chicken with ginger, sticky rice cooked in
inland by regular bus to Taroko Gorge. It is
other places through long tunnels. A part
bamboo tubes and greens in sesame oil
hard to do justice to Taroko National Park
of the highway has been reconstructed
with mashed wild potato, all washed down
as no fewer than 27 of Taiwan’s highest
and the old highway now forms a walking
with home-made millet wine. The flavours
mountains are within the park, the tallest
trail known as The Tunnel of Nine Turns
have to be experienced to be believed. Portfolio
67
Green Island once served as a prison.
The extraordinary rock formations of Yehliu GeoPark
The Eternal Spring Shrine is just one of Taroko Gorge’s many attractions.
TAIPEI’S SONGSHAN domestic airport is
Naturally, where there are sharp beach-
right in downtown Taipei. From Songshan,
lines there is likely to be a spectacular
Far Eastern Air Transport flies several times
display of corals too – and this is just
a day to Taitung, the jumping-off point
one of the things that entice visitors to
for the laidback holiday island of Lüdao,
Lüdao. The snorkelling just offshore
or Green Island. From Taitung’s Fugang
is phenomenal, with a huge profusion
Fishing Harbour wharf, fast ferries reach
of colourful corals very close to the
Green Island in just 20-30 minutes.
shoreline. Several dive operators run
From its start as a penal colony in 1895
snorkelling trips, with a long “umbilical
right through until 2005, Lüdao gained
cord” of rubber rings stretched out on a
a reputation as the ultimate place of
long rope guaranteeing safety.
The Swallow Grotto in Taroko National Park is named after the birds that nest in it.
banishment, with its unique terrain making
For a final take on Taiwan, I return to
escape virtually impossible. “It’s like Alcatraz
the Love River, in Kaohsiung. The mascot
symbolises a poor scholar who will pass
in a way. It’s a small island isolated by razor
of Kaohsiung, known as “Fish Jumping
the Imperial exams and become rich
sharp beach lines and choppy seas,” says Tso
over Dragon Gate”, presides over the river
and famous.
Chin-jun, head of the Green Island Human
like a jail warden or a benevolent mother.
Rights Memorial Park project.
According to local mythology, the figure
February 2014
Could this mascot be a symbol of the new Taiwan? n
68
Essentials
Culture
Kim Byeong-seok, senior vice president of CJ E&M, holds the Tony Award he won as a producer of Broadway’s Kinky Boots.
Korean Cash TaKes Broadway Bow
South Korean money is funding Broadway plays, but the long-term target is for Seoul to be the bridge between Western and Asian markets, reports Patrick Healy. Portfolio
geTTY images
69
The Broadway musical Kinky Boots was a success in Korea.
O
nly one Korean
charismatic characters, like this musical’s
into China and Asia,” added Kim, whose
theatre producer has a Tony
fearless drag queen, who saves a shoe
company has invested in productions of
Award for best musical, a
factory. But Kim, like other Koreans
Cats and Mamma Mia! in China. “We
Broadway honour that is
investing in New York shows, is also
want to partner with the Americans, so
coveted the world over. Yet the 2013 trophy
playing long ball, “positioning Seoul to
you’ll see more Korean money coming to
for Kinky Boots sits inconspicuously on
become the bridge between Broadway and
Broadway to establish these ties.”
Kim Byeong-seok’s cluttered bookcase,
all of Asia,” he said, “especially China.”
amid cheap memorabilia from Cats, Grease and 42nd Street. For Kim, of the entertainment giant CJ E&M, status symbols of Broadway are beside the point. He put $1 million of his company’s money into the $13.5 million Kinky Boots in hopes of getting the attention of top New York producers – seven-figure investments are rare these days – to develop relationships for future
© 2014 New York Times News service
ventures. CJ now has the inside track to mount the first Asian production of the hit show, which features songs by Cyndi Lauper, who has a strong fan following there. The goal is to open Kinky Boots next autumn in Seoul, a hotbed of Western musicals with heart-tugging plots and February 2014
“American producers still have a bit of a question mark about moving aggressively
The goal is to open Kinky Boots next autumn in Seoul, a hotbed of Western musicals with hearttugging plots and charismatic characters, like this musical’s fearless drag queen, who saves a shoe factory.
Some of that money – a sum he would not disclose – went into another Broadway musical, Big Fish, which Kim is hoping to bring to South Korea, despite the New York production’s flopping to a close. Another leading Korean producer, OD Musical Co, has also invested recently in the Broadway musicals Jekyll & Hyde, Chaplin and Jesus Christ Superstar and is working with the Nederlander Organisation and others on the new musical Holler if Ya Hear Me, which is based on the music of Tupac Shakur and may come to Broadway in 2014. OD Musical previously teamed up with US producers on a revival of Dreamgirls, with a Korean production opening in Seoul in 2009, followed by a US run at the Apollo Theatre in New York and a national tour.
Essentials
Culture
Broadway and British producers see a potentially lucrative market in China, but they are proceeding with caution, they say, given that doing business there raises a hefty range of issues – royalty agreements, licensing contract terms, copyright protections, piracy concerns – that have yet to be negotiated or resolved with Chinese theatre owners, producers and government officials. Song Seung-whan, a theatre producer who staged Legally Blonde in Seoul.
Generation, was performing as Elle.
Shin Chun-soo, president of OD
“I’ve been looking for another Broadway
Musical, said his investments were purely about long-term strategy, even
investment like Legally Blonde that would
volunteering a statistic that New York
attract our younger audiences and be
producers know by heart: Only 25 per cent
perfect for a K-pop star, but I’m being
of shows on Broadway turn a profit.
picky,” said Song, whose main focus is his long-running play Nanta (or Cookin), a
“Do I care about losing money on Broadway? Not really,” said Shin, a boyish-
comedy set in a restaurant kitchen. It ran
looking 45-year-old with thick, spiky hair
off-Broadway and has been mounted in
and black designer glasses. “What matters
China, Japan, Vietnam and many other
is that American producers notice us, see
countries over the past decade. Broadway and British producers see a
our market, understand what Asia can
potentially lucrative market in China, but
become. Broadway is the place of origin for getty images
70
musicals; once it’s on Broadway, it’s likely to spread around the world. So we have to
they are proceeding with caution, they say, given that doing business there raises a hefty range of issues – royalty agreements,
The recenT US tour of the Broadway
Composer Frank Wildhorn, who has had several Broadway flops, is celebrated in South Korea.
musical Priscilla Queen of the Desert had
show could be a hit in Seoul with a Korean
yet to be negotiated or resolved with
Korean money from the producer Seol and
pop star in the bubbly lead role of Elle
Chinese theatre owners, producers and
Co, which may soon mount the musical
Woods, the law student played by Reese
government officials.
in South Korea. And the 2007 Broadway
Witherspoon in the movie.
become players there.”
musical Legally Blonde had a million-
The Korean production did make
licensing contract terms, copyright protections, piracy concerns – that have
The Broadway hits The Lion King, The Phantom of the Opera and other musicals
dollar investment from Song Seung-whan,
money, especially on nights when Jessica,
have had relatively brief runs in China,
a theatre impresario who thought the
a member of the red-hot K-pop band Girls’
but the business arrangements for those Portfolio
Essentials Culture productions have mostly been worked out
mostly benefits Broadway producers, who
& Hyde, which lost money in New York,
show by show. For the Chinese market
need financing for shows, and theatre
just celebrated its 10th anniversary in
to develop, as it has in Seoul and Tokyo,
artists like composer Frank Wildhorn,
Seoul and is considered one of the most
standard producing agreements have to
who has had several flops on Broadway
financially successful US musicals there.
become the norm.
but has become one of the most celebrated
(By comparison, the composer Stephen
in his field in Korea. His musical Jekyll
Sondheim is barely known, and his
For now, the Korean investing strategy
musicals Assassins and Company sold poorly there.) “You get another life over in Seoul,” Wildhorn said. As Kim of CJ explained his goals, he could have been mistaken for an executive from another of the company’s many divisions, with talking points prepared in a memo and two large bulletin boards by his desk that listed monthly box office projections and performance schedules for CJ shows. His comfort with making deals certainly came as a boon for Kinky Boots – covering a significant share of its Broadway budget – getty images
and for its lead producers, who had grown accustomed to long negotiations with US Successful Broadway shows have yet to fully penetrate the Asian market.
investors over cheques in the $50,000 and $100,000 range. The musical had just begun its tryout production in Chicago in 2012 when one of those producers, Hal Luftig, received an email from a CJ executive asking to hear the Lauper score and read the script. Soon after, Luftig was in negotiations for the money; the only sticking point, he said, was that CJ wanted the right of first refusal to produce Kinky Boots in Australia as well as in Korea. The Australian territory had already been claimed by another producer. Luftig promised that CJ would be next in line for Australia, which sufficed. Not long after, he had the money in hand. “I wish more deals were done this quickly, easily, gentlemanly and without gamesmanship,” said Luftig, who also provided CJ executives with tickets to opening night on Broadway. “But the real benefit, I hope, is the relationship. Until now, I had no partners who knew how to exploit the markets in Korea, China and the rest. It’s not like I’m going to hop over
Shin Chun-soo, president of OD Musical Company, which has backed a number of recent Broadway shows including the upcoming Holler if Ya Hear Me. February 2014
to Seoul and say, ‘Let me figure out this market myself.’” n
71
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Essentials
Cuisine
Spain’S new Olive Oil RuleS Olive oil served in Spanish restaurants now has to come in sealed, non-reusable bottles instead of the traditional cruet, reports Raphael Minder.
Oleoestepa claims to be the first Spanish producer to sell olive oil in nonreusable bottles.
Portfolio
73
EvEry morning, cafÉs in Madrid fill up with people enjoying a typical Spanish breakfast, including pouring olive oil out of a plain glass cruet onto a slice of toasted bread. The traditional cruet, however, is being replaced by a labelled, sealed and non-reusable bottle or other type of container under stricter oil bottling rules that took effect in January. Spain is the world’s largest producer of olive oil. The new regulations were created mainly to improve food hygiene. But oil producers also hope the rules will help them build stronger recognition for their brands and even bolster sales and exports to markets like the United States, where Spanish oil has played second fiddle to Italy’s. Spain acted on its own after Germany and other North European countries, which consume but do not produce olive oil, blocked a proposal by the European Commission last spring to impose such legislation across the 28-nation European Union. Northern countries said tougher rules would produce both additional costs and more waste, with used and halfempty bottles thrown out rather than
“Traceability is important for food security, but we must also make people much more aware that olive oil is not something banal but instead noble and very special.”
represents more than 100,000 businesses, has opposed the stricter rules, echoing the recent concerns in Germany and other northern countries. With Spain recently emerging from a two-year recession but still struggling with anaemic household spending, “we’re facing an unjustified and unnecessary change that adds costs at the wrong time,” said Emilio Gallego Zuazo, the secretary general of the federation.
reused. British Prime Minister David
Café owners now generally fill their
Cameron also pilloried the regulatory
cruets from five-litre plastic containers.
plan as evidence of unnecessary
brand awareness among consumers – and
The labelling rules do not apply to
interventionism by Brussels
hence the value of their product – even
olive oil used within the kitchen, but
bureaucrats. Olive oil, Cameron
in the olive heartland of Andalusia, in
the cost of the oil that has been offered
claimed in May, is “exactly the sort of
southern Spain.
in cruets is likely to increase three- to
area that the European Union needs to get right out of, in my view.” A similar debate has taken place
© 2014 New York Times News service
A specialist examines newly processed olive oil.
“Traceability is important for food
fivefold, depending on what alternative
security, but we must also make people
bottling and labelling is selected,
much more aware that olive oil is not
according to Gallego Zuazo. Some restaurants may decide to
within Spain. But it has been
something banal but instead noble and
more subdued because the Madrid
very special,” said Álvaro Olavarría, the
charge for premium olive oil, but most
government clearly sided with oil
managing director of Oleoestepa.
are expected to continue providing
producers, saying stricter rules would
The company has annual revenue of
bottled oil free. Another perhaps
raise health safety, by guaranteeing
¤75 million (about $103 million) and
cheaper option is to switch to single-
the oil’s authenticity, as well as give
claims to have been the first Spanish
serve packets like those used for
consumers an opportunity to identify
producer to sell olive oil in non-reusable
ketchup or mayonnaise.
the quality and origin of their oil.
bottles, just more than a decade ago.
Producers have struggled to raise
February 2014
The Spanish hotel federation, which
The olive oil sector disputes any doomsday financial forecasts. Primitivo
74
Essentials
Cuisine
Fernández, the director of Anierac,
Overall, Fernández said, “the consumer
Spain’s national association of bottlers
has until now had no idea where the oil
and distributors of olive oil, calculated
comes from, whether it has been blended
that the cost of a regular breakfast should
or even how to complain if the taste isn’t
increase by as little as a euro cent, which
right or fraud is suspected.”
would also be less onerous than the
Some upmarket establishments have
cost of past packaging reforms for other
broken ranks with the hospitality sector,
produce like butter. As to the concern over
welcoming the bottling rules as part of
waste, Fernández said that “if we’re really
their efforts to raise the reputation of
worried about environmental damage,
Spanish gastronomy.
then let us talk first about problems like the bottling of Coca-Cola.”
“Spain is the world’s Number 1 producer but doesn’t have the consumer culture
Another longstanding Spanish frustration is that Italy has more successfully focused on exporting the highest quality of olive oil, known as extra virgin, even as Italy itself is the largest importer of Spanish oil, which it buys mostly in bulk. that such a ranking deserves,” said Jesús Santos, who owns a handful of restaurants in Madrid and Bilbao, serving mainly Basque cuisine. As with wine, Santos added, “consumers should ultimately be encouraged to order a specific oil rather than just get whatever is in the kitchen.” Another longstAnding Spanish frustration is that Italy has more successfully focused on exporting the highest quality of olive oil, known as extra virgin, even as Italy itself is the largest importer of Spanish oil, which it buys
Álvaro Olavarría, the managing director of Oleoestepa, believes labelling is important for Spain’s olive oil industry.
Oil is extracted at an olive oil processing plant.
mostly in bulk.
Freshly harvested olives are ready for pressing. Portfolio
75
A cafe diner pours olive oil from a cruet onto his bread in Seville.
One explanation for Italy’s exporting clout is that pizzerias and other Italian restaurants in countries like the United States helped promote its oil long before Spain started targeting such markets. Another reason is that Italy was among the six European nations that established in 1966 a common market and subsidy system for olive oil – 20 years before Spain and Portugal joined the European
“The worldwide perception is still that olive oil is far more Italian than Spanish, so it’s been about playing catch-up and trying to get some facts straight.”
is expected to welcome about 60 million visitors in 2013, making it one of the world’s biggest tourism destinations. The jury is out on whether the new law and higher brand recognition can bolster sales. Gallego Zuazo from the hospitality federation said that “this compulsory change will not bring the positive effect that producers are expecting.” In fact, “putting oil on the table for free has been
Union and also became eligible for such
key in helping raise the popularity of oil,”
farm subsidies.
he added. “This could go against that.” A group of people having breakfast
“The rules of the European oil market were tailor-made by and for Italy,”
“which is something that Spanish
recently at Los Chicos, a Madrid café, said
Olavarría said of the olive oil company
producers have been demanding for
they understood that producers wanted to
Oleoestepa. “The worldwide perception is
decades but unfortunately were made to
increase sales but not why that required
still that olive oil is far more Italian than
wait for until now.”
turning cruets into a serious problem.
Spanish, so it’s been about playing catchup and trying to get some facts straight.”
Even though the rules will still not
“I’ve used them for 70 years and I’ve
apply throughout the European Union, “it
never been sick,” said Juan Marín, a
now also gives Spain a chance to ensure
pensioner. “But food has gotten more and
also benefited from stricter domestic
every visitor goes home with a clearer
more expensive and that certainly makes
labelling rules for oil, Olavarría said,
appreciation of our oil,” he added. Spain
me feel sick.” n
Italian and Portuguese producers have
February 2014
Essentials
76
A blowout preventer is a large, specialised valve to seal, control and monitor oil and gas wells.
SubSeA EnginEEring ExcEllEncE Aberdeen has become the centre of subsea engineering thanks to expertise gained in North Sea oil fields, reports Stanley Reid.
Peter Blake has a Us emPloyer,
undersea unit, based in Aberdeen in
engineering,” Blake, himself a Scotsman,
the oil giant Chevron, and his work
northeast Scotland?
said in a conference room in Chevron’s
© 2013 New York Times News service
is global. It is his job to pull together
That’s because since the early 1970s,
European headquarters on a hilltop
and dispatch billions of dollars’ worth
when oil was discovered in the British
overlooking this city and its many old
of sophisticated undersea equipment
North Sea, Aberdeen has evolved from
stone buildings of dark granite. “The
needed for oil and natural gas fields in
a gritty fishing town into the world’s
expertise generated by the North Sea
the Gulf of Mexico and offshore from
centre of innovation and execution for
continually influences undersea work
Angola, the Republic of Congo, Indonesia
the technology that makes the modern
across the globe.”
and Australia.
offshore energy industry possible.
So why is Blake, head of Chevron’s
“Scotland has been the home of subsea
That expertise, coupled with a resurgence of investment in natural Portfolio
reUTers
Technology
77
gas and oil fields in and near the North
BMWs. Its battered waterfront bars
even though North Sea oil reserves are
Sea, means that Aberdeen, a city of
with names like Neptune and Character
gradually being tapped out. And yet it is
468,000, has been able to virtually
appear to have been little changed by four
precisely for that reason that this city has
ignore the economic doldrums that have
decades of an oil economy.
become such an innovation hub.
plagued most of Britain and Europe.
New development projects are having
But the fishing boats have been replaced
Aside from central London, Aberdeen
by big, brightly painted oil field vessels
to venture ever deeper into more
is now the wealthiest place in Britain,
that pull in and out of the narrow harbour
treacherous waters, whether west of the
with an income per person of about
entrance day and night. Such is the
Shetland Islands in Britain or in the
£32,000 (about $49,000). And thanks
demand for dock space that the harbour
Barents Sea off Russia.
to the more than 100,000 jobs the oil
authorities are contemplating construction
industry generates in Aberdeen and its
of a new facility in the next bay.
surroundings, unemployment in the city
For two planned projects, Rosebank off the Shetlands and Alder in the North Sea, Chevron and its partners recently awarded
Aberdeen remains a boomtown
contracts worth £550 million (more than
and neighbouring shires is less than half the 7.8 per cent national average. The average pay for each of those oil jobs, at £64,000, is more than double the British average. “We’ve plenty of well-paid people,” said Bob Keiller, chief executive of Wood Group, a company that traces its roots to an early 20th-century fishing and boat repair outfit that has developed into a global oil services company with more than £7 billion a year in revenue. Aberdeen does not look rich, though it does seem to have a disproportionate
$840 million). In the case of Rosebank,
Aberdeen remains a boomtown even though North Sea oil reserves are gradually being tapped out. And yet it is precisely for that reason that this city has become such an innovation hub.
equipment must work at depths of 1,100 metres, and its surface production vessel must withstand waves 29.9 metres high or more. The companies winning those contracts included a joint venture of the oil services giant Schlumberger and Cameron International, an undersea hardware specialist; and Aker Solutions, a Norwegian maker of oil and gas equipment. Each has a big presence in Aberdeen. As the rest of the global oil industry moves offshore and into deeper and
number of Range Rovers, Mercedes and
deeper water off Brazil, Africa and the United States, the techniques and technology honed in the North Sea are increasingly in demand worldwide. Oil installations in the deep often resemble jellyfish, with a single platform or vessel floating at the top and far below it a mass of wellheads, underwater controls, pump stations, piping and processing units snaking along the seabed. Humans cannot work under a kilometre of water, so installing such equipment calls for specialised ships that can lay pipes and direct robotic submarines that install and maintain the gear. The arsenal includes high-powered pumps and “well trees” – complex arrays of pipes and valves that sit atop undersea wells and regulate
getty images
the flow of fluids.
Aberdeen Harbour is the busiest in Britain thanks to the North Sea oil industry. February 2014
“Acid stimulation systems” inject chemicals into seafloor wells to increase production. Gas compressors, huge pieces of equipment that keep gas fields
78
Essentials
Technology
pumping, are being built to go deep under water rather than on land or on platforms. All must be built to keep out salt water and withstand tremendous pressure. These and more are necessary for modern, deep-sea oil fishing, and BP’s Gulf of Mexico calamity in 2010 is a
Since the early 1970s, when oil was discovered in the British North Sea, Aberdeen has evolved into the world’s centre for the technology that makes the modern offshore energy industry possible.
cautionary example of the necessity of sweating the details. The cosTs of undersea oil projects can run into billions of dollars because usually the only practical solution is to put most of the gear for a deepwater field on the seafloor, rather than on a platform or on land. Still, “the real estate on the bottom is cheap, compared to the surface,” said Blake of Chevron. This urge to submerge is proving a boon for British purveyors of underwater equipment and services and for their Norwegian counterparts. Subsea UK, an Aberdeen-based trade group, figures that
But some local experts predict the city’s intellectual capital will endure – just as there is no longer much silicon to account for the continued success of Silicon Valley.
Aberdeen’s harbour is so busy that plans are being studied to build a second one.
British companies now have about £8.9
Aberdeen’s ability to grow as an
billion in revenue, or 45 per cent of the
energy hub may have limits. Already,
global subsea business, which has been
some industry executives worry that
growing at an annual rate of 17 per cent.
wage inflation could eventually prompt
“We often try new technology in the
them to find less expensive locales. And
North Sea – it is a test bed,” said Matt
as the region’s offshore energy reserves
Corbin, chief executive of the subsea unit
eventually dwindle, there will be less
of Aker Solutions, which employs 2,800
reason for many companies to have
people in Aberdeen.
Aberdeen addresses. Portfolio
79
But some local experts predict the city’s intellectual capital will endure – just as there is no longer much silicon to account for the continued success of Silicon Valley. “We can be confident the exports will continue,” said Alexander Kemp, an oil economist at the University of Aberdeen. For now, at least, the job seekers continue flocking to Aberdeen, whether to the office parks or the oil field equipment factories springing up on what were cow pastures to the west of the city. “We are in a bubble here,” said John Morrison, a recent architecture graduate who is designing suburban tract housing to accommodate the inflow. “I’d struggle to have a job anywhere else.” getty images
Not that all the jobs have the comfort of a design studio. Dave Lynch, BP’s Aberdeen-based vice president for resources in the North Sea, noted that the
Apparatus for deepwater drilling is seen aboard the Scarabeo 8 oil rig, operated by ENI Norge AS.
weather was so bad last winter that supply boats were unable to make it to one of
One who knows such potential
on, three-weeks-off schedule of platform
BP’s floating production units for two
hardships is Paul Onions, a BP oil
life, which enables workers to spend their
weeks. Helicopters dropped food on the
platform engineer. But he would rather
downtime in places like Spain and Malta.
vessel for the wind-tossed work crew.
think of the benefits of the two-weeks-
“Long may it last,” he said. n
February 2014
80
Essentials
Environment Baby Orinoco crocodiles at a government-run hatchery.
Saving a FerociouS Predator
The Orinoco crocodile, South America’s largest predator, was nearly hunted to extinction. Now efforts are underway in Venezuela to save the reptile, report William Neuman and Paula Ramón. Portfolio
81
Stealing the eggS from an enraged, three-metre crocodile is a delicate operation. “If you don’t have your guard up, this crocodile can jump out of the water onto the sand, and in the same motion she can catch you,” said Luis Rattia, 37. He runs a hatchery at the governmentowned El Frío ranch, part of a sputtering effort to save the Orinoco crocodile, the largest predator in South America, from extinction. There were once millions of Orinoco crocodiles living along the banks of the great river, which gave them their name, and its tributaries in Venezuela and eastern Colombia. But the fearsome animals were nearly done in by fashion. They were hunted almost to extinction from the 1920s to the 1950s to feed a worldwide demand for crocodile-skin boots, coats, handbags and other items. Today, biologists estimate that there are only about 1,500 Orinoco crocodiles left in the wild, nearly all of them in Venezuela.
Álvaro Velasco, who heads an independent group of crocodile specialists, searches for wild Orinoco crocodiles at a government-run ranch.
El Frío ranch, which was expropriated by Venezuela’s government in 2009, represents the hopes and the frustrations of conservationists who have worked to save the animal for years, often at cross purposes with a government that frequently views them with suspicion. Thanks in part to that disconnect, efforts to save the animal suffer from a lack of coordination and money, imperilling their
“If you don’t have your guard up, this crocodile can jump out of the water onto the sand, and in the same motion she can catch you.”
moved with lightning quickness, thrashing its tail and gorging on a fish that swam within range of its snapping jaws. The first concerted efforts to breed the Orinoco crocodile were started in the 1980s by conservation-minded ranchers whose lands straddled the animal’s once extensive territory. Then, in 1990, scientists began releasing young crocodiles
already limited success.
into rivers on El Frío ranch, where wild
“A properly defined programme with funding and objectives doesn’t exist,”
itself,” he wrote, “the crude offspring of
crocodiles had not been seen in at least
said Omar Hernández, the director of an
the greatest monstrosity, the horror of
two decades. Today, researchers estimate
environmental foundation called Fudeci.
every living thing; so formidable that if a
that as many as 400 crocodiles inhabit the
“The animal is in critical danger.”
crocodile were to look in a mirror it would
ranch, forming an entirely new population
flee trembling from itself.”
that shows the species’ ability to recover if
When the naturalist and explorer Alexander von Humboldt travelled © 2013 New York Times News service
like something out of a myth. Suddenly, it
It is easy to see what Gumilla was
conditions are right. “This is the great success of the
through the Venezuelan plains in 1800,
talking about. On another government-
he found crocodiles lining the riverbanks,
run ranch near El Frío, a large crocodile
programme,” said Álvaro Velasco, a former
with the largest males measuring up
lay in the shallows of a rushing stream,
government biologist who heads an
to 7.3 metres long. José Gumilla, an
its eyes nearly shut, its mouth open in
independent group of crocodile specialists.
18th-century priest who wrote a natural
what looked like a cruel smile. With a
“The achievement is that there were
history of the Orinoco, told of the fear
scaly dragon’s back; spiky tail; long, white
no crocodiles here, and now there is a
the huge crocodile inspired. “It is ferocity
teeth; and fat, wormlike belly, it seemed
population that can reproduce itself.”
February 2014
82
He stood with Rattia on a recent morning at the edge of a wide lagoon
one of the first generations of crocodiles
hands, as part of a research station
released here.
started in the 1970s that brought scientists from around the world to
on the ranch, as a large male crocodile surfaced 15 metres offshore. Velasco said
The programme at El FrĂo
study the ecology of the Venezuelan
that the animal, roughly 4.6 metres long,
was begun when the more than
plains. During a wave of nationalisations
was about 20 years old, placing it among
61,916-hectare ranch was in private
carried out by the country’s long-time
Newly-hatched Orinoco crocodiles are kept in tanks for about a year before being released into the wild.
Orinoco crocodiles have thinner snouts than their American and African relatives.
The tail of an Orinoco crocodile.
Portfolio
Essentials Environment them as enemies of its revolutionary
socialist president, Hugo Chávez, El
Conservationists said the effort to
Frío was expropriated in 2009. The
save the crocodile was undermined by
programme. After the nationalisations of
research station was abruptly closed, and
the absence of game wardens to patrol
El Frío and some other ranches, the threat
a Spanish biologist who had run it was
the rivers where they live. Private
of expropriation is a constant worry.
barred from the ranch.
efforts to save the Orinoco crocodile
Masaguaral and other private efforts
also face serious challenges. One, on the
hope for benign neglect. Hernández, the
largely because of the perseverance of
Masaguaral Ranch, led to the country’s
director of the environmental foundation,
Rattia. After the government takeover,
first crocodile hatchery in the late
said the government had virtually cut all
Rattia said, he was reassigned to work as
1980s, and today it produces about 200
communication with such independent
an auto mechanic, something in which he
baby crocodiles a year, more than any
programmes. He said that each year
had no experience. After several months,
other facility.
he submitted requests for permission
Now the hatchery hangs on by a thread,
when the crocodiles began dying, he appealed to the ranch’s new managers
But the government has long been antagonistic to large landowners, casting
ever since. There are six facilities in Venezuela involved in raising Orinoco crocodiles for release in the wild. Most collect eggs laid by wild crocodiles, as El Frío does, or from crocodiles kept in small, enclosed lagoons for breeding. They incubate the eggs and raise the hatchlings until they are about a year old, when they are large enough to have a good chance of surviving on their own. Humans continue to be the crocodiles’ greatest enemy. Poor rural residents regularly kill them, out of fear that they will attack people, conservationists said. They also take their eggs for food and
“Humans continue to be the crocodiles’ greatest enemy. Poor rural residents regularly kill them, out of fear that they will attack people, conservationists said. They also take their eggs for food and capture baby crocodiles to sell as pets.”
to respond. “In theory, they want to do everything, but then they don’t do it,” Hernández said. Nonetheless, the potential for publicprivate cooperation can be seen at another government-run ranch, called El Cedral. With financing from a private foundation started by a former Environment Ministry official, the ranch last year created a crocodile hatchery, where there are now about 90 baby crocodiles being raised in well-maintained tanks. Pedro González, 57, who works at the hatchery, recalled how his father used to hunt crocodiles at night from a canoe, using a harpoon, the traditional method here. “I am remaking what my father devoured,” González said. n
capture baby crocodiles to sell as pets.
A worker feeds a male Orinoco crocodile horse meat at Masaguaral Ranch. February 2014
park on the Capanaparo River, and that the government had repeatedly failed
to let him return to the hatchery. He has been running it almost single-handedly
to release crocodiles in a national
83
Essentials
84
Art
AFRICAN ARTISTS ON THE Lifted by the promises of democracy and the internet, a new generation of African artists is being seen and heard around the world, reports Nicholas Kulish.
T
RISE
HEY BUILT THEIR reputation with wild music videos featuring a flying animated turtle and a nouveau Blaxploitation hero
often considered Kenya’s first viral internet sensation. But when it came time to choose the subject for their video of the song “Matatizo” in 2013, the Kenyan musicians known as Just a Band abandoned the surreal and the ironic for the infamous torture chambers of Kenya’s Nyayo House. They even posted a link on the YouTube page to a 77-page report on the victims of torture under former President Daniel Arap Moi for good measure. “We’ll never solve things unless we stop sweeping things under the carpet,” Bill Sellanga, one of the group’s members, said backstage at a recent concert. The political video would have been impossible under Moi, who kept an iron grip on the country for more than two decades. Just a Band formed in 2003, the year after he left office at a time of creative ferment following years of repression.
© 2014 NEW YORK TIMES NEWS SERVICE
Binyavanga Wainaina, a writer and a founding editor of the Nairobi literary magazine Kwani?, said that the changes went beyond his country to include much of sub-Saharan Africa. “The growth of democracy in Africa in the ’90s led to the growth of many, many, many independent artistic institutions and artist production Portfolio
85
Bill Selanga, the lead singer of Just a Band, performs at a music festival.
Festival goers during the Rift Valley Festival at Lake Naivasha in Kenya.
houses,” said Wainaina. “Some to do with
der Kunst art museum, Okwui Enwezor,
technology but also increased freedoms for
was just named the visual-arts director
people to imagine things for themselves.”
of the 2015 biennale. Tate Modern in
From the anti-colonialism movement
London displayed works by Benin’s
to the decades after independence,
Meschac Gaba and Sudan’s Ibrahim
successive waves of African art, whether
el-Salahi last summer. Nairobi-born artist
writers like Chinua Achebe and Ngugi
Wangechi Mutu is currently the subject of
Wa Thiongo or musicians like Fela Kuti
an exhibition at the Brooklyn Museum.
and Youssou N’Dour, have reached well beyond the continent’s shores. But the growth of democratic
An auction in Nairobi of modern and contemporary art from across East Africa in November attracted large crowds and
expectations, the decline of dictatorships,
buyers for works like a woodcut plate of a
the expansion of African economies and
cow with a barcode by the young Kenyan
the explosion of the internet and other
artist Peterson Kamwathi. Workers are
technologies has created new space for
busy converting a former library in this
African artists to thrive.
city’s downtown into a contemporary art
Literary journals like Kwani? or South Africa’s Chimurenga are incubating new
museum expected to open later this year. Significant restrictions on the press and
writers. The Nigerian film industry, known
civil society remain in many countries,
as Nollywood, by some measures trails only
but the confluence of greater freedom
India as the world’s most prolific.
of expression overall with the internet’s potential – as shepherd, teacher and
February 2014
IN VISUAL arts, Angola won the Golden
evangelist – means artists from Africa can
Lion at the Venice Biennale for best
reach and attract new audiences. Just a
national pavilion in 2013 over traditional
Band performed at TedGlobal in 2013 and
favourites like Germany and France. The
has appeared at the South by Southwest
Nigerian-born director of Munich’s Haus
festival in Austin, Texas. Google declared
86
them a “connected” African success story. Hundreds of people packed a warehouse downtown on a recent Friday night. Manning the DJ turntables was Just a Band’s Daniel Muli. The third member of the group, Mbithi Masya, curated a video installation playing on the back wall that included his own work and that of Mutu. The chic, young crowd came out to see the award-winning Nigerian novelist Chimamanda Ngozi Adichie present her latest book alongside the Kenyan writer Yvonne Adhiambo Owuor. Owuor’s Dust, which debuted that night, is a searing work about the killing of a young Kenyan, largely set amid the violence that followed the 2007 election but stretching back to the Mau-Mau revolt against the British.
“Suspended Play Time” is shown at the Wangechi Mutu: A Fantastic Journey exhibit in New York.
“There’s something really thrilling about the questions Kenyans ask
celebrating the past and emulating what’s
independence. “Things are always in flux,
themselves through their work,” said Ellah
happening elsewhere.”
always in convergence, always something
Allfrey, a Zimbabwean-born editor and
new,” Owuor said, citing the new visual
Owuor said it was particularly exciting
book critic based in London who came to
to publish her first novel as Kenya was
and conceptual art. She called Just a Band
Nairobi for the event. “It’s not just about
celebrating its 50th anniversary of
“very Nairobi,” and said, “They are the pulse in so many ways.” RECENTLY, THE group performed with a seven-piece live band at the Blankets & Wine music showcase at Carnivore Gardens in Nairobi, as Sellanga, the dapper lead singer wearing a black tie and a broad-brimmed hat, egged the audience on to wave their hands and sing along. The members of the group met at Kenyatta University in Nairobi, where they started producing an eclectic mix of electronica and hip-hop, with clear local influences. They grew up with Michael Jackson and can draw on traditions as diverse as Japanese anime and African mythology. A conversation with band members can shift from the energon cubes that power the Transformers robots to plans to sail along the Nile with musical groups GETTY IMAGES
from every country along the river’s path.
Edson Chagas of Angola, winner of the Golden Lion for Best National Participation, poses next to his award during the 55th International Art Exhibition of La Biennale di Venezia.
Their first album came out in 2008, but it was not a hit on local radio. They produced their own video for the song “Iwinyo Piny,” with Muli drawing the giant Portfolio
Essentials Art
Senegalese singer Youssou N’Dour performs during his concert at the Bercy concert hall in Paris.
Kenyan painter Paul Oditi carries his work at the first commercial auction of East African art in Nairobi.
turtle that floats over Nairobi with a DJ on its back. The group was largely selftaught, using YouTube tutorials to pick up new skills, including animation. “You just jump online and find some way to experiment, fail the first time, but at some point you get it,” said Muli. Creative videos became a trademark. One called “If I Could” shows a man and a woman in split screen going about their days – brushing their teeth, eating breakfast, getting dressed – before narrowly missing a chance to meet. It was part of a video installation at the Goethe Institut in Nairobi that helped solidify their reputation as visual, not just musical, artists. Their second installation went to New York, where it was
PHOTOS ON THIS PAGE: AFP/GRAPH EAST
exhibited at the Rush Arts Gallery.
A bright mural decorates a wall in Johannesburg, South Africa.
song “Usinibore,” in which police beat
that’s one of the saddest.”
In 2010, they released the video for the
clubs against riot shields as they prepare
During a raucous live set at a recent
song “Ha-He,” starring a tough guy named
to clash with youths and dancers in white
concert, Just a Band played “Usinibore.”
Makmende who seemed transplanted
masks. Then came 2013’s video featuring
Sellanga wore a giant afro wig, a hooded
from the movie Shaft into Nairobi. The
the torture house, “Matatizo.”
sweatshirt that read “Africa is the Future,”
video changed the group’s trajectory
“We went through a few melancholic
and strummed a black Fender electric guitar with a white pick guard.
from a local band with a loyal following
ideas but most of them seemed a bit
to one with a rising international profile,
contrived; you’re scripting some fake
becoming a hit that has been viewed more
sadness,” said Masya, 27, the co-director
skin, it doesn’t mean that I won’t win if I
than 500,000 times on YouTube.
“Just because I’m an African with black
and cameraman for the video. They chose
try,” he sang. “Don’t tell me what I can and
Political themes had already cropped
to delve into real events instead. “We
can’t do,” went the refrain, “I can change
up in their videos, like in the one for the
decided to visit a point in our history
the world.” n
February 2014
87
Essentials
88
Other Business
Psychotic Comedians Having an unusual personality
compared to a control group of people
structure could be the secret to
who had non-creative jobs. The traits included a tendency
said after research showed that
towards impulsive or anti-social
comedians have high levels of
behaviour, and a tendency to avoid
psychotic personality traits.
intimacy.
In a study in the British Journal
Although the traits in question
of Psychiatry, researchers analysed
are known as “psychotic”, they can
comedians from Australia, Britain
also represent healthy equivalents of
and the United States and found they
features such as moodiness, social
scored significantly higher on four
introversion and the tendency to
types of psychotic characteristics
lateral thinking.
getty images
making other people laugh, scientists
Banner Blunder Egypt has apologised for a banner promoting the new constitution that misspelt the word “Egyptians” and carried images of foreigners instead of locals. The banner was unfurled at a highprofile news conference to promote the constitution. The Arabic text misspelt the word “Egyptians” as “determined” getty images
and Google image searches identified three of five people in the banner as foreigners. In English, the banner read “All Egyptians Constitution”. apologised for the misspelling but did
Soda Tax
not mention the controversy over the
mexico has passed a groundbreaking tax
from any country in the world that raising the
nationalities of the people portrayed in
on sugar-sweetened beverages that could
price of sugar-sweetened drinks will affect
the banner.
provide the evidence needed to justify
obesity levels, but the mexico experiment is
similar laws across low- and middle-
on an unprecedented scale. although the tax
income countries and cities in the us.
was set at 10 per cent per litre rather than
mexico, where 32.8 per cent of the
the 20 per cent campaigners wanted, it will
reuters
The State Information Service (SIS)
population is obese, is now the country with
affect a huge number of people. every year,
the biggest weight problem in the world,
mexico’s 118 million people drink 163 litres of
according to the uN’s Food and agricultural
soda each. according to the National
Organisation, overtaking the united states.
institute of Public Health, a 10 per cent tax
so far, there is not conclusive evidence
should reduce that to 141 litres per year. Portfolio
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