Portfolio | February 2014

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.

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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

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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.

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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

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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.

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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

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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.

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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

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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.

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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

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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

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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

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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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