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elcome to the very first issue of Capital Magazine, KTH Finance Society’s student-run magazine with focus on economics, finance and strategy. As we write this, a hectic week filled with deadlines and stress has just ended, and the result is now lying in your hands. The idea to launch Capital Magazine and a corresponding Research Division emerged in our minds at the beginning of this year. We noticed the lack of a platform where students interested in economics, finance and strategy could develop the research and writing skillsets that many relevant employers consider to be essential. Consequently, we saw the potential to establish a Research Division, an intermediate value-chain between academic excellence and industry practice. Thereby further closing the gap between students and business professionals. Capital Magazine, together with its website, is the main channel through which the Research Division will publish and showcase its work. Furthermore, the magazine will also feature articles that may be of interest through a broader student perspective. Examples of these are our interview articles where we for this issue are delighted to present to you Bruce Grant and Brita Kämpe, an experienced and an upcoming leader, respectively. We hope you find both of them to be inspirational. The process from idea to result has been swift. We are proud of the fact that we, together with the whole team, managed to execute this project in a matter of less than six months. We would like to thank all of our contributors, whose names are listed below, for producing the material that has made this magazine possible. Also, thanks to KTH Finance Society for supporting the project financially as well as providing relevant support functions. Lastly, a big special thanks to Rui-Xin Li, our fantastic Art Director who has done an excellent job designing and producing the graphics. Despite being proud of this first issue, we are still humbly aware of the challenges that lie ahead. The magazine, as well as the Research Division, needs to expand; the organizational structure and work flow require great enhancements. We must also continuously seek to improve the quality of our articles. With the first milestone achieved, the project now enters another phase. Whether you are interested participating in our journey to become the leading student-led research organization and magazine in Scandinavia or if you simply have some thoughts regarding anything written, do not hesitate to contact us at the e-mail address written below. Your feedback is very valuable to us. With all that said, we sincerely hope that you ou w will illl enjoy en njjo oy your your yo u reading. readi ding.
Sibo Wei Editor-in-chief
Farzad Khoshnoud Head of Research Division
about EDITOR-IN-CHIEF Sibo Wei HEAD OF RESEARCH DIVISION Farzad Khoshnoud ART DIRECTOR Rui-Xin Li
CONTRIBUTORS Hugo Brändström, Iuliia Diachenko, Nikos Georgelis, Martin Hedengren, Alexis Lindhé, Lukas Magnusson, Farhad Tatar, Lennart Wang, Brian Ye, Henrik Xu
WEBMASTER Baddar Mian WEBSITE www.capitalmagazine.se CONTACT editor@capitalmagazine.se
DISCLAIMER Opinions published in Capital Magazine do not necessarily represent the opinions of the editorial staff or KTHFS PRINTING HOUSE Wikströms tryckeri AB
content BRUCE GRANT on the Art of Leadership 04 A Changing World 07 who is Brita K채mpe? 12 Opinion 14 Company in FOCUS 16
Industry coverage 17
BRUCEGRANT About Bruce Age: 53 Family: Married with three sons (19, 22 and 24 years old) Residence: Jupiter, Florida Prefered travel destination: Trips with Hand-in-Hand World Vision.
and
Hobby: Sports Hidden talent: Still (quite) good at basketball
Bruce Grant, currently CEO at Applied Value Group, has previously found himself in board and leadership positions in companies such as Arthur D. Little, Tele2 and Kinnevik, to name a few. We at Capital Magazine are delighted to bring you this exclusive interview with likely the most experienced figure within management consulting in Sweden. Bruce Grant’s name may not be much known to the public, yet this is a man whose impressive past spans across a vast number of companies and industries. Perhaps it is the general management consultant’s dream: to be able to experience different types of industries and work on a diverse mix of projects. However, during his university studies at Chalmers University of technology and at Gothenburg School of Business, Economics and Law Bruce’s main passion was the automotive industry and therefore wrote both his masters and licentiate theses in this field. His doctoral studies at Chalmers continued while the allure of a career within the
business world beyond academic research grew stronger. Bruce, who first and foremost describes himself as an entrepreneur, therefore founded two consultancy firms, where the second one was acquired by Arthur D. Little in January 1993, which marked the start of his highly successful tenure at the American consultancy firm. Bruce rose through the ranks quickly: From the start he was responsible for ADL in Scandinavia and by mid 1995 he was put in charge of its whole North American business in order to turn losses into profits. Bruce was an outsider in numerous ways. He was one of the youngest partners at ADL and he did not boast a degree from a prestigious university such as Harvard or MIT like many of his colleagues. Therefore, when the young, half-Swedish man decided to fire 50 percent of the partners in North America as well as completely reshuffle its structure, it became big news, appearing on the front page of the Wall Street Journal. “The partners, especially the older ones, were complacent. They enjoyed a high base
04 Bruce Grant - On the Art of Leadership
salary and didn’t want to work hard any more. When I arrived, I said: ’absolutely not. If you can’t take the heat then get out of the kitchen!’” How did you manage to implement these radical changes despite the fierce resistance? “I am very much driven by targets and performance. I had to go there and set a bold target that could inspire everyone. To go from negative two percent to positive four percent would not be good enough. We had to aim at 20 percent, at least.” Performance is something Bruce likes to emphasize. He says that a leader has to lead by example; be able to back up the words with real results. “In any organization, be it a consulting firm, manufacturing company or a nation, it is not so much the eloquence of the leader that is important as compared to his actions to get things done. For example, Obama’s problem at the moment is that he
on the art of leadership
America go? It went splendid, even better than Bruce had hoped for. His performance was unmatched. Within 12 months he had turned a loss of 2 percent into a profit margin of 24 percent before taxes.
businesses, including the offer to become CEO of Tele2 , Korsnäs and Kinnevik at different points of time. By 1997, Bruce finally succumbed.
“A leader must be able to dissipate energy and “I knew that I’d “A leader must be able warmth throughout the become the golden to dissipate energy and organization. I am a very boy within ADL, it would have only energetic person, and warmth throughout the been a matter of hopefully that energy organization” time before I would is passed on to my cobe appointed CEO. workers. Also, I try to spread warmth by taking the time to I was high performing but rebellious” communicate directly with all levels of the organization to learn more about them and However, Bruce did not choose to stay at ADL. Instead, he became involved with their view on matters.” several Swedish companies. The reason “Furthermore, predictability is an important behind this was a certain Jan Stenbeck. trait. One of the worst possible situations in an organization is if the employees have to Joining the Stenbeck group second-guess the leader’s next move. For a leader, it is of course preferable to be a Bruce met the late business magnate in predictable nice guy, but to some extent, it 1993 when Jan was a client of ADL. The is better to be a predictable jerk than being two men connected instantly and over the unpredictable.” next couple of years Jan did everything he So how did the turnaround in North could in order to entice Bruce to join his
“I felt that if I ever was to leave ADL it would be to do something new. This offer from Jan was indeed something different from what I had done before.”
may be the world’s greatest orator, but his actions do not always follow his words.” What else characterizes a good leader?
Bruce’s role within the Stenbeck group was multifaceted. He became a member of the Board of Directors at many of the companies that Jan controlled, including Korsnäs, Kinnevik, Metro, Transcom and Tele2. Furthermore, he was put in charge of Jan’s venture capital portfolio in the US which Jan held beside his other commitments. Also, the two men decided to start a new management consulting firm, which became Applied Value Group (AVG). Bruce assumed the role as Jan’s board confident. When Jan was too ill to participate in the last round of board meetings before his death, he appointed Bruce as acting chairman of Tele2, Kinnevik and Korsnäs. The two men
On the Art of Leadership - Bruce Grant 05
also struck a close personal friendship. Jan’s sudden passing away due to a heart attack in 2002 was therefore a tremendous emotional blow for Bruce. The turmoil that ensued as different forces fought for power within the business group proved to be one of the most difficult times in his life to date. Despite being emotionally entangled, Bruce still had to make an important professional decision regarding his next career move. “Emotionally, it was extremely hard on me. He was my mentor and one of the best friends I have ever had. It was very, very difficult to make decisions during such turmoil.” Bruce was offered executive roles at several industrial companies and private equity firms. However, by joining one of those firms he would have had to abandon AVG. “I felt a strong loyalty towards the employees at AVG. If I left, we would have had to shut down the company, which I felt would be ethically and morally wrong. We had built up considerable value at AVG so I decided to continue on my entrepreneurial path and stay at the firm to develop it further.” Focus on charity
It was a blessing to learn the importance of sharing at such a young age.” He says it is understandable that philanthropy might not be on the top of the priority list for a young 25 year old at the beginning of his or her career. However, he does believe that the earlier you start caring about the severely poor, the happier and more meaningful your life will be. He also emphasizes that in his mind, there is no clash of interests between earning money and doing good things.
Today, AVG stands on three legs: management consulting, private equity/ venture capital and pro-bono charity commitments. It was especially the pro- “Earn as much money as you can and bono part that Bruce was looking to give as much money as you can. I have no develop further. AVG is primarily engaged problem paying high salaries to employees in two organizations: “World Vision”, one or earning a high salary myself. The ethics of the largest NGOs in the world where lie in the step afterwards, how you decide to Bruce is co-chair of their spend that money. There Economic Development is no clash between being “Business, as well Council, and “Hand-insuccessful and making the as life in general, is world a better place.” Hand”, a micro-finance/ micro-entrepreneurship a marathon race, charity led by Percy What is your recipe for not a hundred success then? Barnevik, where Bruce is meter sprint” a board member. Being “It is of course a lot able to control AVG’s of hard work. To quote Vidal Sassoon allocation of funds in order to use them for (chairman of President Reagan’s Council good purposes was indeed one of the most on Entrepreneurship): ‘The only place important reasons why Bruce stayed and where success comes before work is in the he finds himself spending more and more dictionary’ . It is not always fun, you often time with this third leg of the business. need to ‘burn the midnight oil’. Being a top“My family lived under humble level business man, consultant or banker is circumstances after my father died when not as glorious as some might suggest.” I was 10. Despite this, my mother gave 10 percent of her salary each month to charity. Taking a long-term view is also important.
06 Bruce Grant - On the Art of Leadership
It seems like the younger generations often are more impatient than older generations, Bruce reasons. He sees the increased need for “instant gratification” as a major problem. “Business, as well as life in general, is a marathon race, not a hundred meter sprint. Everyone who’s run a marathon knows that you go through periods when the only thing in your mind is the pain in your body and that you just want to stop. But you have to fight through that sequence.” However, he also points out that in order to be successful you have to find joy in what you do. “You must have your heart in it, not just your head. Go where you feel kinship, some place where they share your values; where you feel that ‘I can arrive here early in the morning and leave late at night, and still enjoy my life and experience meaning’.” “In the beginning of your career, you don’t necessarily have to go where the salary is the highest. Listen to your heart and remember that life is a marathon. During university studies, my heart told me to start out as a research assistant at Chalmers even though many of my friends went to management consulting firms and investment banks. In hindsight, my career still turned out just fine.” Interview: Farhad Tatar & Sibo Wei Writer: Sibo Wei, Photo: Rui-Xin Li
A WORLD IN
CHANGE
USA, Russia and China are all subject to leadership changes this year. The results will define the courses of world politics and global economy for years to come. In this article series, we provide you with some insights into the three most powerful nations in the world.
A World in Change 07
ELECTION AND POLITICAL GRIDLOCK: Exposing the Innards of a Broken System
photo: Blaise T Nutter
During an election year the traditional pandering by political pundits and journalists is that the current state of government in America is as bad as it has ever been. This is a fairly logical result of the general cynicism that surrounds the political process, and is strengthened by both sides in their quest to rally their political bases by inducing a grave sense of fatal urgency into the outcome of the upcoming election. But the truth of the matter is that the present state, and likely future direction, of American politics is far from encouraging, and much and more indicate that - come the election in November – the United States of America will prolong its current two-year political stalemate and enter into another four years of perpetual political grid-lock. And the timing probably could not be worse. The election
photo: Gage Skidmore
08 A World in Change
Let us begin with a glance into the crystal ball to try and predict the outcome of the 2012 election. In many ways, this election is still a fairly open one, and any major event with the magnitude of the BP oil spill, Hurricane Katrina or Lehman Brothers could still turn the political landscape completely upside down in the following months. However, at present the following can be said: The Republicans – who are ahead of the Democrats in fundraising – will with all likelihood gain several seats in the Senate and secure a simple majority, but will at the same time almost certainly fall
shy of the 60 seat super-majority required for a filibuster-proof control over the upper chamber. Minor gains by the Democrats in the House of Representatives can also be expected, but the 25 seats required to regain control in the lower chamber of Congress is theoretically only barely possible. Finally, one must understand when it comes to an American presidential election that the actual popular vote of the people carries very little weight. The only thing of importance is that each state is given a number of electoral votes according to the size of their respective population, and the triumphant candidate in each state then secures all of these votes. To win the White House a candidate needs 270 electors. About four fifths of the states are from default already considered either solidly Republican or solidly Democrat, leaving the presidential candidates to compete against each other in only a handful of battle-ground states, called the swing states. In 2008, Mr. Obama succeeded in carrying several traditionally Republican strongholds such as Virginia and North Carolina, and polling suggests that they might still remain on the table for him in this election cycle. With several traditionally Republican states being up for grabs, but probably none of the Democrat strongholds, the amount of battleground states is unusually high. During the past decades, presidential elections have mainly been decided in Ohio and Florida, two populous and prominent swing-states, but this November Mr. Obama and Mr. Romney will in addition to these also be fighting over Virginia and North Carolina, as well as five minor states. And in order to secure the presidency Mitt Romney will have to score a full house. He will have to carry all four of the major swing-states, three of them together with most of the minor ones or be able to put currently solid Democratic states back onto the table. The electoral math makes a Romney win in November highly unlikely, but it remains a possibility. Change – not so likely Which leads us to the macroeconomic implications of an Obama re-election, with a Republican majority in both chambers of Congress, which will with all likelihood serve to maintain the current dangerous status quo in two very important areas.
When the rating institute S&P downgraded USA from its triple A credit status last summer, they cited not America’s inability to pay interest on its debts, but the possibility that American lawmakers might choose not to. An odd trait within the US system was highlighted in 2010 when the newly elected Republican majority in the House passed an unbalanced budget. In America, an unbalanced budget does not automatically mean that the funds needed to cover the deficit will be borrowed, but instead any raising of the so called debt ceiling will have to be approved separately by Congress at a later date. The mere threat from Tea Party Republicans in Congress last summer to block the routine payments of America’s already existing debts is what shook the foundations of the global financial establishment in July and August 2011, and this threat has by no means disappeared since sooner or later debt-talks will have to surface again. The idea that the richest country in the world could consider first to approve spendings it cannot afford, simply to have the very same lawmakers one year later threaten not to pay for them is as scary as it is ridiculous.
enabling presidents to carve out slim majorities for their politics with members from the other party even whilst governing in minority. In recent years the Republicans have been wandering far to the right and the Democrats slightly to the left, and what used to be a substantial political middle has all but evaporated. During the Obama Presidency, congressional republicans have enforced strict party line voting, effectively blocking the vast majority of Mr. Obama’s legislative agenda in the Senate through filibustering. If Democrats turn out to have learned from their opponents when they enter minority this fall, and continue this tactic of blocking every single bill, regardless of substance, just to deny the opposition the prestige of passing anything at all, then America will experience another four years of stalemate. Rumours even have it that Mr. Obama had to force Secretary of Treasury Timothy Geithner to stay in office, since senate Republicans had signaled that they would not confirm any new cabinet members, which would have resulted in America being without a minister of finance during its worst financial downturn in 80 years.
The second macroeconomic effect we will have to expect as a result of the upcoming elections is a continuation of the current approach towards government stimulus of the economy. That is, no stimulus package of any kind is likely to see the light of day if it is made up of anything other than mere tax cuts. This will severely limit the flexibility of the future president – whether he is named Barack Hussein or Mitt Willard – and any downturn in American growth will for example, as it always does, have spill-over effects into the unstable European economy. The final line of the argument is that this is not a great time for USA to be limiting its options in this way.
Further, a 2010 Supreme Court decision allowing corporations and unions to donate unlimited amounts of money in secret to politicians has increased the influx of special interest money into Washington, creating a further dependency on fundraising that is making most any decision that might affect any interest group anywhere in the country much harder to pass. The all-powerful lobby group Americans for Tax Reform – lead by the conservative minimalist Grover Norquist – ironically blocks any serious attempt made by either side to reform the complicated tax code, since almost every Republican in the country has signed their pledge never ever to raise revenue on the threat of being targeted in their next re-election. In addition, the Tea Party movement is dividing the Republican Party in Congress, and establishment Republicans are having a hard time to get their majority to fall in line. The movement’s tendency to try and defeat incumbent members of its own party who are not considered conservative enough is creating tension, and its ability to help and nominate weak candidates like Christine O’Donnell – a 2010 Delaware senatorial candidate, dabbler in witchcraft and stark opponent of private masturbation – is jeopardizing the Republican Party’s
Increased polarization Several components are making the current gridlock in Congress the worst in history. American lawmakers are elected locally, and not nationally, and historically both parties have been made up by members from all sides of the political spectrum. The Democratic Party had until recently large parts of its caucus made up by conservatives and the Republican Party with moderates. Being responsible mainly to their local constituency, congressmen have traditionally voted with their conscience,
chances to take complete control over Congress in November. At present, all these factors encourage American politicians to stay idle, thus making the country more or less ungovernable. Compromises are needed A vast majority of the people supports a balanced approach to deficit reduction. The US has the lowest government revenues as a proportion of GDP since the Korean War, the lowest taxes for the rich since the early Reagan years, and the lowest overall tax pressure since the 1920s. During the last three major attempts to broker a bipartisan approach to deficit reduction – Boehner’s Grand Bargain, the SimpsonBowles Commission and the Gang of Six – the Democrats put their three holy cows, Medicare, Medicaid and Social Security, on the table. Now it is up for the Republicans to do the same, if any sustainable deal is to be made. The National Security budget as well as increased revenues must be a part of any deal for Democrats to accept it, but the current Republican zero-sum winner-takes-all strategy will have to be revised. The debt is at 16 trillion dollars, and projected to grow to about 20 by 2021 unless something is done. Put into perspective you could spend a dollar per second for 32 500 years until you reach a trillion, making the real question not about what things American politicians will have to sacrifice in order to balance their economy, but when they will realize that they will have sacrifice everywhere in order to save it at all.
Writer: Alexis Lindhé
A World in Change 09
THE RETURN OF THE CZAR: How Vladimir Putin’s Re-Election Changes Nothing
And thus ended on May 7th 2012 the drum-roll that was the presidential bid of Russian Premier Minister Vladimir Vladimirovich Putin. It began on September 24th 2011 with the anticipated announcement of his and incumbent President Medvedev’s longstanding plans of a job switch, continued through the fraudulent parliamentary elections in early December and the resulting winter of massdemonstrations, just to culminate with his landslide victory in the first election round on March 4th. For once, the initial suspicion had by most of those who follow Russian politics when Mr. Putin left office in 2008, a hunch that soon afterwards was enhanced by a rushed constitutional amendment to extend the presidential term from four to six years, turned out to be entirely true. All the various speculations regarding potential alternate outcomes have since turned out to be nothing more than wishful longing for a more traditional West European democratic model in which leaders remain satisfied with, let’s say, just two consecutive terms of insomnia, a never ending workload and the responsibility of millions of lives on their shoulders. Concequences of the return One might approach Vladimir Putin’s return to the high seat in Kremlin from several
10 A World in Change
various points of view – the most accessible one perhaps being what his re-election might mean for the future development of democracy and human rights in this vast and multicultural land – but this particular article strives to examine the beginning of Mr. Putin’s third presidency through a more economic perspective. First and foremost it must be stated that Mr. Putin’s return most likely signals the very absence of significant changes from the current path in most any political area, since in effect present policies were adopted by himself when he entered office for the first time twelve years ago. Vladimir Putin has maintained control over government ever since, even though he by mere constitutional impediment happened to leave office for four years. So the relevant issue becomes whether this maintained status quo is beneficial for Russia and the global economy in which she participates. After all, the Russian Federation has experienced substantial growth and progress during Mr. Putin’s tenure, the least not being the first time ever emergence of a Russian middle class. However, a more cynical explanation to the economic successes of Mr. Putin’s reign is this: the main factors to be credited for the financial development of the Russian Federation are a state monopoly on natural gas as well as massive taxes on profits made from all oil exports, together with an oil price of well above 100 dollars per barrel and a technocratic Minister of Finance who maintained a preference for the massing of vast state reserves. An interesting question is then whether all this was possible due to Mr. Putin’s leadership, or in spite of it. The author of this article is inclined to believe the latter. Mr. Putin has done little to dampen the explosive growth of corruption within all layers of Russian society, and even though he made sure early on to wrest political muscle from the oligarchy, the nation’s wealth has continued to be distributed in smoke-filled rooms behind closed doors, to cousins, nephews and childhood friends. However, the most unfortunate part of Mr. Putin’s attitude toward economic issues is that much and more indicates that he might actually not really believe in the Western model of a market oriented society. His years in power have seen a series of governmental takeovers and restructurings of entire sectors of the economy. The early nationalization of all
privately owned television networks were of course of a more political nature, but since then there have been others. The oil sector, which was originally privatized in large parts, has over the years transitioned back into state control, most famously through the governmentally owned oil company Rosneft’s takeover of imprisoned billionaire Mikhail Khodorkovsky’s firm Yukos. The Russian government has not only refrained from any efforts to dismantle the somewhat inefficient state monopoly on natural gas, but some time ago Mr. Putin instead rather suggested that Gazprom should be enlarged even further by merging it with its Ukrainian equivalent. Within the military industrial complex, so called vertical structures for both production as well as export have been created to strengthen governmental control over the industry, with a trickle-down effect for state funds that has resulted in a swollen bureaucracy in which money disappears at every level. To state that these inefficiencies constitute an intentional plan to enrich the few and to slow down economic progress is a bit too cynical, and it takes us back to the original point: Vladimir Putin has a different set of values of what is important for Russia than those of Western onlookers. When he came into power he feared chaos and thus acted to establish order, in the media as well as in the economy. During the financial crisis of 2008-2009, his government – to former Minister of Finance Aleksey Kudrin’s distress – wasted hundreds of billions of gas-and-oil dollars to support the rouble as well as to save shady banks and aged industries, not because it was financially sound but because they feared the public uproar another 1998-style collapse would have caused. Mr. Putin believes – and many, many Russians sincerely agree – that a strong and respected Russia is far more important than an efficient market economy and a working democracy. The future But even though the economic policies might not change for the better in the years to come, it is by no means all bad. The middle class, especially in Moscow and St. Petersburg, are growing fast, and their demands for freedom and consumerism, and not just stability, are encouraging for the future. Even though this winter’s peaceful demonstrations – being the result of the December parliamentary elections as
well as the Putin-Medvedev announcement of how they decided between themselves some five-six years ago what would happen with the future of the presidency – have abated, they served as an ample example of the fact that the urban population won’t stay content with the status quo forever. The Russian people now travel, consume and use the Internet. And foreign investors should by no means be distraught. The Russian market, especially for retailers, has been very good to most businesses that dare the psychological distance. The Russian people left the Soviet Union behind with a great hunger for various products and services that they so far cannot satisfy by themselves, and the vast majority of the economic challenges through which the country suffers today remains a hindrance mainly for the modernization of their own aged industry and those sectors of the Russian economy that still lag behind. It is unfortunate that sorely needed political and economic reforms might be delayed even further due to the re-election of Vladimir Putin, even though he may surprise us still, but any country – and especially one with such a hard and difficult history as Russia – is stronger than any one person.
Writer: Alexis Lindhé
THE CHINESE PARADOX: Liberal Forces in the Communist Party This year’s leadership shuffle within the Communist Party of China, which will see President Hu Jintao and Premier Wen Jiabao step down from office, is set to have a great impact on the country’s politics. In November this year the 24-member Central Politburo of the Communist Party of China is set to elect a new Standing Committee, the highest ranking organ within the party. Seven out of nine members are set to be replaced, including incumbent President Hu Jintao and Premier Wen Jiabao. Being the most populous country and the second biggest economy in the world, China’s shift in leadership will have widespread political and economic effects. The last term is widely regarded as being characterized by further liberal economic reforms. As an example, the Renminbi, the Chinese currency, has been allowed to appreciate against the US dollar. From a security political point of view, China has embraced a “peaceful rise”, alluding that it seeks to act as a responsible international player, focusing on its own internal matters. Various discussions are now being held, both within China and internationally, regarding which economic and political directions China should embark upon. Liberal forces take the lead
photo: kremlin.ru
One of the most pressing issues among the Chinese population is how the growing economical rift between the rich and the poor can be countered. Furthermore, there is a growing discontent against what is regarded as increased corruption within the judicial system and the Communist Party. This has given leeway for some leaders within the Party to successfully ride on a populistic wave which constitutes of politics and rhetoric reminiscent of the days of the Cultural Revolution. One of the figureheads for this left-wing current
was Bo Xilai who, until a month ago, was regarded as being guaranteed a place as a new member of the Standing Committee. However, after a series of scandals during the last couple of months, Mr. Bo is now under house arrest as ordered by the Party’s leadership. This is widely seen as a victory for the liberal powers within the Party. Nevertheless, Mr. Bo’s ousting has sent shockwaves throughout China and has sent the Party spiraling into a crisis and power struggle not seen since the 1989 Tiananmen Square protests. International viewpoint The international interest in China can be divided into two broad areas: economy and security. Due to recent years’ economical and financial turmoil, the international community has grown increasingly dependent on China and other emerging economies’ growth to power the global economy. As the developed worlds’ economic woes are looking to be longlasting, many Western countries wish for further liberal economic reforms in China. Primarily, the USA wants China to abandon the Renminbi’s artificially induced low value, in order to allow a more “fair” competition. The security political interest stems primarily from China’s neighbors in South East Asia, who feel threatened by China’s increased power projection, especially in disputed areas around the South China Sea. Many of these countries have been approaching USA in foreign policy and military matters in order to bolster their stance. The US’ shift of military focus from the Middle East to South East Asia, in essence, China, will be of immense geopolitical importance for years to come. In the upcoming reshuffle Xi Jinping, incumbent Vice President, is seen as the most probable successor for the Presidency. Mr. Xi, often described by media as a calm and pragmatic leader, is believed belonging to the liberal wing within the Communist Party. He is also known for his tough stance against corruption. Should he be crowned President, China would likely pursue further liberal economic reforms. However, the so far extremely quiet Mr. Xi’s detailed views on matters are yet to be discovered.
Writer: Hugo Brändström Translation: Sibo Wei
A World in Change 11
who is BRITA KÄMPE? Brita Kämpe, soon to be SSE and KTH alumna, recently won the prestigious “Nova of the Year 2012”-award issued by Nova Agentum. Parallel to her academic studies, she has initiated and developed several major projects, including fostering entrepreneurship for young people in Botswana and promoting the entrepreneurial environment within Stockholm School of Economics’ business incubator, SSE Business Labs. Capital Magazine had the privilege to meet with Brita and discuss her views on leadership and her future career. The overall theme of this first issue of Capital Magazine is leadership; thus a natural way for us to kick-start this interview would be to ask you, how would you define leadership?
About Brita Age: 24 Residence: Stockholm Prefered travel destination: Kilimanjaro Hobby: Baking (a lot of Tiramisu nowadays) Hidden talent: Can split an apple with my bare hands
12 who is Brita Kämpe?
“To me there is a clear distinction between ‘managers’ and ‘leaders’. Managers have received a formal mandate to manage people, while leaders are people that due to their personal traits acquire an informal mandate to lead others. Followers choose to follow leaders because of the leader’s natural authority. The perceptions of these leaders may be subjective; personal traits I may appreciate in a leader may probably differ from what others look for. Furthermore, I believe, a good leader is someone who has the ability as well as will to identify the strengths of others, and to assist these people in applying as well as further developing these strengths. Unfortunately this is not the common case today. Too often I see evaluations and feedback sessions focusing on a person’s “development needs” rather than on his or her strengths. I am a strong believer that teams work their best when the individual strengths of team members are leveraged.”
You have been running several large projects where you have acted as a leader. Could you describe your style of leadership?
enhance my analytical and synthesizing ability. “ You have been in Botswana several times for two different projects, could you tell us more?
“I believe I have the ability to stay calm even in intense “A good leader is someone “The first time I went and potentially who has the ability as to Botswana was emotional situations. about two years ago, This trait is definitely well as will to identify the where I completed a something that strengths of others” six months traineeI have benefited program with the from over the past Swedish Trade years. In addition to this, more on an Council. Since then, I have gone back interpersonal level, I actively try to lift the twice, once last November and then during people around me. The fact that we are all Easter, working on a new development different from each other emphasizes the initiative called “YoungDrive Academy need to approach people as individuals and Botswana”. The objective of YoungDrive address their personal needs and concerns. is to promote young entrepreneurship, I also try my best to facilitate a team’s by showing youngsters that they have an progress in a way that everyone is able to enormous capacity to succeed in whatever leverage their strengths to contribute to a they put their mind to. We teach them to holistic solution.” run their own company and earn their own living not having to depend on You have managed several important the government or the mining sector. projects simultaneously during your We strongly believe that in that age, the time at both SSE and KTH, do you ever last thing you need is a 300-page book feel stressed? on entrepreneurship. We try to remove all the imaginary obstacles associated “The concept of ‘stress’ is an interesting with starting a business, and make them one. I often hear people using this word understand that it does not necessarily as a synonym for having a lot of things on need to be so difficult. Sometimes you just your agenda. To me, having a lot of things have to have the courage to believe in your to do does not automatically translate own ability to succeed in what you do. “ into me being stressed. Rather, stress is something that tends to emerge when I What do you believe you have learnt from consider myself allocating time to activities your experience in Botswana? I consider to be a waste of my time. During the last two years, I have had more to do “One thing that has been important to me than ever before. However, during this on a personal level is getting introduced period I have still felt calmer than ever to the concept of “Botho”. During my first before, since I actually have been spending stay in Botswana, I developed a very close time on what I have enjoyed.” relationship to two Batswana women, who “adopted” me as one of their own. They Do you have any goals, and how do you taught me that a central concept in the set them? Botswana culture is the concept of Botho. Botho is a quality that is possessed by a “Being 24 years old, I rarely work with person who is honest, builds trust and lifts ten year targets; rather I set short-term people around them – all while applying a goals that have a time horizon of one to lovely sense of humour. I found Botho truly three years. My goals are not really that inspiring and applying that mindset in our formally structured, rather they concretize daily lives is definitely something I believe the direction of my career I believe will we all would benefit from. “ facilitate the development of my strengths. Interview: Martin Hedengren & For the upcoming years I am focused on Farzad Khoshnoud enhancing my interpersonal skills; how Writer: Farzad Khoshnoud I work with other people in a group and Photo: Rui-Xin Li how to lift people around me, as well as to
who is Brita Kämpe? 13
LET’S TALK ABOUT EUROPE - AGAIN I do not think headlines about European sovereign bond yields blasting higher are raising any eyebrows these days. They barely cause any reaction. What still fascinates me about the crisis in Europe is that the greater part still does not understand the essence of the problem. People still talk about it as a debt crisis. Even Ms. Merkel and Mr. Sarkozy talk about the European debt crisis. According to this author, it is not a debt crisis. It is a currency crisis. The European hitch is quite clear-cut. None of these nations are autonomous issuers of their own currencies. As said before: this is a currency crisis! Since they all use the same currency they can’t devalue against each other; hence, withdrawing the possibility to grow out of their debt problems by trade rebalancing. And they can’t print money to offset growth decline. So the peripheral nations are in this negative economic spiral that will eventually suck all life out of them. At the same time the core, with Ms. Merkel and Mr. Sarkozy in the lead, wants to impose austerity on the peripheral countries since they do not want to print money. They are convinced that the cure is to reduce the debt of the periphery nations. But what is actually happening is that the austerity is causing the growth of these countries to plummet at a more rapid pace than they
14 Opinion
are able to reduce debt. Debt to GDP levels are either increasing or stagnating. The periphery nations are getting a whole lot of economic pain, and if I keep building a pile of garbage eventually the smell will reach my neighbor – which the latest PMI numbers (Purchasing Managers Index) also point out. I had a discussion with a colleague about this matter. He argued that the Greeks have only themselves to blame and that they should suffer the economical consequences due to the mistakes they have made. As one can probably conclude from my name I have Greek heritage. I told him that I was not trying to defend the Greeks or trying to argue for a solution that is in their favor. Nor do I defend or try to hide the structural problems that the periphery nations have had for ages. But if a patient gets lung cancer after years of smoking, the doctor needs to first remove the lump and then tell the patient to stop smoking. I am sorry to say it but the crisis in the periphery nations will cause pain to the core of Europe. This is inevitable. My point is that this pain will be of an unnecessary magnitude because we try to cure the cancer but telling the patient to cut down on his smoking, work out and eat healthier. The problem is that the lump is still there.
How could they ever start jogging while they hardly breathe? On top of this the ECB keeps stepping in every quarter with their vitamins and medicines. For a short period of time the patient might catch a breath and try to go for a jog while his lump keeps getting bigger. This perpetuates what has basically become a big Ponzi scheme. Or to put it more delicately, it’s like Cristiano Ronaldo kicking the can down the road. I am afraid that the day when Cristiano Ronaldo breaks the can with one of his kicks might not be too far away. Europe needs a cure. Fast! The solution is complex and unfortunately beyond my knowledge to solve. Perhaps a US of Europe or send some sheep to the slaughter house in forms of defections? I am sure of one thing though. No doctor can cure any disease if he gets the diagnosis completely wrong. I also know that the core of Europe is dependent on the economic engines of the periphery. Bankers aren’t going to wait around long to realize that the ECB’s latest program isn’t going to actually fix the underlying cause of the crisis - And that is a currency crisis. Not a debt crisis. Writer: Nikos Georgelis Illustration: Rui-Xin Li
opinion
FOOLED BY WARRANTS Although warrants may seem like an attractive investment at first glance, looks might be deceiving. Warrants are certificates issued by banks. They are essentially securities which are guaranteed by the issuer to follow an underlying asset. They are primarily used by private investors to put on positions that may not otherwise be easily accessible, for example commodities. However, most warrants’ underlying assets are large cap companies or stock indices. Warrant issuers, usually banks, cannot take on the outright risk from issuing warrants and thus needs to reduce their exposure. Therefore, banks hedge short positions in warrants. This can mainly be done either through static hedging by options or dynamic hedging in the underlying asset. The bank receives money from the spread
between the sell-price of the warrant and the cost of the protection. According to the laws of value creation, no additional value is added in this process. Ultimately, why would investors want to pay a premium for the warrant when they can take the corresponding position directly in the market? Investors might claim specific scenarios when the premium charged for warrants may be justified, particularly if the underlying asset is illiquid or has a high cost of entry. Undoubtedly, these are valid situations to consider, but the premiums for these warrants are usually so high that it still does not make much sense buying them. By using the famous Black-Scholes option pricing formula an option’s price can be established just from the underlying asset’s price and volatility. Remember that a call option is a contract where the holder has the right to buy an asset at a predetermined price (strike) and time (maturity). If the underlying instrument is closer to the predetermined strike there is a greater chance for the option to pay off and thus should be more expensive. The same goes for the underlying’s volatility: if the asset is more volatile there is a greater chance for the underlying to move beyond the strike and consequently pay off for the option investor.
Since the absolute price of different options may vary for the same underlying depending on their strike the only way to compare different options or warrants to each other is by their implied volatility. Just as it is possible to calculate an options price with the Black-Scholes formula it is also possible to reverse the process and enter the market price, thus obtaining the volatility corresponding to the current market valuation, i.e. the implied volatility. So in theory different options on the same underlying should trade at the same implied volatility (in practice this does not hold true but for entirely different reasons which will not affect our discussion here). By employing this method we can calculate just how much more expensive a given warrant is compared to its corresponding option. For example as of this moment an option on OMXS30 with the strike price of 1000 trades at the implied volatility of 23 percent and a similar warrant on the same underlying with the same strike trades at the implied volatility of 27 percent. This 4 percent premium over the option is quite a lot when considering that for OMXS30 the difference between a calm market and an unstable market is around 10 percent. Writer: Lukas Magnusson Illustration: Rui-Xin Li
Opinion 15
Company in Focus Quick-facts Employees: 104 Established: 2001 Total revenue: 140 Mkr Local offices: Stockholm, Örebro, Eskilstuna, Göteborg, Borlänge,Västerås
Services Information management with Microsoft SharePoint/ MOSS, Server platforms with Microsoft BizTalk and WCF, System development & Architecture with Microsoft .NET
“For ten years we have grown to more than 100 employees and have reached total revenue of more than 100 Mkr”, says managing director Per Melin
Precio Systemutveckling AB is a specialist IT- consulting and system development company focused on providing software products and systems based on Microsoft technologies. Precio is a Microsoft Gold Partner and has been listed on Nasdaq OMX First North Premier since 2009. In 2001, when the firm was established, it operated only in Stockholm, Örebro and Eskilstuna. However, because the firm sees geographical expansion and local presence as crucial factors in attempts to reach new clients, it opened local offices in Göteborg, Borlänge and Västerås. The word “precio”, meaning value, worth and respect in Spanish, highlights the firm’s mission to be a reliable IT partner. The company’s total revenue has almost doubled in the past six years from 53 Mkr to around 100 Mkr. During the firm’s expansion however, the net income has decreased from 8.3 Mkr in 2008 to around
16 Company in Focus
5.0 Mkr during the last year.
“We had a great result in 2011 and despite the Euro crisis and economic situation I believe in positive development for Precio in 2012”, Per Melin. Precio’s client base includes large and medium Swedish firms and nonprofit organizations (NPOs) operating in finance, production and service industries. The firm has provided IT solutions to public sector organizations such as Statens Energimyndighet, Försvarets Materielverk, Vägverket, Regeringskansliet, Läkemedelsverket, Sveriges Riksbank, Vinnova and to clients in the private sector
such as Volvo, Bombardier, Sandvik, Atlas Copco WSP, British Red Cross, AstraZeneca, ABB, Sweco, etc. Overall Precio’s ten largest clients account for more than 50 percent of its revenue, which makes the firm dependent on its largest clients. Half of the firm’s revenue comes from providing services to governmental organizations. According to Per Melin, Managing Director, Precio has always been focused on the public sector. Long-term agreements with public organizations are seen as solid bases to stand on. Writer: Iuliia Diachenko
re about PreIf you would like to learn mo companies er oth cio Systemutveckling, or please visit o, tfoli por ch ear in our equity res capitalmagazine.se
INDUSTRY COVERAGE GENERAL DEVELOPMENT LAST YEAR AND FIRST QUARTER 2012 The Oil and Gas sector on NasdaqOMX has, after the turbulence caused by the debt crisis and the subsequent drop in the stock market last year, made a strong recovery. This increase reflects the more optimistic view on the future which has fueled the demand of oil. The brief spike in the beginning of the year was a result of a temporary increase of oil purchases from China in order to increase their Strategic Petroleum Reserve. Disturbances in the Middle East are another contributing factor to the volatile oil prices on the markets lately. COMPANY SPECIFIC ISSUES Lundin Petroleum After a strong recovery the stock finished as last year’s winner in the large cap category on the OMX Stockholm exchange. Despite the success, Lundin Petroleum started this year with a large decline as the prospect drilling of the oil field found last year, Avaldness, ended with disappointment which caused a fall of 12 percent on one single day. Further turbulence caused by negative press regarding Lundin Petroleum’s presence and business with dictator states such as Ethiopia and Sudan has caused the stock to slide even further. Lundin announced in the end of March a success prospect drilling which the market responded to with a 5 percent increase. Alliance Oil Alliance Oil started the year by publishing a much higher EBTIDA for the fourth quarter of 2011 than expected by analysts. The next report in the end of March announced negative news as the production in a key
ENERGY
oil field in Russia, Kolvinskoye, had faced a decrease in production by 29 percent during February compared to the fourth quarter. This combined with decreased production forecast for 2012 amplified the drop in share price even more. Enquest PLC Enquest PLC opened this year by acquiring 20 percent of the Kraken oil field in the North Sea. The market responded by an increase of 7 percent upon the announcement. The company later published the result for 2011, EBTIDA $629 million, which was viewed as positive news. PA resources PA resources announced in January an increase in production as well as non-cash flow affected write-down. After another write-down in the end of January analysts began to speculate about an impending equity issuance which caused the stock to plummet. This negative trend turned when the results for the first quarter were announced and the equity issuance seemed to be avoidable.
Morphic technology Both the results last year and the results from the first quarter showed a decrease in losses. CONCLUDING COMMENTS THE DEVELOPMENT
ABOUT
Overall, the global Oil and Gas sector’s good performance is mainly attributable to the higher demand for oil which is explained by a better general macroeconomic outlook combined with the turbulence in the Middle East which has caused high crude oil costs. The developments of the sector this year will therefore be highly dependent on the
macroeconomic development. Whether the Middle East conflicts escalate or not will also have a big influence on the development in this sector. Opec has in January forecasted a higher demand for oil than they did in December, which could be viewed as growing optimism. The reason to why the OMX Stockholm Oil and Gas index has underperformed the general index are mainly attributed to firm specific issues of the two largest companies, Lundin Petroleum and Alliance Oil, which both have performed poorly the first quarter. The future prospects of the OMXStockholm Oil and Gas index will therefore also be highly dependent on the prospects drillings of Avaldness this year as well as how Alliance Oil will manage its production problems. Writer: Lennart Wang
Industry Coverage 17
INDUSTRY COVERAGE
DEFINING HEALTHCARE A dark cloud of general market downturn and inferior sector performance has haunted the healthcare industry since the beginning of the financial crisis. Although some individual healthcare companies have shone while they have outperformed the market, the market has watched the industry since with gloomy eyes. However, recently investments in the healthcare industry are perhaps facing a recovery. Ultimately, the question remains: can healthcare businesses find the path to value creation? In order to outperform the general market in TSR (“Total Shareholder Return”) healthcare corporations must master several key value drivers. Firstly, they must be able to expand geographically into emerging markets.
Currently, developing markets have significantly higher growth rates than mature markets. The trick is whether healthcare businesses can expand without severely compromising its margins and ROIC (Return On Invested Capital). Secondly, they need to be able to embrace the new ‘Value-Based Health Care’ perspective, which is defining the industry. Payers and governments are increasingly demanding real-world patient outcomes as a measure of whether a product is worth paying for. Consequently the future winners in the industry will be those that understand one simple metric – patient outcome per unit of total healthcare spending. Thirdly, they need to expand into new businesses. This can often be achieved through smart M&A transactions and
diversification. As healthcare businesses often tend to have large cash reserves, access to finance and slowing organic growth the incentives for expansion are attractive. But overall, they must always make sensitive consideration whether these transactions will end up being value creating or not. Furthermore healthcare businesses are facing a growing hurdle as R&D investments are inflating costs. Actually, the average ROI (Return On Investments) for R&D has gone below the cost of capital, making them value destroyers. This development is mostly due to pricing and access pressures, higher scientific impediments, more stringent regulatory thresholds and intensifying competition. To summarize, the healthcare industry is facing difficulties in proving to investors that it can outperform the benchmark index, the S&P 500. Healthcare managers need now to focus on what creates value in order to make the industry attractive once again for sound investors. Writer: Farzad Khoshnoud
18 Industry Coverage