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Empowering Your Leadership at the Pulse of Business in New York City

A Special Interview with Professor Paul Ingram, Faculty Director of the Advanced Management Programme at Columbia Business School Executive Education

 

Located in one of the world’s most dynamic business hubs – New York City, Columbia Business School Executive Education has an unparalleled environment for advanced business education. It poses great opportunities and offers experiential learning for top executives and aspiring leaders from across the world to learn, to network and to develop capabilities to stay ahead of the business curve.

The programme also benefits from the diversity of its participants and has been particularly popular with Japanese executives. As Japan is known to be a powerhouse country for socio-economic development, the demand for leaders who have strong business acumen and far-reaching vision is urgently needed to meet the challenges of the country’s cultural transformation and hyper-competitive business world.

As part of our special report “How to Lead the Changing Japan,” we had the pleasure of an interview with Professor Paul Ingram, Faculty Director of the Advanced Management Programme at Columbia Business School Executive Education. He shared with us the high ROI one can receive from participating in this programme, the valuable contributions of the Japanese executives, and how the fusion of Western and Japanese business cultures has shaped the dynamics of the cultural and intellectual discourse within the course. The intent is that the programme will inevitably steer these leaders and their companies to long-term success.

 

The Advanced Management Programme appeals to Japanese executives particularly because it pushes them outside of the boundaries and familiarity of their education and executive development.

Good day, Professor Ingram! Thank you for taking the time to talk to us today. Let’s start this interview by giving us a glimpse of what a day looks like for an academic leader like you?

I spend a large portion of my time teaching, so most days, I’m in the classroom – or teaching in other locations. Yesterday, I taught a group of associates at a global law firm; today, I’ll be in meetings about a new way to bring leadership tools online. This evening, I’ll be travelling to Morocco where I’m teaching Executive MBA students as part of a great partnership programme that Columbia Business School runs with the African Business School. And I’m a scholar, so ideally there’s also time for some research, maybe some analysis of data and some writing, which is how I like to spend the extra hours that I can eek out.

 

Columbia Business School is known for being strategically positioned at the very center of business in various aspects, and the Advanced Management Programme is Columbia’s flagship residential programme for senior executives. Can you tell us more about what sets this particular programme apart from other executive education courses?

I don’t think there’s another executive education programme in the world like ours. Our programme is different from the other Advanced Management Programmes at other universities. We’re dedicated to experiential learning where the participants are actually doing things as a way of learning. We may have a presentation of important new research, a case study, or a framework, but every day the participants are going to be putting ideas into action, trying them out in unique ways. For doing that, we have New York City as our laboratory. We will learn about presence on the stage of a Broadway theatre. We’ll learn about new organisational designs with a startup company. We will learn about shaping culture in one of the world’s great museums. We’ll learn about teamwork in a jazz club interacting with a jazz band. These are ways to deliver a lesson that you can’t get any other way – and the learnings stick. That’s the pedagogy and the methodology. Then we aim the content of the programme at what’s most important to the senior executives who have joined us, which is strategy and leadership. We may have a session that touches on the latest ideas from branding or consumer behaviour, but it’s different – and designed differently – from what an MBA student might learn in a marketing class. It’s designed for a leader of an organisation, a potential Executive Director or CEO, through the lense of what they need to know about using these ideas strategically. And finally, the participant pool is incredibly diverse, and I can rely on the fact that it is going to have a massive impact on me, just as it does on everybody else in the programme.

 

Our programme is different from the other Advanced Management Programmes at other universities. We’re dedicated to experiential learning where the participants are actually doing things as a way of learning.

Columbia Business School’s Advanced Management Programme is particularly popular amongst executives from Japan. Can you tell us what features of the programme appeal to them the most and what is some of the best feedback you have received from Japanese participants?  

The Advanced Management Programme appeals to Japanese executives particularly because it pushes them outside of the boundaries and familiarity of their education and executive development up to that point. As I just mentioned, our programme is very experiential – practicing and engaging in simulations and exercises in order to help leaders better understand themselves. It encourages them to do things that they might not have done otherwise, pushing them outside of their comfort zone. But it’s these exercises and moments, combined with the preparation, experience and education that the Japanese executives bring to the programme, that help to give them new capabilities. It’s this combination that creates something special.

 

 

How do you make sure that the participants and their organisations will gain the highest return on their investment in terms of knowledge acquisition, career advancement, long-term profitability for business, and other measures of ROI for an executive education? 

Based on research and decades of experience, our programme has a system for helping participants extract learnings and think about how they’re going to apply them. Research has confirmed how important 20 or 30 minutes for reflection at the end of a programme day are to the long-term impact of ideas. It’s now a proven practice for learning, but we were ahead of the curve with how carefully we attend to helping the participants with this reflection. We also think about every element of the programme in terms of its return on investment. We are a unique programme that has actually measured that systemically. We’ve done pre- and post-programme tests on the leaders’ capability, and we’ve demonstrated that they have improved in the course of the programme.

 

What’s the most challenging when addressing the needs of your participants? And how do you meet their expectations?

The biggest challenge is the biggest opportunity: diversity. The participants in the programme are all highly experienced and capable leaders, but they’re diverse in terms of the countries they’re coming from, their backgrounds, the industries which they work in, the organisations they lead or serve, and the paths their careers have taken. This creates challenges of understanding and communication. They have to find ways to relate their organisations to each others’ so they can share learnings that cross between an insurance company in Nigeria, for example, and a financial services firm in the UK. During the first few days of the programme, a lot of time is spent bumping into each other as they’re encountering these differences. But then there’s a shift. It usually happens by the end of the first week after we’ve given people with different perspectives the opportunity to shine and add value. People start to say, “The first day of the programme, I couldn’t have anticipated how I would have learned from this person sitting next to me. And now I can’t believe the lessons I’m taking back to my business from them.” This is almost guaranteed to happen, by design, because if you really want to be an effective senior leader, you must look outside your company, your country, your industry, your area of functional expertise and by seeking out learnings and lessons from unexpected places. The diversity in our class is an incredible resource for this.

 

We see that, like leaders from around the world, Japanese executives are also struggling to change as the world is changing and managing through the idea that organisations have to become increasingly more dynamic.

Japan is known to have a unique business and work culture, characterised by, among other things, long working hours, group mentality, respect for seniority, and an indirect, high-context communication style. Do these cultural attributes still continue to distinguish the Japanese style of business and how does the Advanced Management Programme take measures to address their needs? 

During each Advanced Management Programme, not only do we see the strengths of Japanese culture in business, we rely on them in our programme. We experience great contributions from our Japanese participants that reflect some of the beautiful things about Japanese culture that persist today, such as the importance of the individual as part of a team and part of a context. We experience the impact that the Japanese executives make to our western culture because of their great skill and respect. 

We see that, like leaders from around the world, Japanese executives are also struggling to change as the world is changing and managing through the idea that organisations have to become increasingly more dynamic. The preparation for change – for dynamism, for reorganisation, and improvisation – may be the biggest challenge that Japanese organisations and leaders, like others, bring to the programme. And at the same time, they have some important resources for dealing with that challenge in terms of managing cultures and collaboration. They however bring a combination of strengths from their business culture and their society to their careers and lives, and then we help add new ideas, experiences, and practices from Columbia Business School and from the other leaders from around the world who are a part of our programme to generate new capacities to help deal with the dynamic business environment that they’re operating within.

 

Over the years, the Advanced Management Programme has created positive impact on leadership development and bottom lines results. Can you share with us an example of a Japanese executive’s career progression after attending the Advanced Management Programme?  

Recently, one of the executives who attended from a global Japanese company received a significant promotion during the programme. He took part in our modular “2×2” option where executives attend the first two weeks, return to work for six months, and then come back and complete the final two weeks of the programme. He received this promotion during the time when he was back at work and before coming back to the programme. His organisation had gone through some substantial challenges. It was trying to change the way it operated globally, and he found that he was emerging as someone who was being given the opportunities to make a real difference in the organisation’s transition. When he came back to us, he shared energising stories about how he’d been able to apply insights from the first module of the programme to the early stages of his job and then how he was able to use the learnings that we developed together in the programme to be a leader in and make an impact on one of Japan’s most important companies during a critical, transitional time for the company. 

 

One of your current research projects focusses on the structure and efficacy of managers’ professional networks. Can you share with us your research findings so far? And what is your advice for the participants of the Advanced Management Programme in terms of network development?

That’s a research topic I’ve studied for a career. We have evidence that your set of professional relationships impacts the bottom line, your capacity to get things done, your access to ideas, your advancement in your career, and the efficacy in the performance of your organisation. What I’ve been working on uniquely is the navigation between the idea that we get economic benefits from our relationships and at the same time have a drive that if there’s something that we call a personal relationship or friendship, it should be authentic. That it really should be personal, and it can’t simply be somebody who fits the box in terms of the kind of knowledge or help you need and therefore they become part of your network. How do you navigate between the fact that these are social relationships, but they have economic interests? I have been looking at how leaders navigate this, and the conclusion I have reached is that economically useful network relationships are also authentic – socially and personally. Leaders can’t look around the world and say, “This person would be useful, so I’m going to add them to my network.” Instead, you have to go around the world, build authentic connections to the places you’re going to make investments to reach your professional goals. But your sincerity, your authenticity, the personal connection actually is the foundation for an effective network. In the Advanced Management Programme, we examine and teach practical ways based on research of helping leaders do this. We help them understand their values, what they really stand for as a leader, and how to express that to others.

 

What do you think are the important qualities a business leader must have in order to drive organisations successfully into the future?

I think the two qualities that are defining successful leaders at this moment are a capacity for ongoing learning and the ability to lead cultures. Learning, because business is evolving and organisations are only going to be more dynamic in the future. From the Advanced Management Programme, the executives who have been the most successful over time have been great learners. Of course, we try to cultivate learning, but there’s also the intrinsic capacity like their curiosity or their openness that they bring with them. Then there’s the capacity to lead cultures. Culture and strategy are the defining inputs, the differentiators, that determine whether organisations succeed or fail. They’re both critically important, however strategy is easier to learn. And while leading the culture is learnable, it’s also an art that takes practice. It takes looking at examples, understanding yourself, and probably some painful failures. It’s the rarer skill, and I think the best leaders of the next generation are going to be great learners who will be artful leaders of the culture.

 

How do you make sure your programme has a lasting impact for the professional development of your participants?

It’s in the ways we address those two necessary capabilities of great leaders, learning and culture. Our programme invests a lot of time in the leader as a learner. Our opening session in the programme is about the why and how of learning, and then we continue to introduce tools of great learners throughout the programme. And we spend a lot of time focussing on this art of leading the culture, particularly in the second half of our programme. We spend a lot of time – especially during the two weeks of the programme, that take place in Manhattan – looking at original organisations, looking at organisational change and transformation where culture is always critical, where CEOs and the participants who have great leadership experience share their learnings on careers engaging with culture. We’ve seen that it’s a differentiator for what the people who go through the programme need to be successful after that. We focus on what the leaders need, the process and capacity to be a great learner throughout their career, and being effective with the difficult demand of organisational culture.

 

 

Japan is known for some of the world’s most extraordinary ideas and cutting-edge inventions, from supercomputers, flying cars and industrial robots to earthquake-proof buildings. What lessons or inspirations have you gained from working with Japanese people?

The Japanese people have incredible capabilities about how to work together and collaborate, and they have a lot to teach the world – about respect and about how an individual’s understanding of him or herself in the context of teams, organisations, nations, and global citizenship leads to effective interactions and productivity. Their innovation capabilities stem from their ability to make the most of combining the insights from different types of people and different ways of thinking. No one genius creates the world’s great works of art, or the world’s great technologies. They’re collective efforts. And, we rely on them in the Advanced Management Programme. They become leaders of our culture; they are generous in terms of their contributions to their classmates, and they’re part of the magic that makes the programme so rewarding for everybody.

 

On a lighter note, what does success mean to you?

I think about this a lot – because I have a professional investment in a programme that is aimed at helping people reach their success. I pay attention to how participants view success. I look at the people who seem successful and satisfied, and I think about the inputs there. I’ve learned a lot about that through the Advanced Management Programme. 

One of the great eye-openers for me has been revising my own ideas about success over the last 10+ years. The conclusion I have reached is that success is a function of constant learning. The people who have opened my eyes and excited me from the early days of the programme were great learners. I’ve seen over time as people finish the programme and go on, the difference their trajectory for learning makes, which has some personal characteristics – openness, humility, curiosity – but what it means is that success is not a moment in time. It’s not about where you stand in terms of your achievements or your relative status in your field or in your organisation at any one moment. It’s about your trajectory over time. The people who have affected me most are the ones who are focussed on the trajectory. Over time with my engagement in the programme, I’ve come to adopt more of that perspective myself. I don’t know if I could have said it 12 years ago, but now my own definition of success is about my constant learning. If I have a failure that I learn from, I’m usually happy, satisfied, and excited for the future.

 

Thank you very much, Professor Ingram. It was a great pleasure speaking with you. 

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About the Interviewee

Paul Ingram is the Kravis Professor of Business at Columbia Business School and faculty director of the Advanced Management Programme. His PhD is from Cornell University, and he was on the faculty of Carnegie Mellon University before coming to Columbia. He has held visiting professorships at Tel Aviv University, Shanghai Jiao Tong University and the University of Toronto. The courses he teaches on management and strategy benefit from his research on organisations in the United States, Canada, Israel, Scotland, China, Korea and Australia, and his research has been published in more than 60 articles, book chapters, and books.

Ingram’s current research project examines the intersection between culture and social networks. Recent papers investigate questions such as the role of value similarity to foster business networks, determinants and outcomes of individuals’ fit in organizational cultures, and influences on ethical decision making.

 

 

Japan Inc. will defy its critics and innovate once more

By Gianfranco Casati

Japan’s corporate leaders face a big challenge in fulfilling the nation’s ambitious plan to create what the government calls Society 5.0, a supersmart world in which digital innovation leads the way.

 

Tokyo wants to be a global trailblazer in developing Society 5.0 and resolving economic and social problems by incorporating digital tools – such as the Internet of Things and big data, artificial intelligence, robotics, and the sharing economy – into everything from industrial output to social care.

But do Japanese executives have the courage to take the required steps? Historically conservative companies, led by risk-averse managers may be willing to dabble in early development-stage projects, but making the jump to full-on investments and rebasing their businesses on the large-scale use of AI may prove challenging.

The corporate cultural aversion to risk is being pitted against a clear government mandate for change, driven by demographic and economic reality.

The National Institute of Population and Social Security Research projects that by 2030 Japan will have two people in the labor force to support each single senior resident, aged over 65, and by 2060 it will have just 1.5 people in work for every senior resident.

Japan isn’t any different from other nations in wishing to put digital technology high on the agenda. But what sets Japan apart from say, China, is that it will face acute workforce shortages much earlier than other Asian countries, because its society is aging sooner and it has little readiness to accept large-scale immigration.

So Japan must go first using tech to support its economy and its people.

The term “Society 5.0” is straightforward. The first human society was the hunter-gatherer community, or Society 1.0. That gave way to an agrarian life (Society 2.0), and later to industrial society (Society 3.0). Now we are living in the information age (Society 4.0), but slowly evolving to the next stage – Society 5.0, or the age of artificial intelligence.

In Japan’s vision of Society 5.0, as outlined in the Fifth Science and Technology Basic Plan, AI systems will convert big data into new, meaningful intelligence that will impact every element of society. It will be used to make peoples’ lives more comfortable and sustainable, providing people with bespoke and timely products and services.

Japan is well positioned to be at the vanguard of Society 5.0 because it has a huge trove of real and usable data from its universal health care system, tax authorities, and a wealth of operating data from numerous manufacturing facilities.

Tokyo wants to be a global trailblazer in developing Society 5.0 and resolving economic and social problems by incorporating digital tools into everything from industrial output to social care.

In financial services, Japan seriously lags behind some rivals, notably China and South Korea, in adopting digitally-based cashless payment. The government seeks to double digital payments to 40 percent of all transactions by 2027 from 20 percent in 2016. That would still put Japan behind its financially digitally-savvy neighbors. According to estimates by the government using 2015 data from the World Bank and BIS, Japan’s cashless rate was only 18.4 percent, while China was already at 60 percent and South Korea was 89.1 percent.

But the necessary leap forward is not problematic as the technology exists and Japan has in place a secure legal and commercial environment. There is ample technology from around the world to adopt and improve (just as Japan did with automating cars and making video games fun). Japan doesn’t have to innovate, it simply needs to implement.

In health care, Japan is already en route to Society 5.0 with humanoid robots offering medical advice, serving as concierge-type “friends” for elderly care and leading exercise classes.

The elderly play with a humanoid robot Palro, manufactured by Fujisoft, at a day-care center.

Robots have captured the imagination in Japan; they hold a futuristic mascot status.

The private sector, a long-standing and enthusiastic developer of robots, will likely continue to innovate – robots have captured the imagination in Japan; they hold a futuristic mascot status. Innovative humanoid robots will find a natural home in health care.

More generally, the real challenge will be moving from proofs of concepts (POCs) to wide-scale implementation of digital solutions in industry and infrastructure. At Accenture, we have worked with companies in Japan that are experimenting with sensors to detect breakdowns in manufacturing and resources plants; we have advised on using radio-frequency identification, or RFIDs, to identify and move inventory in factories, and we have helped companies build “digital twins” which are literally digital representations of an object, such as an engine or a machine, that enables people to monitor, manage and adjust functions remotely.

It is not just about filling gaps in the domestic economy but about creating a new wave of Made in Japan exports.

But the next step for most such companies will be to scale up solutions. That requires capital, and guts. Skeptics will say that the C-Suite executives of Japanese companies will stop at the proof-ofconcept level because of the cultural aversion to risk. They will prove the technology works but won’t seek wide-scale implementation for fear of failure.

I disagree. From my discussion with executives in Japan I see a willingness to take that next step – and scale up. Leading Japanese entrepreneurs – from Softbank’s Masayoshi Son to Fast Retailing’s Tadashi Yanai are among the most progressive in the world. An emerging generation of executives, such as Hiroshi Mikitani, the chief executive of e-commerce and internet company Rakuten, are demonstrating a willingness to innovate.

Furthermore, even the most conservative of leaders will be compelled to innovate because there is a political mandate to respond to a declining population without importing a lot of talent but relying instead on Japanese ingenuity.

It is not just about filling gaps in the domestic economy but about creating a new wave of Made in Japan exports.

The quality of top Japanese corporate leadership should come as no surprise. After all, Japan was at the forefront of global consumer electronics development in the 1970s and 1980s – led by Sony, Panasonic and Sanyo. It can do the same in Society 5.0.

Achieving Society 5.0 is no easy task, but it will happen. To critics who say Japan is too far behind its peers, notably in financial services, I say fear not, Japan will catch up. To critics who claim robots are just gadgets, I would reply “You were right a decade ago, but not anymore.” To those who argue that Japanese industry must focus first on implementing – and making money from – existing technologies, I would respond, “That is correct, but Japan’s corporate leaders will take the next step because they have a mandate to press on from the government and from society at large.”

That mandate will not fade away but become ever more pressing as the population ages.

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About the Author

Gianfranco Casati Accenture’s CEO of Growth Markets. he is responsible for overseeing Accenture’s business in Asia Pacific, Latin America, Africa, the Middle East and Turkey.

MENA’s Growing Young Population is a Huge Opportunity – If We Get It Right

By Geert Cappelaere

Youth as tomorrow’s builders are the most important segment of the population and they pose a great potential to expand a country’s social and economic capacity. But before reaping the economic surplus of a country with a growing young population like the MENA region, it is important to ensure policies that will improve their education and overall health. This article elaborates the key steps on how MENA Generation 2030 or investing in the children and youth of today will secure the MENA countries a more prosperous future.

 

The population in the Middle East and North Africa (MENA) region is expected to double in size during the first half of the 21st century, with major changes in population age structure. The adolescents and youth population in almost all countries in the region will increase, expanding the share of the working-age population, with fewer dependents to support.

Children and young people are a powerful force of change towards building a prosperous and stable future for themselves, their communities, and their countries.

According to a report by UNICEF, this could generate a demographic dividend: given the right investments and opportunities, the working-age population will be left with more disposable income, which can in turn spur greater consumption, production, and investment – ultimately accelerating growth and shared wealth. Children and young people are a powerful force of change towards building a prosperous and stable future for themselves, their communities, and their countries.

Now is a historic opportunity to invest in the human capital of children and young people, particularly focussing in investment in the health, protection, and education of the children, adolescents, and youth of today, especially those transitioning into their most economically productive years, enhancing their prospects for productive employment and economic growth. This unique opportunity for a demographic dividend – economic growth due to demographic changes – will only present itself between today and 2040.

A demographic dividend does not emerge automatically – it must be cultivated. Healthy, well-nourished, and well-educated young women and men, supported by inclusive policies in a climate of peace and stability can bring unprecedented levels of growth and social progress to the region. But if we don’t invest enough in children and young people, large numbers will continue to be excluded. Conflict and instability will prevail, and demographic changes in the region will become a burden rather than an opportunity.

Countries in the region are at different stages of their demographic transitions. While for some, the window of opportunity for realising the demographic dividend is still wide open; others have limited time left in which to take advantage. If countries fail to invest now in their children, adolescents, and youth and are unsuccessful to prepare and transition them into a productive adult life, the unique opportunity of the demographic dividend will slip through their fingers.

Driven by the transformational impact of new technologies and data, this next generation is key to creating a new path for societal and economical advancement in the region.

Action is needed now to invest in children and young people and it requires the efforts, energy, resources, and ingenuity of all including the private sector. This include investments in early childhood development, lifelong learning, the transition from education to employment, unlocking the potential of girls and women, and engaging adolescents and youth in decisions that may affect them. This is an appeal to the private sector to act not only out of charity and corporate social responsibility, but more than anything else, from the hard-nosed economic perspective of investing smartly in order to unlock unprecedented levels of growth and advances in social welfare.

Driven by the transformational impact of new technologies and data, this next generation is key to creating a new path for societal and economical advancement in the region. Both the government and the private sector should have a joint interest – and a shared responsibility – in ensuring a healthy and well-educated future workforce.


Investing in Early Childhood Development

During early childhood, especially the first 1,000 days of life, the foundations are laid for a child’s lifelong cognitive ability. In the early years of childhood, neural connections occur at lightning speed – a speed that is never again achieved later in life. This process is fuelled by adequate health and nutrition, protection from harm, and responsive stimulation, and early learning.

Early childhood development is seen as one of the most cost-efficient investments in human capital – building the foundations of a child’s physical, emotional, and cognitive development. Rates of investment returns in early childhood are estimated up to $17 per dollar, while potential long-term benefits might even range up to $34 per dollar. Science has demonstrated that early childhood interventions are important to mitigate the impact of adverse early experiences.


Investing in Lifelong Learning

The adaptation of new technologies and innovations are creating new types of jobs, and a large share of children and adolescents will work in occupations that do not yet exist. This rapidly changing social and economic environment calls for new skills seemingly overnight. Skills for ‘adaptability’ – the ability to respond to new circumstances and to unlearn and relearn quickly – are increasingly in demand. The degree on how well the countries cope with the demand for changing job skills depends on how quickly the supply of those skills shifts – be it within the education system itself or through on-the-job training opportunities.

Returns to education are especially high when technology is changing – people with higher human capital adapt faster to change. Human capital also matters to societies; more educated people are more trusting and tolerant of others, and hence, investment in education can lead to increased social cohesion.

Currently for individuals, the private rate of return for investing in education is estimated at 9% for one extra year of schooling. Social rates of returns to schooling are even above 10% at the secondary and higher education levels. Economic returns of socio-behavioural skills – those ‘skills for adaptability’, or as we call them, ‘life skills’ – are often as large as those associated with cognitive skills. Returns to education are especially high when technology is changing – people with higher human capital adapt faster to change. Human capital also matters to societies; more educated people are more trusting and tolerant of others, and hence, investment in education can lead to increased social cohesion.


Easing the Transition From Education to Employment

The transition from childhood to adulthood is not just about acquiring skills, but also about their actual application as reflected in the transition to secondary/tertiary education or the transition from education to employment or entrepreneurship.

This requires a threefold approach. First, education systems have to reflect the content and skills required by the labour market. Second, learning has to include practical skills and exposure to the world of work through internships, apprenticeships or similar opportunities. Third, the private sector has to absorb the new entries into the labour force, either by creating jobs or by providing an enabling environment for young entrepreneurship.


Unlocking the Potential of Girls and Young Women

Labour force participation of women in the MENA region is remarkably low. The gender workforce participation gap in the region is actually the largest in the world – which means the region is forgoing an important share of its human capital and constraining its economic growth. Closing this gender gap would unleash human capital and contribute to economic and social development, with vast economic growth potential.


Engaging Adolescents and Youth in the Process

Overall, the first step to accelerating the discussion around MENA Generation 2030 is simply to ask young men and women themselves, by providing children and young people with spaces to raise their concerns and share their ideas, and by involving them in decisions that may affect their lives.

Investing in children and young people to unlock the demographic dividend is one area where the interests of governments, the private sectors, and international organisations fully align. This calls for a joint action to invest in the region’s children and youth today to secure a more prosperous region tomorrow.

Featured Image: MENA Generation 2030. Source https://data.unicef.org

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About the Author

Geert Cappelaere is the Regional Director, Middle East and North Africa of the United Nations Children’s Fund (UNICEF). Mr. Cappelaere joined UNICEF in 1999 and was, until August 2016, the UNICEF Representative in Sudan. He previously served as UNICEF Representative in Yemen (2009-2012) and Sierra Leone (2005 – 2009).

Carrefour’s History and Exit from China

By Lisa Qixun Siebers

Carrefour is a French retailer with a successful history of being China’s largest and fastest growing foreign retail stores in 1995. However, with the country’s digitalisation in 2010, Carrefour has failed to adapt with the changing consumer and market behaviour which led to its exit in one of the world’s largest e-commerce markets. In this article, the author has cited Carrefour’s successes and failures – from its management strategies to business expansion plans which can become a competitive imperative of learning for multinational companies and industries who need to upskill their approach towards the digital era before it becomes too late for them.

 

On 23rd June 2019, the French retailer Carrefour, the second-largest retailer worldwide sold 80% of the share of its Chinese stores to Suning International, part of the Suning Group, a Chinese retailer. By then, this used-to-be largest foreign retailer in China has been perceived exiting from China’s market, followed by similar actions taken by the UK retailers B&Q, which sold its 70% stake to Chinese company Wumei Holding in 2014 and Tesco, which sold its 80% share to China Resources Enterprise in 2017. It is important to reflect, after 24 years of operations, why such a worldwide large retailer has taken their steps out of the fastest-growing consumer market, where Carrefour used to be the fastest-growing among all foreign retail companies.

A brief history of Carrefour’s entry and expansion in China can be summarised into three phases.

 

1995-2001: Market Entry and Development Phase
Carrefour entered China in 1995 through a joint venture and opened the first largest hypermarket in Beijing – Beijing Chuangyi Store. Taking the first-comer advantages, Carrefour had remained as the fastest-growing foreign retailers in China during its operation for about two decades until the Chinese market became digitalised in 2010.

 

2002-2008: Fast Expansion Phase
Carrefour expanded throughout China in just a few years, led by its China CEO Shi Lerong. Between 2003 and 2006, Carrefour was the fastest expanding foreign retailers in China, with over 10 stores opening each year. During this time, Carrefour had established several flagship stores and procedures in China. In 2004, Carrefour introduced its first fresh food store called Guanjun Supermarket in Beijing. In 2011, Carrefour set up a top-level food security lab in its Shuangjing Store in Beijing, which was the first of this kind in China. The lab links to other 42 smaller labs to enhance food security, becoming an example of the provision of high-quality food.

 

2009-2018: Decline and Rescuing Phase
Slowing down expansion
In 2009, RT-Mart from Taiwan, replaced Carrefour China by owning the largest number of retail stores among foreign investors in China’s retail industry. In 2010, online retailing or e-tailing started to soar in China. By 2017, China has become the world’s largest e-commerce market, accounting for 40% of the value of worldwide e-commerce transaction, up from less than 1% in 2007. China’s online retail market has also become the world’s largest, with 38% annual growth rate (US$830 billion), compared to 14% in the US. To respond to the changing habits of Chinese consumers from in-store shopping to online shopping together with the increase in rent especially in the 1st and the 2nd tier cities, where Carrefour opened most of its hypermarkets, the retailer started to close some stores. Carrefour China closed its Xiaozhai store in Xi’an, Northwest of China, being its first store closure. By the end of 2015, Carrefour had 228 stores. In the same year, it closed 18 stores to 210 until its exit in 2019.

Variating retail formats
To respond to Chinese consumers’ preferences for convenience, Carrefour opened its first neighbourhood store in 2014 – Carrefour Easy and Carrefour Express convenience stores in affluent residential areas in Shanghai, targeting middle-class residents. These were directed by its new CEO in China Tang Jianian (Thierry Garnier). The fast growth of its convenience stores was contributed to Carrefour’s both store and sales growth rate in 2016 according to the data from China Chain Store and Franchise Association (CCFA), which ranked Carrefour as the 11th largest retailer by sales in 2016 being the 4th among foreign retailers in China.

In 2015, Carrefour introduced its online shopping tool to boost its market share. In the same year, Carrefour opened its first shopping mall in Beijing, where the company rents out its store spaces to other retailers to attract customer flow and spread the cost. It was also the first time that Carrefour purchased land to build and manage a mall, which was its biggest in Asia. This format offered Chinese consumers new experiences in shopping. One of Carrefour’s senior executives commented:

One hypermarket is about 8000 to 10000 square meters, a large mall is about 20000 to 30000 square meters. Apart from a hypermarket, the mall includes 65% of rent-out space for restaurants, a cinema, KTVs, a gym, a SPA, beauty businesses, children’s education places, clothes shops, and so on … The purpose of our shopping malls is to attract customer flow through various lifestyle formats (finance.sina news, 2015). 

In 2018, Carrefour opened its first smart retail store, Le Marche. The retailer offered many private labels in its stores such as Carrefour Quality Line and French Touch brands, targeting middle-class consumers. However, this action was a little late to catch up with the market needs, by the exit, the retailer had only 24 smart retail stores. It could not replicate its small-sized store model in France (over 6000 stores) in China. 

However, this action was a little late to catch up with the market needs, by the exit, the retailer had only 24 smart retail stores. It could not replicate its small-sized store model in France (over 6000 stores) in China.

Developing distribution systems
Only until in 2015, Carrefour started to have its own distribution centre after 20 years of  operations in China. By the end of 2017, the retailer set up six large warehouse logistics distribution centres in Hunshan (East China), Wuhan (middle China), Chengdu (Southwest China), and Tianjin (North China).

Nevertheless, the above strategies did not help Carrefour to regain its development potential in China’s market.

 

2019: Market Exit

Apparently, Carrefour took corresponding strategies for its development in China at both the pre-digital and the post-digital age. However, why did this retail giant just fail in the market? There are several main internal and external reasons.

Carrefour kept its conventional behaviours of charging fees from its suppliers, continuously reducing expenditure on human resources, and other expenses in order to improve profits, reflecting the similar strategies the retailer used to make a profit in the first two decades of development in China.

Short-sight of management without a long-term strategy
Carrefour’s catching-up strategies used to respond to the fast-changing digitalised retail sector in China were lack of focus. For example, the new modern retail formats Carrefour established as mentioned above including Guanjun Supermarkets, Carrefour Easy, and Le Marche were developed by a conservative and trying-out attitude. By doing so, Carrefour kept its conventional behaviours of charging fees from its suppliers, continuously reducing expenditure on human resources, and other expenses in order to improve profits, reflecting the similar strategies the retailer used to make a profit in the first two decades of development in China. By this conservative approach and not investing sufficiently on human resources, financial resources, and material resources, Carrefour was unable to transit successfully in response to the fast digitalisation process in China.

Short-term performance management
It was Carrefour’s performance management system that led to the short-sight management approach. This system was implemented by its staff from the middle to the top level, from boards of directors to managers, with a type of utilitarian mentality. This approach was largely derived from the focus of profit-making of the Carrefour Group. Since the previous Carrefour China CEO Luo Guowei (Eric Legros), a consultant and a professional manager, had taken the position in 2006, the management orientation of the retailer in China became more toward profit-seeking. These were represented by their cost-reduction strategies, the establishment of CUU (city-based merchandise centres) and new product development concepts. Specifically, when the sales increased, related expenses could be increased; otherwise decreased. Such tight financial policy affected the long-term competitive advantage of the company.

The profit-orientated performance management system also resulted in the short-term employment of senior managers. Carrefour hired its professional managers in China up to three years only, with a maximum once re-election. This period is insufficient for long-term business planning and vision. As a result, the professional managers focussed more on their financial performance during their time of service. Consequently, their successor may have to deal with any challenges left over by the former manager.


Late development of the supply chain management system and over-centralisation
Carrefour did not have its own distribution centre until 2015. By then, most of the goods had been delivered by suppliers to stores. The previous system caused inefficiency for managing both costs and sustainable growth. The reason for this late development was derived from the lack of emphasis on distribution centres and logistics management.

Early 2015, Carrefour reduced its 24 CCU (city-based merchandise centres) to six, located in various areas, including those in Shenyang, Northeast; Beijing, North; Shanghai, East; Wuhan, Middle; Chengdu, Southwest; and Guangzhou, South China. By doing so, Carrefour centralised its merchandise systems in China that was established in 1995 when the retailer entered the Chinese market. After this new establishment, the regional directors of these six big regions terminated their duties for supply and started to focus on store operations. The CCUs contributed to the increased centralisation of power from stores or store managers to each CCU, making the profit more transparent, leading to an increased profit of Carrefour China as a whole.

However, the CCUs replaced parts of the previous role of each region, and each region needed to allocate the purchasing power to an increasing number of employees who were responsible for supply. Consequently, Carrefour shifted staff from stores to CCUs, thus reducing the staff in each store from 15 employees in each department before CCUs’ establishment to six after. As a consequence, many experienced store managers left Carrefour and the morale of store staff became low.

 

Final Remarks

Overall, the challenges that Carrefour faced in China was also largely influenced by the fast growth of online retailing, with one-stop shopping becoming gradually unfavourite by Chinese consumers. The hypermarket format has entered its decline period in the digitalised Chinese retail sector. In addition, multinational retailers are not in the first position to realise the changes in the fast-changing Chinese market, especially, the strategic decisions of the multinationals are mainly made by their home-country management system. When the home-country decision-makers have realised the changes in China, it is often too late.

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About the Author

Dr Lisa Qixun Siebers ([email protected]) is from The Institute for Retail Studies, Stirling Management School, University of Stirling, Scotland, UK.

Green Sukuk: Islamic Finance Contribution to Sustainable Environment

By Dian Andari and Yunice Karina Tumewang

The search for sustainable and Shari’ah compliant investing is over. Green Sukuk is on its way but not without a few bumps on the road. This article highlights Green Sukuk as an environmental-friendly alternative to customary investing as well as the challenges it faces amidst an unknowing public.

 

In 2018, the Environment Performance Index (EPI) by Yale University, which recorded a positive correlation to Gross Domestic Product (GDP), served evidence that material prosperity supports the infrastructure availability to preserve human well-being and ecosystem sustainability1. However, the index still falls below the target noting that there is room for improvement in the environmental and economic agenda. According to the survey, Sub-Saharan Africa, Middle East and North Africa score the lowest in the index by region. Dependencies of countries in the respective region on oil/gas and mining industry, poor public health facilities and low commitment for research and development to promote innovation in alternative renewable energy contribute to the depleted index scores.

Providing financing in creating a sustainability development is familiarly known as green finance. According to Climate Bonds Initiative, sustainable projects and infrastructures could be categorised within several pipelines by sectors including transportation, energy, water and waste management and built environment. Upon the Paris Agreement in 2016, green bonds oversubscribed portraying the global positive response. The global green bond market share is dominated by the United States of America with 20% followed by China, France, Germany, Netherlands with 18%, 8%, 5%, and 4% respectively2. Yet, other countries still keep trying to maximise their market share as a contribution to the sustainable development agenda.

With the size of green market share rises, there is growing concern on the poor representation of Islamic finance in the flourishing environmental conservation agenda, and concrete actions from all stakeholders are needed to improve this situation. Moslem and Moslem-populated countries seem to be left behind in the sustainability development agenda. This is a contradiction to the Islamic finance spirit. Islamic finance emerges as an alternative for the Moslem population to life based on Islamic worldview. Fundamentally, the ultimate goal of Islamic law (maqasid Sharia) to create a just socio-economy by managing resources sustainably should be taken into account. While the growth on material prosperity is constantly advertised through the financial industry, the role of Islamic finance in actively getting involved in environment preserverence remains undistinguished. The focus on wealth creation by disregarding the environment misleads the Islamic finance and economics’ function in achieving prosperity for human and nature.

It seems quite challenging for Green Sukuk to develop as not many companies would issue Sukuk in regards to green purposes which is ethically and socially responsible. Hence, the market size for Green Sukuk may not be attractive enough for investors (public). This conundrum, however, could be improved by further education to bring more awareness to the public.

While most of the Muslim-majority countries are categorised as developing countries with low GDP, the insignificant effort to target environmental performance as the focus of national budget would be allocated on other grounded matters. On the other hand, higher GDP Muslim countries, whose source of national income comes from oil and gas industries,  contribute to the environment depression causing the EPI plunged into low score despite the high level of material wealth. For instance, out of 180 countries, United Emirates Arab placed 77 and Saudi Arabia placed 86. Despite their average total GDP of USD 432.61 billion and USD 769.88 billion, according to the International Monetary Funds (IMF) in 2018, their carbon emission per capita contributes to their failure in achieving higher EPI scores3. There should be reformative actions by the state to tackle the environmental and sustainability issues as GDP only will still fail.

For this reason, in July 2017, Malaysian company Tadau Energy issued the country’s and world’s, first green sukuk with a 250 million Malaysian Ringgit (RM) paper to fund the construction of large-scale solar plants4. Green Sukuk comes with the added value of using the proceeds to finance the world’s transition to a low-carbon economy. As such, green sukuk can help combat climate change by paving the way for climate-smart investments in environmentally friendly projects that are based on sustainable resources.

Following the success of Green Sukuk in Malaysia, Indonesia has tapped the issuance of the first sovereign Green Sukuk denominated in US dollar in 20185. Following the Paris Agreement in 2016, Indonesia inciting the commitment on environmental sustainability promulgated a series of legal and policy instrument including Presidential Regulation (PERPRES) No. 61/2011, National Action Plan to Reduce Greenhouse Gas Emissions (RAN-GRK) and the Presidential Regulation (PERPRES) No. 71/2011, the Implementation of a National Green-House-Gas (GHG) Inventory. Indonesia issues Green Sukuk worth US$ 750 million with a five-and-a-half-year maturity. During the first period of issuance, Indonesia’s Green Sukuk was oversubscribed by the market6. The market reaction was motivate by the need for public company engagement in ecosystem preservation by the public.

However, a constant downturn on performance breaks the market expectation on the Green Sukuk’s public enthusiasm. It seems quite challenging for Green Sukuk to develop as not many companies would issue Sukuk in regards to green purposes which is ethically and socially responsible. Hence, the market size for Green Sukuk may not be attractive enough for investors (public). This conundrum, however, could be improved by further education to bring more awareness to the public.

Thus, assurance must be given to investors to utilise Sukuk proceeds in line with its economic value and green standards. At this stage, government support through various regulations with reward and punishment mechanism must be imposed.

Furthermore, its small market size poses numerous problems with the number of regulations available to govern Green Sukuk. There might also be a problem with the liquidity constraint in developing Green Sukuk as the market size of Green Sukuk is still new and small7. Additionally, with regards to green technology, there might be difficulties for investors to participate as Green Sukuk involves investment to develop and further contribute to the technology in regards to the environment8. The uncertainty and high-risk profile that comes with the development of new technology would deter investors from investing due to the fear of not obtaining returns from their investment. Thus, assurance must be given to investors to utilise Sukuk proceeds in line with its economic value and green standards. At this stage, government support through various regulations with reward and punishment mechanism must be imposed.

 

Conclusion

To conclude, we acknowledge that Green Sukuk is still in the infant phase, thus it takes time and requires proper governance and regulations to grow into a million-dollar investment platform.  A strong infrastructure requires an equally committed government to ensure that measures are taken to approach Islamic Finance holistically. Islamic finance does not only incorporate Sukuk, but instead a whole new way of banking that abides by the Shariah principle. Green Sukuk is the catalyst that would open more doors for Islamic Finance to develop and expand its horizons – not limited only to Islamic countries but also to the rest of the world. The notion of Green Sukuk owes itself to when socially responsible investments are made with regards to the environment.

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About the Authors

Dian Andari, S.E., M.Sc. earned her Master of Islamic Finance and Management degree from Durham University, United Kingdom. Currently, she is working at Universitas Gadjah Mada Indonesia as an academic assistant. She is interested in corporate reporting, Islamic finance, and governance issues. Her current research involves accounting innovation and regulation trajectories and religious aspects on accountability.

Yunice Karina Tumewang, S.E., M.Sc. currently serves as a lecturer at the Accounting Department of Islamic University of Indonesia. She earned her Master Degree in Islamic Finance from Durham University, United Kingdom. Her research interests are Islamic Banking & Finance, Islamic Pension Fund, Islamic Accounting, and Islamic Social Finance.

 

References

1. Environmental Performance Index, Colombia University, 2018 EPI Report (Environmental Performance Index, Colombia University, n.d.), accessed March 30, 2019, https://epi.envirocenter.yale.edu/2018/report/category/hlt.
2. “Green Bonds: The State of the Market 2018,” Climate Bonds Initiative, last modified March 6, 2019, accessed April 5, 2019, https://www.climatebonds.net/resources/reports/green-bonds-state-market-2018.
3. “World Economic Outlook (October 2018) – GDP, Current Prices,” accessed March 31, 2019, https://www.imf.org/external/datamapper/NGDPD@WEO; “Data for Saudi Arabia, United Arab Emirates | Data,” accessed March 31, 2019, https://data.worldbank.org/?locations=SA-AE.
4. Newsletter, “World’s First ESG Sukuk Fund Another Step Forward for Malaysia’s Responsible Finance,” I-FIKR ISRA, accessed March 31, 2019, https://ifikr.isra.my/news/post/worlds-first-esg-sukuk-fund-another-step-forward-for-malaysias-responsible-finance.
5. Emma Dunkley, “Indonesia Issues World’s First Green Sukuk Bond,” FT.Com; London, February 23, 2018, accessed April 21, 2019, http://search.proquest.com/docview/2121966290/citation/8D7F496D149B4359PQ/1.
6. D Siswantoro, “Performance of Indonesian Green Sukuk (Islamic Bond): A Sovereign Bond Comparison Analysis, Climate Change Concerns?,” IOP Conference Series: Earth and Environmental Science 200 (November 26, 2018): 012056.
7. Lee Irvine, Michael P. Grifferty, and Alice Cowman, “Green Sukuk: The Race to Be First,” Islamic Finance News, November 5, 2014, 44 edition, https://d381ia8eydvlkf.cloudfront.net/wp-content/uploads/2017/05/Green-Sukuk-The-Race-to-be-First.pdf.
8. Raajeev Batra, “Adding a Green Hue to Raising Funds,” Gulf News, March 2, 2016, accessed April 21, 2019, https://gulfnews.com/business/analysis/adding-a-green-hue-to-raising-funds-1.1682828.

 

Blockchain, Poverty and Time Travel to 2030

By Namira Samir

We all know the story. Government made a forecast of its expenditures and revenues in every fiscal year; Government disbursed the funds, poverty rate decreased, income inequality stayed volatile. Everything was in balance until the UN announces SDGs (Sustainable Development Goals, a joint agreement to make the world in its best possible form by 2030, without a single person living in less than 1.90 US Dollar a day. Now policymakers have been craving for a solution to realise this demanding goal. Blockchain quickly intrudes into the life of many, including those sitting at the highest level of leadership. Sadly, many would think of it as a trivial revolution. Will time change our mind?

 

UN set an ambitious goal for year 2030, one of which is to completely eliminate poverty in its multidimensionality. The 193 member states concurred the agenda and adopted them since the year 2015.

Despite agreeing with this collective objective, Indonesia encounters tremendous challenges in tackling deprivation. It is, as we all aware, a home to diversity. Its population are divided into five main islands which encompasses 34 provinces with distinctive livelihood activities subjected to socio-economic conditions in that particular area.

Poverty, which happens to be the result of inability to fulfil basic necessities, is influenced by access to opportunities. Deprived households in regions with extreme distance from populous cities which have been associated with persistent growth tend to have far less opportunity for improvement.

Economics 101 would tell us that there are two main approaches on how a country can address poverty; macroeconomics and microeconomics. The former stresses on how external factors such as inflation, consumer buying power, and declined economic growth would cause turbulence that only makes the poor worse off. Meanwhile, the latter looks at poverty alleviation strategies from the internal capacity of the household. How deprived households can meet their basic needs.

Being in a constant battle with poverty, Indonesia has implemented a range of programmes and investments that derived from both macroeconomic and microeconomic approaches aiming to win the war of poverty. It invests heavily on infrastructure, with the planned budget for 2019 415 trillion rupiahs and the cumulative allocation for infrastructure, poverty and unemployment increased from Rp.1,343.1 trillion (2017) to Rp.1,454.1 trillion (2018)1.

Yet, the result of the assumed “pro-poor budget allocation” was not so favourable, with the latest data informs that poverty merely declined by 0.16 points from 9.82% (Mar 2018) to 9.66% (Sep 2018)2. With simple math, we know what this implies; Indonesia, if continuing the current ways of alleviating poverty, will be nowhere near the SDG 1 (No Poverty)3 by 2030.

Increased State Budget for poverty alleviation means nothing if there is no significant improvement on the livelihood conditions of the poor.  They have been waiting for opportunities to directly knock on their doors and said “This is the way out. We will guide you through the process and we will make sure that your family will be better off afterwards”.

The limitations of the Government State Budget suggest the need for new collaborative approach among communities to ensure that those who are poor can live in physical and spiritual prosperity, and acquire the same opportunity and benefit from growth,

The conventional way to address poverty is just like a one-man show, in which the Government happens to be the sole Actor, and its citizens are the audience. Whatever the Government says or do with its performance will determine its audience’s conditions. They might be happier, sadder, or perhaps remain unchanged with the performance.

But we must never forget to include the initial condition of the audience into our estimate. Some might come to the show with enormous happiness or extreme sadness. If the purpose of the show is to make everyone feeling satisfied, how can the Government resolve this inequity of emotional state and make everyone happy? Is it possible?

Happiness in this matter is in relation to having sufficient capabilities to make ends meet. The Government employs various instruments to make sure that its performance touches the lives of many, most importantly, the unfortunate.

The limitations of the Government State Budget suggest the need for new collaborative approach among communities to ensure that those who are poor can live in physical and spiritual prosperity, and acquire the same opportunity and benefit from growth, just like what is articulated on the Article 28H of the 1945 Constitution of the Republic of Indonesia4.

But the question is, how do we channel these resources and deliver them right away to the door of impoverished households?

It’s time to re-read the first paragraph.

Kate Raworth in her widely read book “Doughnut Economics” emphasised the need to look out for better ways of ending poverty. We must not be trapped in century years old strategies and instruments that will only make the prominence such as the SDGs merely a remark of ‘good progress’, and not an ‘incredible achievement’ in the development sphere.

The CAF World Giving Index 20185 lists Indonesia as the most generous in the world. This achievement must be seen as an opportunity to use our inner good deed to help others. The problem is that there was no scheme that allows us to help with our abilities, until blockchain enters.

With the blockchain technology, transfer of wealth and the ability to help each other becomes ‘borderless.’ You can be in one of the northernmost countries while still creating an impact on the deprived people in further South.

Blockchain technology started to actually gaining fame in 2016 with its offering of simplifying the way to perform transactions, while at the same time making everything traceable. When the idea was first presented, the first word that came to the minds of millions was “nonsense”. But here it is three years later and evidence of its positive impact on human lives could not be more affirming.

Blockchain as part of the Internet 2.0, is unlike the internet that we know. It is a new revolution which enables mass collaboration among the society.

A report by Stanford University in 20196 reveals that 55% of the blockchain-oriented initiatives are projected to contribute positive changes to individuals’ health, education and financial conditions.

So many lives are at stake due to changes which are happening in their area. Be it declined business activities, decreased consumer buying power, or economic uncertainty, among others, that risks the livelihood of not merely the poor, but also those who live slightly above poverty line.

Blockchain with its promise of better problem-solving, enables us to create solutions which were previously not being thought about.

Take for instance HalalChain, the first public blockchain that focuses on facilitating traceability and distribution of social funds such as zakat and cash waqf, as well as other Islamic financial products, all aiming to improve financial inclusion and alleviate poverty7. 

In response to high poverty rate in Muslim countries and among Muslim communities, HalalChain is working on creating a decentralised solution based on blockchain and Internet of Things (IoT) which enables the Government to execute its programmes specifically addressed to a targeted population.

HalalChain is one vivid example of a blockchain service provider that goes beyond “facilitating payments and verify records.” It seizes the opportunity of distributing wealth more equally through technology. 

As we all know, the real problem of realising the global goals is not the lack of fund, it is purely the absence of a reliable means of collecting them from various sources, including charitable giving and donations as well as alternative finance instruments.

With the blockchain technology, transfer of wealth and the ability to help each other becomes ‘borderless’. You can be in one of the northernmost countries of the world while still creating an impact on the deprived people in further South.

The advantage of using blockchain for poverty alleviation does not stop there. The Service Provider and the donors can also trace the usage of the funds provided to the chosen household and evaluate the impact individually and collectively.

It is time for this country to take the leap. It is only the right momentum to design a decentralised future to tackle poverty. Blockchain has a lot to offer but a dream will just be a dream, an action plan will just be an action plan if there are no concrete steps taken.

Surely, there are some critical challenges about using blockchain for poverty alleviation. For instance, for blockchain to be adopted nationally, it has to earn the public acceptance. This is a serious issue considering many still think of blockchain as cryptocurrencies.

Furthermore, we need to educate the public about the utilisation of technology in daily lives. Although Indonesia is among the world’s highest users of technology, its penetration rate is lower than many countries in Asia Pacific, with 60% of the population do not have internet access, a data by The International Monetary Fund (IMF, 2019) revealed.

We are only a decade away from our target to end poverty in all its forms. Regret will always arrive when the time that we have has gone and sorrow is everything that we will experience had we decided to make no changes in our current strategies on tackling poverty.

Adam Smith once said “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable”.

Indonesia was built with high hopes and believe to make its citizens free from suffering. It is time for this country to take the leap. It is only the right momentum to design a decentralised future to tackle poverty. Blockchain has a lot to offer but a dream will just be a dream, an action plan will just be an action plan if there are no concrete steps taken.

What an interesting reminder time travel has given to this country, that one small change can lead to a very different outcome.

Are we ready for a revolution?

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About the Author

Namira Samir is a development economist based in Indonesia with main interests in multidimensional poverty, regional inequality and Islamic social finance. She holds a master’s degree in Islamic Finance and Management from Durham University, UK. She can be reached at [email protected]

Creating an Enabling Environment for Renewable Energy in Resource-Rich MENA Countries

By Rahmat Poudineh, Anupama Sen, and Dr. Bassam Fattouh

In this article, we argue that investment in renewable energy sources is a no-regret strategy for hydrocarbon exporting economies of the Middle East and North Africa (MENA). It is also in line with some of the pre-renewable energy sector reforms in the region. Indeed, much of their ongoing energy sector reforms – such as the removal of fossil fuel subsidies – complement the move to a strong renewables policy. But their electricity markets, which are currently skewed in favour of hydrocarbons, will need to be carefully designed to support renewables. A holistic approach to energy policy, including establishing stable regulatory frameworks, robust independent institutions, and effective risk mitigation measures will be critical to advancing renewables in the region.

 

One might wonder that why resource-rich countries of Middle East and North Africa should be interested in renewable energy?

First, rapid energy demand growth is a serious issue in hydrocarbon-rich MENA countries. It is projected that the region’s primary energy demand will be doubled by 2030. Economic and population growth, rapid urbanisation, and heavily subsidised end users’ tariffs are the main factors behind soaring domestic energy demands. Just between 2000 and 2011, energy consumption almost doubled in Oman and tripled in Qatar. Other countries have also more or less a similar experience. The result is that many of these countries have had to divert increasing quantities of crude oil, fuel oil, diesel, and natural gas to satisfy domestic demand away from high-priced international markets. Given their heavy economic dependence on oil and gas export revenues, this puts them on a fiscally unsustainable path. The ability of renewable energy to substitute hydrocarbon fuels in most sectors of economy improves fiscal stability.

Second, energy security is of paramount importance for these countries. Contrary to popular belief, not all countries of the region are fully self-sufficient in terms of natural gas, which is the key fuel for power generation in the region. Indeed UAE and Kuwait are already net importers and there is a possibility that more countries in the region will become net gas importers in the future, if domestic demand is not contained or domestic gas production is not boosted. Other countries that seemingly look self-sufficient are also not very secured. For example, Iran is the third largest global producer of natural gas with 6.1 percent share of the world’s natural gas market. However, Iran’s gas production primarily satisfies subsidised domestic demand. Over the years, the gas production in this country has grown in tandem with consumption, limiting its ability to export any sizeable volume. If for any reason (for example, lack of investment due to sanctions), gas production does not keep pace with demand (or demand outpaces domestic gas production), the gas self-sufficiency of the country will be undermined. Investment in renewable sources can replace existing gas power plants that are used as base load and thus help to restrain or reduce gas demand.

Third, the Middle East region has one of the highest pollutant levels in the world with some of the major cities in Iran and Saudi Arabia being the worst affected. On some days, the recorded air pollution level exceeds 5 to 10 times the limit announced by WHO. Apart from frequent sandstorms that affect some parts of the continent, in recent years, industrial emissions and car emissions have significantly contributed to the poor air quality.

Some of the barriers in MENA resource-rich countries are also similar to other developing countries, but the options for investment incentives are different because of their dependence on oil/gas export revenues and massive domestic consumption of subsidised fossil fuels.

Fourth, the uncertainty about long-term oil demand is rising in the agenda of policymakers in the region. The topic of peak oil demand has especially received much attention in recent years and there are contradictory estimations about its occurrence and time frame. We do not know if and/or when there is going to be a peak oil demand because it is an uncertain phenomenon. However, one thing is certain: renewable investment will benefit MENA oil-rich countries whether or not there is a peak oil demand. The logic is simple: if it turns out that there is a peak oil demand, the optimum strategy for these countries is to maximise their oil export revenue in short to medium term before demand for oil is affected. Alternatively, if it became evident that there is no peak oil demand in a foreseeable future, renewable investment maximises their long-term revenue from hydrocarbon export (given their rising domestic energy demand).

This brings us to the second question on how to enable renewable investment in MENA resource-rich countries. Although, as mentioned above, these countries have different objectives to other developing countries in deploying renewables, the path to achieving these objectives is the same, and it involves creating investment incentives and eliminating or lowering the barriers to investment. Some of the barriers in MENA resource-rich countries are also similar to other developing countries, but the options for investment incentives are different because of their dependence on oil/gas export revenues and massive domestic consumption of subsidised fossil fuels.

Figure 1 illustrates a framework for enabling renewable deployment in the MENA. As seen to the right of the figure, governments must design policies that create incentives for investment. There are two extreme policy solutions to incentivise renewable investment in resource-rich countries:1

 

The government introduces a full renewable subsidy programme (in addition to existing fossil fuel subsidies), steering investment towards specific renewables. This requires long-term government support and commitment to create investor confidence.

The government eliminates barriers and lets economics determine market outcomes with respect to the quantity and type of renewable technologies, requiring the complete removal of fossil fuel subsidies (and internalising the cost of externalities) so that those forms of renewable technologies that are already competitive can kick in.

The problem with either of these polar solutions is implementation challenges. For example, market-based approaches are politically difficult to implement in the MENA because it entails full energy price reform within a short period of time to enable the market and that would be nothing short of a revolution. On the other hand, moving towards a fully subsidised renewable programme increases fiscal and economic pressures, particularly as it would be in addition to existing fossil fuel subsidies. Therefore, we argue that investment incentives for renewable deployment in these countries need to be provided through a combinatorial approach, involving partial energy price reform and partial subsidy programme. Figure 2 shows this as a dynamic process. Countries can start from the most feasible point on the policy instrument spectrum based on their current contexts, and gradually move towards phasing out fossil fuel subsidies over medium to long term. This not only reduces the fiscal pressure on government budgets, but also averts political risks by allowing businesses and households to slowly adapt to the new environment where energy carriers are priced at their full economic costs.

 

As seen in Figure 1, in addition to providing incentives, governments need to design appropriate policies around tackling barriers to renewables deployment, in the areas of institutional challenges, grid connection, and management and risk and uncertainties

The presence of an independent and robust regulatory entity is another key ingredient of unlocking renewable deployment in these countries, as governments often overturn regulatory decisions with respect to issues that are deemed politically sensitive such as electricy tariffs.

Future electricity markets will need new supporting institutions that complement the characteristics of a sector that is predominantly based on renewable energy. This includes renewable energy entities and regulators, their resources, competencies, laws, strategies, and activities. In recent years, many of the MENA’s resource-rich countries have established dedicated agencies to oversee the scaling up of renewable energy. Examples include Renewable Energy and Energy Conservation Directorate at the Ministry of Energy and Mines in Algeria, the Department of Energy (established in 2018) in UAE (Abu Dhabi), Saudi Arabia’s Renewable Energy Project Development Office (REPDO), and the Renewable Energy Organization of Iran (SUNA). However, these institutions are not sufficiently integrated with other energy institutions in these countries, which have been historically dominated by oil and gas, and their role is often confined to administering tenders for private renewable project developers rather than enforcing structural change. These agencies also face powerful state-owned utility companies that oversee generation, transmission, and distribution assets, which may view renewables as a disruption to their business models.

The presence of an independent and robust regulatory entity is another key ingredient of unlocking renewable deployment in these countries, as governments often overturn regulatory decisions with respect to issues that are deemed politically sensitive such as electricy tariffs. Institutions also require a rethinking of the scope and purpose of regulation as new actors may enter the system, or existing actors may change their role, requiring modification to the institutional setting of the power system.

Beyond the traditional concept of institutions in the form of top-down structures, electricity sectors with high penetration of renewables and distributed resources such as batteries and demand response require compatible regulation and operating procedure. This includes universally accepted interfaces, protocols, and standards to ensure a common communication vocabulary among system components within and between networks and the development of appropriate regulations and operativng procedures in conjunction with the development of technologies. Grid connection and management rules (e.g., priority access and priority dispatch) also need to be updated to account for growth of renewables.

No private investment, in any sector, will happen if the problem of risk is not dealt with. Renewable investors face a range of risks including political, policy and regulatory, technology risk, currency and liquidity risk, and finally, power off-taker risks. These risks not only affect the appetite of investors and innovators in renewable energy, but more importantly the cost of capital and ability to finance projects.

Political risks include political events that negatively impact the value of investment, such as war, civil disturbance, expropriation, and non-honouring of contracts. Policy and regulatory risks refer to changes in investment incentives (for example, removal of renewable subsidies), network codes, grid connection costs model, and permitting processes, among others. In resource-rich MENA countries, renewable investors face uncertainty in both where there is no specific renewable policy as well as after policy incentives are designed and implemented. Pre-implementation uncertainties include not knowing if, when, or what type of policy will be implemented to incentivise renewables, whereas post-implementation uncertainties are related to the stability, transparency, trust, and insurance for long-term support. Developers also face technology risks related to nascent renewable technologies which may not have a proven track record of operation in the MENA region, or where the local workforce may lack the skills needed to operate renewable technologies. The currency risk pertains to the volatility of domestic currency value with respect to foreign currencies. This is particularly important as most renewable power producers’ costs are in hard currency (e.g., dollar or euro because of loans), whereas their revenue is in local currency (e.g., feed in tariff paid in domestic currency). The credit and/or default risk arises when the market structure has only one offtaker of renewable electricity (e.g. public utility company) and power producers have no choice but to contract with the single buyer and bear the credit risk.

Several MENA countries have begun undertaking power sector reforms, with the aim of restructuring the energy sector, allowing private-sector participation, removing energy subsidies, and reducing reliance on the public budget.

Another important but often overlooked factor in unlocking the potential for renewable investment is that renewable policy should be integrated into the current power sector reform. The current ‘idealised’ model of liberalised electricity markets (comprising wholesale markets for in generation, and competition in retail supply, with network regulation in transmission and distribution), in which prices are set based on marginal cost of electricity, was pioneered in OECD countries and is based on a market designed for fossil fuel electricity with positive marginal costs. This ‘energy-only’ market relies on the price signal to organise both short-term coordination for dispatching, and long-term coordination for investment in generation capacity2.  The imposition of intermittent renewables that have near-zero marginal (but high capital costs) onto this market has led to a breakdown in this model and a tension between the goals of decarbonisation and liberalisation.

Several MENA countries have begun undertaking power sector reforms, with the aim of restructuring the energy sector, allowing private-sector participation, removing energy subsidies, and reducing reliance on the public budget. The challenge that they face is in designing a reform model that incentivises investment and delivers efficient outcomes, while simultaneously integrating a rising proportion of intermittent renewable resources. Failure to adopt a reform model that balances these goals and does so in alignment with their unique contexts could frustrate or reverse the process of reform at later stages.

Resource-rich MENA countries have the opportunity to design their electricity markets around the incorporation of renewables at the outset. They can further tap into years of international experience by adopting market structures that avoid the risk of market breakdown under fully liberalised electricity systems with a high share of non-dispatchable resources.  

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About the Author

Rahmat Poudineh is lead senior research fellow of electricy programme at the Oxford Institute of Energy studies. He is experienced in the economics and regulation of electricity sector. Rahmat has published numerous academic articles on network regulation, electricity market design, power sector reform, renewable support schemes, and gas and power interdependence.

Anupama Sen is a Senior Research Fellow at the Oxford Institute for Energy Studies. She has published extensively on the applied economics of energy in developing countries, spanning the oil, gas and electricity sectors. Anupama is also a Fellow of the Cambridge Commonwealth Society and was a Visiting Fellow at Wolfson College, Cambridge.

Dr. Bassam Fattouh is Director of the Oxford Institute for Energy Studies and Professor at the School of Oriental and African Studies. He is widely published on oil and gas topics and his publications have appeared in academic and professional journals. He also acts as an adviser to governments and industry, and is a regular speaker at international conferences.

References
1. Poudineh, R., Sen, A. and Fattouh, B. (2016). “Advancing Renewable Energy in Resource-Rich Economies of the MENA”, OIES Paper MEP15, Oxford Institute for Energy Studies.
2. Roques, F. and Finon, D. (2017). ‘Adapting electricity markets to decarbonisation and security of supply objectives: Toward a hybrid regime?’, Energy Policy, 105, 584–96.

Guernsey Looks to Play its Part in Accelerating Green Finance on a Global Scale

Greening the financial system has become one of the key economic trends of developed countries as the world now works towards sustainable development. Guernsey, a country with just 25 square miles in land size houses Guernsey Green Finance that has played a significant role in the development and promotion of green and sustainable finance. Guernsey has carved its niche not just in merchant banking but also through its “green ventures” that ensure the environment is at the centre of all financial decision-making.

Guernsey is determined to live up to its reputation as a responsible global citizen, and its commitment to the Kyoto Protocol. Guernsey continues to support environmental stability and to import low-carbon electricity from France as part of our commitment as a community to lower our carbon use.

The global specialist finance centre of Guernsey has enjoyed a symbiotic relationship with the City of London for half a century it has specialised in financial services.

As I write this article, we have a presence at London’s historic Guildhall as the London Green Finance Initiative and the UK Government launch the UK’s Green Finance Strategy, which aims to boost sustainable finance and make the UK an international hub for expertise and funding that supports greener investment.

It is an approach which dovetails with Guernsey’s ambitions to play a part in the development of green and sustainable finance and ultimately, save our planet.

Guernsey is an island of just 25 square miles. We are part of Great Britain, though not the United Kingdom, and sit closer to France than to England.

Guernsey has developed specialisms in financial services since the 1960s when it started to carve a niche in merchant banking. Now, we look to support the City and the global financial services industry with our own specialisms, one of which is the development of green and sustainable finance.

Images For Visit Guernsey – Shot 2012

 

Guernsey is already home to the world’s first regulated green investment fund product, the Guernsey Green Fund.
But it is not just about making the most financially from the opportunities offered by green finance. Guernsey is determined to live up to its reputation as a responsible global citizen, and its commitment to the Kyoto Protocol. Guernsey continues to support environmental stability and to import low-carbon electricity from France as part of our commitment as a community to lower our carbon use.

Our financial services strategy encompasses a commitment to green and sustainable finance and is aligned with the United Nations’ Financial Centres for Sustainability (FC4S) international network and its assessment framework.

Over the years, Guernsey has developed as a specialist centre for the servicing of alternative assets, such as private equity, infrastructure and alternative debt. We are using that expertise to help to develop a global taxonomy for green and sustainable funds.

We have also been looking to provide a broad and comprehensive range of green and sustainable services. Guernsey is already home to the world’s first regulated green investment fund product, the Guernsey Green Fund. The International Stock Exchange, based in Guernsey, has introduced a green segment to its exchange, and we are actively reviewing the potential for the development of green insurance products.

Guernsey Finance has pursued this objective for the past 18 months, and has made rapid progress on the journey.

From developing the world-leading Guernsey Green Fund accreditation and securing membership of the United Nations’ Financial Centres for Sustainability network, we continue to drive further developments and innovations from Guernsey.

We have also been keen to work with others along the journey, including global public policy groups, and develop partnerships to exploit our leadership position in infrastructure services.

I am proud that we have made great progress towards working with the London Green Finance Institute. Earlier this year, industry representatives from Guernsey Green Finance met senior figures from the Green Finance Initiative to talk about how we could make progress together on climate finance.

Sir Roger Gifford, Chair of the UK Green Finance Initiative, said: “There is no greater imperative for bankers and investors than financing the transition to a low-carbon future. The UK has demonstrated global leadership in green and sustainable finance time and again but collaboration is key. It’s both natural and necessary, therefore, to combine with our colleagues in Guernsey and we welcome working with Guernsey Green Finance in support of climate finance.”

 

 

The London Green Finance Initiative did play a significant role in getting us to where we are today – Sir Roger visited Guernsey at the end of 2017 – and so we were delighted to agree a collaborative approach on this topic.

So now, as the UK seeks to take the lead in green finance, we are ideally positioned to support that drive to accelerate green finance.

The UK has said that it expects its own financial services sector to be at the heart of efforts to tackle climate change and reduce emissions to net zero by 2050.

Given the UK’s clear ambition in this space, it’s a real boost to Guernsey’s green strategy that we have already met with the Green Finance Institute’s leadership and agreed to work collaboratively.

The environment needs to be properly integrated into financial decision-making, and we need policy frameworks that can deliver investment at the scale required to solve these great environmental challenges. 

The UK’s new Green Finance Strategy should help boost sustainable investment, and will also expect companies with listed shares to disclose how climate change impacts on their work, reflecting the view that sustainability and climate change should now be considered as an operational risk for companies.

As the world now looks to shift to clean, resilient and sustainable economic growth, there is an opportunity to make London the go-to hub for green investment. This new strategy will help make the UK an international hub for expertise and funding that supports greener investment.

Included in it are plans to increase investment in sustainable projects and infrastructure, while ensuring the UK remains an international leader in decarbonisation, and meets its ambitious 2050 net zero carbon emissions targets.

“The UK has a long history of leading the way in tackling climate change, but we need to do more to protect our planet for future generations,” said John Glen, the UK’s City Minister, speaking at the strategy launch.

“The City has a vital role to play in securing a greener future for us all. By investing more in sustainable projects, it can not only protect our environment, but also help establish London as the pre-eminent international centre for green finance.”

“Today’s Green Finance Strategy will support this ambition, with new initiatives to boost funding for green ventures and ensure that the environment is at the centre of all financial decision-making.”

One of the important messages from the Guildhall was that aligning finance with sustainability is needed to deliver on the Paris Agreement on climate change and the UN Sustainable Development Goals, as well as the UK’s world-leading Climate Change Act and 25-Year Environment Plan.

The environment needs to be properly integrated into financial decision-making, and we need policy frameworks that can deliver investment at the scale required to solve these great environmental challenges.

The UK is in a unique position to green the global financial system. UK financial services, in particular the capital, expertise, and innovation in the City of London, are of systemic importance globally for defining and then ensuring the rapid adoption of sustainability -aligned financial services.

It is expected that green finance will be a core part of the UK’s forthcoming UN Framework Convention on Climate Change (COP26) Presidency in 2020.

The UK’s strategy is ambitious, and rightly so. The future for green finance is very exciting – and Guernsey is pleased to be more than playing its part on a global scale to accelerate our way to that future.

 

 

How the Guernsey Green Fund Works

By investing in a Guernsey Green Fund, investors can be assured that their investments have a positive environmental impact on the planet, which are being monitored against internationally recognised criteria.

• Establish a Guernsey fund from any of the island’s existing regimes

• Demonstrate compliance with the Guernsey Green Fund rules

• Provide assurance that the fund is run in accordance with green criteria

• Seek verification from a suitable independent third party that the prospectus meets notified green criteria, or a declaration from a Guernsey-licensed fund manager or administrator.  

By investing more in sustainable projects, it can not only protect our environment, but also help establish London as the pre-eminent international centre for green finance.
The Guernsey Green Fund provides market confidence in the product from the regulatory wrapper, reassurance that funds are invested into green assets, and offers a platform through which investments into green initiatives can be made. It enhances investor access to the green investment space by providing a trusted and transparent product. As demand rises, we expect that capital-raising will become easier for funds with the certification. We are looking to create a global benchmark.

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About the Author

Dominic Wheatley is Chief Executive of Guernsey Finance, the promotional agency for Guernsey’s financial services sector. Guernsey Finance seeks to promote and connect Guernsey as the leading finance centre in chosen markets, particularly the UK, Middle East, South Africa, South-East Asia and North America. Guernsey is a member of the United Nations’ Financial Centres for Sustainability (FC4S).

VP Bank – an international bank with tradition and innovation

 

 

VP Bank Group is an internationally active private bank focused on rendering asset management services for financial intermediaries and private individuals. In addition, VP Fund Solutions, the fund competence centre, gives easy access to top-notch fund solutions.

VP Bank is one of the largest banks in the Liechtenstein financial centre. In addition to its headquarters in the Principality of Liechtenstein, VP Bank Group is present with offices in five other locations around the globe: Switzerland, Luxembourg, Singapore, Hong Kong and the British Virgin Islands. The target markets for Europe include Liechtenstein, Switzerland, Germany, Luxembourg, Russia and Ukraine. In Asia, they include Singapore, Hong Kong, Indonesia, Malaysia and Thailand. The Russian market development efforts are carried out mainly at the Zurich site as the competency centre for Central and Eastern European markets.

VP Bank Group has a sound balance sheet and a strong capital base. An ”A” rating from Standard & Poor’s vouches for the financial strength. The shares of VP Bank are listed on SIX Swiss Exchange.

VP Bank Group has a sound balance sheet and a strong capital base. An “A” rating from Standard & Poor’s vouches for the financial strength. The shares of VP Bank are listed on SIX Swiss Exchange. A large proportion of its equity capital is in the hands of three anchor shareholders: foundations with a guarantee for continuity, independence and sustainability.

VP Bank’s workforce of more than 930 employees administer clients’ assets totalling almost CHF 48.5 billion. Its client advisors are supported by a global network of partner firms that contribute to the outstanding international know-how of VP Bank Group.

 

Tradition and innovation for more than 60 years

Founded in 1956 in Vaduz, Liechtenstein, VP Bank has grown steadily from a local bank to become a globally active financial services enterprise.

The founder of VP Bank, Guido Feger, was a successful entrepreneur and one of Liechtenstein’s most highly regarded fiduciaries. Right from the start, he demonstrated innovation, competence and courage, while never veering from the fundamental principles of client orientation and financial security. These tenets have been resolutely upheld for six decades. The philanthropic activities of VP Bank’s founder have been continued by its major shareholder, “Stiftung Fürstl. Kommerzienrat Guido Feger” foundation.

A number of international awards for the quality of the Bank’s client advice and ancillary services, as well as for its competence in transaction processing, attest to pronounced quality consciousness.

 

 The Bank’s investment solutions are based on the principle of “open architecture”, an approach that also takes into account the best-in-class products and services of third-party providers.

Independent client advice

Tailor-made asset management, investment advisory and wealth planning for a sophisticated private clientele represent VP Bank’s core competencies. The Bank is also an established partner for financial intermediaries who especially count on decades of experience and a modern infrastructure.

One of the strengths of VP Bank is its independence in terms of providing financial advice. The Bank’s investment solutions are based on the principle of “open architecture”, an approach that also takes into account the bestin-class products and services of third-party providers. The result: conflicts of interest are avoided right from the start.

VP Bank Group has the right size to offer top-notch solutions with a personal touch. Clients enjoy the individualised advise of a private bank and, thanks to the global presence of VP Bank, gain access to a worldwide network of specialists.

VP Bank relies on short decision-making paths and agility as well as flexible and sustainable solutions. The use of digital tools supports personal client care. In addition, VP Bank’s e-banking application affords clients freedom of movement and maximum security when conducting banking transactions. They have round-the-clock electronic access to their securities and deposit accounts.

 

Dependable partner for intermediaries

VP Bank was founded by Guido Feger, one of the leading trustees in Liechtenstein. From the outset, VP Bank therefore saw its role as a dependable and competent financial partner for intermediaries. VP Bank focuses on large, internationally oriented trustees as well as medium-sized external asset managers.

To be successful in this demanding segment requires the bank to respond to changing client needs in Europe and Asia, satisfy regulatory requirements and notably take advantage of technological developments in the process.

With its five international booking centres, VP Bank is one of the few banks of its size to have this unusually broad global presence, offering its clients substantial value-added through comprehensive offerings.

For its intermediaries business, VP Bank Group uses a hybrid business model. Basic banking services on behalf of the end customers of intermediaries are designed to be as efficient, dependable and cost effective as possible using digital channels. The bank then offers high-quality advisory services for intermediaries and end clients.

Along with the traditional custody business, the bank offers end clients comprehensive investment advisory, asset management, wealth planning and lending solutions.

Specialised IT solutions such as eBanking plus are offered specifically to intermediaries. With the ProLink information platform, intermediaries clients have a simple and speedy way to access the most important information and services they need for their daily work. These include extensive coverage of financial market events, regular publications on business and economic issues, the latest news on tax and regulatory developments as well as all required forms.

With its five international booking centres, VP Bank is one of the few banks of its size to have this unusually broad global presence, offering its clients substantial value-added through comprehensive offerings. 

VP Bank, Medienkonferenz im neuen Firmensitz an der Talstrasse in Zürich. © Patric Spahni

 

Excellent Private Banking

Bank offers its clients a broad range of personalised solutions from investments to financing to wealth management and asset structuring.

Digital banking services play an important role. In 2018, a new e-Banking platform was launched and specific processes such as account opening and closing were automated. Client advisors are also equipped with iPads.

The advisory process is enhanced with the “Finfox” application. This tool makes it possible to perform wealth management and investment planning in a timely and efficient manner. Finfox gets the client involved interactively in the investment advisory process and enables direct implementation of investment decisions.

 

Dynamic fund business

The fund business plays a central role at VP Bank. It complements the private banking and intermediaries businesses and represents an attractive growth segment.

The fund business encompasses the activity with third-party funds and proprietary funds and is managed under the VP Fund Solutions umbrella. With VP Fund Solutions, VP Bank Group has an innovative and dynamic international fund competency centre and a one-stop shop for all services related to the fund business. The competency centre is comprised of VP Fund Solutions (Liechtenstein) AG and VP Fund Solutions (Luxembourg) SA, with the Group-wide management of this strategically important business based in Luxembourg.

With 20 years of experience, VP Fund Solutions offers close, cross-border teamwork with locally and internationally renowned asset managers.

Through its cooperation with VP Bank, which acts as custodian bank and paying agent, VP Fund Solutions has access to VP Bank Group’s international reach and cost-optimised network of depositories for the clearing and settlement of fund managers’ investment decisions.

The geographical focus of VP Fund Solutions is on Germany, Liechtenstein, Switzerland, the Benelux countries, Scandinavia, the United Kingdom and Asia. The initiators and clients consist of external asset managers and family offices.

 

The Asia/Pacific region is one of the most important growth markets for private banking and is one of the identified target markets where VP Bank sees attractive growth opportunities.

Successful Asia strategy

The Asia/Pacific region is one of the most important growth markets for private banking and is one of the identified target markets where VP Bank sees attractive growth opportunities. VP Bank has positioned itself as a “boutique bank” that provides first-class solutions to satisfy demanding standards.

In Asia, VP Bank is represented by an asset management company and representative office in Hong Kong as well as a branch in Singapore with around 80 employees. The bank’s business model in Asia is also based on the two strategic pillars of private banking and intermediaries. The target markets include Southeast Asia, notably Singapore, Hong Kong, Indonesia, Malaysia and Thailand.

The growing number of intermediary clients in Asia also creates promising opportunities. In this segment, VP Bank offers its clients regionally oriented service models for trustees and external asset managers as well as personalised support. The development of strategic partnerships is also being advanced. Clients benefit from direct market access to VP Bank’s trading desks in Singapore and Liechtenstein/Switzerland, which cover the major time zones.

In recent years VP Bank has noticeably expanded its presence in Asia. 2018 marked VP Bank’s 10 year anniversary in Singapore, and in April of that year the bank doubled the size of its office space in order to keep pace with growth and have room for further expansion.

In 2018, the subsidiary VP Bank (Singapore) Ltd. was converted to a branch and the banking license was upgraded from merchant bank to wholesale bank in order to implement VP Bank’s growth strategy in Asia in a more targeted and efficient manner. VP Bank expanded the Singapore branch by adding advisors in the investment advisory, wealth consulting and estate planning areas and also significantly expanded the product line with specific offers for Asian clients.

 

Stable Outlook

“Safely ahead”, VP Bank’s claim, reflects the company’s way of thinking. It means the bank is well equipped for the intense competition. As a lean financial services provider with short decision-making paths, VP Bank will be one of the winners from the consolidation that is currently underway in the industry. The Bank’s proven business model, which focuses on wealthy private clients and professional financial intermediaries, combined with its manageable size, means that VP Bank Group is well prepared for the ongoing changes in the worldwide markets.

For more information, please visit: https://www.vpbank.com

 

Master of the Cards: How Legacy Brand Mastercard has Led the Finance Category to Success

By Morgan Holt

Mastercard remains one of the most successful brands in the world and it shows no sign of slowing down. Mastercard continues to provide its customers with new opportunities and ambitions to live better. This article discusses Mastercard’s innovative initiatives that incorporate advanced technologies into financial services in today’s highly digitalised and competitive world.

 

Every year, the world’s most popular brands are placed on the respected BrandZ Top 100 Most Valuable Global Brand list so we can all review how they are faring with the consumers of today’s world. Amazon topped the list for 2019, having invested in its services and offering to deliver a truly unique customer experience – read more on that here.1

But one of the most interesting listees was Mastercard. Pushing towards the top 10 as it ranks in position #12 globally across all categories, the brand enjoyed a 30% year-on-year increase in value on the global brand rankings. Building upon its strong 50-year heritage, Mastercard has developed a rich agility and stayed hyper-relevant across the globe.

Technology has redefined the financial category across the board, giving rise to new consumer expectations and challenger banks that claim to meet them. Considering the sheer pace and progression of life and business as we know it in the last decade alone, you might expect that a heritage brand like Mastercard would be disrupted. Yet, FITCH data has shown that Mastercard has been a significant agent of this change, making it a true success story – both as a brand in people’s lives and a provider of market leading financial services. How has Mastercard become such an icon?

 

A symbol of financial security and freedom

Such an icon, in fact, it doesn’t need its name anymore…you may have noticed the swathe of press earlier this year when Mastercard dropped its brand name2 from its famous yellow and orange disc logo and created a melody to accompany its marker instead.

At this point, we must acknowledge the true power of its distinctive brand design. Marketing mogul Mark Ritson’s point that ‘all brands have codes; graphical and symbolic devices that are associated with the company or product’3 is true. And the application of these codes should be spread throughout the marketing mix constantly to establish an identity people recognise and resonate with. For over five decades, Mastercard had done just that and so was in a great position to make such a bold move.

Being powerful enough to drop your brand name speaks volumes about how valuable your brand is. It is starkly indicative of where you sit within market culture and in people’s estimations. It’s no secret that people from all corners of the world positively associate with Mastercard.

Being powerful enough to drop your brand name speaks volumes about how valuable your brand is. It is starkly indicative of where you sit within market culture and in people’s estimations. It’s no secret that people from all corners of the world positively associate with Mastercard.

Using FITCH’s own data model, we are able to codify what customers expect from the experiences brands offer. Powered by the wealth of BrandZ data, our methodology maps it against four basic human instincts: progress, comfort, belonging and independence. We know that when brands position their products and services so specifically in response to one or more of the basic instincts, it’s on the home stretch to success.

FITCH data for Mastercard suggests its consumers have come to associate the brand with comfort and independence. Essentially, this means consumers feel reassured and in control with regards to the Mastercard brand; the brand helps them to learn as well as encourage them to carve their own identity. Contextualised, it makes complete sense: payment security and financial freedom are two very big factors affecting us in our daily lives – especially buying and purchasing at the rate we do currently.

 

Innovations in the category

Amid the chaotic buzz of modern life – which as we all know, is on 24/7 and on all possible channels – brands need to stand out and give consumers something deeper than just simple convenience, or a fancy product to stay front of mind.

The payment sector is a tough one in this respect. Like many areas of finance, it can be very difficult to translate the USP or capabilities of a brand across the public sphere and even more so to find what basic instinct a brand can tap into and build on – especially considering the acceleration rate of the entire industry in just one generation. Technology has, like many others alongside it, redefined and recharged the sector completely – from the world wide web opening up the first online transactions to contactless payments pretty much everywhere.

New technologies have had a positive effect on people’s view of payment brands in the category overall. Digital innovation has helped people to adapt and celebrate new ways of going about their daily lives… and we find Mastercard to have been a significant driver of this change. The brand’s innovation initiatives provided customers with new opportunities and ambitions to live better. The iconic ‘Priceless’ moments from ad campaigns of years gone by were successfully translated into a modern set of significant payment experiences in our digital world, which has likely built up to the result in this year’s BrandZ ranking.

So let’s look a bit closer at these innovations from Mastercard to better understand.

 

The digital-convenience mindset

Strategic partnerships and communications directed under the reign of current CMO Raja Rajamannar have been hugely influential to building success and remaining relevant. Rajamannar has ensured the brand is taking advantage of trending changes in consumer behaviour and wider market activity; clearly reflected (and rewarded) in that Mastercard is the partner of choice for more than 60 digitised banks across Europe.4 Why? Quite simply because it owns this deep understanding and has a proven track record of innovating in line with changing behaviours.

Currently, 84% of Europeans pursue digital banking regularly,5 63% use mobile banking apps from traditional banks, one in five from digital-only banks and almost two-thirds expect the demand for digital banking solutions to increase in the future. Convenience remains the biggest advantage of digital banking solutions at a time when Europeans demand security more than ever as their most important criteria for using digital banking solutions (67%).

This digital-convenience mindset translates into the new technologies and partnerships Mastercard is across as it creates breakthrough services and experiences.

The brand is moving beyond providing a transaction to running within ‘ecosystems’; that is, becoming an instrumental part of people’s lifestyles. Very strategic and extremely clever.

Seamless and secure biometric payments is an area Mastercard’s Chief of Security has publicly prioritised for a long time, citing that biometric payments not only make transactions safer but dramatically speed up the digital checkout time and reduce cart abandonment rates – and this is crucial for retaining its array of partner merchants. The brand is digitally fit and future-proofing, which in turn only boosts the smoothness of the payment experience for users.

 

Intelligent technological solutions

To this point, frictionless transactions are being further enhanced by Mastercard’s focus on human-first conversational commerce. Drive-thrus that we all know and use account for 70% of QSR transactions6 and yet the experience has remained very basic and unexciting. As customer expectations rise, Mastercard partnered with ZIVELO to bring a transformative element to the journey and hopefully meet but also exceed those expectations. Consumers will order from an AI-powered voice ordering assistant, which will then integrate with a dynamic menu display in a timely fashion. The menu will automatically update using a proprietary AI solution developed by Mastercard to then produce a display which can be customised either for a specific customer or based on geo-specific details such as location or weather.

This brand-new concept for a typical and popular customer journey (that is yet to be cracked by any other) is a stellar example of everything Mastercard is doing right. We’ve seen fast food restaurants modernise their venue formats recently, how long until this kind of experience comes to a drive-thru near you?

 

Smart approach to devices

Over on devices, Mastercard has really dedicated intense focus and investment to ensure it is a leading provider on pretty much all of them. Mastercard’s partnership with Fit Pay highlights the growing ecosystem of technology integrators that have joined its Commerce for Every Device programme.7 Mastercard wants to enable simple payment transactions which can fit every consumer lifestyle and most importantly, with the highest level of security.

As a brand, Mastercard has successfully developed into one that resonates well within the consumer imagination, shaping itself across a whole range of sectors and cultures.

Mastercard doesn’t just rise to the demand for payment capabilities from device brands (who understand it’s imperative to continually expand the value proposition of their products), it embraces the demand and runs with it to successes beyond original projection.

The ability to enable so many devices with payments is an extension of MDES and the Digital Enablement Express (Express)8 programme. Through MDES and Express, any accessory, wearable or device can be payment-enabled to be used at the more than 6 million Mastercard contactless-enabled merchant locations in 77 countries around the globe.9 Because these device-based transactions are tokenised through MDES, consumers have peace of mind knowing they are protected from fraudulent transactions when using their favourite devices to pay.

 

What’s next for Mastercard?

The innovations evaluated above are transforming the way global customers interact with Mastercard day in and day out. The brand is moving beyond providing a transaction to running within ‘ecosystems’; that is, becoming an instrumental part of people’s lifestyles. Very strategic and extremely clever.

Looking to the future, what are the challenges on the horizon?

Today the card payments arena usually results in the middlemen taking a cut. Digital systems, like those used in China and Kenya, could threaten banks and other players. Challengers like Alipay, WeChat and M-Pesa represent different strategies for how to cut different pieces of the card operators pie but that’s another story altogether.

In the West, digital platforms like Google, Apple or Facebook have their own ‘Pay’ products which link consumers directly to merchants. While the providers do use Mastercard, it really is a whole other story and especially so in light of recent news from Facebook around its plans for cryptocurrency Libra set to launch in 2020. How Mastercard develops its partnerships with digital banks like Monzo and Starling will be a particularly interesting area to watch also especially with the digital-only banks foraying into the serious world of financial services.

As a brand, Mastercard has successfully developed into one that resonates well within the consumer imagination, shaping itself across a whole range of sectors and cultures. To stay relevant and powerful it needs to continue developing intelligent technology which provides value to partners and, crucially, tallies with consumer expectations on experience. It’s already on a quick ascent to the top 10, so it’s all eyes on what the brand will do next to get there.

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About the Author

Morgan Holt is Chief Strategy Officer at global retail and brand consultancy FITCH and is responsible for growing the strategic capability of the company globally. With 400+ people and 9 offices FITCH enviable opportunity to design the future for clients as varied as LEGO and Lynk&Co.

 

References

1. https://www.campaignlive.co.uk/article/amazon – overtakes – google – apple – worlds – valuable – brand / 1587104
2. https://www.campaignlive.co.uk/article/mastercard – drops – name – logo – digital – reinvention / 1522311
3. https://www.marketingweek.com/mark – ritson – mastercard – logo – codes /
4. https://newsroom.mastercard.com/eu/press-releases/new – european – digital – banking – study – by – mastercard – highlights – convenience – as – the – greatest- advantage – of – digitized – banking – solutions/
5. https://newsroom.mastercard.com/eu/press-releases/biometric – payments – to – take – centre – stage – as – 1 – in – 4 – of – online – sales – will – require – further – security – next-year /
6. https://smallbusiness.chron.com/percentage-sales-drive-through-windows-fast-food-restaurants-75713.html
7. https://newsroom.mastercard.com/digital – press – kits /commerce – for – every – device/
8. https://www.mastercard.us en-us/issuers/ products – and – solutions / grow – manage – your – business / digital – commerce – solutions . html
9. https://newsroom.mastercard.com/eu/press-releases/new – european – digital – banking – study – by – mastercard – highlights – convenience – as – the – greatest – advantage – of – digitized – banking – solutions/

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