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The Looming UK Brexit Mess

Uk brexit mess

By Dan Steinbock

After the misguided referendum three years ago, the Brexit end-game is about to begin. In the UK, it means political division and fiscal erosion. Moreover, global growth prospects will not remain immune to turmoil in the world’s fifth largest economy.

Initially, London’s goal was to wheel and deal the best possible deal with Brussels. That became more difficult after mid-January when the House of Commons rejected PM May’s EU withdrawal agreement. The rejection compounded the odds for a risky and disorderly no-deal Brexit scenario.

The risks for volatility are also fueled by the impending European Parliament election in May 25-26, which is likely to strengthen Euroskeptics, anti-immigration forces, and radical right and left, at the expense of mainstream parties.

Behind official posturing, Brussels would likely prefer London to revoke the Article 50 of the EU Treaty, avoid Brexit and stay in the EU until UK lawmakers can agree about a future course. Yet, a no-deal Brexit scenario can no longer be excluded.

As the Brexit looms, political fallout is spreading. Recently, eight Labor members of the parliament left the party in protest at Jeremy Corbyn’s leadership to form a breakaway party. Days later, three Conservative MPs quit Conservative Party denouncing May’s “disastrous” handling of Brexit and its shift to the right.

The ex-Conservative MPs joined the former Labor lawmakers on the opposition benches in Parliament. Labor and Conservatives could face more resignations, with members of the new Independent group saying they expect more MPs to join them.

Some scenarios

London must cope with three Brexit scenarios by the March 29 deadline to exit the European Union (EU). In the first scenario – Brexit Deal – the EU divorce will materialize after Prime Minister Theresa May’s deal. That’s the markets’ base case.

In the second scenario – Brexit Deferral – the goal would be to shun a no-deal. This is an option that markets consider unlikely.

In the third scenario – No Brexit Deal – the objective would be to revoke the Article 50 of the EU Treaty to retain the current status quo. This scenario is perceived as improbable by the markets.

But what if May fails to secure a Brexit deal?

Then the Brexit Deal will be undermined, even though Brexit will still loom ahead. In turn, the Brexit Deferral scenario would result in an election or a second referendum, or both. The No Brexit deal would remain the same – Article 50 would be revoked to sustain the status quo.

These scenarios are the direct result of Conservatives’ double miscalculation.

How to undermine the future, twice

If the UK’s neoliberal economic policies peaked in the Thatcher years, they were sustained by labor governments led by Tony Blair (1997-2007) and Gordon Brown (2007-2010). After the global crisis, Conservatives’ David Cameron won a mandate to govern in a coalition with Liberal Democrats.

Cameron championed fashionable social causes, including same-sex marriage and the UN target for aid spending, but cut down government’s large deficits through harsh austerity measures. In 2011, he became the first UK PM to “veto” the EU treaty, to bargain better membership terms with Brussels. Two years later, he pledged that, should his Conservatives win the parliamentary majority in the 2015 election, the government would negotiate more favorable terms for British membership of the EU, before a referendum.

As the gamble failed, Cameron was succeeded by Theresa May, a veteran “law and order” Tory. Ed Miliband resigned as Labor’s leader and was followed by “hard left’s” Jeremy Corbyn. Both parties sought to defuse Euroscepticism that the right-wing UK Independence Party (UKIP) and Nigel Farage had popularized.

In April 2017, May announced a snap general election, “to guarantee certainty and security for years ahead.” Like Cameron in 2016, she thought she could capitalize on her popularity to ensure political consolidation before talks with Brussels. And like Cameron, she miscalculated.

Conservatives remained the largest single party, but lost their majority, resulting in a minority government.

The economic fallout

As the risk of a no-deal seems to be increasing, markets are re-pricing the Brexit’s economic consequences. The likely effects include a moderate recession after the first quarter of 2019. Given the current indications, the British economy could suffer a loss of some 5.5% GDP over three years; while the UK’s direct loss of trade globally could amount to almost 2% of its GDP over 2020-2021.

Ironically, Cameron introduced his referendum hoping to sustain the success of City’s financial institutions. Now U.K. banks seem most vulnerable, thanks to no-deal scenarios. The long-term economic erosion could result in rising corporate insolvencies and weaker collateral values, which will weaken bank asset quality.

The Bank of England (BoE) has already indicated that a no-deal Brexit could result in a reversal of the BoEs current gradual normalization of interest rates. As volatility broadens, an easing or an extended pause is more likely than continued tightening. In turn, markets no longer expect an upcoming rates hike by the European Central Bank (ECB) and are speculating about a new ECB round of stimulus spending via cheap bank loans. While these policies will be deemed pragmatic, the simple reality is that they will be predicated on more debt, disinflation and depreciation over time.

During the 2008 global crisis, UK’s annual growth rate took a severe hit, but bounced back by the early 2010s. The annual growth rate has been around 1.9% to 2.1% since then. Yet, the story of the British pound shows a very different picture (Figure).

 

Figure British Pound and UK GDP Annual Growth Rate, 2008-2019

At the eve of the global crisis, one pound was still almost 2 U.S. dollars. Despite a plunge to 1.40 around 2009, the pound rose to almost 1.70 in the early 2010s; a level it maintained until 2015. When the U.S. Federal Reserve began its normalization and Cameron declared the Brexit referendum, the pound began to plunge, hitting the low of 1.20 in 2017 and remaining around 1.30 U.S. dollar.

Since 2008, the UK growth rate suggests business as usual, yet the British pound has fallen more than by a third in the same period.

And the Brexit erosion is only about to start.

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About the Author

Dr. Dan Steinbock is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/

Venezuela – US Attack Imminent?

By Peter Koenig

Imagine, the President of the self-declared, exceptional and unique Superpower, Donald Trump of the United States of America, has the audacity to threaten the Venezuelan military with their lives, if they keep standing behind the democratically elected President Nicolás Maduro, and defending his Government. An open threat – yesterday, 18 February, at a Miami University, in a speech of ‘fire and fury’; this time against socialistVenezuela with which he wants to finish, like with all other socialist nations – especially those in his ‘backyard’. So, Cuba, Nicaragua and Bolivia are next in Trump’s crosshairs – and / or the crosshairs of his handlers. Don’t forget, he is a staged and convenient fool for the “Deep State” or the “Profound Government” – whatever you want to call this secret clan of the Chosen People that intends to rule the world.

I cannot help being amazed at what level of inhumanity we have arrived. Trump calls openly out to assassinate those who stand behind the legitimate President of Venezuela– and the rest of the world just looks on, watches and says NOTHING – zilch, zero – tolerates such atrocity coming from the mouth of a buffoon, aka the strongman of the self-proclaimed one and only superpower of the globe. – No, much worse – the so-called civilized west, the European Union, Canada, Australia, New Zealand, Japan – and some second- and third class puppet developing countries from South America, whose people are being starved while the elite admires and dances to the tune of the USA; united in what they call the “Group of Lima” (created in Lima in August 2017, to “safe” Venezuela).Members include, Argentina, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Honduras, Mexico, Panama, Paraguay and Peru.

In the meantime, Mexico, under her new leftwing President Andrés Manuel López Obrador, or simply, AMLO, abstains from any decision against Venezuela. To the contrary, Mexico is part of the “Montevideo Mechanism” that comprises Mexico, Uruguay, Bolivia and the member countries of CARICOM and seeks conflict resolution through dialogue with the opposition, for which the Maduro Government has been ready from the beginning of the conflict, but which has been boycotted by the opposition, as were the 20 May 2018 elections which the non-participating opposition now calls a fraud.

The Lima Group was initiated, as such unofficial clubs always are, to out-rule the official routes, by Washington. Similarly, Washington created “The Friends of Syria” – all with the objective to bring about “Regime Change”. In the case of Venezuela, to circumvent the official representation of the Americas – the OAS – Organization of American States. – Why? – Because the empire was unable to get the legitimate majority of the OAS members to side with them against Venezuela. So, they organized the Lima Group, a club of the willing, of the utmost corrupted vassals, who believe at the end of the days to receive some crumbs of ‘gracias’ from their northern master and tyrant – or the vassals’ leaders (sic) hope perhaps for a safe haven, a castle in Miami?

I often wonder whether such a dream of eventually, at the end of the day – the end of all days perhaps? – being saved by the surviving elite of the US of A in an untouched paradise, is also the dream of the European puppets, for example those that pull the EU’s strings – the Macrons, Merkels and Mays – and, of course, the rest of the EU, the puppets of the puppets? – What else could make them so miserably betray their people, hundreds of millions of people? – Do they have not an iota of morals left?

Coming back to Venezuela – the Buffoon calls for outright war against the Maduro regime – and to salvage the Venezuelan people, he sent US$ 20 million worth of “humanitarian aid” to Cucutá, border town in Colombia, which, of course, the Bolivarian army does not let enter Venezuela. There is no need for humanitarian aid, let alone for US$ 20 million worth, peanuts, as compared to what Venezuela buys on a daily basis in food and medical supplies.

The US southern military command, SOUTHCOM, stationed in Florida, is preparing an impressive military build-up.

Undeniably, the US warmongers – specially Bolton, Pompeo and Pence – are preparing for a hot war. Whether they will execute it, remains to be seen. But the Bolivarian military does not idly watch what may happen. They are ready to face any Yankee aggression. The US southern military command, SOUTHCOM, stationed in Florida, is preparing an impressive military build-up. The nuclear-powered aircraft carrier USS Abraham Lincoln, with 3,200 military personnel, 90 fighter planes and helicopters is positioned off the Florida coast, accompanied by the cruise missile carrier, USS Leyte Gulf, and the destroyers, USS Bainbridge, USS Gonzalez, USS Mason, and USS Nite. Joining the fleet is also the Spanish marine ship ESPS Mendez Nuñez.

The Spanish participation in this war game of criminal aggression is outrageous. The Spanish socialist leader, Pedro Sanchez (who certainly does not deserve the attribute of ‘socialist’), has also had the audacity requesting Nicolas Maduro to resign and call elections. Who is the (faltering) head of the fallen Spanish empire to meddle in another country’s internal affairs? – Maybe because the Spaniards can still not stomach having been defeated by Simón Bolívar, still feel superior and behave racist over the ‘brown’ Latinos, or maybe because he wants to please the masters in Washington – or simply because he needs popular support in his own country, as he is leading a minority, currently non-government and had to call snap elections for 28 April 2019?

There are, however, also Russia and China, solid, but rather quiet partners of Venezuela’s. Russia has made it clear, though, “Don’t mess with Venezuela”. Russia has two nuclear capable bombers, TU-160, deployed to the Venezuelan Caribbean island of la Orchila, where Moscow will establish, with the agreement of Venezuela, a permanent military base.

Both Russia and China have tens of billions worth of investments in Venezuela’s hydrocarbon industry. But besides the commercial interests, Russia and China vie for a multipolar world and want to guarantee the independence of Latin America, the sovereignty of the peoples of the Americas.

But besides the commercial interests, Russia and China vie for a multipolar world and want to guarantee the independence of Latin America, the sovereignty of the peoples of the Americas.

On 26 January 2019, the US dragged the “Case Venezuela” to the UN Security Council, in an attempt to condemn Venezuela and to trailblaze the path for a military invasion. However, while nine of the 15 UNSC members voted for a special meeting on Venezuela (Belgium, Dominican Republic, France, Germany, Kuwait, Peru, Poland, United Kingdom, United States), four voted against (China, Equatorial Guinea, Russian Federation, South Africa), with two abstentions (Côte d’Ivoire, Indonesia). The Russian Federation’s delegate countered that the Council has no role to play in a domestic matter that poses no threat to international peace and security. And right he is!

This UNSC event prompted a solidarity movement of more than 50 states, includingChina, Russia, Cuba, DPRK, Syria, Iran, Palestine, Nicaragua, and many more, supporting Venezuelan’s Foreign Minister Jorge Arreaza’s statement before the Security Council, declaring the illegality of unilateral coercive economic sanctions, and territorial invasions by the United States. As Carla Stea reports (https://www.globalresearch.ca/hands-off-venezuela-historic-stance-at-the-united-nations-against-us-imperialism/5668780), this new alliance “constitutes a formidable force which Western capitalism will antagonize at its own peril. This is a long overdue counterforce to Western domination of the United Nations, a domination based on money, on the large payments enabling the US and other capitalist powers to bribe, threaten and otherwise control the direction of the UN, and distort and destroy the independence, impartiality and integrity which the UN requires in order to maintain its legitimacy, and implement the sustained global peace and justice for which Franklin Delano Roosevelt created it.”

This new alignment of more than 50 states comprise more than half of the world’s population, to a large extent people who have been exploited, slaughtered and their countries raped and ravaged for hundreds of years by wester capitalist and colonialist powers. This alliance promises to become a solid new face in the otherwise western dominated and bought United Nations.

As to Venezuela’s fate, Trump has made vague indications of 23 February being the deadline for an assault on Venezuela. We will see whether this remains nothing but an intimidating insinuation, or whether it will be real. The latter case would be a disaster not only for Venezuela, and Latin America, but for the entire world. Will Trump’s handlers allow such blunder? – In any case, Venezuela’s armed forces are disposed to confront the empire’s nuclear aircraft carrier, missile launchers, countless fighter planes and the up to 5,000 US troops and mercenaries newly stationed in Colombia and ready to cross the border into Venezuela.  – And, not to forget, there are also Russia and China.

First published by the New Eastern Outlook – NEO

Image source: https://countercurrents.org

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About the Author

Peter Koenig is an economist and geopolitical analyst. He is also a water resources and environmental specialist. He worked for over 30 years with the World Bank and the World Health Organization around the world in the fields of environment and water. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research; ICH; RT; Sputnik; PressTV; The 21st Century; TeleSUR; The Vineyard of The Saker Blog, the New Eastern Outlook (NEO); and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance. Peter Koenig is a Research Associate of the Centre for Research on Globalization.

A Postcard from Malaysia

By Dan Steinbock

Not so long ago, Malaysia was set to lose years of economic progress. Today, following the re-imposition of economic discipline, the country is almost back on track.

A new era dawned in Malaysia in May 2018, when the opposition coalition led by Dr. Mahathir Mohamad and Anwar Ibrahim secured a simple majority in a historical election. When Mahathir will return to retirement, opposition leader Anwar is expected to replace him in about two years.

In the 2018 election, their coalition – Pakatan Harapan (PH) – won 113 seats against the ruling coalition (United Malays National Organization, UMNO and its allies) that had not lost an election since 1957.

Last year, Malaysia’s economy grew 4.7% year-on-year. Despite fiscal consolidation and challenging international conditions, the country is set to sustain its growth path in 2019. It is an extraordinary achievement after years of political turmoil.

The Najib regression

As the sixth Prime Minister of Malaysia, Najib Razak ruled the country from 2009 to 2018. His early tenure was marked by economic liberalization measures, including cuts to government subsidies, loosening of foreign investment restrictions, and reductions in preferential measures for ethnic Malays in business.

After the 2013 election, the neoliberal economic policies gave way to greater efforts at political consolidation, including the pursuit of critics on sedition charges, the imprisonment of opposition leader Anwar Ibrahim, the implementation of a consumption tax (GST), and the embarrassing scandal involving state investment firm 1Malaysia Development Berhad (1MDB).

That’s when Malaysia lost its economic discipline. The changing fortunes can be illustrated by the fluctuations of Malaysian ringgit. Between 2009 and 2013, US dollar was still about 3-3.60 MYR. As economic prospects weakened, so did the ringgit. Between 2013 and 2018, US dollar amounted to 4.40 MYR (Figure)

 

Figure Malaysian Ringgit, 2009-2019

Eventually, the massive 1MDB corruption debacle led to rallies calling for Najib’s resignation, spearheaded by the grassroots movement Bersih. Following his release in 2004, Anwar Ibrahim became the leading figure in the opposition and helped coalesce the opposition parties into the Pakatan Rakyat, which contested the 2008 and 2013 general elections.

These protests culminated in the Malaysian Citizens’ Declaration by Mahathir, the rise of Pakatan Harapan and NGOs to oust Najib. The 2018 election triumph paved the way to Mahathir to become the world’s oldest elected leader at 93. He said his coalition would not seek revenge but would “restore the rule of law”.

Recently, Anwar Ibrahim seconded those views. He said Malaysia “will not compromise” in its talks with Goldman Sachs over the 1MDB corruption scandal, and the bank “must bear responsibility.” The nation has a responsibility to uncover any crimes the investment bank may have committed.

 

Fiscal consolidation

Between 1974 and 2004, Mahathir’s Malaysia experienced a period of rapid modernization and economic growth, as his government initiated a series of bold infrastructure projects. During his reign, Malaysia was transformed into an ASEAN tiger. Politically, Mahathir was dominant, winning five consecutive general elections and fending off a series of rivals for the leadership of UMNO.

The final test came with the aftermath of the Asian financial crisis in 1998. While much of Asia succumbed to IMF-imposed austerity, Malaysia did not. Instead, Mahathir pursued a heterodox model of economic policies, including currency and capital controls, while deterring George Soros’s speculative efforts to derail the economy.

In the West, Mahathir was demonized as an authoritarian dictator who was intent on undermining his own economy. In reality, his mix of policies ultimately helped Malaysia endure a shallower GDP loss than crisis-afflicted Indonesia, South Korea, and Thailand.

Now Mahathir’s objective is fiscal consolidation to surpass the policy mistakes of the Najib years, while stabilizing a more robust growth path. It is a challenging task that must be implemented amid America’s new protectionism and U.S. tariff wars.

Moreover, Mahathir has had to suspend several multibillion-dollar projects, including China-backed initiatives, in a bid to target Malaysia’s estimated $250 billion national debt and other liabilities.

Early signs are promising. In 2019, economic growth is likely to be around 4.5%; in 2020, 4.2%. Private consumption is the key contributor as consumers have loosened their purse strings amid an improving labor market and lower consumption tax.

However, investment growth is lingering as several high-profile projects have been put on the back-burner following the new government’s fiscal rationalization.

 

Preparing for 2020 contingencies

As the new government’s first budget suggests, the focus is on institutional reforms, improving the standards of living, particularly for the lower income groups, as well as encouraging entrepreneurship. The fiscal deficit is projected to narrow to 3.0% of GDP by 2020; and to 2.0% in the medium-term.

It is a typical Mahathir mix: people first, good governance, self-sufficiency, but openness to international trade and investment.

Yet, there are two key risks to the fiscal target forecast. On the one hand, growth could be less than anticipated, thanks to the challenging external environment. On the other hand, revenue flows could prove more volatile than expected, given the higher dependence on oil-related revenues, which account for almost a third of total.

While the government’s expansionary efforts are limited by the ongoing fiscal consolidation, Malaysia can still rely on more accommodative monetary policy. In 2019, monetary policy is expected to be stable. As international headwinds are likely to escalate in 2020, the central bank could opt for a more dovish stance.

Until recently, neoliberal policies have often been portrayed as “natural” for post-industrializing Asia. In reality, such policies tend to boost oligarchs and shun the rule of law. Led by Dr. Mahathir Mohamad and Anwar Ibrahim, Malaysia’s political reset shows that neoliberal trajectory and corruption are not an inevitable destiny.

Malaysians deserve a better, sovereign future.

Feature image source: https://edition.cnn.com

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About the Author

Dr. Dan Steinbock is the founder of Difference Group and has served at the India, China and America Institute (US), Shanghai Institute for International Studies (China) and the EU Center (Singapore). For more, see http://www.differencegroup.net/

Stay Ahead of the Next Disruptive Change Through Research-Based Excellence

As one of the Top 15 business schools in Europe, EDHEC Business School – operating from Paris, Nice, Lille, London and Singapore, has spelled out its educational credo as “professional development through research-based excellence”, and the EDHEC PhD in Finance is the culmination of this ambition.

Today we sat down with EDHEC PhD in Finance Programme Director, Prof. Abraham Lioui, who talked about the unique PhD programme they offer, and the culture of excellence and brand signature that EDHEC adheres to that lets it stay at the forefront of top quality academic research and sets it apart from other business schools i.e. to Make an Impact.

 

Good day, Dr. Lioui! Thank you for taking the time to talk to us today. To start, we would like to know what a day looks like for an academic leader like you?

Fortunately, given the three hats I have, it is very rare that one day resembles the day before or the day after. As the Director of the PhD programme, two activities are particularly demanding but not less enriching: staffing of the core and elective courses as well as performing a quality control of the research output of our students. To stay at the forefront of top quality academic research, we need to adapt permanently the curriculum of the programme to guarantee good training for our students whilst keeping them up to date with the latest developments. To reach this goal, I spend a large portion of my day scanning newly published papers in academic journals as well as working papers platforms. Different from a standard academic degree, thesis submissions in this programme happen on a continuous basis. While it is time demanding to provide useful feedback, it is not less enriching since each thesis is focusing on a different subject. All in all, my activities during the day are diversified but I rarely end a day feeling I wasted time!

 

“It is the only PhD programme in the world targeting finance professionals/executives. The PhD programme is the instrument EDHEC has put in place to expose professionals to the most recent academic discoveries but not less to sharpen their critical thinking.”

EDHEC Business School is known for its culture of excellence and brand signature: Make an Impact. Can you tell us more about the attributes/features that set EDHEC apart from other business schools?

The PhD in Finance Programme is an excellent marker of this motto as well as of the unicity of EDHEC. It is the only PhD programme in the world targeting finance professionals/executives. EDHEC does believe that academic advancement may lead to disruptive innovations as well as higher efficiency of markets and institutions. The PhD programme is the instrument EDHEC put in place to expose professionals to the most recent academic discoveries but not less to sharpen their critical thinking. We do believe that professionals are not less capable than young Master graduates of coming up with original ideas and executing them according to the highest academic standards.

 

What excites you most about the PhD in Finance Programme? How do you cultivate a unique design for its curriculum?

The most exciting part of my job is the intellectual challenge. Each year, between 5 and 10 students enter their dissertation stage. To guarantee that an idea is original, one has to master extremely well the literature and obviously be creative. Since I centralise all the research proposals, I spend a lot of time with our students in identifying potentially important and interesting gaps in the literature. To stay original, our system of electives given by top scholars from all over the world works nicely in exposing our students to the most recent literature but not less learning from people with rich experiences and amongst the best experts in their respective field.

 

With the competitive nature of the financial industry, especially in times of intense innovation and globalisation, how do you guarantee the competitiveness of your students and develop them to be the key players in tomorrow’s financial industry?

Innovation is probably the ultimate competitive advantage a firm can think of. The knowledge we pass onto our students is all tailored to have an impact, preferably a quick and strong one, on the industry. Our programme aims to improve the human capital of our students by training them but not less teaching them how to train themselves through constant critical thinking.

 

“The knowledge we pass onto our students is all tailored to have an impact, preferably a quick and strong one, on the industry. Our programme aims to improve the human capital of our students by training them but not less teaching them how to train themselves through constant critical thinking.”

What’s the most challenging when addressing the needs of your participants? How do you meet their expectations and have them better prepared?

There is a permanent discussion with our students during their studies and when they become alumni. We conduct regular surveys to collect feedback on the content of the programme and the potential gaps we need to fill. Following one of these surveys, we created three MOOCS on programming languages for finance research; they train our participants on fields which are not usually covered in a PhD programme. The most challenging for us is the legitimate request of our candidates to see instantaneously the link between what we teach them and what they do on a day to day basis in their job.

 

As the world advances, moving up the value chain becomes more challenging. What do you think are the important qualities a finance professional must have in order to drive finance functions successfully into the future?

A manager in any industry faces a degree of immediacy in her decision-making. The financial industry is no exception. The challenge thus is to manage the business as an ongoing one while having a clear view of where the business should go for the medium long term. Understanding the trends and the threats is crucial, and equally important is the ability to operationalise within complex organisations the co-existence of short-term and long-term acting forces.

 

With your research interest focusing on Portfolio and Asset Pricing Theory, Derivatives and Risk Management, can you tell us the most significant development you’ve witnessed thus far in the  investment/asset management industry? 

In the last decade, the widespread discredit of active management is probably the most striking development in the financial industry. The number of index providers exploded together with the development of the ETF industry. After years of warning from the academia that mutual funds for example did not deliver alphas, retail investors are now more prone to passive investing than ever before.

 

“A manager in any industry faces a degree of immediacy in her decision-making. The financial industry is no exception. Understanding the trends and the threats is crucial, and equally important is the ability to operationalise within complex organisations the co-existence of short-term and long-term acting forces.”

There has been much speculation recently in the press about the impending global crash in 2020 and the inevitable fallout it will cause. What’s your view about the current state of the global economy in a few sentences?

The global economy is dominated by three big players; the U.S., China and Russia. Political risk originating from the international relations is huge and financial markets, which are forward looking by nature, are concerned with the potential impact it has on the real economy (growth, unemployment, etc). Europe could have played the role of an island of peace. Unfortunately, the Brexit and election outcome in Italy have just amplified the worldwide political uncertainty. Interest rates increase by Central Banks is a clear signal that they prepare for the worst. Given the zero lower bound we have reached for interest rates, they will be left with no other instrument than the balance sheet in case of a crash. Given the current huge total of balance sheet, Central Banks have almost no margin. All in all, markets hate uncertainty and they let politicians know it!

 

People in the upper echelons naturally have a lot on their plate. How do you make sure that you maintain a healthy lifestyle, both in your professional and personal life? What are your favourite routines?

I work rarely during weekends and in the evening when I go back home. My workday is fully dedicated to my job but when I go back home I spend all my time with my family. Same in the weekend. Fortunately, we also have generous holidays in France in general and at EDHEC in particular. I do take breaks from time to time.

 

What makes a job well done for you? When do you feel happiest and accomplished?

Ultimately when I succeeded in what motivated me in the first place to do this job: efficient transfer of knowledge to my students! I feel happy when I receive a mail, a message on LinkedIn, or by any other means from former students describing how what they learned in class has been useful for their interview, current work, etc.

 

“Keep an eye on what has been published by academic scholars. They often offer a perspective that is very hard to have when overwhelmed by the routine. One needs to prepare for the next disruptive change.”

Lastly, any other messages you wish to share with our readers, particularly to those who aspire to establish a career in the financial industry?

Yes, definitely: keep an eye on what is published by academic scholars. They often offer a perspective that is very hard to have when overwhelmed by the routine. Firms are not prone to deep debates and permanent questioning of their practices. This is obviously understandable but one needs to prepare for the next disruptive change.

Thank you very much, Dr. Lioui. A pleasure speaking with you.

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About the Interviewee

Abraham Lioui, PhD is a Professor of Finance and the Head of Data Science, Economics and Finance Faculty, as well as the Director of the PhD in Finance Programme at EDHEC Business School, France. He has received various teaching awards and has supervised over 100 doctoral and master students. His main research interests include Portfolio theory and dynamic asset allocation, Pricing and hedging of derivatives, Asset pricing theory, and Monetary policy and asset pricing.

On the Delicate Art to Balance Trust and Control to Promote Performance

By David de Cremer and Jakob Stollberger

In every relationship, trust plays a valuable role to ensure that both ends are not met with infidelity and injustice. Successful companies for that matter compel their employees to apply trust and control on a proportionate rate to deliver just that.

Trust matters to organisations in important ways. The presence of trust has been demonstrated to affect a wide range of variables at both the individual and organisational level, which all combined promote the overall effective functioning of any organisation (Kramer, 1999). For example, when employees trust each other they will report higher job satisfaction, display more voluntarily citizenship behaviours, exchange information more quickly and frequently, and experience greater well-being and happiness at the work place. Organisations in turn benefit from such highly motivated and effective employees, as companies that are effective in fostering a trusting work culture perform better, create more revenue and ultimately lead their industry by being innovative (Colquitt, Scott, & LePine, 2007; Dirks & Ferrin, 2002). If trust has so many benefits, why is it then that so few companies really succeed in establishing a trust culture?

As we all know, organisations are complex hierarchical structures that create frequently conflicts of interests and feelings of fear to be exploited. Trust is commonly defined as people’s willingness to be vulnerable to the actions of others, because they consider the intentions of the other to be honest and caring about interests of others (Rousseau et al., 1998). Many organisations will therefore try to control the complexity of their work setting for trust to blossom. But it is exactly in this effort to try to control the self-interest of employees and coordinate efforts in more transparent and accountable ways that trust may be more difficult to achieve than ever. Why?

It is no secret that people do not like to work in uncertain business settings. The human desire to reduce uncertainty is known to be pervasive and the recent decade of corporate failures and crises has translated this desire into a cry for increased transparency across different industries and work cultures. In most cases, fear dominates and as a result creates work places where one tries to install a sense of control among its employees by employing monitoring systems. Although companies may engage in these practices, few of them are actually able to install a culture of trust where employees are not afraid to be vulnerable to each other. From a rational point of view this may make little sense. If decision-making is made transparent and control systems exist that can punish bad behaviour (and if needed reward good behaviour) then the work place should be considered as a safe environment and voluntarily cooperation should prosper. Research however shows that when control systems are implemented, employees may indeed cooperate but not because they intrinsically trust the others but more because of an induced extrinsic type of trust. This extrinsic type of trust is also referred to as the trust people have in the control system itself and the consequences it reveals, but it does not include trusting the intrinsic intentions of the others. Specifically, employees will cooperate with others and trust them to deliver because they know that else they will be punished by the control system. This kind of trust is installed when a control system is implemented, but will also disappear quickly once this system is removed. Once a control system is removed, employees will not intrinsically trust others, because the reason why they trusted others initially is not in place anymore (Mulder, Van Dijk, De Cremer, & Wilke, 2006). Indeed, if the system is gone there is no reason anymore to trust others.

The presence of trust has been demonstrated to affect a wide range of variables at both the individual and organisational level.

Another effect that emerges in the presence of a control system is that the increased transparency and accountability makes people feel uncomfortable. We know from much research in psychology and behavioral economics that people are not 100% rational beings. Rather than optimising their behavioural strategies and decisions based on the knowledge that they have, human emotions can disrupt logic and systematic processing of data in ways that may lead them to behave in ways that cannot be predicted by rational models. This is also the case when it comes down to working in transparent work settings. If transparency is established then everyone knows what and how everything is happening. From a rational point of view, one could then say that such an optimal situation of knowledge gathering should motivate employees more to contribute their ideas, knowledge and efforts to the organisation. However, when asked, most people will say that they do not like or even simply refuse to work in a completely transparent setting. So, rather than seeing employees become more loyal and motivated to contribute to the company, we notice that enhanced transparency actually leads employees to take a distance from the company as they feel more stressed and uncomfortable in dealing with such controlled work environment.

What is the result of companies focussing primarily on control strategies to enhance their trust beliefs about their employees? By promoting transparency on the work floor and as such being able to monitor the decisions and actions taken by the work force, does not lead to more trustworhy behaviours within the company but actually to less trust when employees work together. Does this indicate that monitoring systems are always bad news when it comes down to promoting a trust climate within the company? Not necessarily. As we noted earlier, when employees know that their actions are being monitored (as transparency is high), they will be confident that they can work together with others as exploitative behavior is very likely to be punished by the company (via its control systems). However, this extrinsic type of trust is not sufficient to build trust in a sustainable manner. The primary reason for this is that monitoring and control systems in organisations are usually employed in ways that reinforce the perception among employees that the control system is an end in itself and not a means towards an end. What does this mean? Too often companies do not explain well why they employ a control system and in what way and for what purpose they will use the data gathered via a transparent system. It is especially the lack of explaining the purpose behind the control system that creates an ambiguous situation about the reason for the control system and hence the real intentions of the company. It is human nature that in ambiguous situations, people are more inclined to interpret the situation in more negative rather than positive intentions. As such, employees will not give the company using a control system the benefit of the doubt and be more likely to conclude that the control system exists because the organisation does not trust its employees and therefore control is the ultimate purpose or an end in itself.

If trust however is so important to the performance of organisations, is having oversight over one’s workforce and being in control of important decisions then always a bad thing? Of course not. Control and trust can go together, but it is important to know that trust and control are not the same thing. Trust is good and control can be good, but only if used wisely. This implies understanding only control will not reveal trust and trust on its own will not promote optimal performance. To achieve this kind of balance requires a company culture that actively tries to promote insights into human nature and motivation and integrates those insights in the efforts of the organisation to make more transparent and monitoring systems acceptable to employees without damaging their intrinsic motivation to establish trusting relationship with the others and the organisation as a whole.

Trust is commonly defined as people’s willingness to be vulnerable to the actions of others, because they consider the intentions of the other to be honest and caring about interests of others

A company that is led by a leader who emphasises the need to continuously learn more about human motivation to improve management efficiency in building work cultures that create innovation and a sustainable level of competitiveness is Huawei. Huawei is founded by Ren Zhengfei in 1987 in Shenzhen, China. In the meantime, the company has developed into one of the world leading telecom companies. The founder is someone who is fascinated by thinking about what drives humans and how these insights can be used to benefit Huawei in its aim to provide the best service and products to customers at a global level (Tao, De Cremer, & Chunbo, 2017). He does not shy away to use these insights to experiment with different incentive methods and leadership training sessions. Throughout these phases of experimentation, Ren Zhengfei has concluded that trust and control need to be aligned in terms of communication (what is the meaning and interpretation of the control system in place), so that both can be present at the same time.

Being in balance – in his view – thus means that control cannot be too present. As he noted last year when discussing the new Human Resources (HR) practices in Huawei: “As the company continues to grow, we need to improve our performance assessment methods. Need to harvest more crops within the boundaries of internal and external compliance. To achieve this, we need to strip out process checkpoints that are set because of lack of trust and we need to ask for fewer reports. The role of HQ is to provide support and service.” This idea rests on the assumption that too many checkpoints make that employees will feel that their worth of being an employee at Huawei is only considered within a metric framework in which humanity is slowly taken out of the equation.

Does this mean that Ren Zhengfei does not believe at all in the concept of control as part of the management system? Not at all. He very much does so, but in more sophisticated ways. His favorite way to reflect the need to pursue balance in any management activity and thus also in the strategy to build a trusting work climate is the fire place. In the fire place, flames represent the passion and energy employees bring with them in the company. According to Ren Zhengfei it is the ability of any good leader to unleash this human capital by relying and trusting on the motivations and ambitions of employees to do well. At the same time however, it is necessary that the flames are also contained and therefore a fire place is limited as well. The image of a restricting fire place suggests that leadership can be seen as delegating and giving freedom to employees which enhances employees’ experience of feeling trusted, but at the same time develop a control system that is guiding and prevents escalations that will negatively disrupt the work climate.

How does Huawei approach the establishment of such a balance in their daily management practices? In this process, the company considers three management pillars as important to building trust in a work setting where control systems are being used:

1. Give responsibility to employees

The old Chinese management style influenced by Confucian values, included a strong emphasis on respect for the existing hierarchy. The manager at the top made the decisions and in line with the idea that the older and more powerful manager also guides the others lower on the hierarchy as a father figure, he acted in a very hands-on way. However, in both the East and the West the idea has been embraced that a higher position on the hierarchical ladder cannot go together with a kind of micro-management style. Instead, the higher you are in the hierarchy the more you should delegate because this signals to employees that you trust them and willing to give them responsibility over the tasks and projects allocated. Or as Ren Zhengfei puts it: “We should set rules, and draw clear boundaries, but also leaving enough space in between the lines. That way we delegate more authority to our field teams.”

In addition, an increased sense of responsibility will also go together with a sense of ownership where employees will consider the task they are responsible for truly as their own. In this specific case, Ren Zhengfei very much emphasises the learning process involved in the act of taking responsibility. In his words: “Where the business happens, you have to let business managers take responsibility. That is the only way they will learn about their responsibility.” Such actions have strong motivational power and can thus be coordinated by incorporating insights from human nature into your management system. In Huawei this idea of making employees responsible for the tasks they do in order to encourage ownership has been translated into the saying that within Huawei any talented employee can become an entrepreneur within the family of Huawei.

2. Fairness of the outcomes earned

Huawei as an organisation is run with the belief that innovation is best achieved by creating a trusting work climate to satisfy the entrepreneurial motives of the employees. At the same time, the company aims to establish the benefits of such a trust climate within the context of a guided management system. This dual approach means that this type of balance between trust and control can only be sustained if the resulting outcomes and achievements are regarded as fair by the employees.

Building a fair work culture is however not an easy thing to do in the technology industry. In fact, it has been suggested that work cultures in this specific type of industry is less motivated to build inclusive relationships where the job and its outcomes are experienced as fair (De Cremer, 2018). Corroborating this view, a recent survey by the Kapor Center for Social Impact and Harris Poll showed that a significant number of employees working in technology companies raised the issues of unfair practices as one of the major sources of stress and low job satisfaction (The Guardian, 2017). Ren Zhengfei has tried to promote feelings of fairness in several ways.

When control systems are implemented, employees may indeed cooperate but not because they intrinsically trust the others but more because of an induced extrinsic type of trust.

First of all, by enhancing the sense of entrepreneurship among Huawei employees (especially the knowledge workers), Ren Zhengfei aims to speak to the sense of ownership of these employees. Specifically, Huawei adopts the assumption that when the most creative employees are given freedom and responsibility to pursue their projects like entrepreneurs, that the outcomes they will receive will also be experienced as more fair. Indeed it is the belief of Huawei that the rewards, salaries and bonuses employees receive as a function of how successful they are as an entrepreneur within the company make that these outcomes are perceived as more legitimate and hence fairer. To achieve this, Huawei has designed a system in which the most qualified employees are provided equal access to a pool of project opportunities that could earn them higher salaries, bonuses and promotions. Of course, the distribution of outcomes and rewards will not be equally, as it will depend on the performances of those employees, which corresponds with the notion of equity. The harder you work the more you can earn. It is important to note here that working overtime is only rewarded extra if the work addresses directly the needs of their customers. Projects in overtime that do not reveal direct positive consequences for the welfare of the customers are not paid out extra (De Cremer & Tao, 2015a).

The importance of equity in keeping employees motivated and willing to perceive the organisation as fair was demonstrated by the decision of Dan Price, CEO and majority owner of Gravity Payments, to increase the minimum salary for all his employees to $70 000. Initially everyone at the company was a big fan of this enlightened capitalism. Nevertheless after a while, some of the most skilled employees left the company as they did not consider this policy to be fair – they resented the fact that the highest raises seemed go to the ones who showed the least skills. Huawei is very cautious to avoid such a Dan Price scenario and therefore provides a strong sense of ownership among those employees acting like entrepreneurs, so they also feel (at least partly) responsible for what they earn.

Second, Ren Zhengfei perceives Huawei as an organisation wealth can be shared with everyone who contributes significantly to the existence and growth of the company. It is an implicit assumption that Huawei belongs to everyone in the company and that therefore Ren Zhengfei expects everyone to act like bosses themselves. If this can be achieved then Huawei employees will maintain a culture of great entrepreneurial spirit, allowing the company to stay motivated to learn and innovate where possible. An interesting consequence is that by building Huawei as an employee-owned company (Ren Zhengfei owns 1.4% of its shares – and he is currently thinking about reducing this percentage even further – whereas the rest is owned by the Chinese employees (not foreign employees!)) a consequence is clearly that employees will experience even a stronger sense of ownership. The result of such personal ownership management strategy is that employees will feel responsible by making them see their own efforts as the primary input into the rewards they receive and therefore are likely to perceive almost any reward as a fair one. This way of working also makes that existing gaps between what employees earn are more easily acceptable. Gaps that exist in terms of wealth distribution are often a source of fairness concerns. If this gap becomes too big, people become less motivated and will search for ways to beat and cheat the system. As noted earlier, the fact that the relationship between feeling responsible for their own salary (to some extent) and the knowledge that the founder shares most of the wealth generated by the company among its employees will enhance a feeling of fairness based on input-output logic.

3. Leadership

Work cultures where too many control systems are in place leave no room for leadership to have any influence. This is an important fact to take into account because one of the main key factors of leadership is that leaders are able to influence others, preferably in ways that motivates and inspires them to contribute to the welfare and interests of the collective. Huawei has always been keen on having a clear way of leading (see De Cremer & Tian, 2015b) so, this is another reason why the company has shied away from being too controlling and leaving more room to delegate and hence allow trust to be formed. In fact a recent trend in Huawei is that managers in Huawei need to be more able to take the perspectives of the ones they lead (to understand their needs and as such respond to those needs) and be compassionate (to deal with failures and learn from it; De Cremer & Tian, 2017).

Leadership can be seen as delegating and giving freedom to employees which enhances employees’ experience of feeling trusted, but at the same time develop a control system that is guiding and prevents escalations that will negatively disrupt the work climate

Is the focus on these kind of leadership styles a simple fat where Huawei joins the massess to deliver what the public wants? Knowing Ren Zhengfei’s passion to rely on science and using experimental approaches towards working with human needs and emotions (De Cremer & Tian, 2016), the choice for this leadership style is evidence-based. Indeed research shows that being willing to be compassionate towards the concerns of others and hence taking their perspective releases the neurochemical oxytocin, makes that more trusting relationships are formed. Specifically, neuroimaging research shows that compassionate leaders motivate employees to trust their bosses (Boyatzis, Passarelli, Koenig, Lowe, Mathew, Stoller, & Phillips, 2012) and increase loyalty among their employees (Qiu, Qualls, W., Bohlmann, & Rupp, 2009). One way to increase perspective towards the working conditions of employees is to ensure that the company not only looks at what you eventually achieve but also evaluates how you arrived at the outcome. In the words of Ren Zhengfei when he talked about the change in the Human Resource assessment system at Huawei: “HR is going to transition to a trust-based assessment system. We will look at how many crops have been harvested, but also how right the soil has become.” How many crops harvested refers to what you achieved and will account for 70% of your assessment, whereas the right soil will refer to how you work and in what kind of work culture and this will account for 30%. With respect to the latter criteria (the “how”), it is important to note that Ren Zhengfei does not simply focus on whether the employee complies with ethical standards and practices, because that would still be a controlled way of compliance. No, for that 30% he looks at the supervisors and those in leadership positions to ensure that they create the right conditions for employees to do well in the right manner. As such, leadership skills and being compassionate and supportive towards your subordinates is a crucial condition to maintain the delicate balance between trust and control.

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About the Authors

David De Cremer is provost chair, professor of management and organisation at National University of Singapore (NUS) Business School, a fellow at the University of Cambridge, and a fellow at the Hoover Institution at Stanford University. Before moving to NUS he was the KPMG endowed professor in management studies at Cambridge Judge Business School. He has published over more than 250 academic articles and book chapters and is the author of the book Pro-active Leader: How to overcome procrastination and be a bold decision-maker and and co-author of “Huawei: Leadership, culture and connectivity.”

 Jakob Stollberger is assistant professor at Aston Business School, Aston University, UK. Jakob’s research examines the interplay between leadership, emotions, and innovation at work. He also works as a practitioner consulting businesses in these areas. Prior to joining Aston Business School, Jakob held research positions at Judge Business School, University of Cambridge and the University of Birmingham.

 

How Can Loans Help Those With a Bad Credit History

Document bad credit with sign we can help.

Having a bad credit history can impact significantly on your lifestyle. It means that you will be unlikely to be accepted for a loan and if you are, you will end up paying large amounts of interest as providers will consider that you are a bad risk. There are companies who specialise in loans for those with bad credit but charges are high.

A lender such as Citrus Loans wants to see that you can maintain regular payments on an amount of credit and that there is a history of you doing that. If you have defaulted in the past or if you have been taken to court, it is important that you work to repair your credit history.

It is important when taking out a loan that you consider your budget and consider any changes that are likely over the course of the loan.

This can be done by taking out a loan. Even at a high rate of interest, it would be worth taking out a small loan and paying it back over a short period of time. That will show on your credit file and encourage the lenders to consider you as less of a ‘bad risk’. It is not wise to take out a large loan at this stage as payments are likely to be high and you would not want to default again. It is important when taking out a loan that you consider your budget and consider any changes that are likely over the course of the loan. Is your job likely to change or are your outgoings likely to increase? Budgeting is important as you do not wish to default again.

If you are a member of a Credit Union, it may be worth approaching them as they tend to offer a more favourable rate of interest on their loans or if you are in no hurry, join a Credit Union and take out a loan with them at a later stage.

Credit Cards are often easy to come by and people use a credit card to help with their credit score. It works in much the same way as a loan in that you are effectively borrowing money and then paying it back so if you were to use your credit card during the month and then pay it back at the end of the month, you are again building evidence of your ability to handle credit. It is always advisable to set up a direct debit with your bank which will allow payment of the card in full every month as it can be difficult to remember if you have to do it manually.

A loan of any type, paid according to the terms agreed can reassure lenders that you are a risk worth taking.

In summary, a loan of any type, paid according to the terms agreed can reassure lenders that you are a risk worth taking. By taking out a loan, you are offering that evidence. It may take more than one loan which is why credit cards can also be a useful tool. Remember though, taking out too much credit can have an adverse effect as the lender assumes that you will not be able to afford more. Every time you apply for a loan, the lender will run a credit check and too many credit checks can be problematic and reduce your overall credit score so guard against applying to too many lenders at the one time.

What You Must Know Before Playing a Free Spins No Deposit Casino Game

Free Spins bouns, slot machine games banner, gambling casino games, slot machine illustration with text Free Spins, vector illustration

Online casinos are hugely popular these days, providing a convenient, low stress and fun way to play your favorite slots or table games. Many online casinos offer a free play/practice option on certain titles for those who like to try things out, but of course these never offer any chance of winning actual cash. That’s where the sites which offer free spins like no deposit online baccarat which have the chance of being converted into real cash, without you needing to make the [usually compulsory] upfront cash deposit, come into their own.

These are not always as easy to find as they used to be, but the chance to get something for nothing is always worth hunting down. Of course, there are a few restrictions, so if you are interested in playing a no wager free spins casino game take a look at the following things you should know before you get started.

Not all online casinos have the same rules and restrictions in place, but what is mentioned here is pretty typical. We recommend you read the terms and conditions of a particular casino before joining.

 

Why free spins-no deposit offers are made

Ultimately these offers are all about capturing new members, and with so much competition around offering something free with no upfront cash commitment is attractive and eye-catching.

 

You must be completely new to the site

Even if you know for sure you have never tried to register with a particular online casino you could still find your application rejected due to it being considered a dupe account. Before you complain take a moment to check if you have accidentally broken the rules. For example – being a member of another online casino in the same corporate group would make you ineligible for an offer like this, as would someone else in your household being registered already. Neither of these things are obvious, but both disqualify you from joining.

 

You will be checked out

Online casinos work hard to make sure players who are ineligible to gamble due to age are excluded, so applicants will be asked to verify their age, usually before the first withdrawal is approved. Players should be of legal age to wager in the country they are a resident of, and everyone will need to complete a registration form which includes sharing their mobile telephone number.

 

Free spin options

Some sites allow players to choose which slots they play, others limit this to a couple of particular games. Watch out for time limits too, as most free spin rewards have quite a short shelf life once awarded.

 

The long road to cashing out

Rare sites allow layers to withdraw winnings made from free spins immediately and without penalty, but most impose various rules. The most common thing to come across concerns ‘wagering’ – which could mean anything won must be wagered through the system say 30 times before it can be taken out. Wagers on slots often count as 100% value, but other games may count for less, or even nothing.

 

Free spins with no deposit are fun, but be sure you understand how they work on a site to get the most out of them.

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How To Expand Into Fast-Growing, Mobile Optimised Emerging Markets – Fast

A conversation with Andre de Wet CEO and Founder, 2ndBase

From start-ups to different heights of business, 2ndBase helps the world’s top tech companies expand into emerging markets. As they work on the premise that you know your business and they know the right partners, local customs and how best to optimise, 2ndBase helps and introduces all of your team to your target market. Today we had a chance to talk with the company’s CEO and Founder – Mr. Andre De Wet who shared with us how he pulls 2ndBase and the whole team together and how they continue to offer wide-ranging relevant expertise from Africa to Asia and Latin America.

Good day, Mr. De Wet! 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 a senior C-level executive and seasoned entrepreneur like you?

Hi and thanks for the kind invite to share some of what I do and how our business works.

As I work across timelines my day starts pretty early as I’m either scheduled for a call with one of our clients in Asia or getting back to a client in the USA be that on email or via a similar style call.

Needing to be at the top of my game in this way I also make sure I plan my diet well and enjoy getting in some exercise in the morning. Having the opportunity to live in Cape Town lends itself to a wide range of outdoor activities I like taking part in.

South East Asia is the world’s fastest growing internet market with 3.8 million new users online monthly. And this is all via mobile access.

Prior to 2ndBase, you have held senior management roles in other companies. How was the transition to 2ndBase? What do you consider the most significant among your career highlights?

Pulling 2ndBase and the team in it together, has been one of the more rewarding endeavours I’ve undertook. I worked with a big part of the team on a specific project where we’d helped a fast growing SVOD service expand into 28 countries over a 14-month period. This has given us the basis off of which we’d build 2ndBase Inc.

The team and I have grown a wide range of business from start-up through to different levels of exits, be they liquidity events, next rounds funding or even sale of companies.

On career highlights I’d say my biggest was taking the PriceCheck app to market in such a way that we’d delivered exactly what an end user needed. This was picked up internationally and we were selected as the best mobile app in 2013, beating 150 000 other entrants.

As CEO of 2ndBase, you help venture-capital-backed tech companies break into Asia, Africa and Latin America. What’s interesting about these markets? How significant are the opportunities these emerging markets provide?

Probably the biggest drawcard for me and the team in these territories is the size of the prize, the width of opportunity and the massive wins one can get. What’s so massively differentiating is how these are mobile-only countries. One needs to move away from thinking desktop and then, mobile. They have leapfrogged the former and gone right into massive mobile usage.

Let me give you an example, in Myanmar in 2013 mobile penetration was between 1%-5%, in 2017 that figure was 86%, of which 65% are smartphone users. In a country of 53 million people this is a massive opportunity. At some point they were growing by a million users per month. And honestly, who in mobile is thinking about Myanmar right now? This is just one example of a multitude of emerging market economies and as such, someone is leaving a lot of money on the table.

If you’re a mobile app platform, have you even thought of South East Asia (SEA)? Let alone a seemingly obscure country like Myanmar.

And let’s expand this topic into just the bigger SEA. It covers 10 countries (outside of China) and makes up a population of 635 million. Active mobile users that offer a large growing middle class with a collective GDP of $2.5 trillion. It’s the world’s fastest growing internet market with 3.8 million new users online monthly. And this is all via mobile access.

Bringing Africa into the picture, one has countries like Nigeria with more than a 100 million users on mobile – and the average age across 180 million people is under 25 years old (that’s opportunity right there). Yet, as much as they are always mentioned, no one talks about other countries like Ethiopia, same market size but with an annual growth rate that averaged 5.85 percent from 1981 until 2017. Just last year it was over 10%. This is massive and spells out opportunity in big neon letters.

This is where companies like 2ndBase come in and bring their experience, their many years of living and building businesses in these countries to assist and make your expansion not only worthwhile, but also successful and “fast”.

In your experience working with companies in their business set up and expansion, what have been the greatest challenges you dealt with?

I’d say, probably the preconceived ideas and a need for companies to want to do things “their way”. Every new country is different, has other ways of doing things, has its unique challenges and local habits and things users like.

There are multiple examples of how Uber has been nearly completely removed out of Asia and SEA with Go-Jek and Grab replacing them completely.

In Africa, European e-commerce companies tried to bring their model to the continent with, shall we say, less than stellar results.

One has to take the time, and spend the money to find out what works; what works locally, how to correctly approach the new market and how to do it right.

This is where companies like 2ndBase come in and bring their experience, their many years of living and building businesses in these countries to assist and make your expansion not only worthwhile, but also successful and “fast”.

Now more than ever, companies are expanding their business overseas as a way to keep their business growing. What are the key considerations for businesses wishing to expand in emerging markets? What should they pay close attention to in order to make their expansion endeavour a success?

As per the question above, do your research, use a company that understands the local lay of the land, find help. As critically important as it is to scale fast, it’s just as important to make sure one does it right. And it’s not difficult, there are specialists around and they charge a fraction of what the loss of opportunity cost might be or the cost of doing it wrong.

Attention to local customs, local “what works”, and on the more boring side make sure you have all your regulations, admin, tax and the like sorted. Companies and especially exciting new platforms can explode very fast. Take up can be massive, very quickly. Make sure you’re prepared for this.

Again, not knowing how, should not be a reason not to expand, just as one has someone at home to do the things you aren’t a specialist in, this help exists when expanding.

In first world countries things are easier, more people have credit cards or ways to pay, data is cheap etc. But if one looks at pure opportunity and where the world is going, emerging markets are where the next unicorns will come from.

In terms of your offerings, what are your services that are mostly in-demand for businesses seeking to expand in Asia, Africa and Latin America? What have been the remarkable achievements and best feedback you have received?

That’s a pretty wide question as each client is different with different challenges. However, what comes up time and time again is our network of contacts and being able to get the seemingly difficult issues or intros done well, effectively and quickly.

Helping a VC backs media company expand into 28 countries in a 14-month period with the team that makes up 2ndBase is probably our most remarkable achievement to date. We even got one country going from 1st employee to business signed and live with a Telco in 8 weeks. That is not the norm but shows what can be achieved if one uses the right team.

With your impressive experience and achievements in the mobile, e-commerce related fields, do you think emerging markets offer more potential and growth opportunities for digital businesses comparing to more established markets?

I’m going to answer that question in two ways. Firstly, in first world countries things are easier, more people have credit cards or ways to pay, data is cheap etc. But if one looks at pure opportunity and where the world is going, emerging markets are where the next unicorns will come from.

Another real consideration is the ease of growth. In the greater Silicon Valley there are something like 70 000 VC backed businesses – that’s fishing in a very small pond to try and be successful. If one took some of that VC money and expanded into 4 or 5 markets in SEA or similar, it will get you a large new client base, a real reason to become an international brand and ultimately makes you more investable for that next raise or liquidity event.

On a lighter note, within the span of your professional career, what are the most significant things you have discovered/learned? What would be your advice for those aspiring to become a successful entrepreneur or C-level executive in the future?

Ah, the fun stuff. So, I’m someone that likes to take on new challenges both in business and also in my private life. Just last year I crossed a part of the Himalayas on motorbike over a 14-day period. And the year before, I set up a Guinness world record in Kitesurfing.

I mention these as they encapsulate the message or advice I’ve learnt, being that the only thing that holds you back is in your mind. You can truly achieve anything you decide to do. Or at least you can have the most fun trying to get it done.

Please remember that you only have one shot at this thing called life – you might just as well make it count. So, make each day a new reason to do or try something new, to wake up and think, ok, what’s today going to bring.

As critically important as it is to scale fast, it’s just as important to make sure one does it right.

How do you make sure that you maintain a healthy lifestyle at and off work? What’s your daily grind?

As mentioned earlier, I try and get an early hour’s workout in, 3-4 times a week. I do this early before my day starts. It also allows me to get my thinking in order and my day planned.

I don’t do coffee at all in the morning and might only have a cup in the early afternoon.

On weekends you’ll either find me on a motorbike out discovering the roads and countryside surrounding Cape Town or on a kiteboard or surfboard in the ocean. All these allow for the best digital switch off.

What does success mean to you? What are your plans/goals in the next 3 to 5 years?

This changes so frequently, but I’d say it’s being able to do what one enjoys every day. Be it growing your own business or company, helping another do the same, being a valued mentor for someone starting their new business idea, or just finding time to sit with a child or young person and opening them up to the delight of opportunity.

Over the next 3 to 5 years I plan to build 2ndBase into one of the top emerging market specialists and during that time find a handful of really ground-breaking new ideas that we become a fundamental part of taking to market.

Oh, and also to go and find some really interesting and new places to go and ride motorbikes.

One of my favourite sayings is, “Let’s…so, let’s go do things they’ll write books about.”

Thank you very much, Mr De Wet. It’s a pleasure speaking with you.

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About the Interviewee

As CEO and founder of 2ndBase Inc, Cape Town-based André de Wet helps companies grow and launch their businesses internationally.

He has a passion for everything digital and how it can, does and will change our lives – and how to use this to aggressively grow businesses.

Uber: Pressure to Perform

By John Colley

News that Uber’s 2018 third quarter losses have widened to $1.1 Bn with slowing sales growth, are signs of a much more difficult future for ride hailing. The concept of low cost, easily summonsed, responsive taxi services provided by part time car owner drivers is attractive to drivers, customers, governments, investors and even economists alike. Or is it? The reality is starting to appear much more doubtful and suggests interested parties are going to be significantly less happy.

Uber CEO Dara Khosrowshahi has the almost impossible task of steering the privately held firm towards profitability, whilst at the same time maintaining user growth. Rarely has a business consistently managed to lose so much money for so long. The promised 2019 Initial Public Placing (IPO) means the current performance has to significantly improve and begin to offer the prospect of profits if new investors are to be attracted. Current investors are keen to take profits sooner rather than later and have concerns that stock markets are becoming increasingly volatile which may delay the IPO for a protracted period. Investors may also have other concerns as the ride hailing business model may not be capable of profit delivery. User growth is slowing and losses will top $8Bn over the last two years.

 

Uber’s Model

The business model relies on a responsive cheap service summonsed by an app. The intention is to create network effects so that the more drivers the greater the benefit to customers through increased responsiveness. The more customers then drivers gain through more fares and less time waiting for a fare. The theory suggests, and indeed investors hope, that this is a ‘winner takes all’ market. To ‘pump prime’ this model Uber offers incentives to both drivers and customers to attract them from other taxi companies and forms of transport. The weakness in the model is that the app has no proprietary software and so can easily be copied. There are also low switching costs for both drivers, many of whom also work for other taxi businesses, and customers who may have more than one taxi hailing app. There is also a problem with the proposed sustainable aspects of the ride hailing model in allowing ride sharing and avoiding the need for car ownership by customers.

 

Uber may claim to be encouraging use of hybrid and electric vehicles but the proportion of trips by sustainable transport looks disappointingly small.  

Good For The Environment?

Firstly recent research (reported in the Economist 3rd November, 2018) finds that half of all Uber trips directly displace journeys by public transport or walking. In effect half the journeys are creating pollution, congestion and road accidents. Taxi hailing scarcely benefits the shared economy as it is actively displacing shared public transport. Uber may claim to be encouraging use of hybrid and electric vehicles but the proportion of trips by sustainable transport looks disappointingly small. Cities such as New York or London which has 40,000 Uber drivers are considering restricting new taxi driver licences. Worse still the average Uber driver travels 2.8 miles additionally for each paid mile. The number of taxi drivers in London has doubled in 4 years to 120,000 in 2017 and rising. Sooner or later governments will have to start restricting these services.

 

Stakeholder Benefits?

How about the drivers who are receiving additional income? The problem is that they have been lured into this business with highly subsidised incentives from Uber. However these are are now being withdrawn. Uber drivers are striking in a number of cities due to wage cuts in an attempt to make the firm profitable and in preparation for the looming public offering of the shares. In 2017 Uber lost $4.5Bn; in 2018 it is likely they will lose between $3 and $4Bn. This is unlikely to encourage new investors when the investment banks promoting the sale of the shares are attempting to justify a $120Bn price tag.

Not only will wages have to decrease but prices will have to increase. This is happening quietly in many markets. There has also been the offer of subscriptions to avoid surge pricing. The problem now is that there is competition running similar models in most cities. Higher prices will simply push customers to other ride hailing competitors. Low switching costs can work for and against a business like Uber. Incentives attract customers and drivers rapidly with meteoric growth, whilst both can move rapidly elsewhere if conditions appear more attractive. From zero Uber attracted over 40,000 drivers in London in 4 years. Similarly over that period they created 3.5 Mn customers on the basis of Uber’s own figures. Easy come, easy go! The model is easily replicated therefore anyone willing to invest significant money in attracting drivers and customers is likely to experience transitory success. To make matters worse the battleground is each city so a competitor only needs to select a few cities to take on Uber.

In effect Uber is simply offering low prices and high wages in a highly commoditised market together with substantial advertising. All funded by the shareholders. It could be argued that anyone doing this in commoditised markets will attract significant trade, and indeed lose it once prices are increased. The model may do little more than pass wealth from investors to drivers and customers.

The subscription service to avoid surge pricing is aimed at increasing switching costs. This is intended to avoid the haemorrhage of customers who when faced with surge pricing go to a competitor, possibly never to return. The idea of surge pricing is to equate supply and demand at times when demand exceeds supply such as large events. The surge pricing translates to higher driver wages which is intended to incentivise increased supply. Hence the model is the darling of economists. However if competitors do not adopt a similar approach then customers either pay the premium and grumble, or they exit to a competitor. 

 

Higher prices will simply push customers to other ride hailing competitors. Low switching costs can work for and against a business like Uber.

Investors

Investors have contributed $22Bn to Uber, a significant element is Saudi Arabian money via the Japanese SoftBank. Much of it has been used to subsidise driver wages and customer fares to kick start network effects. How many customers and drivers will stay? What is Uber really worth? Ironically SoftBank is also bank rolling competitors such as Lyft, Ola, Didi Chuxing and Grab. Clearly they have been trying to resolve some of the wars of attrition which are destroying shareholder funds by distributing to drivers and customers worldwide in the form of incentives. Uber has pulled out of China in favour of Didi Chuxing, and South East Asia in favour of Grab, they have also exited Russia. However the war still goes on in India in which Ola and Uber share the market roughly equally. Large amounts of money on both sides are being ‘invested’ in a war of attrition. At some stage a truce will need to occur.

 

Diversification

As growth in the taxi hailing business diminishes then to justify the bankers valuation Uber has to find more early stage investments such as food delivery, shared electric bikes and scooters, and autonomous vehicles. These could justify raising money and distract attention from the inability of the taxi ride hailing business to be profitable. One has the impression this is not going to end well for investors. 

 

Autonomous Vehicles

Uber’s development of autonomous vehicles is a major diversification as Uber may know about providing taxi services but little about making and controlling cars. Several car manufacturers plus Google are developing similar technology. Why does Uber need to compete here rather than form a partnership? It will be a number of years before the driver no longer has to supervise the technology and only at that point does it become viable. In effect then Uber will be replacing cheap drivers who loan their vehicles with dedicated expensive vehicles which will need financing. It is really not clear how this will play out as an industry or whether Uber will be a prime beneficiary from autonomous vehicles.

 

In effect we are seeing more ‘development opportunities’ becoming the focus of investment to obscure the reality that the taxi hailing model may never make money.

UberEats

Home delivery of takeaway food appears to be the next attritional battle approaching the investors. This requires three way network effects all of which may need some initial incentives. Takeaway food outlets want to be listed on the website to provide more trade, customers need to be attracted to visit the website wanting responsive and reasonably priced delivery, and delivery people are required wanting plenty of work and remuneration. In the U.K. UberEats has around 10% of this market with Just Eat having 80%. Uber may need to ‘invest’ substantially to win this war. Indeed it may be more economical for them to buy Just Eat which is listed and in the FTSE100 so far from being a bargain. It is reported that Uber are negotiating to buy the loss making Deliveroo for in excess of $2Bn. Deliveroo has around 10% also of the U.K. market and again has a model which is far from proven. It could well be another model which does not work when profits have to be made.

The IPO is being brought forward apparently due to increasing market turbulence. However the longer the IPO is deferred the more progress on loss reduction will be expected and that is looking difficult. In effect we are seeing more ‘development opportunities’ becoming the focus of investment to obscure the reality that the taxi hailing model may never make money. Indeed the taxi industry has always been low margin and that situation looks likely to continue.

Uber has historically been highly secretive with its data, releasing little to the public. An IPO will bring an end to this approach as substantial data has to be released. At least we will then know the true position of Uber. 

When profits are necessary the reality of ride sharing is far less attractive to the various stakeholders than originally envisaged. Driver incentives are ending and customer fares are increasing. Network effects with low switching costs may not be the recipe for success many hoped. Disappointment is only set to intensify once the model needs to make money in a highly competitive industry traditionally known for low margins and little profit.

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About the Author

John Colley is Professor of Practice in Strategy and Leadership at Warwick Business School where he is also an Associate Dean for the MBA. Following an early career in Finance, he was Group Managing Director of a FTSE 100 business and then Executive Managing Director of a French CAC40 business. Currently, he chairs two businesses and advises private businesses at board level. Until recently he chaired a listed PLC.

3 Things Your Start-Up Might Have Overlooked

There are so many things to consider when starting a business that it can be difficult to remember everything and execute everything successfully. There are the basics, such as the product or service that you want to sell and how you will differentiate yourself from competitors. There should also be the method you will attempt to sell this to customers – will it be through a stall, through direct marketing, huge PR campaigns, social media, print ads, or even just word of mouth. You’ll probably also have considered how much money you need to make, how many sales you need to make, and how you will juggle finances and ensure you profit from your business and that you are able to grow the business and scale upwards. But what things might you have overlooked?

 

Insurance

When you’re running a business, the responsibility for everything falls onto your shoulders. Ignorance is never an excuse, so everything required for the business should be considered by you, and you should do your due diligence. One of these will be insurance. As professional liability at Next-Insurance.com shows us, it’s not just the obvious initial accidents that you could be liable for. If a plumber does a job that needs the pipes to be redone a month later, general liability insurance won’t cover it. So you’ll need an insurer that works to protect your reputation.  

 

Training

Industries change all the time and you might not think that as you’re running the day-to-day of your business that you have time to keep up to date with every change in the industry. But this is important. Staying on top of everything you could possibly know about your industry not only helps you to be seen as an expert in your field, but it also gives you content for social media and your website and helps reassure customers that you are the authority on a topic. Ensuring any staff you have are equipped with the latest training is also important and can often be overlooked.

 

Image source: Pixabay

Partnerships

Businesses don’t have to work solo and, often, people get into a routine and keep their business ticking over without really considering what it could mean to expand and partner with others. Partnerships are crucial for a business in order to improve your network, expand your field of potential word-of-mouth referrals and look to scale your business up. Working together with others isn’t just for small businesses – larger corporations often merge and share resources and information. Others just tie together similar products or services that could complement one another without stealing customers.

 

Most businesses will have overlooked something. Some might not update social media often enough, others might not have an accountant’s eye to protect their finances properly, and some might just not bother with some new technology. But there are several areas where overlooking things can lead to business failure. Ensure you have the correct insurance, ensure you have the adequate up-to-press training, and ensure that you are never isolating yourself as a business.

 

Feature image source: Pixabay

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