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Is Russia Risky? Two Top Investors Disagree(March 30)
East Capital says its no worse than other !eveloping econo"ies#
Carnegie $on!er thinks its "ore volatile
By Kevin Crowley
Europe's two best-performing equity fund managers over the past decade invest in
Russia from offices three blocks apart in tockholm! "heir assessments of the
riskiness of Russian stocks are miles apart!
#eter Elam $akansson runs East Capital %roup's Russia &und with ()!* billion
+,!. billion/ in assets! 0f you had invested ,)1111 in the fund )1 years ago it
would have been worth ,*..11 as of 2ar! )3! "hat return an average of 4 percent
annually makes it the best-performing European stock fund that has more than
,311 million of assets according to 2orningstar! +25R6/
"he second-best performer was Carnegie &onder's Russia fund run by &redrik
Colliander! 7 ,)1111 investment in Colliander's fund )1 years ago would be worth
,.1.118a percent annuali9ed return! "he same ,)1111 investment in the
tandard : #oor's 311-stock inde; in 11) would now be worth ,)*11!
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those in rival economies still an improvement from current levels! A"he present
government has its own interests messing with the economy in so-called strategic
sectorsA such as oil and gas says Colliander ?. who has managed Carnegie's ,?
million Russian fund since 111! A0t's Russia risk!A
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%ow to Turn &tock &peculators into Investors
Tweaking circuit 'reakers or !e"an!ing urther tra!ing !isclosures
wont take the casino out o all &treet# Instea!* pu'lic stock
ownership shoul! 'e treate! "ore like a private invest"ent
By %reg Blonder
0magine opening a bakery with your cousins! Fou work )-hour days to build a loyal
following of bread-and-pastry connoisseurs8only to discover that cousin Goey is
treating his partnership shares like a roulette wheel! $e pulls out cash when the
bakery is under stress instead of pulling together with the family to save the
business! $e pledges his shares to a competitor to buy a boat! "hen Goey
repurchases them in time to vote cousin Eddie out of the kitchen!
6o one in their right mind would tolerate this kind of behavior even from your
favorite aunt's son! But it's standard operating procedure in the public stock
market where far too many investors behave like cousin Goey caring more about
lining their own pockets than building valuable companies!
$ow can we turn speculators back into investors
"he wrong way is to impose additional market circuit breakers as was
recommended last month by the A&lash CrashA panel of the @!! Commodity
&utures "rading Commission and the ecurities and E;change Commission! "he
same goes for further trading-disclosure rules! 7nd bonus restrictions and salary
caps! "hese treat symptoms not the root cause which is an imbalance between
stockholder and company financial-value systems! "he solution can better be
secured by treating public stock ownership more like a private investment!
Companies erve "hree Hital 2asters
7ll companies serve three masters= their investors their customers and their
employees! 7ll are essential in their own way! Dithout customers you have no
revenue! Dithout employees there are no products or future profits! Dithout
shareholders there's no capital or liquidity!
Dithout a doubt private shareholders deserve a seat at the table! "heir cash
e;pertise and patience provide companies with the time and resources to succeed!
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0n the last few decades however the period for which the average public
stockholder hangs on to shares has dropped from around seven years to Iust a few
months! ike Goey these AinvestorsA aren't loyal to the company its employees or
its customers! "hey care only about its stock price! "hey seek all the gain with none
of the responsibilities! Dhy should they dominate our economic system
Even after the financial system meltdown 0 still believe in open markets! But as a
matter of public policy and wise economic stewardship there is no reason to treat
drive-by investors any better say than we treat gamblers at the track! De must
encourage investors to carefully evaluate the long-term prospects of a company8
before they invest8so the stock price will reflect its true enterprise value uncolored
by speculation!
0ssue ong-"erm and peculative tock
$ow Create two classes of shares for all listed public companies! Class 7 shares
would have to be held for at least one year after purchase! Class B shares could be
traded freely!
5nly Class 7 shares would qualify for long-term capital gains treatment! +%ranted
active traders in B shares would rarely qualify for long-term gains but this
distinction would mark a bright line between the classes!/ ince market cycles often
run for five years and companies value stable financing during hard times 0'd
prorate the long-term capital gains ta; from 1 percent +at one year/ to 3 percent +if
held five years or longer/!
econd only Class 7 shares would qualify to receive dividends! 0f you're not
investing in the long-term health of a company you don't deserve a share of its
long-term accumulated wealth!
"hird only Class 7 shares could vote!
Drite 5ff ABA osses as %amblers 2ust
&inally Class B capital losses would be treated as gambling debts are8deductible
only in the current year and only against other short-term Class B gains! 0f you are
rolling the dice on stocks more frequently than once a year you are gambling with
the shares not investing in the strength of the 7merican economy!
%iven today's modern financial platforms the e;change of stock into these twoclasses could be completed within three years! "he changes would be minor at best
if the body politic were willing! 7 simplified version of the e;isting Rule )?? applies
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to Class 7 restricted stock! 7nd with the EC's universal cost-basis tracking
mandate +section 41?3/ phasing in starting this year capital gains calculations will
be nearly automatic! 6ew listings might choose to issue only Class 7 shares letting
Class B shares wither away! 0 bet %oogle +%55%/8among other big-name initial
public offerings8would have Ioined the A7A camp!
0t's time for Goey to class up or get out of the kitchen!
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%ow +'out &haring ,our &heri?(+pril -)
Its calle! cross./uris!iction colla'oration* an! its saving local
govern"ents an! private organiations "illions 'y ena'ling the"
to share resources
By teve Rohleder
Gust think about it=
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domestic and international case studies interviews with public-sector leaders and
data analysis shows an urgency among government leadership to make changes
before the budget levee breaks! %overnments cannot shrink anymore ta; anymore
or dissolve! $ence they must collaborate!
0t's no surprise that ilicon Halley the center of technology innovation has been
taking a close look at this creative approach! 2ore than two do9en local
governments in the region have Ioined forces with 1 private-sector groups
corporate and nonprofit alike to identify specific issues that affect the quality of life
of local communities!
"ogether through such groups as Goint Henture ilicon Halley 6etwork
government and business are tackling comple; challenges from economic
development to emergency preparedness! 7nd they are working in unison to designmore comprehensive yet more affordable solutions by reducing duplication!
"he budget for all ilicon Halley local government entities totals more than ,)?
billion! 7 recent study indicated that a regional operation-center approach could
save ilicon Halley municipalities between ,31 million and ,311 million per year
8by 9eroing in on ,3 billion in spending where significant scope e;ists for cross-
Iurisdiction collaboration to deliver back-office functions such as human resources
information technology procurement and accounting!
Combining *)) Responses
7round the country are many e;amples of cross-Iurisdiction collaboration! By
coordinating or consolidating such services as police fire and transportation many
cities in California have significantly reduced wasteful duplication in recent years!
&or instance the City of Cupertino has contracted its police services to the anta
Clara County heriff's office saving millions of dollars annually! anta Clara County
sheriff officers patrol the City of Cupertino and respond to *)) emergencies toreduce ta;payer costs for police services!
0n 2orris County 6!G! five towns and boroughs8
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0n 5regon 2etro serves as a cross-Iurisdictional regional body for 3 cities in the
#ortland area with economic development transportation waste disposal and
environmental and cultural services!
0n %eorgia the cities of #reston and Deston merged with Debster County in 11*
to eliminate duplication of services and reduce costs to serve the public!
haring 0nfo "ech upport
7nother good e;ample can be found in 2ichigan where the cities of 7nn 7rbor and
Chelsea have signed a contract to share information technology resources! @nder
the agreement 7nn 7rbor will provide Chelsea with technology support for the
city's software and hardware management of its website and content and
technology for its local television station!
%overnment collaboration is also emerging in southeastern #ennsylvania where
five counties have Ioined forces in pursuit of a regional application for an energy-
efficiency and conservation block grant! "he counties aim to add partners and
programs over time form a regional institution to operate a loan fund support
clean technology assist local governments with energy efficiency plans and
measure the performance of public facilities!
2ost of us have been conditioned to believe that concentrating e;clusively oncutting and spending trade-offs within traditional local government frameworks is
the only way to trim government budget deficits! 0t's time for local county and
regional government leaders to build cross-Iurisdiction partnerships for more
effective governance at lower cost! 0f they do everyone will benefit!
teve Rohleder is group chief e;ecutive of7ccenture's$ealth : #ublic ervice
operating group responsible for 7ccenture's services globally to health-care
providers payers and plans as well as services to government and public-sector
clients in the defense public safety human services revenue postal customs and
finance and administration sectors! Rohleder is a speaker and industry
spokesperson who has testified before Congressional committees on such topics as
homeland security government reform and the need to create a
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hy %ewlett.1ackar! Di! the Right Thing
The co"puter "aker has revitalie! its 'oar! o !irectors# %1 !eserves
congratulations* not the harsh criticis" I&& has !ole! out
By Beverly Behan
&or nearly a decade $ewlett-#ackard +$#J/ has served as the poster child for
boardroom dysfunction! &rom director wiretaps to chief e;ecutive dismissals this
board's had it all! Can anyone disagree with the statement that $# should remake
its board of directors
0nstitutional hareholder ervices has condemned the computer maker's chairman
Ray ane and CE5 eo 7potheker for their roles in identifying new directors but in
fact both 0 and $#'s shareholders should embrace ane and 7potheker for having
the courage to tackle this nasty issue and for coming up with a terrific roster of new
board talent that includes 2eg Dhitman former CE5 of eBay +EB7F/ #at Russo
former CE5 of 7lcatel-ucent +7@/ and humeet BanerIi CE5 of Boo9 : Co!
0nstead 0 the country's foremost governance watchdog has recommended that
shareholders withhold their votes for $# directors to protest the Adirect
involvement of the company's CE5 in the selection process for new board
nominees!A 0's stance on $# is the classic Aforest for the treesA scenario!7potheker's hefty compensation package and the past dramas of the $# boardroom
led 0 to sound alarm bells over procedural irregularities that appear to amount to
little! 2eanwhile 0 lost sight of the bigger picture of what $#'s board has Iust
accomplished!
"he Red &lags
et's take a look at what all the fuss is about! 0 implies that 7potheker employed
the old imperial CE5 tactic of populating the boardroom with buddies! But did he
Certainly the director recruitment process at $# involved two red flags!
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&irst the board created an ad hoc committee to identify director candidates rather
than using the nominatinggovernance committee8to whom this Iob is assigned by
the company's charter and stock e;change rules8and gave 7potheker a seat on the
ad hoc committee! "his is indeed very unusual! "he 0 report indicates however
that $#'s nominatinggovernance committee vetted any prospective directorsrecommended by the ad hoc committee and director appointments required
approval of the full board! 7s such there appear to have been several checks and
balances in place on the CE5's involvement in the process and plenty of
opportunities for independent $# directors to vote down 7potheker's candidates!
econd one of the new $# directors sits on a board in Europe with 7potheker and
some of the other candidates had been customers of 7# +7#/ where 7potheker
worked from )* to 1)1! uch associations always raise independence concerns!
0 actually recommends however that shareholders all should vote in favor of thenew director nominees8likely viewing them as not only strong board candidates
but also sufficiently independent to warrant an endorsement! 0 recommends that
shareholders vote only against members of the board's nominating and governance
committee!
5verlooking the Real 0ssue
0 suggests there is something sinister about the fact that Athe new CE5 was
involved from the earliest stages of the process!A But in fact at the outset of director
recruitment activities it would be bad practice for a nominatinggovernance
committee not to gather the CE5's views about the skills and e;perience the board
needs! 2oreover if a CE5 has recommendations on well-qualified board candidates
who seem to fit the criteria for new directors why shouldn't he put their names
forward for consideration 0 however takes the e;treme position that
Apermitting the CE5 to influence the identification and appointment of outside
directors runs contrary to best practices!A
7s for the director recruitment process itself any CE5 constitutes a vital part of that
process despite the stock e;change safeguards8in place since the fall of Enron8
that transfer power for director recruitment to independent members of the board!
2ost directors will tell you that the CE5's character and capabilities are pivotal to
their decisions to accept board invitations=
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lacking in integrity 0 suggests that Aa CE5's participation in the appointment of
directorsA is problematic! 0n fact it is fundamental!
#erhaps the most troubling aspect of 0's position on $# however is that it
overlooks a larger shareholder issue= the fact that so many boards fail to revitali9e
themselves! ome become entrenched passively renominating directors year after
year regardless whether they say anything relevant in board meetings! $# on the
other hand has stepped up to this thorniest of issues by saying farewell to four
long-serving board members and fielding an impressive team of new directors that
should delight shareholders! "he company is essentially giving this board and its
new CE5 a fresh start aimed at overcoming this company's past boardroom
problems! &or that the $# board deserves a great deal of credit!
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hich CE2s et &houl!??(+pril 4)
Corporations are wise to prepare or 'u"py post.recession /ourneys#
Chie e5ecutives shoul! think Mother Teresa6not &un Tu
By
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about what organi9ations can and cannot doL it is about what organi9ations should
do! 6ormative means Ashould!A
ARiskA A0nnovationA and A%rowthA
$oward is choosing the right path forward as he8like every other global leader8
stands at a fork in the road! Dhen 0 ask $oward why he has committed to this
Iourney he responds with terms like AriskA AinnovationA and Agrowth!A 0 think of
the Einstein quote= ADe can't solve problems by using the same kind of thinking we
used when we created them!A
$oward has figured out that he cannot lead his organi9ation to sustainable success
in the )st century by himself! $oward recogni9es that he needs help to address
some of the biggest problems8intensifying global competition looming talentshortages dwindling natural resources ongoing geopolitical volatility8and he can
get that help by connecting with his employees value-chain partners governments
communities and even the environment through shared values!
6ot every CE5 is a $oward however8at least not yet! 2any leaders are not certain
we have confronted a fork in the road! "hey are not even sure they need to lead their
organi9ations on a Iourney!
Dhen some business leaders see any signs of improvement in the economy notesDorld Economic &orum presenter and innovation and technology e;pert
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largely disappeared on the heels of corporate scandals such as that of Enron as well
as the mortgage-underwriting shenanigans that helped spark the global economic
crisis!
/ De are in the grip of bad ideas false assumptions and wrong values! 0n other
words our thinking and 1th century habits of thought and behavior are getting in
the way of responding to the new realities that require attention in the )st century!
&or e;ample our 1th century focus on Ahow muchA +how much product can we
manufactureL how much revenue can we squee9e into this quarterL how much
market share can we take/ frequently obscures AhowA questions +how can we create
sustainable relationships with trading partnersL how can we forge deep and
meaningful connections with our peopleL how can we out-behave the competition/
"he AhowA questions more accurately frame what is necessary to thrive in the )st
century! "his grip marks a tough-but-common obstacle during times of change8one that requires leaders to distinguish between past and present as well as
between right and wrong!
>/ "he Ashould worldA contains intangibles that are difficult to measure! "his is true!
Fet $oward views this as a challenge rather than an insurmountable obstacle! 7
growing number of businesses are overcoming this measurement difficulty to the
delight of their shareholders! "he mantra that we can't manage what we can't
measure has echoed through companies for the past century! Fes the keycompetitive differentiators of the )st century8employee and organi9ational
behavior talent innovation ethical leadership and organi9ational culture among
other assets8are less tangible and more amorphous than say factories office
equipment internal controls C7%R Ebitda and compensation packages but that's
changing!
0n fact $owards and their companies are developing these measures on their
Iourney right now which 0 wrote about in A@pgrade to the $uman 5perating
ystem!A
0n addition to the progress of new and better cultural behavioral and human
metrics we see more and more e;amples and calls for $owardesque leadership
every day!
"he A"yrannyA of hort-"ermism
0n a 2archHarvard Business Reviewarticle entitled ACapitalism for the ong
"ermA
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pointing out that nearly .1 percent of all @!! equity trades are conducted by
AhyperspeedA traders many of whom hold stocks for Aonly a few seconds!A
E;ecutives Barton suggests might find new ways to filter input from shareholders
while giving more weight to those who favor a longer-term buy-and-hold approach!
#aul Bulcke CE5 of 6estlM +6E6/ an avowed Atrue believer in a principle-based
approach to businessA describes shared norms based on specific global principles as
Athe very ingredients we need to fuel development!A
Cisco +CC5/ CE5 Gohn Chambers asserts that Agreat companies have very strong
and great cultures! 7 huge part of a leadership role is to drive the culture of the
company and to reinforce it!A Chambers also credits his success as a leader with his
decision to leave behind the command-and-control model for a more collaborative
leadership mode one that he says Ameans 'letting go' by involving others in decisionmaking listening to ideas finding common ground and striking compromises!A
@nilever +@6/ CE5 #aul #olman has spoken out against the pressures of short-
termism by encouraging those he leads to measure success in terms of progress
rather than in terms of an end state!
7sked to identify his leadership models #olman passes over un "9u and
2achiavelli +embraced by the 6eutron Gacks and Chainsaw 7ls of yesterday/ in
favor of %andhi 6elson 2andela 2other "eresa andMan's Search for Meaning
author Hiktor &rankl! #olman quotes the
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here ill ,ou 7e in $ive ,ears?
I you !rea! acing this 8uestion* youre in goo! co"pany# 7ut you have
to answer it# $ear not6we can help
By7my %allo
Posted onHarvard Business Review: March 18, 2011 8:30 M
2ost people have been asked that perennial and somewhat annoying question=
ADhere do you see yourself in five yearsA 5f course it is asked most often in a Iob
interview but it may also come up in a conversation at a networking event or a
cocktail party! Knowing and communicating your career goals is challenging for
even the most ambitious and focused person! Can you really know what Iob you'll be
doing or even want to be doing in five years
Dhat the E;perts ay
0n today's work world careers take numerous twists and turns and the future is
often murky! A&ive years in today's environment is very hard to predict! 2ost
businesses don't even know what's going to be required in two or three yearsA says
Goseph Deintraub a professor of management and organi9ational behavior at
Babson College and co-author of the book "he Coaching 2anager=
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AEvery person you talk to or meet is a potential contact now or in the futureA says
Deintraub!
"he first step is knowing the answer for yourself! A0t's a very profound question! 7t
the heart of it is 'where does meaning reside for me'A says Butler! Fou have to
clarify for yourself what you aspire to do with your career before you can
communicate it confidently to others!
Be introspective
&iguring out the answer to this question is not an easy task! A"he real issue is to do
your homework! 0f you're thinking this through in the moment you're in troubleA
says Butler! 0n his book %etting @nstuck= 7 %uide to ! Dhat am 0 willing to do to get there
"his type of contemplation can help you set a professional vision for the ne;t five
years! "he challenge is then to articulate that vision in various situations= a meeting
with your manager a networking chat or a Iob interview!
0f you don't know admit it
Even the deepest soul-searching may not yield a definitive plan for you! "here aremany moving parts in people's career decisions8family the economy finances8
and you may simply not know what the ne;t five years holds! ome worry that
without a polished answer they will appear directionless! "his may be true in some
situations! A&or some people if you don't have the ambition you're not taken
seriouslyA says Deintraub! But you shouldn't fake it or make up an answer to
satisfy your audience! "his can be especially dangerous in a Iob interview! aying
you want #: responsibility in five years when you have no such ambitions may
land you the Iob but ultimately will you be happy ARemember the goal is to findthe right Iob not Iust a Iob! Fou don't want to get it Iust because you were a good
intervieweeA says Deintraub!
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Know what they're really asking
Butler and Deintraub agree that while the five-year question is not a
straightforward one! Butler says that hiring managers rely on it to get at several
different pieces of information at once! "he interviewer may want to know 0s this
person going to be with us in five years A"he cost of turnover is high so one of my
biggest concerns as a hiring manager is getting someone who will be aroundA says
Butler! "here is another implied question as well= 0s the position functionally well-
matched for you "he interviewer wants to know if you'll enIoy doing the Iob!
Deintraub points to another possibility= A"hey are trying to understand someone's
goal orientation and aspirational level!A 0n other words how ambitious are you
Before responding consider what the asker wants to know!
&ocus on learning and development
Fou run the risk of coming off as arrogant if you answer this question by saying you
hope to take on a specific position in the company especially if the interviewer is
currently in that position! Butler suggests you avoid naming a particular role and
answer the question in terms of learning and development= Dhat capabilities will
you have wanted to build in five years &or e;ample A0 can't say e;actly what 0'm
going to be doing in five years but 0 hope to have further developed my skills as a
strategist and people manager!A "his is a safe way to answer regardless of your age
or career stage! AFou don't want to ever give the impression that you're done
learningA says Deintraub!
Reframe the question
Research has shown that it's less important that you answer the e;act question and
more important that you provide a polished answer! Enter the interview knowing
what three things you want the interviewer to know about you! @se every question
not Iust this one to get those messages across! Fou can also shorten the timeframeof the question by saying something like A0 don't know where 0'll be in five years
but within a year 0 hope to land several high-profile clients!A Fou can also use the
opportunity to e;press what e;cites you most about the Iob in question! A0n any
competitive environment the Iob is going to go to someone who is genuinely
interested and can articulate their interestA says Butler!
1rinciples to Re"e"'er
Do9
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N &irst do the contemplative work to develop a personal answer to the question
N @nderstand what the interviewer is trying to gather from your response
N horten the timeframe of the question so you can give a more specific and
reasonable reply
Dont9
N 2ake up an answer you don't believe in
N #rovide a specific position or titleL instead focus on what you hope to learn
N &eel limited to answering the narrow question asked 8 broaden it to communicate
what you want the hiring manager to know about you
Case tudy O)= Know where you thrive
Bob $alsey found out about the opening of associate dean of Babson's
undergraduate program the same way everyone else at the school did8through an
email announcement! $e had been on the faculty as a professor of 7ccounting for )
years and recently had taken on the role of chair for that department! #rior to his
academic career he had been in the corporate world holding a C&5 position at a
retailing and manufacturing company and working as the vice president and
manager of the commercial lending division of a large bank!
"he associate dean Iob appealed to him because it was similar to the positions in
which he'd thrived in the corporate world! Reflecting on his years of e;perience Bob
knew he most enIoyed being in a supporting role rather than the top gun! Dhile an
associate dean position is often seen as a stepping-stone for those who eventually
want to become dean Bob wasn't interested in that! $e didn't want to be the center
of attention now or in the future!
#lus everyone at the school loved the current dean
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lacking aspiration but in this case his response simply told them he was the right
person for the Iob!
ADhen people really want a Iob they tend to overpromise! 0 figured it doesn't do me
any good to get in under false e;pectationsA says Bob! A2y motivation in taking this
Iob was to work alongside and learn from
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1atent reor"?(+pril :)
The spluttering invention "achine
+"erica;s patent syste" has pro'le"s< a new law woul! i5 only a ew
&5R all 7mericaPs an;ieties about its decline as a superpower its deficits and its
weak economy it can still be proud of its strength as an innovator! 7mericans make
four times as many patent applications per head as Europeans! #atents spur
innovation and lay the foundations for future growth by assuring inventors that
they will reap the rewards of their effort and by publicising their discoveries!
But worries have grown that e;cessive patenting may now be having the oppositeeffect= businesses and other researchers may be discouraged from innovating in
areas that depend heavily on prior discoveries for fear of being sued for patent
infringement! Besides making it too easy to bring patent lawsuits it is argued
7merica hands out patents too readily= an often-quoted e;ample is the one granted
to 7ma9on for its Qone-click online-shopping button! ast year the upreme Court
restricted the scope of such business-process patents but not by enough to satisfy
critics!
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Big technology companies complain of Qpatent trolls8companies that buy lots ofobscure patents and then bombard alleged infringers with lawsuits! +"he Qtrolls
argue that by making patents valued they are helping to create a market in
invention that will encourage inventors!/ urging patent activity has overwhelmed
the @ #atent 5ffice which is taking ever longer to process applications +see chart/!
7fter years of failed attempts to remedy the situation on 2arch th the enate
passed the biggest overhaul to patent law since the )*31s! 0ts bill would give the
patent office the right to set its own fees and keep all the proceeds +the "reasuryswipes some of these now/ so it can hire enough e;aminers to cut its backlog! 0t
would also align 7merica with international practice by granting patents to the first
person to file them! 6ow they are awarded to the first to invent a product or idea!
"his was intended to give small inventors a fair chance against big companies better
equipped to file applications! But businesses complain about having their patents
challenged years after they were granted by people claiming to be the original
inventor!
Barack 5bama who includes patent reform in his grand campaign to make 7merica
more competitive has praised the bill! 0t now has to pass in the $ouse! But even if it
becomes law it will not please all the many businesses and other organisations that
file patents! ome think it will still be too easy and potentially lucrative to bring
lawsuits for patent infringement! 5thers wanted it to be made easier to challenge
patents! Gosh erner an economist at $arvard Business chool faults the bill for
not giving third parties a means to obIect to a patent before it is granted! 0t does
create a process for opposing a patent afterwards as in Europe but some say it will
still be too burdensome for the challenger! "hose hoping for a broader crackdownon business-process patents will also be disappointed!
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Europe is seeking to improve its patents system too! 5n 2arch *th finance
ministers from 3 of the . European @nion countries agreed to the creation of a
single European patent which would not need separate validation at national level8
which has been a glaring gap in the single European market! +pain and 0taly for
years did their best to block it because patents would have to be translated only intoEnglish %erman and &rench!/ "he plan must now be approved by the European
#arliament! Bruno van #ottelsberghe an intellectual-property e;pert at olvay
Brussels chool of Economics and 2anagement says this will slash the cost of a
European patent to Iust a few times the cost in 7mericaL it now costs about )3 times
as much! Even so he complains that national patent offices will still issue patents
independently which may undermine the value of those of the European #atent
5ffice!
7 unitary patent will not make Europe a hotbed of innovation! But it will help! 7nddespite the flaws in the new laws the attention to patent reform on both sides of the
7tlantic is good news for business!
+ special report on glo'al lea!ers
Cray.talking 'oins
The surest way to wiel! inluence is to invent so"ething useul
D$E6 trying to generate new ideas Qyou have to make sure people feel 5K about
saying cra9y things says 6athan 2yhrvold! $is firm 0ntellectual Hentures seeks
to profit from inventions! 2r 2yhrvold does not need the moneyL as a former chief
technology officer of 2icrosoft he already has sacks of it! But he believes that
Qinvention is the closest thing to magic we have!
2r 2yhrvold convenes Qinvention sessions each one including thinkers from a
variety of fields! $e puts them in a room with gallons of coffee and lets them bounce
ideas around! 7ssistants record the conversation and Iolly it along by proIecting
relevant scientific papers onto a screen! 2r 2yhrvold a physicist by training takes
part with gusto!
Because he is brainy and well connected +investors in his firm include 2icrosoft
0ntel 7pple %oogle ony and 6okia/ other brainy people are happy to attend his
pow-wows! 6o idea is too outrageous to receive a hearing! 5ne participant
suggested killing malarial mosquitoes with laser beams! Everyone laughed! But then
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they started thinking about it and realised that laser technology is much cheaper
than it was thanks to Blu-Ray players and laser printers! 7 working prototype was
built in 11! "he firm is now looking for a partner to manufacture it!
7mong other things his team has designed a nuclear reactor that would use nuclear
waste as its fuel! "his he says would squee9e 1 times more power out of uranium
than current technology does! $e and Bill %ates set up "erra#ower an energy firm
to develop the idea! "his is the kind of ambitious and risky bet that the world has to
make if global warming is to be curbed says 2r 2yhrvold! 0f it comes off he will
make another fortune! 0f not he has plenty of other ideas!
2r 2yhrvoldPs firm illustrates some useful principles for those who want to foster
innovation! &irst as technology grows more comple; advances depend less on
individual inspiration and more on collaboration! "he more that the millions ofscientists in the world talk to each other the more good ideas will emerge! "he
number of patents granted has risen from *11111 in )*3 to )!*m in 11!
2r 2yhrvoldPs firm is based near eattle but flies in scientists from far and wide
and maintains a subsidiary in 0ndia to tap the torrent of innovation there! 0ts
boffins in Bangalore are working on proIects ranging from a red laser to preserve
food to a
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infringing them! But 2r 2yhrvold denies any intention of becoming what Halley
folk call a Qpatent troll! $e runs a number of funds that allow patient investors to
take a punt on a basket of ideas that may produce a long-term pay-off! "his
generates immediate rewards for inventors who sell their patents thereby
encouraging innovation he argues!
0nvented threats ?(+pril =)
765"$ER day another scary storyabout how China is taking over the world! "hislatest one is about how China is +gasp/ becoming more focused on innovation!
"hatPs supposed to be a problem because economic leadership derives from the
ability to innovate! China cannot continue to grow at its current pace forever +and
surpass 7merica as the world's largest economy/ without innovating! 7fter a while
its low rate of population growth will become an issue so it must rely on doing
more with less to support its aging population! 7nd there appears to be a large-scale
industrial policy underway designed to turn the Chinese into innovators!
!n 200", a#out 300,000 a$$%ications for uti%it& $atents were fi%ed in hina,
rough%& e(ua% to its tota% of invention $atents, which have #een growing s%ight%&
faster than uti%it& fi%ings in recent &ears) But even if *ust ha%f of hina+s tota%
fi%ings in 201 are for invention $atents, the nationa% $%an ca%%s for a huge %ea$, to
one -i%%ion, #& 201) B& contrast, $atent fi%ings in the .nited States tota%ed
s%ight%& -ore than /80,000 in the 12 -onths ended in Se$te-#er, according to the
$atent office)
hina+s $atent surge has #een evident for &ears) !n cto#er, ho-son Reuters
issued a research re$ort, forecasting that hina wou%d sur$ass the .nited States
http://www.nytimes.com/2011/01/02/business/02unboxed.html?src=me&ref=businesshttp://topics.nytimes.com/top/news/business/companies/thomson-reuters-corporation/index.html?inline=nyt-orghttp://www.nytimes.com/2011/01/02/business/02unboxed.html?src=me&ref=businesshttp://topics.nytimes.com/top/news/business/companies/thomson-reuters-corporation/index.html?inline=nyt-org8/12/2019 New Materials2
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in $atent fi%ings in 2011) !t+s ha$$ening even faster than we e$ected,4 said Bo#
Ste-#ridge, an inte%%ectua%5$ro$ert& ana%&st at ho-son Reuters)
6et if the trend is not sur$rising, the a-#ition of the hinese $%an is stri7ing) he
docu-ent indicates, for ea-$%e, that hina intends to rough%& dou#%e its nu-#er
of $atent ea-iners, to ",000, #& 201) he .nited States has 9,300 ea-iners)
2aybe China will become the world's leading innovator but that will be hard to
accomplish before it develops its own consumer culture to test and market new
ideas! 0t will be very hard to anticipate what new products or techniques a foreign
culture's market will demand! "aking an e;isting product and making it cheaper is
one thing but coming up with a new one +that people actually want/ is hard8
especially when the direction of innovation is determined by the government!
0t is said that necessity is the mother of invention! 7 demand for a new product or a
new better technique for making an e;isting product frequently serves as the muse
for most successful innovations! But traditionally +with the notable e;ception of
space e;ploration and defence technologies/ national pride and the need to be
bigger and grow faster have not been as reliable a source of inspiration! ots of
patent filings do not mean more products or techniques that are useful or
demanded! +ide note= does the sudden interest in filing patents mean China plans
to become more respectful of international intellectual property rules/
But even if China does become the centre of innovation does that make other
countries worse off DouldnPt 7merican consumers retailers and distributors also
benefit from new cheaper products 2ight some new Chinese innovation inspire
follow-on 7merican innovation 7merican innovations have long enriched other
countries and created employment opportunities abroad! "here's no reason Chinese
innovation couldn't have the same effect on the 7merican economy!
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online.coupon ir"s
roupon an5iety
The online.coupon ir" will have to "ove ast to retain its i"pressive
lea!
%R5@#56 has arrived in China! 5n 2arch )4th the online-coupon firmPs new site
there8a Ioint venture with "encent the countryPs biggest internet company8began
offering daily deals such as .3S off the regular price of a trip to an indoor hot-
springs resort! 0nitial signs were that Chinese consumers will rush to snap up%rouponPs offers as they have in many other parts of the world!
0n 11* %roupon was a virtual nobody confined to Iust >1 7merican cities with
)1 employees m subscribers and Iust ,>>m in revenues! By the end of 1)1 it
had become a global success with more than ?111 staff 3)m subscribers in 343
cities worldwide and ,.41m in revenues!
Fet amid all the e;citement over the QworldPs fastest-growing company ever as
some have breathlessly described %roupon words of caution can increasingly be
heard! Even 7ndrew 2ason the firmPs habitually cheerful boss seems to harbour
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doubts! QBy this time ne;t year we will either be on our way to becoming one of the
great technology brands he recently wrote in an internal memo Qor a cool idea by
people who were out-e;ecuted and out-innovated by others! 2ore fundamentally
the whole idea of Qdaily deals may have serious flaws!
"he basic idea is nothing new! Consumers sign up to receive offers from local firms
by e-mail each day ranging from restaurant meals to pole-dancing lessons at
discounts of up to *1S! But %roupon made virtual coupon-clipping e;citing by
first having offers e;pire after Iust a few hours and second cancelling them if they
do not attract a minimum number of buyers +the Qgroup in %roupon/! 7lthough
this rarely happens it induces buyers to spread the word among friends and family
boosting the uptake!
"he daily fren9y has already spawned new phrases such as Q%roupon an;iety8Qthepreoccupation and feeling of an;iousness and not being able to sleep knowing that a
new %roupon will be released after )am according to "he @rban
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which lists all the daily deals available in a city! 2ore dangerously for %roupon big
online firms have begun to enter the fray! 0n
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mainly bargain-hunters who do not spend more than the couponPs face value and do
not become repeat customers! 7lthough these problems may be fi;ed by designing
the promotions better there are some longer-term worries! tudies have repeatedly
shown that price discounts erode brand value says 2r
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Internet start.ups
+nother 'u''le?(+pril --)
&o"e tech start.ups look over.value!
Q0 C76P" decide what 0 like poking more= you or these bubbles says bubble-
blowing Kim Kardashian a reality-"H star in a new application for &acebook +see
right/! Cameo tars the company responsible for this innovation lets &acebookerssend to their online friends clips of minor celebrities mouthing generic greetings!
Besides enriching the worldPs culture the firm may also make a fortune! But gloomy
types wonder if the profusion of highly valued internet start-ups with lighter-than-
air business plans is evidence of a different kind of bubble!
&or the first time since 111 internet and technology entrepreneurs can raise seed
capital with little more than a half-formed idea and a do9en #ower#oint slides!
Q"here is probably a bubble in the number of start-ups says 7lan #atricof a
venture capitalist though he is not yet convinced that there is irrational e;uberance
in later-stage valuations!
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Fet valuations have certainly risen especially for the leading firms in this latest
Qsocial phase of the digital revolution! %roupon a two-year-old firm that offers
group discounts to online consumers reportedly turned down an offer potentially
worth ,4 billion from %oogle prompting analysts to ask if %rouponPs founders had
lost their coupons! 7 secondary-market auction of shares in &acebook in
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do!
"hen there is the growth in Qangel investing by rich individuals and small funds
that provide seed capital to start-ups too small to interest a venture-capital firm!
"hese angels make many small investments +say ,)11111 a time/ in a strategy
critics call Qspray and pray! "hat could certainly account for a bubble in start-ups!
5ne prominent angel Chris acca has reportedly paused his investing on the
ground that valuations have become overblown!
5ther investors say this is alarmist nonsense! Q&or every firm that gets funded at a
higher-than-normal valuation a hundred are getting financed at a normal one
says Ron Conway a well-known Qsuper angel who has invested in many high-
profile start-ups! 2oreover many young firms can tap into a thriving online-
advertising market that was but a dream when the dotcom boom turned to bust!
"odayPs entrepreneurs also have a deeper understanding of the industries they are
trying to transform says 6ick Beim of 2atri; #artners a venture-capital firm!
&ewer of them are engineers! 2ore are Qambitious non-technologists with a
business idea to change industries such as media advertising financial services or
fashion! "hese industries are concentrated in 6ew Fork which is why the new boom
is as much in 2anhattanPs ilicon 7lley as in CaliforniaPs ilicon Halley!
2r Beim reckons this industry e;pertise will mean that start-ups in Qsocial
commerce where there is a clear revenue model from the start are more likely to
succeed than those in social media where no one knows where the profits will come
from even when millions use the service +eg "witter/! "hree of the leading social-
commerce firms %roupon %ilt %roupe +a lu;ury-goods seller in which 2atri; has
invested/ and Uynga +a social-gaming firm/ are increasing their revenues faster
than any start-ups in history says 2r Beim! "hat is why this time may be different!
5f course they say that during every bubble!
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2nline shopping
&elling 'eco"es socia'le
E.co""erce is 'eco"ing "ore social an! "ore connecte! to the oline
worl!
"$5E who cherish privacy will recoil in horror but for digital e;hibitionists it is a
dream! 7t wipely a web start-up users can now publish their purchases!
Dhenever they swipe their credit or debit card +hence the servicePs name/ the
transaction is listed on the site8to be discussed by other users! Q"urn purchases
into conversations is the firmPs mantra!
wipely is among the latest entrants in the growing field of social commerce! &irms
in this market combine e-commerce with social networks and other online group
activities! "hey aim to transform shopping both online and off! 7ngus
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"he pioneer of flash sales Hente #rivMe grew out of the &rench apparel industry
+the name means Qprivate sale/! Even today its centre of gravity is offline says
Gacques-7ntoine %ranIon Hente #rivMePs boss who founded the firm in 11) along
with seven partners! $undreds of designers photographers and hairstylists
organise its online sales events! 7fter a slow start Hente #rivMe has been growingquickly! 0ts five local sites in Europe have more than )m members and are
e;pected to bring in about (11m +,) billion/ in revenues this year!
Hente #rivMePs success has inspired others! "he best known is %ilt %roupe which
emulates the sample sales of lu;ury retailers in 6ew Fork where it is based! %ilt is
smaller than Hente #rivMe! 0t has only !3m members and e;pects to turn over
between ,?11m and ,311m in revenues this year! %ilt wants to become a platform
for all sorts of social commerce says usan yne its boss! 0t recently launched
several local sites in 7merica offering Qdeals of the day!
%ilt %roupe is straying into the territory of another clutch of city-based e-commerce
sites which facilitate collective buying! Every day these sites offer the service of a
local business8a restaurant meal a spa-treatment the rental of an e;pensive car8
at a discount of up to *1S +they generally keep half of the sale price/! But a deal is
struck only if a minimum number of members pounce! Buyers thus have an interest
in spreading the word which they do mostly on social networks!
>ntil they !rop
2any such sites have sprung up! "he most successful is %roupon +a combination of
the words Qgroup and Qcoupon which buyers print out to pay for their service/!
7lthough the firm launched only in late 11 it already operates some >1 local
websites in * countries and boasts )3m subscribers! &lush with money from
investors it has embarked on a global land-grab buying %roupon clones in other
countries such as %ermanyPs City
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smart-phones which can track consumersP location!
2odCloth which sells clothing from independent designers has an active forum on
&acebook and lets customers vote on which products the site should stock! ocker9
another upstart pays members Qpoint9 if they watch videos with advertisements
invite friends and do things with them! "hey can then use this currency to obtain
discounts! imilarly hopkick rewards consumers for offline activities such as
visiting stores and scanning products with their smart-phones!
&or the new generation of e-commerce firms the offline world is as important as
the online one! wipely is a good e;ample! By uploading transaction data the start-
up makes it easy for customers to tell their friends how they are spending their
money in the real world something they probably would not do if they had to type
all the data in! 7t the same time customers can keep those transactions secret thatthey do not want to share!
Dill making shopping more social really disrupt commerce as much as 2r
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"he &orgotten 2illions?(+pril -3)
By 1+> @R>M+A
2ore than three years after we entered the worst economic slump since the )*>1s a
strange and disturbing thing has happened to our political discourse= Dashington
has lost interest in the unemployed!
Gobs do get mentioned now and then 8 and a few political figures notably 6ancy
#elosi the
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but have fallen sharply since then perhaps reducing the sense of urgency! #ut it this
way= 7t this point the @!! economy is suffering from low hiring not high firing so
things donPt look so bad 8 as long as youPre willing to write off the unemployed!
Fet polls indicate that voters still care much more about Iobs than they do about the
budget deficit! o itPs quite remarkable that inside the Beltway itPs Iust the opposite!
Dhat makes this even more remarkable is the fact that the economic arguments
used to Iustify the
e;perience!
5n one side wePve been warned over and over again that Qbond vigilantes will
turn on the @!! government unless we slash spending immediately! Fet interest
rates remain low by historical standardsL indeed theyPre lower now than they were
in the spring of 11* when those dire warnings began!
5n the other side wePve been assured that spending cuts would do wonders for
business confidence! But that hasnPt happened in any of the countries currently
pursuing harsh austerity programs! 6otably when the Cameron government in
Britain announced austerity measures last 2ay it received fawning praise from @!!
deficit hawks! But British business confidence plunged and it has not recovered!
Fet the obsession with spending cuts flourishes all the same 8 unchallenged it
must be said by the Dhite $ouse!
0 still donPt know why the 5bama administration was so quick to accept defeat in
the war of ideas but the fact is that it surrendered very early in the game! 0n early
11* Gohn Boehner now the speaker of the $ouse was widely and rightly mocked
for declaring that since families were suffering the government should tighten its
own belt! "hatPs $erbert $oover economics and itPs as wrong now as it was in the
)*>1s! But in the 1)1 tate of the @nion address #resident 5bama adopted
e;actly the same metaphor and began using it incessantly!
7nd earlier this week the Dhite $ouse budget director declared= Q"here is an
agreement that we should be reducing spending suggesting that his only quarrel
with Republicans is over whether we should be cutting ta;es too! 6o wonder then
that according to a new #ew Research Center poll a maIority of 7mericans see Qnot
much difference between 2r! 5bamaPs approach to the deficit and that of
Republicans!
o who pays the price for this unfortunate bipartisanship "he increasinglyhopeless unemployed of course! 7nd the worst hit will be young workers 8 a point
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made in 11* by #eter 5rs9ag then the Dhite $ouse budget director! 7s he noted
young 7mericans who graduated during the severe recession of the early )*1s
suffered permanent damage to their earnings! 7nd if the average duration of
unemployment is any indication itPs even harder for new graduates to find decent
Iobs now than it was in )* or )*>!
o the ne;t time you hear some Republican declaring that hePs concerned about
deficits because he cares about his children 8 or for that matter the ne;t time you
hear 2r! 5bama talk about winning the future 8 you should remember that the
clear and present danger to the prospects of young 7mericans isnPt the deficit! 0tPs
the absence of Iobs!
But as 0 said these days Dashington doesnPt seem to care about any of that! 7nd
you have to wonder what it will take to get politicians caring again about7mericaPs forgotten millions!
+ Crisis That Markets Can;t rasp
By BE$$ &2MMER
"$E risks are clear enough in hindsight!
"he "okyo Electric #ower Company built its &ukushima
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2any have compared the events unfolding in Gapan with *)) $urricane Katrina
the financial collapse of 11 and 11* the B#oil spill and the uprisings in the
7rab world 8 in that all have shown the limits of the collective wisdom of the
marketplace! &or a moment all the swans seemed black! 7nd those swans seemed
blacker still when viewed through the lens of todayPs hyperkinetic global markets!
Q"here are an ama9ing number of crosscurrents in the world economy right now
more than 0Pve seen in 3 years said hawn Reynolds a co-portfolio manager at
Han Eck 7ssociates in 6ew Fork!
ike everyone else corporate e;ecutives economists and financial analysts in
"okyo 6ew Fork ondon and beyond struggled last week to wrap their heads
around the scale of this disaster! But as they so often do the analysts quickly fell to
work assessing the implications for companies markets and economies! 7t times itwas almost surreal= 5n "uesday as9lo Birinyi a prominent stock market analyst
based in Destport Conn! e-mailed around a succinct report titled Q6uclear
2eltdowns at a %lance!
"his is what happens on Dall treet! 0f youPre not immersed in the culture it might
be hard to understand the cool calculus that is applied to world events however dire
those events might be! 7fter the quake hit on 2arch )) the C6BC anchor arry
Kudlow told viewers Q"he human toll here looks to be much worse than the
economic toll and we can be grateful for that! $e later apologi9ed!
7s the week wore on and prices were gyrating on everything from a share of 0!B!2!
to a ton of copper everyone was making back-of-the-envelope calculations! "here is
still no clear consensus about how far the economic shocks will reverberate! 2any
analysts are guessing 8 and then second-guessing 8 how the disaster will play out
in northeast Gapan! "he first tentative analysis seemed painfully obvious= the
Gapanese economy already weak perhaps already in a recessionbefore calamity
struck will become even weaker!
5n &riday the %roup of .industriali9ed nations took the rare step of intervening on
the worldPs foreign e;change markets to stem a sudden rise in the value of the yen!
"he currency had soared all week against the dollar8 the e;act opposite of what
you might e;pect! But Gapanese companies and investors were bringing their money
home to pay for huge rebuilding costs!
7fter its most harrowing week since the )*. market crash the "okyo tock
E;change found its footing on &riday! But it was a week like few others on thee;change= the 6ikkei 3 stock inde; GapanPs equivalent of the
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rebounded 3!. percent on Dednesday and sank )!? percent on "hursday! 0t closed
up !. percent on &riday at *14!.3!
"he loss for the week totaled )1? points or )1! percent!
0& you happen to visit a Dall treet trading floor walk over to the nearestBloomberg terminal type QDR" and hit the green key that says Qgo!
DR" 8 that is short for Qworst as in Qworst-case scenario! "he program enables
Dall treet types to measure the level of risk in their investment portfolios under a
variety of scary circumstances modeled on past crises including the attacks of ept!
)) 11) the bankruptcy of DorldCom in 11 and the devaluation of the
"hailandPs currency the baht in )**.!
uch Qwhat if scripts are the stuff of modern Dall treet! Everyone runs them!Entire schools of financial analysis are devoted to e;amining historical market
patterns in the belief that those patterns can predict the future!
uch analysis of course depends on 8 and perhaps even encourages 8 our belief
that tomorrow will be much like today! 7nd all that despite the fine-print caveat on
your ?1)+k/ statement that reads Q#ast performance is no guarantee of future
success!
6assim "aleb the author and market theorist who populari9ed the phrase Qblackswan in his 11. best seller argues that we have psychological biases that blind us
to the enormous role played by rare events 8 like a *!1-magnitude earthquake! 7nd
yet we rely on history for guidance! 5n Dednesday 2r! BirinyiPs research firm sent
out another report this one titled Q!: #! 311 Enters 2odest Correction! $is firm
predicted a slight decline in the 7merican stock market!
Q0f the averages hold the report said Qthe !: #! 311 will bottom at )> on
>>)))! 5n &riday the !: #! 311 closed at ).*!)* down )!* percent for the
week!
Dhatever else they may be markets are immensely comple; counting machines!
"hey assign values to products whether computer chips or potato chips based on
the canny appraisals and gut beliefs of people around the planet! &rom day to day it
is often hard if not impossible to know e;actly why a certain price moved the way it
did! "hose daily movements are often Iust the white noise of global capitalism!
"hen there are stretches of e;treme volatility periods when no one quite seems toagree about where anything is going! "hat may be part of what occurred last week=
in the face of such a disaster not even a short-term trend could congeal!
http://topics.nytimes.com/your-money/retirement/401ks-and-similar-plans/index.html?inline=nyt-classifierhttp://topics.nytimes.com/your-money/retirement/401ks-and-similar-plans/index.html?inline=nyt-classifier8/12/2019 New Materials2
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7s yet no one has reliable numbers about the scope of the destruction said 7l
"obin who heads the property practice at7onRisk olutions the risk management
brokerage business of the 7on Corporation! "he human toll the economic toll 8
Qno one knows the answer to that question he said!
%iven such uncertainty the markets could remain even more volatile than usual
said 2ohamed 7! El-Erian chief e;ecutive of #imco the worldPs largest bond
manager! Q"he market right now is trying to wrap its arms around the enormity he
said!
"he verdict is not yet in!
2r! El-Erian divided market strategists into two camps! "he first he says views the
events in Gapan as Qmore than Iust a massive human tragedyL it also has significant
implications for the global economy! "he second he says believes that the effects
of this disaster however heart-rending will be transitory for most of us!
But he doesnPt yet know which camp is right! Q0 donPt understand it fully yet he
said Qbut 0 am worried about it!
Big economic questions remain unanswered! $ow would a severe slowdown in
Gapan the worldPs third-largest economy affect the rest of the globe $ow will
Gapan which is already deeply in debt pay for the reconstruction ome are already
arguing that the enormous high-cost task of rebuilding could over time snap
Gapan out of its long economic funk!
27RKE" strategists pride themselves on being able to digest vast quantities of data
quickly! "hey tend to be practical and versatile people the kind who can put aside
emotions and philosophical questions when business calls!
5n "hursday a sunny t! #atrickPs 2r! %olub said he felt for the people of Gapan! $e then went on to say at a newsbriefing that once the current market volatility subsided this crisis should have
only a marginal impact on 7mericaPs economy and stock market whose prospects
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were quite good! $e predicted that the !: #! 311 would reach )?3 by the end of
the year!
till because supply chains have gone global like so much else the disaster has
already had a very real impact in the @nited tates! ast week ubaru slowed
operations of its auto plant in 0ndiana because it could not obtain key parts from
Gapan! %eneral 2otorssaid it would shut a truck plant in ouisiana because of a
shortage of parts! "he semiconductor industry has also slowed because Gapan is a
maIor supplier of silicon wafers and other components!
economy Gapan actually accounts for a
relatively small 8 and shrinking 8 amount of the worldPs collective economic
output! 0t contributes about * percent of global gross domestic product down from
about ) percent in the )**1s! 7nd because of the rapid acceleration of the so-calledBR0Ccountries 8 Bra9il Russia 0ndia and China 8 and of other emerging markets
GapanPs contribution to growth of global %!
akshman 7chuthan the managing director of the Economic Cycle Research
0nstitute a private forecasting group with an e;cellent track record says that
GapanPs economy which he believes is already in recession wonPt appreciably affect
the direction of the economy in the @nited tates! "he disaster however Qensures
that Gapan is in a recession he said!
7ll of this of course assumes that the nuclear disaster already the biggest since
Chernobyl doesnPt get too much worse!
"$E financial markets have always had a difficult relationship with nuclear power
largely because the costs 8 and potential risks 8 associated with nuclear plants are
so huge!
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o far the markets seem to have failed to provide an answer to all of those
questions! 7 6ational Research Council study last year tallied up environmental
costs for various fossil fuels but did not even try to do so for nuclear power because
the Qpower-plant risk modeling and spent-fuel transportation modeling required
was beyond the scope of the councilPs study!
0n the @nited tates and elsewhere governments have capped the liability of
nuclear power producers! 7s a result #rofessor tavins said QFou can argue that
the markets have never really had a chance to price nuclear power!
0n the face of black swans 8 also known as fat-tail events for the way their
occurrences are distributed along a probability curve 8 market pricing may be
impossible!
2artin Deit9man another $arvard economist wonders for e;ample how Dall
treet or anyone else could place an accurate price on the risk that an asteroid
would crash into a maIor population center! 0n a controversial mathematical proof
called perhaps appropriately the 1 years since "hree 2ile 0sland and 3 since Chernobyl!
0n the ensuing years one nuclear plant was completed in the @nited tates and shut
down before ever going into commercial operation! "hat was the horeham plant
on ong 0sland which cost roughly ,4 billion! 0ts fate was decided in )** when
state officials concluded that ong 0sland could never be evacuated in case of a
disaster!
"he &ukushima accident has already caused a temporary slowdown in the nuclear
industry! 5fficials in 0ndia and China said last week that they would re-evaluate
their plans for building plants! %ermany announced that it would temporarily shut
seven nuclear plants that went online before )*1! "he European @nionmade plans
to test all the other nuclear power plants within its member countries!
0n the @nited tates #resident 5bama who has promoted building new nuclear
power plants asked the 6uclear Regulatory Commissionlast week to review the
safety of all @nited tates plants!
$owever imperfectly the market will pass Iudgment!
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2r! El-Erian of #imco says the outlook is unusually uncertain! 0nvestors like
everyone else should understand that the world is a risky place!
QFou need to use a whole range of approaches to understand the market in a
situation like this he says Qand you need to be humble!
7nd perhaps accept a sober reality= the ne;t black swan is out there somewhere!
tress "est for the %lobal upply Chain?(+pril -)
By &TEE 2%R
"56F #R5#$E" a senior vice president for operations at $ewlett-#ackard was
awakened at >=>1 a!m! in California and was told that an earthquake and tsunami
had struck Gapan! oon after 2r! #rophet had set up a virtual Qsituation room so
managers in Gapan "aiwan and 7merica could instantly share information!
2r! #rophet oversees all hardware purchasing for $!#!Ps ,43-billion-a-year global
supply chain which feeds its huge manufacturing engine! "he companyPs factories
churn out two personal computers a second two printers a second and one data-
center computer every )3 seconds!
Dhile other $!#! staff members checked on the companyPs workers in Gapan 8
none of whom were inIured in the disaster 8 2r! #rophet and his team scrambled
to define the impact on the companyPs suppliers in Gapan and if necessary to draft
backup plans! Q0tPs too early to tell and wePre not going to pretend to predict the
outcome 2r! #rophet said in an interview on "hursday! Q0tPs like being in an
emergency room doing triage!
"he emergency-room image speaks volumes! 2odern global supply chains e;perts
say mirror comple; biological systems like the human body in many ways! "hey
can be remarkably resilient and self-healing yet at times quite vulnerable to some
specific seemingly small weakness 8 as if a tiny tear in a crucial artery were tocause someone to suffer heart failure!
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lightweight flash memory used in smartphones and tablet computers! Gapan makes
about >3 percent of those memory chips 0$ iuppli estimates and "oshibais the
maIor Gapanese producer! But outh Korean companies led by amsung are also
large producers of flash memory!
7pple like all maIor companies these days treats its supply-chain operations as a
trade secret! But industry analysts estimate that 7pple buys perhaps a third of its
flash memory from "oshiba with the rest coming mainly from outh Korea! "he
lead time between chip orders and delivery is two months or more! 7 leading
customer like 7pple will be first in line for supplies and it has inventories for
several weeks analysts say! o there will be little immediate impact on 7pple or its
customers but even 7pple will likely be hit with supply shortages of crucial
components in the second quarter predicts %ene 2unster an analyst at #iper
Gaffray!
"he field of buying and shipping supplies has been transformed in the last decade
or two! %lobali9ation and technology have been the driving forces! 2anufacturing is
outsourced around the world with each component made in locations chosen for
e;pertise and low costs! o todayPs computer or smartphone is figuratively a
@nited 6ations assembly of parts! "hat means supply lines are longer and far more
comple; than in the past!
"he ability to manage these comple; networks e;perts say has become possiblebecause of technology 8 0nternet communications R&0< tags and sensors attached
to valued parts and sophisticated software for tracking and orchestrating the flow
of goods worldwide!
"hat geographic and technological evolution in theory should make adapting to
the disaster in Gapan easier for corporate supply chains! Q0n the past when you had
a disruption the response was regional says "imothy Carroll vice president for
global operations at 0!B!2!Q6ow itPs globali9ed!
2ost anything can be tracked but it takes smart technology investment and effort
to do so! 7nd as procurement networks become more comple; and supply lines
grow longer 8 Qthin strands as the e;perts call the phenomenon 8 the difficulty
and e;pense of seeing deeper into the supply chain increases!
Q2aIor companies have constant communications and deep knowledge of primary
suppliers says
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0ndeed supplies of larger more costly electronic components like flash memory
and liquid crystal displays tend to grab the most attention! But says "ony &adell a
former senior 7pple e;ecutive who led the i#odand i#honedesign teams Qthere are
all kinds of little speciali9ed parts without second sources like connectors speakers
microphones batteries and sensors that donPt get the love they deserve! 2any arefrom Gapan!
acking some part even if it costs Iust dimes or a few dollars can mean shutting
down a factory 2r! &adell adds!
7 recent analysis by 0$ iuppli taking apart a new 7pple i#ad identified five
parts coming from Gapanese suppliers= flash memory from "oshiba random-access
memory for temporary storage from Elpida 2emory an electronic compass from
7K2 emiconductor touch-screen glass from 7sahi %lass and a battery from7pple Gapan!
&urther down the supply chain lie raw materials! "rouble for a supplier to a
companyPs parts supplier can cascade across an industry! &or e;ample reports that
a 2itsubishi %as Chemical factory in &ukushima was damaged by the tsunami have
fanned fears of a coming shortage of a resin 8 bismaleimide tria9ine B" 8 used in
the packaging for small computer chips in cellphones and other products!
"wo Gapanese companies are the leading producers of silicon wafers the rawmaterial used to make computer chips accounting for more than 41 percent of the
worldPs supply! "he largest is the hin-Etsu Chemical Corporation! 0ts main wafer
plant in hirakawa was damaged by the earthquake and the factory is down! Q"he
continuing violent aftershocks are complicating the inspection work said $ideki
7ihara a hin-Etsu spokesman in Gapan on &riday! QRight now we canPt say how
badly it was damaged or how long it might take to get started!
hin-Etsu does have factories outside Gapan! QBut the most advanced
manufacturing and silicon-growing processes are done in Gapan says Klaus
Rinnen a semiconductor analyst at %artner! 7nd growing silicon ingots which are
then sliced into wafers is a lengthy delicate process that will be hampered by power
failures or other disruptions he says!
Big chip makers like 0ntel amsung and "oshiba typically hold inventories of
silicon wafers for four to si; weeks of production! QBut after that it will get
tougher 2r! Rinnen says!
"$E Gapan quake some e;perts say will prompt companies to re-evaluate risk in
their supply chains! #erhaps they say there will be a shift from focusing on
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reducing inventories and costs the Iust-in-time model pioneered in Gapan to one
that places greater emphasis on buffering risk 8 a Iust-in-case mentality!
7dding inventories and backup suppliers reduces risk by increasing the redundancy
in a supply system! 0t is one way to enhance resilience e;perts say but there are
others!
"hey point to an e;ample that is well known to supply-chain mavens! 0n )**. there
was a fire at a plant of one of "oyotaPs main suppliers 7isin eiki which made a
brake valve used in all "oyota vehicles! Because of the carmakerPs Iust-in-time
system the company had Iust two or three days of stock on hand! o the fire
threatened to halt "oyotaPs production for weeks!
But "oyota and teams of suppliers in the companyPs supply-chain network worked
round the clock for days to design and set up alternative production sites! "oyotaPs
assembly plants reopened after being shut down for Iust two days!
Q"hat kind of resilient capability 0 think is what wePll see in Gapan over the weeks
and months ahead to put these supply chains back on their feet says Charles $!
&ine a professor at the loan chool of 2anagement at the
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