new materials2

8/12/2019 New Materials2

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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!
http://www.businessweek.com/print/bios/Greg_Blonder.htmhttp://www.businessweek.com/print/bios/Greg_Blonder.htm


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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!
http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=GOOGhttp://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=GOOG


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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


9/49

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!
http://www.businessweek.com/print/bios/Beverly_Behan.htmhttp://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=HPQhttp://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=EBAYhttp://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=ALUhttp://www.businessweek.com/magazine/content/11_06/b4214034528861.htmhttp://www.businessweek.com/print/bios/Beverly_Behan.htmhttp://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=HPQhttp://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=EBAYhttp://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=ALUhttp://www.businessweek.com/magazine/content/11_06/b4214034528861.htm


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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!


12/49

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


14/49

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


19/49

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


20/49

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


21/49

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!


23/49

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


24/49

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


25/49

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-org


26/49

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!


27/49

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


28/49

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


29/49

which lists all the daily deals available in a city! 2ore dangerously for %roupon big

online firms have begun to enter the fray! 0n


30/49

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


31/49

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!


32/49

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


33/49

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!


34/49

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


35/49

"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


36/49

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


37/49

"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


38/49

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


39/49

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


40/49

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


41/49

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!
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42/49

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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43/49

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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46/49


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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


48/49

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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