Author: Max Tomlin

2018 proved to be a bumper year for dealmaking around the globe

Posted on by Max Tomlin

There was no shortage of disruption to global markets in 2018: the world’s two largest economies are engaged in a heated trade war, the clock is ticking on the UK’s departure from the European Union, and scandals at top tech firms have shaken a once-thriving market. Uncertainty has become the norm for companies operating in this environment, but despite the fact that even the experts cannot anticipate what new political and economic challenges will emerge in the next month, let alone the next 12 months, 2018 is expected to have been a milestone year for mergers and acquisitions (M&A) activity.

M&A activity follows the direction of global stock markets and broader economic developments, both of which were strong for most of 2018

In the first nine months of the year alone, deals worth $3.3trn were agreed, up by 39 percent from the same period in 2017. At the time of World Finance going to print, M&A activity for 2018 is on track to beat the $4.96trn record that was reached in 2007 on the eve of the global financial crisis (see Fig 1). But with many regulatory changes still up in the air, there are questions around whether this surge can be sustained.

Rise of the mega deal
Generally, M&A activity follows the direction of global stock markets and broader economic developments, both of which were strong for most of 2018. In August, for instance, the US achieved the longest bull market run on record after a stock rally that started in March 2009 surpassed a previous record. The market more than quadrupled in that time. In the eurozone, Deloitte said a “robust” economic recovery was underway in 2018, driven by strong consumption and employment growth.

Developments in Asia, meanwhile, were expected to account for nearly two thirds of global growth, according to the IMF. It called the region the most dynamic in the world.

The strong economic environment not only encouraged more deals over the course of the year, but it also spurred bigger ones. The value of the average M&A agreement rose to $1.07bn as of September 2018, according to an analysis by law firm Linklaters. This was just above the average values in 2015 and 2007, two other big years for M&A deals. Stefan Brunnschweiler, who heads up corporate M&A at global law firm CMS, told World Finance that while reviewing a list of the deals his firm had been involved in over the past year, he was surprised by how many were above $1bn.

However, the environment has been perfect for mega deals, which are typically defined as being worth $5bn or more. Large companies with access to finance spent the year refocusing their key operations and identifying which assets they could dispose of. “Large parts of companies are spun off and, therefore, mega deals can happen,” Brunnschweiler said.

The significant rise in M&A values even helped mask a five percent drop in the number of deals in the third quarter. Global M&A volume in Q3 2018 slowed after a boom in the first half of the year, according to data from Dealogic. But even with this dip in activity, the total volume in the first nine months of 2018 was still almost a third higher than the previous year, thanks to mega deals.

One of the biggest deals of the year was Takeda Pharmaceutical’s $62bn bid for rival drugmaker Shire. The US telecoms industry was also a strong area for M&A activity in 2018: volume in the sector reached $277.9bn globally in the first nine months of the year, the highest for the period in five years, according to Dealogic. Notable deals agreed during the year included T-Mobile’s $26bn acquisition of Sprint and US cable group Comcast’s $53.3bn takeover of Sky.

Protectionism worries grow
The rising wave of M&A activity in 2018 has been followed by a shadow of growing geopolitical tension. Boardrooms have taken note of protectionist and anti-globalisation policies in some areas of the world, and many worry that this will impact their ability to complete large, cross-border transactions. The most pressing concern on the list is the trade war between the US and China. Multiple Chinese acquisitions have been blocked by the US over national security concerns, including Alibaba’s planned $1.2bn takeover of money transfer firm MoneyGram and Broadcom’s $117bn purchase of Qualcomm. Now, US firms are worried about pursuing deals with any Chinese involvement.

$3.3trn

Value of M&A deals in the first nine months of 2018

$1.07bn

Value of the average M&A agreement in September 2018

5%

Year-on-year drop in the number of M&A deals in Q3 2018

32%

Increase in total M&A volume in first nine months of 2018

Accounting giant EY’s 19th Capital Confidence Barometer, published in October, made it clear that corporate takeover appetite was souring. Just 46 percent of executives expected to actively pursue an acquisition in the next year – the lowest figure for four years. In addition to trade issues between the US and China, the survey of more than 2,600 dealmakers across 45 countries said other trade and tariff issues, such as Brexit and the renegotiation of a trade deal between the US, Canada and Mexico, were compelling some executives to put their M&A plans on hold.

Steve Krouskos, Global Vice Chair for Transaction Advisory Services at EY, wrote in the report that the drop in corporate appetite for M&A was “not surprising”, but that it “remains robust on the whole”. Many companies will proceed with dealmaking plans as they look to gain a competitive advantage, he added. What’s more, in a seeming contradiction to their own plans, many executives predicted the global dealmaking environment would improve in the year ahead. Respondents expected the strongest outlook for the M&A market in the survey’s history, with 90 percent saying it would improve over the next 12 months, up from 57 percent in the same period last year. Just one percent predicted that the M&A market would decline.

While executives do not plan to make acquisitions themselves, they clearly believe others will keep the market alive. The authors of the report explained: “We have seen this dichotomy before in our survey. This is an indication that we will likely see a temporary pause in activity. A brief stop to refuel, so to speak.” This means there may be fewer deals in the near term as companies focus on the integration of any new assets they picked up in the last year.

This introspection will also cause firms to consider the strengths and, just as importantly, the weaknesses of their own portfolios. So while the next year or so may not be as strong as 2018, more assets will likely come to the market and cause deal activity to pick up as early as the second half of 2019.

Positive disruption
Brexit remains an issue for some dealmakers. As part of EY’s Capital Confidence Barometer, a survey of 156 UK firms found that the majority planned to increase their focus on existing operations rather than M&A over the next 12 months, sending M&A intentions to a four-year low. As the 2019 Brexit deadline looms, just 45 percent of UK respondents said they were actively seeking to pursue deals in the next 12 months, down 20 percentage points from July.

As the world’s most important dealmaking partner, the US economy remains the strongest indicator of M&A activity

But those outside the UK have not been put off by the prospect of Brexit Britain. According to Brunnschweiler, there was a surprising uptick in deal activity in the UK over the past year, helped in part by the drop in the country’s currency following the 2016 referendum, but also due to the fact that companies have been forced to reassess their needs in light of the pending regulatory changes. “M&A was pretty active in the UK [in 2018], which leads me to the conclusion that the insecurity and the need for companies to reposition themselves led to quite some deal activity,” Brunnschweiler said.

Others experts have said disruption to regulatory standards or the political norm could actually encourage deals. In an interview with CNBC, Robert Kindler, Vice Chairman and Global Head of M&A at Morgan Stanley, said companies that do not know what to expect in this unpredictable climate could act unpredictably as they come up with new ways to adapt. But Brunnschweiler believes the reaction towards Brexit was the exception to the rule: “All of these geopolitical tensions create an insecurity, and an insecurity normally leads to a situation where companies do less M&A.”

Change on the horizon
In any case, if it holds true that M&A activity follows stock markets and economic indicators, dealmaking in certain parts of the world could be in trouble. The STOXX Europe 600, an index of European stocks, is on track for its worst year since 2011, and Institutional Brokers’ Estimate System data from Refinitiv showed that European companies in the third quarter were delivering their most disappointing earnings in nearly three years.

What’s more, in September, the Organisation for Economic Cooperation and Development cut global growth forecasts for 2018 and 2019, warning that global economic expansion may have peaked. China’s economy, while still growing, has also slowed to its weakest rate of growth since around the time of the financial crisis. As 2018 headed to a close, Brunnschweiler warned that he was not as optimistic as he was in late 2017. “I think a positive environment is still what is driving M&A activity, and indications are there that a boom that was happening for a couple of years is coming to an end,” he said. “If the stock market goes down, if the economy slows down, that will in parallel also slow down M&A activity.”

As the world’s most important dealmaking partner, the US economy remains the strongest indicator of M&A activity. But warning signs are beginning to emerge there, too. Two thirds of US business economists in a recent poll by the National Association for Business Economics said they expect the next recession to begin by the end of 2020. The survey found that 10 percent of economists were expecting the next contraction to begin in 2019, while a further 56 percent said it would occur in 2020.

Experts tend to agree that the biggest current threat to the economy, and thus to resilient M&A activity, is global trade policy. With a number of trade issues remaining unresolved at the end of the year, a period of uncertainty that began in 2016 will likely extend into 2019, and possibly beyond. But companies cannot put their corporate strategies on hold indefinitely: while this M&A boom may have ended its run in 2018, another could be just around the corner.

Goldman Sachs continues to build on its prestigious banking legacy

Posted on by Max Tomlin

Unlike in other countries, America’s monarchs do not reside in palaces, but rather on Wall Street. Their crowns are constructed not of gold, but of money. Banking dynasties such as the Morgans, Mellons and Rockefellers have enjoyed an almost deified reverence since the inception of Wall Street in the 1890s. When J P Morgan, founder of the eponymous investment bank, died in 1913, the New York stock market closed for two hours and the flags lining Wall Street were flown at half-mast while his body passed through the city.

Goldman Sachs has long been considered the behemoth of banking across the globe

The most revered, though, is unquestionably the resident of 200 West Street in Manhattan: Goldman Sachs has long been considered the behemoth of banking, particularly in the US but also across the globe. As William D Cohan stated in his book Money and Power: How Goldman Sachs Came to Rule the World: “Goldman Sachs has been both envied and feared for having the best talent, the best clients and the best political connections, and for its ability to alchemize them into extreme profitability and market prowess.”

Cohan told World Finance: “It’s harder to get a job at Goldman than it is to get into Harvard.” Author Anthony T Hincks, meanwhile, once commented: “[Goldman Sachs knows] who the president will be before he does.” But the world of banking is changing, and while political connections and investment prowess are certainly valuable, their influence is muted without a loyal customer base.

From rags to riches
Goldman Sachs started life as a sole proprietorship that bought and sold IOUs from New York businessmen. It was set up by Marcus Goldman, a German Jewish immigrant who came to the US in 1848 to find out whether the streets really were paved with gold. Little did he know.
Goldman initially set up shop as a clothing merchant in Philadelphia, which at the time was considered an ‘appropriate’ profession for a man of his standing. He did well for himself, producing five children and amassing a $2,000 personal estate by 1860. But Goldman dreamed of bigger and better things, so, in 1869 – the same year he moved to New York City – he turned his hand to the business of money. He rented a tiny office in the cellar of 30 Pine Street and hammered a plaque to the door that read ‘Marcus Goldman, banker and broker’. Although his life was rather unglamorous and his desk was next to a coal chute, Goldman always wore a tall silk hat and a Prince Albert frock coat.

It wasn’t too long before his grand ambitions turned to reality. By 1882, the business was trading around $30m of commercial paper annually, and held $100,000 in capital. Goldman decided that it was time for a partner, and brought in his son-in-law Samuel Sachs that same year, with Goldman’s son Henry joining in 1885. Just like that, Goldman Sachs & Co was born.

The firm enjoyed considerable success over the following few years, joining the New York Stock Exchange in 1896 and stockpiling $1.6m of capital by 1898. Tragedy struck when Goldman succumbed to a fatal illness in the summer of 1904, leaving the company in the hands of Sachs and Henry Goldman. The two men had starkly different attitudes on almost everything, which would later prove to be Goldman Sachs’ downfall.

In the meantime, the company began to consolidate its rapidly growing financial influence. It entered the IPO market in 1906, taking the hugely successful retail firm Sears public. Henry also began to establish personal stature on Wall Street, and in 1914 was sought out by the government to help design the Federal Reserve System. “Here, at the inception of the government’s regulation of Wall Street, Goldman Sachs was already advising politicians how to do the job,” Cohan wrote in Money and Power. At the time, Henry expressed a desire for the New York Fed to be the most powerful reserve bank in the country, which it is to this day, with Goldman Sachs remaining one of its most important affiliations. In fact, from 2009 until June 2018, the governor of the New York Fed, William Dudley, was an ex-Goldman Sachs partner.

Breaking point
The reign of Wall Street’s dynamic duo came to an abrupt end in 1917, when Henry was forced to resign over concerns about his pro-German stance. His departure caused a rupture between the two families, and left the company that his father had founded entirely in the hands of the Sachs family.

In its current incarnation as an investment banking giant, Goldman Sachs has experienced significant highs and lows over its 149-year history. During the Great Depression, the firm was accused of engaging in share price manipulation and insider trading, which led Fortune magazine to write: “In the [1929] crash, the name Goldman Sachs emerged as a sort of symbol of everything that was bad and ill-fated about Wall Street.”

Just over 30 years later, Goldman Sachs found itself embroiled in controversy once more when the Penn Central Transportation Company went bust with over $80m in commercial paper debts, many of which had been issued by the bank. The sub-prime mortgage crisis in 2007 brought Goldman Sachs the closest it has ever come to collapse, when the firm was found to have profiteered from lending to high-risk borrowers and to have exacerbated the subsequent recession. This led to its transformation into a bank holding company, which was part of an overarching effort to regain the trust of its customers.

Surprisingly, these missteps, catastrophes and near-collapses have barely left a dent in the banks’ golden armour: current total assets stand at a remarkable $958bn, although that is less than its pre-crisis peak (see Fig 1). And that is what is quite so remarkable about this institution: that it is has escaped unscathed, while its competitors have crumbled around it.

Cohan believes that there are several reasons for this. “I think Goldman has always been really good at reinventing itself,” he told World Finance. “I [also] think it has a deserved reputation for excellence, for attracting the best and the brightest, and training them in the Goldman way.” He added that the bank’s market agility has allowed it to spring back from the edge of collapse: “[It] knows how to make money and [it] always figures out how to do it. Even when it looks like [Goldman Sachs] is behind the eight-ball.”

Fresh trials
In the modern era, the bank faces a new challenge: in order to survive commercially, it must attract new clients, and not just figures from the upper echelons of business, politics and finance. Instead, it must appeal to typical man-in-the-street customers, too. In order to do that, it has had to completely redesign its public relations strategy, as Cohan explained: “Once upon a time, [it] didn’t engage as much [with the public], but that’s no longer true. [It’s] a public company, [it] has to file quarterly statements, so [it] has shareholders, the company is global… The bottom line is that [it] has to engage and [it] realises that.”

The global recession in 2008 played a significant role in that shift in priorities, Cohan believes. “I think [it] also had a bit of a rough patch, to put it mildly, after the financial crisis, and I think [it] learned a difficult lesson about the need to be more engaged with the public and shareholders and to be concerned about [its] public relations. [It’s] very much focused on that now,” he added.

The jewel in the heart of Goldman Sachs’ commercial crown is its new savings account, Marcus, which launched in October 2016 in the US and in October 2018 in the UK. Promising a substantial 1.5 percent interest rate, the account is named after the original founder.
It’s an interesting decision from the firm to return now to its family-run roots: the bank became publicly traded in 1999, and there are no members of either the Goldman or Sachs families working for the firm today. The last of the Sachses retired from the company in 1959.

Perhaps it’s a way for the bank to remind customers of its illustrious legacy. As the financial services sector fills up with challenger banks and fintech firms, promising innovation while sacrificing clout, legacy banks are examining new ways to ensure that they remain relevant in the modern era. By naming the account after its founder, Goldman Sachs is gently reminding consumers of its rich heritage, as well as the journey that the bank has been on to cement its distinguished market position. After all, monarchies are not built on technology and innovation: they are constructs of prowess, heritage and wealth.

Mashreq Bank continues to take the digital lead in the Gulf

Posted on by Max Tomlin

Spearheaded by the UAE, the Gulf region is gradually transitioning into a cashless society. In line with this shift, we are seeing more and more fintech start-ups disrupting the payments and financial landscape. As bankers, we welcome the innovation.

Digital infrastructure enables out-of-the-box thinkers to experiment with new products, processes and services

Digital payments offer genuine economic benefits, including providing much greater convenience for all types of stakeholders in the economy. Demonstrating the potential in its recently released Cashless Cities: Realising the Benefits of Digital Payments report, Visa found that digital payments could bring up to $2.2bn in net benefits to consumers, businesses and the government in Dubai each year. This figure soars to $6.7bn for Riyadh alone. Both cases highlight the massive potential for large untapped markets that are further behind in their penetration of cashless payments.

Mashreq continues to lead the way in encouraging the adoption of digital payments in the UAE and beyond. For instance, we were the first bank in the region to introduce Alipay, China’s wildly popular mobile and online payment platform. We were also one of the first banks in the UAE to incorporate both Samsung Pay and Apple Pay when they launched in the UAE in April 2017 and October 2017 respectively. Also in 2017, we launched our own digital wallet, Mashreq Pay, which allows our customers to simply tap and pay at retail outlets, making their payment experience far quicker, easier and more secure. In addition, we are part of the Emirates Digital Wallet initiative and are working closely with the UAE Government to enable accessible cashless solutions for the unbanked and underbanked segments of the population.

$2.2bn

Annual net benefits digital payments could bring to Dubai

$6.7bn

Annual net benefits digital payments could bring to Riyadh

We also have plans in place to introduce new digital platforms into the market that will offer customers much more choice in the way that they can make payments. As the oldest bank in the country, we are fully aligned with the vision of the UAE Government to make all government utility services cashless by 2021. Cash still remains dominant in the country today, but with innovation on the rise within the banking sector and a tech-savvy population that readily embraces digital payments, a cashless society does not seem too far away.

Branching out
In line with this emerging trend, other significant changes are being witnessed in the region. According to the UAE Banks Federation’s annual report, banks in the UAE removed 75 of their branches in 2017 alone. Foreign banks, meanwhile, removed three percent. While brick-and-mortar branches are still integral to the banking profession, they have been changing to offer a different experience for customers and financial institutions alike. Previously, customers would visit their neighbourhood branches in order to conduct a variety of day-to-day transactions, such as making transfers, withdrawals and deposits. Increasingly, however, they now use digital platforms to carry out the same tasks. This migration towards online and mobile banking enables them to save valuable time, money and effort. This also allows the banks themselves to allocate their resources far more efficiently – and progressively, too.

At Mashreq, we have responded to this evolution by transforming our branch network. Today, we focus on advisory services that encourage greater human interaction between employees and customers. For everyday transactions, our use of state-of-the-art technology enables customers to benefit from a wide range of self-service facilities. We also have plans in place to expand the range of these solutions in order to make self-service banking much quicker, easier and more accessible across our entire network.

Mashreq continues to lead the way in encouraging the adoption of digital banking in the UAE and across the region.

Embracing digital
There is no question that the digital economy will continue to dominate the key strategic focus of the banking profession in the future. Consumer lifestyles are changing at a pace unlike ever before. With this shift comes a large and growing appetite for digital services – whether it’s to shop, order food, pay bills or bank, the modern customer demands the convenience of doing so at the push of a button.

Technologies like ATMs, which are commonly used by foreign visitors, will soon be upgraded to interactive teller machines, acting as round-the-clock service centres rather than merely being cash-dispensing machines. Additionally, with regional and international digital wallets such as Alipay slowly gaining traction, tourists are expected to migrate further towards cashless transactions, particularly as many prefer to avoid the hassle of dealing in physical foreign currencies.

With all these changes afoot, banks must be able to complement the fast-paced lifestyles of their customers by offering a seamless payments experience across all channels. This, in turn, will enable customers to make quick everyday transactions, while also allowing the bank to deliver expert advisory services whenever more important financial decisions need to be made.

Today, 92 percent of Mashreq’s financial transactions are conducted through automated digital channels, while 65 percent of enquiries are made online or via mobile. Given such widespread adoption, we continue to invest in our digital capabilities. In fact, we anticipate this figure to have reached close to 97 percent by the end of 2018.

Digital-only banks are expected to play a huge role in this shift, using AI technology and big data to offer a simpler, more intuitive and more innovative banking experience to all customers. Mashreq Neo, the first digital bank in the UAE to offer a full range of banking services, is a successful example of this shift: over the past year, we have seen an astounding uptake of Mashreq Neo consumers. We also have major projects in the pipeline to expand these services beyond personal banking in order to cater to businesses and other client segments as well.

Digital infrastructure supports innovation, as it enables out-of-the-box thinkers to experiment with new products, processes and services in a faster and more efficient manner than ever before. Digital systems also offer innovators the ability to evaluate projects more precisely and accurately, thereby enabling them to judge their potential success or failure in advance. This, in turn, will enable them to save invaluable resources, including time, money and talent.

Therefore, innovation is key in this competitive landscape, and going beyond simply offering digital platforms to deliver a truly superior customer experience will be crucial to remaining relevant in such a fast-changing industry.

Remaining agile
Data plays an invaluable role in the world of digital finance. It offers real-time customer insights and analytics, which allow banks to customise their products and services to cater to their clients’ individual financial needs.

A great example of this is our recently launched ‘mortgage 2.0’ product: thanks to readily available real-time data from Al Etihad Credit Bureau and Mashreq’s own technology, which shares insights with our relationship managers, we have developed a new pre-loan approval facility. This mechanism allows our customers to purchase homes in the UAE faster and easier than ever before.

Mashreq Neo also constantly uses real-time data and analytics to make digital-only banking a truly intuitive experience. The data collected from Mashreq Neo consumers helps the bank to analyse the most relevant products and services that matter to this segment. This enables it to invest and expand in the areas that respond to our customers’ financial needs.

In this day and age, it is more important than ever to be agile. Agility impacts operational efficiencies, which in turn translates into a quicker and more enhanced customer experience. As a digital banking leader in the UAE, Mashreq has implemented an agility-based model. It has also leveraged the use of AI, big data, machine learning and cognitive technologies within both our back-end and front-end systems.

Financial technology companies across all sectors worldwide are rapidly disrupting the existing landscape. Against this backdrop, the UAE has embraced this approach with various funds and investment opportunities. Mashreq fully endorses and supports this vibrant sector – indeed, we view fintech firms as strategic partners that share our passion for innovation. The tangible benefits of fintech companies are evident in the way they leverage technology to deliver cost-efficient, user-friendly solutions that offer a far superior customer experience. With our innovation-led philosophy, Mashreq takes pride in having the strength of a traditional financial institution with the heart of an innovative fintech start-up.

New sulphur fuel laws look set to shake up the shipping industry

Posted on by Max Tomlin

Each year, billions of tonnes of goods traverse oceans on ships the size of warehouses. With the spread of globalisation, the volume of goods traded by sea has grown by 300 percent since the 1970s, according to the United Nations Conference on Trade and Development (UNCTAD). Today, ships carry more than 80 percent of all goods.

While the global maritime industry is an invisible force for most of us, former UN Secretary-General Ban Ki-moon once called it the “backbone of global trade and the global economy”. And it is only getting bigger: UNCTAD predicted in 2017 that seaborne trade volumes would increase by around 3.2 percent each year until 2022.

The high-sulphur fuel used by the shipping industry has long been under scrutiny

The shipping industry is vital to modern life, but it is also responsible for emitting around a billion tonnes of carbon dioxide (CO2) a year. As part of the International Maritime Organisation’s (IMO) broader plan to clean up the industry in the coming decades, ships will be required to reduce their sulphur emissions by more than 80 percent from 2020. Changing the rules for a sector that guzzled half of the world’s total demand for fuel oil in 2017 will have a significant knock-on effect for the entire oil value chain, impacting everyone from truckers and airlines to ordinary consumers.

Sea change
The high-sulphur fuel used by most of the shipping industry is a thick, opaque substance that has long been under scrutiny by the IMO. This heavy bunker fuel is made from the dregs of the refining process and, when burned, it releases noxious gases and fine particles that damage the environment and degrade human health.

Despite these side effects, it is widely used across the shipping industry. In 2016, global demand for high-sulphur fuels stood at around 70 percent of overall bunker fuels.

300%

Growth in volume of goods traded by sea since the 1970s

3.2%

Predicted annual increase of seaborne trade volume each year to 2022

$60bn

Expected cost to shippers for moving to lower-sulphur fuel

90,000

Approximate number of commercial vessels on the world’s seas

The IMO has been regulating sulphur and nitrogen oxide (SOx and NOx) emissions from ships at sea since 1997. In 2012, the IMO significantly strengthened these requirements, capping the limit for sulphur in fuel oil at 3.5 percent. Now the organisation is going even further by limiting sulphur content to 0.5 percent from January 1, 2020, giving shippers limited time to make extensive operational changes.

Full compliance with this regulation will cause dramatic changes from as early as mid-2019. Analysis by IHS Markit said the switch would result in a “period of huge upheaval in global oil markets, extraordinary margins for some oil refiners, and a potential doubling of fuel costs for shippers”. Consulting firm Wood Mackenzie estimated moving to lower-sulphur fuels could send shippers’ costs up by as much as $60bn in 2020.

“The cost of moving goods by sea will go up, which means consumers will pay more for everything,” Alan Gelder, Wood Mackenzie’s vice president of refining, chemicals and oil markets, told World Finance. “It might only be small, but the cost of moving things across the oceans will rise.”

The ripple effect
The refining industry, which produces the fuel oils used by shippers, will also take a hit from the IMO’s regulations. This will make it difficult for the industry to produce compliant products unless they raise prices, according to Rick Joswick, who is in charge of pricing and trade flow at S&P Global Platts Analytics.

“[Refiners] have to take steps that are currently [uneconomical], and the only way that will happen is if the prices move to allow the refiners to do it and not lose money on it,” Joswick said. As the price of low-sulphur fuels such as marine gas oil spikes higher, so will diesel and jet fuel, ensuring the impact of the IMO’s regulation is felt far beyond the shipping and refining industries. For instance, the rise in the price of diesel means the cost of moving goods on trucks within a country will become more expensive. And because the price of jet fuel is so closely linked to that of gas oil, airline profits are also expected to come under pressure.

“Airlines are very much affected by the price of jet fuel,” Joswick told World Finance. “It directly relates to the fare they charge, and they have seen the number of passengers is really responsive to what the fare is, so it’ll be a challenge.”

This long chain of cause and effect could end up having a knock-on effect on the whole global economy. One energy economist told The Economist that the rising price of bunker fuel and the ripple effects that followed could potentially wipe 1.5 percent from global GDP in 2020.

Pathways to 2020
Shippers can comply with the sulphur regulations in a number of ways, and despite the anticipated price hikes, many are expected to switch to the low-sulphur fuels that are already common in emission-control areas.

Alternatively, a vessel can continue to use heavy bunker fuel if it installs scrubbers, which capture harmful pollutants from exhaust gas. Although an upfront investment is required, these shippers will have the competitive advantage of being able to use cheaper high-sulphur fuels in the future. Energy company S&P Global Platts predicted a “vast amount” of excess heavy fuel oil would be available following the 2020 deadline. After the initial investment, Gelder found that ships with scrubbers can expect a rate of return of between 20 and 50 percent.

Over the past six months, the number of companies looking to use scrubbers has accelerated. “I think more and more the shippers are saying scrubbers look like an economical choice that they can run with, as opposed to just trusting that the refining industry will be able to give them a product at a price they like,” Joswick said.

Ships with scrubbers are still in the minority, though: as of August 2017, IHS Markit said about 360 ships had installed scrubbers, and by May 2018 that had risen to 494 vessels. This is out of a total of around 90,000 commercial vessels on the world’s seas.

In the longer term, liquefied natural gas (LNG) is expected to become a more prominent part of the shipping sector’s fuel supply. LNG produces almost no SOx or particle matter emissions and generates about 90 percent less NOx, according to the OECD. Burning LNG also produces 20 to 25 percent less CO2, which the IMO is also looking to limit. Challenges remain around the infrastructure needed to support the use of LNG, however, and for the most part, its use is limited to new build vessels.

A question of compliance
When the IMO announced its sulphur cap, questions immediately emerged about how the body, which has no enforcement capabilities, would implement the regulations. Experts predict that even without any checks, the majority of companies would not be willing to risk their reputation just to save money on fuel. Gelder told World Finance: “Publicly listed companies that have supply chains with other publicly listed companies expect the supply chain to follow the law.”

From an environmental point of view, the IMO’s regulations are flawed

Additionally, the vast majority of bunker fuel sales go to ships owned by the likes of ExxonMobil, Shell or Maersk – firms that are very unlikely to cheat the system. “It’s not in their interest. It’s not in their DNA,” said Joswick, who spent over 20 years in ExxonMobil’s refining business.

Additional pressure has come from the insurance industry, which warned that shippers failing to use compliant fuels will be deemed unseaworthy, meaning the insurance provider would not be liable for any claim the owner makes. With no checks, Gelder would expect a global compliance rate of about 70 percent.

Official layers of enforcement will likely contribute to an even higher rate of compliance. The country where a vessel is registered – otherwise known as its ‘flag country’ – has a responsibility to enforce the regulations, and a carriage ban enforced by port states will prohibit ships from carrying high-sulphur bunker fuels unless they have scrubbers.

Ships will also be required to maintain electronic records of the fuels they purchase and use.

From his experience at ExxonMobil, Joswick said ships are very unlikely to cheat knowing that they could be blacklisted from any future work with a big company. “You add up all these things, and I think you’re going to come up with a fairly high level of compliance,” Joswick said. Full compliance could be achieved in about four or five years, according to Gelder.

Healthy outcomes
While the IMO’s regulatory changes will certainly cause some level of disruption, it will not last forever. “It just takes time,” Joswick said. “Major investments take four or five years, and [shipping companies] were given two and a half.”
Despite these pending costs, it is important not to lose sight of the benefits of the sulphur limit. In addition to causing acid rain and air pollution, SOx can damage people’s respiratory systems. When burned, the particles that are released can enter the bloodstream and damage the lungs and heart, leading to heart attacks, asthma and premature deaths.

A 2018 study published in Nature Communications found the impact of the sulphur ban would be “substantial” (see Fig 1). Each year, exposure to emissions from the shipping industry resulted in about 400,000 premature deaths from lung cancer and cardiovascular disease, as well as around 14 million childhood asthma cases. If the industry complies with the requirement for lower-sulphur fuels, the number of premature deaths would fall by 150,000 and childhood asthma cases would drop by 7.6 million, the researchers found.

But from an environmental point of view, the IMO’s regulations are flawed: while scrubbers are expected to prevent air pollution, they could end up causing even more pollution in the sea. Gelder explained: “It is perfectly legal to wash the exhaust gas from the ship with seawater and directly discharge that seawater. So you end up with not having air pollution but ocean acidification.”

To fix this loophole, limits must be imposed on oil refiners. “If you wanted to take sulphur out, the best place to take it out is in the refinery, but there’s no obligation on the refiners in this legislation,” Gelder said.

Further muddying the waters is research from as far back as 2009, which shows that sulphur emissions actually have a net cooling effect on the planet. Sulphur emissions scatter sunlight in the atmosphere and help form or thicken clouds that reflect sunlight away.

Although it is admirable that the IMO is pursuing such sizeable changes, this move will come with an equally substantial cost to the global economy. For this reason, the industry must be sure the most robust regulations possible are being implemented. Cutting sulphur will almost certainly prevent premature deaths and illnesses, but regulations must go further to ensure environmental benefits are equal to public health outcomes. Otherwise, the shipping sector risks only delaying sulphur’s chokehold on the planet.

Bladex is using its expertise to help ease supply chain issues in Latin America

Posted on by Max Tomlin

One of the most significant developments in foreign trade in Latin America came with the establishment of Mexico’s manufacturing sector and the development of ‘maquiladoras’ – essentially, factories run by foreign companies that operate under preferential tariff programmes. To provide a sense of the magnitude of change, 20 years ago, 80 percent of Mexico’s exports were commodities – primarily crude oil. Today, almost 90 percent of Mexico’s exports are manufactured products.

Structural imbalances and significant infrastructure deficiencies make Latin America dependent on foreign capital

In the 1980s, the maquiladora industry also spread to other parts of Central America. Today, it represents about 54 percent of Central American exports, but only five percent of Latin America’s total exports. These exports are primarily low value-added products. Mexico, on the other hand, has been able to create a complex value-added manufacturing base for its own exports. Beyond the Mexican phenomenon, exports from Latin America have primarily been a
commodity-based story.

Open for business
Foreign imports into Latin America fluctuate with the degree of economic openness each country exhibits – and that openness is very much a function of the prevailing political winds. Although the dynamics may shift over time, foreign trade continues to represent a key economic component for Latin America. The Foreign Trade Bank of Latin America (Bladex) has played a vital role in facilitating this trade, providing solutions for financial institutions, companies and investors. World Finance spoke with Gabriel Tolchinsky, CEO of Bladex, about the company’s commitment to the region’s present and future success.

54%

of Central American exports come from the maquiladora industry

5%

of Latin American exports come from the maquiladora industry

The 1970s and 1980s were tough for Latin America. With the onset of inflation came significant political turmoil and a mistrust of local currencies, which meant foreign trade became a desperately required source of income for Latin Americans. Governments and central banks in the region grappled with how to promote trade and bring much-needed hard currency into the region.

Foreign banks were already full of Latin American credit – mostly through loans to governments that were running significant deficits as they sought to prop up their inflation-battered economies. Local banks were not equipped to pick up any significant slack left by the dearth of foreign banks to finance trade transactions, as their own sources of funding were limited.

“The idea behind Bladex was to establish a bank with a regional footprint that could lend to the local banks,” Tolchinsky explained to World Finance. “Local banks, in turn, would use those funds to finance foreign trade. It was a brilliant idea then and continues to be today.”

As a result of the work undertaken by Bladex, many local banks now have access to international funding and many foreign banks have a local presence. Nevertheless, Latin America continues to experience sharp economic convulsions from commodity price volatility, weather patterns, political turmoil and structural deficiencies. Fiscal problems are prevalent throughout the region, and some countries also experience balance of payment issues.

“Under a stable environment for both commodity prices and non-Latin-American economic growth, we believe trade will continue to grow, on average, just shy of six percent annually between 2019 and 2023,” Tolchinsky said. “This is significantly below the last positive cycle, from 2003 to 2011, when Latin American trade grew on average above 14 percent per annum.”

Even considering these challenges, foreign trade in Latin America is set for more growth. The two main drivers in Latin American trade are higher prices for key commodities and incremental foreign demand, particularly in the US and Asia. Latin American exports generally correlate with commodity prices and external economic growth – whatever the level of trade, Bladex is sure to have the right solutions for all customers and markets.

Opportunities aplenty
The current political and economic climate in Latin America is uncertain. The US, Latin America’s biggest trading partner, is exhibiting signs of disillusionment with the current global commercial order. Should the US cease to be a reliable market for Latin America, it’s important to understand the implications. If Peru deems China a more reliable partner for purchasing agricultural products, it will also buy more Chinese-manufactured products. Trade relations will change, logistics will be set up and new agreements will ensue.

Further, structural imbalances, such as fiscal and current account deficits and significant infrastructure deficiencies, make Latin America dependent on foreign capital. Although many countries develop local capital markets, foreign investor participation is still crucial because foreign capital owns a significant percentage of the assets in local markets. In Mexico, for instance, foreign investors own about 60 percent of the local treasury bills and price these assets in terms of their potential for US dollar returns.

“This dependency on foreign investors effectively strips away domestic monetary policy control,” Tolchinsky explained. “Local interest rates can fluctuate with the entry and exit of foreign investors and inhibit the central bank’s ability to lower interest rates to stimulate the local economy or raise interest rates during economic expansions. So even though inflation is under control and economic growth is subpar, Mexico is on a path of raising interest rates, just to keep up with the US and retain foreign investors.”

After the turbulent 1970s, 80s and 90s, democracy now appears to be entrenched in most of Latin America. But as politicians in many countries are learning, democracy is about more than just voting: governmental accountability and available legal processes are shaking another foundation of the business, as well as political classes that previously operated with significant impunity. It’s worth noting how many Latin American governments and business leaders are subject to corruption investigations.

“Uncertainty and volatility create opportunity,” Tolchinsky said. “It is in these turbulent times that Bladex excels. We can distinguish which entities are set to endure while foreign capital tends to flee. We’re optimistic about the future of Bladex and its growth potential.”

Opportunities are already being identified: Bladex is bullish about Colombia, believing that credit demand will start growing there and local banks alone will not be able to fill the gap. In Mexico, disappointment with a policy shift set by the incoming administration is repricing national assets. This repricing also represents an opportunity for Bladex to originate short-term assets. In Brazil, meanwhile, elections are over, which means it should also start growing. Even in Argentina, which is likely to enter a recession while complying with its IMF programme, there are some strong companies in existence. At Bladex, the economic trajectory of each Latin American country is carefully considered, whether times are good, bad or somewhere in between.

A regional hub
There currently are some standout trends developing in the Latin American market; the first of these concerns exports of value-added products along international supply chains. It is likely that some countries may try to increase their exports to new markets, such as Asia, as trade channels get redefined. The second is that ‘multilatinas’ – Latin American companies that have outgrown their home market and become multinational – are set to play a larger role in regional growth. The third relates to intraregional trade, which is set to increase from 16 percent to 23 percent.

In addition to these trends, a number of potential risks have appeared on the horizon. These include the continued strength of the US dollar, possible protectionist measures by Latin American countries, tighter financial markets, and volatility stemming from geopolitical events. Bladex has its own risks to navigate: the main challenge will come in the form of new financial technology companies intent on disrupting established players within the finance industry.
“Fintech companies already present a challenge for financial institutions in the developed world and will eventually enter into Latin America,” Tolchinsky said. “At Bladex, we have started streamlining our operational infrastructure, our processes and procedures while also reducing legacy technological complexity. We believe that streamlining is the first step in pursuing technological efficiencies.”

There are a few unique aspects that will help Bladex fight off its competitors: first, it has a regional footprint that allows it to price Latin American cross-border risk. This means that Bladex can better evaluate risk and optimise trade value chains. In addition, Bladex’s role as a reference bank in Latin America means it is often the first choice for businesses operating in more than one market. However, Bladex doesn’t aim to compete with local banks. In fact, more often than not, local banks are its clients.

“Bladex was initially set up to lend to local banks,” Tolchinsky said. “Most local banks are our clients and we have excellent relationships with them throughout the region. We not only refer clients to these local operators, but we also participate – and invite local banks to participate – in syndicated transactions. Syndications are an integral part of our business and are often the avenue to finance mergers, acquisitions or expansions throughout the region.”

During the first half of 2019, Bladex aims to solidify its operating model to more efficiently support its existing business processes. As its operational and technology platform improves, there are numerous growth paths it can take to expand its product breadth. If it is successful, there is little doubt that it will be recognised as the leading institution for supporting trade and regional integration across the Latin America region. Bladex certainly has lofty goals, but there is no reason why they cannot be achieved.

Making the case for beta leadership

Posted on by Max Tomlin

For much of the 20th century, across all areas of the business ecosystem, the strongest and most successful style of leadership was considered to be the ‘alpha’ approach. Stereotypically, this equated to the person with the loudest and most aggressive voice immediately being lauded as the most authoritative.

Although beta leadership is often pitted against its more authoritative alpha cousin, the two aren’t mutually exclusive

In recent years, however, the landscape has shifted away from the alpha paradigm into more conciliatory, constructive and altogether kinder leadership. The ‘beta’ leader may not shout the loudest, but that certainly doesn’t equate to weakness – in fact, introducing this model of management can prove more beneficial in the modern workplace than the wholly alpha style of yesteryear.

Collaboration, not competition
What does it mean to be beta? Entrepreneur, venture capitalist and ‘corporate anthropologist’ Dana Ardi went in search of the answer in 2013, when she penned The Fall of the Alphas: The New Beta Way to Connect, Collaborate, Influence and Lead. Ardi was inspired by her time working in private equity and venture capital, during which she encountered many businesses with authoritarian or alpha leaders. These leaders, she told World Finance, had a “myopic” way of thinking about growth, with new ideas “unable to be infused”. By contrast, she likened beta-led firms to orchestras, with “the best players and the best instruments for that moment in time, that piece of music you have to play, using the talents of the entire team to be able to get there”.

89%

of Americans think it is crucial for leaders to create a safe workplace

58%

of Americans think it crucial for leaders to be compassionate and empathetic

Broadly speaking, then, being a beta leader means adopting a collaborative and consensus-driven approach. It relies on understanding that although a leader occupies a senior position in an organisation, they are also a cog within the
corporate machine.

Beta leadership is not about being dictatorial, but about delegating: it’s about recognising the contribution that every employee makes to a high-performing business, and giving them the space to be creative and enjoy what they do, knowing that this leads to happier and more productive teams in the long run.

It’s a misconception, though, to think that beta leadership is in any way associated with weakness. “Being beta doesn’t mean absolving yourself of responsibility. You’re still a leader,” said Ardi. Rather, she said: “It’s about going down a few layers within an organisation, and letting people feel empowered to take responsibility.”

A paradigm synergy
Although beta leadership is often pitted against its more authoritative alpha cousin, the two aren’t mutually exclusive. It’s possible for a leader to have both alpha and beta characteristics, and to deploy one or the other depending on the situation they find themselves in.

Clinical psychologist and CEO of Leadershift Jeffrey Hull explored this duality when he created his FIERCE model. FIERCE stands for flexible, intentional, emotional, real, collaborative and engaged, and functions on a sliding scale, with each category representing a spectrum of alpha to beta. For instance, in the flexibility dimension, the alpha leader will be direct and authoritative, thereby taking a minimally flexible approach. By contrast, the beta leader will be inquisitive and will collect feedback from employees to reach a consensus on decisions, representing a maximally flexible approach.

The model, Hull told World Finance, is designed to enable leaders to examine their own communication and leadership style, as well as how they collaborate with their team. “It provides a framework for a leader to reflect on their strength and to consider expanding their portfolio of skills,” he said.

Hull’s sliding scale model makes an important point about leadership in general – that it’s not about throwing the baby out with the bathwater. There’s nothing to say that beta leaders should never be authoritative or decisive – rather, this style of leadership should be reserved for specific situations, and shouldn’t be a person’s sole mode of functioning or communication. “As an executive coach, I frequently have to work with leaders whose particular way of operating has become problematic or is too limited. That one-trick pony style of leadership is very often unsuccessful,” Hull explained.

Beta banking
Of all the sectors that could benefit the most from a few more beta leaders, financial services is high on the list. Legacy institutions, in particular, are famed for taking a strongly alpha approach. This is often due to a compassionate or community-orientated approach being viewed as ‘soft’ and incompatible with organisations that need to be ‘tough’. However, Hull said: “The research on effective leadership and on high-performing teams is really beginning to show that a more consensus-driven leader is often more successful in the long run.” Indeed, the Pew Research Centre recently found that 89 percent of Americans consider it imperative for leaders to create a safe and respectful workplace, while 58 percent think it essential for leaders to be both compassionate and empathetic.

Even the most alpha of legacy institutions can implement a beta leadership culture. According to Ardi, with “willingness to change, evolved leaders and a team effort”, the beta framework can simply be folded in. This change can also dramatically improve the fortunes of a company, allowing it to function more efficiently and, as such, compete in a new way. Ardi told the story of a successful financial services firm, from which the CEO was departing due to ill health. Ardi was invited in to help with the hiring process for his replacement, but when she arrived, she found that the competitive alpha culture within the business was so strong that it was creating an unhealthy atmosphere, with various managers constantly engaging in one-upmanship and vying for the next promotion.

Ardi sought to tackle it from the top: rather than allowing the board to hire an alpha CEO and upset the apple cart within the senior team, she transformed the business into a ‘three-legged stool’, with the existing CFO and president taking a prominent role in the recruitment process. “It was a beta hire,” she said, “because they hired not their boss, but their collaborator. They were a team the day that he set foot [in the office]… Everyone within in the ranks understood that this was now a functioning team, and the company thrived as a result.”

And it’s not just legacy institutions that can benefit from beta leadership. Diversification of the financial sector in recent years and the introduction of open banking regulations such as PSD2 have made space for smaller firms that now have more of a chance of challenging behemoths for their market monopolies. However, smaller firms like these lack the clout of financial titans and have had to follow unique, innovative paths to make themselves heard in an increasingly
populated industry.

Instead of opting for authoritative alphas to lead their business, many fintech firms and challenger banks have hired beta heads in an effort to boost innovation and creativity. Take P2P lending firm Funding Circle, which recently floated on the London Stock Exchange for £1.5bn ($1.9bn): each of its three founders plays an equally important role in the running of the company, eschewing the archaic idea that a company has a sole figurehead leader.

“That command and control style… That doesn’t work anymore,” Ardi said. Such a singularised leadership model is not conducive to creativity. Hull explained: “If you think about the type of environment you need [in order] to come up with new ideas and to take risks, to brainstorm and try out new things, break out of the box, so to speak – that doesn’t really jibe very well with a hard-nosed, type-A, directive leadership style.”

Technology’s increasing role in financial services is also far better aligned with a beta leadership style than an alpha one. As transactions become more complicated, more cross-firm collaboration is needed, with whole financial ecosystems sometimes created just to get one deal through. Ardi cited the example of a private equity firm: “If you’re on a deal team closing a transaction, you’re typically working with an investment bank, and a law firm, [and] maybe another private equity firm too. As a leader, you have to demonstrate a different kind of emotional intelligence when working across multiple organisations. Bringing together diverse constituents, taking into account multiple business cultures and still being the person to drive action forwards, remaining the leader of that opportunity – that’s a task for a beta leader.”

A new era
The move towards beta leadership is symptomatic of broader shifts in the workplace as a whole. “The whole context in which we work is impacting leaders – the convergence of time zones, the accessibility of information, our use of social media,” said Hull. All of these new challenges require a diversified and agile approach – a key beta characteristic. Leaders are also now grappling with a multigenerational workforce, with Baby Boomers and Generations X, Y and Z all adding their voices to the mix. The challenge of uniting disparate groups is best tackled by a beta leader.

It’s clear then that the perception of alphas being stronger and betas being weaker is a tiresome stereotype, and simply not true in a modern working environment. The most successful leaders do not limit themselves to a single paradigm, but cultivate emotional intelligence and productive employee relationships, enabling them to nimbly adapt their style to any given situation. Alpha is out: agility is in.

Davos 2019: in pursuit of a stable world

Posted on by Max Tomlin

As 2019 begins, the foremost event on the calendars of the powerful and wealthy is approaching. On the snow-capped slopes of the Alpine resort town of Davos, thousands of political leaders, business magnates, and other trailblazers will gather in January for the World Economic Forum (WEF) Annual Meeting to discuss the most pressing issues on the global agenda.

It is clear the event will centre on the many layers of uncertainty in today’s economic landscape

This year’s meeting, titled ‘Globalisation 4.0’, will centre on ‘shaping a global architecture in the age of the Fourth Industrial Revolution’, meaning it seems inevitable that much of the debate will focus on the many layers of uncertainty in today’s economic landscape. At the 2018 meeting, following a string of highly divisive world events, including the election of President Donald Trump in the US and the UK’s vote to leave the European Union, the WEF sought to take on the seismic shift in international relations with a meeting dedicated to ‘creating a shared future in a fractured world’.

Founded in 1971, the WEF is headquartered in Geneva, Switzerland, a country synonymous with neutrality. In 2019, as global relations continue to struggle under the weight of divisive policies and clashing ideals, Davos is the perfect stage from which to continue hashing out
a path towards unity.

Disunity reigns
“America first doesn’t mean America alone,” Trump declared at Davos 2018. The statement stirred conversations about whether the world economy was being steered by isolationist policies, and the potential damage this could do to globalisation. But Trump’s words were not followed by action: in fact, throughout 2018 he deepened fractures in the global economy by escalating a trade war with China over what he alleged were unfair trading practices by the communist nation.

Jack Ma, the Chinese business tycoon who co-founded multinational technology giant Alibaba, warned that a trade war could have the same implications as a physical war. “It’s so easy to launch a trade war, but it’s so difficult to stop the disaster of this war,” Ma said at Davos. “When you sanction the other country, you sanction small businesses, young people, and they will be killed, just like when you bomb somewhere. If trade stops, war starts.”

The key issue faced by policymakers in Beijing is that the America they used to know no longer exists

Dr Yu Jie, China Research Fellow at Chatham House, agreed with Ma’s statement, telling World Finance that while a political war on the battlefield is definite, a trade war is unlimited and unspecified in its scope. “This potential economic crisis translates into an imminent political crisis, and it affects every single aspect of the everyday life of the ordinary people [in China],” Yu said.

Trump did not heed Ma’s warning, however, as the US introduced a tariff on the import of solar panels and washing machines in January 2018. In March, Trump boasted on Twitter that trade wars are “good” and “easy to win”. He announced he would impose steep, unilateral tariffs on imports of steel and aluminium to the US in response to the dumping of cheap Chinese steel on the market, which drove prices down for US producers. China, meanwhile, called the tariffs a “serious attack” on international trade.

The implications of Trump’s trade crusade rippled out to Europe as well. After a tit-for-tat skirmish during which time the EU threatened tariffs for the import of unmistakably American products such as Kentucky bourbon, Levi’s jeans and Harley-Davidson motorcycles, a ceasefire was declared. However, it is still not clear whether this peace will last.

Even so, any dispute with China could disrupt the entire global supply chain. “It’s a trade war against the entire world, not just China,” Yu said.The US has threatened tariffs on Chinese goods worth as much as $500bn, but as the trade war engulfs more and more products, prices across numerous industries are expected to rise.

The key issue faced by policymakers in Beijing is that the America they used to know no longer exists. While Chinese decision-makers are familiar with the US’ intellectual elites – the type of people who work on Wall Street and attend Harvard University – they now must learn to engage with an “unexpected and unpredictable president”, Yu said.

This is a huge turning point for China’s international relations, and it could have big implications for its role in the global supply chain going forward. “This will potentially not just harm [the] Chinese economy for four years or eight years. This is for a generation, a decade,” Yu said.

Curbing tech power
The spotlight also turned on big technology firms at Davos 2018. Billionaire investor George Soros said tech giants like Facebook and Google had become “obstacles to innovation”. That criticism will likely carry over to Davos 2019 after Google was fined a record $5bn by the EU in July for breaking competition rules. Margrethe Vestager, the EU’s competition commissioner, said that by forcing smartphone manufacturers to preinstall its Chrome web browser and search apps, Google had “denied rivals the chance to innovate and compete” and had “denied European consumers the benefits of effective competition” in the market.

Davos in numbers

444

Number of participants at Davos in 1971

3,000+

Number of participants at Davos in 2018

$10m

Approximate cost of security at Davos in 2018

340

Number of global political leaders that participated in 2018

40

Western heads of state that participated in 2018

10

African heads of state that participated in 2018

9

Middle Eastern heads of state that participated in 2018

6

Latin American heads of state that participated in 2018

The fine was the latest move in the EU’s long-term mission to crack down on US tech giants. Karin von Abrams, Principal Analyst at market research firm eMarketer, explained: “[The EU has] been very consistent, historically, in trying to create an atmosphere, a legal structure and a system [that] enables it to bring companies and other entities to book if they feel that US firms, or firms headquartered elsewhere, for that matter, want to operate in Europe or take advantage of Europe to boost their own status or their income, but they don’t want to play by EU rules.”

Apple and Amazon are also likely to face increased scrutiny after they became the first and second public companies in history to soar to valuations of $1trn over the summer. “Valuations like this confirm that the tech industry really is increasing the engine of the world’s economy,” von Abrams said.

But although the technology sector is generating enormous fortunes and a substantial number of jobs, critical questions remain about the impact that companies with such staggering valuations could have on competition in the broader marketplace.

According to von Abrams: “We still live in a marketplace [that] we inherited substantially from an earlier era in terms of capitalism and commerce, but in a free market economy where things are changing so rapidly and these companies are becoming so valuable so quickly, they have really incalculable advantages over smaller tech firms.”

By investing or failing to invest in certain forms of technology, this handful of powerful tech firms has the ability to reshape the entire landscape of the tech sector. Furthermore, as technology creeps ever deeper into our lives, questions must be asked about the subterranean influence it can have on aspects of society beyond the boundaries of the tech industry.

One pertinent example is social media’s role in influencing recent elections. In March 2018, Facebook was forced to issue a public apology after it emerged that the company had not safeguarded its users’ data, allowing information from almost 90 million accounts to be harvested by a data firm. The now-defunct Cambridge Analytica allegedly used this information to show US voters personalised political advertisements based on their psychological profiles during the 2016 presidential election.

Facebook and Twitter both drew the ire of world leaders in 2018 for their alleged complacency towards political interference on their platforms. Both sites have admitted to removing fake accounts linked to Russia that tried to influence the US presidential election. Alongside an ongoing torrent of fake news, these revelations have certainly shaken global confidence in the democratic proces

“I think we’re really starting to understand just how radically disruptive some of the things [are] that are happening, for example, on the political side,” von Abrams said. “There are a number of really volatile situations that could have an enormous effect on all of us in a really, really short time, and I think a lot of us are just hoping that we’re not suddenly pitched into one of these chaotic situations and have to rethink the way the world works, because that would be quite challenging.” At a time when their valuations are soaring, one big question to focus on is whether these tech giants can be controlled, and what these controls might look like, von Abrams told World Finance.

Another essential component of the technology revolution that will undoubtedly rumble through Davos again in 2019 is artificial intelligence (AI). In 2018, Ma called AI a “threat to human beings”, but said ideally it should support us. “Technology should always do something that enables people, not disables people. The computer will always be smarter than you are; they never forget, they never get angry. But computers can never be as wise [as] man,” Ma said.

Meanwhile, Google CEO Sundar Pichai said that while AI does present dangers, including the loss of some jobs, the potential benefits cannot be ignored: “The risks are substantial, but the way you solve it is by looking ahead, thinking about it, thinking about AI safety from day one, and [being] transparent and open about how we pursue it.”

In a recent report, the WEF itself warned that AI could destabilise the financial system by introducing new weaknesses and risks. Although machine learning creates more convenient products for consumers, it also makes a world that is more vulnerable to cybersecurity risks, it explained.

As AI breaks further into the mainstream, its prominence as a talking point will only grow. Von Abrams said: “It’s a buzzword, of course, but I think there will be further discussions simply because it does take time for people to understand more fully how they can apply it to their own business, and a lot of those applications are not yet reaching the real world.”

The Lehman aftershocks
Despite heightened global tensions in 2018, the International Monetary Fund (IMF) has held fast to its expectation that the world economy will grow by 3.9 percent in both 2018 and 2019. The Trump administration’s protectionist tariffs are the “greatest near-term threat” that could knock this rise off-kilter, the IMF observed.

In this time of uncertainty, world leaders are beginning to look back on how far the global economy has come in the past decade

In July, Maury Obstfeld, Economic Counsellor of the IMF, admitted “the possibility for more buoyant growth than forecast has faded somewhat”. Meanwhile, risks to the downside have taken root: the IMF warned that if the trade war escalates, 0.5 percent could be slashed off global growth by 2020.

In this time of uncertainty, world leaders are beginning to look back on how far the global economy has come in the past decade. September marked the 10th anniversary of the collapse of US banking giant Lehman Brothers, which sparked a financial crisis that affected the lives of millions. In a blog post, Christine Lagarde, Managing Director of the IMF, said while much had been done to clean up the financial system since 2008, the long shadow of the crisis “shows no sign of going away any time soon”.

“The fallout from the crisis – the heavy economic costs borne by ordinary people combined with the anger at seeing banks bailed out and bankers enjoying impunity, at a time when real wages continued to stagnate – is among the key factors in explaining the backlash against globalisation, particularly in advanced economies, and the erosion of trust in government and other institutions,” Lagarde wrote.

According to Lagarde, the world now faces new fractures, including the potential rollback of post-crisis financial regulations, the fallout from excessive inequality, protectionism and rising global imbalances. How we respond to these new challenges will establish whether the lessons of the collapse of Lehman Brothers have truly been learned. “In this sense, the true legacy of the crisis cannot be adequately assessed after 10 years – because it is still being written,” Lagarde wrote.

One key area that Lagarde stressed still needed more work was gender diversity. A key ingredient of reform is putting more female leadership in finance to reduce groupthink and increase prudence. She said: “A higher share of women on the boards of banks and financial supervision agencies is associated with greater stability. As I have said many times, if it had been Lehman Sisters rather than Lehman Brothers, the world might well look a lot different today.”

But despite making up 47 percent of the labour force, women are still underrepresented at the highest ranks of business, including at Davos. The number of women attending Davos is low, but it continues to grow. In 2017, women made up about 20 percent of attendees, compared with 18 percent in 2016 and 17 percent the year before. The WEF’s 2018 meeting also featured an all-female panel of co-chairs. “Finally a real panel, not a ‘manel’,” Lagarde said at the time.

The #MeToo movement, which encourages people to speak out about sexual harassment, began in late 2017, and at Davos 2018 dozens of panels addressed gender, diversity and inclusion, while two focused specifically on sexual harassment. Although it began in the film industry, #MeToo continued to send shockwaves through numerous sectors around the world in 2018.

The right direction
These important topics are just a few examples of what will take centre stage at Davos 2019, but many other important issues will also fight for recognition.

The debate around the effects of the climate crisis – and how the world should respond to them – has been a prominent feature of previous meetings in Davos. After a deluge of extreme weather events shook the globe in 2018 and a number of cities and countries began to crack down on single-use plastics, progress towards decarbonisation should continue to gain momentum in 2019.

Despite making up 47 percent of the labour force, women are still underrepresented at the highest ranks of business

Another area of progress in 2018 was ongoing denuclearisation and peace talks between North and South Korea. The leaders of the two nations met for just the third time in 11 years in April, and Kim Jong-un, the leader of North Korea, entered the South’s territory for the first time since the end of the Korean War in 1953.

Kim also met with Trump in June – the first time sitting leaders of the two nations had ever met. But while they signed a joint statement to work towards denuclearisation and rebuild bilateral relations, the agreement was shrouded in uncertainty as both sides have since derided one another, with Kim accusing the Trump administration of “gangster-like” behaviour.

While there were encouraging efforts by world leaders to attempt to repair fissures in global relations in 2018, there is still a huge amount of work to be done. Technology has made us more connected than ever, but it has also amplified the scale of many of the problems we face. Now, it is increasingly important for the WEF to stick to its mission to improve the state of the world by reinforcing unity across the globe.

The Brightline Initiative is closing the gap between strategy design and delivery

Posted on by Max Tomlin

Organisations the world over – from public and private businesses to non-profits and government agencies – are now grappling with the effects of disruptive technologies. According to recent research from the Project Management Institute (PMI), 91 percent of organisations are feeling the impact. Meanwhile, those few that aren’t currently experiencing the effects are still preparing for disruptive technologies to change their business in the coming years.

The importance of active and visible leadership can’t be overstated

“Our research reports that organisations are investing in and expanding their capabilities in cloud computing, the Internet of Things (IoT) and artificial intelligence, among other technologies,” said Cindy Anderson, Vice President of Brand Management at PMI. PMI leads Brightline Initiative, a coalition that creates resources to assist executives in bridging the gap between strategy design and delivery. “Organisations don’t have to be hi-tech or digital to recognise that they can effectively leverage disruptive technologies to give them a competitive advantage, like improving the customer experience, enhancing efficiency and shortening project timelines.”

A great example of this is Caterpillar, the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. At present, the company is using self-driving, autonomous machines in mining operations in Australia in a bid to reinvent itself, going from a maker of heavy machinery to an IoT-connected company. Another example is TD Bank, which is working with other banks in Canada to develop an identity verification service using blockchain in order to stave off disruption from fintech companies.

Tackling disruption
While these organisations are disrupting from within, others are being disrupted by external forces. In fact, a recent study by PricewaterhouseCoopers found that 56 percent of CEOs expect disruption to come from outside the organisation. “We think of Amazon as the disruptor-in-chief,” said Anderson. “Whether it’s in the grocery industry, with its purchase of Whole Foods Market, or the pharmacy industry, with its recent acquisition of PillPack, Amazon shows how overwhelming and far-reaching disruption can be – and how unlikely the source may be, too.”

It’s important to acknowledge that strategy delivery is just as critical as strategy design

This wave of disruption – whether external or self-imposed – calls for organisations to assess their business models, design new strategies, leverage new technologies and rely on the successful implementation of the projects that will drive the needed change. It also shines a harsh light on the gap between strategy design and strategy implementation. Essentially, even though forward-thinking organisations recognise that disruptive technologies can help them gain a competitive advantage, many of them still struggle to implement the strategies at the scope and speed the market demands.

This correlates with a recent Brightline Initiative study conducted by the Economist Intelligence Unit, which reported that 59 percent of senior executives admitted their organisations struggle to bridge the strategy-implementation gap. The research also showed that only one in 10 organisations is effectively achieving its strategic goals. “Turning ideas into reality is no easy feat,” Anderson told World Finance. “As we’ve conducted research and spoken to leaders in a variety of industries, we hear persistent concerns about an organisation’s inability to close the gap between strategy design and delivery.”

There are numerous reasons for this chasm (see Fig 1). Indeed, Anderson acknowledged that one is a failure to recognise that strategy is delivered through projects and programmes. This then leads to the absence of accountability and a persistent disconnect between those who design strategy and those who implement it. “Too often, senior leadership see themselves as responsible only for the vision,” she explained. “They think that delivery is a tactical problem and don’t give it the attention it needs and deserves.”

The costs associated with the strategy implementation gap are enormous, and aren’t measured solely in financial terms. PMI research shows that every 20 seconds, $1m is wasted globally due to the poor implementation of strategy, which amounts to almost $5bn wasted every day, or $2trn a year – approximately the same size as Brazil’s GDP. “These aren’t losses merely in profit and revenues,” Anderson pointed out. “This also results in the destruction of the value that these organisations could be providing to society at large.”

Fortunately, not all organisations struggle: there are various organisations that have proved themselves effective in delivering the strategies they have designed. Research conducted by Brightline has identified three common characteristics among them. One that is they ensure that strategy design and delivery are deeply interconnected: instead of a linear two-step process, they maintain continuous interaction between the team that creates a strategic plan and the team that carries it out.

Second, they understand that the effective delivery of strategy requires looking beyond the walls of their organisation. They don’t just monitor what happens in the market – they provide such insights to the decision-makers who can quickly adjust strategy and implementation in response. Finally, these organisations find a balance between short-term responsiveness and long-term vision. Leading companies create a dynamic system for delivering strategy, moving quickly to adjust their approach based on changing opportunities and risks, all while keeping the larger goal in sight.

The guidelines
In light of these findings, a group of experts, practitioners and researchers supported by the Brightline team developed the 10 Guiding Principles to help more organisations shrink the gap between strategy design and delivery. “If we can close that gap, organisations will save money and stop destroying economic value, and instead focus on creating additional value,” said Anderson. “The Brightline principles have universal applicability: they address specific actions that organisations and their leaders can take regarding strategy design and implementation.”
First, Anderson explained, it’s important to acknowledge that strategy delivery is just as critical as strategy design. “Strategy delivery doesn’t just happen automatically once it is designed,” she told World Finance. “It is an essential part of a senior executive’s role to ensure that his or her organisation has the programme delivery capability needed to implement that strategy.”

91%

of organisations are feeling the impact of disruptive technology

56%

of CEOs expect disruption to come from outside a company

59%

of senior executives say their organisations struggle to implement strategy

94%

of executives say they face challenges when trying to create a culture of change

38%

of executives say employees see change as a threat to their jobs

If an organisation invests substantial resources, creative time and energy in designing the right strategy, it makes sense to give equal priority and attention to delivering it. The importance of active and visible leadership can’t be overstated. Anderson added: “Even if you’re tired of talking and thinking about the strategy before the rest of the organisation is ready to implement it, bear in mind that if you don’t demonstrate the appropriate level of interest, no one else will.”

Next, it’s necessary for project players to accept that they are accountable for delivering the strategy they designed. Once the strategy has been defined and clearly communicated, responsibility shifts to overseeing the progress of implementation so that the strategy delivers results and achieves its goals. The responsibility applies to the entire senior team, Anderson explained, because the orchestration required to succeed in today’s business environment is highly complex.

Accountability means knowing where change happens in the organisation and who manages the programmes that drive the change. This includes proactively addressing emerging gaps and challenges that may impact delivery. “Never underestimate the power of entropy,” Anderson said.

Brightline’s third principle involves the dedication and mobilisation of the right resources. According to Anderson, there needs to be an active balance between running the business and changing the business, which are both achieved by selecting and securing the right resources for each. The specific skills needed are often different. Team leadership skills are at a premium, so the best leaders should be assigned to the most important projects.

“A critical part of mobilising resources is not just assigning them, but inspiring them,” said Anderson. Therefore, organisations need to ensure that both senior leaders and employees are committed if they want big-change projects to take root. Visible backing and action from the most influential senior leaders and their direct reports are vital to inspiring a buy-in from those on the front lines. Late or inconsistent communication with staff can alienate the people most affected by change, so senior leaders should communicate with staff early and often.

Anderson continued: “Of course, before you can dedicate and mobilise resources, it’s essential to know what resources you have.” She also pointed out that NASA, which deals with change and complex issues on a regular basis, assesses its talent pool based on both current and anticipated needs, and keeps track of who possesses which skill sets. Adopting this tactic can help senior leaders understand if they have the right resources as needed, or if additional resources will be required when change is implemented.

Seeking feedback
Leveraging insight from customers and competitors is another key strategy; continuously monitoring customer needs, collecting competitor analysis and tracking the market landscape are all critical. Brightline research shows that top organisations adopt feedback loops in which information from customers and competitors can be acted upon. “Advantage in the market flows to those who excel at gaining new insights from an ever-changing business environment and quickly respond with the right decisions and adjustments to both strategy design and delivery,” noted Anderson. “Too often, companies forget to look from the outside in. It’s not easy to do, but it’s essential for the kind of change that leads to growth.”

Being bold, staying focused and keeping things as simple as possible is crucial

In the absence of these practices, many strategic initiatives fail because leaders have become so passionate about an idea that they lose sight of how the market is evolving. Strategy may be delivered, but the result could be something that the market no longer wants or needs.

Being bold, staying focused and keeping things as simple as possible is crucial, because many of the delivery challenges will be complex and interdependent. As Anderson explained, it is important to remain nimble by making sure there are enough simplifiers, rather than complicators. “Simplifiers are those people who can get to the core of an opportunity or threat, understand the drivers, deliver the information and take the action that keeps the strategy moving forward,” she told World Finance. This approach minimises bureaucracy and instead allows for the exploration of ideas, taking appropriate risks, prioritising work, ensuring accountability and focusing on delivering value.

$1m

Amount wasted globally every 20 seconds due to poor strategy implementation

$5bn

Amount wasted globally every day due to poor strategy implementation

$2trn

Amount wasted globally every year due to poor strategy implementation

After this comes the principle of promoting team engagement and effective cross-business cooperation. “Beware of the frozen middle,” Anderson said. “Senior leadership needs to gain genuine buy-in from middle and line managers – the people who run the business – by engaging, activating and empowering them as strategy champions.” It’s a common mistake for senior leadership to rely too heavily on traditional managers and supervisors, who might be given responsibility or assumed to be playing a certain role only because of their title, rather than sharing and dividing responsibility between those who are respected by their peers for other reasons.

When necessary, teams can break down silos, add diversity to the creative process and generate responsiveness that creates more value than what individuals could create on their own. Care must be taken to craft teams – whether from internal or external talent pools – with the right mix of capabilities and skill sets, while the conditions that allow people to work collectively as well as individually must be explicitly set. “Where appropriate, give the right individuals the authority to make decisions and drive execution on their own,” Anderson told World Finance.

In establishing a shared commitment to strategy delivery priorities and regularly reinforcing that commitment, there is no room for subtlety. What’s more, governing through transparency can engender trust and enhance cross-business cooperation in delivery. “The highest-performing organisations don’t have silos separating those who design strategy from those who carry it out,” Anderson said. “On the contrary, they collaborate very closely together.”

Being self-aware
Demonstrating bias towards decision-making and owning the decisions made are both crucial. Making decisions isn’t enough; follow-through is needed all the way to delivery. One way to do this is to build a lean and powerful governance structure to reinforce accountability, ownership and a bias towards action, based upon pre-agreed metrics and milestones. “That means committing to making strategic decisions rapidly, moving quickly to course correct, reprioritising and removing roadblocks,” said Anderson.

It’s likely that leaders will not have all the information they would like, which means they have to rely on others to deliver reliable input. In turn, this will enable them to make thoughtful decisions. During this process, risks and interdependencies must be considered and addressed explicitly – both upfront and regularly throughout delivery. When leaders act fast and with discipline, they encourage prompt and effective reallocations of funding and personnel among strategic initiatives, as well as rapid adjustment when implementation reveals new risks and opportunities.

Number eight of Brightline’s Guiding Principles is to check ongoing initiatives before committing to new ones: it’s critical that senior leadership resists the temptation of declaring victory too soon. “Change fatigue affects even the most senior and seasoned executives,” Anderson explained, noting that with the right governance, leadership, rigour and reporting capabilities in place, regular evaluation of the organisation’s project portfolio can help maintain focus and discipline.

Implementing new initiatives in response to fresh opportunities should only occur when there is a clear understanding of the existing portfolio and the organisation’s capacity to deliver change, together with the assurance that those initiatives are aligned with the strategy. Any issues that are discovered must be actively addressed. In the long term, strategic initiative management discipline – which is critical for the effective orchestration of a dynamic initiative portfolio – will only work if robust assessment, support and course correction are all in place.

Another principle Anderson explained involves the development of robust plans while also allowing for missteps to occur – essentially, failing fast to learn fast. “Learn to reward failure, or at least accept it as valuable input,” she added. In today’s business environment, strategy planning cycles need to be more nimble than ever. This means empowering programme delivery teams to learn in an environment where it is safe to experiment with products and processes that might better meet customers’ needs. “If what you’re working on doesn’t meet your customers’ needs, which means it doesn’t meet your strategic needs, stop doing it, learn from it and move on to the next thing.”

According to Anderson, one organisation that performs this principle exceptionally well is the American Red Cross. Due to the nature of its work in the wake of emergencies, quick decisions have to be made – however, not all fast decisions yield positive results. For this reason, the Red Cross encourages employees to learn from their mistakes, discuss challenges openly and accept failure as a valuable part of strategy implementation. “If you make a decision and it’s the wrong one, course correct really quickly,” advised American Red Cross President and CEO Gail McGovern in a Forbes Insights case study. “I have seen more leaders just stick to their strategy and fail because they don’t want to admit they made a mistake.”

After a project failure at the Red Cross, details are carefully dissected by team members and mined for valuable insights. McGovern told Forbes Insights: “We are really proud of the fact that we’re a learning organisation. After every disaster, you should see our conference room. We just whiteboard every single lesson learned and what we’re going to do differently the next time.”

Last but not least is the 10th principle: celebrating success and recognising those who have done good work. As leaders get involved in the day-to-day work associated with strategic initiatives, they may overlook the importance of taking the time to acknowledge people and their contributions. “The simple act of writing a thank you note can have a big impact,” Anderson told World Finance. “I set aside time every week on my calendar to do this, to ensure that this critical last step doesn’t fall by the wayside.” She has also observed that word gets around when senior leadership shows that kind of interest and appreciation.

Equally important is generous and public acknowledgement of those who demonstrate the leadership behaviours and programme delivery capabilities that make a strategy succeed. Asking them to share their experiences motivates and educates everyone and pays off exponentially.

The People Manifesto
As a complement to its 10 principles, Brightline also developed the People Manifesto. “People are the essential link between strategy design and delivery; they turn ideas into reality,” Anderson explained. “They are the strategy in motion.” But at the same time, people are frequently the most misunderstood and least-leveraged asset, Anderson said: “While the principles do address issues related to talent, the People Manifesto crystallises some fresh and even contrarian insights about behaviour, leadership and culture that can help to either mitigate or manage some of the issues that can stall or inhibit strategy implementation.”

In today’s business environment, strategy planning cycles need to be more nimble than ever

Just as the human element makes change possible, it can also make the process of strategy delivery messy and complicated. People have different interests, motivators and levels of tolerance, which influences their behaviour and can create potential misalignment. In fact, according to research carried out by Forbes Insights, 94 percent of those surveyed said they face challenges when trying to create a culture of change. Meanwhile, 38 percent of respondents said employees see change as too much of a threat and even fear losing their jobs.

The fear is not unfounded: a study by the McKinsey Global Institute estimates that between 400 million and 800 million of today’s jobs will be automated by 2030. “Change is often processed internally, and even subconsciously, as a threat; the response to that may well be irrational,” Anderson said. “New strategies almost always require different ways of working, so leaders must recognise that both time and effort are needed to shift individuals’ interests, mindsets and behaviours.”

For instance, international staffing company ManpowerGroup prioritises open communication across its firm to make the value of new technologies clear to the very people who will be affected by them. With AI, the benefits of automating customer conversations are emphasised – specifically, contact centre agents are freed up to focus on more mission-critical tasks.

Even when people are convinced that changes are in the collective interest, their individual behaviours may not align if the personal cost of change seems too great. “Management needs to look out for entrenched behaviours and create the conditions needed to make change individually desirable, all the while ensuring it aligns with the broader interest,” said Anderson.

It is also essential for leaders to treat their teams with respect, while remaining explicit and resolute about the consequences of not participating in the new behaviours or reverting to old ways of working. Not everyone will be able to make the necessary changes, but it is in management’s best interest to try and get everyone on board.

As such, senior leaders need to engage and activate the extended leadership team, speaking with one voice to model the new target behaviours. That said, those accustomed to leading must be prepared to follow when appropriate. Anderson explained: “We’re conditioned to believe that to be valued, we always have to lead, but there is also a time and a place to follow.”

“Leaders need followers to be successful. Make follower-ship a valued behaviour and let people know that just as it’s OK for people who don’t traditionally lead to do so, it’s also OK that some people will never lead. But their contributions should be valued as well.”

Creating the conditions that allow both leaders and followers to flourish during strategy implementation may require a cultural shift. “It also requires the recognition that culture must not only support strategy, but – like strategy – it must be dynamic and constantly evolving. While culture cannot be built per se, aided by blueprints or checklists, it also can’t be left to chance,” said Anderson. “The intricacy of culture is that it is a living organism made from the collective tension of individuals’ behaviours and responses. Navigating that tension in an increasingly complex and changing environment depends on a shared sense of purpose and trust among employees.”

Emerging opportunities
The advancement of the Brightline Initiative’s 10 Guiding Principles and its People Manifesto coincides with significant changes for project professionals – those at the centre of strategy implementation. Indeed, both can help executives understand how to best leverage the key talent that project professionals represent.

People are frequently the most misunderstood and least-leveraged asset

According to Forbes Insights, executives believe that the implementation of a well-designed strategy depends on smart technology choices and project management prowess. “The strategy-implementation gap creates tremendous opportunity for the profession,” Anderson told World Finance. “We’re already seeing a growing demand for skilled project managers, as they are more frequently being recognised as the people who take ideas and turn them into reality.”

The emphasis on strategy, technology and leadership skills at the organisational level mirrors what PMI has found to be essential in sourcing project management talent: a combination of technical, leadership, strategic and business management skills, known as the PMI Talent Triangle. Anderson noted it is increasingly important that project managers have the ability to learn and keep pace with technology: “Today, due to fast-moving technological advances, the traditional Talent Triangle skillsets include an overlay of digital-age skills.”

The recognition of the importance of project management skills for successful strategy implementation marks a significant shift in C-suite thinking, according to Anderson. Previous PMI evidence (both quantitative and qualitative) has found that executives did not tend to focus sufficiently on the opportunities and capabilities that project management skills represent. Indeed, people with such skills often support and even embrace frequent change, thereby better positioning themselves and the organisations they work for to compete and succeed in a fast-paced, disruptive business environment.

The talent evolution
Another significant change for the profession is how project leaders are perceived and deployed within organisations. Project leaders are taking on roles that demand greater accountability, not just around traditional areas such as budget, timelines and resources, but around the full delivery landscape. Their role is expanding to that of an innovator, a strategic advisor, a communicator and a versatile manager.

Anderson explained that titles are evolving as well. “We see project managers, team leaders, scrum masters and product owners, delivery, implementation and change managers, and transformation leads, among others,” she said. “We also see the lead project role morphing from project manager to project lead – and even project executive in some organisations.”

While this new vocabulary reflects the expanded and essential role these professionals play in managing during disruption, focus should ultimately be kept on the process and the end result. “It doesn’t matter whether the activity is called a project or a change or a strategy, or whether the method is called management or innovation or implementation,” said Anderson. “At the end of the day, someone is always going to have an idea and someone else is always going to have to make that idea a reality.”

For organisations to win at disruption, executives must learn to manage the influx and influence of disruptive technologies, and must invest in the relevant talent. No organisation can prepare for each and every eventuality, but they can sharpen their ability to respond to the inevitable challenges that arise as they implement what they thought was a well-constructed strategic plan.

And while organisations may be able to articulate their strategy for dealing with disruptive technologies, doing so will be meaningless if they fall short when it comes to executing against that strategy.

China’s trade surplus with US hits record high

Posted on by Max Tomlin

China’s US trade surplus hit a record high of $323bn in 2018, the highest in more than a decade, according to figures released by the country’s General Administration of Customs on January 14. This figure marks a 17 percent increase in the surplus from 2017, and is the largest since records began in 2006.

China’s large trade surplus with the US has been a source of contention between the two countries for some time

While China’s exports to the US rose 11.3 percent from the previous year, imports from the US to China rose a measly 0.7 percent in 2018. Both imports and exports fell radically in December, by 7.6 percent and 4.4 percent respectively, signalling a cooling of trade in the final month of 2018 that may have increased the overall annual surplus substantially.

China’s large trade surplus with the US has been a source of contention between the two countries for some time, with Washington demanding that Beijing takes steps to reduce it considerably. The Trump administration imposed a series of tariffs on hundreds of billions of dollars of Chinese goods last year, to which China retaliated with tariffs of its own.

While the Chinese economy remained surprisingly resilient to these tariffs over the course of 2018, it appears the restrictions finally began to bite in December, driving US exports down 3.5 percent and imports down a whopping 35.8 percent.

The on-going conflict between the US and China over trade, together with a slowdown in China’s domestic economy, has already begun to affect some US companies that rely on China for parts and labour. For instance, Apple announced on January 8 that it would cut its production plans for new iPhones by around 10 percent over the next few months, citing lower than expected sales in China. It also slashed its revenue forecast to $84bn, down from the $93bn figure it had previously projected.

China’s domestic market is also showing signs of a slowdown, a source of concern for businesses across the globe that trade with the Asian country. Louis Kuijs, head of Asia economics at Oxford Economics, told Reuters: “[China’s] overall economic growth slowed further in the fourth quarter and remains under pressure from weaker exports, slow credit growth and cooling real estate activity.”

Nevertheless, these factors have not yet had a substantial effect on China’s other worldwide trade relationships, as demonstrated by overall end-of-year data. China’s global trade surplus for 2018 was $351.76bn, the lowest since 2013, despite the fact that export growth was the highest since 2011, according to Reuters. Overall exports rose 9.9 percent from 2017, while imports grew 15.8 percent over the same period. Analysts, however, are predicting that this positive growth is unlikely to continue for much longer unless a rapid resolution between the world’s two largest economies is reached. With China’s internal economy already grappling with a slowdown, it simply cannot afford any additional pressure.

Proexca continues to bolster the Canary Islands’ thriving business milieu

Posted on by Max Tomlin

Although the Canary Islands have one of the most favourable tax systems in Europe, they are not a tax haven, which means the local economy has to sustain real businesses and jobs. As a result of their location on the outermost edge of the EU, the islands receive regular funding to compensate for their distance to continental Europe. This helps to encourage private investment and economic development.

Despite their location and size, the Canary Islands have managed to attract world-class companies to their shores

The compensation received is detailed within the Canary Islands Economic and Tax Regime, which falls under Spanish legislation and is fully sanctioned and reviewed by the EU. Further incentives are provided by the Canary Islands Special Zone – known as ZEC – which allows companies to pay just four percent corporate income tax (see Fig 1). There are also tax deductions for foreign film productions of up to 40 percent, plus 45 to 90 percent on research and development (R&D) and technology-related activities. Also, the average indirect tax rate in the Canary Islands is just seven percent, as opposed to Spanish VAT, which is 21 percent.

Despite their location and size, the Canary Islands have managed to attract strategic investments and world-class companies to their shores. This is partly a result of the aforementioned tax environment, but it is also thanks to the hard work of companies like Proexca, a publicly owned company that aims to strengthen the Canarian business network. World Finance spoke with Pablo Martin Carbajal, CEO of Proexca, about the reasons why businesses and individuals are choosing to invest in the Canary Islands.

Islands of innovation
The tax incentives offered by the Canary Islands can provide a huge boost to businesses, particularly those in the innovation and technology sector, which can struggle with profitability in their early days. Technological development is one of the islands’ main priorities and is supported by Canarian public and private organisations.

“We have major infrastructure, such as business parks linked to Canarian universities and technological institutes of international excellence, like the European Northern Observatory at the Instituto de Astrofísica de Canarias, the Oceanic Platform of the Canary Islands and similar organisations operating in the field of renewable energy,” Carbajal explained. “In addition, the blue economy is gaining importance, with technologies related to renewable energy, underwater robotics, biotechnology and algae research becoming more sophisticated.”

A combination of factors has led the Canary Islands to host a number of well-known companies and tech start-ups. Having internationally renowned R&D centres to test prototypes certainly helps, as does the plentiful supply of well-qualified personnel, powerful tax incentives and lower costs compared with continental Europe. This has helped create an ecosystem that is conducive to technological evolution.

“We recently installed the first offshore fixed-bottom wind turbine in Southern Europe, which was built using an innovative technology that makes it unique in the world and commercially competitive,” Carbajal said. “We also have the hydroelectric power station on the island of El Hierro, the first one globally that generates electrical energy self-sufficiently from renewable sources, such as water and wind. Over the next 20 years, the station will offset 19,000 tonnes of carbon dioxide and provide power to El Hierro’s inhabitants, while preserving the island’s beautiful natural environment.”

The Canary Islands’ list of technological achievements goes on. The Instituto de Astrofísica de Canarias has helped develop state-of-the-art optical technology that, aside from its astrophysical use, is applied in other fields, like medicine. The islands are also pioneers in water desalination and treatment; across the entire archipelago, a thriving ecosystem of technology start-ups is emerging.

Quality of life and talent
Of course, a thriving business environment also needs talented members of staff. Before setting up on the Canary Islands, organisations often have questions regarding the role that local universities play in technological development, how R&D is progressing and how talent pools vary by industry.

“One of the main questions that companies ask us when they are considering the Canary Islands is: will we be able to find the talent we need here?” Carbajal said. “The answer to this question is becoming more important than taxes, living costs and legal issues. The war for talent is certainly fierce, but the Canary Islands have a clear advantage – people love living here. More importantly, people who move here don’t want to leave, meaning that talent retention is rarely an issue.”

Some businesses need no further convincing of the Canary Islands’ labour force. Recently, a well-known tech company opened an international Spanish-speaking customer service centre in a South American capital city. It was attracted mainly by the availability of talent at a very competitive cost. Unfortunately, the high labour rotation in that city made it unsustainable to keep the centre there, and the Canary Islands were immediately identified as a great alternative, largely due to their extremely low labour rotation rate (the lowest in Spain). The small difference in labour costs compared with South America was compensated by lower training costs and, most of all, the higher-quality service provided by more stable workers.

“Our ability to retain talent is primarily driven by the fantastic quality of life we offer,” Carbajal said. “This is not only driven by our mild weather – arguably one of the best climates in the world – but by the quality of our infrastructure, the affordable cost of living, transport, internet connectivity to the rest of the globe and, last but not least, security. The Canary Islands are one of the safest places on the planet.”

This mixture of sunshine and safety has not only enticed new businesses to the islands – tourists also flock there in their droves. In fact, the Canary Islands welcome more than 15 million foreign tourists every year.

“Our unique natural conditions, excellent connectivity, first-rate services and well-developed infrastructure all contribute to creating an environment that is treasured by locals and visitors alike,” Carbajal said. “Tourism is thriving on the islands, but it is far from the only industry that is doing well.”

Other strategic sectors are growing rapidly in the Canaries, including naval repair and offshore services, outsourcing, IT, share services, trading, call centres, renewable energy, biotechnology and film production. In addition, the Canary Islands act as a service hub for Africa, with the shortest distance between the islands and the continent being around 115km.

Spreading the word
Thanks to the spectacular development of the tourism sector across the Canary Islands, there has been parallel economic growth of other activities. Maritime connections are well developed, easing the transportation of goods and people. Similarly, air connections consist of six international airports that allow the islands to accept some 2,800 direct connections per week from 157 airports in 29 countries. For instance, the islands boast direct flights to 23 UK airports – more than Barcelona, with 17 airports, or Madrid, with 13.

Tourism also helps to create a cosmopolitan atmosphere, with people of many different nationalities setting up home on the islands. This in turn has led to the construction of several international or bilingual schools. In addition, local institutions are committed to diversifying the economy so that it supports a variety of different sectors.

The Canary Islands, with their unique advantages, fulfil all the conditions required to become a strong business hub. All that needs to be done now is for the islands to market themselves better to investors and corporate leaders. “We need to let the world hear about us and get to know us, not only as a place for tourists but also for being islands with great potential for businesses,” Carbajal said.

Although the islands have had a great deal of success, businesses and government officials remain committed to further improvement. “We are continually improving connectivity and putting emphasis on the development of all the sectors where we offer a competitive advantage or added value,” Carbajal explained. “These include IT, film production, naval repairs, and the blue economy – among others. As part of our developing relationship with Africa, companies working in the west of the continent often use the islands as a base for their service centres and make use of our logistics, health, business and training services.”

The rise of the digital economy has meant that often businesses no longer need to be located close to their customers, which has resulted in areas having to work harder than ever to attract best-in-class companies. The Canary Islands have shown that size needn’t be a barrier to business success, especially as they are home to just over two million people.

Investing more in marketing will help ensure that the Canaries are properly recognised for their business achievements. Those who are not aware of this side of the islands are amazed when they learn about it. The local residents and businesses that are based there already, however, know all too well that the Canary Islands are about much more than sun, sea and sangria.

Top 5 countries with the largest fiscal deficits

Posted on by Max Tomlin

According to the CIA’s World Factbook estimates for 2017, only 47 out of 222 countries worldwide are not in a fiscal deficit. The 2008 global financial crisis must take some of the blame for this, particularly in the developed world, but other factors are also at play.

Although the crisis caused debt to skyrocket in many EU countries, the deficit figures posted by these nations are not among the world’s largest. Instead, the following list is occupied with states that have found themselves geographically isolated, ravaged by war or under the jackboot of authoritarian rule.

1 – Timor-Leste (75.7% of GDP)
Sitting on the eastern tip of Timor Island, Timor-Leste (or East Timor) is a little-known nation that lies just under 600km from Australia’s northern coast. Following an often-violent 25-year occupation by Indonesia, in 2002, Timor-Leste became the first new sovereign state to be recognised by the United Nations in the 21stcentury.

The economic outlook was promising in the initial years following independence, with GDP growth rates hitting 64.1 percent in 2004. However, since 2012, development has proved to be wildly inconsistent, with the economy contracting 26 percent in 2014, before expanding 20.9 percent the following year. With estimated revenues of just $300m compared to $2.4bn of expenditure, the World Factbook recorded Timor-Leste’s deficit at 75.7 percent of GDP in 2017.

2 – Kiribati (64.1% of GDP)
Located in the heart of the Pacific Ocean, the Republic of Kiribati is one of the world’s most geographically isolated countries. Consisting of 32 atolls and a solitary raised coral island, Kiribati is considered one of the world’s least developed countries. With the island’s scarce resources virtually exhausted by the time it declared independence from the United Kingdom in 1979, today its economy relies primarily on fishing exports and foreign aid, while its dependence on imports has resulted in a substantial trade deficit. Although GDP growth has remained steady, the country’s eye-watering deficit of 64.1 percent provides substantial concern.

3 – Venezuela (46.1% of GDP)
The downfall of Venezuela has been widely documented. A crash in oil prices – petrochemicals account for nearly all of the country’s exports – meant that the socialist government no longer had the funds to cover its high-spending programme. Rampant hyperinflation (believed to exceeded 2000 percent) has resulted in shop shelves sitting empty and many citizens going hungry. It is estimated that 75 percent of the population lost an average of 19 pounds in 2016 after lacking the required nutrition for a healthy lifestyle. In response to the crisis, Venezuelan President Nicolas Maduro has become increasingly autocratic and has consolidated power in a country now considered a dictatorship.

4 – Libya (25.1% of GDP)
Optimism was high in Libya following the downfall of Colonel Muammar Gaddafi in 2011, but post-dictatorship prosperity has failed to materialise, with successive leaders unable to impose control over a divided, warring nation. Instability has devastated the country’s oil production, Libya’s main source of revenue, and many other key sectors have been left largely unregulated. Without a fully functioning government, the likelihood of Libya reducing its fiscal deficit remains slim.

5 – Brunei (17.3% of GDP)
Not to be confused with the African country of Burundi, Brunei is a minuscule state split into two parts by Malaysia. A British colony until 1984, the country’s economy is supported almost exclusively by oil and gas exports. The government provides free medical care and education despite charging citizens no VAT or income tax. Though GDP per capita remains one of the world’s highest, GDP growth rates have only exceeded four percent once since 1995.

The EU banking union looks well placed to defend against another crisis

Posted on by Max Tomlin

The financial crisis of 2008 should have served as a worldwide wake-up call, but it seems some people are still sleeping. Back then, light-touch regulation allowed banks to grow fat on speculation. When the crisis came, those that were deemed ‘too big to fail’ had to be bailed out at the taxpayer’s expense.

During the last financial crisis, the people and institutions responsible were not held to account, and instead were rescued by the public purse

In the decade or so that has passed since, the global economic climate has improved significantly, but this comes with its own risks. Speaking at the annual conference of the Single Resolution Board (SRB), the EU’s banking resolution authority, in Brussels back in October, Olivier Guersent, the European Commission’s director-general for financial stability, financial services and capital markets union, issued a warning against complacency. “I have the impression that [EU member states] have the false impression that everything’s fine, but everything’s not fine and the job is half done,” Guersent said.

Guersent’s concerns stem from that fact that Europe’s banking union, launched in the wake of the financial crisis, remains incomplete. The union is predicated on three pillars: the Single Supervisory Mechanism (SSM), which came into effect in late 2014; the Single Resolution Mechanism (SRM), which is tasked with restructuring and winding up failing banks; and a European deposit insurance scheme that has
yet to receive approval.

Although the yet-to-be-launched insurance scheme is a concern, issues remain unresolved regarding the SRM as well. Plans are underway to bolster the fund that underpins the mechanism, but challenges preventing a resilient fiscal union remain in place.

Fast and loose
Global capital flows meant the events of 2008 had a wide-ranging impact, with the EU subjected to a particularly protracted downturn. The issues that made the eurozone crisis so pronounced were multifaceted: certain member states must take some of the blame for misrepresenting their levels of debt, while the adoption of a single currency also played a part. Nations that previously had relatively weak currencies were given more favourable credit terms after they began using the euro, contributing to the creation of an economic bubble. When this bubble burst – as it did so spectacularly in 2008 – the result was catastrophic.

The effects of the eurozone debt crisis are likely to be felt for years to come

Eurozone banks that played fast and loose with their customers’ money suddenly found themselves in financial trouble. National governments were faced with a difficult decision: they could allow the struggling banks to fail, resulting in losses for shareholders and members of the public alike, but there was little way of knowing what kind of social panic might ensue. The size of some of the banks in question made this option particularly problematic. Instead, eurozone governments decided to recapitalise the debt-ridden banks using taxpayer money.

Liabilities were shifted from the private to the public sector on a monumental scale. By 2010, the average public deficit in the eurozone had increased from 0.7 percent before the crisis to six percent (see Fig 1), and overall public debt had gone up from 66 to 85 percent. Collectively, since 2008, more than €1.5trn ($1.7trn) in taxpayer money has been used to bail out failing banks in Europe. Understandably, the public reaction has been a mixture of indignation and fury.

Never again
Although the effects of the eurozone debt crisis are likely to be felt for years to come, the European Commission has acted quickly in its efforts to prevent a similar situation occurring in the future. One of its most important steps has been the introduction of the SRM. The SRB is part of the SRM and was set up in 2015 to work alongside the Resolution Authorities of EU member states to ensure that the problems of banks can be resolved with minimal damage to the real economy.

“In assessing the role of the [SRB], it is important to note that if a bank fails, this must not be seen as a failure of the system,” Elke König, chair of the SRB, explained in September. “On the contrary, banks should be able to fail; the exit of failing firms in a free market system is normal. Part of the SRB’s raison d’être is to ensure that we end the concept of ‘too big to fail’.”

The SRB, therefore, is not simply tasked with protecting the global economy: it is part of an effort to change the way national governments think about the financial system. It is also about fairness. During the last financial crisis, the people and institutions responsible were not held to account, and instead were rescued by the public purse. The SRM could help prevent that from happening in the future.

For a rainy day
Essentially, the aim of the SRM is to create a uniform procedure for the resolution of credit institutions and investment firms. Alongside the SSM, it grants the European Central Bank supervisory powers over the euro area’s banks. Should a crisis develop at any of these institutions, action can be taken at EU level to protect the bloc’s financial system from widespread damage.

One of the primary methods the SRM is employing to reform the behaviour of banks is through the creation of a Single Resolution Fund (SRF). This is funded by the banks themselves and is intended to be equal to one percent of insured deposits held by EU credit institutions by 31 December 2023. The fund has been building steadily since 2016 and now holds around €25bn ($28.3bn). While the mix of similar-sounding EU organisations and acronyms can make for confusing reading, the adoption of the SRM should make the act of resolving failing banks simpler and more consistent.

6%

Average public deficit in the eurozone in 2010

85%

Overall public debt in 2010

$1.7trn

of taxpayer money was use to bail out European banks

“The European [SRM] establishes that banks’ losses should be privatised without, in principle, recourse to public funds,” Jean Dermine, a professor of banking and finance at business school INSEAD, told World Finance. “[The SRB] has been created with authority to deal with distressed banks. If needed, the resolution board can use the funds of the SRF to facilitate the restructuring of a distressed bank.”

For the SRF to achieve its one percent goal, it is estimated that it will need to hold between » €55bn ($62.2bn) and €60bn ($67.9bn) by the end of 2023. As such, the SRB confirmed that there are plans to grow the fund to just short of €33bn ($37.3bn) this year. That would be in keeping with the fund’s previous annual growth levels of approximately €7.5bn ($8.5bn).

It should be noted that the SRF is not to be used flippantly – it is not a crutch for substandard bank officials to lean on. In fact, the SRF is only intended to be used to guarantee assets or liabilities, make loans to institutions under resolution, or compensate shareholders. It is not to be used to allow banks to absorb their losses.

Trouble ahead
When the debt crisis took hold in Europe a decade ago, ‘resolution’ was not even a banking term. Since then, the EU has managed to set up its banking watchdog and convince financial institutions from across the single market to pool their resources together to protect themselves – and the taxpayer – from future crises. These are impressive achievements, no doubt, but more work needs to be done. In a July 2018 report, the IMF made it clear that the time has come for the eurozone to develop its banking union further.

“The euro area expansion, while still vigorous, is slowing to a more moderate pace,” the report read. “But global and domestic risks are rising, including escalating trade tensions, policy complacency among member states and political shocks. Rebuilding fiscal buffers and addressing structural issues to improve resilience and build support for euro area reforms is now even more urgent. At the same time, completing the banking union and advancing the capital markets union is necessary to foster greater private sector risk sharing.”

A growing SRF may be enough to protect taxpayers from the failure of a smaller bank, but it is likely to come up short if more widespread financial instability occurs. As such, eurozone states have begun discussing the formation of a public backstop to the SRF, allowing the European Stability Mechanism to step in as a lender of last resort. The idea is controversial, however, with European political leaders debating how to ensure the backstop is credible and capable of being deployed rapidly. A robust backstop, if it can be agreed upon, would bolster confidence that resolution can be achieved even when large, complex banks fail.

Second time lucky
Currently, it is not difficult to envisage a scenario where the SRF would struggle to facilitate the orderly resolution of a larger institution. The SRB admitted as much in June 2017, when it forced the sale of the failing Banco Popular bank to Spanish rival Santander for a nominal fee of one euro. Talking about the sale, König confirmed that Santander was able to provide more liquidity than would have been possible through the SRF. Fortunately, a buyer for Banco Popular could be found immediately. For situations where this is not the case, the SRF may be needed.

The EU must act now to solidify its banking union while in a period of relative stability

When the 2008 financial crisis struck, talk of banks requiring an extra $100bn or $200bn of liquidity was not uncommon. If a similar situation were to arise again, the SRF’s holdings would quickly be exhausted. The EU must act now to solidify its banking union while in a period of relative stability.

“Privatisation of bank losses is a step in the right direction,” Dermine said. “However, two other issues must be dealt with. Since deposits with more than seven days maturity could potentially bear losses, this creates a tremendous risk of a bank run. One needs tools to deal with a bank run. Secondly, one cannot ignore the political dimension of imposing losses on retail investors.”

The developing political situation in certain eurozone states will undoubtedly be at the forefront of many people’s minds at the SRB. In Italy, proposals to increase the country’s deficit have been rejected by the European Commission. They may be pursued nonetheless. With debt already standing at more than 130 percent of GDP and much of it being held by the country’s banks, it is here where the next eurozone crisis may emerge. If it does, EU officials will be hoping that its banking union is able to stand up to the challenge this time.

Thai Life Insurance is succeeding by putting its customers first

Posted on by Max Tomlin

The Thai economy is going from strength to strength. Recognised by the World Bank as “one of the great development success stories”, the nation has embarked on a programme of rapid economic expansion over the last 50 years, with steady growth and widespread poverty reduction moving Thailand into its current upper-middle-income status. Today, Thailand boasts the second-largest economy in South-East Asia, and this impressive growth is showing no signs of slowing down. The nation is expected to post a growth rate of 4.7 percent for 2018, marking its fastest rate of economic expansion in five years.

Thailand’s rapidly ageing population is driving a growing demand for life insurance products

Amid these positive developments, one sector is showing particularly impressive results. Bolstered by increased financial inclusion and a growing middle class, the Thai life insurance market has emerged as an economic bright spot in recent years, with premiums and policy penetration rates both on the rise. What’s more, the nation’s rapidly ageing population is driving a growing demand for life insurance products, creating a valuable opportunity for insurance companies to connect with Thailand’s elderly citizens.

While the future certainly looks bright for the Thai life insurance industry, competition is posing a significant challenge to established insurers and fledgling companies alike. A host of new players have begun to flood the market, putting insurers under increasing pressure to stand out from the growing crowd. At Thai Life Insurance, we understand the importance of a unique selling point in a saturated and competitive market, and have successfully distinguished ourselves from our competitors through our effective viral video campaigns. By tapping into viewers’ emotions, our touching commercials have helped us to craft our internationally recognised brand image as a company that cares.

A powerful message
Television advertising is notoriously difficult to get right. Many traditional adverts have viewers immediately reaching for the remote, while other instantly forgettable offerings simply serve as background noise for households around the world. Amid this sea of unremarkable commercials, Thailand has emerged as a world leader in creative advertising, producing an array of heartwarming and engaging viral videos that have been shared and enjoyed internationally. Thai Life Insurance is one of the country’s advertising pioneers, consistently using cinematic storytelling and emotive messages to connect with audiences and highlight the importance of insurance in the face of life’s many challenges.

One of our most successful commercials, named Unsung Hero, has more than 36 million views as of 2018, with its moving message continuing to connect with viewers around the world some four years after its release. This uplifting video shows a young man performing acts of kindness in his local community, helping those around him without any form of reward or recognition. Along with our other viral videos, this commercial serves to remind viewers of the value of life and the importance of caring for the people we love. Our campaigns – and our wider brand image as a whole – are crafted around the core concepts of life and love, as these features truly form the cornerstone of the life insurance business.

These intrinsic human values are at the very heart of our operations at Thai Life Insurance – the needs of our customers always come first. In 2014, we reaffirmed our commitment to serving the Thai people by rebranding as a ‘people business’, with the aim of deepening our bond with our valued customers. Our customer-first approach has inspired us to create a diverse portfolio of more than 200 life insurance products to serve our clients at every stage of their lives, from their youth through to their retirement and old age. These ‘total life solutions’ were designed to meet the varied and continually changing needs of our customers, ranging from retirement planning to health insurance and practical financial advice.

This vast array of products has enabled Thai Life Insurance to connect with clients of all ages, winning loyal customers from multiple generations. For younger consumers, for instance, Thai Life Insurance offers a range of medical plans and accident insurance options designed to suit their current needs. One such solution is the pioneering Thai Life Insurance hotline, which enables customers to receive compensation within 24 hours of a public disaster. Given Thailand’s unfortunate vulnerability to natural disasters, this coverage has proved invaluable to many of our cherished policyholders. By offering practical and diverse products such as these, Thai Life Insurance hopes to cater to customers’ evolving needs at different life stages, building a lifelong relationship as a consequence.

The caring culture
As a company that cares, it is important that our core values are carried through to every part of our business. Along with attentively serving our customers, at Thai Life Insurance we also strive to be a force for good in the wider community, helping to enhance Thai society wherever we can. Corporate social responsibility (CSR) is therefore an integral part of our business, as it enables us to put our firmly held beliefs into action. As one of the nation’s leading insurance providers, we understand the importance of using our platform responsibly, and we hope to effect positive change in the community through a range of exciting projects and activities.

In 1995, we embarked on a long and rewarding partnership with the One for Lives Foundation, which provides medical assistance to the most vulnerable members of Thai society, including underprivileged children, impoverished families and the elderly. Through our close work with the charity, we have lent our support to a number of worthy causes including the Thai Red Cross Society, which we have championed for over 30 years. In addition to donating a state-of-the-art ambulance to the Red Cross Organ Donation Centre, Thai Life Insurance also organises blood donation drives in its head office every three months, with similar blood donation initiatives now beginning to take off in the company’s regional branches.

Furthermore, Thai Life Insurance has also played an important role in raising public awareness and understanding of organ donations, working diligently with the Thai Red Cross Society to distribute informative material and organise educational events. Since Thai Life Insurance embarked on this awareness drive, a total of 16,514 people have signed up to be organ donors, reflecting the remarkable success of this campaign.

In addition to supporting these deserving causes, Thai Life Insurance is also committed to providing essential relief to the nation’s many disaster victims. In the wake of natural catastrophes such as the severe floods that devastated Southern Thailand in 2017, Thai Life Insurance always endeavours to play its part in relieving the suffering of those affected in the immediate aftermath of such events. During the catastrophic floods – the worst to hit Thailand in over 30 years – scores of Thai Life Insurance employees and volunteers headed to the affected areas to distribute food and relief packs to the many disaster victims. More than 1,000 relief bags were issued to families across the region, while company volunteers prepared more than 3,000 meal kits for doctors, nurses, staff and patients at Maharaj Nakhon Si Thammarat Hospital, where many flood victims were taken for treatment. This crucial, on-the-ground assistance provided by Thai Life Insurance workers reflects our ethical company culture, and we are proud that all our employees share our core values of love and generosity.

What’s more, according to studies carried out by Harvard Business School, those who regularly perform acts of charity tend to report higher levels of personal happiness, while the act of volunteering can lead to a reduction in stress hormones and increased emotional wellbeing. By encouraging our employees to volunteer their time, we therefore hope to boost worker morale at Thai Life Insurance.

Inspiring values
In addition to serving the Thai public through our far-reaching CSR initiatives, at Thai Life Insurance we also seek to take care of staff and personnel at every level of our business. From our valued stakeholders to our business partners and branch-based employees, we firmly believe that people are the heart of our success. As a people business, our staff and customers always come first, and we aim to meet their evolving needs through a range of innovative products, services and distribution channels. Our loyal staff members are encouraged to be more than life insurance agents; to act as a friend and a consultant for our many policyholders.

With hundreds of types of life insurance on offer at Thai Life Insurance, it is important that customers are well matched with a policy that suits their requirements and their financial situation. By conducting in-depth needs analyses and offering pertinent advice, our attentive staff members can effectively connect customers with their ideal plan. Along with offering life insurance advice, Thai Life Insurance employees are also on hand to provide valuable health insurance guidance, taking each customer’s individual health concerns into consideration when making tailored recommendations. If customers are looking for financial advice, our team is also able to offer informed suggestions in this area, helping customers to grow their savings and make sound investments. In this way, our staff members take on the role of life solutions providers, caring for our respected customers at every stage of their lives.

This commitment to customer care has established Thai Life Insurance as an ethically conscious company, with a unique people-first vision. Our strongly held values continue to set us apart from our competitors, and will allow Thai Life Insurance to stay relevant and profitable for many years to come.

World Finance Digital Banking Awards 2018

Posted on by Max Tomlin

Technology’s steady march into nearly every aspect of our lives has brought sweeping changes to the way companies are created and run. The digitalisation of the banking sector in particular has been widespread, and has accelerated noticeably in recent years.

Cybersecurity should be at the heart of each financial institution’s digital strategy, and it must inform every technological implementation

In fact, nearly 2,900 physical bank branches have closed in the UK alone over the past three years, as more customers turn to online banking instead. In the US, meanwhile, the number of brick-and-mortar bank branches dropped by more than 1,700 in the 12 months to June 2017, the biggest decline on record.

But breaking from tradition to adopt modern practices is no easy task: banks must grapple with new regulations while attempting to update legacy systems and integrate new, often disruptive technologies. What’s more, consumers are increasingly demanding: they expect their banks to provide a convenient and flexible service that seamlessly incorporates the latest developments.

The World Finance Digital Banking Awards 2018 celebrate the organisations that are successfully tackling the industry’s challenges and driving the digital revolution with dynamic business strategies and groundbreaking technologies.

On the defensive
A number of high-profile cyberattacks have shaken the business world in recent years. In 2017, Ransomware and malware attacks – such as NotPetya and WannaCry – opened executives’ eyes to the sophistication and complexity of the threats they face, highlighting the fact that large businesses cannot simply outsmart cyberattackers.

Unfortunately, these threats haven’t abated: according to cybersecurity firm McAfee, cybercrime now costs the world economy nearly $600bn annually, or 0.8 percent of global GDP. With threats continuing to make the headlines in 2018, the financial services industry has finally started connecting the dots, investing more money in cybersecurity. In fact, the number of jobs addressing cyberthreats in the sector is expected to grow by 37 percent annually until 2022.

While this is undoubtedly a good start, banks’ responsibility to financial markets and customers means they must go further. Moving forward, cybersecurity should be at the heart of each institution’s digital strategy, and it must inform every technological implementation. The banks that prove resilient through these challenges will secure the trust of consumers and achieve commercial success.

Best foot forward
In 2016 and 2017, many financial institutions became increasingly aware of the opportunities presented by new technologies and business models. Last year, however, that awareness turned into action. Whether used to communicate with customers via chatbots, identify fraudulent activity online or analyse large data sets, artificial intelligence (AI) is being adopted across the financial landscape to improve efficiency and cut costs. AI has also helped reshape banks’ trading departments and allowed for the introduction of personalised products.

Distributed ledger technology is another area that banks are eyeing closely. When cryptocurrency prices spiked in late 2017, corporate interest in blockchain – the technology underpinning many digital tokens – surged. While the price of bitcoin and other cryptocurrencies has since tumbled from those heights, many institutions remain optimistic about the potential applications of blockchain technology – namely, its use in execution, clearing and settlement processes. Global management consultancy firm Accenture even estimates that distributed ledger technology could save investment banks as much as $10bn through improved efficiency.

Blockchain could also benefit cross-border payments: experts in the field have said their tech will transfer money across international borders quicker and with fewer costs. Further, it will help institutions meet Know Your Customer and anti-money-laundering standards by providing a secure record of customers’ identities.

As banks jump into these new and exciting technologies, they must remember that resources need to be properly managed for them to benefit the entire organisation. The operations of legacy infrastructure must be kept running smoothly as modernisation and digitalisation occur, and any internal disruption should be minimised. For this reason, IT budgets are expected to expand: a 2017 study by Celent, a research consultancy focused on financial services technology, suggested IT spending will increase by 4.2 percent annually over the current four-year period, reaching $296.5bn by 2021.

Welcoming disruption
Fintech continued to be a huge area of development and growth for the banking industry in 2018. According to KPMG’s Pulse of Fintech 2018 report, global investment in fintech had surpassed the total spent in 2017 within the first six months of the year, and was on course to exceed the peak recorded in 2015.

Fintech firms continued to raise the bar for more established banks last year by using their agility to respond quickly and efficiently to consumer demands, while finding new solutions to long-standing issues. The growth of fintech was particularly pronounced in the insurance and regulatory industries during the first six months of 2018. Europe was the main beneficiary, with the introduction of the Second Payment Services Directive and General Data Protection Regulation forcing companies to adapt quickly. As a result of the new requirements, ‘regtech’ companies witnessed a substantial increase in funding.

Neobanks (sometimes referred to as challenger banks) also present an exciting prospect for investors, especially in Europe. According to Sven Korschinowski, a financial services partner at KPMG in Germany, digital challengers such as N26 in Germany and Revolut in the UK were attracting attention from global investors like Chinese tech giant Tencent: “This interest highlights the potential [that] investors see in the market. Many global investors see digital banks as an entry point into the European market.”

The digitalisation of banks is engendering real change throughout the industry – from established investment banks adopting AI, to agile neobanks giving consumers advanced mobile offerings. But even as the industry sits on the cusp of a digital revolution, there is work to be done, especially with regards to preventing data breaches and ensuring the integration of new technologies does not hinder day-to-day business operations. The World Finance Digital Banking Awards 2018 highlight the companies that have achieved success in the face of these multifaceted challenges.

World Finance Digital Banking Awards 2018

Best Digital Banks
Andorra: MoraBanc

Argentina: Nación Servicios

Barbados: CIBC FirstCaribbean

Brazil: Nubank

Canada: Tangerine

Chile: Banco de Chile 

Colombia: Bancolombia 

Costa Rica: BAC Credomatic 

Dominican Republic: Banco Popular Dominicano

France: BNP Paribas Fortis 

Germany: N26

Kuwait: Gulf Bank

Mexico: BBVA Bancomer

Myanmar: CB Bank 

Nigeria: Access Bank

Panama: BAC Credomatic

Portugal: ActivoBank

Russia: Sberbank

Singapore: OCBC

Spain: BBVA

Turkey: Garanti Bank

UAE: Mashreq Bank 

UK: Revolut

US: GoBank

 

Best Mobile Apps
Andorra: MoraBanc App – MoraBanc

Argentina: Pim – Nación Servicios

Barbados: CIBC FirstCaribbean Mobile – CIBC FirstCaribbean

Brazil: Banco Itaú – Itaú Unibanco

Canada: EQ Bank Mobile Banking – EQ Bank 

Chile: Mi Banco – Banco de Chile

Colombia: Bancolombia App Personas – Bancolombia 

Costa Rica: Banca Móvil – BAC Credomatic  

Dominican Republic: Banco Popular Dominicano

France: Hello bank! – BNP Paribas Fortis 

Germany: ING-DiBa Banking to go – ING-DiBa  

Kuwait: Gulf Bank Mobile Banking – Gulf Bank

Mexico: Bancomer móvil – BBVA Bancomer

Myanmar: CB Bank Mobile Banking – CB Bank 

Nigeria: Access Bank – Access Bank

Panama: Banca Móvil – BAC Credomatic 

Portugal: ActivoBank – ActivoBank

Russia: Touch Bank – Touch Bank

Singapore: OCBC SG Mobile Banking – OCBC 

Spain: BBVA Spain – BBVA

Turkey: Garanti Mobile Banking – Garanti Bank    

UAE: Snapp – Mashreq Bank  

UK: Tide Business Banking – Tide 

US: Ally Mobile Banking – Ally Financial