ROLAND BERGER STRATEGY CONSULTANTS
Issue 8 The global magazine for decision-makers
JOSEPH STIGLITZ IKBAL CAVDAROGLU DANIEL VASELLA CARLOS GHOSN
works for free trade and brings together Muslim offers exclusive comments seeks a partner in North
justice, and explains how faith and the profit motive on how he melds cultural America. In this issue, he
in our interview. in her entrepreneurship. sensitivity with leadership. tells why.
Autos for everyone,
growth for the industry
(Dossier starting on page 19)
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think: act the global magazine for decision-makers by roland berger strategy consultants issue 8 first views f
Cars in the under-€10 000 bracket will be a major
growth market in the next few years. For international car mak-
ers, that market presents both risk and opportunity. The risk lies
in the fact that the rules of the game will undergo fundamental
changes, and new competitors from China and India are step-
ping onto the playing field. Opportunities may abound because
established providers will be able to tap brand-new markets
with significant growth potential. So how exactly should a com-
pany go about gaining a solid foothold in these markets? Our
cover story offers must-read ideas.
Naguib Sawiris knows more than most about how to tap
new markets. With Orascom Telecom, the Egyptian billionaire
specializes in doing business in the world’s crisis regions.
“Wherever the risk is high, profits are high, too,” he says. Our
profile of Sawiris looks at the man and his business achieve-
ments in Iraq and Algeria, and why he now has his eye on
expanding into established markets.
Expansion plans like Orascom’s require a liberalized trade system. However, the notion of
free trade is increasingly frowned upon in international economic policies, says economist
and Nobel laureate Joseph Stiglitz in our interview. Until recently, Stiglitz was considered one
of globalization’s more ardent naysayers. In a conversation with think:act, Stiglitz—now an
advocate of globalization—urges companies to support their respective governments in pursu-
ing multilateral trade agreements.
Stiglitz also believes that political commitment is part of being a senior executive. In this issue
of think:act, Daniel Vasella (CEO of Novartis), Carlos Ghosn (CEO of Renault-Nissan), Flavio
Briatore (managing director of the Renault Formula One team) and Haim Saban (media mag-
nate) talk about their roles as leaders and about the management methods they utilize. I hope
that you find their ideas inspiring.
Dr. Burkhard Schwenker
CEO Roland Berger Strategy Consultants
Learning from Briatore means learning how to win. Flavio Briatore No other product has shaped our culture as thoroughly as the car.
just led Renault to the Formula 1 championship. In an exclusive interview, Sociologist David Gartman describes how the vehicle became transportation
he tells why all managers should be as tough as he is. Page 56 for our passions, and some of the problems in the passenger seat. Page 38
Test-tube managers? Gary Hamel and Julian Birkinshaw are not The most famous Blackberry fan of all: Haim Saban. He has made the
producing new executives in a lab, but they are encouraging companies to device mandatory for all of his executives, and in an exclusive essay, Saban
experiment and come up with real innovation in management. Page 54 explains how the Blackberry has changed his management style. Page 60
food for thought dossier business culture
6 Do it yourself! 19 Car lite 54 The Google model of creativity
How weblogs, YouTube and the Chinese and Indian buyers want The London Business School aims
rest have changed the roles of cars that cost less than €10 000. to improve innovation in manage-
producers and consumers. An enormous market will open for ment—with a test lab.
any company that can deliver.
8 Bring back liberalization 56 Managers need to have machismo
Joseph Stiglitz was a hero to anti- 26 Looking for a third? Formula 1 team leader and
globalization activists, but now he Carlos Ghosn brought Renault and entrepreneur Flavio Briatore talks
works for free trade. Interview Nissan together. Now he may be about how to manage—and win.
with the Nobel laureate economist. searching for another partner.
60 Crackberry, of course
12 Faith and figures 30 Five routes to the passing lane The Blackberry started its march
Koran and capitalism cannot get Top automotive managers describe to ubiquity nearly 10 years ago.
along? The Turkish region of the greatest challenges facing the Power user and top executive Haim
Kayseri presents a different picture. sector and how to master them. Saban explains what it does for him.
32 Function follows form
Anyone can have cutting-edge
technology. Design makes a come-
back as a competitive factor.
38 History of a fetish
Sociologist David Gartman opens
a window into the hidden history
of the automobile.
industry report regulars
40 It’s about strategy, not just speed! 3 First views
Novartis CEO Daniel Vasella on 52 The shape of things to come
management and strategy. 62 Service | Credits
44 Go where no one else dares
Telecommunications firm Orascom
earns its money in some of the
world’s riskiest markets.
47 Europe’s return to eminence
The Best of European Business
competition enters its next round.
48 Becoming part of the whole
How diversity marketing is
different in today’s competition.
The future of cars, cars of the future 50 All the money’s on sugar
Starting on page 19 Brazil’s economy is booming, not
least because of sugar.
p food for thought we are all producers
Do it yourself!
We blog, make videos and take pictures—and there is always another media form that seems to crop
up that enables us to share our amateur work with the public at large. User-generated content is one
of the big trends in the business world. The question remains whether people can make money off it.
of American teenagers have
70 million blogs are currently being written, estimates
The Blog Herald. The country with the most blogs is the
United States with about 25 million to 30 million. Differences
already created content for the among various countries are surprising. South Korea has
Internet, report analysts at Pew 15 million blogs, and Japan has almost 4 million, while India
Research. only has 100000 of them and Germany 280000. Interestingly,
even though the US has the highest number of blogs, bloggers
in Asian countries write more. In fact, 37 percent of all blog
entries worldwide are written in Japanese.
times the annual sales of YouTube, or exactly $1.65
billion, is what Google paid to acquire the video Web
site. Are we seeing a return to “New Economy”-type
German 1 %
Danish 1 %
Portuguese 2 %
Source: The Blog Herald, Technorati
37 % Japanese
madness? There are similarities to be sure. Like many
companies that were over-hyped in the past, YouTube Russian 2%
is still posting losses.
French 2 %
Italian 2 %
Spanish 3 %
Chinese 15 %
Brits have the most WLAN hotspots 31 % English
The United Kingdom has
21 WLAN hotspots per
100000 citizens, making 21 20
the country number one
in wireless access. The
United States gets by with 12 10
proportionally little more
than half as many, while
Italy muddles through
with far fewer.
United Kingdom South Korea Denmark USA Germany Norway France Italy
Source: www.jiwire.com WLAN hotspots per 100000 citizens in 2006
are mashups the wave of the future? food for thought f
When Web sites combine
724 mashups, or Web application hybrids, are listed on
Google Maps—more than any other Internet service. For
example, users can locate their positions on maps, or find
out where Hawaii’s best hotels are or which area in New
York City has the highest incidence of crime. Mashups will
play a significant role in the Internet’s commercial future.
Major mashup categories
Blogs as news sources
Journalists are starting to take blogs seriously. In a 3 % Transit
selected set of newspapers over a three-month period, 4 % News
Factiva found more than 2500 instances of blogs being
4 % Travel
quoted. Yet, two years ago, blogs were virtually irrelevant
to the press. In the period last studied, the relevance of 4 % Messaging
blogs decreased slightly. It appears that the media may 4 % Events
discriminate among blogs of varying quality.
5 % Sports
References to blogs in selected newspapers 5 % Mobile
7 % Shopping
8 % Photo
9 % Search
47 % Mapping
1000 Source: www.programmableweb.com
units sold—the company Slim Devices has a hit with its
Squeezebox digital music player. The device’s special feature
is that customers developed most of the technology and
design. Slim Devices gave its customers an active role in
technology development, thus creating a loyal following.
Indeed, the Squeezebox is one of the first user-generated
products on the market.
Source: Fast Company, January 2007
is what Tyson Ibele, a 19-year-old American from Minneapolis, Minnesota, won for a
commercial he produced for a contest on the cable network Current TV. The industry
has a name for his production: user-generated advertising. Current TV is the first cable
network that gets most of its programming from user-generated content; the commercial
for Sony Electronics ran for several weeks.
Source: Fast Company, January 2007
did the united states cause the failure of the doha round? food for thought f
Bring back liberalization
Joseph Stiglitz champions free trade and more-equitable globalization. His work regarding
asymmetric information in the global economy earned him a Nobel Prize in economics. In this
think:act interview, he has harsh criticism for Europe, but especially for the United States.
THINK: ACT ACT Professor Stiglitz, the world and the world economy be affected if it Paulson was right when he spoke of a worldwide
economy is still going full steam, but there keeps heading downward? attitude of protectionism.
are signs of a cool-down. What are the great- I don’t think that the dollar will hit rock bot-
est hazards to the global economy? tom. However, it will remain weak in general, Europe and Asia are even more dependent
STIGLITZ The basic danger lies in the unfavor- with a few fluctuations here and there. The on exports than the United States. What is in
able economic situations in several OECD consequences of a declining dollar are always a store for these regions?
[Organisation for Economic Co-operation and weakening of the US stock markets and higher It is critical for Europe and the Asian
Development] countries, particularly in the interest rates in the US. This exacerbates the economies to find their way back to liberaliza-
United States, and it may not improve in the cyclical downturn of the US economy. tion and not retrench behind new protectionist
next few years. The United States has had barriers. Tariff barriers could obviously be
real estate–based growth for the last five years A few days after the Doha round of trade reduced lower, but the biggest obstacle to world
with private households taking on increasing negotiations was broken off, US Secretary of trade is agriculture. Neither the US nor the EU
indebtedness. The problem now is that the cen- the Treasury Henry Paulson warned about a is willing to make any real concessions. They
tral banks are likely to respond to inflation “disturbing wave of protectionism.” Are anti- are just not ready to negotiate in this matter.
caused by climbing oil prices by raising inter- globalization forces taking over?
est rates—it is going to mean that the continu- I don’t think so. I myself am not opposed to glob- The United States is experiencing a down-
ation of growth in the United States is going to alization, even if that is how I’m perceived some- turn, and Doha was a fiasco. Meanwhile,
be very difficult. The US thus finds itself in a times. But it is ironic that the United States China’s economy is also cooling off. It feels
fragile position, and a slowdown in the US is a would be raising those concerns, as the single like we are looking at the perfect conditions
threat to the entire global economy. country to be most to blame for the breakdown for world trade to collapse.
is the US, which did not make any significant If growth in China goes from 10 percent to
The dollar’s exchange rate has been drop- offer to reduce its agricultural production subsi- 9 percent per year, one shouldn’t really con-
ping, which has caused concern among dies. These subsidy policies cause great harm to sider that as an actual threat to the world
many observers. How will global trade developing countries every year. However, economy, but rather as a sensible slowdown.
p food for thought forget populism!
But obviously, there are signs of a global down-
turn. Of the three factors described, the weak-
ness of the US is the most critical.
The United States seems to be moving from
a multilateral approach to bilateral accords.
Is the era of multilateral trade accords com-
ing to a close?
Well, I think that those bilateral agreements
are an aberration of the current unilateralist
Bush administration and do not represent the
interest of the world economy, the world trad-
ing system or even the United States. The fact is
that it’s been relatively unsuccessful. While
there are a large number of such agreements,
the total amount of trade embraced by these is
a small fraction of global trade. They may have
symbolic political power, they are not of sub-
stantial economic importance.
They also harm companies in affected
countries. How can globally active compa-
They can and must exert pressure on their gov-
ernments to return to a multilateral trade sys-
tem. A succession of bilateral agreements would
be a nightmare for globally active companies
because it would ultimately make any kind of
long-term planning impossible for them.
China was accepted into the World Trade
Organization (WTO), India’s influence is
growing, and South Africa is forming closer
ties with Brazil—are developing countries
gaining more clout?
We are unlikely to see an agreement as unfair
as the Uruguay Round. This is a consequence
of greater transparency and more democracy.
It is inconceivable for a democratic govern-
ment to sign on to agreements that were as
unfair as the Uruguay Round was for the poor-
est countries of the world. The spread of
europeans must get used to company mergers food for thought f
democracy itself is going to make sure that the offers appealing investment opportunities.
agreements of the future are more fair than the JOSEPH E. STIGLITZ, a professor at However, if world trade gets rougher, will
agreements in the past. Columbia University in New York, is one of the the demand for protection from China and
world’s best-known economists—and one of
India in the West grow louder and ultimately
the most controversial. He was Chief Economist
Many observers believe that the failure of at the World Bank and a member of President prove irresistible?
the Doha Round would have a negative Clinton’s Council of Economic Advisers from Ask around, they’re already getting louder as we
impact on the protection of intellectual 1993 to 1995. His critical examination of the speak. But I think this is where the WTO plays
property. Do leading companies that live international financial markets, published in an important role, because it makes it relatively
from the sales of branded products need to The Roaring Nineties, won fans among global- difficult to impose large trade restrictions. In the
ization’s critics. He has just published his lat-
worry about a wave of new copyright case of clothing and textiles, obviously some
est book: Making Globalization Work. In 2001,
infringements as a result? Stiglitz received the Nobel Prize in economics restrictions were imposed. China is obviously
Generally, no, that’s not something they have to for his work on asymmetric information in a going to accept that. However, if there were
be concerned about. The problem in regard to global economy. broader, across-the-board trade restrictions, it
protecting intellectual property is currently less would be a major drag on the global trading
prevalent in the well-known sectors such as the system. I think people both in the developed
film and music industries, but is more prevalent PRODUCTION AND WORLD TRADE world and in the developing world would be
among the pharmaceutical manufacturers. The TRADE IS GROWING FASTER THAN PRODUCTION very wary about undermining the global
companies are currently trying to get traditional Trade Production trading system in a fundamental way.
medicines patented in developing countries. 12
At the same time, many people still can’t get 10 It seems as though you haven’t lost your
their hands on life-saving drugs. This situation 8 optimism completely, even though various
just can’t go on. There is a broad consensus with- 6 cross-border transactions were torpedoed in
in the World Health Organization and within Europe. The Italian group Enel did not take
the international community on that issue. over the French company Suez, and the
It is also in the interest of the pharmaceutical 1950–63 63–73 73–90 90–2004 Spanish government pulled the plug on the
companies to provide more people in developing merger between Germany’s energy giant
countries with better access to life-saving drugs. EUROPE IS THE WORLD’S BIGGEST EXPORTER E.ON and Spain’s Endesa. Skeptics are already
Therefore, they should be pushing for more NORTH AMERICA IMPORTS ALMOST AS MUCH AS ASIA prepared to see threats to the the project of
research on those drugs that are relevant to EXPORTS European unification.
developing countries. In addition, we need to 26.8 Asia 14.9 North America It is interesting is that in Europe, ownership
reform our intellectual property system. It is seems to be even more sensitive than world
4.4 Middle East 3.0 CIS
presently unable to organize widespread access % trade. If they have come to accept trade, then
to pharmaceutical drugs. And if pharmaceutical 2.6 Africa ownership has obviously been more difficult.
companies get the knowledge behind traditional 3.1 Central and 45.3 Europe I think it will probably take a little while. In
medicines patented, then it’s not only bad for most areas, we accepted multinational compa-
those countries but for scientific progress as well. IMPORTS
nies, European companies, and it is only in a
21.8 North America few highly sensitive areas, such as energy, that
Let’s talk about China some more. Western 1.9 CIS real problems arise. Therefore I don’t think it is
countries see China largely in positive 2.7 Middle East
% going to undermine the project of European
2.6 Central and
terms to date because on the one hand, 2.3 Africa South America integration. I think it will just slow down this
consumers save money thanks to cheap 44.8 Europe
particular area, and eventually even in these
imports, while on the other, the country areas there will be a European organization.
Faith and figures
According to certain interpretations of Islam, the objective of one’s efforts should
not be to earn money, and usury is specifically prohibited. Stereotypically, the
Islamic faith and capitalism are mutually exclusive. The Turkish province of
Kayseri shows how far from reality this view diverges. Ambitious entrepreneurs
in this booming region have a dynamic work ethic. Devout and business-oriented,
people here are often described as Islamic Calvinists. Our report on Kayseri’s
success shows that Islam and a market economy can exist side by side.
scenes from an unexpectedly booming region food for thought f
p food for thought people with money are sureto spend it, even in kayseri
Faith does not prevent anyone in
Kayseri from achieving commercial
success. Most companies have prayer
rooms, and everyone seems to have a
very strong work ethic.
faith and profits are compatible food for thought f
Entrepreneur Halil Hakkoymaz (left) sacrifices a sheep.
An accident at his company did not have serious consequences,
and for that he gives thanks to Allah.
IBRAHIM YARDIMICI IKBAL CAVDAROGLU
believes that a combination of opened a bookkeeping business
business savvy and helpfulness 25 years ago. She created a sen-
has cultural roots, and observes sation because she was one of the
that “From East to West, people city’s first women to run her own
are becoming increasingly mate- business. “I set a precedent,”
rialistic.” Kayseri lies between the says Cavdaroglu, now 44 years
East and the West, so perhaps it is old. She is involved in the women’s
no coincidence that entrepreneur- organization of the AKP, an Islamic
ship and charity should mix easily political party, although her
in this region. Yardimici, head of beliefs are far removed from strict
the Erbosan pipe construction doctrine. For example, she dis-
company, would like to pass on agrees with Islam’s prohibition of
his view of social responsibility to loans that earn interest.
his children. “I show them the
conditions the poor must live in,”
he says. Knowing that his ability
to make charitable contributions
depends on his business suc-
cess, he adds, “Obviously, we
need to earn money, too.”
ALPER PELIK is a colorful SAFAK CIVICI says about her
figure in Kayseri’s conservative fellow citizens: “The people here
business world. “We are the only are really quite industrious.” Born
high-tech company in the city,” in Germany to Turkish parents
says 38-year-old Pelik. His com- and holding a German passport,
pany, Domino Electronics, manu- the 42-year-old businesswoman
factures fiber optic cable. In his praises Kayserians’ work ethic
opinion, some of his city’s advan- and their special relation to their
tages are a solid work ethic and religion. “Kayseri proves that one
public spirit, not to mention rela- can have a Western attitude and
tively low wage costs. He cites a solid faith in Islam,” says Civici.
disadvantages such as conserva- Her company, Sefes, delivers
tive business leaders’ reluctance almost half a million designer
to take risks and their disinterest chairs annually to just the Italian
in pursuing innovation. “It’s true market.
that the people in Kayseri work
hard, but mules work hard, too,”
extravagant lavishness is shunned food for thought f
potentially surprising for supposedly back- Kayseri’s business culture is characterized
ward Anatolia. The city is evidence that by proverbial frugality. “Turn off lights when
Islam can have a positive influence on eco- not in use,” admonishes a sign in the Birlik
koymaz is nomic success.
With its 1.1 million inhabitants and a work-
force of 150000, the province of Kayseri pro-
Mensucat textile plant, a company with
€55 million in sales.
Displaying wealth outwardly is also not
a man of few duces 70 percent of all furniture sold in
Turkey and 1 percent of the denim worn
proper. There is really no nightlife to speak
of in Kayseri, even though businesspeople
words. He throws around the world. The industrial zone out-
side the city spreads out over 2350 hectares
in Istanbul enjoy spending money in expen-
sive nightclubs. “It’s not our style,” says
two crumpled bills, and is home to more than 500 production Seffat Arslan, a furniture factory owner,
200 lira (about €100), facilities. It also features 100 kilometers of
paved streets, more than many of Turkey’s
wrinkling his nose. Profits in Kayseri are not
frittered away, but are invested or spent on
on the table as a donation. rural districts. Even though the city is in the good causes. “My father told me, ‘Don’t lie,
middle of Anatolia and therefore quite dis- stay honest, and keep your numbers
The building contractor in tant from any ports, Kayseri’s exports have straight,’” says Mustafa Özhamurkar, CEO of
this central Anatolian city of doubled since 2000 to about €540 million. In Birlik Mensucat.
Kayseri often pays a visit to the cramped the meantime, business owners complain Kayseri’s success has much to do with early
office of the soup kitchen to help out. But about a lack of workers. experiences with real poverty, which still
today, he has another gift for the poor. A Mosques and building cranes shape have an influence on the rhetoric of the
serious accident had occurred at a job site, Kayseri’s skyline. The city has about 500 city’s business class. “We know that money
but the victim came out of it virtually places of worship, and one of the largest is needs to be earned by hard work,” says
unscathed. Most grateful for the outcome, located in the industrial zone. Signs of piety Ibrahim Yardimici, head of the pipe manu-
Hakkoymaz intends to sacrifice a sheep. “In appear everywhere, without any traces of facturing company Erbosan. “I’m 65 years
Your name, I sacrifice this animal,” says the religious extremism. old now, but I can remember selling sesame
small, wiry butcher in Hakkoymaz’s direc- Kayseri’s faithful are not agitating; they rings on the street as a 7-year-old to make
tion. He places the knife’s edge to the ani- would rather make donations. Since 2000, some money.” Today, he exports steel pipe to
mal’s throat. “Allahu akbar (God is great),” he €230 million of private money has flowed 70 countries around the globe.
calls out. Afterward, Hakkoymaz gets into into charities and foundations, estimates the The city’s thriftiness is not only evident in
his old station wagon and drives back to his Turkish weekly magazine Aksiyon. Many the culture of local companies but in the
construction company. public buildings, such as schools, were built public administration as well. Mayor
There are 30 soup kitchens in Kayseri, most by private donors, and several hundred stu- Mehmet Özhaseki, an AKP party member,
of them financed by businesspeople. For dents receive grants and scholarships, espe- recently sold the city’s fleet of vehicles and
them, it is natural that they should work cially for medical universities. The donors put his civil servants in leased vehicles—
hard as well as be benevolent and God- hope that the future physicians, nurses and heretofore unheard-of for status-conscious
fearing. Kayseri exemplifies both a blend of medical techs will later improve medical Turkish government employees.
a strong faith in Islam and the positive care in the city. Thus, the donors believe Özhaseki’s predecessor Sükrü Karatepe
aspects of a modern world. Indeed, pious- their donations help to promote their city as coined the term “Islamic Calvinism” to
ness and economic success are interwoven, an appealing place to live and work. describe the special combination of piety
p food for thought entrepreneurs donate to education
and industriousness that pervades the area. AN ANATOLIAN TIGER finds Fuat Keyman, a professor of political
The term reappeared recently in a study Located north of Mount Erciyes, Kayseri can science at Koç University in Istanbul. “They
published by the European Stability Initia- look back on a long history of trade and com- have noticed that there is another Turkey
tive (ESI), a European research institute. It merce. In ancient times, it was known as outside of Istanbul,” he says. ESI director
Caesarea and was a major commercial hub.
gave an international public a portrait of Gerald Knaus points out that Kayseri’s
The Kayserians of today explain this by the
Kayseri and initiated a debate about the fact that the region has neither mineral success is representative of many areas in
compatibility of Islam and modern social resources nor much fertile farmland. Thus, Anatolia. Other cities such as Konya,
trends. The results were something Kayseri’s Kayseri was built on trade. Gaziantep and Eskisehir are also experienc-
citizens already knew beforehand: There ing considerable growth.
Now, Kayseri is one of Anatolia’s economic
is no contradiction between success and centers; and with cities such as Gaziantep, Some critics dislike the comparison with
Muslim faith. Denizli and Eskisehir forms the “Anatolian Calvinism because they sense an implied
“If there were, we wouldn’t have such a big tiger.” Eleven of Turkey’s 20 biggest furniture Christian superiority. Gül and most of the
industrial zone,” says Ikbal Cavdaroglu, manufacturers have their headquarters in business owners in Kayseri do not have a
a local AKP party member and business- Kayseri. Most businesses are small and problem with Calvin, even if his doctrine of
woman. She was the first woman in Kayseri medium-sized companies. The city’s small- predestination linking economic success to
business and craftsman association has
to start her own company, which is an religious choice cannot be exactly trans-
almost 46000 registered members.
accounting firm. posed to the Muslim faith.
The Koran itself emphasizes the right to The unemployment rate, which is difficult to “God loves those who work hard—and that
private ownership, and Muhammed was a determine in Turkey due to a widespread applies to us,” says Arslan, the furniture
underground economy, is less than 7 percent,
wealthy businessman. Kayseri’s most company owner. For that reason, business
according to business owners, compared with
famous son, Turkey’s Minister of Foreign the country’s average of well over 10 percent. leaders in Kayseri would be pleased if the
Affairs Abdullah Gül, recently told the BBC Since 1950, Kayseri’s population has rest of Turkey followed their example to
that the people of his hometown practiced increased tenfold to 600000 people. The some degree. “If all of Turkey were like
“the kind of Islam that we need. They go to economic boom also has its dark side. Accord- Kayseri, then we wouldn’t have any prob-
the mosque and they are pious, but at the ing to an assessment by Turkey’s census lems with Europe,” he says and takes a drag
office, the city has the poorest air quality in
same time they are very active in business.” off his cigarette. Then he goes back to talk-
the entire country.
When Gül wanted to show Olli Rehn, the ing about future business plans. Arslan
European Union’s commissioner for enlarge- The typical socially responsible streak of local wants to build a factory in the neighboring,
ment, what makes Anatolia tick, Gül entrepreneurs particularly benefits the educa- economically challenged province of
tional sector. The Turkish business newspaper
brought him to Kayseri. Yozgat. To be in Allah’s good graces? Per-
Referans calculated that benefactors donated
The reaction of surprise to the boom says $54 million in two years. haps, admits Arslan, but especially as a tax
something about Europeans in particular, write-off, he winks.
“I believe that automobiles
today are the equivalent of the
great Gothic cathedrals.”
Roland Barthes, Philosopher
“Small is beautiful.”
E.F. Schumacher, Economist
DOS SIE R # 0 8 The f u tu r e of ca r s, ca r s of the f u tu r e
n GENERAL MOTORS
is reorienting its brand strategy.
Chevrolet will cover the entry-level
segment worldwide. The name is
still not very well known in Europe.
Chevys have been
sold since the time- Car lite
honored brand’s THE LOW-COST-CAR SECTOR HAS MORE POTENTIAL GROWTH THAN ANY OTHER SEGMENT OF THE AUTO INDUS-
start. GM wants its TRY. TO DATE, CHINESE AND INDIAN AUTOMAKERS HAVE BEEN AHEAD. NOW, ESTABLISHED CAR MAKERS ARE
new approach to gain CREATING THEIR OWN LOW-COST BRANDS. A REPORT BY AUTOMOTIVE JOURNALIST ULRICH VIEHOEVER
from that success.
s FIRST, THE GOOD NEWS. The future of the auto-
mobile industry is very bright. In 15 years, it will be
they fight for customers who are looking for minimal
comfort and service plans, and are only prepared to
selling significantly more products than today. The spend the equivalent of €5000 to €10000? Indus-
improvement of standards of living in India and China try experts believe that there is no time to be wasted
means that in the near future, the world will see an if established car companies do not want to repeat
explosion in four-wheeled mobility. Who is likely to past mistakes, like they did in grossly underestimat-
benefit from this trend? Companies that change their ing the capabilities of Korean and Japanese compa-
product line to meet the rising demand. Asia’s middle nies. They need to turn to low-cost cars themselves
class cannot be enticed with cars selling for €20000 and to correspondingly positioned brands. In the fore-
and more. They want respectable cars for consider- seeable turf war, winners need to be able to establish
ably less than €10 000. The bottom line is they credible low-cost brands without cannibalizing exist-
want low-cost cars. And they will get them—are ing high-end ones. This challenging task cannot be
getting them right now, in fact. New low-cost car achieved with just one or two brands.
makers in China, India and Russia are launching Each company should have strong low-cost,
auto brands such as Chery, Tata and Dacia, respec- mid-range, and premium brands, and at the very
“Under the Chevrolet tively, and these companies are changing the car least one of each. “With only one brand, they cannot
brand, we offer cars world while they are at it. cover everything from the low-price sector to the
below the €10000 The upstarts are no longer satisfied with their luxury segment—that kind of a span would exceed
threshold, and that domestic markets, and they are ready to conquer the the capacity of any brand,” says Carl-Peter Forster,
Western ones. How energetically they are executing head of GM’s European division.
puts us in a segment that plan is demonstrated by the Geely Holding Group,
that includes the a Chinese car manufacturer. Founded in 1997 in HOWEVER UNTIL NOW, very few companies have
makers most aggres- Zhejiang, a city in northern China, the private auto aggressively pursued this three-pronged, forward-
sive on prices.” maker exported 64 percent of a particular product thinking strategy. To counter any margin loss, most
C A R L- PE T E R FOR S T E R, V I C E PR E SIDE N T AT GM
segment—its inexpensive but sturdy sports car— would rather dive into the premium segment. That is
A N D PR E SIDE N T OF GM ’ S EU ROPE A N DI V ISION overseas in 2004. On the occasion of the car’s intro- understandable given that posh high-tech cars fetch
PICKING UP THE PACE duction in Europe, general owner and CEO Shufu Li higher prices and promise decent profits. But the pre-
announced that his company had plans “for 2015 to mium market is gradually fading out because it is
Chevrolet cars sold (in millions). The
numbers have been climbing since 2003. export two-thirds of total production or have it pro- growing more slowly while drawing more automakers.
duced abroad.” In terms of scale, he put out a figure For Johann Tomforde, car designer and CEO of Hymer
4.6 Millions of Chevrolets 4.5*
4.4 of 1.4 million units. “The vehicle suited for the export idc, it is “dangerous when almost everyone rushes off
4.2 market has already been developed and is ready for in the same direction and ignores customers who
mass production,” he added. can’t afford such expensive cars.” Managers would
3.8 3.7 lose millions of potential buyers. “Despite all the work
3.6 FOR ESTABLISHED CAR BUILDERS in Europe, put into high-tech design, car companies should not
3.4 2001 2002 2003 2004 2005 2006
Japan and the United States, the mighty plans of a forget to provide really budget-priced mobility that is
Source: GM Europe
managing director like Shufu Li pose questions. Will accessible to everyone,” he adds. Further, they should
the manufacturers take on the new competitors? Will do so with brands below the premium group.
The ma r ke t f or ent r y- level ca r s i s g row i ng wor ld w ide DOS SIE R # 0 8
Tomforde, who is also a former manager with higher class is “growing downward,” meaning that its
Mercedes, took a first tentative step in this direction average price level is dropping. The new competitors
with DaimlerChrysler’s Smart mini-car. The company arriving on the scene will make the market even
tried to use the Smart car to establish a new make tighter. In a nutshell, the sweet spot in the “premium”
of car positioned below the portfolio of products the niche could become a costly luxury in the long term.
company had at the time. However, the car became Companies would therefore be well advised to take a
too expensive for actual entry-level buyers. Further- closer look at affordable car classes. This segment
more, as a product for China and India’s growing also includes buyers in Western countries who were
middle class, the unusual pod-shaped car would have only able to afford a used car to date. The trend here
been unsuitable anyway. seems to be heading toward buying an inexpensive
new car with a solid service plan and accessory pack-
YET THE PROSPECTS for a sturdy, inexpensive age instead of roadworthy second-hand car. A survey
entry-level car are brighter than ever before. The world conducted by the University of Nuertingen’s Institute
market for low-cost cars will expand over the next few for Automotive Business at the 2005 Frankfurt Inter-
years. A current Roland Berger study projects that in national Auto Show found a high degree of acceptance
2012, 18 million cars priced at less than €10000 for the low-budget autos. About 31 percent of the vis-
each will be sold annually (see box on page 25). That itors claimed to be curious about the money-saving
figure is 4 million more than today, and the increase vehicles displayed. Specifically, younger customers
in the low-cost segment is likely to be well above the (18- to 35-year-olds) could envision buying a low-
auto industry’s overall growth. budget car as their first or second vehicle.
According to the study, the fastest-growing
markets will be China and India. In 2012, buyers will MEANWHILE BEHIND their plant gates, many
probably purchase 2.6 entry-level cars in China alone. companies are hammering out strategies for low-cost
Overall, the Roland Berger analysts expect the Chi- cars. Some are quietly looking for partners. Others,
nese to buy 6.4 million cars per year, thereby creat- such as General Motors, are going on the low-cost car
ing a bigger market than the Japanese one. offensive. The best-selling company is in the process
Even in the more affluent Western world, the of streamlining the diversity of its brands (seven of
market potential for entry-level cars is on the rise. them in the US alone) and focusing the remainder pre-
One reason is a changed macroeconomic structure. cisely on clearly defined target groups. When it comes
Europe’s economies are growing slowly, which puts a to what is under the hood, individual brands use
squeeze on average incomes and sparks the demand the same components from a GM component matrix.
for inexpensive cars. The American economy is doing Forster believes that this method minimizes costs
better, but mid-range car-buyers are only benefiting and allows the company to build more inexpensive
from that to a limited degree. Between 1980 and
2003, the average price of a new car grew by 2.2 per-
cent, an increase that exceeds that of Americans’ ULRICH VIEHOEVER is a business
incomes except for the wealthiest 5 percent. As a journalist and book author who lives and works
consequence, experts such as Ferdinand Dudenhoef- in Stuttgart, Germany. He specializes in the
fer, a professor of marketing at Germany’s University automobile industry. Viehoever’s critically
of Gelsenkirchen and director of the Center of Auto- acclaimed books include The Boss at Porsche,
a biography of former Porsche CEO Wendelin
motive Research there, are expecting a tough battle
Wiedeking, as well as a collection of corporate
between the high-volume car makers, which would profiles entitled The Rich and Influential. The
also affect the premium segment. book discusses 12 companies run by
This particular sector still has significant billionaire families in Germany.
growth potential even though it holds a 40 percent www.ulrichviehoever.de
market share (7 million cars worldwide). But this
DOS SIE R # 0 8 The f u tu r e of ca r s, ca r s of the f u tu r e
n THE FORD MOTOR COMPANY
is mired in the biggest crisis in its
history. In the third quarter of 2006,
Ford posted its second-highest
quarterly loss ever—$5.8 billion.
67 percent of Ford
cars are economy- models, sold worldwide under the name of Chevrolet. which is produced in Brazil, to the starting line. The
General Motor’s bread-and-butter car is thus the com- company is still in the process of deciding under what
and compact-size. pany’s only brand to step up to the plate worldwide. name and in which region a successor to the Fox
They are too expen- “Under the Chevrolet brand, we are offering models should be built. Outgoing VW CEO Bernd Pischetsrieder
sive, and they use well below the €10000 threshold, and that puts us in was quoted as saying that the new entry-level model
too much fuel. the segment that also includes the makers most could be based “on a Skoda or a Seat.” There might
aggressive on price,” says Forster. The Americans are also be a deal in the offing with DaimlerChrysler,
now forging ahead to increase capacity in Russia, which could be even more advantageous for VW.
Korea, China and South America. “Chevrolet is demon- After the company’s false start with the Smart
strating explosive growth, especially in Eastern car, DaimlerChrysler’s Dodge is emerging as an entry-
Europe—we are going to hit 300000 units,” he adds. level model for the international market, and CEO
Forster even sees a benefit for Europe’s car industry, Dieter Zetsche was recently overheard discussing
saying, “GM’s European division will bring production this option. In order to keep costs as low as possible,
of various Chevrolet models from Asia to Europe. That he is seeking a collaboration with one or more part-
will ensure market growth and employment as well.” ners. A decision is supposed to be forthcoming. In
addition to talks with VW, Hyundai, Mitsubishi and PSA
THE FRANCO-JAPANESE Renault-Nissan group is (Peugeot), management is also in close contact with
pushing a strategy geared for the entry-level segment the Chinese car manufacturer Chery. The Chinese
with the Dacia brand, which was originally a Roman- company appears to be Zetsche’s preferred partner
ian make. The brand is oriented toward new growth for the subcompact, based upon its “cost-benefit ratio
markets and encompasses affordable vehicles that pure and simple” as he has told the press.
are sturdy and have modern styling, according to top Ford is also starting to move in the “budget”
“Ford’s current Renault executives. With their low-cost brand, the sector. Ford’s new president and CEO Alan Mulally
business figures are French are specifically targeting the smaller pocket- believes that developing smaller and more-fuel-
unacceptable. As a books of Western buyers. efficient vehicles will contribute to the stricken giant’s
company, we simply Dacia’s workhorse is the Logan, which will be reorganization. The company needs to make some
must make signifi- produced in seven countries, including Russia, India, solid decisions in this area. Ford has been losing
Morocco and Brazil, starting in 2007. The company market share in the American market for months now
cant progress in plans to sell the vehicle in 42 countries eventually. because it does not have any low-priced alternatives
developing smaller Renault CEO Carlos Ghosn and his associates believe to its gas-guzzling models.
and more efficient that the Logan will “give Renault a head start” in the
automobiles.” lite auto segment. The world’s fourth-largest car com- APPLIED TO AMERICAN DESIGNATIONS, Mulally’s
A L A N M U L A LLY, PR E SIDE N T A N D C EO OF T H E pany feels well prepared with its strategy to “position mission means substantially expanding the B and C
FOR D MOTOR COM PA N Y. itself as the most profitable high-volume manufactur- segments (Fiesta and Focus, respectively). Manage-
FORD IN REVERSE er,” according to Ghosn. Based upon its success to ment in Ford’s European division already initiated
date, Renault headquarters in Paris wants to increase steps in the subcompact direction. Accordingly, the
Ford sold 6.8 million cars in 2005, far
fewer than in 2002. the company’s production capacity for the Logan company wants to build its future entry-level model
since demand is very strong. (a successor to the Ka) together with Fiat in Poland
7.1 Millions of automobiles
7.0 Other company executive boards also have the starting in 2007–08. Ford’s subcompact will sell in
7.0 topics of “entry-level segment” and “subcompacts” on the €8000 range. The Italian company may also offer
their agenda. For example, Volkswagen Group, which its 500-series models in Poland for about the same
6.7 is based in Wolfsburg, Germany, has its eye on intro- price. Both partners want the Polish auto plant to
6.6 ducing an inexpensive entry-level car. VW has not yet produce a full 240000 units.
2001 2002 2003 2004 2005
determined what brands will be placed on the market Because economy and subcompact cars are
Source: Ford Europe
and where this should take place. As an interim solu- one of Fiat’s specialties, the company has been on the
tion, VW has brought the Fox (base price is €8950), lookout for partners to manufacture future models
F i a t a i m s t o m a k e i t s c o s t s e v e n l o w e r a n d i s c o o p e r a t i n g w i t h Ta t a i n I n d i a D O S S I E R # 0 8
even more cost-effectively since parting ways with competitors in check. “We are continuing to grow from
General Motors. “The objective of the collaboration our own resources and do not wish to succumb to the
agreement with Ford is to share the industrial costs temptation of making major acquisitions,” says a
of the new products and platforms,” confirms Sergio company spokesperson.
Marchione, CEO of Fiat SpA. However, Marchione is not
content just to have a deal with Ford. “We will contin- WITH ITS FAITH in Daihatsu, the Japanese car
ue to work on international alliances,” says Marchione. maker is rather relaxed on the issue of low-cost
In the meantime, he disclosed his intention to build cars. One manager says confidently, “Toyota never
an entry-level model (in the €7000 range) together does anything that does not make economic sense.”
with Tata Motors in India. “In terms of low cost, Tata Boldly, Toyota is shooting for a world market share of
has already done great work,” says Marchione. Of the 15 percent by 2010—a feat that would dethrone
new joint venture, he adds, “We’re going to help out General Motors and seat Toyota on top. Company
with expertise and money.” executives would not admit to it openly, but they
Luca di Montezemolo, Fiat chairman, conveys would naturally attribute such an accomplishment
how seriously the company is taking the threat of to their distinct brand-related strategy.
Asian competition, when he warns, “All European Many companies praise the example set by the
automakers need to be on their guard concerning the Japanese car builder, but hardly any of its competi-
potential and strength of China’s advances in the auto tors hold a candle to its accomplishments. There is
industry, which also happens to open new prospects one company that is following Toyota’s path concep-
for us.” The head of the Fiat group is urging his com- tually, and it is not a car maker: Robert Bosch. The
pany to approach the Chinese car manufacturers world’s biggest automobile parts supplier considers
faster in order to “negotiate more deals and joint the low-cost car business a “critical issue,” in the
ventures” with them. words of Bernd Bohr, the head of Robert Bosch’s auto-
TOYOTA SHOULD GET by without creating a new Bohr sees the market splitting up, stating, “The
brand. The Japanese company is adopting the three- premium segment is holding its ground and contin-
brand strategy. Lexus is on top, Toyota is holding the ues to grow in value somewhat, while the low-cost car
broad middle ground, and Daihatsu covers the estab- trend will accentuate. The wide mid-range segment
lished low-cost segment. With this trio of brands, the will shrink, being slowly squeezed from above and
company hopes to keep future Chinese and Indian especially from below.”
GENERAL MOTORS’ BRAND PORTFOLIO
In the future, General Motors will position Chevrolet as an international entry-level brand. A regionally based
brand combination will be targeted toward the consumer middle class. Cadillac will continue to hold down the
luxury segment for GM around the world.
North America Europe Latin America Asia-Pacific
Luxury Cadillac Cadillac Cadillac Cadillac
Premium Hummer, Saab Hummer, Saab Hummer, Saab Hummer, Saab
Mid-size Buick, GMC, Opel, Chevrolet Buick
Pontiac, Saturn Vauxhall Holden
Entry level Chevrolet Chevrolet Chevrolet Chevrolet
DOS SIE R # 0 8 The f u tu r e of ca r s, ca r s of the f u tu r e
n ROBERT BOSCH
Without the automotive industry’s
worldwide largest supplier, technical
progress in the low-cost segment would
advance much more slowly.
2.5 billion euro
were invested in R&D Bosch is investing intensely in the economy knows it needs to address the downward trend;
and subcompact car business. “For us, identifying this accordingly, Reithofer wants to “add new variants to
by Bosch in 2005. trend is strategically important,” says Bohr. That is the 1-series lineup,” which might also include inex-
The parts supplier is because Bosch wants to participate in the sector’s pensive entry-level models.
pushing the trend rapid expansion and contribute to it by “finding appro- One thing that Reithofer will not consider is
toward low-cost cars priate and affordable solutions through the use of new simply buying a mass-market brand as the company
with its innovations. technical approaches.” It is simply not enough, says did with Rover, only to back out of the niche later. A
Bohr, “to dig up ancient technologies or simplify cur- brand portfolio that is not compatible, as might be the
rent ones.” The demand for components is also case in offering premium and mass-market brands,
expected to increase in India and China. could be problematic. BMW still has a dull ache left
For Bohr, there is one other definitive argument over from its Rover fiasco.
to take lite cars seriously. “It might be possible that
low-cost solutions will generate new, somewhat IN GENERAL, however, the maxim remains
upgraded technological variants for the Western mar- “more car for the money,” and it is a sign of the times.
ket,” he says. These could be meaningful in the future This message may seem alien to the auto industry,
to locally sold, lower-segment cars. Pressed for whose prices have steadily risen. However, the world
details, Bohr would only reveal that expensive sensor market will explode as China, India and Russia turn
systems could be done away with and replaced in out low-cost cars, and the quantity-price-cost rela-
smaller engines by intelligent software. Similarly, tionship shifts dramatically. The international lite car
robust common-rail systems for two-cylinder engines will push prices downward in the overall market. A
or anti-lock braking systems (ABS) with small pumps cursory look at other industries that have already
are also on the drawing board. In addition to gone through a similar evolution confirms this
“It is not unlikely on-site production, Bosch also benefits from its direct hypothesis. Currently, one can witness price rever-
presence in developing countries. “We learn a lot sals in the airline business, as well as in the hotel
that low-cost there about local markets and get a sense of our and telecommunications sectors. The television and
solutions will lead customers’ needs,” says Bohr. electronics industries have price reductions behind
to new, upgraded them, as do fashion clothing and footwear.
technological A LOW-COST BRAND is not even up for debate at Do not forget the watch industry either. Swatch
BMW, as CEO Norbert Reithofer explains, “Our compa- watch inventor Nicolas Hayek was responsible for
variants for the ny has a particular philosophy regarding premium bringing cheap chic to the masses. He is convinced
Western markets.” products.” BMW continues to focus on technical inno- that a product’s look does not depend on price, and
BE R N D BOH R, C EO OF BOS C H A N D H E A D OF
vation. “Just like we do on the product side, we will that the image is merely the result of successful
T H E AU TOMOTI V E DI V ISION continue pushing our marketing efforts. We are cur- positioning. Regardless whether an item is affordable
rently ideally positioned internationally. On the sales or sinfully expensive, whether it’s a mass or niche
SALES IN THE AUTOMOTIVE
PARTS SECTOR side, there are actually only two real international pre- product, the most important thing remains the art
mium manufacturers, and we’re one of them.” of credibly portraying a brand and clearly distin-
Bosch’s sales of products supplied to
the auto industry are climbing steadily. Like his predecessor Helmut Panke, Reithofer guishing it from the competition.
has ambitious goals. “In FY 2010, we want to sell a
27 Sales in millions of euro 26.3*
total of 1.6 million cars,” he says. “This kind of sub- HAYEK REMEMBERS the strategic role of the low-
25.0* stantial growth in sales forms the basis for our con- cost Swatch. “First, it was supposed to generate vol-
tinued profitable expansion ” ume so that we could utilize our assembly facilities
23.6 Obviously, the exclusive crowd that claims and keep them going,” he says. “Second, based on
22 BMW as its brand remains small. In the future, it will that volume, it was supposed to act as a firewall to
2001 2002 2003 2004 2005
garner the company a global market share of roughly prevent Japanese competitors from making further
* According to IFRS
Source: Robert Bosch
only 2.5 percent. In other words, Reithofer is referring inroads into this market.” Sounds like what is hap-
to growth on a smaller scale. The upshot is that BMW pening to the auto industry, too.
Lo w- c o s t bra nds ne e d to d i s ta n c e thems el v e s f r o m p o w er f u l p a r ent bra nds DO S S IE R # 0 8
OVERCAPACIT Y IN CHINA
The Chinese auto industry is currently experienc-
ing a major issue with manufacturing overcapacity.
The price is right
General Motors alone could have produced 247000 THE MARKET FOR CARS THAT COST LESS THAN €10000 WILL GROW QUICKLY IN THE NEXT
more cars there in 2005 than it sold in the previous
year. The overcapacity situation could be further FEW YEARS. ACCORDING TO A ROLAND BERGER STUDY, THE MARKET WILL INCREASE IN CHINA
exacerbated in the future. AND INDIA PARTICULARLY. HOWEVER, EUROPE WILL REMAIN THE BIGGEST MARKET.
OEM 2004 Sales 2005 Capacity
VW 1 655000 ≈ 900000 BY 2012, 18 million cars costing less than manufacturers in developing nations such as
GM (SGM) 253000 ≈ 500000 € 10 000 each could be sold annually, con- China (Chery and Geely) and India (Tata and
Honda2 213000 ≈ 300000 cludes a current study carried out by Roland Maruti) a head start. However, Western and
Nissan 82000 ≈ 150000 Berger Strategy Consultants. That figure is 4 mil- Japanese auto makers could also benefit from
Toyota 93000 ≈ 150000
lion more than sold today, meaning the increase the boom in demand if they can adapt to
PSA 89000 ≈ 150000
Fiat 27000 ≈ 100000
in the low-cost segment is likely to exceed the changes in the rules and playing field. Compa-
Kia 27000 ≈ 130000 auto market’s overall growth rate. Despite its nies interested in entering the low-cost
Chery 87000 ≈ 200000 comparatively low growth, the EU claims the segment should consider the following six
Geely 92000 ≈ 150000 largest share with 5.8 million vehicles sold, strategies. They should:
1) (SVW + FAW – VW), 2) (Guangkhou + Dongfeng Honda) ahead of Japan and China (2.6 million each). p Distance themselves from costly over-
Source: China Autoinfo, Morgan Stanley Research
India and Brazil may each see 1.5 million cars head structures.
Overcapacity in China is growing.
sold. Consumers in the United States are less p Decrease the focus on the parent brand’s
interested in the low-cost segment. The study strength.
8000 100 %
projects 700 000 cars sold there. p Limit their products to simple functions.
7000 90 %
The auto industry is experiencing an p Push to decrease the development, pro-
6000 evolution much like the hotel, airline and textile curement and production costs.
5000 60 %
industries saw in the past several years: the p Take into account each growth market’s
4000 50 %
disappearance of the mid-range of the market. market conditions.
40 % In the case of autos, customers either want bona p Keep costs low by means of strategic
30 % fide luxury or real cost-efficiency. partnerships in the areas of infrastruc-
20 % Dramatically increased buyer demand for ture and overall interchangeability of the
1000 inexpensive cars is giving budget-level car product range’s components.
2003 2004 2005 2006 2007 2008
Local industry demand
Industry utilization rate (right)
Source: China Autoinfo, Morgan Stanley Research WEST EUROPEAN IMPORTS AND EXPORTS OF ENTRY-LEVEL CARS (2005)
INDIAN CONSUMERS WANT SERVICE EU-25 exports: Eastern
Cost, service plans and quality are the most impor-
tant criteria for car buyers in India. The service North America
plan’s significance comes from the local approach
to purchases. Cars are bought in anticipation of a EU-15
full service life, and few people resell them. Asia
66100 654 411
3 Non-EU exports:
2 South America Turkey: 105700
Western Europe is clearly a net importer of low-price cars. In 2005, the region
imported more than 640000 of these automobiles just from Eastern Europe.
Source: Roland Berger Sources: J.D. Power, Roland Berger
DOS SIE R # 0 8 The f u tu r e of ca r s, ca r s of the f u tu r e
CARLOS GHOSN was born in Porto
Velho, Brazil, in 1954. He grew up in
Lebanon and went to university at the
prestigious École Polytechnique in France.
After earning his engineering degree in
1978, he worked at Michelin for 18 years,
taking over the tire manufacturer’s North
American business after 12. In 1996, he
went to work for Renault, where he over-
saw restructuring and integration after a
difficult merger with Nissan. As a reward,
he succeeded Louis Schweitzer as the CEO
of Renault. Despite recent disappointing
sales figures from the company, he is con-
sidered a highly successful captain of the
industry and is regularly appointed to top
positions in the international auto industry.
Renault and Nissan emphasize parity in their cooperation DOSSIER #08
Looking for a third?
WHENEVER AN AUTOMAKER HAS A CRISIS, RENAULT-NISSAN CEO CARLOS GHOSN’S NAME COMES UP AS A
POTENTIAL RESCUER. FOR THINK:ACT, HE SPOKE CANDIDLY WITH AUTOMOTIVE JOURNALIST MARK PHELAN
ABOUT WHY THE RENAULT-NISSAN ALLIANCE SETS AN EXAMPLE, AND WHY IT COULD USE A THIRD PARTNER.
s RENAULT-NISSAN CEO Carlos Ghosn’s first
attempt to add a third, American, partner to the
Ghosn sees a precedent for how the world needs to
operate in an increasingly globalized and multicultur-
alliance he leads may have come to naught, but the al environment. “Everyone in the world is emphasiz-
auto industry’s most admired executive is not looking ing globalization, and at the same time, we all want to
back. The Franco-Japanese combine Ghosn leads still maintain our identity,” he says.
wants to add a North American partner, and most In this regard, the alliance might be “one pos-
observers believe it’s only a matter of time until it sible answer to this contradiction that is of critical sig-
begins talks with Ford Motor Co. Ghosn is quick to nificance in the 21st century,” he adds. Collaboration
point out that he did not initiate negotiations with opens up advantages of scale, while allowing the part-
General Motors—investor Kirk Kerkorian did, over the ners to keep their own brand identity. The alliance
heads of GM management. respects the identity of the partners, respects the
“We are not in a situation where we are making identity of the brands and develops synergies that
initiatives,” he says over dinner at a restaurant just benefit both partners.
off the Champs Élysées in Paris. “A year from now, I
am not sure if we will have a third partner.” Reminded THE ALLIANCE WORKS, because Ghosn insists
that Ford Chairman Bill Ford has already publicly said that every cooperation between Renault and Nissan
his company is interested in teaming up with Renault- be win-win for both. No one gets preferential treat-
Nissan, Ghosn simply smiles and nods. It’s widely ment. “Every decision must be a win-win,” he said.
expected that Ford’s new CEO, Alan Mulally, will “You cannot sustain an alliance if you make decisions
announce a further restructuring of the Dearborn, where one partner loses.”
Michigan–based automaker and open the door to In concrete terms, that means that each com-
talks with Renault-Nissan within the next months. pany takes the lead in those areas where its expert-
ise is unsurpassed. For example, with Ghosn at the
THE TWO CEOS SHARE many traits. Both are helm, Renault has developed diesel engines and man-
trained engineers and both have revitalized struggling ual transmissions for both partners, while Nissan has
companies by embracing radically new business built new gasoline engines. Longtime supplier Jatco
models. Mulally did it in his previous position as CEO is the preferred source for all of the alliance’s auto-
of Boeing Commercial Airplanes, while Ghosn did the matic transmissions.
same at Michelin and then with Renault and Nissan. Ghosn concedes to abandoning one approach
Such past experiences would bode well for the Ford- regarding the joint development of new production
Renault-Nissan threesome. platforms. Recently, both Renault and Nissan had
The revolutionary auto alliance that the Brazil- developed a platform for their B-class vehicles, which
born Ghosn forged between Renault and Nissan, and include the Nissan Micra, the Renault Clio and the
thus between France and Japan, represents more to Dacia Logan. However, this program will probably
him than just a successful business model. In it, be the last one that an engineering team will build
DOS SIE R # 0 8 The f u tu r e of ca r s, ca r s of the f u tu r e
jointly from the ground up. “The B-platform worked France, Brazil and the United States. His childhood in
well, but we discovered that it takes longer every time Brazil had the greatest impact on his world view:
two engineering groups work together,” he says. “That “Brazil is a melting pot. It’s a place where you learn
makes sense, because Japanese and French engi- early on to respect diverse identities.” That ability
neers are simply different. As much as possible, from stood him in good stead while he was on a student
now on, one company will develop a platform that exchange program in Colorado Springs, Colorado,
both partners will then use together.” required by the École Polytechnique. These early
international experiences made Ghosn respectful of
ONE AREA WHERE the new strategy could be other peoples and customs, an attitude he certainly
applied is the platform and engine of the Nissan applied in the integration of Asian and European
Skyline GT-R performance coupe. Renault could use corporate cultures, as manifested by the current
this model as a basis for a luxury convertible like the Renault-Nissan alliance.
Nepta concept car. Nissan would handle the engineer- Combined, Renault-Nissan is the world’s fourth-
ing; Renault would design the car and pay Nissan a roy- biggest auto manufacturer, and posted the second-
alty. The same process could also apply to other best operating profits of all vehicle producers. Despite
engines and transmissions developed by either com- that, Ghosn’s top lieutenants say the companies need
pany. In fact, both car makers expect to produce a third partner to generate the revenues and
10 common platforms by 2010, accounting for most economies of scale necessary to compete with
of the vehicles they build around the world. Toyota. Regardless of what his company does, Ghosn
Each partner manufactures engines for the expects that the auto industry will continue to con-
other, but Ghosn said “cross-manufacturing,” with one solidate. “Over the next 10 years, there will be fewer
partner manufacturing complete vehicles for the car manufacturers, not more of them,” he says.
other, will be less common. This was the original core
idea behind the Renault-Nissan alliance. THE PRESSURE TO join forces is also increasing
“We tested it, but it turned out that we didn’t due to the difficult economic environment that Ghosn
need it as much as we thought we would,” he says. is predicting for the next three years. “Our pricing
Every multinational collaboration is based on trial and power is just about zero,” he says. “The prices of ener-
error. International savoir-faire can only be learned gy and raw materials are climbing, and that puts the
by implementation. entire auto industry under pressure.” These concerns
Ghosn is intensely proud of his multicultural also play into the reasons why he thinks a North
heritage. Born in Brazil to Lebanese parents, he American partnership makes sense.
attended France’s elite École Polytechnique. In his He also believes that such a step could accel-
professional career, he has run companies in Japan, erate Renault’s re-entry into the North American
market. Currently, sales in the world’s largest car mar-
ket are not an issue, but “an alliance that pulls in a
MARK PHELAN is one of the top automo- North American partner could open up a whole range
tive journalists in the United States. He is a of other opportunities.”
writer and columnist for the Detroit Free Press, Ghosn rejects point-blank the idea that he could
the Motor City’s most widely circulated daily come on board as CEO of a third partner company, as
paper. With its extensive local connections, is repeatedly speculated, “I don’t think you can be CEO
the Free Press consistently provides some of
of three companies. Being CEO of two is hard enough.
America’s most significant coverage of the
country’s auto industry. It’s totally impossible to be CEO of three. Even if the
shareholders asked me to, I would say ‘No.’”
Automakers who do not cooperate will lose out DOSSIER #08
RENAULT is France’s largest car maker.
In 2005, it posted sales of €41.3 billion
and generated an operating profit of
€3.3 billion. In the first nine months of
2006, sales decreased to €30.9 billion,
down 1.2 percent compared with the same
period in 2005.
NISSAN, the Japanese car maker that
is 40 percent owned by Renault, posted
sales of ¥9.43 trillion (€68.87 billion) and
an operating profit of €6.1 billion in its
2005 fiscal year. In the first six months of
the 2006 fiscal year, the company saw its
sales drop by 15.3 percent.
DOS SIE R # 0 8 The f u tu r e of ca r s, ca r s of the f u tu r e
Five routes to the passing lane
CHANGING CUSTOMER NEEDS, NEW COMPETITORS AND MASSIVE COST PRESSURE ARE JUST SOME OF THE ENORMOUS CHALLENGES FACING
THE AUTOMOTIVE INDUSTRY. AUTOMAKERS AND SUPPLIERS ARE ON THE LOOKOUT FOR BUSINESS MODELS THAT PROMISE FUTURE SUCCESS. IN THIS
SECTION, FIVE OF THE AUTO INDUSTRY’S MOVERS AND SHAKERS DESCRIBE WHAT THIS SECTOR NEEDS TO DO TO MOVE AHEAD.
C A R L- PE T E R FOR S T E R
P R E S IDE N T, GE N E R A L MOTOR S E U R OP E
In the future, the industry will have more
technologies and electronic innovations
available than ever before. For that reason, all
car manufacturers need to come up with a
very forward-looking product line to stay in
the running and move ahead. Every carmaker
needs to ask whether coming innovations are
actually marketable. General Motors Europe is
focusing exclusively on fully implementable
technologies and innovative products. In con-
crete terms, its approach can be summarized
in three points. First, new technologies and
innovations must significantly contribute to
customer satisfaction. Second, the price-
performance ratio needs to fit. And third, the
emphasis needs to be on a balance among Efficient outsourcing
locations Articles on these pages
BA BA S A H E B N. K A LYA NI were extracted from a
C H A IR M A N , BH A R AT FOR GE GR O U P book by Bernd Gottschalk
The outsourcing of automobile components is becoming and Ralf Kalmbach titled
increasingly significant, given that the selling prices of vehi- Mastering the Automotive
cles will remain the same in the future, even though cus- Challenges.
tomers are expecting cars to be equipped with newer and bet-
ter performance features. OEMs and first-tier suppliers in
Western Europe and the United States want to reduce costs by
buying components from low-wage countries in Eastern
Europe, South America, Southeast Asia, China and India, or by
setting up production centers there. India’s vehicle component
industry posted double-digit growth rates in the last several
years. Each year, OEMs and first-tier suppliers capture a bigger
share of exports, while the spare-parts percentage of exports
decreases. India’s greatest advantage is a strong foundation in
intellectual capital. It gives us the ability to manufacture prod-
technological progress, costs quality and ucts cost-effectively, even at low quantities and a compara-
customer benefits, and should not be driven tively high level of technological intensity. The quality of
by the allure of technically feasible but out- India’s many engineers and managers plays a crucial role in
landish products. India’s current and future competitiveness.
C a r l - P e t e r f o r s t e r c o u n t s o n c u s t o m e r- o r i e n t e d i n n o v a t i o n D O S S I E R # 0 8
T HOM A S W E BE R
M A N A GE M E N T BO A R D M E M BE R ,
D A IM L E R C H R Y S L E R
In the next few years, hybrids—
either partial or full hybrids—will
be able to supplement internal-
combustion engines, depending on
the region and traffic situation. For
that reason, our objective is to be
Consistent able to meet customer demands
with a single suitable drive. For
decentralization dual-mode hybrid systems, we, in
cooperation with General Motors
SIEGF RIE D WOLF and BMW, are developing a full-
C E O, M A GN A IN T E R N AT ION A L hybrid technology that improves
With its corporate constitution and the performance characteristics,
employee charter, Magna makes sure that fuel consumption and range of
its philosophy of “fair enterprise” is not conventional hybrid vehicles. The
reduced to empty theory but is exercised new system’s advantages enable
on a daily basis by management and us to offer our customers hybrid
employees alike. The concept of “entrepre- vehicles with attractive perform-
neurs within a company” applies particu- ance, comfort, fuel consumption
larly to the firm’s employees. The group’s and emission characteristics at
decentralized organization into essentially
independent profit centers provides
More intelligent competitive prices. We will be
rolling out the first dual-mode
necessary leeway, reduces bureaucratic
red tape and allows exceptionally effec-
collaboration with hybrid drive in the Dodge Durango
starting in early 2008. Shortly
tive customer relations. In addition, the
structure permits each employee to take
suppliers thereafter, we will expand our
product line with additional mod-
on a greater personal share of corporate F R A N Z FEH R E N BAC H els. Over the long term, of course,
responsibility. This substantially increas- C H A IR M A N OF T H E BO A R D OF M A N A GE M E N T, R OBE R T BO S C H GM BH the fuel cell remains the drive of
es individual initiative, particularly in Five factors are necessary for a successful partnership the future when it comes to sus-
regard to in-house efficiency. between automakers and suppliers: tainable mobility.
p both sides have independence and responsibility; With its 100 different vehicles,
p technology management has common objectives; which include, cars, buses and
p cost-effective structures and processes are present; vans, DaimlerChrysler has the
p international collaboration exists; and largest fuel-cell fleet used on a
p a shared long-term orientation is emphasized. daily basis by its customers
Independence and responsibility at a business level around the world.
mean that all participants are responsible for their own
commercial success, and thus maintain their sovereignty
about entering into contractual relations or not. In
addition, a partnership is about aligning the participating
parties’ capabilities and strengths with shared chal-
lenges and objectives. The market’s changing require-
ments need to be reflected in the structures and
processes. In addition, a successful supplier must, at a
minimum, be able to operate as successfully as its cus-
tomers. Lastly, patience and perseverance are required,
especially for trendsetting innovations.
DOS SIE R # 0 8 The f u tu r e of ca r s, ca r s of the f u tu r e
Function follows form
IN THE LAST SEVERAL YEARS, COMPETITION WITHIN THE AUTO INDUSTRY WAS PRIMARILY ABOUT TECHNOLOGICAL INNOVATION. NOW, DESIGN
IS MAKING A COMEBACK AS THE DISTINGUISHING FEATURE. IN THIS ARTICLE, CAR INDUSTRY EXPERT MARK PHELAN ARGUES THAT A WINNING
DESIGN IS ONCE AGAIN BECOMING A KEY COMPETITIVE ADVANTAGE.
s CARS OF THE future will resemble each
other more and more—at least in those areas that
on reliable cars and cost-efficient manufactur-
ing—is committed to fulfilling its vision of being
he says. One example is the Ford Super Chief con-
cept truck. “When you bend a thin piece of sheet
differentiated car types and makes from each a design trendsetter. The first results demon- metal, you get a sharp line. A thicker piece of
other in the past few years: quality, fuel consum- strating this approach are the racy new Camry, sheet metal will have a curve. And you can see
ption and efficiency. One element is most cer- the retro-styled FJ Cruiser and the small Yaris, the curves of this thicker sheet metal all over the
tainly a distinguishing characteristic, but is often which has already won numerous prizes for Super Chief. It conveys that we have built some-
only seen as a nice-looking add-on: design. Accor- design in Europe and Japan. thing solid.” Solid and American, one might add.
ding to senior executives from various car manu- Another example of patriotic design is the
facturing companies, design and the ability to THE ADVANTAGE OF pursuing the design shiny three-horizontal-bar chrome radiator grille
integrate new features, especially appealing inte- strategy is that contemporary cars can visually that Ford recently implemented in North America.
rior characteristics, will play an increasing role in incorporate the history of each car maker without “This radiator grille is the beaming American
car-buying decisions. In particular, the new low- copying past bestsellers. New competitors from smile,” adds Horbury. “It’s outgoing and says, ‘Hi,
cost carmakers in China and India need to build manufacturing locations such as South Korea and pleased to meet you.’” It harks back to and con-
vehicles that do not look cheap. In fact, they have China, however. have no similar legacy to fall back veys the pioneers’ spirit of optimism, a spirit that
to supply products with designer looks to a popu- on, and everything coming off the drawing boards stands behind American economic growth.
lation stratum that defines itself as an upwardly and assembly lines is new, says Rebecca Lindland, Obviously, the American-oriented approach
mobile middle class. “The way forward begins a vehicle analyst with Global Insight, a market cannot be applied globally. Ford’s European divi-
right here, among the sketches, clay models and research company based in the American city of sion wants to retain its own distinctive styling.
computer work stations, among the designers Waltham, Massachusetts. Patriotism plays a con- This is where Ford’s strategy diverges from the
and engineers,” said Mark Fields, head of Ford’s siderable role, too. “General Motors and Chrysler General Motors one. The latter company decided
Americas division, when he announced the com- recognized that the path to success lies in to furnish its Saturn brand with the European Opel
pany’s turn-around plan. His words apply partic- designing American-looking cars for American design. In other words, GM intends to pursue
ularly to established car producers. consumers,” says Lindland. international unity rather than cultural diversity.
Ford however is still at the start of this
BOB LUTZ, vice chairman at General Motors, process, says Peter Horbury, the English-born ACCORDING TO EXPERTS, an internationally
believes the same thing. “For too long, we forgot designer responsible for the company’s North uniform design makes sense especially for rela-
that we are in the fashion business,” he says. “We American brands. For example, Horbury came up tively small unit quantities of upscale brands
always asked ourselves why consumers didn’t with the styling that transformed Volvo cars from such as Volvo, BMW or Infiniti. Regardless of
see how good our cars were. Then we came to see boxes on wheels to vehicles that elegantly repre- whether they strive for a worldwide uniform look
that it wasn’t important how good they were if sent the industry. He predicts that concept cars or cater to country-centric preferences, one thing
they didn’t generate any interest on the first created in the next few months will demonstrate holds true: the most sophisticated technology
look.” As a result, GM made best-in-class design Ford’s newfound affinity for its history. means nothing without intelligent design.
a top priority. “That’s when we rolled out cars like Horbury also opines that design and brand
the Chevrolet HHR, an absolute blockbuster,” are closely linked. “Sometimes the special way in On the next few pages, Mark Phelan tells
he adds. Toyota—a company that built its empire which sheet metal is formed can define a model,” more about some of the major design trends.
Bentley loves the fine dif ferences DOSSIER #08
BEAUTY IS IN THE DETAILS
On the outside, the Bentley Continental GT
barely resembles earlier models. However,
details like vintage instrument dials show
the vehicle’s heritage as a representative of
a long and proud design history. The highly
customized styling elements successfully
distract from the components the Continen-
tal has in common with Volkswagen and
Audi models. Intelligent design has not
been ignored by Chrysler (the Sebring has
heatable cup holders) or Ford (the Edge is
equipped with iPod input jacks).
DOSSIER #08 Inexpensive without looking cheap
CHINA AND INDIA—INEXPENSIVE CARS FOR MIDDLE-CLASS FAMILIES
Countries like China are seeing the emer- but correspond to the middle class’ status
gence of a middle class, whose income is consciousness. Cars such as the Chery Tiggo
growing rapidly but still has limited buying or other vehicles made by Chinese or Indian
power compared with Western standards. car makers are catching on in this sector.
Companies that want to win them over must They come across as solid and not cheap—
roll out cars that are simple to manufacture even if the materials are inexpensive.
Design—as good and original as ever DOSSIER #08
HISTORY COMES TO LIGHT
Designers do not like the term “retro
design” because it implies older models are
just being copied. “Heritage design” has
been coined by Pat Schiavone, Ford’s head
truck designer, to better convey a sense of
history. Models like the Mini Cooper (pic-
tured) or the Toyota FJ Cruiser use recog-
nizable elements from classic models but
updated and with new features.
DO S S IE R # 0 8 W hen yo u s e t the s ta nda rd , yo u r ads hav e le s s ex p la i n i ng to d o
BUILDING ON CLASSICS
From the VW Bug to the Porsche 911, some Shiro Nakamura says, “The FX is the funda-
models define their brands, and manufac- mental expression of the Infiniti brand. It
turers use those designs to position new will continue to evolve in a more sensual and
cars on the market. For example, Infiniti’s attractive direction.” Experts believe Saab is
FX looks and drives like a big sport coupe, another company that will orient future
despite its SUV roots. Nissan’s head designer designs on its unique classic look of the past.
Nissan crosses boundaries DOSSIER #08
CROSSING SEGMENT BOUNDARIES
The demarcation lines between current seg-
ments are getting hazy. The most exciting
new vehicle class is the crossover SUV.
These cars have a traditional unibody struc-
ture but playfully incorporate elements
from the sport-utility-vehicle realm. The
initial models were not very different from
SUVs, but since then adventurous design-
ers have started to work up sharp, sporty
models like the Infinity FX 45—catchy
hybrid shapes for hybrid customers.
DOS SIE R # 0 8 The f u tu r e of ca r s, ca r s of the f u tu r e
History of a fetish
THE CAR IS THE MOST EMOTIONALLY LADEN PRODUCT OF OUR TIMES. IN TODAY’S INDIVIDUALIZED
SOCIETY, IT DEFINES WHO WE ARE. IN THIS ESSAY, SOCIOLOGIST DAVID GARTMAN WARNS THAT THE
AUTO FETISH COULD POSE A PROBLEM FOR CAR MAKERS.
s THE AUTOMOBILE is undoubtedly the most
important artifact of modern culture, carrying a depth
especially in the United States. The ability to move on
meant the chance to move up, to escape confining
and range of meaning unsurpassed by any other local jobs and markets for the freedom of open eco-
object of our age. The car’s cultural centrality is nomic opportunities. The couplet of the car and the
explained by its association with modernity’s most road quickly became modernity’s most powerful
important form of freedom—individual mobility. The metaphor for freedom and individuality.
modern world emerged through movement and migra-
tion—from the stultifying rural relations of serfdom AT FIRST, OF COURSE, such automotive freedom
and tenancy to the “free air” of cities and commercial was reserved for the wealthy, who alone could afford
markets. The car greatly enhanced the ability of the price of expensive, craft-built cars. But Henry Ford’s
individuals to move at their own discretion, freeing mass-production process made cheap cars available
them from the collectively imposed schedules and to the masses—in the US in the 1920s, in Europe only
routes of railways. This enhanced geographic mobili- after the Second World War. Ironically, however, as
ty became closely associated with social mobility, mass-production democratized automotive mobility,
Ca r s: mo r e tha n jus t a mea ns o f t ra nsp o r ta t io n DO S S IE R # 0 8
it simultaneously undermined the opportunities to greater “scope,” that is, more real product variety, pio-
which drivers hoped to move. The high capital require- neering new types of cars such as compacts, inter-
ments of mass production eliminated small produc- mediate sizes and muscle cars. Each type targeted
ers and consolidated the auto and other industries not a broad income group as before, but a small mar-
into oligopolies. And the power and discretion of the ket niche defined by lifestyle characteristics such as
organized craftworkers of early industry were age, gender, region and family status. But as the num-
replaced by the powerless dependence of unskilled ber of models grew, the production volume of each
detail workers along assembly and production lines. dropped, reducing economies of scale and unit prof-
These developments transformed the cultural status its. Throughout the 1970s and 1980s, automakers
of the car from a symbol of freedom to its fetish, a struggled to make mass production more flexible to
substitute for and displacement of the real need. As accommodate this real variety, many borrowing from
individual power and opportunity in the corporate the Japanese system of flexible specialization. By the
economy eroded, automakers offered people con- 1990s, however, the contradiction between product
sumer substitutes for the individuality and freedom scope and production scale re-emerged. Even the
they had taken away in production. Japanese model proved incapable of accommodating
the demand for increasingly individualized models
IN THE 1920S automobile stylists began to cover generated by the cultural fragmentation of advanced
over the standardized homogeneity and assembly- industrial societies into a multitude of lifestyle
line heteronomy of mass-produced cars with surfaces enclaves seeking to recapture the individuality lost to
of individualized difference and freedom. Automakers a globalizing economy. The consequent search for
offered a hierarchy of price-graded brands, each tar- higher profits through greater scale touched off the
geted to a particular income market. These brands current industry trend toward consolidation through
were differentiated not by quality but by the quantity mergers and joint ventures, as well as a return to
of fetishized symbols and features that appealed more platform and parts sharing.
to all consumers. To hold down costs, mechanical
components were shared between the brands, which THE ATTEMPT of automakers to offer fetishized
were differentiated mainly by their body styles. excitement and individuality in cars is economically
In this way, automakers could capture mass-produc- self-limiting. Increased variety undermines the scale
tion economies of scale while simultaneously offer- necessary for mass production, setting off a profit-
ing consumers the seemingly individualized and driven countertrend toward superficially differentiated
romanticized products they demanded as compensa- sameness that thwarts consumer demand. Another
tion for lost freedoms. self-generated limit to automotive fetishism has
In the US, the apogee of this automotive emerged in the use of cars. When every individual WILLIAM DAVID
fetishism was reached in the late 1950s, when futur- driver needs one or more cars to express his or her GARTMAN is a professor of
sociology at the University of
istic chrome appliqué and rocket imagery were loaded identity, the number of cars on the road explodes, cre-
South Alabama, in the American
onto uniformly large cars possessing decades-old ating frustrating impediments to the liberation and city of Mobile, Alabama. He has
technologies. But this period also saw a rising revolt individuality sought. Finally, the ecological limits to written extensively about the
against such superficial fetishism. Competition drove automotive fetishism are increasingly apparent, cultural significance of the auto-
the style wars to such outrageous extremes that especially as China’s incipient automobilization mobile in many books and trade
consumers began to see the sameness beneath the already strains oil markets and the environment. articles, including Auto Opium: A
superficial differences. Many Americans seeking Are alternative automotive meanings possible? Social History of American Auto-
mobile Design. His book From
superior fetishes turned to smaller European cars Perhaps small, standardized, fuel-efficient cars can
Autos to Architecture: Fordism
such as Volkswagen because they stood out in a be promoted, not as individual fetishes but as sym- and Architectural Aesthetics in
sea of overdecorated dinosaurs. bols of social and environmental responsibility. But the Twentieth Century will be
During the 1960s American automakers this would entail creating other outlets for individuali- published in 2007.
addressed this discontent by offering consumers ty, perhaps in enriched careers and civic participation.
p industr y report international pharmaceutical companies affected by demographic changes
DANIEL VASELLA, M.D., is Chairman and
Chief Executive Officer of Novartis AG. He was
appointed Chairman in April 1999, having
served as CEO and head of the Group Execu-
tive Committee since the merger that created
Novartis in 1996. While holding these posi-
tions, Vasella had a lead role in overseeing
the company’s mergers with Sandoz and Ciba-
Geigy. Under his leadership, Novartis set its
strategic sights on the health care sector,
with pharmaceuticals as the core business.
Vasella was born in 1953 in Fribourg, Switzer-
land. He is married and has three children.
NOVARTIS is one of the world’s largest
pharmaceutical companies. The company,
which is based in Basel, Switzerland, markets
both patented and generic pharmaceutical
products. In 2005, Novartis posted net sales
of $32.2 billion and a net profit of $6.1 billion.
The company invested $4.8 billion in research
and development. The Novartis group of com-
panies employs approximately 99 000 people
in more than 140 countries.
novartis opens a research center in shanghai industr y report f
It’s about strategy, not just speed!
Novartis CEO Dr. Daniel Vasella runs one of the largest pharmaceutical companies in the world.
In this exclusive interview, he speaks with Medard Meier about how much variety international
companies must permit, and why Novartis provides more aid for development than Switzerland.
THINK:ACT Dr. Vasella, with sales of more cause cancer. In this environment, products for questions all the time. That’s how I gather
than $35 billion, Novartis is one of the self-medication remain another growth market. what I call “subcutaneous” knowledge. In our
world’s largest pharmaceutical companies. For minor ailments, it doesn’t make sense to business, not much happens overnight. We need
Could you tell us in a few words what run to the doctor every time. to keep our eyes on long-term developments,
Novartis stands for? You also have to consider changes in lifestyle. like establishing talent pools in Shanghai or
VASELLA Absolutely! Novartis is about offering Compared to the past, many people are hardly Beijing without losing sight of running our
our customers products with real added value. physically active any more. The computer has day-to-day business.
To get that, they’re prepared to pay top dollar. changed how we work and play. However, we
In order to achieve that on a recurring basis, have not sufficiently adapted our eating habits … From which you have to draw accurate
we need to be innovative and productive, and to these new conditions. High-calorie foods con- projections and respond accordingly…
to communicate openly. tinue to prevail. They result in obesity, and that … Not just respond! It’s a gestation process, and
is associated with high blood pressure, diabetes my colleagues, the supervisory board and I are
What changes are afoot in the social and degenerative joint diseases. involved in it. Various options are weighed and
environment? played out mentally. What would happen if?
There are a few basic trends that are critical to How do you ensure that Novartis will be Why would we do that? The big decisions are
our industry’s growth. We are presently seeing present in key future markets? not made daily, but from time to time. In
significant demographic changes. The number Our central question is always: Where are between those decision-making occasions, ideas
of older individuals is growing worldwide, pharmaceutical needs the greatest? Answering about the future change continuously. Because
while the number of children is decreasing, that question requires knowledge about long- changes don’t occur quickly, there is the danger
especially in high-income countries. On the one term demand. At the same time, we need to that one might actually miss seeing the signs.
hand, there is a greater need for medical servic- have the capability within the company to be So we have to be able to step back and think:
es, which necessarily results in higher costs. On innovative and competitive in selected What’s changing? What’s different and what
the other, we have fewer young people who are indication-related segments. are the implications?
generating incomes and can pay for the
increasing health care costs. Is that why you set up research centers in Such as, will the high prices of pharmaceuti-
Basel, Boston and most recently in Shanghai? cal drugs be accepted?
Is that why you are buying up generic drug Talented and well-trained people are no longer Right. In the Western world, there is increasing
manufacturers in billion-dollar deals, like concentrated in just a few industrialized coun- pressure to lower prices and challenge patents.
your most recent acquisition, Hexal? tries. Here and in the United States, fewer and Trying to get health care costs under control
People want better drugs, in other words more fewer young people are studying natural sci- this way is unfortunately a useless and destruc-
effective drugs with fewer side effects, and are ences. It’s different in Asia. We need to face that tive endeavor. One needs to be aware that by
ready to pay a premium for those. Or they want reality. Accordingly, we have a worldwide pool taking profits away from the entire pharma-
the cheapest drugs, which would be generic of researchers and talent. ceuticals industry, would only reduce health
products that are no longer protected by care costs by a mere 3 percent. People and
patents. However, ideally we don’t even want to Do you use some type of early-warning governments need to change their thinking
get sick, which compels people to get vaccina- system when you make your decisions? entirely on this issue. What do we want? What
tions and thereby prevent being stricken with If you mean warning lights, then no, I don’t. are alternative means of intervention? How
infectious diseases, including those that can I listen, I watch what’s going on, and I ask prepared are we to pay for that? Society needs
p industr y report regional managing directors give novartis localized identity around the world
to find an answer to these fundamental ethical to be organized in such a manner that we can these traits are defined in greater detail.
questions, because the pharmaceutical industry adapt to various requirements in individual Annual performance evaluations are based on
cannot do it alone. regions and countries. It’s been a help that we achieving previously agreed-upon quantitative
usually have in-country executive manage- and qualitative goals. How results-oriented is
Do you see yourself as a portfolio manager ment. That enables us to establish a link with an individual? How does this person lead and
who keeps an eye on his investments, risk a particular country. communicate? How reliable, transparent and
and earnings, or more like a pilot who is trustworthy is he or she? The same criteria and
flying an airplane? Novartis doesn’t fly in managing directors? the same processes are applied worldwide. An
Your pilot analogy fits in one aspect: You need We don’t normally, although there are excep- evaluation of the results, and not just the finan-
instruments and can’t fly blind. I don’t know tions—for example, in the accounting and cial ones, as well as an individual’s behavior
about the portfolio manager comparison. He financial control departments. In countries determine the variable portion of a manager’s
can buy and sell at will from minute to minute. with endemic corruption problems, one gener- salary. An oral evaluation is also performed
In our case, the situation is fundamentally ally picks foreigners to be financial directors. every six months along the same criteria.
different. It’s critical for us to have a long-term Checks and balances are critical for us.
view and to deal with the question of whether a How many people do you presently super-
strategic position reinforces our growth plat- Management in a multicultural environ- vise personally?
forms over the long haul or not. ment also seems like it would be a major I try to get to know about 150 people by name,
challenge. Are different management styles face and performance profile. These individuals
You have been head of Novartis for more used when working with Chinese or form the senior cadre that we bring together
than 10 years now. What has changed in this American employees? once a year. A number of these managers report
time period? No, but no two Germans or Swiss can be man- directly to me. There are obviously many peo-
Besides the fact that everything revolved aged the same either. Personal, linguistic and ple that do not belong to this group but with
around integrating Sandoz and Ciba back cultural differences can obviously add up, but whom I work on a regular basis. When we have
then, the pace of things has quickened. Global- they can balance each other out, too. Our man- discussions, I alternate between listening and
ized business has accelerated unbelievably. The agers come from many different cultural back- giving directives. I refrain from giving direc-
world has become a much smaller place, which grounds and have been working together for a tives to employees who are not directly subordi-
however, does not mean that cultural differ- while. In that way, you get to know your part- nate to me.
ences have gotten any smaller. If anything, they ners and colleagues over the years, you become
have gotten bigger. In the second half of the familiar with their strengths and weaknesses, One of your strengths is your ability to inte-
1990s, more attention was placed on common and you adapt accordingly. I will say that vari- grate acquired companies. The rate at which
elements than on existing differences. Today, ous sensitivities do exist though. I speak differ- Novartis is acquiring companies seems to
that view is reversed. Politically, and to some ently with a Japanese person than I do with a have slowed down …
extent also socially, religiously and culturally, I Swiss or an American. There are also style- I don’t see it quite that way. Hexal, Eon Labs
see the world as being a fragmented place related issues that are very company-specific. and Chiron represent three major takeovers
again. Multilateral agreements have shifted to that Novartis has negotiated in the last two
become more bilateral. Multinational accords That probably has something to do with years. The key to successful mergers is to have
and organizations have lost some of their Novartis’ value system that you have been clarity in terms of selecting leaders and setting
meaning. The central issue for us is, how can reinforcing over the last 10 years. Do you a course, both of which require quick and regu-
we be globally local? have a maxim that encapsulates your own lar communication measures. The captain
modus operandi? needs to make a point of going over to the crew
And how do you do that? I don’t have any maxims! Management should and telling them where the journey will take
Processes and activities that cannot be broken be able to accomplish three things. First, it them. Uncertainty comes back in various ways:
up are research and development, infrastruc- needs to be professionally competent and be passiveness of the employees, resentment and
ture, IT, accounting, and controlling—all of it skilled in working with employees. Second, fear. Often one loses precisely those individuals
needs to be international and comply with everyone needs to be motivated. And third, the that one would actually have wanted to keep.
international standards. In addition, we need employees need to have integrity. Obviously, In regard to open issues, everyone should know
companies must build bridges industr y report f
the fight against tuberculosis. In regard to
malaria, we offer the best treatment currently
available at a price below our cost. In other
words, it’s very inexpensive, only about $1 per
treatment. To fight malaria, we run a non-
profit research institute in Singapore that is
funded by a foundation.
You can’t avoid dealing with international
I spend a lot of time reflecting on the question
of what we can do during times of political
dissent between two countries in which we
operate. I believe it is not only an option but a
downright obligation of internationally active
companies to build bridges. To isolate countries
DANIEL VASELLA (left) talking with business journalist Medard Meier. and impose economic sanctions is generally not
Meier was a long-time editor-in-chief of the Swiss business magazine Bilanz. He
successful. First of all, the measures are not
interviewed Vasella at Novartis’ headquarters exclusively for think:act.
respected by everyone. And secondly, there will
always be profiteers. Lastly, countries that feel
like they have nothing to lose respond in a
when to expect an answer. One absolutely be transparent. As an internationally active passive-aggressive manner, which can lead to
needs to stick to this road map, otherwise one company, we are aware that society places high uncontrollable outcomes. The question is how
loses all credibility. demands upon us. We depend on the trust one can let citizens of a country know that they
placed in us by our stakeholders, and we need are respected, even when one does not agree
Companies clearly need to maintain their to earn this trust anew every single day. with their country’s regime and political value
credibility with their various stakeholders. system. As companies whose core duty is to
How do you manage to tend to everyone’s There are countries that have practically no serve people’s health, our task is made some-
diverse interests? purchasing power … what easier in those situations.
We have many, many stakeholders: interna- For patients who are unable to buy medicine
tional organizations, countries, the media, and in whose countries there is no market for Are Swiss managers better than others in
shareholders and NGOs. Their individual pharmaceutical drugs, we will help them, and building bridges?
agendas vary tremendously, and they all have we do so regularly. As a socially, culturally and politically diverse
different expectations. Given the situation, one country, we have developed the ability to reach
question is key: What do we represent? What Is financial aid firmly set in the budget? a consensus despite the existence of various lan-
do we chart our course by? What is our com- It is an expenditure that is adjusted from year guages and religions. This ability has given
pass? For us, the top priority is the patient’s to year based on existing needs and opportuni- Switzerland—a country embedded in a fre-
needs—now and in the future. We can only ties. Last year, that sum amounted to about quently and highly unstable environment as
fulfill these needs if we are innovative. For that $700 million, which corresponds to 2.2 percent seen from a historical perspective—a high
reason, bulletproof patent protection is of of our total sales. degree of stability. Our economy is also based
primary importance: Protecting innovative That is considerably more than Switzerland or on this stability. At the same time, Switzer-
products is the best way of protecting patients. other wealthy countries provide in economic land’s small domestic market has compelled
Second, we need to be profitable and be a fierce assistance, as measured by a percentage of their banks as well as companies in the chemical,
competitor. We cannot just hand out gifts to the gross national product. For example, since textile, pharmaceutical and machine-tool
stakeholders, which would impair our prof- 2000, we have provided drugs free of charge to industries to extend their operations beyond
itability and competitiveness. Third, we need to 4 million leprosy patients. We also help out in our country’s borders.
Orascom Telecom turns a tidy profit with mobile
communications in politically unstable regions,
such as Algeria (01) and Iraq (02 and 03).
orascom operates in risky markets—and finds success industr y report f
Go where no one else dares
The Egyptian telecommunications magnate Naguib Sawiris built his company
with a very simple model: Make money from risky business. Now, he is making
plans to surge ahead in established markets.
: Companies should conquer “blue oceans”
recommend authors Renée Mauborgne
and Chan Kim (see interview in think:act 2).
Sawiris’s masterpiece was cracking the
Algerian market. In early 2001, he purchased
a mobile telecommunications license for
They are referring to markets where com- $737 million, $200 million more than the
petitive pressure is low precisely because next closest bidder, France Télécom. Ana-
there is no competition—like on the blue lysts were skeptical because the climate in
ocean where the space is wide open and Algeria was not conducive to doing business,
offers clear sailing. Billionaire businessman especially in telecommunications. Until
Naguib Sawiris is demonstrating how to August 2000, the phone network had been
operate in such markets, in Algeria for operated by the Postal Ministry, and every
example, where the blue ocean is replaced new cell phone user had to be personally
by desert brown. He made large-scale approved by the Minister.
investments not only in Algeria but in Algérie Télécom, a government-run monop-
Tunisia, Bangladesh and Iraq. His model for oly created to take these responsibilities
success: Go where no one else dares. over from the Ministry, began to run opera-
tions professionally in the summer of 2003.
WHEREVER RISKS ARE HIGH,
By that time however, Orascom had already
PROFITS WILL BE HIGH, TOO,
opened up the market, and it still has a mar-
SAYS CEO NAGUIB SAWIRIS
ket share of more than 60 percent.
Sawiris’s company, Orascom Telecom, oper- Orascom’s most profitable market is else-
ates mobile telecommunications networks where: Iraq. In 2003, the company bought a
in six countries. In 2006, he reached the 40 license for the country’s central region from NAGUIB SAWIRIS has a Master’s degree
million–customer threshold. In 2005, the the US-backed transitional government. It from the Swiss Institute of Technology (ETH)
company posted sales of $3.26 billion, a 49 went on to expand its operations, and since and a diploma from the German Evangelical
percent increase over 2004. 2005, it has run a national network. School in Cairo. That is where he came to inter-
The Orascom Group is owned by the Business in Iraq is tough. Employees are nalize an “iron” discipline. However, Sawiris
also enjoys the glamorous life and is known for
Sawiris family, entrepreneurs who have repeatedly kidnapped, and Orascom spends
hosting lavish parties in Cairo’s clubs.
built a business empire in Egypt. Good $30 million a year on security. But the effort
fortune befell them when they appointed is worth it. In the fourth quarter of 2005, ORASCOM TELECOM HOLDING
Naguib Sawiris to the CEO position of the Orascom posted average revenues per user has 41 million customers in six countries:
group’s telecom subsidiary. Since his first (ARPU) of $20.80. That is less than the $40- Egypt, Algeria, Bangladesh, Iraq, Pakistan and
operation in the Egyptian mobile communi- plus other companies earn in the United Tunisia. Through his stake in Hutchison
cations business with Mobinil in 1998, he States, but for a poor country such as Iraq, it Telecommunications International, his compa-
nies’ range extends to nine other countries,
has successfully purchased licenses or is a substantial amount. Sawiris continues to
primarily in Southeast Asia. Listed on the Cairo
shares in existing mobile phone networks in see the company’s commitment in Iraq as an and London stock exchanges, the company
markets that others underestimate or deem investment, despite the continued unrest. has a market capitalization in Egypt of slightly
too risky. “Wherever risks are high, profits “One day, it will see peace, and Iraq will less than $12 billion.
will be high, too,” he says. become a second Saudi Arabia,” he says.
p industr y report in many regions, nothing happens without political connections—orascom is connected
These successes do not mean that Sawiris With all his business acumen, Sawiris occa- which would require companies to have a
will stick his neck out anywhere. Orascom sionally still faces learning curves. For certain critical mass and scope. If this con-
has withdrawn from Yemen and Syria. In example, mobile phone and contract pack- solidation does take place, Sawiris wants to
2002, Sawiris had had enough with his part- ages often do not work. In Egypt, local retail- come out on top. “People say there are no
ners in Syria, who had close ties to the presi- ers took both apart over a period of time and green fields left,” he says. “So you’ve got to
dential family. They saw Orascom as just a developed their own products better suited make a choice: acquire or be acquired. We
money lender and wanted to bring corpo- to the market. Not until 2006 were Mobinil opted to seek acquisitions.”
rate management under their control. (Orascom’s subsidiary) and its competitor The strategy could work out well. Wael
In the Middle East, it is not unusual for fami- Vodafone able to sell mobile phone–contract Ziada, an analyst with the Cairo-based
lies to run both business and politics. Sawiris package solutions in Egypt. Standard inter- investment bank EFG-Hermes Holding Co.,
has also benefited from his connections. His national marketing methods can, if gradual- believes that prospects look good for Oras-
family has a very strong presence through- ly, be used in difficult markets as well. com to fulfill its acquisition plans. He also
out the region, including Orascom Construc- On the other hand, Orascom is using its thinks that there will only be five mobile
tion Industries and Orascom Hotels and increasing heft to expand in wealthier mar- communications providers outside of North
Development, both run by his brothers. The kets. The company has been focusing on America. “It’s unlikely that Orascom alone
decisive reason for pulling out of Syria was Southeast Asia since 2005. In December could be one of them, but it certainly could if
more likely the extent of interference with 2005, Sawiris purchased 19.3 percent of it merges with Wind and Hutchison,” he
the company’s entrepreneurial freedom. Hong Kong–based Hutchison Telecommuni- says. Orascom recently announced its inter-
cations International for $1.3 billion. est in holding a majority stake in Hutchison
PEOPLE IN DEVELOPING COUNTRIES
Sawiris’s other sensational coup occurred Telecommunications.
ARE POOR. ACCORDINGLY, CELL PHONE
several months prior. In May 2005, he pur-
PENETRATION RATES ARE LOW, TOO
chased Wind, an Italian telecoms provider,
One obstacle in Orascom’s markets is that for €12 billion. “Sawiris is breaking from his RISK IS TEMPTING
most people have very little money. The strategy,” said analysts, noting that he was Other mobile telecommunications providers
average Egyptian earns $1400 per year, while placing a corporate footprint in an industri- are trying their hand in tapping risky markets,
a Bangladeshi can expect $410. Mobile phone alized nation. They worried that Orascom including in Africa.
penetration rates are low, too: 17.7 percent in would lose its cachet as a company known MTN Group, of South Africa, has networks in
Egypt and 12.7 percent in Pakistan. Yet it is for expanding into emerging markets. 21 African countries and counts 28 million
precisely those figures that make those coun- Maybe the foothold in Italy should be seen customers. MTN holds the number two posi-
tries potentially lucrative markets. The art in as a supplement to Sawiris’s strategy. From tion in Africa, behind Orascom. In 2005, MTN
this type of business is to expand the market this perspective, Wind provides some risk saw significant increases in sales and earn-
ings, with a year-on-year revenue increase of
quickly with inexpensive products for the diversification and thus a foundation for fur-
21 percent to 29 billion South African rand.
lower-income people. Nine out of ten cus- ther investments. Like Orascom, MTN plans on being a future
tomers in these countries are on prepaid Sawiris appointed Paolo Delpino, the former worldwide network provider. The group is
plans. “In an emerging market, customers Telecom Italia boss, as CEO of Wind. The planning to lay that foundation by setting
look for minimal service at the lowest price,” logic behind the decision: Delpino served as up a network in Iran.
says Walaa Hazem, a telecom analyst with operations manager in South America, which In 2005, Kuwait-based MTC purchased African
HC Brokerage, based in Cairo, Egypt. provided him with first-hand experience mobile network provider Celtel International,
Nevertheless, money can be made in these working in emerging markets, and gave him enabling MTC to offer cell phone service in 14
markets. Orascom’s ARPU dropped consider- a sound understanding of Orascom manage- African countries, including notoriously crisis-
ably in 2005 due to an increase in the num- ment’s underlying operating principles. ridden countries such as Congo and Chad. In
May 2005, Celtel moved into Nigeria—Africa’s
ber of users, but the business remains prof- For now, Sawiris is keeping Wind and Oras-
most populous country, with 130 million citi-
itable. The company achieves earnings com separate. Another reason for the acqui- zens. According to Nigeria’s Ministry of Com-
before interest, taxes, depreciation and sition is related to the changes about to munications, Celtel’s venture is the biggest
amortization (EBITDA) above 40 percent in sweep through the mobile communications investment by a single company in Nigeria.
all countries except Bangladesh. market. Experts expect a consolidation,
roland berger crowns the best in european business industr y report f
Europe’s return to eminence
In the second annual Best of European Business competition, Roland Berger has selected Europe’s top
performers. Ten countries participated, and their national winners have already been selected.
The competition is taking place at a time when Europe is regaining confidence in its capabilities.
: Willy Claes’ vision for Europe is crystal
clear. The former NATO Secretary Gener-
al believes that the continent “must now
On a national level, the companies were
selected in the categories of growth, pan-
European mergers and acquisitions, as well
It makes economic sense, too, says Spain’s
Minister of Industry Joan Clos in Madrid.
“Companies and their CEOs need to put
answer the question: Do we wish to contin- as Europe-wide strategies. The element of more passion into building up a unified
ue to play a prominent role on the world pan-European collaboration—within the EU Europe,” he adds.
stage?” If so, Claes told an audience of and also with Russia in particular—played a Spanish companies that received awards
economic policymakers who attended large role in the panel discussions associat- included Gamesa Corporación Tecnológica,
his talk at Amsterdam’s Amstel Hotel, “then ed with the German awards. Cosentino, Gruppo Ferrovial, Ficosa, Tele-
we need a Europe that has two key charac- John Kornblum, a former American ambas- fónica and Fertiberia. Juan Miguel Villar
teristics. It needs to have a coherent and sador to Germany, pointed out that commer- Mir received the jury’s grand prize on behalf
consistent foreign policy, and it needs a big- cial success is never a one-way street—for of the Gruppo Villar.
ger European economic zone.” companies or for countries. BASF board In London, the following companies won
Given on the occasion of the Netherlands member John Feldman added, “Business has awards: Inns, Serco, Yell, Large Ineos, Easy-
honoring its six companies that participated no room for colonialism.” In Germany, auto Jet and Aviva. In Poland, top prizes went to
in the Roland Berger Best of European parts supplier Benteler and sport/lifestyle Solaris Bus & Coach S.A., Inter Groclin Auto
Business competition, the presentation company Puma won the top spots in the S.A. and PKN Orlen. France’s top performers
showed that the public and private sectors growth category. In the European category, were the Norbert Dentressangle Group,
support each other, even in times of global- the diversified corporate group of Franz Somfy International, PLSA Peugeot Citroën,
ization. Companies require government Haniel & Cie. GmbH and heating and air International Metal Service S.A. (IMG), Pern-
policies to create a framework for doing conditioning technology specialist Vaillant od Ricard and Dassault Systèmes.
business abroad, and politics relies on received top honors. E.ON came out on top “All winners stand out by their corporate
companies to put the vision of a stronger in the pan-European M&A category. excellence,” Burkhard Schwenker, CEO of
Europe into action. Switzerland announced its winners in Roland Berger Strategy Consultants, said at
August, including the Holcim Group, the the German ceremony. “Their performance
A GLOBALIZED ECONOMY LEAVES NO
Geberit Group, Stadler Rail and Sika AG. In was based, among other things, on a sustain-
ROOM FOR COLONIALIST TENDENCIES, SAYS
the Netherlands, the awards went to Mittal, able company strategy founded on differen-
JOHN FELDMAN, A BOARD MEMBER AT BASF
TomTom, DSM, Stage Entertainment, ABN tiation, innovation and a strong position in
This is the core idea behind the Best of Amro and Ten Cate. Italy’s award recipients their domestic markets.”
European Business competition that Roland were UniCredit, Campari, Diesel, Geox,
Berger has organized for the second year. Indesit, the Ali Group and Lottomatica. Por-
FOR ADDITIONAL INFORMATION
National juries composed of leading experts tugal’s winners were Grupo EDP, Galp Ener- on the Best of European Business competition,
in their fields had until January to select the gia, Logoplaste, Mota Engil and Renova. national winners, juries, partners and media
national winners. The competition ends on The national competitions underscored one reports, please visit:
March 15 with a gala event that ties in with key point: To be succeed, companies need to www.best-of-european-business.com
the European Business Summit in Brussels. take Project Europe seriously.
p industr y report diversity is here to stay
Becoming part of the whole
Companies have realized that there is money in selling their products and services to minorities.
Now in its second generation, diversity marketing is rethinking its approach. The emphasis is on both
differences and unifying factors. Will marketing become a vehicle for social integration?
: Jeff Valdez may just be the most innova-
tive integration lobbyist in the United
States. Officially, he is not involved in poli-
geared toward the MTV generation. In hard
numbers, the channel is beamed to 12.5 mil-
same programming as white viewers. Pro-
gram schedulers know better than to consid-
er this group, many of whom are immigrants,
tics, but he does have a stake in the business SíTV is more than “just” a business success. as individuals longing to return “home.” The
world as founder of cable TV channel SíTV, The fact that the TV station broadcasts in schedulers consider their audience as a dis-
launched in 2004. Day after day, he lines up English and not Spanish, has enabled Valdez tinct, relevant force in US society.
fresh, humorous programming for Americans to integrate Hispanics, the America’s biggest Stephen Palacios, a senior consultant with
of Spanish or Latin American origin—in ethnic minority, more into the majority cul- Cheskin, a strategic marketing research firm
English. “Young Hispanics consume English ture. He’s doing it without taking cultural based in New York, specializes in the His-
media regardless what language they speak identity, and by having SíTV identify His- panic target group and says, “There is an
at home,” says Valdez. panics as an independent target market. increasing trend in the media to show how
SíTV’s programming approach is catching Valdez has a keen understanding of the the lives of Hispanics have developed in this
on. While dozens of Latino TV stations in background. Despite Spanish or South country.” Specifically, he is referring to the
the US are desperately fighting for viewers American roots, they do not feel like complexity of the Hispanic experience and
with telenovelas and commercials from Spaniards or Argentines or Colombians. its integration into American society. The
their respective homelands, English-language Ethno-folk music or reports from their vari- effort could pay off handsomely, given that
SíTV has doubled its viewership in just two ous countries of origin are of no interest to the country’s 40 million Hispanics have a
years thanks to its in-house productions these viewers, but they do not want the purchasing power of $700 billion.
no ethnic stereotypes, please industr y report f
Around the world, marketing to minorities SÍTV: AT HOME ON THE TUBE also be an integration-enhancing tool. The
is moving away from the ethnicity-centered Spanish-language television programming is company illustrated an image campaign
approach used early on. Initial concepts common in the United States. However, what TV using photos of a female Russian violinist
producer Jeff Valdez dared to do in 2004 with
attempted to sell mainstream products to speaking in her native language. The mes-
SíTV was anything but: He produced the first
immigrants by emphasizing real or assumed English-language Hispanic channel. Targeting sage thus conveyed: “We as a bank are an
cultural differences for promotional purpos- young, second-generation Hispanics, SíTV is a international corporate citizen, and our cul-
es. Ads and commercials disseminated eth- success in both social integration and busi- ture is so accepting and contemporary that it
nic stereotypes and homeland kitsch. Even ness verve. The viewing audience doubled in embraces the diversity of languages.”
back then, these stereotypes did not reflect only two years to a current 12.5 million house- The second and third generations of immi-
the cultural complexity of the immigrants holds from 6 million. grants to Europe have drawn the attention
and their life experiences. of marketing specialists in the same way
“Minorities want the unique characteristics AY YILDIZ: BLURRING BORDERS that Hispanics have in the US. Straddling
Mobile telecommunications company E-Plus has
of their culture to be taken seriously,” says cultures, these individuals resent being
designed a cell phone brand for Turks living in
Christopher Kelley, a senior analyst at Germany. With Ay Yildiz, calls and text messages bombarded by companies with ethnic
Forrester Research. That means first tailor- to Turkey cost no more than domestic ones. E- stereotypes. Gwladys Mandin observed this
ing the products themselves precisely to the Plus hopes to pull in 700 000 new subscribers. phenomenon first-hand. She works for ak-a,
needs of the target subgroup. Once that is That is not unrealistic, given the demand. The a Paris-based agency that develops market-
done, the marketing message must not por- product addresses needs of German Turks. ing strategies aimed at French citizens of
Furthermore, the dual-language offer is cleverly
tray the individual target groups as exotical- African origin. She believes “ethno-marketing
linked to an initiative to draw Turkish adoles-
ly unusual, but as a valuable element of a cents into German society. should no longer emphasize the differences.”
complex society. Interestingly, a current Accordingly, she focuses less on objective
Forrester study shows that 70 percent of His- characteristics such as language, nationality
FORD: DESIRABLE BUYERS
panic online buyers in the US make purchas- In Cologne, Germany, the government and local or skin color, preferring to emphasize “the
es on English-language Web pages. It’s likely companies have long been aware of the gay subjective qualities such as family and cul-
that if these sites were in Spanish, they and lesbian community’s economic power, tural codes.” These aspects are easier to por-
would be counterproductive. especially on Christopher Street Day, when tray simultaneously as both distinguishing
Should Web sites, ads and TV programming they spend tens of millions of euros in the city. and integrative elements.
Ford’s European division has sponsored the
be in Spanish or English? There is not a uni- European companies are also now experi-
parade since 2000 and has its gay, lesbian or
versal answer to the question yet. “An under- bisexual employees (GLOBE) join the proces- menting with integrative concepts for the
standing of the deeper cultural differences sion in a company float. The relatively well-to- gay and lesbian community. These persons
is more important than simple translations do community appreciates the company’s no longer see themselves as marginalized by
into Spanish,” says Kelley. Those differences commitment to diversity. For example, Ford their sexual orientation. Thus, new inclusive
remain, and thus companies have to focus pays the company pension to same-sex part- marketing approaches are created to appeal
ners of deceased employees.
on both diversity and integration. to them, believes writer Michael Stuber.
With this approach, companies actually Exclusion, by contrast, would be strategies
become a greater driving force for social
L’ORÉAL SOFTSHEEN: MANY such as “placing advertising for gays and les-
COLORS OF SKIN
integration. Godehard Wakenhut, CEO of bians solely in gay/lesbian media.”
To date, the cosmetics industry is geared
the Swiss marketing research company GIM, toward Caucasians. Relatively little research is The forced attempt to endear oneself to a
believes that companies will increasingly carried out regarding beauty care products for target group by accentuating their distinc-
“emphasize an in-house trans-cultural other groups. L’Oréal, which started offering tiveness now seems like a relic from the
approach that shows minorities they are SoftSheen-Carson ethnic hair care products in early days of political correctness. Minorities
accepted.” Ford and UBS seem to be follow- 2000, has recently invested in the Institute for are currently dealing with their roles in a
Ethnic Hair and Skin Research in Chicago,
ing that path. Their brands are becoming de confident and self-deprecating manner.
where new shampoos and skin creams are
facto elements of social integration. UBS’s developed for people of African descent. In the SíTV for example is known to show Mexican
example shows that the mother tongue of past, this had been served by rather obscure B-movies absurdly dubbed into English— to
ethnic groups can, depending on the context, niche companies. hilarious effect.
p industr y report brazil’s ethanol industr y generates $15 billion annually
All the money’s on sugar
When experts look at Brazil, they see the next boom economy emerging after China and India.
South America’s growth model is eschewing the high-tech and service sectors, focusing instead on
sugar cane and biofuels to ignite a new dynamic economy.
: When Leonardo Monteiro de Barros, a
Brazilian movie producer, fills up his
car’s gas tank, he has a few options. He can
of the worldwide demand for fuel, while in
Brazil they cover 40 percent of the country’s
fuel needs. In fact, it is the world’s biggest
forecasts, Brazilian ethanol export figures
will climb from a current 2.7 million tons to
8.5 million over the next nine years. The
fill up with “Gasolina Extra”; “Gasolina producer and exporter of biofuels. sugar-ethanol industry has sales of about
Comum,” which contains a mix of gasoline In Brazil, the cane industry is increasingly a $15 billion and provides a livelihood for
and alcohol, e.g., 75/25; or “Alcool.” His car high-tech business. Saccharum officinarum, about 3.6 million Brazilians. Roughly 72000
can run on any of them thanks to its flex-fuel sugar’s scientific name, is planted and har- landowners use the biofuel.
engine. Monteiro de Barros decides what to vested by machine. Six-axle trucks make reg- Brazil has some distinct advantages over the
buy when he is at the pump. “It depends on ular runs between the plantations and pro- competition in growing sugar cane. Accord-
the price,” he says. Lately, he has been using cessing facilities, such as Usina Iracema, ing to Rubens Ometto Silveira Mello, the
Alcool, a biofuel made from renewable raw whose 30-meter-high smokestacks rise over CEO of Cosan S.A. Industria Comercio, a
materials and half as expensive as the other the countryside like exclamation marks. sugar cane producer with headquarters in
two fuel types. Even though the “alcohol São Paulo, production costs in his country
350 REFINERIES PROCESS SUGAR CANE,
mileage” is about 25 percent less, he knows are 25 percent lower than equivalent costs
ENABLING BRAZIL TO EXPORT
it is a better deal overall, so that is what he in Europe and 50 percent less than those in
2.7 MILLION METRIC TONS OF ETHANOL ANNUALLY
puts in the tank. the United States. That makes Brazil’s
Like Monteiro de Barros, many Brazilians The Usina Iracema plant is one of 350 ethanol competitive with gasoline, as long
are choosing the biofuel route these days, refineries that process sugar cane to make as the price of raw crude oil remains above
and increasingly driving cars with engines sugar for human consumption, as well as $35 per barrel, according to the Stanford
that can use biofuels. As a result, almost no ferment and distill it to produce ethyl alco- Washington Research Group. At press time,
other country relies on biofuels as much. hol. The plant’s production mix is flexible, the price of oil was near $70 per barrel.
Alcohol fuel is readily available at almost all depending on the demand. Sometimes it
CURRENTLY THE WORLD’S BIGGEST
of the country’s 30,000 filling stations. Even produces more sugar, while at other times it
PRODUCER OF BIOETHANOL, THE COSAN GROUP
conventional gasoline sold in Brazil, distills more ethanol.
IS ALSO LISTED ON THE STOCK EXCHANGE
whether “super” or “normal” grade, usually Ethanol’s importance to the global market
consists of 25 percent ethyl alcohol. That continues to increase. Global production “The sugar cane–ethanol industry we have is
country has clearly become a trendsetter rose from 10 million metric tons in 2001 to a diamond in the rough. We just need to be
in alternative fuel sourcing. Furthermore, 15 million in 2005. According to government sure that we grind and polish it properly,”
ethanol derived from sugar cane could says Ometto Silveira Mello, reminding his
become a strategic industry as Brazil’s econ- colleagues of this biobusiness’s value. The
omy continues to thrive. A current edition of industry received a tremendous boost when
A bird’s-eye view of the state of São Paulo’s think:act content covers automobile manufacturers caught on to the
interior would show sugar cane plantations the development of the potential of biofuel and endorsed it.
stretching to the horizon. At one time, sugar Brazilian economy. The In 2003, Volkswagen do Brasil surged ahead
got Brazil’s economy moving forward, and of its rivals by developing flex-fuel engines.
describes a country that
now bioethanol obtained from sugar cane has unique opportunities By now, no car producer in the country can
may pave the way for Brazil’s future pros- for growth. afford to equip their vehicles with anything
perity. Renewable resources supply 2 percent else. Serge Habib, head of Citroën in Brazil,
sugar cane pushing innovation in related industries industr y report f
GDP in 2005 ($ billions)
believes that in two years all new cars will Dedini posted sales of $400 million, and that India 3611
have flex-fuel engines installed. figure may double by 2010, helped along for China 8859
The sugar producers carried out a restruc- example by Dedini’s 2006 delivery of their
turing effort in parallel to the changes seen first ethanol facility to PDVSA, a Venezuelan
in the auto industry. Archaic, family-owned petroleum company. GDP Growth Projection
(2004–2030), annual rate in %
sugar mills were replaced by agro-industrial Gradually, Brazil is assuming the role of an
corporations, such as the Cosan Group, now innovator in the area of alternative energy
the world’s biggest producer of bioethanol. sources. “Brazil is a prime success story in India 6.71
In 1986, Cosan’s output amounted to barely the production and utilization of renewable
4.3 million tons. Now the company is pub- fuels,” says Alan McDiarmid, a Nobel laure-
licly traded, produces 30.6 million tons of ate in chemistry from New Zealand. “The
fuel annually, owns 13 refineries, and runs country has enormous potential and is years GDP per capita in 2005 ($)
its own storage and port facilities. ahead of other countries.” Brazil 8400
Related industries, such as engineering, are “In all reality, no one can compete with us,”
also benefiting from the expansion of the Luiz Inácio Lula da Silva, Brazil’s president,
ethanol market. Dedini S/A Industrias de has said. China 6800
Base, a leading provider of sugar-ethanol, Meanwhile, Monteiro de Barros has a more
biodiesel and cogeneration plants in Brazil, matter-of-fact perspective. The alcohol in his Source: CIA World Factbook, Economist Intelligence Unit.
has a backlog of 109 new facilities to be built. tank is not getting cheaper, and he would Although current estimates show that Brazil’s economy will not develop
as dynamically as those of India or China, Brazil has a higher standard of
“That’s a big increase,” says company vice- never consider getting a gasoline-powered
living based on its income per capita.
president José Luiz Olivério. Last year, car, adding, “They’re a thing of the past.”
p industr y report trends and sectors
The shape of things to come
New data turbocharger for mobile phones, energy from heat inside the earth, waste turned into oil,
and no more CO2 emissions from power plants that use brown coal.
In mobile phones, speed rules. With high-speed down-
link packet access, networks can offer transfer rates of
1.8 megabits per second for receiving data, some six times
more than with “normal” UMTS. Now sending data is also
faster. High-speed uplink packet access is a technology that
can theoretically offer bandwidths of up to 5.8 megabits
per second. It will be available starting in 2007. This tur-
bocharged data delivery should make multimedia applica-
tions such as mobile videoconferencing possible, and also
help packet-switched voice telephony (VoIP) make a break-
Investment in mobile telephony infrastructure in through, because VoIP depends on short delay times and a
Western Europe (in millions of euros)
broadband return channel. Market researchers are count-
Technology 2005 2006 2007 2008 2009 2010
ing on fast-growing investments. According to research
GSM/GPRS/EDGE 4908.9 4982.2 4624.7 4042.4 3500.7 2977.5
firm IDC, spending in Western Europe on broadband tech-
WCDMA/HSDPA 4800.9 5493.4 6880.2 7854.3 8618.7 9114.6
nologies outpaced spending on narrow-band technologies
Source: IDC 2006
for the first time in 2006.
power from the center
of the earth
Beneath the earth lie enormous power reserves in the than 100 megawatts is to follow. The EU is conducting HDR
form of geothermal energy. Until now it has been used only in research in Soultz-sous-Forêt in Alsace, France. The geother-
places where it is especially convenient. “Hot dry rock” (HDR) mal power plant there will supply 6 megawatts of electricity.
technology could make geothermal energy widespread. Local initiatives in Germany and Switzerland are taking
With HDR, two wells are drilled to a depth of up to 5000 advantage of the proximity of existing district heating networks.
meters. Water is pumped under pressure down through the By 2011, a quarter of the
first well, heats up, and is pumped back through the second Best practice in thermal heating requirements
well as water vapor, where it can be used for district heating electricity production for lecture halls and
or for electricity production. The best part is that the pres- Type of power plant Efficiency (%) dormitories at the
sure of the incoming water expands tiny gaps in subterranean Nuclear 36 University of Bochum
rock formations to open a clear “channel” between the holes. Soft coal 43 will be met with geo-
The result is closed-loop water circulation. Hard coal 46 thermal energy. If this is
Geodynamics Ltd., of Milton, Australia, is working on a Gas and steam 56 successful, says project
business model. By the end of 2005, the company had raised Efficiency = the amount of energy manager Karl Grosse,
more than $77 million to develop a demonstration power usable for electricity divided by the “then geothermal heat-
plant with an output of up to 15 megawatts of electricity— amount released ing will work in many
enough to power a small city. A commercial plant with more Source: IDC 2006 other locations as well.”
trends and sectors industr y report f
co2 -free power plants
The business with emissions certificates can give energy
suppliers headaches. Producers who release more carbon
dioxide (CO2) than they are supposed to must pay a penalty.
The idea is thus to generate more electricity and release
fewer greenhouse gases. Vattenfall Europe AG, of Berlin,
wants to demonstrate how this could become reality. Its
clean coal power plant uses the “Oxyfuel” method, which
burns coal not with air but with oxygen. The only byprod-
diesel from plastic ucts are CO2 and water. The water is then condensed out,
and the CO2 is pumped into underground
Petroleum was formed millions of years ago when vast storage. The 30-megawatt pilot plant is
quantities of dead plankton sank to the oceans’ floors and planned to go into operation in
were blanketed by heavy sediment. Under the enormous Oberlausitz, Germany, in 2008. “With
pressures of this stony covering, plankton remains trans- clean-coal technology,” says senior
formed over eons into fossil fuels. Christian Koch, an engi- executive vice president Klaus
neer, has developed a method that vastly accelerates this Rauscher, “we will be able to make
process. Not only is the process fast, but nearly everything the use of brown coal for elec-
civilization leaves behind as garbage can be used as a raw tricity production ecologically
material for catalytic pressureless depolymerization friendly in Germany.”
(CPD), including car tires, spoiled food and hospital Commercially, clean-coal tech-
waste. The materials are shredded into a granulate and nology does not yet pay for itself,
mixed with a powdered catalyst at 350 degrees Celsius. because all of the processes must
The catalyst splits the long-chain hydrocarbon molecules divert some of the energy gained to
so that they break down into valuable diesel molecules. capturing CO2. Nevertheless, the
The efficiency of a CPD plant varies with the “feed” it industry is confident. Efficiency
is given. With petroleum-based materials, 80 percent of rates will soon rise sharply due to
the hydrocarbon content is converted into diesel, with pre-drying the coal and raising
biowaste, 30 percent. Alphakat Zukunftsenergie GmbH, the vapor temperature to
which is developing the technology, estimates the produc- 700 degrees Celsius.
tion costs at around €0.23 per liter of diesel.
The first CPD plant, with a production capacity of 500
liters of diesel per hour, went into operation in Mexico in
late 2004. Other plants in Italy and Canada are to follow.
According to Alphakat, petroleum companies that must
reprocess their used oil and scrap dealers who want to
upgrade vehicle seats and fixtures, are interested.
Transport companies that would rather process their
customers’ waste into raw materials on site than have to
dispose of it can earn good money with CPD.
p business culture re-inventing management in the lab: gar y hamel looks for the google function in us all
The Google model of creativity
Companies worldwide are on the lookout for innovation in products or brands. However, systematic
searches for new approaches rarely occur in management. Two business experts want to change that
with a lab geared toward management innovation.
: The patient is doing poorly. All the charts
at the foot of the bed paint a dismal
picture. The bed is not in a real hospital, but
Selected companies then go on to imple-
ment the jointly developed approaches in
test situations. If a new method works in one
is associated with the idea of continuous
improvement), while Procter & Gamble
invented brand management.
in the headquarters of Best Buy, an Ameri- area, it is applied to the company as a whole. To develop new management ideas continu-
can retail chain. And there’s no person lying Best Buy is one such example. Strategy- ously, companies need to foster a culture of
in the bed either. Instead, the Woolworth’s related input from individual employees creativity. For example, Deutsche Bank AG,
logo is stuck to the pillow, with Kmart’s one needed reinforcing. In addition to the fake of Frankfurt, Germany, is currently trying to
right next to it. The mock hospital is meant hospital, the company’s decision-makers develop creativity by hiring Birkinshaw and
to show managers what happens when com- also implemented an “idea bank,” which is a Hamel to assist. Jonathan Smart, Deutsche
panies lose their agility. counter where any employee can submit Bank’s innovation director for investment
specific recommendations on changing banking technology, explains that the entire
BEST BUY IS SEEKING INNOVATION
processes or new products to actual men- bank will reflect the culture of innovation
IN THE MANAGEMENT REALM AND
tors, as opposed to just dropping a slip of emanated by its investment bankers. “In
BECOMING A TEST LAB OF SORTS
paper anonymously into the proverbial sug- investment banking, the product innovation
The beds are a small innovation developed gestion box. Mentors follow up on the ideas rate is high,” he says. “We want to expand
by and intended for the company’s manage- submitted and employees can inquire of this using an entrepreneurial approach as it
ment. The idea came up in a brainstorming them, as they would ask bank advisors, pertains to people-, product- and process-
session with Best Buy CEO Brad Anderson about the outcome of their ideas. Another related innovation. We will reinforce the
and management whiz Gary Hamel. The approach: All employees may spend 10 per- organization’s innovation culture.”
collaboration forms the nucleus of an initia- cent of their work time on projects that have To make it happen, the bankers are using
tive proposed by Hamel and the London nothing to do with their primary activity, in the lab, too. “We’re simulating the Google
Business School (LBS). Their objective is to order to scope out other areas of interest or model,” says Smart. The project began in
create similar types of innovative manage- work on projects that could result in launch- January 2005, and one experiment focuses
ment in other companies. In their “Manage- ing new initiatives. It’s “playtime” for the on alternative budgeting procedures.
ment Innovation Lab,” Hamel and LBS benefit of the whole organization. Managers in a test lab is an approach that
design experiments for companies, includ- Ideally, a new method would not remain could give strategic planning a boost. One
ing new budgeting systems and alternative restricted to just one company, but would be telecommunications group wanted to
process sequences. “We are experimenting incorporated into the day-to-day business of streamline its strategy-development process.
with the companies,” says Hamel. companies around the globe. It would With the strategy committee’s meeting in
The path leading to innovation begins with change the world of management—which is session, researchers simultaneously organ-
brainstorming at the elite university’s not that improbable. Many management ized a “junior” version of it next door. The
Regent’s Park campus. Researchers and busi- innovations were not generated by academ- outcome: Even though the junior managers
nesspeople get together to discuss a firm’s ics but by companies looking for concrete were dealing with the same issues as their
strengths and weaknesses. “Then we pro- solutions. “Think about General Electric’s senior counterparts, they came to complete-
pose ideas on how to fundamentally change modern research lab or the multidivisional ly different conclusions. These days, junior
processes and solve problems,” explains organization developed by General Motors,” and senior executives continue with their
Julian Birkinshaw, a professor of strategic says Hamel. Toyota invented lean manage- separate but simultaneously run meetings
and international management at LBS. ment and kaizen (a Japanese expression that and compare the results, with the senior
strategists often reviewing their solution new management principles to orient them- results will be. At the company’s headquar-
recommendations. selves to the real world. We’re using the cre- ters, they set up a type of betting office to
One question does remain, however. If the ative potential of all employees.” wager on sales prospects. Results from these
Management Innovation Lab generates new The ability to get a sense of a market’s foun- “bets” showed that an approach’s potential
management approaches, will it only gener- dation is being put to use by Best Buy’s man- can actually be better predicted than by
ate a raft of supposedly radical new ideas aging directors. They believe that the better conventional means. The wisdom inherent
best suited for snappy book titles? employees can estimate the sales potential in the corporation is actually greater than
Birkinshaw thinks not, adding, “We want of new products, the more accurate the that of the market researchers.
p business culture flavio briatore and the motorsports lifestyle
Managers need to have machismo
Among international senior executives, he is the quintessential playboy, while the motorsports world
sees Formula 1 icon Flavio Briatore as a die-hard competitor. In this issue, we interview the man himself
about auto racing’s appeal and how much machismo managers have to have.
THINK:ACT: Mr. Briatore, you’re considered a Don’t you want to cut down on your How much emotion do you allow yourself to
tough guy and a ladies’ man. Is machismo responsibilities? show as managing director of a racing team?
really a necessary requirement for being a I will continue doing my job because it’s fun Honestly, not much at all. I need to keep my
successful manager? and gives me energy, but I will allow myself to cool to manage and optimize the whole opera-
BRIATORE: You know, I actually don’t have any take more breaks in between. About the retire- tion. That pertains especially to the technical
more machismo than other men my age. I just ment rumors, those are ineffectual attempts side of things, such as fine-tuning the car and
got over a pretty serious kidney operation, as from the outside to destabilize the team. the engine in particular. If I didn’t stay emo-
you may have read, and something like that tionally distant and stoically quiet, everything
doesn’t leave you feeling very glamorous. Let’s talk about automotive racing. Is it would fall apart. No matter how you look at it,
But, getting back to your question … Obviously, purely a man’s sport? Formula 1 is a tough business, tougher than
you need a healthy dose of self-confidence and It is quite obviously a man’s world. Men are most others. In addition, we’re all in the lime-
an understanding of your role in an organiza- fascinated by full-throttle speed, the finer tech- light because there are a lot of people out there
tion if you want to be a successful manager. nical details of the vehicles and naturally the who are interested in this sport.
Maybe because of my visibility, I’m somewhat drivers who can handle those kinds of bullets
more privileged and have more opportunities to on wheels. Then you also have the lifestyle that So it’s not a dream job after all?
meet interesting women (laughs). everyone finds fascinating. Fast cars and fast I manage the team like a regular company.
drivers are actually kind of boring over the There’s no other way. Like any company, it’s all
Is life as managing director of a racing team long run. That’s why, when I had my first about winning. Our business model is simple:
just fun? racing team with Benetton, we started to trans- Our racing team is successful when the drivers
No, certainly not. I’m very disciplined and form Formula 1 into a superlative lifestyle are good and win. The more wins they earn, the
quite hard on myself. I don’t wake up every event. The fact that Formula 1 currently has more sponsors we get, and the more funding we
morning swooning from my success. On the the highest salaries, the most beautiful women, receive to hire good mechanics, engineers and
contrary, when the alarm goes off at six, I make and a jet-set lifestyle can be attributed to our drivers to make our cars even faster.
a mental list of what needs to be accomplished media and marketing strategy.
that day. I’m not any different in that regard We were the first racing team to provide stories Auto racing is a business just like any other?
than other managers. and backgrounds on our drivers, their women Not quite. For us, every race is about winning
and their lifestyles. The other teams copied us or losing. It’s always about the next win. To
It sounds stressful. Since your operation, when they noticed that the marketing strategy that extent, racing is tougher than any other
rumors have been going around that you works and gets sponsors on board who want to business, but that is typical of the highly com-
may be retiring, which you have denied. buy into some of that glamour. petitive world we operate in.
polite restraint is not his style business culture f
FLAVIO BRIATORE, 56, is con-
sidered a prime example of a macho
manager. As an entrepreneur, he
loves to make fast, unsentimental
decisions. In his private life, he is con-
sidered quite the ladies’ man. Tabloids
speculated that after his recent
recovery from a cancer operation, Bri-
atore might cut back his responsibili-
ties or hand off management of the
Renault Formula 1 team. Briatore
denies any such plans.
A son of teachers in Verzuolo, Italy,
Briatore started working as a land
surveyor. He worked as a stockbroker
before he met fashion tycoon Luciano
Benetton in 1974. Briatore opened
stores in the US market for the fash-
ion group, and then ran its Formula 1
team. He has been the head of
Renault’s F1 team since 2002; one of
its drivers, Fernando Alonso, was
world champion in 2006. In addition,
Briatore is currently also putting his
energy into “Billionaire Italian Couture,”
a fashion line for the super-rich.
p business culture briatore wants to win—in ever ything
1 Patrizia Spinelli is Briatore’s “aide-de-camp.”
Anyone who wants to see him needs to go
through her first. How committed to the sport are you? Are but primarily for business purposes. Yet,
2 As head fashion designer, Angelo Galasso you an auto racing fanatic? when I have a meeting on my yacht and invite
is responsible for the luxury items of the I’m not particularly passionate about a few friends that I haven’t seen in a long time,
Billionaire Italian Couture line. Formula 1 racing—at least not any more pas- the media calls me a playboy. Creating and
3 Naomi Campbell is one of Briatore’s past sionate than I am about my fashion business or tending to those kinds of fantasy worlds is
girlfriends; they are still on friendly terms my other companies. All I want to do is win. just a part of doing business—and it’s not bad
with each other.
That’s why I look at racing like a chess game. I actually (laughs).
4 Entrepreneur Luciano Benetton discovered know what steps I have to take to be successful.
Briatore’s leadership talent.
When they work out, I’m satisfied. We turned How would you describe your leadership
the Renault F1 racing team from an underdog style?
into a winner. In 2000, we only had 17 people, I know how to instill team spirit and motivate
and now we are the fifth-biggest team. We people. In doing that, I keep my emotional dis-
showed up the established players who initially tance because that’s what I have to do. That is
just laughed at us. Achieving objectives I’ve set how I took a completely demoralized Benetton
for myself is my biggest thrill. The more impos- team and combined it with the Renault team.
sible they seem, the better. It was incredibly hard work but at the end, it
all paid off.
That explains your motivation. How are rela- If people don’t perform as I expect them to, I
tions with the team’s sponsors? Are they only don’t dither around. I replace them even if
2 interested in marketing strategy, or are they they’re nice guys. Ultimately, it’s all about get-
mostly Formula 1 fans who have an opportu- ting the most out of the team. Those who per-
nity to finance their passion? form well can count on my support, and I’ll
It’s quite likely that they’re also in it out of per- back them up as best I can.
sonal interest. However, most of the biggest
sponsors know that as Formula 1 sponsors, What can managers in other companies
they’re operating in a whole new “image” learn from motorsports?
league. We represent high-end everything; Primarily, they can learn the ability to make
there’s nothing faster or better. This image cer- fast decisions. You just can’t wait forever, confer
tainly rubs off on other people. Most of the big with others, hesitate and go over all the details
sponsors do like to come out to the major races, with everyone, as might occur in companies.
3 and they like to invite their biggest business With races every 14 days, we have to confront
partners. Clearly, it lets them score some points the possibility of winning and losing every
with their partners. time. In between the races, we need to analyze
and correct our mistakes. We need to continu-
You’re considered a ladies’ man. Is this ously review and change our strategies, and
image really who you are, or do you just especially decide how we want to prepare the
build it up to promote your company? car—and obviously the driver—for the specific
How the media responds to who I am is phe- challenges of the next race. And if a technical
nomenal, but not unwelcome—even if it doesn’t improvement doesn’t work, instead of holding
always come to the right conclusions. I proba- on to it for an unnecessarily long period of
bly do fit the bill of a jet-setter. I’d have to say time, we replace it immediately with an alter-
that I don’t travel around the world for fun, native solution.
Building a Brighter Future
After 21 years of civil war, homes, public utilities and buildings You can make donations
like this school in Yei, southern Sudan, are destroyed. Coming online at:
back to rubble and a generally bleak situation, returning refugees www.unhcr.org/donate
depend on aid so that they can rebuild their lives.
UNHCR, the United Nations agency for refugees, provides protec-
tion and material support to 20.8 million refugees as well as
displaced and returning individuals. The organization continues to
operate in forgotten crisis regions throughout the world, including
p business culture ten years after
Crackberry, of course
Nearly 10 years ago, Research in Motion’s Blackberry took the market by storm, and competitors
followed suit with similar devices. Now, few senior managers are willing to work without one of
these addictive tools. Media entrepreneur Haim Saban was one of the Blackberry’s earliest adopters.
In this exclusive essay, he explains how it changed his management style.
: For me, the invention of the Blackberry
is comparable to the telephone. A tele-
phone enables communication across
and to respond quickly. You cannot duck and
Critics are prone to pounce on this point
do not have reception at my homes in Beverly
Hills and Malibu. I should probably talk to
my provider about that.
boundaries. My Blackberry allows me to when they claim that Blackberries increase But even if I do not have any reception at
access my data from anywhere and to com- stress among users. That, however, only home, the Blackberry not only changes your
municate via e-mail. That small gadget lets applies to people who get stressed out from workday, but your private life as well. I
me stay in constant contact with my key being continuously challenged. In all hon- know that a lot of managers get in trouble
staff. Senior managers have to contend with esty, I do not fall into that category. I like with their wives because they are always
the problem that they just cannot be present taking care of things right away. That is just writing e-mails. The solution is to get one
enough at the company. The Blackberry what I do. So the Blackberry does not for your wife!
alleviates that problem because it makes increase my stress level, it actually lowers it. My wife, for instance, is a big fan of Black-
me omnipresent. However, it has its limits, especially in the berries. Why? Because finally I’m able to go
The interesting thing about this product emotional quality of Blackberry communica- to the movies with her or accept dinner invi-
is that it is the first technological innovation tions. Obviously, you cannot convey as many tations. In the past, my nights were spent
whose lead users are senior decision- emotions as you can in a personal conversa- answering e-mails. Now, I can do that during
makers. We do not need to have the technol- tion. I also think you could do away with the the day, wherever I happen to be. In other
ogy explained to us first. This should lead to emoticons such as ;-). The Blackberry does words, the Blackberry has not made me less
more customer-oriented and more useful not replace employee discussions, but it may social; on the contrary, it has improved my
applications, compared to other innovations. enable your employee to meet with you ability to communicate and allows for more
I get 100 to 150 e-mails every day, and I sooner. So, a Blackberry does actually pro- real interpersonal contact.
answer them all personally. I do not really mote personal interaction.
like the idea of calls and correspondence A user’s most important decision is when to
going through a secretary first. Precisely turn the device off. For example, on Jewish
HAIM SABAN is the chairman and CEO of
because many managers have others read holidays, I turn mine off. Intentionally the Saban Capital Group, an international pri-
their e-mails, it makes sense for me to write chosen “non-available” times show that you vate investment firm. The company has its
them myself—because it surprises people. plan and live a life. headquarters in Los Angeles and offices in
The motivating effect of a prompt e-mail Occasionally, security comes up as an issue. Europe and Israel. In Germany, Saban Capital
reply from the boss is tremendous. For that My IT department keeps the Blackberry up held a majority stake in ProSiebenSat.1
Media AG. Born of Jewish parents in Egypt,
reason, I equipped my managers with Black- to the latest standards. Basically, I consider
Saban is a die-hard Blackberry user and was
berries several years ago. The initial skepti- the device secure. Otherwise, it could not the first CEO to make Blackberries mandatory
cism among some of them is understand- have taken on such a significant role in our for his entire senior executive staff.
able. The device forces you to stay accessible culture. My biggest problem is that I often
haim saban is always on—and his wife likes it that way business culture f
p ser vice credits
In Making Globalization Work, well-known
globalization critic Joseph Stiglitz discusses
how liberalizing markets can improve the
world. Carlos Ghosn, the automotive world’s
most-admired executive, tells the story of
Nissan’s turnaround in Shift. In Performance
at the Limit, Mark Jenkins and his co-authors
offer up lessons from Formula 1 racing,
like the ones spelled out by Flavio Briatore
JOSEPH STIGLITZ: CARLOS GHOSN and MARK JENKINS,
in his interview, geared toward managers. Making Globalization Work PHILIPPE RIÈS: KEN PASTERNAK and
The new issue of think:act content takes a Shift: Inside Nissan’s Historic RICHARD WEST:
Revival Performance at the Limit:
closer look at the opportunities offered by Business Lessons from
the European Union’s enlargement to its Formula 1 Motor Racing
southeast. The study titled “The early bird
catches the worm” explains why companies
need to respond to the low-cost-car trend
right now. Lastly, Mastering the Automotive
Challenges provides practical approaches
about how car makers can emerge as win-
ners in their turbulent industry.
Do you have any questions for the editor
or the editorial team? Would you like to
learn more about studies from Roland
Berger Strategy Consultants? Just send an THINK:ACT CONTENT: STUDY: BERND GOTTSCHALK and
Boosting business in The early bird catches RALF KALMBACH (Eds.):
e-mail to firstname.lastname@example.org Southeastern Europe the worm Mastering the Automotive
PUBLISHER EDITOR-IN-CHIEF PRODUCTION Peterson/ GettyImages, KyodoNews/action-
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81829 Munich, Germany 84048 Mainburg, Germany
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