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Issue 8                                                              The global magazine for decision-makers

 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)
HighLight Towers, Mies-van-der-Rohe-Str. 6, 80807 Munich, Germany
Phone: +49 89 9230-0, Fax: +49 89 9230-8202, E-Mail:
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

p contents

     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

                                                                                                                  contents f

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.

                             >50 %
                                 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
                                                                                                                 8             6
    Italy muddles through
    with far fewer.
                                    United Kingdom       South Korea     Denmark             USA     Germany   Norway        France       Italy
    Source:        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:


                                                                         50 000






























































                                                                         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-
     nies respond?
     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
                                                       South America
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
                                                       24.0 Asia
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
                                                       SOURCE: WTO
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,”
                                       chuckles Pelik.
                                                                              extravagant lavishness is shunned              food for thought f

Halil Hak-
                                                  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

  is reorienting its brand strategy.
  Chevrolet will cover the entry-level
  segment worldwide. The name is
  still not very well known in Europe.

 188         million
  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
                                                               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
                  3.6     3.6
  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
        * Estimate
                                     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   
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

  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
                                        6.8        6.8
                                                           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-
                                                                motive division.
       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.”

    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

  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
                                                           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
  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               23.4
                             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

 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-
                                                             80 %
 6000                                                                   evolution much like the hotel, airline and textile              curement and production costs.
                                                             70 %
 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.
                                                             10 %
       0                                                     0%
           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)

                                                                                Import              Export
 INDIAN CONSUMERS WANT SERVICE                                                                                          EU-25 exports:                    Eastern
                                                                                                                            164610                        Europe
 Cost, service plans and quality are the most impor-
                                                                                                             57463                                640193
 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
                   4                           4

           3                                                                                                           Non-EU exports:
                                      2                                                          South America       Turkey:       105700
                                                                                                                     Switzerland:   31900
                             1                          1


            cos e





         liab /




      Re ality






                                                                        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?

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

Innovations that
customers want

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

                                                                                                                                                hybrid cars
                                                                                                                                                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

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

      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

     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

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

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
                                                 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).

     01                                                02


                                                     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.
                                                By that time however, Orascom had already
                                                opened up the market, and it still has a mar-
                                                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
                                                       Sawiris’s other sensational coup occurred         Telecommunications.
                                                       several months prior. In May 2005, he pur-
                                                       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
                                                  Geberit Group, Stadler Rail and Sika AG. In     was based, among other things, on a sustain-
                                                  the Netherlands, the awards went to Mittal,     able company strategy founded on differen-
                                                  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
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-
                                                       lion households.
                                                                                                       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
                                                                            eight-page publication
     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

                                                                                                          GROWTH PROSPECTS

                                                                                                                            GDP in 2005 ($ billions)

                                                                                                          Brazil                 1556

believes that in two years all new cars will       Dedini posted sales of $400 million, and that          India                          3611
have flex-fuel engines installed.                  figure may double by 2010, helped along for            China                                              8859
The sugar producers carried out a restruc-         example by Dedini’s 2006 delivery of their
turing effort in parallel to the changes seen      first ethanol facility to PDVSA, a Venezuelan
in the auto industry. Archaic, family-owned        petroleum company.                                                       GDP Growth Projection
                                                                                                                            (2004–2030), annual rate in %
sugar mills were replaced by agro-industrial       Gradually, Brazil is assuming the role of an
                                                                                                          Brazil                           3.39
corporations, such as the Cosan Group, now         innovator in the area of alternative energy
the world’s biggest producer of bioethanol.        sources. “Brazil is a prime success story in           India                                           6.71
In 1986, Cosan’s output amounted to barely         the production and utilization of renewable
                                                                                                          China                                             7.09
4.3 million tons. Now the company is pub-          fuels,” says Alan McDiarmid, a Nobel laure-
licly traded, produces 30.6 million tons of        ate in chemistry from New Zealand. “The
fuel annually, owns 13 refineries, and runs        country has enormous potential and is years                              GDP per capita in 2005 ($)
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,”
                                                                                                          India                         3300
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.

      data turbocharger
                                                                                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
                                                       processes or new products to actual men-         bank will reflect the culture of innovation
                                                       tors, as opposed to just dropping a slip of      emanated by its investment bankers. “In
                                                       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
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
southern Sudan.
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
                                                        hide anymore.
                                                        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                             Southeastern Europe                the worm                             Mastering the Automotive

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