A New Start

FT: South Africa's wealth fails to buy skills

South Africa's wealth fails to buy skills

By Alec Russell in Ladysmith,

Published: April 26 2007 03:00 | Last updated: April 26 2007 03:00

The authorities in Ladysmith are under siege again. The situation may not be as dire as when the Boers were lobbing shells into the hapless British garrison in the then sleepy Natal town. But just over a century later, mayor Dudu Mazibuko cheerily volunteers that she is besieged by the problems that confront her.

"Eeeergh," she says when asked about possibly the most sensitive word in South African politics today: skills. "It's quite a nightmare. We have one engineer for the municipality [of 300,000 people]. We have one planner. We really have a shortage.

"We have grants to build and mend the roads but with just one structural engineer how can we do this? What happens when there is a flood? There were several last year. You can imagine our frustration."

Her frustration echoes across South Africa as it celebrates, tomorrow, the anniversary of the end of white rule in 1994 and the election that brought the African National Congress to power.

While the nation's finances are now in a far healthier state than anyone could have predicted on polling day 13 years ago - with the economy growing at 5 per cent and the budget in surplus - the government is struggling to spend its bumper revenues on the ground.

The great constraint holding back development, whether in the rural Zulu areas around Ladysmith or in the crowded townships of Johannesburg, is the lack of a skilled workforce.

The problem is rootedin the apartheid erawhen white governments neglected education for the black population. But this has been compounded by a brain-drain of skilled workers, and, as the government's critics say, apathy in the department of education and the politicisation of many local government jobs.

"South Africans have to accept how deep and wide the skills crisis is," says Ann Bernstein, the head of Johannesburg's Centre for Development and Enterprise and the author of a new report on the problem. "Competence and excellence are pre-requisites for a complicated job. Until we return to those principles, it's not going to happen."

Businesses regularly bemoan the "skills shortage". A recent survey by Barloworld Logistics of South African chief executives and managers concluded that companies were "creaking under the strain".

Unemployment in South Africa is up to 40 per cent but the legions of mainly young men seeking work lack qualifications for the infrastructure jobs that badly need to be filled, in particular prior to the 2010 football World Cup. In recent interviews with the Financial Times, both President Thabo Mbeki and finance minister Trevor Manuel conceded that this was a significant obstacle to redressing apartheid's wrongs.

Mr Manuel said it was the issue most in need of attention. He highlighted how the liquid fuel giant, Sasol, had to import pipe-welders from Thailand, but he expressed confidence in an initiative led by the deputy president, Phumzile Mlambo-Ngcuka.

"The deputy president can tell you if you ask her, how many people are studying which engineering disciplines in which university in which year," he said.

In the scorching heart of the north-western veld, Boikhutso, a rural township 300 miles from Ladysmith, underlines the need for skilled workers and able government officials - and exemplifies the stop-start progress of the last 13 years.

The main road is tarred, a welcome change from the pot-holed track of the apartheid era. A furrow signals the start of a drainage scheme. A web of cables over the rows of tin-roofed houses testifies to an electrification project. But many still have to use bucket toilets and there is only one health clinic for 5,000 people.

During the past two months the township has been hit by riots as residents protested about conditions.

Rev Moses Moshelane, the overworked local municipal manager, says co-ordinating between the different tiers of government over plans and budgets is a nightmare. And, he adds, close to despair, it is impossible to keep engineers for any length of time, since they will be paid far more in the cities.

The mayor of Ladysmith is sympathetic. She is trying to confront her town's shortfall by setting up four new bursaries for gifted local students in engineering, finance and electrics. But this is a long-term project.

"The issue in South Africa is not money," says Ms Bernstein. "It's how to spend it."

Copyright The Financial Times Limited 2007

FT: Gulf states struggle to close jobless gap

Gulf states struggle to close jobless gap

By Roula Khalaf

Published: April 25 2007 19:37 | Last updated: April 25 2007 19:37

Saudi Arabia’s economy is booming. The government and private sector are on an investment spree.

But young people like Mohammed, a 23-year-old living in the Suweidi neighbourhood on the edge of the capital Riyadh, have yet to taste the fruits.

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Passing the time with his older brother Mahmoud at a juice bar, he said he was still unemployed and did not expect his situation to improve.

“There are no jobs. Even people who go to college [which he did not do] don’t find work.”

Yet the two young men, sons of a military officer, are not actively looking for work. Displaying indifference as they live off their family, they said all their friends were jobless.

“We spend our time on the streets,” said Mohammed. “Saudi Arabia is rich, but you need connections to get a job.”

The young men’s case is not isolated. Despite three years of high growth and record oil revenues, narrowing the unemployment gap for nationals in several Gulf states, including Saudi Arabia, is proving a struggle.

It is not that the jobs are lacking. World Bank economists said they were surprised by their findings this month that job creation in the Middle East and North Africa was rising at 4.5 per cent per a year in 2000-2005.

The Bank said the region’s aggregate unemployment rate fell from 14.3 per cent to 10.8 per cent of the labour force, and described this as a ”remarkable achievement”.

But in the economies of the Gulf, many of the new jobs are going to foreign workers. The infrastructure and real estate boom are drawing in hundreds of thousands of new workers from south-east Asia.

Locals are too proud or too capricious to take up low-skilled work, or they emerge from inadequate education systems with insufficient qualifications for higher-paying private sector jobs.

Unlike previous oil booms, when the government was the main employer, the public administration across the region is bloated and official policy is to trim rather than expand employment.

According to Abdulwahed al-Humaid, Saudi Arabia’s deputy minister of labour, unemployment in the kingdom has risen from 9.7 per cent in 2002 to 12 per cent.

The jobless rate among Saudis in their 20s is estimated by economists to be at least twice that.

He recently told the Financial Times that the ministry had approved more than 750,000 visas for foreign workers over a period of almost a year, up from nearly 353,000 permits in 2005.

“It’s a well-known problem,” said Mustafa Nabli, the World Bank’s chief economist for the region. “And as long as there’s open access to foreign labour and the skills of nationals are not there, this problem will continue.”

The challenge for oil-dependent Gulf countries with young populations has long been to turn the demographic bulge – nearly 40m more people are estimated to be joining the labour force this decade, a 40 per cent rise – into an opportunity, or risk exacerbating social and political disenchantment.

McKinsey, the consultancy, said new government measures to close the national unemployment gap were essential if the economic diversification drive under way was to shield the economies of the Gulf from the effects of volatile oil prices.

“There are plenty of opportunities, but many nationals lack the skills. At the heart of this is also the structure of the private sector, which is geared to low cost, low productivity,” said McKinsey’s Jörg Schubert, co-author of a study on the Gulf labour market.

He said attempts to institute a quota system for the employment of nationals, such as the Saudisation programme, had been effective when launched but had shown their limits, providing little incentive for nationals to compete effectively for jobs.

His research indicated that a quarter of national employees in Bahrain, Oman and Saudi Arabia failed to show up for work regularly, while many others left their jobs six or nine months after taking them.

Some private sector groups create ghost companies to bring in foreign workers, a practice that governments eventually turn a blind eye to.

Instead of a quota system, he said, governments should set up employment programmes to train nationals, and should give companies financial incentives to employ them.

Such an attempt is being made in Bahrain, which has created a labour fund that invests the taxes of foreign workers in training and helps finance small private companies.

Saudi Arabia, too, is looking at options to tackle unemployment, including making the recruitment of expatriates more costly to the private sector.

“There needs to be a shift in mindset,” said Mr Schubert, but for that to happen, employers, job seekers and the government “have to work at it”.

Copyright The Financial Times Limited 2007

FT: Press play for the latest page-turner

Press play for the latest page-turner

By Maija Palmer

Published: April 25 2007 16:52 | Last updated: April 25 2007 16:52

The typical audiobook listener in the UK, the 50-something housewife, may find herself unexpectedly entering the digital age next week, as a new kind of audiobook goes on sale.

The Playaway is a handy-sized plastic gadget with headphones that contains a pre-loaded audiobook. It requires no downloads or separate items to be put in a player. Users simply press the play button and start listening. They can pause, rewind, fast- forward, and even change the speed at which the book is read.

Publishers hope the gadget will boost sales of audiobooks, which have remained a relatively small and stagnant market in the UK. Audiobooks account for about £70m ($140m) of the UK’s £2.5bn book market, with little growth over the past five years.

The arrival of audiobooks that can be downloaded to MP3 music players did cause some excitement and brought more tech-savvy, younger people into the market. But much of the market for audiobooks – such as older people and young children – either does not have MP3 players, or cannot or will not download, says Christopher Celeste, president and founder of Findaway World, the company behind Playaway: “A lot of the audience for audiobooks are not early adopters.”

For them, this simpler gadget could be a stress-free way of trying out new digital books.

Mr Celeste says the hardest task has been keeping things simple. The computer company it is working with was told to remove all but the most basic functions from the microprocessor that runs the audiobook.

Mr Celeste says that while some people do download audiobooks to their iPods, that format is better suited to music. “A book is a one-time consumption event. You listen to it all the way through and then you are done. People don’t necessarily want to create a digital library on their iPod.”

Fionnuala Duggan, interactive director at Random House UK, says: “Audiobooks have been the unloved child of the UK book market. It has never reached its full potential, but with new formats coming in, there is no reason we couldn’t broaden the market.”

Part of the problem has been that the UK market prefers unabridged versions, which take up several CDs or cassettes. A Playaway can put a 20-hour unabridged version on just one device.

Mr Celeste says the format also has appeal for publishers because the device is easy to brand and allows them to go digital without the risk of piracy.

The front of the slim device is about the size of a playing card and can be emblazoned with an image in a way that is impossible with a downloaded podcast.

Playaway has been on sale in the US for 18 months, where the audiobook market is much more vibrant than that of the UK. The company now offers 400 titles in the US, from the latest John Grisham thriller to yoga instructions and Spanish-language tuition. It shipped more than 100,000 units in its first year of operations, and expects to sell 500,000 this year.

In the US, most sales are either to travellers who pick up the Playaway at one of 110 US airports where it is sold, or are bought as a present.

In the UK, the Playaway will be priced at £19.99, in line with other audiobooks, but a hefty premium to the average paperback. Mr Celeste says he expects prices to fall, especially before Christmas.

As well as audiobooks, Mr Celeste says, the format could be used for recorded walking tours, workplace tutorials or to provide information to patients.

Copyright The Financial Times Limited 2007

FT: Secrets of the new talent scouts

Secrets of the new talent scouts

By Chris Hughes

Published: April 25 2007 16:52 | Last updated: April 25 2007 16:52

Headhunting used to be a shadowy and clubby world whose practitioners had only to be properly presented, well-spoken and in possession of a little black book of contacts. Today, though, the “executive search professionals” are sharpening up their act. And that means managers need to be better prepared for the tell-tale words: “Is now a good time to speak?”

Companies engage headhunters to find board candidates and those in the so-called “marzipan” management layer: executives just below board level and the divisional and regional managers who report to them.

In the 1990s, there was little science in performing a search for one of these roles. The stereotypical headhunter had a background in the army, and the search process relied on their personal contacts.

But companies have come to expect greater professionalism from their headhunters. The industry now draws its researchers from business and management consultancy. Searches are global. And databases with detailed information on candidates have replaced the leather-bound contacts book with a few scribbled notes in the margin.

“Sole operators with small black books cannot deliver highly international general managers to a FTSE-20 company like National Grid or BP in the way that we can today,” says Luke Meynell, head of the UK board practice at Russell Reynolds, himself a former soldier.

The upshot of this is that contact with a headhunter carries greater risks and opportunities than in the past. Information gleaned from a potential candidate is likely to find its way into a database, and a bad impression could stick. But this can also be a chance to position yourself for a future role.

“There is an incredible sophistication of database management. We aim to know who is ready for a move. We should be able to say: ‘You have been in your current role for four years, we know you just missed out on the top job, surely you are thinking of a move?’ At its most sophisticated, we might also know that the candidate has a daughter who is being educated in Switzerland but they want her to go to school in the UK for GCSEs,” says Mr Meynell.

By the same token, the modern headhunting process has become more thorough and is not to be embarked on lightly. What starts as a phone call and a fireside chat can lead to couple of meetings with your potential new chief executive, one over dinner, and end with you and your family being invited to Sunday lunch with board members to check everyone gets along.

“One of the arts of headhunting is gauging the cultural fit,” says Simon Fenton, who runs the European, South African and Indian operations of Spencer Stuart.

Headhunters say it is wise to have a clear view of one’s career ambitions, and regularly refresh this, so that if a headhunter calls you know precisely where you want your career to go. For example, the mooted position may be the right job, but in a public company when your preference is to move into private equity.

“It is quite a draining and time consuming process. The best managers go into it only if they feel the learning curve is flattening in their current position,” says Mr Meynell.

“Have a perspective on how stimulating you find your current role, what you are learning and how big a contribution you are making. Don’t waste your time and consequently [that of] all those others engaged in the process if in reality you are highly unlikely to move.”

It also pays to be courteous. Headhunters say candidates are often off-hand and superior, even rude, which can make a bad impression from the start. Another piece of advice is to involve family early on in the process, especially when a spouse also has a high-flying career.

Andrew Gilchrist of Egon Zehnder, Europe’s largest headhunting firm, says: “An executive can get intoxicated by a role and then tell his wife and family right at the end of the process. I have seen appointments fall apart late in the day for non-business reasons.”

What has made the search process become quite so rigorous and process-driven? Headhunters say it is a by-product of investors demanding higher standards of corporate governance and professionalism from boards.

“Ten to 15 years ago, the industry was more amateurish and clients were less discerning. Today everyone is under far more intense pressure to deliver. If the chairman and non-executives are not impressed with a main board candidate, the chief executive and group human resources director will be in the spotlight,” says Mr Meynell.

Mr Gilchrist says: “The economic cost of hiring someone inappropriately is huge. It pays to invest up front. There is also a demand to be seen to be doing things correctly. Even if there is a strong internal candidate, the company wants to be certain proper due diligence is done.”

These changes are forcing headhunting firms to reinvent themselves as trusted strategic advisers similar to investment bankers, rather than talent scouts who work on one discrete project after another.

“Search has a lot in common with management consulting. Sometimes your client wants to turn right and you have to suggest that turning left is a better option,” Mr Fenton says.

Unsurprisingly, the cost base of the typical executive search firm has shot up. Fortunately for the industry, revenues have grown in line with rising executive pay, since fees are typically levied as one-third of a candidate’s first year salary and bonus, with a minimum of £50,000 (€73,453)($100,235).

Headhunters say the industry’s move to greater professionalism has some way to go. Mr Gilchrist says the profession’s historic reliance on commission has driven perceptions that headhunters are no better than estate agents.

Meanwhile, companies do not list a retained headhunter in their annual report in the way they cite their auditors, although they may be mentioned in announcements of major appointments.

All the same, some feel that the industry’s image is improving. As headhunters come to be treated more like strategy consultants, so there are many more legitimate reasons to be in contact with them.

“If you are a respected executive, then why shouldn’t a headhunter be asking your opinion about a non-executive director role or a former colleague?” says Mr Meynell.

Until this shift is complete, however, many will remain sensitive when the headhunter calls.

Rules for when the headhunter calls

Be courteous, not superior. The impression you make as an individual counts. It is not in a headhunter’s interest to be wasting your time.

Form a view. Have a clear perspective on your current role, whether you find it stimulating and whether you are still learning.

Where do you see yourself in five years’ time? If the role being pitched is inappropriate, explain why and outline where you would like to take your career. That could put you in line for an approach the next time such an opportunity emerges.

Don’t be a timewaster. Do not get heavily involved in the process if you already know you are unlikely to leave your current role. It will create substantial demands on your time and energy; and withdrawal late in the process could create ill will.

Talk it through at home.  Involve family early on, especially where your spouse has his or her own career or if the new role involves relocation.

Copyright The Financial Times Limited 2007

FT: Hard times for India's mortgage holders

Hard times for India's mortgage holders

By Joe Leahy in Mumbai

Published: April 25 2007 03:00 | Last updated: April 25 2007 03:00

When Sanjay Kapadia, a Mumbai consultant, took out a mortgage on a flat in August, he opted for a variable rate to avoid the high charges attached to fixed rate loans. It proved to be an unlucky choice.

Starting in December, the central bank began sharply tightening interest rates. The average mortgage, already inflated by big rises in property prices, became 250 basis points more expensive, an increase of more than 20 per cent in the space of five months.

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"I pretty much got hit with a double whammy. I paid 50 per cent more than an apartment would have cost previously and I got hit with higher rates. Now even a 25 basis point jump hurts," he said.

Mr Kapadia's hardships are typical of the strains on Indian homebuyers following what has become a war by the Reserve Bank of India on inflation, which is running above 6 per cent.

While it is too early tosee the impact on credit quality, some bankers are already warning that the RBI's campaign could have consequences for their loan portfolios.

"We have to keep an eye on the credit risk building up in the system," said Sanjay Nayar, chief executive of Citigroup in India. "It's going to become more and more important to keep that at the front of our minds rather than at the back of our minds."

Chetan Ahya, economist at Morgan Stanley, said mortgage rates had risen from a low of 7.5 per cent in September 2004 to 12 per cent. More than half the rise had occurred in the past five months.

Yesterday the RBI held its key lending rate at 7.75 per cent but the effect on consumer demand of its rate increases and other measures to tighten credit supply has been dramatic.

Car sales rose only 2.9 per cent in March from a year earlier, the slowest gain in 13 months. Output of consumer durables rose 1.6 per cent year on year in February, against 5.3 per cent in January.

The housing market has been more stubborn. Karthik Srinivasan, analyst at Icra, the ratings agency, said the largest mortgage lenders were reporting 25-30 per cent loan growth, down from previous levels of above 30 per cent but above the government's target of 20 per cent.

Some bankers said that while demand for mortgages and consumer loan growth were expected to slow, they expected no marked deterioration in credit quality.

Nick Winsor, head of personal financial services at HSBC India, pointed to the equity many Indian borrowers had in their homes,estimated by some at up to 30 per cent.

The macroeconomic environment remains benign:the rate increases are designed to take only some of the froth out of the economy. Wages are rising and job creation is proceeding.

"Clearly the rising interest rates will mean it's more expensive for people to borrow but generally all of the data we have suggest that rising incomes mean affordability of housing is actually a lot greater now than it was," said Mr Winsor.

Unsecured lending, such as credit cards, tends to be affected more by factors such as unemployment than by rate increases. HSBC had 2m credit cards in circulation in India by the end of last year, up 60 per cent on a year earlier.

"We continue to see very good growth in credit card issuance," said Mr Winsor.

Many banks are taking steps to mitigate the impact on borrowers. Rajiv Sabharwal, senior general manager, retail assets, at ICICI, India's largest private sector bank, said banks were increasing the terms of loans for some borrowers to help cut their monthly repayments.

A slowdown in credit growth could cause a10-15 per cent fall in real estate prices in some areas, he said. But he expected the economy to be able to absorb this.

"Demand is still strong, incomes are still growing, jobs are increasing, migration to cities is still going on," Mr Sabharwal said.

That may be so, but for many Indian borrowers, the coming year promises to be one of the toughest financially in a long time.

Inflation target lowered to rein in prices

By Jo Johnson in New Delhi

India's central bank yesterday signalled its determination to rein in inflation by lowering its medium-term comfort zone target to 4-4.5 per cent, Jo Johnson reports from New Delhi. It said it would target inflation of "close to 5 per cent" during 2007/8.

The Reserve Bank of India, as expected, left key interest rates unchanged, after five rises since June last year. Indian wholesale inflation bounced back to 6.1 per cent on April 7, triggering renewed fears that further rate rises might be necessary to cool an overheated economy.

The bank used its annual credit policy review to address the surge in capital inflows that have pushed the rupee to a 9-year high against the dollar, lowering the ceiling on interest rates on deposits of non-resident Indians and lifting limits on overseas corporate investments.

Key decisions:

*Bank rate, reverse repo rate and repo rate kept unchanged.

*GDP growth projection for 2007-08 of about 8.5 per cent.

*Inflation to be kept close to 5 per cent in 2007-08.

*Inflation to stay in the range of 4-4.5 per cent over the medium term.

*Overseas investment limit for Indian companies raised to 300 per cent of net worth.

Copyright The Financial Times Limited 2007

FT: How Russia slipped on the road to Yeltsin’s new era

Yeltsin’s courage was partly born of calculation. He was, after all, an apparatchik, versed in the tortuous politics of the Soviet system. He had already staked out his position as the spokesman of radical reform in the politburo and then as the first democratically elected president of Russia. By 1991 he had to oppose the coup. But these were also the correct choices: he was on the right side of history. He recognised that the Soviet Union had become an empty shell and had the effrontery to break it.

Inevitably, Yeltsin did not know what to do with the power he had gained. This is hardly surprising. He was ill-equipped to cope with the political, social, economic and psychological challenges he confronted. Nobody could have been. Inevitably, reform of Russia, whose people felt they had suffered defeat, proved far more difficult than reform in the former empire, most of whose people were enjoying liberation.

Moreover, if Yeltsin had not been the stereotypically turbulent (nay, drunken) Russian that he was, he would not have had the courage to take on the system and win. He never fully understood what a democracy or a market economy was. How could he have done so?

The backlash has taken on traditionally Russian characteristics, through the rebirth of a strong arbitrary state, unchecked by parliamentary or legal restraints presiding over a cowed civil society.

How Russia slipped on the road to Yeltsin’s new era

By Martin Wolf

Published: April 24 2007 18:34 | Last updated: April 24 2007 18:34

“A man has died thanks to whom a whole new era began. A new democratic Russia was born: a free state open to the world in which power really does belong to the people.” Thus did Vladimir Putin laud Boris Yeltsin, the man who chose him for the presidency of his country. Mr Putin was both right and wrong. Yeltsin was the most democratic ruler Russia has ever possessed. Yet what is emerging under his successor is not the vibrant democracy that many hoped for. Yeltsin’s legacy is as mixed as was his turbulent nature.

Yeltsin was among a small number of leaders who have transformed the world. His name will ever be linked to that of Mikhail Gorbachev, the last general secretary of the Communist party of the Soviet Union, an organisation that played so catastrophic a part in the history of the 20th century. Yeltsin’s courage and charisma brought to an end both the party and the Soviet Union itself.

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His enemies will never forgive him for his role in ending the party, the state and the Russian empire in 1991. But those who lived most of their lives in the shadow of the cold war will always be grateful to him. The sight of him standing heroically against the attempted coup of August 1991 is unforgettable. It was the end of a ghastly era of human history, in which despotism went almost beyond the limits of the imagination.

Yeltsin’s courage was partly born of calculation. He was, after all, an apparatchik, versed in the tortuous politics of the Soviet system. He had already staked out his position as the spokesman of radical reform in the politburo and then as the first democratically elected president of Russia. By 1991 he had to oppose the coup. But these were also the correct choices: he was on the right side of history. He recognised that the Soviet Union had become an empty shell and had the effrontery to break it.

Inevitably, Yeltsin did not know what to do with the power he had gained. This is hardly surprising. He was ill-equipped to cope with the political, social, economic and psychological challenges he confronted. Nobody could have been. Inevitably, reform of Russia, whose people felt they had suffered defeat, proved far more difficult than reform in the former empire, most of whose people were enjoying liberation.

Moreover, if Yeltsin had not been the stereotypically turbulent (nay, drunken) Russian that he was, he would not have had the courage to take on the system and win. He never fully understood what a democracy or a market economy was. How could he have done so? But, to his eternal credit, he did tolerate free speech, he did allow the former republics of the Soviet Union to go their own way, he did give sporadic support to the reformers, he did go ahead with the presidential election in 1996 and, not least, he did leave office peacefully. Moreover, notwithstanding all the mistakes he made, he did begin the move to the market. He was neither a civilised intellectual nor a sophisticated statesman, but, by Russia’s dreadful standards, he was little short of a miracle.

History will, I believe, judge that he made three huge mistakes: the war on Chechnya, which brought the security services into the heart of government; the “loans for shares” programme of 1995, which transferred a vast part of the natural wealth of Russia into a tiny number of private hands; and the selection of Mr Putin as his successor. These three errors, together, led to a reversal of the move towards a more democratic, liberal and open Russia. But these errors are at least understandable: the first because Russians feared the dissolution of their country; the second, because return of the communists to power seemed a real risk; and the third, because Mr Putin appeared both reliable and untainted.

These mistakes were not Yeltsin’s alone. The west also made big errors. It gave too little assistance at the beginning, when it might have made a difference, and too much later on, when it postponed the financial crisis of 1998, for which Yeltsin and the west were both duly blamed.

Behind Yeltsin’s mistakes was a still bigger failure: his infirm grip over government itself. Under his rule, Russian government was more corrupt, incompetent and feeble. A backlash was inevitable. The backlash has taken on traditionally Russian characteristics, through the rebirth of a strong arbitrary state, unchecked by parliamentary or legal restraints presiding over a cowed civil society.

Yeltsin’s remarkable story may then be seen as at best a partial success and at worst a gross failure. I would regard it as closer to the former than the latter. The Russia of today is not one a European – or indeed Russian – liberal hoped for. But it is surely far better than the Russia of three decades ago. For that Yeltsin deserves much credit.

The story of the ups and downs of Russian reform over the past two decades is not just about political leadership and political ideas, important though they have been. It is also about the impact of the world price of energy on an economy that Stalinist socialism had rendered desperately inefficient.

Economic reform began under Mr Gorbachev, in the old Soviet Union, shortly after the collapse in the price of oil in 1985. It continued through the era of Yeltsin and Mr Putin’s first term. It died, as the oil price soared and so export revenue, the current account, foreign exchange reserves and the fiscal position were transformed. The economic boom that resulted has made everything easier for Mr Putin (see chart). Between 2002 and 2005, for example, gross domestic product rose by an impressive 22 per cent. But, as the Organisation for Economic Co-operation and Development notes in its latest economic survey of Russia, “command GDP”, which adds the additional benefits of the massive recent rise in Russia’s terms of trade (the relative prices of exports to imports), rose by 38 per cent.

Russia today is a politically centralised and corrupt petro-state. As long as this continues, reform will remain stalled and the political system centralised and oppressive. That is the lesson not just of Russian, but of worldwide, experience.

The price of oil rose too soon in the process of reform, with sad longer- term results. The collapse in oil prices in the 1980s made the reforms necessary, but their current rise makes Mr Putin’s regime stable. When (or if) prices fall again, a new leader may dare to complete Yeltsin’s task of turning Russia into a modern liberal democracy. We should hope for this outcome, above all for the sake of the Russian people themselves. Then at last we will also be able to say with confidence that, under Yeltsin, a new democratic Russia was born.

[email protected]

Copyright The Financial Times Limited 2007

IN PERSON: Dick Lee

IN PERSON

   

Dick Lee? Who he?
   
    Most foreigners in Japan could be forgiven for not     knowing of Dick Lee. But throughout Asia, from Thailand to Taipei and, yes, Tokyo, Lee is     as much a star as Madonna or Michael Jackson. At the beginning of the 1990s he was     releasing critically acclaimed albums such as The Mad Chinaman, winning awards and     performing to capacity crowds in every major city across Asia. Lee was making music with a     message and was obsessed with his search to find a sound that was uniquely Asian, that     wasn't simply mimicking Western artists.
   
    Lee remains very philosophical about Asian music, culture and the interaction between the     two. Having lived in Tokyo as an Asian gaijin for six years in the early nineties, Lee     talks perceptively about Japanese pop culture, fashion and music, and its export across     the continent.
   
    "At Sony I'm in charge of ten countries - I travel every week. It's interesting to     see what young people are doing in all these places, and a lot of it is inspired by     Japanese street culture. It's not really Comme des Garcons or Issey Miyake. It's more     secondhand things thrown together - a street and club fashion-inspired subculture.     Japanese culture has evolved to the point where it's very sure of itself.
   
    "Of course a lot of Japanese culture is American, but in Asia we don't see it that     way. It's clean, it's sort of been in the laundry. It's all acceptable to Asian standards     or values. I guess it all started around 1993 with the Harajuku/Shibuya thing. And that     same thing is now happening all over Asia - every city is getting its own Shibuya."
   
    Having dabbled in fashion in his native Singapore, with his own design and retail     businesses, the link between culture and fashion is one Lee follows keenly, an interest     that has also been linked into his music. In many respects Lee feels that Japanese     fashion-conscious street culture is unnecessarily Western.
   
    "It's all superficial. Underneath all the fashion     and the Western look they are all very traditional Japanese, who all can't speak English,     yet they have this very Western attitude. But it is just attitude."
   
    Ironically, says Lee, it is this attitude that has given Japan its appeal across Asia.     "That's one thing that sets Japanese people apart from other Asian countries, that     they all look so cool. This sort of thing goes back a thousand years in Japan: be cool in     appearance but never say anything revealing. And the rest of Asia respects that coolness.     Combine that with the layering of outside cultures, and they've created a look and made it     their own. It's taken a while but they've done it."
   
    Growing up in postwar Singapore, Lee is aware of the stigma Japan has faced, and often     still faces, across the rest of Asia. "I remember my father - whenever we mentioned     anything about Japan or the Japanese we got in trouble. But things aren't like that any     more. The younger generation is more acceptant of Japan. The welcome invasion of Japanese     technology has changed everybody's lives for the better. The current generation is not     fearful of Japan; rather, we're in awe at what Japan has done economically, and that has     also softened our parent's vision of Japan."
   
    Lee is also very respectful of the richness of Japanese culture, its uniqueness and     heritage. "A lot of Asian countries don't really have that deep culture. The Chinese     in China lost it over the last fifty years. In Singapore we are all immigrants. Hong Kong     people really don't feel so Chinese, nor do the Taiwanese. No one really has a strong     sense of identity apart from the Thais and the Japanese. Which is why both cultures are so     dignified."
   
    It is a strength of identity which Lee feels he has himself found after many years and     albums struggling with the concept. "I was really a prisoner of this concept for many     years." These days the new Vice President of A&R for Sony Asia seems a far fly     from being the Mad Chinaman that he was universally known as ten years ago. He is as     chilled as the music on his latest album Transit Lounge, released under the DL Project     moniker. He feels more confident of who and what he is. "That is why you can sense a     difference in the new album." The product is a "candy-coated" easy     listening album, a product of Lee's upbringing in 1960s Singapore listening to the likes     of Mantevani and James Kasse. "I think it's because I'm more confident of myself as     an artist, of who I am, and what I do and being sure that it's Asian. In form it's very     different, but the essence of it is still Asian."
   
    Dick Lee spoke to Charles Spreckley.
   
    DL Project'sTransit Lounge is out now on Sony Music

http://metropolis.co.jp/tokyointerviewarchive299/276/tokyointerviewinc.htm

BusinessWeek: Most Web 2.0 Users Are Really Just Couch Potatoes.

0.16% but do you need to compare with the % before there was youtube (e.g. the entire TV studio/entire watching population)

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http://www.businessweek.com/innovate/NussbaumOnDesign/archives/2007/04/are_most_web_20.html?campaign_id=rss_blog_nussbaumondesign

April 22, 2007

Most Web 2.0 Users Are Really Just Couch Potatoes.

Bruce Nussbaum

A study by Bill Tancer, an analyst with Hitwise, which measures Web 2.0 audiences, shows that only a tiny fraction of people using social media actively participate. A miniscule 0.16 percent of visits to YouTube actually involve people putting a video up on it, according to his online surfing data. All the rest are visits by people watching the videos of that tiny fraction.

Only two tenths of one percent of visits to Flickr are to upload new photos. Again, everyone else is watching. Just how many users are doing user-generated content?

Wikipedia shows much higher active partipation--4.6% of all visits are for editing. But think a moment--that is still a very small fraction of the total number of people using Wikipedia.

Tancer presented his data to the Web 2.0 Expo in San Francisco. Visits to Web 2.0 sites constitute 12% of all web activity, according to Tancer, up from 2% two years ago. It's soaring.

So, the question is--who is shaping the conversation? These numbers suggest that only a very, very small number of people actively create content in social media. Nearly everyone watches.

So are we really just reinventing TV, with folks pretty much sitting back passively (like couch potatoes)? Is YouTube just another NBC or Fox TV network?

Could be. These YouTube and Flickr numbers are even worse than the 1% Rule--for every 100 users of social media, only ten actively participate, and only 1 actually creates something. Back in July, 2006, the ratio of creators to consumers on YouTube was 0.5%. Now it is 0.16%. Many more people are drawn to YouTube to watch than to create.

Mark Vanderbeeken, over at Experientia, links to a vnunet story that quotes Barry Parr, an analyst at Jupiter Research, saying: "Consumer created content is now the big leagues, but we still don't understand it all that well. It's a reasonable (and old school) rule of thumb that only one per cent of any site's readers will post content on it, but that's plenty."

And Ted Shelton, vice president of business development at Technorati, says that "a small percentage of a huge number of users can still amount to a significant impact.Two per cent of a billion people online is still 20 million people writing blogs on a regular basis."

Shelton has another point. "Very few of those 20 million people actually worry about getting paid for what they do. People under 25 are much more likely to blog, and contribute content of other kinds, so this may be a phenomenon that is increasing."

Another point: These huge social media sites may no longer define what people are doing in social networking. I'm guessing that people are shifting their own conversations toward more direct,intimate social media, such as blogging. Numbers already show that young people are beginning to move away from MySpace as it grows bigger and more commercial for smaller, closer social networking sites.

The conversation economy is still iterating.

 

02:52 AM

FT: TOyota and Guangzhou

In what industry analysts describe as a classic strategy for developing countries, Toyota began by selling the small, mass-market Vios – an economical vehicle for people who have only recently joined the middle-class. However, after an initial spurt, sales of the Vios have been weak.

Car companies have found in China that many consumers are more interested in large, flashy cars than other countries of similar wealth. Indeed, carmakers sell 20 per cent more luxury cars in China than in Japan even though the markets are of similar size and Japan is a much richer country.

Toyota went back to the drawing board and decided to approach the market from the other way round – starting near the top and working down. Honda, which had built a stronger business in China, based its success on the Accord saloon. After a change in control of its Chinese partner, Toyota followed a similar path, launching the Crown and later the Reiz and Corolla.

Last year, it rolled out the Camry, the best-selling passenger car in the US. The model has proved so popular in China that it is expected to see sales of 150,000 in 2007.

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Toyota ready to accelerate in Chinese market

By Geoff Dyer and David Pilling

Published: April 22 2007 22:41 | Last updated: April 22 2007 22:41

As Toyota has steadily advanced towards global top spot among carmakers, one of few consolations for rivals has been that the Japanese group appeared to be misfiring in China, the world’s fastest-growing market.

The carmaker, which is expected to overtake General Motors as top-seller globally this year, was late to come to China and its early moves were lacking the sure touch it has shown elsewhere in the past decade.

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However, that solace is disappearing. Toyota was the fastest-growing large carmaker in China last year, almost doubling sales, and has started this year at a rapid click. “If you ask any car executive in China who they fear the most, they will say Toyota,” says Michael Dunne, managing director of consultants JD Power in China. “They are on a roll.”

Toyota’s slow start in China contains important lessons about the development of the country’s car market. The Japanese company had been exporting Crowns to China since the 1960s, but in spite of numerous attempts, it only began manufacturing in the country in 2002 in the northern city of Tianjin – well over a decade after the market leader Volkswagen.

“We were sometimes accused of being late to commit to the Chinese market,” says Yoshimi Inaba, Toyota’s executive vice-president in charge of China operations. “By that time [2002] many companies had a big head start on us, so we have a bit of catching up to do.”

In what industry analysts describe as a classic strategy for developing countries, Toyota began by selling the small, mass-market Vios – an economical vehicle for people who have only recently joined the middle-class. However, after an initial spurt, sales of the Vios have been weak.

Car companies have found in China that many consumers are more interested in large, flashy cars than other countries of similar wealth. Indeed, carmakers sell 20 per cent more luxury cars in China than in Japan even though the markets are of similar size and Japan is a much richer country.

Toyota went back to the drawing board and decided to approach the market from the other way round – starting near the top and working down. Honda, which had built a stronger business in China, based its success on the Accord saloon. After a change in control of its Chinese partner, Toyota followed a similar path, launching the Crown and later the Reiz and Corolla.

Last year, it rolled out the Camry, the best-selling passenger car in the US. The model has proved so popular in China that it is expected to see sales of 150,000 in 2007.

Capacity has increased with a second joint venture in Guangzhou, in south China, which is rapidly emerging as one of the country’s main auto centres. “Guangzhou is more open than the rest of China. People in Guangzhou are more practical, open and progressive,” says Mr Inaba. “It’s like the California of China.”

Toyota now has a market share of 7 per cent and is within striking distance of its target of 10 per cent. Some analysts even believe that if the steady advance continues, the company could end up being the largest in the market.

Despite rapid growth in the Chinese market – car sales increased by 35 per cent last year – carmakers face some tough challenges in the country. Downward pressure on prices means companies have to find ways to boost efficiency to maintain profitability.

Mr Inaba says the company is trying to deepen its supplier base in China, partly through using local companies and partly via Japanese component-makers with operations in the country. “The more you localise, the better your cost structure will be,” he says.

Like the other Japanese car-makers, Toyota also faces the risk that any return of strong anti-Japanese feelings, such as those that prompted widespread demonstrations in China two years ago, could affect consumer sentiment.

However, Mr Inaba is confident politics will not get in the way. “The anti-Japanese sentiment didn’t affect our business so much. There may be such a political sentiment, but they still like Japanese products, or any good products.” He added that the company was pleased by the closer relationship between the two countries since Shinzo Abe became prime minister.

In spite of Toyota’s momentum, the two market leaders in China are also doing well. Volkswagen has recovered from a difficult two years to post a 40 per cent increase in 2006 sales, while General Motors is still firing on all cylinders, growing as fast as the market last year. But just as General Motors has no guarantee of remaining the largest car-maker globally, the tussle for top spot in the Chinese market is also becoming more intense.

Copyright The Financial Times Limited 2007

Unlikely renaissance makes Guangzhou motor city

By Tom Mitchell

Published: April 23 2007 03:00 | Last updated: April 23 2007 03:00

They are the closest things to antique cars still lumbering along Guangzhou's new expressways.

The Peugeot saloons produced at a Guangzhou joint venture between 1985 and 1997 are a fast-fading breed. At its height in 1993, Peugeot's Guangzhou joint venture produced just 16,400 cars and dwindled to 1,700 in 1997, when the project was abandoned. The few that survive are battered jalopies.

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Peugeot surrendered Guangzhou's roads to two clunky kit cars - Santanas and Jettas, manufactured by Volkswagen in Shanghai and Changchun respectively. At the end of the 1990s, the only proper cars on the road were imported black Mercedes, then the car of choice for any self-respecting Chinese government official or state-owned enterprise boss.

However, the death of Peugeot's joint venture contained the seeds of an unlikely renaissance - Guangzhou's emergence as a major automotive centre, a status central government planners had reserved for more traditional industrial centres such as Shanghai, Changchun and Wuhan.

Guangzhou officials had other ideas.

Peugeot's factory was sold to Honda, which formed a 50-50 joint venture with state-owned Guangzhou Auto Group and began production in 2000.

Soon the city's roads were crowded with the first locally made vehicles that were as good as those produced in the US, Europe and Japan. Honda was one of three Japanese arrows in Guangzhou's bow alongside Toyota and Nissan, which also manufacture in Guangzhou. By 2010, the three manufacturers expect to produce a total of 1m cars annually in the city.

Toyota's new plant in Guangzhou is the very model of a modern Japanese car factory. With about 4,000 workers, almost 60 per cent of welding is automated, compared with 80 per cent in Japan but still very high by Chinese standards.

Copyright The Financial Times Limited 2007

FT: Crisis management for a vindictive age

A big lesson of the book is what determines when to be conciliatory and when to turn aggressive: when you have done wrong, repentance is required; when you have been wronged, mount a vigorous defence.

McDonald's provides a classic example of successful and repeated repentance by switching from plastic to paper wrapping, eschewing genetically modified foods and ending super-sized menus. The mobile phone industry, on the other hand, mounted a textbook defence when some consumers blamed mobiles for brain tumours in the mid- 1990s. Instead of calling press conferences and over- communicating - a tactic that can backfire and increase press attention - the leading phone producers jointly commissioned independent scientific studies that vindicated them in the end.

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Crisis management for a vindictive age

By Richard Evans

Published: April 24 2007 03:00 | Last updated: April 24 2007 03:00

Whether for greed, corruption or malfeasance, companies increasingly find themselves in the position of the accused.

Protecting corporate reputations against these attacks is no easy task. But Eric Dezenhall and John Weber, PR veterans, believe there are some reliable rules business leaders should follow.

The right approaches are often the opposite of what you might expect. One myth they identify is that business leaders can defend themselves by patiently explaining their position to the public and press. "In a climate characterised by virulent distrust of business, education doesn't defuse outrage," the authors write.

We live, it would appear, in a vindictive age. Years of high- profile corruption scandals and the collapse of companies such as Enron and WorldCom have created, Dezenhall and Weber claim, an anti-corporate atmosphere where "the public, media and government are motivated more by vengeance than [by] justice". Chief executives who don't recognise this can be swiftly destroyed.

The book is the result of long experience working in Washington, where lead author Dezenhall began his career in the White House Office of Communications during the Reagan presidency and is associated with "the Gipper's" emergence as a "Teflon politician" who was apparently impervious to criticism or scandal. Just as in politics, these days business "opponents don't care whether you do the right thing; they care about defeating you".

Many PR consultants and agencies still believe that the soft approach of engaging, communicating and, when required, apologising will best limit damage and restore public image. This is wrong, the authors claim: the real lesson is rarely if ever to admit guilt and to meet each accusation with a counterattack. That's how Bill Clinton defeated his adversaries over the Monica Lewinsky scandal, they say, and how the homemaker and business magnate Martha Stewart turned her public image round after a prison sentence for insider training.

The German carmaker Audi, on the other hand, was castigated for expressing sympathy for crash victims in the 1980s when the press and consumers claimed its 5000 model had a flaw that made it accelerate for no apparent reason. Audi's perceived admission of guilt led to plunging sales in the US. More recently, the pharmaceuticals maker Merck recovered from legal defeats and bad press when it began to contest lawsuits strongly, attempting to portray plaintiffs as selfish opportunists.

While many companies still believe in a PR model involving conciliatory engagement with attackers, the authors endorse a political model of crisis management: "The fundamental difference is that the political model assumes the threat of motivated adversaries that want to torpedo you."

A big lesson of the book is what determines when to be conciliatory and when to turn aggressive: when you have done wrong, repentance is required; when you have been wronged, mount a vigorous defence.

McDonald's provides a classic example of successful and repeated repentance by switching from plastic to paper wrapping, eschewing genetically modified foods and ending super-sized menus. The mobile phone industry, on the other hand, mounted a textbook defence when some consumers blamed mobiles for brain tumours in the mid- 1990s. Instead of calling press conferences and over- communicating - a tactic that can backfire and increase press attention - the leading phone producers jointly commissioned independent scientific studies that vindicated them in the end.

The authors say success requires resources and that business leaders cannot wait until all the facts are in before deciding how to react to a market attack; emotions rather than facts often define public image and only an early response can prevent the public turning against you.

Whether by employing in-house experts or undergoing external training, Dezenhall and Weber argue, top executives must be well versed in damage control techniques in advance of an emerging crisis. Trying to learn how to respond on the hoof is risky and time-consuming.

Copyright The Financial Times Limited 2007