Innovation Blog

HuaWei – Case Study  -    “Created in China” Is Real, Imminent – and a Major Threat To Your Business [1]

By Shlomo Maital

Dec. 2/2009

 技 有限公司    Huawei Technologies Co. Ltd.

“Their (HuaWei’s)  technology is innovative, and their bid provided the lowest cost of ownership for us.  In our business, the lowest cost of ownership is key.”      – Morton K. Sorby,  head, business development,  Telenor

    A Personal Note: Two years ago, I helped lead a best-practices benchmarking trip to China, for 30 senior  Israeli high-tech managers doing a TIM executive program.   During our visit to a huge science park near Beijing, we heard the Director tell us:  “Today, Made in China.  Tomorrow:  Created in China.” 

     Loose translation:  Today China achieves phenomenal economic growth by low-cost manufacturing of products invented and designed in the West.   Tomorrow it will move up the economic ‘food chain’,  and invent and design its own products — and then make them, too.  Can you compete with that?  

     This strategy is a direct threat to the U.S., Europe and Israel, because if China replaces them in the food chain, they will by definition be below China — and the implications for economic growth, wellbeing and GDP per capita are sweeping.

     Do we see widespread awareness in the West of this strategic threat? Do we see national industrial policies designed by panels of experts to meet the challenge?  Or does the West continue to believe that China will remain where it is — a low-cost manufacturer. 

      HuaWei Technologies Co. Ltd., global producer of network solutions for telecoms,  is a concrete example of a major success of “Created in China”.    This is why I have written this brief case study narrative.   There are many more HuWei’s in China now gaining in strength and self-confidence.  You will doubtless soon meet them in the marketplace.  Are you ready?

     Basic Facts:   HuaWei was established 21 years ago, in 1988, by Ren Zhengfei, a former People’s Liberation Army officer.  He remains its CEO.  HuaWei began as an importer of PBX phone systems. It quickly began developing its own.  In 1993 it began selling its own digital telephone switch, beginning with rural areas in China and expanding into major cities.  HuaWei won its first overseas contract in 1996.  By 2004 its sales abroad exceeded its domestic sales.  In 2009 the World Intellectual Property Organization WIPO reported that   Huawei was ranked as the largest applicant under WIPO’s Patent Cooperation Treaty (PCT), with 1,737 applications published in 2008, replacing Philips Electronics.  In Dec. 2008 Business Week ranked HuaWei 3^rd, after Apple and Google, in its World’s Most Influential Companies list.

   HuaWei is privately owned.  HuaWei marketing director Edward Zhou says the company is owned by its 87,502 employees.    The U.S. thinktank RAND Corp. claims HuaWei “maintains deep ties with the Chinese military”, as a customer, political patron and R&D partner.  HuaWei denies it.  Its headquarters are in Shenzhen.

   HuaWei’s revenues in 2008 (a bad year for network infrastructure companies) was $23.3 b., up 43 per cent from a year ago,  and generating $1.15 b. in net income (up from $957 m. in 2007).   Foreign sales account for three-quarters of its revenue, up from 43 per cent a year ago.  (See Figure).

    HuaWei supplies gear to China’s three largest operators — China Mobile, China Telecom, China Unicom — and has doubled its share of the $38 b. global mobile equipment market to 20 per cent in 3Q 2009, up from only 11 per cent a year earlier.  It thus replaced Nokia Siemens (19.5 per cent) but trails Ericsson (32 per cent).  

    HuaWei as Innovator:   HuaWei’s value proposition is based on “cost of ownership” i.e., the total lifetime cost of their equipment, rather than the price.  HuaWei is not always the lowest-priced competitor.  “Our focus has been on lowering the total cost of ownership for the network as a whole,”  Edward Zhou notes.  In an era when telecom’s ARPU (average revenue per user) is falling, cost of ownership is crucial.  For instance, HuaWei’s SingleRAN multipurpose wireless network that transmits in 2G, 3G and LTD (long term evolution) signals saves operators money, because they can buy a single grid rather than install separate ones for each technology.   HuaWei is apparently the first to deploy, on a large scale, the new 4G technology, LTE,  in base stations. 

     Another Personal Note:   My reliable inside sources at HuaWei tell me this:  HuaWei is regarded in China as its most prestigious high-tech global company.  HuaWei’s salaries for engineers are significantly higher than those paid by other Chinese high-tech firms, though they are still much lower than in the West.  So, Chinese engineers, when they graduate, compete fiercely for HuaWei jobs, both for prestige and for money.  What HuaWei demands in return?   Twenty hour (20) work days.  This is not an exaggeration.  Twenty hour workdays out of 24.  Four hours of sleep, etc.    Because HuaWei gets the very top talent among the hundreds of thousands of graduating Chinese engineers,  it has enormous innovative ability and enormous ability to scale up rapidly and deploy globally. 

     To prepare itself for global expansion, HuaWei engineered an enormous transformation of its business processes, using leading consultants.  They now employ best practices in management innovation, gleaned from top companies all over the world.

    And if this is not sufficient…..:    China’s second largest networking equipment firm is ZTE.  Its sales, too, rose 43 per cent in 3Q 2009, to $2.2 b. ($8.8 b. annual).    In our benchmarking trip, we visited ZTE, which is now supplying China’s mobile operators with its own home-grown 3G technology. We observed that  ZTE is no less dynamic and menacing, as a competitor, than HuaWei.   And both have become highly self-confident, following marketplace success.

     If you believe that China’s mobile market is the world’s fastest growing (rivaling India’s), and if your company is in the industry, you may eye that market enviously.  As you do, think about meeting HuaWei and ZTE head-on, in China or in Asia in general.   Think of meeting them in more stagnant markets in Europe.  Think of matching their scale, innovativeness, infinite bank credit and speed.  

     If you are happily not in the network infrastructure business, picture a version of HuaWei in your own industry.  If there is none right now, there will soon be.  Believe me.

     Valium, anyone? 

Global Crisis Blog

America and the Marshmallow: Obama’s Real Dilemma

America today faces the same choice that psychologist Walter Mischel presented to a group of American four-year-olds in the 1960’s. 

     In a famous experiment, Mischel offered the pre-schoolers a tasty marshmallow, in full view and ready to pop into their mouths, or two marshmallows if they could wait for 20 minutes. 

      Some kids grabbed the ‘instant gratification’ marshmallow.  Some waited.

      In a follow-up study, Mischel showed that the kids who could defer gratification were better adjusted, more dependable, and got SAT (scholastic aptitude test) scores that were 210 points higher than kids who wolfed down the tempting marshmallow, when graduating from high school.

       Later, Daniel Goelman featured this experiment in his book on Emotional Intelligence.

       Today,  America as a country confronts a similar dilemma.  After years of small or zero personal saving, with rundown infrastructure, inadequate human capital investment and staggering public debt,  Americans are looking at a tempting “marshmallow” on their tables.  With the economy struggling to emerge from recession, and with job creation anemic,  Americans are asked in various ways to resume their old habits of spend/spend/spend (marshmallow NOW!). 

    But what America needs is a bit of improved deferred gratification.  It needs to increase saving, in order to pay off huge debts, rebuild infrastructure, modernize its factories and revamp its failing schools. 
     How in the world can this occur?  What will bring Americans to wait for the two marshmallows?  When an enormous bloated monster exists — advertising, marketing, sales — whose sole purpose is to get Americans to spend, when not even a ‘mouse’ organization exists to encourage saving, and when Americans no longer trust banks, brokers or investment funds, after losing half their pensions and life savings —  why would Americans suddenly become good at deferring gratification?

     Two years ago, scientists discovered the physical location in our brains, where the ‘marshmallow’ decisions are made. [1]   Americans do have brains.  They do have the medial-frontal cortex capability of waiting for the two marshmallows.  It just needs some exercise, after withering from disuse.    Perhaps an adult version of the grade-school program “Stoplight” (see box)  might be in order.

      Somebody (President Obama?) needs to tell Americans that the party is over.  It is time to tithe — set aside ten per cent of everything for future marshmallows.   When this happens, we will know America is serious about remaining a First World power, rather than sinking into Third World mediocrity.       

                        ===========================================

                                                                        “STOPLIGHT”                               

     In school lessons in social/emotional learning,   posters on school room walls remind kids, that when they get upset, they should remember:

      Red light – stop, calm down, and think before you act.

     Yellow light – think of a range of things you should do (not just your first impulse)

      Green light – pick the best one and try it out.

What about an adult version?   Spread similar posters all over shopping malls, Macy’s,  supermarkets, Wal-Mart…?   Red light — do you really need this shmata?  Will it really make you happy?  Yellow light –  think of other ways you could invest that money, and how much more good it could do, either for yourself, your family, or for others.   Green light — pick the instant marshmallow, or the delayed one — after using your medial-frontal cortex, which daily grows stronger and stronger.   

Innovation Blog

“M” Stands for Murdoch, Microsoft &….Monopoly

By Shlomo Maital

Nov. 25/2009

   Microsoft is like the famous racehorse Silky Sullivan — the greatest come-from-behind racer in the history of the world.  

          Ridden by jockey Willie Shoemaker,  Silky once galloped along in a race until the field was 41 lengths in front of him—and still won by three lengths.  To  accomplish this, he had to clock the last quarter in 22 seconds flat.   

    Microsoft never misses an opportunity to miss an opportunity. Then, using their muscle, cash and aggressive marketing,  they blow smarter faster competitors out of the water. Anyone remember Netscape — the browser that invented browsers, before Internet Explorer?   Microsoft leveraged its Windows monopoly to stuff Internet Explorer down our throats;  bye bye Netscape. 

    Microsoft’s CEO Steve Ballmer is at it again. (Bill Gates is busy giving away his money, rather than trying to make more).  Microsoft missed the search-engine/advertising boat.  So, Microsoft is negotiating a deal with News Corp. founder Rupert Murdoch, giving Microsoft’s new search engine Bing exclusive rights to news from Murdoch’s newspaper (New York Post, Wall St. Journal,  The Sun, Times of London and others).  Exclusive — meaning, the news from those papers will not appear in Google.   Microsoft will pay Murdoch substantial sums in return.[1]    

     Murdoch is a hardnosed businessman.  He hates leaving money on the table.  Why give news away for free?    he says.   But guess what, Mr. Murdoch?  Infinite amounts of news are available for free on the Internet.    If you try to limit access,  people will read their news elsewhere.  They have oodles of alternatives.   The BBC, a great source of news,  already announced they will continue to provide their content for free.

     “I’d rather have fewer readers who pay, than many readers who don’t”,  Murdoch says. 

      Microsoft’s attempt at creating monopoly restrictions is not surprising.   What is surprising is Murdoch.  He is known as an implementer of modern technology.  Why does he not understand that the rules of the news game have changed forever and irrevocably?   Monopoly by definition rests on there being no alternatives or substitutes.  When there are infinite substitutes,  monopoly is impossible. 

     Nice try, Microsoft. Nice try, Murdoch.  In your case,  ”M” stands not for Monopoly, but Mistake — a Big Mistake.

Innovation Blog

Lifeline Express:  400,000 Lives Changed in India -  Should America Follow Suit

By Shlomo Maital

Nov. 24/2009

   How can one bring medical care to remote villages in India?  Often, children and adults in India have medical problems that can be cured easily with surgery or other care, things like cleft palate or cataracts — but suffer with them for their entire lives, because they cannot afford medical care in the cities, or even get to the cities, where hospitals and clinics exist.

      India’s rail network is one of the largest in the world.  It transports 18 million passengers yearly, has 1.4 million employees and has a route covering nearly 40,000 miles. 

       In 1991,  Indian Railways and the Indian Health Ministry joined forces to provide a simple solution to providing basic medical care for remote poor villagers.   They called it Lifeline Express, or Jeevan Rekha Express.   Equip a train with modern medical equipment and operating theatres.  Staff it with volunteer doctors and surgeons.  Run the train through the length and breadth of India, to more than 7,000 stations.  Inform the villagers in advance,  examine them quickly and choose those best suited for the Lifeline Express care.    The project is supported by Impact UK (a charitable foundation), Indian businesses and individuals.  Some 400,000 Indians have benefitted so far.   A second train has now been added. 

Lifeline Express focuses on:

* Orthopaedic and surgical intervention for correction of handicap and restoration of movement, especially those as a result of polio.

* Opthalmological procedures and interventions, eg cataract surgery and intraocular lenses.

* Audiometry and surgical interventions for restoration of hearing.

* Surgical correction of Cleft palate.

    Other countries, such as China, have begun imitating Lifeline Express.  But why, I wonder, should Lifeline Express be implemented only in poor countries?  Why not in America?

    United States has some 48 million persons without health insurance.  What about an American Lifeline Express, travelling to remote areas and cities alike, bringing badly-needed medical care to those who cannot afford it because they are uninsured?    America, like India, has a rail system and a large number of people who need medical care but cannot afford it.  Indian found a partial solution.  Why should not America imitate it?  Funding should come from the pharmaceutical companies, whose obscene prices for lifesaving drugs generate many billions of dollars in profits.   

Global Crisis Blog

“Wall Street Recruiters Trawl Online Poker Circles for Talent”

or

Why We Should Lose Sleep

By Shlomo Maital

Nov. 22/2009

    Do you lose sleep, like me,  because America will pay, in 2015,  some $533 b. in interest on its public debt, debt equal to an entire year’s worth of GDP ($15,000 b.), where the interest alone will consume a third of all federal income taxes paid that year?  

    Do you lose sleep because, like me, you believe America is endangering the global economy because its currency, the dollar, has been dangerously overprinted and its impending collapse undermines  global capital markets?

     Do you lose sleep, like me,  because while political leaders and central bankers declare the global recession over,  global managers see no sign that ordinary people are spending more or that business are investing more, and a significant minority fear another recession soon? 

     If that is not enough, here is another reason to lose sleep.   The title headline is genuine, though it appears to come from Comedy Central, or MAD magazine.  It is from the International Herald Tribune, taken from Mason Levinson’s piece for Booomberg News. 

    Here is the gist of Levinson’s report:   “an increasing number of hedge funds and brokerage firms are scrutinizing professional poker to find talent and analytical tools.”  Levinson reports that a recruiter got a request from a hedge fund for online poker players with “no financial experience”, after the World Series of Poker in Las Vegas four months ago. 

    Let me get this straight.  It is widely agreed that a core cause of the global crisis 2007-9 was the utter breakdown in risk management models of banks and investment funds.   So, the solution is to recruit poker players?  The people who bluff, conceal, and deceive, who bet the whole pot on a single card?

       Global capital markets are apparently being rebuilt as enormous poker games with daily pots of $3.2 trillion (two-thirds of that derivatives).   Some of the better players, like Goldman, Sachs are profiting enormously.  In the past 90 days (the 3^rd Quarter, July – Sept.), Goldman Sachs made $100 m. or more on each of 36 days from trading profits alone.  Why would they not want to return to the Great Global Poker Game? 

        Let’s see if we can figure out an optimal way for the financial services industry to build back the public’s trust.   How about, say, hiring a thousand star poker players?  Yes — that will do it.  That will certainly make ordinary people put their money back in banks and keep it there. 

Innovation Blog

Innovation in Cities:   “Remove One Zero, Two Zero’s, from the Budget” — The Case of Curitiba

By Shlomo Maital

Nov. 21/2009

   This is the story of the world’s most innovative city, Curitiba, in Brazil.  Curitiba is the capital of the southern Brazilian state of Paraña,  with some 3.5 m. people in metro Curitiba.  Every mayor and city council in the world should have made at least one trip here to benchmark the innovations led by the incredible Jaime Lerner.  Most have not. 

    To my knowledge, the mayors of Jerusalem and Tel Aviv (past and present, including former Israeli Prime Minister Ehud Olmert) have not been here.  The result:  expensive, over-budget, bungled projects for light-rail or subway systems,  in both Tel Aviv and Jerusalem, that, at least in Jerusalem, are making inhabitants’ lives miserable (owing to torn-up streets) and will do so for years to come.  In contrast, in my city Haifa, a dedicated bus lane is zipping residents from the southern end of the city to the northern end in next to no time. 

   What are Jaime Lerner’s innovations?   Choosing to run for mayor in Curitiba, Brazil, in 1988, only 12 days before the election, and winning a surprise victory, Jaime Lerner  did the following, using creativity and common sense, and a lot of independent thinking:

  *  Speedybus:  Used Federal money earmarked for a subway to build instead a Speedybus system — long ‘accordion’ buses carrying up to 300 people, built specially by Volvo, owned and run by private companies, with dedicated bus lanes.  Bus stops board passengers in one minute (you pay in advance of boarding), buses run frequently, and housing is planned so most people are within walking distance of a bus, making cars unnecessary or even inconvenient.  The Speedybus system costs one per cent of a subway and does the same job.  Curitiba’s bus system carries 2.3 million passengers daily — more than Rio de Janeiro’s subway!

      “What is a subway?”  Jaime told the BBC.  “Speed, comfort, reliability, frequency!  We provide these with Speedybus, because we designed it for these four qualities.”

  *  Sheep:  According to Wikipedia,  “Curitiba is bordered by floodplain. While wealthier cities in the United States such as New Orleans and Sacramento, have chosen to build expensive, and expensive-to-maintain levee systems to build on floodplain. In contrast, Curitiba purchased the floodplain and made parks. The city now ranks among the world leaders in per-capita park area. Curitiba had the problem of its status as a third-world city, unable to afford the tractors and petroleum to mow these parks. The innovative response was “municipal sheep” who keep the parks’ vegetation under control and whose wool funds children’s programs.”

     Jaime told the BBC, “the sheep are the best public servants!  They never go on strike!”

*   Food for garbage:  Like many Brazilian cities, Curitiba has barrios, slums.  They were once jammed with garbage; the streets were too narrow to permit access for garbage trucks.  Jaime Lerner told the people:  Bring me your bags of garbage to collection centers, and I will give you in return a bag of food.   One bag of garbage, one bag of food.  It was cheaper than garbage collection.  The barrios residents responded.  Within three months, the barrios were   clean. 

*  Recycle:   Many cities are drowning in garbage.  Curitiba is not.  Curitiba citizens recycle.  How?  Jaime Lerner had the schools teach children how to separate organic and non-organic garbage.  Organic garbage goes into compost piles.  The children taught their parents. Now, 70 per cent of all garbage is separated, one of the highest ratios in the world.  Curitiba has a lovely nearby bay.  Once it was a garbage dumping ground. Lerner began to pay fishermen by the pound for retrieving garbage from the bay.  Now, fishermen fish for fish, when they can, and when they cannot, they fish for garbage. Curitiba saves many millions of reals in this way.

* Schools:   Lerner has a program where poor kids who don’t want to go to school  can be apprenticed to city employees.  As a result Curitiba has many fewer gangs than does, for instance, Rio.   

* Bikes:   There are 62 miles of bike routes in Curitiba, used by 30,000 bikers daily.  

  But what is Jaime Lerner’s biggest idea — the truly revolutionary innovation?

  How often do we hear public officials and politicians say this sentence:

       Yes, we would like to do good things, solve problems, make citizens’ lives better — but, we lack the money.

   Here is Jaime Lerner’s ‘take’ on this statement.

   “Do you want to change things quickly?”  he asks.  “Remove one zero from the budget.   Do you want to change things even more quickly?  Remove TWO ZERO’s from the budget.”

      He did it.  If you have no money, you have to invent, create, innovate, improvise.  How often do we throw money at a problem (or accept the problem because of lack of funds),  rather than throwing energy, creativity and start-from-scratch innovation at it?  

      If the world’s mayors do not visit Curitiba, perhaps Jaime Lerner can visit them. 

      But will they listen?

 Global Crisis   Blog

Bernanke Needs Eyeglasses:  He Cannot See Bubbles

By Shlomo Maital

Nov. 19/09

         “It is inherently EXTRAORDINARILY difficult to know whether an asset’s price is in line with its fundamental value”.

                                    Fed Chair Ben Bernanke,  in a speech given on Monday Nov. 15/09 

    When the Master of the Universe, the distinguished Princeton University Professor , expert on the Great Depression and the person who controls the fate of every one of the 6.8 billion people on the planet (through controlling the value of the US dollar)  says, he CANNOT tell whether there is an asset bubble or not…    well, every one of us has cause to worry.

      Professor Bernanke,   looking at the diagram below, showing the median US house price divided by median income,   is there anything in the diagram that gives you a slight clue that America was in the midst of an enormous housing bubble?   ANYTHING????

      Prof. Bernanke, I know a terrific optometrist.  He can prescribe new eyeglasses for you. You need them urgently.   Because if you cannot see the old bubble,  that means you will not see the next one either.  And that means, all of us are in deep hot water. 

 Housing Bubble

Housing Bubble

Global Crisis   Blog

Tale of 20 Losers: A Massive Failure of Leadership

By Shlomo Maital

Nov. 16/2009

      Fortune magazine publishes annually the Global 500,  a listing of the world’s 500 largest companies.  In 2008,  20 large companies (those with the dubious distinction of making the 20 Largest Losers list)  lost a massive amount of money:  $320 b. in total. (To reach that sum, Israel’s 7.2 million inhabitants would have to work for two entire years).  

Fannie Mae $58.7,  RBS $43.2, GM $30.9, Citigroup $27.7, UBS $19.3, Conoco $17 , Ford $14.7 ,  HBOS $13.8, Time Warner $13.4,  Pemex $10, Delta $8.9, Hypo $8, Hitachi $7.8, Alcatel $7.6, Credit Suisse $7.6, Bayern $7.4, Lyondell $7.3, Flextronics $6.1, Mizuho $5.9, Deutsche Bank $5.9

     Not all were banks or financial services companies.  Some were manufacturing companies, media, telecom, airlines, even oil companies!   All reflected a massive failure of CEO leadership.    

    What is the common thread uniting all of these losers — if there is one?  I believe it is the utter failure of their Boards of Directors  and CEO’s to think independently, and daily, to challenge what they were doing and how they were doing it.  Some CEO’s, like Citigroup’s, seemed unaware of their organization’s huge exposure to risk. 

      There were those that did resist the ‘herd’.  The CEO of Canadia’s Toronto Dominion Bank kept his bank out of the sub-prime mortgage market, while other huge banks like Citigroup were being swept to disaster.    

     Does your organization have leadership that thinks independently, evaluates evidence on its own, and constantly challenges the prevailing herd thinking?    Does your Board of Directors contribute to this,  and is it part of the problem (complacently rubber-stamping whatever the senior management says)?    

    If your answers are “NO”,  and “YES” –    prepare yourself to join Fortune Global 500’s list of losers in the future — perhaps, the near future.   

———–

   In the Tables below, I provide an analysis of the 20 Largest Global Losers in 2008:

 Table 1.   Industries Represented in the 20 Largest Losers

Banks & Financial Services (9 companies);  Manufacturing (3); Automobiles (2);  Oil Companies (2); Telecom Infrastructure (1); Media (1); Airlines (1); Real Estate Holding (1).

  Table 2.  Countries Represented in the 20 Largest Losers

U.S. (8 companies); Germany (3); Switzerland (2); UK (2); Japan (2); Mexico (1); Taiwan (1); France (1).

               Table 3.   Key Management Leadership Errors 

                (companies may appear more than once)

* Excess lending to poor risks, bad investments (9 companies)

* Overpriced, or badly-timed, acquisitions  (5)

* poor products unsuited to market needs (5)

* exchange-rate-induced losses, poor hedging (3)

* operational inefficiency 1

Innovation Blog

The Subject We All Know the Least About:  Ourselves

By Shlomo Maital

Nov. 13/2009

   Andre Agassi

   U.S. tennis great Andre Agassi has published his memoir,  “Open”.  It attracted controversy because in it he admits to using crystal meth, a banned substance, and then lying about it to tennis officials.

           Agassi was a ninth-grade dropout, with a tyrannical and abusive father who was so awful, Agassi spent much of his life trying to build an alternate family for himself.   He told his story to Pulitzer-Prize winner J.R. Moehringer, who grew up fatherless in Manhasset, NY, and found his role models in pubs. 

           Agassi spent 250 hours with Moehringer, telling his story.  He told NY Times journalist Charles McGrath, “I have a lot of capacity for pain, but I didn’t understand how hard this process would be.  I was being asked to talk about the subject I know least about:  me!”.

           What a powerful observation!   The subject that most of us know least, I believe, is indeed — ourselves.  Why?  Because the journey inward, into ourselves, is fraught with pain — and unlike Agassi, who often played through pain (as do all pro tennis players or pro athletes in general),  most of us ‘leave the court’ when in pain. 

          I believe that the hard and long journey outward, toward creative ideas, must begin with an even harder and longer journey — inward, into ourselves, to understand our deepest passions, our frailties, weaknesses, failings, and fears.    Self-awareness and self-knowledge are powerful tools, and vital ones,  if we are to persist in the bumpy road to world-changing innovation. 

          Socrates got it right.  “Know yourself,” he advised, 2,500 years ago.   

          We come to know ourselves,  usually, by looking backward at our lives and compiling ‘lessons learned’ — perhaps, too late to make effective use of that knowledge.   

          Don’t put it off.  Begin your inward journey now.  I offer this advice as someone who began it much much too late in life.     

Global Crisis Blog

Russia’s President Tells the Truth:

“Russia’s Economy is Archaic, Hollow”

By Shlomo Maital

Nov. 13/2009

     Harvard Business School Professor Chris Argyris conveys a simple, powerful message to his students and clients:  “Tell the truth!”.   Organizations that cannot face the brutal facts by definition are incapable of dealing with them.  “Tell the truth” is not a Sunday School moral lesson but a key principle of management.

      Take Russia, for instance.   It is widely assumed that former President Putin, who reinvented himself as Prime Minister, still pulls the strings.  But new President Dimitri Medvedev  (pronounced med-vye-dev,  few TV and radio broadcasters — and even George W. Bush –  take the trouble to learn to pronounce it properly)  is asserting himself and becoming a strong leader.  And he tells the truth.

      In a recent speech, he said it bluntly:  Russia’s economy is archaic and hollow.    The money pouring in from oil is highly deceptive and dangerous.  Russia can, and perhaps has,  become like an oil-rich Mideast sheikhdom,  drowning in paper but with no real economy apart from sticky black goo. 

   Here is an excerpt from an IMF report on Russia:  

GDP went from less than $1 trillion (£600bn) in 1998 to $2.1tn (£1.26tn) in 2007 but has since dropped sharply (IMF).  Exports as a portion of GDP soared from 20% in 1990 to more than 60% in 1992, but had fallen back to 33% by 2008 (World Bank).  Mineral products accounted for 70% of exports in 2008, machinery – 5% (Russian government statistics).   

Here is what Medvedev said, in his speech, according to the BBC:

   Russian President Dmitry Medvedev has called for profound reform of the economy in his annual state of the nation address.  The Soviet model no longer worked, he said, and Russia’s survival depended on rapid modernisation based on democratic institutions.  An oil and gas-based economy had to be reworked with hi-tech investments.  Inefficient state giants should be overhauled and issues of accountability and transparency addressed, he said.  ”Instead of a primitive economy based on raw materials, we shall create a smart economy, producing unique knowledge, new goods and technologies, goods and technologies useful for people,” Mr Medvedev said.  “We can’t wait any longer,” Mr Medvedev said.   ”We need to launch modernization of the entire industrial base. Our nation’s survival in the modern world will depend on that.”

   The BBC Moscow correspondent Richard Galpin, commented on the speech: 

    Mr Medvedev is certainly establishing more of a political identity by focusing on the modernisation theme. But there is still deep skepticism about his ability to deliver on any of the reforms he has called for because his power base is extremely limited and there will be many vested interests to overcome to bring about real change.

           Russia is for many companies a potentially rich market, but fraught with huge difficulties — corruption, bureaucracy, chaos.   We should watch Medvedev and Russia closely in the coming years.   Former IMF Deputy Director Stanley Fisher once said that the world   believed Russia, as a nuclear power, could not be allowed to collapse; yet in August 1998, it did and no-one came to the rescue.  One can imagine a failed, hollow archaic Russian economy run by Mafia — and the immense mischief it could cause to the interests of freedom and stability in the world.