Sovereign Wealth Funds (SWF): Heroes or Villains?

1554.jpgJuly 2008 | By Juan Pedro Gomez, Professor at IE Business School

They are about liquidity and a desire to invest millions in leading international banks in order to leverage the subprime crisis. They are sovereign wealth funds, the new focus of debate in the western world.

In February, the Qatary Investment Authority (QIA), the Qatar governmentâ??s investment fund, purchased between 1 and 2% of the Swiss bank Credit Suisse. More recently, rumours of investments by the same fund in the Royal Bank of Scotland increased the British bank´s share price by 5% on the London Stock Exchange on 25 February.

In January this year, Merrill Lynch and Citigroup received a total of $21 thousand million from sovereign wealth funds (SWF) from the Middle East and Asia. Overall, according to Morgan Stanley, since the liquidity crisis began in August last year, more than $69 thousand million have been invested by SWF in financial groups in developed countries. There is not the slightest doubt that the money has been welcome, not only by the banks (who continue to lower the market value of mortgage portfolios and their derivatives), but also by the market as a whole, anxious for liquidity and stability. So far, SWFs are heroes.
At the same time, leaders such as Nicolas Sarkozy and Angela Merkel have promised to protect their investors and managers from the “aggressive practices” of these funds.

The president of the European Commission, Durao Barroso, commented that “we cannot allow non-European funds to be used to carry out geopolitical strategies”. The European Commission has recently approved a proposal for the SWF to voluntarily subscribe to corporate government and transparency policies that are common in Western economies. And now, it would seem that for political managers and legislators they are villains.

Who is behind these funds? Are they a recent phenomenon? Should we be concerned about their movements? Are they heroes or villains?

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What drives enterprise: talent or motivation?

1551.jpgJuly 2008 | By Javier Roza, Professor at IE Business School

The alignment of markets and companies is an inevitable result of globalization, but a highly motivated team can gain competitive advantages by breaking the mould.

Let us accept for a moment that multinational business sets the latest trends in management. In this type of environment, country managers do not normally generate product innovation or communication on an individual basis; they are usually not even responsible for production, and in some cases they do not produce their own organisational design. In this situation, local responsibility consists of implementing the strategies developed centrally.

Let us also accept that countries in the same geopolitical environment have a similar level of development and that the consumer pattern is one of convergence. Enterprises also converge in terms of the brands and products they market. Systems and processes are also global. Even the type and quality of employees are becoming more and more consistent owing to the similarity of recruitment and promotion processes. And to cap it all, competitors are the same in each country, complete with globalised strategies.

Furthermore, technical capacities are increasingly reaching the same level. It is becoming more and more difficult to gain a sustainable competitive advantage through technology. When a new product triumphs, competitors rapidly appear with similar products and more competitive offers.

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Madrid, financial centre?

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July 2008 | By Ignacio de la Torre, Academic Director of Master in Finance, IE Business School

Over the last few years, Madrid has managed to climb a few positions to become a more important international centre of finance, but in order to consolidate itself in a top position it needs to carry out a series of improvements.

At the beginning of the 13th century, the all-powerful England of King John (the baddie in the Robin Hood films) was defeated by an extremely modest France, which at the time comprised only Paris and the surrounding area. What was the secret behind the French success? London was an important political centre with a financial power that was on the decline, whereas Paris was a political centre of little significance with a financial power that was just beginning.

This mediaeval anecdote should help us reflect on our capital city´s role as an international financial centre. Paradoxically, in a context of political decentralisation in which Madrid has seen how its political power has been considerably reduced, the city has developed huge economic power in terms of GDP and GDP per inhabitant. The next challenge is to take advantage of this economic importance, “capitalising” on Madridâ??s position as a top-tier financial centre. A few weeks ago, Deloitte published a report that classified Madrid as the fourth-ranking international financial centre (behind New York, London and Paris). However, a report commissioned by the city of London on the basis of 7,193 surveys (many of them biased towards Anglo-Saxon markets) position Madrid in 42nd place in terms of international financial importance. In recent years, Madrid has enjoyed an economic and financial environment that has allowed it to climb many positions as a financial capital, higher than number 42 without a doubt. Nevertheless, the black clouds that hang over our economy, the deficit of the Spanish current account, the difficulties affecting the securities markets and the low-level volume of corporate transactions will force us to increase efforts if we want Madrid to effectively be among the top five financial capitals.

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The web, friction, your business and you

1528.jpgJune 2008 | By Enrique Dans, Professor at IE Business School

The web is now 15 years old, and, just like any adolescent, it has revolutionized the previous generation. Business organizations need to find new approaches to keep growing in lockstep with the continuous changes the web brings.

The web celebrates its 15th birthday. Fifteen years have passed since Tim Berners-Lee and Robert Cailliau decided, at the CERN, to change the world by making their operating source codes freely available everyone, unleashing one of the most important technological diffusion processes of our time and giving rise to one of the development platforms with the greatest potential in the history of technology. Now, after 15 years of using the web, of seeing it grow and reach adolescence, it is a good moment to consider the future: that of the web, our future and that of our business.

If anything is patently obvious, it is that after 15 years of existence the web has become one of the greatest friction-reducers ever made available to humankind. Entering a search engine such as Google, keying in anything and pressing a button produces a page of results in a fraction of a second, when, before the advent of the web, it would have taken us hours, almost certainly after a number of trips and much detailed documentation and summarizing. And, as classic economics says, friction is a very important part of business.

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Leadership: the why versus the what

1524.jpgJune 2008 | By Javier Roza, Professor of HR Management at IE Business School
Management comprises much more than simply exercising the authority that goes with the position. It is about gaining the respect of a business organization, and motivating employees by winning their trust.

Business management can be considered from different standpoints. Take the most superficial and egomaniacal form, for example, that of the autocratic, insecure director (not leader) who needs and uses the power given to him by his post. He or she sees the firm as his property and employees tend to be seen as inferior beings of lesser intelligence the lower their place on the organisation chart, or people who (by default) have bad intentions which range from inaction to sabotage. The assumptions on which this view is based come from the hobbian idea of man, typical in preindustrial society and still visible in many companies.

Of course, in order to survive a company must be capable of managing the resources that allow it to give its employees and shareholders fair pay, as well as having access to investment to keep its activity competitive, all this through the satisfaction of its customers, users and consumers.

But to achieve this in the 21st century, a time of the greatest intellectual capacity in the history of the human race, we can no longer apply models based on ignorance. Today, if we treat employees as inferior beings, we will only obtain disinterest and cynicism as a response. However, if we treat all employees as intelligent beings who know what they are doing in their job and we give them the information they need to be able to take the right decisions at their level, we shall obtain at the very least greater organisational efficiency since decision and subsequent action will be taken at all levels including the lowest possible, increasing speed and adaptation to the market. We will also see greater enthusiasm and commitment, both based on respect. People are loyal to people, not to abstract entities.

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Myanmar: have we again forgotten the tragedy?

1525.jpgJune 2008 | By Gayle Allard, Professor of Economic Environment at IE Business School

Cyclone Nargis has once again placed the spotlight on the brutal repression taking place in Burma. Will the world forget as quickly this time as it did after the â??Saffron revolutionâ??

Myanmar disappeared from the news headlines and our collective consciousness months ago after the brutal repression of the “saffron revolution”, a peaceful protest led by Buddhist monks to demand the end of a repressive government. On that occasion, we forgot to ask how many hundreds of unarmed demonstrators had died and when a new democratic government would arrive. Sadly, the catastrophe of the Narcis cyclone has once again put the Asian country, one of the poorest and most repressed in the region, on the front pages of all international media.

On its way through Myanmar (Burma for the country´s democrats), the cyclone has destroyed everything in its path. The houses built with cardboard walls and earth floors did not need much and the cyclone has flattened entire villages without leaving one single building standing. The almost inexistent transport network has isolated hundreds of thousands of victims. An independent international sources set the number of deaths at 100,000, with at least another one million victims left homeless. Witnesses say that endless numbers of corpses float down the rivers and that it is impossible to walk through the rice fields without stumbling over them. Food is expensive and scarce and does not reach survivors. Furthermore, there is no electricity or drinking water in the most heavily affected areas. With the passing of time, the threat of contagious diseases such as cholera and dengue fever is imminent while the dead bodies of people and animals rot in the streets.

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IE Business School receives Univerhsus Awards 2008 for innovation in training

IE Business School, Sun Microsystems, and Pueblo Inglés have received awards for contributing to the development of innovative contents and tools to improve training programs. Indra, the leading IT multinational in Spain and Europe held the 1st Edition of the Univerhsus Awards for Innovation, designed to recognize the work carried out by institutions and partners…

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IBM and IE Business School present the first Master in Service Management

IBM and IE Business School presented the first Executive Master in Service Management, which will focused on management in the services sector. The initiative is part of a scientific and technological collaboration agreement between IE and IBM to foster training and research activities and promote the use of information technologies in knowledge-based services. The signing…

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New Stars in Finance

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Model-based Competition

1510.jpgMay 2008 | By José Almagro. Executive Chairman. Bayes Inference S.A. and Professor at IE Business School

Companies that adopt a modelling strategy to anticipate, identify and satisfy customersâ?? requirements will not only obtain basic competitive advantages over companies that do not, they will end up pushing them out of the market.

My theory goes like this: companies that adopt a modelling strategy to anticipate, identify and satisfy customersâ?? requirements will not only obtain basic competitive advantages over companies that do not, they will actually push them out of the market.

The modelling strategy is not just another strategy in a repertoire of feasible options, but rather a controlling strategy. This dominance is due to two coordinates. Firstly, given a certain set of activities, the use of models produces optimum combinations and is therefore the most effective way of organizing said set of activities.

Secondly, companies equipped with this strategy are more innovative and reduce the costs associated with misguided innovations. In short, operational and economic efficiency, early diagnosis of market, customer and policy trends, and innovative drive constitute the three key factors that turn a modelling strategy into a controlling strategy.

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Where are the Chinese executives?

1507.jpgMay 2008 | By Elena Escagedo, Director of Open Enrolment Programs at IE Business School, Executive Education

Give me the name of a high-level Chinese business executive. Canâ??t think of one? And who is the owner of this Asian superpowerâ??s largest business fortune? Donâ??t know that either? Well, neither does anyone else, actually: so whatâ??s going on in Beijing?

China has been growing at double-digit rates for several years now. India is growing somewhat slower but also shows spectacular development. China is currently the fourth largest economy in the world and if the dollar continues to fall, it will quite possibly be the leading economy on the planet in a short period of time. Moreover, if this trend of growth in China and India continues, both economies will represent around 25% of the world GDP by the year 2025.

Although this information is well known, there is one question that needs to be asked about these countries: why are there Indian executives in important executive positions in some 30 companies on the Fortune 500 and yet there are no Chinese executives on the list? Paradigmatic cases include the Pepsico CEO (Indra Nooyi, a woman) and that of Vodafone (Arun Sarin). However, we can go even further: why, according to the Forbes magazine, are entrepreneurs of Indian origin among the ten richest people in the world while there are no Chinese entrepreneurs? The only entrepreneur of Chinese origin in the ranking of the 50 richest people in the world (in tenth place) is Li Ka Shing, with his Cheung Kong Holdings conglomerate, whose flagship is Hutchinson Wampoa, world leader in seaport management. Li Ka Shing was born in Guangdong, China in 1928 but has developed his career in Hong Kong since the 1950s. Meanwhile, Forbes places four Indian entrepreneurs (Lakshmi Mittal, Mukesh Ambani, Anil Ambani and Kushal Pal Singh) in fourth, fifth, sixth and eighth position of the 50 richest people in the world.

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Second term of office and foreign affairs

 

1506.jpgMay 2008 | By Leopoldo Calvo-Sotelo, Director of Master in International Relations at IE School of Arts and Humanities

International relations are the Achillesâ?? heel of many a president when they first come to power, and their first reaction is to place it in the hands of a professional. But everything changes when it comes to re-election.

North American political commentators have coined the term “second term blues” to refer to the problems that usually affect the presidents of the United States during their second term of office. Often it is said that they are a combination of tiredness and arrogance that comes from power exercised over a long time. The experience of Spanish democracy has still not given rise to this type of problem, but certain trends in second terms of office can be identified in the field of international relations. It is particularly interesting to analyse successive appointments to the post of minister of foreign affairs.

Ministers of foreign affairs have always enjoyed special prestige in democracies. In North America, the world fame of the secretary of state has, on exceptional occasions, rivalled that of the president himself. This occurred with Henry Kissinger during the last stage of Nixon´s office and during the presidency of Gerald Ford. Whatever the case, only the secretaries of state (and not all of them) appear next to the presidents in the photos and memories of an era. For example, the presidencies of Truman and Eisenhower are inseparable from the figures of Dean Acheson and John Foster Dulles, respectively.

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