March 23, 2019

EIU Report Aims to Dispel Middle East Business Myths and Take an Evidence-Based Approach to Assessing Business Opportunities and Risks

Based on my experiences of working in the region, I support the following claim: "Operating a business in the Middle East requires executives to navigate an exceptionally challenging geopolitical and macroeconomic environment while dealing with unique labor and technological considerations on the ground. This often requires managing expectations against reality."

Sponsored by Emirates NDB, a Dubai-based financial services firm, Leadership Amid Transformation: Business opportunities and risks in the Middle East is a report published by The Economist Intelligence Unit (The EIU) that aims "to dispel regional business myths and take an evidence-based approach to assessing business opportunities and risks." The EIU has "identified these through a survey of business executives in the Middle East, complemented with in-depth interviews. This report presents these findings, along with strategies businesses are adopting to navigate these unchartered waters."

The report presents the following key findings:

"The regions business executives appear not to be swayed by short- and medium-term international and regional geopolitical risk factors. Respondents were more concerned about short-term macroeconomic risks such as oil price volatility (61% of respondents), changes to domestic tax structures (55%) and exchange-rate volatility (52%). Although Gulf Co-operation Council (GCC) tensions with Qatar were cited by 47% of respondents, it was only perceived as a lower level risk. The Economist Intelligence Unit believes that the boycott of Qatar by Saudi Arabia, Bahrain, the UAE and Egypt will continue over the medium term, as close ties with Iran are unlikely to be radically reformed over the next five years, a major point of contention. Furthermore, as the oil and gas industry in Qatar has largely been unaffected and they have taken steps towards self-sufficiency, the economic pressures of the boycott have been limited. Longer-term geopolitical events such as the ongoing conflicts within Yemen and Syria as well as the US withdrawing from the Iran nuclear deal were cited as having no direct impact on their business by a majority of respondents. However, respondents were concerned by the risk posed by civil unrest in the country they are located in (45%).

"Executives recognize the longer-term shifts in oil demand and supply and the risk of continued reliance on oil for economic growth. They strongly advocated for economic diversification to reduce the region's exposure to oil price volatility. With the exception of the infrastructure and energy sectors, all other sectors broadly support continued reform with between 40% and 56% of respondents in each sector viewing a slowdown in economic diversification as a risk.

"Short-term mega-events in the region (Expo 2020 and the World Cup in 2022) are perceived to bring positive spillovers. Respondents believe the economic benefits of Dubai's hosting of Expo 2020 will be felt beyond the UAE's borders—the event was cited as an opportunity by more than 60% of respondents in Saudi Arabia, Kuwait, Jordan, Egypt and Oman and Bahrain. Larger companies responded more positively to these mega-events than smaller companies.

"The UAE, Saudi Arabia and Egypt continue to be sweet spots for business operations in the Middle East. Market size and level of political stability are the key factors facilitating business expansion in the region. A key impediment to expansion in the Middle East is fierce competition from domestic players, as business is still highly driven by personal networks and implicit state support in some cases. Beyond the Middle East, executives prefer expansion into Asian markets (particularly India and China) over East Africa.

"The vast majority of respondents believed that advanced technologies such as artificial intelligence (AI), the Internet of Things (IoT), robotics and blockchain will have a positive impact on business operations. Building on digital transformations under way in their countries, survey respondents expect to see these implemented across the region in three to five years, and some are already taking steps to prepare for their adoption. Over 55% of respondents have taken five or more steps to prepare for the adoption of advanced technologies. Upskilling employees (71% of respondents) and hiring new talent (66%) were prioritized over investments and redesigning business practices.

"Region-wide interviews indicate that more needs to be done to accelerate the pace of adoption of advanced technologies. Interviewees attribute the slow adoption to limited understanding among senior management of advanced technologies, although the survey identified high capital investment, cyber-security risks and the skills shortage as greater impediments. Our survey revealed that non-C-suite respondents are more likely to recognize that advanced technologies will increasingly disrupt their business than the C-suite.

"Financing instruments remain focused on traditional and Islamic bank financing mechanisms, according to 93% of respondents. Alternative funding mechanisms like peer-to-peer, crowdfunding, private equity, private debt and venture capital are largely underdeveloped in the region."

The report's conclusion says, in part:
While being mindful of cyber-security risks, embracing technological change presents many opportunities across the business, particularly job creation. Virtual roles may also present opportunities to involve more women in the workplace. To prepare, many companies have picked the low-hanging fruit of upskilling workers and hiring new talent, over making investments and redesigning business practices. Through this, they acknowledge the importance of having the right skillset in place to support continued competitiveness. While the skills gap can be partially solved by improving levels of technical and vocational education and training, it requires a significant policy change. Investing in curricula that support job-readiness, early exposure to the workplace (such as through summer internships), and promoting STEM (science, technology, engineering and maths), digital and ICT skills are a few of the policies that could create a stronger education system. This, coupled with continued global geopolitical and economic uncertainties, highlights the need for the region to progress on structural reforms and economic diversification.
As reflected in posts about the Middle East and north Africa (MENA) region, my colleagues and I hold optimistic views about the business opportunities that exist in the mobile technology sector as well as those sectors that incorporate advanced technology. There are concerns, however, that not enough is being done to prepare for these opportunities compared to other regions. Therefore, I agree with the report's conclusion that "[m]ore needs to be done to accelerate the pace of adoption of digital technologies like AI, the IoT, robotics and blockchain, all of which can act as catalysts to productivity and economic growth. As these efforts accelerate, businesses in the Middle East need to be ready and, more importantly, willing to adapt."


Which geographic markets or business sectors do you think will have positive impact on business operations in the Middle East?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 22, 2019

Mobile Significantly Advancing Economic and Development Goals in Tanzania

A report authored by GSMA Intelligence, the research arm of UK-based GSMA, says "Tanzania is undergoing a digital transformation, reflected by the growing number of people connected to communications and internet services. This is having a profound impact on the country's social, cultural and economic frameworks, through enhanced access to key services and improved productivity and efficiency across economic sectors."

Digital Transformation in Tanzania optimistically notes: "The mobile industry is contributing significantly to the realization of Tanzania's development goals through various activities and initiatives by mobile operators and other ecosystem players. This report highlights four important contributions the mobile industry is making to the development goals":
  • Access to key services – Mobile operators provide affordable access to life-enhancing services for people in underserved communities. Inclusive and innovative business models have emerged from the convergence of various mobile services, particularly connectivity, mobile financial services, digital identity, and M2M and IoT.
  • Productivity and efficiency – Mobile is driving productivity and efficiency gains in businesses and public institutions, especially in the agricultural sector where the technology is helping to address the knowledge and information gap for farmers and enabling efficient interactions and transactions between key players in the value chain.
  • Contribution to economic growth and social development – In 2016 the total value added generated by the mobile operators alone (taking into account direct, indirect and productivity effects) was around $2.5 billion, equivalent to 5.2% of GDP. The mobile industry also employs more than 1.5 million people directly and indirectly, equivalent to 2.6% of the population.
  • Good governance – Mobile is a key channel for Tanzania's e-government strategy, with public institutions now using mobile money, SMS and USSD platforms to deliver services, collect payments and engage with the general public.
On the topic of mobile money, "Tanzania is one of the most advanced mobile money markets in Sub-Saharan Africa," the report explains. The service has helped to:
  • Reduce transaction costs and improve safety for individuals and businesses;
  • Enhance the efficiency of the economy by reducing the need for users to travel long distances to bank branches to make transactions in person; and
  • Create employment and additional income for tens of thousands of small and medium-sized enterprises (SMEs) acting as mobile money agents.

Lastly, the report presents the following conclusion:
Government leadership is a critical factor in establishing a conducive environment and developing the momentum for greater stakeholder collaboration. In addition to implementing key policy enablers to support the growth of the mobile industry, the government and its agencies need to become more involved in charting a holistic plan to leverage mobile technology to realize the development goals, and engage relevant stakeholders in every step of this process. Mobile operators and other key stakeholders in the digital ecosystem all have roles to play.
Mobile operators should find ways to develop economically viable rollout models to expand network coverage; use cost-optimizing technologies and geo-analysis to optimize deployment; leverage APIs, hackathons, own app stores and partners to develop language-specific, relevant content; and embrace interoperability of platforms, such as mobile money and IoT, to drive scale and sustainability. For their part, donors, development partners, private sector players and civil society organisations need to work with policymakers to develop and implement regulatory best practices and partner with governments to improve ICT infrastructure in public institutions.
Are there lessons learned from Tanzania's mobile sector that can be replicated in other countries in sub-Saharan Africa?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 20, 2019

US-China Relations: Where Next?

On Mar. 6, 2019, The Economist Intelligence Unit (The EIU) held a webinar, "US-China relations: where next?" co-led by John Ferguson and Cailin Birch, The EIU's Director of Global Forecasting and Country Analysis, and Global Economist respectively. The webinar's content was presented in four parts:

THE STATE OF PLAY

Duties have been placed on roughly US$360bn worth of bilateral trade. Major tariff action includes the following:
  • Metals tariffs under 232, and China’s response;
  • Electronics and machinery tariffs (US$50bn);
  • Miscellaneous manufacturing (US$200bn);
  • Still no escalation to finished electronics goods; and
  • Trade tensions to manifest in other areas (investment, tech). 

A flurry of negotiations has taken place since Jan. 2019 including:
  • Four rounds of talks held in Beijing and DC since early January; likely more on the way;
  • Extension offered by U.S. president Donald Trump in late Feb. 2019;
  • Potential presidential summit and the likelihood of a deal; and
  • Questions remain over structural issues and enforcement.
WHERE NEXT?

The webinar says a substantive trade deal looks unlikely as there are six areas of contention:
  1. Agriculture (Chinese purchases of US agriculture goods, food and quality standards divergence, and biotech approvals for GMOs);
  2. Currency (manipulation of the renminbi exchange-rate for exports and role of market forces in setting the renminbi exchange-rate);
  3. Tech transfer (forced transfer of technology required under business terms and requirements for intellectual property and technology localization to participate in standards-setting processes);
  4. Intellectual Property Rights (IPR) (infringement of US IPR by Chinese companies, lack of redress for US companies for infringements, and licensing and security reviews that lead to IP leaks);
  5. Services (loosening of joint venture (JV) requirements in financial, technology (including cloud computing) services and market access for credit card companies and other services firms); and
  6. Non-tariff barriers (uneven enforcement of local laws against Chinese and foreign companies (e.g., anti-money laundering, environmental compliance, etc.) and unfair subsidies, procurement offerings and other support to Chinese state-owned enterprises (SOEs)).
Prospects for a deal:
  1. Agriculture (Good – China has made it clear it is happy to commit to additional US agriculture imports, but it is unclear whether China would agree to more GMO approvals);
  2. Currency (Good – US and China both have an interest in a stable renminbi exchange-rate);
  3. Tech transfer (Poor – any agreement difficult to enforce. China tends to see tech transfers as a business rather than policy matter, while abundance of local regulations would make implementation hard);
  4. IPR (Mixed – China wants to improve local IPR standards, but enforcement and penalties remain weak);
  5. Services (Mixed – liberalization underway in financial services, but less clear in other areas; national security is increasingly dominating discussion over technology-related topics); and
  6. Non-tariff barriers (Mixed – enforcement across challenging, while greater push towards increasingly the role of SEOs in the economy points to more state support, not less).
The webinar importantly noted that China's president, Xi Jinping, is a dominant leader but still wants to avoid being seen as caving to US demands. Mr. Xi is viewed more as an economic nationalist versus a globalist.

Moreover, the webinar explained ideological divisions with the US trade team will hinder future negotiations. US Trade Representative Robert Lighthizer and Peter Navarro, the Director of the National Trade Council at the White House, are considered ideological hardliners; whereas, Wilbur Ross and Steven Mnuchin, secretary of commerce and of the treasury, respectively, are deemed as economic pragmatists.

MACRO OUTLOOK

The Chinese credit cycle has begun to turn that alongside a trade deal with the US, China’s economy may perform better than many expect in 2019. Moreover, China’s gross domestic product (GDP) will slow in the first half of 2019 before picking up.


Chinese reforms and policies to watch:
  • Banks' reserve requirement ratios (RRR) cuts, lower interbank lending rates;
  • Personal tax cuts and reductions in corporate costs (e.g., social insurance);
  • Consumption stimulus policies (e.g., automotive); and
  • Foreign direct investment (FDI) liberalization including foreign investment law.
And the US remains in a record long-term economic expansion, but the rate of growth will slow:
  • The US economy is in its longest expansionary period in history, but internal and external factors will cause growth to slow in 2019-2020;
  • The temporary boost provided by the tax cuts will wear off in 2019;
  • The trade tariffs currently in place are weighing on US firms' competitiveness;
  • Knock-on effects of slowing demand from China and the European Union, as well as rising labor costs, will weigh on margins and limit business investment; and
  • Forecast assumes no rate hikes by the central bank (Federal Reserve).
While not presented in the webinar, below is a forecast summary of real GDP growth (year on year) by percentage from The EIU's global outlook summary dated Feb. 13, 2019.


It is also imperative to understand the effect of the trade war on China's local economies, which may put pressure on the Chinese government to enter an agreement with the U.S. The EIU published an article on Sept. 26, 2018 explaining:
The impact of the trade war at the local level in China may be even more pronounced. We expect to see disruption in a number of provinces that rely heavily on trade for economic growth, including Guangdong, Jiangsu, Shanghai and Zhejiang. These areas are China's traditional export powerhouses, accounting for more than half of the country's total export flows in 2017. In addition, although the external sector occupies a smaller role in these provincial economies compared to a decade ago, trade growth remains an important pillar of economic activity: last year exports as a percentage of regional GDP stood at 50% in Guangdong, at almost 40% in Zhejiang and Shanghai and at around 30% in Jiangsu.

US-CHINA RELATIONS

While presenting a slide, "All quiet on the investment front: Crossing the river by feeling the stones," Ms. Birch noted: "China has implemented reforms to its business environment over the last few years, but for the most part, these have been moderate and the process of putting them in place has been largely stagnant." She added: "The latest and broadest set of reforms [implemented by the Chinese government] was unveiled last June, by they only moved the needle forward slightly."

Some of the proposed financial-sector liberalizations are listed in the chart below, which was originally provided by The EIU in an article, "Is China really planning to open its financial sector?" dated Apr. 30, 2018.


Ms. Birch said "the automotive, financial services more broadly, healthcare and critically, telecoms, remain either restricted or blocked to foreign direct investment." She acknowledged there have been some reforms in specific segments of the automotive and the financial services sectors, but only in "areas where Chinese domestic firms already have a very established competitive hold on the market."

The webinar further explained how security tensions between China and the US could become more prominent once a trade deal is reached:
  • Returning to 19th century geopolitical rivalries as global power diffuses;
  • US defense strategy identifies China as a "strategic competitor";
  • Risks relating to Taiwan have risen; South China Seas remain a flashpoint; and
  • Rifts emerging over Chinese influence operations and soft power, Belt and Road Initiative (BRI).
In presenting a slide, "The fracturing of the technology landscape," Mr. Ferguson remarked that "both countries are looking for one to remain in the global power and the other one wanting to become the global power" in the global tech sector. He added: "You can almost think two types of trade war. There is the type we are talking about right now which maybe there is a trade deal as we believe, but there is a more fundamental trade war that will carry on and this falls in the area of technology."

The webinar concluded with the showing of the image below in a slide titled, "The end of engagement? US-China relations appear troubled in the long-term."


In an article published on Dec. 4, 2018, The EIU says it has "identified four possible scenarios for 2019, owing to the high degree of uncertainty around the dispute." The have attached a 50% likelihood to their baseline assumption (outlined below), with Chinese real GDP growth of 6.2% for the year. The have assigned a likelihood percentage and outline the key impact of each scenario.


Lastly, as noted above, The EIU predicts a substantive trade deal between the US and China looks unlikely. In an article, "Settling for less," dated Mar. 4, 2019, The EIU writes:
Regardless of future developments, however, we expect US-China bilateral ties to continue fraying into the long term. This is because we do not expect US trade pressure to prompt China to introduce significant reforms to its economy, particularly as the country embarks on a conflicting policy push aimed at enhancing the role of both the central government and home-grown companies in economic affairs. The inability of the US to address these market access issues is likely increasingly to push US-China friction into areas of investment and technology policy, underpinned by a strategic rivalry aimed at technological dominance. The trade war remains far from over.
Where are your predictions for the future of US-China trade relations?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 19, 2019

Solving Key Ocean Challenges Facing the Indian Ocean Rim Countries

Charting the course for ocean sustainability in the Indian Ocean Rim is a whitepaper published by The Economist Intelligence Unit (The EIU) highlighting the key ocean challenges facing the Indian Ocean Rim countries and showcases initiatives undertaken by governments and the private sector in the region to address these challenges. Sponsored by Environment Agency Abu Dhabi and the Department of Economic Development Abu Dhabi, the paper "explores how ocean sustainability can be achieved through the lens of developing nations, taking into consideration the challenges of a low-income population as well as an environmental regulatory framework that has yet to mature."

The EIU's "investigation delves into five key ocean issues in the region—degradation of marine ecosystems, plastics pollution, unsustainable fishing, extraction of non-renewable marine resources and rising salinity from desalination—and highlights key steps that governments and companies in the Indian Ocean Rim need to take on the path to ocean prosperity."

The paper, which is available in English as one document and Arabic in separate chapters (introductory chapter, chapter 1, chapter 2, chapter 3, chapter 4, chapter 5, and final chapter), presents the following key findings:

"The Indian Ocean is vital to the global conversation on ocean sustainability but is currently an afterthought among global ocean experts compared with other regions. The Indian Ocean, as the third-largest ocean, houses 30% of the world’s coral reefs, has 40,000 sq km of mangroves, some of the world’s largest estuaries, and nine large marine ecosystems (LMEs). Approximately 13% of the world’s wild-caught fish is from the Indian Ocean. It plays a central role in international trade, carrying 40% of the world’s containerized cargo and 80% of the world’s oil shipments. Mapping the way for the sustainable use of these resources is crucial, particularly for coastal communities dependent on marine resources.

"Governments and organisations recognize that land-based initiatives can address ocean issues. Brine from desalination plants, often discharged into the ocean, is being diverted into aquaculture and agriculture in the UAE and being used for salt production in Somaliland; a waste-insurance clinic in Indonesia is offering healthcare in exchange for garbage that often ends up in the ocean. Ocean sustainability initiatives therefore need to involve a wide range of stakeholders, factoring in wider climate change considerations too.

"Advanced technologies are proving useful in tackling ocean issues. Illegal fishing is being dramatically reduced across Indonesia with opensource satellite data and GPS technology significantly lowered the cost of mapping mangrove forests across Sri Lanka. Information technology also facilitates public engagement: in Zanzibar, Tanzania, dive operators are helping to record coral bleaching events through an online portal; In Kenya, social media galvanized political will for the ban on plastic bags. Understanding emerging technologies and how these can be leveraged can go a long way in accelerating efforts towards ocean sustainability.

"Ocean challenges can be reframed as commercial opportunities for the blue economy. In a southern state in India, plastics in the ocean are being collected and repurposed to build roads; in the Seychelles, a focus on ocean sustainability is creating new opportunities to raise finance for economic development; and in Thailand, seagrass conservation is strengthening conch production in some villages. Thus, ignoring pressing ocean issues such as plastic pollution and unsustainable fishing not only increases the risks to the environment and people, but also means that opportunities for economic diversification and sustained, inclusive growth may be overlooked. This mindset shift is imperative to further engaging the private sector in this space.

"A strong return on sustainable projects is imperative for institutional investors, despite a growing interest in impact investing. To make it worthwhile for institutional investors, projects need to encompass three key characteristics—scalability, leverage and security-—and have an economic model that provides a return on investment and a real sustainability benefit. Within sustainable finance, although ocean projects will have unique considerations, experts we interviewed conclude that blue finance does not need to be treated differently from the "green finance" market.

"Strong political will is the engine for blue economic growth. Setting assertive targets and policies captures the imagination, provides a clear checklist for countries and partners to get behind and creates an enabling environment for the blue economy. Government sources of finance have been the first port of call for sustainable ocean projects too; gaining traction on this front not only requires participation from environment ministries but also the buy-in of finance ministries. Case studies from the Seychelles, Kenya, India, Sri Lanka, Indonesia, among others, showcase examples within the Indian Ocean where this leadership is shining through. Beyond national priorities, governments have an important role to play in regional and global coordination, without which the blue economy will not achieve its full potential."

The paper importantly notes: "The Indian Ocean is a vast body of water enclosed on three sides. This not only makes it a compelling scientific study, but an economic one too, given the characteristics of the countries that surround it." As reflected in the image below, "These countries are home to 2.5bn people, the majority of whom fall into the low-income bracket, and many of these countries are poised for rapid economic growth. The ocean industry is an important contributor, and the sustainable use of this resource is crucial."


In its conclusion, the paper says "[t]he global blue economy is set to grow faster than the general economy, possibly doubling by 2030. Yet it is a time-limited opportunity. Without coordinated action it will not achieve its full potential: natural capital will be lost at the expense of future populations and, without future-proofing. ... This paper invites the Indian Ocean Rim countries to grasp the opportunities, scale innovations and approaches already present within the region, and take strategic action against future threats."

What solutions do you propose to solve the key ocean challenges facing the Indian Ocean Rim countries?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 18, 2019

More Than 60 Percent of the Global Population Will Start Using the Mobile Internet by 2025

5G is on track to account for 15 percent of global mobile connections by 2025, as the number of 5G network launches and compatible devices ramps up in 2019, according to a new GSMA report. Released at GSMA's MWC Barcelona 19 on Feb. 25th, The Mobile Economy 2019 reveals that a further 16 major markets worldwide will switch on commercial 5G networks this year, following on from the first 5G launches in South Korea and the United States in 2018. Authored by GSMA Intelligence, the research arm of the GSMA, this year's report presents four key findings:

5G is here: opportunity awaits

"5G is now upon us," the GSMA asserts, "bringing with it the promise of a host of exciting new services. As the boundaries between mobile and the wider digital ecosystem continue to blur, and as data monetization poses a continued challenge, many operators are moving beyond their traditional telco businesses to explore new opportunities in a fast-changing competitive landscape:

"IoT: between 2018 and 2025, the number of global IoT connections will triple to 25 billion, while global IoT revenue will quadruple to $1.1 trillion. With connectivity becoming increasingly commoditized, mobile operators are looking to expand their role in the value chain – from providing essential tools and capabilities for ecosystem partners to build IoT solutions, to becoming end-to-end IoT solution providers themselves.

"Content: the content sector is undergoing significant transformation driven by shifting consumer behavior, new players and changing content production and distribution models. To benefit from an unprecedented level of content consumption, an increasing number of telecoms operators are entering the content space or strengthening their existing content offerings, through vertical integration, partnerships with OTT video service providers or creating content themselves.

"Artificial intelligence: AI will be key to future business and digital transformation. It will drive increasingly autonomous and intelligent networks and improve customer experience through greater learning of customer behavior. Operators across the globe are growing their focus on AI, with AI-based applications including chatbots and digital assistants, network operation/planning, customer care, advertising and AI as a service.

"Devices: while their ubiquity means smartphones remain the focal point of the consumer internet economy, the range of connected devices (and therefore internet access channels) is greater than ever. In the most advanced countries, today’s digital consumers (using PCs and smartphones) will likely become tomorrow's augmented customers, adopting emerging technologies such as AI (via smart speakers) and immersive reality."

Some 700 million new mobile subscribers by 2025

As someone who aims to empower people in emerging economies through innovative, technology-based solutions, I find it encouragingly that "5.1 billion people around the world subscribed to mobile services" by the end of 2018, "accounting for 67% of the global population."

Furthermore, "Of the 710 million people expected to subscribe to mobile services for the first time over the next seven years, half will come from the Asia Pacific region and just under a quarter will come from Sub-Saharan Africa.

"Meanwhile, mobile continues to make a significant contribution to socioeconomic development around the world. In 2018, mobile technologies and services generated $3.9 trillion of economic value (4.6% of GDP) globally, a contribution that will reach $4.8 trillion (4.8% of GDP) by 2023 as countries increasingly benefit from the improvements in productivity and efficiency brought about by increased take-up of mobile services. Further ahead, 5G technologies are expected to contribute $2.2 trillion to the global economy over the next 15 years."

The report promisingly says "[t]he connectivity gap also continues to close: over the next seven years, 1.4 billion people will start using the mobile internet for the first time, bringing the total number of mobile internet subscribers globally to 5 billion by 2025 (over 60% of the population). This growth in connectivity is helping the mobile industry increase its impact across all the UN's Sustainable Development Goals and is spurring adoption of mobile-based tools and solutions (for example, in agriculture, education and healthcare) that aim to improve livelihoods in low- to middle-income countries."

4G takes the lead, while commercial 5G is now a reality

Interestingly, "4G overtook 2G to become the leading mobile technology across the world" in 2018, "with 3.4 billion connections accounting for 43% of the total (excluding licensed cellular IoT). With growth continuing apace, particularly across developing markets, 4G will soon become the dominant mobile technology, surpassing half of global mobile connections in 2019 and reaching 60% in 2023."

Enabling policies for digital advancement

"Advanced mobile networks are a critical component of the digital future," the report explains, "and governments must play their part. The mobile industry urges governments to set enabling policies for 5G and to reform regulatory frameworks no longer suited to today’s digital economy."

Infographic: GSMA Intelligence

If you work in the mobile economy, how does this report impact your business's international growth strategy?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 17, 2019

When to Form a Board of Directors (It's Never Too Early), How Much to Pay Your Board Members, and How to Work with Your Board Outside of Board Meetings

Initial board of directors of
Yeeko Inc. where I serve the
board's chairman
The previous post on this blog focused on EY's annual report on top priorities for boards of directors of companies in the United States. This topic connects well with an event I attended on Mar. 6, 2019 about startup board management. The event featured Len Jordan, Managing Director of Seattle, Wash.-based Madrona Venture Group; Forest Key, founder and chief executive of Pixvana, a Seattle software startup; and Alan Smith, partner with Fenwick & West, a law firm. Erika Shaffer, Madrona's director of strategic communications, authored an article that provides an excellent summary of the panel discussion.

Based on my professional experiences, I strongly agree that it is never too early for a startup to form a board of directors. Ms. Shaffer's summary notes that "[i]n the early (pre-A series) stage, your board should be small – you, an angel investor, an independent advisor with strong business and domain expertise – would be a good size. You have to keep in mind that as you add investors in venture rounds, those investments usually come with a board seat. And if the board gets too big, it's not that useful."

Brad Feld, a partner with the Foundry Group, a venture capital firm headquartered in Boulder, Colo., wrote an op-ed, "Start Building Your Board Early," in the Wall Street Journal that accurately explains: "Boards of directors play different roles at different points in a company's life. Early stage board of directors should be focused on being an extension of the team, helping the entrepreneurs get out of the gate, and get the business up and running."

Mr. Feld further says that "[w]hile you will eventually have investors on your board of directors, I encourage all entrepreneurs to add at least one outside director early on in the life of the company. The best early stage directors are other CEOs who can be peers to the founders and help them with things they don’t understand, are struggling with or are just missing. These CEOs should be more experienced or have different experiences, but they should also understand your domain and be willing to commit the time to helping you."

On the topic of compensating board members, the three panelists agree, according to Ms. Shaffer's article, that "[i]nvestor board members generally do not receive compensation from the company but independent board members and advisory board members need to be compensated. You would want to draw up agreements for each of these members that outlines the payment and vesting schedule – and puts some time limits in place for re-evaluation. Typical compensation is a standard stock option grant in a range between .25-.5% of outstanding equity. The amount should be the same for every director."

While the panelists did not provide recommendations for how much to pay independent directors, Bernie Tenebaum, Managing Partner of Lodestone Global, wrote an article, "How Much Should I Pay My Directors In 2018?" presenting the following highlights from his firm's Private Company Board Compensation Survey for 2017-18:
  • Median total compensation was $39,700, with Technology and Real Estate firms leading all industries. Total compensation was ~10% higher than the $36,000 reported last year (see chart below). This 10% increase (6% in 2016) is the result of increases both domestically (+14%) and internationally (+5%);
  • Median total compensation was $41,000 for U.S. directors vs. $37,700 Internationally;
  • Boards continued to have a strong impact on company performance, with 97% of companies reporting increased revenues and 95% reporting increased EBIT (earnings before interest and taxes); and
  • These results support the notion that a board, particularly with the right directors, can be essential to achieving corporate goals and improving profitability.

Source: Lodestone Global

Mr. Tenebaum adds that "51% of the survey respondents were family owned companies. The high participation rate of family majority owned respondents highlights the importance of professional corporate governance to family companies. The median number of board members was 6, with 3 independent directors. This has not changed over the seven years the survey has been running. A significantly larger board leads to inefficiencies, while a smaller board risks limiting diversity of perspective so essential to driving effective strategy."

"How do you work with your board outside of board meetings?" is a question I often receive from startup founders and small businesses owners. I agree with the three panelists who collectively said regular communication with board members is highly encouraged. They further recommend sending weekly or monthly updates (depending on size and your inclination) and do not hide the bad news. "Put that upfront and be transparent," one panelist said. I also support their suggestion of business owners or chief executives scheduling one on one meetings with board members outside of the board meeting. "That is where good ideas come up and you can more easily discuss challenges."

Lastly, Mr. Jordan of Madrona referenced a guest post he wrote for TechCrunch where he provides the following ten tips on how to work with your board of directors:

1. Have a plan, and get your entire company and board to understand and support it.

"A company's business plan and strategy is the map of where we are going. The plan almost certainly will change, but the best CEOs keep everyone informed about where we said we are going, where we are currently going, and why we changed plans if we did."

2. Tell us if the plan changes for "small reasons."

"Most plans change for tactical reasons — e.g., the product is earlier/later than expected. Or customers are adopting/buying earlier/later than planned. I like a process in which, if the plan shifts, the CEO pre-emptively throttles the investment/spending without being asked. For example: tell us what level of business progress/metrics (e.g. downloads, installs, usage, trials, bookings, contracts closed, etc.) you want to see to feel good about spending to the plan (or below it if necessary), even if we are not yet certain about exceeding revenue during the current period."

3. Tell us if the plan is changing a lot for "big reasons."

"Sometimes plans need to change for strategic reasons. The best CEOs are continually testing and retesting their basic hypothesis. Is there still a fundamental problem we are solving, or market opportunity we are addressing? Are we still pursuing the right product? Are we selling to the right customers? Are the ways we are selling and marketing right for the market and product? Are we as competitive as we thought? Is our team as good as we had hoped?"

4. Strategy mistakes are harder to admit than execution mistakes.

"It's hard to admit when a strategy is flawed. It’s very easy, on the other hand, to decide that the market, customer and product thesis is correct but sales-and-marketing execution is weak. I've seen too many companies delay making a tough strategy choice by first trying to fix the flaw through a change in execution. If execution is flawed, fix it, but look beneath the veneer to make sure the substance underneath is sound."

5. The average of two strategies is usually not a strategy.

"Whether you have a board or not, you have to commit to a cohesive strategy. In tennis you can play at the net or the baseline, and both can be great strategies, depending on the circumstances. The average of the two — playing in the middle of the court (commonly referred to as 'no- man’s-land') — is the worst place to play and is never a good strategy. Too many startups split the difference: They continue with the old strategy, add a new strategy (like a new product), under-resource both and fail at each."

6. Email is good for delivering straightforward information; board meetings are good for explaining complicated information and discussing alternatives.

"I love short (above the fold) weekly email updates from CEOs on key progress points (product development, hiring, revenue, key partnerships, etc.), but it's OK if they are less frequent (coming every other week, or once a month). But bad news should travel fast—this includes losing a key customer, a key engineer quitting, etc. The road has bumps; I'd rather know about it when it happens than after it leads to some other issue (like a product delay or a revenue miss). Also, I'd prefer that problems/opportunities not only get communicated, but that options be developed to address the problem or opportunity. Frame the situation and assess the pros and cons of a few choices—it makes it easier to help come up with a reasonable solution."

7. Board meetings are not pitches. You have our money, so let's figure out what to do with it.

"The best way to earn trust from your board is not to tell us what's going well; it's to tell us what's not going well. Better yet, make everything run well but tell us the things you want to focus on that could become problems if not addressed. If you do #6 , the board meetings can be less about updating the board and more about discussing key strategic choices/decisions and ways we can better tune our execution. A basic review of financials, customer progress, product development, partnerships, hiring, etc. would be great, but we'd also like you to expose key strategy elements (SWOT) and get us to discuss and react."

8. Ask for help — we work for you. Really.

"We like helping recruit employees and partners (customers). Put us to work, let us brag about you to potential employees and provide context and support. We can assist with strategy questions. You should know more about the business than we do, but our distance can provide perspective. And perhaps we have seen patterns that can be applied from other experiences. This can be incredibly valuable as long as we don't over or mis-apply the patterns in the wrong instances based on the wrong attributes."

9. Involve your exec team with the board.

"It's good practice to have at least one board member interview all exec hires; different perspectives can be good. Having the exec team in the board meetings can be great, especially if they present the area of their responsibility (product development, sales, marketing, finance). That said, it's also important to have a closed session of the board that is just the board plus counsel, to discuss board-only matters."

10. Tell us how we are doing.

"We hope to add value but will make mistakes and can often manage things better. Tell us about these areas and we will try to get better. We will do the same with you. And tell us when we should stay out of the way — you run the company, and sometimes the best thing we can do to help is let you do that.

"The average early stage company takes nine to 10 years before it will exit. So we likely are going to work together a long time. Let's make it productive, rewarding and fun."

What recommendations do you have in effectively forming and utilizing a board of directors?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

March 16, 2019

Top Priorities for US Boards in 2019

According to a report, Top priorities for US boards in 2019, "In today's world of unrelenting disruption and innovation, a company's board plays a more active role than ever before in overseeing strategy and risk management amid digital and emerging technologies, industry convergence and workforce transformation, shifting consumer attitudes, increased climate risk, diminishing trust in organizations, political polarization, rising income inequality and various other megatrends shaping the business environment."

The report, which was published by EY, a global professional services firm, adds: "As a result, the board agenda is packed and the roles and expectations of directors continue to grow. To help boards navigate the challenges ahead, the EY Center for Board Matters presents five priorities for 2019, along with actionable questions for boards to consider."

1. Embrace the duality of strategy

"The board should lean in with management in a collaborative manner to help guide a strategy that positions the company for long-term success. Rather than see the duality as a tension, boards can help management embrace it as a synergy that can help inform a stronger and more resilient strategy. Asking 'What can be done today to make the company better and stronger tomorrow?' can provide a clear and motivating path forward while considering multiple dualities: short-term vs. long‑term, disruption vs. sustainability, profit vs. investment, risk vs. opportunity and use vs. conservation."

Questions for the board to consider:
  • How is the board helping to shape an agile, multistakeholder strategy that drives current business while considering future innovation and opportunities?
  • Should the board bring in outside perspectives to understand the forces shaping the competitive environment?
  • Has the board confirmed that management and director bias do not impede innovation?
  • How is the company preparing for competitors that may emerge? Is the board challenging the current business model by widening its view into edge geographies and adjacent industries?
  • Does the executive compensation program help balance short-term performance goals and long-term transformation?

2. Transform the governance of risk management

"Boards should challenge whether management is intensifying its efforts and focus with educating their employees broadly on their personal responsibilities related to risk management. This includes verifying that employees have a thorough understanding of the company's values, code of conduct, ethical business practices, and are exercising the appropriate compliance hygiene related to cyber and physical security."

Questions for the board to consider:
  • Are the board composition and committee structure appropriate to provide effective oversight of the company's risk profile?
  • Is the board periodically evaluating data to validate the company's culture and to determine if values are being lived by everyone in the organization?
  • Have messaging and education increased within the company's employee base related to the importance of their overall role with risk management?
  • What external data is the board using to evaluate emerging and disruptive risks? What third-party resources are being used to validate the company's risk mitigation on such things as cybersecurity, data privacy and geopolitics?
  • Is the board taking part in tabletop exercises that test the company's crisis readiness across various scenarios?

3. Accelerate the talent agenda and activate culture as a strategic asset

"A company's culture must be a strategic asset. The board should have a strong pulse on how executive, mid-level and lower-level management demonstrate and communicate the company's values. They should also understand how a company's programs promote culture and drive the right behaviors and actions. This requires the board to review culture across the organization and look at talent-related performance metrics, including employee engagement scores, attrition rates, diversity and inclusion metrics, learning and development ROI, whistle-blower hotline activity, themes from employee onboarding and exit interviews and code of conduct violations. Compensation committees should review the company's broader compensation practices to see if they align with its values and goals and consider any unintended consequences of such practices."

Questions for the board to consider:
  • Is the board continuously reviewing its governance of culture, talent and innovation given the ever-growing significance of intangible capital to competitive advantage?
  • What talent-related metrics is the board reviewing and how often?
  • Has the organization evaluated the required competencies, skill sets and structure required to successfully carry out its strategy and business objectives?
  • Does the board have a good understanding of the health of the organizational culture at the top, middle and bottom of the organization (tone at the top, mood in the middle and buzz at the bottom?). What metrics are being considered to support such conclusions?
  • How much visibility, access and reporting is the chief human resources officer (or equivalent) providing to the board around human capital management/talent related risks and opportunities?

4. Strengthen communication and engagement with stakeholders

"As boards and executives work together to tackle ever-more complex and quickly evolving challenges, they're also finding that a growing range of stakeholders — corporate leaders and employees, customers and suppliers, communities and investors — are increasingly focused on the broader purpose of the corporation. These diverse stakeholders increasingly seek greater insights into how companies are strategizing for business sustainability, including addressing environmental and social matters that impact long-term value."

Questions for the board to consider:
  • Has the company considered how it might harness purpose to reveal a path through business model disruption and concurrently prioritize stakeholder engagement and communication efforts?
  • Is the company familiar with key multistakeholder groups and other organizations focused on leading environmental and social metrics and disclosures, such as the Climate Action 100+, the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board's (SASB) disclosure frameworks?
  • How is the company communicating to all stakeholders — in a consistent, comprehensive manner — its efforts to provide sustainable, inclusive growth integrated with core business strategy?
  • To what extent is the company familiar with the governance specialists, as well as the portfolio managers and equity research analysts, who follow the company? Has the company engaged in outreach and established a relationship such that it can quickly engage as appropriate?

5. Continue to enhance board performance

"Today, boards and their committees are seeing reasons to expand their oversight into new areas. For example, as talent becomes increasingly critical to strategy and value, compensation committees should consider expanding their oversight to broader employee and talent matters, including how to attract, retain and motivate the workforce needed to further support and activate the company's strategy and purpose."

Questions for the board to consider:
  • How does the board, its committees and directors stay fully informed? What steps does the board take to make sure its knowledge and perspective enable agile and effective decision-making and identification and solving of problems?
  • Does the board represent the right mix of relevant skills and specialized expertise, industry knowledge, understanding of key stakeholder views, diverse backgrounds, experiences and perspective that stimulates effective oversight and direction? How is this disclosed?
  • Do board discussions and decisions demonstrate that all board members are highly informed and engaged, respectful even when challenged, appropriately inquisitive, and attentive to and informed about both big-picture concepts and important details?
  • Is the board engaged with the company's investors, employees, customers and regulators such that it clearly understands their key views and priorities and can appropriately incorporate them into the company's strategy?

As a member of the board of directors of a few companies, I concur with the report's conclusion that "2019 will certainly bring more to the board's agenda as they continue to consider the duality of meeting today's demands and disruption with an intense focus on future opportunities and growth."

What is more, "Things will continue to change rapidly and new risks will arise. Stakeholder voices are likely to get louder too, but by asking thoughtful questions, considering different perspectives, clearly communicating and focusing on governing in the most effective way, boards can help organizations flourish in the next 12 months and beyond."

What would you add to this list of top priorities for US boards in 2019? How will the board of directors help your organization flourish in the next 12 months and beyond?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

March 9, 2019

5 Key Medtech Trends in Emerging Markets in 2019

"The Economist Intelligence Unit (EIU) Healthcare highlights key trends in the global medical technology (medtech) industry in 2019 – from the industry coming under pressure as US-China economic and technological rivalry continues to unfold to the pick-up of remote monitoring and telehealth solutions." The EIU's report, MedTech in Emerging Markets 2019, "focuses on the implications of some of these trends on emerging markets as companies look to gain greater access to these fast-growing high-potential markets. We look at various opportunities and challenges to help companies understand where and how emerging market medtech companies are evolving as even stronger competitors in 2019, and affordability and infrastructure issues in these markets."

The report presents the following five global medtech trends shaping 2019:

1. Data-driven healthcare approaches among consumers and healthcare providers demand for greater connectivity.

"Consumers are increasingly expecting medtech to connect over a single platform to offer a holistic solution to multiple needs and demands. High net worth individuals (HNWIs) in Asia, Middle East and Africa polled by the EIU believe that the collection of personal health data will improve their ability to care for their health."

Moreover, "Medtech needs to connect over a single platform for healthcare providers pursuing data-driven healthcare that will need broad sets of data to come together in a connected ecosystem."

Lack of trained healthcare professionals and gaps in local healthcare infrastructure, however, are two barriers to greater adoption of a personal data-driven approach to healthcare according to HNWIs in Asia, Middle East and Africa. But the report notes that 76 percent of healthcare organizations are planning to invest heavily in big data and analytics.

2. Medtech comes under pressure as US-China economic and technological rivalry continues to unfold in 2019.

An estimated total annual value of US$1.1 billion of medical imaging products were subjected to US and China tariffs implemented in 2018. The report further explains fast-growing and high value medtech segments to watch for intensifying competition and potential trade risks include high-value medical consumables, in-vitro diagnostics (IVD), and gene sequencing.

3. Emerging market medtech companies are bolstering their competitiveness in global markets through product innovation and successful go-to-market strategies.

"Emerging market medtech companies are cementing their presence in their domestic market." In fact, four out of 10 of the biggest IVD players in China are domestic companies.

The report further explains, "Emerging market medtech companies are increasingly capturing a larger share of overseas markets – in mid- and higher-end medtech product segments." Two out of three hospitals in the United States use medical equipment from Mindray – China's largest medtech company.

4. Wider adoption of remote monitoring and telehealth under favorable reimbursement schemes.

US healthcare providers polled report that less than 10% of their total care delivery is provided through telehealth and all US healthcare providers polled anticipate use of telehealth to grow over the next three years. Furthermore, "With reimbursement increasing, 45% of US healthcare providers polled expect a significant increase - more than 10% increase, in the share of total care delivery that will be provided through telehealth, over the next 3 years."

5. Big Tech is becoming a more direct competitor in medtech.

The report notes that in 2018, Amazon launched its own medical device brand focused on diabetes and cardiovascular devices that work with Apple Health and Amazon's Alexa. What is more, "80% of healthcare providers polled are paying close attention to Big Tech’s entry into the healthcare space, recognizing the opportunities to redesign their care models by working with these companies."

Healthcare providers see potential for collaboration with Big Tech in streamlining provider workflows, implementing consumer-focused services, and solving supply-chain challenges.

The report also provides insights on:
  • What is the impact of the rise of domestic medtech companies in emerging markets?
  • What are the critical issues challenging affordability and access to healthcare innovations in emerging markets, and how can governments and third-party payers help to improve access
  • Interview with Swiss Re - one of the world's leading reinsurance company: Rethinking the alignment between diagnostic innovation and private health insurance;
  • Where do hospitals in emerging markets lie on the adoption curve for healthcare innovation?
  • How might companies approach and customize their medtech market access strategies in emerging markets?
Do you agree with The EIU's five key medtech trends in emerging markets in 2019?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.