:: The Park Paradigm ::

Markets for the Digital Generation

In the wake of the current wave of turmoil in banking and financial markets, much has been said by the great and the good, politicians and businessmen alike, on the need for ‘greater transparency’:

(from bbc.co.uk) …The leaders of Europe’s biggest economies have called on financial institutions to improve transparency in all their activities…Mr Brown said credit rating agencies, that assess the risks of financial instruments, needed to increase investors’ understanding of complex products…[President Nicolas Sarkozy said,] “We can’t let this lack of transparency jeopardise growth.” …”We need to have more transparency on the valuation of these new, very complex financial instruments,” said Ms Merkel.

(from the Guardian online) …Mr Ackermann said the industry needed to improve its risk management, review the role of off-balance sheet conduits and special investment vehicles, find better ways to value complex products, look at the role of credit rating agencies and improve its transparency.

Ahem…

I don’t want to say I told you so, but let’s just say that when I wrote this article in June 2003 (!!!) it didn’t get a resounding reception from the industry:

…In a world where competitive advantage was predicated on the ownership and exploitation of scarce and guarded information, it is only natural that investment banks built cultures of secrecy and fiefdoms as these rules were also applied within the organization.

This is perhaps the most challenging of changes that must be faced as it goes to the core of how many bankers define their self-image: I ‘know’ this fact, I ‘know’ this person (and you don’t!)

It also touches a sensitive nerve with respect to the ideal of a bank as the ultimate secure repository, the guardian of trust and confidentiality. While it is clear that any bank that wishes to remain in business must protect the trust and the contract they have built with their clients and customers, it is equally clear that they must marry this legacy with a future where the value of information is transitory, and even then only insofar as it can be processed and leveraged at speed, more often than not in real time.

The only way that this can be possible is to throw open the gates and embrace transparency. Rather than worry about who knows what, worry about who doesn’t know and what it is they don’t know.

Funny that “new model” I described in 2003 looks suspiciously similar to Web2.0 meets Wall Street…

So what is the moral of the story? Read the Park Paradigm! You just might glimpse the future…

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It’s become a bit of a truism in some circles that water will be one of the largest markets of the 21st century. So it is heartening to read stories like this one about a town in India:

…Kundapur, a coastal town in Karnataka has decided to privatize it’s water supply. To summarize, so far, this town was dependent on ground water. Now, they are getting water from the river Varahi. Residents have to pay Rs. 4000 for the connection (half of that refundable), and the monthly bill will come within Rs. 100, they’ve said.

…Of course, there is still a long way to go. The private partner who will handle the operation and maintenance is yet to be selected. There are also bound to be a large number of protests against the privatization itself. The TMC needs to get past that. Also, it seems to be the first time when such an exercise is being conducted in the country. So, other hurdles also can’t be ruled out.

Nevertheless, this outsourcing of operation and maintenance of water supply is a welcome concept, and if implemented and priced in the right way, might become a model to emulate in the rest of the country.

And to read that finally, we might see metering of water in the UK. The irony is that while many services that provide an abundant resource - ie voice minutes - continue to be ‘metered’ while scarce resources -ie water - are sold on a ‘all-you-can-eat’ basis (or worse, given away for free…) The rectification of this unnatural state will be one of the key trends of the next several years. It’s not hard to figure out really:

ABUNDANT => flat rates (reflecting fixed costs only, tending to free)
SCARCE => metered (reflecting supply and demand, and any externalities/substitution effects)

…a good rule of thumb for governments and business people in any market for goods and services.

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I’ve written in the past about my belief that a number of innovations in business are likely to originate in the developing world only to be exported and adopted in the developed world in the coming decade, turning conventional wisdom on its head. My thinking on this tends to revolve around businesses in the developing world harnessing the power of cheap and ubiquitous communications and computing (ie mobile phones) to develop innovative, robust, low-cost business models driven by (1) the need to deliver products and services profitably at extremely low (by developed world standards) price points, and (2) the lack of inhibitions with respect to thinking outside “established” ways of approaching markets and customers.

Although manufacturing - and especially auto-making - lies outside the field of my interest and expertise, this post from the Indian Economy blog highlights the new Tata Nano as an example of exactly the phenomenon I subscribe to above.

In summary, the Tatas look set to become the dominant player in the Indian car market via the new market segment established by the Nano. If allowed to compete on fair terms they should take this new segment to other developing countries too.

Will the price USP help it in developed countries though? In the United States there is a huge market for cars costing less than $10,000. Small cars were always popular in Japan and are catching on big-time in Europe too. There are lots of people even in the first world who cannot afford new cars. So there is a huge market in the biggest car markets in the world for a strong price warrior. The Nano was not made for these markets but the huge price difference it has with the cheapest cars in those countries offers plenty of room for redesign. Do you hear someone say that is impossible? Really – “impossible”?

Update:
It seems I’m in good company…

(from Fortune) …To stay ahead, Immelt is pushing GE hard into an advanced phase of globalization he calls “in country, for the world.” That may sound like some celebrity ditty composed for Live Earth, but Immelt is quite serious. He believes that by figuring out how to meet demand in these still relatively poor growth markets, he’s going to achieve hard-to-imagine price breakthroughs. And here’s what’s truly radical: As GE and others do this, these products won’t just be sold in emerging markets. Instead they’ll filter back into the rich economies - a new deflationary force that should delight buyers but devastate competitors who lack a global footprint.

Examples? “Water,” says Immelt. “There’s a shortage everywhere, even in places like California and Florida. Some systems we’re working on in the Middle East, India, and China are trying to do water desalination at $0.001 per milliliter, which is an off-the-charts low cost. We’ll never hit that in the U.S. But we’ll hit it someplace outside. And the second we do, a huge market is going to open up inside as well.” Immelt sees the same thing happening with coal-sequestration technology or MRI scanners, where GE is working on a product in China that could cut prices in half. “At the right cost point, you not only sell it in China, you open up a market among the 35% of U.S. hospitals that today cannot afford to have an MR scanner,” he says. “We’ve got 15 or 20 projects like this that are going to open up big markets around the world over the next five years.”

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After seeing this video tonight for the first time, I’m willing to go out on a limb and predict that Barack Obama will be the 44th President of the United States:

Armed with this new certainty, of course the first thing I wanted to do was to back him in the ‘Next President’ market on Betfair where he was trading at 2.80 (which by the way makes him currently the favorite in this market.) However as I am currently traveling in the US, Betfair doesn’t allow me to access my account. This of course is due to the ridiculous and hypocritical US anti-gambling statues. Very annoying. So now I have to wait until I’m back in Europe and hope the price doesn’t move against me. I’m pissed off with Betfair, even though I know it’s not their fault… Can we change this? Mr. Obama I hope your answer will be:

Yes, we can.

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