"Appetite to invest is important and it goes where the talent and ecosystem is"
According to S&P Global, the eurozone economy's high integration in global value chains makes it vulnerable to the slowdown in global trade. What should businesses do to prepare for uncertain times?
The economy will definitely slow down, we do not know when and to what extent, but it will. In these conditions the first thing a business should do is transform the cost structure; you have to be more efficient than your competitors and you cannot do so when the boat is sinking, you have to start before, have more time to do "the right things". This means working together with your providers, instead of squeezing them; rethinking and leaning the organisational structure, for example reducing span of controls and management supervision time - e.g. 20% of department costs are management and supervision. Another big one is marketing cost optimisation, not cut them, but again, transform and mix - e.g. digital, more focus, etc. Secondly, you need to think about the operations: using robotics and digitalisation, to optimise your value-chain. All of that can't be done in a hurry.
How will the escalation of trade disputes and a hard Brexit affect the economy and the companies in the South Eastern Europe? Which sectors / industries are the most sensitive and why?
Here, I will not add any value, because everything has been written and I truly believe that reason will prevail and some agreement will be done. I cannot believe that goods like drugs, fresh food and the basic supplies will not be available to the UK without an excruciating import process. That is impossible and for sure, a series of bilateral agreements will solve the issue. All in all, I am fairly optimistic about the outcome of Brexit. The key question is whether other countries, due to populism and populist political parties, will prevail, this could put European framework under the additional pressure.
How do you see the ECB's role in these uncertain times?
Every single one of us waking up in the morning should say "thank you Mr Draghi". The key action that the ECB is doing is simply amazing, because banks can actually lend, can help companies to survive, to grow, to invest because of that. As the economy is slowly heading south, we needed a boost and promptly, ECB acted; why not repeating what has been successful in the recent past? The key question again is, if the things worsen, are we scratching the bottom of the barrel, are there other leavers? We do not know, but for sure, so far, so good.
The GDP of Slovenia represents 0.09% of the world economy and Slovenia's economy is still expanding, although with lower growth rates. In light of the upcoming economic crisis, are there any differences among small and big countries?
I like to recall one episode from a few years ago: three prime ministers ago, the PM of New Zealand, John Key, a former investment banker and very reputable politician at the very beginning of a conference spelt out a crisis that looked like a war: unemployment, bankrupted companies, etc. disaster. And he said: "this was the effect of a simple, fluctuation of the Chinese economy. So, imagine, how good could be the impact for our economy if we are tightly linked to China". It is a good lesson for us, if you look at the key markets of Slovenia: the most important territories for Slovene CEOs: Croatia, Germany and Serbia. If you look at China, Italy, Russian and the US, only 6% of Slovene CEOs look at those as the key markets. The recipe for your question is: look around! The quality of Slovenian products in high and why are we not attacking Italy which is only around the corner? We just need to change a few names... so there is some truth here. According to the former PM, Slovenia should be linked strongly with big countries and by the way, China is a big buyer of food.
Digital platforms, artificial intelligence and robotics are transforming entire industries and sectors. Can you share some recent best practices where technology created new value propositions, new businesses and new market opportunities?
Three players that I really love to talk about are: Ping An, the largest private company in China, one of the largest global insurances, the second one is Amazon and the third one is Alibaba. Ping An started as an insurer, but the CEO was obsessed with innovation and digitalisation and he is still there as Chairman, pushing the organisation towards the next level of digital innovation. They have, having around US $700 billion of assets under management, US $0.5 trillion of assets in the bank and the largest non-banking lender in China. Starting from a simple insurer. They create a satellite of a businesses around the core business, leveraging the customer base and providing with additional services adjacent to insurance. As an example, they built the largest digital wealth management platform in China. They built "Good Doctor", the medical AI powered app with 250 million users, and finally they invited a tech driven B2B - the Ping Connect platform that serves different companies in China.
Amazon strayed into new markets and it is now a leader in the digital grocery market in the US. They capture 30% of online grocery spending with revenue of US $10 billion. And if you look at their strengths, they are investing in different technologies and finally, not only their B2C side, but their B2B - the Amazon web services are the second largest IT platform on the planet; 21.4 billion Microsoft, 20.8 billion Amazon web services. It is a cloud-based platform providing a wide array of services to companies like analytics, application integration, virtual reality, cost management, customer experience, digital analytics, machine learning and security systems - everything paid "per use". The ability of the company to change is amazing.
Then Alibaba. It is an amazing ecosystem, initially created in a simple way to connect buyers with the sellers and then they discovered as technology advanced, they could actually change all functions (marketing, finance, etc.) through digital technologies. They are the B2B Amazon equivalent. They created ancillary digital business to capture the whole value chain, creating different applications such as Alipay, Taobao mobile marketplace, etc; they are transforming the grocery industry. If you look for Hema, they have actually transformed the retail experience. Apart from the unique shopping experience resembling floating markets, it is very sophisticated: the prices change literally by the hour, according to demand; 60% of purchases are carried out though the app, and in half an hour the products are shipped to your place. Now, they also have a good alliance with Starbucks in delivering coffee.
Now, the common denominator of these three examples is vision, ambition of the people at the top - because they were obsessed with "let's be bold, let's digitise, let's create new things" and scale them up, over and over investing in scale, and finally they were really able to sell their stories to different stakeholders thus obtaining support in those investments. Successful companies are the ones who best engage different stakeholders and get the endorsement they need (return profile, resources, etc).
Almost 30 years worth of consulting experience you have worked across Italy, Germany, Spain, North Africa, Australia, Asia Pacific and in Latin America. Nowadays, South Eastern Europe. How do the abovementioned areas tackle innovation? Who does it the best and why?
Australia has not had a crisis for more than 27 quarters in a row, eventually because of China. Management could focus on innovation and transformation without major distractions. Israel is a fantastic example and to me, it is a combination of talent, capital and innovation infrastructure fueling innovation. That's exactly what you would find in the US. In fact, capital is crucial and the appetite to invest is important and it goes where the talent and fertile innovation ecosystem is.