FIRST-HAND PERSPECTIVES on the GLOBAL ECONOMY Introduction First-Hand Perspectives on the Global Economy
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Lauder Global Business Insight Report 2010: FIRST-HAND PERSPECTIVES ON THE GLOBAL ECONOMY Introduction First-hand Perspectives on the Global Economy In this special report, students from the Joseph H. Lauder Institute of Management & International Studies provide analysis of some of the most tantalizing economic, business and technology developments around the world. The articles offer new perspectives on the ever-changing global economy, including the growth of consumer markets in Brazil, Egypt and China, and the impact of the crisis on French luxury goods. The green economy’s growth worldwide is captured in articles on organic products in Germany, solar energy in Senegal and Japan’s eco-tech industry. The rise of the Russian gambling industry, sustainable tourism in Egypt and high-end gastronomy in Spain illustrate new frontiers in the leisure business. China’s coming of age is captured in articles on the development of its venture capital and mutual fund industries, enhanced awareness of social corporate responsibility, and the growth of second- and third- tier cities. New developments in infrastructure and financial services are reflected in pieces on the mobile Internet in Latin America, the rise to prominence of Spanish infrastructure management companies, and a new form of transparent, customer-driven banking. Taken together, the 16 articles offer perspectives on a range of dynamic economies and identify existing opportunities for conducting business within specific cultural, political and institutional contexts. The articles are part of the Lauder Global Business Insight program. 2 Knowledge@Wharton • Lauder Global Business Insight Report 2010 Contents EUROPE AND RUSSIA 4 Bionade Puts the Fizz Back into Germany’s Beverage Market 9 Economic Crisis and New Consumers: Challenges for a French Entrepreneur in the High-end Fashion Industry 15 Russia’s Remake of its Casino Industry: A Big Gamble AFRICA AND THE MIDDLE EAST 20 Going Solar in Senegal 27 E-Commerce in Egypt: Opportunities for Entrepreneurs 32 Can a Desert Oasis Lead the Way to Sustainable Eco-Tourism in Egypt? LATIN AMERICA AND SPAIN 37 The Brazilian Consumer: Opportunities and Challenges 42 Will New Mobile Internet Strategy in Latin America Pay Off for Spain’s Telefónica? 47 Spain’s Caja Navarra: Banking on Community Spirit 52 On the Road Again: Infrastructure “Made in Spain” 56 Why the World Is Acquiring a Taste for Spain’s Gastronomy EAST ASIA 63 A Brave New World for Venture Capitalists in China 69 Coming of Age: A Look at China’s New Generation of Investors 74 Corporate Social Responsibility in China: One Great Leap Forward, Many More Still Ahead 80 Behind the Behemoths: The Development of China’s Second- and Third-Tier Cities 86 Japan’s Eco-Technology Gets the World to Go Green First-hand Perspectives on the Global Economy 3 Bionade Puts the Fizz Back into Germany’s Beverage Market Some say imitation is the sincerest form of flattery. If so, Dieter Leipold, inventor of the organic lemonade Bionade, should be feeling very flattered. Since the Bavarian brewer concocted a healthy soft-drink alternative in his living room some 20 years ago using lychee, elderberry and other high-quality ingredients, a bevy of similar drinks have hit Germany's store shelves. After many ups and downs, Leipold’s environmentally friendly, socially responsible family-owned enterprise has become a national business phenomenon which could soon give global soft-drink makers a run for their money. In 1985, Dieter Leipold, master brewer of After researching “bio” (or organic) soft drink Privatbrauerei Peter KG, was in search of a solution. companies, he saw he would have to overcome a His 160-year-old, family-owned regional brewery in number of major research and development issues Ostheim vor der Rhön, a small rural town in Bavaria, to develop such a beverage. Ultimately, his was perilously close to bankruptcy as larger, cross- experiments, which he conducted in the comfort regional competitors expanded rapidly. Complicating of his living room, yielded an alcohol-free product matters, his company’s market opportunity had that required raw materials and production been severely limited for many years because its processes virtually identical to those his family had production facilities were located less than two been using for over a century to brew beer. Leipold miles from the border of East Germany. Leipold’s gave his patented invention the suggestive name back was, quite literally, against the wall. Bionade, the lemonade made from 100% controlled organic products using an unusual combination To address the crisis, Leipold committed himself of herbs, lychee, elderberrry and other flavors. and the resources of his family’s enterprise to developing a new product using the knowledge, A Work in Progress skills and reputation the company had forged Bionade has since become both a business and a as a Braumeister (or master brewer) over many cultural phenomenon in Germany. The company generations. He firmly believed that the soft-drink has grown exponentially, selling more than 200 segment of the beverage market needed a healthy, million bottles in 2008. With an incredibly high refreshing option that not only tasted good but brand awareness (over 91%) and market also was good for consumers. penetration in Germany, neither Leipold nor his stepsons (and successors), Peter and Stephan Kowalsky, were surprised that other firms have 4 Knowledge@Wharton • Lauder Global Business Insight Report 2010 copied the product, with competing brands such and cultural influence of the green movement on as Bionaris, Ökonade and Maltonade coming to Germany’s business environment and on consumers’ market. However, Bionade’s success did not come tastes was not yet apparent when Bionade entered without a number of significant hurdles. the market, the movement’s perception and its impact on the economy and politics have accelerated Bionade was officially founded in 1994 when dramatically over the past decade. They are now Privatbrauerei Peter filed a patent (valid until 2016) evident across many aspects of German society, as for its fermented lemonade, after nearly 10 years of shown by the proliferation of “bio” products. But development. Consumer demand for organic none of this happened overnight. products in Germany and elsewhere was not yet ready for mass-market success. In addition, years The negative effects of industrial pollution on of research and experimentation with different people’s health in Germany were already evident methods of production and flavor combinations left by the mid-19th century. However, it was not until the brewery operating at a loss for nearly a decade. the early 20th century that the first formal nature Even winning more than a million Deutsche Marks conservation organization in Germany, the (about $1 million) in the lottery in 1999 was not Deutscher Bund Heimatschutz, was created. enough for the family to repay the debt it had Unfortunately, this group was interested more incurred while developing Bionade. in conservation than in environmentalism as we know it today, focusing on traditional architecture, The unwavering belief of Leipold and his stepsons folk history and art. The group even opposed the in a healthy soft drink using organic ingredients construction of a hydroelectric power station and environmentally friendly business practices on the Rhine due to its deleterious impact on was ahead of its time in the 1980s. Their faith in the aesthetics. It took several more decades before the product helped get the company through the first German environmental movement began to have challenging decade of development and the first few a profound impact on society. years of mediocre operating results. According to Peter Kowalsky, Bionade’s current CEO, “at the The turning point in Germans’ attitude toward the beginning, my stepfather developed the product out environment came during the 1950s and 1960s. The of moral and social reasons. He wanted a healthier, green movement relied on the student movement higher quality soft drink for everyone, not just for of the 1960s, which transformed German society children or adults, but for everyone. This belief is with its demands for reform in political, social and what the company was founded on and I firmly academic arenas. But the green movement did not believe it is why we are successful to this day.” enter the political arena until the end of the 1970s. As Ralf Sitte, chief environmental adviser for the Going Green in Germany country's Social Democratic Party notes, “The Germany’s cultural, economic and political atomic energy discussions in the 1970s were heated landscape also played a role in what eventually led and moved the population to get involved with the to the overwhelming success of Bionade’s organic, political discourse.” environmentally friendly product and brand. Working in Bionade’s favor was Germany’s Die Grünen – a coalition of civic groups, reputation for being among the most forward- environmentalists and peace activists – became thinking nations when it comes to environmentally the first official green political party in Germany. friendly business practices. Although the political The different perspectives of these various groups First-hand Perspectives on the Global Economy 5 converged in a political program based on the political force. Green parties have sprung up in “four pillars” of ecological wisdom, social justice, other countries as well, although they have not grassroots democracy and nonviolence, which been able to match the political influence attained other green parties around the world later adopted. in Germany. The Green Party participated in its first election in 1983 and received 5.6% of the votes, above the 5% What’s more, few, if any, other countries have seen threshold needed to enter the Bundestag, the the rapid proliferation of environmentally friendly German parliament. The movement continued to business practices found in the Mittelstand, develop throughout the 1980s, when a series of Germany’s small and mid-size enterprises (SMEs).