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08 EDITORIAL

12 OPINION

50% of Germans oppose 4th term for Merkel

Yes, we shall need the deficit in state budget

18 EU AFFAIRS

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Europe’s reboot: From bismarck to ‘core Europe’?

One key thing the EU can learn from the Canadian refugee policy

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Shaping the future of digital commerce

Moving beyond GDP will improve policymaking and social progress

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EDITORIAL EUROPEAN BUSINESS REVIEW

50% OF GERMANS OPPOSE 4th TERM FOR MERKEL By N. Peter Kramer

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hilst German Chancellor Angela Merkel urged EU’s eastern memberstates that have refused to take on a share of the refugee stream, it became clear that half of her compatriots don’t want her for another, a 4th term.

Ms Merkel met recently with more than a dozen colleague EU leaders. The last halt was in Warsaw, where she appeared alongside the leaders of the so called Visegrad Group, Slovakia, Czech Republic, Poland and Hungaria. The German Chancellor told them that she doesn’t accept that some EU countries say, ‘We don’t want to have Muslims at all, even if it’s necessary for humanitarian reasons’. The Visegrad leaders were not impressed and critisised her open-door policy for refugees. Meanwhile, pressure is growing on Ms Merkel at home. In a recent survey, published by the Bild am Sonntag, 50% of the people surveyed said they opposed another term for her after the elections in October 2017. In turn, 42% would like her to stand again next year. The results marks a drop in support for her. A similar survey last November found that 48% opposed a fourth term while 45% were in favour. Ms Merkel’s popularity has slumped amid mounting criticism of her refugee policy following a series of attacks in Germany, two by asylum seekers who had pledged allegiance to Islamic State (IS). Within the German governing coalition, new calls for limiting the number of refugees entering Germany are emerging. Vice-Chancellor Sigmar Gabriel, the head of Ms Merkel’s center-left coalition party, the socialist SPD, voiced support for a refugee cap. ‘There is something called an upper-limit’, he said. ‘That is the ability of our country to integrate’. In her own party, especially in the powerful Bavarian right wing called CSU, the call for limiting the number of refugees sounds louder and louder. But Chancellor Merkel has yet to say whether she will seek another term. And it doesn’t look like she will do that soon. Her mission is not over yet…

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OPINION EUROPEAN BUSINESS REVIEW

HOW RUSSIA VIEWS THE WEST By Sarah Lohschelder*

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hile the West clearly should not formulate its foreign policy with an aim to please Russia, it is in its best interest to understand the Russian point of view. Russia has had a rough year: it lost to Ukraine in the Eurovision Song Contest; some of its athletes were banned from competing in the Rio Olympics; and the European Union (EU) decided to renew its sanctions against Russia. Many Russians think these events are Western conspiracies designed to keep Russia down. What does this tell us about how Russia sees the West? After all, whether the Russian view is right or not, this perspective shapes Russian foreign policy. Thus, the West must make an effort to understand the Russian point of view in order to better anticipate Russian actions and make the West more secure. Russia views the West as an aggressor to be defended against. This perception has deep historic roots dating back to the Napoleonic invasion, German Imperial and Nazi invasions, and the Iron Curtain and proxy wars

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of the Cold War. The 1990s offered a brief reprieve in Russian-Western relations, but the general theme has remained the same: Russia feels threatened by the West. The Ukraine crisis is the most recent manifestation of that fact. The removal in 2014 of the democratically elected Ukrainian President Victor Yanukovich, who favored closer ties with Russia over the EU, was deemed by Moscow to have been orchestrated by the West. While this perception may exaggerate reality, it is not entirely unfounded. In December 2013, Senator John McCain spoke to Euromaidan protesters while standing next to Ukrainian boxer VitaliKlitschko, who had lived in Germany for years and became one of the leading figures in Ukraine’s pro-European movement. Yanukovich’s fall from power only cemented Russia’s view of the West’s self-serving rhetoric on democracy and universal values – as a values-based imperialism used by the West when politically convenient and easily forgotten when not. The removal of Yanukovich was perceived as a political move that revealed Western


EUROPEAN BUSINESS REVIEW OPINION

hypocrisy and delegitimized rhetoric on Western values. When the United States, the EU, and several other Western countries imposed sanctions on Russia in 2015, popular perceptions of the West in Russia sank to their lowest point since the end of the Cold War, with 81% and 71% of Russians holding a negative of opinion of the United States and Europe, respectively. The Ukraine crisis is only the tip of the iceberg. Preceding the crisis were two and a half decades of assertive Western actions. Despite slightly reducing its nuclear arsenal, the United States has clearly maintained military superiority in the post-Cold War period. US military capabilities by now not only far exceed those of Russia, but with over 800 U.S. foreign military bases, the United States also has much greater global reach. As if this were not enough, the Clinton administration pursued eastward NATO expansion in the 1990s. While the Western European countries initially supported this move – Germany was glad to welcome Polish and Czech buffer zones into the alliance – a split in opinions emerged toward the end of George W. Bush’s presidency when NATO began looking to Georgia and Ukraine. Russia grew increasingly concerned with NATO’s eastward expansion and made it very clear that the inclusion of Georgia and Ukraine in the alliance would be considered an intolerable disturbance to the region’s “strategic stability.” Germany and France opposed such an expansion in 2008 to avoid provoking Moscow into aggressive action in Georgia or Ukraine, demonstrating prudent foreign policy based on an understanding of the Russia perspective. However, the Bush administration was undeterred and (without allied support) proposed NATO membership for Georgia and Ukraine. Only a month later, Russia invaded Georgia to support the independence of the breakaway regions of Abkhazia and South Ossetia – a clear sign of Russia’s belief that Georgia belongs in its backyard, rather than that of NATO. Given Russia’s invasion of Georgia in response to NATO expansion, its invasion of Crimea in 2014 should have been all the more predictable; this makes NATO`s failure to anticipate the Ukraine crisis all the more tragic. Still, NATO seemed insatiable in its desire to expand its influence, even looking to Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, countries that are historically Russian satellites and far outside NATO’s traditional reach. Reflecting on these

developments over the years, rumors abound in Russia that NATO supported Euromaidan with the goal of building a naval base in Crimea.Such a base would not only be dangerously close to Russian territory, but it would also block the Russian fleet’s access to the Mediterranean. This perceived threat led Russia to intervene in Crimea to protect its national security – a move that could have been predicted. But the Western failure to anticipate this perceived threat to Russia has now forced NATO to defend its Eastern border by increasing its troop presence in the Baltic countries. NATO was not the only Western organisation to expand into the former Soviet bloc. After the end of the Cold War, the EU was quick to build close relations with and ultimately grant membership to several Eastern European countries. The Czech Republic, Hungary, Poland, Slovakia, Slovenia, Estonia, Latvia, and Lithuania joined the EU in 2004, and Romania and Bulgaria followed suit in 2007. Finally, Croatia became a Member State in 2013, and the other Balkan states are on the membership track. The 2014 EU-Ukraine Association Agreement represented a connection between the EU and one of Russia’s last remaining loyal neighbors. The general theme that emerges is that of the West working to expand its reach to the East and Russia perceiving this as a growing strategic threat to the homeland. This post-Cold War development has been described succinctly as the clash of a liberal West with a realist Russia. The West’s push to expand its influence, without a clear consideration of how such actions will be perceived by Russia, suggests that the West is dangerously unaware of how its actions are perceived outside the Western sphere. The failure to understand the Russian perspective greatly contributed to the Ukraine crisis and led to the lowest point in post-Cold War relations with Russia. While the West clearly should not formulate its foreign policy with an aim to please Russia, it is in its best interest to understand the Russian point of view; failing to do so can only hurt Western self-interest and security. * Sarah Lohschelder is pursuing a Master of Science in Foreign Service and a Juris Doctor at Georgetown University. She is a Defense Fellow at Young Professionals in Foreign Policy. This piece was originally published in The Diplomatic Courier. ** Re-published from EurActiv.com

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OPINION EUROPEAN BUSINESS REVIEW

YES, WE SHALL NEED THE DEFICIT IN STATE BUDGET

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By Antonis Zairis*

he reverse for deficit attaining instead of surplus attaining is a deep and long-standing debate, which acts “harshly” for a proportion of the country’s sophisticated Economists and Governors. I would say that on certain conditions, and in contrast with the facts regarding the frontloading and callous budgetary policy adjustment meaning that consecutive pay and pension reductions, could be beneficial for an Economy such as the Greek one. It should be noted that, if the taken measures since the outburst of the crisis were less of 18-20%, the fall in GDP wouldn’t be 24% - 25% today, but it would be around 15% - 18% and probably we wouldn’t resent thousands of unemployed people in a range of 24% - 25% and especially of the younger ones numbering 50% - 55%. However, those conditions, which could probably justify the deficit, are related to the immediate adoption of anti-recessional measures/policies with growth orientation and particularly: on the one hand,

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the structural reforming program’s expedition, which begins from the market liberalization by the bounds of protectionism, for example closed professions, until the intensification of the investment projects’ implementation with the initiative and the active cooperation both Public and Private management… on the other hand, the organization of public administration and the efficient State’s operation, the improvement of the public Health system and the substantial provision of social welfare and healthcare. It is well-known that the lending of a state, which has been delivered to public productive investments, to the modernization of the unsound Educational system, to the Sanitary protection and to the Re-establishment of the Welfare-State, ends up to be a lending which is going to be retaliated through raising of the people’s educational attainment, business growth, attracting new investment, reducing the unemployment, improving the population’s living standards.


EUROPEAN BUSINESS REVIEW OPINION

As a result, this deficit considered as not so troublesome, the whole governmental effort should target to a balance between the high primary surpluses which are trapping the economy in stagnation and recession (especially when at the same time they have been “stuck” the great structural reforms for variable reasons) and between the low surpluses or even deficits for a short time, which are nevertheless succeeding the demand revival and the recovery of the real economy from deep recession. But instead of this theory, all the Greek Governments, during the last 8 years, are constituting their shortsighted policy to the short-termed, obsessive tax collection without any reduction of the expenditure, sacrificing in this way, in a long term, a serious Development Plan…for an another, different Greece that we all desire. And I am suspecting this is happening for two reasons. Firstly, because they do not have a vision and they obviously have disability of thinking in a long-term horizon and then in order to extend themselves to the future (leadership characteristics). Secondly, they are serving stakeholders and they are growing up customer relations. Given the fact that,

both those two characteristics are engaged with the short-term pursuit of goals. De facto, we can understand that we do not have much to expect from an old, drained, sclerotic, anachronistic, obsolete and repetitive Political system. But the worst is that we have nothing also to expect from people who are permissive to lie, enjoy fake stories, feel unable to balance between the fantasy and the realism, do not resist and they are deeply impregnated into consuming, as well as they do not know when they should revolt. On the contrary, they are drifted without self-criticism, repeating non-stop the same mistakes since the Hellenic State’s establishment. Our last hope can be found on the final quote of Pythia’s oracle, concerning Phoebus (Apollo, God of the Sun) focused on the expectation and desire for light -thus prosperity- to come and stay forever close to us.

*Economist, Vice President of the Hellenic Retailers Association

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OPINION EUROPEAN BUSINESS REVIEW

EU FACES ANOTHER YEAR OF LIVING DANGEROUSLY By Douglas Webber*

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eware - the European Union is not set in stone. It can disintegrate.The U.K.’s vote to leave the EU is the biggest blow in the union’s history. However, the withdrawal of the U.K. or any member is by no means its only existential threat. On a single day in July, not 10 days after the Brexit vote, Italy threatened to defy Brussels and bail out the country’s banks; the European Commission threatened to sanction Spain and Portugal for running budget deficits above EU-imposed ceilings; and France threatened to stop applying an EU directive on seconded workers. What these three conflicts exemplify is that the crisis now facing the EU is more multi-dimensional than any it has previously confronted. Disintegration threatens on all sides: horizontal (by the withdrawal of existing members); sectoral (by the collapse of common policies); and, as the above conflicts illustrate, vertical (the loss of power and authority to national governments). In the past, it was said that the EU thrived on crises, and for a long time, its evolution reflected that. But none provoked European disintegration. In fact, as the union matured more states joined, more common policies were adopted and implemented, and the powers of the EU’s supranational organs vis-à-vis member states

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were gradually extended. This evolution – towards ever wider and deeper integration – explains the extremely optimistic accounts of the project.

Optimism overload But this optimism rests on the premise that economic bonds between member states are so strong it would be irrational to risk severing them, and that the EU’s institutions are so deeply rooted that major economic crises will not jeopardise them.This optimism is misplaced. Historically, two factors have been responsible for forging the unique level of political integration that exists in Europe compared with other regions and continents. The first of these is the longstanding domination of domestic politics in Western Europe by moderate right, centrist and moderate left political parties, which were united in their goal of taming European nationalisms and preventing the outbreak of any new major war in Europe.The second factor is the dominance of France and Germany in providing stabilising collective leadership, direction, mediation in conflicts, and, where necessary, underwriting the project financially.


EUROPEAN BUSINESS REVIEW OPINION

Fragile, handle with care The EU’s current crisis is more menacing than any previous impasse because these factors no longer apply to the same degree as in the past. The ‘established’ parties of the centre and the moderate left and right are losing support to anti-European parties of the radical left or, more so, especially in northern European countries, of the radical right. Their growth increasingly limits the ‘old’ parties from making the necessary compromises to solve the EU’s critical issues.At the same time, when it is needed most, the stabilising collective leadership has waned. Franco-German cooperation – thankfully – continues, but France no longer has the financial resources, economic credibility or room for domestic political manoeuvre to play the co-leadership role it has traditionally played, leaving Germany, by default, as the EU’s de facto dominant power. Thus, while the EU’s periphery has expanded following successive enlargements, its core has shrunk. Germany has arguably become the EU’s sole leading power, albeit, on different issues, to different degrees, accommodating the interests of other member states to different extents and with varying degrees of effectiveness.Germany’s ability and willingness to play this role, especially to bear the financial costs, has become increasingly uncertain. Growing public opposition to the government’s Eurozone and migration crisis policies has fostered the emergence over the last two years of a right-wing, anti-European party, the ‘Alternative for Germany’ (AfD), which, if it consolidates its support, could significantly curtail Germany’s capacity and willingness to help manage the EU’s crises. It is still possible, of course, that the EU will master its present crises as it has done in the past. If Brexit is seen as inflicting major damage on the British economy, anti-European sentiment in other member states and, with it, the threat of contagion from the referendum outcome may wane. Since the agreement over a new bailout package for Greece a year ago, the Eurozone crisis appears to have stabilised. Since Hungary effectively closed the ‘Balkans route’ and the EU reached an agreement with Turkey over Syrian refugees earlier this year, the migration crisis too looks less acute.

Radicals are gaining But if these agreements unravel, even the prospective negative effects of Brexit on the U.K. might not suffice to curb the growth of anti-European sentiment and

parties in other member states.In addition, citizens of numerous member states are set to head to the polls next year. In October, in a re-run of a presidential election first held earlier this year, Austrians may elect a candidate from the anti-European Freedom Party who came within a fraction of a percentage point of winning the last election. In Hungary, an anti-European government will stage a referendum to secure a popular mandate for its policy of refusing to accept any refugees from the Middle East. Before the end of 2016, Italian Prime Minister, Matteo Renzi, will put a reform of the Italian constitution to a popular referendum. His (entirely conceivable) defeat in the referendum would likely provoke his resignation and new elections, which could produce a Parliamentary majority and government dominated by the antiEuropean ‘Five Star Movement’. The Front National is likely to emerge strengthened from French presidential and parliamentary elections in spring 2017, while, on current trends, German Parliamentary elections a year from now will witness the entry into the Bundestag of a substantial contingent from a right-wing antiEuropean party for the first time since the foundation of the Federal Republic in 1949. No doubt - for the EU, 2016-17 will thus be one more year of living dangerously. More likely than not, the political centre will (just) hold in the member states – France and, above all, Germany – that matter most and the worst will be averted. But in 2021-22, when both countries are scheduled to vote again, if the EU is still crisis-stricken it may be a different story.In the course of history, many states and proportionally more regional organisations have fallen apart. The EU is not set in stone. Even if it were, we know from the ancient maxim that eventually ‘water breaks the stone’. It would be naïve to believe that the EU cannot disintegrate. *Douglas Webber is a Professor of Political Science at INSEAD

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EU AFFAIRS EUROPEAN BUSINESS REVIEW

EU AND TURKEY: TIME TO ACT By Bahadir Kaleagasi*

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he failure of the coup attempt in Turkey is celebrated as a victory for democracy by Turks. However, after rapidly condemning the coup, the EU’s weak solidarity has become a source of resentment for Ankara.Many EU politicians criticize Turkey’s handling of the post-coup security operations while the Turkish government raises its voice against the EU’s lack of empathy. So what can be done beyond words? The European Union has at its disposal an effective soft-power algorithm which proved its efficiency in the

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past: accession chapters, especially those covering the supporting pillars of a democracy: fundamental rights, justice and freedoms (23&24). Already a decade ago, the former EU Commissioner Olli Rehn warned: “We need to apply rigorous conditionality. Experience shows that the better the new member states are prepared, the smoother the EU functions after enlargement. Difficult issues, such as judicial reform and the fight against corruption, must be addressed at an early stage of the negotiations” (European Parliament, 13 December 2006).


EUROPEAN BUSINESS REVIEW EU

The opening of these chapters is not a gift to anybody. Chapters of negations are tools of action aiming to monitor and transform an accession country’s legislation and policies in convergence with the European values, standards and interests. Activating the accession chapters 23 and 24 will reveal an EU going beyond lip-service and acting coherently and consequentially. The actual veto of Cyprus on these chapters is harming the security and economic interests of Cypriots, Turks and all EU citizens. While encouraging Cyprus to act rationally, other EU capitals may already re-confirm their proposal to open them. This would offer the EU and Turkey an institutional channel to talk about all concerns in a systematic, disciplined and transparent way, with technical facts and tangible results. Blocked EU process is part of the problem. No solution to actual problems in the EU-Turkey relations can be designed without changing a policy which created them. The successful achievement of the EU-Turkey customs union’s actual modernization process is also in the EU’s toolbox. Being part of the EU’s customs union on industrial goods, Turkey has already gone as far as complying with more than half of the single market regulations. The next step involves the extension to the services, agriculture, public procurement and conflict resolution mechanism. This would enhance Europe’s global economic competitiveness and Turkey’s trajectory in the European economic and regulatory sphere. A policy of positive re-engagement of Turkey should also be propelled by the prospect of a historic peace deal in Cyprus. UN-led talks with the aim to reunite the island under a federal roof are once more promising. As a unified EU democracy shared by two communities of different ethnic and religious backgrounds, the new Cyprus will be a salutary success-story that the democratic world needs right now. This will be a historical milestone enhancing European values and soft-power, as well as Turkey’s positive re-engagement in the European integration process. The leaders of Cyprus, Turkey, Greece and the UN contributing to this endeavor will deserve a Nobel Peace Prize. In fact, the cost of excluding Turkey from European integration is very high for both the EU and Turkish

AFFAIRS

citizens. If Turkey had been well engaged in the EU accession process since negotiations began in 2005— on issues from the foreign policy, rule of law and refugees and to economic growth or energy policies— today’s picture would be different. The European Union would be a better global power, and Turkey would be a stronger European democracy showing greater convergence with European values and interests. The results of the EU’s failed Turkey policy are clear. Meanwhile, the question of Brexit has accelerated an evolution toward a Union marked by differentiated integration, and eventually a Europe of several circles of membership: the wider Europe and a more federal eurozone core. Enlargement would also become an easier public debate for the national politics, while emphasizing that the core Europe is not affected by this development. Thus, when Turkey fulfills the criteria of membership to wider Europe, this will be the enlargement of Europe’s geography of democracy, law, economy, energy and security. This prospect makes Turkey’s European integration possible once more; and once more, the EU can exercise its transformational power on Turkey. This positive influence is also a policy that was tested—successfully—from the mid-1990s to the mid-2000s. However, because of blurred vision, weak creativity, and reluctant action, Europe now is undermining its future. The problem concerns all European countries, including Turkey. This is not only about Turkey or the challenges of terrorism, rule of law and refugees, but also about the immense opportunities stemming from radical changes in society: the digital economy, green energy, smart cities, and so on. These changes all require smarter democracy and a smarter Europe. Maybe ‘Democracy 4.0’ in the age of Industry 4.0.

*Bahadir Kaleagasi is International Coordinator and EU Representative, TUSIAD-Turkish Industry & Business Association, as well as president of the Paris Bosphorus Institute ** First published at EurActiv.com

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EU AFFAIRS EUROPEAN BUSINESS REVIEW

EUROPE’S REBOOT:

FROM BISMARCK TO ‘CORE EUROPE’ ? By Ruben Diaz-Plaja*

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olitical integration projects have often been shaped by debates about their ultimate territorial limits, as these imply different visions of the values behind the project. For more than 40 years, Europe – and Britain – have debated whether and how the European project should include the UK. Similarly, in the early 19th Century, Europe was consumed by two visions of a unified Germany. Would it be a larger Germany, including both Austria and Prussia, more Catholic and multiethnic, or a more Protestant and mono-ethnic ‘Little Germany’ centred on Prussia? In 1866, Prussian Chancellor Bismarck settled the question definitively at the battle of Koeniggraetz, throwing Austria out of the German unification project and into a constitutional and political crisis, leaving Bismarck free to forge a new German Empire with a

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distinctly Prussian flavour. 150 years later, the similarities are suggestive. At a stroke, the 23 June Brexit referendum sent Britain – like Austria – sailing out of the European project into constitutionally-troubled waters. The EU faces a need – and perhaps an opportunity – to reboot and rebuild. Some commentators now seem to think that we are in a ‘Bismarckian moment’, and that with Britain out, the time is ripe for a ‘Little Europe’ focusing on an integrated core, starting with the six founding members. The six have indeed been maintaining an informal dialogue over the last few months, and even held a mini-Summit right after the UK’s referendum. Others have raised objections, seeing it as potentially risky. As Bulgarian political scientist Ivan Krastev has


EUROPEAN BUSINESS REVIEW EU

recently argued, , state unions have historically often faced their final nemesis when elites try to reboot from a smaller, ‘purer’ core. At the same time, Krastev’s main examples were the Soviet Union, the Austro-Hungarian Empire and socialist Yugoslavia – it is open to debate whether the comparison to the current European Union is fair. Reinforced integration among a smaller group of member states may indeed make sense; it has worked it in the past. It can be a reasonable means of accommodating different interests and appetites for integration. The EU treaties allow for “Enhanced Cooperation” among groups of member states. Many aspects of the EU either began this way, or to this day are still limited to subsets of member states: Schengen, the euro or the Fiscal Compact. At the same time, proposals for ‘Core Europe’ seem to imply something qualitatively different – perhaps a more tiered model for the Union, with inner and outer layers of participation. So the question is not whether reinforced integration should happen – it clearly already has. The question is rather how much more of it the EU will need as part of its reboot, of what kind and in which areas? Is this a Bismarckian moment, or something else entirely? A few questions and considerations may help clarify the debate. First off, the Bismarck example was about the triumph of one vision of Germany over another. Austria’s exit from the German integration project quashed a different vision of what Germany might have been. It is worth asking whether Brexit will define Europe’s vision and mentality in a similarly clear way. Brexit may have settled the British debate about Europe, but has it settled other debates? Now, Britain’s exit leaves behind a formidable Europe of 27, with many still wishing to join, and with as many visions. How can reinforced integration respect those visions while not creating divisions? A second question that is worth considering is what the core project, or projects, of such reinforced integration could be, and which states would make sense to make such initiatives credible and sustainable. Two of the areas frequently mentioned as projects for a ‘Core Europe’ – defence integration and reformed eurozone

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structures – would suggest a larger group of potential participant states than just the historic ‘six’. Third, if reinforced integration is to be part of the EU’s reboot, we must consider how this plays into perceptions of the EU’s institutions and decision-making – which are often seen as opaque and needlessly complicated. Bismarck famously said that he preferred not to see how his sausages – and laws – were made. EU citizens seem to agree with him when it comes to the EU. Would reinforced integration strengthen or dispel these stereotypes? Or instead would it help reinforce the notion of an effective, transparent EU that delivers for its citizens? Fourth, any proposals for reinforced integration would need to carefully consider the wider political and security climate within and outside Europe. The media narrative has often focused on apparent divisions or splits – and on external powers like Russia that seek to exploit them. Security crises and economic austerity in both Europe’s east and south have given rise to soulsearching over Europe and the perception that decisions are taken by some that affect all. Within Europe, could reinforced integration be pursued in harmony with a continued sense of inclusion, solidarity and unity across a ‘Europe, whole and free’? In other words, how can the Union respect the notion of “Nic o nas bez nas” (nothing about us without us), the old slogan of Polish trade union Solidarność. In a time like this, the notion of a ‘Core’ may have an appeal – it speaks to the idea of consolidation: rebuilding foundations and refocusing on the essentials. Core, after all, comes from the French Coeur – the heart. Europe has many hearts, though, and they all beat differently. Reinforcing Europe through reinforced integration – be it as a Core, as multiple overlapping cores, as variable geometries – may be a valuable reboot strategy, and could re-energise the European project. But it will be important to link this approach with an overarching and inclusive vision of the Union as a whole, a Greater Europe, and how it meets the security, economic and democratic concerns of all its citizens. *Policy officer at NATO’s Secretariat. All views expressed are entirely personal.

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THE BATTLE BETWEEN HILLARY CLINTON AND DONALD TRUMP By Hans I. Kriek*

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ess than two months to go for the ticket into the White House. Polls are looking tough for Trump and, being once a favorite Trump topic at his boisterous campaign rallies, are now a sore subject A series of recent surveys show Trump falling short of Clinton nationally and, most importantly, in key electoral states. The most recent CNN Poll of Polls, incorporating the results of six major polls after the conventions, found beginning of August Clinton with an average of 49% support and Trump lacking behind at 39%. When third party candidates Gary Johnson and Jill Stein were included, the margin remained the same, with both candidates losing the same amount of support: 45% for Clinton to 35% for Trump.

How likely is a Trump victory in November? Can Trump still turn the tide? Where he delivers his speeches rooms and stadiums are always packed. Despite the gap with Clinton and his often rude campaigning, we should not underestimate Trump. He is portrayed by most US and European media as an idiot. It is interesting to make a comparison with Ronald Reagan, Republican president between 1981 and 1989 and still very popular among Republicans. However during his first election campaign he was considered by the media as a simple-minded ‘B-actor’, whilst his Democratic opponent Jimmy Carter was seen as substantively much stronger. But Reagan won the election and eventually became one of the most popular US Presidents, who easily won re-election four years later. Trump has a point when he says that the US economy is in bad shape, and has hardly improved over the past eight years during Obama’s presidency. In some areas, the situation is catastrophic. Look at Detroit. It was once the engine of the US economy and turned into a ghost town. Trump chose it as a place to announce his plans

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for the US economy. The public sector is in disarray, the country’s infrastructure has been neglected, airports are outdated and in spite of a slowly improving labour market, unemployment is high. Problems for Clinton The odds for Trump can also grow due to problems in the camp of Clinton. The storm about her private emails when she was Secretary of State in the Obama government is not fading away. The ‘hunger for power’ of the Clinton family is upsetting many voters. The revelations that the Hilary campaigners tried to Democratic Party secretly worked against Sanders and party chose still to Clinton. And last but not least The Clinton Foundation. It has accepted tens of millions of dollars from countries that the State Department (before, during and after Hillary’s time as Secretary) criticised for their records on sex discrimination and other human rights issues; including Saudi Arabia, Qatar, UAE, Kuwait, Oman, Brunei and Algeria. How will she handle the relation with these countries if elected as President…..? Both candidates are clearly facing a serious image problem. Never before voters had a bigger aversion to both presidential candidates since 1960 according to data of researcher Gallup, the Wall Street Journal published recently. Anyhow, the White House is not at all out of reach for Donald Trump. Let’s see what happens during the first TV-debate between the two rivals, on September 26. * Hans Izaak Kriek is a former Dutch television-journalist and now editorin-chief of Hans Kriek Media.

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ONE KEY THING THE EU CAN LEARN FROM THE CANADIAN REFUGEE POLICY By Costin Ciobanu*

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t a time of sorrow and despair for the EU, and with the refugee issue a core fault line in the Old Continent’s politics, the Canadian policy of privately sponsored refugees could offer a solution to building bridges of understanding among diverse communities I arrived in Canada from Romania on July 31st, 2015. Two days later, a fierce political campaign, one of the longest in the history of Canadian federal elections, started. Adjusting to North America while becoming ever more aware of my European identity, I was struck, like many others across the world, by that iconic image of Alain Kurdi, the little child lying dead on a Greek beach. One may argue that the media decided to frame the Syrian refugee crisis by putting a face to the tragedy, in order to shift the public opinion on a phenomenon that had previously been portrayed more like a natural disaster than a human drama. Regardless, decision-makers and citizens have begun to take the issue more seriously and to demand action – action that was but a drop in an ocean of sorrow, but still something symbolic.

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It turned out that the Kurdi family had ties in Canada and tried, unsuccessfully, to emigrate. It did not take a lot to ignite a campaign torn between a diffuse – but acute – thrust for change and genuine mistrust towards the potential successors of the Conservative government. According to its immigration system, Canada receives around 280,000 - 300,000 new immigrants annually (of which, for example, 28,622 were accepted based on refugee and humanitarian claims in 2014). Immigrants are granted permanent resident status (a clear difference from Europe), with the special case of Quebec which handles its own immigration system based on its inter-cultural model. Prior to the uproar in the international community and Canadian society, the Canadian government pledged to receive only 10,000 Syrian refugees by 2020. The Liberals, at that point only third in line to gain power, seized the opportunity and promised to bring 25,000 refugees by the end of the year. In their electoral strategy, this was bigger than the global refugee crisis. This was an electoral campaign which spoke to the perceived diminished prestige of the country in the


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world, with its decline in brokering agreements and peacekeeping, that had accompanied a shift from principled foreign policy to narrowly national interest. Not in the least, this was also about the changes brought about by the Conservative government in the refugee and immigration law with the introduction of the Designated Countries of Origin system, the focus on temporary work programs and additional administrative burdens for asylum claimants.

refugee rights and integration in Canada and Montreal. In addition to organising public dialogues and engaging experts, academics, and the community, we put forward a policy paper which dealt with how Canada can “do more and do better� in integrating its immigrants and refugees. Having presented the document in front of federal ministers, MPs, and civil society representatives, we became part of the incremental process of policy development.

As shown by the news reports covering the new wunderkind of global politics, Justin Trudeau, the Liberals pulled it off, won the elections and turned the 25,000 Syrian refugee claim into the first test of the Cabinet. It took longer than December for the refugees to make Canada their new home but what captured headlines all over the world was, again, Justin Trudeau greeting the newcomers at the Toronto airport, smiling, shaking hands and giving toys to shy Syrian kids. Although, as experts and activists argue, much remains to be done to reform the Canadian immigration and refugee system, matching what is right to what is politically accepted, has put the actions of the Canadian government in clear contrast to what was and is happening in the EU.

But the key learning element came from a discussion with John McCallum, Minister of Immigration, Refugees and Citizenship under Trudeau. Half joking, the Minister told us that he has a problem no other immigration Minister has had to deal with: the institution is almost overwhelmed by the number of Canadian citizens who want to privately sponsor refugees. This is one fundamental policy which deserves more attention, especially in Europe’s poisoned social climate.

As part of a Fellowship bringing together young leaders from 10 countries and 4 continents for one year, my colleagues and I decided to focus our collective project on understanding and addressing the complex issue of

Complementing the Government-Assisted Refugee Program, the Private Sponsorship of Refugees Program allows regular citizens to provide refugees with financial and emotional support for the duration of the sponsorship (usually for one year). The benefits go beyond the thousands of refugees privately sponsored every year (4,560 in 2014) and are directly related to putting in place the conditions for successful integration and enhancing multiculturalism.

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Crossing the Atlantic, it is neither hard nor pleasant to observe the outline of the debate concerning immigrants and refugees. In the United Kingdom, immigration was one of the drivers of the Leave vote. In France, the never ending string of terrorist attacks caused the electoral support of the National Front to balloon and highlighted the ignored realities of failed integration, home grown terrorism, racism and islamophobia. In Germany, Merkel’s “refugees welcome” policy is mocked and seen as the most likely cause of her political downfall. The recent attacks, some involving refugees, are not helping at all. In Eastern Europe, the EU relocation scheme was openly rejected by various member states; the discourse reached a new low with the claim that refugees are bringing in epidemics. More than that, Hungary is preparing to organise a referendum against accepting refugees and use the results to boost Orban’s bellicose attitude towards Brussels. With economic and social problems aligning for a perfect storm, the top-down approach of the few human rights-driven European governments is showing its limits. At the same time, sceptics and populists are making electoral gains and persuading increasingly large swaths of the population that refugees and immigrants are a source of social and economic troubles, of radicalism, terrorism, and of incompatible cultural values. While political leaders and decision-makers can inspire through principled discourse and actions, ignoring the active and positive role citizens can play in correcting the situation is plainly wrong. Instead of treating the voters of anti-immigration parties like their leaders, their concerns have to be openly debated in societywide conversations, not ignored. Indeed outwardlooking citizens have to be offered the opportunity to reshape the national narrative. This is where the Canadian policy of privatelysponsored refugees can come in handy. Of course, relative to the European context, it is hard to draw

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parallels with a country favoured by geography and whose 25,000 Syrian refugees cannot compare to the million Germany took in last year. This sense of realism was shared by the Canadian authorities which we met. But the lessons Canada has learned should be given a chance in Europe, if not because they are a step in the right direction, then at least because these lessons may help overcome the current inaction. Europe can only survive by enforcing its values and principles, its respect for human rights, solidarity and openness. By creating the framework for unmediated bonds between refugees and host population, with the state institutions acting as facilitators, we can take that first step to becoming a great society which brews integration, not ghettos and frustration. The accumulation of positive stories is what we lack today and such narratives could provide a lifeline for those politicians silenced or overwhelmed by the politics of fear haunting today’s EU. Introducing privately-sponsored refugee programs in the main countries of the European Union has the potential to foster integration and to prevent further youth radicalisation – to show a different path and to spark a long overdue debate. At a time of sorrow and despair, the EU should pause and reflect and not give in to isolationist, nativist and doom-driven policies. With the refugee issue a core fault line in Old Continent’s politics, enlightened political leaders and decision-makers should empower citizens to engage and act on behalf of inclusion and multiculturalism. The Canadian policy in this regard worked and presents itself as a beacon of hope. Why not bring it to the political leaders of Europe and give it a chance? *Costin Ciobanu is a Romanian political consultant, Jeanne Sauvé Fellow and PhD Candidate in Political Science at McGill University


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Special Report:

SHAPING THE FUTURE OF DIGITAL COMMERCE

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ith a growth rate of 13.3% in 2015, the e-commerce turnover grew by double digits to €455.3 billion. For this year the e-commerce turnover will keep increasing and is forecast to reach the €500 billion mark!

‘The full potential of the European e-commerce market has not yet been reached’, Marlene ten Ham, Ecommerce Europe’s Secretary General told European Business Review (EBR). ‘Only 43% of the European population shop online and only 16% of them buy in another country’. The fastest growing e-commerce markets are Ukraine (35% compared to 2014), Turkey (34.9%) and Belgium (34.2%); Germany and the UK are the greatest markets in terms of e-shoppers, 51.6 million vs 43.4 million. However, there are still several barriers to overcome to unlock the full potential of the e-commerce sector in Europe: cross border legal fragmentation, taxation issues (VAT) and logistics. For EBR a good reason to choose e-commerce as subject for the special report of this issue. We thank Ecommerce Europe for their well appreciated cooperation to realise this special report.

N. Peter Kramer Editor-in-chief European Business Review

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ECOMMERCE EUROPE ANNUAL CONFERENCE “This year the E-commerce Europe Annual Conference was very interesting as it brought forward the very latest facts and figures as well as trends for the European and global e-commerce industry.” - Carine Moitier, Director of BeCommerce and Board Member of Ecommerce Europe By EBR

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very year Ecommerce Europe organises a full day of conference as part of the Global E-Commerce Summit. It is the must-attend conference for businesses, European policy makers and other stakeholders eager to learn more about the most important developments and policy landscape in crossborder e-commerce and omnichannel retail. Businesses have the opportunity to have a direct say in the shaping of rules and regulations that will determine their success or failure in the future. With around 350 visitor this year, the Conference was oriented around three key themes: e-Regulations dealing with geoblocking and online platforms, e-Payments where the questions of security and innovative solutions were raised, and e-Logistics with a focus on standardization and sustainability. Ecommerce Europe is proud to have had two of the largest players in cross-border e-commerce present the day’s keynote speeches: global food-delivery multinational JustEat and Spanish Clothes giant Desigual. In their speeches, Juan Carlos Exposito, Marketing Manager for JustEat Spain and Elena Cusi Costa, Global Director of Ecommerce gave attendees an overview of the challenges even large pure players and omnichannel retailers face in e-commerce. To succeed digitally, the high-level speakers stressed to the present online merchants the importance for online retailers of focusing on a smooth and customercentric experience. However, the speakers also addressed the multitude of challenges in regulation, taxation, payments and logistics a cross-border business model brought with it. In their welcoming and opening speeches, François Momboisse, President of Ecommerce Europe, and Marlene ten Ham, the organisation’s Secretary General, stressed Ecommerce Europe’s position in filling this information gap between legislators and online retailers.

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e-Payments: disruption and security During the sessions on e-Payments, the day’s speakers and panelists first addressed how PSD 2 and new and upcoming payment solutions can disrupt the online payments sector. Later, the focus lay on payment security and on how to ensure customers’ trust in e-commerce, tackling online fraud and methods of electronic identification.

e-Logistics: standardisation, innovation and sustainability For its discussion on e-Logistics, Ecommerce Europe brought together a wide variety of business leaders, online merchants, European policy makers and other stakeholders to discuss how to achieve consumerfocused standardization and harmonisation in modern cross-border parcel delivery, as well as the challenge of encouraging innovative and sustainable solutions. Alongside the Annual Conference, the GlobalEcommerce Round Table is organised as an initiative of Ecommerce Europe and the Ecommerce Foundation, in which executives from national e-commerce associations worldwide discuss how to unlock the potential of global cross-border e-commerce. This high-level round table is by invitation only.

e-Regulation: geoblocking and online platforms One of the sessions of the day focused on the geoblocking phenomenon and the role of online platforms in the online sales sector. Overall, retailers declared to be pleased that there will not be an obligation to deliver in all EU Member States. Also the audience pointed to the fact that more clarification on the applicable law and on when traders are able to apply different prices is needed. The proposal might also be seen as an opportunity to finally clarify the confusing difference between active and passive sales.

Next year’s edition will take place in Barcelona in June 2017 More information on www.ecommerce-europe.eu

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MARLENE TEN HAM:

‘‘THE E-COMMERCE SECTOR IS BOOMING AND NEEDS A POLICY FRAMEWORK” By N. Peter Kramer Ecommerce Europe is the association representing 25,000+ companies selling goods and/or services online to consumers in Europe.European Business Review had an exclusive interview with the Secretary General of the association, Mrs Marlene ten Ham.

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On our first question how her association looks at the European Commission’s eCommerce Package, launched just before summer, Mrs ten Ham answered:

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n general, we support the objectives of the Commission’s Digital Single Market Strategy. Its eCommerce Package in particular, which contains several legislative and policy initiatives with the aim of boosting online sales in Europe, isfor us a very important part of this strategy. The Packagerepresents good progress and some of the online merchants’ recommendations have been taken into account. However, there are still some critical underlying problems, such as legal fragmentation, which are not being addressed by the package. We want to stress that the real problems in e-commerce are related to the fact that we still haven’t attained a real, fully harmonized Single Market. Neither offline nor online. Therefore, legislative initiatives should focus more on removing the remaining barriers to cross-border trade that are, for instance, the intrinsic causes of geoblocking practices and inefficient parcel delivery, rather than solely trying to tackle its consequences. We will continue to work with European policy makers to ensure that we get to the roots of the problems. What does this mean in practical terms? Well, according to the Commission’s proposal on geoblocking, foreign consumers will be allowed to “shop like locals”, under certain conditions of course. It means, in practice, that when an online shop is not directing its sales to a specific country, this will always be treated as a passive sale, so the shop will be allowed to apply their home country rules and laws.But the proposal needs more clarification on this point. We want to be 100% sure that online merchants will always be allowed to apply their national law without being forced to deal with laws of countries that they are not actively targeting. Overall, online merchants are pleased to see that the proposal will not impose an obligation to deliver to all EU Member States and that they are free to set their pricing policies. Ecommerce Europe has alwaysbeen strongly opposed tosuch an obligation to deliver. Such an option would impose disproportionate costs to online merchants and it would also be a breach of the freedom of entrepreneurial activity! Once more, according to our interpretation, the proposal will impose

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an “obligation to sell to everyone” but not to deliver everywhere and this must always lead to the application of the laws and rules of the country of the traders. In this case, potential negative effects on consumers must also be taken into account, such as disappointment or frustration for products not fir for the consumer’s market. What are your comments on the Commission’s proposal on cross-border parcel delivery services? Another important part of the eCommerce Package. Ecommerce Europe recognises that the proposal for a parcel delivery regulation has the potential to help creating a level playing field for competing postal-, courier- and express operators and thereby in the end for online merchants in the European Union (EU). The proposed regulation will allow swift action and avoids further regulatory fragmentation which could result from other legal instruments. The Regulation is a good start toincrease invisibility on cross-border parcel markets. Online merchants need to be able to benefit from better prices, even when sending lower volumes. We have been very vocal in opposing any type of price regulation, therefore we have expressed our support for the Commission’s cautious approach which leaves room for case-by-case assessment by national governments. Ecommerce Europe will however continue its work with service providers and policy makers to ensure that we come closer to a global level playing field accessible to all players through the use of open information- and label standards. Only when standards and interfaces are interoperable across providers and across borders, we can truly reduce the burdens and costs for merchants and increase innovation in the delivery value chain. The President of Ecommerce Europe, François Momboisse, stressed the end of May during your Annual Conference in Barcelona, that online trading is here to stay. No doubts about that! The European e-commerce turnover managed to increase 13.3% to €455.3 billion market share in 2015 and is planned to reach the €500 billion mark this year. Compared to the 1.0% growth of the general retail in Europe,the e-commerce sector is booming and going to internationalise, strategise, look ahead, and address the consumer of the future. For that, we need a policy framework which is fit for the future.

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VICE-PRESIDENT ANSIP (DIGITAL SINGLE MARKET): ‘ACROSS THE EU ONLINE SALES ARE GROWING BY 22% PER YEAR!’

By Martin Banks*

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ast year the European Commission presented an ambitious strategy to create a Digital Single Market (DSM). Commission Vice-President Andrus Ansip, who is in charge of the strategy,invited mid-July journalists to discuss with him the progress made to date. E-commerce is one of the key-areas of DSM, European Business Review was present in the meeting for some questioning. EBR: Parcel delivery is a lifeline of e-commerce.How will the Commission ensure proper enforcement of the Parcel Delivery Regulation in Member States and ensure that National Competition Authorities will follow-up with national operators?

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VP Ansip: A regulation is directly binding on all Member States; it is concrete and specific, and helps avoid further regulatory fragmentation. The creation of the EU price webpage and affordability assessments must all happen to the strict timetable that is set out in the Regulation. It also requires EU countries to establish penalties for infringements of the Regulation and to take all necessary steps to ensure the Regulation is implemented. If necessary, the EU Treaties provide for legal instruments allowing the Commission to ensure compliance with the obligations. In 2019, and every four years thereafter, the Commission will submit an evaluation report on the application of the Regulation to the European Parliament and the Council.


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National Regulatory Authorities (NRAs) will be responsible for collecting the prices of certain services from universal service providers and assessing their affordability. They will also be responsible for collecting basic information about the activities of all parcel delivery service providers, such as the names and addresses of the providers; the services that they offer and conditions of sale, including complaints procedures; annual turnover for parcel delivery services and number of items delivered; and the number of employees. Regarding VAT, will the Commission take into account the issue of thresholds in the Member States in its new legislative initiative due to be published this autumn? Currently, to apply to VAT in a country, an online merchant needs to reach a certain threshold. However, when the online merchant reaches the threshold and thus register to VAT in the country, it will have to pay the VAT for the whole year (including when it was not reaching the threshold yet) with interests. How to solve this issue which is currently burdensome for companies, and particularly SMEs? Compliance with VAT obligations is a particular concern for SMEs, especially in the cross-border context. The importance of avoiding burden on small business with additional tax obligations is reflected in the proposal which contains well-balanced provisions as regards VAT compliance. The proposal specifically exempts from the non-discrimination requirements those traders that fall under a national exemption VAT threshold from the need to register in order to account for VAT of other Member States in order to sell electronically provided services. This is provided in order to ensure that these companies – subject to the existing national rules - are not obliged to pay for VAT due to EU rules, neither in the Member State where they are located, nor in those to which they provide their services cross-border.

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The Commission has proposed in May legislation to ensure that consumers seeking to buy products and services in another EU country, be it online or in person,are not discriminated against in terms of access to prices, sales or payment conditions, unless this is objectively justified for reasons such as VAT or certain public interest legal provisions. The proposed Regulation aims to provide more opportunities to customers: it addresses the problem of customers not being able to buy products and services from traders located in a different Member State, or being discriminated in accessing the best prices or sales conditions compared to nationals or residents. Consumers and businesses – especially SMEs – show an increasing interest in shopping across the EU and online sales of products are growing by 22% per year. While the principle of non-discrimination is already established under the Services Directive and the Commission has applied it in services sectors such as car rental companies or amusement parks, companies and consumers alike will benefit from more legal certainty about which practices are allowed and which ones are not. To avoid introducing disproportionate burden on companies, the proposed Regulation did not impose an obligation to deliver across the EU and exempts small businesses that fall under a national VAT threshold from certain provisions. The proposed Regulation provides this legal certainty and enforceability for products and services online or offline. The proposed Regulation is a powerful discouragement to traders intending to discriminate.

Thank you Mr. Vice-President.

Allow me a last question about geo-blocking. When a consumer enters a shop in another EU country, the owner does not ask for the consumer’s ID in order to accept a purchase or to adjust the price or conditions. But in the online world, often consumers are blocked from accessing offers in other countries for example by re-routing the consumer back to a country-specific website, or asking to pay with a debit or credit card from a certain country. How does the Commission solve this kind of discrimination?

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UPCOMING PRIORITIES AND CHALLENGES FOR THE E-COMMERCE SECTOR IN EUROPE BREXIT AND THE SLOVAK PRESIDENCY By Marlene ten Ham* The EU is facing crucial challenges that will impact its policies at all levels but also its nature itself. In this context, a wide range of dossiers linked to the European Commission’s Digital Single Market (DSM) Strategy will be affected.

Brexit implications for the e-commerce sector On the United Kingdom (UK)

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ccording to Ecommerce Europe and the Ecommerce Foundation’s joint 2016 European B2C e-commerce report, the UK is in the lead when it comes to the size of their market (€157.1 billion) and the average spending per e-shopper (€3,625). With about 20% of UK online merchants selling cross-border to the EU and 6.12% of UK GDP coming from online sales, a possible Brexit could have noteworthy negative impacts on both the British and the European e-commerce sector. It is therefore understandable that e-commerce interests on both sides of the Channel will be watching events unfold with a level anxiety. Of course, the level of impact that Brexit has will depend on what the final outcome of Brexit is. This would considerably affect British consumers, who shop much more online than their European counterparts, spending an average of €3,625 in 2015. The loss of access to the European Single Market is likely to entail higher prices for the UK consumers, as tariffs take their toll. Furthermore, the weakened Pound will also make European prices relatively more expensive, while macroeconomic uncertainty and cuts in interest rates are likely to choke demand. Finally, not being part of the DSM also means that Commission proposals for harmonized consumer

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protection, regulations against geoblocking, and efforts to tackle overpriced and inefficient logistics services would no longer apply to the UK, leaving British consumers more vulnerable to exploitation. Secondly, the will also considerably impact British retailers. The EU is the UK’s largest trading partner accounting for 45% of its exports and cross-border online shopping is popular in the country. Moreover, the upcoming legislation of the DSM for the e-commerce sector will not apply to the UK. It will for instance include simplified rules for the VAT and more transparency on parcel delivery services, among other initiatives, with the aim of making it much easier for online merchants to sell in the EU. Last but not least, the UK will not have to comply with EU Consumer Law anymore which will certainly have a negative impact on consumers’ trust. On the European Union The loss of the UK is a setback for European e-commerce. The UK, as one of the most liberal market economies of Europe, has been a proponent of a more liberal approach towards innovative technologies and business models such as online platforms and the sharing economy and has been a major player in the ongoing discussions on the DSM. The lost access to the Single Market is likely to see this share shrink significantly as demand from EU consumers drops off due to uncertainty surrounding consumer protection, as well as tariff barriers, and possible logistics price-hikes for non-EU delivery services. However, the continued slide in value of the Pound could offset some of the price rises. However, while there is much cause for pessimism from British people’s decision, one potential upside remains for countries whose e-commerce sectors are


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on the rise. Indeed, France, Germany, Belgium, Ireland and the Netherlands will be standing ready to snatch a larger share in the wake of Brexit, while UK firms like Fairy Glam Ltd will waste little time waiting for Brexit negotiations to unfold before making their move to the continent.

Geo-blocking Proposal The geo-blocking proposal has been a hot and controversial topic in Brussels since its publication in May. Slovakia, the new President of the Council, has the ambition of reaching a general approach among Member States on the proposal before the end of its mandate in December. Ecommerce Europe is pleased to see that the proposal on geoblocking does not contain an obligation for online merchants to deliver everywhere in the EU and that they are free in setting their pricing policies.According to the proposal, foreign consumers will be allowed to shop like local ones under certain conditions. Such cases, according to Ecommerce Europe’s interpretation, will be treated as passive sales, which means that online merchants will be allowed to apply their home country rules and laws. Ecommerce Europe is pleased that the Commission further clarified this point in the text, even though it might need further fine tuning. Only in this way, online merchants can be sure that they are allowed to apply their national laws, without being forced to deal with laws of countries that they are not actively targeting. Besides that, EU policy makers should be aware that one of the consequences of this proposal might be that consumers end up disappointed with a product that they could buy from a website not directing its sales activities to the country of the consumer and which thus might not have been fit for this market.

Digital Contracts Proposals In the coming months, negotiations on the legislative proposals in the field of civil law, particularly on proposals for directives on the supply of digital content and the online and other distance sales of goods will continue under the lead of the Slovak Presidency. Slovakia will try to keep the two existing proposals within a single package, even though most of the EU stakeholders prefer to wait for the results of the Fitness Check on Consumer and Marketing Law performed by the European Commission before starting the negotiations on the tangible goods proposal. That is why the Slovak Presidency is more confident about reaching a Council partial general approach on the supply of digi-

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tal content by the end of the year, while it will definitely be more challenging to achieve the same result for the tangible goods proposal.

Cross-border Parcel Delivery Proposal It is likely that the Slovak Presidency will not be able to reach a Council compromise on the cross-border parcel delivery proposal, in terms of handling different national expectations on price transparency against price regulation. Ecommerce Europe recognizes that the proposal for a parcel delivery regulation has the potential to help create a level playing field for competing postal-, courier- and express operators and thereby in the end for online merchants throughout Europe. The association has been vocal in opposing any type of price regulation and Ecommerce Europe therefore expresses support for the Commission’s cautious approach which leaves room for case-by-case assessment by national authorities. Ecommerce Europe will however continue its work with service providers and policy makers to ensure that we come closer to a global level playing field accessible to all players through the use of open information- and label standards.

Online platforms Ecommerce Europe is pleased to see that the European Commission acknowledged the important role that online platforms play in innovation and growth in the Digital Single Market. Ecommerce Europe is also pleased to see that the Commission will not propose an EU regulation, but that it will have a targeted, principles-based approach to fix eventual problems also touching platforms. The Slovak Presidency will discuss it further during a meeting of Telecoms Ministers the appropriate approach to online platforms.

e-Privacy and VAT for the Maltese Presidency of the Council Finally, the European Commission is expected to table the review of the e-Privacy Directive and the proposal for modernizing VAT rules for cross-border e-commerce during the last two months of the Slovak Presidency’s mandate. The next Maltese Presidency of the Council is expected to kick off the negotiations in beginning 2017. *Marlene ten Ham is Secretary General of Ecommerce Europe More information: www.ecommerce-europe.eu/position-papers

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SPECIAL REPORT EUROPEAN BUSINESS REVIEW

ECOMMERCE EUROPE TRUSTMARK:

CROSS-BORDER E-COMMERCE PROTECTION FOR CONSUMERS By EBR

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he Ecommerce Europe Trustmark stimulates cross-border e-commerce through better protection for consumers and merchants by establishing one European set of rules and by ensuring clear communication on these rules. It is developed in continuous dialogue with consumer organisations.

place.In the case of an incident involving the purchase of their products and/or services, those companies with the Trustmark give you the option of filing claims through the Trustmark Service Centre free of charge, if their own Customer Care Service has not been able to resolve the issue.

More than 10.000 online shops are already certified by Ecommerce Europe and the National Associations, and carry the Ecommerce Europe Trustmark. These shops received the Trustmark for free via one of the National Associations that has joined Ecommerce Europe. Shops that carry the Ecommerce Europe Trustmark link directly to the Ecommerce Europe Trustmark Certificate.

In the case of a consumer complaint, the Trustmark Service Centre provides for a solution out of court. It enables you to reach a solution easily and quickly. The Trustmark Service Centre provides you with assistance in coming to an agreement with the business. If there is no solution for your complaint, you will have no legal disadvantage. You can immediately seek out legal assistance and are free to pursue your complaint through legal means or otherwise.

It’s safer to shop online for consumers The Ecommerce Europe Trustmark protects you when you make a purchase through an online shop in another EU country, and a complaint arises.

How does it work? If you see the Ecommerce Europe Trustmark on the website of a webshop you are visiting, it means that the company has made a commitment to work in compliance with the Ecommerce Europe Code of Conduct, guaranteeing ethical standards in the digital market-

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Benefits for merchants The Ecommerce Europe Trustmark gives consumers peace of mind with a clear code of conduct. By offering a secure, high-quality shopping experience and thus bringing consumers’ trust, the Trustmark ensures loyalty of the merchants’ customers. Finally, it increases traffic by inspiring trust with a European and national logo well-known by consumers.


EUROPEAN BUSINESS REVIEW SPECIAL

REPORT

ABOUT ECOMMERCE EUROPE Ecommerce Europe is the association representing 25,000+ companies selling goods and/or services online to consumers in Europe. Founded by leading national e-commerce associations, Ecommerce Europe is the voice of the e-commerce sector in Europe. Its mission is to stimulate cross-border e-commerce through lobbying for better or desired policy, by offering a European platform bringing the European e-commerce sector and other stakeholders together, and by providing in-depth research data about European markets.

National associations which are members of Ecommerce Europe Belgium Czech Republic Denmark Finland Finland France Germany Greece Hungary Ireland Italy Luxembourg The Netherlands Norway Poland Portugal Spain Switzerland

Becommerce APEK FDIH Finnish Commerce Federation eCommerce Finland FEVAD Händlerbunde.V. GRECA SzEK.org Retail Excellence Ireland Netcomm Ecom.lu Thuiswinkel.org Virke e-Commerce Polska ACEPI Adigital NetComm Suisse

www.becommerce.be www.apek.cz www.fdih.dk www.kauppa.fi www.verkkoteollisuus.fi www.fevad.com www.haendlerbund.de www.greekecommerce.gr www.szek.org www.retailexcellence.ie www.consorzionetcomm.it www.ecom.lu www.thuiswinkel.org www.virke.no www.ecommercepolska.pl www.acepi.pt www.adigital.org www.netcommsuisse.ch

Contact
Ecommerce Europe AISBL
Rue de Trèves 59-61, B-1040 Brussels, Belgium
 Website: www.ecommerce-europe.eu
 Twitter: @Ecommerce_EU

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ECONOMY EUROPEAN BUSINESS REVIEW

MOVING BEYOND GDP WILL IMPROVE POLICYMAKING AND SOCIAL PROGRESS By Michael Green*

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ince its introduction more than eighty years ago, Gross Domestic Product (GDP) has assumed unrivalled authority as the de facto measure of a country’s progress. But eight years on from the global downturn, and as Europe continues to grapple with the economic and social challenges facing nation states, it’s time for all of us – academics, policymakers, entrepreneurs, citizens and the media – to ask ourselves some difficult questions about how we quantify and define progress, and what more we can do to improve the lens through which we evaluate it. GDP has always been limited as a tool for evaluating a country’s progress. Its creator Simon Kuznets wrote in the 1930s that ‘the welfare of a nation can scarcely be inferred from a measurement of national income’. You

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only have to look at the widespread social malaise in many Arab countries that led to the 2011 Arab Spring, or the security challenges in Mexico and other Latin American countries over the last decade, to see the starkly illustrated shortcomings of economic growth as a proxy for social progress. Yet it continues to be the leading global metric by which societies judge themselves, despite a series of major shortcomings. The first of these is its inability to accurately reflect a country’s social progress. It excludes many important economic activities including volunteer work, while including factors such as the costs of crime, increasing prison populations and the depletion of natural resources. Its second limitation is the way it is used and interpreted. The US Bureau of Economic Analysis


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describes the purpose of measuring GDP as to answer questions such as ‘how fast is the economy growing’. Yet per capita GDP is often used to compare quality of life in different countries. Economic growth is frequently referred to by economists, politicians and the media as though it represents overall progress. You could also add a third limitation – its scope as a national measure, providing only a country-wide snapshot, lacks the granularity to offer detail about the growth of regions within countries. As a result of these limitations, the Social Progress Index (SPI) was developed – the most inclusive and ambitious measure of social progress ever attempted. Rather than focusing on economic factors, SPI asks questions that are fundamental to a population’s wellbeing: Does a country have the capacity to satisfy the basic needs of its people? Does it have the infrastructure and the instruments to allow citizens and communities to improve their quality of life? Does it offer each citizen the opportunity to reach their full potential? Many previous efforts to create an alternative index, from the Human Development Index through to the OECD Better Life Indicators, have been focused on replacing GDP by co-mingling the measurement of economic and social factors. The Social Progress Index takes a different approach, creating a measure of social performance that is independent of economic factors as a complement to, not as a substitute for, GDP. This allows for comparisons with GDP trends, for example showing that countries sharing a certain GDP level may substantially differ on social progress. Indeed, the findings from previous iterations of our Index show that whilst there is a positive relationship between economic growth and social progress (wealthier countries typically show better social outcomes than lower-income countries) variability among countries can nevertheless be considerable. We have identified a series of under and over performers –countries that exceed or fall short on social progress compared to countries of a similar per capita GDP. The message is clear. At any level of GDP per capita, there are opportunities for higher social progress and risks of lower social progress. The new 2016 Index compares the social progress of over 130 nations – representing more than 9 of 10 people on

the planet. By creating a holistic measure of national wellbeing that is independent of GDP, it is helping us to understand under what conditions economic growth is inclusive and where it is not. What’s more, SPI can be applied to regions within countries, providing an even more detailed picture of social progress, informing and guiding good policymaking at both the national and local level. That’s exactly what has been launched here in Europe. A three-year collaboration process led by the European Commission, promoted by Orkestra, Deloitte and the Social Progress Imperative was agreed in October 2014 to produce a Social Progress Index for 272 regions in the 28 European Union countries. This EU Regional SPI will inform the development of a network of European Regions sharing knowledge on social progress drivers and expertise on socially-innovative policies. The draft version was launched in February 2016 by DG Regional and Urban Policy for public consultation. The European Commission highlighted that the Index could make a contribution to the ‘beyond GDP’ debate, which could also help regions to identify peers, at any level of economic development, from whom they could learn and, if applicable, prioritise issues they want to address with their Cohesion Policy Programme. Finally, it could serve as a means for the Commission to assess whether the 2014-2020 programmes address the right issues in the right places. GDP will of course continue to be a crucial measure of economic progress, but technological advances in the 21stCentury enable nations to undertake data collection that was impossible at the time GDP was first conceived. The Social Progress Index is helping policymakers all over the world to identify priorities and take action to remedy shortcomings. Combined with GDP, SPI has the power to create a more accurate and informed picture of progress – and that can only be good for all of us.

*Executive Director of the nonprofit Social Progress Imperative

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ECONOMY EUROPEAN BUSINESS REVIEW

BRAZIL:

LIKE INDIA OR GHANA? By Guy Pfeffermann*

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espite repeated high hopes for progress, it has been fifty years of unresolved economic problems in Brazil.Just a few days after the successful 2016 Olympic Games in Rio, the world’s attention was amply focused on Brazil.The kind of attention the country has generated, however, was definitely not what the country’s top officials had in mind when they competed to get the games awarded. Dilma Rousseff’s messy struggle for political survival and, most recently, the Zika outbreak added to the negative economic news, due to the down cycle in global commodities markets.As a result, the temporary enthusiasm about Brazil has vanished completely. Decades-old economic problems have moved back to center stage.In the current news environment that often ambles breathlessly from one negative pronouncement to the next, it is important to understand Brazil’s problems more fully.

The history

Brazil has been famously characterized as “Belindia” — a country in which a small minority of the population lived like well-to-do people would in advanced modern economies, while the vast majority lived like lowincome people in India.The captivating term was coined

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by my friend Edmar Bacha, who runs a Rio think tank, back in 1974. Then, ten years ago, former Planning Minister DelfimNeto came up with another humorous epigram for Brazil: this time, it was “Enghana.” Brazil, as he saw it, had the (then extremely high) taxation level of England, but those government revenues were used to deliver social services that were at par with the standards in Ghana.In a further linguistic twist, the Portuguese word enganar means to trick or hoodwink (taxpayers, in this case). The implication is that nothing ever changes much in Brazil. As the saying goes, Brazil “is the country of the future, and always will be.” So what has happened to “Belindia” and “Enghana”? In some very important ways Brazil has changed a lot over the last 10-20 years. In other ways, it has not. From inception, the “Belindia” metaphor deliberately exaggerated the separation between low-income people and others, but it was a striking “bumper sticker” for Brazil’s extreme income inequality.Brazil’s income inequality was for a long time among the highest in the world. This was true until about ten years ago, when inequality began to decline year after year.At a level of around 0.55 in Gini terms, it is now close to the level of the United States (around 0.5)


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Few problems resolved In this regard, Brazil’s remarkable evolution is reflected in the share of the middle-class, broadly defined, which rose from around 30% of the population in the early 1990s to about 55% in 2011.How did this happen? My answer is: Brazilians were lucky to have elected two outstanding presidents — Fernando Henrique Cardoso and Luis Lula da Silva.The first one, Cardoso, managed to curb Brazil’s perennial inflation. What is little understood is that reducing inflation is a hugely “pro-poor” policy, as poor families live on cash, which melts away by the day.Building on Cardoso’s immense achievements, Lula’s administration expanded social services and other government support to hitherto underserved sections of the population. Brazil recorded the steepest increase in education expenditures of all but one of OECD’s 38 countries. It rose from 3.7% of GDP in 1995 — an abysmally low level — to 5.5% in 2009, almost matching the OECD average of 6.2%. Another important driver of social inclusion is the explosive growth of mobile communications. Today, there are 300 million mobile phones in the country Brazil is also the third biggest user of Facebook, behind India and the United States.So “Belindia” has been dealt with pretty successfully. Alas, the “Enghana” metaphor is still valid today. The government’s costly system of social benefits only serves a minority of the population, who are not the poor. Meanwhile, taxes are among the highest in the world.For example, many Brazilians — in the formal economy, which often means the government sector — like to retire exceedingly early at near-full salary, to find second jobs (some actually managed to get re-hired in their old jobs).Between 1993 and 1998, the average retirement age went down from 54 to 49 years, and the number of private sector retirees receiving government pensions nearly doubled.

Raft economy The pensionable age has been raised since, but a great many early retirees live happily in Brazil. Their pleasure is a great financial burden on the rest of society.Owing largely to opaque, often “cascading” taxes — that is: taxes on taxes on taxes — life in Brazil is very expensive. Brazil remains therefore a “raft economy”: A minority

captures substantial social benefits, while the rest are swimming around the raft and paying heavy taxes. This huge drain on the government’s finances has diverted funding to expensive benefits for a few from badly-needed infrastructure upgrades, and hence stunted the country’s economic growth potential.And Brazil’s transport costs are notoriously high. While school expenditure and coverage have increased, quality is very uneven and too many Brazilians are still only marginally literate.The higher education system produces a fraction of the needed talent pool, notably far too few engineers to meet the country’s needs.

Trade concerns Last but not least, high protection against imports — a good brand-name Chinese radio costs three times what it does in Chile — depresses the population’s purchasing power.For all its indisputable charms, Brazil has remained one of the world’s economies most isolated from the rest of the world.Its trade (imports plus exports) adds up to less than one-quarter of GDP, half of India’s ratio and less than half of Russia’s and China’s.Owing to its massive endowment of fertile land and mineral resources, Brazil is today one of the world’s top exporters of soy beans, orange juice, iron ore and some other commodities.It has not, however, been successful in increasing the share of non-commodity exports, prices of which are far less volatile. Fewer than 40% of Brazil’s exports are manufactures, compared to 64% of India’s and more than 90% of China’s. Of the BRIC countries, only Russia, with a rate of 15%, is out-performed by Brazil.

Conclusion Despite the current bout of the pervasive pessimism about Brazil, some important indicators are pointing in the right direction. Much will depend on whether the country has chance to get the corrosive political infighting under control. That is a distraction the country cannot afford.

* Guy Pfeffermann is the Founder and CEO of the Global Business School Network. He was formerly the chief economist of the IFC.

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TRENDS EUROPEAN BUSINESS REVIEW

INBOX ZERO: CAN EMPLOYEES BE PERSUADED TO ABANDON EMAIL? By Matt Palmquist*

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he rise of Web 2.0 platforms and social media programs has the potential to enhance the way colleagues collaborate, but old work habits die hard.Since its widespread adoption by the business world in the mid-1990s, email has become by far the most popular method of interoffice communication and knowledge sharing among work colleagues. After all, email is essentially an updated version of the memo, the bedrock of workplace communiqués for nearly a century. But in surprisingly rapid fashion, Web 2.0 platforms — including internal blogs, wikis, content sharing sites, videoconferencing systems, and social networking

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programs — have moved from technological outliers into the corporate mainstream. In turn, some have suggested that these newer modes of communication could soon compete with, if not supplant, email as the primary way coworkers interact with one another. Indeed, for all the benefits of email (the written record of exchanges, the ability to send messages from pretty much anywhere), businesses have also long recognized its drawbacks. To be sure, any employee with an overflowing inbox knows the pressure of information overload, and being inundated with messages coming into different folders has been shown to drive down employee performance.


EUROPEAN BUSINESS REVIEW TRENDS

The lack of face-to-face interaction and the nature of individual or very small group communication can also decrease colleagues’ trust in one another and throw up barriers between people on different email chains. During a five-day experiment at a large scientific organisation, for example, when email access was shut off, employees focused longer on their assignments and felt much less stress, as evidenced by their heart rates. But using email in the workplace is a tough habit to break, according to a new study, and coworker collaboration via newer social platforms may not be the miracle cure it’s cracked up to be — at least, not yet. Managers must make a committed effort to champion Web 2.0 technologies as the pillar of interoffice communication and knowledge sharing — a way to distribute information and specific know-how that helps employees collaborate to solve problems, come up with new ideas, and create new internal procedures. The study’s authors took advantage of a nascent trend developing in some IT-related firms: the deliberate elimination of email as a means of interacting with colleagues. They surveyed 120 employees (32 percent were managers and 68 percent were analysts or techsupport workers) at an international IT firm that operated in more than 40 countries. In 2011, the company’s CEO banned internal email as part of an initiative to build a new culture of knowledge sharing. The company turned to a variety of alternatives: social media platforms; videoconferencing systems; electronic whiteboards that allowed employees to post and edit messages that anyone in the group could access; and document management programs that acted as shared repositories for project organisation, client needs, and historical data. Unlike the one-on-one or small-group nature of email messaging, these Web 2.0 technologies allow a wide dissemination of employee-generated concepts and enable coworkers to connect with others whom they might never have interacted with otherwise. Further, generating social ties via technology has been shown to help spur innovative thinking and instill a more positive self-identity in employees. The authors surveyed members of five different teams in August 2014, gauging (1) how compatible the social media tools were with employees’ tasks; (2) how easy and effective the employees perceived the new programs to be in comparison with email; and (3) how habitual employees’ use of email had been in the past.

Unsurprisingly, the authors discovered that employees who found the alternative platforms easier to use and considered them an improvement over email were more likely to make a habit of using them and, in turn, increase their knowledge-sharing activities. But the deeply entrenched nature of email use proved difficult to overcome for many employees — especially those who considered using email to be an essential practice in their work life. Indeed, this group of employees viewed the adoption of new communication methods as an inherent disruption. “In other words,” the authors write, “using socialcollaboration tools is not necessarily synonymous [with] increased collaboration and knowledge sharing.” Management plays a key role, the researchers suggest. Implementing modern collaborative tools requires changing employees’ old habits and triggering new ones, as quickly as possible. Pointing out the benefits of social media platforms is all well and good, but shaping employees’ habits seems to be more vital in creating a new culture of knowledge sharing. To break employees’ long-term habits, managers should inject a sense of urgency into their initiatives, the authors advise, and treat the process of change as an essential part of their company’s strategy and culture. Supervisors could also consider incentivizing the development of new technological habits by letting it be known that they’re monitoring employees’ Web 2.0 use, garnering continual feedback from workers, and perhaps even publicly rewarding those who enthusiastically ditch the old email model and embrace the new platforms.It won’t be easy. After all, the abandonment — or even discouragement — of email use represents a fundamental paradigm shift away from the time-honored memorandum model. Then again, business is changing, and the increased presence of globally dispersed teams and work groups should invite new ways of thinking about collaboration. As the study’s authors write, “the very nature of social media, as a broadcast medium that emphasizes…public access of information as well as social connectedness, [calls into question] the use of recipient-targeted technologies such as email, especially in a context in which group coordination is more needed than ever.” *Matt Palmquist is a freelance business journalist based in California.

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TRENDS EUROPEAN BUSINESS REVIEW

REDEFINING WORK: THE ROLE OF FREELANCERS By Marco Torregrossa*

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he nature of work and the ways it gets done is evolving rapidly. Public policies and the business sector need to be ahead of change, and provide more targeted support to workers transitioning from employment to freelancing and back. The rush hour is dying. New York City’s subway system has announced that, for the first time in 30 years, “weekday growth was strongest outside of the traditional morning and evening rush hours”. This is because people are beginning to abandon the conventional commute to a 9-to-5 job, so they can live and work autonomously. Data from the ILO shows that worldwide only 17% of workers have full-time contracts. However, the majority

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of Europeans work for someone else, although this is going to change. According to research carried out by the European Forum of Independent Professionals, from 2004 to 2013, the EU27 freelancers population grew from 6.2 million to nearly 9 million. This is a 45% increase, making freelancers the fastest growing segment of the European labour market. What used to be a niche market is on the verge of breaking into the mainstream. Globalisation, faster lifestyles, technological advancements, demographic shifts, development of the knowledge economy, and increasing requirements for specialised skills led people to take a more flexible and entrepreneurial approach to work, less attached to specific times, places, and employers.


EUROPEAN BUSINESS REVIEW TRENDS

The typical career today involves periods as an employee, as self-employed and unavoidably also: “time in between jobs”. Work is no longer associated with organizations but revolves around individuals under an array of different contracts: freelance, temporary, parttime, subcontracted, task-bound etc. An example of this new model of work can be found in the Hollywood studios of the film industry. Teams are assembled and disbanded quickly to work for a short period of time on a designated and complex task with strict deadlines requiring many people with complementary skills.Unsurprisingly, with these flexible arrangements, people have better work-life balance. New findings from the Royal Society of Arts in the UK indicate 84% of self-employed are more satisfied at work than employees, even though their revenues might be lower, while the Department for Business, Innovation and Skills in UK found that self-employment is more likely driven by opportunity than necessity. So, in the future, people will have work, but not really a job. Robin Chase, founder of Zipcar, said: “My father had one job in his life, I’ve had six in mine, my kids will have six at the same time.”Public policy has to react quickly, with a mix of both anticipation and innovation to the changing paths people take in their working life. This involves new approaches to invest in skills, reduce red tape, modernize education systems, rewrite tax rules, build the right physical and digital infrastructures and ensure portability of social benefits that could accompany a worker while s/he moves from project to project. The current EU Consultation on the European Pillar of Social Rights offers a chance for stakeholders to provide fresh thinking on the future of work and welfare system debate. In times of slow economic recovery and if properly managed, new forms of work can help to eliminate skill shortages, ease unemployment and create a global meritocracy where workers are rewarded solely for their output, regardless of their location, education, gender or race. Active labor policies need to avoid a “one size fits all” approach, recognize the heterogeneity in the freelance labour market and attempt to divide it into advantaged, disadvantaged and false fragments. We need targeted

measures that legitimize, professionalize and support the advantaged fragments, protect the vulnerable fragments and clearly set out the difference between false and legitimate self-employment so the former can be avoided. Nowadays, around 35% of the average large company’s total workforce is made up of contingent labour. Employers are starting to create “talent pools” of tried and tested skills that can be called upon as and when required and can be used to respond quickly to disruptive innovation, manage risk, harness external knowledge, and introduce new services. This gives a competitive advantage and could create permanent jobs too. It’s not far in the future the day when your new boss could be a freelancer. Businesses and local authorities should co-create innovation zones to experiment with flexible work arrangements. They should support the development of local platforms letting companies use freelancers without fear of liabilities if they might later be reclassified as employees and use big data to monitor trends. HR agencies, financial actors, public and private intermediaries should upgrade their services to sustain workers’ transition from project to project, platform to platform and into different career paths. An old proverb says that the best time to plant a tree was 20 years ago, but that the second best time to plant a tree is today. It’s time to start sowing the seeds so a new system can grow and thrive.Freelancers have never been the folks who sit around waiting for change. The same is true today. * Marco Torregrossa is the Secretary General of the European Forum of Independent Professionals. **First published at EurActiv.com

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MANAGEMENT EUROPEAN BUSINESS REVIEW

BEING A SUCCESSFUL ENTREPRENUER ISN’T ONLY ABOUT HAVING THE BEST IDEAS By Andy Molinsky*

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EUROPEAN BUSINESS REVIEW MANAGEMENT

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ost people think that being an entrepreneur is about having that big idea. And it is. To start something new, you need to have an idea that works: something people need, something they’ll want, and most importantly — at least for the people investing in your idea — something that’s scalable. But what I’ve found from interviewing multiple entrepreneurs who focus on consulting, the internet, and software development is that without the capacity to execute an idea — to take an idea and turn it into a living, breathing, viable organization — you’re doomed to fail. And for many entrepreneurs who are thinkers, rather than doers, this is a frightening notion. For example, an owner of a software company told me about how anxious he felt making sales to customers. He loved developing the product, and he also enjoyed speaking about the product to potential clients, because he truly believed in it. But when it came time to making the “ask,” he’d freeze. He’d stumble, bumble, and in many cases, simply not even ask for the sale. The CEO of a small consulting firm I spoke with lamented how hard it was for him to spread the word about his company at conferences and networking events because of his introverted and shy nature. And the CEO of a start-up internet company deeply believed in the mission of his company, but struggled morally when pitching potential employees on the “dream” without disclosing the full reality: they might not haveenough runway of cash to make it through the month. How can idea-oriented entrepreneurs become doers and learn to raise money, pitch to investors, hire, and fire employees — especially when it forces them outside their personal and professional comfort zones? The first step is to actually recognize — and own up to — the challenges. None of us likes to admit our weaknesses and flaws, but in order to improve, we have to. Each of the successful entrepreneurs I spoke with ultimately recognized the importance of these necessary but difficult tasks and that, in many cases, they were things they had been avoiding or procrastinating about — to the detriment of their business. The next critical step is to embrace your purpose and mission, because that is going to give you the motivation and courage to actually take the necessary

leap. For example, Maran Nelson, CEO of Clara Labs, said this about the power of conviction with respect to acting outside her comfort zone as a CEO, especially when fundraising: “The most important thing I’ve learned about fundraising is just really fundamentally believing in what you are doing. Knowing that it is good. You have to know what you are doing is good and that it must exist in the world.” Conviction is the feeling, deep down, that what you’re doing — and even struggling with — when acting outside your comfort zone is worth it. That the pain is worth the gain. And given the inherent challenge many tasks present to budding entrepreneurs, having this conviction is a critical part of the puzzle. Finally, the last piece of advice I learned from speaking with entrepreneurs is the importance of finding your own way. Just as there is no one-size-fits-all strategy for becoming an entrepreneur, there also is no onesize-fits-all strategy for learning to act outside your comfort zone. For example, if you need to pitch to investors but hate asking for money, script out the first few sentences of your message, or bring a colleague with you who makes you feel more confident or who can help with your pitch. Or remind yourself of your mission before stepping into the room, so have purpose top-of-mind, which may make it easier to pitch. Whatever it is, you can find your own way of handling these necessary but difficult moments. The entrepreneurs I spoke with who were successful at acting outside their comfort zones were able to find simple ways like these to be effective, without losing themselves in the process. In the end, most people equate entrepreneurship with ideas. But for many, the real entrepreneurship happens internally — with the process of stepping up, having courage, and doing things that you never thought you’d be able to do. By flexing your behavior and learning to act outside your comfort zone, you’ll be well on your way toward achieving your goals.

*Andy Molinsky is a Professor of International Management and Organizational Behavior at the Brandeis International Business School. He is the author of Global Dexterity (HBR Press, 2013) and the forthcoming book Reach: A New Strategy to Help You Step Outside Your Comfort Zone, Rise to the Challenge, and Build Confidence (Penguin, 2017).

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MANAGEMENT EUROPEAN BUSINESS REVIEW

TEN QUESTIONS TO ASK BEFORE PURSUING AN ACQUISITION By Claudia Zeisberger*

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orporate acquirers can benefit from asking the same questions private equity firms ask themselves before pursuing acquisitions.Most mergers unfortunately fail. Looking at Quaker’s purchase of Snapple or the merger of AOL and Time Warner, mergers regularly expose executives to insurmountable culture clashes, integration challenges, or even biases that make them fall in love with a deal and drastically overpay. As my colleague Jay Kim shows in his research, desperation can also make executives throw the kitchen sink at a deal, with dire consequences for the long-term plans of the business. Corporate acquirers pursue acquisitions for many reasons from gaining access to complementary resources and capabilities to increasing their size and economies of scale; the hunt for synergies is the key term. Private equity funds on the other hand have a different mandate when it comes to acquisitions or investments. They have a clear end goal in mind: improve or transform the portfolio company and sell or exit the investment. The ability to exit is vital in Private Equity (PE) and the implied measure of success, makes

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for an interesting study for the benefit of all acquirers. In the Private Equity elective, part of the INSEAD EMBA programme, we give the students detailed documentation of various acquisition opportunities and ask them to prepare a pitch for the investment committee of a mid-market buyout fund. When vigorous debate inevitably gets underway, we always find one key question bubbling to the surface: What’s different about the way PE players approach a deal to the way corporate acquirers do; what can we learn from their ability to capitalise on the opportunities? As Graham Oldroyd, former Partner at Bridgepoint, and I argue in the class, PE players ask themselves ten questions in regard to every proposed acquisition. Corporate acquirers can benefit by asking themselves the same questions too. In the main, each will have similar desired answers. There are, however, some subtle but important differences. Many acquisitions are contested, and corporate acquirers may frequently find themselves competing against PE bidders. It is then helpful for corporate acquirers not only to ask the same questions but also to understand where there may be different considerations being applied by PE.


EUROPEAN BUSINESS REVIEW MANAGEMENT

1. Why invest in this company?

4. What is the quality of the earnings?

PE buyer considerations: Can this be positioned as a compelling opportunity to investment committee colleagues and to investors in the PE fund?

PE buyer considerations: Is the current and projected future profitability on which the investment case is based sustainable? What is the extent of cyclical exposure? Does the target have earnings resilience, pricing power, sustainable competitive advantage?

Corporate acquirer considerations: Will this be compelling when described to the holding company board, key shareholders and other stakeholders?

2. Is this in line with the investment strategy? PE buyer considerations: Does the investment fit the fund mandate? Is it in the right geographic region? Does the transaction fall within prescribed enterprise value and equity investment size limits? Is it in a target sector? Is it at the correct growth stage (start-up vs. early stage vs. growth or established business)? Is it a ‘good to great’ or ‘turn-around’ investment? Is there development potential and market opportunity? Is the management of the right quality? Having bought and developed the target company, will there be a ready exit through IPO or sale? Corporate acquirer considerations: Does the acquisition fit or conflict with the acquirer’s published acquisition strategy and/or previous statements by the Group Chairman or CEO to investors? If the acquisition takes the acquirer group in a new direction, can this be readily explained and justified?

3. Are reputational issues addressed? PE buyer considerations: Are there reputational, ethical, environmental or other issues affecting the investment, and, if so, have they been priced in, and are they being fully, responsibly and satisfactorily addressed? Does the target carry out activities excluded by certain PE fund investors (e.g. armaments, tobacco, etc.)? Will the acquisition require Competition Authority or other regulatory or government approvals? Corporate acquirer considerations: Are there reputational issues affecting the investment, and, if so, have they been priced in, and are they being fully, responsibly and satisfactorily addressed? Will this be seen to be the case by stakeholders? Are any risks so large that, however well managed, if things still go wrong they could potentially threaten the whole Acquirer Group? Will the acquisition require Competition Authority or other regulatory or government approvals?

Corporate acquirer considerations: As for PE, and: What synergy benefits exist and how certain are they?

5. Is there an opportunity for good returns? PE buyer considerations: Is the expected purchase price reasonable and within relevant benchmarks? Is an appropriate level of debt funding available? Do projected potential equity returns meet PE fund requirements? Is the investment characterised by unlimited, strong potential upsides through multiple possible routes, and limited or moderated downside, or the reverse? Corporate acquirer considerations: Is the expected purchase price reasonable and within relevant benchmarks? Will it be earnings dilutive or accretive? Is finance available internally or at a reasonable cost as new funding? Do returns depend on synergies? If so, how certain are they and how is the projected value shared between Acquirer and Seller? Will the acquisition block other expansion options?

6. Realism of plans and projections? PE buyer considerations: Has the target company demonstrated past forecasting/budgeting accuracy; solidity of assumptions; contracted future earnings; cyclical exposure; quality of management, etc.? What is within the target company’s control, and what is outside? Are there any key dependencies (e.g. suppliers, customers, third parties)? Corporate acquirer considerations: As for PE.

7. Management? PE buyer considerations: What is the existing management team’s track record? Is the team capable of delivering the projected turn-around/revenue and profit growth, and running a larger, expanded business? Are there any existing gaps or team members leaving post-acquisition? Can these gaps be filled? Do key customer, supplier or other relationships depend on individual management team members? Is management ready to invest personally in the

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acquired company? Were any key functions fulfilled by the Seller, and, if so, how will these be handled once ownership changes? Corporate acquirer considerations: What is the existing management team’s track record? Do they share the same culture as the Acquirer? Is the team capable of delivering the projected revenue and profit growth, synergies, and running a larger, expanded business? Are there any existing gaps or team members leaving post-acquisition? Can the Acquirer cover this? Do key customer, supplier or other relationships depend on individual management team members? Were any key functions fulfilled by the Seller, and, if so, how will these be handled once ownership changes? Will management be happy with incentives in the Acquirer Group?

8. Exit opportunity, ease and timing? PE buyer considerations: Having bought the company, how easily will the PE Fund be able to sell it at the end of the investment period? If so, when and how – IPO, trade sale, timing, etc.? Are there obvious future owners? Corporate acquirer considerations: Is the aim to merge the acquisition with other Acquirer Group companies or run it as a free-standing entity? In either case, if the acquired business at some point in the future becomes non-core, can it readily be resold? Would such a sale expect to attract a premium or discount to the acquisition pricing?

regulatory changes been assessed? Are there any key customer, supplier or other dependencies? What are the potential ‘left-field’ risks? In addition to ‘standard’ due diligence (accounting, tax, pensions, commercial, legal, environmental) what specific further issues need investigation? Any potential issues under UK Bribery Act 2010 and US Foreign Corrupt Practices Act 1977? Corporate acquirer considerations: As for PE.

10. Competition to buy the business? PE buyer considerations: Do we know competing bidders? Can we expect to win, and will the Seller sell at the purchase price assumed? Corporate acquirer considerations: As for PE So what can corporate acquirers learn from the way PE firms execute acquisitions? In summary, given that PE firms are directly measured by and succeed or fail based on their investment performance, they are more selective about the acquisitions they make and more financially disciplined post-acquisition. They’re also more open to the type of acquisition as long as there is clear potential for the target, whether in growth, turnaround or development potential. Given the importance of making an exit, PE firms are focused on immediate improvements and are willing to invest in making such improvements; culture is less important as long as the management shows potential.

9. Matters requiring further due diligence investigation? PE buyer considerations: Do we know the company, the sector and the management? Have we taken references? What are the key assumptions underpinning the investment case? How can these be tested? Have potentially disruptive new technologies, market or

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*Claudia Zeisberger is a Senior Affiliate Professor of Decision Sciences and Entrepreneurship and Family Enterprise at INSEAD and the Academic Director of the school’s Global Private Equity Initiative.


European Business Review (EBR)  

Issue 03/2016

European Business Review (EBR)  

Issue 03/2016

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