Issue #10 January 2011
EFM Academy Magazine Maastricht University
Drop out of school and become a billionaire? STUDENT LIFE
Confessions of an Economic Hitman PERSPECTIVES
Trade wars and cheap money Why the world economy is in great danger
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Entrepreneurship - discover the entrepreneur in you?
ntrepreneurship means starting a business. Entrepreneurship means creating something out of thin air. Entrepreneurship means taking risks. But most importantly, entrepreneurship means taking the initiative. So in this Issue of EFM Academy’s Accent we have taken the initiative to once more provide you with interesting facts, fun stories, and hopefully a good time. What do you need to become an entrepreneur? Do you have what it takes? In this issue, you can read about successful student entrepreneurs and first steps to take if you want to follow in their footsteps. You don’t know how to pay for these “first-steps? No problem; in our special, we also cover some of the financing dilemmas entrepreneurs might face and, last but not least, we highlight the benevolent practices of social entrepreneurs. Can you found a business and help people at the same time? Besides taking the initiative, entrepreneurship also is about going the extra mile. So, true to the spirit of this issue’s topic, we also provide you with lots of other interesting stories. You can read the book review of the New York Times bestseller Confessions of an Economic Hitman and then have its famous
author, John Perkins, explain his accounts to you in person, as we interviewed him for this copy of Accent. Besides this highlight, we also provide you with some tips on how to organize a memorable house party and where to grab a good sandwich around the university. And we also have some perspectives on current world events for you, tackling the gripping developments on the world’s money, weapons, and oil markets. Read about what’s going on and see it from your own vantage point. Enjoy reading. Yours,
Lars Ickenroth Chief Editor
EFM Academy Magazine
table of contents SPECIAL
Building your own business. What steps to take? page 21
Where should you grab a bite page 16
Merchant of Death
It all comes back to the people Social entrepreneurship page 28
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table of contents
SERIOUS FUN Letter from the Editor.............................................. 03 Contents / Imprint................................................... 04 Letter from the President........................................ 07
STUDENT LIFE Confessions of an Economic Hit Man..................... 08 Book Review Interview with John Perkins.................................... 10 Talks about Iceland and the financial crisis. How to organize a good house party?..................... 13 Accent has some tips for a legen- wait for it- dary party. Study Fuel............................................................... 16 Where should you grab a quick bite?
How to organize a good house party? page 13
SPECIAL: YOUR PATH TO ENTREPRENEURSHIP Drop out of school and become a billionaire?........ 18 Young entrepreneurs on the rise. Building your own business.................................... 21 Accent advises you what steps to take. Planting a “seed” and growing a tree?................... 25 How venture capital can help entrepreneurs grow their business It all comes back to the people............................... 28 The role of social entrepreneurship.
PERSPECTIVES EDITORIAL STAFF: : Christian Moeller (executive board member), Lars Ickenroth (committee chair/chief editor), Cédric Frantz (writer), Mike Langen (writer),Thorben Schäfer (writer), Ralf Pierson (layout and design) EFM ACADEMY: Accent is the official members‘ magazine of EFM Academy, P.O. Box 616, 6200 MD Maastricht, The Netherlands CHAMBER OF COMMERCE: 14074653 TITLE DESIGN: Ralf Pierson PRINTING: Compact Drukwerken Europapark 24, B-3620 LANAKEN WEB: http://accent.efmacademy.nl CONTACT: email@example.com ISSUE: #10, January 2011
Interview with an Alumni ..................................... 32 Dimitri Harddeman talks about his career at Dell. Merchant of Death................................................... 34 Viktor Bout: A brilliant entrepreneur? Trade wars and cheap money................................. 36 Why the world economy is in great danger The Quest for the Arctic Ocean............................... 41 Tensions between Russia, America and other nations.
EFM Academy Magazine
Join EFM Academy! For more information & committees check www.efmacademy.nl/active
• • • •
Bring Theory into Practice Take Responsibility Use your Skills Meet Friends
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photo: sebastian meier
Stop hiding; Become active.
Dear reader, ‘‘BUILDING YOUR OWN BUSINESS‘‘ More and more people like the idea of starting their own business, something they believe in, care about and are willing to invest their time and energy in. The most difficult question is where to start? Inspiring yourself through hobbies and interests is a beginning. At E.F.M. Academy we do not build or own business in the sense of setting up a new association but we build up our own business by taking on the responsibility to care for our association, to develop it further with our ideas and beliefs and therefore build our own business and make it our own ‘thing’. A good starting point for building your own business is to experience how it feels to take something over and to use the freedom you are given to develop something new and exciting. By becoming part of E.F.M Academy, students are given the opportunity to get involved into a business which is ini-
tially not theirs. Being active and taking on responsibility within E.F.M. Academy means organizing a good party, contacting companies for great trips, preparing exam trainings for students or working on the publication of the next Accent issue. Taking care of the business which becomes “yours” means dealing with several obstacles one might face but also sharing the success with your team members. As a board member or an active member, students experience how great it can be to build up their own business to stand up for failures and successes and to learn what it means to take on responsibility and care together about their business. We hope that you find articles that catch your interest, make you think about a topic or just entertain you! On behalf of E.F.M. Academy, I hope you enjoy this issue of the Accent as well as the remainder of the academic year.
Charlotte Behnke President EFM Academy 2010/2011
EFM Academy Magazine
Confessions of an Economic Hit Man
Have you ever heard the term economic hit man? Probably not, because it would be one of the last things you would hear on TV or on the radio. What they do is pretty simple. Economic hit men are highly paid professionals who lure underdeveloped countries into dependency of a dominant nation by convincing them to take on huge loans in order to improve their infrastructure. What these countries donâ€™t know is that they never will be able to repay their debt. This puts them under political pressure of the dominant nation they got the loan from. It may sound like a political thriller, but according to John Perkinsâ€™ 2004 best-seller, Confessions of an Economic Hit Man, it is pure reality. eration, which allegedly operates on behalf of the
ohn Perkins used to be an Economic Hit Man. The National Security Agency (NSA) recruited him in the 1960s when he was still in business school. Since then, he has worked for Chas. T. Main, an engineering company that specialized in hydroelectric gen8
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United States government. As a chief economist, he helped U.S. Intelligence agencies and multinational corporations blackmail foreign leaders into serving U.S. foreign policy interests and awarding lucrative contracts to U.S. businesses. After struggling several years with his conscience,
he finally published his book, Confessions of an Economic Hit Man, in 2004. Six years later, the book, which is part autobiography and part confession about what is going on behind the curtains of the international political machine, still is very enlightening and well worth reading. In more than 300 pages, Perkins takes us from his first encounter with oil companies, harming the culture and environment of Indios in the Amazonian rain forest, to his first promotion at Chas. T. Main. As the reader follows this journey, the recruitment and the practices of economic hit men are described in vivid details. It doesnâ€™t take long until Perkins is sent to Panama with his first special operation in his briefcase. Here, he meets the charismatic leader Omar Torrijos, who is determined to regain the property rights of the Panama Canal from the United States. Perkins and Torrijos negotiate a deal that would secure the inde-
student life pendence of Panama. However, Torrijos was very aware of the practices of economic hit men and knew that he was choosing a dangerous path. After all, his
might happen in Saudi Arabia if vast amounts of money were invested in its infrastructure, and to map out scenarios for spending that money. Furthermore, he
If you don’t want to blindly believe news reports you should really have a look at this book . plan implied that big U.S. corporations, such as engineering giant Bechtel, would lose profitable contracts. On July 31, 1981, Torrijos died in a plane crash. According to Perkins, he was the victim of an assassination plot orchestrated by the CIA. For Perkins, other jobs followed, such as his biggest success, which took place in Saudi Arabia. In response to OPEC’s oil embargo in 1973, which made it evident what the oil producing countries were capable of, Wall Street and Washington became obsessed with protecting American oil supplies. The U.S. wanted Saudi Arabia to guarantee to maintain oil supplies at prices that would be acceptable to the U.S. and its allies. Due to Saudi Arabia’s vast petroleum supplies, this guarantee would protect the U.S. even if other countries threatened oil embargos. In exchange for the guarantee, the U.S. offered the House of Saud a commitment of complete political and military support. They also would assure that the House of Saud would continue to rule in Saudi Arabia. Perkins was brought in during the early stages of the negotiations. His job was to develop forecasts of what
helped to persuade the royal family to invest billions, generated in the oil business, in U.S. treasury bonds. The interest paid on these bonds then was used to finance contracts with U.S. companies to build vast infrastructures and even whole cities in Saudi Arabia. Contrary to other involvements of economic hit men, whose main goal was to apply debt burdens to countries, the goal in Saudi Arabia was to assure that a large amount of petrodollars found its way back to the United States. John Perkins’s life resembles the plot of an old spy movie. In a world fueled by money, sex, and power, the realities of everyday people whose lives are affected by the fraudulent behavior of economic hit men, seem insignificant. These insights into a world most people never would have imagined even existed opens the reader’s eyes, and might change one’s perspective about events in the world. After reading Confessions of an Economic Hit Man, you know that whenever a country is invaded, or the leader of a country dies under suspicious circumstances, there may be more to it than the news reports reveal. One comes to understand why a number of nations express
anger and hatred towards the United States. If you don’t want to blindly believe news reports, and form your own opinion instead, you should really have a look at this book. Perkins‘s account is highly recommended, as it is the first of its kind and the first such account written by an insider. Especially for economics and business students, the economic background of the book might be very appealing. In contrast to potentially boring finance and macroeconomic textbooks, Confessions of an Economic Hit Man offers insight into how this theoretical knowledge is applied in the real world, if not necessarily in a positive way. For readers more interested in the recent financial crisis, Perkins‘s most recent publication, Hoodwinked, also might be worth reading. In this book, he writes about the current financial meltdown and describes how events occurring in third world countries blindfolded by economic hit men have sent the United States and the entire planet spiraling toward disaster.
READ SKIM TOSS
Cédric Frantz, a
second year IBE student wanted to highlight one of his favorite books.
EFM Academy Magazine
Interview with John Perkins author of CONFESSIONS OF AN ECONOMIC HIT MAN ACCENT: What constitutes the low us to build a military base job of an economic hitman? What on your soil, or vote for us on the exactly did you do? next United Nations vote. In the few cases where we failed, where PERKINS: Well, I think it is fair we economic hitmen were not to say that we economic hitmen able to convince the leaders of managed to create the first truly these countries to accept these global empire. And we’ve done conditions, then the jackals go this in many ways. Perhaps the in. And these are the people who most common is to identify a overthrow governments, who ascountry which has resources that sassinate the leaders. I can tell our corporations covered, like you about Jaime Roldós Aguilera, oil and then arrange a huge loan the democratic elected president to that country from the World of Ecuador or also Omar Torrijos Bank or one of its sisters. But the of Panama who didn’t accept the money doesn’t actually go to the conditions and as a result were country, instead it goes to our assassinated by the CIA or the own corporations which build Jackals. In the cases where even big infrastructure projects in that the Jackals fail like in Iraq/Iran country, like power plants and with Saddam Hussein, the miliindustrial parks which will only tary goes in. benefit a few wealthy families in that country but don’t help the ACCENT: You mentioned Iraq; majority of the people who are did they actually try to persuade too poor to use electricity or high- Saddam Hussein to accept the ofways or ports. But the citizens of fers of EHM? Did you try to conthe country, the average people, vince him to take on huge loans are left holding huge debts and which they wouldn’t be able to rethey can’t repay it. So at some pay? point we go back to their country and say: hey, because you can’t PERKINS: No, no. In Iraq, it was repay our debt, sell your oil cheap more like in Saudi Arabia and to our oil companies without any Iran. They didn’t have to take on environmental restrictions or al- debt because they had oil. So the 10
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goal was to convince the leaders of those countries to go along with many other conditions like selling oil to oil companies at prices that the oil companies established; to use only the dollar for oil, so to sell it only for U.S. dollars, returning a large percentage of the money they would make with selling oil to the U.S., to invest in U.S. treasury bonds, which Saudi Arabia did extensively. And give the U.S. Treasury permission to use the interest earned on these bonds to hire U.S. corporations to operate in these countries. For example, in Saudi Arabia we were building huge cities out of the desert and petrochemical complexes. The Shah of Iran accepted those kinds of conditions and the house of Saud accepted those conditions, but Saddam Hussein did not accept those conditions and so we tried to take him out. The jackals tried to assassinate him but they couldn’t. Saddam Hussein had a very good security and a lot of look-a-like doubles.
student life ACCENT: In your book Hoodwinked, you mentioned that Iceland’s economic crisis was also caused by the actions of EHM. But didn’t the people benefit from the Alcoa plant which processed the natural ressources of Iceland. Iceland had indeed a very strong economy and was one of the richest countries in the world? [IN 2007, ALCOA COMPLETED A MAJOR PLANT NEAR THE TOWN OF REYÐARFJÖRÐUR. TO POWER THE PLANT, LANDSVIRKJUN BUILT KÁRAHNJUKAR, A 630-MEGAWATT HYDROPOWER STATION. THIS IS AN ASTONISHING FIGURE, AS PRIOR TO THIS DEVELOPMENT; THE ENTIRE NATION OF ICELAND’S POWER USAGE WAS WITHIN THE RANGE OF 300-MEGAWATTS]
they used what we’ve called collateral, from the future profits we told they’d make from the Alcoa deal. When the price of aluminum collapsed, they had this deal with Alcoa that they couldn‘t end selling electricity to Alcoa. Every kilowatt they sold they lost money on. It was a pretty good deal for Alcoa, but for the country, the price of electricity was tied to the price of aluminum and they lost money. They lost money in the deal; every kilowatt they sold they lost money and went into bankruptcy. It was the first developed country in many years that went into bankruptcy. (…)
ACCENT: Considering the current situation of Greece and also Ireland, were EHM responsible for their financial distress or will they PERKINS: No, Alcoa destroyed be sent there pretty soon? them. The deal was, before Alcoa destroyed them, they were con- PERKINS: Yes, I think in both of sidered the third richest coun- these cases these countries were try in the world on a per capita put in a position where they were basis. When they accepted the told that the only way out of the deal with Alcoa they took on a recession was to tighten the belt huge debt and their economy col- for the middle class and the poor lapsed. people. (…) ACCENT: So Iceland was wealthy ACCENT: What do you think before the deal with Alcoa and col- about the people at the top in busilapsed right afterwards? ness and politics, you say they know the cruelty and are cruel PERKINS: Before the deal was themselves, but some seem not caactually put together, the banks pable of being that cold? Are they and the EHM convinced the peo- all the same? ple of Iceland to take on huge amounts of debt based on the PERKINS: Yes, corporate execugrowth of their economy that tives are also human beings; we would result from the Alcoa deal. can’t put them all in the same They were really hoodwinked. class. Some of them have a much They were told that if they took greater conscience than others; out the loan that would help to some of them might take the albuild the hydroelectric complex lure of sociopaths. I think for exwhich would serve Alcoa, they ample about the founder of Nike, would become a very wealthy Knight (CEO of Nike Inc.) is a country. And with that prospect, sociopath and there is no doubt
that the people in charge at Enron were sociopaths, but there are also some very good people running corporations. But I think that we, the people that consume have to take a lot of responsibility, because we send a very strong message. Especially in the U.S., that we want cheap T-shirts and blue jeans. And if those are made by slaves in sweatshops in Indonesia, we’ll just look the other way. And we want cheap petroleum for our cars, if that means that we have to destroy the Amazon rainforest, we’ll just look the other way. We send this message and the corporate executives listen to this message, so they’ll give cheap T-shirts, blue Jeans and petroleum and in the process we will have sweatshops in Indonesia and destroy rainforests. So it’s time that we the people, the consumers, all over the world wake up and say: that’s not what we want, we just don’t (want) the cheapest (and ignore the consequences for society). We want to create a world that our children and grandchildren will want to inherit. We need to send a very strong message to business holders all over the world that we will only buy from companies that are looking out for the best interest of our children and grandchildren on a social and environmental standpoint. ACCENT: Would you say that this also applies to the Fed and the ECB? PERKINS: Well those are both basically tools of corporations. The ECB, Fed, IMF, and the World Bank, these are all tools of EHM and corporations.
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student life ACCENT: So the ECB and the FED do actually not act in the interest of the public but in the interest of the corporations? PERKINS: Absolutely. ACCENT: What would you do if you were in power or what do the elites have to change? PERKINS: Well, I think we have corporate CEOs driven by the sole goal to maximize profits regardless of the social and environmental costs. And we need to turn that around, by say stopping to buy from companies who have that goal and to turn to companies whose goal is not only to make profits but also to create a peaceful and sustainable world. A world our children and grandchildren want to inherit. So if I were CEO right now, I would be very strongly striving to make my company profitable but within the limitations of working toward creating a sustainable and peaceful world. And I would brag about that. I would advertise and advertise about that and say: Buy from my company not only because you get a reasonable price but you’re also doing something that will make the world a better place for your children and grandchildren. ACCENT: It all boils down to the people? We have to take action? PERKINS: Yes, it all goes back to the people. And if you think about it, the democracies, the proclamation of the U.S. and the European Union, it’s always about “we the people”. And I think in recent times, we the people have let do the “power” what it wants. We (Americans) have elected 12
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Obama because we were hoping for change, and we sat back and waited to see what happens. But that is not how it works. (…) We had an election yesterday in the U.S. and it was a sports event, really. We can listen to the runners, but it actually isn’t that important. All the people who have been elected in the United States were under the influence of the corporations. When I was a young man, the elected officials in the U.S. wrote the laws, but they don’t anymore. Lobbyists write the laws. Lobbyists work for corporations so corporations write the laws in this country. And so our elections aren’t really all that important. The corporations run everything.
students. (…) Less than 5% of the population live in the U.S. and consume more than 25% of the world’s resources. Roughly half of the world’s population is living in poverty and are on the verge of starvation. That’s a failed system. We have a clear warning here that we must change the system. (…) We need to move away to a much more compassionate economic world. Creating an economy that is making and selling things that are really creating a better world. Sustainable energy, equipment that will clean up the polluted land and water, help the starving people in Africa, by distributing food efficiently, these are the challenges we face today. And that is really exciting, to create a world that will truly benefit ACCENT: What do you think the children of all species. (…) about the future considering the rise of China, the credit crisis, de- ACCENT: Thank you, John, for mographic change, energy crisis, this insightful interview. and commodity prices? PERKINS: No, thank you, Cédric. PERKINS: Well, I’ve been in Chi- It was great to talk to you. You’re na recently and I was talking to a great interviewer. a lot of students there. And they all admit that China is a miracle, an economic miracle. They had double digit economic growth for over 30 years. But this comes at a huge price of environmental harm. Today the new generation of students, as they get more and more in control, they will create a miracle socially and environmentally. They want China to be the greenest country of the planet. And I like hearing that. And I Cédric Frantz think that the people of the Nethand Chriserlands, the people of France and tian Moeller, …two second year the people of Italy should want IBE students from the same thing. It should be like Luxembourg investigated the role of the so in an Olympics about which called “Economic Hit country is the greenest country of man” in the current economic events. the planet. I bear a lot of hope in college students, or high school
How to organize a good house party? Have you ever planned to throw a great house party? A party people will talk about for ages? What makes the differences between a boring and dull and a legendary evening? If you don’t want to be notorious for lulling your friends to sleep, you need to follow a few general rules. As we all learned in the marketing and management of organizations course, a lot of rules and guidelines can be simplified in a matrix or acronym. We will propose a matrix for a great house party consisting of a core of four inseparable components affecting each other: People, Place, Music and Drinks (PPMD). The mixture of these four core activities is the key to success. 1. People First of all, you should consider how many people you want to invite to your party. Do you want a small sit-in, with 10–15 people or a huge party, meaning as many partying students as possible? Depending on the number
of guests, you can invite them via cards, orally or via Facebook. But be careful; if too many people are coming, the party can quickly get out of control. The 16-yearold Australian, Corey Delaney, had to discover this in 2008. His 500 guests, mostly strangers invited via the Internet, forced the local police to call for helicopter
support. Due to heavy alcohol consumption, the party crowd got out of control and started to terrorize the neighborhood resulting in damages worth 20.000 AUD. You also should consider how well you want to know the people at your party. Do you want to be
Everything should be
for every party
be there now.
will shortly show up
Half of your party crowd should
Try to break the ice. Play some party games (i.e., beer pong)
Introduce people who don’t know each other
Start to bring everybody in the right
may decide to leave your party shortly after 00.00.
EFM Academy Magazine
student life familiar with all of the people or you should provide a lot of place, do you also want to invite friends etc.). If it’s summer, you also can of friends of friends? You could, use the garden. Be creative here. for example, think about what you, as a guest, would expect from a great house party. 3. Music
2. Place Directly related to the amount of people is the location. How many people fit in your house, room, flat or garden? You should roughly estimate the amount of people or ask some party experienced roommates or friends with similar size places. Next, you should make your place “party ready”. Move as much furniture out of your place as possible, because standing is more communicative than sitting around. Remove things that can be broken or stolen easily. Celebrating in two or more rooms can enrich your party a lot. This gives you more opportunities, i.e., forming a chill area or a place people can sit and talk. You could relate this to music and introduce the rooms with music names (i.e., electro room, reggae area, rock club; especially here
Another very important factor is music. If you really want to get the crowd burning, you should use an appropriate hi-fi system. Do you have good hi-fi equipment? Maybe you have enough space to have a DJ area or even a small band? Do you know friends who work as a DJ or play in a band? However, don’t ask your uncle’s folk band; better look for some rock, punk or alternative. Music is strongly interrelated with place. Your place determines the right choice of music equipment and loudness as you will find out when your neighbors start to call the police. Music also depends on people. Do you know the general preferences of your guests? When you are really unsure what your guests like, try to stick to a genre for a while, then switch it. Another approach could be that you give your guest the right to “demand” songs, which you then incorporate into the playlist. Be careful with this
If at least three out of four of your guests are still there, you are on the right track.
If so, provide some drinks - now is the right time.
Is the music still running? No complications regarding drunken people or conflicts?
Start to enjoy your party yourself if you didn´t do so before.
THE PEAK OF YOUR PARTY.
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approach, though, as you might end up switching genres with every song, which really can ruin the atmosphere.
4. Drinks The most difficult question is: do you provide drinks or ask people to bring their own? This question can be related to the number of invited people and your budget. A great house party does not necessarily require all drinks to be provided, but a well placed bottle of liquor can heat up the atmosphere. Nevertheless, you should not exaggerate your hospitality; otherwise, an excessive amount of vomit could severely extend your cleaning up efforts in the morning. Too much alcohol can transform guests into dull zombies, make them aggressive or lose control, turn shy into extrovert, or make guys annoy girls, none of which are desired effects for a great house party. If you have the required place, a bar where people can have a cocktail also would be a nice idea.
student life a special music motto (e.g., electro party)? A motto depends a lot on your creativity and effort, because you also should customize your place. Party or drinking games can be a good idea for a motto as well (i.e., beer pong party). You can find further tips in the links below.
find good tips for appropriated party food in the links below.
Optional FOOD If you want to take care of your guests, you could provide some food. Finger food like pizza or snacks is always welcome. It depends on your personal effort what and how much you want to provide to eat. But be careful with oily food (i.e., meat or anything with sauce) and soups, which easily can get your place very dirty. You can
For more party games, drinks, mottos, and general tips check: www.allpartyideas.com/ & http://www.partytippsonline.de/
LIGHT How can you create a good mood and atmosphere? Lighting can improve the atmosphere a lot. Make sure that your place is not too dark and not too bright. When you want to invest some money and effort, a disco ball can bring a lot of style into your room. MOTTO A great party does not necessarily need a motto, but it can increase the fun factor a lot. What about a fancy dress party, a hat party or another theme party idea? Or do you want to give your party
…a second year International Business Economics student, wanted to get you on a good path towards a great party!
03:30 UU UU
Final spurt. The alcohol level is quite high now; make sure there is no trouble
ing or more or less falling asleep?
but tell them you want to close
Some people will start to leave now; don´t worry, this is quiet
Turn off the music or at least put something smoothly on.
If the police haven’t arrived yet, music
If you have a lot of drunken people not wanting to leave, stay polite
Are the remaining people still party-
If everything is done, you can fall asleep with a smile on your face. You made it.
EFM Academy Magazine
Study Fuel– Where should
very good student spends lots of his time in the university. He/she studies hard, contrib above all. Obviously, Maastricht School of Business and Economics has nothing but hig going home to cook or walking a long way to get lunch. No, the unique group of moti ludicrous activities as having a smoke outside the faculty building, chatting in the libra follow your urge to study even more, we tried to establish where you should go to grab a sandwic coolest location to hang out (oh, wait, that one makes no sense as you want to do nothing but stu faculty, we sampled food from five locations: the good old “Deli Belge”, the slightly newer “Somet own faculty Cafeteria serviced by “Unicatering”. Here is what we thought:
SOMETHING GOOD indeed. We were rather happy with “Joe’s Meatball Sandwich” for 3,00 €, featuring several sliced up meat balls. Something Good The last “winner” of our sandwich test is located just a few meters down the road was the PREUVERIJ. A nice and cozy atmosfrom Deli Belge. This means it is phere, a really good warm dinner menu, and a still really easily reachable from good place for a beer, all of that sounds great. the faculty, even for the busiest and most eager However, it doesn’t score you points in a students who don’t want to miss out on a seccontest focused on price, proximity to ond of studying. The store doesn’t have quite the the business faculty and the quality of your sandwiches. Overall, the Preuverij sandwiches were the atmosphere of the Deli Belge but the prices are most expensive ones in the test, with a regular BLT similar and the lines usually are a lot shorter, sandwich (which is what we sampled here) costing even around lunch, so you should able to get in you 3,40 €. Nevertheless, despite the relativeand get out rather ly large price tag the sandwich surprised us quickly. with its rather limited amount of toppings The DELI BELGE, the classic among and its comparably small size. Besides that, possible lunch places, is very close Tongersestraat 36 the Preuverij is also the second furthest to the main entrance of the SBE fac6211 Maastricht away from our faculty so we recommend go- ulty and is very popular among students. 043 3111789 ing there for a beer and/or a good dinner af- The menu features a very wide variety ter you are done studying, but not necessar- of sandwiches and paninis and pricily if you are craving a great sandwich. es are average. However, its status as a Kakeberg 6 long-time favorite of students might have caused 6211 KN Maastricht, Netherlands some complacency. At least, we were slightly disap043 3250903 pointed with our Club BLT Sandwich (3€), which was of average size and was decent overall but featured quite a bit too much mayonnaise. Furthermore, students are queuing on the street at lunch so you most likely will grab a bite rather than a QUICK bite. Nonetheless, if you have time and value a big number of choices, the Deli Belge is your place to go. Tongersestraat 44A 6211 LP Maastricht Tel/fax: 043-326.09.02 01/11 EFM Academy Magazine
you grab a quick bite?
butes greatly to tutorial groups, and generally the goal of achieving academic heights hovers gh potential, overachieving students. Naturally none of them want to waste their precious time ivated people that makes up SBE’s student body would not waste its valuable time with such ary or having a coffee at the coffee corner. So, in order to save your valuable time, so that you can ch between classes. What is closest by? Where do you get most for your money? Or where is the udy, right?) On our semi-scientific quest for the fastest and best sandwich around our beloved thing Good”, the cozy “Preuverij”, the newest contestant “Kiwi” and last but not least, our very
Surprises at the top. Who would have thought our FACULTY’S CAFETERIA actually scores this well? How did they convince us? Well, in the fierce competition for our affection, it really was all about saving our precious time and being as light as possible on the notoriously low budgets of students. So even though the cafeteria’s selection of sandwiches is not as great as some of the other places, the incomparably close location and the very low price of 2,35€ (including the UMCard student discount) for a cheese, tomato, salad and egg sandwich were clearly “unique selling points”. You just walk out your tutorial room and you can (almost) always get instant gratification and refuel your batteries with a delicious and cheap sandwich. However, during lunch time it also can be rather crowded here and it doesn’t offer the more exotic choices. So, if you really want the full spectrum of sandwich delight, you will have to go somewhere else. Tongersestraat 53 6211 LM Maastricht
A big upset at the very top. MVV Maastricht beats Ajax, the Oklahoma Thunder beat the Los Angeles Lakers or UM beats Harvard in the yearly Financial Times ranking of universities. The “KIWI”, newly relocated, comes in and instantly claims the number one spot. Even though, it is the contestant that is the furthest away from the faculty, and therefore keeps us the longest from eagerly striving for more knowledge, it still convinced us with its really great selection of bread (eight different kinds, including ciabatta and bagel) and the ability to combine all those with a big variety of toppings. Furthermore, the Kiwi scored a 10 for offering all this at a very decent price of 2,99 € (upgradeable to a menu including a half liter soft drink for only 0,99 €). Last but not least, the ciabatta bread topped with fresh tuna salad tasted great and was astronomical in size compared to the competition. Additionally, the Kiwi boasts a very nice interior design, which makes it a nice place to hang out for a while, just in case you, God forbid, don’t want to spend every possible second of your life devoted to books, articles and equations. Ezelmarkt 15 6211 LJ Maastricht Tel: 043—750 86 80 Lars Icken-
roth ...a third
Hopefully, we could enlighten you a little and help you save your cherished time so that you can chat more with your friends, have a good coffee with them … Hmmm … so that you can study more I mean. Disclaimer: All “testing” was conducted on a completely subjective basis and was not even close to semi-scientific, but we had a good time eating and talking about food. EFM Academy Magazine
year International Business student, had fun testing sandwiches with the team and wanted to let you know «where to grab a quick bite»
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Get Started House running, Bungee Jumping, Base flying. Have you ever taken a leap? Taking a leap certainly describes entrepreneurs’ first steps pretty well. Just like those activities, going out on a limb and trying to create a successful business from scratch requires lots of guts, strong nerves, and a hint of craziness. However, overcoming one’s fear and making the first step, be it over the edge with a rubber rope around your ankles or as a young entrepreneur presenting your business plan to your first potential investor, also can be incredibly rewarding, exhilarating, and fun. With this issue’s special centering in on entrepreneurship, we hope to provide you with interesting vantages points on the topic. Possibly, we might even be able to “push you over the edge” and get you started on your path to entrepreneurship.
Drop out of school and become a billionaire? During school or university, he once had a crazy fantasy about building his own special “thing” – service, product or whatever. Then he thought he could start a company based on that idea. He quit school and the next moment he was a billionaire. Who is he? This is how it looks to most of us, when we read about someone really successful or we see them on TV or on the Internet. Immediately, we try to understand why they are who they are, and why we seemingly are incapable of doing the same. What do they have? Is it luck? Today many say: “Just go ahead, drop out of school and start your own business!”
ark Zuckerberg, Steve Jobs, Bill Gates, Richard Branson, Larry Ellison, Paul Allen, Sean Parker, and many more share the trait of dropping out of college and becoming successful businessmen. Is it really that easy? Let’s look at a few examples. After Mark Zuckerberg started Facebook, he got in touch with Peter Thiel, a
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larger than life figure. Thiel is the founder of PayPal, an online payment system, Clarium Capital, a successful hedge fund, as well as “The Founders Fund”, a lucrative venture capital fund. He advised Zuckerberg to drop out of Harvard and go to Silicon Valley to develop his ideas. In hindsight, this decision turned out very well. Today, Facebook has 500 million users and is valued somewhere
between $10 billion and $33 billion. This is exactly what a few entrepreneurs propose that students do: leave school to start your own company. Thiel and the cofounders of Flickr, Caterina Fake and Stewart Butterfield, are in this camp. Thiel gives up to $100,000 to students below age 20 so they can quit school and start their dream of creating their own business. But what do people in
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the technology community think Fred Wilson, an angel investor, about this? has a good point against finishing school. He says that most skills DO IT OR DON’T DO IT? you need to create a successful A blogger called the diggeratlife business are not taught in school, has listed pros and cons of ditch- i.e., designing or coding. “Indusing school to start your own com- try knowledge can only be picked pany. Pros are: you can do what up by observing other startups you want, you get a good educa- and using their products, talking tion about the real world, and to other entrepreneurs, watchyou can create your own path if ing their presentations, attendyour do not like the structure in ing conferences where they are multinationals and bureaucratic speaking, and most importantly, businesses. Additionally, you get building stuff yourself, and learnwhat you earn (in terms of mon- ing from peers who are doing ey) and you probably are more it better than you are. “ But this enthusiastic about what you do. does not necessarily mean you Cons are: you miss out on teen- should quit school. It may proage/student life that helps you vide you with other skills that are become an adult and you are on important in your life. a different wavelength than your peers. Moreover, you will be not START YOUR BUSINESS NEXT well educated in terms of diplo- TO SCHOOL? mas; the possibility of failure, There are people who tell you to success/failure may not be good start your business next to your for you because you might not be main occupation; so that you able to cope with it, and last but keep going to school or work. not least, you may have to sacri- «The biggest benefit of starting fice a lot to nurture your entre- a business part time is that it preneurial vision (all-nighters, lowers the risk threshold», says fast food, etc.). He also says that Melvin Gravely II, founder of school is nothing evil; it is sup- the Institute for Entrepreneuriposed to be a safety net to make al Thinking in Cincinnati. There sure that you always have some- are many benefits; you can start thing to fall back on in order to with your idea and if something keep your life going. goes wrong, you still can rely on You have to weigh the opportu- your “main” task. This also prenity cost of either choice: going to vents you from selling a product school or doing your own thing. that nobody wants to buy; you Many people overestimate the can “pre-test” the waters. Howscope of their skills and abilities ever, with this approach you have and therefore are prone to a very to consider that it is not a hobby deep fall. For most, it depends on but that you have to put most of their character, whether they like your free time into your new vencertainty and comfort, meaning ture. Basically, having two fullthey finish school, or they like the time occupations at once can be adrenaline rush and what comes very demanding. with it, in particular the adven- Randy Cohen, however, followed ture; then they do their own exactly this strategy. He started thing. ticketcity.com, an online ticket brokerage, while working as
a computer sales associate. He started by delivering tickets on street corners. He personally took care of the delivery until he could not follow his normal job anymore. Today, his company earns more than $10 million in sales and is still growing. But if you think a part-time business is easier than a full-time, you are wrong. Gravely says. «Sometimes, when we have a part-time business, we don’t give it that same kind of structure and attention.» Furthermore, managing customer communications also is a key to success. If they are fine with you working only part-time, this might not be a problem, but you have to keep in mind that you need to communicate/be available often enough with/for them. Additionally, it is important to have the right people on your side. When you do not have a partner, you should get some outside help. «Put together a support network,» says John Castle, a lecturer in entrepreneurship at the University of Washington in Seattle. «There are two types: personal support, friends and family you can talk to, and a group of advisors.» The founders of Flickr found out that it actually does not require too much time to have your own business. That’s “the secret of today’s successful Web 2.0 companies: build a place that attracts people by encouraging them to create the content—thereby drawing even more people in to create even more stuff.” This means you could start a business and your customers, so to say, actually run it. What a fantastic thought,
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WHAT WOULD YOU DO WITHOUT A DEGREE? TechCrunch, supposedly the most renowned tech blog in the world, features a discussion about this matter, as well. The blog’s founder, Michael Arrington, cites all the successful entrepreneurs who quit school, i.e., Bill Gates or Sergey Brin and Larry Page. He is quoted: “The best thing in the world is to go to Harvard for a year and drop out because everyone knows you were smart enough to get in”. Direct opponents say founders need the educational background from university, meaning finance, marketing, law, etc. to excel. Furthermore, the skill to finish what one starts (perseverance and determination) plays a key role in today’s business world. Keep in mind a college degree is no guarantee for a successful career. The key insight is that you never hear about those thousands of eager entrepreneurs who dropped out 20
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of college to chase their dreams – and failed. After such a big failure you might be de-motivated and lose total faith in your abilities, possibly prompting you to decide to go on to get a serious job. This may be the only alternative, but once you dropped out of university, this might not be as easy as you think. Universities generally do not accept students who dropped out of university for a few years because they are too old, or they cannot afford to pay their tuition fees anymore. But what do you do without a good degree? Multinationals mostly are not interested in hiring people without a degree into high rank positions. At least, this is the opinion of Vivek Wadhwa, who is a blogger on TechCrunch as well as a Visiting Scholar at the University of California, Berkley.
SECURE WAY TO START YOUR OWN BUSINESS? Wadhwa opposes his “boss” Michael Arrington and advises students to get the bachelor’s, maybe the master’s, and work for a big company to get to know the real business world. After having gathered some experience, you should join a start-up, which probably will fail because most of them fail, but without “hurting” your personal finances (too much). The experience you gathered during all these stages will prepare you well for starting your own business. Statistically speaking, entrepreneurs are more likely to be successful if they graduate college than if they do not. This is the result from studies Wadhwa published. He also found out that “the companies founded by college graduates had twice the sales and employment of the companies founded by people who didn’t go to college, on average”. Moreover,
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new companies are more successful if their founders previously held management or supervisory jobs. Similarly, a study done by the Kauffman Foundation, the world’s largest foundation devoted to entrepreneurship, found that 57 percent of business owners whose companies received an equity investment from an external source in their first year in
business had at least a college ed- success if you take the hard way ucation, as compared with only and finish university first. half of all businesses. So yes, Mark Zuckerberg and Bill Christian Gates ditched university, but that Moeller… doesn’t mean that you will be a a second year International more successful entrepreneur if Business Economics you quit school or don’t attend it student, highlighted the potential ups at all. The data suggest that you and downs of actually improve your chances of becoming a student entrepreneur.
Building your own business - what steps to take? Now that you have read a lot about student entrepreneurs, you may ask yourself how to start. Maybe you have had a great idea in your head for ages, but you lack the courage to build something around it. To become an entrepreneur is always a big step. Mostly, it is like a no return decision. You have to invest a lot of time, money, and effort. Especially money can be a big risk. Will everything work out or will the money be lost? Maybe you already have a business starting to require you to spend more time on it and you think of quitting university to become a successful entrepreneur. In the following article, we want to give you some tips regarding your own business, because as you might know, 80 percent of businesses fail in the first five years, and the ratio for student entrepreneurs is even higher.
t the beginning, there should be a concrete idea. You recognize a problem somewhere and have an idea how to solve it. Or you know what your fellows need and can deliver it to them. That’s the first important step to become an entrepreneur. Just recognizing a problem is worth nothing, but to have a solution is worth a lot. Finding solutions and having ideas requires a lot of creativity. But creativity is learnable. If you lack creativity but re-
ally desire to become an entrepreneur, you can, for example, start to inspire yourself through your hobbies and interests. Are you a passionate runner, swimmer, football player, or do you love to play computer games, take pictures, or play an instrument? It is far easier to observe problems and think of possible solutions in your field of interest. Like Michael Dell, CEO of Dell Computer Corp. and always enthusiastic in computers, who started to upgrade computers and sold them
for a higher price out of his room. If you want to become an entrepreneur, the idea or vision should be the cornerstone. But is this idea really realistic? A lot of people can dream up fancy stuff like x-ray glasses or invisible making drinks but have you ever seen something like this? Is your idea really realizable? If you can answer this question with a yes and you still believe in your idea, then you should continue to put your idea into more concrete terms. EFM Academy Magazine
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Now you have this great idea in your head that the world is waiting for. Next you have to think about how you could form a business based on it. What will be your business model? This step might be self-explanatory, but this is not always the case. If, for example, you have a vision of a new ice cream, how can you bring this to the market? Should you start to contact big ice cream companies or build your own ice cream shop? Think about how your product or vision can be placed best. After your vision of your own business is even clearer, you really have to spend some time investigating if your idea already exists or existed. Imagine that a guy from Australia had exactly the same idea a few years ago but it failed mercilessly. If you instead have a vision of a business you’ve already seen somewhere and just want to copy it in your local town, you have to make sure that there are no ex22
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isting patents or copyrights. In all cases, invest some time in researching. Every year, more than 100.000 patents are declared just in the U.S. (including new trademarks by firms). Once you verify that your idea has not already been thought of before, or at least nobody has tried to commercialize it, you should write a business plan. If you don´t have any idea how to do this, there is a lot of information on the Internet. Linking to entrepreneur.com will provide you with tons of information. To give you a quick insight, a business plan consists of seven key components: the executive summary, a business description, your market strategies, a competitive analysis, a design and development plan, an operations and management plan, and the financial factors. For a detailed explanation and a manual, visit the mentioned website. You re-
ally should write a business plan because otherwise you won´t be able to raise money for your idea. Gather the required information about a business plan from the Internet or maybe also from the university library. There are lots of books regarding entrepreneurship and researching is very important. If you lack time to look through all these thick books, here is a good book recommendation: “Entrepreneurship for Dummies, a reference for the rest of us” (unfortunately not available in the UM library). Then clarify the following very important questions for yourself: How do you want to manage your business next to university, and where do you want to be in five years? This is an important consideration. University easily can cause time constraints. If you handled your first year easily, always remember: it won´t get easier. What about your per-
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spective in five years? Do you think you will be a multibillionaire, like Marc Zuckerberg? When you think about your probable future, be honest with yourself. This always is a very important point during the whole business planning process. Of course, everybody wants to become a millionaire very quickly, but how realistic is this?
ket), says: “The fund-raising process is lengthy and time consuming. It requires patience to grow a company from nothing to something. It requires perseverance to negotiate the inevitable ups and downs of fund raising. Most importantly, you must convey to investors your commitment and belief in your venture. If you don’t then no one else will.”
Before presenting your business plan to your potential investors, inform yourself about legal and tax regulations. Maybe you have friends you can ask? Or you can “google” your local tax and legal regulations. You also can contact the local administrative bodies in town for further advice. Local lawyer chambers sometimes offer start-up information services concerning legal conditions. Local tax accountants are another alternative. If everything is prepared, you can start trying to find investors. But where can you raise money? If you don´t have a rich uncle, aunt, or any other potential investor in your family, you should consider going to your local bank. Make up your mind, put a nice suit on, and present your idea, building on your business plan. Banks normally are the cheapest way to raise money (besides your family). But if you can´t convince your local bank advisor, don´t worry: there are other ways to raise capital, like: www.go4funding.com. Web sites like this work in the search/ sell notifications style, attracting angle investors. But angle investors often demand a sizable equity share, which gives them substantial influence in your business decisions. As Richard Singer, the CEO of RaiseCapital. com (specializing in the U.S. mar-
Assuming everything worked well and you raised some capital and have a clear plan you can stick to, you should start implementing your plan. Congratulations, you are now officially an entrepreneur. Now, it is really important to regularly compare your financial position and profitability with your business plan.
You always should stay honest to yourself.
scenario – having to shut down your young business – should become reality, always think about your loans and liabilities. It is better to shut down your business than throw good money after bad. If things go well and you achieve your business plan goals, you should write a new business plan after a while, considering expanding, a wider future, or a profitable sell-out to a competitor. Also, imagine a greater involvement for yourself, which could be at odds with your university future. Always have a general overview about the next five years, at least. And always remember three lessons from Steve Jobs (CEO of Apple Computer Inc.): 1. Stick to your vision and focus to achieve it. 2. Find out what your customers really want and what they really are saying. 3. Develop high quality products that support your vision.
Here are some helpful links: You are the manager and con- • www.entrepreneur.com/ troller of your own company, so businessplan/index.html be honest and use the technical • www.go4funding.com/ skills you acquired in university. funding.aspx You always should stay honest to yourself. Why is nobody buying you product? Is it because of influences from outside or because you are doing something wrong. It is really normal to sell little ice cream in winter, but if it is a hot summer day at the Vrijthof and the sales are bad, you probably are doing something Mike Langen …tried to give you wrong. A phase of loss and bad some guidance sales is quite normal, but if this is on how to start a business. the majority of your business lifetime, you may have to consider changing your business plan or quitting. You can ask your bank adviser for help. If the worst case EFM Academy Magazine
Of heb jij een beter idee om direct op je plek te zijn?
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Planting a “seed” and growing a tree? How venture capital can help entrepreneurs grow their business What is venture capital? According to the beloved, user grown, online encyclopedia Wikipedia, “venture capital (VC) is financial capital provided to early-stage, high-potential growth start-up companies.” So far, so good. But what really constitutes a venture capital firm? Where did the venture capital practice originate? What does the industry look like? How can I gain access to venture capital? Are there alternatives for entrepreneurs who want to raise money? Let’s explore what venture capital is all about.
ontrary to Wikipedia, J.W. Bartlett, a senior advisor at the renowned U.S. business law firm Sullivan & Worcester, venture capital has no standard definition. Nevertheless, Bartlett, who has 47-years of experience in the venture capital business and also served as a visiting professor at universities such as Cornell and Stanford, states that traditional venture capital can be defined along the following characteristics. First, it is always an investment into something radically new, be it a new technology, a new marketing concept, or a new application of an existing product. However, this does not mean that just having a good idea will be enough to raise venture capitalist interests. The second defining feature entails that venture capital firms usually prefer to invest in products and processes that have at least successfully passed the early prototype stage
and are possibly already legally protected in one way or another. Third, the new business that receives the venture capital is small and its securities are extremely illiquid and risky. Fourth, the VC company aims at providing more support to the entrepreneur than just the dollars or euros it invests (value-added strategy). It aims at guiding and developing the company together with the founders in order to grow the business to
a point where an initial-publicoffering (IPO) is feasible or the company can otherwise be sold (exit strategy). Defining venture capital along these lines can help aspiring student entrepreneurs in understanding what prerequisites their business must meet if they want to raise venture capital. Nevertheless, these are not the only activities that venture capital comEFM Academy Magazine
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panies engage in. Depending on their investment strategies, some companies, such as U.S.- based technology venture capital fund Institutional Venture Partners (IVP), focus more on later stage investments. These companies count on other companies or personal investors to provide entrepreneurs with the required funds to start their business. They then come into play at a later stage of the development of the startup company, when considerable amounts of capital are needed to scale up operations and grow. J.W. Bartlett further maintains that some venture capital funds specialize in so-called “turnarounds,” investing in troubled or even bankrupt companies whose fundamental business model seems promising but that failed due to other circumstances. Ultimately, it is important to keep in mind that venture capital funds are businesses as well. They raise capital, pool it into a fund, and are expected to create appropriate returns. Therefore, their preferred investing strategy and their preferred industries to invest in depend on their propensity towards risk taking and their area of expertise. They want to make money but their way main way of achieving this goal is through helping entrepreneurs succeed.
the basic definition outlined above still describes the kind of VC funds that are most interesting for the kind of entrepreneur that can be found at universities. The kind of entrepreneur we are talking about here is the one who has good ideas, enthusiasm, and energy, but lacks connections within her/his industry of choice and, most importantly, lacks the financial means to kick-start the business. Thus, the question where this kind of VC fund originated remains. According to Bartlett, the venture capital “criteria” enumerated at the outset of this article go back to American Research & Development (AR&D), the first publicly traded corporation that specialized in investing in the kind of illiquid high-risk securities that early stage entrepreneurial companies can issue. AR&D was founded in 1946 and for a long time remained the only big player in the venture capital industry. The person at the heart of AR&D, and arguably the father of venture capital, was Georges Doriot, who at one point in time also was the dean of Harvard Business School and later founded INSEAD, which also became one of the world’s premier business schools. However, Bartlett also maintains that the practices associated with venture capital firms existed long before 1946. Indeed, he claims that they Despite potentially different are “as old as commercial socistrategies pursued by a multitude ety itself” and that examples of of different venture capital funds, venture-backed companies from 26
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the time of the second industrial revolution include the Ford Motor Company and Pan American Airways, the airline that was notoriously featured in the movie Catch Me if You Can. Nevertheless, the structured and managed approach that is associated with venture capital investment today originated with AR&D.
The industry is very much connection driven
As the cradle of today’s professional venture capitalism lies within the U.S., it is no surprise that the industry is much bigger and more developed in the “new world” than in Europe or other parts of the world. According to financial reporting company Thomson & Reuters and the U.S.-based National Venture Capital Association (NVCA), in 2009 there were 151 different U.S.-based venture capital funds that together raised roughly $16.55 billion in capital. These statistics are quite impressive and mean that the U.S. venture capital market is still the strongest in the world, but nevertheless this is a steep decline from boom years such as 2007, when 252 venture funds raised and invested a total of $35.4 billion. These findings also are in line with what the
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NVCA and the consultancy company Deloitte reported in July 2010. In a survey among the 500 top venture capital companies of the world, they determined that most of the industry’s leaders see a further declining U.S. and European market and growing and maturing venture capital markets in China, India, and Brazil. Thus, starting a company and competing for capital might become much easier for entrepreneurs in these emerging markets, whereas inventive and enterprising minds in Europe and the U.S. might face more competition for less capital. So how does one get in touch with a venture capitalist? Obviously, you do not just stroll down the street and bump into a couple of venture capital company representatives eager to hand you their money. Nonetheless, getting in touch with various VC investors is not as hard as it seems. As mentioned before, most of the top venture capital investors have themselves been successful entrepreneurs; thus, the industry is very much connection driven. Once you have a good concept and possibly have worked in your chosen industry for a while, those venture capitalists who are true industry insiders probably will become interested in your venture. However, assuming you still are a student and you do not have any experience in the industry and you do not have any connections, what do you do? How do you raise the eyebrows that really matter? How do you catch the attention of potential venture capital investors? As mentioned before, it is not as hard as it sounds. Within the industry, a constant stream
of events seems to be organized where high potential start-ups can present their business plan to a jury of different investors and attempt to convince them of the superiority and the quality of their ideas. Examples of these kinds of events are the annual TechCrunch Disrupt conference organized by popular Tech-blog TechCrunch, the University Startup Conference 2010 in Washington, D.C., or maybe even the annual Maastricht Week of Entrepreneurship. Alter-
You might want to consider a third option, Business Angels.
natively, up-and-coming entrepreneurs can contact one of the big venture capital funds directly. The leading European fund in this area is the European Founders Fund. Set up by the Samwer Brothers, Alexander, Marc, and Oliver, it is Europe’s premier address for venture capital. Modeled directly after the Americanbased industry leader Founders Fund, the Samwer Brothers, successful entrepreneurs themselves (they, for example, started Alando.de, later bought by Ebay), created the European Founders Fund in order to invest in European start-ups. According to their web site, contacting them is as easy as “sending an email with your ideas.” But what do you do if you get rejected? What do you do if your project has not taken off at all yet? How do you bridge the small but crucial gap between
starting a company and receiving capital from venture funds? A number of alternative sources of financing do exist (also see in this issue, “How to start your own business”). The first and maybe most obvious idea would be taking out a traditional bank loan. However, this is certainly much harder than obtaining financing from a venture capital fund. The risk structures associated with investing in start-up companies are usually not what traditional banks are looking for. Furthermore, as a student, you most likely will not have any securities to back up your loan application. So, unless you have a family member or a friend co-sign the loan for you, chances are very slim that you will get a significant amount of money from a bank. These friends and family members also could be an option you could turn to, assuming they have enough capital to invest in your business. Nevertheless, engaging in business with them could jeopardize your relationship, so you might want to consider a third option, Business Angels. According to Joe Hadzima, a writer for the Boston Business Journal, business angels are high-net worth individuals who, again often having been successful entrepreneurs themselves, want to invest money into small promising start-ups and help entrepreneurs to develop their business. However, the funds at their disposal usually are more limited than those of venture capital companies and they are more prone to be actively involved in the businesses they invest in. Depending on your preferred degree of freedom or guidance, that might be good or bad. Furthermore, getEFM Academy Magazine
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ting in touch with business angels can be very hard, especially for industry outsiders. Additionally, all these alternative sources of financing lack the “added-value” that venture capitalists deliver to start-ups (except maybe the business angels). As mentioned before, venture capital companies generally not only provide financial support to young businesses but also assist them in developing a sound management structure and act as invaluable advisers. Finally, as venture capital firms usually prefer to invest in companies that have already survived the very early stages of development and thus possess a relatively proven business model, some of these other mentioned
sources of financing might help have made some contact with your business survive the crucial venture capitalists. Venture capfirst stage of development. ital’s constant involvement with the latest technological ideas, the Ultimately, financing will remain nurturing of those ideas, and the a pivotal question for aspiring support it gives to the people that entrepreneurs. Whether to go for have them is how venture capital one form of financing or the oth- helps to ignite growth in individer always remains one of the key ual companies and consequently decisions that have to be made in in the entire economy. the early days of a business. But, as discussed before, all of them have their strengths and weaknesses and a lot of successful Lars Ickenroth companies have made use of mul…a third year Internatiple sources of financial backing tional Business student,wanted at different stages of their develto put a spot opment. However, at one point light on venture capital for you. or another, most really successful high tech start-ups, be it Internet or biotech entrepreneurs,
It all comes back to the people: The role of social entrepreneurship A company’s success is measured by its profits, and most companies and their CEOs are willing to do anything to make that profit. They mercilessly lay off people, impair the environment, and destroy their competition. But what if you want to found a company that not only generates profits but also generates value for society? What if you don’t just want to change the face of business but also want to come up with new solutions to social problems?
he branch of entrepreneurship that focuses on social welfare is social entrepreneurship. Through the use of entrepreneurial principles, social entrepreneurs organize, cre-
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ate, and manage ventures aimed at creating social change or further environmental goals. Although coined in the 1960s and 70s, the term social entrepreneurship came into widespread use via the promotion of Bill
Drayton. The born New Yorker and so called “godfather of social entrepreneurship” is the founder and current chair of Ashoka: Innovators for the Public, a nonprofit organization that identifies and supports leading social
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entrepreneurs through a social venture capital approach. Some of Ashoka’s projects include the Changemaker Campus initiative and the Social Financial Services program. The Changemaker Campus initiative’s goal is to create an environment where every individual has access to the resources, learning opportunities, role models, and peer community needed to actualize their full potential as changemakers. Social Financial Services (SFS), in cooperation with leading financial intermediaries, develops new products and services with the goal of having those institutions invest strategically in the social sector. In 2006, SFS, together with Deutsche Bank’s “Eye Fund I”, launched a fund intended to provide loans to support research for affordable and accessible eye care for the world’s poor. One of the first leading promoters of social enterprise was Michael Young, who, from the 1950s to the 1990s, founded or helped found a number of socially-beneficial organizations. One of the organizations he supported is the British Consumer’s Association, which now operates under the name Which? a consumers right association that ensures fair competition and market transparency to the consumers.
The Open University, a distance learning and research university, which notably has an open entry policy, meaning students previous academic achievements are not taken into account, also was founded based on his vision. One country in which social entrepreneurship found a fertile breeding-ground is India. In a country where more than 40% of the population lives under the poverty line, it is very difficult or even impossible for families or small business owners to get even small loans. These individuals lack collateral, steady employment, and a verifiable credit history, and therefore cannot meet even the most minimal qualifications to gain access to traditional credit. This leads to a phenomenon known as adverse selection. Ramakrishna NK and Smita Ram, a married couple who both lived and worked in London, recognized this problem and founded Rang De, an online platform where Indians can lend small amounts of money, so called microloans, to their fellow citizens. A similar company has been founded by Muhammad Yunus. For his foundation of the Grameen Bank, a microfinance organization and a community development bank, he was awarded the Nobel Prize for Peace in 2006. One of the earliest social entre-
preneurs in India was Vinoba Bhave, a follower of Mahatma Ghandi and the founder of the Bhoodan Movement, also known as the land gift movement. The Bhoodan Movement was started in 1951 as a land reform movement that encouraged wealthy Indian landowners to give up a percentage of their land to the poorer people. The first land donation came from Ram Chandra Reddy, the landlord of Pochampalli, a large village where twothirds of the inhabitants were landless. He donated 250 acres of land to the Harijans, the lowest class in the Indian caste system. Without the initiative of these people, the socially deprived would be left alone. When banks, companies, and the government are not willing to give a helping hand, it all comes back to the people who, through their commitment, can support the less fortunate. How social responsible action can expand beyond NGO’s and is even able to generate profit can be seen in the next example. In 2007, two friends from Cologne, Germany, Anton Jurina and Martin Höfeler, built up the “Social Fashion Company GmbH” from scratch with a modest assortment of only six different shirts. Grown from the desire to sell clothes that are crafted solely from organic cotton, their EFM Academy Magazine
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company grew to respectable dimensions and now is selling its fashion label armedangels via its online shop and major retail stores in more than six countries. The label creates and produces sustainable fashions that are both fashionable and ethical. Armedangels’ philosophy is built on three main pillars:
Create a benefit for the people and the planet by operating sustainably.
between $100,000 and $300,000. 1. BEING GOOD TO THE ENVI- This example shows that you do RONMENT not need to start a high impact 2. SUPPORTING FAIR TRADE business to make a change, but 3. DONATING TO CHARITY that a small start mixed with some cleverness also can benefit These company “guidelines” are the socially deprived. put into practice by avoiding large shipping distances to re- Despite the different approaches, duce CO2 emissions, by paying social entrepreneurship is built more than minimum wage to on three reoccurring pillars: sustheir farmers in India, and by do- tainability, addressing social nating one euro of their profits problems, and the fact that it is from every article sold. motivated by more than just the desire to create profit. The latter If founding a company is too characteristic has been termed stressful for you, you could “Not just for profit” (NJFP) and it learn a lesson from Christopher is a concept that captures a set of Wright, Joshua O’Meara, and An- values used to evaluate for-profit drew Fincher, three Australian companies not just by their abiluniversity students. In January ity to generate profit but also on 2009, they started the initiative their determination to create a 1egg1world. The underlying idea benefit for the people and the of their initiative was to start planet by operating sustainably. with one egg, and to trade this The not-just-for-profit approach egg against other items until they builds on the Triple Bottom Line, would get an item high enough in which measures a company by value so that they could sell it and its economic, social, and ecologiuse the proceeds for charity. They cal (the aforementioned bottom set a goal of AUS$ 1 million that lines) success. Due to the growthey would donate to Cool Aus- ing influence of social entrepretralia, Orphfund, and EarInfo Net, neurship during the last years, three grassroots charity groups. the subject found its way into Starting with just one egg, the university classrooms all around trading escalated to a private 14- the world. Many of the most reday African safari for two, flights nowned universities offer coursincluded, on February 25, 2010. es in social entrepreneurship. Most recently, they traded the In 1993, the Harvard Business safari trip against a painting by School formed the Social EnterCraig Ruddy, a famous Australian prise Initiative, which aims to artist whose paintings are worth “generate knowledge and to in30
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spire, educate, and support current and emerging leaders in all sectors to apply management skills to create social value.” In 2003, the Skoll Foundation, a social entrepreneurship foundation based in Silicon Valley, California, donated £4.4 million to the Said Business School of Oxford University in order to create the Skoll Centre for Social Entrepreneurship. Besides delivering an innovative teaching program in the subject, the Skoll Centre acts as a network hub for social entrepreneurs, linking together key actors and promoting valuable partnerships. We have to realize that we all live on the same planet and that we are responsible for the environment and our fellow men. Governments alone cannot help to make this a better world, but we the people can. The aforementioned examples show that it is possible to make a change. Some 1.7 billion people live in absolute poverty, we are facing global warming, and the atmosphere’s carrying capacity is nearly exhausted. Our future generations have to face the consequences of our irresponsible actions. As the world famous physicist Albert Einstein once mentioned: “We cannot despair of humanity, since we ourselves are human beings.”
Cédric Frantz …
wanted to show you how entrepreneurship can make peoples life better.
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EFM Academy Magazine
Dell interview PAULA BODE: Hello, Mr. Harddeman. Could you quickly introduce yourself and how you got to where you are today? DIMITRI HARDDEMAN: I graduated in Maastricht in 1999. I wrote my final thesis about online bookstores and how they would impact normal bookstores. Amazon was just starting, I wrote a lot, and what I found was that Dell was all over the place. I had with some friends the idea to found an internet startup company, like all young people graduating in 1999. But by then I had already applied for a role with Dell and I was hired as an internal sales which was already outlined as the first starting point. And my idea was, if I am starting at the online leader, I take all the lessons I get within the first 3 years with me to start my own company. But then, being here I had so many opportunities and starting to do new roles that it never occurred to me that I started my own business because for me it felt like running my own business throughout my Dell career. The entrepreneurial stuff is really in it. PB: What major or master did you choose at Maastricht University? DH: I had just a general economics master. I graduated in high school in Belgium and they tested you a little bit different there. In Maastricht you do cases and presentations. Where I graduated you needed to know something at day x and then you can for32
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get it and that was really the way Maastricht University was set up. There you learned something and had to keep contributing. So I did just general economics. MAIKE WILL: Can you tell us something about your career here at Dell? DH: I started in sales, and we already pointed out that it would be a good starting point and it had proven to be right. In sales you touch on all different departments within Dell. You’re like a
The entrepreneurial stuff is really in it.
spider. You have to deal with customer care logistics, every part of the organization centers down to the sales person. You get to know a lot of people in a very short time period and after that I wanted to do more. So I was then brand manager, to do some marketing. We had PC’s, some laptops but then we were also introducing our own printers and television sets, the first hand held computers and there was nobody doing the brand management for that in the Netherlands. So they asked me to do the brand management for that. I had that role for two years. It was an amazing time because all the new products that came out of Dell, I had to do from A to Z all the marketing.
After two years I went into sales where I had to advise big corporations on the products I had just been introducing as a marketer. I had to learn a lot about sales, for example that you cannot go the same way to a consumer than you would go to a big organization. Then I was in the management development program at Dell. Part of the questions we had been: Do you do something about the internal development. We were recognizing that Dell was growing very fast so Dell wanted to leverage the number of internal applicants in the middle management department. There was a special program with an assessment center with twenty people. We went through that course which took half a year to three quarters. So we learned all the skills and after you did that you were given a team. I then managed the team who would to the sales for software. So I then managed seven people as I was their manager, so I was really encouraging and hiring people. That was really cool. I was always on the balance between sales and marketing. When I was doing the sales role I thought that I like marketing and when I was in marketing I always wanted to go back to sales. And that was a little bit my career. When I was a sales manager I was managing many people and then the opportunity came along to do the country marketing management for Belgium first in the corporate segment. We had just transformed our marketing plans, we made more unified within EMEA.
spotlight interview I had to diverse it for the Belgian market, so I had to drive a lot from Amsterdam to Brussels. I was then doing the Belgian market and as an extension I also got later on the Netherlands market for the corporate companies. I was then the marketing manager for the Benelux. I did that for two years and after that I wanted to do something with the in-
All those people are in a different time zone.
ternational role. And then I was in opening to do all the displays in EMEA. EMEA is Europe, Middle East and Africa. So I was as to take on the opportunity to do both product management and program management for displays. That was completely new because now I had…Monday you had people in South Africa, within certain markets you had people in Saudi Arabia etc… It was so different because you don’t have one plan because it was not the same all across EMEA. You do a lot of diversification and also you interact with a lot of people. I just told your other colleague: When I go to work in the morning, the guy who is helping me with pricing has already woken up, so had already a working day and that’s the same for the Singapore design centre. All those people are in a different time zone. In the end of the day the American people start. I like that, I like it a lot. And to a social extend I like to have the colleagues in the office but the people I work with in Bratislava and in Singapore. You’re one global team.
PB: What role do you think Maas- tions in the way the university tricht University plays in the re- is set up. You learn how to take cruitment? a different angle just for the purpose of the discussion and that’s DH: Obviously after your visit the key on conducting business here we have seen that there is here at Dell. a lot of talent and that you could contribute to what we want to PB: Is it important to have some achieve. I think we have to work internship on your resume before out a way to get to know the peo- applying for a real job? ple in Maastricht. It was me who has been approached by the Uni- DH: You get the sense in the way versity but there is no formal in- how people interact in a compateraction and we need to look ny; you get to know the working into that. We have no formal pro- environment and what kind of grams tapping in to specific Uni- people works here. If you really versities. We definitely need to insist on doing an internship, I find an opportunity or a meth- wouldn’t do an internship do get od to capture all the people who some practical knowledge but would love to work here, so that I would advice to do an internyou at least get the opportunity ship in a company on your short to work here. For me it was just list. So you can say that you didn’t a coincidence. I wrote an applica- do an internship to understand tion letter because I came across working but because you made Dell so often and was so often re- a selection on your short list. An ferred so that I thought: Hey, that internship adds more value if it is sounds like a nice company. And with a company you like to work then I could start but obviously for. you have to change that a bit I guess. PB: Thank you very much for these interesting insights. PB: Do you have any advice for the students at UM what we could do DH: Thank you two for the interto be qualified for Dell or any other view. company? DH: To be very positive about Maastricht University working at Dell is so much like doing a case in a tutorial. There you had to come to a conclusion while working with ten other people, where everyone had its own perspectives and views. It is very similar to the real business world, with the only difference that if you make a wrong decision the consequences will be more severe. You actually learn at Maastricht University how to formally disagree, you learn so many interac-
Maike Will, Paula Bode and Cédric Frantz, …
wanted to bring to you the job experiences of a former Maastricht student.
EFM Academy Magazine
Merchant of Death Over the course of the last 20 years Viktor Bout has smuggled more tanks, bazookas and AK-47s than any other person in the history of the world. He alone was able so supply almost every corrupt dictator, vicious tyrant and barbaric warlord relentlessly murdering in third world countries. However, one of the most successful criminal careers of all time is about to end. It seems that Viktor Bout, facing charges of having illegally provided weapons to terrorist organizations and currently held in custody in Bangkok, will be extradited to the United States. This comes after he was arrested two years ago by US agents in Thailand. But who is this mysterious man, who is said to have been the inspiration for Nicolas Cage’s role, Yuri Orlov, in the famous movie Lord of War? What genius is behind a criminal who has earned billions (!) undertaking highly immoral operations? What is the secret of the Merchant of Death?
here are many mysteries about Mr. Bout. Little is known about the man whose weapons are supposed to have killed more people than the atomic bomb of Nagasaki in 1945. Born in Tadzhikistan in the 1960s, he first started business in the anarchic leftovers of the Soviet republic in the beginning of the 1990s. At the age of 25, he managed to buy three old Antonov transport planes from the over-equipped army arsenals of the Soviet empire. His initial products were those weapons and ammunition abandoned by the Red Army
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around the former Soviet bloc. He started exporting them to close-by regions such as the Middle East, and then quickly expanded his business on a global scale, including Africa and South America. He was best at exploiting the anarchy of globalization, trafficking weapons via his increasing aircraft fleet. According to Douglas Farah, who wrote a biography about the notorious arms dealer, “Bout’s planes have dropped off” arms everywhere ‘from jungle landing strips in the Congo to bleak hillside runways in Afghanistan’. He managed to build “a worldwide network of lo-
gistics, manoeuvring through a maze of brokers, transportation companies, financiers, and weapons manufacturers”. Most of his aircraft operated from Sharjah, a small desert sheikdom in the United Arab Emirates. This was
perspectives the base for flights to and from the former Soviet bloc, Africa, the Middle East and South America. In some ways, Viktor Bout perfectly resembles the paradigm of a multinational entrepreneur. He is smart, he is professional, he speaks several languages and he is capable of seizing arising opportunities. In other words, he incorporates all those virtues every business student is looking for. At the same time, he appeals to those looking at a career as a criminal. He is ruthless, he is global and most importantly, he is invisible. Combining these qualities, he became one of the most successful entrepreneurs ever. He has sold tanks to the Taliban in Afghanistan, Kalashnikovs to the RUF in Sierra Leona and missiles to the UNITA in Angola. His client list contains famous names such as Charles Taylor and the Libyan president Muammar el-Qaddafi. At the same time, he has never shown a clear political agenda and even supplied parties opposing each other, such as Zaire’s ruler Mobutu Sese Seko and those rebels trying to overthrow Seko. His clever logistics and organization was Bout’s competitive advantage in the weapons and ammunition smuggling business, and he exploited this advantage to the point where he made millions over millions of, morally, very questionable profits.
tivities were not solely illicit. He did countless transportation jobs for the United Nations into the same countries where he also delivered weapons that caused the humanitarian crises in the first place. In fact, one of his biggest clients was George W. Bush, as Bout transported goods for the US Army to Afghanistan and Iraq. Over the years, he kept this legal cover protecting him from being prosecuted. In addition, he was changing the registration of his planes continuously to avoid local aviation rules.
Some might consider Viktor Bout a brilliant entrepreneur.
But his legal activities were not only for the sake of covering up the illegal ones. They also proved to be very profitable. Instead of aircraft delivering weapons to Africa and then returning empty, he realized the potential synergies that arose from this. Hence, his planes not only delivered deadly products to crisis regions but also brought cargo back from there. Ironically his most lucrative project was to transport gladiolas (flowers), which he bought in South Africa for $2, to the UnitBut how could Bout expand his ed Arab Emirates, where he sold business throughout the 1990s them for $100. without being stopped by the intelligence agencies in the UK, the He continued to lead his global USA and Belgium, which detect- empire until his arrest in 2008. ed his illegal business practices Today, some might consider Vikof supplying terrorist organiza- tor Bout a brilliant entrepreneur tions (according to UN laws) ear- who in a short period of time ly on? The answer is that his ac- managed to seize an opportunity
and build a multinational business. His organizational skills and his ability to adapt quickly to a changing environment are legendary and made him a very rich man (estimates of his wealth go up to $6 billion). Lee S. Wolosky, a former staff member at the National Security Council (NSC) says that Bout had the best “logistics network in the world”. On the other hand, one should never forget what this man has done. As a businessman, he did not merely satisfy an existing demand, but he put profits above all else. Not only were some of his operations morally wrong but some were highly illegal. His weapons destroyed many lives, including children, and caused great destruction all over the planet. He was a criminal with a sharp mind and a loose morality, making him the perfect “Merchant of Death”.
Thorben Schäfer …a
first year Economics student thought you definitely needed to know more about the REAL merchant of death.
EFM Academy Magazine
Trade wars and cheap money Why the world economy is in great danger Switzerland did it last year, Japan is thinking about doing it, and China has been doing it for years: Currency Intervention. Faced by high unemployment and low growth rates, an increasing number of countries are willing to devalue their own currency in order to gain a competitive advantage in global markets. Experts and politicians all over the world warn that a trade war might arise in which every country selfishly tries to strengthen its industries by devaluing its currency so that it no longer reflects its true and socially efficient value. But currency intervention, which at the end of the day is nothing else than a protectionist method, is not the only dangerous thing governments attempt in order to satisfy the publicâ€™s hopes for economic growth. Memories recall the 1930s when, starting in America, a wave of
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protectionism rolled over the planet, leaving in its wake a collapsed world trade and mass unemployment. Moreover the U.S. Federal Reserve Bank (Fed) is flooding the market with cheap money, hoping that an easy monetary policy finally will bring the desired economic recovery and ignoring the great risks that arise from such actions. Raghuram Rajan, professor at the University of Chicago, hence warns against asset bubbles arising in America and China that could burst and once again drag the world econo-
my into a recession, with the major difference that governments than would be too broke to provide stimuli. HOW THE CHINESE STARTED IT ALL The trigger for this global depreciation and protectionism race was Chinaâ€™s hard-line monetary policy. China has pegged its currency (renminbi) to the dollar for years and so prevented an appreciation that normally accompanies strong economic growth. The U.S., which has tolerated this for
perspectives years and thus benefitted greatly from cheap Chinese goods holding down inflation and increasing real income, now is becoming increasingly impatient with this situation of running a huge trade deficit, which jumped to $46.3 billion in August, for which it partly blames China’s exchange rate policy. Faced by high unemployment rates, U.S. Secretary of the US Treasury Tim Geithner urged China to appreciate the renminbi in order to strengthen its own export industries and decrease imports. China, however, has so far not allowed a significant appreciation, referring to potential social and economic disruptions. This is as much an economic rivalry as it is political, with the U.S. trying to keep its position as the world’s superpower and China becoming more and more influential. To put further pressure onto China, U.S. President Barack Obama introduced tire tariffs against Chinese imports in 2009, officially to prevent tire dumping into the U.S. market. Many economists, however, believe that the U.S. is trying to force China to finally allow a renminbi appreciation. Since then, both countries have been increasingly putting protectionist methods in place. The newest, sublime, action was done by the Fed, which announced in November that it would, in a second round of quantitative easing, buy $600 billion of longer-term Treasury securities. The way this works is that banks holding these assets sell them to the Fed and get the value transferred; then, in theory, it can be used to give out more loans and hence stimulates aggregate demand. This is an understandable step by the Fed, considering the high unemployment rates (9.6% in October)
and the low growth rate of only 2% at an annualized rate in the third quarter. This is less than the average growth rate since 1947 (3.31%) and less than would be expected after a sharp recession, when huge spare capacities normally allow strong growth with little inflation. This being said, the provided liquidity by the Fed also increases the amount of dollars in the market and hence is likely to put pressure on the currency as the dollar supply increases. In other words; the U.S. plays the same dirty game it is criticizing, even though it claims not to. This is an affront against other countries that object loudly with reference to the outcome of the G20 meeting in Gyeongju in October, where nineteen major industrialized countries made an informal agreement that the global devaluation race should stop. IS THE US RIGHT IN BLAMING CHINA FOR ITS PROBLEMS? America’s politicians blame their tremendous trade deficit and hence, to some extent, unemployment resulting from weak exports on China’s currency policy, and it appears that they are not false in their claim, as the
trade deficit between both countries rose to $28.04 billion (61% of the total deficit) in August. With a lower exchange rate, America could export more goods to China and China could not export as cheaply to America, reducing this deficit. Indeed, Nobel laureate Paul Krugman suspects that the U.S. GDP would be 1.4% higher if the renminbi would be free. However, America has still a huge deficit with other (non-marketmanipulating) countries and this cannot be the fault of the Chinese. In fact, the dollar has rather depreciated in the long run compared to many currencies (especially the yen, but also the Euro), and so it appears that putting all the blame on China is more a political maneuver to distract from home-made problems. AN AMERICAN PROBLEM A trade deficit (part of the current account) is not necessarily a bad thing, depending on the kind of imports and how it is financed (capital account). During the 1990s, Germany, for example, had a current account deficit caused by increased capital imports during the reunification. This was not a bad thing as it was necessary to build the capital stock needed for economic growth and indeed Germany went on to become one of the most competitive nations. During the 1980s, the Tiger States (South Korea, Taiwan, Hong Kong, and Singapore), characterized by high growth rates, also ran a current account deficit, but this was financed by foreign investment and hence provided employment and growth (before the bubble burst). America has had a long tradition of such deficits. During the 1990s, it was seen as a cycliEFM Academy Magazine
cal problem caused by strong growth that triggered imports and hence was just a symptom of a healthy economy. But with this happening in a time of low economic growth, it becomes clear that structural problems must be behind this phenomenon. Over the years, the international competitiveness of US firms has decreased especially in relation to export nations such as Japan, China and Germany. U.S. firms could rely on huge domestic demand, with the previous chairman of the Fed, Alan Greenspan, holding down interest rates and making the Americans borrow huge amounts of money used on consumer goods and houses. On the other side, this cheap money also gave the Americans the possibility to consume above their means. Imports exploded, with exports just not measuring up. So, rather than blaming China, introducing tariffs, an action that is likely to result in protection38
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ist reactions by other countries, and pumping billions of dollars into the market, the U.S. should rather focus on increasing competitiveness by increasing spending on infrastructure, education, and competition. Moreover, the Fed should be careful to extract the provided liquidity at the right time to prevent inflationary pressures; this would help both domestic production in relation to imports and export competitiveness. HOW THE US COULD SUSTAIN A HUGE TRADE DEFICIT Every country running a current account deficit also has to have an equal surplus in the capital account to balance out this deficit. The capital account consists of any investment and financial flows such as FDI, foreign reserves, and loans in and out of a country. America was and still is able, as the worldâ€™s leading economy, to attract enough of these
financial flows to balance out the current account deficit. Especially in recessions, when the US dollar is seen as a safe haven, investors buy U.S. assets and Treasuries (explaining the raise of the dollar during the recession). In fact, the way China controls its currency is to buy American treasuries, in other words loans, financed by export revenues. And so, over the years, America (both public and private) accumulated a huge foreign debt that was necessary to finance the deficit in the current account. A good measurement of this is to look at the the net international investment position, which has increased from negative $360 billion in 1997 to negative $2.65 trillion in 2003. America can sustain the current state as long as private and public investors have enough confidence in America and feel safe about their money. Looking at the size of the U.S. economy it is not likely that panic will spread
perspectives any time soon and investors start taking out their money, which would lead to a dramatic fall of the U.S. dollar and increases in interest payments by America. THE EFFECTS OF FLOODING THE MARKET WITH MONEY Hand in hand with Obama’s fiscal stimuli, the Fed tries to stimulate the economy by holding interest rates at almost 0% and pumping billions into the economy. But how likely is it that these monetary and fiscal moves will really have a positive effect? When looking into the economy, one can see that the firms already sit on huge financial reserves ($1 trillion in October 2010 compared to $775 billion in 2008) and hence do not need additional capital. At this point, it is not clear how much of the Fed money really goes into the real economy in the form of loans by banks, but it seems like the cheap money is not going there but to a great extent straight into asset markets, where it is not unlikely to at least be a contributory cause of the two-year high of the Dow Jones. It is very possible that another round of asset bubbles is just being stimulated, which could once more drag the world economy down
the cliff; the same mistake that Alan Greenspan made once by holding down interest rates too low, too long at an unsustainable level. Moreover the Fed’s actions promote uncertainties, as China’s Vice Foreign Minister Cui Tiankai pointed out, and can cause inflationary pressures in the long run. This fear caused many investors to flee into gold, which is at an all-time high at $1,421 for an ounce. Government stimuli, low interest rates, and quantitative easing increase the amount of money in the economy to the extent that the principle of monetary scarcity is in danger and gold is seen as a hedge against this monetary devaluation/inflation that is not unlikely to result. In the UK, where the Bank of England had promoted huge quantitative easing programs and the government runs the biggest deficit of all European countries (including Greece), the short-term forecast for inflation has already risen to 3.5%. This, however, does not mean that the Fed should raise interest rates immediately. Rather, a slow increase once the economy picks up would better accommodate growth.
IMBALANCES IN THE WORLD ECONOMY One of the main topics at the G-20 meeting in Seoul in November is the growing imbalance in the world economy. America and France consume, running huge trade deficits, and China/Germany/Japan produce, running huge trade surpluses. If this continues, there is the danger that in the very long run problems will arise of how to finance these deficits. Investors might be scared off and, in order to attract enough investments, interest payments would increase for governments and private people accumulating debt. A budget deficit may help the economy at the moment by boosting spending, but in the long run actions have to be taken in order to achieve a balanced budget. Increased taxes would solve this problem, but this would have a negative effect on the economy as taxes decrease consumption, and this would have severe effects on growth in a country where more than 70% of GDP comes from private consumption. Another way would be to trigger inflation by printing money, but this obviously mainly helps the budget deficit and not the economy. Therefore
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perspectives it is likely that the U.S. will have to suffer in order to become a healthy economy. On the other side, there are loud voices from American politicians such as Geithner and economists such as Paul Krugman, who claim that export countries such as Germany and Japan should boost their consumption by increasing wages in order to increase demand for American goods, decreasing world imbalances. There is some truth in this claim, as higher wages in Germany would increase imports and decrease competitiveness, i.e., exports, decreasing Germany’s trade surplus. This, however, is a purely selfish demand and not coherent with the general opinion of economists on free trade. Why should Germany give up the competitiveness which enhanced its strong economic recovery in order to help uncompetitive American firms? Angela Merkel is right in claiming that Germany’s strength is not based on unfair methods such as China’s, but purely on an innovative and competitive environment. It goes against every economic principle that a country should hamper itself and its productivity to help another less efficient country, an action that would decrease societal welfare, rather than increase it. It is more America that should face the international competition to become more efficient and innovative. International competition is healthy and promotes high growth with low inflation, and aggregate supplies are likely to increase. The explanation that excessive use of Keynesian policies has failed only works to a certain point; beyond that point, labor market reforms promoting a flexible environment have 40
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worked out much better. Further stimulus packages would not have the desired effects but rather increase government deficits and bubbles. Obama justifies his demands on exporting nations by saying that American demand helps other countries to grow and hence they should help America to grow. This is only one half of the coin: America is not buying Chinese, German, and Japanese goods out of benevolence; it is buying them because they are better and cheaper than American goods, and without cheap Chinese plastic toys, America’s wealth would suffer a severe shock as real incomes decrease. And without quality machinery from Germany, America’s capital stock and hence productivity would suffer as well. And Geithner’s claim that the marginal rate of savings has increased in the U.S., taking this as a justification for demanding that other countries do something (increase wages) is quite ironic; rather than government policies, massive public and private debt have caused Americans to save money. SO WHAT TO DO Looking at the world economy, it is crucial that the G20 countries sit together and agree not to devaluate their currencies and not to impose trade barriers, as happened in the 1930s. Devaluing does not help a country; rather, it harms it in the long run as it provokes actions by other countries, and the wealth of other nations is essential for the wealth of exporting nations. It is of crucial importance that China and the US agree on a global strategy, with China continuing to appreciate the renminbi, slowly but
steadily, and the U.S. stopping to pump billions of cheap money into the economy with interest rates near 0% and huge quantitative easing programs, something which results in instable growth and is likely to seduce Americans to make debt. China and America might compete, but they are very important to each other. In the end, American and Chinese politicians should remember that they are both dependent on each other. Without Americans buying their goods, China’s economy would be very much smaller, and without cheap goods from China, Americans could not live such a high standard of living. The US should be careful in its provocations toward China, which holds huge amounts of American debt, as offending the Chinese might not be a clever thing to do. And instead of trying to push over the burden to other countries, America should take on the responsibility to “shrink healthy” and cut back spending on all levels. Just like fighting a drug addiction, it might be hurtful in the beginning but after a while it will be better than ever.
Thorben Schäfer …
wanted to shine some light on the intricate web of international trade and monetary policy.
The Quest for the Arctic Ocean
Will the North Pole be at the heart of a new cold war? Eager followers of the news may have noticed the increased coverage of the least populated part of the world, the Arctic Ocean region. But why the sudden spike in interest? The simple answer is: Raw materials. The quest for this resource-rich part of the world will amplify the tensions between the Russians, Americans, and other nations calling for their fair share. EFM Academy Magazine
he question remains: why has there been such a sudden rise in interest? Scientists have become more and more aware of the fact that global warming has caused the polar caps to melt, in the process uncovering the treasures that lie below the ice. Without hesitating, Russia symbolically planted its flag on the sea floor. As one of the biggest producers of gas and oil, it stretches its arm in order to bring even more natural resources into its possession. The second reason the North Pole is so news-covered is the prospect of an ice- free ocean lane. Concerning this matter, the foreign ministers of the United States, Russia, Denmark, Norway, and Canada – all those countries laying claims on the North Pole – gathered on May 28, 2010 in Greenland. This displays the importance of the Arctic Ocean situation. In the summer of 2007, it was possible to pass the Pacific through to the Atlantic due to the fact that, for the first time in roughly 50 years, the passage was ice free. This translates into the least ice coverage there has been since at least half a century. Let us conceptualize the exact significance of the Arctic Ocean region. According to the United States Geological Survey (USGS), about 25% of world reserves for oil and gas are to be found in the Arctic Ocean region. For the longest time, the extraction of those natural resources, based on a cost-benefit-analysis, was too costly to economically pursue. However, climate change and the increasing need for fossil fuels have reversed this calculation. During summer 2008, with crude oil trading at $142 a barrel,
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actively pursuing these resource reserves seemed to be highly profitable. Additionally, the expectations of a permanently high price level for oil have led observers to believe that the odds are now in favor of risking the initial investment. Furthermore, leaving such an amount of valuable resources to the “enemies” may be deadly. With the emergence of highly-populated countries such as China and India, the demand for energy will skyrocket. This unquestionably will lead to elevated prices and therefore put the suppliers of energy into a position of power. Keeping in mind that most countries which export natural resources are situated in politically unstable regions as well as far away, i.e., Iraq, the need to protect the resources from theft causes high transportation costs and the danger of getting the much needed resources through to one’s home country. In addition, a much discussed fact is about the so-called “Peak Oil” theory, the possibility that the world is running out of (cheap) oil. Many OPEC countries have upgraded their “proven reserves” and may have inflated their actual numbers substantially. Considering the question whether humans will extract the resources located at the Arctic Ocean region is already answered; the gas field called “Snohvit” owned by Norway is operating as of today. The extracted gas is transformed into liquefied natural gas (LNG) and then transported to the Norwegian town of Hammerfest. The possibility of ships passing the new routes is an attractive characteristic already mentioned. The ice-free ocean lane on the northwest side and the Northeast Passage are useful dur-
perspectives ing only a few months. In December 2007, the European scientific program DAMOCLES (Developing Arctic Modeling and Observing Capabilities for Long-term Environmental Studies) predicted a permanently ice-free Arctic as of 2080. The American counterpart NSIDC (National Snow and Ice Data Center) even claims that the Arctic will be ice-free as early as 2030. Mark Serreze, a researcher for the NSIDC, explains that the point of no return already has been passed. Nevertheless, these scenarios are not set in stone, especially if one considers how the researchers get to these results. A minor change in one of the variables used for the computation already alters the prediction by a huge amount. However, the possible consequences of the emergence of new ocean lanes are considerable. Today, a ship going from Hamburg to Shanghai taking the new route would shorten the distance by one-fourth or even one-third, depending on the way it takes. This would save about three and a half days of time needed to get from one end to the other. Article 76 of the United Nations Convention on the Law of the Sea is of central importance for the issue at hand. According to this article, nations can enlarge their “zone of influence” to 200 miles away from their land if they can prove that it originally belongs to them. This article is the central element in the middle of the discussions among the competing nations. Whichever country can prove that its intrinsic, geographic land can be stretched until reaching part of the Arctic Ocean region will be able to claim a piece of the cake.
On August 2, 2007, Russia planted its their flag on the sea floor. Moreover, it has increased the surveillance of the Arctic region; jets are frequently seen flying around the region. In 2006, the number was 18 and the next year 88 jets were counted. Politically and scientifically, Russia is the initiator in the quest for the Arctic Ocean region. The Lomonosov-Ridge, an unusual underwater ridge spanning from the New Siberian Islands to the Canadian Arctic Archipelago is said to prove that the Arctic Ocean region is to be counted part of Russia. The Barents Sea also is in the middle of the discussion between Norway and Russia. Both claim the region should be part of their corresponding nations. The Russians want to extract gas from the Shtokman field northeast of Murmansk, which explains part of the current tensions. Norway is taking part in the “Nordic Battlegroup” of the EU. It is building many frigates. The main advantage Norway has over Russia is its capital and know-how about extracting resources. Denmark, which owns Greenland, wants its part too, using Greenland’s location within the Arctic Circle as its reason. Canada, on the other hand, is mainly interested in the legal ownership of the Northwest Passage ocean lane. In this respect, Canada’s neighbor, the United States, has an ongoing conflict with Ottawa for usage of the ocean lane northwest. The language is getting rougher, after the Russians planted their flag and Canadian President Harper pronounced his “use it or lose it” philosophy, which in simple terms means: the first ones win. What’s more, the countries at hand increase their invest-
ments around the the North Pole. The West fears that Russia, the second biggest producer of oil and the biggest producer of gas, might monopolize fossil fuels, leading to too much power in the hand of one nation. This is clear after the incident with Ukraine in early 2006 where Russia was perceived as negotiating in a very strict manner. To sum up, the renewed interest in the the Arctic Ocean region has resulted in increased tensions among the nations wanting their part of the cake. Vast amounts of resources, their exploitation, and the use of the ice-free ocean lanes are the reason for the increased interest of nations such as Russia and the United States in the quest for the Arctic Ocean region. The United Nations Convention on the Law of the Sea seems to be at the center of deciding what is going to happen in the future, which nation gets what, and how much.
Christian Moeller …
wanted to wipe away the frosty mist from the stories currently circulating about the antartic ocean.
EFM Academy Magazine
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