about

Welcome to the very fi rst issue of Capital Magazine, KTH Finance Society’s student-run magazine with focus on economics, fi nance and strategy. As we

write this, a hectic week fi lled with deadlines and stress has just ended, and the result is now lying in your hands.

Th e idea to launch Capital Magazine and a corresponding Research Division emerged in our minds at the beginning of this year. We noticed the lack of a platform where students interested in economics, fi nance and strategy could develop the research and writing skillsets that many relevant employers consider to be essential. Consequently, we saw the potential to establish a Research Division, an intermediate value-chain between academic excellence and industry practice. Th ereby further closing the gap between students and business professionals. Capital Magazine, together with its website, is the main channel through which the Research Division will publish and showcase its work.

Furthermore, the magazine will also feature articles that may be of interest through a broader student perspective. Examples of these are our interview articles where we for this issue are delighted to present to you Bruce Grant and Brita Kämpe, an experienced and an upcoming leader, respectively. We hope you fi nd both of them to be inspirational.

Th e process from idea to result has been swift . We are proud of the fact that we, together with the whole team, managed to execute this project in a matter of less than six months. We would like to thank all of our contributors, whose names are listed below, for producing the material that has made this magazine possible. Also, thanks to KTH Finance Society for supporting the project fi nancially as well as providing relevant support functions. Lastly, a big special thanks to Rui-Xin Li, our fantastic Art Director who has done an excellent job designing and producing the graphics.

Despite being proud of this fi rst issue, we are still humbly aware of the challenges that lie ahead. Th e magazine, as well as the Research Division, needs to expand; the organizational structure and work fl ow require great enhancements. We must also continuously seek to improve the quality of our articles.

With the fi rst milestone achieved, the project now enters another phase. Whether you are interested participating in our journey to become the leading student-led research organization and magazine in Scandinavia or if you simply have some thoughts regarding anything written, do not hesitate to contact us at the e-mail address written below. Your feedback is very valuable to us.

With all that said, we sincerely hope that you will enjoy your reading.youou wwill l enennnnnnennnnnnnnnnnnnnnnnnjojojojjjjojojjjjjjjjjjojjjjjjjj y yyy yoyyouruuu rrreadiid ng.

Farzad KhoshnoudHead of Research Division

Sibo WeiEditor-in-chief

EDITOR-IN-CHIEF Sibo Wei

HEAD OF RESEARCH DIVISIONFarzad Khoshnoud

ART DIRECTORRui-Xin Li

CONTRIBUTORSHugo Brändström, Iuliia Diachenko, Nikos Georgelis, Martin Hedengren, Alexis Lindhé, Lukas Magnusson, Farhad Tatar, Lennart Wang, Brian Ye, Henrik Xu

WEBMASTERBaddar Mian

WEBSITEwww.capitalmagazine.se

CONTACTeditor@capitalmagazine.se

DISCLAIMEROpinions published in Capital Magazine do not necessarily represent the opinions of the editorial staff or KTHFS

PRINTING HOUSEWikströms tryckeri AB

contentBRUCE GRANT on the Art of Leadership 04 A Changing World 07 who is Brita Kämpe? 12 Opinion 14 Company in FOCUS 16 Industry coverage 17

About Bruce

Age: 53

Family: Married with three sons (19, 22 and 24 years old)

Residence: Jupiter, Florida

Prefered travel destination: Trips with Hand-in-Hand and World Vision.

Hobby: Sports

Hidden talent: Still (quite) good at basketball

04 Bruce Grant - On the Art of Leadership

BRUCEGRANT

Bruce Grant, currently CEO at Applied Value Group, has previously found himself in board and leadership positions in companies such as Arthur D. Little, Tele2 and Kinnevik, to name a few. We at Capital Magazine are delighted to bring you this exclusive interview with likely the most experienced figure within management consulting in Sweden.

Bruce Grant’s name may not be much known to the public, yet this is a man whose impressive past spans across a vast number of companies and industries. Perhaps it is the general management consultant’s dream: to be able to experience diff erent types of industries and work on a diverse mix of projects. However, during his university studies at Chalmers University of technology and at Gothenburg School of Business, Economics and Law Bruce’s main passion was the automotive industry and therefore wrote both his masters and licentiate theses in this fi eld.

His doctoral studies at Chalmers continued while the allure of a career within the

business world beyond academic research grew stronger. Bruce, who fi rst and foremost describes himself as an entrepreneur, therefore founded two consultancy fi rms, where the second one was acquired by Arthur D. Little in January 1993, which marked the start of his highly successful tenure at the American consultancy fi rm. Bruce rose through the ranks quickly: From the start he was responsible for ADL in Scandinavia and by mid 1995 he was put in charge of its whole North American business in order to turn losses into profi ts.

Bruce was an outsider in numerous ways. He was one of the youngest partners at ADL and he did not boast a degree from a prestigious university such as Harvard or MIT like many of his colleagues. Th erefore, when the young, half-Swedish man decided to fi re 50 percent of the partners in North America as well as completely reshuffl e its structure, it became big news, appearing on the front page of the Wall Street Journal.

“Th e partners, especially the older ones, were complacent. Th ey enjoyed a high base

salary and didn’t want to work hard any more. When I arrived, I said: ’absolutely not. If you can’t take the heat then get out of the kitchen!’”

How did you manage to implement these radical changes despite the fi erce resistance?

“I am very much driven by targets and performance. I had to go there and set a bold target that could inspire everyone. To go from negative two percent to positive four percent would not be good enough. We had to aim at 20 percent, at least.”

Performance is something Bruce likes to emphasize. He says that a leader has to lead by example; be able to back up the words with real results.

“In any organization, be it a consulting fi rm, manufacturing company or a nation, it is not so much the eloquence of the leader that is important as compared to his actions to get things done. For example, Obama’s problem at the moment is that he

On the Art of Leadership - Bruce Grant 05

on the art of leadership

may be the world’s greatest orator, but his actions do not always follow his words.”

What else characterizes a good leader?

“A leader must be able to dissipate energy and warmth throughout the organization. I am a very energetic person, and hopefully that energy is passed on to my co-workers. Also, I try to spread warmth by taking the time to communicate directly with all levels of the organization to learn more about them and their view on matters.”

“Furthermore, predictability is an important trait. One of the worst possible situations in an organization is if the employees have to second-guess the leader’s next move. For a leader, it is of course preferable to be a predictable nice guy, but to some extent, it is better to be a predictable jerk than being unpredictable.”So how did the turnaround in North

America go? It went splendid, even better than Bruce had hoped for. His performance was unmatched. Within 12 months he had turned a loss of 2 percent into a profi t margin of 24 percent before taxes.

“I knew that I’d become the golden boy within ADL, it would have only been a matter of time before I would be appointed CEO.

I was high performing but rebellious”

However, Bruce did not choose to stay at ADL. Instead, he became involved with several Swedish companies. Th e reason behind this was a certain Jan Stenbeck.

Joining the Stenbeck group

Bruce met the late business magnate in 1993 when Jan was a client of ADL. Th e two men connected instantly and over the next couple of years Jan did everything he could in order to entice Bruce to join his

businesses, including the off er to become CEO of Tele2 , Korsnäs and Kinnevik at diff erent points of time. By 1997, Bruce fi nally succumbed.

“I felt that if I ever was to leave ADL it would be to do something new. Th is off er from Jan was indeed something diff erent from what I had done before.”

Bruce’s role within the Stenbeck group was multifaceted. He became a member of the Board of Directors at many of the companies that Jan controlled, including Korsnäs, Kinnevik, Metro, Transcom and Tele2. Furthermore, he was put in charge of Jan’s venture capital portfolio in the US which Jan held beside his other commitments. Also, the two men decided to start a new management consulting fi rm, which became Applied Value Group (AVG). Bruce assumed the role as Jan’s board confi dent. When Jan was too ill to participate in the last round of board meetings before his death, he appointed Bruce as acting chairman of Tele2, Kinnevik and Korsnäs. Th e two men

“A leader must be able to dissipate energy and warmth throughout the organization”

06 Bruce Grant - On the Art of Leadership

also struck a close personal friendship.

Jan’s sudden passing away due to a heart attack in 2002 was therefore a tremendous emotional blow for Bruce. Th e turmoil that ensued as diff erent forces fought for power within the business group proved to be one of the most diffi cult times in his life to date. Despite being emotionally entangled, Bruce still had to make an important professional decision regarding his next career move.

“Emotionally, it was extremely hard on me. He was my mentor and one of the best friends I have ever had. It was very, very diffi cult to make decisions during such turmoil.”

Bruce was off ered executive roles at several industrial companies and private equity fi rms. However, by joining one of those fi rms he would have had to abandon AVG.

“I felt a strong loyalty towards the employees at AVG. If I left , we would have had to shut down the company, which I felt would be ethically and morally wrong. We had built up considerable value at AVG so I decided to continue on my entrepreneurial path and stay at the fi rm to develop it further.”

Focus on charity

Today, AVG stands on three legs: management consulting, private equity/venture capital and pro-bono charity commitments. It was especially the pro-bono part that Bruce was looking to develop further. AVG is primarily engaged in two organizations: “World Vision”, one of the largest NGOs in the world where Bruce is co-chair of their Economic Development Council, and “Hand-in-Hand”, a micro-fi nance/micro-entrepreneurship charity led by Percy Barnevik, where Bruce is a board member. Being able to control AVG’s allocation of funds in order to use them for good purposes was indeed one of the most important reasons why Bruce stayed and he fi nds himself spending more and more time with this third leg of the business.

“My family lived under humble circumstances aft er my father died when I was 10. Despite this, my mother gave 10 percent of her salary each month to charity.

It was a blessing to learn the importance of sharing at such a young age.”

He says it is understandable that philanthropy might not be on the top of the priority list for a young 25 year old at the beginning of his or her career. However, he does believe that the earlier you start caring about the severely poor, the happier and more meaningful your life will be. He also emphasizes that in his mind, there is no clash of interests between earning money and doing good things.

“Earn as much money as you can and give as much money as you can. I have no problem paying high salaries to employees or earning a high salary myself. Th e ethics lie in the step aft erwards, how you decide to

spend that money. Th ere is no clash between being successful and making the world a better place.”

What is your recipe for success then?

“It is of course a lot of hard work. To quote Vidal Sassoon (chairman of President Reagan’s Council on Entrepreneurship): ‘Th e only place where success comes before work is in the dictionary’. It is not always fun, you oft en need to ‘burn the midnight oil’. Being a top-level business man, consultant or banker is not as glorious as some might suggest.”

Taking a long-term view is also important.

It seems like the younger generations oft en are more impatient than older generations, Bruce reasons. He sees the increased need for “instant gratifi cation” as a major problem.

“Business, as well as life in general, is a marathon race, not a hundred meter sprint. Everyone who’s run a marathon knows that you go through periods when the only thing in your mind is the pain in your body and that you just want to stop. But you have to fi ght through that sequence.”

However, he also points out that in order to be successful you have to fi nd joy in what you do.

“You must have your heart in it, not just your head. Go where you feel kinship, some place where they share your values; where you feel that ‘I can arrive here early in the morning and leave late at night, and still enjoy my life and experience meaning’.”

“In the beginning of your career, you don’t necessarily have to go where the salary is the highest. Listen to your heart and remember that life is a marathon. During university studies, my heart told me to start out as a research assistant at Chalmers even though many of my friends went to management consulting fi rms and investment banks. In hindsight, my career still turned out just fi ne.”

Interview: Farhad Tatar & Sibo WeiWriter: Sibo Wei, Photo: Rui-Xin Li

“Business, as well as life in general, is a marathon race, not a hundred meter sprint”

A World in Change 07

A WORLD IN CHANGE

USA, Russia and China are all subject to leadership changes this year. The results will define the courses of world politics and global economy for years

to come. In this article series, we provide you with some insights into the three most powerful nations in the world.

photo: Blaise T Nutter

photo: Gage Skidmore

08 A World in Change

During an election year the traditional pandering by political pundits and journalists is that the current state of government in America is as bad as it has ever been. Th is is a fairly logical result of the general cynicism that surrounds the political process, and is strengthened by both sides in their quest to rally their political bases by inducing a grave sense of fatal urgency into the outcome of the upcoming election. But the truth of the matter is that the present state, and likely future direction, of American politics is far from encouraging, and much and more indicate that - come the election in November – the United States of America will prolong its current two-year political stalemate and enter into another four years of perpetual political grid-lock. And the timing probably could not be worse.

Th e election

Let us begin with a glance into the crystal ball to try and predict the outcome of the 2012 election. In many ways, this election is still a fairly open one, and any major event with the magnitude of the BP oil spill, Hurricane Katrina or Lehman Brothers could still turn the political landscape completely upside down in the following months. However, at present the following can be said: Th e Republicans – who are ahead of the Democrats in fundraising – will with all likelihood gain several seats in the Senate and secure a simple majority, but will at the same time almost certainly fall

shy of the 60 seat super-majority required for a fi libuster-proof control over the upper chamber. Minor gains by the Democrats in the House of Representatives can also be expected, but the 25 seats required to regain control in the lower chamber of Congress is theoretically only barely possible.

Finally, one must understand when it comes to an American presidential election that the actual popular vote of the people carries very little weight. Th e only thing of importance is that each state is given a number of electoral votes according to the size of their respective population, and the triumphant candidate in each state then secures all of these votes. To win the White House a candidate needs 270 electors. About four fi ft hs of the states are from default already considered either solidly Republican or solidly Democrat, leaving the presidential candidates to compete against each other in only a handful of battle-ground states, called the swing states. In 2008, Mr. Obama succeeded in carrying several traditionally Republican strongholds such as Virginia and North Carolina, and polling suggests that they might still remain on the table for him in this election cycle. With several traditionally Republican states being up for grabs, but probably none of the Democrat strongholds, the amount of battleground states is unusually high. During the past decades, presidential elections have mainly been decided in Ohio and Florida, two populous and prominent swing-states, but this November Mr. Obama and Mr. Romney will in addition to these also be fi ghting over Virginia and North Carolina, as well as fi ve minor states.

And in order to secure the presidency Mitt Romney will have to score a full house. He will have to carry all four of the major swing-states, three of them together with most of the minor ones or be able to put currently solid Democratic states back onto the table. Th e electoral math makes a Romney win in November highly unlikely, but it remains a possibility.

Change – not so likely

Which leads us to the macroeconomic implications of an Obama re-election, with a Republican majority in both chambers of Congress, which will with all likelihood serve to maintain the current dangerous status quo in two very important areas.

ELECTION AND POLITICAL

GRIDLOCK: Exposing the Innards of a

Broken System

A World in Change 09

When the rating institute S&P downgraded USA from its triple A credit status last summer, they cited not America’s inability to pay interest on its debts, but the possibility that American lawmakers might choose not to. An odd trait within the US system was highlighted in 2010 when the newly elected Republican majority in the House passed an unbalanced budget. In America, an unbalanced budget does not automatically mean that the funds needed to cover the defi cit will be borrowed, but instead any raising of the so called debt ceiling will have to be approved separately by Congress at a later date. Th e mere threat from Tea Party Republicans in Congress last summer to block the routine payments of America’s already existing debts is what shook the foundations of the global fi nancial establishment in July and August 2011, and this threat has by no means disappeared since sooner or later debt-talks will have to surface again. Th e idea that the richest country in the world could consider fi rst to approve spendings it cannot aff ord, simply to have the very same lawmakers one year later threaten not to pay for them is as scary as it is ridiculous.

Th e second macroeconomic eff ect we will have to expect as a result of the upcoming elections is a continuation of the current approach towards government stimulus of the economy. Th at is, no stimulus package of any kind is likely to see the light of day if it is made up of anything other than mere tax cuts. Th is will severely limit the fl exibility of the future president – whether he is named Barack Hussein or Mitt Willard – and any downturn in American growth will for example, as it always does, have spill-over eff ects into the unstable European economy. Th e fi nal line of the argument is that this is not a great time for USA to be limiting its options in this way.

Increased polarization

Several components are making the current gridlock in Congress the worst in history. American lawmakers are elected locally, and not nationally, and historically both parties have been made up by members from all sides of the political spectrum. Th e Democratic Party had until recently large parts of its caucus made up by conservatives and the Republican Party with moderates. Being responsible mainly to their local constituency, congressmen have traditionally voted with their conscience,

enabling presidents to carve out slim majorities for their politics with members from the other party even whilst governing in minority. In recent years the Republicans have been wandering far to the right and the Democrats slightly to the left , and what used to be a substantial political middle has all but evaporated. During the Obama Presidency, congressional republicans have enforced strict party line voting, eff ectively blocking the vast majority of Mr. Obama’s legislative agenda in the Senate through fi libustering. If Democrats turn out to have learned from their opponents when they enter minority this fall, and continue this tactic of blocking every single bill, regardless of substance, just to deny the opposition the prestige of passing anything at all, then America will experience another four years of stalemate. Rumours even have it that Mr. Obama had to force Secretary of Treasury Timothy Geithner to stay in offi ce, since senate Republicans had signaled that they would not confi rm any new cabinet members, which would have resulted in America being without a minister of fi nance during its worst fi nancial downturn in 80 years.

Further, a 2010 Supreme Court decision allowing corporations and unions to donate unlimited amounts of money in secret to politicians has increased the infl ux of special interest money into Washington, creating a further dependency on fund-raising that is making most any decision that might aff ect any interest group anywhere in the country much harder to pass. Th e all-powerful lobby group Americans for Tax Reform – lead by the conservative minimalist Grover Norquist – ironically blocks any serious attempt made by either side to reform the complicated tax code, since almost every Republican in the country has signed their pledge never ever to raise revenue on the threat of being targeted in their next re-election. In addition, the Tea Party movement is dividing the Republican Party in Congress, and establishment Republicans are having a hard time to get their majority to fall in line. Th e movement’s tendency to try and defeat incumbent members of its own party who are not considered conservative enough is creating tension, and its ability to help and nominate weak candidates like Christine O’Donnell – a 2010 Delaware senatorial candidate, dabbler in witchcraft and stark opponent of private masturbation – is jeopardizing the Republican Party’s

chances to take complete control over Congress in November. At present, all these factors encourage American politicians to stay idle, thus making the country more or less ungovernable.

Compromises are needed

A vast majority of the people supports a balanced approach to defi cit reduction. Th e US has the lowest government revenues as a proportion of GDP since the Korean War, the lowest taxes for the rich since the early Reagan years, and the lowest overall tax pressure since the 1920s. During the last three major attempts to broker a bipartisan approach to defi cit reduction – Boehner’s Grand Bargain, the Simpson-Bowles Commission and the Gang of Six – the Democrats put their three holy cows, Medicare, Medicaid and Social Security, on the table. Now it is up for the Republicans to do the same, if any sustainable deal is to be made. Th e National Security budget as well as increased revenues must be a part of any deal for Democrats to accept it, but the current Republican zero-sum winner-takes-all strategy will have to be revised. Th e debt is at 16 trillion dollars, and projected to grow to about 20 by 2021 unless something is done. Put into perspective you could spend a dollar per second for 32 500 years until you reach a trillion, making the real question not about what things American politicians will have to sacrifi ce in order to balance their economy, but when they will realize that they will have sacrifi ce everywhere in order to save it at all.

Writer: Alexis Lindhé

10 A World in Change

And thus ended on May 7th 2012 the drum-roll that was the presidential bid of Russian Premier Minister Vladimir Vladimirovich Putin. It began on September 24th 2011 with the anticipated announcement of his and incumbent President Medvedev’s longstanding plans of a job switch, continued through the fraudulent parliamentary elections in early December and the resulting winter of mass-demonstrations, just to culminate with his landslide victory in the fi rst election round on March 4th.

For once, the initial suspicion had by most of those who follow Russian politics when Mr. Putin left offi ce in 2008, a hunch that soon aft erwards was enhanced by a rushed constitutional amendment to extend the presidential term from four to six years, turned out to be entirely true. All the various speculations regarding potential alternate outcomes have since turned out to be nothing more than wishful longing for a more traditional West European democratic model in which leaders remain satisfi ed with, let’s say, just two consecutive terms of insomnia, a never ending workload and the responsibility of millions of lives on their shoulders.

Concequences of the return

One might approach Vladimir Putin’s return to the high seat in Kremlin from several

various points of view – the most accessible one perhaps being what his re-election might mean for the future development of democracy and human rights in this vast and multicultural land – but this particular article strives to examine the beginning of Mr. Putin’s third presidency through a more economic perspective. First and foremost it must be stated that Mr. Putin’s return most likely signals the very absence of signifi cant changes from the current path in most any political area, since in eff ect present policies were adopted by himself when he entered offi ce for the fi rst time twelve years ago. Vladimir Putin has maintained control over government ever since, even though he by mere constitutional impediment happened to leave offi ce for four years.

So the relevant issue becomes whether this maintained status quo is benefi cial for Russia and the global economy in which she participates. Aft er all, the Russian Federation has experienced substantial growth and progress during Mr. Putin’s tenure, the least not being the fi rst time ever emergence of a Russian middle class. However, a more cynical explanation to the economic successes of Mr. Putin’s reign is this: the main factors to be credited for the fi nancial development of the Russian Federation are a state monopoly on natural gas as well as massive taxes on profi ts made from all oil exports, together with an oil price of well above 100 dollars per barrel and a technocratic Minister of Finance who maintained a preference for the massing of vast state reserves. An interesting question is then whether all this was possible due to Mr. Putin’s leadership, or in spite of it. Th e author of this article is inclined to believe the latter.

Mr. Putin has done little to dampen the explosive growth of corruption within all layers of Russian society, and even though he made sure early on to wrest political muscle from the oligarchy, the nation’s wealth has continued to be distributed in smoke-fi lled rooms behind closed doors, to cousins, nephews and childhood friends. However, the most unfortunate part of Mr. Putin’s attitude toward economic issues is that much and more indicates that he might actually not really believe in the Western model of a market oriented society. His years in power have seen a series of governmental takeovers and restructurings of entire sectors of the economy. Th e early nationalization of all

privately owned television networks were of course of a more political nature, but since then there have been others. Th e oil sector, which was originally privatized in large parts, has over the years transitioned back into state control, most famously through the governmentally owned oil company Rosneft ’s takeover of imprisoned billionaire Mikhail Khodorkovsky’s fi rm Yukos. Th e Russian government has not only refrained from any eff orts to dismantle the somewhat ineffi cient state monopoly on natural gas, but some time ago Mr. Putin instead rather suggested that Gazprom should be enlarged even further by merging it with its Ukrainian equivalent. Within the military industrial complex, so called vertical structures for both production as well as export have been created to strengthen governmental control over the industry, with a trickle-down eff ect for state funds that has resulted in a swollen bureaucracy in which money disappears at every level.

To state that these ineffi ciencies constitute an intentional plan to enrich the few and to slow down economic progress is a bit too cynical, and it takes us back to the original point: Vladimir Putin has a diff erent set of values of what is important for Russia than those of Western onlookers. When he came into power he feared chaos and thus acted to establish order, in the media as well as in the economy. During the fi nancial crisis of 2008-2009, his government – to former Minister of Finance Aleksey Kudrin’s distress – wasted hundreds of billions of gas-and-oil dollars to support the rouble as well as to save shady banks and aged industries, not because it was fi nancially sound but because they feared the public uproar another 1998-style collapse would have caused. Mr. Putin believes – and many, many Russians sincerely agree – that a strong and respected Russia is far more important than an effi cient market economy and a working democracy.

Th e future

But even though the economic policies might not change for the better in the years to come, it is by no means all bad. Th e middle class, especially in Moscow and St. Petersburg, are growing fast, and their demands for freedom and consumerism, and not just stability, are encouraging for the future. Even though this winter’s peaceful demonstrations – being the result of the December parliamentary elections as

THE RETURN OF THE CZAR:

How Vladimir Putin’s Re-Election Changes Nothing

photo: kremlin.ru

A World in Change 11

This year’s leadership shuffle within the Communist Party of China, which will see President Hu Jintao and Premier Wen Jiabao step down from office, is set to have a great impact on the country’s politics.

In November this year the 24-member Central Politburo of the Communist Party of China is set to elect a new Standing Committee, the highest ranking organ within the party. Seven out of nine members are set to be replaced, including incumbent President Hu Jintao and Premier Wen Jiabao. Being the most populous country and the second biggest economy in the world, China’s shift in leadership will have widespread political and economic eff ects.Th e last term is widely regarded as being characterized by further liberal economic reforms. As an example, the Renminbi, the Chinese currency, has been allowed to appreciate against the US dollar. From a security political point of view, China has embraced a “peaceful rise”, alluding that it seeks to act as a responsible international player, focusing on its own internal matters.Various discussions are now being held, both within China and internationally, regarding which economic and political directions China should embark upon.

Liberal forces take the lead

One of the most pressing issues among the Chinese population is how the growing economical rift between the rich and the poor can be countered. Furthermore, there is a growing discontent against what is regarded as increased corruption within the judicial system and the Communist Party. Th is has given leeway for some leaders within the Party to successfully ride on a populistic wave which constitutes of politics and rhetoric reminiscent of the days of the Cultural Revolution. One of the fi gureheads for this left -wing current

was Bo Xilai who, until a month ago, was regarded as being guaranteed a place as a new member of the Standing Committee. However, aft er a series of scandals during the last couple of months, Mr. Bo is now under house arrest as ordered by the Party’s leadership. Th is is widely seen as a victory for the liberal powers within the Party. Nevertheless, Mr. Bo’s ousting has sent shockwaves throughout China and has sent the Party spiraling into a crisis and power struggle not seen since the 1989 Tiananmen Square protests.

International viewpoint

Th e international interest in China can be divided into two broad areas: economy and security. Due to recent years’ economical and fi nancial turmoil, the international community has grown increasingly dependent on China and other emerging economies’ growth to power the global economy. As the developed worlds’ economic woes are looking to be long-lasting, many Western countries wish for further liberal economic reforms in China. Primarily, the USA wants China to abandon the Renminbi’s artifi cially induced low value, in order to allow a more “fair” competition.

Th e security political interest stems primarily from China’s neighbors in South East Asia, who feel threatened by China’s increased power projection, especially in disputed areas around the South China Sea. Many of these countries have been approaching USA in foreign policy and military matters in order to bolster their stance. Th e US’ shift of military focus from the Middle East to South East Asia, in essence, China, will be of immense geopolitical importance for years to come.

In the upcoming reshuffl e Xi Jinping, incumbent Vice President, is seen as the most probable successor for the Presidency. Mr. Xi, oft en described by media as a calm and pragmatic leader, is believed belonging to the liberal wing within the Communist Party. He is also known for his tough stance against corruption. Should he be crowned President, China would likely pursue further liberal economic reforms. However, the so far extremely quiet Mr. Xi’s detailed views on matters are yet to be discovered.

Writer: Hugo BrändströmTranslation: Sibo Wei

well as the Putin-Medvedev announcement of how they decided between themselves some fi ve-six years ago what would happen with the future of the presidency – have abated, they served as an ample example of the fact that the urban population won’t stay content with the status quo forever. Th e Russian people now travel, consume and use the Internet.

And foreign investors should by no means be distraught. Th e Russian market, especially for retailers, has been very good to most businesses that dare the psychological distance. Th e Russian people left the Soviet Union behind with a great hunger for various products and services that they so far cannot satisfy by themselves, and the vast majority of the economic challenges through which the country suff ers today remains a hindrance mainly for the modernization of their own aged industry and those sectors of the Russian economy that still lag behind.

It is unfortunate that sorely needed political and economic reforms might be delayed even further due to the re-election of Vladimir Putin, even though he may surprise us still, but any country – and especially one with such a hard and diffi cult history as Russia – is stronger than any one person.

Writer: Alexis Lindhé

THE CHINESE PARADOX:

Liberal Forces in the Communist

Party

Brita Kämpe, soon to be SSE and KTH alumna, recently won the prestigious “Nova of the Year 2012”-award issued by Nova Agentum. Parallel to her academic studies, she has initiated and developed several major projects, including fostering entrepreneurship for young people in Botswana and promoting the entrepreneurial environment within Stockholm School of Economics’ business incubator, SSE Business Labs. Capital Magazine had the privilege to meet with Brita and discuss her views on leadership and her future career.

Th e overall theme of this fi rst issue of Capital Magazine is leadership; thus a natural way for us to kick-start this interview would be to ask you, how would you defi ne leadership?

“To me there is a clear distinction between ‘managers’ and ‘leaders’. Managers have received a formal mandate to manage people, while leaders are people that due to their personal traits acquire an informal mandate to lead others. Followers choose to follow leaders because of the leader’s natural authority. Th e perceptions of these leaders may be subjective; personal traits I may appreciate in a leader may probably diff er from what others look for.

Furthermore, I believe, a good leader is someone who has the ability as well as will to identify the strengths of others, and to assist these people in applying as well as further developing these strengths. Unfortunately this is not the common case today. Too oft en I see evaluations and feedback sessions focusing on a person’s “development needs” rather than on his or her strengths. I am a strong believer that teams work their best when the individual strengths of team members are leveraged.”

12 who is Brita Kämpe?

who is BRITA KÄMPE?

About Brita

Age: 24

Residence: Stockholm

Prefered travel destination: Kilimanjaro

Hobby: Baking (a lot of Tiramisu nowa-days)

Hidden talent: Can split an apple with my bare hands

You have been running several large projects where you have acted as a leader. Could you describe your style of leadership?

“I believe I have the ability to stay calm even in intense and potentially emotional situations. Th is trait is defi nitely something that I have benefi ted from over the past years. In addition to this, more on an interpersonal level, I actively try to lift the people around me. Th e fact that we are all diff erent from each other emphasizes the need to approach people as individuals and address their personal needs and concerns. I also try my best to facilitate a team’s progress in a way that everyone is able to leverage their strengths to contribute to a holistic solution.”

You have managed several important projects simultaneously during your time at both SSE and KTH, do you ever feel stressed?

“Th e concept of ‘stress’ is an interesting one. I oft en hear people using this word as a synonym for having a lot of things on your agenda. To me, having a lot of things to do does not automatically translate into me being stressed. Rather, stress is something that tends to emerge when I consider myself allocating time to activities I consider to be a waste of my time. During the last two years, I have had more to do than ever before. However, during this period I have still felt calmer than ever before, since I actually have been spending time on what I have enjoyed.”

Do you have any goals, and how do you set them?

“Being 24 years old, I rarely work with ten year targets; rather I set short-term goals that have a time horizon of one to three years. My goals are not really that formally structured, rather they concretize the direction of my career I believe will facilitate the development of my strengths. For the upcoming years I am focused on enhancing my interpersonal skills; how I work with other people in a group and how to lift people around me, as well as to

enhance my analytical and synthesizing ability. “

You have been in Botswana several times for two diff erent projects, could you tell

us more?

“Th e fi rst time I went to Botswana was about two years ago, where I completed a six months trainee-program with the Swedish Trade

Council. Since then, I have gone back twice, once last November and then during Easter, working on a new development initiative called “YoungDrive Academy Botswana”. Th e objective of YoungDrive is to promote young entrepreneurship, by showing youngsters that they have an enormous capacity to succeed in whatever they put their mind to. We teach them to run their own company and earn their own living not having to depend on the government or the mining sector. We strongly believe that in that age, the last thing you need is a 300-page book on entrepreneurship. We try to remove all the imaginary obstacles associated with starting a business, and make them understand that it does not necessarily need to be so diffi cult. Sometimes you just have to have the courage to believe in your own ability to succeed in what you do. “

What do you believe you have learnt from your experience in Botswana?

“One thing that has been important to me on a personal level is getting introduced to the concept of “Botho”. During my fi rst stay in Botswana, I developed a very close relationship to two Batswana women, who “adopted” me as one of their own. Th ey taught me that a central concept in the Botswana culture is the concept of Botho. Botho is a quality that is possessed by a person who is honest, builds trust and lift s people around them – all while applying a lovely sense of humour. I found Botho truly inspiring and applying that mindset in our daily lives is defi nitely something I believe we all would benefi t from. “

Interview: Martin Hedengren & Farzad Khoshnoud

Writer: Farzad KhoshnoudPhoto: Rui-Xin Li

“A good leader is someone who has the ability as well as will to identify the strengths of others”

who is Brita Kämpe? 13

14 Opinion

I do not think headlines about European sovereign bond yields blasting higher are raising any eyebrows these days. Th ey barely cause any reaction. What still fascinates me about the crisis in Europe is that the greater part still does not understand the essence of the problem. People still talk about it as a debt crisis. Even Ms. Merkel and Mr. Sarkozy talk about the European debt crisis. According to this author, it is not a debt crisis. It is a currency crisis.

Th e European hitch is quite clear-cut. None of these nations are autonomous issuers of their own currencies. As said before: this is a currency crisis! Since they all use the same currency they can’t devalue against each other; hence, withdrawing the possibility to grow out of their debt problems by trade rebalancing. And they can’t print money to off set growth decline. So the peripheral nations are in this negative economic spiral that will eventually suck all life out of them. At the same time the core, with Ms. Merkel and Mr. Sarkozy in the lead, wants to impose austerity on the peripheral countries since they do not want to print money. Th ey are convinced that the cure is to reduce the debt of the periphery nations. But what is actually happening is that the austerity is causing the growth of these countries to plummet at a more rapid pace than they

are able to reduce debt. Debt to GDP levels are either increasing or stagnating. Th e periphery nations are getting a whole lot of economic pain, and if I keep building a pile of garbage eventually the smell will reach my neighbor – which the latest PMI numbers (Purchasing Managers Index) also point out.

I had a discussion with a colleague about this matter. He argued that the Greeks have only themselves to blame and that they should suff er the economical consequences due to the mistakes they have made. As one can probably conclude from my name I have Greek heritage. I told him that I was not trying to defend the Greeks or trying to argue for a solution that is in their favor. Nor do I defend or try to hide the structural problems that the periphery nations have had for ages. But if a patient gets lung cancer aft er years of smoking, the doctor needs to fi rst remove the lump and then tell the patient to stop smoking.

I am sorry to say it but the crisis in the periphery nations will cause pain to the core of Europe. Th is is inevitable. My point is that this pain will be of an unnecessary magnitude because we try to cure the cancer but telling the patient to cut down on his smoking, work out and eat healthier. Th e problem is that the lump is still there.

How could they ever start jogging while they hardly breathe?

On top of this the ECB keeps stepping in every quarter with their vitamins and medicines. For a short period of time the patient might catch a breath and try to go for a jog while his lump keeps getting bigger. Th is perpetuates what has basically become a big Ponzi scheme. Or to put it more delicately, it’s like Cristiano Ronaldo kicking the can down the road.

I am afraid that the day when Cristiano Ronaldo breaks the can with one of his kicks might not be too far away. Europe needs a cure. Fast! Th e solution is complex and unfortunately beyond my knowledge to solve. Perhaps a US of Europe or send some sheep to the slaughter house in forms of defections? I am sure of one thing though. No doctor can cure any disease if he gets the diagnosis completely wrong. I also know that the core of Europe is dependent on the economic engines of the periphery. Bankers aren’t going to wait around long to realize that the ECB’s latest program isn’t going to actually fi x the underlying cause of the crisis - And that is a currency crisis. Not a debt crisis.

Writer: Nikos GeorgelisIllustration: Rui-Xin Li

LET’S TALK ABOUT EUROPE - AGAIN

Opinion 15

Although warrants may seem like an attractive investment at first glance, looks might be deceiving.

Warrants are certifi cates issued by banks. Th ey are essentially securities which are guaranteed by the issuer to follow an underlying asset. Th ey are primarily used by private investors to put on positions that may not otherwise be easily accessible, for example commodities. However, most warrants’ underlying assets are large cap companies or stock indices.

Warrant issuers, usually banks, cannot take on the outright risk from issuing warrants and thus needs to reduce their exposure. Th erefore, banks hedge short positions in warrants. Th is can mainly be done either through static hedging by options or dynamic hedging in the underlying asset. Th e bank receives money from the spread

between the sell-price of the warrant and the cost of the protection. According to the laws of value creation, no additional value is added in this process. Ultimately, why would investors want to pay a premium for the warrant when they can take the corresponding position directly in the market?

Investors might claim specifi c scenarios when the premium charged for warrants may be justifi ed, particularly if the underlying asset is illiquid or has a high cost of entry. Undoubtedly, these are valid situations to consider, but the premiums for these warrants are usually so high that it still does not make much sense buying them.

By using the famous Black-Scholes option pricing formula an option’s price can be established just from the underlying asset’s price and volatility. Remember that a call option is a contract where the holder has the right to buy an asset at a predetermined price (strike) and time (maturity). If the underlying instrument is closer to the predetermined strike there is a greater chance for the option to pay off and thus should be more expensive. Th e same goes for the underlying’s volatility: if the asset is more volatile there is a greater chance for the underlying to move beyond the strike and consequently pay off for the option investor.

Since the absolute price of diff erent options may vary for the same underlying depending on their strike the only way to compare diff erent options or warrants to each other is by their implied volatility. Just as it is possible to calculate an options price with the Black-Scholes formula it is also possible to reverse the process and enter the market price, thus obtaining the volatility corresponding to the current market valuation, i.e. the implied volatility. So in theory diff erent options on the same underlying should trade at the same implied volatility (in practice this does not hold true but for entirely diff erent reasons which will not aff ect our discussion here).

By employing this method we can calculate just how much more expensive a given warrant is compared to its corresponding option. For example as of this moment an option on OMXS30 with the strike price of 1000 trades at the implied volatility of 23 percent and a similar warrant on the same underlying with the same strike trades at the implied volatility of 27 percent. Th is 4 percent premium over the option is quite a lot when considering that for OMXS30 the diff erence between a calm market and an unstable market is around 10 percent.

Writer: Lukas MagnussonIllustration: Rui-Xin Li

FOOLED BY WARRANTS

opinion

Precio Systemutveckling AB is a specialist IT- consulting and system development company focused on providing software products and systems based on Microsoft technologies. Precio is a Microsoft Gold Partner and has been listed on Nasdaq OMX First North Premier since 2009.

In 2001, when the fi rm was established, it operated only in Stockholm, Örebro and Eskilstuna. However, because the fi rm sees geographical expansion and local presence as crucial factors in attempts to reach new clients, it opened local offi ces in Göteborg, Borlänge and Västerås.

Th e word “precio”, meaning value, worth and respect in Spanish, highlights the fi rm’s mission to be a reliable IT partner. Th e company’s total revenue has almost doubled in the past six years from 53 Mkr to around 100 Mkr. During the fi rm’s expansion however, the net income has decreased from 8.3 Mkr in 2008 to around

5.0 Mkr during the last year. such as Volvo, Bombardier, Sandvik, Atlas Copco WSP, British Red Cross, AstraZeneca, ABB, Sweco, etc. Overall Precio’s ten largest clients account for more than 50 percent of its revenue, which makes the fi rm dependent on its largest clients.

Half of the fi rm’s revenue comes from providing services to governmental organizations. According to Per Melin, Managing Director, Precio has always been focused on the public sector. Long-term agreements with public organizations are seen as solid bases to stand on.

Writer: Iuliia Diachenko

“We had a great result in 2011 and despite the Euro crisis and eco-nomic situation I believe in positive development for Precio in 2012”, Per Melin.

Precio’s client base includes large and medium Swedish fi rms and nonprofi t organizations (NPOs) operating in fi nance, production and service industries. Th e fi rm has provided IT solutions to public sector organizations such as Statens Energimyndighet, Försvarets Materielverk, Vägverket, Regeringskansliet, Läkemedelsverket, Sveriges Riksbank, Vinnova and to clients in the private sector

“For ten years we have grown to more than 100 employees and have reached total revenue of more than 100 Mkr”, says managing director Per Melin

If you would like to learn more about Pre-

cio Systemutveckling, or other companies

in our equity research portfolio, please visit

capitalmagazine.se

16 Company in Focus

Company in Focus

Quick-facts

Employees: 104Established: 2001Total revenue: 140 MkrLocal offices: Stockholm, Örebro, Eskilstuna, Göteborg, Borlänge,Västerås

Services

Information management with Microsoft SharePoint/MOSS, Server platforms with Microsoft BizTalk and WCF, System development & Architecture with Microsoft .NET

Industry Coverage 17

GENERAL DEVELOPMENT LAST YEAR AND FIRST QUARTER 2012

The Oil and Gas sector on NasdaqOMX has, after the turbulence caused by the debt crisis and the subsequent drop in the stock market last year, made a strong recovery. This increase reflects the more optimistic view on the future which has fueled the demand of oil.

Th e brief spike in the beginning of the year was a result of a temporary increase of oil purchases from China in order to increase their Strategic Petroleum Reserve. Disturbances in the Middle East are another contributing factor to the volatile oil prices on the markets lately.

COMPANY SPECIFIC ISSUES

Lundin PetroleumAft er a strong recovery the stock fi nished as last year’s winner in the large cap category on the OMX Stockholm exchange. Despite the success, Lundin Petroleum started this year with a large decline as the prospect drilling of the oil fi eld found last year, Avaldness, ended with disappointment which caused a fall of 12 percent on one single day. Further turbulence caused by negative press regarding Lundin Petroleum’s presence and business with dictator states such as Ethiopia and Sudan has caused the stock to slide even further. Lundin announced in the end of March a success prospect drilling which the market responded to with a 5 percent increase.

Alliance OilAlliance Oil started the year by publishing a much higher EBTIDA for the fourth quarter of 2011 than expected by analysts. Th e next report in the end of March announced negative news as the production in a key

oil fi eld in Russia, Kolvinskoye, had faced a decrease in production by 29 percent during February compared to the fourth quarter. Th is combined with decreased production forecast for 2012 amplifi ed the drop in share price even more.

Enquest PLCEnquest PLC opened this year by acquiring 20 percent of the Kraken oil fi eld in the North Sea. Th e market responded by an increase of 7 percent upon the announcement. Th e company later published the result for 2011, EBTIDA $629 million, which was viewed as positive news.

PA resourcesPA resources announced in January an increase in production as well as non-cash fl ow aff ected write-down. Aft er another write-down in the end of January analysts began to speculate about an impending equity issuance which caused the stock to plummet. Th is negative trend turned when the results for the fi rst quarter were announced and the equity issuance seemed to be avoidable.

Morphic technologyBoth the results last year and the results from the fi rst quarter showed a decrease in losses.

CONCLUDING COMMENTS ABOUT THE DEVELOPMENT

Overall, the global Oil and Gas sector’s good performance is mainly attributable to the higher demand for oil which is explained by a better general macroeconomic outlook combined with the turbulence in the Middle East which has caused high crude oil costs. Th e developments of the sector this year will therefore be highly dependent on the

m a c r o -e c o n o m i c development. Whether the Middle East confl icts escalate or not will also have a big infl uence on the development in this sector. Opec has in January forecasted a higher demand for oil than they did in December, which could be viewed as growing optimism.

Th e reason to why the OMX Stockholm Oil and Gas index has underperformed the general index are mainly attributed to fi rm specifi c issues of the two largest companies, Lundin Petroleum and Alliance Oil, which both have performed poorly the fi rst quarter. Th e future prospects of the OMXStockholm Oil and Gas index will therefore also be highly dependent on the prospects drillings of Avaldness this year as well as how Alliance Oil will manage its production problems.

Writer: Lennart Wang

INDUSTRY COVERAGE ENERGY

18 Industry Coverage

A dark cloud of general market downturn and inferior sector performance has haunted the healthcare industry since the beginning of the financial crisis. Although some individual healthcare companies have shone while they have outperformed the market, the market has watched the industry since with gloomy eyes. However, recently investments in the healthcare industry are perhaps facing a recovery. Ultimately, the question remains: can healthcare businesses fi nd the path to value creation?

In order to outperform the general market in TSR (“Total Shareholder Return”) healthcare corporations must master several key value drivers.

Firstly, they must be able to expand geographically into emerging markets.

Currently, developing markets have signifi cantly higher growth rates than mature markets. Th e trick is whether healthcare businesses can expand without severely compromising its margins and ROIC (Return On Invested Capital).

Secondly, they need to be able to embrace the new ‘Value-Based Health Care’ perspective, which is defi ning the industry. Payers and governments are increasingly demanding real-world patient outcomes as a measure of whether a product is worth paying for. Consequently the future winners in the industry will be those that understand one simple metric – patient outcome per unit of total healthcare spending.

Th irdly, they need to expand into new businesses. Th is can oft en be achieved through smart M&A transactions and

diversifi cation. As healthcare businesses oft en tend to have large cash reserves, access to fi nance and slowing organic growth the incentives for expansion are attractive. But overall, they must always make sensitive consideration whether these transactions will end up being value creating or not.

Furthermore healthcare businesses are facing a growing hurdle as R&D investments are infl ating costs. Actually, the average ROI (Return On Investments) for R&D has gone below the cost of capital, making them value destroyers. Th is development is mostly due to pricing and access pressures, higher scientifi c impediments, more stringent regulatory thresholds and intensifying competition.

To summarize, the healthcare industry is facing diffi culties in proving to investors that it can outperform the benchmark index, the S&P 500. Healthcare managers need now to focus on what creates value in order to make the industry attractive once again for sound investors.

Writer: Farzad

Khoshnoud

INDUSTRY COVERAGE

DEFINING HEALTHCARE