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7)

2017

2Great

re-miGrationHow diGital innovation and tHe

efforts of developed Governments are HelpinG tHe process of ‘resHorinG’

money makes moneyWhat is driving the interest in digital financial instruments?

tHe tecHnoloGy drivinG cHanGeHow innovation impacts the demand for traditional industry materials

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20

Giants in metal armourCan skyscraper construction survive without metal?

26

THE DIGITAL IM SPEAKS AND MOVES ON

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Cover story

02 | Great re-migrationHow digital innovation and the efforts of developed governments are helping the process of ‘reshoring’

InternatIonal experIenCe

10 | Eternal values The complete history of protectionism from English Kings

BusIness plan

12 | Money makes moneyWhat is driving the interest in digital financial instruments?

FoCus group

16 | To find and neutralise Iron Magazine asks the experts – how strictly must cryptocurrencies be regulated?

vIew Into the Future

20 | The technology driving changeHow innovation impacts the demand for traditional industry materials

Industry

26 | Giants in metal armourCan skyscraper construction survive without metal?

ManageMent

30 | Risky businessWhat drives innovation – technology or humans?

eMployees

32 | Success: the right place, the right timeWhat skills will you need in the digital future?

suMMary

34 | Theatre. Version 20.17Directors are increasingly using technology in their productions. Does the audience really benefit?

36 | The new oldWhy people in the 19th century were scared of ‘steam’ innovations, and what came out of it

photo gallery

38 | Above the cloudsThe world’s best skyscrapers, all in IM’s gallery

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Founder: Management Company METALLOINVEST LLCEditorial office: 28, Rublevskoye Shosse, Moscow, 121609, Russia Tel.: + 7 (495) 981-5555, ext. 7574Fax: + 7 (495) [email protected]

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Director General: Vladimir ZmeyushchenkoChief Editor: Evgeniy PeresipkinExecutive Editor: Vilorika IvanovaDesigner: Natalia TikhonkovaPhoto Editor: Evgeniy KrasnovColour Corrector: Aleksandr KiselevProduction Director: Oleg MerochkinPhoto: AFP, AKG, East news, Getty, Shutterstock, ТАSS, Russia today

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Great re-migrationThe new term ‘reshoring’ has become one of the most common buzzwords in recent years. It refers to Western corporations with offshore production facilities – mainly in Asia – relocating back home. Among the main reasons for this re-migration are changes to production costs abroad and the protectionist domestic policies. New opportunities brought about by the development of digital technology also have their role to play in this process.

Julia Gromadskaya

2 Cover story

Not so long ago, the main trend in the manufacturing industries of developed countries was offshoring, or outsourcing,

production. While the brains of the companies remained in their homeland, business owners sourced labouring hands in more affordable countries. As is well known, Asia, and China in particular, benefited from this trend. Since the 1960s, in places like the USA and Western Europe the percentage of GDP accounted for by manufacturing has declined significantly – in some cases, it halved or more. However, after the 2008 crash, which only highlighted the imbalance of power in the leading world economies, Western governments began to look for new recipes for their economic wellbeing.

Time To moveNobody believed that the process of reindustrialisation would be easy, but it already seems to be on a steady course. “Interest is fuelled by the complex growing role of global value chains, and higher competition amongst developing countries in those industries and subsectors of the global market, which, until recently, were dominated by developed countries,” writes Vladimir Kondratiev, Head of the Primakov National Research Institute of World Economy and International Relations, Russian Academy of Sciences (IMEMO) in his article for World Economy and International Relations.

In these conditions, governments play a key role in relation to domestic business with production facilities abroad. The administration of the current US President, Donald Trump, who rose to power with the simple slogan ‘Make America Great Again’, is often used as an example. However, his predecessor, Barack Obama, also commented that it was necessary “to stop encouraging entrepreneurs who move jobs abroad.” During the Obama

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Walmart has promised to purchase American products for an additional $250 billion

administration, tax rebates were introduced for businesses investing in domestic industry. Trump is continuing this theme, but he also introduced a tax on companies that keep their manufacturing abroad, but sell their products domestically.

In 2013, Boston Consulting Group (BCG) found that the executives of every second American corporation with a turnover of $1 billion were planning to relocate their production facilities from China or were looking into doing so. According to the Reshoring Initiative, since 2010, America has brought more than 300,000 jobs ‘back home’; and already 940,000 new industrial jobs have been created.

To paraphrase a famous saying by Lenin, in the business of reshoring, the upper classes want, and the working classes can. Walmart has already promised to purchase American products for an additional $250 billion. “So far, this promise is the largest driver in the trend to move production back home”, said Harry Mozer, the Head of the Reshoring Initiative. Thanks to this trend, some industries are now enjoying a renaissance. For instance, reshoring has revitalised the automobile industry. Apple’s 2013 opening of production facilities in Mesa, near Phoenix, USA,

The interest in reshoring is driven by increased competition from developing countries

has also made some noise. This was a major development, because previously Silicon Valley giants lived by the formula of ‘Designed in California. Assembled in Asia’.

In Europe, reshoring is not yet high on the agenda, since it is not necessary relevant for all EU countries. But governments are known to be looking into it. “In the United Kingdom, reshoring is considered a tool for balancing the structure of the economy. In Germany, it is being factored into the future development of the country’s manufacturing sector. In Italy, it is the main idea behind the state certification programme ‘100% Made in Italy’, helping companies return production ‘back home’. In addition, the Ministry of Industrial Renewal in France recently adopted measures for limiting outsourcing and offshoring and accelerating reshoring,” notes Vladimir Kondratiev. However, in business terms, these ‘immigration

policies’ do not always mean returning home. Quite often it is a matter of moving production closer to the end customer. This is especially true for companies producing everyday goods, like the Spanish Inditex, a large fashion chain with stores like Zara, Massimo Dutti, Pull and Bear, Oysho, Uterque, Stradivarius, and Bershka. Inditex first announced that its products would be produced in both Asia and Spain. Then it added Portugal and Morocco to the list. Now, the range of locations of the company’s production facilities has become even wider, including Russia as well.

False MirrorWhen it comes to the remigration of industrial facilities, localisation has a big part to play. In this respect, the USA leads the way, using a state procurement strategy as a mechanism for stimulating localisation. Most importantly, the slogan ‘Buy American’,

4 Cover story

The American IT industry has long lived under the slogan: ‘Designed in California. Assembled in Asia.’ – now its representatives can return production to their homeland

according to the government, relates to the product itself, rather than the place in which it is finally assembled.

In 2009, Congress enacted the American Recovery and Reinvestment Act (known as the Recovery Act), allocating substantial funds as a stimulus package (about $787 billion) and outlining specific requirements for localisation. Its provision imposed a general requirement that any public building or public works project funded by the new stimulus package must use only iron, steel and other manufactured goods ‘made in the USA’; and that the funds will always be sufficient, if construction projects are in compliance with these criteria.

These kinds of initiatives are commonplace today. Recently, media reported that during the North

intertwined. What is protectionism? Protectionist trade policies are a set of governmental actions that protect domestic producers from international competition. In the narrow sense, it is an issue related to customs policy, and in a broader sense, it is a set of measures protecting the interests of domestic companies to encourage and stimulate production in a specific country.

Protectionism is not a new idea. Leading European states have relied on it since the 18th century, while America has used protectionist policies since the end of the Civil War (i.e. the second half of the 19th century). In modern history, the US Smoot-Hawley Tariff Act of 1930, increasing tariffs on over 20,000 imported goods, marked a turning

American Free Trade Agreement (NAFTA) negotiations, the US administration called for a change in the terms, demanding that American products should be used more widely in vehicle manufacturing in the United States of America, Canada and Mexico. This included various types of metal (like steel). The US Secretary of Commerce, Wilbur Ross, defended the demands by stating that the measure would promote production of vehicles using parts produced by NAFTA members, rather than in Asia.

As this case suggests imposing defined barriers, this approach looks almost like protectionism. Along with reshoring, this is one of the main issues currently being tackled by the most prominent economists, especially since the issues are so


3D-printing from titanium can save Boeing up to $3 million on the production of each Dreamliner, according to Norsk Titanium

point for protectionist policies. It triggered a wave of similar tariff restrictions that rippled around the world. Only after the Second World War did the picture begin to change.

The results of any protectionist policy are often ambiguous. On the one hand, these measures stimulate the growth of national industries and help create employment opportunities. Supporters of protectionism argue that it enabled the industrialisation of Europe and North America. But on the other hand, protectionism infringes the freedom of entrepreneurship and consumer rights. And we should not forget that any severe restriction of external competition could lead to monopolisation.

But despite these disadvantages, more and more countries are

reinstating their protectionist policies. At every economic forum, we hear about the importance of free trade, but in fact the impact of protectionist measures implemented after the financial crisis if the late 2000s is growing. And, if earlier protectionism mainly tightened customs policies, now the emphasis has shifted to non-tariff restrictions – i.e. towards a more elegant, yet effective strategy. However, the time-tested practice of trade barriers is alive and well: according to the WTO, since 2008, over 2,000 trade barriers have been introduced.

And here is the paradox. At every summit, the G20 member states

Countries using industrial robots may cut production costs by a third

mention the importance of developing free trade, while in fact they have been continuously dismantling it. And if in 1985-2007, the growth rate of international trade significantly outstripped the dynamics of global GDP, then last year its figures became much more modest for the first time.

Robots ARe ComingOne of the conditions for the large-scale industrial remigration of industry was the shale revolution, which reduced energy costs and lowered the cost price. In the case of America, the weakened dollar also needs to be considered.

6 Cover story

As a result, the economy reaches the Lewis Turning Point, when high profits become distant memories. IMF experts Mitali Das and Papa N’Diaye believe that this will ‘almost undoubtedly’ happen in China by 2025. This situation is aggravated by the demographic problem: a decreasing working-age population.

The digital revolution can help with this issue. At the end of last year, the United Nations Conference on Trade and Development (UNCTAD) presented a report on the role of automation in the modern world, according to which robots will take 2/3 of the jobs in developing countries. This again brought the focus to China, which since 2013 has purchased more industrial robots than any other country in the world. So, for its long-term economic development strategy, Beijing is betting on strengthening domestic demand. But this is hardly possible without increasing the incomes of the population through higher wages. The outcome for China remains unclear.

But digital technologies are becoming commonplace not only in the East, but also in the West. This area also is being led by pioneers. According to BCG, in countries that are introducing industrial robots on a greater scale, production costs could be reduced by 18-33% by 2025. This explains, for instance, why Adidas opened manufacturing facilities in the Bavarian city of Ansbach in 2016, staffed mainly with robots. Humans are only required to oversee the work of the machines, demonstrating that new technologies are benefitting the reshoring trend.

Alongside robotics, additive manufacturing also offers a number

of excellent solutions for returning production ‘back home’ or bringing it closer to the consumer. Boeing is a pioneer in this area. At first, the company used 3D printing for prototyping, and then it began to produce aircraft components using this technology. Boeing uses 3D printing not only for plastic components, but also for metal parts, having signed a contract with Norsk Titanium for the production of parts for its Dreamliner.

Today’s clients prefer custom-made products to mass-produced items. This goes not only for the design of the goods, which usually is not that difficult to amend, but their functional elements, which often come with a heftier price tag due to the need to reconfigure equipment. Producing customised goods in close proximity to the shipment destination eases this process, as it allows some room for implementing the necessary amendments. In such cases, digital technology, including 3D printing, provides a significant degree of flexibility. It is much easier to readjust its production lines for any customisation required, as well as produce smaller batches.

Digital technology has recently been high on the agenda of many governments around the world. Germany launched its High-Tech Strategy before the financial crisis. In 2012, the country adopted the Industrie 4.0 initiative, an economic development plan with a focus on new technologies. One of the key objectives of this plan is to encourage’ smart’ services, which the government supports, both directly and indirectly. This includes such measures as establishing innovation clusters.

Additive technologies are among the solutions that help to “bring” production to the consumer

On the other hand, the rapid economic development of Asia (for reasons including Western offshoring), is leading to an increase in labour costs. As early as the 1950s, the Nobel laureate in economics Arthur Lewis conducted a study on how the situation could develop further. He used the idea that developing countries are formed of two main sectors: 1) low productivity and surplus labour (subsistence economy); 2) high productivity (industry). By using the excess labour of the former, the latter increases profitability. The growth in labour productivity outstrips wages, so it is possible to get more profit than in economies without such distortions between sectors. However, as the number of surplus workers decreases, salaries increase.


KAMAZ was able to increase its share of sales in the Russian market to 56%. As suppliers, the company also often chooses domestic enterprises. One of them is the Oskol Electrometallurgical Plant, part of Metalloinvest

Mind the GapFor Russia, offshoring has never been a big issue. But it would be problematic to overlook the new global trend towards reshoring, as consequences may be challenging.

‘Import substitution’ has recently become a major economic trend in Russia. In its objectives, this concept resembles

Acting Minister of Industry and Trade Denis Manturov, the policy is set to create “conditions for a new round of industrial development in the country”.

Most importantly, the document outlines new special investment contracts that guarantee long-term stable business conditions, as well as tax rebates for new integrated investment initiatives. At the First National Import Substitution Forum in September 2017, the Deputy Head of the Ministry of Industry and Trade, Georgy Kalamanov, also mentioned subsidies for industrial R&D needs

Results can be seen in industries that have managed not only to preserve, but also to develop competences

reshoring, although its content is completely different. 2014 saw the approval of the revised version of the Development of Industry and Enhancing Competitiveness initiative. Its main new objective was to reduce the quantity of goods imported into Russia. The same year, the government adopted a new Industrial Policy. According to the

8 Cover story

To confirm the absurdity of accusations of espionage, Kaspersky Lab decided to take a painful step – disclose the code of its software products

and lower interest rates on loans for new integrated investment projects. In accordance with the new Industrial Policy, the government established its Industrial Development Fund, which since 2016 has sponsored about 130 ventures, worth over 34 billion roubles (approximately $578 million), which will help to create about 12,500 jobs.

Businesses are hopeful that such measures will prove effective. According to the Head of the Russian Union of Industrialists and Entrepreneurs, Alexander Shokhin, special interest ventures have already become one of the most effective tools for supporting domestic industry. However, the process is not straightforward, and it will, most likely, take some industries a while before they can reap the fruits of these initiatives. This goes for the most R&D-driven sectors, like the chemical industry and pharmaceuticals, where import substitution is taking a long time to have an effect.

However, there are some industries that managed to preserve their existing skills, while also developing new knowledge. Take the heavy goods vehicle industry, for instance. The leading Russian player is KAMAZ. In 2016, its sales rose by 15%, increasing the company’s domestic market share to 56%. In comparison, in 2012-13 its share was 30-35%, which was the highest it had ever been at that point. This year, the market share is still trending upwards: in January-October KAMAZ’s sales in Russia grew by 22%.

The vehicle manufacturing giant’s growth has had a positive knock-on effect for its partners. KAMAZ is one of the key clients of OEMK (part of Metalloinvest). Since 2009, KAMAZ has purchased over 400,000 tonnes of high-quality rolled steel products from the enterprise. In November, KAMAZ and Metalloinvest signed a new three-year contract, according to which, KAMAZ intends to cover up to 80% of its bar requirements with purchases from OEMK.

However, ‘import substitution’ cannot be a means to an end. Instead, it is one of many incentives for industrial development. Global product demand is another driving force behind the process. According to Petr Fradkov, Head of the Russian Export Center, in January-June this year, Russia’s non-primary exports grew by almost 19%, while exports of engineering products are powering through at the same speed as exports of agricultural products.

One of the main stumbling blocks is the development and international sales of domestic digital productions solutions. In terms of its importance, Vladimir Putin once likened Russia’s current need for digitalisation to the electrification of the country in the past. In October, speaking at a meeting of the Security Council, the president said that it is important to develop the production of not only hardware, but also software in Russia. He stressed the importance of “minimising the risks of depending on foreign software and telecommunications”.

This will not be easy to implement, as Russian companies are up against very powerful global competitors. For example, a massive campaign against Kaspersky Lab, launched

in the United States of America, has almost brought suspicions in espionage against the company. To prove its innocence, the company is now going to open its software code to investigative experts.

In conclusion, since the 2008 financial crisis, which resulted in reshoring and re-industrialisation, global economies have undergone major restructuring. Consequently, in today’s world, there is hardly a country that does not rely on protectionist policies to a certain degree. The particular shape or form this type of policy will take depends on each individual government. However, the key is to not to cross the line as doing so could destroy the existing system of international relations. “While protectionist policies are becoming the norm, one-sided, politically motivated sanctions on trade and investment are becoming a hidden weapon,” wrote Vladimir Putin in an article for the German newspaper Handelsblatt, in July, ahead of the 2017 G20 Summit in Hamburg. In his opinion, “only open trade relations based on uniform norms and standards stimulate the growth of the global economy and contribute to the progressive development of international relations.”


Eternal valuesIn these times of global economic upheaval, governments of various compa-nies are becoming more tempted to resort to protectionism. As Jim Yong Kim, President of the World Bank, notes, this is one of the fundamental risks for the fragile economic recovery. The effectiveness of protectionist policies is not always evident. However, as a rule, no one rushes to reject them, either.

Olga Mikhailova

It is genuinely unknown who was the first protectionist. However, the English king Henry VII of the Tudor dynasty is often described as the pioneer of this economic policy. Henry ascended to the throne

in 1485 after the bloody Wars of the Roses and made his name with his economic policy.

A RefoRmeR with A CRownDuring the time of Henry VII, fabric was a vital commodity. England exported wool and imported finished fabric products. Henry ended this dependency by incentivising technical production, and increasing the domestic processing level of raw materials.

To achieve this, he introduced tariff barriers, decreasing exports

of wool and preventing imports of ready-made fabric products. English producers, on the other hand, benefited from tax breaks and a policy of trade preferences. As a result, the country’s fabric production led to economic prosperity. Henry VII’s heirs continued his policy.

The author of Robinson Crusoe, Daniel Defoe, who also wrote political tracts, called the strategy A Plan of the English Commerce or the Tudor Plan. By and large, the policy is still in existence today in the form of support for industries with a high degree of processing. In modern history, Japan and South Korea have undergone similar reforms.

“Not all countries have succeeded through protection and subsidies, but few have done so without them”, writes the South Korean economist Ha-Joon Chang in his book Bad Samaritans.

DeAR SAiloRS...However, not all protectionist policies have been successful. A good example would be the Jones Act (The Merchant Marine Act) in America. Since 1920, this legislation has been eliminating foreign competitors from maritime trade routes linking the different regions of the United States of America.

In the time following World War I, the Jones Act was designed to support domestic ship owners and shipbuilders, as well as to solve American employment issues. Railway companies lobbied for the law, fearing that European merchant fleets would use American routes. The Act continues to require that any

10 INTERNATIONAL EXPERIENCE

Leading world powers are increasingly using protectionist measures to protect their producers

Boeing accused Bombardier of dumping when it sold Delta Air Lines CS100. As a result, the Canadian company faced the threat of defensive duties, which could enter into force in the US in February 2018

goods transported by water between American ports be carried on ships bearing the US flag, constructed in America, owned by American citizens, and even crewed only by American citizens or American permanent residents. These requirements still apply even when the ships stop in foreign ports on the way.

The Act has been repeatedly criticised. Senator John McCain, unleashed the latest attack, calling it ‘an archaic law’. It is often reported that, as a result of this protectionist policy, building a ship in America costs four times more than in Asia, while running a ship is at least twice as expensive. Critics even blame the Jones Act for traffic jams. In Europe, 40% of domestic cargo is transported by sea, but in America the figure is not more than 2%.

And yet the Jones Act still stands today, to the profit American ship owners and shipbuilders, as well as rail and road logistical companies, who benefit from the

lack of competition. So far, no US president has launched a full-blown campaign to abolish the Act. And this can hardly be expected from Donald Trump, who has always spoken of supporting American business.

Yet, as history shows, the development of domestic industry needs more than just protectionist policies. Following World War II, the Japanese government adopted a policy of active support for the country’s steelmaking companies. However, because of these excessive protectionist measures, the industry ended up with excess high-cost steel production capacity. In the end, Japan adjusted its strategy, putting more emphasis on the technical modernisation of the steelmaking industry and on increasing efficiency.

EvEryonE DoEs It“Protectionism is no longer just dead, it’s cursed,” British Prime Minister Benjamin Disraeli said in 1850.

By saying this, he acknowledged the defeat of the opponents of free trade, including himself. That Disraeli was mistaken is evident even today.

A recent joint study drawing on figures from the World Bank, Heritage index and Global Trade Alert concluded that the world’s leading powers have often relied on protectionist laws and protective measures to defend domestic industry. No fewer than 7,000 such policies were uncovered in the legislations of the 60 largest global economies. Experts estimate the monetary value of these policies at $400 billion per year.

According to the study, of the relatively large economies, only Brazil, Saudi Arabia and Tunisia have liberalised their economic legislation in recent years. “Donald Trump is getting all the headlines at the moment but everybody’s doing it,” David Lowe, one of the authors of the study said to Reuters. The question is: who is suffering the most from these policies? The expert answer is unambiguous: countries that, in the time of non-free trade, depend exclusively on certain markets. “You can see why Trump is talking so tough about deals like NAFTA. Because he can,” says David Lowe.


12 BUSINESS PLAN

Money makes money

The role and importance of the financial sector for the global economy is ever-growing. If the world’s leading countries officially recognise innovations such as cryptocurrencies, blockchain and smart contracts, it could indicate the beginning of a new era.

Yakov Utin

foreign units up for sale. The Fourth Industrial Revolution also played an important role in transforming international production chains. Due to high automation levels, production costs in developed countries have reduced.

Removing Payment BaRRieRs Banks, whose innovations ultimately led to a significant economic downturn, faced a sharp increase in regulatory pressure. The need for additional capital, the cost of improving risk management processes, and the complexity of reporting formats has led to a substantial increase in costs. This has led to the emergence of a new class of technology companies that, without relying on credit, interest and market risks, can make payments, advise investors, buy and sell securities, and connect potential borrowers and creditors.

The changes penetrated the economy even further. In October 2008,

funds, which promised more income. The stock market attracted more attention because of pension reforms, resulting in pension savings also being placed in securities.

In the struggle for customers, banks lobbied for a revision of the Glass-Steagall Act, which prohibited mixing credit and deposit operations with investment banking. Moreover, the deregulation did not stop there.

The strengthening of the role of banks and other financial intermediaries has led to significant changes in the structure of the largest corporations, according to Susan Bergen, Professor at the Massachusetts University of Technology. The pressure on a company’s management to show short-term profits has forced businesses to rely more heavily on outsourcing their industrial production. However, after the global financial crisis in 2008, the pace of globalisation has slowed significantly and many companies have put their

Traditional institutions, whose innovations ultimately led to a crisis, faced increasing regulatory pressure

In the beginning, financing became possible due to the deregulation of financial activities. At the end of World War II, the Marshall Plan helped accumulate a significant amount of dollars outside the USA. This led to

competition for foreign currency deposits, with borrowed funds lent to companies that exported goods to America. In the late 1970s, the amount of offshore dollars in circulation rose to $385 billion; by the mid-1980s, it exceeded $1.6 trillion.

RetuRning HomeIn Britain, it was Margaret Thatcher’s government that significantly influenced the internationalisation of financial services. Following a large-scale antitrust investigation in 1986, the UK abolished fixed interest rates on securities, and lifted the ban on merging the roles of brokers and financial advisers. Finally, foreign banks were given the green light to own firms that traded on the London Stock Exchange.

Around the same time, the USA went through similarly notorious reforms. In 1971, President Nixon refused to peg the dollar to gold, which resulted in a recession, accompanied by increased inflation. In these conditions, bank depositors began to transfer their funds to mutual, venture capital and hedge


Russia’s FiRst in september, Raiffeisen Bank, MegaFon and the National settlement Depository implemented the country’s first deal to place bonds using blockchain. they issued 500 million roubles with a circulation period of approximately three months.

the structure of the issue is made up of discounted commercial bonds, which are registered by the National settlement Depository and are placed by private subscription without collateral or an issue prospectus, and with easy disclosure. Circulation on the secondary market does not provide for exchange trades. such securities allow companies to quickly attract short-term liquidity from qualified investors.

the issue used a fully decentralised platform, with the issuer, the central depository, and the investor having direct access to it. the solution provides the necessary confidentiality, but at the same time makes the process of placement, circulation and accounting of bonds as transparent and simple as possible. using cryptographic protection and verification allows users to conduct all transactions electronically.

a then-unknown man named Satoshi Nakamoto published a research paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System. It described a secure electronic payment system with its own currency. The authors managed to solve the problem of trust in an environment where participants do not know if they can trust each other. At the same time, in a so-called blockchain – a distributed database with information about all transactions – users do not need any identification except their digital signature. The owner of a specific signature is unknown, but the operations in all wallets are transparent.

The anonymity, or rather, the lack of a direct connection between a particular person and one or more Bitcoin wallets, prompted abuse of the system. However, existing businesses saw blockchain as an opportunity to reduce costs by saving on the services of an intermediary, whose role had suddenly become redundant.

Blockchain spawned yet another phenomenon – the Ethereum platform, where the idea of smart contracts, proposed in the 1990s by

Blockchain has provided businesses with the opportunity to reduce costs – you can save on intermediary services

accessible only by authorised users.It is possible that in the coming years the International Organization for Standardization will include a standard for blockchain technologies and its distributed legers. Thus, Satoshi Nakamoto’s invention has the chance to become one of the cornerstones of the new global financial system.

Finding investorsBlockchain also makes the full automation and transparency of crowdfunding possible. Smart contracts have become an ideal means for attracting financing in cryptocurrencies: the computer protocol can accept user applications to purchase a certain number of tokens into its wallet.

The process of crowdfunding on the Ethereum is called Initial Coin Offering (ICO, similar to IPO). Purchased tokens can then be resold on electronic platforms, and, more

the American scientist Nick Szabo, was finally realised. Unlike Bitcoin, which allows users to initiate direct and unconditional transactions, smart contracts perform transactions, automatically monitoring compliance with certain conditions.

The innovative systems do not end there. A few years ago in the USA, a global consortium called R3 was created, within which the Corda platform was developed, facilitating the storage, management and synchronisation of responsibilities between financial organisations. Corda’s smart contracts use legitimate legal language. The Digital Asset Platform is yet another interesting development – it is an environment designed for creating financial applications with its own programming language. In it, the philosophy of blockchain and its smart contracts is linked to a secure database,

Cryptocurrencies have a chance to become one of the cornerstones of the new global financial system

14 BUSINESS PLAN

Anyone can participate in the mining of cryptocurrencies. This involves participating in the maintenance of a distributed platform by downloading your own equipment

In order to legalise cryptocurrencies, the key is to “not build up unnecessary barriers”

recently, a special standard has been introduced for ICO tokens, compliance with which automatically guarantees the listing on a variety of virtual exchanges. This new way of raising funds is rapidly gaining popularity. This year, blockchain start-ups placed tokens for a larger amount than they received from traditional venture investors.

At first, a whitepaper with a description of an idea was enough for the ICO. Today, it requires a competent independent reviewer to certify that the smart contract is programmed appropriately. In addition, nowadays any use of funds from the electronic wallet is often carried out under the watchful eye of an authoritative person. All of this is increasing trust in technology.

The U.S. Securities and Exchange Commission (SEC) decided that, in some cases, tokens can be classified as securities, and the U.S. Commodity Futures Trading is inclined to classify tokens as commodities. Both bodies

are working on agreeing their position and it is likely that the norms protecting investors’ rights will soon be introduced.

Weighing Up the RisksIn Russia, blockchain is also getting a lot of attention: during the St. Petersburg International Economic Forum 2017, Vladimir Putin met with Vitalik Buterin, the founder of the Ethereum.

In October, following the meeting, the President instructed the government and the Central Bank to work out the issues of regulating these new financial technologies. According to the documents published on the Kremlin website, this refers to the regulatory framework for ICOs, using a similar approach to IPOs. In addition, the Russian legislation is legalising terminology such as

‘distributed database’, ‘digital L/C’ (digital letter of credit), ‘digital bill of sale’, ‘cryptocurrency’, ‘token’, and ‘smart contract’. These are the issues that the Russian FinTech Association has worked on since 2016. This legalisation will allow the Association’s creation – MasterChain – to become a fully-functioning and legally-certified platform for any cryptocurrency applications.

It is likely that Bitcoin was conceptualised as a response to the global financial crisis, whose tenth anniversary the world will mark next year. It is symbolic that it is now, at a time when business and consumers have become more optimistic again, that governments and central banks are trying to legalise cryptocurrencies, thus opening up new horizons for financial innovation.


Alexander Bulanov

To find and neutralise

Recently cryptocurrencies have become not only a means of payment, but also attractive investment assets. However, they carry risks associated with money laundering, tax evasion and spread of fraudulent schemes. Iron Magazine asked some experts about how tough governmental regulation should be in the virtual environment.

16 Focus group

Nikita MasleNNikov, Head of the Finance and economics Department at the institute of Contemporary Development:

Due to its high volatility, the cryptocurrency market resembles a dotcom bubble that is about to burst. However, I believe that in this case, the crypto-market would not collapse but clear itself from non-viable players.

Nevertheless, the market regulation is needed anyway. Various countries have taken different approaches. In the USA cryptocurrencies are treated as goods, and the transactions with them are taxed accordingly. Japan recognises bitcoins as a means of payment, while Switzerland treats them as a foreign currency, and China prohibits any crypto-operations. In general, cryptocurrencies are considered mainly as a new type of financial instrument. This interpretation seems to be the most promising, in my view, as the existing regulatory measures can be applied.

The process of crypto-market formation is likely to be accompanied by the development of digital national currencies as equivalents to fiat money (that is, legal means of payment, the nominal value of which is determined and guaranteed by the government), necessary for accounting purposes. Thus, crypto-rouble as a digital version of the national currency will be fully controlled by the Central Bank. In this case, the Central Bank will have to provide liquidity not only to credit institutions, but to all active participants in the financial system as the current use of cryptocurrencies excludes any mediators and allows operations to be conducted directly.

alexaNDer abraMov, Professor of the Department of Finance, Higher school of economics:

I am a supporter of the cryptocurrency market regulation. If at first this phenomenon was more like an initiative for a narrow circle of specialists, now it is becoming truly global. Ultimately, this leads to some users unable to comprehend all the risks of cryptocurrency usage, and who need protection. But on the other hand, excessive governmental intervention could damage cryptocurrency’s appeal.

The emergence of cryptocurrencies had many prerequisites. But despite their relevance, they have not yet found wide application in the financial sector and their positioning as an alternative to real money is premature, in my view. This is mainly because blockchain currencies have not yet been built into the taxation system and are characterised by high volatility.

I believe it would be better to use cryptocurrency as a financial asset that has its own regulated market. Furthermore, cryptocurrencies could be used to develop commodity markets, for example, within the Eurasian Economic Union (EEA) countries. This could achieve liberalisation of trade in the EEA that would benefit the economies of the member

Excessive interference should be feared


Elina SidorEnko, Head of the interdepart mental Working Group of the russian State duma on risk assessment of cryptocur rencies, and a Professor at MGiMo:

According to the Centre for Digital Economics of Financial Innovation at MGIMO, the greatest turbulence in the ICO market is expected in early 2018 followed by stabilisation of the situation. Then, during market stagnation, new players are expected to enter, among them large corporations with significant

financial power. It is at this point that we can expect the formation of a fully-fledged cryptoeconomy with sufficient capitalisation. However, this will only become a reality if there is a regulatory framework that guarantees protection against unwanted risks.

When developing the framework, we must rely on our own capacity. Not a single country in the world has yet built a significant legislative regulation in this area. The exception is Japan, which used cryptocurrency to weaken its excessively strong yen, but this example is of a different matter. To develop the necessary legislation and a legal status of cryptocurrencies should be governments’ core priority in this area. China has become an example when the lack of a regulatory framework, multiplied by the rapid growth of bitcoin’s popularity led

to fraudulent schemes, prompting the country’s leadership to subsequently introduce restraining measures.

Recently the Minister of Communications Nikolai Nikiforov announced that Russia plans to develop its own national cryptocurrency. I think this would make sense, only if the crypto-rouble is viewed as some sort of transaction-facilitating service, a link between the real money and cryptocurrency that cannot be speculated.

The greatest turbulence in the ICO market will be in early 2018

dEniS SMirnov, Blockchain Consultant, lisk Project (russia):

I think in the future, cryptocurrencies in Russia will gain status of financial assets, which could be traded on specialised exchanges. At

the same time, they would either be affiliated with the government, or have licences that allow to monitor transactions (at least when they are cashed). For this purpose, in the nearest future, a crypto-rouble should be developed in Russia, the rate of which would be tied to the value of the national currency.

In terms of the forecasts, in the worst case scenario, we can expect either a complete ban on cryptocurrencies or a lack of regulation in this area with the possibility of trading cryptocurrencies only on affiliated sites with mandatory registration.

In the best case scenario, we can consider the wide use of cryptocurrencies as a financial instrument, in which governments would assume not only the role of regulators, but also the duties of arbitrators in operations which would involve cryptocurrencies (for example, providing legal protection for organisations dealing with ICOs).

The state can not only be a regulator, but also an arbiter

18 Focus group

Konstantin KorishchenKo, head of the Department of stock Markets and Financial engineering, Faculty of Finance and Banking, russian

Presidential academy of national economy and Public administration:

The main advantage of any cryptocurrency is that it can be used to implement a fundamentally new approach to monetary circulation. Today’s market operates mainly on debt. But after switching to cryptocurrency, the economic model could become similar to that used

before the abolition of the gold standard. This is because the issuance of a cryptocurrency could only occur upon completion of an actual process – «mining». As the current monetary system has been in crisis since 2008, the use of cryptocurrency could be one of the most effective measures to improve the situation.

As for the risks associated with the use of cryptocurrencies (money laundering, tax evasion, etc.), the same concerns may apply to cash, precious metals and other commodities. To reduce the risks of illegal use of cryptocurrencies, first of all, we would

need to solve the problem of collecting minimum required information about bitcoin account holders.

The cryptocurrencies regulation should be treated very carefully and in a balanced way. Looking at the example of China, users may simply move on using the same services but in a different country. It is probably worth taking into account the Japanese experience, where cryptocurrencies have been recognised as an electronic means of payment, all private individuals and organisations that carry out crypto-transactions must register and meet certain requirements (in particular, related to capital).

The situation will come close to what was before the abolition of the gold standard

Pavel noviKov, Director of the Fintech & Blockchain Development centre of the skolkovo Foundation:

With over $250 billion in capitalisation, we are seeing a galloping capitalisation growth

of cryptocurrencies. But if we compare this market to any other major global economic phenomenon, it turns out that its scale is not yet as big as it seems. There is still some time to prepare for changes.

Of course, any technology can be used for both good and evil. In this respect, cryptocurrencies are no different from ordinary money, and as such they require regulation. In bitcoin’s case, regulations can be easily implemented, since any corresponding controlling authority can easily track the streams of tokens, marking them at their discretion. In a way, it could work as an X-ray of cashflow, scanning all financial transactions and hence reducing corruption.

It is likely that in Russia, bitcoin and other cryptocurrencies will not be used as a means of payment. Instead they could become a means of exchange, savings and investments. In 2018, Russia is planning to develop new taxation regulation and new terminology for the crypto-economy, including ‘cryptocurrency’, ‘tokens’, ‘smart contracts’, ‘ICO’ and ‘mining’.


The technology driving change

Innovation requires more than just creative thinking. It also needs materials to help ideas become a reality. Experts warn that technological advances may have a significant effect on the demand for raw materials. In particular, inno-vative development could lead to demand for an increase in new high-quality steel grades.

Julia Gromadskaya,

Alexander Bulanov

20 VIEW INTO THE FUTURE

countries for their entire subsequent history, emphasises McKinsey. Today, digitalisation is shaping the appearance and structure of the economies of countries and even entire regions. At the same time, technology is fundamentally affecting demand in traditional industries. Some of these trends are still not immediately clear, while others can be predicted with a high level of certainty.

The Decline of The oil anD Gas eraThe most pressing issue for Russia, one of the world’s largest oil and gas exporters, is how long the era of oil and gas will last. A few years ago, its decline was associated with the Peak oil theory, the point at which the maximum rate of extraction of

In the modern world, the law of the developmental acceleration of history, which states that the speed of human development increases at each period of history, can be observed with the naked eye. Smartphones,

which not long ago seemed futuristic, in a few years have become everyday objects. New technology and ideas are constantly introduced around the world, affecting all aspects of human life.

According to McKinsey, this year humanity has passed the point of no return, with every second person on the planet now connected to the internet. In terms of scale, today’s progress is comparable only to the industrial revolution of the 18th and 19th centuries, which determined the leadership of some

Sources of GDP growth as a result of digitalisation

opTimisinG proDucTion anD loGisTical operaTions• Real-time monitoring of production lines in real time• Optimisation of logistical routes and identification of priority orders of shipments

increasinG The efficiency of labour markeT• Efficient and fast search for work and filling of vacancies• Opportunities for remote work• New professions and jibs

boosTinG proDucTiviTy of equipmenT• Reducing idle time of equipment and expenditures on repairs• Increasing workload of equipment

increasinG efficiency of r&D anD proDucT DevelopmenT• Fast prototyping and quality control• Analysis of large quantities of data in development and finalisation stages of production

reDucinG usaGe of resources anD proDucTion wasTaGe• Reducing use of electricity and fuel • Decreasing wastage of raw materials during production

impacT of DiGiTalisaTionThe poTenTial effecT on GDp from The DiGiTalisaTion of The economy

by 2025 is valueD aT:

4,1–8,9 Trillion roubles

which represenTs

19-34% of ToTal GDp GrowTh

Significant contribution

according to the Digital McKinsey Digital russia: new reality report published in July 2017, digital transformation is one of the main factors driving global economic growth. according to the report, in the uSa, the expected increase in value as a result of digital technology could reach $2.2 trillion by 2025. in russia, digitalisation may increase the country’s gDP by 8.9 trillion roubles over the same period.

2,1–2,9

1,4–4,0

0,4–1,4

0,2–0,5

<0.1

‘black gold’ is reached, after which the industry is expected to enter into gradual decline. Alexander Novak, Minister of Energy of the Russian Federation, commented at the Russian Energy Week in October:

“New technologies are making it possible to extract value practically even from a stone”.


For the construction of one industrial wind generator, 140 tonnes of metal are required

Today, the theory of peak oil demand is widespread. There is no general agreement as to when the peak will be reached. Researchers at The Grantham Research Institute on Climate Change and the Environment believe that it will take place happen in 2020. The World Economic Council has provided an estimated date of 2030; the International Energy Agency and OPEC claim 2040 to be a good bet. And one of the main producers of petroleum, Saudi Arabia, presumes a peak to be not earlier than in the middle of the century.

The most commonly discussed reasons for the change in demand include the increase in energy efficiency, the transition to alternative (greener) energy sources, and the demand for which has been steadily growing in recent years. Examples include: solar batteries, tidal energy, wind power, as well as alternative types of stack effect equipment. However, as Ben van Beurden, CEO

of Royal Dutch Shell, noted during the last St. Petersburg International Economic Forum, this picture seems slightly over-simplified, noting, “Even if 50% of electricity demand is supplied by renewable energy, then, in spite of everything, aviation, shipping, petrochemicals, all production processes that require high temperatures, will still require hydrocarbons”.

In the digital age there is a growing demand for many metals and alloys with unique properties


A reversal of this trend can be expected only with a technological leap within the energy sector. According to Alexander Novak, only with the invention of easily accessible high-volume and very fast batteries could we possibly discuss a peak in demand for hydrocarbons. So far, this technology is not available.

Copper MountainAt the same time, advanced technology is driving interest in metals. The most striking example is copper, a vital material for a whole range of industries from mechanical engineering to electronics. In the last 20 years alone, global copper consumption has doubled. In the future, we can expect an even faster growth rate.

The automobile industry, and electric vehicle production in particular, may prove to be one of the main drivers spurring demand. Each electric car requires up to four times more copper than its traditional counterpart, which is used for electrical wiring: 80kg compared to 20kg of copper. For larger vehicles with bigger battery sizes, the requirements are even higher. For example, an electric bus needs about 370kg of copper.

Despite flaws of existing electric vehicles (in particular, their long recharging time), experts predict that they will gain widespread popularity (according to Goldman Sachs, sales could increase to 8% by 2030 and 32% by 2040). This is largely due to green policies across the globe – cars with zero emissions are the world’s bet on future. Sales have grown in Asia especially. According to China Daily, in 2016, China purchased 58% of all electric cars sold in the world. As a result, according to the International Copper Association (ICA), demand for copper will increase from its current level of 185,000 tonnes to 1.74 million tonnes in 2027 in the automobile industry alone.

The demand for copper could grow not only from electric cars, but also because of developments in the energy sector. Take the growth in the use of solar panels. Also, without copper, the production of modern smartphones, computers and other electronic devices would be impossible. In total, according to Wood Mackenzie, while in 2016 copper consumption was estimated at 22.3 million tonnes, then in 2020 it could grow to 24 million tonnes.

However, copper is not the only metal required for modern innovation. In the long run, experts expect to see continued high demand for steel (a change in the structure of sales is also expected, with emphasis on high-quality brands). For example, this will be promoted by the development of non-traditional energy, as mentioned above. After all, a wide application of steel makes it possible. One industrial wind generator requires about 140 tonnes of steel. Increasingly, steel is being used in fundamentally new fields. According to Scott Chubbs, Director of Steeluniversity at the World Steel Association, a real milestone occurred this year: the ‘living steel’ Restello building was completed in Kolkata; in this building, steel has been used in not only the structural construction and ventilation system, but also in the exterior finishing.

In addition, there is growing interest in lithium, cobalt, nickel, aluminium and manganese. According to CRU, in 2016 around 220,000 tonnes of lithium were used in the world, but by 2025 this figure could increase to 450,000 tonnes.

At the same time, the demand for new materials called composites will grow. Their range of uses is expanding every year. As a result, in monetary terms, Markets & Markets estimates the world market of composites in 2016 at $69.5 billion, and in five years it is expected to increase to $105 billion.

One of the main competitive advantages of composites is that they are relatively light, which is important for industries such as the aerospace sector. Lighter weight materials help to reduce fuel consumption, as well as to improve various technical characteristics. In particular, the strength and resistance of composite materials are already greater than those of aluminium. For example, Boeing’s Dreamliner aircraft consists of 80% composite material, in terms of volume, but only 50%, in terms of weight. By comparison, in the early 2000s, these figures were a quarter lower.

Gennady podGorodetsky, director of the innovative Metallurgical technology scientific and educational Centre at the national university of science and technology Misis:

The most metal-intensive branches of modern industry are construction, engineering, and automobile manufacturing. Metal is a vital core material in these industries, because progress is largely dependent on the development of the steel industry. Various attempts to replace ferrous metals in these industries with other materials have proved unsuccessful yet. This is because ferrous metals offer the best value for money. In addition, as the necessary infrastructure for collecting recyclable materials, is already established, these metals can be reused repeatedly.

In all traditional industries, progress means reducing the consumption of raw materials and energy costs for the manufacture of products. This leads to an increase in the proportion of high-quality steel grades and alloys with unique properties. According to Worldsteel, in the next 15 to 20 years, the production of ferrous metals is expected to grow at a rate of 1-3% per year. At the same time, new technological innovation will require an increase in the share of new high-quality steel grades and other ferrous metals. Requirements for metal products will be toughened, which could result in some adjustments to manufacturing technology.


It is premature to speak about the victory of composites over traditional materials. However, in some sectors, such as medicine, their use creates new opportunities

The use of polymers and composites in medicine is another good example. Comparatively recently, reusable glass syringes were used everywhere, and now they are only a memory. According to Markets & Markets, in five years, the market share of medical plastics increased from $13.9 billion to $21.1 billion. In the future, the production of disposable products, as well as high-tech items, will develop more significantly (prostheses made from polymers can already be developed on 3D printers).

However, to proclaim the triumph of composites over traditional materials would still be premature. In car manufacturing, cheaper steel is used more and more frequently when compared to more expensive composites. High-

quality metal grades, as well as innovative processing systems, such as hot forming, enable vehicles to be produced to new designs, with better safety and lower fuel consumption.

Thus, Special Bar Quality (SBQ) products, manufactured by OEMK (part of Metalloinvest), are used in the production of vital parts for the automobile industry, mechanical engineering, shipbuilding and aircraft industries, among others. The main SBQ customers are car manufacturers, including both Russian KAMAZ and AvtoVAZ, as well as Volkswagen, Peugeot-Citroen, Skoda, Daimler and others.

These high-quality steel products, which outperform all composites in terms of a number of important characteristics, are used to build transmissions, engines, suspensions, steering systems, high-strength fixing bolts and other components.

PaPer Will Survive However, the most notable example of new technological applications is in portable electronics. If from the 1980-1990s, commuters used to read books, now they are all staring into their smartphones and tablets. Surely, this transition to digital technology must mean the inevitable death of traditional paper? Especially

Innovative methods of metal processing allow not only to create new designs, but also to increase profitability


The most notable example of new technological applications is in portable electronics

since, apart from various gadgets, paper has to compete with its direct electronic analogues (used, for example, in price tags). However, the reality is not so simple. According to Pöyry Management Consulting, world consumption of paper and paperboard could reach 482 million tonnes per year by 2030. That is, demand for these products could increase by 1.1% annually.

Paper consumption varies in the main sectors driving demand.

The most serious changes are expected in the printing industry, where the demand for paper is expected to go down. This situation is reversed within business communications. It would seem that electronic document management, email, and other digital solutions should lead to a decrease in paper consumption. But the fact of the matter is that volume of business printing is growing. Why? There could be many explanations: some

people might prefer to read printed documents; others might be sending documents to printers by habit or by mistake.

The trend in packaging is not yet clear. A survey by Printfuture and Wissler & Partner concluded that there is also a noticeable decrease in demand. Nevertheless, according to Pöyry Management Consulting, the volume of consumption of packaging and container cardboard, as well as sanitary paper, is expected to grow until 2030. This is due to marketing needs, booming e-commerce, and growing consumption of ready- meals and branded consumer goods. However, in this regard, plastic is often the main competitor to cardboard and paper. We will have to wait and see which material will win this race to the top.

Electronic gadgets should logically mean the death of paper – yet this is not the case


Giants in metal armour

The construction of high-rise buildings is often viewed as a symbol of ambition. Yet, within an ever-expanding urban landscape, such buildings offer a practical solution for saving space. It was for this purpose that the very first skyscrapers were built in America a century ago, and today we are following the same trend. Although tech-nological progress has sped up substantially in this area, one main characteristic remains the same – building skyscrapers requires a lot of metal.

OlgaMikhailova, Alexander Bulanov

The construction of high-rise buildings is often viewed as a symbol of ambition. Yet, within an ever-expanding urban landscape, such buildings offer a practical solution for saving space. It

was for this purpose that the very first skyscrapers were built in America a century ago, and today we are following the same trend. Although technological progress has sped up substantially in this area, one main characteristic remains the same – building skyscrapers requires a lot of metal.

By today’s standards, the first skyscraper was only modestly high – with just 10 floors, the Home Insurance Building in Chicago reached only 42m. However, in 1885 it was a sensation. Its architect, William Jenny, installed a bearing steel frame, which reduced the load on the walls.

In 1913, the Woolworth Building (241m, 57 floors) was erected in New York. It was built to steal the title of the tallest building in the world from another one of New York’s skyscrapers, called the MetLife Tower (213m, 50 floors). Thus, the race to build ever-taller buildings began. “In their symbolism, skyscrapers could be compared to palaces and churches around the world. They share a common objective – to highlight the importance of the customer and to push the scientific, technological and even cultural development of society forward,” believes Vladimir Neustruev, a building structures consultant.

26 Industry

SkyScraper FaShionFor a long time, Russia’s tallest buildings were Saints Peter and Paul Cathedral and Saint Isaac’s Cathedral in Saint Petersburg (122.5m and 101.5m respectively). Skyscrapers came into fashion only in the 20th century under the name ‘tucheresy’, meaning ‘cloud cutters’. Moscow led the trend. One by one, the city began to build multi-storey buildings, the most famous of which was the Nirnsee House. With its 11 floors (40m), it was similar to the Chicago Home Insurance Building.

During the Soviet regime, in the 1930s, two important Moscow buildings – the Cathedral of Christ the Saviour and the Sukharev Tower – were demolished. “Soviet people will create more majestic and memorable examples of architectural creativity,” said Stalin, adding the USSR to the race for the tallest building in the world. However, World War II, which reached the country in 1941, interrupted architectural plans, and the construction of the Palace of Soviets was stopped. Later, the Seven Sisters, a group of seven skyscrapers in Moscow designed in the Stalinist style, joined the competition. One of them, the main building of the Moscow State University (239m, 34 floors), held the title of the tallest building in Europe for 37 years; but this is only if one excludes the Television Tower (Ostankino Tower), which from 1967 holds the record in Europe at 540.1m high (compare to Berlin Television Tower – 368m).

In the 21st century, Moscow skyscrapers once again began to compete with each other for the title of the main skyscraper in Europe. The first was the Triumph Palace (264.5m, 57 floors) in 2005,

Metalloinvest’s plant is the supplier for the Dubai Creek Tower project, which will be 100m higher than the Burj Khalifa

followed by the Moscow International Business Centre, known as the Moscow City. At 374m high (97 floors), one of its skyscrapers – the eastern tower called the Federation Tower – remains the tallest building in Europe. However, it is expected that the St. Petersburg Lakhta Centre will overtake this record in 2018.

The imporTance oF The Filling When it comes to building skyscrapers, there is no such thing as one size fits all – each project is unique in its own right. The world’s tallest twisted high-rise building, with a twist of 90 degrees, is the Infinity Tower in Dubai (307m, 73 floors). Although at a lesser height – 246m, 55 floors – The Evolution Tower in Moscow has an even greater twist of 156 degrees. It is designed with a vertical structural RC frame supported by a central monolithic reinforced core. It also has one of the most innovative cold-bent glazings in the world, says Petr Zhuk, Professor of the Department of Architectural Materials at the Moscow Architectural Institute.

However, while the structural elements of the Evolution Tower are made of a concrete-containing mixture, its neighbour – the Eurasia Tower (309 m, 71 floors) – uses a frame made entirely of steel. This is a very common solution. In the United States of America, for example, 65% of high-rise buildings are built with steel-only frames. In Russia, however, the monolithic concrete core is more popular. In this respect, the Eurasia Tower is a pioneer of new ideas, although its predecessors, like the Seven Sisters, used the same formula.

But whatever the design, there is always one major prerequisite – every


skyscraper needs to be built from materials capable of withstanding enormous loads. In this respect, we are yet to find a replacement to metal. According to Petr Zhuk: “Many have tried to find a replacement, for instance, using composites based on Kevlar fibres. But, so far, no one has managed to complete a project without using metal structures.”

The modern use of high-strength metals in high-rise buildings has partly been the result of their popularity in the military industry, car manufacturing and shipbuilding. These metals have also withstood the test of time in bridge building and in the construction of large-span farms, which led to the best practices applied in skyscraper construction today.

Such materials are ready for truly extreme tests. For instance, long steel products by Metalloinvest,

used in the construction of Moscow City, have a high resistance to cold temperatures, which facilitates the trouble-free upkeep of buildings and structures even at temperatures as low as –70°С. Products made from high-strength metal brands undergo a cycle of thermo-mechanical tests and have a stable chemical composition.

The building of a skyscraper means a high level of responsibility not only for the designers and builders, but also for the material suppliers. Alexander Tusnin, Professor of the Department of Metal and Wood Structures at the Moscow State University of Civil Engineering, said:

“It all depends on the height. It is particularly important to avoid frame displacements, the vibrations of which can be noticeable and cause discomfort for people on the top floors. This is why skyscrapers progress only as far as steel making progresses.”

Not a RevolutioN, But aN evolutioNThe tallest building in the world today is the 163-floor Burj Khalifa (828 m) in Dubai, built in 2010. However, a more ambitious project is already under way – there are grand plans to complete the Dubai Creek Tower for the World Expo-2020 exhibition in the UAE. The height of the main tower should rise 100m above the Burj Khalifa.

For stability, the Dubai Creek Tower designers rely on steel cables, secured onto the reinforced concrete core. One of the metal suppliers for the Tower is the Hamriyah Steel plant, which is part of Metalloinvest. It is a new enterprise, commissioned in 2010 with a planned capacity of 1 million tonnes of steel products per year. The tender was won because the plant’s products met the technological and cost requirements of the Dubai Creek Tower. For any project, the accurate calculation of the cost

... The World’sTallest Buildings...

... Europe’s

2000

1750

1500

1250

1000

750

500

250

0

Burj Khalifa, Dubai (United Arab Emirates)

➤ The skyscraper was originally built to be the tallest building in the world. Before the completion of the work, the media was not informed of the height of the building, so as not to give information to potential ompetitors.

Ostankino Television Tower,

Moscow (Russia)

➤ Built in 1967, the tower is a veteran record holder in the world. The height of its concrete part is 385m, which is higher than the tallest skyscraper in Europe.

Kiev Television Tower,

Kyiv (Ukraine)

➤ Built in 1974, it is the highest all-metal construction in the world today. Electro-welding was used to secure all elements of the tower, which was an innovation at the time of construction.

828

m

163

Flo

ors

634

m

632

m

128

Flo

ors

540,

1 m

385

m

Shanghai Tower,

Shanghai (China)

➤ The highest structure in Shanghai, which is a significant achievement in itself as the city has 930 buildings with a height of more than 100m.

Tokyo Sky Tree,

Tokyo (Japan)

➤ The highest television tower in the world. It is built, in part, because many of Tokyo’s skyscrapers interfered with its signal transmission.

28 Industry

of construction work and further costs of operation are an absolute necessity, says Vladimir Neustruev. Moreover, skyscrapers have individual characteristics. “If one were to replace high-strength steels with conventional brands, the weight of the structures will increase significantly, which would require more complex and expensive foundations. This would result in either big overheads or less floors,” highlights Neustruev.

When calculating the supporting structures and foundations, suppliers must work with higher values of reliability factors. After 9/11, when the 400-metre sister towers of the World Trade Center collapsed in New York, the issue of protection from progressive collapse in the case of local damage to load-bearing structures is another factor that needs to be considered.

In addition, it is important not to forget that any high-rise building

has a special degree of fire safety. It depends not only on the fire protection system itself, but also on many other factors.

“One of the important factors is the fire resistance of the skyscraper frame, which is achieved by processing metal with specialised materials. The World Trade Towers demonstrated the need for high-quality insulation. When building the towers, constructors used metal structures processed with synthetic thermal insulation materials instead of asbestos. The former’s fire resistance at extremely high temperatures, according to studies, did not match design requirements. If these requirements were met, many victims could have survived as the collapse would have been delayed by about four hours,” explains Petr Zhuk.

Then there are the issues of wind and seismic safety. The first high-rise buildings used passive protection

... Europe’s The Most Ambitious Concepts

Sky Mile Tower,

Tokyo (Japan)

➤ The building will use alternative energy sources, solar and wind, while its top floors will get their water supply from a system for collecting and storing water right from its own facade.

Source: skyscrapercenter.com

Federation Tower (East),

Moscow (Russia)

➤ The complex consists of two towers - East Tower and the West Tower (height 242.5m). Their foundation is based on a massive concrete slab of 14,000 m3 of concrete, which is recorded in the Guinness Book of Records.

373,

8 m

97 F

loor

s

1700

m

Burj Mubarak Al Kabir,

Madinat al-Harir (Kuwait)

➤ The height is not accidental; it is related to the book of famous Arab and Persian fairy tales called The Thousand and One Nights. The idea is to build the tallest building as part of Kuwait’s bid to host the Olympics.

1001

m

234

Flo

ors

1609

,4 m

5

28 F

loor

s

The Illinois, Chicago (USA)

➤ The idea belongs to Frank Lloyd Wright, famous architect of many iconic buildings in America, including the Guggenheim. The project is in discussion since the 1950s, but the timing of its implementation is still in the air.

systems, which increased the rigidity of the spatial framework. Yet, for several decades, we have utilised adaptive systems that adjust to the direction and strength of the seismic or wind impact. “This could be pre-stressed concrete or cables controlled by a computer,” says Vladimir Neustruev.

However, he adds, in all aspects of high-rise construction, there is an evolutionary rather than a revolutionary process. “We are yet to hear about fundamentally new solutions successfully implemented in the construction of high-rises. The most recent projects are carried out according to the standard scheme, which includes a metal frame, monolithic disks, and a glazed facade.”

Nevertheless, even without revolutions in this area, architects and builders thrive for new heights, and hence the skyscraper race continues.


Risky businessModern society is a dynamic environment, with demand for new innovations constantly evolving. To meet demand, businesses need to be able to adapt quickly.Maria

Yakovleva

Economist Joseph Schumpeter introduced his theory of innovation in the 1920s. He saw the activities of pioneering entrepreneurs, who searched for new business

solutions and drove innovation, as playing the key role in economic development. However, innovative ideas are not enough on their own, as they need to be put into practice effectively.

Pizza as an ExamPlEPeter Drucker, one of the most influential management theoreticians of the twentieth century, noted that business has only two functions: marketing and innovation. “They create results. Everything else is a cost,” he said.

In 2010, Domino’s Pizza shares were worth less than $9 apiece. Seven years later they went up almost 20 times,

and the company itself became the second largest network of pizzerias in the world. How did this happen? It put all its efforts into clever marketing and innovation, just as Drucker prescribed.

At first, Patrick Doyle, Domino’s new CEO, improved product quality and invested heavily in advertising. Then, Domino’s introduced a number of innovations that improved customer service. After all, a pizza by itself is not worth much if it is not delivered properly. Customers want their pizza quickly and hot, as if straight from the oven. So the company optimised its orders using a mobile application and introducing delivery via a messaging service. Later, it turned to improving its delivery fleet and equipping its delivery vehicles with portable ovens, which could keep up to 80 pizzas warm.

Change always begins in the mind. “I could go on about the innovations

at Domino’s, but Doyle’s most important lessons are about the mindset required for organisations to do big things in tough fields”, wrote William Taylor, the co-founder of Fast Company in his article for the Harvard Business Review.

innovativE PuzzlEFear of change and underestimating the harm of inaction are the two biggest enemies of innovative management. Since innovation is always a risky business, it is treated with caution. At the same time, people often forget that while some wait, others act.

However, a desire to be ahead of the curve is not enough on its own. Innovation for its own sake does not usually work. Instead, it has to always solve someone’s business problem. “Our sales are growing, the number of restaurants is growing,

30 management

In the late 1990s, Lebedinsky GOK took a risk and built an HBI production facility, the first in Russia

Conference and the Corporate Forum of Youth Initiatives. According to Ruslan Ilyasov, Deputy CEO for Organisational Development and Human Resources, Management Company Metalloinvest,

“This is a traditional and extremely useful practice. Using these platforms, our specialists are able to share their ideas directly and secure managerial support, while the company receives first-hand practical suggestions on improving production.”

In the 1990s, Steve Blank, the godfather of Silicon Valley, who has launched eight successful start-ups, recognised the importance of customer development. His methodology utilises a customer-oriented approach to product creation. As Blank puts it, market demand should drive all innovative business activities. This approach is one of the component parts of the Lean Start-up methodology.

It could appear that customer development is directed entirely outwards, into the consumer market. But in case of innovation the methodology can prove useful for businesses internally. When it comes to heavy industry, innovation can manifest itself not only in the final product or service, but also in the process of development and production. And it is the company’s employees who are best placed to help identify what processes require innovative intervention.

The company’s bet on innovation made Metalloinvest the global leader in the market for value-added iron ore products.

Lean InnovatIonWhat else encourages innovation? Building creative teams and stimulating creative thinking in employees are also vital for management. There are many examples of successful innovative projects conceived by staff members, which brought their companies to new heights through advance products and technology. Google, for example, has a whole culture of start-ups built into its structure. It is thanks to this culture that customers around the world can benefit from applications and services such as Gmail, AdSense and Google Cardboard.

This is especially true when working with young ambitious employees. It is up to individual companies how they choose to stimulate creativity in their workforce. Metalloinvest offers two platforms to its young staff members who want to share their ideas with senior management: the Scientific and Technology

and the quality of our technology is growing,” comments Patrick Doyle on Domino’s innovative strategy and its successful application. If they do not act as a solution to a problem, innovations are simply irrelevant. Management consultancies always recommend integrating innovation into the long-term development strategy for any company. The idea needs to go beyond ‘what should we do?’ and into ‘what results do we expect from implementing it?”

In the late 1990s, in Russia, the iron ore market stagnated: demand for products and prices stayed flat, but Lebedinsky GOK (now part of Metalloinvest) took a risk and built a new unit for hot briquetted iron (HBI), the likes of which had never before been built in Russia. At that time there were only a few such facilities in the world, in India, Mexico and Venezuela. This decision was bold and revolutionary, but time proved that it was necessary. In 2007, Metalloinvest launched a second HBI plant at Lebedinsky GOK with an even bigger production capacity, and in 2012 it decided to build HBI-3 Plant, which was launched in July 2017.

Technology itself is not as important as the people who implement it


The Amazon warehouse, where operations are fully robotic

Success: the right place, the right time

Up to half of all of the work in the world will be automated within the next two decades. Industrial production will undergo a change in scale matched only by the industrial revolution of the 18th and 19th centuries.Tatyana

Petrova

Larisa Lapidus, Director of the Centre for Social and Economic Innovation at the Faculty of Economics of Moscow State University, notes that we are already living in the

age of the digital economy. “Online technologies have bridged many gaps: between sellers and buyers through e-commerce, students and lecture

theatres of international universities through online education, doctors and patients through telemedicine, employers and employees through remote work, and producers and consumers through additive manufacturing. The Internet of Things has provided companies with tools for instantaneous and reliable data gathering on the state of their production processes”, she notes.

In the modern world, the digital workforce, referring to people who have adapted to new work conditions, is a strategic asset. “A shortage in the digital workforce inevitably leads to a slow-down in the growth of both the digital economy and a country’s economy as a whole,” observes the Digital/McKinsey report Digital Russia: A New Reality. However, the innovation cycle is shrinking. In this reality, basic knowledge is no longer enough to build a successful career. According to Ekaterina Morozova, Director of the Open University of the Skolkovo Foundation, thanks to digital innovation, education has become more accessible. “Today you can acquire unique skills through online courses. You can learn a lot for free,” she comments.

Job seekers literally have no limitations: Grigory Finkelstein, a partner at ECOPSY Consulting, believes that nowadays, employers are not interested in the universities that applicants attended. Instead, they look for all the necessary competencies. However, he adds, there is always an exception: educational institutions with industry-driven departments or joint programmes.

There are more and more of these programmes, because businesses are interested in employing these new kinds of specialists. The programmes are an efficient way of preparing graduates to be ready for

32 EmployEEs

??? An integrated financial and economic management system for all enterprises, created using the SAP Business Suite 4 SAP HANA (or SAP S/4HANA), will be the main tool driving these changes. During the past year, a team of over 700 people has been working on designing the system, drawing on global best practice. The system is scheduled to be completed by 2019. This innovation will affect every employee of the Company.

According to experts, new technologies are changing the very ideology of work. Grigory Finkelstein says that if previously work was driven by the idea of meeting specific goals at any cost, today, compliance with rules, discipline and occupational health and safety, as well as increasing efficiency and productivity, come first. At the same time, if previously staff were expected to perform a set of clearly defined tasks, today more and more employers want to see innovative solutions. And this is not accidental. Essentially, machines relieve people of mundane work, giving us more time and energy for creativity.

The results of using new technologies at Metalloinvest enterprises are already noticeable. According to Igor Gurkov, even the very appearance of industrial facilities has changed. “Industrial facilities today look different: they are clean, and people seem more collected and friendly,” he explains. But he believes that the best is yet to come.

In 2016, Metalloinvest started implementing a comprehensive business transformation programme entitled Industry 4.0. Given the scale of the initiative, CEO Andrey Varichev is overseeing proceedings. “These are complex measures aimed at transforming all business processes, and digitalising and automating production, as well as centralising operations and reducing costs,” he explains.

the specific criteria of companies in many industries, from IT to heavy industry.

For example, Metalloinvest is expanding its partnerships with leading educational institutions and experts. The Company has joined up with the Stary Oskol branch of the National University of Science and Technology MISiS, which has recently launched a new programme for mining engineers. Commenting on the partnership, Oleg Mikhailov, Managing Director of Lebedinsky GOK (part of Metalloinvest), said: “First of all, this will allow us to educate future mining engineers at our enterprise, and secondly, we will be able to choose the best of the best specialists and, as a result, gain a competitive advantage over other mining companies.”

‘Digital’ employees are a strategic asset. Their shortage leads to a slowdown in the growth rate of the economy


???

Theatre Version 20.17

Digital technologies have firmly established themselves not only in our daily lives, but also in all kinds of art. How is digital technology influencing the development of the theatre?

OlgaDmitrieva

Theatre has always been open to technological innovation. The idea of digital representation was born long before the invention of the first computer. In the

middle of the nineteenth century, the German composer Richard Wagner formulated this in his concept of the Gesamtkunstwerk (the ‘total work of art’). He proposed the harmonious coexistence of various forms of art (music, theatre, dance, poetry, light and design) in a single artwork, to allow viewers to completely immerse themselves in events onstage.

Today, it is perhaps more difficult to surprise an audience with interactive installations, audio-visual special effects and other pieces of theatrical wizardry. And yet some performances still manage to surprise their viewers, causing genuine interest among both the general audience and critics, and

decoration on stage. Rotating, it transforms into various interiors using multimedia effects. All of this serves one purpose – to portray a human being left alone with their own consciousness.

Creators of the play Do Not Leave Your Planet also set themselves a difficult challenge: to tell the story of awaking in a dream world. This 2016 interpretation of the Little Prince by Antoine de Saint-Exupe‘ry, starring Konstantin Khabensky, was staged at the Sovremennik Theatre in Moscow, with the support of the Art, Science and Sport Charity Foundation. In addition to classical music and unusual stage direction, director Victor Kramer made use of kinetic art and the latest developments in video art. The result was a stunning fantasy play, colourful, moving and very beautiful.

Technical innovations help to make theatre accessible to

continue to be discussed even a few years after their premiere.

In Russian theatre, one truly innovative performance comes to mind: Hamlet /Collage, which premiered at Moscow’s Theatre of Nations in 2013. In this Shakespearean tragedy, the first play by the iconic Canadian playwright and director Robert Lepage staged in Moscow, the artistic director, Yevgeny Mironov, plays all of the characters. All of the play’s events take place in a half-open cube and is the only

34 Summary

The only decoration used within the Hamlet/Collage performance – a specially-programmed cube-constructor

The use of video art helped the Sovremennik theatre take a fresh look at the story of ‘The Little Prince’

Predicting the emergence of a new theatre genre associated with holography

a wider group of people. For instance, an initiative called the Special View by the Art, Science and Sport Foundation uses audio descriptive commentary as part of its programme for visually impaired people. This technology helps blind and visually impaired spectators ‘see’ theatre performances as sighted viewers would. Using tools for simultaneous interpretation, specialists narrate everything happening on stage, such as scene changes, the activities of performers, and their facial expressions and gestures. This is similar to radio commentary on a sports match, where listeners can visualise everything that happens on the field, thanks to the commentator’s narration.

According to Maria Melnichenko, director of the Special View initiative, through audio description in 2017, eight performances were adapted for people with visual impairments in the Sovremennik Theatre, the Moscow

Provincial Theatre, the Helikon Opera and Stanislavski and in the Nemirovich-Danchenko Moscow Academic Music Theatre. Work is underway to adapt the productions in other regions of Russia.

Experts have varying opinions on how modern technological progress will be used in future in the theatre. Some of them are difficult to imagine. Some, for example, predict a new theatre genre associated based on holograms. Given the experience we already have, we can hope that in the future new technologies will be introduced only where they are needed, to help to communicate the playwright’s ideas more vividly and expressively.

Hopefully, the theatre will maintain its unique and alive immediacy, retaining its original mission to evoke human emotions, discuss painful topics, promote independent thinking, and save audiences from spiritual emptiness.


паровой двигатель

The new oldThe horrors of the digital future have been their own distinct subgenre of science fiction for many years. From a robot uprising in the Terminator to the rehousing of the human race in the Matrix, it represents a diverse genre. It seems that human reality is now beginning to resemble these stories for the first time. However, this view is mistaken.

AntonSobchenko

The appearance of the first mechanical looms and steam engines in England in the second half of the 18th century seemed like a true revolution: the human

mind appeared to have tamed nature. The world had changed both inexorably and irrevocably, causing both rapture and resistance.

As a result, the Luddite movement arose in England. Its members were workers outraged at the mechanisation of production, who saw these machines as the main reason for the deterioration of their living conditions. They destroyed industrial machinery on such a scale that the British Parliament was forced to pass a law in which causing damage to production equipment carried the death penalty.

By the middle of the nineteenth century – the time of the second industrial revolution – the rage of the Luddites had been replaced by scepticism. This was especially noticeable in relation to the development of routes of communication. Even after the opening of the first railway lines, the public often perceived new technologies as an entertainment,

36 Summary

Supporters of technical progress often became cartoon heroes

The workers, initially outraged by mechanisation, deliberately destroyed the machines

metal production tripled. In 1858, a transatlantic telegraph cable was laid, and on August 16 of that year, Queen Victoria and U.S. President James Buchanan exchanged their first telegrams.

Fears that social and economic upheavals would impede scientific and technological progress have also proved groundless. And in 1851, the World Exhibition was held in England on an unprecedented scale. In the Crystal Palace, an architectural masterpiece made of glass and iron built specifically for this event in London’s Hyde Park, visitors saw incredible innovations for the time: a fax prototype, an improved Jacquard loom, Colt pistols and many other mechanical devices.

The exhibition was a huge success: in six months it was visited by six million people – a third of the population of Great Britain at

the time. This format for presenting scientific and technical advancements proved successful for developing networks between businesses and inventors based in different countries. The forum was held regularly from then on. At one of these exhibitions in Paris, in 1878, visitors saw Yablochkov candles – a prototype of the modern electric bulb – decorating the stand of the Russian Empire.

Pope Leo XIII provided an unusual conclusion to the whirlwind 19th century in his papal address entitled Rerum Novarum or Rights and Duties of Capital and Labour on 15 May 1891, while instructing the congregation:

“Everyone should put his hand to the work which falls to his share, and that at once and straightway.” However, mankind’s subsequent history has showed that people did not heed this call, and are still afraid of everything new.

rather than as something practical. For instance, in 1835, the French minister Adolf Thiers did not believe that it would be possible to build five miles of railways per year in his country. The intelligentsia of the time agreed: the characters in Charles Dickens’ novel Dombey and Son were confident that they would “survive all these ridiculous inventions;” and the chimney sweep from the London suburbs publicly promised “on the opening day of the railway – if it ever opens – to order his two boys to welcome the failure by shouting mockingly from their chimneys”.

But, despite a lack of public disbelief, transportation systems continued to develop. Other industries also grew, primarily metallurgy and communications. In the United Kingdom alone, over the decade and a half from 1830,


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