Ten interesting things that we read this week

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Here are the ten most interesting pieces that we read this week, ended August 18, 2017.

At Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, including investment analysis, psychology, science, technology, philosophy, etc. We have been sharing our favourite reads with clients under our weekly ‘Ten Interesting Things’ product. Some of the most interesting topics covered in this week’s iteration are related to ‘rise of Bangladesh as manufacturing powerhouse’, ‘identifying actual need for “smart” devices’ and ‘how shell companies enable money laundering’.



1)    The difference between amateurs and professionals [Source: Linkedin ] 

• Why is it that some people seem to be hugely successful and do so much, while the vast majority of us struggle to tread water? The answer is complicated and likely multifaceted. One aspect is mindset—specifically, the difference between amateurs and professionals. What’s the difference? There are many:
• Amateurs stop when they achieve something. Professionals understand that the initial achievement is just the beginning.
• Amateurs have a goal. Professionals have a process.
•  Amateurs think they are good at everything. Professionals understand their circles of competence.
• Amateurs see feedback and coaching as someone criticizing them as a person. Professionals know they have weak spots and seek out thoughtful criticism.
• Amateurs value isolated performance. Think about the receiver who catches the ball once on a difficult throw. Professionals value consistency. Can I catch the ball in the same situation 9 times out of 10?
• Amateurs give up at the first sign of trouble and assume they’re failures. Professionals see failure as part of the path to growth and mastery.
• Amateurs show up to practice to have fun. Professionals realize that what happens in practice happens in games.
• Amateurs think knowledge is power. Professionals pass on wisdom and advice.
• Amateurs focus on first-level thinking. Professionals focus on second-level thinking.
• Amateurs think good outcomes are the result of their brilliance. Professionals understand when outcomes are the result of luck versus talent.
• Amateurs focus on the short term. Professionals focus on the long term.
• Amateurs blame others. Professionals accept responsibility.
• Amateurs show up inconsistently. Professionals show up every day.
• As per the piece, while there are a host of other differences, they can effectively be boiled down to two things: fear and reality. Amateurs believe that the world should work the way they want it to. Professionals realise that they have to work with the world as they find it. Amateurs are scared — scared to be vulnerable and honest with themselves. Professionals feel like they are capable of handling almost anything.
  
  

2)    Manufacturing flocks to new corners of Asia  [Financial Times ] 
A few decades ago Bangladesh was one of the poorest countries on earth, stricken by famine and flood. Now it ranks as middle-income. Vietnam has done the same; Cambodia is close behind. Their spectacular growth shows fear of “premature de-industrialization” is misplaced as a new generation of manufacturing powers rise to shape the 21st century. What Bangladesh has done is all the more remarkable because the world has taken so little notice. Growth has steadily accelerated to more than 6%, driven by the classic cheap-labour starter industry of textiles. It is now the world’s second-largest garment exporter. The textile factories employ millions of young women, giving them economic power, prompting rural families to invest in education and triggering a demographic dividend.

3)    How shell companies are used in black money creation, laundering [Source: Livemint ]
An Income Tax (IT) probe was launched recently into the operations of Anjali Jewellers Private Ltd, a 25-year-old family owned enterprise, and leading jewellery-maker in West Bengal. The company had created more assets than its cash flows would have permitted and within days of starting the investigation, it was clear to the IT department that Anjali was struggling to reconcile its inventory with its books of accounts—there was more gold and jewellery lying in its stock than recorded in its books—and that the company bought “finished goods” from a clutch of vendors. Once the IT officers figured out that the company had recorded bogus transactions to suppress profits, all the “searching questions” about rapid asset creation were at once answered. The department claimed Anjali had concealed at least Rs160 crore of income. The probe into Anjali’s operations also led to 26 other beneficiaries. Normally, when dealing with such bogus transactions, the IT department has to dissect through “layers and layers” of shell companies, or ones that do not have any legitimate business and are used only for tax rationalisation and money laundering.

Over the past two years, the IT department has identified around 16,000 shell companies based in Kolkata alone. Anjali had transactions with only a handful of them—all controlled by the same operator—a middle-aged chartered accountant. Investigation shows this operator is in control of at least 322 companies but he is not on the board of any of them. He doesn’t own any shares in these companies either. The directors and shareholders of these shell companies are mere “name-lenders”—they sign on documents for a fixed fee. The operators seek out people in distress to be appointed as directors. In most cases, these directors are traceable. But even if the department gets to them, it doesn’t help because they know nothing—not even the operator who employs them from behind several layers of proxies.  The operators act like consultants, managing diverse needs of several clients at a time. And because the needs are different, they create so many companies. They create more than they need, and only about half of the 16,000 companies identified as shell have been used. The others are ready, but have not been used yet.

4)    Do your customers actually want a “smart” version of your product?  [Source: HBR ] 
There’s been a gold rush happening in technology these last few years, focused on the Internet of Things, or IoT. It’s even frequently been referred to as “the next Industrial Revolution.” However, the author of this piece, founder of Big Ass Solutions, a firm which manufactures and sells “connected” fans, lights, and controls for commercial and residential use feels IoT is more hype than truth. As mobile apps have proliferated, many analysts have attempted to quantify what the rise of connected devices could mean to the marketplace. For instance, in 2010, Ericsson set the bar for much of the subsequent IoT hype by predicting there would be 50 billion internet-connected devices by 2020. In 2014, Gartner Research, creator of the Hype Cycle for the Internet of Things, predicted that a “typical family home” could hold up to 500 smart objects by 2022. However, since last year something’s changed — IoT predictions have taken a turn. Analysts at Ericsson, for example, have shaved 20 billion off their early estimates.

As Gartner noted in November: “The IoT remains on the peak of inflated expectations for the third year in a row as vendors push the hype even higher, but most companies struggle to find use cases beyond proof-of-concept.” The author recounts his own experience of selling a new smart fan option which had several thousand excited early adopters. But because they had neglected to manufacture it using a modular approach, they had to build two of everything: fans with connected capacity and fans without. After running the numbers on how many of their customers paid for the upgrade — about 40% — and surveys that showed high overall customer satisfaction with the technology, they decided to stop making the “smart” feature optional and make it standard instead. They figured that way, they would reduce the SKUs (stock-keeping units), and as people discovered how wonderful the technology was, they would be converted and spread the word. Two years, hence, he saw that the public simply isn’t yet clamouring for connectivity. Many of his customers just don’t use the technology available to them. The feedback from his customers suggested that quality and aesthetics still matter more than smart features. He believes they were guilty of “Jobsian” thinking, convinced that people don’t know what they want until you show it to them. Also, because most of the employees who were leading the company’s IoT efforts fall in the early adopter category they failed to fully grasp that programming their products — or anyone else’s — to enjoy the full range of functionality requires a level of patience and commitment that many people just don’t have.

5)    Hyundai heavy profit jump flags turnaround in Korean shipbuilding [Source: Financial Times ] 
Hyundai Heavy Industries has reported a 70% jump in first-half operating profit, adding to evidence of recovery in the country’s beleaguered shipbuilding industry, helped by increasing new orders for oil tankers and natural gas carriers. Operating profit at the world’s largest shipbuilder rose to Won315bn ($280m) in the first six months of this year from Won186bn a year earlier. It is the company’s first earnings announcement after Hyundai Heavy split into four companies in April to navigate an industry slump that triggered tens of thousands of jobs losses. The results are also the latest sign the industry is recovering from a prolonged slump that has raised questions about the future of shipbuilding in South Korea — home to the world’s top three shipbuilders.  Hyundai said the company, together with its two other shipping affiliates, won orders to build 81 vessels worth $4.5bn so far this year, compared with 16 vessels worth $1.7bn in the same period last year. Orders for oil tankers have jumped this year as low oil prices spur demand and buyers want to stockpile oil in anticipation of higher oil prices. Hyundai’s cross-town rival Samsung Heavy Industries also reported improved earnings last week. Daewoo Shipbuilding and Marine Engineering is also expected to report an operating profit of up to Won800bn for the first half after narrowly avoiding bankruptcy in April on a $2.6bn bailout by state-run lenders.  New orders for ships worldwide rose more than 40% in the first half of this year, with South Korea taking 31% of them, closely trailing behind China. South Korea received new orders totalling 2.83mn compensated gross tonnage, an industry metric measuring total work that goes into a ship, in the first half of this year, about three times more than 840,000 CGT in orders won a year earlier.

6)    Germany’s carmakers feel the Tesla shock  [Source: Financial Times ] 
While Elon Musk grapples with the problem of meeting demand for Tesla 3, BMW and Daimler are facing the converse problem: they are good at making diesel cars but who wants one? After decades of success, dominating the global luxury market with impeccably designed engineering marvels, Germany’s carmakers face their iPhone moment. Like BlackBerry and Nokia before, they are confronted with a US company selling an elegant device based on superior technology. Diesel is dying and the only question is how long it will take for it to be wiped out. The $35,000 Tesla 3 is seizing the halo from Germany’s iconic industry. In the past, the US industry never offered any real competition for its luxury driving machines but Mr. Musk has eagerly taken on the challenge that Detroit long ducked. Tesla’s founder is a showman who often over-promises, but fate is on his side. He could not have picked a better moment to start selling his first volume car.

Not only is VW still embroiled in a scandal over its illegal use of software to disguise vehicle diesel emissions, but the top five German carmakers are under investigation by antitrust authorities over whether they formed a buying cartel. The cartel investigation talks about Germany’s consensual culture of co-operation among companies, suppliers, research institutes and governments. While it has produced enviable results, as has Japan’s keiretsu tradition of corporate alliances, standards-setting may have degenerated into collusion. The carmakers may have broken the law by, for example, reducing the size of the chemical tanks they used to limit nitrogen oxide emissions from diesel engines. But why was there any need to agree on common components? The answer is that making a car with a combustion engine is a fiendishly complex task and carmakers depend on intricate networks of suppliers. Anything that makes this simpler, and by extension cheaper, is a godsend to the conventional carmaker. It is in this context that Tesla has a crucial advantage over them. An electric car is easier to make than one with an internal combustion engine (ICE) because it has many fewer parts.

7)    Why is Google spending record sums on lobbying Washington [Source: The Guardian ] 
Google spent a record amount of almost $6m lobbying in Washington DC in the past three months, putting the Silicon Valley behemoth on track to be the top corporate lobbying spender in the USA. The largest monopoly in America, Google controls five of the top six billion-user, universal web platforms – search, video, mobile, maps and browser – and leads in 13 of the top 14 commercial web functions. As the controversial Trump-supporting PayPal billionaire Peter Thiel points out, companies like Google don’t like to advertise this fact. They “lie to protect themselves”, Thiel says. “They know that bragging about their great monopoly invites being audited, scrutinised and attacked. Since they very much want their monopoly profits to continue unmolested, they tend to do whatever they can to conceal their monopoly – usually by exaggerating the power of their (nonexistent) competition.” For years, banks, oil companies and defence contractors dominated the Washington lobbying business. Because controlling government regulation and government contracts was the key to their business success, shareholders saw the expenditure of millions a year on lobbyists and political contributions as an unavoidable cost of doing business. Since Google began spending more on lobbying than America’s defence giants around 2010, it has been able to intimidate American legislators and regulators, and it has tools at its disposal far more powerful than anything deployed by Boeing.

In 2012, when the House of Representatives was considering the Stop Online Piracy Act (Sopa), which aimed to crack down on copyright infringement by restricting access to sites that host or facilitate the trading of pirated content and specifically targeted search engines, such as Google that linked to pirate sites, Google made use of some smart imagery. It put up a link saying “tell Congress” (regarding pirated content) on its search page allowing users to directly email their members of Congress. Needless to say, Congress’s email servers were overwhelmed and two days later, the House judiciary chairman, Lamar Smith, withdrew the bill. The legislators have now become so captive that Google was able to enlist many of these same legislators in its battle against the European Union, whose antitrust regulators are more willing to call Google a monopoly.

8)    Investors rush to buy Iraq’s first independent bond [Source: Financial Times ] 
Investors have rushed to buy Iraq’s first independent bond sale in more than a decade, in a sign of a continued wave of demand for riskier debt across international markets. The $1bn bond, which matures in 2023, brought in $6.6bn of orders. The yield was fixed at 6.75%, lower than initial pricing expectation of 7%+. The high levels of demand for the debt came amid strong appetite for risk across capital markets as low interest rates push investors to seek higher returns. Last week, Greece, which has undergone multiple bailouts by the EU and International Monetary Fund, raised €3bn in its first bond sale for three years. In June Argentina was able to borrow $2.75bn of 100-year bonds at a yield of about 8 per cent, despite its long history of sovereign defaults.