Philippa Kaur

ISRAEL AND the United Arab Emirates (UAE) have maintained unofficial relations for a while, despite a half-century boycott in much of the Arab world of the Jewish state in its midst. So, too, with commercial ties. Goods moved between the two economies, but only passing through intermediaries in third countries first. This made sense for high-margin products like technology, an Israeli forte, or diamonds, where the rigmarole could tack on a week’s delay and a surcharge of 1% for extra bank fees and insurance. Trade was pointless for most other businesses.
No longer. On January 24th Israel opened an embassy in Abu Dhabi, the UAE’s capital, as part of the Abraham accords, a peace deal brokered by America and signed last September. The outpost has symbolic value, of course. It is also a beachhead for Israeli and Emirati bosses and investors keen on doing business with their counterparts. And there is plenty of business to be done “now that the relations between the two countries have come out into the open”, says David Meidan, a former senior spy at Mossad, Israel’s spy agency, who advises Israeli companies operating in the Arab world. Boosters talk of up to $6.5bn in annual bilateral trade—equivalent to 5% of Israel’s current tally and 1% of the UAE’s—within a few years, and billions more in investments.

In the past six months Frost & Sullivan, a consultancy, has been pitching deals with its Israeli clients to Emirati firms in industries from carmaking to food. Until November half rejected the advances out of hand. Now only a third do, says Subhash Joshi, head of Frost & Sullivan’s Middle East practice in Dubai. He expects the share to keep falling. On February 7th and 8th Abu Dhabi will host a high-profile UAE-Israel investment summit.
Signs of a commercial love-in abound. Two port operators, Israel Shipyards and Dubai’s DP World, are planning a joint bid for Israel’s newly privatised Haifa Port. The Barakat Group, the UAE’s largest fresh produce importer, began to offer crates from Israel to the Emirati hotels and street markets it supplies. Barakat’s managing director, Kenneth D’Costa, praises Israeli avocados, which he expects to take market share from pricier European fruit and poorer-quality Kenyan ones.
That is just the start. Spending by Emirati farmers on Israeli agricultural kit, seeds and know-how (responsible for those avocados) is expected to balloon, especially as the UAE tries to decrease its reliance on foreign food, 80% of which is currently imported. Israel, for its part, will gain access to Emirati oil and gas, petrochemicals, building materials and other bulky goods, where thin margins made circuitous channels unprofitable. A recent study by the chambers of commerce of Dubai and Israel identified “potential” for Emirati exports of cement, ceramics and metals, which Israel now imports from farther afield at a higher cost.
Direct travel between the two countries will also boost business. Before the latest covid-19 lockdown as many as 25 flights a week ferried travellers between Tel Aviv and Dubai, up from none before the accords. In December alone more than 40,000 Israelis flew to Dubai. Israeli-passport holders are at last able to get on the ground in the UAE to drum up investment for Israel’s tech-startup scene, says Sharon Daniel, a venture capitalist in Tel Aviv.

The Emiratis understand the Arab region “much better than we do”, says Erel Margalit of Jerusalem Venture Partners, a big venture-capital firm. They are also a gateway to the Far East, Mr Margalit adds. Asaf Azulay, marketing chief of Bank Hapoalim, a big Israeli bank, likewise spies “a double opportunity”: to access the Arab world and Africa, and to invest jointly. His company has already signed co-operation agreements with two Emirati banks.
Dan Catarivas of the Manufacturers’ Association of Israel expects unfettered business travel to boost trade in sensitive areas like security software and advanced kit for health care, defence and energy production. It makes sense for the two most technologically advanced countries in the Middle East to “work together as hubs and research centres”, says Yoaz Hendel, who until recently served as Israel’s communication minister.
It isn’t all plain sailing. Emiratis, taught to view Israel as evil, need time “to absorb this new reality”, says the boss of a big Emirati food importer. He decided to steer clear of Israeli suppliers for now.
After decades of animosity some friction was inevitable. Still, signs of warming relations can be seen around Dubai—literally in the case of Hebrew signage popping up and Jews out and about in religious garb. It is “almost like everything Judaism became trendy”, says an Emirati government official. And for Israelis willing to move their domicile, adds Mr Meidan, there is the added attraction of doing business in a country with no income tax. More

EDIEAL PINKER, deputy dean of the Yale School of Management, bristles at the suggestion that the MBA, long seen as a stepping stone to corporate success, has been made less relevant by the covid-19 crisis. The traditional two-year degree remains vital, he insists. “Do you think the problems the pandemic created for society and the economy are narrow specialised problems or complex ones that cut across sectors and disciplines?”
Listen to this story
Your browser does not support the element.
Enjoy more audio and podcasts on iOS or Android.

His words would have sounded odd a year ago. The MBA was falling out of fashion. With the global economy booming, the opportunity cost of this pricey degree (top schools charge $100,000 or more a year) did not seem worthwhile to many. Some schools could not cover their expenses. In 2019 the University of Illinois said it would end its residential MBA programme. Dozens of middling schools have done the same in recent years.

Surely Mr Pinker’s defence of the MBA seems even odder in the new pandemic reality? On the contrary. “Students held up and schools stepped up,” says Sangeet Chowfla, head of the Graduate Management Admission Council (GMAC), an industry body. GMAC’s latest annual global survey of more than 300 business schools found that 66% of programmes saw applications rise. Has covid-19 saved the MBA?
At first the virus looked lethal. Lectures moved online, team exercises became socially distant and study-trips abroad were cancelled. That diminished the value of the MBA experience, which is “greatly enhanced by the opportunity to expand and diversify one’s professional network through in-person interactions”, says Scott DeRue, dean of the University of Michigan’s Ross School of Business. Covid-19 restrictions hurt what Ilian Mihov, dean of INSEAD, a French school with campuses in Fontainebleau, Singapore and Abu Dhabi, calls “horizontal learning”—working in teams or discussing the day’s lessons over coffee. Ominously, INSEAD’s most popular MBA course last year was “Psychological Issues in Management”. “[I miss] interacting and having fun,” laments a student at New York University’s Stern School of Business. Columbia Business School has disciplined 70 students who violated covid-19 rules on socialising by travelling to Turks and Caicos for the autumn break.

Some students, angry about social isolation and online education, demanded refunds. Many foreigners, a cash cow for Western schools, stayed away (see chart). Mr Chowfla points to the “one-flight dynamic”: horror stories about students kicked out of dorms getting stranded on layovers while returning home put many Asians off American schools.
America’s loss was Europe’s gain. With more direct connections to Asia, London Business School, HEC Paris and other top European schools reported rises in applications. Some Asian schools, too, benefited. They kept their doors open to international students, thanks to their countries’ better handling of the pandemic. Hong Kong University Business School (HKUBS) saw a surge in applications from North America and Europe in March. They tended to be students who aimed for MBAs in the West but picked Asia at the last moment, says Sachin Tipnis of HKUBS. Memories of the SARS epidemic of 2003 spurred HKUBS to act early. Rapid processing of visa applications and moving classes to larger lecture theatres allowed 90-95% of students to attend in person.
Travel and visa complications boosted domestic applications everywhere. In 2020 mainland applicants to China Europe International Business School (CEIBS), a top-rated business school in Shanghai, rose by 30%. The wish to stay local is driven by two things, explains Ding Yuan, its dean. The first is China’s economy, which grew last year while others shrank. That has made America and Europe a less attractive destination in general for ambitious managers. The second is a sense that the post-Trump West is less welcoming to Chinese.
Most surprising of all, given all that, American schools look poised for a banner 2021. After a few years of declining applications, MIT’s Sloan School of Management, Columbia Business School, the Wharton School of the University of Pennsylvania and other top American programmes now report double-digit growth. “We enrolled the largest full-time MBA class ever,” beams Madhav Rajan, dean of the University of Chicago Booth School of Business.

MBA applications typically rise in recessions, when a weaker job market means lower forgone salaries. But business schools deserve credit for adapting their business models—as their professors preach others to do. Many delayed the start of semesters, offered generous scholarships, waived exam requirements and liberalised policies on deferrals. Harvard Business School allowed students it admitted to postpone studies for one or two years. GMAC reckons that deferrals globally have shot up from about 3% to 7%.

Schools also boosted online and flexible degrees, which are surging, and integrated digital teaching into core MBA courses. Far from being “giant killers”, says Vijay Govindarajan of Dartmouth College’s Tuck School of Business, digital technology can help a top school “ensure its gold-plated MBA programme shines even brighter”. The Ross School is using tools akin to Netflix’s bespoke recommendations to create “personalised leadership and career development journeys” for students. And to graduates’ relief, recruiters are back. GMAC’s survey of firms that recruit at business schools found that 89% intended to hire MBAs in 2021, up from 77% last year. ■
This week we publish our annual WhichMBA? ranking of the world’s top full-time MBA programmes. Find it at economist.com/whichMBA2021
This article appeared in the Business section of the print edition under the headline “The class of covid-19” More

Electric awe
TESLA’S SHARE price will travel in only one direction—up. Despite accelerating in “ludicrous” mode, by more than 700% in 2020, Tesla has plenty left in the tank, to borrow a phrase that the firm is consigning to history. Its impact on the car industry cannot be overstated. But it is a mistake to judge it by the standards of the firms it will leave in its tracks. Tesla is a technology firm, set to disrupt not just carmaking but personal transport, energy (thanks to its battery technology and solar power), robotics, health care and more besides.

Listen to this story
Your browser does not support the element.
Enjoy more audio and podcasts on iOS or Android.

Its valuation is justified by its potential to dominate the future of mobility alone. Operating margins were close to 7% in the first nine months of 2020, higher than any big rival’s—and rising. Its market is exploding. Electric vehicles (EVs) now make up around 3% of all car sales, of which Tesla accounts for a fifth. As regulations tighten and ranks of climate-worriers swell, a third of all cars sold globally will be electric by 2030—rising to over half ten years later. Even if Tesla won’t make 20m EVs a year by 2030, as its boss, Elon Musk, hopes, it could control 25-30% of the EV market.

Tesla’s “production hell” is in the past. It just about hit a pre-pandemic delivery target of 500,000 cars in 2020 and rapidly erected a new factory in China—which on January 18th delivered its first Model Y, a small SUV. Another will come online shortly in Germany. So will a new battery “gigafactory” in Texas. This, and the ease with which it raised $12bn of capital amid the covid-19 crisis, shows it can expand at will.
The firm’s proven knack for speedy innovation will let it keep an unassailable technology lead over both established carmakers, struggling to free themselves of the legacy of internal combustion, and newcomers looking to steal its crown. Like other tech Goliaths such as Apple, its products will continue to define the category. Mr Musk has remade the car into a connected electronics device that will soon drive itself. Autonomous technology is already fitted to many Teslas, awaiting regulators to approve it. This will put Mr Musk in the front seat of the robotaxi as the world moves towards mobility services.
Tesla’s greatest asset is Mr Musk, a visionary spearheading rocket trips to Mars, neuroscience, grid-scale batteries and other transformational technologies. Investing in Tesla is a bet on his genius for turning the future into dollars.

Electric shock
TESLA’S SHARE price can travel in only one direction—reverse. A market value of $800bn, equal to that of the next eight biggest carmakers combined, is predicated on Elon Musk’s shake-up of the industry. Building a brand swiftly and making electric cars trendy is a real achievement. But Tesla’s revenues come from selling cars. Sales are rising—yet would need to swell seven-fold to match Toyota’s. Good luck.

Yes, Tesla missed a delivery target of 500,000 cars in 2020 by a mere whisker. But it once said it would be making 1m a year by now. A goal of 20m electric cars by 2030 looks like another wild over-promise. Mr Musk has admitted that unless costs are contained the share price may be “crushed like a soufflé under a sledgehammer”.
Competition is getting fiercer. Big firms dragged their feet on electrification for a reason. Batteries were costly—and electric cars, niche products for the rich. But prices have fallen, regulations have tightened and buyers want electric vehicles (EVs). The giants promise a traffic jam’s worth: General Motors says it will have 30 models on the market by 2025; Volkswagen Group is eyeing 70 by 2030. Startups, many in China, are powering up. Mr Musk’s technology lead is running out of road.
Rising profits in 2020 might reassure investors, but come mostly from selling carbon credits. And Tesla is not immune to the traditional forces that govern carmaking. Some models are ageing. Sales of Model S and Model X are falling and the firm is losing market share in Europe. In the first nine months of 2020 vw, Renault-Nissan-Mitsubishi and Hyundai-Kia all sold more EVs in Europe than Tesla did, according to Schmidt Automotive Research.

The hype about autonomous cars has worn off as developing self-driving systems has proven tricky. Tesla’s pseudo-autonomous system requires constant monitoring by the driver. The full autonomy that would give robotaxis the freedom of the open road is years away. All this suggests Tesla will remain a niche luxury firm.
Then there is Mr Musk. He has toned down erratic tweets, like the one in 2018 implying Tesla was about to go private, which got him into hot water with regulators. But he is spreading himself too thinly between Tesla, SpaceX’s rocketry and other ventures. The strains from Tesla’s expansion could again bring out his demons—and spell disaster for shareholders.■
For more coverage of climate change, register for The Climate Issue, our fortnightly newsletter, or visit our climate-change hub
This article appeared in the Business section of the print edition under the headline “Electric shock and awe” More

ON JANUARY 13TH Honda, a Japanese carmaker, said it had to shut its factory in Swindon, a town in southern England, for a while. Not because of Brexit, or workers sick with covid-19. The reason was a shortage of microchips. Other car firms are suffering, too. Volkswagen, which produces more vehicles than any other firm, has said it will make 100,000 fewer this quarter as a result. Like just about everything else these days—from banks to combine harvesters—cars cannot run without computers.
Listen to this story
Your browser does not support the element.
Enjoy more audio and podcasts on iOS or Android.

The chipmaking industry is booming. The market capitalisation of the world’s listed semiconductor firms now exceeds $4trn, four times what they were worth five years ago (see chart 1 on next page). Chipmakers’ share prices have surged during the covid-19 pandemic, as work moved online and consumers turned to streaming and video games for succour.

This has propelled a wave of dealmaking. In September Nvidia, which designs powerful chips for gaming and artificial intelligence (AI), said it would buy Arm, a Britain-based company whose blueprints are used in nearly all smartphones, for $40bn. In October AMD, which makes blueprints for graphics and general-purpose chips, announced another megadeal—to acquire Xilinx, a maker of reprogrammable chips, for $35bn.
Silicon splurge
Capital spending, too, is rising. Samsung, a South Korean conglomerate, wants to invest more than $100bn over ten years in its chip business (although some of that will go to its memory chips used in things like flash drives rather than microprocessors). On January 14th Taiwan Semiconductor Manufacturing Company (TSMC)—which turns blueprints into silicon on behalf of firms like AMD and Nvidia—stunned markets when it increased its planned capital spending for 2021 from $17.2bn to as much as $28bn, in anticipation of strong demand. That is one of the largest budgets of any private firm in the world.
All this is happening amid a confluence of big trends that are realigning chipmaking. At one end the industry is a hive of competition and innovation. Established chip designs, including those from AMD, Nvidia and Intel, the world’s biggest chipmaker by revenue, are being challenged by new creations. Web giants such as Amazon and Google, big customers of the incumbents, are cooking up their own designs. They are joined by a gaggle of startups, eager to capitalise on demand for hardware tuned for the needs of AI, networking or other specialist applications.

All this would be unequivocally great news for everyone, were it not for what is happening at the other end—in the factories where those designs are turned into electronic circuits etched on shards of silicon. The ballooning costs of keeping up with advancing technology mean that the explosion of chip designs is being funnelled through a shrinking number of companies capable of actually manufacturing them (see chart 2). Only three firms in the world are able to make advanced processors: Intel, TSMC, whose home is an earthquake-prone island which China claims as its territory, and Samsung of South Korea, with a nuclear-armed despotic neighbour to the north. The Semiconductor Industry Association, an American trade body, reckons that 80% of global chipmaking capacity now resides in Asia.
The vanguard may soon be down to two. Intel, which has pushed the industry’s cutting edge for 30 years, has stumbled. On January 18th news reports suggested that the company (which was due to report its latest quarterly results on January 21st, after The Economist went to press) may begin outsourcing some of its own production to TSMC, which has overtaken it.
And the world economy’s foundational industry looks poised to polarise further, into ever greater effervescence in design and ever more concentrated production. This new architecture has far-reaching consequences for chipmakers and their customers—which, in this day and age, includes virtually everyone.
Start with the diversification. For years technology companies bought chips off the shelf. In its 44-year history Apple has procured microprocessors for its desktops and laptops from MOS Technology, Motorola, IBM, and finally Intel. Soon after the launch of the original iPhone in 2007, however, the firm decided to go it alone. Later iterations of the smartphone employed its own designs, manufactured first by Samsung, and later by TSMC. That approach proved so successful that in 2020 Apple announced that it would replace Intel’s products with tailor-made ones in its immobile Mac computers, too.
Two years earlier Amazon Web Services, the e-commerce giant’s cloud-computing unit, began replacing some Intel chips in its data centres with its own “Graviton” designs. Amazon claims its chips are up to 40% more cost-efficient than Intel’s. Around the same time Google began offering its custom “Tensor Processing Unit” chip, designed to boost AI calculations, to its cloud clients. Baidu, a Chinese search giant, claims its “Kunlun” AI chips outpace offerings from Nvidia. Microsoft, the third member of the Western cloud-computing triumvirate, is rumoured to be working on chip designs of its own.
Clever startups in the field are securing billion-dollar valuations. Cerebras, an American firm which designs AI chips, has earned one of $1.2bn. A British rival called Graphcore, which has been working with Microsoft, was valued at $2.8bn in December. On January 13th Qualcomm, a firm best-known for its smartphone chips, paid $1.4bn for Nuvia, a startup staffed by veterans of Apple’s in-house chip-design team.
Custom silicon was an iffy proposition a decade ago. General-purpose chips were getting better quickly thanks to Moore’s law, which holds that the number of components that can be crammed into a silicon chip should double every two years or so. Today the Moorean metronome is breaking down, as quirks of fundamental physics interfere with components measured in nanometres (billionths of a metre). Each tick now takes closer to three years than two, notes Linley Gwennap, who runs the Linley Group, a research firm, and offers fewer benefits than it used to.
That makes tweaking designs to eke out performance gains more attractive, especially for big, vertically integrated firms. No one knows better than Apple exactly how its chips will interact with the rest of an iPhone’s hardware and software. Cloud-computing giants have reams of data about exactly how their hardware is used, and can tweak their designs to match.
And whereas designing your own chips once meant having to make them as well, that is no longer true. These days most designers outsource the manufacturing process to specialists such as TSMC or GlobalFoundries, an American firm. Removing the need to own factories cuts costs drastically. A raft of automated tools smooths the process. “It’s not quite as simple as designing a custom T-shirt on Etsy,” says Macolm Penn, who runs Future Horizons, another chip-industry analyst. But it isn’t a world away, either.
Although designing chips is now easier than ever, making them has never been harder. Keeping up with Moore’s law, even as it slows, requires spending vast—and growing—sums on factories stuffed with ultra-advanced equipment: plasma-etching kit, vapour-deposition devices and 180-tonne lithography machines the size of a double-decker bus. After falling as a proportion of overall revenue, the chip industry’s capital spending is ticking up again (see chart 3). In absolute terms, the cost of high-tech “fabs”, as chip factories are known, has grown relentlessly—with no end in sight.
Today’s state-of-the-art is five-nanometre chips (though “5nm” no longer refers to the actual size of transistors as earlier generations did). Both Samsung and TSMC began churning them out in 2020. Their 3nm successors are due in 2022, with 2nm pencilled in a few years later.
Intel outside

At the turn of the millennium, a cutting-edge factory might have cost $1bn. A report in 2011 from McKinsey, a firm of management consultants, put the typical cost of an advanced fab at $3bn-4bn. More recently, TSMC’s 3nm factory, completed in 2020, in southern Taiwan, cost $19.5bn. The firm is already pondering another for 2nm chips, which will almost certainly be more. Intel’s stumbles have left it marooned at 10nm—and its boss, Bob Swan, out of a job. His incoming replacement, Pat Gelsinger, will need to decide if the company, which, unlike TSMC, also designs its chips, wants to keep making them. Potential new entrants face enormous barriers to entry. The economics of fabs pushes these up higher with every technological advance.
That matters. Not all chipmaking requires cutting-edge technology. Cars mostly use older, duller semiconductors. Miniaturisation may seem less of an imperative in roomy data centres. But it is crucial: there are some computations that only the most powerful chips can tackle.
And demand for these is likely to grow as silicon infuses products from thermostats to tractors in the uber-connected “Internet of Things”. Between them TSMC and Samsung customers are already a “Who’s Who” of big tech—Apple, Amazon, Google, Nvidia, Qualcomm (and soon, if the news reports are true, Intel itself). As things like cars become more computerised and go electric (see article), the chips that go into them will become more advanced, too. Tesla, an American maker of electric cars, already relies on TSMC’s 7nm fabs to make its in-house self-driving chips.
Asia’s nanoscale duopoly remains fiercely competitive, as Samsung and TSMC keep each other on their toes. The Taiwanese firm’s operating margins have been more or less steady since 2005, when 15 other firms were operating at the cutting edge. But the logical endpoint of the relentless rise in manufacturing costs is that, at some point, one company, in all likelihood TSMC, could be the last advanced fab standing. For years, says an industry veteran, tech bosses mostly ignored the problem in the hope it would go away. It has not.
Those worries are sharpened by the industry’s growing political importance. As part of its economic war against China, America has sought to deny Chinese firms the ability to build leading-edge chip factories of their own. China has put semiconductors at the core of a multibillion-dollar plan to become self-sufficient in critical technologies by 2025—especially now that American sanctions have deprived it of some foreign imports.
The structural forces behind increased concentration are here to stay. America, worried about losing access to the most advanced factories, has given handouts to TSMC in return for a fab in Arizona. Samsung may expand the one it runs in Texas. Another package of subsidies and incentives is awaiting funding from Congress. The European Union, which has pockets of high technology in Belgium and the Netherlands, wants more of them. In December 17 EU countries agreed to spend tens of billions in post-pandemic stimulus cash to try to create leading-edge factories by the middle of the decade. The chip industry’s history suggests these sums will only get more eye-watering with time. ■
This article appeared in the Business section of the print edition under the headline “A new architecture” More

TECH FIRMS with ropy business models are told to “pivot”—abruptly reinvent themselves in the hope that a new approach generates profits before venture capital runs out. YouTube is celebrated in business schools for hurriedly switching from a dating service to video-sharing; Slack ditched online gaming for corporate chat. Agile repositioning is not confined to Silicon Valley. In Russia the hustle to come up with the next tech darling has emerged from an unlikely quarter. Sberbank, once the Soviet Union’s sclerotic retail-savings monopoly, is ploughing billions of dollars into consumer technology. It is pitching clients digital services from food delivery to music streaming. Driverless cars and e-commerce will be next. Can the former spiritual home of financial bureaucracy, still majority-owned by the government, reinvent itself as Russia’s Netflix, Google and Amazon rolled into one?
Listen to this story
Your browser does not support the element.
Enjoy more audio and podcasts on iOS or Android.

Bewilderingly, the answer is: maybe. Sberbank has pulled off one long-odds pirouette—from a communist state enterprise, with all the attention to customer care and corporate probity you would expect, into a modern lender. By adopting decent governance standards and up-to-date lending practices it has seen off plenty of rivals and kept nearly half of all retail deposits in the country. Its brand remains strong. The state’s continued involvement—the Russian finance minister chairs its supervisory board—has helped reassure customers that the state will make them whole if things go awry. Two in three Russians are still its clients. The lousy interest rates depositors accept in return for this security ensure cheap funding for Sberbank—and some of the world’s juiciest lending margins. This has made it Russia’s most valuable listed firm, and Europe’s second-most-valuable bank behind HSBC.

The same man who turned the decrepit dinosaur into a nimble 21st-century lender now wants to choreograph its entry into big tech. German Gref has been boss since 2007. A descendant of German deportees exiled to Kazakhstan in 1941, he took the reins after a stint as a liberal-minded economy minister under Vladimir Putin, an old associate of his from their time in St Petersburg in the 1990s. Having succeeded at the humdrum task of offering better financial services to the masses—getting tellers to smile and vetting borrowers thoroughly—he now wants to move beyond being a “boring banker”, as he has put it. Tech looks just the ticket.
Just as likely these days to sport tech’s de rigueur T-shirt and jeans as he is a suit, Mr Gref has a vision of Sberbank as a purveyor of everything digital. Where some firms offer services to consumers, others to businesses or governments, he has designated Sberbank as a “B2C2B2G” company. The roster of current and planned offerings ranges from cloud-computing to ride-hailing, virtual assistants, e-health and its own cryptocurrency. Forget banking: the firm has rebranded itself as Sber.
The model Mr Gref has in mind is not American or European but Asian. Far-eastern “super-apps” have emerged offering a wide array of services under one roof. The likes of WeChat in China or Grab in South-East Asia have thrived by disrupting old financial institutions. Sberbank wants to be the disruptor instead. It has spent around $2bn on technology and acquisitions, for example of an internet-media group. A further $3bn-4bn splurge between now and 2023 should help it build out an “ecosystem” of apps with a target of annual sales (including by third parties on Sberbank’s platforms) of around $7bn. That would be enough to be among Russia’s top three e-commerce firms within three years, before taking the crown by the end of the decade.
Sberbank starts with ingrained advantages. Its banking app is already the third-most-popular in Russia, and draws rave reviews. Its customer base of nearly 100m is an unrivalled franchise. And, in a country that defies easy logistics, a network of 14,000 branches can double up as last-mile delivery points.

The logistics headache, along with a dollop of protectionism, help explain why mere billions are enough to make a credible push into digital services in Russia. Western giants have been all but frozen out. Local companies such as Yandex (which started out in search) and Mail.ru (email and social media) lack the resources to transform themselves. Sberbank’s fat banking profits enable it to do just that. Troves of consumers’ credit data are equally useful.
On paper, then, Mr Gref’s vision makes a fair bit of sense. Implementing it is another matter. Sberbank has tried to join forces with tech groups in the past, notably Yandex and Alibaba, a Chinese giant, but the joint ventures met an acrimonious end. False starts have meant that it still needs to build an Amazon-like e-commerce operation around which its e-empire would revolve. Russian online services are growing rapidly, not least thanks to covid-19, but are mostly unprofitable. Others have spotted the super-app opportunity, including mobile-telephony providers, as well as Yandex and Mail.ru. And few precedents exist for an incumbent bank anywhere successfully parlaying its franchise into a wider ecosystem, points out Gabor Kemeny of Autonomous, a research firm.
Getting dizzy
The push into tech is partly the consequence of banking becoming less lucrative; margins are forecast by Sberbank to come down from their giddy heights as low interest rates bite. Overseas expansion once looked promising but was all but kiboshed by Western sanctions imposed on many Russian firms after Russia annexed Crimea in 2014.
The B2C2B2G opportunity is real. But is it worth it? In contrast to flailing Silicon Valley upstarts Sberbank does not need to pivot. Even under its own bullish forecasts for a thriving digital ecosystem, in ten years 70% of profits would still come from the legacy banking business. Most bosses would love to turn their firm into the next Alibaba. Sberbank’s shareholders seem happy for Mr Gref to give it a whirl. Others will be studying his progress carefully. ■
This article appeared in the Business section of the print edition under the headline “Sberbank’s second pirouette” More

“WHEN PEOPLE talk, listen completely.” Those words of Ernest Hemingway might be a pretty good guiding principle for many managers, as might the dictum enunciated by Zeno of Citium, a Greek philosopher: “We have two ears and one mouth, so we should listen more than we say.” For people like being listened to.
Listen to this story
Your browser does not support the element.
Enjoy more audio and podcasts on iOS or Android.

Some firms use a technique known as a “listening circle” in which participants are encouraged to talk openly and honestly about the issues they face (such as problems with colleagues). In such a circle, only one person can talk at a time and there is no interruption. A study cited in the Harvard Business Review found that employees who had taken part in a listening circle subsequently suffered less social anxiety and had fewer worries about work-related matters than those who did not.

Listening has been critical to the career of Richard Mullender, who was a British police officer for 30 years. Eventually he became a hostage negotiator, dealing with everything from suicide interventions to international kidnaps. By the end of his stint in uniform, he was the lead trainer for the Metropolitan Police’s hostage-negotiation unit.
When he left the force in 2007, he realised that his skills might be applicable in the business world. So he set up a firm called the Listening Institute. Mr Mullender defines listening as “the identification, selection and interpretation of the key words that turn information into intelligence”. It is crucial to all effective communication.
Plenty of people think that good listening is about nodding your head or keeping eye contact. But that is not really listening, Mr Mullender argues. A good listener is always looking for facts, emotions and indications of the interlocutor’s values. And when it comes to a negotiation, people are looking for an outcome. The aim of listening is to ascertain what the other side is trying to achieve.
Another important point to bear in mind is that, when you talk, you are not listening. “Every time you share an opinion, you give out information about yourself,” Mr Mullender says. In contrast, a good listener, by keeping quiet, gains an edge over his or her counterpart.

Hostage negotiators usually work in teams, but the lead negotiator is the only one who talks. “What we teach is that the second person in the team doesn’t really talk at all, because if they are busy thinking about the next question to ask, they aren’t really listening,” Mr Mullender explains.
The mistake many people make is to ask too many questions, rather than letting the other person talk. The listener’s focus should be on analysis. If you are trying to persuade someone to do something, you need to know what their beliefs are. If someone is upset, you need to assess their emotional state.
Of course, a listener needs to speak occasionally. One approach is to make an assessment of what the other person is telling you and then check it with them (“It seems to me that what you want is X”). That gives the other party a sense that they are being understood. The fundamental aim is to build up a relationship so the other person likes you and trusts you, Mr Mullender says.
The pandemic has meant that most business conversations now take place on the phone or online. Precious few in-person meetings occur. Some might think this makes listening more difficult; it is harder to pick up the subtle cues that people reveal in their facial expressions and body language.
But Mr Mullender says that too much is made of body language. It is much easier to understand someone if you can hear them but not see them, than if you can see but not hear them. He prefers to negotiate by telephone.
Another key to good listening is paying attention and avoiding distraction. In the information age, it is all too easy for focus to drift to a news headline, a TikTok video or the latest outrage on Twitter. In another study in the Harvard Business Review, participants paired with distracted listeners felt more anxious than those who received full attention.
The lockdown has increased the need for managers to listen to workers, since the opportunities for casual conversation have dwindled. Mr Mullender thinks that many people have become frustrated in their isolation, which can lead to stress and anger. He thinks there may be a business opportunity in helping managers listen more efficiently, so they can enhance employee well-being. After a year of isolation, many workers would probably love the chance to be heard.
This article appeared in the Business section of the print edition under the headline “Hear, hear” More

THE ANNUAL Consumer Electronics Show (CES) in Las Vegas used to be a jamboree for gadgets you can put in your pocket or hang on your wall. This hasn’t been true for a few years. As vehicles morph from a lump of mechanical engineering to a digital platform for mobility services, and motor shows wane in importance, carmakers have sought new venues to showcase their wares. At this year’s (virtual) CES, which opened on January 11th, they once again joined makers of smartphones, smart toilets and smart dog flaps in showcasing their smartest tech.
CES has risen in significance because vehicles are changing. Bosch, a parts supplier, noted at the show that a typical car had 10m lines of code in 2010; today it has 100m. This month Ford had to idle a factory in Kentucky for a week owing to a global shortage of semiconductors that deprived it of the chips its cars run on.

Electrification of transport will speed up the transformation of vehicles into electronic devices. Battery power requires a new electronic architecture that will come with better integration of hardware and software, and improved connectivity. Harman, a car-tech firm, envisions a “third living space” between home and work, using the development to plug a connectivity gap and offer new in-car services, such as interactive concerts and gaming.
In other ways, though, cars remain a metal box. Although electrification has reduced barriers to entry in the car business—which were formidable for capital-intensive metal-bashing—vehicles are still best made by firms that can manufacture at scale and with a trusted brand.
As a result, car firms are wracking their brains over how much of the software that runs their vehicles’ new electronic functions they should develop in-house and how much to outsource to tech firms. At CES Daimler showed off Hyperscreen, a new touchscreen dashboard for its luxury electric models. Mary Barra, boss of GM, delivered a keynote speech reiterating the Detroit stalwart’s electric and electronic plans. In the autumn GM said it would invest $27bn in electric cars by 2025 and launch 30 new models. Ahead of CES it unveiled a new logo, repainted blue to evoke clean skies and with its “M” made to look a bit like a plug. This week the firm made more announcements about its plans for electrification, including details about its BrightDrop electric delivery van and new electric Cadillacs (as well as, inevitably, a flying-car concept).
Tech firms, for their part, are mulling mobile hardware. Apple’s flirtation with electric cars exemplifies the complexities of the relationship. Rumours that it intended to make electric vehicles first surfaced in 2014. Two years later, when the trouble and expense became clear, it dropped the idea. On January 7th a news report of talks with Hyundai to build an Apple car sent the South Korean carmaker’s share price up by nearly 20%. Hyundai acknowledged it was in early discussions with the iPhone-maker. Apple has yet to comment. Just as carmakers look to Vegas, it seems, big tech is headed the other way.■

For more coverage of climate change, register for The Climate Issue, our fortnightly newsletter, or visit our climate-change hub
This article appeared in the Business section of the print edition under the headline “Steel and silicon” More

IN EARLY 2019 an executive at Visa, a giant payments firm, sketched a picture of an island volcano. He scribbled the current capabilities of Plaid, a Silicon Valley fintech firm founded in 2012, in “the tip showing above the water”. The startup, which has developed a platform connecting consumer accounts at more than 11,000 banks to financial apps, was offering services like “bank connections”, “account validation” and “asset confirmation”. But he warned of the “massive opportunity” beneath the surface. Plaid could expand into fraud detection, making credit decisions and, scariest of all, payments infrastructure.
This opportunity for Plaid looked like a threat to Visa. Ten months later, in January 2020, Visa announced that it would acquire its putative rival for $5.3bn. This sum was more than 50 times the revenue Plaid earned in 2019 (though a modest lift for a company with a market capitalisation of over $460bn). Al Kelly, Visa’s boss, described the deal as an “insurance policy”.

These details—volcano sketch and all—were included in the complaint America’s Department of Justice filed in November, when it sued to block the deal. The acquisition, the DoJ said, would snuff out a competitor in the debit-card business, in which Visa has a market share of around 70% and profit margins nudging 90%. In 2019 Visa earned around $4bn in profits. On January 12th the DoJ announced that Visa had pulled out of the deal, rather than continue to trial, which was scheduled for June.
The trustbusters’ intervention bears some striking similarities to the antitrust suits that have been filed against Facebook. Two separate legal challenges, one mounted by a bipartisan coalition of attorneys-general in 46 states and another from the Federal Trade Commission (FTC), centre on its acquisitions. They alleged that the technology titan maintained its monopoly in personal social-networking by systematically buying up potential competitors—notably Instagram in 2012 and WhatsApp in 2014.
In its defence, Facebook said that the government “now wants a do-over”, which would, as the company has put it, send “a chilling warning to American business that no sale is ever final”. The FTC’s complaint fails to mention that the antitrust authorities cleared the Instagram and WhatsApp deals at the time.
The move to block the tie-up of Visa and Plaid implies a new trustbusting approach taking shape in America. Henceforth the authorities will probably try to nip Facebook-like arguments in the bud pre-emptively by stymieing attempts by powerful incumbents to swallow upstart competitors. Explosive stuff.
This article appeared in the Business section of the print edition under the headline “Visa-free travel” More