2017/11/22

Los retos de la Nueva Economía Digital

La revolución digital supone una trasformación de empleo, pero no necesariamente una destrucción neta del mismo
Es clave tomar medidas en el ámbito educativo para que los estudiantes sean mentalmente flexibles

Falabella evalúa fusionar Open Plaza y Mall Plaza en Chile

Falabella, que cuenta en el país chileno con tres centros comerciales de Mall Plaza y once bajo Open Plaza, aún no tendría fecha de la fusión.

El holding chileno Falabella, estaría evaluando la posibilidad de fusionar sus centros comerciales Open Plaza y Mall Plaza, como parte de su plan de reestructuración y ahorro de costes de su negocio en Chile.
Según informó Modaes Latinoamérica, el retailer que cuenta en el país chileno con tres recintos comerciales de Mall Plaza y once bajo Open Plaza, aún no tendría fecha de la fusión.
Asimismo, en el tercer trimestre del año, Falabella reportó una ganancia menor a la esperada debido a la contracción de su negocio de tiendas por departamento en Chile y Perú, a lo que se sumó la debilidad del segmento de mejoramiento para el hogar en su mercado local.
A nivel regional, la utilidad neta consolidada del holding alcanzó los US$134 millones, una caída del 59.4% durante los meses de julio a septiembre del 2017, explicado principalmente por los efectos de la escisión de Mallplaza Perú durante el mismo periodo del año pasado.

El resultado no operacional de Falabella también descendió por US$68 millones, un 149.2% menos que el tercer trimestre del 2016, mientras que su utilidad acumuló 328.956 millones de pesos en los primeros nueve meses, una caída interanual del 23.7%.
http://www.peru-retail.com/

Will Coca-Cola’s New India Strategy Have Fizz or Go Flat?

coca colaIs it time to pop the bubbly at Coca-Cola India? After quite a few quarters of decline in volumes, the company seems to be getting its fizz back in the country. At a recent investor call announcing the July-September quarterly results, James Quincey, president and CEO of the Atlanta-based Coca-Cola Company, said: “India returned to growth with volume up 6%, driven by solid performance across the portfolio.” He went on to add: “Our business successfully moved past the recent difficulties related to demonetizationand implementation of a goods and services tax during the first half of the year.”
Coca-Cola is India’s largest beverage maker and is estimated to have around 40% share of the country’s branded beverages market. For Coca-Cola overall, India is currently the sixth-largest market after the U.S., Mexico, Japan, Brazil and China. While Quincey’s mandate to his India team — led by T. Krishnakumar, president Coca-Cola India and Southwest Asia — is to move India one notch up in the foreseeable future, his long-term vision is for India to be among the company’s top three markets globally.
In September, in his first visit to India as head of Coca-Cola (he took over the reins of the $42 billion beverage giant in May), Quincey said in a press meet: “We are building the fundamentals of a much bigger business to give the consumers what they want.” Reiterating the company’s global strategy, he added: “We will be guided by what the consumers want …. So, while brand Coca-Cola will be the heart and soul of the company, the company needs to become much bigger by participating in many more categories.”
In the past 15 years, the contribution of carbonated drinks to Coca-Cola’s global revenues has declined from 90% to 70%. By 2025-2030, this is expected to reduce further to 50%. In India, however, carbonated drinks continue to account for a large chunk of the firm’s sales. The new team — the management reshuffle took place nearly a year ago — is now all set to change that. According to Krishnakumar, the management changes were “part of a planned transition process.” Recent appointments, he says, “are in keeping with the company’s approach of creating and leveraging a pool of global Indian talent. The new organization structure is in keeping with economic reforms that have the potential to convert India into a single national market.”
Neeraj Kakkar, cofounder of India’s leading ethnic drinks company Paper Boat and formerly a senior executive at Hindustan Coca-Cola Beverages, Coca-Cola India’s largest bottling arm, notes that Coca-Cola has a “very strong team” in India at present. Says Kakkar: “They have got in some of the best performers from Coca-Cola worldwide. This will result in faster decision making.”
Describing the India scenario, Kakkar points out that it is a high value-for-money market, and consumers are not ready to pay too much of a premium. This impacts profitability. Also, the rural market in India is large and mostly untapped. One key parameter that Coca-Cola needs to focus on for the next few years, he says, is how many new consumers are coming into the fold every quarter. Says Kakkar: “For Coca-Cola to boost its growth it needs to recruit more consumers at the front-end and at a much faster pace than it is doing at present. It needs to bring them into the fold of packaged beverages and then work at moving them up the value chain. One answer to this is product innovation. You have to create new and exciting products which offer high value for money.”
“For Coca-Cola to boost its growth it needs to recruit more consumers at the front-end and at a much faster pace than it is doing at present.”–Neeraj Kakkar
A New Recipe
Krishnakumar has his game plan ready. “The Indian market has tremendous growth potential, and we are working with our bottling partners to leverage this growth,” he says. “We have had a flattish situation possibly for 14-15 months. However, we believe there is serious opportunity that exists simply because we could penetrate a lot more in terms of distribution. We also believe that by expanding our portfolio, we will be recruiting more people into it. And so we are getting into a more segmented portfolio approach.”
According to Krishnakumar, in line with Coca-Cola’s long-term strategy of becoming a “total beverage company,” the India arm, too, is broadening its portfolio across five category clusters. These are sparkling; energy; dairy/juice/plant-based; water/enhanced, water/sports drinks; and ready-to-drink coffee and teas. “The India strategy replicates the global strategy of providing choice. In India, we will localize these choices. You have seen this with the recent launch of our Indian fruit juice-based offerings such as the Minute Maid Mosambi,” he says.
Fruit is one big area of focus for Coca-Cola in India. In June this year, the company announced that along with its partners, it would contribute $1.7 billion to the agri ecosystem of the country over the next five years, spanning the entire supply chain from “grove to glass.” Close to $900 million of this contribution will be towards the procurement of processed fruit pulp and fruit concentrate while the remaining will be invested in creating the required infrastructure including manufacturing lines, juice bottling infrastructure, fruit processing plants and equipment, and agricultural interventions.
“We propose to use fruit products in four ways,” explains Krishnakumar. “One is to develop juices as a category, which is straightforward. The second is that we will be looking at adding fruit to our sparkling products. The third is to introduce newer products in the beverage space. Lastly, we would like to increase the share of our exports to the global Coca-Cola systems that stands at $240 million currently. We are working on all four fronts, which will be a huge 360-degree approach.”
While expanding its fruit-based portfolio is largely perceived as a move by Coca-Cola to dilute its “unhealthy” tag, Krishnakumar is quick to defend. “I must first state that none of our beverages is really unhealthy. What we provide is choices for different occasions. Some of our products are meant for indulgence, some for nutrition, while some provide functional benefits. We will play our part in shaping choice but, eventually, it is for the consumers to decide.”
Industry experts believe that expanding its portfolio in India is a smart move by Coca-Cola. They point out that unlike in the U.S., where carbonated drinks are often a substitute for water, in India drinks such as Coca-Cola and Pepsi from rival firm PepsiCo are used more for occasional consumption. Their pricing is considered premium, and these brands fall in the luxury and aspirational category. They also face competition across the country from local cola drinks such as Bovonto (in the southern state of Tamil Nadu), Jayanti Cola (in the northern state of Rajasthan) and Xalta Cola and Campa Cola (New Delhi) that are priced cheaper.
In addition, like in other parts of the world, in India, too, there is a strong move towards healthy alternatives. “Regional players will play on price and undercut Coke. There is also probably the fakes market in rural areas. Besides, there are shrewd local players like Paper Boat, which has a smart ethnic story, and Patanjali Ayurved, which is selling the story of India going back to its roots. Not just price, but credible alternatives for consumption and a slowing fizz drink consumption can make it a tough battle,” says Y.L.R. Moorthi, professor of marketing at the Indian Institute of Management Bangalore.
“To succeed in India … Coca-Cola needs to let go of the monolithic approach founded on its past growth in the U.S. and truly engage with the markets of the future and the local consumers’ needs.”–Devangshu Dutta
Pointing to what he sees as “more locally relevant offerings from domestic competition such as Paper Boat,” Devangshu Dutta, chief executive of consulting firm Third Eyesight, suggests: “To succeed in India, and I would say worldwide, Coca-Cola needs to let go of the monolithic approach founded on its past growth in the U.S. and truly engage with the markets of the future and the local consumers’ needs.” Harminder Sahni, founder and managing director of consulting firm Wazir Advisors, adds: “I am certain that Coca-Cola needs to focus beyond carbonated drinks if it wishes to achieve its growth target in India. The general awareness about sugar and carbonated drinks is the major reason for stagnation of the category and hence Coca-Cola’s slower growth. Believing that Indians will consume these drinks as Americans do, just because of westernization of lifestyle and clever advertising, is far-fetched. ”
What Will Work?
Nitin Gupta, professor of marketing at the Institute of Management Technology (IMT) at Hyderabad, feels that unless Coca-Cola “successfully broadens its assortment of products, the goal that CEO Quincey has in mind seems quite ambitious.” According to Gupta, Coca-Cola can probably “fare well” in the dairy/juice/plant-based segment, but other segments like sparkling, energy, water/sports drinks, he says, are currently “too niche” in India and would continue to be so in the near future. Ready-to-drink coffee and teas, he feels, “can be considered, but the competition in this segment is huge, and Coca-Cola’s success with its current offerings has been very limited.” Suggesting that the best bet for Coca-Cola in India could be packaged juices, Gupta says: “The going would be tough for Coca-Cola in the packaged juices market in India, but that’s where the future lies. I feel that this initiative of Cola-Cola, though expensive at the outset, would reap future benefits.”
Kakkar agrees that fruit juice as a category has a lot of potential, but he warns that the ecosystem and the market need to develop. The biggest challenge in the ethnic drinks category, he adds, is lack of scale. He goes on to elaborate: “Take jamun (black plum), for instance. At Paper Boat, we are happy if we source and sell 200 tonnes a year. But for Coca-Cola, it doesn’t make sense to do anything less than 10,000 tonnes to begin with. Otherwise, it will simply get lost in the overall portfolio and will not get the required management attention. But to source jamun at this scale will be a challenge because at present farmers don’t grow so much of it. Of course, just as the ecosystem and the market for mango drinks have developed over the years, it can be done for other fruits also. But it will require time, effort and investment.”
Kakkar sees potential in ready-to-drink tea. He points out that in China and Japan, which have high tea consumption like India, the conversion to packaged tea has been huge; it is one of the biggest categories of packaged beverages. “Some of the highest selling brands in beverages in Japan and China are in packaged tea. I believe that there is a lot of scope for product innovation in tea in India. There is a huge opportunity to move consumers from unpackaged to packaged tea. It’s not that others [like Pepsi Lipton and Nestle] have not tried in India, but it has not worked out so far. I think if Coca-Cola makes the effort, it has the wherewithal to make it work,” he notes.
“The going would be tough for Coca-Cola in the packaged juices market in India, but that’s where the future lies.”–Nitin Gupta
Wazir’s Sahni expects Coca-Cola’s water, juice and dairy products to do much better than other categories. “These are already large and growing, and Coca-Cola can use its research, innovation and branding power to dominate the segments. The other segments are too niche, and India isn’t rich enough yet to have significant volumes in them,” he says.
But even in the growing categories, it may not be all that easy. According to data from Nielsen, from October 2016 to September this year, the share of Coca-Cola’s mango-based brand, Maaza, which is the market leader in the juices, nectars and still drinks category, declined from 35.4% to 33.1%. During the same period, Pepsi’s mango drink Slice fell from 13.9% to 9.6%, while Indian firms Parle Agro and Dabur increased their shares. Parle Agro’s Frooti moved up from 14% to 15.7% and Dabur’s Real brand of mango juice inched up to 9.8% from 9.2%.
In an interview with business daily The Economic Times, Nadia Chauhan, joint managing director at Parle Agro, said: “While we have been extremely aggressive with our overall marketing strategy, we have also worked on building an extremely advanced go-to-market strategy.” Mayank Kumar, marketing head of juices and beverages at Dabur, said: “Our understanding of the Indian palate and preferences has helped us stay ahead of the curve.” Dabur is estimated to have more than 50% share of India’s packaged juices segment.
Meanwhile Coca-Cola’s arch rival, PepsiCo, is also on a similar track of expanding its portfolio. It recently launched two vitamin-fortified flavored drinks. In a recent interview with business daily Business Standard, Vipul Prakash, senior vice-president beverage category at PepsiCo India, said: “Value-added dairy, hydration and juices are the three growing categories now. Any beverage company that wants to be successful has to play in all these three product segments.”
Moving Up the Hierarchy
So, can Krishnakumar achieve Quincey’s target? Sahni of Wazir Advisors thinks that “while it is ambitious, it is achievable…. The challenges are manifold, starting from incumbents to creative startups, but Coca-Cola has many strengths like its distribution muscle, marketing prowess and deep pockets. It can also go inorganic and acquire some of the interesting startups. Further, it has a fantastic brand portfolio across categories and is an innovative company and can create new categories, products and brands.”
Kakkar, too, believes it is “very achievable.” Says he: “The per capita consumption story in India is very low and not yet fully played out. Once that happens, consumers will typically start spending more on non-essentials, and impulse purchases will go up.”
“It is unlikely that the company will have a walk over. The market will get them to slog for every rupee.”–Y.L.R. Moorthi
Kakkar points to another aspect. While there is a definite shift away from carbonated drinks towards health and wellness in India, this is primarily among the top 100 million population. For the next 400-500 million, the wellness move is from “unpackaged to packaged beverages.” This, he notes, is a huge market waiting to be tapped. However, he points out that while Coca-Cola has a very strong relationship with the retailers and is very strong in on-the-ground execution — their chillers are very clean, the brands are readily available and the products are placed very well — the category excitement has been missing in the past few years. “For instance, during the 2004-2007 period, the marketing and advertising campaigns captured the attention of the consumers. That has gone missing. They need to bring it back,” Kakkar notes.
Jagdeep Kapoor, chairman and managing director of Samsika Marketing Consultants, feels “the unsaturated nature of the Indian market and aggressive marketing by Coca-Cola” can be a winning formula for the beverage firm. Kapoor was director at Parle Agro, the makers of cola drink Thums Up, from 1989 till 1994. He had a ringside view when Coca-Cola acquired Thums Up in 1993 when it re-entered India after a gap of 17 years. Interestingly, Thums Up continues to be the top cola drink in India.
Kapoor lists four recommendations, which he says could be used to boost the top-line and bottom-line growth of Coca-Cola in India. “First, India is not a ‘soft drink’ market. It is a ‘cold-drink’ market. Refrigeration is going to be a key element in this tropical country, and it needs to be enhanced. Second, the focus on distribution and penetration must be increased. India has 8,100 towns and 650,000 villages…. These need to be penetrated. While visibility and taste are important in a country like India, availability is extremely important. Third, in order to increase sales, the company needs to move consumers from occasional consumption to regular consumption. Fourth, India being a diverse country with various languages and consumption behavioral trends, regional sensitivities need to be crafted into marketing strategies.”
According to Kapoor, the five beverages clusters are “a sensible portfolio of categories.” He says: “Each of these categories has tremendous potential for growth, but care needs to be taken to appropriately use segmentation and positioning for each of them.” Moorthi adds another note of caution: With all of its initiatives, Coca-Cola might be able to offer an interesting story in India. But, he adds, “it is unlikely that the company will have a walk over. The market will get them to slog for every rupee.”

How Identity Informs Workplace Relationships

Diversity and inclusion in the workplace are topics that have been talked about extensively over the past decade. Wharton management professor Stephanie Creary wants to move beyond the rhetoric into the research of how identity impacts organizational structure. Her paper, “Out of the Box? How Managing a Subordinate’s Multiple Identities Affects the Quality of a Manager-subordinate Relationship,” looks at the influence of identity on the relationship between manager and subordinate. The paper was co-authored with Brianna Barker Caza of the University of Manitoba and Laura Morgan Roberts of Antioch University. Creary spoke to Knowledge@Wharton about why it’s important to evaluate whether a potential workplace really wants you to be your complete, authentic self.
An edited transcript of the conversation follows.
Knowledge@Wharton: What are you interested in from a research standpoint?
Stephanie Creary: My research is fundamentally concerned with how diverse perspectives, backgrounds and experiences are managed in organizations. I tend to focus on management in terms of the use of inclusionary strategies. To me, inclusionary strategies are those that tend to incorporate what I call both/and perspectives, meaning that they acknowledge that both A and B exist and can be valuable in some way. I suggest that there are both upsides and downsides to using these types of strategies, but I also focus on the situational and relational dynamics that can foster more positive experiences in using these types of strategies.
Knowledge@Wharton: What do you examine in your recent paper about manager-subordinate relationships?
Creary: That paper was interested in unpacking questions related to how do I, as a subordinate, manage my multiple identities? Whether those are identities are a work-related identity and a demographic identity, or whether they’re two work identities. How I manage those identities in relationship to my manager, and how my manager expects me to manage those identities, fundamentally impacts the quality of our relationship.
Knowledge@Wharton: When you’re looking for a job or becoming a new manager, it’s not easy to know what kind of relationship you’re going to have just from those initial meetings. What are some of the practical implications of this research? How can people or companies apply it?
Creary: One of the things that people should recognize when they are thinking about presenting their whole self at work, or making decisions around whether or not they should do that, is what’s the larger work context? Is this a culture, a place that allows us and wants us to be ourselves, whether that’s our true work selves or our true personal selves? Is this a place that respects the clear boundaries between work and life experiences? When you’re choosing a place where you want to work, first tackle some of those questions and really focus on choosing the place you want to work based on how it expects you to be.
As a manager, I think it comes down to whether or not you feel the background, the experiences, the expertise that an employee has gained from either working at a different job or coming from a different place in life is valuable to the work place. You have to make decisions about how incorporating that could potentially be helpful to the work place, or maybe in some cases it’s not. Having conversations with subordinates about that, assessing their level of comfort and seeing whether it is important is something that is crucial to maintaining positive relationships between managers and subordinates.
Knowledge@Wharton: You are saying that in a successful relationship, it’s about coming to a mutually agreeable decision about which traits are going to be part of work and which ones are not?
Creary: Yes, it’s a negotiation. I think there are times when we think about negotiating identities at work. For some people, it’s about being authentic. But in some cases, it’s fundamentally about how the sets of experiences that I’ve had as a person, as a worker, as somebody who has amassed a certain amount of success, can contribute to my workplace. Sometimes that requires tapping into identities in order to do so.
“For me and in my research, it’s about making your identities relevant to the workplace.”
For me and in my research, it’s about making your identities relevant to the workplace. Sometimes they are, and sometimes they aren’t. When they are, the potential to contribute in valuable ways is exponential.
Knowledge@Wharton: I would think that would vary widely based on what kind of job you have. In some jobs, personality is very important.
Creary: I would say we tend to think of people who are in creative professions as being those who you want to see presenting themselves in unique ways. Pretty much anything that relates to who you are, where you’ve been and what you’ve accomplished goes in that organizational setting. But in more conservative workplaces, we’re often challenged with understanding that sometimes the parts of our identity that are related to us as people [and not just the task at hand] — what we like to do, our hobbies and skill sets — are more questionable and harder to manage in an organizational setting.
Knowledge@Wharton: What’s next for this research?
“One of the things that people should recognize when they are thinking about presenting their whole self at work … is what’s the larger context?”
Creary: My broader research is focused on inclusionary strategies. The paper that we’ve been discussing is focused on individuals’ identities and how they manage those in key relationships. I’m also looking at this type of management in the context of mentor-mentee relationships, those we like to think can potentially be mutually beneficial. But the questions are not just about how does a mentor manage his or her identities in relationship with the mentored, but also to what extent does the mentor’s identities and how those are managed in a relationship also affect the quality of the relationship?
Beyond that, I’m looking at broader questions of how organizations think of diverse perspectives, backgrounds and experiences — whether or not those should be relevant to the workplace. What are some of the strategies that they implement organizationally to help individuals consider the importance or the relevance of their identities, and what they have to bring to the workplace setting? I focus on the diversity inclusion practices that corporate organizations often create, the cases that they make for diversity and inclusion, and how those help or hinder someone’s ability to express an identity in the workplace.

Bracing for Brexit: ‘Virtually All the Work Is Still Ahead’

BrexitBritish Prime Minister Theresa May last week set the precise moment that the U.K. would leave the European Union — March 29, 2019 at 11:00 p.m. — the two-year cutoff date after March of this year, when the British government officially conveyed its Brexit decision to the EU.
But as the U.K. becomes increasingly mired in the difficult issues surrounding its exit from the European economic and monetary union, to many, May’s 16-month timeline is starting to look overly optimistic. (Indeed, May faced pressure from her own party to scrap the exit date shortly after proposing it.)
Three critical questions remain to be resolved before the next stage of the negotiations, according to Brendan O’Leary, professor of political science at the University of Pennsylvania. One has to do with protecting the rights of British citizens living in the E.U. and E.U. citizens who reside in the U.K. The second is to adhere to the Good Friday Agreement between Northern Ireland and the Republic of Ireland, and prevent a hard border dividing from them after Brexit. Leadership in Northern Ireland want to find a way to remain in the E.U. single market and the Customs Union; the majority of voters there cast ballots in favor of staying in the E.U. during the June 2016 Brexit referendum. The U.K. has resisted the authority of the European Union’s Court of Justice in resolving disputes, and said that it will subject itself only to British law after it leaves the E.U.
“Thirdly, there’s the price of the divorce, and we were talking roughly of a gap between 20 billion and 60 billion [euros],” or between $24 and $70 billion, said O’Leary. The EU wants the U.K. to pay that yet-to-be-finalized settlement amount to honor obligations it has signed to finance five-year projects within the union. The U.K. has made a case that it would no longer benefit from those projects after Brexit, and disputed that bill. Some thawing on that emerged on Wednesday, and “May is close to offering a deal on money that would unlock the Brexit negotiations,” The Guardian newspaper reported.
“The greatest obstacles are the U.K.’s goodbye payment, given its previous commitments, and the future trade deal,” said Mauro Guillen, Wharton professor of management and director of The Lauder Institute.
May is clearly responding to mounting pressure. Last week, the E.U.’s chief negotiator, Michel Barnier, gave 10 Downing Street a two-week deadline to provide clarity on withdrawal issues, including its financial settlement as it leaves the E.U. Barnier also said that contingency plans exist should the Brexit talks with the E.U. collapse.
“We’re dealing with a world in which Conservative fantasies about their bargaining power have yet to be fully confronted with reality.”–Brendan O’Leary
Barnier’s comments reflect growing concern over the slow progress the May government has achieved thus far in finding solutions to the issues dogging Brexit. “I think we’re in the latest episode of Groundhog Day,” an American movie in which a weatherman inexplicably lives the same day over and over again, said O’Leary. “Things are moving incredibly slowly; for those of you who don’t know that movie, it’s about constant repetition.” According to Wharton finance professor Joao Gomes, “virtually all the work is still ahead.”
“The lack of progress is perhaps what is pushing the E.U. negotiators, who are now concerned about the collapse of the talks,” added Michelle Egan, professor at American University’s School of International Service. “They’re looking at what effectively from outside the British government looks confused, floundering and ineffective.”
O’Leary and Egan discussed the likely directions the Brexit talks could take on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
Weakness All Around?
Egan noted that while Europe is witnessing an economic recovery, Britain is grappling with rising inflation and falling real wages, even though unemployment rates are low. “We’re really in a slowdown and possibly a recession,” she said of the U.K. “And we have business uncertainty, particularly for the City of London about what any deal will mean for financial services.”
On Wednesday, U.K. government data for the July-September quarter seemed to confirm fears that the days of an employment boom are over. The government’s Office for National Statistics said 14,000 fewer people were at work, bringing down the total number of employed people to about 32 million as of the end of September. The latest unemployment rate at 4.3% was unchanged from the previous quarter, but lower than the 4.8% of a year ago. U.K. retail sales fell 0.3% in October, year-on-year, marking the first such drop since 2013, although they grew 0.3% from September, according to government data.
“The terms of the negotiations are bound to be more favorable to the party whose economy seems less vulnerable to Brexit.”–Joao Gomes
The E.U.’s relatively stronger economy could give it an upper hand over the U.K. “It seems clear to me that in the end, the terms of the negotiations are bound to be more favorable to the party whose economy seems less vulnerable to Brexit,” said Gomes. He noted that the U.K. is losing out in other areas as its economic fortunes lag those of the E.U. “It has strengthened the Union’s resolve to stick with its demands and made it more difficult for the U.K. negotiators to risk a hard Brexit.”
O’Leary expected major companies, including those in the financial services sector, to decide on relocating from the U.K. after Christmas. Businesses were hoping to have had some clarity by now about the likely final shape of the Brexit agreement, and cannot afford to put off their decisions, he said. “The loss of foreign direct investment on top of a falling pound and on top of inflation might concentrate the mind.” In the past year and a half, the pound has lost more than 22% against the euro.
Politically Shaky
To be sure, nobody expected the going to be smooth, given the thorny issues involved. “Brexit negotiations are difficult because there is no precedent and because neither party is really convinced that Brexit should happen,” said Guillen. Added Egan: “We always expected this process to be difficult. This is a negotiation.” All the same, Europe is running out of patience, she suggested. “Europe is also moving on; they’ve got other issues that they want to deal with beyond Brexit.”
It does not help that May’s government is on “very weak” ground, as Guillen noted. “The Conservative Party is divided, and a resurgent Labour Party under [Jeremy] Corbyn is using the Brexit crisis as a way to boost its electoral chances. Moreover, May has agreed to have a vote in Parliament about any deal.” In the snap elections May had called in June, the Conservative Party fell short of a majority, while the Labour Party significantly improved its tally.
The May government has been shaky also because it recently lost two ministers and may lose more because of unrelated scandals. Damian Green, the first secretary of state, faces a probe after police allegedly found pornography on his work computer during a raid in 2008. Green has denied the allegations and termed them “unscrupulous character assassination,” but it has shaken the government. “Theresa May does not look like she’s in control of the process and so the crisis of governance is part of the problem,” said Egan. Added O’Leary: “She’s a dead woman walking. The only question is when she falls. She’s very lucky. Her conspirators are totally incompetent.”
Questions over Credibility
O’Leary felt the Conservative Party is overconfident as well. “We’re dealing with a world in which Conservative fantasies about their bargaining power have yet to be fully confronted with reality,” he said. He expected a turning point at the next round of talks with the E.U. in December. He said the E.U. could insist on a settlement hammered out by the fall of next year, in good time before the European parliamentary elections in May 2019. “Time is very much running out for the Conservatives.”
Alongside battling those domestic troubles, May’s government does not seem to have a winning strategy for the Brexit negotiations. “Are the negotiations going to lead to the U.K. fully leaving the Customs Union and the single market, and refusing to accept jurisdiction [of] the Court of Justice of the European Union?” O’Leary asked. “If that’s the case, then there isn’t going to be any successful settlement of any kind.”
O’Leary said the U.K. has difficulty striking a credible treaty with the E.U.-27 (the remaining members in the E.U.) because its own credentials are questionable. “The U.K. … has the ability to repudiate treaties,” he said. “If a treaty is made with the E.U.-27, what is the credible commitment that the U.K. can make that it will abide by that treaty?” In the light of that, he said it is “absolutely vital” that the U.K. agrees to adjudication by the Court of Justice of the European Union, because that ensures the U.K. would suffer “a significant penalty, were it to break its treaty obligations.”
“Any outcome is possible: from a reasonable deal for Brexit all the way to the U.K. cancelling Brexit and remaining in the E.U.”–Mauro Guillen
Likely Outcomes
O’Leary saw two possible outcomes. “One is the U.K. simply leaves the E.U. on the appointed hour without any agreement at all, and without paying its bills,” he said. That outcome could create “serious difficulties for the U.K. and Ireland, but less so for the E.U.-27 who could absorb the shock quite easily,” he added.
The second likelihood, O’Leary said, is of a “last minute transitional deal which keeps the U.K. inside the single market and the Customs Union, while they agree to continue negotiating.” That outcome could prove to be “a sticky position” for the Conservative government to be in, “because they wouldn’t really be out — they’d be pretending to be out,” he added. In that scenario, the U.K. would have no say over the regulatory structure in the period ahead and it will not be able to negotiate trade deals with other countries, he pointed out.
“The fantasy of the U.K. is also that they going to get what we call a bespoke deal — like pick-and-mix sweets,” said Egan. However, the European side wants it to be a clear-cut deal — “It’s either you’re in it or you’re out,” she noted. Europe’s concerns are also that Britain’s exit might trigger “a real regulatory race to the bottom,” where the U.K. might strike more favorable trade deals with countries outside the E.U.
With so much uncertainty, “it is nearly impossible to predict what might happen,” said Guillen. “Any outcome is possible: from a reasonable deal for Brexit all the way to the U.K. cancelling Brexit and remaining in the E.U.”

Why AI Is Tipping the Scales in the Development of Self-driving Cars

igel-coverWhen people think of self-driving cars, the image that usually comes to mind is a fully autonomous vehicle with no human drivers involved. The reality is more complicated: Not only are there different levels of automation for vehicles — cruise control is an early form — but artificial intelligence is also working inside the car to make a ride safer for the driver and passengers. AI even powers a technology that lets a car understand what the driver wants to do in a noisy environment: by reading lips.
In Silicon Valley, there is a race to develop the best technology for autonomous vehicles. “It’s perhaps among the most exciting times to be talking about autonomous vehicles,” said Wharton professor of operations, information and decisions Kartik Hosanagar on a panel at the recent AI Frontiers conference in Silicon Valley. “Ten years back, most of the work with autonomous vehicles was just going on in research labs and various educational institutions.” About five years ago, only Google and a handful of companies were testing them. “Today, there’s a frenzy of activity,” he said. “Just in California, the number of companies that have licenses to do testing and operating of driverless vehicles is already somewhere in the 30 to 50 range.”
Globally, the U.S. and China are ahead in the self-driving race. Germany and Japan, despite being famous for their autos, are behind. “The key difference is AI,” said Tony Han, co-founder of China-based autonomous vehicle company JingChi. “China and the U.S. are leading in AI.” When it comes to self-driving regulations, China and the U.S. also lead. What’s driving this intense interest are three mega-trends: the rising popularity of electric vehicles, emergence of the shared economy that is powering ride-sharing firms like Uber and Lyft, and advancements in artificial intelligence. If you think about it, he said, autonomous driving is really about combining a robot driver with an electric car.
According to Han, most autonomous vehicle firms are developing technology that is suitable for what he calls a level 4 roadster. There are five levels of automation in self-driving cars. Level 1 is the most minimal, with a typical feature being cruise control that has been around for years. Level 5 is the most advanced, with the vehicle being fully autonomous. Level 4 is a notch below — a highly automated level where the car can operate in certain situations without driver intervention or attention, such as in specially fenced off areas or in traffic.
“This is not a recommendation engine for Netflix. The AI has to be spot on.”–Danny Shapiro
AI Inside the Car
Danny Shapiro, senior director of automotive at chipmaker Nvidia, said tech companies take the development of autonomous vehicle technology seriously because the stakes are high. “This is not a recommendation engine for Netflix,” he said at the conference. “The AI has to be spot on.” That means it requires “extreme” computing power and a lot of code, Shapiro said. In the self-driving vehicle’s trunk are powerful computers and graphics processing units doing deep learning to parse all the data coming in — to determine such things as whether the object ahead is a person, another car, a fire hydrant and so on.
Even if it will take some time for fully autonomous vehicles to hit the market, AI is already transforming the inside of a car. Front-facing cameras can identify people in the vehicle and track the driver’s eye position to see whether he is falling asleep or distracted — and even read the driver’s lips. Sensors and cameras outside the car work with interior technology to enhance safety. For example, the car warns audibly that there is “cross traffic danger” if another vehicle is about to run a red light. It can also say things like “Careful! There is a motorcycle approaching the center lane!” to alert the driver in case he or she wants to do a lane change. “There’s going to be a whole host of guardian angel-type features even if we’re not fully self-driving,” Shapiro said.
Indeed, a major goal of self-driving companies is to make driving safer. Human error is responsible for 94% of car crashes, said Jeff Schneider, senior engineering manager at Uber and a research professor at Carnegie Mellon University. He noted that half of the mistakes leading to accidents were due to recognition errors — the driver was not paying attention or did not see something coming. The other half was the result of a decision error: The driver was going too fast or misunderstood the situation.
According to Schneider, self-driving vehicles can address these two types of errors. Problems of recognition would be mitigated by using sensors, radar, cameras, Lidar (a remote sensing system) and other tools. The cars can see 3D positioning of objects and other things around them, receive 360-degree camera views in high resolution and access other pertinent data such as velocities of objects. Meanwhile, sophisticated computing systems analyze the landscape to make the right driving decisions.
“Put yourself in the [position] of the person writing code [for driverless cars]. You have absolute chaos.”–Jeff Schneider
One way to help accuracy is by incorporating redundancy in the systems. For example, if a road sign were somehow obscured, measures are put in place to make sure the self-driving car does not get confused. Schneider said the car’s own map would inform it that there is a road sign at that location. Also, these vehicles go through enormous amounts of data to train them to operate under various conditions such as snow, rain, sleet and floods. Autonomous vehicle companies even use computer-generated conditions to train the car to drive through such things as a blinding sunset. “Using a rack of servers, we can generate over 300,000 miles [of driving] in just five hours, and test algorithms on every paved road in the U.S. in just two days,” Nvidia’s Shapiro noted.
To be sure, these are complicated tasks for the car. “Put yourself in the [position] of the person writing code” who has to account for people crossing the street, other cars on the road, billboards, traffic signs ahead and lanes for cars, bikes and pedestrians, among others, Schneider said. “You have absolute chaos.”
Safety and Security
To skeptics who see a fully autonomous vehicle as a pipe dream, it would be helpful to look back at how far autonomous vehicles have come, Schneider said. As early as the 1980s, Carnegie Mellon University’s NavLab project already was equipping vans with computers and sensors for automated and assisted driving. “It was the age of robotics when the rule was to keep the video running just in case something good happens,” he said. In 1995, the university’s “No Hands Across America” drive from Pittsburgh to Southern California was 98% autonomous and included a 70-mile stretch without human intervention, Schneider said.
To skeptics who see a fully autonomous vehicle as a pipe dream, it would be helpful to look back at how far autonomous vehicles have come.
In 2000, the university moved to off-road vehicles. The new things added to the roadsters were GPS and Lidars to make it easier to pinpoint objects and get around them. Seven years later, at the DARPA Grand Challenge, a contest for autonomous vehicles, a major development was the addition of good maps that provided a full reconstruction of the environment. “AI took a step forward,” Schneider said. CMU won the contest. It was also at this point that Google recognized the potential of autonomous vehicles and started its self-driving project, he said. Since then, AI, machine learning and deep learning have gotten even better.
Still, will consumers feel comfortable riding in a self-driving car? Based on Uber’s experience testing autonomous vehicles in Pittsburgh and Phoenix, Schneider said, the public seems to be open to riding in them. While there was some concern initially that people would be scared of these cars, “what we found was exactly the opposite,” he said. For example, since riders cannot choose a self-driving Uber, some customers would chase these vehicles while calling for rides in hopes of landing the car.
However, what could put a damper on the development of mass market self-driving cars is the business model. For now, it’s still more economical to own a car than take Uber everywhere. “If you just run the numbers, financially it’s not cheaper to do that than to own your own car,” Schneider said. “Once autonomous vehicles work and they’re everywhere … it won’t make sense to own a car.”
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