Are the political “coups” we are seeing around the world - from the Arab spring to election-less changes in heads of state in Greece, Italy and Australia to name a few, as well as Russia’s “managed democracy” - actually providing cover for the real, and successful coups that are quietly beginning to occur in boardrooms and at senior management levels in companies around the world and helping companies transition to the 21st century market?
If you have ever worked in the food and beverage industry you will know the number one rule is people eat with their eyes so you better make the food look good. If you have ever been involved in politics, or specifically elections, you will know that people vote their pocketbooks, so if you want their vote, you will have to pay for it. The number one rule in business of course is that you have to make a profit. How companies make profit these days is becoming a point of contention. What is clear is that the financial system is broken beyond repair and the centralized model of banks and bank credit as a source of business funding for growth cannot be relied upon. As a result, we will likely see a change in the nature of a business moving away from transaction-based profit and acting as an intermediary to becoming service providers and sharing in the value they help create, that is, partnerships.
In order for partnerships to work we must first start with a relationship. With the advent of social networking, which is now spilling over into business, and other networking tools like LinkedIn, modern business relationships are much easier and more cost effective to create than 10 or even 5 years ago. The argument for bank bonuses to be reined in is often driven by jealously over the huge compensation being awarded to bankers, but in fact is about the need for partnership. Banks more often than not take huge fees but no risk on client transactions; transactions for fees rather than value. Their ability to continue this practice is becoming limited, because credit is drying up, so they cannot provide finance, and capital markets are thin, so new listings to raise capital are equally difficult. A return to the more traditional model of bringing two parties together, classic merchant banking, is making a comeback. The flip side of course is that companies can no longer simply rely on ready credit, and must also change their approach to growth. Companies also need to create partnerships with their service providers, be it with banks, law firms, IT providers or marketing. The new partnership model will be based on mutual success and not simply on upfront fees. How we define profit will also change.
While the political elite is getting a shakedown on a global scale, the traditional support base for this elite, money and the banks, are getting an even bigger shakedown. As the pressure increases, the natural reaction is to further centralize power and the decision-making process, when in fact what is being demanded is more direct engagement by the people in their own affairs, or a networked, de-centralized approach. Greece would be the good example, whereby growing social protests demanding greater involvement from the people for a solution to the debt crisis is being met with a vote-less change in Prime Minister and an increased say from an unelected EU council. This situation cannot last and the EU is readying itself for a Greek exit from the Eurozone.
Our financial and trading markets are also moving into partnership mode, and the clever companies out there understand this. While the banks are largely paralyzed, and unable to lend, developing regions, such as Africa, continue to demand finance to develop their economies. This will come in the form of direct, peer-to-peer finance, whereby their lenders will in fact be their partners in business. Service providers will soon understand that reduced fees in exchange for project partnership based on results are the business model of the future. London and New York as the only place to package deals will give way to on site deal packaging. The service providers will move to the assets, rather than the asset holders having to move to central service providers. As trade flows increase between Asia and Africa, the Middle East and Asia, and are no longer routed through London or New York or no longer subject to centralized intermediaries such as banks, the partnership model will emerge. The partnership model will be an open model, based on trust and information sharing.
A coup is “a highly successful, unexpected stroke, act, or move; a clever action or accomplishment.” While the political elite are failing this definition, the leaders of the board room coups cannot if their businesses are to transition and succeed in the 21st century.
The views expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
Current markets are anything but global or integrated. What if we had a paradigm shift in the way we think and transact when doing business with each other? Balanced global trade can only occur if we have transparent, accessible and efficient markets. We are on the cusp of achieving this, although most people cannot see it. Sam’s Exchange aims to give its readers a clearer view and a platform for discussion. Markets, trade and economics are in fact nothing more than the result of our thoughts and actions expressed in numbers, not the reverse.
Sam Barden is founding Partner of SBI Markets DMCC, a Dubai-registered commodities trading and advisory company. Barden has worked in the global financial markets for more than 17 years in Europe, Russia and the Middle East. He has advised and executed strategic transactions for both the government and private sector, in particular in energy and commodity markets, advising various energy producing nations on their strategic market developments and interaction. He holds a degree in economics and finance from Victoria University, Melbourne, Australia.
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