Women to Watch (A Special Report); The 50 Women to Watch

“My favorite feedback came from a boss who once said to me, ‘You’re so good, I didn’t realize you were a woman.’ “

IT’S BEEN a busy year for [Anne Sweeney], president of Walt Disney Co.’s Disney-ABC Television Group. Last fall, she shook up the TV business with the decision to sell episodes of TV shows on Apple’s iTunes store. Later, she led the field by streaming shows on ABC’s Web site. And in recent weeks, new seasons of hits like “Grey’s Anatomy” and newcomers including “Ugly Betty” have powered the once-troubled network to the top of the ratings.

Ms. Sweeney, 49, says she has focused on “creating an environment that’s all about risk-taking where mistakes are valued and criticism is constructive.” She says her goals remain creating programming “that people are dying to see”; aggressively exploiting new technologies and platforms; expanding internationally; and building franchises that touch all parts of Disney, like the Disney Channel’s “High School Musical.”

2. Indra Nooyi

President and Chief Executive

PEPSICO

IN HER FIRST public appearance as PepsiCo Inc.’s new chief executive last month, Indra Nooyi wasted little time taking the vision that won her the post and spinning it into the future. “I don’t see any need presently to change a strategy that is working,” she said at the start of a daylong meeting in New York with industry analysts.

Ms. Nooyi, after all, was a key force behind the strategy that has transformed the company over the past decade into a convenience-food powerhouse, from a company that had been known for lackluster financial results as it struggled to compete with Coca-Cola Co.

Ms. Nooyi helped spin off PepsiCo’s restaurant and bottling businesses and engineer the 1998 acquisition of juice maker Tropicana. That deal accelerated PepsiCo’s expansion into healthier drinks and snacks, a segment she identified as a source of future growth shortly after arriving at the company in 1994. She also was the lead negotiator on a $13.8 billion acquisition of Quaker Oats Co. in 2001.

Her skills as a strategist are a big reason why PepsiCo’s board awarded Ms. Nooyi, 51 years old, the post of CEO even though she has never held a position at the company overseeing operations, normally a prerequisite for the top job.

As chief executive, Ms. Nooyi is expected to continue PepsiCo’s push to expand its foothold in international markets, long dominated on the beverage side by Coca-Cola. The company also plans to spend some $500 million a year on small acquisitions that help fill in market gaps.

– Betsy McKay

3. Irene Rosenfeld

Chief Executive

KRAFT FOODS

PROBABLY NO OTHER chief executive has more impact on the stomachs of millions of Americans than Irene Rosenfeld. That’s because she heads the nation’s largest food company, Kraft Foods Inc., maker of Oscar Mayer meats, Chips Ahoy! cookies and that staple of kids’ diets everywhere, Kraft Macaroni & Cheese.

But Kraft has been squeezed lately, pressed on one side by competition from cheaper private labels and on the other by a lack of innovative ideas for new products.

So Ms. Rosenfeld, 53, who joined the company as CEO in June, has wasted little time in trying to turn things around. In September she announced a new executive team, and last month, in her first full conference call with analysts, she identified underperforming product lines. Chief among them were Kraft’s ready-to-drink beverages, such as Fruit20, its pourable salad dressings and its heavily promoted personal coffee maker, Tassimo. She did not disclose plans for those brands.

A big question mark involves Kraft’s corporate parent, Altria Group Inc. Altria owns about 88% of Kraft’s stock. But last month, Altria’s board said it intends to finalize at a regularly scheduled meeting on Jan. 31 its plans for the distribution of all Kraft shares the company owns to Altria shareholders. Such a spinoff would free up Ms. Rosenfeld to take Kraft in the direction she sees fit.

Ms. Rosenfeld, who holds a Ph.D. in business administration, is a big believer in direct, clear communication.

“My favorite feedback came from a boss who once said to me, ‘You’re so good, I didn’t realize you were a woman.’ “

– Joseph T. Hallinan

4. Patricia A. Woertz

President and Chief Executive

ARCHER-DANIELS-MIDLAND

WHETHER THE U.S. can break its addiction to foreign oil anytime soon depends in large measure on Patricia A. Woertz.

Ms. Woertz, a former Chevron Corp. executive, started in May at Archer-Daniels-Midland Co., the largest U.S. producer of corn-derived ethanol fuel. The new CEO has pledged to make the grain processor the “global leader in bioenergy.”

Already in control of 20% of U.S. ethanol production, ADM plans to build two giant plants in the Midwest that would increase its annual capacity by nearly half, to 1.6 billion gallons by 2008. ADM also is building plants that turn soybeans and canola into biodiesel. And it’s interested in using Brazilian sugar and Indonesian palm oil to make fuel.

Ms. Woertz, 53 years old, is walking a tightrope, though. While she wants ADM to capitalize on forecasts that demand for ethanol could easily double, it is a very volatile business. The rapid expansion of the ethanol industry and falling petroleum prices in recent months punctured the record-high ethanol prices of the summer, and with it, cooled interest in the highflying stock.

At the same time, Ms. Woertz risks alienating the food-company executives who buy their ingredients from ADM. They worry that the diversion of crops for making fuel will create shortages and greatly increase their costs.

But Ms. Woertz is optimistic that demands for both can be satisfied profitably by ADM. “I believe it is an ‘and’ world,” she says.

– Scott Kilman

5. Andrea Jung

Chairman and Chief Executive

AVON PRODUCTS

THE NEXT YEAR is likely to be a make-or-break one for Andrea Jung, the chairman and CEO of Avon Products Inc.

Nearly through the first year of a massive multiyear plan to revamp the world’s largest direct seller, Ms. Jung must continue to keep investors and some five million sales representatives around the globe confident in her leadership.

Though Avon’s earnings are down more than 50% so far this year, there are signs that Ms. Jung’s ambitious turnaround plan is gaining ground. Steps to re-energize U.S. sales representatives are taking hold. Sales in foreign markets — from China to Latin America to Turkey — are proving strong. And Wall Street is getting increasingly bullish.

For years, Ms. Jung, a graduate of Princeton University, has landed on the short list of candidates to lead bigger companies. But the 48- year-old Ms. Jung, Avon’s CEO since 1999, has maintained that she is committed to seeing Avon through its turnaround.

Already famed for bringing innovation and style to Avon’s products, packaging and image, Ms. Jung continues to charge forward with more ways to keep the company a nimble competitor against beauty-industry titans Procter & Gamble Co. and L’Oreal SA.

– Ellen Byron

6. Neelie Kroes

EU Antitrust Commissioner

EUROPEAN UNION COMMISSION

HER YEARS of service on Dutch corporate boards nearly toppled Neelie Kroes’s appointment as the European Union’s top antitrust cop in 2004. But by playing hardball with Microsoft Corp., the 65-year-old former Dutch transportation minister has dispelled concerns she’d be too cozy with big business.

Taking over a long-running case against Microsoft, Ms. Kroes at first tried to negotiate a solution with Chief Executive Steve Ballmer. But she was also determined to uphold a 2004 EU ruling that found Microsoft had illegally used its Windows operating system to muscle aside software competitors.

When Microsoft failed to comply to her satisfaction with an order to produce a kind of how-to manual for rival companies trying to make software work with Windows, Ms. Kroes fined the company 280.5 million euros ($359 million) in July. “I don’t buy Microsoft’s line that they didn’t know what was being asked of them,” she said then.

The result: Microsoft has produced a new format for its programming manual that even the U.S. Department of Justice has adopted in enforcing its 2002 antitrust settlement with the company. And in response to Ms. Kroes’s warnings, Microsoft last month announced it had altered its next generation of Windows, named Vista, to address antitrust concerns raised by competitors in the Internet-search and computer-security fields.

Known in the Netherlands as “Nickel Neelie,” in part for her tough negotiating skills, Ms. Kroes worked in her father’s transportation business in bustling Rotterdam, launched her political career in 1969 on the Rotterdam city council, and later served in the Dutch Parliament. She is a past president of Nyenrode University, a Dutch business school.

Ms. Kroes and her staff are also trying to scale back government subsidies to European businesses and break down barriers to a single European market in financial services and energy.

“It’s an uphill battle,” she says of trying to persuade EU nations to stop blocking mergers in important industries.

– Mary Jacoby

7. Patricia Russo

Chairman and Chief Executive

LUCENT TECHNOLOGIES

AFTER THE TECH crash, Patricia Russo brought Lucent Technologies Inc. back from the brink by shrinking the company to half its former size. Then, when growth proved elusive in the crowded field of telecom equipment, she completed a merger agreement with Alcatel SA of France- a deal that had foundered years before.

Ms. Russo is poised to lead the Paris-based combined company, although Lucent is the smaller partner and she speaks little French. With the companies expecting to close the merger on Nov. 30, she is preparing for such challenges as shaving $1.8 billion in annual costs by cutting overlapping product lines and eliminating 9,000 jobs from the combined work force of 88,000.

The 54-year-old Ms. Russo is no stranger to adversity-or to corporate change. After eight years in sales and marketing at International Business Machines Corp., she joined AT&T Corp. in 1981, where she turned around a unit that was losing $500 million a year selling internal phone systems to corporations. She went to Lucent after it split off from AT&T in 1996, then left in August 2000 just before its accounting and sales problems became public. She next became president and chief operating officer of Eastman Kodak Co., then in the throes of transition from film to digital photography. And finally, after less than a year at Kodak, she was offered the chance to return to Lucent and turn it around as its new chief executive.

Now Ms. Russo knows much of Wall Street expects her to lead Alcatel Lucent only long enough to see through the cuts. But she insists she will call the shots at the new company. “These kinds of things always have significant challenges,” Ms. Russo said in an interview after the deal was announced. “I’m not naive about that.”

– Sara Silver

8. Clara Furse

Chief Executive

LONDON STOCK EXCHANGE

It wasn’t a simple marriage, however. In the wake of the deal, the combined company actually lost market share. But analysts say Lenovo appears to have reached a turning point, recently posting above- average revenue and unit-sales gains.

Ms. Ma is expected to remain a major force at Lenovo as the company plans for listing on the New York Stock Exchange in a few years.

As CFO, Ms. Ma is credited with setting up a system of revenue collecting and monitoring that has allowed Lenovo to sell its goods effectively across China — no small achievement in a market where even big brands tend to be regional rather than national.

Ms. Ma, 53, graduated with an arts degree from Beijing’s Capital Normal University. She later studied at King’s College of the University of London. She went on to work at the government-run Chinese Academy of Sciences. She also worked as a translator for VIPs such as then Communist Party leader Deng Xiaoping.

During one of her translation jobs, she met Lenovo co-founder Liu Chuanzhi. Ms. Ma says she was so impressed by his vision that she later applied for a job at the company. She started off as an office assistant.

– Mei Fong

20. Mary Schapiro

Chairman and Chief Executive

NATIONAL ASSOCIATION OF SECURITIES DEALERS

SHE MADE her career as a tough cop on Wall Street. But in September, Mary Schapiro took over as chairman and chief executive of the National Association of Securities Dealers, just as the enforcement winds were changing.

After years of pressure for heftier fines, investor disputes in arbitration at the NASD have been declining, along with Securities and Exchange Commission enforcement actions. Defendants are winning some securities cases. Companies concerned about the tough rules implemented in recent years are starting to bypass U.S. markets.

The new post, and climate, give Ms. Schapiro a chance to make critical investor-protection decisions 10 years after she arrived at the industry-funded regulator of brokers and exchanges. Among her priorities: handling surveillance more efficiently and using technology to identify areas where investors may be at most risk of getting harmed.

“The pace of new regulation is ebbing,” says Ms. Schapiro, who is 51 years old. The Washington-based NASD is looking over past rules to make sure they’re working, and in September clarified that penalties should take into account a firm’s size. The NASD, which sets and enforces rules for 5,200 brokerage firms, also has been discussing a merger of some brokerage-firm regulatory operations with the New York Stock Exchange.

In coming years, Ms. Schapiro plans to use NASD’s $600 million annual budget in large part to protect and educate the growing number of retirees investing. NASD is also focusing on investment-like insurance products, low-priced “penny” stocks and energy scams.

A former Commodity Futures Trading Commission chairman and SEC commissioner, Ms. Schapiro says she decided to get into regulation as a law student when she saw silver prices surging amid alleged manipulation.

In her first few months in her new job, to increase transparency, Ms. Schapiro has given more than half a dozen speeches. “I kind of overdid it,” she says.

– Aaron Lucchetti

21. Silvia Lagnado

Vice President for Savory, Chilled And Frozen Foods

UNILEVER

CONSUMER-GOODS giant Unilever is hoping Silvia Lagnado, the woman behind Dove’s successful Real Beauty ad campaign, can work the same magic on its troubled food business.

With 2005 sales of 2.3 billion euros ($2.9 billion), Dove — which has grown from a simple bar soap into everything from firming lotions to facial cleansing wipes — is the model of what Chief Executive Patrick Cescau would like to see elsewhere at Unilever.

When Ms. Lagnado, 43 years old, took over as global brand director for Dove in 2001, she found that local Unilever country managers were taking the brand in different directions, with no fewer than 77 different projects world-wide. So she took a page from rival Procter & Gamble Co. and formed a seven-person board that slashed the projects to just a handful of the strongest ideas that could work across whole regions. She soon extended Dove into shampoos, lotions and tanning creams. She then created a single advertising theme that would speak to women around the world. The result: The Real Beauty ad series that shows women of different backgrounds proudly flaunting their beauty flaws — be it gray hair, flabby thighs or unsightly scars.

Now, Ms. Lagnado is heading up a large part of Unilever’s food business, including billion-dollar brands such as Knorr soup and Bertolli tomato sauces and pasta. The move is part of Mr. Cescau’s shake-up of Unilever’s top ranks. Over the past year, he has replaced scores of executives and created a group of four vice presidents — Ms. Lagnado among them — who have more power over global innovations and ad campaigns.

Ms. Lagnado has her work cut out for her. Since Unilever acquired Bestfoods in 2000, the company has struggled to make its food business grow. Under pressure to prove his new strategy will work, Mr. Cescau is counting on Ms. Lagnado to start closing the gap with faster- growing rivals like Nestle and Groupe Danone.

– Deborah Ball

22. Deb Henretta

President, ASEAN, Australasia and India Markets

PROCTER & GAMBLE

AS THE FIRST woman and mother to lead Procter & Gamble Co.’s baby- care operation, Deb Henretta transformed the then-sleepy Pampers business. She turned it into a powerful lifestyle brand and made it P&G’s most successful line, with annual sales reaching $7 billion.

In September of last year, she took on an even bigger challenge — overseeing the company’s crucial Southeast Asia, Australia and India markets, which represent the largest block of consumers in the world. P&G’s current CEO, A.G. Lafley, also held senior posts in Asia, leading some to believe 45-year-old Ms. Henretta has the potential to take the reins of the consumer-products giant one day.

Ms. Henretta will face intense scrutiny as she tries to maintain P&G’s fast growth rate in the region while integrating the company’s $57 billion acquisition of Gillette. She must also push a big company objective: catering to lower-income consumers, particularly in India and Indonesia.

A summa cum laude graduate of St. Bonaventure University, Ms. Henretta has been with P&G for 21 years. She also sits on the board of Sprint.

Ms. Henretta joins a handful of other rising female stars at P&G, including vice chairman Susan Arnold, the most senior woman at the company and leader of the beauty business, its primary strategic focus. Melanie Healey, who last year became the first woman to lead P&G’s feminine-care division, drew notice after leading a dramatic turnaround of that business in North America over the past three years.

– Ellen Byron

23. Ellen Kullman

Executive Vice President

DUPONT

LAST SUMMER, when Ellen Kullman was elevated to the helm of the two most important divisions to DuPont Co.’s bottom line, some analysts put her on the short list of possible in-house successors to company Chairman and CEO Charles O. Holliday Jr.

Ms. Kullman, 50 years old, already headed the Wilmington, Del., company’s safety and protection division; with the promotion, Mr. Holliday added DuPont’s coatings and color technologies division to her portfolio. Together, the two divisions accounted for 63% of DuPont’s pretax operating income for the third quarter of 2006.

Mr. Holliday, 58 years old, hasn’t announced any plans to step down. But Ms. Kullman’s elevation comes amid an enormous transformation at DuPont, which Mr. Holliday is attempting to steer toward more reliance on biologically produced and fewer oil-based products. Ms. Kullman says her approach has been to stay focused on DuPont’s markets, “bringing more functionality to the product, and marrying it up with our science.”

The chemical industry as a whole has been under pressure in recent years as its feedstock costs rise, but customers resist product price increases. And analysts expect Ms. Kullman’s safety and protection division to be key to DuPont’s profits into the next decade.

– Steve LeVine

24. Debra L. Lee

Chairman and Chief Executive

BLACK ENTERTAINMENT TELEVISION

THE NATION’S capital wasn’t wired for cable television when Debra L. Lee joined Washington-based Black Entertainment Television as its general counsel in 1986, and few people living in the city had ever heard of the network. But Ms. Lee had been impressed by the network’s charismatic founder, Robert Johnson, and leapt at the chance to work in the media field.

She quickly established herself as one of the company’s key executives and played a central role in its initial public offering in 1991. “As general counsel,” she says, “I was able to cross departmental lines, and I saw a lot of the deals.”

A graduate of Harvard University, Ms. Lee was promoted to chief operating officer in 1995. She was named CEO last year, but didn’t take full control until Mr. Johnson retired this year.

In its early days, BET reached about 10 million subscribers, and its programming was focused on music videos and talk shows. Today, the network, which sees its target audience as 18- to 34-year-olds, is increasingly producing its own shows.

Viacom Inc. acquired the network in 2001. So far, though, it has resisted the temptation to fold BET — which now has about 83 million subscribers — into MTV Networks. The 52-year-old Ms. Lee says it’s important that BET remain apart from Viacom’s other operations in order to retain its “unique voice.” Her vision for BET is to build its presence both internationally and on other platforms, including the Internet and mobile phones.

– Matthew Karnitschnig

25. Mary Sammons

Chief Executive

RITE AID

The people familiar with the matter describe Ms. Decker’s comments as a milestone in her role at the company, whose shares are down about 30% for the year amid slowing growth in some online ad sales and a delay in rolling out a new system for Internet advertisers. While the longtime financial analyst and Warren Buffett fan has always gone beyond the traditional finance functions of a CFO, her responsibilities for operations have expanded significantly in the past year. Her role in crafting strategy and rallying Yahoo staff has, at the least, become more visible. Through a spokeswoman, Ms. Decker declined to comment.

Ms. Decker led Yahoo’s talks with eBay Inc., in which Yahoo beat out Google Inc. and Microsoft Corp. for a pact to serve ads on eBay’s auction site and marketplace in the U.S. this year. As part of a reorganization announced in September, she oversees a new unit that includes classifieds, dating, jobs, real estate, travel, autos, shopping and auctions. People inside and outside the company speculate that Ms. Decker, who joined Yahoo in 2000 and was named to Intel Corp.’s board last week, is being groomed as a potential successor to CEO Terry Semel upon his eventual retirement.

– Kevin J. Delaney

48. Anne Sweeney

President

DISNEY-ABC TELEVISION GROUP

IT’S BEEN a busy year for Anne Sweeney, president of Walt Disney Co.’s Disney-ABC Television Group. Last fall, she shook up the TV business with the decision to sell episodes of TV shows on Apple’s iTunes store. Later, she led the field by streaming shows on ABC’s Web site. And in recent weeks, new seasons of hits like “Grey’s Anatomy” and newcomers including “Ugly Betty” have powered the once-troubled network to the top of the ratings.

A onetime ABC page, Ms. Sweeney was elevated just over two years ago to the role of co-chairman of Disney’s TV business, including oversight of ABC, the Disney Channel and the Touchstone TV studio. The television group is Disney’s biggest division, with almost $15 billion of revenue in fiscal 2006.

Ms. Sweeney, 49, says she has focused on “creating an environment that’s all about risk-taking where mistakes are valued and criticism is constructive.” She says her goals remain creating programming “that people are dying to see”; aggressively exploiting new technologies and platforms; expanding internationally; and building franchises that touch all parts of Disney, like the Disney Channel’s “High School Musical.”

– Merissa Marr

49. Liz Vanzura

Global Marketing Director

CADILLAC

IT DIDN’T TAKE long for Liz Vanzura to shake things up at Cadillac. Shortly after arriving as global marketing director of the General Motors Corp. division in January, she saw flaws in the approach of Cadillac’s longtime ad agency, the Leo Burnett unit of Publicis Groupe SA.

Her solution: give Cadillac’s account to Boston-based Modernista, which had created ads for GM’s Hummer brand. The 42-year-old Ms. Vanzura had been the head of Hummer’s advertising for five years before joining Cadillac. The result is a new Cadillac campaign that aims to move the brand beyond its bling image with the theme, “Life. Liberty. And the Pursuit.”

Her decision to switch agencies came as a surprise to many in the industry, but to those who have followed Ms. Vanzura’s career, it was a typical move. At Hummer, she made the behemoth SUV a vehicle that women could love and made the H3 model a hit with an ad depicting a monster falling in love with the smallest Hummer. And at Volkswagen in the 1990s, she launched the new Beetle with memorable ads featuring indie rock that brought a new generation of youths to the brand.

Her biggest challenge, she says, is to keep her team focused on the long-term vision while balancing that with the need to hit short-term sales and profit objectives. An example of that challenge: For the first 10 months of this year, Cadillac sales were down 5.4% from the same period last year, according to Autodata Corp.

– Gina Chon

50. Michelle Kristula-Green

President

LEO BURNETT ASIA-PACIFIC

SHE’S ALREADY the most powerful woman in Asian advertising. Now, as Madison Avenue looks to the East for growth, the question is whether Michelle Kristula-Green’s savvy at working across cultures can help her build client relationships with Asian companies poised to become global brands.

Ms. Kristula-Green was born in the U.S. but has lived two-thirds of her life abroad. She first proved herself in the old-boys club of Japan’s huge ad industry, second only to the U.S. industry in revenue, where she was one of few women — and fewer foreigners — allowed in the clubhouse. As president of Beacon Communications, a joint venture between Japan’s behemoth agency Dentsu Inc. and Leo Burnett, Ms. Kristula-Green built the agency into one of the very few successful foreign ad firms in Japan.

“The industry in Japan is built on very tight relationships. It is a tremendous challenge . . . for a Western company to be able to develop relationships with Japanese companies. It is about taking an incredibly long-term view,” she says. On her watch, Beacon created a quirky campaign for Japanese consumer-loan firm Aiful Corp. that featured a Chihuahua and sparked a pet craze in Japan.

When Burnett, a Publicis Groupe unit, promoted Ms. Kristula-Green to run the agency across all of Asia-Pacific in 2004, she took on even bigger challenges: China and India. In both, she expanded the business by over 15% in 2005, and nurtured local clients such as Air Deccan, a low-cost Indian airline, and Chinese shoe brand Li Ning, which recently hired Shaquille O’Neal as a spokesman.

She speaks both Japanese and Mandarin Chinese, the latter learned in college at the University of Chicago. Her father, who was a Foreign Service officer, told her Chinese was the language of the future, she says. Ms. Kristula-Green sharpened those skills as a tour guide in China in 1979, where she took some of the first foreign tour groups into certain Chinese cities. That experience, she says, has given her a perspective on what’s going on in China today.

“Everyone was in blue or green Mao suits and riding bicycles,” she says. “I could never have imagined how China would change in 25 years. That is the reason I have always been energized by Asia.”

That force of change is also her biggest challenge. “Everything is changing so quickly,” she says. “Just when you think everything is going OK, you have to jump ahead.”

– Geoffrey A. Fowler

Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 20, 2006. pg. R.3

As Private Banking Booms, ‘Relationship Manager’ Is Glamour Job

When Simon Ng, a Singaporean army officer, set his sights on the glamorous world of private banking last year, he didn’t know much about stocks and bonds. “I thought a bond is something they tie you up with,” he recalls.

Then he turned down an army promotion and forked over S$48,000, or roughly $31,000, in savings to enroll in a wealth-management program. These days, he is interning at a major private bank’s Singapore branch and expects to land a private-banking job by summer. “This industry is booming here,” says the 31-year-old Mr. Ng. “It is the right place to be.”

Such career changes are by no means rare in this island-state, which, with an estimated $250 billion in private-banking assets under management, aims to rival Switzerland as a global private-banking hub. As private banks operating in Singapore report assets increasing at rates of 15% to 30% annually, they can’t get enough warm bodies to cater to Asia’s multiplying class of super-rich.

“It has become very difficult to find good people,” says Rolf Gerber, Singapore chief executive of Liechtenstein’s LGT Bank.

Clients of private banks like LGT typically have at least $1 million in financial assets. Unlike retail banks, private banks offer personalized advice from a dedicated manager whose duties extend beyond merely taking care of money and can involve socializing with customers aboard yachts, in sophisticated restaurants and on golf courses. Some bankers say salaries in Singapore for some of these relationship managers, as they are known, recently surpassed pay levels in Switzerland.

A recent survey by Calamander Group, an advisory and investment firm, estimates there are roughly 2,000 trained relationship managers based in Singapore — with an immediate market demand for 2,500, a number expected to rise to 5,000 to 6,000 in five years. The other Asian private-banking hub, Hong Kong, also has a shortage.

“Everyone is interested in coming here to establish an operation, everyone tries very hard to hire — and if the demand is larger than supply, there is a bottleneck,” says Didier von Daeniken, head of private banking for Southeast Asia and Australasia at Credit Suisse Group who is based in Singapore.

The rush to find new recruits is sparking concern about a possible deterioration of service. “When you have to hire that many people,” a large number will be “unprepared, inexperienced and unqualified,” says Leslie Menkes, head of Morgan Stanley’s private-banking business in Singapore.

The boom has made poaching staff common. At Credit Suisse, Alex Widmer, formerly head of private banking and head of Asia Pacific, jumped ship in 2005 to join rival Julius Baer, where he now heads private banking; he subsequently hired away a number of senior Credit Suisse bankers.

In February 2006, Joachim H. Straehle, the Singapore-based head of international private banking at Credit Suisse, quit to become chief executive of smaller Swiss rival Bank Sarasin & Co. Ltd.; he in turn lured Fidelis Goetz, Credit Suisse Group’s head of private banking for North Asia, to Sarasin in September. Credit Suisse is hiring Marcel Kreis from rival UBS; he takes over as head of private banking in the Asian-Pacific region this month.

“It’s a very competitive market,” says Pierre Baer, chief executive for Singapore and Southeast Asia at SG Private Banking, a unit of Societe Generale SA and a former head of Southeast Asia private banking at Credit Suisse.

Singaporean authorities are urging banks to focus on training.

“It is vital that we build a strong pipeline of fresh blood and increase the inflow of new but competent people into the industry,” said Ong Chong Tee, deputy managing director of the Singapore Monetary Authority, in a speech last year.

Bankers and the Singaporean government have joined forces to train prospective recruits.

The recently created Singapore Wealth Management Institute, where Mr. Ng is completing his master’s degree, and separate programs run by Credit Suisse and UBS have converted scores of women and men from the most unlikely professions — curtain salesmen, pianists and sewage engineers — into private bankers.

At the Wealth Management Institute, which runs two-month courses in addition to the year-long master’s program, experienced professionals teach aspiring private bankers about financial markets, estate planning — and basic etiquette.

Lessons include how to choose correct attire (such as telling women not to wear golden shoes) and tips on the correct use of forks and knives, says Annie Wee, the institute’s chief executive and herself a former private banker with Credit Agricole Indosuez.

Other lessons impart the region’s cultural taboos, including, Ms. Wee says: don’t ever touch the head of a Thai, don’t wear black to a Chinese wedding, and eat before going to an Indian party so your hungry stomach doesn’t gurgle while waiting for a late meal.

Graduates of the master’s program, bankers say, can expect starting salaries of about S$70,000 to S$90,000; after three to five years’ practice, they can earn several times that amount as full-fledged relationship managers.

Last year, when UBS advertised its own private-banking course in Asian newspapers, about 3,000 applicants responded, competing for 33 spots.

One of the candidates was Pang Siu Yuin, a professional pianist and former senior manager of the Singapore Symphony Orchestra who now works at UBS’s Hong Kong branch.

Ms. Pang says her unusual artistic background makes her stand out and helps in interactions with wealthy clients.

“When they ask me what I did before UBS, they expect me to say it was bank XYZ,” she says.

UBS, which employs 1,000 people in its Singapore private-banking division alone, says it is enrolling 60 students this year.

Increasing the number of recruits is necessary because Asian clients can be different from typical private-bank customers in Europe.

“Most of our clients are entrepreneurs who have made the money themselves, and they are much more proactive” in managing their assets, says Mr. Baer of SG Private Banking. “In Europe, it’s much more inherited, and people tend to leave it to the banker.”

The result is that a relationship manager in Asia handles about 30 clients, compared with as many as 300 per banker at some institutions in Europe, according to an Asia-based private banker.

“The clients here are all over you every day,” says Roman Scott, managing director in Singapore at Calamander Group. “Here you have to work for your money. In Switzerland, you won’t see private bankers on their phones with clients at midnight.”

Yaroslav Trofimov in Singapore and Edward Taylor in Frankfurt. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 12, 2007. pg. C.1

Global Banks Continue Their Push Into Vietnam

ONG KONG — For banks expanding in Asia, Vietnam could be the new China.Since the beginning of the year, three banks have announced investments in Vietnamese lenders. In the latest deal, announced yesterday, Deutsche Bank AG, of Germany, agreed to buy as much as 20% of Hanoi Building Commercial Joint Stock Bank for an undisclosed sum. Britain’s HSBC Holdings PLC and Singapore’s Union Overseas Bank Ltd. have also announced investments.

Vietnam is all the rage in Asian finance circles, from private- equity shops to investment bankers. It gained entry to the World Trade Organization last month. The country’s annual economic growth of about 8% is second in Asia only to China’s. Vietnam offers banks a high savings rate and, according to a report by UBS AG, a population of about 85 million, about half of which is younger than 25 years old.

“You’re looking at one of the fastest-growing economies in Asia,” says Alistair Scarff, a regional banking analyst at Merrill Lynch & Co. “You’re looking at a younger population. You’re looking at an underpenetrated banking sector in a market that has the potential to be quite large. All the ingredients of what attracts bank investors are all lined up.”

As part of Vietnam’s entry into the WTO, the government agreed to loosen restrictions on foreign banks. Foreign ownership of local banks is capped at 30%, and no single foreign entity can hold more than 10%. Bankers and analysts widely expect that cap to be raised to 20% soon.

Two years ago, global banks were marching into China as the country’s domestic lenders sought foreign expertise and capital ahead of the opening of the banking sector to foreign rivals last December. Global giants like Bank of America Corp. and Royal Bank of Scotland Group PLC paid billions of dollars for small stakes in the country’s biggest lenders. Those investments have turned into hefty gains.

In Vietnam, the sums are much smaller. Last week, HSBC said it agreed to pay $71.5 million to increase its stake in Vietnam Technological & Commercial Joint-Stock Bank, or Techcombank, to 20% from 10% as soon as regulations allow. That is more than four times what it paid for its original 10% stake in December 2005, but a fraction of the $1.75 billion the British bank paid for its 19.99% stake in Bank of Communications Ltd., of China. Singapore’s UOB paid $30 million for 10% of Vietnam’s Southern Commercial Joint Stock Bank and will pay $29 million for the next 10% when the ceiling rises.

Deutsche Bank, in its own deal, is looking to establish partnerships with Habubank, as the lender is known, in credit cards, wealth management and the development and distribution of investment products. The German bank will also provide assistance in risk and treasury management.

It will become the Vietnamese lender’s single largest shareholder and will have representation on the board, according to Deutsche Bank.

Habubank has 21 branches across the country and $750 million in assets. It is Vietnam’s sixth-largest partly private commercial joint- stock bank by assets.

“Deutsche Bank believes in the growth potential of Vietnam,” says Rainer Neske, the bank’s head of private and business clients.

Merrill’s Mr. Scarff cautions that the optimistic view should be tempered by the significant overhauls still needed in Vietnam, such as strengthening banks’ asset quality and improving disclosure and corporate governance. The government is attempting to address these issues by bolstering banking supervision and revising the capital structure of the country’s biggest banks. It is preparing some of the biggest banks for public stock offerings that may happen as early as this year.

“We believe it makes sense to have a twofold strategy,” says HSBC Vietnam Chief Executive Alain Cany.

He says the bank plans to build its own high-end business there, while at the same time tapping the consumer and retail markets through its stake in Techcombank. “That’s very similar to our model in China.”

Mr. Cany says he expects to expand HSBC’s branch network to 15 to 20 branches in the next three to five years, from two now, while helping Techcombank double or triple its network of 90 branches over the same period.

Kate Linebaugh. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 2, 2007. pg. C.3

Private-Equity Forecast

Thanks to cheap debt and aggressive pension funds, 2006 was the year of private equity. So what’s in store for these dealmakers in the year ahead?.?

Every few years there’s a shift in the type of financier that becomes the rock-star embodiment of capitalism unfettered. The ’80s icon was the investment banker. The ’90s belonged to the venture capitalist. And if the first years of the new millennium went to the hedge fund manager, the player who now gets all the love is the private equiteer. Once the scourge of companies and CEOs, the buyout firms are now wooed by potential acquirees and hailed as corporate alchemists who can take over a company, work their magic on its operations, and then exit to massive profits in an IPO.

The numbers illustrate the ascendance of PE. A startling 1,010 U.S. companies were taken private last year through Dec. 13–compared with 664 in 2004 and 324 in 2001–according to Dealogic. The total pricetag for the 2006 buyout splurge: $371.4 billion. And that didn’t even include the year-end volley-and-thunder of Harrah’s ($17.1 billion), Biomet ($11 billion), or Realogy ($6.7 billion). Every week in 2006, it seemed, private-equity firms announced what would have been the largest deal of the year in any other era.

“[We are] the face of 21st-century American capitalism,” says Carlyle Group co-founder David Rubenstein. That proclamation would’ve been outlandish not long ago; now it seems only mildly self-serving. Carlyle’s 2006 highlights included pieces of the $14.6 billion Kinder Morgan acquisition and the $17.6 billion Freescale Semiconductor deal. “American capitalism used to be General Motors and Ford and IBM,” says Rubenstein. “Now it’s Blackstone and Texas Pacific Group and KKR and Carlyle because we’re doing so many things to move the economy.”

Several factors have fueled the PE boom. Lenders are offering the buyout firms money on the cheap and with more relaxed loan restrictions than in the past. Institutional investors, notably pension funds, have been funneling more money into buyout firms. “In the U.S., pension fund managers were allocating 4% [to private equity] four or five years ago. Now it’s closer to 6%,” says Erik Hirsch, chief investment officer of Hamilton Lane, which advises pension funds holding some $55 billion in assets. Finally, some suggest Sarbanes-Oxley has been private equity’s silent partner, driving companies away from the regulatory web that comes with public ownership and into the arms of PE firms.

Veteran dealmakers like Quadrangle’s Steve Rattner think that these heady days, in which every deal seems like a winner, can’t continue. “There is no question that a meaningful number of these deals will crash and burn,” he says. “I don’t know which deals will stumble, because they mostly look fine at the moment. But it would be a complete historical aberration for there not to be reasonably significant default rates on these deals.”

For now, though, even the whiff of private-equity interest can goose a company’s stock. Consider 3Com, which surged 15% on one October day on rumors that the tech company was a buyout target–this despite the fact that analysts doubted a deal would happen and that 3Com’s ongoing cash-burn problem made it an unlikely takeover candidate.

So what’s in store for PE? FORTUNE canvassed the experts to find out what they’re expecting in 2007

What sectors will be hot?

Where PE once focused more on smokestack industries, now any company with high cash flows and low valuations will be in play. Sectors mentioned by multiple dealmakers include health care, pharma, financial services, and homebuilding. Giants such as Dell, Gap, Home Depot, and Unilever are now routinely bandied about as potential targets.

What about international?

Expect more activity in Asia. Firms such as Texas Pacific and Carlyle already have a strong presence there, but others, such as KKR and Bain, are reportedly raising Asia-specific funds. And the development of markets in China, India, and even Vietnam means funds now have a way to make a profitable exit from deals in those countries. With so much cash in search of so few bargains, buyout funds may take roads less traveled into Eastern Europe and Latin America.

How will the PE landscape change?

Traditional yardsticks such as price-to-Ebitda are up 20% in the past three years, according to Standard & Poor’s LCD, and price inflation is acute in middle-market transactions, says Bob Filek, a partner in the PricewaterhouseCoopers transaction-services group. But he argues that because very few funds can compete for the mega-acquisitions, firms like KKR and Texas Pacific can actually obtain better prices in the giant deals. That suggests there will be pressure on midsized PE firms.

What’s the endgame?

As PE funds look to sell companies they have taken private and spruced up, a big crop of IPOs will eventually ensue. In the end, says Goldman Sachs co-head of private equity Charles Baillie, “we’re headed for a downturn–the question is when.” But the giant private-equity funds are so larded with cash that even when one or two gets singed, and the inevitable credit pullback occurs, they’ll still have the means to make deals. This is one bubble that may end with a whimper, not a bang.

NICHOLAS VARCHAVER. Fortune. New York: Jan 22, 2007.Vol.155, Iss. 1;  pg. 21

HEADLINE: VIETNAM MEKONG CAPITAL LAUNCHES $20 MILLION BUSINESS CONTEST

Fund management company Mekong Capital in co-ordination with the Saigon Economic Times has launched a contest on ideas for a new company.

The Mekong Capital-US$20 Million Challenge contest, the first of its kind in Vietnam, will select from one to five winners.

The goal is to create a company that within five years could either be sold for $20 million or listed on the stock exchange with a value of $20 million, according to Mekong Capital General Director Chris Freund.

The jury will decide the winners based on the criteria of feasibility, business development strategy and recruitment plans.

The contest targets managers working at both local and foreign companies, young businesspeople as well as others who are participating in international business administration master’s degree courses. People can work alone or in a group of two or three.

Mekong Capital will invest $400,000 in each winning company, and of that, $10,000 in shares will be given to the winners.

If the winner is able to achieve the goal of selling its company for $20 million or listing on the stock market, then the company’s management board will be awarded 50 per cent of the company’s total shares.

Mekong Capital will act as an advisor to the winners and help them carry out their projects.

Plans should be sent March 30-May 30, either to Mekong Capital at 6 Thai Van Lung Street, Floor 8, District 1 in Ho Chi Minh City, or to submit@20trieu.com. Winners will be announced in August, after three selection rounds.

Further information on the contest can be found at the website www.20trieu.com.

Mekong Capital was established in 2001 and has launched two funds for investment in Vietnam, the Mekong Enterprise Fund I and II of $18 million and $50 million, respectively. It plans to launch another fund of US$100 million in April. – VNS

Consumer Foodservice in Vietnam report

An underdeveloped consumer foodservice industry

In 2004 Vietnam had just started to open its door to the outside world, slowly allowing foreign investment which resulted in growth within the whole economy. Due to its previous closed door policy, the foodservice market continued to be underdeveloped. As Vietnam continues to develop rapidly, the foodservice industry will continue to grow strongly and steadily, over the forecast period, with the help of foreign investors.

Street stalls/kiosks giving it the local flavour

Street stalls/kiosks can be commonly found throughout Vietnam, along the road side to night markets. These are popular eating places for the locals and tourist who like to have a taste of Vietnamese life. As prices through these outlets are affordable and cheap to most consumers, these outlets are frequently visited by the locals. As a result, Vietnamese food is the main attraction for street stalls/kiosks.

Full-service restaurants has a stong foothold

Full-service restaurants is the most important sector within the foodservice industry in terms of outlet numbers and total transaction value in 2004. This is one of the most developed sectors within the foodservice industry, accounting for over 90% in terms of number of outlets and value sales and over 85% of transactions over the review period.

Local operators dominate the market

As the foodservice industry remained fairly underdeveloped, there are only a few foreign brands operating in Vietnam. The majority of the foodservice operators are local players as they have local knowledge in terms of consumers’ tastes and culture. However, the market is very fragmented, with many local independent owners managing only one or two outlets.

Forecast looks bright

The Vietnamese economy is expected to continue to stabilise and strengthen over the forecast period and therefore the prospects of the consumer foodservice industry continue to look bright. Increased foreign investments are expected to pour into Vietnam over the forecast period and the foodservice industry will benefit from this trend. Many of the big multinationals will then be looking at either partnership or a franchise relationship to bring their brands and products into Vietnam. As big brands such as McDonalds, Pizza Hut and Starbucks were not present over the review period, it will not be surprising to see them popping up in Ho Chi Minh City over the forecast period as the owners of these brands have the experience of opening up in developing countries such as China and India.

Vietnam Must Map Its Own Flight Plan

WHETHER ONE IS sitting at a sidewalk café in a major city of Vietnam, or wandering the countryside-where 70% of the Vietnamese population resides-growth and development are the persistent impressions. The country has taken the much traveled road of allowing foreign direct investment to flow in and drive exports, which has in turn spurred the domestic economy in two long spurts of growththe first between 1991 and 1997, and the second from 2000 until who knows when. This strategy, coupled with strong government infrastructure spending has produced very good outcomes in the past 20 years of doi moi. Vietnam is now witnessing a second wave of foreign investments unseen since 1997. In 2004 and 2005 the growth in new FDI was 41% and 50% respectively, when compared to the previous year. Cumulative FDI (on a pledged basis to the end of 2006) is now almost $60 billion, whereas about $35 billion had been realized by the end of 2005.

Vietnam’s economic growth rate in the past five years has averaged 7.5%. This was the best among all member states of the Association of Southeast Asian Nations, but of course second to China in the East Asian region. Annual per capita income is now $640. Absolute poverty is climbing down while income inequality has inched up. Land prices in the center of Hanoi and Ho Chi Minh City are among the highest in East Asia. Outbound tourism has exceeded inbound tourism, and the demand for consumer goods is immense, with overseas shopping trips frequent for the rich. Shares of GDP by manufacturing and services together have climbed up to exceed 70% and each are both above the share of agriculture, which is expected to eventually drop to 20% by 2020.

Similar But Different

AT THE HEART of Vietnam’s successful strategy is economic reform first, administrative reforms second, and political reforms last-as evidenced by the frequent clamping down on dissident voices that call for greater political freedoms. Like its counterpart in China, the Vietnamese Communist Party believes that economic performance is the key pillar of its legitimacy, allowing the Party to brush aside concerns about the lack of political reforms. By keeping the Vietnamese Communist Party in charge and pushing liberal democratic changes off the stage, political stability thus achieved has provided a predictable environment for domestic and foreign business. This lopsided strategy has, however, sprung fundamental socioeconomic changes that the socialist ideology must explain and justify. Certainly, the Chinese joke about “signal left but turn right” still applies to both countries to a large extent. Both still suffer from the abscess of a dominant state sector that is funded chiefly by the state budget, and a huge state contribution to the GDP. The state still dictates economic activities and if economic activities endanger the political supremacy of the Party, inevitably the pace of economic growth has to slow down. Both countries also suffer from rent seeking corruption, and a single dominant political party leads each country.

The key ingredient for the success that Vietnam and China have had in drawing in FDI is their cheaper labor costs as well as huge domestic markets that are often perceived as ready for foreign penetration. The power of these comparative advantages, true when we compare Vietnam and China with the older members of Asean (such as Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand), somehow become dimmer when we compare Vietnam only with China. These two are after all two competing economies; while they do not produce all the same goods, costs structures of their manufacturing goods are similar, with China having an advantage because of its much bigger market and thus lower costs of production for Chinese producers. For Vietnam to succeed in the rising age of China, it has to distinguish itself from China, although past mimicking had elevated Vietnam to present developing dragon status. Vietnam will have to map its own flight plan. The question is: Can it do it?

A Flight Plan for Vietnam

FIRST, VIETNAM’S GOVERNANCE- political and corporate-has to become much more nimble and accountable than China’s. Inevitably, larger countries tend to be more chaotic than smaller countries. So Vietnam-as a relatively small nation-has no excuse not to perform well in this area. Simply put: Good governance attracts investment. Like China, Vietnam is stymied by years of socialist bureaucracy. According to government surveys, bureaucrats are severely underpaid compared to costs of living. In particular, the government needs to play especially close attention to ensure the quick disbursement of pledged foreign investments-which run to almost double the amount of realized investments.

Second, Vietnam should make sure that its comparative advantages in a market economy are in specific areas that do not target mass markets in the way Chinese comparative advantage does. The processing of agricultural goods is a good example. Many of the agricultural goods Vietnam produces are inherently different from those produced in China. While a shining performer-and likely to benefit from Vietnam’s upcoming WTO entry-agriculture is, however, on the decline. Growth of the agriculture and fisheries sector was only 4% in the last five years, compared to 7% for services, and above 10% for industry and construction.

There are two key manufacturing industries that Vietnam needs to develop to get ahead of China. In the electrical and electronics industry, “Made in China” still continues to pose a problem in the minds of some consumers worldwide, many of whom equate it with poor quality. Vietnam should exploit this by striving to produce good quality, mid- to high-end products. Japanese electronics firm Canon seems to be the biggest believer as it has almost doubled its investments in recent years. In November, Intel announced plans to increase its investment in Vietnam to $1 billion from the $300 million it pledged in February. The chipmaker will build a plant close to Ho Chi Minh City, which is expected to go into production in 2009. While few expect Vietnam to make any rapid jump up the value chain on its own steam, it seems plausible that many multinational corporations will be willing to offer Vietnam a helping hand, especially if it helps the MNCS diversify some risk away from China.

Hot on the heels of Intel’s move, Bill Gates’ decided to come to Vietnam and see for himself what opportunities the country holds-this time in the software industry. This is the second high value-added industry in which Vietnam has a comparative advantage. The use of the Latin alphabet in the Vietnamese language puts it ahead of the character-based Chinese language in terms of responding to the needs of the software industry. Already Vietnamese companies are conducting outsourcing and subcontracting for many software companies overseas. While not a regional giant yet, the tendency for Vietnamese, especially youths, to take quickly to new and hot technology will drive the Information Communications Technologies (ICT) market in Vietnam and, overtime, greatly increase the ability of Vietnamese firms to supply to the global market.

In the race with China, one point to note is Vietnam is probably not competing directly with the inner provinces of China, but those that are on the coast and are attracting huge amounts of FDI and domestic investments for export industries. The production networks in southern and coastal China are not necessarily relocatable into Vietnam, but perhaps planners in Hanoi need to see how such networks can be established across its own provinces. In order to do so, an immense boost in education and training for the market in close consultation with investors is essential for success. It is oft-repeated that Vietnam has a literacy rate of over 90%, but the quality of education-even basic education-leaves a lot to be desired.

Chop-chop!

IT SHOULD ALSO be said that Vietnam’s leaders-advised by economic, foreign policy and defense officials-are not reacting quickly and positively to Chinese moves to integrate Vietnam and the rest of Southeast Asia with the southwestern provinces of China. While there is agreement at the highest political level, movement on the Vietnamese side to realize the “One Circle, Two Corridors” initiative is slow. Here is an enormous opportunity to spur growth in the northern Vietnamese provinces, but the government machinery is not getting its act together.

Vietnam should also move quickly to restructure and reorganize the state sector of its economy. In most countries, the private sector is usually more efficient and quicker to respond to market needs than state enterprises. Achieving this faster than China should put Vietnam in an advantageous position. Again, however, I am also pessimistic on this because the Chinese have shown they are more willing to chop and change quickly and to rally around goals defined by a set of strong leaders than are the Vietnamese. Years after a declaration to reform its state enterprises, there remains little hard evidence of such reform. The bright spark on the horizon is that becoming privatized and eventually becoming a public company is now a very attractive prospect for many major state enterprises, as a number of listings late last year and in 2006 have shown. Hopefully such benefits could persuade directors of state companies to work towards listing and subject themselves more to market discipline than bureaucratic inertia. In this sense the stock exchange, too, clearly will have to strengthen its watchdog role.

[Photograph]

In November 2006 chipmaker Intel announced plans to increase its investment in Vietnam to $1 billion.

But perhaps the most important element of Vietnam’s flight plan is the need to reignite enthusiasm for and allegiance to strong leadership. A disunited leadership in Vietnam appears to be the root cause behind the slow pace in many areas of reform-state enterprise; ideological; and administrative reform, including reform of the system for government appointments and promotions. The last time any semblance of a policy aimed at quickly promoting talent was introduced-namely the Cadre Rotation System (in place during the period 2001-06)-it was severely criticized by the Ninth Central Committee for being loaded with factional overtones.

The greatest challenge to the system is the fairly even distribution of power, and the fragmentation of authority. Almost every area of public policy has several masters to answer to, and appointments of ministers often have to pass through more than 10 authorities before a nod can be given. Previous prime ministers, as recent as Phan Van Khai (1998-2006) have lamented that they do not even have the freedom to hire and fire ministers as they wish and yet must be responsible for the government’s performance. Shifting factionalism, based on everchanging interests rather than ideology or firm beliefs and loyalties, divides the Vietnamese leadership. Peaceful, socialist Vietnam has not produced another charismatic leader able to pull all factions behind him as Ho Chi Minh did so well. To be like Ho Chi Minh is to have a vision; now the construction of this vision is so mired in the capitalist versus socialist controversy, and the security versus growth debates, that vision is simply impaired. What follows is a high tendency to compromise and strike consensus. Therefore, the Communist Party holds much power over society, but within the Party this power is fragmented. Corruption has gradually become the single most effective method of increasing power by any political faction, but the more this method is used, the less any leader would have authority over the others alongside and everybody else below. Thus the fight against bureaucratism and corruption in Vietnam is one that is decades old rather than one born after doi moi in 1986.

A Positive Prognosis

YET THE PROGNOSIS for Vietnam seems to weigh in more on the good than the undesirable, with some problems thrown in between. So long as the economic performance is good and employment available, society is likely to be stable and therefore performance legitimacy will kick in. On the margins, a small number of activists make a lot of noise but are getting nowhere near to dislodging the Communist Party. They will stay on the margins so long as the media is still under the tight leash, as it is now. In industrial relations the state will continue its facilitating stance toward business by effectively outlawing labor strikes. Per capita income will continue to grow, pulling consumer demand along. GDP will grow at about 8% per annum which should see the economy double in the next 10 years, when compared to present levels.

Of course, there is always the possibility of Vietnam being beset by hubris. In this scenario Vietnam does little to try to exert itself but instead sits proudly on its current achievements and becomes a hardto-please player in the globalized world. This hubristic stance occurred once before, in the mid-1990s, just prior to the Asian Financial Crisis, which led the Vietnamese to rethink their FDI and domestic macroeconomic policies. Could a second bout of smugness emerge? This is possible if the current wave of investment surges greatly and Vietnam succeeds beyond its own dreams in the next three to four years. “The world needs Vietnam” would be the slogan of this conceit. I am not quite sure that Vietnamese bureaucrats (rather than leaders) fully feel the intensity of the longterm competition from the country’s north, as the opportunities for reform and successes in the last 20 years have led them to feel that the most they need to do is to continue with current economic policies and the investors will come. The reality, of course, is quite different.

Another scenario is one where Vietnam leaps to a higher point in the value chain compared to where it is now. There is some evidence that a little of this is happening but in only baby steps. Yet the potential is considerable. As mentioned, Vietnamese youths take to computers very quickly and there is much potential in the ability of the ICT industry to excel, espedaily the software sector. The government does have a vision to try to lift the country into the top 15 software-producing countries of the world by 2015. Perhaps this vision does not necessarily have to be confined to ICT. Other high value-added industries that Vietnam might start, develop, and achieve encouraging results in include: high-end services in tourism; evolving into a financial hub for southwestern China and Indochina; and excelling as an export and services hub for southwestern China and Indochina, posing a very strong challenge to Thailand and to Singapore. In addition, Vietnam is probably the only country in Southeast Asia that knows Eastern Europe more than the other countries, given its historic ties to the socialist economies of the region. This could allow Vietnam to forge partnerships with other Southeast Asian countries such as Singapore that wish to have stronger economic linkages with Eastern Europe.

A particularly worrying issue is how Vietnam will stand up to competition from China. For sure, it will be overwhelmed by China in many areas, but will manage to defend itself in areas where it has a nonefficiency-based advantage. Vietnam is currently experiencing a boom because its policies have improved compared to three years ago and many foreign investors seek to diversify away from China. Inevitably, some hubris will return, but some lessons have been learned and it is unlikely the country’s leaders will become as complacent as they have been in the past when faced with economic success. Within Vietnam the awareness that the country cannot stand still but has to adapt and change will heighten; however, the ideological and political problems will continue to be insurmountable in so far as they are firmly entrenched in a fear of the unknown. This may drive Vietnam to keep a watchful eye on other countries’ (read China’s) flight plans for some time to come.

David Koh. Far Eastern Economic Review. Hong Kong: Dec 2006.Vol.169, Iss. 10;  pg. 53, 5 pgs

Guess what?

This blog is not for you.

The World’s Most Innovative Companies

It was a fitting way to wrap up the first day of IBM’s (IBM ) innovation-themed leadership forum, held in Rome in early April. Guests were treated to small group tours of the Vatican Museum, including Michelangelo’s frescoes in the Sistine Chapel. They sipped cocktails on a patio in the back of St. Peter’s, the vast dome of the basilica outlined by the light of the moon. They dined in a marble-statue-filled hall inside the Vatican. What better place than Italy to hold a global confab on innovation, the topic di giorno among corporate leaders? It was, after all, the birthplace of the Renaissance, another period of great innovation and change.

Quiz>>

The next day, at the Auditorium Parco della Musica, 500-odd corporate executives, government leaders, and academics listened as a diverse group of innovative leaders took the stage. Sunil B. Mittal, chief executive officer of Indian telecom company Bharti Tele-Ventures Ltd., described his radical business model, which outsources everything but marketing and customer management, charges 2 cents a minute for calls, and is adding a million customers a month. Yang Mingsheng, CEO of Agricultural Bank of China, the country’s second-biggest commercial bank, spoke of building a banking powerhouse from a modest business making micro loans to peasant farmers.

Their stories echoed a comment IBM CEO Samuel J. Palmisano had made the day before: “The way you will thrive in this environment is by innovating — innovating in technologies, innovating in strategies, innovating in business models.”

Palmisano, to be sure, was making a subtle pitch for IBM and its ability to help the assembled leaders do well in an increasingly challenging business environment. But he also summed up the broad focus of innovation in the 21st century.

Slide Show >>

Today, innovation is about much more than new products. It is about reinventing business processes and building entirely new markets that meet untapped customer needs. Most important, as the Internet and globalization widen the pool of new ideas, it’s about selecting and executing the right ideas and bringing them to market in record time.

In the 1990s, innovation was about technology and control of quality and cost. Today, it’s about taking corporate organizations built for efficiency and rewiring them for creativity and growth. “There are a lot of different things that fall under the rubric of innovation,” says Vijay Govindarajan, a professor at Dartmouth College’s Tuck School of Business and author of Ten Rules for Strategic Innovators: From Idea to Execution. “Innovation does not have to have anything to do with technology.”

THE QUICK AND THE BLOCKED
To discover which companies innovate best — and why — BusinessWeek joined with The Boston Consulting Group to produce our second annual ranking of the 25 most innovative companies. More than 1,000 senior managers responded to the global survey, making it our deepest management survey to date on this critical issue.

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The new ranking has companies evoking all types of innovation. There are technology innovators, such as BlackBerry maker and newcomer Research In Motion Ltd. (RIMM ), which makes its debut on our list at No. 24. There are business model innovators, such as No. 11 Virgin Group Ltd., which applies its hip lifestyle brand to ho-hum operations such as airlines, financial services, and even health insurance. Process innovators are there, too: Rounding out the ranking is Southwest Airlines Co. (LUV ) at No. 25, a whiz at wielding operational improvements to outfly its competitors.

At the top of the list are the masters of many genres of innovation. Take Apple Computer Inc. (AAPL ), once again the creative king. To launch the iPod, says innovation consultant Larry Keeley of Doblin Inc., Apple used no fewer than seven types of innovation. They included networking (a novel agreement among music companies to sell their songs online), business model (songs sold for a buck each online), and branding (how cool are those white ear buds and wires?). Consumers love the ease and feel of the iPod, but it is the simplicity of the iTunes software platform that turned a great MP3 player into a revenue-gushing phenomenon.

Slide Show >>

Toyota Motor Corp., which leapt 10 spots this year to No. 4, is becoming a master of many as well. The Japanese auto giant is best known for an obsessive focus on innovating its manufacturing processes. But thanks to the hot-selling Prius, Toyota is earning even more respect as a product innovator. It is also collaborating more closely with suppliers to generate innovation. Last year, Toyota launched its Value Innovation strategy. Rather than work with suppliers just to cut costs of individual parts, it is delving further back in the design process to find savings spanning entire vehicle systems.

The BusinessWeek-BCG survey is more than just a Who’s Who list of innovators. It also focuses on the major obstacles to innovation that executives face today. While 72% of the senior executives in the survey named innovation as one of their top three priorities, almost half said they were dissatisfied with the returns on their investments in that area.

The No. 1 obstacle, according to our survey takers, is slow development times. Fast-changing consumer demands, global outsourcing, and open-source software make speed to market paramount today. Yet companies often can’t organize themselves to move faster, says George Stalk Jr., a senior vice-president with BCG who has studied time-based competition for 25 years. Fast cycle times require taking bets even when huge payoffs aren’t a certainty. “Some organizations are nearly immobilized by the notion that [they] can’t do anything unless it moves the needle,” says Stalk. In addition, he says, speed requires coordination from the hub: “Fast innovators organize the corporate center to drive growth. They don’t wait for [it] to come up through the business units.”

Slide Show >>

Indeed, a lack of coordination is the second-biggest barrier to innovation, according to the survey’s findings. But collaboration requires much more than paying lip service to breaking down silos. The best innovators reroute reporting lines and create physical spaces for collaboration. They team up people from across the org chart and link rewards to innovation. Innovative companies build innovation cultures. “You have to be willing to get down into the plumbing of the organization and align the nervous system of the company,” says James P. Andrew, who heads the innovation practice at BCG.

Procter & Gamble Co. (PG ) (No. 7) has done just that in transforming its traditional in-house research and development process into an open-source innovation strategy it calls “connect and develop.” The new method? Embrace the collective brains of the world. Make it a goal that 50% of the company’s new products come from outside P&G’s labs. Tap networks of inventors, scientists, and suppliers for new products that can be developed in-house.

The radically different approach couldn’t be shoehorned into managers’ existing responsibilities. Rather, P&G had to tear apart and restitch much of its research organization. It created new job classifications, such as 70 worldwide “technology entrepreneurs,” or TEs, who act as scouts, looking for the latest breakthroughs from places such as university labs. TEs also develop “technology game boards” that map out where technology opportunities lie and help P&Gers get inside the minds of its competitors.

To spearhead the connect-and-develop efforts, Larry Huston took on the newly created role of vice-president for innovation and knowledge. Each business unit, from household care to family health, added a manager responsible for driving cultural change around the new model. The managers communicate directly with Huston, who also oversees the technology entrepreneurs and managers running the external innovation networks. “You want to have a coherent strategy across the organization,” says Huston. “The ideas tend to be bigger when you have someone sitting at the center looking at the company’s growth goals.”

ASKING THE RIGHT QUESTIONS
Coordinating innovation from the center is taken literally at BMW Group (BMW ), No. 16 on the list. Each time BMW begins developing a car, the project team’s members — some 200 to 300 staffers from engineering, design, production, marketing, purchasing, and finance — are relocated from their scattered locations to the auto maker’s Research and Innovation Center, called FIZ, for up to three years. Such proximity helps speed up communications (and therefore car development) and encourages face-to-face meetings that prevent late-stage conflicts between, say, marketing and engineering. In 2004 these teams began meeting in the center’s new Project House, a unique structure that lets them work a short walk from the company’s 8,000 researchers and developers and alongside life-size clay prototypes of the car in development.

For many companies, cross-functional collaborations last weeks or months, not years. Southwest recently gathered people from its in-flight, ground, maintenance, and dispatch operations. For six months they met for 10 hours a week, brainstorming ideas to address a broad issue: What are the highest-impact changes we can make to our aircraft operations?

The group presented 109 ideas to senior management, three of which involve sweeping operational changes. One solution about to be introduced will reduce the number of aircraft “swaps” — disruptive events that occur when one aircraft has to be substituted for another during mechanical problems. Chief Information Officer Tom Nealon says the diversity of the people on the team was crucial, mentioning one director from the airline’s schedule planning division in particular. “He had almost a naive perspective,” says Nealon. “His questions were so fundamental they challenged the premises the maintenance and dispatch guys had worked on for the last 30 years.”

Managers are scrambling to come up with ways to measure and raise the productivity of their innovation efforts. Yet the BusinessWeek-BCG survey shows widespread differences over which metrics — such as the ratio of products that succeed, or the ROI of innovation projects — should be used and how best to use them. Some two-thirds of the managers in the survey say metrics have the most impact in the selection of the right ideas to fund and develop. About half say they use metrics best in assessing the health of their company’s innovation portfolio. But as many as 47% said measurements on the impact of innovation after products or services have been launched are used only sporadically.

Actually, most managers in the survey aren’t monitoring many innovation metrics at all; 63% follow five gauges or fewer. “Two or three metrics just don’t give you the visibility to get down to root causes,” says BCG’s Andrew. Then there are companies that track far too many. Andrew says one of the top innovators on our list — he’s mum as to which one — collects 85 different innovation metrics in one of its businesses. “That means they manage none of them,” he says. “They default to a couple, but they spend an immense amount of time and effort collecting those 85.”

The sweet spot is somewhere between 8 and 12 metrics, says Andrew. That’s about the number that Samsung Electronics Co. uses, says Chu Woosik, a senior vice-president at the South Korean company. Chu says the most important metrics are price premiums and how quickly they can bring to market phones that delight customers. Samsung also watches the allocation of investments across projects and its new-product success ratio. That, Chu says, has nearly doubled in the last five years. “You want to see it from every angle,” he says. “A lot of companies fall into the trap that they thought things were really improving, but in the end, it didn’t work out that way. We don’t want to make that mistake.”

AWARDS AND ETHNOGRAPHY
One of the biggest mistakes companies may make is tying managers’ incentives too directly to specific innovation metrics. Tuck’s Govindarajan warns that linking pay too closely to hard innovation measures may tempt managers to game the system. A metric such as the percentage of revenue from new products, for instance, can lead to incremental brand extensions rather than true breakthroughs. In addition, innovation is such a murky process that targets are likely to change. “There’s a dialogue that needs to happen,” says Govindarajan. “Operating plans may need to be reviewed, or you may need to change plans because a new competitor came into your space.”

Susan Schuman, CEO of Stone Yamashita Partners, which works with CEOs on innovation and change, says that besides numbers-driven metrics, some clients are adding subjective assessments related to innovation, such as a manager’s risk tolerance, to performance evaluations. “It’s not just about results,” she says. “It’s how did you lead people to get to those results.”

That’s one reason the bastion of Six Sigma-dom, General Electric Co. (GE ), has begun evaluating its top 5,000 managers on “growth traits” that include innovation-oriented themes such as “external focus” and “imagination and courage.” GE has also added more flexibility into its traditionally rigid performance rankings. GE will now have to square its traditional Six Sigma metrics, which are all about control, with its new emphasis on innovation, which is more about managing risk. That’s a major change in culture.

How do you build an innovation culture? Try carrots. Several companies on our list have formal rewards for top innovators. Nokia Corp. (NOK ) inducts engineers with at least 10 patents into its “Club 10,” recognizing them each year in a formal awards ceremony hosted by CEO Jorma Ollila.

3M (MMM ) has long awarded “Genesis Grants” to scientists who want to work on outside projects. Each year more than 60 researchers submit formal applications to a panel of 20 senior scientists who review the requests, just as a foundation would review academics’ proposals. Twelve to 20 grants, ranging from $50,000 and $100,000 apiece, are awarded each year. The researchers can use the money to hire supplemental staff or acquire necessary equipment.

Of course, rewards won’t help if the inventions aren’t focused on customer needs. Getting good consumer insight is the fourth most cited obstacle to innovation in our survey. Blogs and online communities now make it easier to know what customers are thinking. Hiring designers and ethnographers who observe customers using products at work or at home helps, too. But finding that Holy Grail of marketing, the “unmet need” of a consumer, remains elusive. “You need time, just thinking time, to step out of the day to day to see what’s going on in the world and what’s going on with your customers,” says Stone Yamashita’s Schuman.

THE WORLD IS YOUR LAB
Try learning journeys. That’s what Starbucks Corp. (SBUX ), up 10 spots from 2005 to No. 9, does. While the coffee company began doing ethnography back in 2002 and relies on its army of baristas to share customer insights, it recently started taking product development and other cross-company teams on “inspiration” field trips to view customers and trends. Two months ago, Michelle Gass, Starbucks’ senior vice-president for category management, took her team to Paris, Düsseldorf, and London to visit local Starbucks and other restaurants to get a better sense of local cultures, behaviors, and fashions. “You come back just full of different ideas and different ways to think about things than you would had you read about it in a magazine or e-mail,” says Gass.

A close watch of customer insights can also bring innovation to even the most iconic and established products. Back in 2003, 3M began noticing and monitoring two consumer trends. One was troubling: Customers were using laptops, cell phones, and BlackBerrys to send quick memos or jot down bits of information. Every thumb-tapped message or stylus-penned note on a personal digital assistant meant one less Post-it note.

The other trend, however, was encouraging: the rise of digital photography. While observing consumers, 3M researchers asked to see their photos. What followed was always a clunky process: Consumers would scroll through screen upon screen of photos or have to dig through a drawer for the few shots they printed. Nine months later a team of one marketer and two lab scientists hit upon the idea of Post-it Picture Paper, or photo paper coated with adhesive that lets people stick their photos to a wall for display. “We listened carefully to what consumers didn’t say and observed what they did,” says Jack Truong, vice-president of 3M’s office supply division.

To get a sense of the value of customer research, imagine you’re a Finnish engineer trying to design a phone for an illiterate customer on the Indian subcontinent. That’s the problem Nokia faced when it began making low-cost phones for emerging markets. A combination of basic ethnographic and long-term user research in China, India, and Nepal helped Nokia understand how illiterate people live in a world full of numbers and letters. The result? A new “iconic” menu that lets illiterate customers navigate contact lists made up of images.

Other innovative ideas followed. By listening to customers in poorer countries, Nokia learned that phones had to be more durable, since they’re often the most expensive item these customers will buy. To function in a tropical climate, it made the phones more moisture-resistant. It even used special screens that are more legible in bright sunlight.

Consumers increasingly are doing the innovation themselves. Consider Google Inc. (GOOG ), our No. 2 innovator, and its mapping technology, which it opened to the public. This produced a myriad of “mash-ups” in which programmers combine Google’s maps with anything from real estate listings to local poker game sites.

Google’s mash-ups are just one example of the escalating phenomenon of open innovation. These days the world is your R&D lab. Customers are co-opting technology and morphing products into their own inventions. Many companies are scouting for outside ideas they can develop in-house, embracing the open-source movement, and joining up with suppliers or even competitors on big projects that will make them more efficient and more powerful. “When you work with outside parties, they bear some of the costs and some of the risks, and can accelerate the time to market,” says Henry W. Chesbrough, the University of California at Berkeley Haas School of Business professor who helped establish the concept with his 2003 book, Open Innovation.

India and China are growing sources of innovation for companies, too. The BusinessWeek-BCG survey shows that they are nearly as popular as Europe among innovation-focused executives. When asked where their company planned to increase R&D spending, 44% answered India, 44% said China, and 48% said Western Europe. Managers tended to look to the U.S. and Canada for idea generation, while a lower percentage looked to Europe for the same tasks. India and China, though, are still seen as centers for product development.

Few companies have embraced the open innovation model as widely as IBM, No. 10 on our list. While the company’s proprietary technology is still a force to behold — Big Blue remains the world’s largest patent holder, with more than 40,000 — the company is opening up its technology to developers, partners, and clients. Last year it made 500 of its patents, mainly for software code, freely available to outside programmers. And in November it helped fund the Open Invention Network, a company formed to acquire patents and offer them royalty-free to help promote the open-source software movement.

Why the generosity? IBM believes that by helping to create technology ecosystems, it will benefit in the long run. “We want to do things that encourage markets to grow,” says Dr. John E. Kelly III, senior vice-president for technology and intellectual property at IBM. By helping nurture those markets, says Kelly, “we know we’ll get at least our fair share.”

GOING OUTSIDE FOR IDEAS
P&G has helped establish several outside networks of innovators it turns to for ideas the company can develop in-house. These networks include NineSigma, which links up companies with scientists at university, government, and private labs; YourEncore Inc., which connects retired scientists and engineers with businesses; and yet2.com Inc., an online marketplace for intellectual property.

Only a CEO can change a business culture at top speed, and in Alan G. Lafley, P&G has its own innovator-in-chief. Lafley sits in on all “upstream” R&D review meetings, 15 a year, that showcase new products. He also spends three full days a year with the company’s Design Board, a group of outside designers who offer their perspective on upcoming P&G products. “He’s sort of the chief innovation officer,” says P&G’s Huston. “He’s very, very involved.”

That sort of support from the CEO is essential, says Jon R. Katzenbach, co-founder of New York-based management consultancy Katzenbach Partners LLC. “The CEO determines the culture,” he says. “If the CEO is determined to [improve] the surfacing of ideas and determined to make critical choices, then the chances of an [organization's] figuring that out are much, much greater.”

Infosys Technologies Ltd. (INFY ), the Bangalore-based information technology services company that popped up at No. 10 on our Asia-Pacific list, takes a direct approach to making sure management stays involved in the innovation process. Chairman and “chief mentor” N.R. Narayana Murthy introduced the company’s “voice of youth” program seven years ago.

Each year the company selects nine top-performing young guns — each under 30 — to participate in its eight yearly senior management council meetings, presenting and discussing their ideas with the top leadership team. “We believe these young ideas need the senior-most attention for them to be identified and fostered,” says Sanjay Purohit, associate vice-president and head of corporate planning. Infosys CEO Nandan M. Nilekani concurs: “If an organization becomes too hierarchical, ideas that bubble up from younger people [aren't going to be heard].”

Mike Lazaridis, president and co-CEO of Research In Motion, hosts an innovation-themed, invitation-only “Vision Series” session in the Waterloo (Ont.)-based company’s 100-seat auditorium each Thursday. The standing-room-only meetings focus on new research and future goals for the company that gave us the BlackBerry.

Lazaridis is likely the only chief executive of a publicly traded company who has an Academy Award for technical achievement. (He won it in 1999 for an innovative bar-code reader that he helped invent that expedites film editing and production.) He has donated $100 million of his own money to fund a theoretical physics institute and an additional $50 million to a university quantum computing and nanotechnology engineering center in Waterloo. He has even appeared in an American Express (AXP ) commercial, scratching complex equations across a blackboard while proclaiming his commitment to the creative process. “I think we have a culture of innovation here, and [engineers] have absolute access to me,” says Lazaridis. “I live a life that tries to promote innovation.” As the BusinessWeek-BCG survey demonstrates, it is a life every manager around the world must embrace.

By Jena McGregor, with Michael Arndt and Robert Berner in Chicago, Ian Rowley and Kenji Hall in Tokyo, Gail Edmondson in Frankfurt, Steve Hamm in Rome, Moon Ihlwan in Seoul, and Andy Reinhardt in Paris

http://www.businessweek.com/magazine/content/06_17/b3981401.htm