Exponential - 26 July, 2015

Exponential 

Synthesizing the best of the business & strategy press 

In this issue: 

• Room to grow: organic food takes over 

America 

26 July, 2015 | New York, NY 

• On the red carpet: China invests in 

developing economies 

Skillbridge is a digital service 

empowering firms with Elite 

Business Freelancers on demand. 

www.skillbridge.co 

• Drug wars: new pharma products hit the 

market 

• Meet Stijn Paumen, a man on a $25m 

mission to make mobile internet safer 

1 +1 (212) 548 4548 www.skillbridge.co

Exponential the Skillbridge Magazine 

The Briefing 

The global round-up 

J. Crew to open lower-priced stores 

J. Crew Group plans to open its first J. 

Crew Mercantile chain for budgetconscious 

shoppers in Texas. The new 

store format will feature merchandise 

with prices closer to what shoppers would 

find at its outlet stores. The privately held 

company has had trouble with falling 

shopper traffic, writing down the value of 

its brick-and-mortar operations by more 

than $500 million late last year. 

Mexico auctions off its oil; falls short 

waklingsf via 

flickr 

The Mexican government’s attempt to 

open its oil and gas industry to private and 

foreign investment for the first time in 

almost 80 years has fallen short. Only two 

successful bids were made out of 14 

blocks tendered. The energy overhaul is 

the flagship economic reform of President 

Enrique Peña Nieto. Nine companies 

participated in the auction. Many blocks 

received no offers, and others had bids 

below the minimum required for profitsharing 

with the government. Two blocks 

were won by Mexican firm Sierra Oil & 

Gas, in a consortium with Houston-based 

Talos Energy and the UK’s Premier Oil. 



UK life sciences funding at 10-year high 

In an echo of the US biotech boom, UK life 

sciences funding is at a ten-year high. 

According to the FT, money raised through 

stock market flotations “rose more than 

eightfold in 2014 to £408m — accounting for 

more than 40 per cent of the total raised in 

this way by UK biotech companies in the past 

10 years.” Venture capital funding rose 71% 

from the year before to a high of $430m, 

according to the UK Bioindustry Association. 

New car sales surprisingly drop in China 

The world’s largest auto market has 

slipped: China’s new car sales registered a 

rare decline. The China Association of 

Automobile Manufacturers said that 

passenger-car sales in June fell by 3.4% 

compared to a year earlier. This is the 

third monthly decline since September 

2012. The past two monthly blips were 

linked to a weeklong holiday in 2013 and 

other political events. The only reason to 

explain last month’s decline is that the 

economy is slowing. China’s first-quarter 

economic growth came in at 7%, its 

slowest pace in decades. 

Kenyan telecom competition heating up 

Over the past two decades, Safaricom has 

built the world’s most widely used mobilemoney 

network in Kenya. Any Kenyan can 

send funds to almost anyone else 

instantaneously from a mobile phone. 

Transactions are valued at 40% of GDP. Now 

Safaricom faces a new competitor: Equity 

Bank has revolutionized Kenyan local 

finance by slashing fees and helping to 

increase access to the banking sector. Equity 

has acquired a license to operate a mobilephone 

service in conjunction with Airtel and 

launched the service on July 15. It aims to 

have 5 million customers by the end of 2015. 


The Briefing 

The Briefing 


Five key reads 

aiigle_dore via flickr 

HBR: Just Hearing Your Phone Buzz Hurts Your Productivity 

DISTRACTIONS; TECHNOLOGY – New research discussed in the Harvard 

Business Review - “The Attentional Cost of Receiving a Cell Phone Notification” - 

reports that the “reverberations of new notifications can distract us, even when 

we don’t look over to see what they could be.” The authors, Cary Stothart, Ainsley 

Mitchum, and Courtney Yehnert of Florida State University showed that just 

being aware of an alert can hurt people’s performance on an attention-demanding 

task. If you hope to stave off distraction and perform tasks at your very best, the 

researchers suggest not only putting your phone on silent, but also hiding it so 

that you can’t hear, feel, or see any incoming notifications. 

Bloomberg: This Is How Uber Takes Over a City 

TECHNOLOGY; GOVERNMENT – Bloomberg’s piece offers a minute-byminute 

account of how Uber gained a presence in Portland, Oregon and how it 

enters other regions. Uber’s ground war costs are expensive particularly in the 

money spent on lobbyists. In Texas in 2013, Uber had no registered lobbyists in 

the state. In 2014, it reported 14 lobbyists, and so far in 2015, that’s grown to 28. 

The total cost of these contracts could total from $420,000 to $945,000 according 

to filings. In the past year, Uber spent $208,000 in Maryland and $684,000 in 

California on lobbying costs. Arguably, this money is well spent: the firm’s overall 

valuation has grown to over $50bn in 2015. 


The Briefing 

Five Key Reads 


Economist: In it for the long haul 

ISRAEL; AIRLINES – Israel signed an open-skies treaty with Europe in 

2013 with the aim of removing all bilateral air traffic restrictions by 2018. 

With the new deal taking force, Ryanair recently announced that it will 

fly to Eilat in southern Israel in November—its first ever Middle Eastern 

connection — from three points in eastern Europe. For passengers, cheap 

travel to Israel is already an option: EasyJet currently flies to Tel Aviv 

from nine points in Western Europe. Hungarian carrier Wizz Air links 

the same city with another eight destinations in Eastern Europe. The 

trend has caused problems for El Al, Israel’s national flag carrier, which is 

not a low-cost carrier. 

Quartz: The world eats cheap bacon at the expense of North Carolina’s 

rural poor 

FOOD; MANUFACTURING; SOCIETY – Pork has long been important 

to North Carolina’s economy: in the early 1700s it was used as legal 

tender by locals. Since the late 1990s, Duplin County, North Carolina, has 

been the top hog producing county in the country. The county is home to 

530 hog operations with capacity for over 2 million pigs. Pigs outnumber 

humans almost 32 to 1 in the town. The impressive production figures 

come with high costs to the human residents. Lagoons of noxious waste 

pose a series of problems for the citizens of Duplin County. 

Men’s Journal: The Death of Golf 

GOLF; SPORTS – Since Tiger Woods dominated golf in the early 2000s, 

the sport rapidly declined in America. Participation in golf decreased 

from a high of 30.6 million golfers in 2003 to 24.7 million in 2014, 

according to the National Golf Foundation. Long-term trends are also 

troubling: the number of golfers aged 18 to 34 shows a 30% decline over 

the last 20 years. Nearly every metric — TV ratings, rounds played, golfequipment 

sales, golf courses constructed — shows a drop-off. Various 

attempts to "save" golf by making the game faster, cheaper, and easier to 

play have taken on an air of desperation. Golf continues to face challenges 

because of Millennials’ lack of interest in the sport and their difficulties 

in maintaining attention over a five-hour round. That’s not to mention 

the cost which can be up to $150 to play 18 holes, even at a public course. 


Winners and Losers 

Good Week For: Chinese ride-hailing startup Didi Kuaidi 

Chinese ride-hailing startup Didi Kuaidi raised $2 billion, the largest 

ever fundraising for a Chinese tech startup. The funding round values 

the firm at $15 billion. Didi Kuaidi is Uber’s biggest rival in China. 

Bad Week For: US Airlines 

Flyers are suing America’s four largest carriers - Delta, American, 

United and Southwest - alleging that they have colluded to keep 

ticket prices high. The Wall Street Journal explains that the US 

airline industry is enjoying some of its strongest profits ever, “after 

years of consolidation and the past year’s plunge in the price of fuel.” 

According to the US government, American carriers earned nearly 

$25 billion since the start of 2013. This followed a $33 billion loss in 

the previous decade. 

Good Week For: Airbus 

Airbus has completed its first electric plane flight across the English 

Channel. The two-seater E-Fan demonstrator plane is powered 

exclusively by lithium batteries. The flight took 36 minutes to fly 

from the town of Lydd in southern England to Calais, France. 

Electric flight may significantly reduce carbon emissions created by 

traditional airplanes. 

Bad Week For: Indian outsourcing firms 

Drug-maker AstraZeneca is scaling back the business it gives to 

Indian outsourcing companies. Over the next two years, AstraZeneca 

will cut in half its $750 million annual outsourcing budget. The 

number of people working on IT at the firm will also drop by 50%. The 

cuts come as a shift toward cloud computing is replacing many of the 

workers AstraZeneca has previously used. Outsourcing accounts for 

around 20% of all of India's exports.. 



Feature 

We built this city: 

Lego to create 

sustainable bricks 

Innovation at the Danish brickmaker 

Danish toy-maker Lego has decided to give its world-famous 

bricks their first makeover since 1963. Lego executives have 

teamed up with outside scientists to look for a bio-based 

alternative to the petroleum-based plastic that is used to make 

its bricks. 

The company is trying to reduce its carbon footprint. But the 

changes won’t happen overnight: the process is unlikely to be 

completed until 2030 with the goal of making the bricks 

indistinguishable from the units used today. The firm earned a 

15% increase in profit in 2014, raking in just over $1 billion with 

a 25% operating profit margin. 



Feature 

Room to grow: 

organic food takes 

over 

• 45% of Americans actively try to include organic foods in their diets. 

• The USDA says sales of organic food products reached $35bn in 2014. 

The organic food revolution 

While naturally grown food represents a small portion of overall 

agricultural production, organic brands are booming. The Wall 

Street Journal reports that “farmers who grow and process 

organics have been reporting big increases in demand and 

sales.” Gallup reports that 45% of Americans actively try to 

include organic foods in their diets. According to the USDA, 

sales of related food products reached $35 billion in 2014, with 

fresh fruits and vegetables remaining the top selling category. 



Can Big Food compete against organic suppliers? 

The WSJ reports that food giants like Kellogg and Kraft are facing a 

dramatic shift in the way Americans eat as consumers demand 

fresher and healthier products. Consumers are increasingly sceptical 

of large brands and have taken to purchasing foods from smaller and 

naturally-focused firms. 

Over the past five years, the top five food and beverage companies 

reported aggregate sales increases of 1.4%. This figure can be 

compared with more rapid growth in the organic sector. A survey 

from the Organic Trade Association found organic food sales were up 

11% in 2014 over 2013. Most buying is happening within 

conventional outlets: 78% of organic shoppers purchased food at 

supermarkets, not at farmers’ markets. 

The Organic Trade 

Association found that 

organic food sales are up 

11% in 2014 over 2013. 

Organic yields look stronger 

The yields that organic crops produce have long been a contentious 

issue. According to scientists at the University of California, 

Berkeley, “when the same products are grown, organic yields are 8% 

to 19% lower on average than conventional-farming yields, depending 

on the cropping system.” The researchers noted, however, that the 

available studies comparing farming methods were frequently biased 

in favor of conventional agriculture so the estimate of the yield gap is 

likely overestimated. Furthermore, two agricultural practices, multicropping 

(growing several crops together on the same field) and crop 

rotation, would substantially reduce the yield gap to 9% and 8% 

respectively. 

What the brains think… 

The HBR piece “Making Sustainability Profitable” argues that it is 

hard for companies “to recognize that sustainable production can be 

less expensive.” This is, in part, because companies must change the 

way they think about lowering costs. Initial investments in costly 

materials and methods can lead to greater savings down the road. A 

new approach is required in which firms buck conventional financial 

wisdom. Instead of focusing on reducing unit costs, firms should 

concentrate “on increasing the efficiency of the system as a whole.” 

Keeping employees aligned with sustainability goals can be 

challenging. HBR suggest that one option would be to tie the 

compensation of senior executives to environmental and social 

efforts as well as financial results. 

Berkeley scientists report 

when the same products 

are grown, organic yields 

are 8% to 19% lower on 

average than 

conventional farming 

yields 

Key Reading: 

• WSJ: How Can Big 

Food Compete Against 

Fresher Rivals? 

• Berkeley News: Can 

organic crops compete 

with industrial 

agriculture? 

• HBR: Making 

Sustainability 

Profitable 



Feature 

On the red carpet: China 

keeps investing in the 

developing world 

• China’s investments abroad amounted to $870bn at the end of last year. 

• China has 20% of the world’s population yet only 7% of its arable land. 

China invests for its future in the developing world 

With 20% of the world’s population but only 7% of its arable 

land, China is forced to import much of its food. China views 

Africa and Latin America as necessary sources of much-needed 

agricultural products and natural resources. With imports 

growing to unprecedented levels, China has been investing 

heavily in infrastructure across the developing world. The 

Heritage Foundation reports that China’s investments abroad 

amounted to $870 billion in 2014, compared to America’s $368 

billion in 2013. 



The Chinese continue to invest in Africa 

According to a Pew Research Center survey, nowhere is public 

opinion towards China higher than in Africa - favourable ratings 

stand at 70%. Since 2009, China has been Africa’s biggest trading 

partner. In 2013, trade between China and Africa totalled $200 

billion. More than 1 million Chinese citizens, primarily laborers and 

traders, have moved to the continent in the past 10 years. China’s first 

lucrative African investments were in Angola in 2004, when Chinese 

road investments were exchanged for a share of Angola's vast oil 

reserves. Chinese investment in African countries has risen thirty 

fold in the past ten years: foreign direct investment went from $500 

million in 2003 to almost $15 billion in 2012. 

In 2014, China pledged 

investments of $20bn in 

African infrastructure. 

China is the new “Good Neighbor” 

Over the next 10 years, the Chinese government is projected to invest 

$250 billion in Latin America and the Caribbean. Within a decade, 

Chinese president Xi Jinping estimates that bilateral trade between 

China and Latin America could reach $500 billion per year. Recent 

developments include China and Venezuela agreeing to $20 billion of 

joint projects and a $7.5 billion loan from China to Ecuador. 

The tie-up with Ecuador points to the growing dependence felt by 

developing economies on their new partner. Since 2009, China has 

loaned the South American nation $10 billion; it holds 30% of 

Ecuadorean external debt and takes half of its oil exports. Beijing’s 

broader bet on Latin America’s rich natural resources is also 

accompanied by substantial investments n telecoms and banking. 


The PWC article - “Separating fact from fiction in the China-Africa 

relationship” – points to the fact that, over the past 15 years, much of 

Africa has had uninterrupted growth. PWC asserts that “Chinese 

investors are particularly well positioned to take advantage of the 

improved economic environment in Africa.” Part of the reason stems 

from the fact that many Chinese firms in Africa are large state-owned 

enterprises. Though these firms are not always the most efficient, 

they have a competitive edge: they can utilize subsidized credit from 

their home government which enables them to out-compete other 

bidders for African procurement contracts. As the Chinese economy 

has started to slow down, it is unclear whether the Beijing 

government will continue to make investments on such a grandiose 

scale. 

China and Venezuela 

agreed to $20 billion in 

joint projects. 

Key Reading: 

• US News & World 

Report: China Is 

Besting the U.S. in 

Africa 

• The Economist: One 

among many 

• PwC: Separating fact 

from fiction in the 

China-Africa 

relationship 



Feature 

Drug wars: new 

pharma products 

hit the market 

• Entresto, a heart disease treatment from Novartis, which cut death rates by 

20% in clinical trials, was approved by US regulators. 

• Analysts expect Entresto to reach $6bn in annual sales. 

Big Pharma’s got a future 

Blockbuster drugs are back. A new wave of multibillion-dollar 

medicines for heart disease, high cholesterol, cancer and 

hepatitis C are about to hit the market, reviving optimism in the 

pharmaceuticals industry. In a major development, the 

Financial Times reports that Entresto, a heart disease 

treatment from Novartis has been approved by US regulators. 

Analysts expect that the drug, which cut death rates by 20% in 

clinical trials, could reach $6 billion in annual sales. 



More problems; more money 

The pharmaceuticals industry is on the up. S&P’s pharmaceuticals 

index has risen by almost 25% in the past year. According to research 

firm Citeline, a record 61 drugs were introduced around the world 

last year compared with an annual average of 34 in the last decade. 

The pick of the new treatments include a new category of cancer 

drugs that utilize the human immune system to destroy tumors, A 

large player in this developing immunotherapy market is Merck and 

Bristol-Myers Squibb. The firm has developed treatments which are 

set to generate $35 billion of annual sales within a decade. 

S&P’s pharmaceuticals 

index has risen by almost 

25% in the past year. 

M&A at generic drug makers 

86% of pharmaceutical sales in America are made up of generic 

drugs, accounting for 45% of the global market. A proposed merger 

between America’s two largest generic drug makers faces sharp 

criticism from the Consumers Union and seven other pro-consumer 

groups who have asked antitrust enforcers to block Teva 

Pharmaceutical Industries’ proposal to purchase Mylan NV. The 

Consumers Union claims that the merger would lead to higher prices 

and more drug shortages. To date, a deal does not appear to be 

imminent. Mylan has continuously rebuffed Teva's takeover bids, 

including a $40 billion move in April 2015. If the Teva-Mylan merger 

happens, the two companies would make 25% all generic drugs. 

More than 50% of retail 

generic drugs saw their 

prices rise between July 

2013 and July 2014. 


The McKinsey piece “Pharma’s first-to-market advantage” highlights 

the long-running debate about the “value of being first to market,” 

noting that companies spend significant resources to increase their 

odds of being first off the block. In the race to market a new drug 

class, companies believe that every month of lead time is significant. 

McKinsey’s analysis shows that the advantage is more complex and 

nuanced than it might appear. The report points to the fact that, on 

average, first-to-market advantage is weak and “dependent on market 

context.” Frequently, first-mover advantage vanishes especially when 

the lead time is short or when the first mover is a small company. The 

article concludes that first-mover advantage is “more pronounced in 

specialty areas with small numbers of prescribers and patients.” 

Key Reading: 

• FT: Drugmakers 

premiere summer 

blockbusters 

• Reuters: U.S. consumer 

groups oppose Teva bid 

for generic drug rival 

Mylan 

• McKinsey: Pharma’s 

first-to-market 

advantage 



h 

The Interview 

• This week’s interview is with Stijn Paumen, who leads 

business development at Wandera, a London and San 

Francisco based company. He talks to us about 

working trans-atlantic, the mobile security challenge 

and the difference his MBA has made. 

• Wandera are leaders in the emergent enterprise 

mobile security market. It was founded by the team 

behind ScanSafe (acquired by Cisco) a web security 

vendor, three years ago. To date they’ve raised $25m 

from 83North and Bessemer Venture Partners. 

What does Wandera do? 

We deliver a Cloud platform to 

enterprises which enables them to 

manage and secure mobile data 

usage on IOS and Android devices. 

We started in 2012 and now have 

about 60 employees. We’re 

privately held and have raised 

$25m so far from investors such as 

Bessemer. 

What are the main problems 

that you’re trying to solve at 

Wandera? 

In recent times, a lot of firms have 

migrated away from Blackberry to 

iPhones. These devices are more 

consumer-friendly than 

enterprise-friendly. These days, the 

average iPhone user consumes 

around 3GB a month: how does an 

organization manage the impact on 

their costs? More importantly 

these devices have brought with 

them a range of security threats 

that companies don't yet have a 

good handle on. Every corporate 

laptop in the world has some kind 

of anti-virus or web security type 

software on it; mobile devices do 

not have the same level of 

protection. 

What are your key strategies 

for dealing with these 

problems? 

Our approach is known as multilevel 

security. We have an app on 

mobile devices which can identify 

security threats and scan the device 

locally but, in addition, we've got a 

Cloud service that sits between the 

mobile device and the internet. 

This gives you two data points 

which you can correlate to identify 

threats and deliver better security 

in real time. 



The Interview 

h 

What do you see as the major 

emerging issues in your sector? 

I think security is a huge area and a disaster 

waiting to happen. Apps on iPhones and 

Android devices focus on user experience. 

Users will click on any message that's 

prompted on their screen in order to continue 

to the network. There's a huge amount of 

vulnerability associated with that type of 

behavior. 

For example, a hacker can buy a device on 

Amazon called a Pineapple WiFi. Most 

handheld devices are set up to connect 

automatically to networks. A “Pineapple” 

essentially spoofs the network and forces the 

mobile to connect to it. At that point, hackers 

can access your e-mails and passwords. We’ve 

even seen hackers injecting pages to prompt 

the user to enter information. For example, an 

Apple pay page might prompt the user to input 

their credit card details. We haven’t had a 

Sony-style network exploitation yet but 

hackers are really focusing on mobile devices 

these days. 

You have an interesting education 

trajectory including an MBA from 

INSEAD? How did this give you a base 

for your current work? 

An MBA helps you to build a strong network 

and provide a broader horizon. A trend for a lot 

of MBAs these days is not necessarily to go 

into finance or consulting but to move into 

tech. Having friends who you can share your 

experiences with makes a huge difference. 

You’ve worked in the UK and America, 

what do you think are the most 

interesting differences? 

Hiring is a very different beast in the UK. In 

the US, there is much more focus on equity. At 

an interview, every salesperson will ask about 

what options they can get. In the UK, sales 

reps and even developers don’t really 

understand the upside of options and care 

more about the overall package and the base 

salary. Another obvious point to bear in mind 

is that Europe is a much more fragmented 

market than the US. In the US, for example, we 

work with AT&T. To get a similar market 

penetration in Europe, you would need to sign 

multiple operators like Vodafone, Deutsche 

Telecom and BT. 

Do you have any funny anecdotes to 

share about being a European working 

in America? 

As Europeans, we’re not really used to the 

concept of car pool lanes. Commuting down 

from San Francisco to Mountain View, my 

colleague would often find himself in the solo 

lane, sitting in traffic. He came up with a 

solution which was to buy a scarecrow and put 

it in the passenger seat. After that, most of his 

journeys were a lot quicker! 

Stijn Paumen is VP of Business Development at Wandera, 

Inc. based in London, England. Prior to Wandera, he was a 

Director of Business Development at Scansafe & Cisco. 

His career started at Silicon Valley chronicle, Red Herring. 

He holds an MSc from Oxford University and an 

MBA from INSEAD. 



Deeper Dives 

We heart h charts 

Trane de Vore via flickr 

Has the US government increased 

spending on organic agriculture? 

Mandatory spending on organic agriculture, 2002-2014 Farm Acts 

The 2014 Farm Act allocates more 

money to organic agriculture than ever 

before. The US organic food market is 

estimated to be worth $45bn in 2015. 

Investments in the agriculture sector 

are driven by cost-effectiveness and 

consumer demand. 

Source: SeekingAlpha 

Chinese lending to Latin America 

Where has China made the most 

investments in Latin America? 

China’s investments in oil-rich 

Venezuela are by far its largest in South 

America. From Mexico to Jamaica, 

China is spreading its economic 

strength around the continent. 

Source: Inter-American Dialogue 

What percentage of prescription drug 

sales in the US are for generic drugs? 

Generic versions of a drug can cost 

between 30% and 80% less than the cost 

of the original drug. Today, generics 

make up approximately 86% of 

prescription drug sales in the United 

States. According to a BCC Research 

report, the global generic drug market is 

now valued at around $300 billion. 

Generic Share of Prescriptions Filled 1984-2013 

Source: Pharma.org

Exponential - 26 July, 2015

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