Meet the CEO: Peter Shankman • Outsourced in America • The Future of Aviation

Reining in Microfinance • The Arctic Frontier • China and the American Investor

Asia 3.0
Technology’s Next Transition

Spring 2011

Hosted by the Yale School of Management

South Asian Business Forum and the
Yale Undergraduate Business Society
 Editor-In-Chief
From the Editor
Paul Joo

Editorial Directors In Business Sphere magazine, our writers address the complexity of business from a
Jennifer Barrows student perspective as it relates to a wide variety of popular news. Business Sphere
Monish Shah aims to serve as a platform for increasing awareness of and interest in the far-ranging
implications of business in social, economic, legal and political arenas.
Managing Editors
Evan Beck In this issue of BSM, we present an exclusive interview with writer and entrepreneur
Nabila Chitalwala Peter Shankman, whose ideas have revolutionized social media around the world.
You will also learn about the growth of Emirates Airlines, the award-winning flag-
Design Director ship carrier of Dubai. In other featured articles, Yale students cover topics ranging
Aimee Marquez from credit default swaps to high-speed rail infrastructure.

Finance Director Our spring issue also contains a special section dedicated to the Asia Tomorrow
Christopher Lee Conference, the annual flagship conference of the Yale Undergraduate Business
Society, co-hosted by the Yale School of Management’s South Asian Business Forum.
Operations Director You can read more about Asia Tomorrow’s exciting schedule and speaker lineup
Shiv Kachru starting on page 4.

YBS President Special thanks go to the Yale Undergraduate Business Society for its continued
Shashwata Narain support and collaboration. I would also like to extend a heartfelt thank-you to the
editorial and design teams for their tireless efforts, without which this publication
Managing Director would not have been possible.
Adam Bao
Sincerely,
Conference Director Paul Joo, Editor-In-Chief
Elizabeth Andrekovich

YBS Founder
James Zhang
16
Faculty Advisor
Lanier Benkard

Contact us:
P.O. Box 200402
New Haven, CT 06520

www.BusinessSphere.org 26
2 Business Sphere Magazine | Spring 2011
 14 CONTENTS
14 The Economic Fast Track
Dakota Meyers

16 Inovação Brasileira
Paul Joo

21 Outsourced in America
Jennifer Barrows

34 23 Credit Default Swaps:

A Ticking Time Bomb?
Monish Shah

China and the American

26 Investor
Evan Beck

35 28 Reining in Microfinance
Nabila Chitalwala

30 Emirates and the

Future of Aviation
Shiv Kachru

4 Welcome
34 The Arctic Frontier
5 Schedule and Map Courtney Kaplan

6 Keynote Speakers 35 Meet the CEO:

Peter Shankman
7 Panel Descriptions Jennifer Barrows

Spring 2011 | Business Sphere Magazine 3

 hosted by
Asia 3.0: Technology’s Next Transition

YBS Board From the Executive Board

President Dear Conference Attendee,
Shashwata Narain
It is with great pleasure that we welcome you to the third annual Asia Tomorrow
Managing Director Conference. Our concept is simple: to establish an intellectual forum that engages our
Adam Bao audience on pertinent global issues from emerging markets development to the future
of corporate sustainability. Our theme this year, Asia 3.0: Technology’s Next Transition,
Asia Tomorrow Director takes an integrated business-technology perspective to examine the multi-dimensional
Elizabeth Andrekovich effects of innovation on a changing business landscape.

Brand Management Today, you will join some of the world’s foremost thinkers and leaders in business,
Aimee Marquez academia, and politics to explore issues ranging from healthcare economics and clean
energy to intellectual property rights and online entrepreneurialism. Additionally, the
Finance Directors breakfast networking session and speaker luncheons will allow you to initiate one-on-
Christopher Lee one conversations with speakers and to explore key issues in further detail.
Dong Won Lee
We hope that the breadth and depth of today’s dialogues provide you with a compre-
On-Campus Affairs hensive understanding of the contemporary debates faced by the Asian corporate sector.
Daniel Cheng We encourage you to make the most of this conference by asking tough questions,
Melissa Hou contributing to discussions, and acquiring new insights. A special vote of thanks goes
out to all YBS, SABF, and BSM staff for working tirelessly over the past year to organize
Director Emeritus the conference and make this conference issue of the magazine possible. We hope that
Kaiyuan Wang you enjoy the conference as much as we enjoyed organizing it for you.

Founder, Sincerely,
President Emeritus Executive Board
James Zhang Yale Undergraduate Business Society and South Asian Business Forum

Asia Tomorrow Brand Management Devi Mehrotra Karen Chen

SABF Board Lucy Chen Justin Onyeji Dakota Meyers* Ananya Hemvijitraphan
Nabila Chitalwala Lisa Wang Alyssa Moore Priyanka Kanwar
Co-Presidents Samuel Genecin Adam Weser Jacqueline Murphy* Aly Kerr
Anjai Lal Kyle Hutzler Alda Pontes Nick Letizio
Rahul Setiya Inho Mun Finance Don Traubert Yidan Li
Yohanna Pepa Prateek Baghel James Tan Dawn Lu
Managing Directors Uyen Phan Francesco De Camilli Michelle Tseng Jie Min*
Neha Madam Obaid Syed Ivan Fan Joanna Zheng
Rasheq Rahman Charlotte Wang Kenneth Fang Albert Wu**
Yujiang Wu* Daniel Kelly*
Michael Lei On-Campus Affairs
Webmaster Rebecca Liu Eddie Chen *Team Manager
Eddie Chen William Martin Gang Chen **Senior Advisor

4 Business Sphere Magazine | Spring 2011

 Yale
Undergraduate
Business
Society

SCHEDULE
March 26, 2011

Time Event Description/Location

8:00 AM – 9:00 AM Breakfast Networking Session -LC 104

9:15 AM – 9:25 AM Opening Remarks - Art Gallery Auditorium

9:30 AM – 10:30 AM Morning Keynote, Part I - Art Gallery Auditorium

10:40 AM – 11:40 AM Morning Keynote, Part II - Art Gallery Auditorium

Asia 3.0: Restructuring
11:55 AM – 12:55 PM The Power of Clean - LC 211
and Innovation - LC 102
1:00 PM – 2:30 PM Lunch - Residential Dining Halls

2:50 PM – 3:50 PM Future of Finance - LC 102 Entrepreneurialism Online - LC 211

4:00 PM – 5:00 PM I.P. Rights vs. Asia Inc. - LC 102 Healthcare Tomorrow - LC 211

5:20 PM – 6:20 PM Evening Keynote: A New Global Order - LC 102

6:25 PM – 6:30 PM Closing Remarks - LC 102

1 Event Locations

1 Linsly-Chittenden Hall (LC)

2

2 Art Gallery Auditorium

Spring 2011 | Business Sphere Magazine 5

 Keynote Speakers
Morning
Stephen Roach, Conference Chair
Non-Executive Chairman, Morgan Stanley Asia
Senior Lecturer & Fellow, Jackson Institute for Global Affairs, Yale University
Dr. Roach is Non-Executive Chairman of Morgan Stanley Asia, where he has worked and
held senior positions, including chief economist, for twenty-eight years. Dr. Roach also
serves as a senior fellow and lecturer at the Jackson Institute for Global Affairs and the Yale
School of Management. Prior to joining Morgan Stanley, Dr. Roach served on the research
staff of the Federal Reserve Board and was also a research fellow at the Brookings Institution.

Edmund Phelps
McVickar Professor of Political Economy, Columbia University
Nobel Prize in Economics
Professor Phelps is McVickar Professor of Political Economy at Columbia University and
Director of Columbia’s Center on Capitalism and Society. He was the winner of the 2006
Nobel Prize in Economics. His career began with a stint at the RAND Corporation. After
that, he held positions at Yale and its Cowles Foundation until 1966, then a professorship
for five years at the University of Pennsylvania, before joining Columbia in 1971.

James Chanos
President and Founder, Kynikos Associates
Mr. Chanos is the founder and managing partner of Kynikos Associates, an exclusive
short-selling investment firm. Mr. Chanos opened Kynikos Associates in 1985 to imple-
ment investment strategies he had uncovered while beginning his Wall Street career as a
financial analyst with Paine Webber, Gilford Securities, and Deutsche Bank. Throughout his
investment career, Mr. Chanos has identified and sold short the shares of numerous well-
known corporate financial disasters, including Baldwin-United, Commodore International,
Coleco, Integrated Resources, Boston Chicken, Sunbeam, Conseco, and Tyco International.

James Woolsey
Director of the US Central Intelligence Agency during the Clinton Administration

Mr. Woolsey is a senior fellow at Yale University’s Jackson Institute for Global Affairs, of
counsel to the law firm Goodwin Procter, and chairman of the Strategic Advisory Group
of Paladin Capital Corporation. He was previously a venture partner and senior advi-
sor of VantagePoint Venture Partners. Before VantagePoint, Mr. Woolsey was a partner at
Booz Allen Hamilton, specializing in energy and security issues. Mr. Woolsey also served
in the US government five times over 12 years, holding presidential appointments in two
Republican and two Democratic administrations.

6 Business Sphere Magazine | Spring 2011

Jeffrey Sonnenfield, Moderator
Senior Associate Dean for Executive Programs & Lester Crown Professor in the Practice of
Management, Yale University
After teaching at Emory’s Goizueta Business School and Harvard Business School, Professor
Sonnenfeld currently serves as the Senior Associate Dean of Executive Programs as well as
the Lester Crown Professor at the Yale School of Management. Professor Sonnenfeld’s related
research has been published in roughly 100 scholarly articles and eight books, including The
Hero’s Farewell, an award-winning study of CEO succession, and another best seller, Firing Back,
a study on leadership resilience in the face of adversity.

Evening
Jonathan Spence
Professor Emeritus, Yale University
Mr. Spence is a British-born historian and public intellectual specializing in Chinese
history. He was Sterling Professor of History at Yale University from 1993 to 2008.
His most famous book is The Search for Modern China, which has become one of the
standard texts on the last several hundred years of Chinese history. A prolific author,
reviewer, and essayist, he has written a dozen books on China. Mr. Spence’s major
interest is modern China, especially its relations with the West. A notable recurring
theme in Mr. Spence’s work is his interest in efforts on the part of both Westerners
and Chinese to westernize China.

Ambassador Arun K. Singh

Deputy Chief of Mission ofEmbassy of India, Washington
Ambassador Singh joined the Indian Foreign Service in 1979, after completing his
Master’s Degree in Economics from Delhi University and teaching for two years. He
served as Deputy Secretary of the East Asia and Pakistan Divisions from 1988-1991
before heading the Offices of the Foreign Secretary and the External Affairs Ministry
of India. Ambassador Singh served at the Permanent Mission of India to the United
Nations Office, New York from 1993-1997 and served at the Indian Mission in Moscow
again as Minister from 1997-2000. He also served as Ambassador to Israel from 2005-
2008. He then assumed his new assignment as Deputy Chief of Mission at the Embassy
of India, Washington, D.C in 2008.

Spring 2011 | Business Sphere Magazine 7

 Asia 3.0: Restructuring and Innovation
Today’s Producer, Tomorrow’s Consumer?
LC 102 11:55 AM – 12:55 PM
As Asia experiences the growing pains of rapid economic development, it must adopt a more balanced growth strategy
less vulnerable to the volatility of external demand. Can the continent emerge from this recent recession by harnessing
the power of its 3.5 billion consumers? How might the domestic consumer drive innovation, and how should global
businesses respond? How could Asia develop an integrative economic framework around the domestic consumer,
despite the export competition and nationalistic tensions that have been the status quo of past decades? What are the
social implications and negative externalities concomitant with such growth?

Stephen Roach, Conference Chair

Non-Executive Chairman, Morgan Stanley Asia
Senior Lecturer & Fellow, Jackson Institute for Global Affairs, Yale University
Dr. Roach is Non-Executive Chairman of Morgan Stanley Asia, where he has worked and
held senior positions, including chief economist, for twenty-eight years. Dr. Roach also
serves as a senior fellow and lecturer at the Jackson Institute for Global Affairs and the Yale
School of Management. Prior to joining Morgan Stanley, Dr. Roach served on the research
staff of the Federal Reserve Board and was also a research fellow at the Brookings Institution.

Harry Edelson
Managing Director, Edelson Technology Partners
Chairman, China Investment Group
Mr. Edelson has been named an All-Star Security Analyst by Institutional Investor magazine
and was the most quoted analyst on Wall Street for a decade. The Edelson Technology Partner
funds invested in ten early stage companies that grew to have market capitalizations of more
than $1 billion and up to $30 billion.

John Haley
Chief Executive Officer & Chairman of the Board of Directors, Towers Watson
Mr. Haley is the chief executive officer of Towers Watson. Prior to the merg-
er of Watson Wyatt Worldwide and Towers Perrin, Mr. Haley was president,
chief executive officer, and chairman of the board of Watson Wyatt. Mr. Haley also serves on
the board of directors of the U.S.-China Business Council and is a fellow of both the Society of
Actuaries and the Conference of Consulting Actuaries.

Paul Cohen
Partner and Senior Vice President, Ketchum
Mr. Cohen is a partner and senior vce president in the corporate practice of Ketchum, a lead-
ing global public relations consultancy. In this role, he oversees cross-border communications
programs for multinational companies and governmental bodies. Mr. Cohen has extensive
experience in reputation management, media relations, brand development and crisis com-
munications, and has represented a wide range of clients, including AT&T, FedEx, Gazprom,
Starbucks, and the government of the Russian Federation.

8 Business Sphere Magazine | Spring 2011

 The Power of Clean
Chartered Connected Cities
LC 211 11:55 AM – 12:55 PM
As Asia enters a new stage in its economic development, it must address the social instability and environmental
externalities created by its breakneck rates of growth. How can the “tigers and dragons’ of Asia make the changes
necessary to become modern day, postindustrial powers? How can they make the infrastructural developments neces-
sary to increase domestic consumption and quality of life, while seeking a more sustainable approach towards export
production? We will explore this issue from the perspective of the real estate and IT industries, using New Songdo City
as a case study.

Richard Kauffman, Moderator

Chairman, Levi Strauss & Co.
Chief Operating Officer, COFRA Holdings AG
Mr. Kauffman is the chairman of Levi Strauss & Co and chief operating officer of COFRA Hold-
ings AG. He was previously a partner of Goldman Sachs where he was chairman of the Global
Financing Group, a member of the firm’s Partnership Committee, Commitments Committee,
and Investment Banking Division Operating Committee. During his long career, Mr. Kauffman
has had broad experience in capital markets and corporate finance.  

Tom Murcott
Executive Vice President and Chief Marketing Officer, Gale International
Mr. Murcott is the executive vice president and chief marketing officer of Gale International,
one of the largest real estate development firms in the world. Mr. Murcott is responsible for
overseeing all corporate and project communications programs. Mr. Murcott has 25 years of
international marketing experience, working with many Fortune 500 multinational brands and
was a founding partner of Renegade, a marketing services firm.

Cliff Thomas
Global Director, Cisco Systems
As a member of Cisco’s Global Enterprise Theater’s management team, Mr. Thomas is respon-
sible for business development for Cisco’s Smart+ Connected Communities. The goal of his
team is to change the way cities are designed, built, managed, and renewed to achieve economic,
social, and environmental sustainability, enabled by intelligent networks. Prior to this role, Mr.
Thomas led a $250 million global portfolio delivering technology consulting services for finan-
cial services organizations.  

Helen Ng
Managing Principal, Planet Habitat
Ms. Ng is the founder of Planet Habitat and its parent company, Domus A.D. LLC. She has also served as interim
director of Investments to launch Christie Company/Africa Integras Holdings, a developer dedicated to building
education-linked housing developments. Previously, Helen was the Global Housing Portfolio Manager at Acumen
Fund, where she oversaw investments in new town developments, mortgage finance and alternative building materials
for the base of the pyramid in India, Pakistan, and East Africa.

Spring 2011 | Business Sphere Magazine 9

 Future of Finance
The Blessing and the Curse of Capitalism
LC 102 2:50 PM – 3:50 PM
Finance is a cornerstone of capitalism, and it has become an increasingly controversial topic following the recent finan-
cial crisis. While it lays the foundation for economic behavior, it also stirs public debate and policy discussion. What
steps should governments and international organizations such as the World Bank and IMF take to avoid years like
2007-2009? How can financial companies reconcile risk-taking with corporate responsibility? Where are the invest-
ment opportunities in emerging markets?

Robert Shiller, Moderator

Arthur M. Okun Professor of Economics, Yale University
Professor Shiller is the Arthur M. Okun Professor of Economics at Yale University. His book
Irrational Exuberance is an analysis of the stock market boom since 1982. It won the Com-
monfund Prize, 2000, and was a New York Times non-fiction bestseller. Professor Shiller is co-
founder of Case Shiller Weiss, Inc. in Cambridge, Mass., an economics research and information
firm, and a co-founder of MacroMarkets LLC, which promotes securitization of unusual risks.

John W. Allen
Chairman and Chief Executive Officer, Spring Investment Corporation
Chairman and Chief Executive Officer, Greater China Corporation
Mr. Allen is chairman and chief executive officer of Greater China Corporation and has been
actively involved in Asia and China for over 30 years. He is also a trustee of the Chinese
Cultural Foundation and member of China Investment Group LLC. He assisted in founding
AIESEC in China, Mongolia, and throughout Latin America, and has served as chairman of the
Board of AIESEC, US and AIESEC Yale.

Harry Edelson
Managing Director, Edelson Technology Partners
Chairman, China Investment Group
Mr. Edelson has been named an All-Star Security Analyst by Institutional Investor magazine
and was the most quoted analyst on Wall Street for a decade. The Edelson Technology Partner
funds invested in ten early stage companies that grew to have market capitalizations of more
than $1 billion and up to $30 billion.

Mark Wei
Chairman, KGI Securities Group
Mr. Wei is Chairman of KGI Securities, the largest independent brokerage in Taiwan. He
serves as chairman of the Financial Executives Institute (Taiwan Chapter of IAFEI), director
of Financial Planning Association of Taiwan (Taiwan Chapter of CFP), and executive director
of the Taiwan Private Equity & Venture Capital Association. Prior to joining KGI Securities in
2010, Mark was chairman of AIG Investments, AIG Wealth Management, and AIG General
Insurance (Chartis) in Taiwan.

10 Business Sphere Magazine | Spring 2011

 Entrepreneurialism Online
From College Students to Innovators
LC 211 2:50 PM – 3:50 PM
From John Dell and Bill Gates to Mark Zuckerberg, college students have been behind some of the most creative
technological innovations. How should students balance entrepreneurialism with education? What is the optimal
strategy for a business world that is becoming increasingly complex and unpredictable? And how can students harness
the power of the Internet to apply their creative energies in the pursuit of entrepreneurial achievement?

Edmund Yeh, Moderator

Associate Professor of Electrical Engineering, Computer Science & Statistics, Yale University
Professor Yeh is a guest editor of the special issue on wireless networks for Internet Mathematics.
He served as the general co-chair for the Workshop on Spatial Stochastic Models for Wireless
Networks in 2010 and is also a member of the Technical Program Committees for many confer-
ences and workshops. Professor Yeh’s research interests are in the areas of future internet archi-
tecture, smart power grids and network design and economics.

Rebecca Fannin
Author, Silicon Dragon
Ms. Fannin is the author of the well-received book Silicon Dragon and a contributor to Forbes.
Her news, events, and consulting group SiliconAsia publishes a monthly e-newsletter and de-
velops conferences for entrepreneurs, technologists, and investors in China, India, Singapore,
New York, and Silicon Valley. A recognized authority on global trends in innovation, venture
capital, and entrepreneurship, Ms. Fannin has been featured on Fox Business News, Sky TV in
Australia, and China’s CCTV.

Angela Chitkara
Founder and Chief Executive Officer, US-India Corridor LLC
Ms. Chitkara is CEO of US India Corridor, a strategic level communications and business
development consulting practice serving international companies with India exposure.
Previously, Ms. Chitkara worked as a journalist for over a decade in New York, London, Johan-
nesburg, Singapore, and Mumbai . She served as a News Editor and Anchor with CNBC in
India, reporting on global markets at the height of India’s boom between 2004-2006.

John W. Allen
Chairman and Chief Executive Officer, Spring Investment Corporation
Chairman and Chief Executive Officer, Greater China Corporation
Mr. Allen is chairman and chief executive officer of Greater China Corporation and has been
actively involved in Asia and China for over 30 years. He is also a trustee of the Chinese
Cultural Foundation and member of China Investment Group LLC. He assisted in founding
AIESEC in China, Mongolia, and throughout Latin America, and has served as chairman of the
Board of AIESEC, US and AIESEC Yale.

Spring 2011 | Business Sphere Magazine 11

 I.P. Rights vs. Asia Inc.
Made in China, designed in Silicon Valley:
How can Asia innovate?
LC 102 4:00 PM – 5:00 PM
For developing nations in Asia, a main goal is to transfer foreign technology to domestic enterprises. Although many
of these countries have traditionally been negligent in the enforcement of IPR, they are gradually realizing the neces-
sity of protecting IPR as a means of attracting foreign investors and innovators. But how strong is their enforcement
of IPR, and how will it become more robust? Will it be enough to protect innovators seeking to invest in Asia? Will
domestic innovators in Asia be given the same protection?

Mark Heaphy
Chair, Technology and Outsoucing Group & Co-Chair, India Practice Group; Wiggin
and Dana

Mr. Heaphy helps clients structure, negotiate, and document domestic, near-shore and off-
shore, commercial relationships related to outsourcing strategies and technology solutions.
He frequently lectures on legal topics related to outsourcing, licensing ,and privacy issues and
serves as an adjunct professor at the Quinnipiac School of Law, where he teaches computer
law and the law of cyberspace. He is a member of the American Bar Association’s sections
of International Law and Practice, Intellectual Property Law, and Science and Technology.

Howard Chen
Partner, K&L Gates LLP
Mr. Chen’s practice focuses on representing international companies – from blue-chip
technology clients to small, aggressive startups – doing business in Asia and in the US.
Mr. Chen advises his clients on intellectual property (IP) strategies, procurement, licensing
negotiation and IP litigation arising from patent, trade secret, copyright, trademark, unfair
competition and licensing disputes. Mr. Chen also routinely advises clients on the interna-
tional aspects of the technology business, including securing IP protections worldwide and
establishing joint ventures with overseas partners.

Charles Zeynel
Founder and President, ZAG International Inc.
Following a 25-year career with the former Union Carbide Corporation in a variety of sales,
product marketing, and senior management assignments, Mr. Zeynel founded ZAG Interna-
tional Inc. in 2001. ZAG is a supplier of cement, clinker, and other raw materials; provides
strategic marketing, sourcing and logistics services; and participates in selected investment
projects within the global construction industry. Until 2006, he was also concurrently executive
vice president of Bulk Materials International, a supplier to the cement industry.

12 Business Sphere Magazine | Spring 2011

 Healthcare Tomorrow
Health Economics: Defying Traditional Practice
LC 211 4:00 PM – 5:00 PM
Equal and affordable access to healthcare services is a major challenge for both the US domestic healthcare system and
those abroad. Traditional healthcare delivery systems cannot meet the excess demand due to scarce resources. As a re-
sult, government, academic institutions, and private firms are all exploring different approaches to provide healthcare
services using new technologies. What are some of the most advanced technologies in healthcare IT and remote heal
diagnostics and treatment? How are these technologies implemented, and what are some of the challenged associated
with their implementation?

Lee Crawfurd, Moderator

Communications Project Coordinator, Innovations for Poverty Action
Mr. Crawfurd is a project coordinator in communications at the Innovations for Povery Ac-
tion. An Oxford graduate, he has worked as an economist for the Department for Work and
Pensions at the UK Government, an economist at the Ministry of Finance and Economic
Planning at Government of Southern Sudan, and has been an ODI Fellow at ODI Fellowship
Scheme.

Dr. Jishu Shi

Director of US-China Center for Animal Health, Kansas State University
Dr. Shi is an associate professor of Veterinary Medicine at Kansas State University and, since 2010,
director of the US-China Center for Animal Health. The center is designed to strengthen Chinese
animal health education and research and expand opportunities for Us animal health businesses
in the Chinese market. The holder of five patents, Dr. Shi focuses on the development of novel
vaccine technologies for animal infectious diseases.

Dr. Dena Puskin

Director, Federal Office for the Advancement of Telehealth, US Department of Health
and Human Services
Dr. Puskin is the director of the Federal Office for the Advancement of Telehealth. Prior to her
current position, Dr. Puskin served as the acting director of the Federal Office of Rural Health
Policy (ORHP). Dr. Puskin currently chairs the Joint Working Group on Telemedicine, the
Federal Interagency Committee coordinating the development of telemedicine initiatives
across the federal government and within the Department of Health and Human Services.

Dr. Kamal Jethwani

Instructor, Harvard Medical School & Lead Research Scientist, Center of Connected Health
Dr. Jethwani currently leads the research and program evaluation initiatives at the Center for
Connected Health. His research focus on technology-based models of health delivery and uses
behavior change as a tool for preventive and supportive care in a tertiary health care setting. His
work at the Center for Connected Health has spanned from designing and implementing clinical
trials to leading efforts in predictive modeling using behavioral parameters.

Spring 2011 | Business Sphere Magazine 13


The Economic Fast Track
Why the U.S. has fallen behind in high-speed rail infrastructure
By Dakota Meyers
The fresh scent of spring caressed
my nostrils as I awoke, bright and
too-early, for my flight home from
LaGuardia Airport. Instead of book-
ing an easy trip to the airport with a
van service, as had most of my room-
mates, I decided to trek to Queens the
old-fashioned way – by rail. I hastily
walked to the train station, checked
the departure board, and sprinted to
the eighth track, just in time to wait
in a rail car for 30 minutes as conduc-
tors angrily argued with maintenance
staff about the condition of the train’s
heating system. Finally, the doors
slammed, and we departed for Grand
Central Station. As the train clunked
along at approximately half the speed
of a cantor, I pulled out a copy of
the Wall Street Journal and found an
article on the currently stalled status
of the Obama administration’s efforts
to construct high-speed rail lines in
the US. Sweet congruity.
While countries in Europe and
Asia have spun webs of high-speed
rail between their borders, the United
States, a developed nation with a
strong history of investing in infra-
structure, relies on a curiously poor
passenger rail system. The reason for
America’s underdeveloped rail struc-
ture is a complex mix between high
per capita GDP and the growth of the
automobile and airline industries.
The US latency in this sector of in-
frastructure could have far-reaching
economic consequences, and unless
Americans change their attitude
toward rail travel, the government
will be unable to construct a solvent
high-speed rail network.
14
Throughout the early 20th cen-
tury, the United States stood at the
forefront of high-speed rail technol-
ogy. Electric streetcars began to run
between urban areas, laying the basis
for what would eventually become
modern high-speed rail. Booming
demand for passenger rail spurred
companies to develop faster and
more efficient trains and railroads.
Indeed, by 1905, electrified railcars
were able to reach top speeds of
nearly 100 mph.
This rapid development would
be short-lived, however, as govern-
ment regulation began to strain rail
systems. World War I played a pivotal
role in decreasing the profitability of
passenger rail. In an attempt to aid
the war effort, the government tem-
porarily nationalized railroads under
the United States Railroad Adminis-
tration. The government scaled back
many of the luxuries offered to rail
passengers in order to cut expenses.
Additionally, both rates and wages
were increased in order to ease labor
tensions.
The government re-privatized
railroads in 1920. However, by that
time automobiles had begun to gain
popularity in both public and private
transportation sectors. Eventually,
airlines also proved a formidable op-
ponent to railways. Over the next
half-century, the US government
would make tremendous investment
in the latter two methods of trans-
portation.
Finally, negative public opinion
about the safety of high-speed rail
decreased demand and ushered
waves of government regulation into
the industry. The Naperville, Illinois
Business Sphere Magazine | Spring 2011
Transportation
train disaster of 1946, in which two
high speed trains collided, killing 47
and injuring 125, led to increased
public concern about the safety of
the rail system. Additionally, the
accident caused the Interstate Com-
merce Commission to pass regula-
tions mandating that trains traveling
above 79 mph have expensive safety
features installed, further hindering
the profitability of high-speed rail in
America.
In contrast to this history, the
story of high-speed rail’s develop-
ment in Europe and Asia followed a
significantly different path. The high
price of gasoline, in addition to lower
per capita GDP and thus less demand
for personal automobiles, resulted
in higher demand for passenger rail
travel. Additionally, governments in
these continents decided to diverge
from the approach of the United
States and invest in rail to solve their
mass transit needs. The causes of this
particularly high level of investment
included post World War II rebuild-
ing efforts; the small size of many
countries, which made highway and
air travel less cost-effective; and the
relative concentration of the nations’
populace.
Among the leaders in high-speed
rail today are China and Japan.
Japan’s lines developed more from
necessity than any other factor.
Much like in many European na-
tions, transportation routes between
Japanese metros faced overwhelm-
ing demand and congestion. The
relatively short distances, coupled
with the fact that few citizens owned
personal automobiles, ultimately led
the Japanese government to invest in
high-speed rail lines. Indeed, Japan
currently ranks third in the world in
terms of active high-speed rail, and
the line connecting Tokyo and Osaka
remains the world’s most heavily
utilized rail segment.
China currently boasts the world’s
most extensive high-speed rail
network. However, its development
followed a much more clouded
path. The Chinese government faced
similar concerns about congestion;
however, in the case of China, many
potential solutions to the problem
existed. Those opposed to further
investment in the rail system argued
that a simple restructuring of train
schedules could solve much of the
nation’s congestion problems. On
the other hand, proponents of high-
speed rail argued that high-speed rail
had great potential to spur economic
growth. Eventually the proponents of
high-speed rail won, and the Chinese
government embarked on one of
the world’s largest high-speed rail
projects.
Eurasian nations’ investment
in high-speed rail will also have
far-reaching economic benefits.
Beyond allowing citizens to more
easily travel, the lines help alleviate
congestion on already overburdened
roadways. They provide access to
intercity transportation for those
who cannot afford airline travel.
Additionally, trains at full capacity
tend to use energy more efficiently
than other means of transporta-
tion. This allows for trains to play
a critical role in future efforts to
construct a sustainable mass transit
system. Essentially, high-speed rail
systems could become to Eurasia
what the interstate system has been
for the United States – an economic
backbone upon which commerce can
flourish. Increasing speeds of trains
allow workers to commute further in
order to put their skills to the great-
est use. Speed also makes markets for
goods and services more competitive
Spring 2011 | Business Sphere Magazine 15
by putting more options within each
consumer’s reach.
Because the US has no such
rail infrastructure in place, it must
continue to rely on its economically
unstable airlines and inefficient high-
way system. Though the Obama ad-
ministration recently unveiled plans
to spend approximately $53 billion
over six years on the construction of
high-speed rail segments, the high
cost and unproven profitability of
passenger rail has incited opposition
amongst politicians.
Utilization is a key determinant
of the viability of high-speed rail in
America. If routes are constantly
fully booked, rail lines can save time
and energy and achieve profitability.
However, when they are under-used,
rail lines become a veritable black
hole for subsidies. Take, for in-
stance, the current state of Amtrak,
America’s government-owned pas-
senger rail service. A 2004 study by
the Department of Transportation
concluded that passenger rail service
received more government subsidies
per passenger-mile than any other
form of transportation – $186.35 per
thousand miles. This figure compares
very unfavorably to automobile
travel, which receives no net subsi-
dies when one takes into account the
revenue generated by gasoline taxes.
High-speed rail systems work
in Asia because of its increasingly
concentrated populace. This urban-
ization allows for each rail station
to service a greater number of cus-
tomers. Suburbanization creates the
opposite effect in America. Each rail
station services fewer people, and
trains must make more stops, de-
creasing the speed, desirability, and
profitability of rail.
Additionally, Asia’s lower per-
capita GDP actually aids its economic
development in the realm of mass
transit. The fact that fewer people
can afford to purchase automobiles
increases demand for high-speed
rail travel. This allows schedulers to
more easily fill trains while still ac-
commodating the schedules of most
travelers. The US’ relatively high
per-capita GDP arguably creates the
option of using automobiles for per-
sonal transportation, and although
some roadways are clogged and in
need of repair, many Americans still
prefer the private, controllable nature
of auto travel to the stuffy, imper-
sonal ambience of a train. Thus, route
schedulers in the US face the choice
of either leaving seats unsold or fail-
ing to accommodate the scheduling
needs of large numbers of passengers.
The upside of high-speed rail,
however, must still give its opponents
pause. Currently, no other technol-
ogy has the potential to provide
such clean, efficient, and sustainable
high-speed travel as it. Because it
uses electricity rather than fossil
fuels, high-speed rail could serve as a
base for an environmentally friendly
transportation system. Successful
intercity lines could provide much
needed relief to highways and allow
for trucks to transport goods more
efficiently. Additionally, as speeds
continue to increase, high-speed rail
could greatly increase the mobility of
America’s workforce.
Though it is unclear whether
Americans will provide sufficient
demand to sustain a high-speed rail
system, it is certain that such a system
could provide tremendous benefits.
The fact that countries in Eurasia
already face sufficient demand for
rail travel from its citizenry will give
them an economic advantage over
the United States for years to come.
Indeed, Americans’ preference for
auto and air travel may leave the US
trapped, falling behind other coun-
tries and unable to adapt.
Dakota is a sophomore Economics
major in Branford College.

Inovação Brasileira
How innovation is shaping the bright future of the Brazilian economy
By Paul Joo
The Brazilian economy, repre-
sented by the first letter in BRIC
(the grouping acronym that refers
to Brazil, Russia, India and China),
is unmistakably on the rise. The
world’s fifth largest nation by both
geographical area and population,
Brazil is enjoying a period of un-
precedented development. Accord-
ing to official estimates published
last month by the Central Bank,
GDP growth reached 7.8 percent in
2010, highlighting the resilience of
its economy even in the wake of the
global recession.
A confluence of factors is fueling
the economic expansion: a wealth of
natural resources, stable government
policies, a sophisticated banking
sector and a rapidly growing middle
class that now comprises half of its
190 million-strong population. The
economy is also benefiting from a
surge in real estate and infrastruc-
ture development leading up to the
2014 FIFA World Cup and the 2016
Summer Olympics, both of which
have been awarded to Brazil.
In the coming decades, this
remarkable economic progress
will propel the country, currently
the eighth largest economy in the
world, into the ranks of advanced
nations; its economy is expected to
become the world’s fourth largest by
2040, leapfrogging the economies
of Japan, France, Germany and the
United Kingdom.
Given this strong track record
and rosy outlook, one might expect
a national sense of complacence.
16
Recife, an important center of Brazil’s burgeoning IT industry
Indeed, many Brazilian executives,
optimistic about future growth, are
reportedly in a euphoric mood at the
moment. Yet business and political
leaders are recognizing that the na-
tion’s current economic model will
need to undergo fundamental ad-
justments in order to ensure Brazil’s
continued growth in an increasingly
competitive global business envi-
ronment. The missing ingredient,
according to business and political
leaders, is innovation.
Much of the economy is depen-
dent on basic commodity exports,
such as iron ore, soybeans, coffee
and beef. These commodities con-
tinue to serve as the base of a tre-
mendously successful development
model that has reached deep into
the country’s rural interior while
also creating global corporate lead-
ers: Vale, ranked the second largest
mining company in the world, is the
top producer of iron ore and also
operates nine hydroelectric plants.
Business Sphere Magazine | Spring 2011
Latin America
Another prominent exemplar is
Petrobras, Brazil’s state-run energy
company that raised $70 billion last
September in the world’s biggest-
ever share offering. Thousands of
smaller companies have capitalized
in recent years on rising food prices
in overseas markets, transforming
Brazil into a breadbasket for agricul-
tural products ranging from poultry
to sugarcane.
Despite these successes, there is a
growing concern that the economy
lacks sufficient innovation to help it
earn the coveted stamp of advanced
nation. Brazil ranked 68th in the
2010 Global Innovation Index, an 18
point drop from the previous year.
This lackluster ranking reflects, in
part, weak government funding for
research and development: Brazil
currently devotes only 0.9% of its
GDP to research and development
spending, compared to 1.8% in
Canada, 2.7% in the United States,
and 3.0% in South Korea. Brazil’s
paltry R&D spending trails behind
even other developing countries, in-
cluding all three of its BRIC counter-
parts, both in terms of net spending
and as a percentage of GDP.
The fear is that this innovation
deficiency could translate into long-
term consequences that would limit
the growth potential of the Brazilian
economy. There is no denying the
effectiveness of the current model,
but serving a global appetite for
minerals, energy resources and
agricultural commodities will not
be enough for continued economic
expansion on a sustainable scale.
Troublingly, Brazil’s ratio of basic-
product to manufactured-product
exports reached levels not seen since
1978, underscoring the nation’s de-
pendence on commodity goods.
Business Sphere met with Dr.
Alvaro Cyrino, Deputy Dean of
EBAPE at Fundação Getúlio Vargas,
the nation’s leading higher educa-
tion institution and think tank, to
hear his opinion on the matter.
“Brazilians are a creative people,”
Dr. Cyrino asserts, “but we are not
very innovative. Brazil, in general,
is not adept at translating creative
potential into innovation.”
Much of the reason, according
to Cyrino, is cultural. “We are still
very much a culture oriented to the
formalities of government admin-
istration. College graduates value
stability and social relationships as
guiding principles when making
career decisions.” Indeed, young
Brazilians overwhelmingly favor
employment opportunities at large
corporations or in public service
over entrepreneurial risks. Cyrino
states, “If we want to foster an in-
novation culture, we have to start by
changing these patterns.”
The shortcomings of the national
education system are a cause for
major concern. Government efforts
to improve education have been
Spring 2011 | Business Sphere Magazine 17
making some strides – the literacy
rate has risen from around 82% two
decades ago to 91% – but illiteracy
remains more prevalent in Brazil
than in most of its Latin American
neighbors. Higher education is a
further weakness of the current
education system: only 13% of
Brazilians between the ages of 18
and 24 are enrolled in higher educa-
tion institutions, raising worries
about the skill level of the country’s
future workforce. Exacerbating the
deficiencies of the education system
are problematic social and regional
disparities, which are masked in
these national figures.
Another challenge to innovation
is the lack of institutional support.
“Brazil doesn’t have the right institu-
tions to support entrepreneurship,”
Cyrino says. “There are creative
people with good ideas, but they lack
the means to channel their creativ-
ity into a pipeline of products and
services in the market.” Financing
is particularly daunting in a country
where, despite the sophistication
of the banking sector, large-scale
startup capital has remained, until
very recently, a relatively underuti-
lized mechanism.
It is not that Brazil is unfamiliar
with the potential of innovation. The
most famous example is perhaps
the country’s successful ethanol
economy, which has been hailed as
the world’s first sustainable bio-fuel
program. Conceived as a response
to the global oil crisis of the 1970s,
Brazil’s 30-year-old ethanol fuel
program has become a policy model
for other nations. At a time when
the governments of many advanced
economies are seeking to subsidize
nascent alternative energy sources,
89% of cars sold in Brazil run on a
mixture of ethanol and traditional
fuel, thanks to domestically devel-
oped flex-fuel engine technology.
Due to genetic modification and
an advanced cultivation system,
Brazilian sugarcane-based ethanol
is six times more efficient than corn-
based ethanol produced in the US
and price competitive with standard
gasoline.
While the magnitude of in-
novation that transformed Brazil’s
fuel consumption has not yet been
emulated by mainstream companies,
there are clear signs that change
is on the way. The 123 national
institutes of science and over 400
incubators scattered across the
country are humming with activity
in fields ranging from cosmetics to
genetics. The fact that many of these
startup incubators are associated
with universities represents, in itself,
a complete reversal in the mindset
of Brazilian higher learning institu-
tions. “Universities here are very for-
mal institutions,” explains Cyrino.
“They were originally resistant to
the idea of entrepreneurship.” Over
the past several decades, however,
higher learning institutions have
increasingly provided support for
entrepreneurship, with incubators
such as the lab at Fundação Getúlio
Vargas leading the way.
A large percentage of the success-
ful projects developed in university
incubators have been in the infor-
mation technology sector. Brazil is
widely overlooked as an emerging
technology hub, especially when
compared to “Asian tiger” econo-
mies or fellow BRIC members China
and India, but the booming activity
in information technology clusters
across the country points toward the
growing role of technology innova-
tion in the Brazilian economy. IT is
a particularly prominent sector in
the economy of Florianópolis, the
capital of the southern state of Santa
Catarina, whose officials aspire to
position the city as “a Silicon Valley
with beaches.” Another important
IT center is Porto Digital, located on
an island off the coast of the north-
eastern city of Recife. Harnessing a
ready pool of talent from the Federal
University of Pernambuco, the Porto
Digital cluster comprises small and
medium enterprises specializing in
developing software for export to
foreign markets.
The country’s innovation po-
tential is attracting the notice of
multinationals. For example, Recife’s
Porto Digital is home to regional
offices of corporations such as Dell,
Microsoft and Samsung. In another
important vote of confidence, IBM
recently announced that Brazil
will be the location of its ninth
research center; the first new IBM
lab in 12 years, it will also be the
company’s first research center in
Latin America, reflecting the central
importance of the Brazilian market.
After construction of the new lab is
complete, IBM is planning to con-
solidate its handful of researchers at
existing locations in São Paulo and
Rio de Janeiro, in addition to hiring
scores of new researchers from both
Brazil and other regions.
Following the forays of multina-
tional corporations into the country
is an influx of new money. Venture
capital is still filtering into the public
consciousness, and the field is cur-
rently dominated by nine major
firms, but new players are revolu-
tionizing the capital landscape. By
the end of last year, nearly $30 billion
in venture and private equity capital
had been committed to Brazil, com-
pared to a mere $6 billion in 2004.
While these may pale in comparison
to figures in more traditional invest-
ment target countries, investors
interested in geographic diversifica-
tion are increasingly looking to
Brazil, and the nation’s traditionally
risk-averse business community is
opening its eyes to the possibilities
of harnessing the capital of investors
seeking a share of profits from the
18
region’s development.
This fresh mentality, backed by
a rapidly growing pool of financing
options, is fueling a wave of innova-
tion, and not just in the information
technology sector; even traditional
industries have been transformed by
new ideas. Most notably, the 365%
expansion of the agricultural sector
over the past decade is largely due to
the efforts of EMBRAPA, the Brazil-
ian Agricultural Research Corpora-
tion, which utilized innovative
technology to help farmers convert
vast cerrado savanna in the states of
Goiás and Minas Gerais into some
of the world’s more fertile farmland.
A new initiative in another com-
modity industry aims to increase the
productivity of forests, an especially
relevant issue in a country trying
to balance economic development
with environmental preservation.
Financed by international partners,
the ambitious project is creating a
system that enlists the cooperation
of tree growers and landowners
in exchange for a greater share of
profits. Many of Brazil’s pulp and
paper companies are already indus-
try leaders, largely thanks to natural
competitive advantages – a eucalyp-
tus tree here can grow to maturity
in just seven years, compared to 15
years for similar trees harvested by
the industry in the northern hemi-
sphere – and the hope is that, by
encouraging a more equitable dis-
tribution of gains, these companies
will be able to maximize efficiency
in a financially and environmentally
sustainable manner.
These examples of successful in-
novation in traditional industries are
significant because, as even the most
optimistic forecasters understand,
Brazil will not become a high-tech
hub overnight. A commonly cited
obstacle is that the nation lacks an
ecosystem that encourages risk tak-
ing and creative thinking, due, in
Business Sphere Magazine | Spring 2011
part, to the fact that the economy
was closed until a couple decades
ago, and there was little incentive
for product innovation. When the
country did begin to open up for
trade, skyrocketing interest rates
diverted corporate priorities away
from meaningful innovation, with
the exception of a few pioneers.
In some ways, the continued
lack of high-tech innovation is the
product of the handsome profits
that are available in more traditional
industries. Never before have Brazil-
ian coffee, soybeans, beef and paper
products been in such high demand;
the incentives in these industries are
tremendously enticing for jobseek-
ers and investors alike. As a result,
the majority of the best new ideas,
such as novel business models,
remain confined to the agricultural
and mineral commodity corpora-
tions.
Many native businessmen view
this dual-track role of innovation
as a national asset rather than a
weakness. The long-term goal is to
push the country’s exports up the
value chain, but this does not re-
quire abandoning the industries that
have brought the nation to where
it stands today. Indeed, there is a
growing conviction that Brazil can
create its own developmental model
by leveraging its natural competitive
advantages and maximizing returns
in traditional industries while laying
the groundwork for a forward-look-
ing economy based on homegrown
innovation. And if the currently
small but growing role of innova-
tion in the national economy is any
sign of what is to come, the future is
bright for the Brazilian model.
Paul is a junior Cognitive Science
and International Studies major in
Berkeley College.
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Outsourced in America
The growth and transformation of the overseas outsourcing industry
By Jennifer Barrows
In the fall of 2010, NBC began
broadcasting “Outsourced,” a comedy
where the American Midwest meets
“the exotic East in a hilarious culture
clash.” In this show, American Todd
Dempsy is sent to run his company’s
Indian call center, the locus of not
only ubiquitous office politics, but
also cultural misunderstandings. Of
course, television’s fascination with
the clash of culture and civilization
is not new, but this storyline’s subject
matter is quite unusual: outsourcing
is rarely approached outside of news
broadcasts and rarely is seen as fodder
for humor. Indeed, with the United
States’ unemployment rate hovering
around 10%, outsourcing has once
again become a major buzzword.
These days, “shipping jobs over-
seas” is a mainstay of economic
discussions. In the information tech-
nology (IT) industry alone, India’s IT
exports have “exploded,” as reporter
Dan Rather notes in an investigation
of Indian-American trade deals, to
$50 billion from $6 billion over the
last two years. However, the Under-
secretary of Commerce for Inter-
national Trade Francisco J. Sanchez
continued to express confidence in
American companies’ commitment
to their end of these trade deals to
create American-based jobs as well.
Do the broadcast of the show
“Outsourced” and Undersecretary
Sanchez’s expression of confidence
indicate a positive shift for the
United States in the outsourcing of
American jobs, or is it acceptance of
this now-entrenched practice in our
society? Perhaps a broad investiga-
Spring 2011 | Business Sphere Magazine 21
tion into the status of the outsourcing
industry in today’s economy will shed
some light on this still controversial
issue in American society and where
“Outsourced” fits in this puzzle.
The greatest attraction to out-
sourcing any job – from line manu-
facturing and order processing to IT
and legal research – is labor arbitrage.
This effect has followed the relax-
ation of international trade barriers
and signifies the movement of jobs
to nations where labor and the costs
of doing business are significantly
lower. However, in recent years, the
effect of labor arbitrage has decreased
significantly due to inflation in many
other countries. Thus, companies can
no longer apply the same strategies
and methodologies as they have in
the past when deciding to move or
expand overseas operations.
Instead, as a recent BusinessWeek
article notes, the new idea taking
hold is “transformational outsourc-
ing,” the idea that outsourcing
needs to be about more than just
the bottom line now, a term that
connotes positive change for all par-
ties. As part of this line of thought,
outsourcing should consider broad
corporate growth, maximizing the
role of American staff, and perhaps
even creating additional supporting
jobs in the US. Both small companies
and intimidating multinationals are
in fact utilizing this idea to maximize
efficiency and customer service:
small companies believe that for the
speed and cost, the level of passion
and commitment offshore is higher
than those in-house, while large
companies often want to steer their
best domestic workers toward con-
Political Economy
stant, high-quality innovation.
However, a recent study by Duke
University’s Center for International
Business Education and Research
together with The Conference Board
found that average cost savings
achieved by moving jobs offshore
has declined over the past five years.
Though partly attributable to infla-
tion, the study found that the compa-
nies surveyed were weighed down by
“hidden costs of outsourcing,” such
as lack of efficiency. Indeed, going
back to the idea of transformational
outsourcing, the companies that
were most successful in the CIBER
survey were those that had employed
a “corporate-wide strategy to guide
offshore decisions.”
In terms of production, exports
from low-cost countries dropped
$800 billion at the height of the
financial crisis (from $3.8 trillion to
$3 trillion). According to a Boston
Consulting Group report, the lack of
recovery from these levels indicates
that companies today do account
for the total costs of outsourcing.
“Near-sourcing” is the latest trend
in production, where companies are
moving production toward Latin
America. David Spooner, a former US
trade negotiator, touts that through
CAFTA (Central America Free Trade
Agreement), the average piece of
clothing imported to the States con-
tains 70% American-made yarn and
fabric. Yet this figure remains inher-
ently problematic for many people:
the article of clothing is still made by
non-Americans. Corporate America
may be revamping their processes but
this idea of cost advantages continues
to hold precedence over many other,
perhaps more patriotic, consider-
ations. An investigation of the IT and
other more white-color industries
will confirm this view. However,
these perspectives are complicated
by a tension between components
of transformational outsourcing and
the overarching desire to compete
with costs.
An Outsourcing Viability Index
by TPI, Inc., an IT consultancy,
recently noted that based on six
measures – including infrastructure,
technology, and education – the Asia
Pacific region dominated the top 10
out of 51 countries. As one would
expect, India is the powerhouse of
this movement. IBM, for example,
has more people working in India
than in the United States. Indeed,
India has roughly 2 million people
employed in outsourced IT and busi-
ness process (e.g. order processing
like that in “Outsourced”). These
two industry’s exports are expected
to grow by 18.7% to $59 billion this
year. Of note, however, is the fact that
last year, the Philippines earned $5.7
billion over India’s $5.5 billion in call
center revenues, demonstrating the
increasingly competitive interna-
tional stage for outsourcing.
Strangely, while many in the States
only associate painful experiences
with these call centers and IT support
desks, in fact many Indian compa-
nies are adopting practices to ensure
smoother processes and reduce not
only the misunderstandings between
the customer and the employee,
but also the inter-office clashes that
are humorously featured on “Out-
sourced.” In the second episode of
“Outsourced” for example, we see
Tom Dempsy attempt to complete
employee reviews as he is faced with
firing one employee. Indeed, Indian
companies are adopting Western
management ideas such as leadership
training, 360 degree feedback, and
even Sig Sigma as integral elements
of their business practices.
22
Arguably an element of overall
corporate growth, the integration of
Western practices has also dovetailed
with the integration of Indian work-
ers into the American physical work
space. A sort of reverse outsourcing,
American companies are now hiring
foreign nationals to do work in the
States. Strangely, less than a third of
the companies in the CIBER survey
stated that outsourcing innovation
services was a result of a lack of
qualified domestic workers. The
contradictions of this industry are
underlined by the example of Infosys.
In 2010, the company wrote in its Se-
curities and Exchange Commission
filing that the discontinuation of the
United States’ H-1B and L-1 visa pro-
grams, which allow Indian nationals
to work in the United States, “would
pose a significant risk to its business
model.”
Companies in India – of Ameri-
can or Indian origins – are highly
cognizant of the negative perceptions
their location and growing promi-
nence have in the American psyche.
Last August, Senator Chuck Schumer
went so far as to call Infosys – one of
the largest India IT companies with
locations in 33 countries – a “chop
shop,” dealing a rhetorical blow to
the performance strength of Indian
companies. To counter these feel-
ings, the US India Business Council
(USIBC) suggested that if Indian
IT companies created jobs in the
United States for Americans (can
jobs outsourced to India actually
be outsourced…back to the United
States?), negative American thought
could begin to dissipate. It is unclear
when this pushback strategy will
be implemented if ever, but the
ramifications of this suggestion are
interesting to contemplate.
The USIBC argues that the US,
still plagued by high unemployment,
would welcome the creation of thou-
sands of new jobs. At a time when the
US has lost roughly 250,000 IT jobs
Business Sphere Magazine | Spring 2011
over the last two years, Americans
greatly desire the chance to work
again. Just how effective this initia-
tive will be against growing senti-
ments of protectionism is difficult
to ascertain, considering the strong
patriotic emotions tied to this move-
ment. However, it is clear that the
growing dominance of India – and
China and the Philippines, for that
matter – in white-color professional
work means increasing competition
for educated Americans.
Perhaps, as Tom Kim, a transpor-
tation researcher at Goldman Sachs
in Hong Kong, states, discussions
about jobs moving back to the United
States are unreasonably overhyped.
Given the current trends in the out-
sourcing industry, India, China, and
the rest of Asia will only continue to
attract more multinational firms as
they find new ways to cut costs and
add value.
The rapid growth of demand in
India for “outsourced” jobs is clear
in a recent story accounting a pilot
project in a high-security prison
near Hyderabad, a business process
outsourcing hub in India, in which
prisoners are being trained to work
in an on-site call center. Almost
straight out of a television serial, this
development underlines the prestige
of outsourced jobs in India, where
“white-color professional” jobs can
garner $9,000 a year.
Thus, it’s difficult to understand
the place that “Outsourced” has and
will have in American minds. While
met with positive reviews in India
and bought for a full season on NBC,
the show does come at a pivotal time
in American politics. It may be that
comedy is the best way to relieve the
stress.
Jennifer is a junior History major in
Davenport College.

Credit Default Swaps:
A Ticking Time Bomb?
An analysis of the impact of reflexivity on credit default swaps
By Monish Shah
Warren Buffett, who has called
financial derivatives “weapons of
mass destructions,” singled out the
credit default swap as a ticking “time
bomb.” Leading European politi-
cians such as Nikolas Sarkozy and
Angela Merkel have blamed “naked”
credit default swaps – that is, swaps
purchased by investors not holding
the underlying security – as a root
cause of the Greek economic col-
lapse in the summer of 2010. In the
run-up to the Greek collapse, Greek
Prime Minister George Papandreou
scathingly noted how Greece had
become the latest “target” of “un-
principled speculators.” Billionaire
financier and speculator George
Soros has himself criticized specula-
tors for using credit default swaps,
calling them vehicles for brazen
“bear raids” that heighten volatil-
ity throughout the global financial
system. Critics of the credit default
swap have pointed to how the in-
strument accelerated the collapses of
Bear Stearns and Lehman Brothers
and necessitated an approximately
$62.5 billion bailout for the insur-
ance giant, American International
Group (AIG).
In the light of such vitriolic
criticism of the instrument, Terri
Duhon, who created the first Broad
Index Securitized Trust Offering
(BISTRO), a proto-credit default
swap, as a 25-year old M.I.T.
graduate for J.P. Morgan in 1997, re-
Spring 2011 | Business Sphere Magazine 23
sponded indignantly, “Sadly, they’ve
been vilified…It’s like saying it’s the
gun’s fault when someone gets shot.”
Indeed, Duhon raises the salient
question of whether credit default
swaps pose an intrinsic danger to the
financial system. While the reputa-
tion of credit default swaps has been
tarnished with a broad brush, this
article will focus on sovereign credit
default swaps purchased by debt
investors to guard against sovereign
risk (the risk of a country defaulting
on its obligations).
“
While market par-
ticipants’ investment
decisions are indeed
shaped by credit
default swap prices,
their decisions in turn
shape the prices.
Tool for Efficient Price Discovery?
A recent report prepared by ana-
lysts at Citigroup compared credit
default swaps to mirrors which can
accurately portray the condition
of the underlying security, better
informing an investor’s decision
making process. These advantages
become particularly clear when
contrasted to the expert-based as-
Finance
sessment of credit ratings. Credit
ratings are quickly rendered out-
dated by market movements. In
addition, agencies suffer from what
is known as an “agency problem,”
that is, a conflict of interest from
being paid for their services and
providing independent, objective
credit assessment. In contrast, the
reflexive, market-based measures
of credit default swaps offer market
participants real time and unbiased
sovereign credit risk assessments
that can help investors.
However, price discovery is not
a one-way process. While market
participants’ investment decisions
are indeed shaped by credit default
swap prices, their decisions in turn
the prices. George Soros has de-
scribed this interaction as reflexivity,
“a two-way feedback mechanism in
which reality helps shape the partici-
pants’ thinking and the participants’
thinking helps shape reality in an
unending process…[which] inter-
prets social events as a never-ending
historical process, not as an equilib-
rium situation.”
This inherent reflexivity of the
credit default swap allows it to offer
distinct benefits. Most significantly,
the efficient price discovery mecha-
nism of a credit default swap allows
investors a more judicious valuation
of sovereign debt. This helps reduce
financial instability because inves-
tors can invest more closely to their
risk and reward appetite.
However, that sovereign credit

default swaps can be traded in real
time is a double-edged sword. The
efficiency in price discovery which
makes the credit default swap
beneficial to financial markets only
operates in an ideal scenario. More
disconcertingly, the reflexivity of
the credit default swap causes sig-
nificant financial instability. Just
as falling sovereign credit default
swap spreads indicate a decreasing
credit risk, rising sovereign credit
default swap spreads ring alarm
bells on increased sovereign credit
risk. Advocates of the credit default
swap argue that the instrument has
become an expedient lightning rod
for politicians and the media as the
bearer of bad news about underly-
ing sovereign debt.
Yet, is the reflexivity process of
credit default swap actually accurate
in its assessment of underlying
credit? After all, the market is not
made up of perfectly rational actors
who respond and inform the market
price objectively. If stock prices are
subject to wild, irrational swings due
to “animal spirits” among investors,
why should the credit default swap
be exempt? This property makes
the credit default swap all the more
unstable to the market.
24
Irrationality of “Animal Spirits”
Subject to an arbitrary process of
reflexivity, “animal spirits” can cause
credit default swaps to reveal “false
positives” from irrational market
hysteria. This volatility of credit
default swap movements cannot be
explained merely through a funda-
mental analysis of sovereign debt,
but must involve a close study of
macroeconomic and fiscal variables
like levels of debt and deficit.
A Financial Times Alphaville
note entitled “It’s Not Just the
Economy Stupid” recently reached a
conclusion on the importance of be-
havioral factors like risk aversion in
credit default swap spreads, stating
that “when markets move, the Pav-
lovian reaction of economists is to
look for a fundamental explanation.
We tried to explain the behavior
(sic) of spreads only by fundamental
variables. We used fiscal variables…
[and] macroeconomic data…The
results, frankly speaking, are appall-
ing.” In fact, the economists found
compelling evidence of a “regime
shift” – that is, a statistically signifi-
cant risk aversion – when they used
data from the latest Eurozone crisis.
Thus, credit default swap spreads are
more than just passive reflections of
economic conditions, but rather are
reflections of market participants’
personal biases.
The real-time reflexivity of credit
default swaps would give investors
the confidence that they would be
able to time an exit from a troubled
sovereign. Yet, with many investors
simultaneously seeking to exit a
troubled sovereign, credit default
swaps significantly amplify the dis-
tressed sovereign credit risk signal.
Thus, in what is a classic prisoner’s
dilemma situation, what is good for
the individual when done alone,
need not be good for the market
when done in unison. The herd-like
Business Sphere Magazine | Spring 2011
behavior negates individual actions
and causes a self-fulfilling conta-
gion.
A rising credit default swap
spread would be a sign for an inves-
tor to sell the underlying debt. Yet,
selling begets selling, sparking a
mass selloff in the market. While
the stampede of the herd towards
the exit door is highly dangerous
on its own, adding “bear raiders”
(speculators who look to profit from
distressed debt) to the mix exacer-
bates the instability caused by the
relationship between reflexivity and
human behavior.
The Speculation of Naked Credit
Default Swaps
“Bear raiders” identify distressed
debt and purchase the associated
credit default swap without owning
the underlying debt – hence the
term “naked” credit default swap.
Since the credit default swap func-
tions as insurance for investors, the
demand for it increases in times of
market distress. Thus, the naked
credit default swap creates a “moral
hazard” for speculators to spark a
“run” on the underlying security.
By shorting the underlying sover-
eign debt or even the country’s cur-
rency, speculators can profit from
short-selling. But, a “run” on the
underlying sovereign debt causes
an increased demand and price for
sovereign credit default swaps. Thus,
speculators can enjoy the upside of
a credit default swap by holding it
for a short time before selling it to
debt holders seeking a hedging tool.
Hence, author Daniel Gross has
likened the purchase of a credit de-
fault swap to that of a “casino chip.”
“Many people buying credit default
swaps for a country don’t expect to
collect the insurance; they expect to
sell the insurance policy to some-
body else. For investors, sovereign
default swaps are not buy-and-hold
insurance policies. They are a form
of casino chip…” he states.
The Greek Finance Minister
similarly accused “unprincipled
speculators” of “making billions
every day by betting on a Greek de-
fault.” Hedge funds have commonly
been singled out as “unprincipled
speculators.” Paul Krugman too has
pithily observed that “hedge funds
don’t hedge.” Hedge funds counter
this criticism, arguing that they play
a crucial role as sellers of much-
needed sovereign default insurance
at a time of heightened concern
about the underlying economy.
Contrary to common perception,
hedge funds often go long. Michael
Ampden-Turner, an analyst at
Citigroup, reports that credit default
swap spreads on Greece would have
been even higher without hedge
funds acting as willing sellers to
banks seeking insurance for their
exposure to Greek sovereign debt.
While this defense softens the
criticism of hedge funds as short
sellers of credit default swaps, it is
important to remember that hedge
funds originate and distribute credit
default swaps. According to a report
by Bank of America, hedge funds
account for 31% of all credit default
swap issuances, including sovereign
“
credit default swaps.
The effects ripple
through the economy
as the sellers of naked
credit default swaps
like hedge funds pass
on the risk to other
entities.
Spring 2011 | Business Sphere Magazine 25
Thus, while reflexivity is a two-
way process between the seller
and purchaser of the credit default
swap, it is not merely a “zero-sum”
speculative bet. Rather, the effects
ripple through the economy as the
sellers of naked credit default swaps
like hedge funds pass on the risk to
other entities. This creates a web of
opaque connections throughout the
system that can spark international
contagion. To adapt John Keynes’
words, the markets can stay irratio-
nal longer than a sovereign can stay
solvent.
International Contagion
Michael Lewis and David Ear-
horn have compared the practice of
buying naked credit default swaps
to “buying fire insurance on your
neighbor’s house.” Despite the mali-
cious implication of this description,
there are good reasons for investors
to purchase naked sovereign credit
default swaps. More importantly,
the reflexivity of the credit default
swap allows it to wreck havoc even
at low volumes relative to the under-
lying sovereign debt. Richard Portes
has likened the impact a low volume
of sovereign credit default swaps
can have to George Soros’ famous
$10 billion wager against the Brit-
ish pound in 1992. This was a mere
fraction of the approximately $100
billion which made up daily foreign
exchange trading volume in the
pound. Yet, the symbolism of Soros’
action was significant enough to
create a selling frenzy, even though
the actual amount of the bet was
small.
The danger of a frenzy caused by
small changes is particularly acute
in today’s age of global reporting,
high frequency trading, and global
capital markets. Mark-to-market
accounting magnifies the impact of
any bad news on the underlying sov-
ereign debt. Indeed, Robert Shiller
and George Akerlof have written
about the importance of “stories”
in shaping the mood of the mar-
ket. Credit default swaps are now
regularly reported by the financial
press and have entered the lexicon
of most market participants. Thus,
these market participants are highly
sensitive to any widening spreads in
credit default swaps. Rising credit
default swap spreads are enough to
serve as a sign of a souring market
sentiment and cause a massive shift
in investor confidence. Moreover,
high frequency credit default swap
index trading methods have already
been developed that capitalize on
spreads from instantaneous market
fluctuations. Such improved finan-
cial technology platforms can be a
double-edged sword: the reflexiv-
ity of sovereign credit default swaps
can cause small economic, political
or psychological ripples that rapidly
impact the larger market.
Conclusion
Ultimately, credit default swaps
are not inherently beneficial or
dangerous. Rather, the reflexivity
of the credit default swap makes it
a reflection of our own collective
moods and they will only prove as
useful or dangerous to international
financial markets as we let them
be. It is unsurprising then that the
uncertainties introduced by the re-
flexivity of credit default swaps are
posing a big headache for financial
regulators.
Monish is a junior Economics major
in Morse College.

China and the American Capitalist
Growing trends in international finance and their risks
By Evan Beck
In the last decade an increase in
the number of foreign companies
trading on American exchanges has
yielded a strong field of opportunities
to invest in Chinese corporations.
Both microcap startups and recently
privatized companies that once were
major government enterprises are
now traded publicly in the United
States. However, what many amateur
investors fail to realize is the shaky
foundation on which many Chinese
companies begin trading on Western
soil. Though many lucrative oppor-
tunities with exponential revenue
growth exist in China, a startling
proportion of the nation’s companies
began to trade in the United States
through sketchy reverse mergers,
bypassing the traditional IPO (initial
public offering) and the regulations
that come with it. At the same time,
many other Chinese companies have
been exposed as fraudulent, their
financial statements and tax filings
uncovering suspect operations with
exaggerated valuations.
A reverse merger occurs when a
foreign company, often Chinese, of
small or micro market capitalization,
merges with the shell of a failing
American corporation that already
is being traded publicly on a US
exchange. This process allows for a
company to simplify the IPO process
other companies go through to be
traded on the NYSE or Nasdaq ex-
changes, offering a legitimate path to
seeking public capital from overseas
investors. In a CNBC article entitled,
“Chinese Firms Using ‘Back Door’
to US Exchanges,” Herb Greenberg
26
estimates that 70 Chinese companies
have used a reverse merger approach
to trade their stock on the Nasdaq
alone. He has found that two dozen
more have used the process to list on
the AMEX and another dozen for the
NYSE. In total, $30 billion in market
value is being traded through this
irregular process.
Even larger Chinese companies
have taken advantage of the process,
which can be completed in just
weeks. What’s the big deal? Reverse
mergers are legal, after all. For start-
ers regulations by the SEC were
lax up until a few years ago in this
arena; and without the backing of a
large investment bank that usually
catalyze IPOs, trading volumes of a
reverse merger company are often
slim, failing to pick up traction for
American investors. Further, these
shell companies still carry the stigma
of being “failed companies” even
after being newly acquired. These
factors, and the fact that companies
attempting the reverse merger route
typically are valued at no more than
$100 million, suggest the allure of
emerging companies out of China.
A new variation of the reverse
merger has emerged in recent years,
known as the Form 10 approach.
This involves the creation of a shell
company in the US that had never
existed as a functioning enterprise.
Instead, its full purpose is to ease
the transition into American trading
and bypass the IPO process. A Form
10 shell allows a Chinese company
to enter American exchanges with a
clean slate, but does not protect the
uninformed investor from the risks
associated with microcap investing
Business Sphere Magazine | Spring 2011
Finance
in Asian stocks.
Moving beyond the reverse
merger approach often utilized by
Chinese microcap companies is the
more well-known approach of listing
a foreign corporation on American
markets through an American De-
positary Receipt (ADR). An ADR is
a certificate representing a foreign
company as shares on a US exchange
distributed through domestic
financial instiutions. Traded in US
currency, an ADR allows for foreign
companies to gain transparency and
credibility in the eyes of American
investors who value the prestige of in-
stitutions trading on the big domestic
exchanges. Though an ADR allows
an investor-friendly approach for
foreign companies, its value rises and
falls due to the health of the company
in question, and the economic vital-
ity of the nation in which it resides. It
should be noted that as the economic
turmoil enveloped the world, China
powered through, its real GDP grow-
ing an impressive 10% from 2009 to
2010. Yet now a growing fear from
many familiar with Chinese markets
suggest a property bubble leading
to an American-style market crash
in the nation. Whether or not this
proves true, the idea has lead many
to be critical of the “rush” to Chinese
equities.
In response to the growing de-
mand by American and European
investors to understand the strength
of Chinese companies trading in
America, an index was developed
with the same goal as that of the Dow
Jones Industrial Average: to measure
the daily fluctuations of the market.
The difference is that the Halter USX
China Index has a specific target, its
quantitative value reflective of the
changes in price of US-listed Chinese
companies valued at over $50 mil-
lion. As would be expected the Halter
Index surpasses the DJIA, S&P 500,
and Nasdaq indices in daily volatil-
ity. The Halter Index has seen gains
of 20% in the last 52 weeks slightly
more than that of the DJIA and less
than the NASDAQ. Interestingly, the
correlation between the Halter Index
and U.S. indices strengthens; suggest-
ing strong investor faith in domestic
Chinese investments. As China con-
tinues to grow and dominate foreign
business news, the Halter USX China
Index offers a new level of familiar-
ity to the amateur and professional
investor alike.
Tight capital controls ensure that
the vast pools of domestic capital
allow strong equity financing op-
portunities domestically as well. In
fact, the Shanghai Stock Exchange
is the fifth largest in the world with
a market capitalization approach-
ing US $3 trillion. The emerging
Shenzhen Stock Exchange is among
the top fifteen in the world in terms
of market capitalization, impressive
considering it was founded just
over two decades ago. Domestic
exchanges are growing powerhouses
with billions of shares trading every
week. Many Chinese companies have
capitalized on dual listings, allowing
their shares to be traded across conti-
nents, propelling the profile of many
Chinese corporations.
Even though Chinese exchanges
control a noteworthy amount of
world capital, China is notorious for
a loose regulatory environment with
companies known to hire fraudulent
auditors keeping multiple financial
filings to evade proper tax codes. A
January 2011 New Yorker (“Don’t En-
ter The Dragon”) chronicles the risks
associated with the rush to Chinese
small caps. James Surowiecki writes
of RINO International (RINO), a
Spring 2011 | Business Sphere Magazine 27
maker of eco-friendly equipment,
which spent much of 2009 on top
of Investor’s Business Daily’s 100
list. Soon after, RINO was forced
into admitting in an SEC filing that
two of its manufacturing contracts
never existed and had been recently
delisted from the Nasdaq for failure
to disclose financial information.
Currently RINO trades more than
90% below its peak.
A handful of other Chinese small
caps have been accused of fudging
revenue and profit numbers lead-
ing to a shaky climate among much
of the nation’s American-traded
companies. China Sky One Medical
(CSKI) is one of China’s most notori-
ous American-traded companies.
Any online search of the company
will yield a disturbing array of articles
relating to the company’s shoddy
business practices. In 2009 the SEC
began an investigation into Sky One,
soon after revenue forecasts for the
year were cut and high profile short
sellers began attacking the stock.
Today the company is still traded on
the Nasdaq exchange, though at a
fraction of its 52-week high of $18.
In the months since the onslaught
from short sellers, the company has
counted the arguments against its
business, but the damage to its cred-
ibility has already been done.
One may believe the lesson learned
is to not trust Chinese equities, but
that would be an incorrect conclu-
sion given the lucrative opportunities
that exist in all emerging markets.
With last year’s GDP valued at US $6
trillion, China’s economy surpassed
Japan’s, becoming the second largest
in the world. By some estimates it
will be less than 30 years until the
United States’ economy is surpassed
by China. For these reasons, ignor-
ing investment opportunities in
the Far East would be a mistake, as
there are sure to be companies that
will grow into giants in the coming
years. When investing in stocks, it
is always important to do research
and be skeptical. When it comes to
China these rules hold true, just to a
higher degree. It may hold true that
in China, the more risk one endures
may mean more rewards in years to
come. Only time will tell.
Evan is a freshman in Branford
College.

Reining in Microfinance
Too much of a good thing?
By Nabila Chitalwala
India, home to a quarter of the
world’s poor but also one of the
hottest economies, has witnessed
an explosion in the activities of
microfinance institutions (MFI).
The industry has been growing at
an astronomical rate: India’s micro-
lending has expanded at an annual
average rate of 62% over the past five
years in terms of number of custom-
ers and by 88% in terms of credit,
according to Micro-Credit Ratings
International Ltd., an India-based
rating company for the industry.
While some are ecstatic about the
industry’s growth, which they be-
lieve offers a promising path out of
poverty for millions, many others
are worried by these figures, and
perhaps rightly so.
Much of this astounding growth
can be attributed to the push that
microfinance has received during
the last two decades from for-profit
“social enterprises” as well as initia-
tives introduced by the government.
The rapid growth of the industry can
be traced back to venture capitalists,
private equity firms and commercial
banks that saw an opportunity to
make money while serving a social
need. The microcredit bubble was
further inflated by government
rules that mandated lenders to
keep pumping out microloans. For
example, New Delhi’s regulations
required banks to devote 40% of
the money they lent to a category
of borrowers to go to rural outfits,
and microfinance was a convenient
means to fulfill this obligation.
28
But such predatory lending with-
out looking at the borrower’s ability
to pay back the loan is frightening.
This concern is echoed in the words
of D. S. K. Rao, the Asia organizer
for the Microcredit Summit Cam-
paign: “In [MFIs’] anxiety to expand
very fast, they are pushing loans.
They are not careful in vetting.” The
MFIs do not require their clients to
provide collateral or even outline
their business ideas to lenders. In
fact, this rapid growth has deterred
lenders from keeping regular tabs on
borrowers who are then left to their
own means. In India in 2006, there
was only one staffer per 439 borrow-
ers according to the Microfinanace
Information Exchange in Washing-
ton, a statistic that fared poorly com-
pared to the corresponding statistics
in Bangladesh and Afghanistan,
where the ratios were 1:131 and
1:54, respectively. These numbers
pointed toward growing negligence
in the industry, which was perhaps
expanding faster than it should have
been. As a representative from the
All India Democratic Women’s As-
sociation recently lamented, many
borrowers do not know what they
are getting into. Lenders often hand
over the money without taking the
time to educate borrowers, who
remain unaware that there are stiff
penalties for defaulting on the loans.
What is even more worrisome
is the vicious cycle of debt that
microfinance is creating. Many bor-
rowers apply for microloans without
complete knowledge of the system
and the purpose of these loans and,
sometimes, do not start businesses
Business Sphere Magazine | Spring 2011
Finance
with the money they borrow but
rather use it to pay for urgent ex-
penses like children’s school fees and
medical expenses. In effect, much of
the huge surge in terms of number
and magnitude of loans – $1.3
billion in 2006 as compared to $4
million in 1996 – that the industry
has witnessed is often being abused
as handouts for consumption rather
than as seed money for enterprise.
This practice drives some of these
borrowers to borrow in turn from
other sources to repay these loans.
They are vulnerable to falling into
the clutch of moneylenders who
know they can charge atrocious
interest rates, fueling a cycle of debt
that quickly spirals out of control.
Some of these debtors, unable to
repay their mounting debts, resort to
suicide. The increasingly common
reports of suicide among borrow-
ers, coupled with public anger over
abuses in the microfinance industry
– MFIs were allegedly using force
to ensure loan repayment – forced
legislators in the state of Andhra
Pradesh to delineate the ways in
which MFIs could lend and collect
money.
Andhra Pradesh is the backbone
of India’s microfinance industry;
more than one in every three micro-
loans in the nation is issued in that
state. Consequently, the public
uproar and the government’s stern
reaction in the state have since sent
the microfinance industry into a
scramble, raising questions about
the future of the industry.
Some politicians in the state have
egged on borrowers to cease repay-
“
Some politicians in
the state have egged
on borrowers to
cease repayment of
their loans, claiming
that the industry has
become no better than
the widely despised
moneylenders it was
intended to replace.
ment of their loans, claiming that the
microfinance industry has become
no better than the widely despised
village moneylenders it was intended
to replace. Vasant Kumar, the state’s
Minister for Rural Development,
claims that these institutes “are not
looking at sustainability or ensuring
the money is going to income-
generating activities.” He argues that
their sole aim is profitability, and
that they are using coercive methods
to collect their money. Backed by
their political leaders, multitudes of
borrowers in the state have defaulted
on their payments and it is estimated
that repayment of loans amounting
to nearly $2 billion has ceased. The
outlook for the industry is dismal
and many fear that it could face col-
lapse, at least in this region.
The perception that these MFIs
are earning outsize profits at the ex-
pense of the poor may have stemmed
from the influx of the private sector
into the industry and the emergence
of many for-profit MFIs. The catalyst
for this reaction may have been the
initial public offering of shares of
SKS Microfinance, India’s largest
for-profit moneylender. The com-
pany raised more than $350 million
Spring 2011 | Business Sphere Magazine 29
on the stock exchange and has been
seeing its revenue and profits grow
by 100% in recent years. In fact, SKS
Chairman Vikram Akula sold shares
worth about $13 million last year,
fueling claims that these companies
are unfairly profiteering on the backs
of the poor.
In response to such sentiments,
Akula fervently defends the micro-
credit model, claiming that these
institutions have some of the world’s
lowest interest rates for small loans.
In fact, he does not see the fierce
growth of the industry as ominous,
claiming that the surge in volume of
transactions has helped SKS Micro-
finace reduce its interest rate by six
points. Nevertheless, there are some
industry insiders who are cautious
about the rapid growth of the indus-
try. Vijay Mahajan, the chairman of
Basix, an organization that provides
loans and other financial services
to the poor, concedes that perhaps
lenders have lent too quickly and
too aggressively, fueled by invest-
ments of private equity firms and the
prospect of a coveted stock market
listing. However, he maintains that
officials have exaggerated the extent
of the crisis and that the number
of borrowers who are struggling to
pay their debts is much lower than
official assessments indicate; by his
estimates, less than 1% of borrowers
are in dire trouble.
The government strongly contests
such low estimates by private insti-
tutions. It claims that is it difficult
to find households in villages with
heavy microcredit activities that
are not deeply mired in debt to a
for-profit microfinance company, a
distressing fact that has spurred law-
makers to pass a stringent ordinance
controlling the activities of these
institutions. As a result of this leg-
islation, banks, which have financed
80% of these MFI loans and have
$4 billion tied up in the industry,
are worried about bearing serious
losses. Narayanaswami Srinivasan,
who consults for the World Bank
and the Asian Development Bank
estimates that as many as 60 to 70
of the nation’s 260 MFIs are going to
collapse in the coming months.
But even many skeptics who were
extremely bothered by the preda-
tory lending practices of these MFIs
agree that the potential collapse of
the industry would be devastating
for the poor. The poor would have
to revert to borrowing from unau-
thorized moneylenders who charge
usurious interest rates outside the
formal credit delivery system; an
entire class would be forced from the
frying pan back into the fire.
There is no doubt that interven-
tion by the government is desperate-
ly needed. But instead of spreading
panic in the industry by imposing
strict and sudden regulations over
the activities of these MFIs, the
government should take steps to
remind these institutions of the
goals of microfinance and, in doing
so, align itself with Mahajan’s vision
of restructuring the loans of clients
who are struggling with repayment.
Ela Bhatt, the head of Self-Employed
Women’s Association beautifully
sums up the problem: “[MFIs] were
more concerned with growth – not
growth of the livelihood and eco-
nomic status of [their] clients, but
only [with] the institutions’ growth.”
They need to be reminded that the
poor need more than just loans to
be successful entrepreneurs; just as
important as the loans themselves
are the financial advice and guid-
ance necessary to make the best use
of them.
Nabila is a freshman in Davenport
College.

Emirates and the Future of Aviation
How Emirates is redefining intercontinental air travel
By Shiv Kachru
While the global aviation industry
has been hit hard by the Great Reces-
sion, one airline has been able to
expand rapidly and spread its wings
globally. Emirates has filled its planes,
raised its fares, and seen its profits
soar; it earned $925 million in the six
months ending last September 30, up
from $205 million in the year-earlier
period. Not satisfied with this recent
success, Emirates has a plan for rapid
expansion, and could soon service
more customers per year than any
other airline.
Emirates, based in Dubai, is taking
advantage of the incredible growth in
air travel in the Middle East. Boe-
ing predicts that over the next two
decades, air travel in the Middle East
is expected to grow by more than 7
percent a year, outpacing every other
region in the world. Much of that
Dubai International Airport’s gleaming Terminal 3
30
growth will be spurred by Emirates
and two other fast-expanding airlines
based in the Persian Gulf area: Etihad
Airlines and Qatar Airways. Emir-
ates is by far the most ambitious of
the three, as witnessed by the comple-
tion of Dubai airport’s new Terminal
3. Terminal 3, which opened six
months ago, can handle nearly 30
million passengers a year, the same
as Heathrow’s troubled Terminal 5.
And once completed, Terminal 3 will
be the largest building in the world by
floor space, and will be able to handle
an astonishing 43 million passengers
a year. It is already the world’s third
busiest airport, and with passenger
growth running at an annual rate
of nearly 20% and capacity planned
to reach 90 million in the next few
years, it will not be long before Dubai
overtakes Heathrow. Hence, the for-
tunes of Dubai International Airport
and Emirates are closely intertwined.
Business Sphere Magazine | Spring 2011
Transportation
Yet Terminal 3 is just the begin-
ning of an even more ambitious proj-
ect for Emirates. Even as the existing
airport grows, just an hour outside of
Abu Dhabi, a much larger one, cost-
ing $50 billion, is being built. When
Al Maktoum International Airport
at Jebel Ali is finished in the early
2020s, it will be by far the biggest in
the world, with five parallel runways
and an annual passenger capacity of
more than 160 million.
Part of Emirate’s success is a bit of
geographic luck; roughly four billion
people live within a seven-hour flight
of Dubai. In aviation speak, cities
like Dubai are described as aviation
“pinch points.”
Emirates has also been aggressively
going after its competitors. Its great-
est strides have come from building
routes to developing countries long
neglected by traditional carriers and
providing an alternative to local air-
lines. Instead of connecting through
European hubs like London or
Frankfurt, all of these new routes run
through Dubai. Emirates is trying
to establish itself as the hub between
westward and eastward routes, and
Emirates chairman Sheikh Ahmed
describes it as being in the middle of
the “new silk road.” Emirates has built
a strong presence in second tier cities,
such as Manchester and Newcastle in
Britain, Hamburg and Dusseldorf in
Germany and Kochi and Kolkata in
India. Such second tier cities have
often been neglected by airlines like
British Airways, Lufthansa and Air
India, which focus on their own hubs.
By offering a more pleasant transit, a
competitive pricing and a better in-
flight experience, passengers flying
between Europe and Asia are being
persuaded to transit through Dubai
rather than Heathrow.
The Emirates fleet boasts the latest
double-decker A380s, unlike many of
its rivals. While recession-hit rivals
have deferred orders on new aircraft,
Emirates has already ordered 50 of
the brand new aircraft.
While innovate strategies have
helped them break into the airline
market, Emirates does have undeni-
able advantages over competitors,
including lower labor costs. While
Emirates pays its pilots international
wages, it hires inexpensive workers,
usually from the Indian subconti-
nent, for tasks like handling baggage
or working in catering services.
Consulting company Arthur D. Little
has estimated that overall costs for
Emirates are 30 percent lower than
those of its rivals, making it extreme-
ly difficult for other airlines to close
the gap. Combined with a growing
customer base, Emirates’ low prices
make will likely make it the most
profitable carrier in the foreseeable
future.
But regional rivals, such as Luf-
thansa and British Airways, are cry-
ing foul over Emirates’ operations.
Since the airline is owned by the
state, they say this tight relationship
among Emirates, airport authorities
and regulators gives the airline an
unfair advantage. Emirates, these
critics say, essentially receives gov-
ernment subsidies, in the form of
low tax rates, cheaper oil, and shiny
new facilities like Terminal 3. These
attacks, however, are unwarranted;
the airline publishes audited financial
reports, which show Emirates gets no
government subsidies. The financial
statements show that Emirates fi-
nances all of its operations through
third-party banks and actually pay
slightly more for gas due to lack of
refineries in the area. Nor can major
European and American airlines
claim they have never received sup-
Spring 2011 | Business Sphere Magazine 31
port from the government; in the US,
American Airlines is the only major
carrier not to have operated under
Chapter 11 bankruptcy, and many
European airlines have met a similar
fate. As for the new Terminal 3 in
Dubai International Airport and the
continued growth of Al Maktoum
International Airport, it is the gov-
ernment’s decision, not Emirates’, on
what infrastructure to provide. UAE
merely wants to capitalize on the
massive growth for travel through
the Middle East by building airports
that can handle this demand.
The Emirates model will be hard
to replicate; their unique position at
the center of the developing world,
establishment in key secondary mar-
kets, and low labor costs give them
a competitive advantage that will be
difficult for their old rivals to stop.
Beating Emirates at their own game
will be almost impossible; they have
taken advantage of the weakness of
Indian and Chinese airlines by eating
up their market share, and they are
quickly establishing themselves as
intercontinental carrier between East
and West.
But the advantages of Emirates
may one day come to an end. In In-
dia, the advent of a new generation of
quality carriers, including Kingfisher
Airlines and Jet Airways, now offers
some appealing domestic alternatives
for India’s vast expatriate population,
long one of Emirates’ customer bases.
But perhaps the biggest threat to
Emirates is the age-old debate in the
models for air travel: is it better to
have long-distance carriers, or rely on
regional “hubs”? Emirates is banking
on the hub model to bridge Europe
and Asia, but this war is far from over.
Many airlines are eagerly anticipating
the arrival of long-distance carriers,
such as the Boeing 787 “Dreamliner”,
due out this year. With these long-
distance carriers, airlines will be able
to fly more people nonstop to almost
anywhere in the world, which could
eventually prove a serious blow to
Emirates’ reliance on Dubai Interna-
tional Airport, the crown jewel of its
global network.
But at least for now, the airline
is riding high on record profits and
rapid expansion. And with air traffic
in developing economies expected to
skyrocket on the back of newly mo-
bile populations, Emirates is indeed
occupying an enviable position.
Shiv is a junior Economics and East
Asian Studies major in Berkeley
College.

The Arctic Frontier
The uncertain economic and environmental future of the Arctic Circle
By Courtney Kaplan
The Arctic has received growing
international attention in recent
years due to the wealth of economic
as well as environmental issues as-
sociated with its future. For example,
global warming is expected to create
shorter shipping passages and allow
for more extensive oil and gas extrac-
tion. Large areas that were previously
covered with a permanent layer of
ice now melt away during summer
months, and this area has grown
rapidly over the past 30 years. Some
scientific evidence suggests that the
Arctic Ocean will be completely ice-
free in as little as 20 years.
Some countries have already
established claims to the region:
Canada, Denmark, Norway, Russia,
Sweden, Iceland and Finland and the
United States have delineated their
own spaces in the Arctic and there-
fore own rights to economic zones
within 200 miles of their shores, by
international convention.
In 2007, Russia chose an al-
ternative method of securing its
claims in the method and made an
unprecedented scientific expedition
to the bottom of the Arctic seabed.
The expedition members inserted
a Russian flag on the seabed in a
symbolic attempt to secure Russia’s
claim to nearly half the floor of the
Arctic Ocean and all the resources
contained there.
Arctic rights may prove extremely
lucrative: US Geological Survey data
estimates that 25% of the world’s
remaining fossil fuel reserves lie
beneath the Arctic Ocean. As the
32
Arctic ice cap shrinks by 28,000
square miles each year, the possibil-
ity to exploit these resources grows
and becomes economically feasible.
Russia has led the land-grab thus
far, claiming 460,000 square miles of
Arctic territory north of Siberia.
Scientific estimates show that 91%
of Russian natural gas production
and 80% of its reserves of natural gas
are in the Arctic Circle. The price tag
for these resources has been valued
between $1.5 to $2 trillion. This
exceeds Russia’s current GDP, which
has been estimated at $1.23 trillion
by the World Bank.
Although many nations are
excited about the prospect of ex-
ploiting the Arctic for riches, they
must be careful to do so in an envi-
ronmentally and socially responsible
way. The Arctic’s remoteness has
resulted in the accumulation of
large amounts of pollution released
by industrialized countries. This is
further compounded because the
international community has failed
to regulate environmental standards
or impose restrictions on companies
or governments. As more countries
establish claims to the region, it is
imperative that the international
community mobilizes to enforce
environmental regulations to protect
the biodiversity of the Arctic.
A new report issued by The Arctic
Species Trend Index estimates that
the Arctic lost 26% of its mammal,
bird, and fish population between
1970 and 2004 as a result of global
warming. In addition to threats from
global warming, the actions of inter-
national actors have also damaged
Business Sphere Magazine | Spring 2011
Environment
the Arctic.
Russia perhaps has had the worst
record of polluting the Arctic and
had been contributing environmen-
tal pollution to the area long before
planting its flag there. According
to the non-profit Geochemical
Society, the Russian Arctic has been
“degraded to a barren wilderness as
far as the eye can see,” due to waste
discharges from oil and gas activity,
smelting of ore deposits, and nuclear
weapons testing.
In addition to pollution created in
the Arctic itself, the Arctic faces pol-
lution from all over the globe. The
Arctic’s high latitude and mostly dry
climate make it a magnet for Arctic
haze, a reddish-brown haze that con-
tains sulfur dioxide, nitrous oxide,
and other aerosols. Arctic haze was
first noticed at the onset of the In-
dustrial Revolution in 1750 and has
steadily worsened since. The haze
can linger for more than a month in
the Arctic because the Arctic lacks
enough snow, rain or turbulent air to
disrupt and displace particles. This
toxic blanket provides a glimpse of
the effect of disregard for the delicate
environment.
In conclusion, there are a
multitude of critical questions sur-
rounding the Arctic, ranging from
fossil fuel extraction to Arctic haze.
How participant countries decide to
compete or cooperate on these issues
will redefine the future of one of our
planet’s last frontiers.
Courtney is a sophomore in Pierson
College.

The Potential of Social Media
How social media is redefining internet usage and journalism
By Jennifer Barrows
Peter Shankman is a noted expert
in the social media space. A found-
ing member of the AOL Newsroom,
today Shankman is an angel investor
and runs a boutique marketing and
public relations strategy firm, The
Geek Factory, Inc. Perhaps his larg-
est claim to fame is his establishment
of Help A Reporter Out, a service
that helps journalists locate sources
quickly and efficiently.
Peter discussed with BSM via
Skype the recent AOL – Huffing-
ton Post deal, the value of digital
information, and how to find your
customers.
BSM: Thank you so much for agreeing
to interview with us. Could give us
any insight into the recent Huffington
Post - AOL deal and what it could do
for AOL and/or the industry?
Peter: I don’t think it will really do
anything for the industry. It’s just
one collaborator going to another
collaborator, one aggregator going
to another aggregator. More than
anything, I’m surprised that AOL
still has $315 million dollars.
HuffPo is a huge content aggregator
[a website that compiles interesting
news and information from external
websites]. Do you think these types of
news streams are going to be or are
the mainstay of the news industry?
Well, you know, it’s nothing more
than what Drudge Report [another
news aggregation website] was five
Spring 2011 | Business Sphere Magazine 33
years ago; they just have better ad-
vertising. At the end of the day, it’s
really just another way for content
to aggregate. We’re not getting our
information anymore by watching
nightly news; we’re getting it in
whatever way works for us at what-
ever given time. So, it makes sense
that something like Huffington
Post, at the right place, the right
time, [would do this] because we’re
a society that’s now used to getting
our info via Twitter, via Facebook...
Huffington Post is really another
pawn in that game, as it were. AOL
said, “Hey, there’s ad bucks here, let’s
get it.”
You just released a new book. Cus-
tomer: New Rules for a Social Media
World. Could you speak about it and
its significance to the industry today?
The biggest problem you’re going
to find is that companies don’t fac-
tor in the consumer when they’re
talking about “social” [the social
media space]. They do these great
concepts: “We should own this, we
should get the marketing team on
social media,” and they never really
talk about getting the customer and
the customer service team on social
[media].
The customer service team is the
one that speaks [to] the customer
on a daily basis. Ask the CEO what
the customers’ top five complaints
are, the CEO probably won’t know,
but the customer and the customer
service team, they’ll tell you hands
down…One of the things you’re
really seeing is more companies get-
Meet the CEO
ting smarter and bringing in their
customer service teams into the
social media realm. They realize it’s
no different than when the customer
service team talks to the customers
via phone or via web. It’s simply a
new way to do it.
So do you think the public relations
(PR) industry is still grappling with
this tension between jargon and
speaking at the level of the customer?
It’s primarily bulls**t. Smart com-
panies know it’s not about jargon,
it’s about talking, making sure that
the customers are communicated
with when they need to be and left
alone when they want to be…Esur-
ance [Online Car Insurance] has a
great quote: “Technology for when
you don’t want humans, humans
when you don’t want technology”
or something like that. That’s exactly
how…social media should be used.
Moving on to Help a Reporter Out,
would you briefly explain the ideas
behind this initiative? Is the way that
information for news will be gathered
in the future?
Help A Reporter Out has definitely
changed the industry. Help A Re-
porter Out started off as basically
an email list that I would send to
my friends. Journalists would call
me and say, “Hey, I’m doing a story
on whatever; who do you know?”
It grew to what is now an almost
200,000 person database that gets
queries from journalists three times
a day. That’s 75 queries per email,
covering any topic in the world. If
you as a source can answer those
queries, you call that reporter di-
rectly, you get in the paper.
HARO has really shift[ed] the
way that journalism works. Journal-
ists are being asked to do a lot more
with a lot less now. Social media and
what I’ve created play a part in help-
ing to alleviate that issue. I’ve done it
in such a way that allows it to be free
because the best way to get people
to join whatever it is you’re doing
is to provide valuable content; the
biggest gate to providing that con-
tent is charging for it. I figured out
a way to make it free, generate a lot
of revenue and make a lot of money.
When HARO was acquired in June
by a company called VOCUS, it was
acquired for several million dollars.
A Wired article (“ ‘Help A Reporter
Out’ Crowdsources News Sources,”
Wired, September 14, 2009) stated
that similar companies were “dis-
rupted by the price of digital informa-
tion dropping to zero.” Will digital
information always be priced at zero,
or can it be valuated?
It’s interesting that you said the price
dropped to zero, and not free. Noth-
ing’s free. The price for HARO is
that you read a small text ad and act
on it. Companies are figuring out
ways to generate revenue based on
what their customers want. In some
cases, customers are willing to pay
for information and that said, you
can charge for it. More likely, you’re
going to figure out a way to give
customers what they want and then
align them with advertisers that fit
[that]. That way everyone wins. You
know, that’s nothing new. There was
a medium that did that for several
years that really sort of started it off:
radio. That’s the exact same concept.
In your blog, you’ve discussed this
34
new social media platform, Klout,
and you talked about the idea of the
“inherent value of a customer.” Could
you elaborate on what this idea is
and in what other ways we can gain
insight into it?
The inherent value of a customer is
simply, when you see your custom-
ers walk in the door, you need to be
able to differentiate between the cus-
tomers. The best way to do that is to
have information that the customer
is willing to share with you. You can
do that by ways like Klout that give
you more background on the cus-
tomer. The concept of Foursquare,
that just tells me where you go in a
lot, that doesn’t necessarily tell me [if
and what] you buy.
Is this where the industry is heading,?
I definitely think it’s out there. [But]
people are still going to want some
control over their information that
they give out. It’s going to come
down to what information they’re
willing to share. Once a company
finds that balance, I think it’s fine.
You talk about having a personal
brand, an online and offline brand.
Today there are a lot of companies
popping up that scrounge the Inter-
net to clean your reputation. Any
thoughts on this?
Your online and your offline brand
are the same thing. Make sure that
whatever your brand is, you’re taking
good care of it. You don’t change how
you take care of your child when you
take him outside or inside, you just
have his best interest at heart and so
it’s the same thing here.
You’ve spoken a lot about having one
network. You had this disk drive idea.
Could you speak about that?
Business Sphere Magazine | Spring 2011
It’s called a poken. It’s basically one
device that stores all your social
media information so you just
transfer it by touching [it with
another poken]; it’s not an ID chip.
More importantly, we’re looking at
a world where everything will be
online so your information will have
to be share. That goes back to your
personal brand and making sure you
have a good brand and not screwing
it up.
You also said something about “with-
in 24 months, we’ll all operate on one
screen, whichever one you’re on at the
moment.” Do you think we’ve made
any progress on that front?
The majority of people [do spend
more time on their mobile device
than this time last year] and within
24 months, it’ll be even more. It’s not
about having a Mac, it’s not about
having a Blackberry. It’s about what-
ever screen is in front of you.
You’ve told the story of the Harvard
student who, in her cover letter, wrote
“4 U.” Do you think that Twitter
and Facebook have fundamentally
changed the way we communicate?
Remember when everyone thought
the Internet would bring us back to
the era when we didn’t have com-
munity? I think that social media
has brought us back to [the idea of]
community much, much more. We
look at social [media] and we rely
on what people are thinking about,
what they’re talking about, to make
our decisions. I think that’s some-
thing that’s never happened before.
And I really think that’s important.
Jennifer is a junior History major in
Davenport College.
 Business Sphere magazine, the Yale Undergraduate Business Society, and the Yale
School of Management South Asian Business Forum would like to thank the University
and our corporate sponsors for their contributions. Our initiatives would not be pos-
sible without their continued backing and support.

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Spring 2011 | Business Sphere Magazine 35

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