Change

ursarnold

Solutions for a better world
Global Investor, 01/2017
Credit Suisse

Global Investor 1.17, January 2017

Expert know-how for Credit Suisse investment clients

INVESTMENT SOLUTIONS & PRODUCTS

Change

Solutions for a better world

Yoshiyuki Sankai Asimov was right: how robots can help to ensure

a better future. Fabian Waltert Looking for a housing solution?

Think small. No, smaller. Uwe Neumann The advent of digital farming.

Henry Siu Redistribution between generations binds society together.


Important information and disclosures are found in the Disclosure appendix

CS does and seeks to do business with companies covered in its research reports.

As a result, investors should be aware that CS may have a conflict of interest that

could affect the objectivity of this report. Investors should consider this report as only

a single factor in making their investment decision. For a discussion of the risks

of investing in the securities mentioned in this report, please refer to

the following Internet link: https://research.credit-suisse.com/riskdisclosure.


GLOBAL INVESTOR 1.17 —03

Responsible for coordinating

the focus themes in this issue

CHRISTINE SCHMID is Head of Global

Equity & Credit Research at Credit

Suisse International Wealth Management.

She has 23 years of experience and

covers the financials sector. She holds an

MA in Economics from the University

of Zurich and is a CFA Charterholder.

RETO HESS is a senior research

analyst at Credit Suisse International

Wealth Management with 12 years

of experience in equity research and

investment management. He heads the

Global Equity Research team and

covers the European and US industrials

sector. Further, Reto is a CFA and

CAIA Charterholder and holds a Master of

Science from the University of Zurich,

Switzerland.

Photo: Steve Vidler / Alamy Stock Foto; Illustration: Martin Mörck

UWE NEUMANN is a senior research

analyst in the Global Equity & Credit

Research team at Credit Suisse International

Wealth Management, covering

the telecom and technology sectors.

He has 29 years of experience in the

securities and banking business, holds

a Master of Economics from the University

of Constance, Germany, and is a CEFA

Charterholder.

The majority of citizens in today’s Western democracies are concerned,

and even fearful, about the effects of globalization, digitization

and a rapidly aging society. A desire for deglobalization and multipolarity

and a determination to “put one’s own country first” have

come into sharp focus. Well-educated white-collar workers – the

middle class – see themselves at risk of losing their job as digitization

progresses. Moreover, aging populations in most countries are likely

to place an immense burden on healthcare, social and pension

systems in the future. Global central banks’ very accommodative monetary

policy has already weakened social and pension systems, putting

pressure on future expected income.

The prosperity that has been achieved since the middle of the last

century is built on a generational contract which, given today’s challenges,

needs to be redefined. Education for the young is still funded

by the older generations, but the required skill set for today’s job market

and that of the future will force us to rethink our education system

to better align it with the changed environment. Pension systems

and social systems were built on assumptions of infinite economic

growth, but global resources are finite. Thus, the new generational

contract must be based on the premise of ensuring a sustainable

economy.

These changes open up business opportunities for companies and

sectors alike, with the economy serving as a solution provider, and

policy makers pushing for a framework that allows everyone to prosper.

Consumers drive success through demand and spending.

A number of sectors are poised to deliver pioneering solutions for

the future. Healthcare is at the dawn of a wave of innovation as advances

in digital means allow for more efficient and tailor-made treatments.

Data produced and used for the good of society can further

improve our lives. Mobility 2.0 is on the horizon, and blockchain technology

is set to revolutionize contracts and trade platforms by establishing

a new environment of trust.

This issue of GI features our thoughts and expectations regarding

these developments. I hope you enjoy the read!

Christine Schmid, Head of Global Equity & Credit Research


GLOBAL INVESTOR 1.17 —05

Contents

Global Investor 1.17

Collages in this issue

Map

The world today is in

rapid flux. Technology,

demographics and

globalization keep people

and jobs on the move.

This ferment is giving rise

to new ideas and ways

of thinking about how we

live and work.

06

Prosperity is a two-way street

Finding ways to evolve and improve the

intergenerational contract is key to ensuring

a cohesive society, writes Henry Siu.

13

When I’m sixty-four

Economists Yikai Wang and Martin Eichler

reflect on issues affecting the

pension systems in China and Switzerland,

respectively.

17

Cyborgs made for walking

Don’t just focus on building robots, says

roboticist Yoshiyuki Sankai. Instead,

think about the problems you want to solve.

21

Reshaping patient care by bits

The healthcare industry has traditionally

been slow to embrace digital health, writes

Lorenzo Biasio. This time, it’s different.

25

The Internet –

our friend and caretaker

Don’t let visions of Orwellian dystopias

put you off connectivity, argues Uwe

Neumann. The Internet has a caring side.

29

The dark side of digitization

Cyber risk is the price you pay for an open

cyber society. It also spells opportunity

for the IT security industry. Ulrich Kaiser

explains.

31

The age of cryptofinance

Democracy is finally coming to finance

in the shape of digital cash, says

Johann Gevers of Monetas, and it will

boost the global economy.

35

Putting a roof over your head

Forget about your home being a castle.

Fabian Waltert takes a look at housing

trends, and discovers that sharing is the

name of the game.

41

Labor in the new millennium

In today’s job market, the right employee

may well not meet your ideal profile, says

Randstad CEO Jacques van den Broek.

44

Young and car-free

Driving is losing its cachet among

young people in industrialized countries.

Julia Dumanskaya examines the

reasons why.

46

Millennials drive sustainability

Sustainability is a key concern for

millennials, writes Julie Saussier, and it’s

leading companies to adapt production

processes.

48

Farmer CTOs

The arrival of digital agriculture is

thrusting farmers into the role of chief

technology officers. Uwe Neumann

surveys a surprising new landscape.

Disclaimer > Page 52

The six illustrations by Vincent Poinas

creatively evoke some of the issues

at the heart of the current conflicts between

generations, including sustainability,

pensions, healthcare, privacy and robotics.

For more on the artist, see p. 54.


GLOBAL INVESTOR 1.17 —06

Photo: Kamil Bialous

According to economist Henry Siu, the cohesiveness of society depends on its willingness to distribute resources among generations.


GLOBAL INVESTOR 1.17 —07

Prosperity

is a

two-way

street

Given the dramatic changes that population aging, globalization and technological

progress have brought to society, there is renewed discussion on how the

intergenerational contract should evolve and improve. By doing so, we reaffirm our

belief in a cohesive society and the value of taking care of those most in need.

TEXT HENRY SIU

n intergenerational contract is an agreement made by

society to transfer resources between individuals who

are at different stages of life. In almost all instances, this

takes the form of transfers from those of working age,

to senior citizens (who have left the workforce) and the young (who

have not yet entered it). Intergenerational contracts need not be codified

by law, and in most times and places in the history of humanity,

they have been informal in nature. Perhaps the most obvious example

we see today is the multigenerational household. The parents provide

income, food, and shelter, as well as their time and care to their children

and their own parents, the grandparents. Grandparents benefit from

these transfers and, in turn, help in the care of the children, utilizing

the time and accumulated wisdom they have at their disposal. The

children in the household receive transfers with no cost to their present

selves (except, maybe having to clean their rooms and take out

the garbage). However, the implicit understanding – the contract – is

that they will provide the same transfers to their parents and children

when they become working-aged themselves.

Of course, intergenerational contracts also take more explicit

forms, codified broadly as social security systems, administered >


GLOBAL INVESTOR 1.17 —08

by governments in most countries around the world. Perhaps the

most prominent example is that of state-funded pension programs,

providing transfers and benefits to the retirement-aged. In industrialized

economies, these programs have become increasingly burdened

due to falling birthrates, increased life expectancy, and, in some

cases, poor budgeting and underfunding. For instance, in the United

States, the most recent Social Security Administration Trustees Report

indicates that the program ran a USD 6 trillion deficit in 2016; that’s

almost USD 20,000 for every man, woman and child living in the USA.

“Human capital

is the skill and

knowledge upon

which working-aged

earnings are based.”

Forecasting into the future and accounting for the present value of

all future benefits and taxes, the system is currently USD 32 trillion

in deficit. While presently in less dire circumstances, Switzerland is

engaged in its Retirement 2020 reform to their state pension system.

This is in anticipation of the rise in their dependency ratio. Currently

there are about 30 people aged 65 and over drawing from the pension

system for every one hundred 20–64-year-olds contributing to

it; but by 2060, this figure will nearly double to about 55 taking out

for every 100 paying in.

Equally – if not more – important in the intergenerational contract

is the transfers made to the young via publicly funded education and

healthcare. These matter because education and health investments

are the means by which societies create human capital. Human capital

is the skill and knowledge upon which working-aged earnings are

based, and is perhaps the prime determinant of the size of a society’s

economic pie and social well-being. In certain places, these systems

are failing to provide enough investment for the young.

Redefining the contract

Against this backdrop, and given the dramatic changes that globalization

and technological progress have brought about, there is renewed

discussion on how the intergenerational contract should evolve,

what should be changed, and how it can be improved to better suit

the 21st century. But informed discussion requires a fundamental understanding

of its place in society. What role does it serve to transfer

resources to and from people at different points in their life?

Fundamentally, the intergenerational contract is about redistribution

between generations. It makes sense for society to codify and

administer this redistribution given that we feel that those who are in

need deserve to have more, and those that have more can do with a

bit less. So how should we conceptualize the intergenerational contract,

so that we can evaluate whether such a contract is desirable,

fair and working for the greater good of society?

A useful way to understand the contract is as a form of social insurance

across generations. Other forms of social insurance, like social

assistance and welfare programs, do not depend on one’s stage in

life. The desirability of insurance that crosses generations becomes

obvious when we realize that many aspects of our working lives are

like a giant game of roulette, except that the odds are actually stacked

in our favor. Most of us will be relatively lucky and do just fine: we’ll

have meaningful careers that pay well and steady work with few, short

spells of unemployment. This will allow us to enjoy a comfortable life

in retirement. But a small number of us will be unlucky during our

working years and suffer the consequences of disability, stints of

long-term unemployment, the loss of a vocation or the obsolescence

of skill that we spent decades learning and investing in. These sorts

of events lead to difficulties in old age.

Social insurance for the elderly

This is precisely the sort of negative outcome that social security is

meant to guard against. In fact, in many countries, this objective is

stated directly in the name of the program. In both the United States

and Switzerland, the social security program is called (or translated

as) Old-Age, Survivors and Disability Insurance; in Germany, it is

called the State Pension Insurance. Insurance programs are those

that we pay into in good times and claim benefits from, if and when

we are hit by negative shocks.

But in the past 50 or 60 years, social security has evolved from

insurance programs to largely become publicly funded pension or retirement

benefit plans that all are entitled to draw from. But none of

us feel entitled to draw upon our auto insurance on days when we

don’t get in a car accident, or to draw unemployment benefits when

we are working. Given this, why should we all receive old-age security

simply because we are past the age of eligibility, especially those

of us who have had the fortune of successful careers working in wellpaying

jobs? Retirement saving is equally well performed by ourselves

on an individual basis; it is unclear why it should be done by transferring

income from one generation to the next. Therefore, an important

question to be addressed is whether government-sponsored, old-age

social security should be reserved for, and thereby made more generous

to, those truly in need.

This is made especially pressing given the dramatic labor market

changes the global economy has experienced in the past 30 years.

With advances in robotics, information and communication technology,

and computing power, automation has made obsolete the accumulated

skills of a wide swath of the population nearing retirement

age. Advances in machine learning and artificial intelligence threaten

to erode the value of knowledge and skills in which an ever-increasing

number of highly educated workers have invested. Prioritization

of old-age insurance should be given to those who have experienced

these outcomes during their working careers. And because of the inherent

uncertainty of longevity, it should also benefit those that have

been unlucky enough to live longer than expected when they made

their retirement savings decisions.

Social insurance for the young

To the extent that the outcome of one’s working career and end of

life is a gamble, it is swamped by a much bigger risk factor determining

lifetime well-being: the lottery of birth. This is a concept that has

been discussed at least since the time of the 18th century by philosopher

Jean-Jacques Rousseau, and in our times by the philosopher


GLOBAL INVESTOR 1.17 —09

John Rawls and philanthropist Warren Buffett. The idea of course is

simple: prior to birth, we have no choice as to whether we are born

with ability or disability, into a rich family or poor one, or into a society

that values basic human rights or not. A lottery determines whether

we enter life into a circumstance of ability and opportunity, so the

foundational building blocks of success and fortune are determined

by pure luck.

Viewed this way, it is decidedly compelling that the intergenerational

contract should transfer resources to the young in order to provide

insurance against poor early-life outcomes. The most important

way we can do this is through fair and effective publicly funded education.

Formal education systems can never fully undo all of the disadvantages

that may befall someone at birth. However, public education

should do its best to redistribute to those in need and help to

even the playing field at life’s outset. At the very least, it should not

magnify the unequal outcomes of the birth lottery. But in some places

around the world this is what happens. Perhaps an instructive

example is the United States where public education funding is determined

disproportionately by the local tax base: spending is higher

in rich suburbs and much lower in rural and inner-city settings. This

magnifies inequality. In a 2015 report issued by the Education Law

Center, only four states out of 50 (Minnesota, Massachusetts, New

Jersey and Delaware) received a rating “fair.”

“Fundamentally,

the intergenerational

contract is about

redistribution

between generations.”

Of course, the USA is not alone. Every three years, the OECD conducts

the Programme for International Student Assessment (PISA),

a survey intended to evaluate education systems worldwide. The most

recent information (as of this writing) is available for 2012. According

to the PISA, in countries as diverse as Turkey, the United Kingdom

and Austria, student-teacher ratios are tilted in favor of socioeconomically

advantaged schools compared with disadvantaged schools.

This is in contrast to places like Belgium and the Netherlands where

the student-teacher ratio is used to mitigate socioeconomic disadvantage.

In this respect, lessons can be drawn from Germany’s recent experience.

Between 2003 and 2012, Germany was successful in reducing

inequality among students’ PISA test scores and simultaneously

increasing average performance. While causality is hard to

establish, many believe the gains were in large part achieved by providing

school-based support and targeting the most disadvantaged

students, oftentimes immigrants and the children of immigrants. This

targeting of benefits is precisely in the spirit of redistributing to those

most in need, those disadvantaged by being born in places and >

Henry Siu

is an associate professor in the

Vancouver School of Economics at

the University of British Columbia.

His research focuses on issues

related to labor and macroeconomics

such as automation and the decline

of middle-class jobs, recessions

and jobless recoveries, and youth

unemployment.


GLOBAL INVESTOR 1.17 —10

Photo: Vorname Name/Agentur


GLOBAL INVESTOR 1.17 —11

“The climate deficit the global

community is running on a perpetual

basis is simply stripping resources

from our children and grandchildren

for our own benefit.”

circumstances lacking for opportunity. This principal of inclusiveness

is also fundamental to providing fair educational opportunities at the

university level. Initiatives such as the Erasmus programe of the European

Union and the establishment of uniform tuition fees for EU

students fosters equality of access to human capital investment and

generates mobility across borders within a cohesive society. If not for

social insurance motives, these objectives are valuable and worthy in

their own right.

Social insurance for current and future generations

Finally, an integral part of an evolved intergenerational contract must

include action on climate change. Though much of this discussion

has centered on redistribution for insurance purposes from the lucky

to unlucky, a more basic priority should be fairness across generations.

Accumulating unfunded social security liabilities, coupled with

political inaction is, quite simply, a transfer from future generations

to current and past ones, without regard for need or disadvantage. In

the same way, the climate deficit the global community is running on

a perpetual basis is simply stripping resources from our children and

grandchildren for our own benefit. This violates the basic proposition

that the intergenerational contract should not be benefiting the welloff.

As policy makers we have the tools to curb greenhouse gas emissions.

At a minimum, greenhouse gas-emitting activities should be

taxed. This provides incentives for reducing such harmful activities

and developing more socially responsible energy sources. An even

more equitable solution would be to redistribute these tax receipts to

future generations, transferring resources in the right direction.

Moving forward, our intergenerational contract should evolve to ensure

transfers are made to those who need it most, including our

seniors, our children and future generations who have and will face

misfortune. Prioritizing those in need helps ensure the long-term sustainability

of our social insurance programs and our societies.


GLOBAL INVESTOR 1.17 —12

>

Photo: Vorname Name/Agentur


GLOBAL INVESTOR 1.17 —13

Photo: Sigrid Bjorbekkmo

Pensions

When I’m

sixty-four

Old-age pensions are an entitlement in many countries around the

world. But aging populations make it more difficult to finance

these systems. We look at solutions to the pension question in

two very different countries: China and Switzerland.

INTERVIEW BY GISELLE WEISS, freelance writer

Yikai Wang

is an assistant professor in the

Department of Economics at the University

of Oslo, specializing in quantitative

macroeconomics and the Chinese

economy. He received his PhD in Economics

from the University of Zurich in

2014. From 2011 to 2012, he was a

visiting scholar at the Massachusetts

Institute of Technology.

Even in industrialized countries,

guaranteeing pensions is no

easy matter. China is a devel oping

country with a huge and rapidly

aging population. How is it addressing

the issue of retirement income?

Giselle Weiss: Do the Chinese think

in terms of baby boomers and millennials

and so forth?

Yikai Wang Actually, my generation is

known as the “after 1980s.” Because we

were born after the market reform, we never

lived in a planned economy. And we were

the first generation to really be restricted by

the one-child policy, which became quite

tight after the 1980s. We had cousins to

play with, not siblings. So we think a little

differently from previous generations.

In 2012, you and your colleagues wrote

a paper on Chinese pension problems that

got picked up by the “Economist” magazine.

What was that about?

Yikai Wang We were interested in

two questions. First, the replacement rate

for Chinese retirees – the percentage

of pre-retirement income that is paid out as

pension – is quite high. How sustainable

is the current pension system? And, second,

because Chinese incomes have been

growing very fast, older generations are

poorer than future generations will be. What

amount of intergenerational transfer – i.e.,

using the contributions of younger workers to

fund current retirees – will improve the

welfare of the older generations without

hurting future younger generations?

Very-fast-growing income sounds like a

good thing.

Yikai Wang For the older generations,

though, it isn’t necessarily. Take someone

who entered the Chinese labor market in

1970 and someone who entered it in 2000.

During those 30 years, wages grew at 6%

per year on average. Which means that a

person who entered the market in 2000 can

expect to earn six times as much as the

person who entered the market in 1970.

Moreover, traditionally, most older

generations just put their money in a bank,

and they had little to begin with.

What percentage of the population

in China can expect a pension?

Yikai Wang Broadly speaking, only

urban workers are covered by the pension

system, and of those workers, only 60%

participate. The system isn’t compulsory.

There’s basically no pensions in the rural

areas, which since the end of the planned

economy in 1978 have officially been

responsible for taking care of themselves.

What do old people in the rural areas do?

Yikai Wang They rely primarily on

support from their children, who work in

urban areas. We actually wrote a follow-up

to our paper in which we hypothesized how

a universal pension system that includes

the rural areas might not be a major burden

because worker income there is so low.

What makes the pension

situation in China so acute?

Yikai Wang The Chinese population is

aging very, very fast. For example, right

now, the old-age dependency ratio – the ratio

of old to young – is a bit more than 0.1.

It will take China only 40 years, say until

around 2055, for the old-age dependency

ratio to increase to 0.5. That means one

senior for every two working-age persons in

China. And that’s if you compare the over-

65 population with the under-65 population.

A second factor is that there is a huge

movement of young people to the cities.

That slows down the aging problem in the

urban areas, but it aggravates it in the countryside.

By one measure that we used,

there will be 1.6 seniors for each workingage

person in rural China by 2050.

If the government is worried about

the sustainability of the pension system,

wouldn’t it make more sense for the

system to be mandatory?

>


GLOBAL INVESTOR 1.17 —14

“Broadly speaking, only urban workers

are covered by the pension system,

and of those workers, only 60% participate.”

Yikai Wang

Yikai Wang To do that, you have to first

be able to check and enforce contributions,

which isn’t easy in developing countries with

large populations. Moreover, China has

many small firms and self-employed workers,

which makes collecting pension contributions

even harder. Second, the timing has

to be right. For example, the US introduced

social security after the Great Depression.

Many European countries set up their

systems after World War II. In the current

climate in China, a law mandating pensions

would be unlikely to pass.

So how do you increase voluntary

participation in the system?

Yikai Wang One reason many private

workers do not participate is because their

employers don’t want to (workers contribute

8% to the system, and employers 20%).

Employers would rather pay workers extra

than contribute to the pension system.

Here, economic incentives might help, as

would making the system a little more

compulsory. Right now, the discussion is

tending toward changing the form of the

pension system itself.

You and your colleagues have proposed

a different recommendation for funding the

pension system than the government has.

Yikai Wang Yes. Because the government

is focusing on the financial sustainability

of the system, it wants to move to a

system in which there is little intergenerational

transfer and everyone relies on their

own contributions. But we think that keeping

an element of intergenerational transfer –

similar to the current pay-as-you-go system

in most continental European and Scandinavian

countries – is important. This would

ensure that the current old persons will

receive a decent pension.

And the sustainability issue?

Yikai Wang It can be solved using other

measures. For example, extending the

retirement age, which at present is still 60

for men and 50 for women. Or reducing the

replacement rate for future generations,

since they will be richer overall.

Among Western industrialized countries,

Switzerland stands out as a model of prosperity

and innovation. But the challenges to the pension

system that it faces are typical.

Giselle Weiss: In 2012, BAK Basel projected in a report to the Swiss

Federal Department of Home Affairs that the old-age dependency

ratio in Switzerland would increase from 29% (at the time of

the report) to 56% by 2060. What is the significance of that figure?

Martin Eichler The old-age dependency ratio tells you how

many working-age people are available to finance one retired

person. This ratio will increase substantially over the next 20 or 30

years: more retirees and fewer people to finance them than

today. And that’s only the financial side. There are also political and

societal consequences of the growing weight of pensioners.

How does Switzerland’s old-age dependency ratio compare with

those of other countries?

Martin Eichler Switzerland is fairly typical of modern Western

industrial economies. The number of retirees is projected to increase

substantially in all these economies. Within Western Europe,

Switzerland is actually slightly better positioned than most countries

today – particularly due to immigration. And we expect that to

continue in the future.

How would you characterize the state of the Swiss pension system?

Martin Eichler The Swiss system is based on three pillars

for stability. Each pillar has advantages and disadvantages. The payas-you-go

part of the system – the AHV – is vulnerable to unbalanced

population developments. The second pillar (BVG), which is a

capital-based system, is less vulnerable to these changes. However,

it is susceptible to financial market fluctuations, which we are seeing

at present. As the time horizon of a pension system is 60 years

or more, you can see how having a mix of pillars is well suited to a

range of eventualities.


GLOBAL INVESTOR 1.17 —15

What are the main challenges to

the system?

Martin Eichler Apart from the stress on

the financial markets in the short term, the

main challenge at the moment is a convergence

of three different factors. The first

is baby boomers, who are now approaching

retirement. The burden they represent is

temporary (although it will last for about 30

years), but it’s substantial. And it’s particularly

hard for the AHV system, the payas-you-go

part. Initially, the baby boomers

put more money into the system than they

took out, which actually was a double-edged

sword in the sense that it masked other

challenges to the system.

Such as …?

Martin Eichler Despite Switzerland’s

high level of immigration, we are facing a

declining population. At the moment, the

population is still rising, but at a fast dropping

rate. Our birthrate is substantially

below the 2.1 children needed to maintain

the size of the population. Already in the

medium term, all the projections point to a

declining population. It may take 10 or

15 more years, depending on migration, until

we reach the tipping point. But it will certainly

happen. To illustrate the problem:

according to a back-of-the-envelope calculation,

it would take about 100,000 additional

net migrants every year of 20-year-old people

to keep the old-age dependency ratio stable.

That would be politically impossible,

wouldn’t it?

Martin Eichler Yes. It means more than

doubling net migration every year. It’s also

very difficult to attract that many people.

Remember that other countries around us

are also facing declining populations as well.

In any event, it’s not a solution. Migration

can help, but it’s not enough to solve the

problem.

And the third challenge?

Martin Eichler Increasing life expectancy.

Not only are we getting older, we’re

also healthier and stronger. That’s great,

but it puts pressure on the pension system

in that pensions are paid out for longer.

What role does the low-interest-rate

environment play in the challenges to the

pension system?

Martin Eichler It’s difficult, of course,

especially for the capital-based pillar.

But we see that as a temporary effect. It

might well last for another few years;

however, we do expect the situation to

normalize at some point.

Martin Eichler

is chief economist and member of the

board of directors of BAK Basel

Economics AG. He heads up BAK Basel’s

analysis and forecasting, and consults

both within Switzerland and abroad.

He studied Economics at the University

of Constance, Germany, and at the

University of Western Ontario, Canada.

“Particularly for millennials

and other younger

generations, the question

is how long we wait to

react. The longer we wait,

the harder it will hit!”

Martin Eichler

So what is to be done?

Martin Eichler Particularly for millennials

and other younger generations,

the question is how long we wait to react.

The longer we wait, the harder it will hit! We

do need migration to cover some of the

stress in the system, and higher contributions

to social security are inevitable. Furthermore,

I believe that at some point we will have to

increase the pension age in Switzerland. With

a mix of actions the system can be saved

if we – including the citizens, who will have to

vote on it – want to save it.

What impact do you expect the

changing nature of work to have on

the pension system?

Martin Eichler With less stable kinds of

employment, longer periods of education

or self-employment for example, we probably

need more flexibility, especially with

the employer-backed second pillar. We need

to ensure that different parts of a working

life add up to a substantial pension without

too many holes. But that doesn’t require

a completely new system. I’m convinced that

it can be achieved.

Additional

details

on our map


GLOBAL INVESTOR 1.17 —16


GLOBAL INVESTOR 1.17 —17

Robotics

Cyborgs made

for walking

Dr. Yoshiyuki Sankai, the founder and CEO of Japanese robotics company CYBERDYNE,

talked to Angus Muirhead, Senior Fund Manager for the Credit Suisse (Lux) Global Robotics Equity

Fund, about robotics, their medical robot suit “HAL” and his vision of an automated future.

INTERVIEW BY ANGUS MUIRHEAD, Credit Suisse

Angus Muirhead: Where did your journey

into robotics start? What first inspired you?

Yoshiyuki Sankai In third grade, my fate

was decided when my mother bought me

the science fiction novel “I, ROBOT” by

Isaac Asimov. From that point on I decided

in my heart that I wanted to invent things

that would bring people great happiness.

In the novel, Asimov talks about three laws

of robotics, the first of which made a great

impression on me: “Robots must not hurt

human beings.” So all through my childhood,

I dreamed of science and robotics and began

creating my own experiments. In my

school graduation paper titled “ 夢 ” (“yume” =

dream), I wrote: “When I grow up I want to

be a scientist and I want to invent and build

a robot in my lab.”

Tell me a little bit about your medical-use

robot “HAL”

Yoshiyuki Sankai Well, HAL is the

world’s first therapeutic robotic device to

be covered by public health insurance. It is

designed as a robot suit to be worn by

people who are unable to move freely due

to disease or aging, to help them to

walk and assist in therapeutic treatment. Our

technology enables the system to pick up

the neural signals sent from the brain down

to the lower limbs and to respond mechani-

cally as the leg muscles should do. There

are other use cases for HAL, but this

medical use case is our most commercially

advanced application.

And what makes HAL different to similar

systems being developed?

Yoshiyuki Sankai HAL is unique in that

it is the only robot in the world to be approved

for therapeutic medical use. In other

systems, when the exoskeleton moves,

it simply pulls or carries the patient’s limbs

with it, without direct interaction with the

patients’ nervous system. In HAL’s case,

the movement is initiated directly by signals

from the human brain and the resulting motion

is fed back to the brain via the nervous

system. By reconnecting this continuous

feedback loop, there is evidence to suggest

that patients are starting to experience

therapeutic benefit.

So the HAL system is now approved in

Japan and the EU?

Yoshiyuki Sankai Yes. Already ten

years ago, back in 2006, we started clinical

research to prepare for the commercialization

of the prototype HAL as a medical therapeutic

device for the Japanese market.

Then we leased HAL systems to a number

of hospitals and clinics and, using the data

gathered from these real-world patient tests,

we received approval for use as a medical

device in November 2015. Then, in September

2016, the first commercial healthcare

medical treatments using HAL finally started.

In the process of getting HAL approved

as a medical device in Japan and the EU,

we formulated a number of rules for the

definition and use of medical robots.

We have now established a number of ISOapproved

standards.

Since you first introduced HAL almost a

decade ago, the level of sophistication

has increased tremendously. What

technology changes in the last few years

have enabled these rapid advances?

Yoshiyuki Sankai In the first decade,

the HAL system was a development project

at the University of Tsukuba. Then, since

2004 when we founded CYBERDYNE,

we have taken HAL through an extremely

advanced and innovative development

process to arrive at the robotic therapeutic

treatment device we have today.

What are the key technology challenges you

face today in developing robotics?

Yoshiyuki Sankai There is a long way to

go before the technology that might allow

people and robots and digital data to function

seamlessly together becomes accessible

and applicable to more areas of our >


GLOBAL INVESTOR 1.17 —18

“The future will be shaped

by what kind of technologies

are developed.”

Yoshiyuki Sankai

Yoshiyuki Sankai

is CEO and founder of robotics company

CYBERDYNE Inc. He is Professor at the

Institute of Systems and Engineering at

Tsukuba University and visiting Professor

of Baylor College of Medicine, Texas.

He has won a number of awards including

the World Technology Award and

Entrepreneur of the Year Award Japan.

daily lives. I think focusing on developing

robots is the wrong starting point. The

focal point should be to think about what

problems we face and what we need to

do to solve specific problems or provide a

specific benefit. With this goal, I believe

CYBERDYNE has already successfully

pushed into an area of technology that no

one else has really touched, and we feel

compelled to follow the course further, even

if it takes us into areas where we currently

have little expertise.

What do you imagine will be achievable in

robotics in the future?

Yoshiyuki Sankai CYBERDYNE will

continue to focus on the use of robotics

beyond traditional industrial robots, in areas

such as lifestyle, healthcare, entertainment,

education and communications. As well

as the therapeutic uses, there are also other

applications of the HAL technology, such

as HAL used by able-bodied people in nursing

homes and on construction sites or in

logistics to enable them to lift heavy objects

or to carry patients from their bed to the

bathroom, for example. Today, you will also

find some of our other robots equipped

with artificial intelligence at Tokyo’s Haneda

Airport being used for cleaning and transport

and logistics.

And how do you think society will benefit

from the advances in robotics?

Yoshiyuki Sankai Robots equipped with

artificial intelligence could become hugely

valuable to our society, as we are living

longer, but at the same time are seeing a

fairly low birthrate. For example, we might

well have robots do our shopping. Furthermore,

it’s also conceivable that there might

be various other robots for the elderly or

infirm to improve mobility, to help people

to wash and bathe and to stay in touch with

relatives and caregivers. In fact, a new

concept which I am developing is to build a

“Cybernic City” incorporating all these

robotic technologies. With this goal in mind,

we have acquired a large piece of land

in Tsukuba City near CYBERDYNE’s headquarters

and are cooperating and developing

partnerships with a large number of

companies and organizations.

Several technologists have voiced concerns

about the risks of developing powerful

artificial intelligence. Do you think these

concerns are warranted?

Yoshiyuki Sankai In the future, it will be

extremely important that we focus on the

human perspective and the ethics of society.

The future will be shaped by what kind of

technologies are developed and how they

are used, and that is why it’s important

to design technology that offers benefits to

society and with the vision of a better

future in mind.

Additional

details

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GLOBAL INVESTOR 1.17 —19

What’s HAL?

HAL (Hybrid Assistive Limb) is the world’s first cyborg-type robot which enables the fusion of “man” with “machine” and “information.”

When a person wears HAL, the system assists, supports and even augments their physical movement, and over time may accelerate and repair a patient’s

damaged cerebral nerves. Source: CYBERDYNE

01 THINK

02 SEND

03 READ

04 MOVE

05 LEARN

First of all, think

“I want to walk!”

When a person

moves the body, he

or she first thinks

about the motions in

his or her brain.

By thinking “I want

to walk,” the brain

transmits necessary

signals to muscles

necessary for

the motions through

nerves.

Receiving the signals,

muscles move.

In the healthy body,

each muscle is able

to receive signals

destined from the

brain to it and move

as strongly and fast

as intended.

HAL reads signals.

Signals sent to

muscles by the brain

leak on the skin

surface as very faint

signals, so called

“bio-electric signals

(BES).” HAL is able

to read BESs by only

attaching the originally

developed

detectors on the surface

on the wearer’s

skin. By consolidating

various information,

HAL recognizes

what sorts of

motions the wearer

intends.

HAL moves as the

wearer intends.

HAL, in accordance

with the recognized

motions, controls

its power units. This

function enables

HAL to assist the

wearer’s motions as

he or she intends

and exerts bigger

power than he or she

ordinarily exerts.

The brain learns

motion. The mechanism

to move the

human body does not

end up with only moving

muscles. The brain

confirms how the body

moved on what sort

of signals. When HAL

has appropriately assisted

the motions

of walking, the feeling

“I could walk!” is fed

back to the brain.

By this means, the

brain becomes able to

learn the way to emit

necessary signals

for walking gradually.

This leads to the

important first step

in walking of the

physically challenged

person without being

assisted by HAL. The

only robot that can

provide appropriate

solutions for motions

to the brain is HAL.

Illustration: CYBERDYNE, The Noun Project


GLOBAL INVESTOR 1.17 —21

Digital health

Reshaping

patient

care by bits

In most of the developed world and increasingly

in emerging markets, healthcare costs are on

a steep upward trajectory. Not only do societies

spend more as they get wealthier, they also

spend more as healthcare moves up on people’s

priority list. In the quest to optimize patient

outcomes and healthcare expenditure, digital

health opportunities play a vital role.

TEXT LORENZO BIASIO, Credit Suisse

Digitization has become a staple of our lives and daily routines

in areas such as news consumption or shopping and

it is also making inroads into health management. With

new tools at their disposal, people are increasingly assuming

responsibility for their health and well-being as well as disease

management. At the same time, insurance companies are eager to

get patient data to price risk. Furthermore, care providers are innovating

and using digital tools to drive better patient outcomes.

Traditionally, the healthcare industry is slow to embrace change,

but to us, this time feels different. With the emergence of remote patient

monitoring solutions, telehealth offerings and the fact that health

education and health management portals are gaining traction, digital

health is visibly reshaping the current standard of care.

Remote monitoring stands out

When looking at the wide range of what digital health encompasses,

remote monitoring strikes us as the area that provides the highest

value added given its utility in managing chronic diseases. Considering

that an estimated one-third of total US healthcare spending goes

toward the management of chronic diseases, the savings potential

that remote monitoring offers becomes evident.

A case in point is the solution Vivify Health provides for patients

with heart failure, a condition that costs the US healthcare system

almost USD 40 billion annually. Almost half of this expenditure is attributable

to inpatient stays, which are costly compared to daily per-patient

costs of just several dollars for stable patients. Vivify’s solution

comprises a tablet (incl. software), two diagnostic devices, plus a

scale. These tools allow doctors and nurses to assess the patient

continuously and detect alarming signs and worsening trends between

regularly scheduled visits. Furthermore, they can even reduce the

number of necessary inpatient visits – in Vivify’s pilot, from over >


GLOBAL INVESTOR 1.17 —22

three monthly visits to fewer than 0.4. Moreover, the tools reduced

very costly emergency room visits by over 70%.

Health advice traveling the distance

Another digital health solution is to provide medical advice at a distance.

In Switzerland, health insurers have long been employing insurance

models that require patients to seek telephone assistance

from an insurance-designated general practitioner. Under such a

model, through the triage of patients by a healthcare professional,

patients can be channeled to the appropriate care setting, eliminating

redundancies in the system and driving savings for the insurer.

Such ideas can be taken much further still. Doctor On Demand,

a USA-based service, provides a showcase of what could become

much more widespread in future. Using any device, the service allows

patients to get counseling from a specialist for most medical and also

some mental conditions. If we assume that such a service is applicable

to about a third of all physician visits at a stated price point of

USD 49 and, as has been reported, that the average person visits

their physician about three times a year at a current all-in price per visit

of USD 150, the theoretical savings amount to over USD 30 billion.

As such services are rolled out in the emerging markets, healthcare

provisioning can change profoundly. Immobile patients as well

as remote areas should benefit dramatically from such offerings as

virtual physician consultations become possible.

Powerful innovation enables self-management

Advances in information technology are also changing medical sensors,

enabling them to shrink in size and become more versatile. One

technology unthinkable without recent advancements in sensor technology

stands out in terms of impact on patients’ quality of life: CGM,

short for continuous glucose monitoring. With the use of extendedwear

(multiple days) CGM sensors connected to a dedicated receiver

or smartphone, diabetic patients can monitor their blood glucose levels

continuously. The significant CGM benefit is that it allows patients

to identify potentially dangerous episodes that they may miss with

traditional one-off measurements using capillary-drawn blood. By involving

a smart device in CGM, patient-specific alert levels as well as

rules for automated notifications based on glucose readings can be

preset (to parents, for instance). Given the magnitude of this innovation,

it is no surprise to read that the technology is reported to have

saved lives. If, as one major medical expenditure survey shows, slightly

less than 20% of diabetes expenditure attributable to emergency

room visits and inpatient stays – which could be, at least partially,

avoided using CGM – the savings potential amounts to more than

USD 10 billion.

Looking ahead, we believe that it is only a matter of time until an

artificial pancreas, that is, a CGM system connected to an insulin

pump, will come to market. There are still some technological challenges

and regulatory hurdles to be overcome, but we are steadily

nearing the emergence of such an artificial pancreas, termed by many

as the “holy grail of insulin therapy.”

Venture funding of digital health companies

In 2015, venture funding of digital health companies amounted to

USD 4.5 billion, or 7% of total venture funding. Although

deal volume was relatively flat, late-stage deals were up 23%.

Source: Rock Health, Digital Health Funding: 2015 — Year in Review

USD bn

5

4

3

2

1

0

WebMD use on the rise

WebMD user statistics show a steady increase since the inception of

the service. Today, more than 200 million unique users visit the Web site

every month, to access health, nutritional and wellness information.

Source: WebMD

Users in m

250

200

150

100

50

0

2011 2012 2013 2014 2015

Average monthly

unique users

2008 2009 2010 2011 2012 2013 2014 2015

Health literacy is not universally positive

With the advent of health information Web sites like WebMD and services

such as 23andMe (a personal genomics company), people are

increasingly given digital tools that promote health literacy. While we

do believe that health literacy should be an aspiration of every modern

society and, ideally, increasing health literacy should lead to >


GLOBAL INVESTOR 1.17 —24

To explore

health issues in

greater depth,

see the foldout map.

“Traditionally, the healthcare industry

is slow to embrace change, but to us, this

time feels different. With the emergence

of new tools, digital health is visibly

reshaping the current standard of care.”

Lorenzo Biasio

more informed conversations with physicians, our assessment of the

current developments is mixed. Our conversations with physicians

point to some undesirable developments: with the increasingly widespread

availability of health information, it is not uncommon for patients

to arrive at the doctor’s with a set idea about their diagnosis

and even wishes for specific kinds of treatment. Such behavior may

require lengthy explanations from doctors, but there are bigger risks

such as possibly unnecessary diagnostic testing and potentially dangerous

self-medication.

This is not to say that the health information on offer is flawed.

Offerings aimed at improving health literacy are useful – we simply

believe they should be focused on the prophylactic setting, for instance

giving wellness and nutritional tips. When it comes to more

severe diseases, we believe that health information should be accessed

with the guidance of a healthcare professional – a view supported

by the fact that early 23andMe products were banned from

the market by the US Food and Drug Administration, which found the

information to be prone to misinterpretation.

ingly stretched healthcare systems. When used properly, we are optimistic

that digital health solutions can produce winners along the

healthcare value chain – patients, physicians, caretakers, hospitals

and insurance companies. However, in order to succeed, it will be

paramount for digital solutions to be properly and carefully balanced

with tangible and empathic expert advice from an actual physician.

Digital health – a new era

We do believe that we are at the dawn of a new era with regard to

digital healthcare services. Digital health solutions undeniably create

large efficiency gains and convenience advantages across the entire

healthcare value chain. Thus, digital health solutions are key enablers

to drive substantial system-wide savings that benefit today’s increas-

Lorenzo Biasio

Equity Analyst Healthcare

+41 44 333 14 79

lorenzo.biasio@credit-suisse.com


GLOBAL INVESTOR 1.17 —25

Connectivity

The Internet – our

friend and caretaker

The Internet continues to expand. Data collection, management and analysis are growing

exponentially. Many people fear this development, viewing it as an Orwellian risk. However,

the Internet and the Internet of Things also offer ways to find solutions for a better world.

BUILDINGS

IT &

NETWORKS

SECURITY /

PUBLIC SAFETY

RETAIL

ENERGY

INDUSTRIAL

CONSUMER

& HOME

HEALTHCARE

& LIFE SCIENCE

TRANS-

PORTATION

PORTATION

Illustration: The Noun Project

Digitization is spreading into our daily life

The expanding Internet offers the capability to solve not only complex problems, it also can help us to make our world more healthy, efficient,

mindful and secure. Source: Beecham Research Ltd.


GLOBAL INVESTOR 1.17 —26

The title “Ask Mom” is often used for

how-to books that provide tips on

how to treat a cut, how to prepare or

store food or how to remove a stain

from a shirt. In the past, such knowledge was

passed on from generation to generation by

word of mouth. Later on it was written down

and printed in book form. In modern times,

the same information can be accessed and

read on mobile devices or personal computers.

The technological progress achieved

through digitization makes it easier than ever

to save data and ensures that information is

no longer lost. The expansion of the Internet

to mobile devices and to things has led to a

massive increase in data and digital communication.

300 billion tweets have been sent

since Twitter came into being, and every second,

5,000 new ones are added. Whether

one disseminates digital communications or

censors or processes data, it is vital to identify

the best way to read and manage such

data.

Creating a global conscience

“‘Caring’ smart objects

put people and their

needs at the center of

their services.”

Uwe Neumann

This technology has given rise to a ubiquitous,

all-encompassing communications system

that is self-sufficient and can also provide extensive

benefits to others. Not only does it

grant access to a wide range of knowledge,

it also establishes a platform for creating a

global conscience, as information, opinions

and assessments from around the world become

more transparent and accessible. The

insights gained from social networks could

increasingly contribute to a common awareness

and acceptance of how to make the

world a better place. Politicians and other decision-makers

are well advised to employ the

growing global bank of knowledge for the

good of society and not let it morph into a

kind of big-brother-is-watching-you society.

As online activity is continuously monitored

and measured, there is the inherent danger

of users being monitored and punished for

voicing their views and opinions, etc. At the

same time, however, transparent near-time

user feedback in response to, say, political

events, driven by a regional, or even global,

conscience, can also paint a more accurate

picture of the mood in society and can help

lead to change. A case in point – companies

such as BrandsEye or MogIA, which used

data from social media such as Google, Facebook

and Twitter, successfully predicted the

outcome of the US election, while traditional

polls got the result wrong.

Internet-connected devices look after you

Apart from the Internet’s ability to “care” for

users, there has also been strong growth in

new markets that provide “caring” objects, i.e.,

smart objects that put people and their needs

at the center of their services. If asked what

a caretaker should provide, most people

would probably say they should care for our

physical health and mental well-being as well

as our safety and security. Moreover, a caretaker

should manage communication within

the family.

New devices such as Google Home and

Google Assistant could one day become our

new friend and caretaker who looks after the

family. These devices are connected to the

Internet, have a camera, an invisible microphone

with intelligent speech recognition and

loudspeakers. They can tell you where your

keys are (provided they are also connected);

they can answer children’s questions by accessing

the Internet; and they can start playing

your favorite morning music upon request.

Other companies such as Amazon with its

Echo device and Apple with its HomeKit

products aim to provide similar services. They

are vying to become a central hub within our

homes to ensure our health, security and

family communication.

Internet of healthy things

The supply of Internet-connected health devices

is also on the rise. In 2015, Partners

HealthCare announced a partnership with


GLOBAL INVESTOR 1.17 —27

Samsung Electronics to develop the next

generation of personalized digital and mobile

solutions for health and wellness. In 2016,

Nestlé Institute and Samsung announced

plans to pool their resources to build a connected

health and lifestyle platform that will

interact with everything from smart TVs to

wearables to helping people make healthier

choices. Several fashion firms launched socalled

tech shirts in 2015, i.e., shirts that measure

heart rates, breathing or live biometrics.

Fitbit’s success with its activity and heart rate

trackers is another example of a gadget that

monitors our health. Research and Markets

expects the wearable device market to

grow from USD 23 billion in 2015 to USD

173 billion by 2020. However, selling devices

and apps is only a small piece of the connected

health market. Collecting, analyzing

and managing the data is where the true

potential lies, helping to find better solutions

for our healthcare market.

Internet of mindful and security things

“Digitization has

helped create a

global conscience.”

Uwe Neumann

With GPS-enabled devices such as the

TrackR Bravo, finding lost keys or bags has

never been easier. If the item is attached to

your key or bag, you can easily locate it using

an app on your phone. With a smart sleep

mask, you can track your sleep using medical-grade

sensors. The tracking enables you

to improve your sleep habits. With a Vigo

headset, you can track your alertness (for instance

when driving long distances by car)

and it can send an alarm if your alertness declines.

When Alphabet (Google) acquired

smart thermostat and smoke alarm maker

Nest in 2014, it approached the ability to capitalize

on the rising demand for home security

the smart way. Nest also provides a Dropcam

that helps to monitor movements in your

home using an Internet connection and live

streams via an app on your smartphone when

you are away. Robots are becoming more intelligent,

too, and can help to keep people in

need of care at home longer by connecting

them to a smart-home Internet caring hub.

The smart-home market is expected to reach

a value of USD 122 billion by 2022 and is

estimated to grow by a compound annual

growth rate of 14% between 2016 and 2022,

according to MarketsandMarkets. “Smart

home” encompasses everything from lighting

and entertainment control to security and access

control to smart kitchens as well as

smart meters and smoke detectors.

For some readers, some of these developments

may invoke visions of George Orwell’s

“1984.” People who oppose the idea of

an interconnected world are typically concerned

about protecting their privacy as well

as the risk of misinformation and manipulation.

However, society can also find ways to

harness the technological progress for educational

purposes and to bring people closer

together. For example, young children are increasingly

using programs such as YouTube

to learn about cooking (and pretty much everything

else). Or consider apps like SideChef,

which provides step-by-step instructions on

how to cook a meal. Such tools can help keep

the family together at dinner time, as children

will want to share what they bake or cook with

the rest of the family. And parents can use

devices such as a Wi-Fi-blocking pepper

grinder to make sure their children cannot

access their smartphones or iPads during

dinner. Viewed from that perspective, there

is indeed a lot to be gained from today’s connectivity.

Uwe Neumann

Research Analyst

+41 44 334 56 45

uwe.neumann@credit-suisse.com

Additional details

on our map


GLOBAL INVESTOR 1.17 —28

Photo: Vorname Name/Agentur


GLOBAL INVESTOR 1.17 —29

Internet solutions

The dark side

of digitization

In the old PC-dominated IT world, you had a protected private environment that could

be ringfenced with perimeter and infrastructure security, separating it from the outside

world. In today’s globalized world, digitization and the younger generation’s IT consumption

patterns represent a challenge to ensuring a safe cyber environment.

TEXT ULRICH KAISER, Credit Suisse

Back in the 1980s when the Internet

was in its infancy, cybersecurity

was not an issue. Since then, however,

the number and sophistication

of cyberattacks have increased. The topics

making the headlines these days include

the ransomware epidemic, the refocusing of

malware from PCs/laptops to mobile devices,

the deployment of billions of unprotected or

little protected Internet of Things (IoT) devices

or cyberattacks targeting businesses and

governments. According to several sources,

there are at least 70 million different pieces

of malware in circulation worldwide. They are

disseminated in particular by smartphones

and other handhelds. Moreover, at least 70%

of e-mails are spam.

Compared with a few decades ago, our

dependence on the Internet and other networks

for critical services and information has

grown tremendously. Particular growth has

occurred in the mobile Internet-enabled new

types of technology infrastructure such as

power grids, cloud computing, industrial automation

networks, intelligent transportation

systems, e-government and electronic banking,

which are becoming more and more interconnected.

As failure in one technology can

affect other technologies, greater convenience

and efficiency increases vulnerability

to cyberattacks and makes any defense

against such attacks more difficult.

There is a looming risk that cyber-attacks

may cause the Internet to break down. In fact,

if we do not do anything soon, we risk causing

permanent damage to our economy. The

incoming US president Donald Trump said during

his campaign that cybersecurity would be

“an immediate and top priority” once he comes

to power. With an emphasis on improving vital

infrastructure, we therefore expect to see an

increase in federal spending on security, which

should benefit cybersecurity companies such

as Cisco Systems, Palo Alto Networks or

Check Point Software.

Cybersecurity then and now

In the old IT world, you had a protected private

environment that could be ringfenced with perimeter

and infrastructure security, separating

it from the outside world and trying to control

what gets in and out. This approach is now

reaching its limits. Firewalls stop most threats,

typically more than 99%, but unfortunately not

100%. The remaining less than 1% of threats

that still come through appears negligible at

first, but translates into the thousands, as the

total number of threats amounts to millions.

Bad news about cybersecurity is good

news for the IT security industry. We expect

spending on IT security to grow at a much

faster pace than underlying IT spending, which

means it will grab a bigger slice of the cake

going forward. Industry researcher Gartner

predicts that worldwide spending on information

security products and services will reach

USD 81.6 bn in 2016, an increase of 7.9%

from the previous year. Currently, this represents

only about 2.4% of global IT spending,

which Gartner expects to reach USD 3.4 trn.

Over the next five years, Gartner foresees an

annual growth rate of about 8%, which appears

a little light, in our view, given the growing

challenges.

Preferring prevention over planning

Though many surveys conclude that spending

for cybersecurity is among the top three priorities

of chief technology officers (CTOs),

one can argue that even higher spending is

justified given the significance of cyberthreats.

There is a constraint, however, namely

the associated costs and sometimes even

the willingness to spend money on cybersecurity.

One reason not to spend more is the

lack of a mid-term cybersecurity strategy.

Many companies still adhere to a stop-andgo

policy, which means less spending if there

is no immediate threat or incident and then

panick and invest if there is. This is especially

true if an incident is widely published in the

media, for instance the Sony attack in 2014

and the attack on the US Office of Personnel

Management in 2015. As soon as the security

problem is fixed, however, spending is

usually reduced again.

Another reason for the spending restraint

is that many CTOs tend to opt for preventive

measures when planning their security strategies,

a trend poised to continue in years to

come. However, reality looks different, as preventive

measures have proven weak in >


GLOBAL INVESTOR 1.17 —30

“Bad news about cybersecurity is actually

good news for the IT security industry.”

Ulrich Kaiser

Companies are spending

most for network security

Security and vulnerability management, and

network security are the fastest growing

segments within IT security. Corporate endpoint,

and Web security are getting disrupted by next

generation solutions. Source: IDC, CS estimates

in USD bn

40000

35000

30000

25000

20000

15000

10000

5000

0

2012 2017

Network security

Security and vulnerability

Endpoint security

Identity and access management

Web security

Messaging security

Other

blocking cyberattacks. As a result, many organizations

have adopted the detection-and-response

approach to strengthen their security.

New trends in cybersecurity

+53

%

+83

%

We expect security technologies such as security

information and event management

(SIEM) and secure Web gateways (SWG) to

evolve. Organizations are likely to increasingly

focus on detection and response, because

taking a preventive approach has not been

successful in blocking malicious attacks so

far and probably will not be successful in the

future. Thus, businesses should balance their

spending and include both.

We can imagine security spending to

evolve to become more service-driven as businesses

continue to struggle with an overall

lack of cybersecurity talent in the industry.

Managed detection and response (MDR)

is growing as organizations are faced with

having to use both technology and human

expertise to pinpoint risks and improve the cyber

environment. This is especially relevant in

addressing insider threats and targeted advanced

threats.

Hackers wanted – high salary reward

The purchase and implementation of new security

technologies is vital to protect businesses,

and so is the development of cybersecurity

skills in employees, which are not

reflected in the Gartner estimates and come

as additional costs. These are justified by a

shortage of skilled security professionals,

which is both dangerous and expensive since

it leaves businesses vulnerable to attack, resulting

in reputational damage and data loss.

The most highly specialized technical skills

are the ones in greatest demand and claiming

high salaries. Businesses are seeking professionals

with expertise in software development,

attack mitigation, intrusion detection,

network monitoring and other areas of cybersecurity.

They need not look far: convince

hackers to change allegiance, vindicate them

and use their skills to maintain a safe cyber

environment. Hackers are motivated by a multitude

of reasons, such as profit, protest or

simply challenge. Another reason, and one

that can be used for the good, is to evaluate

system weaknesses to help formulate defenses

against potential hackers.

Ulrich Kaiser

Research Analyst

+41 44 334 56 49

ulrich.kaiser@credit-suisse.com


GLOBAL INVESTOR 1.17 —31

Fintech

The age of

cryptofinance

The invention of bitcoin in 2009 ushered in the age of

cryptofinance and promised an end to the problems associated

with physical cash. Although the hype around bitcoin and

blockchain – the public ledger that records bitcoin transactions –

is now receding, the next generation of cryptofinance technologies

is already moving ahead and applying lessons learned.

INTERVIEW BY CHRISTINE SCHMID, Credit Suisse

Christine Schmid: Tell me a bit

about Monetas.

Johann Gevers The idea of Monetas

comes out of my desire to do something that

helps the world work better, not through

politics but through technology. I thought

long about what kind of technology would

make things better. I came to the conclusion

that the financial system is at the center

of everything, and that it is too centralized,

which creates dangerous risks and instability,

and holds back social progress. We

saw that during the 2008 financial crisis.

Moreover, the problems associated with the

crisis have not been solved. In fact, things

have gotten worse. We have some measure

of temporary stability, but the problems

have gotten bigger.

In what way?

Johann Gevers One key aspect is that

today’s financial system is too centralized:

there’s too much power concentrated in too

few hands. And that can lead to abuse of

power or massive suffering if the centralized

system fails. So at Monetas we are building

technologies to help transition the financial

system toward greater decentralization –

the democratization of finance. Our solution

belongs to the category of “cryptofinance” –

the industry term for financial technologies

that use encryption algorithms to ensure

that financial transactions are private and

secure.

What exactly is your solution?

Johann Gevers We’ve developed a technology

that gives the user more control.

It’s a contracting platform that gets around

some of the disadvantages of existing

cryptofinance technologies and allows you

to complete transactions in a fraction of

the time and extremely cheaply. This is especially

important for retail transactions.

Let’s backtrack a bit to the existing

cryptofinance technologies. Most people

still don’t know what they are.

Johann Gevers The core invention in

cryptofinance is true digital cash which –

unlike physical cash or digital music – cannot

be copied or counterfeited. This transition

from traditional physical cash to modern

digital cash brings tremendous efficiency

gains. The Bank of England, for example,

has calculated that switching from physical

cash to digital cash will generate a sustained

3% boost to GDP. That is massive,

and the efficiency and productivity gains are

even greater for developing countries.

Where does blockchain fit into this scenario?

Johann Gevers A blockchain is a distributed

database – a public ledger for digital

transactions. It’s a so-called consensus

system. In other words, it’s a way for a lot

of different people or, more specifically,

a lot of different computers all over the

world to confirm transactions by coming to

a consensus about them. If you want to

execute a transaction in a consensus system,

all these computers have to vote and agree

on it. That makes a consensus system

resistant to political influence and corruption,

as well as robust against technological

errors and failure, which is a big advantage.

For example?

Johann Gevers Consensus systems

such as blockchains are good for safely

storing high-value assets and information.

Commercial registers, which record business

entities and real estate ownership, are

one example. Secure electronic voting systems

are another.

And the disadvantages of blockchains?

Johann Gevers The downside is that

consensus systems are very expensive to

maintain and to run. In the bitcoin blockchain,

for example, the full cost of a transaction

is about five dollars. That’s a lot

of money. Moreover, let’s say you go to Starbucks

or to your grocery store and want to

buy something. When you’re at the checkout

counter, you don’t want to wait ten

minutes to several hours for a global network

of computers to reach consensus before

the transaction is approved. For retail transactions

you need a system that’s efficient,

fast and cheap – and that scales to millions

of transactions per second. The bitcoin

network can only handle a maximum of

7 transactions per second.

Which brings us back to

contracting systems.

Johann Gevers Right. Contracting platforms

such as Monetas can execute

transactions in milliseconds, at a cost of

less than 1/10,000th of a cent, and

can effortlessly handle the entire world’s

transactions in real-time. This makes >


GLOBAL INVESTOR 1.17 —32

Photo: Thomas Eugster

“If you are restricted to

physical cash, you can only do

face-to-face transactions.”

Johann Gevers


GLOBAL INVESTOR 1.17 —33

them ideally suited for retail transactions.

And by integrating contracting platforms

with consensus systems, you can have the

best of both worlds. You can securely store

your assets in a consensus system, and

efficiently trade those assets in a contracting

system.

How does the Monetas platform work?

Johann Gevers In the Monetas system,

only the transaction parties need to agree,

then the transaction is completed. You don’t

need the slow, expensive agreement of

millions of unrelated parties, the way you do

in consensus systems. The first application

of the Monetas technology is a mobile

payment system. Anybody in the world can

download our software onto their mobile

phone for free and do transactions with

anybody else who’s got our software. Users

load digital cash onto their mobile phone

at an exchanger, such as a kiosk or ATM or

bank, and can then pay conveniently from

their mobile phone. The great thing about

our platform is that it is open, not locked

into any provider or device. So you can

do transactions with anyone, regardless

which mobile phone provider they use,

or which country they’re in. You don’t even

need a bank account. So our system is a

great solution for the 80% of people in

Africa who have no bank account. And our

transactions are far cheaper than any

other system on the market. In fact, they’re

even cheaper (and more secure) than

physical cash. Physical cash costs the

economy about 1–2% of GDP in developed

countries, and a stunning 5–7% of GDP in

developing countries. Switching to digital

cash will provide a tremendous boost to our

economies.

Has Monetas gone beyond the

prototype stage?

Johann Gevers We launched a successful

pilot of our platform two months ago

in South Africa. Our partners are very happy

with the results and are now planning

to roll out our platform countrywide to over

1,000 locations, as well as to further

countries in Africa. So this is a very exciting

time for us.

Looking down the road, who stands

to benefit most from cryptofinance

technologies?

Johann Gevers Well, very clearly, consumers

are going to benefit immensely.

These technologies will enable user-friendly

services that go far beyond what we have

today. You’ll be able to make transactions

“The idea of

Monetas

comes out

of my desire to

do something

that helps

the world work

better, not

through

politics but

through

technology.”

Johann Gevers

Johann Gevers

is founder and CEO of Monetas, founder

of Crypto Valley, and founder and president

of the Digital Finance Compliance

Association. He is an entrepreneur with

over 20 years’ experience in business,

finance and technology, and has served

as strategic advisor to companies across

diverse industries, including awardwinning

technology start-ups. Johann is

a visionary thought leader in the fintech

space and was recently rated as one

of the Top 100 most influential finance

leaders in Switzerland.

and safely store your money without having

to remember passwords and without having

to carry around keys or electronic cards.

And you’ll be able to do it all on your mobile

phone, with better security than traditional

banking (including cloud backups).

By connecting billions of unbanked to the

global economy, these technologies will

enable everybody in the world to generate

wealth and improve their quality of life far

beyond what is possible today.

Today people are excluded from the

global economy.

Johann Gevers Yes. Billions of people –

more than half of the world’s adults – have

little or no access to formal financial services,

and do almost all their transactions

with physical cash. If you are restricted to

physical cash, you can only do face-toface

transactions. That means you are part

of a very small economic network, which

severely limits your ability to create wealth.

So poor people stay poor. One of the fundamental

requirements for generating

wealth and improving one’s quality of life is

being part of a large economic network.

Today, even in poor countries, virtually

everyone has a mobile phone. Our mobile

platform gives everyone with a mobile

phone access to the world’s most advanced

financial services, and thus dramatically

boosts their ability to generate wealth.

People will use their rising wealth to improve

their healthcare, education and quality of

life in general.


GLOBAL INVESTOR 1.17 —35

Putting

a roof over

your head

Rapid urbanization in the developing economies and demographic changes in the

advanced economies are two of the dominant trends the global economy is facing.

Factors such as migration to the cities, population aging, increasing incomes and

the growing middle class in the emerging economies will have an impact on how we

live and what our housing requirements are.

TEXT BY FABIAN WALTERT, Credit Suisse

2

1

CO-HOUSING

Living in an anonymous society

comes with a loss of community spirit.

Co-housing arrangements seek

to bring back some of the benefits of

small villages in an increasingly

urbanized world.

MULTIGENERATIONAL HOUSING

Due to urbanization, increasing

incomes and mobility, it has become

rare that several generations

of a family live under the same roof.

Thus, the benefits of this arrangement

are disappearing. One initiative

to rebuild social networks similar

to families is multigenerational

housing.

3

MICRO-APARTMENTS

Securing housing affordability

and preventing segregation is seen

as crucial for growing cities that

grapple with rising land prices

and growing land scarcity. A promising

approach is to build small

and affordable micro-apartments.


GLOBAL INVESTOR 1.17 —36

Population growth in the 21st century

mainly affects cities that are

successful in attracting people by

offering them job opportunities, decent

healthcare and affordable housing. Cities

in Asia, Africa, Latin America and the

Middle East are expected to grow at a higher

pace, mainly driven by people seeking a better

life and hoping to become part of the rising

middle class. However, urbanization is not

only a phenomenon of the emerging economies.

Cities in the advanced economies are

also growing, albeit at a slower pace. London,

for example, is expected to reach a population

of over 10 million by 2031, an increase

of 15% compared to today. It is expected that

by 2030, 41 such megacities will exist, up

from 28 in 2015. Around 12 of them will be

situated in emerging economies. The United

Nations is even predicting the advent of the

first so-called gigacity (more than 100 million

residents) in China by 2020. This trend will

take 6.3 billion people to global urban centers

by 2050, an increase of 75% from today, with

two out of three residents around the world

living in urban areas by then.

Efficiency and focus on affordability

The strong flow of people to prosperous cities

is a result of the economic benefits such

cities offer. However, attracting more and

more people is going to put pressure on infrastructure

and land prices, further lifting

prices of urban real estate and thus reducing

its affordability. Furthermore, the stronger

competition for space will increase urban

density. One answer to that development is

to reduce the size of apartments. This effect

is already visible in certain megacities such

as Tokyo, where apartments today are 14%

smaller than a decade ago. Thus, the main

challenge for residential developers will be to

find out how they can use limited space more

efficiently and in an affordable manner.

New and different types of housing

Another key challenge for nearly all countries

will be the demographic shift that will fundamentally

affect the demand structure for

real estate. According to the United Nations,

the share of people aged 60 or older will rise

by 2.8% per annum from 2025 to 2030.

While the developing economies will have the

youngest population, they will also record the

fastest pace of population aging. The growing

urban middle class of the emerging economies

will increase demand for housing both

in terms of quantity and quality. Meanwhile,

the aging baby boomer generation in the

advanced economies will require the development

of new housing alternatives. An increase

in the share of older people will

change not only the way communities organize

services so that care is more accessible,

but also the cultural view of aging to make

sure that the older generation is integrated in

the community.

Shifting demographic trends will likely

create a strong need for new and different

types of housing. As the elderly tend to be

healthier than in the past, many do not consider

nursing homes an attractive alternative

to their existing homes. At the same time,

increasing mobility – a further megatrend –

tends to increase the spatial distance among

family members. Thus, senior citizens are

likely to increasingly search for alternative

housing that is designed to accommodate

their changing needs as they grow older.

Answers to the challenges

These two megatrends – urbanization and demographic

shift – will result in several challenges:

scarcity and unaffordability of housing,

lack of accessibility of services for families

and the elderly and loss of communal

spirit. The search for answers to these challenges

is still going on. However, the real estate

industry and a multitude of local citizens’

initiatives are suggesting possible routes in

a variety of alternative housing projects that

are emerging around the globe. Among the

most promising of these approaches are: micro-apartments,

multigenerational housing

and co-housing. All of them address some of

the challenges emerging on the global housing

market and could serve as future housing

solutions.

Fabian Waltert

Real Estate Analyst

+41 44 333 25 57

fabian.waltert@credit-suisse.com


GLOBAL INVESTOR 1.17 —37

1

Photo: Jeremy M. Lang

The Pacifica Cohousing community in Carrboro, North Carolina. Co-housing offers the benefits of small villages in an urbanized world.

Residents inhabit private spaces but share goods and services within the community.

Co-housing

Originated in Denmark in the 1960s and then picked up by

many regions all over the world, co-housing describes a

communal way of living where people inhabit private spaces

accompanied by shared facilities for the community.

The management of these communities is not hierarchical.

The inhabitants decide demo cratically by considering the

desires and needs of all residents. Life in a co-housing

community is characterized by different shared activities

within the community (e. g. group care, shared meals,

support in shopping, social interaction, etc.), where participation

is desirable, but not mandatory. These communities

are very heterogeneous in their purposes and objectives,

and they can be found in urban, suburban and rural

areas. For example, Older Women’s Co-Housing in Great

Britain seeks to establish a community for women aged

over 50, in what can be seen as a special form of multigenerational

housing. Others, like Pacifica Cohousing in

the USA, put more emphasis on creating communal

living with a focus on sustainability. The main idea behind

the co- housing movement is to find answers to the changing

needs of people around the world rather than to

provide a solution for the problems associated with the

demographic shift. The main economic advantage of

co-housing is the opportunity to share goods and services

within the community. People may also enjoy the community

spirit otherwise lost in today’s anonymous urban

areas. Yet monetary participation and cooperation among

participants is forced, which can lead to friction within

the community. However, co-housing is likely to become

increasingly relevant as a housing alternative, bringing

back some of the benefits of small villages in an increasingly

urbanized world.


GLOBAL INVESTOR 1.17 —38

Multigenerational housing

As incomes and mobility increase, it has become rare in

many countries for multiple generations to live under the

same roof. Thus, the benefits of this traditional housing

arrangement (such as free care for children and the

elderly) are disappearing. In addition, the growing number

of elderly increases public care costs. An initiative to rebuild

the social network similar to families was taken

in Germany with the so-called “Mehrgenerationenhäuser”

(multigenerational houses). The idea behind such

houses is to create an environment that accommodates

the elderly, children and nurseries, where young and old

can support each other. The “Lighthouse” in Berlin is

one example of a multigenerational house where 29 adults

aged from 26 to 70, 14 children between 2 and 13 years of

age and several pets live together, creating a family of

choice for many of them. They epitomize the very idea of

the sharing economy, as the senior residents, for example,

read books to the children and the teenagers train the

elderly to use computers. Multigenerational living is not

only a socializing project for the older generation. It also

helps provide new housing options for open- minded

younger people that are priced out of the regular housing

market and are happy to find an affordable place to live.

A more extended form of multigenerational housing can be

found in intergenerational living projects, where nursing

homes and nurseries exist under one roof. Such arrangements

are expected to significantly reduce the cost of care.

While multigenerational housing may be considered a

niche model rather than the global solution to the housing

problems associated with demographic change, it is a

promising model for the future.

2

The Murundaka Cohousing Community in Melbourne, Australia, is an example of multigenerational housing.

The idea is to bring together young and old in an environment where they can support each other, at affordable cost.


GLOBAL INVESTOR 1.17 —39

3

The Nakagin Capsule Tower

in Tokyo, Japan, was an

early experiment in microapartments.

Hardly larger

than a big living room, these

tiny dwellings offer a solution

to the twin problems of

sustainability and affordable

housing in city centers.

Photo: Manakin / Getty Images

Micro-apartments

Photo: Chris Grose

Small, often sustainable and, most importantly, affordable.

This is how micro-apartments or tiny houses can be described.

The idea is to downsize apartments to 20 to 30 square meters,

in some cases even less, and making access to affordable

housing in city centers and near workplaces possible. One

of the first and most radical buildings with micro-apartments

was the Nakagin Capsule Tower built in Japan in the 1970s.

It contains 140 stan dardized capsules of less than nine square

meters each. Meanwhile, with cities growing exponentially

and land becoming more scarce and expensive, the idea of

micro-apartments is gaining relevance again. In New York City,

for example, a project called Carmel Place was finished in

2016. It is the first modern building in New York where the

size of apartments is allowed to be smaller than defined by

regulation, featuring 55 micro-apartments in a nine-story

building. The apartments are furnished, every room is cleaned

once a week and there are additional amenities offered to

the tenants such as a gym. Critics argue that people will feel

lonely and isolated in such apartments, that apartments tend

to become smaller while rents stay the same and that such

small living quarters may create the slums of the future by attracting

low-income tenants. However, micro-apartments

allow young people, professionals, service-industry workers

and retirees to live in central, otherwise unaffordable locations

and thus counter segregation trends.

Photo: Vorname Name/Agentur


GLOBAL INVESTOR 1.17 —40

Photo: Bram Belloni

Mid-level white-collar jobs are disappearing, says Randstad CEO Jacques van den Broek. The result is a very different job market.


GLOBAL INVESTOR 1.17 —41

Flexible working

Labor in the

new millennium

Numerous factors that include automation and robotics, longer life expectancy,

underfunded pension systems and younger generations who think differently are changing

the supply and demand for jobs as we know them.

INTERVIEW BY RETO HESS, Credit Suisse

Reto Hess: Digitization – specifically

information and communications technology

(ICT) – is having an ever greater impact

on our daily lives, including our working lives.

How big a change are we looking at?

Jacques van den Broek We recently

published the 2016 edition of our “Flexibility

@work report” on the future of work in the

digital age, focusing specifically on the

consequences we see nowadays of digitization.

There are two trains of thought here:

one, more fatalistic, is that about 40%

of jobs are disappearing. But the second,

espoused in a separate report put out

by the OECD in May, maintains that 50%

of jobs would change naturally in any event.

What do you notice in terms of what your

clients are asking for today?

Jacques van den Broek People get fixed

on an ideal profile, which tells you right

away that they don’t know much about the

labor market. For example, a client might

wish to have a person in their mid-30s with

relevant skills who has been successful

at your main competitor but is looking for a

new challenge in your company. It’s not

going to happen. Increasingly we try to steer

companies away from their ideal profiles

in the direction of younger people, older

people or maybe people from another country.

Have you observed any shift in demand

from knowledge-based jobs to more

creative or socially oriented jobs as a result

of increasing ICT and automation?

Jacques van den Broek No. It’s a bit

early. If you’re talking about artificial intelligence

(AI), for example, the highest level

of artificial intelligence that we see today in

our sector has the intellect of a two-year-

Jacques van den Broek

is CEO and chairman of the Executive

Board of Randstad Holding nv. He

graduated in law at Tilburg University in

the Netherlands and briefly held a

management position at Vendex International

before joining Randstad as a

branch manager in 1988. He joined the

Executive Board in 2004.

old. So in 78% of cases, AI now recognizes

a picture of a cat as being a cat. When it

comes to selecting a personal profile – and

certainly that of a knowledge worker –

it will be quite a few years before technology

can make that choice. AI first has to reach

“technological singularity,” which is when

machines surpass human intelligence. If this

happens, scientists predict that cognitive

professions could be improved and maybe

partially substituted.

That said, the report you mentioned at

the beginning does state that progress in

ICT is leading to job polarization, where

there is demand for high-tech, high-paid

jobs and low-tech, low-paid jobs,

but the jobs in the middle are losing out.

What is going on there?

Jacques van den Broek You have nonroutine

tasks at the top and low ends of

the labor market. A gardener does a nonroutine

task that cannot be automated.

A nurse does non-routine tasks that can

only partly be automated. What is interesting

is that mid-level white-collar jobs, which

previously were highly regarded, are very

quickly disappearing. And that’s an issue,

because most of the social systems >


GLOBAL INVESTOR 1.17 —42

“People become fixed on

an ideal profile, which tells

you right away that they

don’t know much about the

labor market.”

Jacques van den Broek

Jacques van den Broek If you’re talking

ICT professionals, their main reason for doing

a job is the attractiveness of the project.

In addition, and especially if they’re young,

they are increasingly reluctant to leave

home. And these are jobs that can be performed

remotely. So yes, the workforce

of the future – in addition to being 18 to 68,

will be partly remote and partly freelancers.

Indeed, we think that between 30% and

35% of the total workforce will have a job

that is not fixed.

In terms of generations, you have a

programin the Netherlands that helps

older employees.

Jacques van den Broek You’re talking

about +Power. Which is not necessarily

to say that old is ideal. In the Netherlands,

we are heavily advocating stepping away a

bit from the bias of ideal profiles and instead

look at what people bring to the marketplace.

But it’s early days. It’s still a

hard sell for us to get older people back into

the workforce.

Why is that?

Jacques van den Broek Biases are one

reason. Another is that owing to pay scales

and pay models, over time people outprice

themselves in the labor market. It’s also

linked to demand. The last time we were

really creating different profiles was in 2007,

which is also the last time we saw serious

economic growth in Europe. Ten years ago!

Once growth returns, clients will lose their

reluctance. Right now, people are thinking

short term; but in the long term, look at

the demographics. Clients need to be open

to new profiles anyway. So do employees.

When people lose their job, the first thing

they do is look for the same job that just

disappeared, which is always tough.

Employers and employees have a joint rebuilt

just after the Second World War –

pensions, healthcare, education – hinge on

a middle class. And that needs to change.

We’re looking at a different labor market.

What can be done to address the problem?

Jacques van den Broek Companies

need to do mid- to long-term planning to

see how their workforce can change. Countries

need to create proactive labor market

policies. If, as a country, you create a STEM

(science, technology, engineering and medicine)

hub – a knowledge hub – like the

Rust Belt in the USA or the Eindhoven area

in the Netherlands, for every STEM job

you attract, you get 2.5 to 4 low- to mid-level

jobs surrounding this activity for all sorts

of reasons. Canada, for example, attracts

1% of its total workforce almost every year

based on a very clear agenda. Europe has

no proactive labor market policy. And therefore,

the people who want to come here

are not necessarily the people we need.

How is your business model

at Randstad evolving?

Jacques van den Broek A few things

are happening. First, labor markets are increasingly

mismatched, both on a country

level and internationally. There’s no real

scarcity of people, but people live in the

wrong places. So we see a role for us in allocating

work around the globe. Of course,

this needs to be facilitated by governments

and accepted by clients. But eventually,

there will be no choice. We also see a much

more diverse workforce in terms of age –

18 to 68, for example – and more made-tomeasure

arrangements at work because

not everybody will opt for a full-time job. So

we see a role for us in creative workforce

planning, too.

Do you see much of a trend

toward freelancing?

sponsibility to safeguard employability.

We start a conversation to redefine their

competencies toward different jobs that are

available in the labor market.

What happens when you add millennials

into the labor market mix?

Jacques van den Broek You see slight

differences. Millennials are concerned

about a sense of purpose and work/life balance.

They want to work for start-ups

and small companies. As an employer, you

have to think about how to attract this

group. There is still quite a divide between

what companies think are their unique

selling propositions and what people are

looking for in the workplace. We believe that

adapting to the needs of the new generation

will be key in attracting the right talent.

As a candidate, is it an advantage

for me to be on social networks?

Jacques van den Broek Of course. If you

are unknown, it’s impossible for us to find

you. In the old days, when people came into

my branch, I’d say to them, let’s stay in

touch. Because if I have not found something

after two weeks, then all the candidates

will have come in. It works roughly the same

in social media. If you want to send a very

subtle sign that you’re looking for a job,

change your profile picture on Facebook.

We’ll know.


GLOBAL INVESTOR 1.17 —44

Young and

car-free

For many adults, driving is associated with freedom. In many industrialized countries,

however, today’s young people are using cars less and less. We look at what caused

this trend and whether it is a temporary or permanent phenomenon.

100%

Percentage of

licensed drivers aged

18–24 years

87%

Source: US Department of Transportation,

Swiss Federal Statistical Office

84%

81%

USA

2014

77%

71%

69%

63%

2010

2005

2000

1994

50%

59%

Photo: macida / Getty Images


GLOBAL INVESTOR 1.17 —45

A

car used to be seen as a status

symbol, associated with freedom

and adulthood. This appears to no

longer hold true. In recent years,

there have been signs of diminishing interest

in cars among young adults in industrialized

countries such as the USA, Norway, the

Netherlands, UK, Germany and Japan. This

trend, which began in the 1990s, first manifested

itself in fewer driver’s licenses among

young adults compared to previous generations

at the same age. In the USA, for instance,

the percentage of licensed drivers

aged 20 to 24 years declined from 87.2% in

1994 to 76.7% 2014. In most countries, this

decline was accompanied by a general decrease

in car use, as evidenced in a lower

number of daily car trips and daily miles traveled

by car among young adults. While in

some countries, for instance Germany, young

adults are using alternative means of transport

such as trains and bicycles, in the USA,

travel demand among the young overall has

decreased.

The drivers of changes in mobility

There are two fundamentally different theories

to help explain these changing mobility patterns.

The first is based on socioeconomic

factors, such as length of education and the

age of marriage, which have changed considerably

in recent years. The significant rise in

the economic return on education has resulted

in higher school enrollment. This trend was

additionally fueled by the recent recession. In

the USA, college enrollment jumped significantly

more than the secular uptrend, since

people with a low level of education were encouraged

to continue their education to increase

their chances of finding employment.

The proportion of 25- to 30-year-old Americans

with college degrees increased by four

percentage points between 1995 and 2009,

whereas the employment rate of the same

cohort decreased by nine percentage points.

This pattern can also be observed in most

OECD countries. Due to more years spent on

education, the age when people enter the job

market has increased, which implies lower or

no income during the student years and delayed

marriages and parenthood. If the reason

for the decline in car use is lower income in

younger years and postponed family formation,

then young adults are likely to travel more

frequently by car as they get older and settle

down. This theory is summarized in a phrase

coined by a Netherlands Institute for Transport

Policy Analysis report on the changing

mobility behavior of young adults, “not carless,

but car-later.”

Preferences reshape mobility needs

The second theory suggests that today’s

young adults have different attitudes and mobility

preferences than previous generations.

Hence, the decline in car use is also the result

of generation-specific factors. This theory is

supported by statistics on young adults in Germany,

for instance, who despite car ownership

use their cars less often. One possible reason

for this change in attitudes is information and

communication technology, which substitutes

physical travel with virtual mobility. Much of

the freedom car ownership grants, for example

access to information and products, catching

up with family and friends, is today made

possible by smartphones, online shopping and

social media. A further change of attitude,

which is related to cars being seen as a status

symbol, is the transition from ownership

to sharing. Today the car is seen as a useful

tool that can be borrowed when needed, similar

to streaming music instead of buying a CD.

This trend is confirmed by a global rise in car

sharing. From 2006 to 2014, the number of

members of car sharing networks globally increased

from 346,610 to 4.8 million. In the

USA alone, the car sharing market is forecast

to reach 3.8 million members by 2020 (1.3

million in 2014).

Conclusions and implications

Most research studies show that the decrease

in car ownership is most likely caused by a

combination of the above factors, but predominantly

by socioeconomic ones. The social

factors outlined earlier, such as the trend toward

longer education and postponed family

formation, in conjunction with a lower income,

have created a situation in which young adults

are less inclined to use or buy a car. However,

once young adults get older, their interest in

cars is likely to increase. The impact of virtual

mobility and smartphones on mobility is

probably not quite as important since these

technologies became widely used after the

use of cars began to diminish. While a shift

away from car ownership to sharing could impact

the auto industry as personal car sales

decline, this effect could be partly offset by

increased sales of shared vehicles. Indeed, a

report by McKinsey on the perspective of the

automotive industry concludes that a shift toward

shared mobility could lead to lower

growth in global car sales. However, global

car sales are expected to continue to show

positive growth of around 2% p.a. by 2030.

Based on these arguments, the change in mobility

behavior will likely pose a challenge, but

not a severe threat to the auto industry.

Julia Dumanskaya

Research Analyst

+41 44 333 92 83

julia.dumanskaya@credit-suisse.com


GLOBAL INVESTOR 1.17 —46

Millennials

drive

sustainability

Sustainability is a key concern for the millennials generation.

Companies have to adapt processes and production practices to

make their products sustainable and thus seize the opportunities

this rapidly growing generation of consumers creates.

The millennials generation (people

born roughly between the 1980s

and sometime in the early 2000s) is

the most sustainability-conscious

generation. Recent studies from Nielsen and

Deloitte show that millennials are most willing

to pay more for products and services seen

as sustainable or coming from socially and

environmentally responsible companies. As

millennials are a rapidly growing consumer

market, and an influential one, we look at how

companies evolve to bring them on board,

particularly how this concern about sustainability

affects products and production in various

sectors.

Fishery shows the way

Human rights violations in Asia’s fish, prawn

and shrimp farms have attracted widespread

media coverage. A major newspaper investigation

in 2014 revealed that CP Foods, the

world’s largest prawn farmer, had bought fish

from Thai suppliers operating or buying from

fishing boats manned by slaves. The fish ended

up on the shelves of leading supermarket

chains such as Walmart, Carrefour, Costco

and Tesco, forcing companies to quickly react.

Within a week, Carrefour decided to stop purchases

from CP Foods, and CP Foods issued

a statement condemning slavery and committing

itself to behave responsibly under the

monitoring of independent non-government

organizations.

The sustainable seafood movement that

began in the 1990s highlighted the impact of

overfishing or destructive fishing methods on

the environment. Social marketing through

ecolabel and awareness campaigns is helping

consumers to make informed choices potentially

contributing to the conservation of the

environment. Ecolabeling consists of evaluating

the production process with set environmental

standards by independent third parties.

If the process fulfills requirements, the producer

or marketer can use the ecolabel in its

marketing and the consumer knows that the

product was produced sustainably. Producers

can often obtain premium prices for these

products.

Sustainable supply chains are key

For the seafood industry today, this means

that companies have to guarantee sustainable

seafood, i.e. only harvesting species of fish

that are in abundant supply, caught using environmentally

friendly methods and respecting

human rights.

Companies are also realizing that building

a sustainable supply chain has the potential

to bring new clients and success. Tetley Tea

(Tata Global Beverages) is growing tea sustainably

and its campaign where smallholder

farmers and tea estate workers post items

about their daily lives and work and communicate

with customers has been a great success.

Tata Global Beverages first identified

the need to develop a sustainable supply chain

following disruptions in availability and prices

of its tea supply. It now seeks to certify an increasing

part of its tea supply under the Rainforest

Alliance certification, which meets environmental,

social and economic standards.

With more food needed to feed a growing

population and ever-increasing environmental

challenges ranging from water scarcity to herbicide

resistance, the food and beverages industry

is leading the way to help set standards

for sustainable agriculture. Nestlé and Unilever

are among them. Unilever reported faster

growth for its brands with a sustainability purpose

compared to the rest of the business,

and these brands contributed nearly half of

the firm’s total growth in 2015. Nestlé has set

specific requirements for palm oil, paper and

board, sugar, soy, cocoa, coffee, diary, fish,

seafood, meat, poultry, eggs, vanilla and hazelnuts,

and sources 43% of these commodities

from sustainable sources in 2015.

More transparency in the apparel industry

After the tragic collapse of the Rana Plaza

factory building in Bangladesh in April 2013,

many global fashion companies reacted and

signed the Bangladesh Accord with the Bangladeshi

government and workers’ trade

unions to make factories safe, and global

brands agreed to monitor how the factories

supplying their goods are run.

The difficulty is that the fashion industry

constantly moves its supply chain to new locations

and suppliers use unapproved outsourcing.

Recently, a BBC investigation revealed

unethical practices in the Turkish textile

industry, involving child workers. The companies

involved claimed these practices were

contrary to their code of conduct and that they

happened in unapproved source factories.

As with the food industry, raw materials

such as cotton or processes such as dyeing

can be performed in a sustainable way. Fair

trade cotton labels appear on garments or are

developed as lines of products.


GLOBAL INVESTOR 1.17 —47

To date, the industry still lacks transparency,

but fair cotton standards and labels have

emerged and companies have developed

governance standards to foster sustainability.

In the future, we are likely to see new brands

emerge that will reinvent the business model,

using recycled or recyclable materials, or better

manufacturing standards.

Reshaping the automotive industry

If we apply sustainability to the automobile industry

and the fight against climate change

and pollution in this case, we can expect millennials

to favor electric cars over diesel cars

and shared cars over owned cars.

The emission scandal involving Volkswagen

in 2015 has changed the automotive industry.

Traditional automakers are in private

discussions about the end of diesel in ten

years. Stricter emissions testing leaves no

choice for the traditional carmakers but to engage

in electric cars. Developments in technology

companies such as Google or new entrants

such as Tesla are pushing car companies

to already act today. This year, the manufacturers

have revealed ambitious electric

auto development programs. Daimler raised

its capex program at the start of the year and

will develop premium electric cars, which is a

segment dominated by Tesla at the moment.

Continental, a supplier to German original

equipment manufacturers (OEMs), also just

announced a step-up in capex. Volkswagen

has announced that, by 2025, 25% of its vehicles

will be electric. BMW was among the

first to launch electric vehicles. Companies

have recognized the need to spend money now

and in the years to come.

Autonomous driving is another development.

More and more features are being added

to cars, from autonomous parking to semiautonomous

driving. While legislation hurdles

still have to be passed, we can envisage fully

autonomous driving becoming a reality in the

next decade or so. Given that millennials have

already adopted sharing behaviors, autonomous

driving will facilitate the development of

the sharing model for cars. Again, traditional

OEMs have recognized this development and

are acquiring companies in the sharing car

market to offer such services themselves.

Growth through sustainability

economy. We see spending diverted away

from traditional retail products. The sportswear

industry is benefiting strongly as sports

items have become part of everyday wear in

the search for health and wellness. Eating

smart and from organic or local sources instead

of eating food produced through chemically

polluting-intensive agricultural practices

or industrial processing has led to the development

of specialty grocers such as Whole

Foods or Sprouts Farmers Market. The traditional

food retailers have also evolved to address

this trend, and have captured a bigger

share of the natural/organic industry in recent

years. Smaller brands are appearing in the

staples industry and gaining market share. In

the healthcare industry, millennials are embracing

alternative medicine rather than conventional

medical treatments and prescription

drugs. Natural remedies and alternative medicines

feel safer and cleaner and are more in

line with millennials’ values.

Millennials are an influential and rapidly

growing consumer market. Established industries

must now adapt their business models if

they want millennials on board. Companies

must deliver good social and environmental

performance and engage in sustainable practices

or their future growth could be at risk.

New companies are being created to embrace

new opportunities.

Julie Saussier

Research Analyst

+41 44 333 12 56

julie.saussier-clement@credit-suisse.com

“Sharing instead

of consuming leads to

the development of

the sharing economy.”

Julie Saussier

More generally, this search for sustainable

behavior is pushing millennials to adopt new

consumer habits, thus opening up new growth

opportunities. Sharing instead of consuming

is leading to the development of the sharing


GLOBAL INVESTOR 1.17 —48

FEEDING FUTURE GENERATIONS

How weather affects agriculture and what IBM can do with precision weather forecasts to help farmers. Source: IBM

INCREASING CROP YIELDS

90%

of all crop losses are due to weather.

Weather-related crop damage could be

reduced by 25% using predictive weather

modeling and precision agriculture techniques.

PRECISION AGRICULTURE

IBM is using data to help farmers be more

efficient in their operations and make more precise

decisions about planting, growing, harvesting

and transporting crops, leading to better price

points and a stable supply chain.

WEATHER MODELING

DEEP THUNDER

IBM’s Deep Thunder is a service that

provides a hyperlocal forecast up to

36 hours in advance with 90% accuracy.

SENSORS

GROWING

70%

of fresh water worldwide is

used for agriculture purposes.

If farmers know when and where

it’s going to rain they can better

schedule their irrigation and

know when they should put down

fertilizer, to avoid runoff.


GLOBAL INVESTOR 1.17 —49

Farmer

CTOs

Farmers are among the most prominent

adopters of robotic technologies. New

applications using the Internet of Things (IoT),

Big Data and robotics may well revolutionize

the agricultural sector in the next ten years.

This could help to solve the current mismatch

between rising demand for food and limited

arable land capacity.

TRANSPORTATION

50%

of food ready for harvest never

reaches the consumers mouth.

By understanding the effect of weather

on transportation networks, companies

can make better decisions on which

routes will be the fastest to transport

their food.

THE IMPACT

As farmers reduce waste

and increase crop yields,

consumers will feel the

positive economic impact

at the grocery store.

In the past, a farmer was seen as someone who loves nature and

leads a strenuous, rather solitary life with little connection to the

outside world. Furthermore, farmers were often considered to be

highly critical of progress. Today, however, automation and digitization

are becoming increasingly important in farming – a vital and

essential element to solve problems in the agricultural sector. From

vertical farming, where fruits and vegetables are digitally monitored

and grown in artificial greenhouses, to vast farmlands that are connected

to the Internet using sensors, robots and Big Data solutions

are used to reduce costs and improve crop yields. Furthermore, digital

farming can also help to cultivate new areas of farmland. In future,

therefore, farmers look set to become the chief technology officers

(CTOs) of agriculture.

Food availability constraints ask for new solutions

Illustration: IBM, C3, The Noun Project

The United Nations (UN) predicts that the global population will rise

from 7.3 billion today to 9.7 billion in 2050. The UN Food and Agriculture

Organization (FAO) predicts that this growth would require increasing

overall food production by about 70%, as the growing middle class

places increased demand on food products. Demand for livestock,

dairy products and other commodities is highly correlated to higher

income in the developing countries. There is a clear need to further

improve the efficiency of farming existing arable land and thus increase

output. However, arable land is concentrated in Oceania and the USA,

creating a major mismatch with where the global population is. For

example, food availability in China is increasingly constrained, and >


GLOBAL INVESTOR 1.17 —50

efficiency improvements alone cannot solve the problem. Cultivating

new arable land is important as well.

Robotics and drones for growers

The increasing strain on food supply, the availability and cost of farm

workers, the challenges and complexities of farm labor, shrinking

farmlands, climate change and the growth of indoor farming all argue

in favor of increasingly employing robots in agriculture. Recent progress

in making processing power cheaper, combined with artificial

intelligence and the increasing learning power of machines, enables

a new kind of e-farming.

While milking systems are already widely deployed, we believe the

demand for driverless tractors or semiautonomous vehicles, synced

vehicles and processing equipment as well as smart agriculture applications

such as traceability or swarm robots for the harvest season

could increase exponentially because of the expected momentum in

innovation. For instance, drones can be used for observation (security)

and to detect areas where crops are failing to grow. In the latter

case, the drones would call collectively programmed swarm robots

to protect or recover the affected areas. According to a report from

Tractica (“Agricultural Robots,” July 2015), annual shipments of agricultural

robots are likely to reach 992,000 worldwide by 2024, up

from just 33,000 in 2015. Tractica forecasts that some of the largest

application segments will include unmanned aerial vehicles (UAVs or

drones) for agricultural purposes, soil management robots, material

management robots, driverless tractors and dairy management robots.

Agritechnology in Africa, a new growth area

Africa is said to have a quarter of the world’s arable land, but 80% of

it is underutilized or simply lies idle. Most of the remaining 20% is in

the hands of small-scale peasant farmers that are unfamiliar with

commercial farming to improve production. There are a multitude of

projects in Africa that focus on improving crop yields and cultivating

new farmland with the help of information technology. The bottleneck

so far is access to the Internet in rural areas. However, research firm

McKinsey estimates that Africa will triple its Internet penetration

to over 50% – the equivalent of 600 million regular Internet users –

by 2025.

Projects such as IBM’s EZ Farm use Big Data and the IoT to provide

farmers and water service providers with insights into current

and predicted water and soil moisture levels via smartphone applications.

As part of this project, farms are equipped with cheap water

tanks, soil moisture and infrared light sensors to monitor the health

of plants, resulting in higher yields and lower farming costs. Smartphone

applications from other firms such as M-Farm, iCow, Farm-

Drive, WeFarm or MbeguChoice offer access to education (such as

feeding practices or disease control), provide better, drought-tolerant

seed varieties and give financing and troubleshooting support. The

investments for digital farming are increasingly coming from outside

of Africa. For instance, Chinese companies have acquired farmland

in Congo, Mozambique and Angola and are using IT to cultivate new

farmland in these areas.

Precision farming increases efficiency

John Deere, a leader of high-tech machinery in the agriculture sector,

is taking the IoT into the field and boosting efficiencies with the

help of SAP’s Big Data solutions. Sensors on the John Deere equipment

help farmers to manage their fleet and decrease downtime of

their tractors and save fuel. The information is combined with historical

and real-time weather data, soil conditions, crop features and

many other kinds of data. The so-called precision farming hardware

market (using displays, GPS, yield monitors and sensors) is expected

to grow at a compound annual growth rate of 11.7% between 2015

and 2020 and reach USD 4.8 billion, according to research firm

MarketsandMarkets. The potential benefits of software application in

farming – such as higher yields, low input waste, reduced financial

losses – could turn out to be very high. The FAO expects that precision

farming could lift crop yields by 70% by 2050 and thus make a

valuable contribution to feeding the world.

Uwe Neumann

Research Analyst

+41 44 334 56 45

uwe.neumann@credit-suisse.com


GLOBAL INVESTOR 1.17 — 51

Authors

Lorenzo Biasio

Research Analyst.........................................................

lorenzo.biasio@credit-suisse.com..................................

+41 44 333 14 79.......................................................

Lorenzo Biasio is a research analyst in Global Equity

and Credit Research at Credit Suisse, covering the

healthcare sector. Prior to joining Credit Suisse in 2014,

he was a management consultant in the pharma/

healthcare space. Lorenzo holds a Master’s degree in

Biology from ETH Zurich, Switzerland.

> Pages 10, 13, 16, 27, 33, 36–37, 41–43, 48–50, 52–53, 58

Uwe Neumann

Research Analyst.........................................................

uwe.neumann@credit-suisse.com.................................

+41 44 334 56 45.......................................................

Uwe Neumann is a senior research analyst in the Global

Equity and Credit Research team at Credit Suisse

Inter national Wealth Management, covering the telecom

and technology sectors. He has 29 years of experience

in the securities and banking business, holds a Master of

Economics from the University of Constance, Germany,

and is a CEFA Charterholder. > Page 03

Julia Dumanskaya

Research Analyst.........................................................

julia.dumanskaya@credit-suisse.com.............................

+41 44 333 92 83.......................................................

Julia Dumanskaya is a research analyst in Economic

Research at Credit Suisse, working in the Fundamental

Macroeconomics team. She joined Credit Suisse in

2011 and has five years of experience as a financial and

research analyst in the Foreign Exchange team as

well as in the Economic Research team. Julia holds an

MA in Economics and Business Administration from

the University of Zurich, Switzerland. > Pages 44–45

Julie Saussier

Research Analyst.........................................................

julie.saussier-clement@credit-suisse.com......................

+41 44 333 12 56.......................................................

Julie Saussier is a senior research analyst in the Global

Equity team, covering the consumer discretionary sector.

She has 14 years of experience as a research analyst

and joined Credit Suisse in 2015. She holds a Master’s

degree in Business and Management from the University

of Paris-Dauphine and a Master’s degree in Corporate

Finance from the Emlyon Business School, France, and is

a CFA Charterholder. > Pages 07, 11, 15, 22, 26, 30–32

Reto Hess

Research Analyst.........................................................

reto.hess@credit-suisse.com........................................

+41 44 334 56 24.......................................................

Reto Hess is a senior research analyst at Credit Suisse

International Wealth Management with 12 years of

experience in equity research and investment management.

He heads the Global Equity Research team and

covers the European and US industrials sector. Further,

Reto is a CFA and CAIA Charterholder and holds a Master

of Science from the University of Zurich, Switzerland.

> Pages 08–09, 12, 38–43, 59, 61

Ulrich Kaiser

Research Analyst.........................................................

ulrich.kaiser@credit-suisse.com....................................

+41 44 334 56 49.......................................................

Ulrich Kaiser is a senior financial analyst of Credit Suisse in

the International Wealth Management Division, covering

the technology sector. He joined Credit Suisse in 1993 and

has 28 years of experience in the securities and banking

business. He received his Master of Economics from

the University of Constance, Germany, and is a CEFA

Charterholder. > Pages 17, 23, 44–47, 51, 60, 62

Christine Schmid

Head of Global Equity and Credit Research...................

christine.schmid@credit-suisse.com..............................

+41 44 334 56 43.......................................................

Christine Schmid is Head of Global Equit and Credit

Research at Credit Suisse International Wealth

Management. She has 23 years of experience and covers

the financials sector. She holds an MA in Economics

from the University of Zurich and is a CFA Charterholder.

> Pages 14, 34–35

Fabian Waltert

Research Analyst.........................................................

fabian.waltert@credit-suisse.com..................................

+41 44 333 25 57.......................................................

Fabian Waltert is a senior economist at Credit Suisse

International Wealth Management. He covers Swiss

real estate and construction and holds a PhD in

Economics from the University of Zurich, Switzerland.

> Pages 14, 34–35

Angus Muirhead

Senior Portfolio Manager..............................................

angus.muirhead@credit-suisse.com..............................

+41 44 332 32 59.......................................................

Angus Muirhead is a senior portfolio manager in the

Thematic Equity team at Credit Suisse Asset Management.

He joined the team in September 2016 and

has 19 years of experience as an analyst and portfolio

manager investing in the technology and healthcare

sectors. He is currently responsible for the CS (Lux)

Global Robotics Equity Fund, together with Dr. Patrick

Kolb. Angus has a BA degree from Durham University

in Modern Japanese Language and Business Studies,

and is a CFA Charterholder. > Pages 17–19


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16C032A_R


Imprint

Credit Suisse AG, Investment Solutions & Products,

P.O. Box 300, CH-8070 Zurich

Publisher

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Editors

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Editorial deadline

22 December 2016

Production management

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Concept

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