1

THE NEW ECONOMY: THE NEW ECONOMY: ALIVE AND KICKING!ALIVE AND KICKING!

In Sweden and In Sweden and CaliforniaCalifornia

Klas Eklund, SEBNovember 7, 2000

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THE “NEW ECONOMY”THE “NEW ECONOMY”- NOT ONLY IT- NOT ONLY IT

• Sounder macro policy– Stricter budget policy, independent central

banks

• Globalization & deregulation– More sectors open to international

competition

• IT revolution– A new generic technology, which cuts

transaction and information costs

• These three processes interact

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EXCELLENT RESULTSEXCELLENT RESULTS

• Stiff competition– deregulation, transparency

• Higher growth– Investments, productivity

• Low inflation– Sounder macro policies, deregulation,

cost-saving technology• Smaller cyclical swings

– Less stop-go, less political risk

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AND FURTHERMOREAND FURTHERMORE

• Globalization increases the standard of living

• …and promotes democracy in the world• Despite the “golden straight-jacket”• But creative destruction creates new

divisions• The economics of superstars are difficult

to handle for politicians• Challenges to old political parties and

interest groups

5

FINANCIAL MARKETSFINANCIAL MARKETS

• Low, stable inflation and sounder macro policies give low government bond yields

• Flatter yield curves, where short end varies more - contrary to old rules

• Large inflows to stock markets• High short-term volatility due to

uncertain valuations, strong flows, e-trading and herd mentality

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HIGH P/E RATIOSHIGH P/E RATIOSS&P Composite IndexS&P Composite Index

0

5

10

15

20

25

30

35

40

45

1880

1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

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INCREASING VOLATILITYINCREASING VOLATILITYStandard deviation, Stockholm Stock ExchangeStandard deviation, Stockholm Stock Exchange

0,0

0,5

1,0

1,5

2,0

2,5

3,0

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CONCLUSION:CONCLUSION:THE NEW ECONOMY IS ALIVE THE NEW ECONOMY IS ALIVE

AND KICKING!AND KICKING!• New economy is alive - visible in macro

performance, macro policies and financial markets

• The new economy is more than volatile stock markets, much more than bumpy ride of dot.com valuations

• Many more will go bust, but the new economy will still be there

• Compare: Railway stock crash, electricity and radio stocks in previous manias

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331717

DEATH OF PIONEERSDEATH OF PIONEERS

5,000railway

companies

5,000railway

companies

2,000car

producers

2,000car

producers

10

2000

EUROPEAN EUROPEAN E-COMMERCE GROWTHE-COMMERCE GROWTH

USD bn

Source: Forrester report

1999

1,600

@

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……BUT E-COMMERCE BUT E-COMMERCE MUST LEARNMUST LEARN

• Abysmal CRM– crappy web sites, poor service

• Logistics!– Too much waiting

• Pricing models– How to get customers to pay– Burn rate

• Lack of management skills• Often the giants from the “old”

economy are better: IKEA, SEB...

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B-BUSINESS PARTNER B-BUSINESS PARTNER NETWORKNETWORK

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““THE REVENGE OF THE THE REVENGE OF THE BRICKS”BRICKS”

……not not least in least in SwedenSweden

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““THE MOST WIRED THE MOST WIRED AND WIRELESS NATION AND WIRELESS NATION

IN EUROPE”IN EUROPE”

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BUT THE SWEDISH SUCCESS BUT THE SWEDISH SUCCESS WILL NOT NECESSARILY WILL NOT NECESSARILY

LAST FOREVER….LAST FOREVER….

• Success now is built on macro U-turn, de-regulation and old engineering competence.

• It was not planned or anticipated• Threats: New technologies, taxes, lack of

talent and skilled labor• The window of opportunity can be closed

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IMPRESSIONS FROM IMPRESSIONS FROM CALIFORNIACALIFORNIA

• The poor cousin from the boondocks• Silicon Valley - still booming, but risks of

burn-out• San Diego - on the rise, especially bio-

tech and wireless• Los Angeles - smiling smugly• Venture Capital - still strong

– USD 30 bn in Silicon Valley Q3 99 - Q2 00• The wheat is sifted from the chaff• And B2C e-commerce is cold

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BACK TO THE FUTUREBACK TO THE FUTURE

Period Pre 95 95-99 2000+

Rules Grow Get big fast Get profit-able fast

Behavior Enthusiasts Golddiggers Risktakers

Liquidity 6 years 2 years 4 years

Value 300 mln 2 bn 800 mln

Market 1 mln 50 mln 100 mln

VC returns 30% 100% 40%

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WHAT IS REQUIRED?WHAT IS REQUIRED?

• A credible business plan• Extreme focus• One good idea - strong niche• Global outlook• Possibility to attain size• Lower burn rate• Management team• Attracts talent

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INTEREST IN SWEDENINTEREST IN SWEDEN

• Excellent reputation in wireless• Great testing ground, rapid diffusion• Under-tapped pool of talent• Impediments:

– Taxes– Lack of focus– Not big enough mindset?

• Conclusion: A risk (or promise?) that talent is lured away

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FINAL WORDSFINAL WORDS

• Many more dot.coms will die and venture capital will be more restrictive

• But the new economy is alive. It is visible in macro numbers and in financial markets.

• The new economy will move ahead - as technology develops and new business practices are embraced by old companies.