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Reuters Insider - Davos Today: Wednesday 2014

Mon 27th January, 2014 2:39pm
Click the following link to watch video:                              
 http://insider.thomsonreuters.com/link.html?cn=share&cid=1183078&shareToken=Mzo3ZDc3NDliMy1hNWIwLTQ4NzYtOGVhZi01NTM1NGY3M2Q0MDc%3D&playerName=ReutersNews 
                                                                       
 Source:             Thomson Reuters                                   
                                                                       
 Description:        Top interviews and news from the World Economic   
                     Forum including Richard Olver, CEO of BAE Systems, 
                     actor Matt Damon and William Saito, special       
                     advisor to Japanese PM Shinzo Abe.                
 
 
(To access all exclusive Reuters Insider programming visit: http://insider.thomsonreuters.com) 
 
 Short Link:  http://reut.rs/L9HWQu  
 
 
Transcript (May be auto-generated)

 We're live. To you, Axel. Good morning, everyone. It is Wednesday, January 22. 
This is Davos Today brought to you by the World Economic Forum and Reuters. I'm 
Axel Threlfall. We are live 0700 until 0830 every morning this week through 
Saturday from the old library here in the very heart of Davos. Let me give you a
sneak look behind the scenes. This is the Green Room where our guests come 
before the show. 

Kris Gopalakrishnan is here, Colin Dyer from Jones Lang LaSalle, we'll speak to 
you guys in just a moment. We've got a new feature on the show this year. A 
guest host, Steve Pagliuca from Bain Capital. Great to see you, Steve. Great to 
see you, Axel. We've got you for half an hour. Plenty to talk about today – 
us, and of course, we're going to quiz the guests as well as they come through. 
First though, let me give you the headlines this morning. Syria peace talks 
begin in Montreux as world powers push for an end to three years of civil war. 
But pressure grows on President Assad to quit after allegations of systematic 
torture and executions. Thailand's capital under a state of emergency. The 
government tightening security in the latest escalation of its showdown with 
protesters looking to derail elections and oust the prime minister. 

IBM misses revenue expectations for the fourth straight quarter as it grapples 
with weakening demand for servers and storage in emerging markets like China. 
And Cardinal Peter Turkson delivers a message from the Pope to delegates her. 
The Pontiff urging them to include others in their prosperity. I ask you to 
ensure that humanity is served by wealth and not ruled by it. So we are back 
along with 2,600 participants and 40 heads of state for the World Economic Forum
here in Davos. Alongside, Iran, Syria peace talks high up on the agenda this 
year. 

Seeking growth, tackling inequality, managing migration - all topics central 
bankers, economists and CEOs will debate as they figure out how to help, not 
harm the world's fragile recovery. The WEF's 2014 theme, "Reshaping the World: 
Consequences for Society, Politics and Business", it's a big one. Some might say
it's quite unwieldy. We'll hear what Steve says in a second. We're going to 
dissect what it means with a raft of big-name interviews. In today's lineup, 
we'll talk to Bombardier's Chief Executive on taking on Airbus and Boeing; BAE 
Systems will tell us how you run a defense company when everyone's cutting 
spending on arms; plus a surprise message sent from the Pope. We'll have more on
that later in the show. We also want to hear from you. 

Any insights what you think we should be talking about or we aren't talking 
about, who should be here that isn't here, tweet using the #DavosToday. Right, 
let's kick it off with our first guest host of the week, our first ever guest 
host of the show I've got to say. You're going to help me do some of the heavy 
lifting today, Steve. Bain Capital's Managing Partner Steve Pagliuca. Steve, 
great to have you here. Great to be here. 

Why – let me cut to the chase - we hear from the Pope, we hear a lot of the 
big issues out there. Why do dealmakers like you really come to Davos? Is it to 
sort out these big problems or is it to do deals? It's a combination of the two.
Davos is a great platform for us to hear about what's happening in the global 
economy, what are the issues countries are facing. And obviously, the macro 
issues affect the performance of companies that you buy. So to me, it's been a 
wonderful experience both to understand the global issues, understand the 
political issues and how that factors into business analysis. Are you going to 
go away with some deals under your belt or at least some progress on deals under
your belt? Yeah. We have had situations that come out of here that turned into 
deals, but it's really a long-term plan: the more you come, the more people you 
know, the more industries you get to know, the more CEOs you get to know. You 
have a better feel for where you should invest and not invest. But is this year 
a better bet than last year? I've spoken to you for the last few years and they 
seem to be getting better, right? I think things hit the bottom and it was a 
shaky Davos in 2008, 2009 years. The mood at that point was, would the financial
system come back? It's now come back, it's getting better and better in each 
country. So I think there's optimism about there now. Let me get your take on a 
couple of big news items that happened overnight and this morning. Mohamed 
El-Erian and PIMCO, he's leaving, he's resigning. I saw that. Yeah. They haven't
said why. What's your thought? I have no idea but we're really – Bain Capital 
is really a company that will buy investor businesses and venture capital and 
try to build great businesses. And those folks are managing huge portfolios of 
fixed income interest rate bets. That's the problem, right? I guess if those 
bets go against you- And those bets have been going against you, so I guess 
that's the problem. 

The other big story and I mentioned in the headlines, IBM misses again. China is
the problem. How worried are you by China? And we're going to have plenty of 
time to talk about China in the next half hour but how worried are you? Well 
China's really interesting. It's been a driver of the world economy obviously 
for the last 15, 20 years. An economy that big can't keep growing it 12%, 15% 
per year. It still has robust growth compared to many places. So you're still 
seeing businesses grow in the 6% to 8% range and some even to 10%. So I think 
China's going to be slower than it was but it's still the growth engine for the 
world. 

Very quickly, any closer to the $10 billion deal for Bain? I asked you this last
year, you said it was a little way off. I think we're seeing transactions that 
are approaching at this point in time so the markets are really coming back. 
Alright. Steve, we'll come back to you in just a sec. Thanks a lot. Thank you. 
Now Iran has started to shut down its most sensitive nuclear activities this 
week, prompting the US and the EU to partially lift economic sanctions. Earlier,
I asked WEF Founder Klaus Schwab why he thinks Iran's Premier Rouhani has 
decided to attend this year's Davos. I think it's a very important moment. Do 
you know, we are just starting, we see implementation of the first phase of the 
nuclear agreement. But we all know that the first phase is a first phase. So we 
are very curious to hear what the future will be. 

Did they approach you, the Iranians or did you approach them? I think it was a 
common effort. A common effort. And what is planned, are there any bilaterals 
planned with the US? We do not know yet. Of course, the framework which you'll 
find in Davos is always a very favorable framework for dialogues, for bridge 
building. So we'll see what's coming out but I'm very confident that we will 
have a positive outcome. What about a meeting between Mr. Netanyahu and Mr. 
Rouhani, or is that – or have you been tasked with keeping those two apart? 
No, I think it would be better to ask Mr. Netanyahu and President Rouhani. They 
have to decide. Professor Klaus Schwab talking with me earlier. 

See, quick word for you on that. We were talking Iran. The people you've spoken 
to so far, is there much excitement again among the dealmakers about opportunity
in Iran? I think Iran's going to be a longer term opportunity. They've got a lot
to sort out. It's obviously a very large economy and it's been isolated for 
many, many years. It has great wall reserves and more oil will help with prices 
of oil in the world. So if Iran could become a trading partner, that would be 
fantastic for the global economy. There is a big IF though, that if can it get 
its nuclear program under control or stop. So what are American dealmakers, 
American CEOs, American businesses going to be doing this year in Davos? Are 
they going to be sitting back biding their time, watching what happens or are 
they going to be on the front, pro-active speaking to the Iranians? I think 
there's a mix but I think most people are in a wait-and-see attitude because 
these talks often don't produce anything. If the talks produce something 
substantive where there can be trading, where there can be legal trading and 
Iran can sell goods or we can sell goods to Iran, I think it will be a nice 
market. But I think it's going to take a while. Alright. Steve, thanks a lot. 
Right, coming up: it's downhill all the way, our reporter Jon Gordon hits the 
slopes with the Mandarin-speaking instructor, helping bring wealthy Chinese 
gears to Switzerland. And this is worth a watch, it's coming up in a moment, a 
quick rundown of Rinerhorn, Davos' famous tobogganing-run shop and our intrepid 
Reuters production team with Google Glass. Guests are very excited about this 
Google Glass thing, right? Yes. I mean have you seen it, have you tried this 
thing on? 

I've seen it. I mean – we'll talk a little bit more about that in a sec. Let's
talk though about India. Weak domestic as well as weak foreign demand continues 
to wear on India's ailing economy while uncertainty ahead of elections in May 
keeping investors and businesses at bay. Joining me, Kris Gopalakrishnan – you
just saw him in the Green Room – he's President of the Confederation of Indian
Industry and the Founder of Infosys. Very good to see you again, Kris. Look, 
let's start with a really hard stuff, flagging growth, lack of FDI, questions 
over infrastructure corruption, worries about this election. How long is it 
going to before India really gets its mojo back? So clearly, it is going to take
time. 

But on the positive side, already analysts are predicting that next year is 
going to be 6% GDP growth from the 5% now and the year after, we're looking at 
7%. So I believe that the worst is over. We have to get through these elections.
Once the elections- Yeah but, Kris, that is a massive if, right? That's a 
massive hit for investors as well. I mean how can we see a turnaround if this 
election brings further instability, which many expected to bring? So if you 
look at the data, the underlying data, there are 10 states which are growing 
more than the national average, more than 6%, 7% already right now as we speak. 
And many of these states are actually larger than many countries, Maharashtra 
one of the states. If it was a country, it will be probably the 12th to 13th 
largest country in the world in terms of population and size. Many of these 
states are actually growing at 8%, 9% and they're ruled by six different 
political groupings. Yeah, alright. So regardless of what happens, I believe 
after the election, things are going to look better. 

Steve, yeah, come on in. I mean it was a horrible year for emerging markets last
year. I mean what do you make of India? Has it squandered its chances? I mean 
India is a great economy and as he said, is one of the largest of the world. 
Very educated, great products come out of India. The issue in India is really 
the governmental system auditing, accounting kind of rule of law type of issues 
and I think some of the states are taking that in, as you said. But that's going
to be the big issue that faces India. How are you going to get a point where you
can trust financial statements, where you can really do business in India and 
have recourse if there are some issues? Clearly we have to do better in terms of
governance. We have to do better in terms of providing a stable environment for 
business to operate. But institution building takes time. You have to remember 
that India opened up to- Indian Bank has done very well in the last 20 years, 8%
average GDP growth. So it takes a little bit time. But I strongly believe that 
after these elections, a lot of the reforms that we expect to happen would 
actually happen. I expect that because of the pressure, economic growth and 
jobs. You need investors to believe that. Yes. You need the bank capitals to 
believe that. Do you believe it, Steve? I think investors have and will take a 
cautious approach to India unless there is really top down improvement or bottom
up improvement in those systems. When you buy a company you have to trust those 
financial statements and you have to trust the fact that if those statements 
have an issue, you can go to some court of law and that's been a very, very 
difficult process for all investors that have come in. We've invested in India 
but we found great partners. So the hurdle, it's one more hurdle than what you 
have in another country, if the country had a great court system and there were 
no corruption, it would be easy to invest because there's many, many 
opportunities. I think you'd see investment pouring into India if you can fix 
the kind of rule of law, the fact that business will be treated fairly. Kris, 
back at you? So again, it's mixed actually. It's not all that black and white. 
If you look at the Korean company - the Samsung, the LG, the Hyundai - they've 
done extremely well and they've taken over the market in some sense. If you look
at some of the European, some of the fastest growing auto markets today are in 
India. So yes, every market has its own peculiarities. I'm of course defensive 
at this point, but I believe that after the election you will see a better 
environment. And what about- I want to get a question on the sector, IT 
outsourcing. I mean what do you think of the sector? Do you like the sector? I 
think the sector is a great sector. There's an accelerated trend, lower cost for
companies and I think companies do a great job in IT outsourcing. And look, I 
think you shouldn't be defensive, India's a great country and I think if they 
can really just go in the direction of supporting these new initiatives of 
reducing corruption, making the business, I think, fair, India could really take
off. Go ahead Kris. So the solutions are known actually, so it needs to be 
implemented and I'm hopeful. 

Just a quick final question on the turnaround. I think you laid off what, 1,800 
people last year. For a company that's, let's face it, has been hiring like mad 
for years, what does that say about Infosys, what does that say about the 
economy? So we hired ahead of time and the sector slowed down. We grew 25- about
26% in 2011 and came down to about 6%. This year we are growing, projected to 
grow around 12%. So we didn't lay off. Our attrition went up last year but 
that's it. We didn't lay off really the people. Alright, Kris. We'll have you 
back next year. We could talk about the election then, we could talk about some 
of this growth- Thank you. That is elusive right now but hopefully will come. 
Kris Gopalakrishnan from Infosys and one of the WEF Chairs last year. Steve, 
just a quick word from you. I put this to a number of people, I want to put it 
to you and it's one of our Twitter questions as well. Who should be here, would 
like you to see here who isn't here. 

I know some of the big disruptors aren't here this year. What do you think, 
who's missing? Well there's a lot of people here so there's not many that's 
missing. First of all you can probably touch almost every sector in every 
country in the economy. I think there could be more people from the energy 
industry here. Energy is really a key issue in powering global growth. The 
United States for example I think they're estimating energy cost at 40% to 50% 
lower than in Europe. That obviously has given a great kick start to our 
manufacturing. So- Why do you think they're not here? I think they're here but 
they're not here. Probably the numbers are representative of their impact on the
globe. Alright. Steve, thanks a lot. Now as I said, I'd been asking a lot of 
people that. 

This is what Charles Schwab said when I asked him. I would have liked to see the
Pope here because he is a strong message but I'm very pleased to know such a 
Pope will send a message to be read by one of his foremost cardinals. I want to 
remind you to send in your thoughts, who do you think should be here in Davos 
who isn't here. We've had a number of responses so far. Where are all the 
traders, is one of the comments we've had. Do tweet responses using #DavosToday.
Any other thoughts of course welcome as well. So a rally with a long way to run 
or a bubble that already looks dangerous. 

Joining me now with this thoughts on the global property market, Jones Lang 
LaSalle CEO Colin Dyer. Good to see you Colin. We had you out in the balcony 
last year. Glad to have you in the warmth of the studio with Steve today. You 
just launched the latest global property outlook, super cities London, Paris, 
New York and Tokyo still dominating. Are you worried about bubbles in those 
markets? Not yet. The recovery from the great financial crisis is probably going
to be a six-, seven-year process. And so we're only three or four years into 
that. The equity markets are strong. There's a lot of equity flowing into real 
estate and at this point, only a moderate amount of debt. And bubbles really get
going when debt takes over and we get very high levels of debt financing in real
estate. From an investment's perspective Steve, should investors be looking at 
lower tier cities as investment bets because of the bubble danger? And I know 
you talk about bubbles a lot and I don't think you like talking about bubbles 
that much. You get that question too often. I think in general if you look at 
markets we know the US, th
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