Winning the Chinese BEV market: How leading international OEMs compete – Kazakhstan is a rapidly developing country with huge investment potential and business opportunities – The CEO’s new technology agenda

Again, TextileFuture today’s Newsletter will entail again three different items. The first is a typical McKincey item entitled “Winning the Chinese BEV market: How leading international OEMs compete” and will inform you on the Chinese automotive market in view of battery-electricle-vehicles.

The second feature is on the financial aspects of Kazakhstan and is entitled “Kazakhstan is a rapidly developing country with huge investment potential and business opportunities”. It is rather rare that the country’s key figures and opportunities are subject of a publication. We at TextileFuture voice the opinion that the country is very interesting for investment and business.

The third theme is again based upon a feature of McKinsey and entitled “The CEO’s new technology agenda” and serves as excellent guide for a CEO’s new technology agenda.

Even when these features are not interconnected as to their individual subject, we wish you a very interesting reading for your own business purposes.

In addition, we wish you a very lovely Pentecost holiday!

Here starts the first item:

Winning the Chinese BEV market – How leading international OEMs compete

This article was a collaborative effort by Clemens Dabelstein, Philip Schäfer, Dennis Schwedhelm, Jingbo Wu, and Ting Wu, representing views from the McKinsey Centre for Future Mobility.Clemens Dabelstein is an associate partner in McKinsey’s Hamburg office; Philip Schäfer is a partner in the Düsseldorf office; Dennis Schwedhelm is a senior expert in the Munich office, where Jingbo Wu is a solution leader; and Ting Wu is a partner in the Shenzhen office.

The authors wish to thank Björn Bierl, Mauro Erriquez, Stephan Fuchs, Tobias Geisbüsch, Volker Grüntges, Ulf Heim, Rupert Lee, Birte Prinzhorn, Andreas Venus, Alexander Will, and Klaus Ziemann for their contributions to this article.

Keeping up with the ever-changing battery-electric-vehicle industry is a high-stakes challenge. Our benchmark of two international and ten local models reveals how OEMs can win over Chinese consumers.

In China, the top market in the world for battery-electric vehicles (BEVs), local OEMs have long been dominant and had an 85 % share of sales volume in 2019. That may soon change, however. International OEMs began moving into the Chinese market in 2020, attracted by its potential, and they are aggressively trying to gain an edge against the locals.

How will these “newcomers” succeed? While international OEMs have many advantages and a long record of producing quality cars, they may find obstacles ahead because Chinese automakers are part of a well-established local BEV ecosystem, characterized by battery and electronics expertise and a strong focus on a fast time-to-market. Chinese OEMs also have a head start because they understand local customer preferences and have designed their vehicles to suit them. International OEMs, which are accustomed to serving other markets, may find that some of their most popular features carry less weight in China.

In a previous article, we benchmarked ten popular Chinese BEVs in a detailed technical analysis that also provided cost estimates for individual components. To gain additional insights that reflect the growing competition, we expanded our original benchmark analysis to include two additional BEV models that were specifically developed by international OEMs for the Chinese market (see sidebar, “About our benchmark”).

In summary, our work revealed the following major areas of insight:

  • OEMs still have the opportunity to increase efficiency significantly across vehicle systems, especially in the e-powertrain. With combustion engine vehicles, such improvements have always been important, but they tend to occur incrementally over long periods. By contrast, our benchmark shows that OEMs have the potential to reduce costs in e-powertrains by double digits relatively quickly. As they strive for improvement, OEMs will gain more by focusing on vehicle- and system-level collaboration, rather than the traditional, siloed approach in which they try to optimize individual components.
  • Chinese OEMs lead in providing a superior customer experience to local consumers. Strong human–machine interfaces (HMIs) and connectivity differentiate them from the competition. These technologies require a solid foundation in software, electronics, and local ecosystems for applications and services. OEMs that do not offer similar capabilities may lose ground—first in China and eventually globally.
  • With China representing about 50 percent of the global BEV market, OEMs with a presence there must increase their value to customers and find cost-saving opportunities by designing vehicles to meet local requirements. International players must consider trade-offs between global platform scale and local optimization to compete in China (and other major markets).
  • A local battery ecosystem is critical to securing the right specification for the market at the right price point. Chinese OEMs still have a natural advantage here. While international players are strengthening their technology position, they also need local ties to realize additional opportunities.
  • The rapid pace of innovation and frequent technology leaps, especially in software, are shortening of the development cycle for BEVs. Advanced electrical and electronic (E/E) capabilities, such as advanced driver-assistance systems (ADAS) and over-the-air (OTA) software updates, and the ability to make design upgrades during the vehicle life cycle are becoming crucial to remain competitive, both in China and globally.

This article sets out to further translate these insights into technical and design applications and point the way for key levers to drive efficiency and customer excitement in future BEVs (Exhibit 1).

The dynamic Chinese BEV market

Total BEV sales reached nearly two million in 2020. China and Europe are the two leading markets worldwide, accounting for 80 percent of sales, and they will likely hold these positions for the duration of the COVID-19 pandemic and beyond (Exhibit 2). While China’s 57 percent share of the global BEV market in 2019 was still well ahead of Europe’s share, it has since dropped to slightly below 50 percent because of a strong uptake of BEV sales in Europe.

In absolute numbers, however, China is and will continue to be the biggest global BEV market for the foreseeable future. Our analysis projects that BEV sales will reach about nine million in China by 2030, representing an annual growth rate of 24 percent (Exhibit 3). Key drivers of this growth include the extension of BEV state subsidies until 2022 and the continued push for BEV adoption, both in corporate and leasing fleets and among Chinese private car buyers. For example, an increasing number of cities in China have mandated that ride-hailing cars must be BEVs, and the government specifies that a certain number of new license plates must go to BEVs.

Local OEMs may have gained the dominant position they enjoy today by launching their initial BEV models so quickly. Our benchmark analysis showed that these first-generation Chinese BEVs showed substantial variety in design and technology, and many still have the opportunity to optimize their electric-vehicle (EV) platforms and reduce costs.

Despite the dominant position of local OEMs, international OEMs have made some recent inroads to gain a larger share of the Chinese BEV market. Some are also taking models originally produced for China to other countries. For example:

  • Renault’s City K-ZE, introduced to the Chinese market in 2019, will be produced for the global market.
  • In mid-2020, Tesla’s sales in China accounted for nearly one-quarter of global sales, with year-over-year revenue in the country more than doubling to USD 1.4 billion. The company’s Model 3 became the single best-selling premium BEV model in China in 2020.
  • In an expansion of Daimler’s Smart brand, the German automaker has formed a joint venture with Geely to develop new EVs. Production is based in China, with sales planned for 2022.
  • BMW’s majority-owned Chinese company, BMW Brilliance, started construction of a new production facility in China, where it plans to produce 150000 EVs annually. By 2022, production of the BMW iX3 will also be transferred to the new plant.
  • In April 2020, Toyota launched three all-electric models for the Chinese market.

Taken together, these developments will result in an increasingly dynamic and competitive BEV market in which domestic and international OEMs alike will have to fight hard for market share. The following sections provide more insights about the strengths of international models and key learnings from Chinese OEMs. Some of these insights might help companies not just in China but in their quest to become global leaders.

International model strengths: E-powertrain technology and next-level manufacturing

The two international models in our benchmark analysis are designed for superior performance, with e-powertrain system optimization and next-level manufacturing. Accordingly, they offer ranges surpassing that of 80 percent of the Chinese models.

Optimisation of e-powertrain systems

Our analysis revealed that four technology trends enable the superior e-powertrain performance, and incumbent OEMs can gain advantages from these at the system and concept level:

  • Use of silicon carbide transistors in inverters. Use of insulated-gate bipolar transistors, or IGBTs, in inverters is now standard in advanced e-powertrain design because of their cost efficiency at high volumes, wide availability, and operational efficiency. Out of the 12 models in our benchmark, 11 still rely on this technology. Customized inverters with silicon-carbide metal-oxide-semiconductor field-effect transistors (SiC MOSFET) are even more efficient, however, and provide significant opportunities to optimize the e-powertrain system—for example, by downsizing the thermal management system and battery. One of the international models in our benchmark already uses this technology, and other OEMs are likely to begin to adapt.
  • Smart thermal management. Integrated thermal management systems, which connect the battery, electric motor (e-motor), inverter, and cabin, have become the standard architecture for state-of-the-art BEVs. These systems enable vehicle components to maintain optimal temperatures, regulate heat flows, and maintain energy efficiency. Although both international models in our benchmark feature this design, only three of the ten Chinese models do. The other seven Chinese models use simpler approaches. Overall system costs can be further reduced if vehicles can use heat from their e-motors or inverters, eliminating the need for a separate heater. Only one of the international models in our sample uses this technology, however. The other OEMs could potentially optimize their models by following suit.
  • Submerged oil cooling of the e-motor. Many vehicles cool their e-motors via liquid-cooling jackets because it’s a low-cost solution. Ten out of 12 BEV models in our benchmark analysis have this feature. But another solution, oil cooling, enables a higher peak power at lower cost. Oil cooling also provides the packaging advantages of a slimmer motor, since an outer shell is not required. The one international model in our benchmark that uses oil cooling can reach a peak power of 211 kilowatts (kW); the other models, which were cooled by a liquid jacket, only reach up to 160 kW (Exhibit 4).
  • Integrated onboard charger and converter of direct current-to-direct current. An integrated direct current-to-direct current (DC–DC) converter and onboard charger (OBC) unit can significantly reduce costs through the integration of physical and functional components (Exhibit 5). Indeed, our analysis reveals that the cost of a single DC–DC and OBC unit is 19 %lower than the cost of having two separate units. While one of the international models in our benchmark utilizes this technology, only half of the Chinese models currently do.

When we considered all of these technologies together, we found that one of the international models in our benchmark has optimized its e-powertrain system, partly through some proprietary technologies. The vehicle therefore has an electric-drive system, or e-drive, that achieves a 50 percent higher peak performance when compared with an average competitor at a similar e-drive weight and cost (Exhibit 6).

Next-level manufacturing

The two international models in our benchmark leverage best-in-class design techniques, although they take different approaches. For example, the manufacturing process for one model appears to involve a new level of integration and greater preassembly. The OBC and DC–DC converter are integrated into the battery housing, which makes final assembly of the vehicle easier because more components are shifted into the preassembly phase (Exhibit 7).

The other international model employs best-in-class design for manufacturing, which reduces the overall cost of producing parts, as well as expenses for materials, overhead, and labor. These methods, which are based on long experience, optimize the battery integration process, reduce the amount of work in the body shop (for example, lowering the required amount of spot welding), and harmonize joining methods, among other benefits.

Chinese model strengths: Customer experience and battery technology

The Chinese-made models in our benchmarking study outflank international OEMs on two fronts: customer experience (through advanced connectivity solutions) and battery technology.

About our benchmark

Our analysis of Chinese battery-electric-vehicle models includes a large portion of the market. We reviewed popular vehicles from both incumbent OEMs and new players. These included models by automakers Buick, BYD, GAC, Geely, JAC, NIO, Roewe, SAIC Motor, and Weltmeister. For the international models, we focused on recent competitive market entries made by Volkswagen and Tesla. Our Design-to-Insights database contains an index of 1000 battery-electric-vehicle components, including cost estimates and 3-D representations.

According to our global survey, Chinese consumers are much more willing than their American and European counterparts to switch car brands to access better-connected features, and Chinese auto manufacturers have responded in kind, developing advanced HMI features and a suite of apps that enable in-car shopping, entertainment, and other conveniences. These features enhance the customer experience, as does the fact that Chinese OEMs tailor their vehicles to suit the needs of the local market. Local OEMs also offer leading battery technology and are rapidly gaining ground in the development of the underlying E/E capabilities.

The local models’ strengths and advantages can essentially be traced back to the following four practices that are common to Chinese OEMs.

Through advanced HMI features and integrated apps, Chinese OEMs provide an outstanding connected experience

Chinese OEMs are exemplary in understanding and meeting the needs and preferences of their local consumers, who are excited about smart BEV offerings, such as advanced HMI features. Local consumers also appreciate robust and innovative vehicle connectivity that enables various online services, such as navigation, shopping, entertainment, as well as the exchange of data to vehicle service and maintenance providers, charging stations, and insurance companies. On both counts, the Chinese models are exceling.

Most Chinese models offer HMIs with technologically sophisticated, integrated, and interactive designs. For example, all of the Chinese models in our benchmark use the combination of a center-stack screen with an additional instrument cluster display, which offers an enjoyable customer experience in terms of ease, comfort, and convenience. While the interface is achieved in a cost-efficient manner for the mid-to-low-end models, the top-tier models feature large screens and additional features not seen in the international models (for example, a voice assistant offering over 20 local dialects).

The Chinese models also improve the customer experience by offering a wide range of digital services. These are enabled either by proprietary solutions or extensive partnerships between Chinese OEMs and leading local tech players (such as Alibaba, Tencent, or Huawei). Services such as in-vehicle payments, local navigation, and voice-controlled digital assistants offer consumers a more connected, convenient ride.

Chinese OEMs emphasize design to value for the local market

Our benchmark revealed that Chinese models are tailored to local requirements. Their subframe, for example, does not need to be optimized for dynamic performance at high speeds, since the vehicles are primarily used for daily commuting, and the suspension is also designed for this use. Our study of one Chinese model shows that the twist-beam rear axle can be used in a vehicle with a total weight of about 1,800 kilograms with front drive, thereby saving about 80 euros when compared with the use of multilink rear axles, which are more common in such a weight class.

Our analysis also revealed that a vehicle’s body-in-white (the frame joined together from sheet-metal parts) can be optimized in many ways, such as by using thinner sheets of metal and optimizing sheet-metal design for a high degree of stiffness. Through this simpler design, the Chinese models in our sample weighed less across all segments. For example, the body-in-white of a local SUV model has a greater than 100 kilogram net weight advantage than one international model, after accounting for different vehicle segments and design choices/requirements. It still achieved a C-NCAP five-star safety rating 1 (Exhibit 8).

Chinese OEMs leverage the local battery ecosystem

Chinese models feature leading battery technology because of the strong local supply system, as well as the preexisting in-house expertise frequently found at local OEMs. Looking at battery chemistry, two Chinese models were already using NMC811-based cells in 2019, years ahead of international OEMs. By increasing the volume of nickel in a cathode composition of nickel, manganese, and cobalt, NMC811-based cells have a higher power density compared with the more common NMC532 or NMC622 cells, at even lower raw-material costs. The cells’ higher power density enables an increased driving range. Similarly, one Chinese OEM in our benchmark had already implemented the use of lithium iron phosphate (LFP) batteries for their most economical model in 2016, a development that international OEMs have begun implementing in recent models as well.

In addition to the advantage of superior battery chemistry, our analysis of battery packs revealed that one Chinese model is able to attain an approximately 15 percent higher energy density, while also reducing costs by about 10 percent, than competitor models that use a similar cell chemistry. The OEM achieved this advantage by packing the cells in rows, using a high number of cells per module, and using simplified parts for battery housing.

Chinese OEMs are catching up for best-in-class E/E architecture

In some areas where Chinese OEMs are not already in the lead, they are clearly catching up. For example, in advanced E/E capabilities, some Chinese models are gaining on the international models and have demonstrated massive technological advances over the past two years, including the inclusion of centralized engine control units (ECUs) or the achievement of OTA or level-3 ADAS readiness.

For ADAS and OTA readiness, one of the top vehicles in our sample was international and the other was local. The international model enjoys a 9 percent cost advantage for technical materials compared with the leading Chinese model in our benchmark. In addition, it shows forward thinking in the design of the E/E architecture. Its ECUs are integrated into central software controllers to enhance functionality (for example, through firmware over-the-air, or FOTA, updates). This integration also reduces costs, such as those for the wiring harness, while enhancing vehicle performance. The leading Chinese OEM is catching up, however, and can provide level-3 ADAS readiness and OTA updates close to the level of the leading international OEM (Exhibit 9).

How to drive winning battery-electric-vehicle design: Lessons from benchmarking ten Chinese models

Read the report

Chinese OEMs will likely continue to tailor their designs to the local market. With this customer-centric approach, they will benefit from a highly dynamic market where customers are increasingly excited about BEVs.

To compete in the Chinese BEV market, OEMs should focus on five strategic principles

Because of its sheer size, intense competition, and discerning customers, the Chinese market provides important lessons for what is needed to win in the BEV race. OEMs with global ambitions should strive to understand how to compete in this market not only to gain a foothold in China, but also to transfer the lessons from China to Western markets, where automakers also face increased competition. In our view, five strategies are essential for success.

Taking a systems perspective during the concept phase

Given the high potential to improve BEVs at the vehicle and system level, OEMs must take a holistic perspective to make the right trade-off decisions between cost and performance. For instance, they may choose to include a SiC inverter with higher efficiency to achieve the cost savings that come with downsizing thermal management requirements. Often, this will require them to break down internal organisational barriers and work across R&D departments that have traditionally focused on single modules. OEMs must also adopt a different operating model with suppliers to allow early optimization across systems.

Aligning with the local software ecosystem for superior HMI and connectivity

China is the new trendsetter for software ecosystems. Integration with local providers is already important there and will increasingly become so in other countries. Chinese OEMs are particularly likely to offer a wide range of services in combination with tech giants such as Alibaba and Tencent. To level the playing field, international OEMs will need to focus on developing strong connectivity and HMI features and consider how they compete with benchmark standards. They must also seamlessly integrate their offerings into the local app ecosystem, and this will likely require them to consider pursuing partnerships with Chinese tech players. Again, the strategies that work in China may also confer benefits when applied to other regions.

Tailoring vehicle specifications to suit local customer needs

Western incumbents are still trying to differentiate themselves through extended driving range, higher speed, and more advanced technologies. These aren’t the features that are most important to a large share of Chinese customers, however. Local consumers mainly need vehicles for their daily commute and rarely drive above an average speed of about 25 kilometers per hour. Instead of prioritizing greater speed or distance, most Chinese consumers would rather spend their money on exciting HMI and software features.

For best results, OEMs must ensure that their design-to-value approach considers what Chinese customers actually want, rather than what their engineering expertise has traditionally told them to value. After finding out local priorities, they should move resources to customer-centric features.

A strategy that involves focusing on local consumer needs is always likely to provide an edge, so OEMs with global ambitions can take a similar approach in other markets.

Leveraging the local manufacturing ecosystem

International OEMs seeking to make inroads into China should build ties to the local supplier and manufacturing ecosystem and then leverage these connections. After all, the Chinese market has a strong network of battery suppliers—and increasingly e-powertrain suppliers—that could benefit them. OEMs that compete in multiple markets could also look for local battery suppliers or manufacturing partners in those locations who are savvy about regional consumer preferences. In Western markets, OEMs may find local suppliers that optimize the e-powertrain for energy efficiency or performance; in the Chinese market, local suppliers with strong battery-technology expertise might provide larger batteries at lower cost.

Offering over-the-air capable E/E systems

If OEMs want to offer an exciting and flawless customer experience—for example, through the regular delivery of updates that continuously improve features and performance—the E/E architecture must reflect the latest design trends. One well-known Western tech disruptor has taken the lead in this area, with technology years ahead of the competition. That said, our benchmark analysis revealed that Chinese start-ups have also surpassed some of the international and local OEMs with their E/E capabilities. As customers become familiar with the benefits of strong E/E systems, this feature may become more important—and that means international OEMs may no longer gain as much of an advantage from their traditional strengths, such as the ability to create high-performing powertrains or top-quality interiors or exteriors. In fact, many global players may fall behind unless they develop the capabilities needed to produce advanced E/E systems that cater to customer needs at every level and enable intermediate feature updates over the course of the vehicle life cycle.

OEMs must balance their local and global perspectives to develop a winning strategy—not just in China but in any country. Consumer preferences will always vary by location, and it’s important to acknowledge these differences and try to suit them. That said, a hyperlocal approach that involves developing different vehicles for each country may not always be feasible, so some compromises may be needed. Similarly, OEMs can’t overlook the benefits of global scale during manufacturing, so there may need to be some trade-offs when they think about designing vehicles to suit certain countries. Whatever strategy an OEM selects, one point is certain: in a competitive, ever-changing market, no OEM—whether European, American, or Chinese—can afford to stay still.

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Here starts the second item:

Kazakhstan is a rapidly developing country with huge investment potential and business opportunities

We are pleased to present a short update on the progress being made in the Astana

International Finance Centre (AIFC). AIFC is a member of Z/Yen’s Vantage Financial Centres network. The aim of this update is to provide readers with news about the exciting progress being made by the city of Nur-Sultan in attracting more financial services activity to the area.

Nur-Sultan, previously named Astana until 2019, is the young and fast-growing capital city of Kazakhstan. The city has cemented its role as a political and cultural centre of Kazakhstan and Central Asia. The launch of Astana International Financial Centre (AIFC) in 2018 has become

the catalyst in developing Nur-Sultan as an investment and financial hub and strengthening its role among world financial centres as reflected by the city’s progress in the GFCI.

The vision of the AIFC is to become the leading international financial centre in the region (i.e.

Central Asia, Caucasus, EAEU, Western China, Mongolia, and Eastern Europe). The AIFC’s mission is to contribute to the sustainable economic development of the region by fostering innovative financial products and services.

The Constitutional Statute on the AIFC defines the following objectives:

1.           Assisting in investment attraction into the economy of Kazakhstan by creating an attractive environment for investment in the financial services sphere;

2.           Developing a securities market and integrating it with international capital

markets;

3.           Developing insurance markets, banking services, Islamic finance, financial technologies, electronic commerce and innovative projects;

4.           Developing financial and professional services based on international best practice;

5.           Achieving international recognition as a financial centre.

For more information, please contact: AIFC

Kazakhstan – The Place To Watch

Among the top ten geographically largest countries, Kazakhstan is globally known as a geologically diverse land with immense stocks of natural resources. Long seen as a commodity-rich country, Kazakhstan’s offerings today lie far beyond its natural resources.

Kazakhstan is a rapidly developing country with huge investment potential and business opportunities

Priority Sectors

Kazakhstan is a gateway to the neighbouring markets with over 500 million consumers.

  • Member of the WTO
  • Member of the Eurasian Economic Union (EAEU) with preferential access to a common market with more than 180 million consumers
  • One of the key participants in the Belt and Road Initiative

The country has 24 airports (i.e., 72 air corridors). Recently Kazakhstan took a step towards more liberalisation in air transport by adopting the Fifth Freedom of The Air. This policy will undoubtedly attract more flights going forward. Before the pandemic, direct regular flights from the capital, Nur-Sultan, were available to 26 countries on 97 routes. Destinations

include Frankfurt, London, Moscow, Dubai, Hong Kong, and Seoul. By 2025, regular flights are planned to an additional 20+ destinations – New York, Hong Kong, Singapore, Shanghai, Zurich and others.

Kazakhstan is strategically located in the centre of Eurasia and accounts for 70 per cent of transit railroad traffic between China and Europe, as well as in other directions.

For example, the Western Europe–Western China Transcontinental Auto Expressway allows products to be shipped between China and Europe in just 10 days (i.e. four times faster than sea transit).

AIFC: Central Asia’s Leading International Financial Centre

The Astana International Financial Centre (AIFC) was officially launched in 2018 in the city of Nur-Sultan, the capital of Kazakhstan, to contribute to the sustainable economic development of the region by fostering innovative financial products and services.

With a range of mechanisms to ensure lucrative projects in the region, attracting investment in a transparent and efficient manner, the AIFC has rapidly grown over the last three years.”

AIFC bodies and organizations, with their relentless adherence to international standards,fairness and efficiency, ensured the successful formation of the AIFC as a globally recognised international financial centre. World-renowned financial institutions such as the Shanghai Stock Exchange, Nasdaq, Goldman Sachs and the Silk Road Fund have become shareholders of Astana International Exchange (AIX), one of the core organizations of the

AIFC. The AIFC now hosts 750 companies from 51 countries, including the China Development Bank and the China Construction Bank.

In its strategy until 2025, the development of the AIFC is aimed at increasing its operational and financial efficiency in order to consistently achieve financial sustainability. The AIFC has set clear goals for itself to continue to grow as a local investment hub and become a regional financial centre:

Investment Hub

International Comparisons –Nur-Sultan In the Global Financial Centres Index

In March 2007, Z/Yen released the first edition of the GlobalFinancial Centres Index (GFCI), which continues to provide evaluations of competitiveness and rankings for the major financial centres around the world. The GFCI is updated every March and September and receives considerable attention from the global financial community.

The index serves as a valuable reference for policy and investment decisions. The 29th edition of the GFCI (GFCI 29) was published in March 2021. The GFCI measures the competitiveness of financial centres across five broad areas—the Business Environment, Human Capital, Infrastructure, Financial Sector Development, and Reputation.

GFCI 29 is compiled using over 130 instrumental factors. These quantitative measures are provided by third parties including the World Bank, The Economist Intelligence Unit and the United Nations. The instrumental factors are combined with over 30,000 financial centre assessments provided by respondents to an online questionnaire.

Nur-Sultan was first listed in the GFCI in 2018, in GFCI 23. It ranked 88th in the world in that edition, with a rating of 548 (on a scale of 1,000). In GFCI 29, Nur-Sultan ranked 78th, with an almost 40 point improvement in its rating to 586. This improving trend demonstrates considerable progress.

The GFCI includes sub-indices showing results taking account of survey responses from a number of finance industry sectors. Nur-Sultan scores higher than its overall ranking in the banking, investment management, professional services, government & regulatory, and trade finance sectors.

Fintech in Kazakhstan and the AIFC

Developed infrastructure and favourable market conditions make Kazakhstan a prominent player in the global financial technology (fintech) industry.

Kaspi.kz, the largest payment, trading platform and financial technology ecosystem in Kazakhstan, went public in 2020, with an initial public offering (IPO) on the Astana International Exchange (AIX) and the London Stock Exchange (LSE). Kaspi.kz’s IPO on LSE and AIX valued the company at USD 6.5 billion, making it Kazakhstan’s most valuable publicly traded company. Today, its market capitalisation is over USD 12.96 billion.

Kaspi.kz operates the Kaspi.kz super app, the most popular mobile app in Kazakhstan. With a population of 18 million in Kazakhstan, Kaspi.kz has 7.8 million monthly active  users.

The AIFC develops a business and regulatory environment conducive to disruptive and consumer-oriented innovation. Part of the AIFC’s strategy to attract global investment is to focus on improving efficiency, expanding access, and increasing the diversity of financial products and services through fintech.

Currently, the AIFC Fintech Hub works with over 120 start-ups from Kazakhstan and Central Asia. All of them are focused on providing digital financial services – from biometrics to contactless payments.

The AIFC is the first jurisdiction in the Eurasian region to support regulatory regimes for new forms of investments, including crowdfunding, initial coin offerings (ICOs), trading with digital assets, testing and developing fintech services under the regulatory sandbox regime called FinTech Lab, and cross-border testing of fintech activities in several jurisdictions under the Global Financial Innovation Network (a network of financial regulators).

Financial Deepening

To attract people not previously familiar with the stock market and provide them with the opportunity to start investing in the long term, the Astana International Exchange has developed a tool for investing in securities: the Tabys mobile app.

With the Tabys mobile app, any Kazakhstani can start investing by purchasing exchange- traded notes (ETNs). A feature of the Tabys app is that retail investors can buy ETNs for between $10 and $35, which means they do not need to have any significant savings to try to invest. The rights of Tabys users are protected by the Astana Financial Services Authority.

The AIFC And Green Finance

As Kazakhstan transitions towards a green economy, the near-term focus will be on

rationalising the use of natural resources and implementing renewable energy and energy

-saving technologies on a large scale.

Recognising the need to incentivise market financing of green projects, the AIFC launched the Green Finance Centre (GFC) and developed a comprehensive strategy on green finance and procedures on green bond issuance.

The GFC provides initial assistance to potential green bond issuers and investors, and

introduced subsidies for green projects into the national legislation. The centre also covers expenses incurred by issuers in providing the mandatory external review of green bonds.

Recently, GFC supported the issuance of the first-ever green bonds in Kazakhstan by the Damu Entrepreneurship Development Fund, a government-backed development institution that placed bonds on AIX in August 2020 to raise capital and support SMEs.

As Kazakhstan focuses on developing the circular economy in the coming years, the GFC will help green industries raise funds through the debt market and assist companies in

reformulating internal policies to improve environmental, social, and corporate governance practices.

Highlights Of Activities Of The AIFC

•             The AIFC became fully operational in 2018.

•             AIFC participants include 750 companies from 51 countries.

•             Parties can file cases at the AIFC Court and IAC via “eJustice” online portal.

•             Potential and existing participants of the AIFC can establish and conduct business

electronically within the jurisdiction of the AIFC through the “e-Residence” online

platform.

•             The legal and regulatory framework

leverages international standards (IOSCO, Basel, IFSB, AAOIFI, IAIS, OECD, FATF, IFRS and US GAAP).

•             The AIFC became a signatory to the IOSCO enhanced multilateral memorandum of understanding concerning consultation and cooperation and the exchange of

information (IOSCO EMMoU) and member

of the International Association of

Insurance Supervisors (IAIS) multilateral memorandum of understanding in 2020.

•             In 2018 the Kazakhstan Investment Development Fund was established to

attract investments on the principle of co- investing in breakthrough projects in

Kazakhstan.

•             Green bond taxonomy was introduced in 2019.

•             The listing of the first ETF on AIX: ITI Funds Russia-focused USD Eurobond UCITS ETF SICAV (“ITI ETF”).

•             The first cross-listing of USD 500 million sukuk on AIX was issued by Qatar International

Islamic Bank with primary listing on the

London Stock Exchange.

•             The first RMB (Chinese yuan) bond of the China Construction Bank Corporation

Astana branch was listed on AIX and the Hong Kong Exchange in the amount of RMB 1 billion.

•             AIX launched a new Regional Equity Market Segment, offering midsize

companies in Kazakhstan and Central Asia easier access to public equity finance.

•             First listing of green bonds issued by the Damu Fund in the amount of 200 million KZT.

Z/Yen helps organisations make better choices – our clients consider us a commercial think tank that spots, solves and acts. Our name combines Zen and Yen – “a philosophical desire to succeed” – in a ratio, recognising that all decisions are trade-offs. One of Z/Yen’s

specialisms is the study of the competitiveness of financial centres around the world. A summary of this work is published every six months as the Global Financial Centres Index. Z/Yen also publishes the Global Green Finance Index and the Smart Centres Index.

Financial Centre Futures is a programme within Long Finance that initiates discussion on the changing landscape of global finance. Financial Centre Futures comprises the Global Financial Centres Index, the Global Green Finance Index, the   Smart Centres Index and other research publications that explore major changes to the way we will live and work in the financial system of the future.

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Vantage Financial Centres (VFC) is an exclusive network of financial centres around the world which offers enhanced access to GFCI data, marketing opportunities, and training for centres seeking to enhance their profile and reputation.

The third item starts here:

The CEO’s new technology agenda

By guest authors Krish Krishnakanthan, Gayatri Shenai, and Sean Brown from McKinsey’s Consultants. Krish Krishnakanthan is a senior partner based in McKinsey’s Stamford office. Gayatri Shenai is a partner in the New York office. Sean Brown, global director of communications for the Strategy and Corporate Finance practice, is based in Boston.

Why the technology function needs to play an integral role in business strategy

In the past, top business leaders tended to delegate technology and IT priorities to specialists, but that is rapidly changing. In this episode of the Inside the Strategy Room podcast, two McKinsey experts, who recently published an article on the topic, explain why technological investments must now be part of strategic planning at the highest corporate levels. Krish Krishnakanthan is a leader in McKinsey’s application maintenance and development work across North America, focusing on the high-tech and financial services sectors, and Gayatri Shenai helps clients drive transformative change at the intersection of strategy, digital, and operations. You can listen to the episode on Apple Podcasts, Spotify, or Google Podcasts.

Sean Brown: Why do CEOs need to become more involved in setting the technology agenda?

Gayatri Shenai: In the past few years, CEOs and boards have been talking more about how cybersecurity challenges keep them up at night or how a single production update could wipe out a large part of the IT budget. One CEO told me that most employee complaints he receives are about the lengthy help-desk wait times or poor internet connectivity that cause productivity challenges. Customer service complains about e-commerce latency issues or how unintuitive their product purchase interfaces are. These are just a few examples of how boards and CEOs are increasingly realizing how technology can change the company’s performance trajectory.

Sean Brown: Is there sufficient communication and alignment between business leaders and technology teams to ensure IT is addressing the business needs?

Gayatri Shenai: When I ask this of CIOs and their direct reports, I often hear, “It’s working really well but we feel a bit underappreciated”—kind of like security agents at airports who only get noticed if the queues are long or dangerous items get through. But when I ask CEOs and business-unit leaders, they tell me, “I wish we had more agility and, more importantly, I wish I understood what challenges the IT organization faces so I could help solve them.” Business leaders do not fully understand IT and why its work takes so long.

Sean Brown: The pandemic has put some of these disconnects at center stage because technology has not only been vital to keeping companies operating but the current crisis has accelerated the move toward digital business models. Has that focused CEO attention on tech issues?

Krish Krishnakanthan: I think COVID-19 has revealed the real caliber of organizations’ technology. I mean, the technology revolution is here. Customer preferences have changed and people are more accustomed to technology. It is not just one particular technology driving the change but many of them coming together. You have internet speed accelerating with 5G at the same time as digital design is helping create superior customer experiences. At the same time, changes happening throughout the value chain are creating major business-model disruptions.

With all this, risk grows. For CEOs, it becomes imperative to drive the tech agenda as much as they would drive finance or corporate strategy. One CEO recently told me, “We wouldn’t let anybody run the company if they did not understand finance.” Technology will be as important in the future, so CEOs need to be as well versed in it as they are in finance or sales.

Sean Brown: What are the key technology issues CEOs should pay attention to?

Krish Krishnakanthan: There are three foundational elements. One is reimagining the role technology plays. Is it just an order taker or is it paving the path to growth? In past years, CIOs may have been in the boardroom but their role was supporting the business strategy. Now, there is a bigger role for technology-led strategy, meaning if you want to release technology-based products, you need technology that can enable you to leverage that fully. It’s a technology-led business strategy, not a business strategy supported by technology.

Today, you need a technology-led business strategy, not a business strategy supported by technology. Krish Krishnakanthan

The second element is reinventing technology delivery. Gone are the days when business would throw the requirements over the wall and the technology group would in time develop a product that would probably be outdated by the time it was released. Now it is about working jointly with the customer.

The last one is future-proofing the technology foundation. I don’t think you can fully future-proof, but it has become essential to make sure the decisions you make today help you advance versus hold you back. What can you do now with respect to the cloud or micro services, for example?

Reimagining the role of technology is largely about the culture of the organization. If your IT organization has an order-taking mindset, telling them, “Now you are going to lead” is a difficult mindset change. It is a long-term effort. Reinventing technology delivery is about the mechanics of how things are done, and future-proofing the foundation requires a lot of capital. So each vector addresses different dimensions of the problem.

Sean Brown: What kinds of decisions do these three dimensions entail for the CEO?

Gayatri Shenai: What Krish just described are the three vectors, and across these vectors there are ten critical levers, which we call plays, that need to be choreographed based on what you are trying to do in your business. I will mention a few that I find companies struggle with the most. The first is having that tech-forward business strategy. Many IT functions struggle to match their priorities to those of the business. Many companies develop their business strategy, and then their technology strategy follows later. That does not work anymore. A tech-forward business strategy, where the technology strategy is integrated into the business strategy, is critical. The clients that do this well integrate the CIO role into the strategic business discussion, so the CIO is no longer a back-office function but a full part of the business-unit and CEO leadership team.

The second one I would call out is user experience and design thinking, or user-centricity. When you ask, “Are you an agile shop?” most organizations will say yes, but when you look under the hood, agility is not really there. Steve Jobs used to quote Henry Ford as saying that if he had asked customers what they wanted, they would have told him they needed a faster horse rather than a car. People often do not know what they want until you show it to them. Design thinking is this concept where you think about the signature moment of delight from a user point of view, not what is easy for your engineering team to design. Then you validate the product with users before bringing it to market, constantly testing, getting feedback, and refining, versus the waterfall approach where user comments are gathered and then you don’t talk to them until the product has shipped and it turns out it does not quite meet their needs.

The third element is engineering excellence with top talent. In pursuit of cost savings, traditional IT has been highly outsourced, to an extent where much of the development and engineering work is done by third-party vendors. That, again, no longer works. Technology functions in successful companies value innovation more than cost savings and assemble top-notch workers to equip themselves for the future. Many companies are recognizing that the engineering culture of small teams made up of high-performance engineers is critical to their growth, so the talent strategy is changing. They are investing in securing these resources—not just recruiting but onboarding and retaining them.

The last one is flexible business-backed architecture. Most incumbents are saddled with a core infrastructure of aging applications. Adding features and functionality is cumbersome, costly, and time- and labor-intensive. These companies need to move to a flexible, scalable software foundation that allows their IT teams to get products to market quickly and efficiently.

Sean Brown: Have you seen the current crisis lead companies to step up action on some of these plays?

Gayatri Shenai: I think the pandemic, to Krish’s point, has elevated the technology function a few rungs up the ladder. Working from home started almost instantaneously at most companies, and being able to provide the infrastructure for employees was a Herculean effort, yet most organizations were able to do it. Agile working, or agile at-scale software delivery, has become a bit more fluid during the pandemic because you are working in small teams. Additionally, almost overnight, companies adopted cloud models such as Zoom or Teams, so the move toward next-generation infrastructure has also been hastened. That’s why we call this a technology revolution: every bit of tech-forward business strategy has become more critical. On digital user experience, there has been a five- to seven-year acceleration.

Sean Brown: Which of the three vectors you mentioned do you find CEOs are most focused on these days?

Gayatri Shenai: Many of my clients are reinventing technology delivery and future-proofing more than reimagining technology’s role. They start with, how do I reinvent my delivery? How do I ensure that I can move at a faster pace? And how do I create an architecture foundation that allows me to be more agile and improve the credibility of the technology organizations?

Sean Brown: Back in 2019, you surveyed CIOs on the progress they felt their organizations were making on these three vectors and compared that with responses from business leaders. Did you find a big gap between the two sets of responses?

Krish Krishnakanthan: Among IT teams, 56 % said, “We are redesigning our operating model. We are reimagining the role of technology.” But if you ask the non-IT executives, they said, “We are still stuck in the same place.” In reinventing technology delivery, there is a similar dichotomy between what IT believes they are doing and what the business feels and experiences. The word experiences is critical—it is perception versus reality. The balanced score card may say you have had only one outage all year, but that outage was long enough to wipe out profitability for the entire year, particularly if you are in retail and it is the day before Thanksgiving. The two groups need to work together.

Sean Brown: But, as you said, that collaboration has not typically been effective in the past. What questions should the CEO be asking to make sure the technology efforts advance the strategy?

Krish Krishnakanthan: Around the role of technology, the questions would be: How are technology decisions made at all levels? And how are we maximizing the value of technology investments? In many organizations, the squeaky wheel gets the grease, in the sense that the people who are louder get more of the budget, rather than saying, “We need to be investing in these five areas.” The advanced organisations divide the budget into three buckets: what we need to run the business, what we need to make positive NPV [net present value] projects that are profitable, and where we will make strategic bets. Those bets may be 5 to 10 percent of your budget, but it is necessary, as in all R&D, to make some bets on your future that could enable you to leapfrog your competition.

On technology delivery, the question you need to ask is, how do we build a more engineering-oriented organization? And on future-proofing the foundation, I would ask, how much attention are we paying to security? Another question is around AI: we apply AI to decision making for the business but what percentage of the technology decisions are AI-based?

If you push forward across these vectors, you will move the IT organization from being a service provider to the business to playing a central role in strategy and innovation. Siloed business and IT teams will move to an integrated business and digital team that can deliver things quickly, and you will go from a focus on easy-to-build products to customer-centric products.

Sean Brown: As you mentioned earlier, some companies are venturing on transformations of their technology infrastructure to set their businesses up for future growth. Some of these transitions can be quite tricky, particularly large-scale migrations to the cloud. Can you share any tips for how to do that effectively?

Krish Krishnakanthan: A move to the cloud is complicated by several factors. One is the difficult economics of cloud itself. If you just “lift it and shift it,” you will not see much economic benefit aside from maybe improved reliability. To take full advantage of cloud benefits, you typically would have to re-architect your applications, and that requires investment. I am starting to see the cloud play an important role at my client organizations, but only a small percentage have migrated.

Gayatri Shenai: I find many companies that have undertaken a cloud journey are struggling because they did not do the work on the business-case side to understand the value that would get unlocked and how they would migrate their applications. Many are in the early parts of the journey, piloting and finding things are working well, but the move from a pilot within a small group to scaling enterprise-wide is a big milestone.

Sean Brown: How have those who have made these transitions successfully managed the process?

Gayatri Shenai: It might be helpful to share some examples. One global pharmaceutical company had managed to keep IT costs down historically but was struggling to deliver technology solutions to market at the right pace. The CEO launched an assessment to understand the maturity of the IT and digital function based on a comparison to best-in-class companies and the industry standards. The CEO ultimately determined that five plays were critical. The team lined up each of the technology plays against their strategies and priorities to see which would make the most difference on these battlegrounds. Then they looked at which technology plays in combination would make the most difference to the overall business strategy. I love this example for a couple of reasons. One, it shows how a CEO can influence and shape a lighthouse project, because this became the harbinger for the rest of the organization on how they operate. The second thing is that they focused on just five plays to avoid biting off more than they could chew, and they picked from all three vectors, which is a prominent feature of winning recipes.

Another example is an organisation that is close to the end of a five-year journey. This company pulled each of the levers at different points in its transformation, covering the whole gamut over those five years. What was interesting is the scale of the effort. Krish mentioned that not many organizations have made extensive migrations to the cloud. This is one of the exceptions: 85 percent of their new applications have moved to the cloud. The CEO has played a core role in moving from pilot to actually scaling the effort.

One more example is the CEO I mentioned at the start of this conversation, who recognized that IT was traditionally seen as expensive, ineffective, and delivering unclear business value. He was very tactical in the steps he took. First, he made IT a strategic role in the organization by inviting the CIO onto his leadership team and ensuring the CIO was learning first-hand about the business units’ aspirations so he could better recommend how technology could support those aspirations. While that allowed for an exchange of ideas, it also signaled that the CEO valued cross-collaboration between the IT organization and his business unit leadership teams, which had a trickle-down effect in encouraging collaboration. The CEO also invested in a world-class technology workforce, having realized that many of the interesting technologies were not being done by in-house staff. He made it a priority to tell employees in town halls, “We will strengthen the technology function and assemble an in-house cohort of skilled technology workers.”

Sean Brown: Do you think the elevation and expansion of the CIO role will become a broader trend given technology’s growing role?

Gayatri Shenai: That comes back to the mindset point. This client not only elevated the role of the CIO but made IT a board-level discussion topic. Traditionally, that does not happen. Today, IT has to be part of the business strategy, not separate from it. Your business strategy is enabled and delivered through technology, and bringing that lens is more a mindset shift than a change in tactics.

www.mckinsey.com

Newsletter of last week

Farmers value digital engagement, but want suppliers to step up their game – Dell’s digital boss on being a change agent for transformation for Harrod’s – Made to Measure – Getting design leadership metrics right https://textile-future.com/archives/68038

The highlights of last week’s NEWS, for your convenience, just click on the feature to read.

Acquisition

Sateri to acquire Funing Aoyang’s Viscose Fibre Business https://textile-future.com/archives/68321

Kemin Industries acquires Bio-Cide International https://textile-future.com/archives/68336

EU Commission clears acquisition of joint control over Honshu Chemical by Mitsui Chemicals and Mitsui Bussan https://textile-future.com/archives/68345  

Syngenta Crop Protection and Valagro submit non-binding expression of interest for SICIT Group https://textile-future.com/archives/68384

Associations

ACIMIT – Italian Textile Machinery orders once more on the rise for first quarter 2021 https://textile-future.com/archives/68105

Awards

The Results of the interzum award – intelligent material & design 2021 https://textile-future.com/archives/68129   

Aurora Specialty Textiles Group wins awards for operational excellence, innovation and continual improvement https://textile-future.com/archives/68379

Authorisation failures

Riskified launches Deco to help Merchants recover up to 20 % of Transactions Lost to Payment Authorisation Failures https://textile-future.com/archives/68243

Baby Bottles

The new generation: Safe and stable baby bottles https://textile-future.com/archives/68268

Collaboration

BASF strengthens its global production footprint for enzymes https://textile-future.com/archives/68119

Companies

Oerlikon with robust first-quarter performance https://textile-future.com/archives/68180

Cotton

USDA  – Turkey removes the Anti-dumping Duty on US Cotton https://textile-future.com/archives/68011

Data

Business registrations and bankruptcies in the EU remain stable in Q4 2020 https://textile-future.com/archives/68095

Swiss Consumer sentiment back to pre-crisis level https://textile-future.com/archives/68161

Swiss Consumer sentiment back to pre-crisis level https://textile-future.com/archives/68167

OECD household income falls in the fourth quarter of 2020, but grows overall during COVID affected year https://textile-future.com/archives/68273

McKinsey’s Week in Charts https://textile-future.com/archives/68421

Digital label production

Xeikon Café TV presents a dedicated series of 5 broadcasts to Australia and New Zealand https://textile-future.com/archives/68314

Divestment 

Selling Yahoo and AOL, Verizon turns focus to its 5G network https://textile-future.com/archives/68114

BGL Announces the sale of Quintessential Tots, LLC d/b/a Itzy Ritzy https://textilefuture.com/archives/68260   

UBS announces agreement to sell its minority stake in Clearstream Fund Centre to Deutsche Börse https://textile-future.com/archives/68396

Gap to sell its Intermix business to PE firm Altamont Capital Partners https://textile-future.com/archives/68403

Energy

Improving the resilience of Switzerland’s energy supply https://textile-future.com/archives/68228

Events

ITMA Asia 2021: Saurer to showcase automation innovations https://textile-future.com/archives/68015

The Results of the interzum award – intelligent material & design 2021 https://textile-future.com/archives/68129   

XSYS Joins Panel at FTA’s FORUM 2021 and Exhibits at FTA’s INFOFLEX 2021  https://textile-future.com/archives/68154

ShanghaiTex 2021 & TexTech Galaxy – Gather Technological Innovation of Textile Fashion https://textile-future.com/archives/68283

Sedo Treepoint at ITMA ASIA 2021 – solutions for improving sustainability and digitisation https://textile-future.com/archives/68306

Intertex Tunisia postponed from April to October 2021 https://textile-future.com/archives/68342

EU

Statistical cooperation in and around Europe https://textile-future.com/archives/68211

Journalism

Journalism and publishing activities in 2020 https://textile-future.com/archives/68089

Office Space

Flexible Offices will be crowded after Covid-19 https://textile-future.com/archives/68030

Partnering

Fruit of the Loom partners with Zara to Launch New Global Capsule Collection

Printing

XSYS announces the launch of nyloflex® FTM Digital flexo plate for printing with water-based inks https://textile-future.com/archives/68265

Recycling

Outdoor pants made of old tyres https://textile-future.com/archives/68027

BASF joins Digital Watermark Initiative “HolyGrail 2.0” for smart packaging recycling https://textile-future.com/archives/68218

Research

Swiss Empa: Tiny plastic particles in the environment – Nanoplastics – an underestimated problem? https://textile-future.com/archives/68237

EU celebrates 10000 grantees of the European Research Council https://textilefuture.com/archives/68295

Ground-breaking ceremony for new research campus – Go-ahead for an Empa innovative research campus https://textile-future.com/archives/68367

Retailing

We’re Suffering’: How Remote Work Is Killing Manhattan’s Storefronts https://textile-future.com/archives/68077

Success Stories

Slovenia Post expands into books and brochures and elevated production with two Ricoh Pro™ VC40000s https://textile-future.com/archives/68134

V-Shapes: A Unique Story about Sustainability, Safety and Convenience in Packaging https://textile-future.com/archives/68138

Gold Gym Southern California Incorporates HeiQ V-Block Ecosystem https://textile-future.com/archives/68176

Wedding Apparel Pro Joins Leading Bridal Retailer https://textile-future.com/archives/68256

Sunscreen

BASF Sunscreen Simulator 4.0: Now with even more functionalities https://textile-future.com/archives/68251 

Sustainability

Asos and Fashion-Enter Ltd. Partner with Kornit Digital for Sustainable On-Demand Textile Production https://textile-future.com/archives/68232

Macron and RadiciGroup collaborating for sustainability https://textile-future.com/archives/68290

10 Penny plastic bag charge to come into force in England on May 21 https://textile-future.com/archives/68325

DOMO Chemicals unveils ambition to lead in sustainable development within the decade https://textile-future.com/archives/68392

Avery Dennison sets ambition to be Net-Zero on Carbon Emissions by 2050 https://textile-future.com/archives/68406

USA

U.S. Job Growth slowed in April, muddling Expectations https://textile-future.com/archives/68352

Wider Machines

Working more flexibly with wider machines https://textile-future.com/archives/68122