Friday, November 30, 2012

INTERNATIONAL TRADE: LESSONS FROM INDIA

Will others learn from India’s logic of not ignoring newer markets?

India’s clientele is also geographically diversified. It strategically eyed China and other developing countries in West Asia as its prospective consumer markets. As a result, when almost all the countries were suffering, India more than compensated any possible loss by dealing with emerging economies and mature economies alike. Today, China is India’s largest trade partner; trade value between the two nations touched a whopping $37.9 billion in 2007.

For now, the chance of India achieving the $200-billion export target set for 2008-09 looks slim, for that would call for India to grow at a stupendous 25% y-o-y (in these recessionary times?!?). Nevertheless, these are times to sustain and not really to grow empirically!


Source : IIPM Editorial, 2012.

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Thursday, November 29, 2012

MAHARASHTRA: MNS AGITATION

Raj is preparing his political 'parantha' in the name of Maratha

" While talking to B&E, MNS, VP, Vagish Saraswat accused Lalu of taking sides in Railway exams and discriminating against Maharashtrians. He said, "Advertisments for Railway exams don't appear in Marathi papers. How then do you expect Marathis to know about it?" Rubbishing such accusations, a senior Railway official said that the Railway Admission Board had come up with ads in Loksatta and Lokmat (Marathi) on November 3, 2007 and February 9, 2008.

Saraswat even said that during Lalu's current visit to Mumbai, MNS had tried to talk to Lalu, but when they failed, they were forced to take such a strong stand. All those who talk about being the saviours should not forget that reactive politics will not take us anywhere. Thousands have been burnt in this flame and many have lost their dreams. Raj Thackeray's politics may be able to take him somewhere but it will not take the people anywhere. And that is for sure.


Source : IIPM Editorial, 2012.

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Wednesday, November 28, 2012

Damn you Saddam!

If war could kill hatred, war doctrines should have received Nobel prizes; but perhaps one wouldn’t have to wait for even that to happen...

If mankind evolved from ‘Homo habilis’ to ‘Homo sapiens’ and if with each generation the complexity, intelligence and power redefined itself, the same can be attributed to the evolution of war. With passing time, the doctrine of war has redefined itself. And we found this special B&E double issue [on how to save capitalism through social responsibility] perhaps the rightmost forum to lament as usual on why war is the perfectly correct solution for peace... You actually believed that for a moment, did you? Well, insanely, so have some billions of the global population at one point of time or the other. But back to our laments...

The doctrines of war are jut not about war strategies but are like the eyes that saw and experienced changes in international societal system. When man was not even man and was more of an ape, he had to fight it out to survive. Being the weakest of the lot, [without any kind of expertise] it was only his shrewd mind that saw him through. Yet, that was perhaps the last time ‘men’ united to fight for their own survival, realising very soon that their biggest nemesis for all times would not be anyone else but their own brethren. That was when George Bush was born... Er, alright, we jumped the gun. He comes in much later [in our fourth story, actually. Pardon our impetuous nature.]

Fighting other species was perhaps far easier, it was fighting one’s own brethren that took the goat as that required constant upgradation of skills, and the realisation that ways and means would have to constantly evolve to kill that damn Saddam.


Source : IIPM Editorial, 2012.

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Tuesday, November 27, 2012

GLOBAL ECONOMY: SUBPRIME EFFECT

Beyond everyone’s forecast, European economies are now the biggest sufferers of the US subprime crisis

As a matter of fact it is estimated that repossessions have already doubled in UK and some other European Markets. The potential credit losses will by pessimistic calculations lower the aggregate capital adequacy ratio at European banks by about 150 bps.

IMF’s Global Financial Stability Report precisely brings out the fact that domestic banks in Eastern Europe have built large negative net foreign positions as credit growth has outpaced domestic deposits. Given the size of bank losses and disruptions in bank funding and securitisation markets, Europe certainly seems to be at a greater risk. It is not only UK or Eastern Europe, which is witnessing renewed symptoms of the crisis. Italy’s economy has started shrinking, its GDP went down by 0.3% quarter-on-quarter in April-June 2008. German economy too shrank by 0.5% during the same period. Moreover, the whole Euro zone economy shrank 0.2% during Q2 2008.

After this if the emerging economies, which have been so far resilient to the shock, do not jump into brainstorming to find a way out, very soon they will find themselves in the shoes of the European economies. Agrees Olsen, “Asian economies have been affected both directly, through their holdings of US mortgage-backed securities, and indirectly, via changes in investment and consumption patterns.” As a matter of fact the declining growth in US and Europe will have a negative impact on the exports of the emerging economies. In fact depending on the trade and financial links with the US, a 1% decline in US growth will lead to a 0.5-1% decline in the growth of emerging economies. Thus, instead of just waiting and allowing things to happen on their own, developing countries must find their way out of the ‘infectious’ economic crisis. Else, looking at the developing nations Jean-Claude Trichet, President, ECB will soon be heard saying, “I know what you thought...”


Source : IIPM Editorial, 2012.

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Sunday, November 25, 2012

Tyres sold in India are Indian!!!

This is the motto of tyre consumers in India as 3/4th of tyres sold in India are Indian!!!

 They clearly adopted a ‘go-slow’ strategy. Take Goodyear India for example, the third-largest tyre company in the world with a massive 17% global market share. Unbelievably, the same Goliath has a meager 6% market share in India! And now as a revival act, it plans to invest $20 million to expand capacity at its Aurangabad facility. Similarly, Bridgestone is mulling over setting up a truck & bus tyre manufacturing facility in India over the next 3 years with an estimated investment of $200 million. Clearly, they need to invest more...

Even the ‘technological’ superiority of internatinal players is fast diminishing as Indian players work hard ‘technologically’. Take Ceat for instance. It is scouting for a tie-up with Pirelli (Italy) in the truck & bus tyre category as Arnab Banerjee, VP–Marketing, Ceat, explains, “We are looking for a foreign partner and it is purely for the purpose of gaining the technological edge.” MRF too plans to expand its capacity with a capex of Rs.5 billion. However, there is a common challenge in the name of inflationary pressures on input costs in the auto & tyre industry, which is causing a slowdown in the industry. However, industry experts are positive about the future as Revati Kasture, Head, CARE Research, points out, “The tyre industry will register a growth of 9-10% in the next five years. The truck & bus and LCV tyre categories are expected to register a CAGR of 8% and 14% respectively.” Undoubtedly, there is a ‘goodyear’ awaiting for the Indian players. Hopefully it’ll bring smiles to global giants too.


Source : IIPM Editorial, 2012.

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Thursday, November 22, 2012

The Caribbean Monk Seal has been sealed

The fate of the Caribbean Monk Seal has been sealed, for good!

The seal was last seen in 1952 in between Jamaica and Mexico’s Yucatan Peninsula, never to be seen again, and, only now, to be officially declared extinct.

“There is increasing loss of habitat as animals are becoming extinct, leading to huge amount of degradation and fragmentation of habitat, which needs to be stopped, and due to prey biomass many species are becoming extinct. The Caribbean Monk Seal’s extinction is of even greater disgrace as the reasons are man made and that day is not far when humans will cause a lot of species to fight for survival. These days due to Toxic Waste all the marine species are endangered. This needs to be stopped sooner than we think because due to weakening of habitat we might also have to fight for our existence,” concludes a representative from the World Wide Fund for Nature (WWF).

Worldwide, population of the two remaining monk seal species is declining. We hope that we have learnt from the extinction of Caribbean Monk Seals and are able to provide for the protection of the Hawaiian and Mediterranean Seals which are on the verge of extinction. With just about 1,200 odd remaining, the threat to these species is very complex. We need to save them before they become entangled and drowned in marine debris and fishing nests.

Extinctions are happening at an alarming rate and it’s a pity to see that nobody really cares as we rapidly strip the earth of creatures that took millions of years to come into existence. Until then, let peace be upon the Monk Seal.
 

Source : IIPM Editorial, 2012.

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POLITICS: MINISTRY ALLOCATION

Is portfolio shuffling a born trait or can it be learnt? B&E’s deep review

Recently, Mayawati fired her Fisheries Minister, Jamuna Nishad, out of her dissatisfaction as he was found ‘allegedly’ involved in a mob attack that resulted in the killing of one policeman [One wonders how she forgot so fast the riots she allegedly incited against Reliance Retail’s outlets]. But she intelligently placed another Nishad leader in the Fisheries Ministry to ensure the Nishad community – which is a big caste in Uttar Pradesh and a key vote bank for Mayawati – stays with her. Though Yale might not vouch for it, gifting ministries to different party members and leaders is both an art and a science in India. Can this be learnt or is this purely a born trait?

Well, it’s quite tough to say. While previous research pointed to this being a born genetic trait of the species called politicians, recent findings also point to a shrewd species called businessmen that’s learning the ropes too fast...


Source : IIPM Editorial, 2012.

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Tuesday, November 20, 2012

Made a mistake? Make another...

Loan waiver clubbed with fertiliser subsidy proves the point

A debt waiver of Rs.60,000 crore is being seen as an important step to win over rural hearts, where the major chunk of the vote bank lies. And though this might appear to be a realisation of the farmers agony in the Delhi power circle, the only thing left to be said is that was ‘myopic’! The farmers would have benefited more, had the money been utilised to improve rural infrastructure. The agriculture sector requires revolution, not just reforms. On May 23, 2008 the loan waiver was increased to Rs.716.80 billion from Rs.600 billion. A re-estimate shows the number of beneficiaries have risen from 30 million small and marginal farmers to 36.9 million! But then it’s also no more a hidden truth that most of these farmers are not the real beneficiaries of these schemes as most of them have small or negligible land holdings. And for that matter, these farmers [with small land holdings] have to rely on local moneylenders.

Even India’s fertiliser subsidy has been increased by 135.5% [to Rs. 95,000 crore] this fiscal as the government seeks to shield farmers from rising international prices. A good thought indeed, but then lets understand it from below the surface. The shares of fertiliser firms like Tata Chemicals Ltd, Rashtriya Chemicals and Fertilisers Ltd, National Fertilisers Ltd et al rose by 7% after the announcement. This clearly shows that this increase will do more good to the fertiliser companies rather than to the end users. These subsidies, as always, will never reach the farmers and will be adjusted by the manufacturers & middlemen in the supply-chain. All looks perfect on paper. However, if they are not implemented well, they could produce more adverse effects than anticipated.


Source : IIPM Editorial, 2012.

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Monday, November 19, 2012

Currency Crisis!

Slowdown and crisis together

Everyone seems to be confused about where exactly the Rupee is headed and whether the Chinese currency Renmimbi will ever appreciate or not. The only thing where there is a clear consensus is that the American economy is in trouble and that a slowdown in the American economy will have a definite impact on currency movements and values in Asia.

With US Federal Reserve’s decision to slash the interest rate by 0.75% in order to give a momentum to a sluggish US economy, the global exchange rate seems to get disturbed.


Source : IIPM Editorial, 2012.

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Sunday, November 18, 2012

Try and try again to lose it all... and then try harder!

Which companies eroded the maximum m-cap for shareholders! B&E’s Gyanendra Kashyap investigates...

We have to be downright honest! The top three companies that destroyed shareholder value, were all companies that raked in astounding profits, clearly proving that it is not profits and direct fundamentals that drive Indian stock price movements, but rather a combination of sentiments and future values based on overall strategic orientation of companies.

Coming straight to the point. TCS, Infosys and Wipro have been the greatest value destroyers. Sample the drop in their share prices over a period of one year (1st April 2007 to 31st March 2008); TCS: 31.8%; Infosys: 25.6%; and Wipro: 18% respectively. Consequently, their market capitalisation over the same period of time has declined respectively in absolute terms by $9 billion, $6.4 billion, and $2.8 billion. And if you thought that the m-cap decline must have been because of the Sensex crashing, relax! The Sensex actually, and most hittingly, gained over 25.60% over the corresponding period.

It needs to be understood that the Indian IT behemoths are predominantly export oriented and 50-60% of their revenues are generated from the US and UK. For the last one year, the US economy has been crippled by the subprime crisis, increasing inflation and the dipping employment and growth figures. The appreciating rupee (10% vis-a-vis the dollar) worsened the matters for the companies in the IT, Pharma and Textile sector. 

Read more......

Source : IIPM Editorial, 2012.

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The Americans are insane!

And B&E’s Karan Mehrishi analyses why...

It was insane! I had five American companies with a combined loss above $80 billion (phew!) and not one of them – save Sprint ($29.5 billion loss) – ready to talk to me. While the $3.09 billion down Freddie Mac representatives (bouncers, I say) shoved a press release on my face, the $3.3 billion losing AMD’s US office had their PR guys (The PRactice; spelt that way, sounding totally out of a Grisham novel) call me up to question me on why I was doing this story “at this point of time,” (!!!) and that they’d never heard about B&E (I guess we don’t distribute B&E in Mars). The sub–prime hit Merrill Lynch US was even more hilarious, when they told me, “If this is related to the Bloomberg story, that’s incorrect!” And GM.

Nobody’s been picking up my phones in the US since I met Rick Wagoner (Chairman, GM) last year to get his exclusive quotes with respect to his $750 million investment in India (He’d been quite confident that “GM wanted to leverage its global resources” to succeed in “such a high growth market”). Sprint Nextel’s official global spokesperson James Fisher was quite to the point in his comments to me about why they’d suffered such a huge loss of $29.5 billion. “We have had problems with customer services, network reliability (which we have dealt with now). We have improved our services and it will take a couple of more quarters for a visible turnaround.” Dan Hesse, CEO, Sprint Nextel, spoke to the media, “Given current deteriorating business conditions, which are more difficult than I had expected to encounter, these changes will take time to produce improved operating performance.” With a subscriber base of 53.8 million subscribers in the United States, Sprint’s present losses are attributed to the writing down of the 2005 takeover of Nextel Telecom. Sprint’s market capitalisation is about $26 billion and in the last three years, the value has declined by a staggering $7 billion!

And news from motown hasn’t been worse. The world’s largest automaker, GM, has found itself in troubled waters again. As per 2007 results, GM’s reported net loss is at an astounding $38.7 billion! According to the company, the special charges, amounting to $38.3 billion in the third quarter towards valuation allowance against deferred tax assets, were the primary reasons for these astounding losses. Strong sales in emerging markets, however, led the primary business of automotive to grow substantially. GM’s revenues were $181 billion in 2007 as compared to last year’s $174 billion. According to Rick Wagoner, “We are pleased with the positive improvement trend in our automotive results, especially given the challenging conditions in important markets like the US and Germany, but we have more to do to achieve acceptable profitability and positive cash flow.”


Source : IIPM Editorial, 2012.

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Wednesday, November 14, 2012

They mean ‘business’

Spencer’s must sort out real estate, manpower & perception problems

Most upcoming organised retail chains tend to hype on their price competitiveness. So is it the sole differentiator that works? At least Spencer’s Retail, which recently announced a capex of Rs.25 billion by 2010 to set up a series of multi-format retail outlets in India, doesn’t seem to think so, as they cater to what they call the ‘business class’ of Indian customers.

“It’s quality, range & assortment that attracts a customer to the retail store. Then there is convenience in terms of location,” argues Samar Singh, Vice President, Spencer’s Retail. Price, according to him, comes after these factors. For assortment, Spencer’s normally keeps three types of merchandise: national, regional & imported goods, and their products, according to Samar, come at prices that are “not unreasonable”, indicating how they focus more on the shopping experience per se. They follow this approach to merchandise in all their verticals. Spencer’s defines its target audience as ‘female, sec a category, in the age group of 25-34, married and with children (she could be at home or working).’ The formats it currently owns are daily (218), express (154), hypermarts (15) & supermarkets (13).

Strangely, Spencer’s is not so worried about the issue with farmers, a thorn in the flesh of some major organised retailers today. Samar points put proudly how they have not faced any problem on this front. They don’t source directly from farmers, neither do they undercut them; two prime factors, according to Samar, that minimise the possibility of conflict.


Source : IIPM Editorial, 2012.

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M&A: INDIAN AMENDMENT

Proposed amendment to Indian law is not sensible

Also, the whole process of notification will take any where between 30 to 210 days. The industry fears a loss of competitive edge during the gestation period. Evidently, global M&A activity could be substantially hit. Jyoti Vij, Director (Financial sector & corporate law), FICCI, said to B&E, “There is a genuine concern in the industry (in India & abroad) as it is not clear what all is in the ambit of the amendments and how things like group consolidation and takeovers will be affected.”

M&As have the potential to bring positive gains to the Indian domestic industry through transfer of technological & business expertise. Concerns relating to foreign companies engaging in M&As might be genuine, but such an amendment will surely prove to be the wrong way to address it. Guess India must search for better ways to exercise its global clout than this!


Source : IIPM Editorial, 2012.

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Friday, November 9, 2012

Unmade for each other

Indeed all privately doubt that any of this is for real

The Presidents of Sudan and Chad have agreed to cease hostilities “in principle”. Yes only in principle: for hardly had the words been uttered than the rebels, whom the pact officially aims to subdue, dismissed it as “meaningless”.

This of course is not the first time that Sudan’s President Omar al-Bashir and his Chadian counterpart Idriss Deby have “agreed” to cease warring – a war complicated by rebels of various stripes in the territories of both. (In Sudan they allege the country’s western part has been deliberately neglected to favour the Muslim North.) Under the latest non-aggression pact a monitoring group, comprising foreign ministers from both countries, will “ensure” that no more blood is shed.

Brokered by Senegal’s President, Abdoulaye Wade, on the sidelines of the Organisation of Islamic Conference (OIC) summit in the Senegalese capital Dakar the signing was watched over by UN secretary-general Ban Ki-moon. While Ban clucked approvingly, most believe this was more for the sake of form than because he thought a permanent solution had been found.


Source : IIPM Editorial, 2012.

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Thursday, November 8, 2012

This zero can unleash big value

Resources conserved can be easily reallocated to other priorities

Zero-based budgeting! A method of budgeting or a technique that sets all budgets to nil at the beginning of the financial year or a period. It requires government departments to justify all their expenditures, not just those exceeding the budget. Money is allocated to the departments and not just based on previous year’s budget (plus or minus some percentage).

This method is detailed, and provides a comprehensive analysis of objectives and needs. That essentially implies that it is not only a budget, it is also a tool to plan and strategise. But to implement such a detailed and immaculate plan, requires managers to evaluate cost effectiveness of their operations, threadbare. Also, management participation in planning & budgeting is expanded to all levels of the organisation. The Union Government’s first acceptance of Zero-based budgeting was for the Department of Science and Technology through its Memorandum of December 1983. Later in 2006, Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, emphasized that in the 11th Plan, moves must be made to shift towards Zero-based budgeting.


Source : IIPM Editorial, 2012.

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IIPM : The B-School with a Human Face
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Online advertising

The technology company is hoping to convince Indian businesses about the virtues and effectiveness of online advertising

 How do you see the world of search engine marketing evolve from here?

The trajectory is clear. The digital marketing opportunity is growing dramatically and businesses are increasingly taking advantage to drive efficient growth. In a high growth economy like India, business growth is one of the most important objectives for organisations. And advertising will be an important tool for small businesses to become regional ones, regional businesses to become national ones, and national ones to become global players. The Internet has connected previously disconnected people from different parts of the world, and brought them together to share unlimited amounts of information. With more people connected and more businesses investing in developing an online presence, the Internet not only provides information exchange, but also promotes trade. Online advertising compliments the stable of conventional forms of advertising and plays an important role in integrating marketing communications.

A boom in Internet advertising is waiting to happen as connectivity improves with the wider use of broadband. But today, Internet penetration is unacceptably low. It is difficult to be excited about the advances in the telecommunications sector when our computing infrastructure is so far behind where it should and needs to be. As Internet access and costs improve and Indian users spend more time on the Internet, the growing online advertising market will only become better. Today, more and more users are taking recourse to the Internet for even regular jobs. Internet is slowly but steadily becoming an important medium. Given the growing spread of the Internet and ever increasing online activity, Internet advertising will continue to fulfill many business goals – be it sales, lead generation, branding or recruitment campaigns. It will go beyond allocating portions of marketing budget and extend to being a long term investment that also yields immediate short term results. In a scenario where relationship between the search engine and the search engine marketer is not clearly defined, how do you feel about those who practice search engine marketing/optimisation?


Source : IIPM Editorial, 2012.

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IIPM : The B-School with a Human Face


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