Friday, April 12, 2013

Global Development Horizons 2011

Amidst the transformative change that the global economy is witnessing, it is anticipated that within the next two decades the rise of emerging economies will inevitably have major implications for global economy and geopolitics. The world bank argues that a new world order with a more diffused distribution of economic power is emerging. B&E analyses the shift towards multipolarity.

The new Growth Poles

Over the course of two millennia, there have been several instances of shift in global economic powers. The period of China’s Tang dynasty to the Ming dynatsy (600-1600), saw to it that China was the dominant force in the global economy accounting for a quarter of the global growth. The Renaissance phase coupled with the advent of the industrial revolution saw the coming of age of the European economies (e.g. Italy, Spain, France , Great Britain). Post World War II, innovation and consumer demand propelled the United States to the position of world’s foremost economic power with Germany, Japan and the former Soviet Union playing pivotal roles. Post the financial crisis of 2008-09, the global economy is tilting towards new growth poles.

Dynamics of Growth Poles

In the wake of the financial crisis, the global macro-economy is apparently poised to follow a two-track course. Considering the baseline scenario, the World Bank estimates that the emerging economies’ share of global output will expand in real terms from 36.2% (in 2010) to 44.5% by 2025. A closer scrutiny reveals that China will lead this impressive rise in share of global output. What is interesting to note is the fact that despite the demography driven changes (the old age dependency ratio in China is expected to double between 2010 and 2025), China will be able to maintain its comparative advantage in manufacturing. Consistent with historical productivity trends, India’s annual growth in 2025 will be 5.4%.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
 
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Thursday, April 04, 2013

Will Indian Online travel Boom invite M&As?

The Indian Online Travel Industry has witnessed tremendous growth since 2004. Today, it’s the most Crowded space in The E-Commerce Segment with new players joining The Race every year. Question is – how will this Overcrowded space grow spacious?

As more and more Indians turn to the web for their travel needs, the online travel portal market in the country is gearing up for a bigger action in the coming days. With travel portals now offering a host of new services – putting forth their travel packages and providing safer mode of payments – booking travel online is no more confined to getting a low-cost airline ticket. In fact, these portals are now becoming travel guides rather than just ticketing stations. As per comScore’s data for April 2011, the number of visitors to travel sites in India increased 32% compared to last year. The study by the US-based digital market research company revealed that around 18.5 million visitors (age 15 or older visited) turned to the Internet for their travel needs in April 2011. While Indian Railways led the list of the top 10 visited sites, registering 8.4 million visitors this year (an increase of 8% from the previous year), Online Travel Agency sites (OTAs) secured the remainder of the four top spots in the category. MakeMyTrip reached nearly 3.9 million visitors (up 63%) followed by Yatra Online with 3.5 million visitors (up 82%) and ClearTrip.com with more than 2.1 million visitors (up 80%). Interestingly, the US-based Expedia Inc. secured the #5 position with 1.8 million visitors (up 12%).

This clearly indicates that there is a distinct shift in consumer preference as more and more people now prefer to plan and book their travel, and holiday needs online. According to travel industry research company PhoCusWright, India’s online travel market is the fastest-growing online travel market in the Asia Pacific region. What’s more? The company expects the Indian online travel industry to grow at a whopping 28% rate to top $7 billion by 2012. And it’s because of this reason that OTAs are now exploring newer avenues to generate revenues. In fact, revenue from advertising has already taken a backseat, and the focus now is more on cross selling of products, combination of products, et al. Further, with the rise in the sales of non-air products, industry players are confident that newer product categories will be explored in the travel and holiday space.

The increased pumping of money in the sector has also helped portals spend more to attract customers. In the last couple of years, most of the sites broke-even, securing a comfortable position. For instance, Nasdaq-listed MakeMyTrip registered a profit of $3.7 million in Q4 FY2011 as compared to a loss of $1.3 million in the same period last year. Even for the financial year ending March 2011, it had a profit of $4.8 million as against a loss of $6.2 million in FY 2010.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

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Tuesday, April 02, 2013

Direct Tax Code: A boon for IT Sleuths!

A Closer Look into The Provisions of The Proposed Direct Tax Code reveals India’s Digression from a Trust-Based system of Taxation to one which is Based more on The Element of distrust.

The existing Income Tax Act, which came into legislation in 1961, has often been criticised for being economically inefficient and incompatible with the current requirements and inequitable to all tax payers. Thus, to avoid this criticism and to replace archaic rules, the Ministry of Finance finally came out with the draft of Direct Tax Code (DTC) Bill in August 2009. But, the draft Bill, after being introduced in public domain, received a lot of criticisms on certain amendments in relation to removal of existing tax subsidies, and modifications in the tax rate structure that it sought to introduce. So, in June 2010, the ministry again issued a new revised DTC Bill and presented the draft to the Union Cabinet.

In what the government has claimed to be an attempt towards bringing path breaking changes to the existing tax regime in India, the DTC Bill, which is proposed to be implemented from April 1, 2012, will replace the five decade old legislation. In fact, in the foreword to the Tax Code, Union Finance Minister Pranab Mukherjee said that “the aim is to eliminate distortions in the tax structure, introduce moderate levels of taxation, expand the tax base, improve tax compliance, simplify the language and lower tax litigations.” Meanwhile, the Bill is being scrutinised by the Yashwant Sinha-led Parliamentary Standing Committee on Finance.

Personal income tax, as almost all salaried persons will agree, in our country is one of the highest in the world. More open and honest an employer is in terms of disclosing remunerations, worse it is for the employees because taxable income goes up. There is no denying that the present system is outdated and rewards dishonesty and non-disclosure of income by way of lower tax. The rationale for introducing DTC, government says, is to increase the efficiency and equity of the tax system by eliminating the plethora of tax exemptions or subsidies that create distortions. Its major policies include replacement of profit-linked exemptions with investment linked incentives, particularly for export units, and reduction in the tax rates to bring more people and companies under the tax net. Even the government wants a modern tax code in step with the needs of an economy, which is now amongst the largest in Asia. “In India, tax reforms have lagged behind growth. It is a big challenge for politicians and policymakers to keep the pace of reforms with growth,” Jeffrey Owens, Director of the OECD Centre for Tax Policy and Administration, said during a recent visit to New Delhi, adding, “Indian economy has transformed in the last two decades. Along with high growth, it has increasingly become the importer and exporter of capital. But tax regulations have largely remained the same. You have to change with the changing environment.” While the rationale behind the government’s proposals with respect to the DTC has been largely accepted as a right step in the right direction, a closer look into the provisions of the proposed tax code reveals India’s digression from a trust-based system of taxation to one which is based more on the element of distrust.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist). For More IIPM Info, Visit below mentioned IIPM articles
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Monday, April 01, 2013

Do Outsider CEOs really Add Value?

Contemporary Evidence suggests that Outsiders may be likely to Excel and Outperform Insiders at Companies that are in crisis. But Historical and Empirical Research Suggests otherwise. Where does reality stand?

It was the spring of 1985, and the board of Apple Computer decided it no longer needed the services of one Steven P. Jobs. The main dramatis persona in the tech world’s biggest unfolding drama of a quarter-century ago was John Sculley, the Pepsi executive whom Apple’s board had brought in as CEO to oversee Jobs and grow the company — similar to Eric Schmidt’s role with Google founders Larry Page and Sergey Brin — in 1983.

Was Apple’s board right in bringing outsider Sculley to revive the waning fortunes of the company? The truth is that, depending on the company and its situation, it can be just as important to bring in outsiders as it is to develop homegrown talent. Around the time Sculley came on board, Apple was struggling with low Macintosh sales and there was a need to bring some order to the creative chaos Jobs had unleashed. Sculley got Jobs out of his hair two years after taking over Apple. In the course of undertaking his major reorganisation, Sculley fired 1,200 employees (20% of the total workforce) and put the broken parts of the company together to form one unified Apple and delivered its biggest growth, percentage wise, in its history prior to the return of Steve Jobs in 1997.

Like Apple, there are many global companies that are famous for promoting talent and grooming leaders from within but have all brought in outsiders when they needed to. According to analysts, the health, stability and competitive position of the company at the time of transition are the critical factors in determining whether an insider or an outsider is the best choice. Experts contend that insiders perform more consistently when their companies are in a healthy state at the time of appointment, whereas outsiders perform better when the company is in some form of crisis.

Ford CEO Alan Mulally, a longtime former Boeing executive, transformed an iconic American company that was on the brink of bankruptcy. Under Mulally, decision-making became more transparent, once-fractious divisions began working together, and cars of better quality started rolling faster from design studio to showroom. Mulally may be getting the rewards and accolades now, but who remembers what Ford was like in ’06, ‘07 and ‘08 when bold and difficult decisions were being made and people wondered if the aerospace executive could cut it in the automotive world. “Many doubted Mulally’s ability when he first came to Ford. There are doubters no more. He has proved to be an outstanding leader, and helped the company reach new heights,” said Michelle Krebs, an automotive expert and Senior Analyst for auto experts Edmunds.com. To get a sense of Mulally’s contribution to Ford’s turnaround, take a look at the increase in the value of the company from 2008 to 2011 as measured by its market capitalisation. During the period there has been over 1000% increase or an increase of $51.26 billion. A 1% share of that would be $512 million. The share price of the company has soared from a low of $1.26 on November 19, 2008, to $18.97 on January 13, 2011 and is currently trading around the $15 mark.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist). For More IIPM Info, Visit below mentioned IIPM articles
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Thursday, March 28, 2013

Towards More Globalised Highways

The Booming Indian CV market has been Seeing a slew of MNCs Lining up to be Among The Numbers. Can they do an Encore of The Script that played out in The Passenger Vehicle Segment?

Just months after the world saw the banking sector in developed countries in a hell bound state, slowdown blues made their way into the Indian market. However, much before the cautionary signals were made public, the commercial vehicle (CV) segment was already feeling the heat and the months ahead took the sector deeper into the woods. This gave credence to a well accepted viewpoint in the industry; that commercial vehicle sales are a barometer of economic activity.

The industry showed a decline in sales by 21.69% yoy for FY 2008-09 with the so-called highly profitable M&HCV segment dipping by 37.01% to record sales of 1.48 lakh units as compared to the 2.35 lakh units sold in FY 2007-08. While Ashok Leyland managed to sell only 47,632 vehicles in the same period with a decline of 37.34%, market leader Tata Motors also felt the heat and its sales declined by 22% to 2,33,843 units.

However, to the respite of CV makers and supporters of the ‘barometer’ analogy, the market took little time in taking a U-turn, as the economy stabilised and started moving back on the growth charts; well in time before the economy also made a strong rebound.

“There is a lot of scope in the CV segment and the projected healthy GDP growth rates also suggest the same,” says Rakesh Kalra, CEO, Mahindra Navistar. The recent budget highlighted the strong investment push needed to develop infrastructure in India and this would boost the demand for M&HCVs (16T & above) & LCVs (less than 3.5T). Domestic sales figures show a yoy growth of 34.18% for M&HCVs and 24.08% for LCVs for the period of April 2010-February 2011 as per SIAM. Three wheelers displayed a rise of 19.96% yoy for the same period. By all counts, such numbers do not hurt! In addition, taxes have not been increased on CVs in this year’s budget. It is not surprising, therefore, that a number of global players have made their entry recently, or are looking for a foothold in this space. Over time, MNCs have virtually dominated the passenger vehicles segment in India. Will they be able to do an encore in the CV segment?

When you look at the incumbents, it looks to be quite a daunting challenge, for the market is dominated by three large players. Tata Motors still holds the pole position with sales of 3,48,544 units and a growth of 22.36% during the April 2010-February 2011 period, followed by M&M that dispatched 92,768 vehicles towards Indian roads with a growth of 23.13%. So far, Tata Motors, M&M and Ashok Leyland account for more than 80% of the total market in India. When it comes to MNCs, the leading company is SML Isuzu (Swaraj Mazda’s alliance with Japanese player Isuzu) posted the best performance with sales of 10,444 followed by Piaggio with sales of 8,444 units. The Volvo-Eicher JV came next with 932 units, while Volvo Buses posted sales of 488 units.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

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Monday, March 18, 2013

“Mismatch in Reforms is Causing Avoidable Adverse impact on Economy”

Ram V. Shahi, Former Power Secretary, Government of India, shares The Dynamics between Power and Coal

Ram V. Shahi, post his tenure as Power Secretary, has been associated with various organisations as head of their energy advisory boards. In an exclusive interview with B&E, he shares the interdependence of the coal and power sectors

B&E: How will the cess of Rs.50 per tonne levied on coal affect power tariffs in the short to medium term?
RVS: The cess of Rs.50 per tonne on coal will have an effect on the cost of power generated in coal based power stations in the range of 3 paise to 4 paise per KWhr. Its effect at the level of consumer tariff, however, will be of the order of 5 to 6 paise per KWhr in view of transmission and distribution loses. This cess, which will lead to revenue, on a national basis, of the order of Rs.30 billion per year, will go towards encouraging Green Energy. In this very budget, Service Tax on Transmission has been abolished. Therefore, positive impact of abolition of Service Tax would be about 5 paise per unit if we consider inter-regional transmission of power. Thus, additional burden on account of coal cess is more or less offset by the concession in Service Tax.

B&E: How will the move to allow open auctions for coal mining blocks affect fuel availability for power plants and what will be the effects on consumers?
RVS: The proposed initiative for coal mine development by allotting coal blocks on the basis of competitive bidding is a positive one. However, the criterion for evaluating bids should be the cost of producing coal rather than any premium that the mine developer may be asked to offer to the Government. Development of coal blocks through the process of competitive bidding should be on the same basis as the Scheme of Ultra Mega Power Projects. The objective should be low cost power by way of competitive bids for coal as well as power projects. Obviously, consumers will benefit from less expensive power supply.

B&E: If the pending Bill on Coal reforms which will allow private players to mine coal for non-captive usage is passed, will it bring about much needed power shortages under control?
RVS: While the power sector reform has moved forward, commencing from the historic legislation Electricity Act 2003, followed by several other policy initiatives, coal sector reform process has remained stagnant at the point when the Bill on coal was introduced in Parliament in 2001. Therefore, the present legislative initiative is a welcome move of the Ministry of Coal. The power industry is heavily dependent on coal just as coal industry has the largest consumers in the power sector, to the extent of 75% of its production. The present mismatches in reform initiatives are causing avoidable adverse impact not only on power sector but on economy as a whole. Therefore, coal sector reforms have to catch up fast with the actions that have happened, and will happen more rapidly, in the power sector.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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Tuesday, March 12, 2013

The Property Burst in the Wake of the 2008

Irish Economy was on a High Growth Trajectory for more than a Decade now. But the Property Burst in the Wake of the 2008 Financial Crisis sent Ireland into its Worst Sovereign Debt Crisis. Kenneth Thompson, The Irish Ambassador to India, In an Exclusive Interview, Shares the Larger Picture of the Ireland Economy

B&E: Do you believe that the Irish government can face the kind of backlash from government employees and unions as seen in Greece and Spain?
KT: The public servants in Ireland have had pay cuts since 2008 between 5 to 15%. Despite that, there have been no major protests as the people understand that we had a property bubble that burst and the second biggest problem is the deflation that Ireland is facing right now. Unemployment has risen sharply as many people have been laid off in the construction sector. The prices have sharply come down with electricity prices falling by 25% and gas prices by 23%. Housing prices have come down by 35-40% while office rents have fallen by 50%. So the positive side to all this has been that the average expenditures on an individual level have also come down.

B&E: Ireland has one of the lowest tax rates in the world with the corporate tax rate at just 12.5%. How do you justify such low tax rates in the current situation of such high public debt?
KT: Ireland not just has a very low corporate tax rate but one of the lowest personal tax rates as well. Our basic personal tax rate is 20% while it is 41% at the higher end which is paid by a very small number of people. Such low tax rates give the government the flexibility to raise the tax rates in times of crisis. In terms of justifying such rates, the tax rate is uniform for every business be it your corner shop or for every individual. It is the same for foreign investors as well. So, it has helped in bringing huge foreign investment in Ireland over the years. In fact, according to a latest research, Ireland had the highest per capita investment in 2008 in the world. MNCs account for a huge proportion of jobs in Ireland and they also contribute to 80% of our exports. Hence, the people realize that the low corporate tax rates result in job creation and high overall tax revenues which the government then spends on welfare programs.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

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Thursday, March 07, 2013

The Kid in Liz

One thing that Liz Hurley can’t sleep without is reading an Enid Blyton book! The English beauty revealed that her biggest literary influence were books by this children’s author. Liz still tucks up with Noddy and Big Ears, and has also converted her son into a fan. Liz was reading Famous Five en route to India and Tweeted regretfully about forgetting her book on the plane. Whether we’re reading Enid Blyton books at 45 or not, let’s hope we manage to look as glamorous as Liz does at 45!


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

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Wednesday, March 06, 2013

How about riding the green wave?

Though Carrier was one of the early entrants into the residential AC segment in the country, it somehow got overshadowed when rivals arrived. However, it’s clawed its way back into the sweepstakes by sheer market tactics. B&E does a walkthrough across Carrier’s strategic plants and plans

As we entered the production facility of Carrier Air-conditioning & Refrigeration Ltd (Carrier India) situated at Narsinghpur in Gurgaon (the plant is an exact replica of their China plant), we realise that we were venturing into a territory that had remained under wraps for years. There’s a reason we’re a-visiting the 20 acre plant. While at one point Carrier was the undisputed number one in India, with the likes of LG, Panasonic, Samsung, and even Voltas, Godrej, Videocon, Whirlpool et al coming into the AC market big time, Carrier’s market shares have steadily declined. Now, with a new MD, Gaurang Pandya, and with renewed efforts, Carrier claims to be clawing its way back – and we took up the offer of checking them out.

Our swift steps inside the plant are matched by Krishan Sachdev, Director Marketing & Strategy, Carrier India, who humours us, “People often ask us why our air conditioners (ACs) have larger structures than others? Our answer to this question is simple – we put in more components in our product.” This is actually that time of the year in the AC industry, when humour works better than anything else – well, sales start dipping at around this time of the year, and by the time winter hits, sales falls down to close to negligible amounts. This time around, while till the middle of the year, sales were growing at a thrillingly healthy rate of around 25%, due to the unexpectedly heavy monsoon, sales crashed within a month to abysmal figures across the industry. This is reflected in the Index of Industrial Production (IIP) too. While the consumer durables share of the IIP peaked at around 47% in June 2010, the same has fallen expectably to below 10% since then. But the year per se has been kind, what with the astounding heat wave experienced last year running into this year. As per Consumer Electronics and Appliances Manufacturers Association (CEAMA) figures, the AC market in India sold 3.5 million units in 2009; and has had a yoy growth of 15% this year. The Centre for Monitoring of Indian Economy (CMIE) reported recently that refrigerator and AC sales combined will rise at 24.4% for 2010-11 as compared to 18.8% in 2009-10.

MD Gaurang Pandya knows these figures by heart; and he’s betting on the fact that this year, Carrier’s sales (which makes up around 45% of the total India group sales of United Technologies, the parent company) will beat the forecasts. Although Pandya has just replaced Zubin Irani (who has been promoted to the position of Senior Managing Director of UTC Corporation in India) as MD of Carrier India, he is not new to the company. Pandya has in the past held many senior positions, hopping around functions like finance, operations, and sales & marketing. “I am really passionate about ACE”, says Pandya, 33, as we settle down in his office inside the factory premises. ACE stands for Achieving Competitive Excellence, and is Carrier’s in-house six sigma approach. “The difference between other approaches and ACE is that it’s more customer-centric. It takes inputs from the customers at all levels and then puts it back into the system,” he tells us. But is that enough to beat the flagrant competition? Pandya defends that this customer centric approach has helped Carrier India move ahead swiftly in the last few years (at a CAGR of 15%). For the financial year ending March 31, 2010, the company has recorded a turnover of Rs.8.9 billion and a net profit of Rs.835 million.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

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Monday, March 04, 2013

Dutch changed the rules of the economic engine

Robert Schipper, Executive Director, Netherlands Foreign Investment Agency talks to deepak ranjan patra about how the Dutch changed the rules of the economic engine

B&E: You consider Netherlands to be a ‘bridge-head to Europe’ for companies looking to access the European markets. Can you elaborate?
RS: The Netherlands has had a tremendous geographical advantage and has physically been the trade and transport hub for north-western Europe, its industrial heartland. The Dutch have centuries of experience in transporting goods into and outside Europe. The port of Rotterdam and Schipol Airport are the leading logistics hubs in the world. We speak the main languages of Europe and our population is fluent in English, the language of modern trade and business. To add to this, the Netherlands has a business-friendly regulatory framework and an internationally oriented tax system that makes it advantageous for foreign companies to set up here and conduct their European business from the Netherlands. In fact, many cross border transactions are routed through Dutch holding companies because of the tax advantages we offer and our efficient manner of doing business. A wide treaty network ensures that companies based in the Netherlands avoid double taxation, effectively helping international operations in the Netherlands to become profitable. Therefore, both physically and financially, the Netherlands is a great entry point into Europe, one of the world’s major markets.

B&E: You have worked in various key positions for NFIA in many countries including USA, Japan, Hong Kong and Singapore. How difficult or easy, in terms of regulations and processes, it is to invest in India vis-à-vis other countries?
RS: One can look at FDI in two ways. One way is that it is necessary to protect your indigenous industry from foreign competition. India has been able to do that since it has a large home market. The Netherlands, on the other hand, has never been in a position to do so and has always been an open economy. Since the Dutch had to access foreign markets to sell our products, we also had to open our doors to foreign companies. This has made our companies very competitive and spawned some of the early multinationals like Philips, Shells, Akzo Nobel and Unilever, some in cooperation with the UK. In a globalizing world I believe that no country can afford to live alone anymore.

India has clearly been benefited by globalization since it opened up in the early ‘90s and we can see the success stories like the IT/ITeS sector. Indian companies have also been tremendously successful in the global economy since they were allowed to expand out. I am confident that in the future, many global players will have their origins in India.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
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