First 10 years of 21st century

A year passes by but we realize it only at select times- on key festivals, birthdays or Dec 31. This year is also an end of a decade and recalling some of the developments witnessed as a citizen of India can be a good idea. An attempt at highlighting some of those developments and how they impacted my life- a common man.

First the global ones:

1. 9/11 shocks US and world. Tragedy highlights how deep and severe is the problem of terrorism. From my perspective, US has lost its financial hegemony. Financial crisis of 2008 is a testimony to it. 

2. Concept of BRIC economies came sometime in 2004-05 when emerging countries gained greater attention not for extending more aid to alleviate poverty but from investment havens perspective. Which economies are growing at >8% GDP than BRIC economies today.

3. China's domination in manufacturing became prominent and today it enjoys comparative advantage in several sectors over other nations.

4. Euro currency introduced in physical form in 2002. Expected to be a rival to US dollar with huge volume of trading in forex markets. Financial crisis seems to hit Europe badly and Euro seems to be in danger.

India centric key developments:

1.  Suzuki gains majority stake and management control in Maruti Udyog Ltd. (MUL). Represents a first most successful divestment by Indian government from a profitable company. 

2. Automobile sector hots-up with more players and more options for Indian consumers. MUL continues to lose market share to new entrants in the sector. Small car dominates Indian markets. No looking back for sales with improving road quality.

3. Outsourcing industry became a talk of every household with entry age to work reduced significantly. Just a graduation was enough to land-up with a job of INR 20-25 K per month plus opportunity to learn English language with accent at no additional cost. 

BPOs started to flourish around in metros but with more than proportional rise in real estate prices and higher manpower cost BPOs had to venture into class B cities of India. Courtesy of BPOs and several other factors count of top cities in India increased from 4 to 6 and then 8 and today its around 12. 

4. Organized retail boom picked. Big Bazaar, Reliance retail, More, Vishal became household name. Consumer is having a great time shopping though may not be ending-up with best price or value- as may be  perceived looking at promos. "Sabse bada din" concept of Big Bazaar is one of the most innovative promo in retail space for this decade. 

5. Real estate boomed, got larger and more organized. Many real estate firms went public. However, the hype about real estate is reverting to normal since 2008. Organized retail found hard to break-even early due to rising rentals. 

6. Indian consumer got rid of cable operator mafia. Got to experience digital quality program courtesy of DTH. Tata Sky and Dish TV ventured early and 2-3 years after others stepped in to cash-on the trend. 

7. LCD took over CRT. A Television was a TV till LCD came in to differentiate it from a CRT. LCD prices have dropped 60-65% in last 10 years. Same may be the fate with LED and or 3D TVs. 

8. Radio finds its own market (between a mobile, TV, disc players etc.) with private operators permitted to resume non-news based FM services across Indian cities. Satellite radio flopped despite initial hype but FM radio is here to stay.

9. Mobile phones were used more as "callers' identity". Near-by Local/STD calling booths were used for calling back. But with charges waived for incoming calls, pagers died, local/STD booth business flopped and craze of owning a colored mobile handset gained prominence among consumers. With years passing new players stepped in, cost per call dropped almost every month and mobile phones landed in hands of teenagers/youth (non-working). I acquired my first mobile phone in 2004. 

A black&white mobile handset cost INR 3000 in 2004 and today we get an entry model "smart phone" for the same price. Price drop of mobile handsets helped rural consumers to buy their first handsets faster while urbanites shift to high-end high-price phones. 

10. Shopping malls became a favorite hang-out zone for youth, playground for kids and window-shopping venue for middle-class Indians. Shopping malls offered to a common man the experience of air conditioning. AC sales grew exponentially while Indians dumped water coolers citing humid climate in India as if not experienced summers before.  

11. My wife today calls up a grocery shop in neighborhood and says, "भैय्या एक किलो चने की दाल और एक लिम्का घर भिजवा दीजिये गा". Home delivery has been a revolution and spread like a virus across India- not just restricted to urban cities. Lazy Indians became more lazy with married men skipping their holiday homework of shopping for kitchen. Private banks introduced ATMs and netbanking saving men from standing in long ques to pay utilities bill. But yes, no more lame  excuses to leave office early.

12. "Incredible India" campaign not only attracted foreign tourists to India but prompted Indians to prefer India over foreign locations for holidays. 

13. Transportation improved significantly. Had it not been low airfares- courtesy of domestic private airlines in domestic circuit- not many of us would have traveled by air. Road quality improved courtesy of a financial innovation called "securitization". Toll tax is a burden on all of us but we get good roads to try our expensive cars.

14. Fast food became a household name. Thanks for Dominos for adding an additional dish in my menu.  My first pizza was in 2006 at Mumbai. Since then I have it once every week.

15. I can buy my kids a remote-controlled helicopter, a talking doll or a kitchen set just like Barbies'. This is because of Chinese toys flooding the Indian market. Many Indian toy manufacturers would have become traders instead. :)

16. I can write blogs when at home and stay connected with my friends. All this is possible today because of braodband reaching our homes, Orkut and Facebook facilitating social networking at no cost and a computing device at hand in form of a laptop and or blackberry. My Orkut account was opened in 2004 and Facebook in 2008.

Overall a great decade to live and live it healthily. May God bless all of us with health and more happiness.

Happy New Year to all

Our Prime Minister

When I was a student at DAV College Chandigarh, Manmohan Singh was then the finance minister of India and was termed a 'hero' for bringing about reforms in Indian economy. I was fortunate few to receive award as a sports person from him.

Those days he was more of an economist and less of a politician. I know, and for obvious reasons, that even politicians need economists who build some rationality into their false claims and hence he may have landed into politics. Manmohan Singh is knowledgeable, calculative in his statements, pragmatic, sensible and calm, a man of few words in true sense. 

Over the years he has evolved as a politician quite well and politics may be occupying 80% of his mind. Whether its his stance over 2G spectrum allocation scam or disruption of winter session of parliament by opposition he has stood unmoved. We may be critical of his stand for not giving into demand of setting-up JPC for probing the 2G spectrum allocation despite losing a full winter session of parliament.  

What does it finally take to be a prime minister in world's largest democracy? For sure you need to be shrewd, diplomat and tactful to manage power hungry colleagues and ever critical opposition.

A gentle reminder to dear Prime Minister- While actions speak louder than words, they speak only when initiated on time. Please overcome all the constraints that have grown around you over the years.

Buying vs renting- excel-based calculator

Snapshot of the excel tool

"Why have you not yet taken a housing loan? Its high time that you go for one. Interest rates are low, economy is growing and you are anyways nearing 40s. Banks may not extend you a 20 year housing loan once you are 40." said X. "I fail to comprehend multiple variables at play in deciding whether to buy a house today or continue to stay on rent." said Y. "Also all my friends have gone for a housing loan and market prices of their property is up by 30-35% within 3 years. Will I ever afford to own a house if I delay my decision?"

Deciding to own a house today or later is a critical decision atleast for the employed with limited savings. Multiple factors from current income, expected growth in income, GDP growth rate of the country residing in, interest rates, real estate prices, rentals etc. all impact the decision. With an intention to help partially address the dilemma quantitatively a excel based tool has been developed. No ways is the template a comprehensive or conclusive. In fact its users should consider this as a guiding tool in making a decision. Also its a version 1. Version 2 can be developed post feedback from its users.

Guidelines to use the tool:

a) Country of residence does not matter. However, residential property to be owned should be in the same country where currently residing
b) Tool helps you quantify the trade-off between owning a housing taking a housing loan or continue to stay on rent.
c) Results are indicative and may not be accurate.
d) Readers are advised to use it at their own discretion

The link to download the calculator is here: Housing loan vs rent calculator

Crude threat for Indian Economy

Emerging economies seem to be far more complex and difficult to manage compared to developed ones and Indian economy is just the right example.  Just when the economic pundits and RBI were reading 'end of trough phase' of business cycle, challenges in form of trade deficits, appreciating rupee, high inflation and international shock in the form of crude price increase re-surface. 

No way do I mean that the whole economy is threatened and may slip back into recession due to any of the unfavorable indicators. But, for sure, a part of the economy may slip into inflation faster than the whole economy. 

That part of economy which is small and more constrained in terms of resources . From a consumer perspective, the low income group is going to be impacted the most and for obvious reasons if GOI decides to increase the price of petroleum products, diesel for sure. From industry standpoint, SMBs (Small and Medium businesses) are expected to be impacted the most. Empirical evidences indicate that SMBs are more constrained in terms of financial strength and hence are most impacted at times of recession. The situation gets even worse for SMBs supplying to OEMs where they minimal pricing control and bargaining power except a predictable order book in good times. 

Forthcoming increase in diesel and petrol prices are surely going to impact this segment of economy. But what are options left with the managers of Indian economy. Let me think and revert. :) 

Idea and Radia..

A. Telecom Service providers

1. Is new logo of Airtel is aimed at re-positioning the brand in wake of launch of 3G services in India? Was it really required when its not very different from a combo of Videocon's and Vodafone's except catchy tune that is a ring tone for many of us? A better spend of shareholders' money would have been to extend a better price on 3G services. A majority of Indians may not know what 3G is except a crude reference to 2G scam. Or is it a deliberate attempt to keep it clear of price war this time in wake of falling ARPU (Average Revenue Per User)? TRAI are you there?
   
2. Idea till a few years back was not as aggressive as Airtel, Vodafone or Reliance but since then has successfully re-positioned itself uniquely from others. Its campaign 'an idea can change your life' is far more commonsensical and relates easily to desi theme of India. 'Zu Zu' in my personal opinion falls far behind.
   
3. Idea has let mobile phone usage mature in India and now carefully eating into market share of others. Idea was never in race for adding more subscribers. Vodafone, Airtel and Reliance tried fighting out to be leaders earlier with Reliance dropping-off some three years back. Today, while Vodafone and Airtel and planning to go aggressive for 3G services, Idea is running a campaign promoting 'Mobile No portability'. A smart move to win back more subscribers today at a much lesser cost. A potential business case study for management students on how despite being a laggard one can be a winner. GOOD IDEA!

B. Is Journalism in India biased?

1. While a majority of Indians are surprised at journalism's role in wake of Radia tape leaks, for me its an accidental disclosure of a well kept secret till date.
2. Some of the major media houses in India have been running private equity division whereby any corporate can agree to  part with a small equity stake in company in return for a campaign being run by the media house to promote your products/services. Its a win-win situation for these media houses. Money paid out to buy equity stake is received back instantaneously towards advertising and marketing. Capital gains from sale of equity stake in 3-5 years time is also not ruled out.
3. Why do we not scrutinize the activities of PR companies in India as well? They are indirectly doing what Radia would have done. Imagine this- PR representatives reaching out to media houses, inviting the editors and writers to an evening and as human bias sets within a few, coupled with motivation (in kind), we end-up reading/hearing about some of these companies. Though not all clients using PR are bad or false but we can of course recall some instances in past where reality was quite different from what was read or heard.
4. Media writing about this has just forgotten a reference to Peepli Live- a recent movie produced by Aamir Khan. Public has a short memory and a herd mentality.

NDNC- Unexpected calls are good at times

Without even questioning if current NDNC (National Do Not Call) is effective or not. I know my mobile no. has been sold to almost all major real estate brokers in Delhi, insurance companies, banks. While real estate brokers are stopping at just messaging 5-7 times in a day for a hot property for sale, banks and insurance companies give a call hoping that their prey gives in this time. They are like predators in today's capitalist society where a man is alone to manage and live through his earnings.

But at times unexpected calls can be good. Attending to a call with patience may through up an opportunity to earn more, own up a titanium (life-time free) credit card, personal loan just when you plan to attend a wedding in family or buy a life insurance policy that may have been ignored till date. 

IRDA allowing life insurance companies to promote (not sell) their policies using telemarketing is commendable especially in our country where insurance penetration is poor and ignored till the time the need for it is felt. "You may not get to buy an insurance cover when you need it. Its best bought when you have no need for it."- So true. 

The initiative from TRAI to have all telemarketing calls with phone nos starting from "70" is a good attempt where the control is more with the subscriber. 

Do not blame MFIs

Over the last month or so there has been huge debate around how and to what extent Micro finance institutions (MFIs) in India be regulated. Quite surprising to note that despite having SEBI and RBI as active watchdogs of Indian economy, we are debating on issue of regulation which otherwise should have been like a breath within a living being.

Criticizing MFIs for charging higher interest rate needs to be scrutinized from the perspective of cost of servicing such a credit- which has no collateral, is small in ticket size, lent to borrowers with no credit history and in most cases the first charge on assets is hypothetical. MFIs need to hire enough manpower to service the loans and ensure collections.

Note this- Manpower cost as a percent of revenue is 24-28% for MFIs compared to 12-15% for public sector banks and 5-8% for private Indian banks.

I am silent on lending practices and NIM of 2 X approx. compared to traditional banks.

A Case for Contract Sales Outsourcing Companies

Will you consider outsourcing sales function of your organization? If yes, what will prompt you for such a decision? Do such service providers exist? Premised on the principle of core competence, contract sales organizations (CSOs) take on the onus of managing your sales process and help you achieve your sales objectives while you may focus on your core strengths.

Consider the case of a start-up company in software application space intending to sell its product on SAS model. One of the key determinants of success for such a company is its ability to sell effectively and efficiently. Should a start-up consider outsourcing the sales process?

Digging deep into what constitutes a sales process, three key elements- Resourcing, Distribution and Execution, help decide what to outsource and what is to be managed within. 

‘Resourcing’ pertains to hiring right sales personnel, their payroll management, attrition management and career development. ‘Distribution’ details distribution model, its length, distribution hierarchy and reward structure. ‘Execution’ is deployment of resources to task of distribution and sales management. No matter how good or effective is the distribution channel, a sustained relationship with members of distribution channel including customers is critical. 

Usually companies are seen (atleast a majority of them in India) outsourcing only ‘Resourcing’ to Professional Employer Organizations (PEOs) or staffing companies. While hiring, payroll and statutory compliance is PEOs’ responsibility, internal sales team take on the onus of driving the outsourced resources to pre-defined sales objectives. PEOs end-up charging for such services anywhere between 5-8% of the total salary cost. 

One of the key motivations to outsource ‘Resourcing’ to PEOs is cost optimization without losing control on quality of personnel and their productivity. Hence, outsourced resources operate as extended arms of the internal sales team. Companies in India are known to outsource its IT functions, logistics to an extent, payroll management, customer service, marketing and PR activities. 


A 100% outsourcing of the complete sales process is what I still need to come across. What would stop companies to do consider outsourcing? Do we have vertical specialist CSOs to whom a core function like sales can be outsourced to?

Why is high-growth phase of Indian economy short lived?

Ashima Goyal's article on Dyamics of Inflation and Output provides an good insight into how inflation and growth are related and what impacts them. I agree intuitively with the logic that inflation in India is supply determined while output is closely correlated to demand.

Increase in crude oil prices or monsoon failures in India, all have lead to increase in prices of products for consumers. Inflation starts to increase and Index of Industrial Production (IIP) shows a decline. At that instance RBI steps in to actively manage inflation rather than worry about fall in industrial growth. This is where political economy seems to dominate policy making rather than pure economics.

I believe something in policy-making goes wrong at times of high-growth. Else why is GDP growth not sustainable at or above 9%? Within 6 months of a high-growth phase, coupled with two or more instances of increase  in interest rates by RBI, IIP begins to fall.Uncertainty with regards to monsoon adds to the volatility further.

Answers may lie in understanding the transmission of monetary policy, premised on existence of bank lending channel.

Firm-level financial data sources

Two major sources of firm-level financial data for firms in India, atleast the ones that I am aware of are: Prowess from CMIE and Captialine from publishers of Captial markets magazine.

In terms of usability, Prowess scores ahead of Capitaline, however, my feedback may be biased since I have not used Captialine database since 2003-04.

Where can research students access these databases? For full time students at universities (not sure about Deemed universities) and autonomous institutes like IIMs, IITs etc. its easily accessible as most of these institutes have subscribed to either of the two or both, in most cases.

For part-time or offsite students, despite being enrolled with a university/institute (that has subscribed to the databases), access is a challenge since remote access is not permitted.

Options left are either pay huge sum for subscription to these databases or approach universities'/institutes' librarians requesting access to these databases. While most of them say No, some may permit you with a nominal security deposit and user fee.

Are there any other sources from where we can get firm-level data for Indian firms?

Interesting Readings

How will you measure your life by Clayton M. Christensen

Vijay Govindrajan on breakthrough innovation. Before reading this I believed that all players except a few in the Indian mobile market were more of China's bad gifts to Indians and such players are not sustainable in the long run. Now, I look forward to IPO of Micromax. Very rightly put "Nothing like Anything"