Wednesday, October 31, 2012

WORKER SAFETY: COAL MINES

The shocking Chinese coal mines

China’s fatality rate per million tonnes of coal production was reported half a decade back to be 3,824. Compare this to the 0.1 figure in the US and even Australia, top coal manufacturers.

In 2006, Premier Wen Jiabao made commitments to improve the safety standards. Eventually, in the same year, he passed an order to close down any coal mine with an annual output of less than 90,000 tonnes. Shanxi’s coal mines still continue haphazardly. This year, the new Shanxi governor commissioned that by 2011, the number of coal mines will be reduced by 1500 (to 1000) and by 2015 to 800. The claim is that any shaft with an annual output of less than 300,000 tonnes will be closed and taken over by the government. Are the Chinese true to their word? Well, the coal dependent Shanxi’s economy shrank by 4.4% in the first half of the current year compared to the same period last year (and it is the only province in China to have experienced that). One hopes other provinces are next in line...



 
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Tuesday, October 30, 2012

Same family, same fate?

Both public and private banks are facing a similar predicament today – the lying mirror! manish k. pandey discusses the dangers ahead, and how strong numbers during the past quarter were simply, just numbers...

There’s an old nursery rhyme – the wise man built his house upon a rock, while the foolish man built his house upon sand... and one house came tumbling down – which one? If Indian banks could answer even this ragamuffin of a question correctly, one suspects they wouldn’t have been blinded by the illusory numbers that are plumped by them as their quarterly results. Indian banks still haven’t realised the difference between reality and reverie. This commentary is a treatise on how Indian banks are living a most dangerous path by believing that the ‘good’ financial results of the last quarter were because of their strategies... they definitely were not!

No doubt, banks, both private and public sector, reported strong earnings growth ranging between 20-50% during the first quarter of FY2010. But when we analysed the earnings breakup, we saw that the meat of these earnings came mostly from one-off trading profits (which was nearly 30-60% of the total profit before tax) and not from their core net interest margins (NIMs). In truth, the NIMs were lower than even those expected. A CARE report mentions, “Higher cost of funds and lower lending rates brought down the NIMs of the top 12 banks (including State Bank of India, Bank of Baroda, Bank of India, Canara Bank, Axis Bank, HDFC Bank, ICICI Bank, IDBI Bank, Central Bank of India, Punjab National Bank, Union Bank of India and Syndicate Bank, which cover 61% of all credits in India) in the April-June quarter due to a subdued growth in the net interest income (NII).” It may sound surprising, but the truth is that the NII comprised less than 10% of the total income reported by a majority of banks. Raison d’être: The unprecedented surge in bank deposits coupled with a reluctance in issuing fresh loans (due to the threat of rising defaults playing in the bankers’ heads). This certainly has led to a problem of ‘plenty’ for many banks that have made a record by pooling large sums of monies with the Reserve Bank of India (RBI) under reverse repo.


Source : IIPM Editorial, 2012.

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Monday, October 29, 2012

Our ‘copy’right!

WTO finally pulls up errant China

China has had so many issues with patents that it could actually patent its expertise on restricting intellectual property and on giving nightmares to copyright owners! The dragon has lost yet another trade battle with the US in the World Trade Organisation in August 2009 – it’s third loss to the US since last year.

The gilded cage that China has created by restricting imports of DVDs, music, books, software is described by the panel as discriminatory and not in line with the policies of WTO. In 2007, 11.7 million Americans were employed in these copyright industries and foreign sales totalled $126 billion in 2007 – thus, the damage done to American businesses is significant. The international theft of all kinds of intellectual property has resulted in the loss of 750,000 American jobs. And because of its sheer size and lousy copyright laws, China has long been the focus of American and global concern.


Source : IIPM Editorial, 2012.

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US: PRIVATE SECURITY FIRMS

Where are the PSC regulations?

Although Erik Prince resigned as Blackwater’s CEO in March 2009, he remains the Chairman and sole owner. The company has received millions of dollars in government contracts and despite Iraqi government’s protests, the US State Department – disregarding various ongoing investigations by their own departments against the firm – renewed Blackwater’s contract in 2008 (the Iraqi government refused the renewal).

The problem goes deeper. In UK, around 11,000 non-EU nationals acting as quasi-PSCs are guarding sensitive sites. Recently, Afghan authorities had shut down two private security companies (as they were charged under murder and robbery). Marouane Bourannane, the security guard who protected Gordon Brown at the Labour Party conference, was held travelling on a fake French passport after being actually ‘vetted’ by his security firm. We wonder, why in heavens aren’t nations passing structured regulations on the PSC industry if it’s now not just a question about guarding people, but of guarding nations and their leaders?


Source : IIPM Editorial, 2012.

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Saturday, October 27, 2012

“Marketing was critical...”

UDAY BALDOTA, VP - INVESTOR RELATIONS, SUN PHARMA

B&E: The pharma industry was hit badly during the slowdown. Sun seemed to have escaped. What was prescribed strategically?

Uday Baldota (UB): We created sustainable revenues streams, with greater differentiation and speed to market. We also focused on cost leadership through vertical integration. There was also a focus on optimising operational costs and making acquisitions which yielded high ROI… Marketing was critical too!

B&E: But recession always hits profit margins...

UB: Surprisingly, our margins have actually gone up from 70% in 2005-06 to 80% in 2008-09. So even during recession, our margins have not been affected. This simply means that focus on costs has remained a top priority for us even in good times.


Source : IIPM Editorial, 2012.

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The doctor checks in at #44!

low-priced buyouts, cost control & ensuring sustainable revenues, did the trick for sun pharma. what next? STEVEN PHILIP WARNER answers…

At a time when the Indian pharmaceutical sector, once considered immune to downturns, lies battered, Sun Pharma, during FY2008-09, grew its topline by a remarkable 27.3% y-o-y to clock Rs.42.72 billion, and its bottomlines rose by 22.2% y-o-y to touch Rs.18.17 billion. All this catapulted this pharma giant to the 44th spot on the 2009 B&E Power 100 List, making it the only pharma name to feature in the rankings.

Uday Baldota, VP – Investor Relations, Sun Pharma, tells us, “We created sustainable revenues streams, with greater speed to market. A focus on cost leadership and making acquisitions which yielded high ROI proved to be the right strategies…” Although the strategic combo he gives seems straight out of the consultant’s rule book, critics claim the fact is that Sun Pharma has often appeared to be making seat-of-the-pants decisions in the most critical area of inorganic growth, namely M&As – over the past 14 years, Sun has acquired 14 distressed assets. But there is another side to the story as many of these buyouts have come at “low prices” – as Uday defends – therefore renovating them into profit-churning assets proved less challenging. And if fortune has to favour the brave – at a time when other Indian generic giants are facing the heat and are selling-off their crown jewels – Sun’s acquisitions have actually started bearing fruits, key elements powering its financial vehicle even during a downturn!

At the same time, Sun has always been open to diversifications into the right business lanes. When it laid hands on Dadha Pharma & Milmet Labs, it entered the oncological & opthalmological spaces respectively. And if its $454 million Taro deal comes through (“The deal is still on, with some court decisions awaited,” – Uday), it will get an entry into the dermatological market. Thanks to those cheap buyouts, it’s 2009 now, and Sun’s gross profit margins, which for FY2008-09 stood at an extremely high of 79.9%, have never ever looked better!


Source : IIPM Editorial, 2012.

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Thursday, October 25, 2012

SIXTEEN YEARS AFTER TAKING ‘THUMS UP’, THEY WANT INDIA

“According to the latest data compiled by A C Neilsen. Thums Up, an Indian brand that was sold to Coca-Cola (in 1993), retains the top slot of the most selling carbonated drink in India: AC Nilesen study, April, 2009.”

When they re-entered India in 1993, the challenges were very different. They had to build the market from scratch, which was dominated at that time by a number of local brands. Pepsi had entered somewhat earlier in 1989 and Lehar Pepsi had started making some waves. Coca Cola’s ingenuity at that time was to hit the home run in one go, when they acquired Parle’s brands, Thums Up, Gold Spot and Limca for $40 million. It is said that Coca Cola ultimately wanted to kill Thums Up but failed miserably. But strategically, Thums Up proved to be an excellent brand for them. It still remains the soft drink of choice in the Indian market. Besides, it also helped them launch a flank attack against Pepsi. “Thums Up was added to Coca-Cola portfolio in 1993. During this period, it moved towards a more individualistic masculine positioning in ‘I want my Thunder’. In 2002, Akshay Kumar was roped in as the brand ambassador and the brand continued to strengthen its position as a Male Iconic Brand through consistent positioning,” explains Kashmira Chadha, Director, Marketing, Coca-Cola India to B&E.

It has been a virtual duopoly in the Indian market, as both struggled to go one up on sponsorships, promotions, celebrity endorsements, distribution reach, product adaptations, et al. People would remember many instances – like the Nothing Official About It campaign by Pepsi (1996 Cricket World Cup), or more recently, Coca Cola sponsoring the Delhi Dare Devils and Kolkata Knight Riders teams, which got Pepsi in a tizzy (as team players Virender Sehwag & Ishant Sharma are Pepsi brand ambassadors). One of the interesting ploys on the product front was the Rs.5 Coca Cola bottle for rural areas. The strategy was clicking well, but Coca Cola ultimately withdrew it due to the hit it was taking on margins. But Coca Cola has turned corners after years of struggle (it is now profitable in India). The company recorded a growth of 29% in India for the quarter ended June 2009. Muhtar Kent, Chairman & CEO, Coca Cola, admits “Our investments in key growth markets contributed to the good performance in China, Mexico, India and Brazil (despite tough global economic conditions).


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A drink in time, saves nine...

“According to the latest data compiled by A C Neilsen. Thums Up, an Indian brand that was sold to Coca-Cola (in 1993), retains the top slot of the most selling carbonated drink in India: AC Nilesen study, April, 2009.”

When it comes to being faced with an overdose of cultural conundrums, Coca Cola India would certainly qualify. From Plachimada in Kerala to Sunita Narain (CSE) to Swami Ramdev; the company has been through quite a bit. Being perceived as the ‘big MNC making mountains of moolah’, a company like Coca Cola became a relatively easy target for publicity seekers. Any other entity would have crumbled to the tee. Especially with as ruthless a competitor as Pepsi. But many Indians forgot that perhaps Coca Cola wrote the rulebook on retail marketing (If you’ve not heard about the IGA Coca-Cola Institute, you’re out of business), and that Coca Cola was never about promoting the so-called ‘yankee’ culture, but about their understanding of what glocalisation really mean. If their Thums Up purchase was a huge evidence of it, then their continuing to sell Vanilla Coke in Gujarat, Jamshedpur, Kolkata, Mumbai, Delhi and Hyderabad (and double thoughts to sell Thums Up in Delhi!!!) a further shot from the hip. The company in fact went by the rote and launched their 5-Ps model in 2007 – People, Product, Planet, Portfolio & Performance. And to ease the spring beaver in overeager Citizen Kanes, Coca Cola has also launched a series of ‘good corporate citizen’ programs; for instance, the company launched a fleet of 85 CNG trucks in Delhi for the green cause. As per Atul Singh, President & CEO, Coca-Cola India, “It is prudent that all stakeholders join hands to tackle complex issues like climate change and availability of freshwater. At Coca-Cola India, we have joined hands with the government, NGOs and local community...”


Source : IIPM Editorial, 2012.

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Tuesday, October 23, 2012

RELATION: IRAN-SAUDI ARABIA

Reasons behind Iran-Saudi rivalry

Iran targeted Saudi Arabia and accused it of being an American proxy while Saudi in turn blamed Iran for attempting to destabilise it by infiltrating revolutionary mindsets. Relations worsened during the Iran-Iraq war in 1980 as Saudi Arabia sided with Iraq in the war.

Though there was improvement in their relationship later on (one: as the oil price fell down to $10 in 1986, both economies suffered, and misery loves...; two: common enemy Iraq invaded Kuwait, and then the Persian Gulf War took place in 1991), civilities remained generally ambiguous because of many reasons. Firstly, the sectarian conflict between Shias and Sunnis added to the irritant factor between the two nations as Iran remains Shia dominated and Saudi Arabia Sunni dominated (an encouraging fact for Obama’s advisors). Secondly, Iran, as the second largest oil producer in OPEC, regularly and deliberately produces more oil than allowed in its OPEC quota, leading to worsening competition with the world’s largest oil producer, namely Saudi Arabia. Thirdly, and ironically, Saudi Arabia is non-democratic and clearly pro-America; Iran is democratic and clearly anti-America. How can Saudi Arabia rectify this situation from here on? Uh, why would they want to?!


Source : IIPM Editorial, 2012.

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Monday, October 22, 2012

PROFILE: MEIRA KUMAR

Meira Kumar’s elevation as Speaker is the Congress’s first major offensive to retake the Dalit vote.

With her selection, many birds have been killed by one stone, no one more important than Mayawati. It has posed a direct challenge to Uttar Pradesh’s presiding deity and her brand of Dalit politics. Mayawati has left no occasion to challenge Sonia, at times quite personally: this is the Congress president’s riposte.

Last year, battle lines were drawn between the two when `Behan’ Mayawati had denied Sonia the permission to hold a rally in Rae Bareli. She cited a flimsy violation of procedure. Clearly to stop Meira Kumar from growing. In the run up to the trust vote on the Indo-US nuclear deal, Mayawati had emerged as leader of the oust-Congress campaign, only later to be thwarted comprehensively.

Sonia’s chose of Meira is natural. The new Speaker has in the past bested known Dalit stalwarts like Ram Vilas Paswan and an emerging Mayawati from Bijnor in UP, back in the 1980s. Meira won Sasaram, Jagjivan Ram’s old constituency in Bihar with a thumping majority in 2004 and has retained her seat in 2009. That counts for a lot. So clearly, even Paswan is on the hit list.

With such a distinguished lineage – and now a political heritage - it is surprising that Meira Kumar has been missing from the Congress ranks. This former diplomat has what it takes to turn around Congress’s Dalit fortunes. The first salvo in that direction has been fired.


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Saturday, October 20, 2012

Will Mukesh Have the Last laugh in 2010?

It’s slated to be the largest non-pharma deal this year (till date), if successful. But the Bharti-MTN deal is much more than that, for it can potentially be a major game changer in corporate India’s most high profile sibling rivalry – that of the Ambani brothers

We still remember the blistering summer of mid-June, 2005 in Mumbai, when this magazine was launched in a glittering function at the Taj. Virtually all the guests were gracious enough to have a few words of praise for Business & Economy. But once the polite conversation got over with, it was back to the BIGGEST story of those days-the public spat and the looming split between Mukesh and Anil Ambani. There were whispers about how a battle over family crown jewels between the two had been transformed into a deeply bitter and rancorous personal feud that had ostensibly dragged even close lieutenants and spouses into the quagmire. Mumbai denizens were wondering which brother had better access to the corridors of power in Delhi. There were apocryphal tales about how the head honcho of ICICI Bank K. V. Kamath was desperately working out a deal whereby at least a public façade of an amicable split would be maintained. South Mumbai residents talked in awe of how the matriarch Kokilaben was holding all night counselling sessions at Sea Wind, the multi-storied Ambani residence in Colaba. Even as we talked a little and gossiped a lot more, mobile phones started twittering with calls and text messages announcing a final and formal split between the two. We knew what the cover feature of the second issue of Business & Economy would be.

Beyond the headlines, the real story was the gut wrenching emotions and angst that haunted Mukesh Ambani when he had to part with his brainchild, his passion and his personal tribute to his father – the late Dhirubhai Ambani. That was Reliance Infocom. Though these things can never be accurately verified, people close to the split swear that Mukesh swore that he will reclaim his dream and passion sometime in the future. Meanwhile, within weeks of the split, every company and employee of the companies that came under the control of Mukesh abandoned their Reliance phone handsets and connections.

Guess who benefited from this public demonstration of the bitter spat and subsequent split? Sunil Bharti Mittal and Airtel because Mukesh and the thousands and thousands of his employees switched over to Airtel connections!


Source : IIPM Editorial, 2012.

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Friday, October 19, 2012

Crunched to death!

The financial crisis brought the world to its feet!

The foundation stone of the current financial crisis was definitely laid during the prior boom period, which lasted between 1996 to early 2005. Financial institutions like Fannie Mae, Freddie Mac, Lehman Brothers, Bear Stearns, Merrill Lynch et al, were enthusiastic enough to run after the lucrative sub-prime market and create an artificial buying power for borrowers. Giving no importance to financial due diligence, the lenders were quick to introduce new, riskier products with insufficient asset value as collateral. As a matter of fact, the total amount of mortgage-backed security issued tripled to $7.3 trillion and the securitised share of sub-prime mortgages increased from 54% to 75%; all thanks to the booming ‘credit derivative market’ which made risk transfer easy. The low interest rate further encouraged Americans to opt for housing loans or mortgages. But when home prices in the US began to decline in 2006-07, mortgage delinquencies rose and securities backed by sub-prime mortgages (which were widely-held by financial institutions), lost most of their value. Later on, when this housing bubble busted, three out of the five largest investment banks (once the cynosures of Wall Street) of US, failed, triggering instability in the global financial system. This resulted in a decline of capital for many banks, thus creating a credit crunch.


Source : IIPM Editorial, 2012.

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Thursday, October 18, 2012

Plagued by largesse

Mill owners lacked the ability to handle workers

Issues with labour in India have grabbed tremendous attention both in the media and in the film industry. Bollywood movies in the 1970s often portrayed the businessmen as the evil men whose only goal in life seemed to be to extract every pound of flesh of workers and maximise their personal profits at any cost.

Acrimony between management and unions goes back to much earlier than the 1970s though. A case during the British Raj was particularly memorable, and a bit amusing too. Interestingly, even this had much to do with the First World War. Buoyed by the rise in demand, the Ahmedabad mill owners (who had formed an association named The Ahmedabad Millowners Association; source: The Oxford History of Indian Business) were eager to meet that demand in anyway possible. Suddenly, plague struck the city in 1917 and the mill owners saw their ambitions going bust, since a lot of frightened workers ran away to the villages. To keep these workers in, the mill owners took a unique step; they provided the workers with a substantial plague bonus at this time. The plague went packing by the early months of 1918, and these mill owners thought that logically, the plague bonus should go too. However, the workers did not find that logic worth digesting at all and protested vehemently against the removal of the bonus. The situation actually became more alarming for the mill owners when Mahatma Gandhi got into the fray on the side of the workers. In fact the Mahatma went on strike for several weeks with the workers till the mill owners finally had to relent and go to a board of arbitrators to settle the issue.


Source : IIPM Editorial, 2012.

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Lehman, take a bow!

Indian banks at that time were hardly bankable

Once you have gone through this story of banking in colonial India, you will wonder if banking regulation in India is really as unwanted as it is touted to be. During a short period of 5 years from 1913 to 1918, as many as 87 banks (like People’s Bank, Indian Specie Bank, Credit Bank of India, Peshawar Bank, Hindustan Bank, Marwar Bank, et al) with a total paid up capital of nearly Rs.20 million failed. Prof. Amiya K. Bagchi, Former Director, Institute of Development Studies, in his book Private Investment in India 1900-1939, cites “the extremely small ratio maintained by Indian banks between cash balances and deposits” as the main cause.

In the absence of a central regulator, the directors and offices of these banks often indulged in gross and fraudulent misuse of funds to feather their own nests. Consider the case of Multan (now in Pakistan) based Peshawar Bank – bogus entries on the credit side had been made to show a profit when there was actually a loss, and dividends were paid out of capital. Hindustan Bank’s MD had advanced money to his own concern and friends without adequate safeguards of security! The promoters (following the footsteps of Indian sahukars) opted for reckless expansion without any understanding of banking theory or practice and fixed their own deposit and lending rates and in turn dug their own graves.


Source : IIPM Editorial, 2012.

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Wednesday, October 17, 2012

Man proposes, God refuses...

Protectionist policies will save your companies, but only for so long as they don't beg for euthanasia!

The only 'right' turn in international trade today is, the 'American turn'; all others will fetch you a 'wrong-turn' ticket! Allow us to sound a tad out of proverbial tune here, but isn't that the truth? When the US government wanted the US economy to move from better to best, it allowed everything from offshoring to H1B visas, and God allowed it. Then, when it was time to save the world (and America of course), it is putting in place all sorts of protective policies, one of which was the American Recovery and Reinvestment Act of 2009 on February 17, 2009, a massive $787 billion stimulus package; and God is allowing it! So how is this a vile definition of 'protectionism'? Section 1110 of the Act reads: “None of the funds appropriated or otherwise made available by this act may be used for a project... unless all of the iron and steel used in the project is produced in the United States”. Clearly, this "buy American" clause for worse, will firstly erode the competitive edge of the so-called American MNCs, and secondly, it will only encourage more such 'protectionist policies' from other nations in retaliation! There would be tall import trade barriers set by even emerging economies. Finally, lack of growth in local consumption, would force the US government to 'liberalise' its policies. But, the emerging economies would maintain the roadblocks; for isn't 'ego' a crucial 'international trade' trait?

Yes, our predictions sound far too pessimistic, but allow us to justify. The third largest economy in the world – China, has already taken the 'American turn'! And this seems justified, for why should China behave like a Third World nation and stand challenged by US hegemony? So there it is. On one hand, ensuring that an American MNC like Coca-Cola stands no chance in growing big on Chinese lands and on the other voicing out loud the purpose behind acquiring a First World MNC – Rio Tinto.
 

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Tuesday, October 16, 2012

Fence sitting groups

The UPA gave a great lesson in coalition politics – form GoMs whenever allies question you. But these groups achieved little, says Pramod KUMAR

Last week, when External Affairs Minister Pranab Mukherjee was asked as to what was the final report of the Group of Ministers (GoM), which was formed to decide upon the creation of smaller states like Telengana. His answer was that the GoM was abolished the day TRS (Telengana Rashtriya Samiti) separated from UPA.

Well, this is not the first instance where a GoM has either been dissolved after some time or has failed to come up with a solution to a problem. In fact, UPA has mastered the art of forming GoMs, which always follow the ‘go-slow’ strategy and finally turn out to be redundant. Till now, 32 GoMs have been formed under the UPA government under all heads including communication, SEZs, social security, et al, but almost all of them are still hunting for an amicable solution to the problem entrusted on them. “Whether it be the issue of inflation or social security, the government has proved to be inefficient on every front. The reason is that the government is not clear on its policies and as such, it has followed the go-slow strategy. Whenever the NDA or the Left raised a question on any of their policies, 10 Janpath used to send a signal and a new GoM was formed and Pranab Mukherjee was made the head,” former Finance Minister Yashwant Sinha tells B&E.

So the question is what was the necessity to form so many GoMs? The reason is clear, UPA was functioning on the support of the Left and was getting constant questions from them on the policies, particularly the ones related to the economy.


Source : IIPM Editorial, 2012.

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The growing financial mess

Indian policymakers have miserably failed to arrest the growing financial mess, feels Manish K. Pandey

Shouldn’t policymakers keep in mind the cost-benefit impact of putting yet another stimulus in place vis-à-vis one more round of rate cut. Moreover, the need of the hour is to vie time for these stimulus pills to run through the system, rather than just shooting yet another bullet without aiming. But considering the mindless deficit spending by the government, where lies the respite for the ailing Indian economy? “Unlike in the OECD countries, where the stimulus strategy will have to be led by fiscal policy; in India, monetary policy will have to lead the revival,” answers Dr. M. Govinda Rao, Director, NIPFP. However, the policymakers seem to have lost on that front too. Albeit in a bid to boost money supply and ease interest rates, the RBI has sharply reduced the overnight lending rate to 5% from 9% since September 2008, apart from cutting down on other key policy rates; but then almost all of them have been untimely. In fact, IMF, too, has criticised RBI’s tendency to adjust interest rates between scheduled policy review meetings.

So, while there is a clear need and justification for fiscal expansion to counter the current downturn, what India really needs is to purse fiscal consolidation. Moreover, public debt needs to be brought down and fiscal discipline needs to be maintained to sustain growth, else the mounting pressure on interest rates will further restrict the availability of private credit and investment. Certainly the policymakers in the forthcoming government have a challenge in terms of striking a balance between financial stability and sustaining the growth momentum. But will they succeed is still a question! All thanks to the forthcoming ‘general’ elections for ‘not-so-general’ promises being made to arrest the fiscal turmoil. But then one shouldn’t forget, the only place where optimism flourishes most is nowhere but a lunatic asylum!


Source : IIPM Editorial, 2012.

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