IIPM BBA College: April 2013

Tuesday, April 30, 2013

The war for ecosystems

As Apple continues to dominate the tablet market, other players are jumping in to make the most of this episode of device convergence. Despite popular belief, this time too, the war is not for dominance in the hardware business. The one who can integrate ecosystem (hardware, software and content) successfully will have the last laugh

At 660F, San Francisco woke up to a cool morning on June 27, 2012. Home to the most awaited tech conferences around the world, the city has witnessed some of the most significant announcements that have changed the world of computing. That day was important for tablet lovers and online advertisers alike. Google, the leader in online search and display advertising business [96.4% of its revenues came from this source in FY2011] had stepped into the room of tablet sellers. The company announced the launch of the Android OS-based Nexus 7 tablet [manufactured by ASUS priced at $199] during its annual developers conference. Just a week back, Microsoft had joined the race with the Surface tablet. The word was out. With Apple sitting pretty with a 66.5% market share (CY2011 as per Gartner) – with the new iPad launched in March 2012 helping Apple deliver yet another record quarter in Q1, 2012 – and Amazon on a new high already with its low-priced Kindle Fire (with a share of 14% in 2011), the war to rule the tablet zone had got tougher.

Study the numbers, and you realise why Google’s interest in the tablet market is easy to understand. As per IDC, 17.1 million tablets were shipped during Q1, 2012 – a 120% growth y-o-y. Another encouraging forecast exists. Gartner claims that in CY2012, the count of tablets that will fly off the shelves will hit the 118.88 million mark – double as compared to last year (98.08% more to be precise).

Tablets are also growing attractive in the enterprise space. With this segment predicted to account for 35% of total tablet sales around the world by 2015 and with many workplaces expected to implement a BYOD (Bring Your Own Device) policy, the search giant sure found a good reason to invest in hardware. But optimism surrounding the green bot isn’t the only reason why Google got drawn into this game.

What was perhaps a bigger reason is the slower than expected rise of Android-based tablets. Last year, these tablets accounted for a 28.8% share of the market. This year, their portion is only expected to swell marginally to 31.1%. The fact that shipment of Android tablets, after having risen from the sub-3% mark to 44.6% in a span of just fifteen months (Q4, 2011) fell sharply during the course of a quarter to 32.0% (Q1, 2012; as per IDC) is bad news for Android [and a good one for the iPad (whose share rose 13.3% q-o-q to 68.0% in Q1, 2012)]. The shocking revelation that the Kindle Fire (which accounts for 54.4% of all Android OS-based tablet sales; as per comScore between December 2011 to February 2012) lost 12.8% market share in a span of a quarter to account for just 4% of global tablet sales in the first quarter this year meant Google – despite its disaster-laden history with Google-branded hardware – had to jump into the ring. Sounds desperate, but throwing in the towel – luckily or not – wasn’t an option. Not with Android. Not with tablets.

Onlookers claim that the search giant wants a big share of the tablet market. Some say it is gunning for Apple. Whatever it be, stakes in this fight has just gone higher.

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Source : IIPM Editorial, 2013.
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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Saturday, April 27, 2013

So far, it just about fits the prescription

In the past couple of years in particular, Indian pharma companies are seeing the fruits of their labour, particularly in the US generics market. However, retaining their competitive edge may not be as simple

For Big Pharma, this is a period of unprecedented difficulty, a time to retrospect on past failures. However, Indian generic firms are bang in the middle of a potential dream run. As a recent Frost & Sullivan report points out, drugs worth around $150 billion are expected to go off patent protection globally. This naturally opens a huge window of opportunities for Indian drug manufacturers. Are they ready?

Profitability figures certainly suggest that some players are moving away from the shadow of a difficult past in the latter part of the previous decade. Sun Pharma, which has got the highest number of drugs in its ANDA (Abbreviated New Drug Application) pipeline, reported revenues of Rs.40.15 billion, a growth of 29.3% yoy. Its net profit stood at Rs.19.27 billion, growing by 39% yoy; and it gained 13 places in the Power 100 list to rank at 41. The US business of Sun Pharma alone grew by nearly 30% in the same period. Cipla’s profit rose by 16% yoy to reach Rs.11.23 billion in FY 2011-12 and it was ranked 65 in the Power 100 (a gain of 12 positions). Dr. Reddy’s Laboratories, which has just entered the BSE-30, also reported a healthy 28% rise in topline in the fiscal to reach Rs.67.39 billion. Its net profit, however, grew by just 2.1% yoy to Rs.9.12 billion, even as it gained two places to be ranked 80 in the B&E Power 100. The company was stung by the poor performance of its generic version of Zyprexa and falling margins in its core business. Contrarily, launches of generic versions of Caudet and Zyprexa have helped Lupin. It managed double digit growth in US. However, its PAT for FY 2011-12 shrank nominally and stood at Rs.8.04 billion owing to high depreciation and interest costs; taking its rank to 86 (a gain by two positions). The BSE Healthcare Index surged by around 5.6% yoy and has outperformed the Sensex by around 14 percentage points.

In 2010 and 2011, companies like Glenmark, Aurobindo and Sun Pharma were able to further consolidate their positions in the US generics market by bagging around 33% of ANDA approvals from the US Food and Drug Administration (FDA). The FDA approved a 2,244 ANDAs between 2007 and 2011, of which Indian companies grabbed final approval for 694.

Considering the intense competition from their BRICS counterparts, the figure holds high significance. During the same period, aggregate tentative approvals by FDA reached 518, out of which Indian companies secured 200 (FDA data).

Also, Indian companies are consistently growing their para IV filings and niche complex chemistry molecules. Most of these segments, especially injectables, inhalers, ophthalmic, oral contraceptives and controlled release products are set to lose patent guard beyond 2012. Moreover, being characterized by complex manufacturing techniques, entailing greater investments in R&D and manufacturing, these segments have higher entry barriers and thereby potential for higher profitability. Also, the percentage of US FDA approvals won by Indian firms has jumped from 27% to 33%. Raghavendra Saha, Senior Advisor, CII asserts, “In the past 15 years, not even a single new molecule has been found. Hence, it isn’t hard to claim that the era of blockbuster drugs has gone and the future belongs to generics.”

However, Indian companies need to manage their litigation processes well, since this led to massive cost escalations in the past, particularly with Ranbaxy Laboratories (incidentally, the Daiichi Sankyo-owned company declared a loss of Rs.30.52 billion for the nine months ending December 2011, as per its most recent report). Dr. Kamal Kumar Sharma, MD, Lupin Ltd. says, “At Lupin, we do not chase any and everything possible. We try to sort out and identify cases where we have a decent chance of winning.”

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Wednesday, April 24, 2013

In knots over family & legal wrangles

The Hiranandani family has been in the news recently more for the wrong reasons than right. A running family feud and other legal travails could well put the skids on the family’s many business ventures, if not settled imminently and amicably.

Family feuds breaking out in well-known business houses are not uncommon. But the ongoing legal run-ins of the Hiranandanis and Mafatlals certainly take the cake, the plate and the trimmings. Often, at the core of the dispute is that hoary old chestnut, property, over which ties of blood and kinship have been known to fray and fall apart. The dispute between Mafatlal scion Atulya Mafatlal and his socialite wife Sheetal before the Bombay High Court and the legal battle between Darshan Hiranandani and his sister Priya Hiranandani-Vandrevala present unedifying examples of the public spectacles that family feuds in business houses commonly degenerate to. Another family drama to have spilled into the public domain in recent times was the rift between the Ambani brothers. The two siblings, with probably higher business stakes up for grabs in the course of their bitter feud than any other warring members of the business tribe in India, did eventually bury the hatchet, which gives rise to the hope that even the Hiranandanis and Mafatlals would prefer to settle for an amicable resolution of their problems rather than slug it out in the courts.

Of course, the Mafatlal case has become juicy fodder for the tabloids. Despite the efforts of the HC-appointed mediator to bring the estranged couple to agree on the contentious issues, media reports suggest that any conciliation in the matter looks improbable and not within easy sight. On the other hand, the tussle between construction magnate Niranjan Hiranandani’s two children – son Darshan and daughter Priya, a chartered accountant based out of London – came out into the open in 2009 after Priya accused her father and brother of violating a non-compete agreement signed among them in 2006. The agreement required that all business transactions to develop and acquire property be undertaken exclusively with each other for the first seven years. The profits were to be shared equally between Priya and the Hiranandanis. Priya claims that her father and brother entered into projects without her knowledge, either independently or with others in the real estate sector, despite signing the agreement to do business exclusively with her.

Does he feel bitter or disappointed at his daughter’s demeanour? “Younger people have high ambitions but little tolerance,” says Hiranandani, speaking to Business & Economy. “They want everything fast... Earlier, senior members of the family controlled affairs; now everyone wants to take their own call.” When asked about the rumours that the realty group started in 1978 by him and his brother Surendra, and known today for its realty projects in and around Mumbai, Chennai, Bangalore, Hyderabad and Dubai, could be headed for a split, he vociferously discounts any such possibility, “It’s natural to have differences between family members. But there is no such possibility of any split happening in the group’s realty business.”

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Saturday, April 20, 2013

Can Japan break the deflation cycle?

With deflation the major drag on growth and the biggest long-run economic threat, pressure was growing on the Bank of Japan to respond. And it did – with yet another round of quantitative easing and by announcing an inflation target of 1%. But then, are these measures enough to bring the Japanese economy back on track?

At a time when major economies across the globe are finding it hard to rein in galloping inflation, the Bank of Japan (BoJ) has stunned the world by announcing its intention to hit a newly established (for the first time ever) near-term inflation target of 1%. Economic growth, currency devaluation, or drag on productivity: what’s the motive?

The reason is simple. To break the deflation cycle and a strong yen, both of which have been choking off Japan’s economic growth over the past 15 years. In fact, the two problems are interconnected. Typically when central banks pump liquidity into markets following recessions, businesses and consumers borrow, growth picks up and eventually inflation rises. This is not the case in Japan, where deeply entrenched deflationary expectations and other factors weigh on loan demand. The combination of deflation in Japan and inflation elsewhere pushes up the purchasing power of the yen relative to other currencies. A strong yen in turn weighs on exports, the main driver of growth in the Japanese economy. And that’s exactly what is happening in the “Land of the Rising Sun”. Japan’s economy shrank for the third time (between October & December 2011) in the last four quarters. The first estimate of Japan’s fourth quarter GDP showed the economy contracted 0.6%, significantly worse than consensus forecast of a 0.3% decline. This is equivalent to a 2.3% fall in GDP on an annualised basis. Further, while Japan’s monthly trade deficit widened to ¥613 billion in January, following December’s ¥569 billion shortfall, yen sits high at ¥80.30 against the dollar.

Sadly, deflation also adds to the real burden of public debt, which is a major problem for Japan. With a public debt figure to GDP ratio hovering around the 200% mark (The Bank of International Settlement projects that even under “a best case scenario” Japan’s debt could zoom past 400% by 2040!), its situation is worse than even the most recent citadel that fell – Greece. Interestingly, all the while the country’s GDP hasn’t moved an inch. Japan’s nominal GDP is almost the same as it was about 15 years ago ($5.58 trillion today as compared to $5.24 trillion in 1995). Unbearable debt amidst close to zero growth in over 15 years puts Japan in an awkward macroeconomic situation!

Thus, to get out of this status quo Japan is once again relying on a technique called quantitative easing (QE). As opposed to flooding the money supply with newly printed currency, the BoJ has announced to pump 10 trillion yen ($130 billion) into the economy through purchases of government bonds by the end of 2012. But while the QE will lift the supply of money, policymakers face a greater challenge in trying to get households and businesses to borrow. So, will the BoJ’s latest move succeed in breaking the deflation cycle?

Previous bouts of quantitative easing and currency intervention did not have a sustained downward impact on the yen, lift inflation, or provide a meaningful boost to the real economy. Agrees Matthew Circosta, the Sydney based Economist at Moody’s Analytics as he tells B&E, “These policies have been rendered useless because of the deflation mind-set embedded in Japanese consumers and businesses.” Excluding the oil-induced inflation spike before the 2008 crisis, core inflation hasn’t reached 1% since 1997.

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Friday, April 19, 2013

The agony & hope for India’s domestic airlines: call it ‘FDI’

B&E analyses the outcome of allowing foreign carriers to invest in India’s domestic airlines. Finally some good news, many presume. The reality is actually quite the opposite.

If North American carriers have set standards of growth over the years, so have airlines in India. Only difference is – for India’s domestic industry, growth has always come in a package of losses. And over the years, despite optimism galore, all we can discuss aloud are the canyons of losses which have been etched into their financial books. Exaggerated? Turn the clock back to 2006, when airlines around the world returned to their profit-making ways after half-a-decade-long patch of drought. Since then (leading up to FY2010), global airlines have recorded profits amounting to $18.70 billion. Of this, North American carriers contributed $5.7 billion. The Indian carriers on the other hand, have been living on a prayer. Despite a 48.83% jump in total passengers carried (in FY2010-11), a 64% increase in the number of operational airports (to 82), and a 158.13% jump in fleet size, their losses have only escalated. During a five year period, when global airlines made billions, India’s domestic carriers lost $5.43 billion.

The carnage on Indian airstrips for years now, has been visible. Woebegone tales of the big three – Air India (AI), Kingfisher (KFA) and Jet Airways (Jet) – requiring urgent cash infusion have become a daily back-fence talk in the aviation circles. [A fast fact: since FY1997-98 the big three have recorded losses and debt to the tune of $3.186 trillion – roughly three times India’s GDP in FY2010.] So have strikes by pilots and other staff, winding up of operational arms to reduce losses, and problems with ATF prices and taxes levied on it by various States. The big domestic airlines got into a mode of unceremonious self-slaughter by trying to outdo each other played against them. The stifling environment did the rest.

So what is the Ministry of Civil Aviation’s (MoCA) last resort to keep the industry afloat, especially the big three? Attract investments by foreign carriers through the FDI route – MoCA suggests the limit should be 24%, while the Department of Industrial Policy and Promotion (DIPP) recommends that it should be anywhere between 26% to 49%. A piece of smile-winning news after long. But will this prove manna to the ailing Indian carriers?

Many suggest that this move could open up the gates for dollars to flood the Indian aviation space. And if ever foreign airlines would require any convincing, it should not be more bothersome than a tiny gastric event in a marathon. Let us not get befuddled. Forecasting the outcome of allowing FDI in an airline industry that is – to say the least – battered, is no easy task. Forget India, this has been true even in a liberal, transparent environment like US. There was much hope that foreign airline participation and their involvement in the strategic decision-making process would make life easy for ailing US carriers when times got tough. It was not to be. Between 1975 and 2010, US carriers lost a total of $273 billion, and 44 filed for bankruptcy. And how many foreign carriers did we see come to the rescue? For the sake of a 25% ownership – zero!

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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

Monday, April 15, 2013

What America really wants from the Middle East

US has its reasons to interfere in political and policy matters in the Middle Eastern countries. Ushering in an era of liberal democracy is not one of them.

Following the death of Libya’s Muammar el-Qaddafi, Libya’s interim government announced the “liberation” of the country. It also declared that a system based on Sharia (Islamic law) – including polygamy – would replace the secular dictatorship that Qaddafi ran for 42 years. Swapping one form of authoritarianism for another seems a cruel letdown after seven months of NATO airstrikes in the name of democracy.

In fact, the Western powers that brought about a regime change in Libya have made little effort to prevent its new rulers from establishing a theocracy. But this is the price that the West willingly pays in exchange for the privilege of choosing the new leadership. Indeed, the cloak of Islam helps to protect the credibility of leaders who might otherwise be seen as foreign puppets. For the same reason, the West has condoned the rulers of the oil sheikhdoms for their longstanding alliance with radical clerics. For example, the decadent House of Saud, backed by the United States, not only practices Wahhabi Islam – the source of modern Islamic fundamentalism – but also exports this fringe form of the faith, gradually snuffing out more liberal Islamic traditions. Yet, when the Saudi Crown Prince died recently, the US stood by silently as the ruling family appointed its most reactionary Islamist as the new heir to the throne.

So intrinsic have the Arab monarchs become to US interests that the Americans have failed to stop these cloistered royals from continuing to fund Muslim extremist groups and Madrasas in other countries. From Africa to South and Southeast Asia, Arab petrodollars have played a key role in fomenting militant Islamic fundamentalism that targets the West, Israel, and India as its enemies. The US interest in maintaining pliant regimes in oil-rich countries trumps all other considerations.

With Western support, the oil monarchies, have been able to ride out the Arab Spring, emerging virtually unscathed. For the US, the sheikhdoms that make up the Gulf Cooperation Council – Saudi Arabia, Kuwait, Bahrain, Qatar, UAE and Oman – are critical for geostrategic reasons as well. After withdrawing its forces from Iraq, US is considering using Kuwait as a new military hub to expand its military presence in the Persian Gulf region and foster a US-led “security architecture,” under which its air and naval patrols would be regionally integrated. NATO-led regime change in Libya – which holds the world’s largest reserves of the light sweet crude oil that American and European refineries prefer – was not really about ushering in an era of liberal democracy. The new Libya faces uncertain times. The only certain element is that its new rulers will remain beholden to those who helped to install them. US Senator John McCain has already announced that the new Libyan rulers are “willing to reimburse us and our allies” for the costs of effecting a regime change. America’s troubling ties with Islamist rulers and groups were cemented in the 1980s, when the Reagan administration used Islam as an ideological tool to spur armed resistance to the Soviet occupation of Afghanistan. In 1985, at a White House ceremony attended by several Afghan mujahideen – the jihadists out of which the Taliban and al-Qaeda evolved – Reagan gestured toward his guests and declared, “These gentlemen are the moral equivalent of America’s Founding Fathers.” Yet the lessons of the anti-Soviet struggle in Afghanistan have already been forgotten, including the need to focus on long-term goals rather than short-term victories. The Obama administration’s current effort to strike a Faustian bargain with the Taliban, for example, ignores America’s own experience of the consequences of following the path of expediency.

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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

Is two-tier eurozone the answer?

The ongoing sovereign debt crisis has revealed major cracks in the foundation of the single currency area. France and Germany feel that one way to consolidate the eurozone and avoid future crisis is to move towards a new club of ‘core’ euro countries, and abandon the rest. But, is it really the solution?
Issue Date - 08/12/2011

The sovereign debt crisis has just claimed two of Europe’s most venerable leaders – George Papandreou, the third member of the Papandreou family to serve as the Greece’s Prime Minister, and Silvio Berlusconi, the famous Bunga Bunga organiser who dominated the Italian political scene for nearly two decades. The reason is simple. Markets have lost faith in policymakers’ ability to do what it takes to carry out serious structural reform, bring down debt, and stimulate growth in their respective countries.

. In fact, this lack of political ability to deal with the escalating debt crisis has not only increased the investors’ nervousness, but has also put a question mark on the future of the eurozone. The truth is that risks of the EU splintering have really mounted, to an extent that the German Chancellor Angela Merkel and the French President Nicolas Sarkozy have already acknowledged at the recent G20 summit (in Cannes) for the first time that they might abandon Greece to its fate, a devastating shift from leaders who had always insisted for the eurozone to remain intact at any price. There is more. Talks are doing the rounds that they are even contemplating a new club of core euro countries – abandoning the rest – that can live within the rules.

No doubt, European policymakers are certainly under tremendous pressure to bring growth back on track without compromising on austerity measures. But then, is it logical to support creation of a two-speed Europe and shun the development of the single currency area which supports heterogeneous nations?

A closer look at the numbers and one can easily understand the real problem. While yields on 10-year government bonds in the eurozone’s third largest economy, Italy, have officially crossed the breaking point of 7% (the highest in the eurozone history and above the level at which the fiscally troubled Greece, Ireland and Portugal were forced to seek bailouts), interest rates remain above 3.6%, 4.51% and 3.58% on French, Spanish and Austrian bonds respectively. This makes the situation really worrisome as credit rating agency Moody’s analysis suggests that borrowing costs even above 6% could endanger the sustainability of public finances. For instance, while in Greece, it took less than a month to seek an international bailout once the yield on 10-year government bonds passed the psychological 7% level, in Ireland, the yields moved from 7% to 9% in about four weeks before the country sought external help after its yields breached that level.

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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

Is there a CEO out there who can really run HP?

Three CEOs in six years and the inability to steady a concrete well set up business – this is what HP, one of the founding companies of Silicon Valley has to show. How can they put the house in order?

What do you do if you happen to be on the Board of a multi-billion dollar Fortune 500 outfit? Whatever it is, it shouldn’t be even remotely close to what the Hewlett-Packard (HP) board has been doing. In the past one decade, HP has perhaps done just two things right – acquiring Compaq and hiring Mark Hurd. The bad part is – it has done a lot more to undo and then outdo whatever has been undone. After kicking out Léo Apotheker from the position of President & CEO (who was just 11 months into the job), the board of HP led by Chairman Ray Lane has appointed Meg Whitman, Former CEO of eBay. No doubt she did a great job with taking the online portal public, but what the board didn’t perhaps consider is that she faltered once the company started growing. Moreover, she was heading a company that was 14 times smaller than HP in terms of revenues. In fact, if we were to go by Whitman’s political performance (she ran for the California Governor’s post and lost despite personally spending $141.5 million on the campaign out of her own pocket), then you can probably expect more boardroom drama and strategic mishaps in the months to come.

A brief study of the the company’s past decade suggests that HP’s failure has been twofold – its choice of CEOs and their respective strategies. But before we move on to how the company can be fixed, let’s see how the these two-fold blunders stack up.

Ever since the departure of Lewis E. Platt as President and CEO in 1999, HP’s talent hunt abilities have not been very encouraging. For instance, its obsession with hiring superstar CEOs from outside has not worked very well for the company. And since Whitman may also face quite a harsh reception, (as expected by industry experts), the HP board may well consider flicking through a gathering pile of academic studies for some help. In August this year, Richard Cazier of Texas Christian University and John McInnis of the University of Texas at Austin presented an unpublished paper at the annual conference of the American Accounting Association. The Professors studied 192 CEOs who had been hired from outside between 1993 and 2005. The paper shows that such CEOs are mostly hired at a premium from companies that have done well in the past. So far so good. Now here comes the catch. The pay premium of these CEOs is negatively correlated with the future performance of the firm that has hired. In other words, the bigger the CEO, the worst he performs in the new job. According to a study commissioned by Hay Group in 2007, around 80% of Fortune’s Most Admired Companies chose internal candidates as CEOs! In fact, Booz Allen’s benchmark 2008 CEO research documents that 80-83% of CEO recruits are insiders! The research further goes on to prove that operationally and statistically, ‘insider CEOs’ outperform ‘outsider CEOs’! Next time, it would be advisable if the HP board could look for a worthy suitor for the top job from a reservoir of 350,000 employees.

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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

A farewell to nuclear arms – will that become a reality?

Mikhail Gorbachev, former President of USSR, writes about how we need to put aside all forms of procrastinations, and work towards a compelling plan for nuclear disarmament.

MOSCOW – Twenty-five years ago this month, I sat across from Ronald Reagan in Reykjavik, Iceland, to negotiate a deal that would have reduced, and could have ultimately eliminated by 2000, the fearsome arsenals of nuclear weapons held by the United States and the Soviet Union. For all our differences, Reagan and I shared the strong conviction that civilised countries should not make such barbaric weapons the linchpin of their security. Even though we failed to achieve our highest aspirations in Reykjavik, the summit was nonetheless, in the words of my former counterpart, “a major turning point in the quest for a safer and secure world.”

The next few years may well determine if our shared dream of ridding the world of nuclear weapons will ever be realised. Critics present nuclear disarmament as unrealistic at best, and a risky utopian dream at worst. They point to the Cold War’s “long peace” as proof that nuclear deterrence is the only means of staving-off a major war.

As someone who has commanded these weapons, I strongly disagree. Nuclear deterrence has always been a hard and brittle guarantor of peace. By easily failing to propose a compelling plan for nuclear disarmament, nations like US, Russia, and the remaining nuclear powers are promoting through inaction a future in which nuclear weapons will inevitably be used. But that catastrophe must be forestalled.

As I, along with George P. Shultz, William J. Perry, Henry A. Kissinger, Sam Nunn, and others, pointed out five years ago, nuclear deterrence becomes less reliable and more risky as the number of nuclear-armed states increases. Barring preemptive war (which has proven counter-productive) or effective sanctions (which have thus far proven insufficient), only sincere steps toward nuclear disarmament can furnish the mutual security needed to forge tough compromises on arms control and nonproliferation matters. The trust and understanding built at Reykjavik paved the way for two historic treaties. The 1987 Intermediate-Range Nuclear Forces (INF) Treaty destroyed the feared quick-strike missiles then threatening Europe’s peace. And, in 1991, the first Strategic Arms Reduction Treaty (START I) cut the bloated US and Soviet nuclear arsenals by 80% over a decade.

But prospects for progress on arms control and non-proliferation are darkening in the absence of a credible push for nuclear disarmament. I learned during those two long days in Reykjavik that disarmament talks could be as constructive as they are arduous. By linking an array of interrelated matters, Reagan and I built the trust and understanding needed to moderate a nuclear-arms race of which we had lost control.

In retrospect, the Cold War’s end heralded the coming of a messier arrangement of global power and persuasion. The nuclear powers should adhere to the requirements of the 1968 Non-Proliferation Treaty and resume “good faith” negotiations for disarmament. This would augment the diplomatic and moral capital available to diplomats as they strive to restrain nuclear proliferation in a world where more countries than ever have the wherewithal to construct a nuclear bomb.

Only a serious program of universal nuclear disarmament can provide the reassurance and the credibility needed to build a global consensus that nuclear deterrence is a dead doctrine. We can no longer afford, politically or financially, the discriminatory nature of the current system of nuclear “haves” and “have-nots.”

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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

Saturday, April 13, 2013

What the downgrade means for the world?

The American ego has been shattered once again. And this time by the global credit rating agency Standard & Poor’s, which has stripped Uncle Sam of the highest rating for the first time in 70 years. So, what does it mean for the rest of the world?

Washington’s latest drama ended with an agreement to raise the federal government’s debt ceiling in exchange for yet-to-be determined cuts in federal spending of up to $2.4 trillion. But a brief wave of relief at the deal quickly faded as Fed data (released a few days later) highlighted the economy’s slow start to the third quarter of 2011, and Standard & Poor’s (S&P) lowered its rating of US sovereign debt (on August 5, 2011) one notch to AA+ from AAA, stripping Uncle Sam of the highest rating for the first time in 70 years.

The fact that the other two rating agencies, Fitch and Moody’s, did not downgrade US debt might take some pressure off its bond market, but then that does not change the reality that the US recovery has lost momentum. This implies that the global impact of the downgrade is bound to be heavy, if not in the near future then certainly in the long run. No doubt, the exact consequences of the downgrade are difficult to predict, but then considering the size of the US economy, its Treasury market, and the dollar’s status as a reserve currency, the cut to Uncle Sam’s credit rating is bound to spill over throughout the global economy. Reason: While the nation’s budget deficit (for FY2011 the federal budget deficit is estimated at $1.645 trillion, over 10% of GDP from just 1% in 2007) and debt load (as of August 16, 2011, the total public US debt stood at a whopping $14.618 trillion, about 103% of US GDP, and more than $1,30,000 per US tax payer) are out of control (the highest since World War II), President Obama’s recently released 10-year budget plan doesn’t generate the much-needed confidence that the economy’s fiscal problems will be resolved anytime soon.

Even the $2.4 trillion cut on government spending (agreed upon by the Congress on July 31, 2011) over the next decade will not take the US where it really needs to be. In fact, a recent analysis by the Congressional Budget Office (CBO) infers that if US wants to maintain a debt to GDP ratio at current levels up to year 2085 (to avoid scaring off investors), it would require this beleaguered nation to cut its spending, hike taxes, or a combination of both, by an amount that equals 8.3% of GDP each year for the next 75 years. That translates to $15 trillion over the next decade, way above what Obama and the Congress are considering. What’s worse? Lawmakers have agreed on just over $900 billion of the cuts as of now; the remaining $1.5 trillion will be determined by a congressional commission (made up of six Republicans and six Democrats) by late November. If the commission fails to recommend the cuts or Congress votes down their proposal, the federal budget will be reduced automatically by $1.2 trillion, with cuts evenly distributed across defense and discretionary non-defense programmes. This will further worsen the already deteriorating debt situation.

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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

Friday, April 12, 2013

Is Corporate Culture The Ultimate Strategic Asset?

Some Companies Believe Strongly in their culture – they swear by it. And while many have brushed aside this concept of culture as just another soft factor, the truth remains – corporate culture can become the very reason why your company performs well at the stock market and why it creates bottomlines which are far superior than those of industry peers.

During the past few decades, the term “corporate culture” has become widely used in business. It is now well-recognised that corporate culture is a significant aspect of organisational health and performance [Read: Siehl, C. and Martin, J. “Organizational Culture: A Key to Financial Performance?; Kotter, J. and Heskitt, J (1992), Corporate Culture and Performance, New York, NY: The Free Press].

what is “corporate culture”?
Although there are many different definitions of the concept of “Corporate Culture,” the central notion is that culture relates to core organisational values. All organisations – regardless of size – have cultures which influence the way people behave in a variety of areas, such as treatment of customers, standards of performance, innovation, et al.

“strong” and “weak” cultures
Companies where there is a clearly-defined culture, where the company invests time in communicating and reinforcing this culture, and where all employees are behaving in ways consistent with this culture are defined as having “strong cultures.” A “strong” culture is one that people clearly understand and can articulate. A “weak” culture is one that employees have difficulty defining, understanding, or explaining. The culture may not have been defined and/or it is not being actively “managed.” As a result, employees are let to interpret the company’s values for themselves, which sometimes results in the company having not one, but many different cultures.

functional and dysfunctional cultures are assets or liabilities
Strong culture companies can be either positive (an asset) or negative (a liability). If the company’s values are constructive and support its goals, then having a strong culture is an asset. We define this as a “functional” culture. If the company’s values are negative or dysfunctional, then having a strong culture will be a liability. We define this as a “dysfunctional culture.”

impact of culture on financial performance: wal-mart vs. k-mart
Culture can impact financial performance, so that a culture can truly be an “asset” in the technical accounting sense of “things of value-owned or controlled.” To see this, compare the performance of Wal-Mart with its (at least on the surface) “identical” competitor K-Mart. There is virtually no product that Wal-Mart has that K-Mart does not have; have the same kinds of stores and they operate in similar locations. They market to the same customers and recruit from the same pool of people. Yet in spite of these similarities, one of them (Wal-Mart) has produced a vastly different financial result for investors than the other.

Examining the financial returns to investors measured in terms of stock prices, we see a very clear story of the different performance of Wal-Mart and K-Mart. For the decade of the 1990s, the stock price of K-Mart almost doubled. An original investment of $10,000 would have been worth almost $20,000 by 1999. During the same period, the stock price of Wal-Mart increased several-fold. An investor who made an original investment of $10,000 in 1990 would have seen the value of that investment increase to approximately $280,000! This is an astounding difference, especially when these companies are not like Microsoft or Amgen, where there is proprietary intellectual property. These companies (Wal-Mart and K-Mart) are selling essentially the same commodities, but with vastly different results. They are both into retail, are exposed equally to the downturn issue, and yet, both of them performed so very differently. One shone bright, the other just fizzled out.

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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

Walmart’s Wait & Watch Game

Wal-Mart is in no Hurry to up The Ante in India. The Retailer is Expanding and Strengthening its Wholesale Business, Hoping to Leverage those Strengths in The Future when Multi-Brand retail opens up.

These are interesting times for organised retail in India. Even more so for Wal-Mart, the world’s largest retailer and the largest listed company by revenue (roughly $422 billion in sales last year). The Bentonville, Arkansas-based Wal-Mart knows that India - which it entered in 2007 through a 50:50 joint venture with Bharti Enterprises - is critical to its ambition to further grow its lucrative global business. Already 26% of the company’s revenue comes from outside the US. Wal-Mart’s international business clocked more than $100 billion in revenue last year, expanding by more than 80% in the last five years.

Indubitably, India is a big pond for big fish Wal-Mart. But there’s a big catch. Wal-Mart’s strategy hasn’t really worked well outside the North and South American markets of Mexico, Brazil and Canada. In most major Asian and European markets like Germany, South Korea, Japan and China, Wal-Mart hasn’t exactly lived up to its formidable reputation as the world’s mightiest and meanest retailer. After entering Germany in 1997 through acquisitions, it exited the market in a jiffy in 2006 (less than a decade), owing to intense competition from the likes of Metro AG. Clearly, its brassy American ways failed to find favour with the Germans. A more or less similar set of circumstances forced it to close the doors on South Korea in 2006 (again, in less than a decade). In Japan, too, Wal-Mart has had a spotty performance so far, failing to live up to any lofty expectations. Its ELDP (Every day low price) scheme is not finding favour with the Japanese, who are ready to pay higher prices for quality. The story in China is not so happy either where its profits and sales are reportedly declining, creating survival issues for the company.

These developments have certainly dented Wal-Mart’s confidence, forcing a change in its strategy. The company is more cautious now about entering new markets. It has learnt its hard lessons. The aggressiveness - entering new markets by buying out local competition (like in Germany and South Korea) - is now tempered with a new-found mellowness and it now sees virtue in the wait-and-watch approach to new markets before taking the plunge.

Wizened to the ways of the new markets and armed with some hard-nosed learnings it entered India through an equal partnership. The logic was unimpeachable. A $1.3 trillion economy, with a 1.2 billion billion population, an expanding middle class (growing in riches and getting brand-conscious by day), India’s $450 billion retail industry is the fastest-growing sector of the economy with sales expected to grow at more than 30% till 2014. Yet, India remains one of the last untapped major retail markets (organised retail is less than 5%). In fact, among the 30 largest emerging markets, India ranks the third-most attractive, according to a recent report by consulting firm AT Kearney. Business Monitor International, a London-based agency in the field of industry research, says retail sales in the third-largest Asian economy might grow to $785 billion by 2015 from $396 billion in 2011 if FDI restrictions are eased soon. Currently, India limits overseas investment in single-brand outlets to 51% and 100% in cash-and-carry stores, which can only sell to other retailers and dealers. But most international retailers are gunning for opening up of the lucrative multi-brand retail, which the Indian government has vetoed so far fearing backlash from mom-and-pop store operators, who constitute 70-80% of the retail Indian market.

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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