Doesn’t pay to be ‘Sam-struck’!

Most Indians had hailed the nuclear deal with US as one of India’s greatest achievements. Instead, it is increasingly looking like one of its costliest mistakes

The US-India civilian nuclear deal which is more popularly known as the 123 Agreement has been the most deceiving deal India has ever signed in recent history. Admittedly, we say this with the benefit of 20:20 hindsight, but then, this realisation is not yet visible in the government. The inconclusiveness and shifting priority of the deal has only strengthened the fast emerging sentiment that US is not genuinely interested in India’s needs and prosperity; it just values rational and logical interference on matters that would restrain India’s global diplomatic leadership – and India’s energy security is unquestionably one of them.

Not that we’re quite in awe of nuclear energy (read B&E’s cover issue dated June 23, 2011), but the 123 agreement at least was supposed to give us flexibility to use the nuclear route when in need. After considerable negotiations, India finally signed the 123 US-India nuclear deal in October 2008 (United States-India Nuclear Cooperation Approval and Non-proliferation Enhancement Act), which promised India access to stocks of enriched uranium and foreign investments in the country as well. The government went overboard and India bought 40 foreign nuclear reactors, which were estimated to have production capacities of 40,000 MW of electricity by 2050 – and in return, India was to be treated as a ‘nuclear weapons state.’

But then, there has always been more to this deal than meets the eye. Recently, during the debate on the Civilian Nuclear Liability Act, the Parliament found out that many technologies (including the reactors) provided by foreign firms were faulty and outdated. In simple words, in the veil of a nuclear deal, what foreign (read: Western) companies did was that they sold outdated and obsolete nuclear technologies to nuclear-hungry India. This deal also pushed back our plans of thorium-based reactors, which could have solved the energy problems to a large extent. Given the fact that we have a large indigenous supply of thorium and raw thorium is available in plenty on Kerala’s shores, the cost of running & operating a thorium based reactor would have been significantly reduced.

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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.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

Telecoms dial down subscribers, ring up on profitability

The recent tariff hike is a bold attempt on the part of leading telecom operators to nudge the industry to a more mature phase and shift the focus to revenue and profitability instead of merely adding subscriber numbers

The days of the 25-paise-coin have been consigned to history – forever. Reserve Bank of India recently took it out of circulation, but for all practical purposes, it had lost any monetary relevance long ago in an age of galloping inflation. There was practically nothing that you could buy for 25 paise, except perhaps a little talk time on your telecom network. Strange as it may sound, 25 paise was still enough to enquire about your near and dear ones on your mobile phone.

But not any longer. On July 16, Tata DoCoMo, which triggered a tariff war in 2008, cutting call rates to one paise per second, again took the lead – only this time, it hiked tariffs for new customers. Market leader Bharti Airtel followed and was joined by the other large incumbents, Vodafone, Idea Cellular and Reliance Communications, all of whom increased their tariffs by a minimum of 20%.

At an operating cost of Re.0.25 per minute, operators had no choice but to increase tariffs. Since 2007, Indian wireless tariffs have been down by 65% in real terms – with base tariffs down by almost 50% while CPI/WPI is up by 40% (cumulative average basis). The entry of new players in 2009 and the ensuing cuts in tariffs have dented the profitability of most mobile phone companies in the 15-player market. Uninor’s hugely popular two paisa per minute scheme and Videocon’s zero paisa scheme are examples of how the new players contributed to bringing down the tariffs. Cut throat competition from new players has forced average revenue per minute (ARPM) to come down from Rs.1.70 in June 2004 to 53 paisa in the first quarter of 2010 and to around 43 paisa currently. According to analysts, Bharti’s wireless RPM has declined by 17-24% every single year since FY ‘04 and has been consistently declining at 17% per annum for the past four years.

Also, last year’s 3G/BWA auctions have stretched telecom operators’ balance sheets and the industry is grappling with serious funding issues. The rollout of 3G is still at a nascent stage and growth in value-added services is also quite muted. As such, their contribution in overall revenue will be noticed only after a couple of quarters. But margin pressures for the industry have kept growing so much so that during the last year, barring Idea, all telecom companies reported a fall in profits. The latest quarterly results for June confirm that profitability continues to shrink for telecom companies. Idea reported a 12% drop in profits for the Q1, FY 2011-12, while Bharti’s profits declined by 28%. Also, Bharti has stacked up huge debts of around Rs.600 billion to fund Zain Telecom’s expansion in Africa as well as for its 3G business.

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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.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

Double Dip M&A? Amidst possibilities of another global downturn, what will the m&a scenario for the coming quarters be?

B&E & IIPM Think Tank present the M&A update 2011-12, Including a Primer on M&As across The Globe this year and analysis on Major Sectors of India that are ripe for M&A

The B&E/IIPM Think Tank mergers & acquisitionSreport, 2011-12
As US corporate profits reach 60-year highs and global economies start accelerating, M&As are coming back with a bang. In fact, investors have already started flexing their muscles as new capital starts flowing into their funds. Yet, with the global economy facing the possibility of another downturn, is the corporate world ready for consolidation? Will buyers and sellers indulge in as frenetic an activity as seen in the pre-recession days? Or will the coming quarters be a damp squib on takeover sentiments? B&E and IIPM Think Tank present the M&A update for 2011-12

Companies spend more than $2 trillion on acquisitions every year, yet the M&A failure rate is between 70% and 90%…” When Profs. Clayton M. Christensen, Richard Alton, Curtis Rising, and Andrew Waldeck of the Harvard Business School wrote these words in their March 2011 seminal work titled ‘The New M&A Playbook’, they must have wondered what’s ‘new’? Nothing actually. Irrespective of the year one takes, the failure rate of M&As has more or less always bounced between the percentages they mention. Yes, there have been good years, when the failure rate has defied expectations and has been only around 60%. And there have been bad years, when almost every M&A attempted destroyed shareholder value. But that’s about as much as one needs to know about M&As. From Accenture to McKinsey, from BCG to Booz Allen Hamilton, from Stanford to Wharton, there is little debate left globally on whether M&As add to shareholder value... they don’t. In fact, most destroy it with surety. But then, why do CEOs globally still go ahead and attempt mergers and acquisitions?

One line of thinking compares the M&A behaviour of CEOs to cigarette smoking. There’s no debate on whether smoking causes cancer. It does. Yet, one would find pretty sane, intelligent and bespoke individuals indulging in the exercise. Logically understood, the attitude is quite addictive, whether for smoking or for M&As. CEOs get infatuated to the M&A dopamine high and the rush of seeing their companies’ turnovers double, even triple overnight – and not because of any strategic moves they might have made in the marketplace, nay any innovation, or a product launch. But simply, an M&A; “The bigger the ego of the acquiring company’s CEO, the higher the premium a company is likely to pay for a target,” write Dr.Mitchell Marks and Dr. Philip Mirvis in their 2011 paper in Journal of Business and Psychology, quoting varied research studies. There’s another line of thinking that says that as the average probability of success of a new business anyway falls between 10% and 30%, an M&A activity should not be considered anything different. The success rate of an M&A exercise mirrors what one would expect from a new business venture; and therefore CEOs should necessarily take it up, as there are 10% to 30% M&As that are superlatively succeeding too in maximizing shareholders’ wealth. Be that as it may, 

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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.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

Increase Min. Drinking age to 27

Now The Maharashtra Government has raised The Age limit for Drinking to 25. While Opposers are Demanding this be Reversed, The Government is very right! The IIPM Think Tank even Proposes The same be raised to 27

With effective control of alcohol consumption in mind, the government of Delhi, and most recently, in Maharashtra, increased the minimum age for drinking from 21 years to 25 years. But this move has evoked widespread criticism from young people and certain sections of the media too. Even Bollywood actor Imran Khan apparently is contemplating a PIL, and opines that if one can vote at 18, it is absurd that one can’t have a good time with a glass of drink before 25! The IIPM Think Tank disagrees with such thinkers, and recommends that not only drinking, but even cigarette smoking should be allowed only for individuals aged 27 and above.

Global studies have proven that the longer one delays consumption of alcohol, the less the chances of alcohol addiction (Grant, Stinson, Harford, Boston University Study). This is due to the fact that alcohol ensures that the brain develops mechanisms that “change neural function induced by chronic ethanol consumption leading to the development of [alcohol] dependence” (Weiss and Porrino; Neuroscience Journal). Additionally, the brain stabilises in growth only between the age limits of 22 to 30 (University of Washington data, Eric Chudler). So logically, one should have the right of choosing a product only after the brain has fully grown. National Bureau of Economic Research (Working Paper No. 5200) confirms that “the prevalence of alcohol dependence and abuse is highest in the age range” of 17 to 27.

Logically therefore, rather than appearing unlettered and demanding that the Maharashtra government reduce drinking age, we should be recommending that the same be increased to 27. “As many as 80% of alcoholics smoke,” confirm Miller and Gold, University of Illinois, in their study in Journal of Addictive Diseases.

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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.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

“This is Energy’s Sputnik Moment”

Kameswara Rao, Executive Director - Government & Infrastructure, PWC

There is an ongoing debate as to which is the better mode of sustaining long term energy requirements of a nation like India which for years has been in power deficit syndrome. B&E’s virat bahri speaks to Kameswara Rao, Executive Director-Government & Infrastructure, PwC on the potential and the respective challenges facing the solar and nuclear power industry in India and what strategic policy guidelines the government needs to adopt so as to strike a balance between the two.

B&E: How do you compare nuclear and solar in terms of their utility to India’s energy needs? Which holds greater potential for the country?
Kameswara Rao (KR): Nuclear and solar power generation both offer local energy security and low tariff inflation as the cost components of fuel and operations are very small. We must factor this in our energy mix decisions as the cost of energy is forecast to rise significantly this decade. Already, many large coal exporting nations are placing quantitative curbs on sales and are stepping up tax extraction. The prices of globally traded coal are back at record highs and remain volatile, hence on both counts, it is unsuited for power utilities.

We need to make early bets on nuclear as well as solar, and invest in their development. Nuclear is more mature and offers base load operation whilst solar with storage is still expensive and has limitations in meeting large scale base-load supply. It is always preferable for a country to have a mix of energy sources as a guard against man-made and natural events (for example, solar insolation can be seriously impacted by climatic events, volcanic ash in atmosphere, et al).

Investment in solar must cover its entire eco-system, across a wide range of basic sciences such as in chemical, metallurgical and semiconductors. We need to invest in nuclear too, to improve design, security, and local content and to utilise other fissile materials such as thorium.

B&E: What are the various bottlenecks – technological, infrastructural, financial, policy – that solar and nuclear face currently?
KR: The primary challenge is at the policy level: the high cost and relative novelty with technology (nuclear investments have suffered a 20 year hiatus globally, so current technologies are seen as new) understandably daunt the policy makers. A bold policy position, and a rigorous follow through to enable project implementation is necessary. It also needs to reduce the cost of doing business, which can be effectively done by exempting these two sectors and their eco-system from all direct and indirect taxes. Nuclear and solar technologies will benefit wider scientific development that these investments will spur; and for the energy industry, we need to treat this as our Sputnik moment. Financing is a significant challenge as both nuclear and solar are capital intensive and unlike a thermal plant, 80-90% of the life-cycle spend is upfront.

B&E: The disaster in Japan has raised questions on nuclear safety. Do the potential hazards of nuclear shift the equation towards solar more?
KR: This is possible, and in future as solar power technology overcomes current challenges of storage, scale and cost, we will see a shift away from nuclear power. The issue of nuclear safety is clearly non-negotiable, but the right way to address it would be to set adequate standards, set up processes to absorb lessons from other incidents, mandate periodic risk assessments and cost all this into tariffs.

B&E: What does the Indian government and business need to do to encourage solar power?
KR: The first step is to strengthen the manufacturing base as the bulk of the investment in a solar power IPP is upfront and largely in capital. The incentives to develop solar manufacturing made a promising start but have since lost steam. The Governments in many countries offer a suite of incentives totaling almost up to 50%. For example, the German programs extended a wide range of incentives including interest rate rebate, loan guarantees of up to 80%, labor grants, training assistance and R&D support. These help reduce the risk and cost of developing a new industry, and help realize benefits sooner. Others such as Taiwan have done the same as they developed their semiconductor industry in the 1980s and 90s.

Read more......

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.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

Why it is not Easy for The BRIC Bloc to Beat The West

For Many Years Now, The BRICs have been known as a Consortium that was Predicted to Overtake The Economic might of The Developed Nations. But there are Issues which Put Doubts on The Very Viability, The Workability and The Long-Term Effectiveness of this Ambitious Bloc.

Ever since the term BRIC was coined by Goldman Sachs in their Global Economics Paper, ‘Building Better Global Economic BRICs’ in November 2001, it has often been used as a representative of the shift in global economic power from the West (or the developed nations), to the developing nations. More than anything else, the projection of this shift is said to have created a lot of ripples in the international order, and understandably, more so among the developed countries that constitute the industrialised group – the G7.

Economists worldwide have projected BRIC as a powerful bloc of emerging economies. Why not? Combined, the four economies recorded a total GDP (in PPP terms; because economists argue that China’s exchange rate is not determined by market forces, but by fiat currency) of over $18 trillion ($18.34 trillion to be precise; as of CY2010). According to the International Monetary Fund (IMF), the BRICs are set to account for 61% of global growth over the next three years. Even Goldman Sachs, in its report, had argued that since the BRIC countries – which today occupies over 25% of the world’s land and house 40% of the world’s population – are developing rapidly, their combined economies could eclipse the combined economies of the current richest countries of the world by 2050. Brazil, Russia, India & China were set to emerge as the four most dominant economies by 2050 on the basis of their huge economic potential.

But fears abound that the concept of BRICs is just an overhype. While the growth of these economies has been remarkably heartening, thanks to the projections acting as a huge booster for FDIs and FIIs flowing into these countries, there is danger that this coin too, has a flip side. Contrary to the argument that the combined economies of BRIC countries could surpass the world’s richest countries by 2050, the projections, while concealing much detail in terms of the distribution of that growth, are actually based upon mere assumptions and cannot be relied upon. Economists like Vrajlal K. Sapovadia, Director, National Insurance Academy (NIA), Pune, contend that deviation in assumptions, difficulty in assessing qualitative factors, undermining inherent threats like population pressure, illiteracy, corruption, social and political unrest may actually lead to unrealistic forecasts.

The ‘Doing Business 2011’ report by World Bank is an eye-opener. According to this recent report, BRIC economies – when compared with their western counterparts – have actually lost shine over the past year. In the category of ‘Ease of doing business’, of the BRICs, the best ranked is China, at #79 (it was #78 last year). The other three of course occupy three-digit ranks. While Russia stands at #123 (it was #116 in 2010), Brazil comes in at #127 (#124 in 2010) and India at #134 (#135 last year). The developed world is of course far ahead of this lot, with US at #5 and UK at #6. The fact that names like Rwanda, Tonga, Vanuata, Mongolia and others are better off than the BRICs is a hard pill to digest. But true. Even in terms of per capita income and human index ranking, all the BRIC countries are worse off this year than they were in 2010 (and surely worse-off as compared to the developed nations). Digest this: the highest per-capita income amongst the BRICs is held by Russia ($9,622), which is equivalent to 1/5th of that of US’ ($47,576). “In order to make this dream (of a prospering BRIC) a reality, each BRIC country needs to set its own house in order and boost its natural and human resources through proactive management,” says Sapovadia, adding that it is imperative that their hidden strengths and wealth, like agriculture & forest land, water reservoirs and human capital be utilised scientifically before we start comparing these economies with the powerful West.

Many also claim that for all projections regarding the exemplary growth expected by the BRIC economies, the very agenda is actually being pushed by US, to open the floodgates for its products and services into these emerging economies. As interesting as they sound, the veracity of these claims is yet to be ascertained.

There is another theory doing the rounds. Despite the abundance of ‘catch-up growth’ stories in the post-war period, growth starts to disappoint after a while and it is relatively easier to catch up with the leaders as compared to overtaking them. In reference to the robust growth that China has been experiencing in recent years, a recent article in The Economist cited references from a paper by Barry Eichengreen of the University of California, Donghyun Park of the Asian Development Bank (ADB) and Kwanho Shin of Korea University. The paper examines economic records of countries since 1957 to identify potential warning-signs, and contends that it would actually be wise for China to pursue “structural reforms” – which can help cushion the effects of a slowdown – in the current scenario, when it is growing remarkably, than wait for lean years which are bound to come.

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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.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management

Stratagem-NATIONAL : TATA NANO - BACK IN DEMAND

Direct connect between Advertising and Sales in The Indian Market. But Perhaps, this is also a Great time to Re-‘Reposition’ The Car. B&E does a Case Summary 

The company has also extended Nano’s availability from the 617 odd regular sales outlets (of the 248 odd dealerships) by setting up Special Nano Access Points (as of now about 210 across the country) where customers can experience, test-drive or even test-ride (if the consumer do not know driving) the car. Besides, the product is also being made available through nearly 151 Tata Authorised Service Centres, which help give consumers an enhanced touch-and-feel experience of the product. Currently, the company is exploring opportunities to appoint full-fledged dealerships only for the Tata Nano, in small towns. And to make up for its earlier marketing snafus, the company is now going beyond traditional selling strategies. Brilliantly, it has homed in on discounted retail formats like Big Bazaar for selling the Nano. “The response to the Nano has been overwhelming as both the prospective Nano buyers and Big Bazaar consumers share a lot of commonalities,” says Future Group’s Customer Strategy president Sandip Tarkas. Tata Motors now has plans to bring the Nano to Trent’s Westside retail chains (owned by Tatas).

Finally, Carl’s doing the Indians the way they should have been done at the start – offering discounts and promotional schemes. The company is offering a 4-year / 60,000 km manufacturer’s warranty, at no extra cost. In addition, new customers are also being offered optional comprehensive maintenance contract just at Rs.99 per month. There’s also an offer of full replacement of all Nano spare parts for an installment of Rs.4000 for a year. The company offers appropriate financing options that are a great help to customers wanting to graduate from two-wheelers to cars. Easy financing can be a great inducement to buying the Nano, whichever segment one is looking into.

Experts like Kevin Freiberg, co-author of Nanovation, a book that uses the Nano as an analogy to “teach the world to think big”, believe that the way forward for Nano is to help villagers in rural India and those at the bottom of the pyramid to get financing and make the process of buying their first car less intimidating. On its part, the company has set up financing arrangements with 29 banks and non-banking finance companies, with almost 90% assistance at “easy rates.” Additionally, Tata Motors Finance, a subsidiary of Tata Motors that helps finance their vehicles, helps process the loan of those applicants who might have unclear documentation (a rampant problem with customers in that segment) and that too in just 48 hours.

With its changed marketing strategy, Nano seems to have struck the right chord. The impact on sales is clearly visible over the past few months. In December 2010, Nano sales were over 5,700 and rose to 6,700 in January 2011. In February, the company sold a total of 8,262 Nanos, and the numbers for March stood at 8,707 units, which is very near to its all-time peak of 9,000 units sold in July last year. Tata is aiming to ramp up sales well into 2011, too, and hopes to boost production from March this year. Clearly, improved marketing strategy, brand positioning and advertising and improved supply chain management are now having a gainful impact on Nano’s sales and performance. Buoyed by its recent uptick in sales, the company aims to sell around 15,000 units in the coming months. This means an ambitious target of 1.8 lakh units in a year.

But that can be achieved if, and only if, CEO Carl does the final change that we believe needs to be undertaken now. The leitmotif of Nano’s campaign still personifies the rural/low-end/non-rich consumer. Once this positioning is changed into “Your first, second car,” there’s no telling how exponentially Tata Nano’s sales could zoom. And yes Carl, keep advertising – Indians forget, and too fast.

Read more......

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.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management