Friday, August 31, 2012

irat Bahri wonders whether the debate is relevant at all

Is a corporation meant to look at the larger good or just at profit maximisation? the debate continues to catch the imagination of executives and academicians. Virat Bahri wonders whether the debate is relevant at all

We believe that the very basis of this debate, just like the debate between growth and equality (that they are necessarily contradictory) is weak. Shareholder value and social responsibility can coexist quite well. Drawing correlations between profitability and social good is too tasking even for the most prolific economists; but there are numerous instances of companies that balance the two quite well. And the most convincing evidence of that can be found in our own B&E Power 100 list of India’s most profitable companies for 2010. In fact, the select group of companies that we have featured in this issue from the list are focusing on social good and also consistently proving to be prolific wealth generators in their own right.

State Bank of India had relatively flat growth to register profits of Rs.91.66 billion and was at rank 5 this year (Rank 3 last year). Net Interest Income (NII) increased by an impressive 13.91% as compared to the previous year and the bank’s Net Interest Management (NIM) has also improved to 3.18% if you consider results for the quarter ending June 2010. Fee-based income increased by 26.57% yoy for the year and forex income also grew by 34.59% yoy. Meanwhile, it also serves a vital role in the government agenda as a PSU, with its network of 7400 rural and semi-urban branches, which help the agri sector. Around Rs.560 billion of advances from SBI reach approximately 7 million farmers. Once again, this should have an indirect positive effect on SBI as rural prosperity improves, since it will have built a strong relationship of trust with them.

Infosys Technologies retains its position as India’s most profitable IT company and ranks 8th on the list this year (at 7th position last year). After a tough recessionary phase, Infosys has been consciously working towards increasing its client base and having a greater spread of revenues both in terms of verticals and geographies. For 2009-10, its $1 million plus client base expanded to 338 (from 166 in FY 2004-05) and revenue per client has increased slightly to $8.4 million (from $8.1 million in FY 2008-09), as the company sees a more optimistic outlook from its clients. While the contribution of BFSI revenues hasn’t varied much, contribution of manufacturing has gone up significantly. Meanwhile, on the social front, Infosys has highlighted three key binding themes for its sustainability initiatives – social contract, resource efficiency and green innovation. Among other initiatives, it opened the Infosys Science Foundation, in fiscal year 2008-09 a not-for-profit trust for scientific research. Even in the midst of downturn and uncertain outlook, the company made it a point to honour all its hiring commitments in campuses. It may not go down in history as a great initiative for shareholders, but the credibility that such initiatives establish is invaluable, for they will also help Infosys attract the best talent in the country.


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Thursday, August 30, 2012

9/11 reloaded?

A mosque at ground zero would end up defeating its most valuable purpose, so the project must not go ahead

Peace and harmony between religions is a future that this world continues to aspire for. Obama’s pronounced support to the idea of a mosque at Ground Zero does have the right intent in that sense. Yet this move comes across as one that defeats its own purpose.

The $100 million plan to develop an Islamic community center with a mosque from just two blocks away from the World Trade Centre where 3000 people were killed borders on insensitivity. The White House didn’t comment on the mosque controversy till Obama cleared the air at the White House Iftar dinner when he backed the mosque stating that “as a citizen, and as president, I believe that Muslims have the same right to practice their religion as everyone else in this country.” Quite a few other nations of the world do not allow freedom of religion like China, Iran and Arab countries. So for a change, this is one of the better symbolic gestures from US.

What makes it more of the opposite is the backdrop in which it is being planned. The idea has created tremendous polarity. Republican Senator Newt Gingrich expressed an extremely controversial criticism when he said “Nazis don’t have the right to put up a sign next to the Holocaust Museum in Washington.” The comparison isn’t even fit for debate, but the mosque issue needs to be looked at more sensitively by the government. A mosque is the symbol of peace and love, but having a mosque at Ground Zero has the potential to create the wrong vibes and even increase animosity between different faiths.

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Source : IIPM Editorial, 2012.

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

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Wednesday, August 29, 2012

Hari Sadus can take a hike!

There’s a silent epidemic of workplace bullying... Is legislation the only way out?

There is good news for the bullied. In a recent initiative by the Workplace Bullying Institute (WBI), the New York Senate gave its preliminary nod to the Healthy Workplace Bill aimed at giving respite to victims of abuse, misuse of power, and misbehaviour in organisations. “Think Miranda Priestly in The Devil Wears Prada or C. Montgomery Burns of The Simpsons; bullying is an epidemic in American offices,” says Peggy Klaus, a communication and leadership expert, citing the WBI report that says 54 mn workers have been bullied. She adds, “Companies can’t afford disruption to productivity or potential lawsuits. In larger firms, bullies are generally weeded out at the mid-level before they get to the top.”

While lawsuits may be less common in India, the loss of productivity would get any employer worried. A victim of workplace bullying makes for the most defining case of a demotivated and frustrated employee, having been subject to unjustifiable criticism, social isolation, abuse, humiliation and constant public jokes in many cases. Not many can forget the advertisement of a popular job portal with ‘Hari Sadu’ as the boss, which went on to win the ‘Campaign of the Year’ award at the Consumer Connect Awards in 2006, and highlighted the fact that employees may very well go out and search for greener pastures as a final resort to a bully boss.


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Friday, August 24, 2012

Race to sign Priyanka!

Director Abbas Mastan is trying to rope 27-year-old Priyanka Chopra in a sequel of the hit action flick Race that was released in 2008. While Kareena Kapoor and Saif Ali Khan have already been signed for the movie, it is Priyanka’s sex appeal that’s drawing Mastan to get her on-board as soon as possible. Intended to be slicker than the 2008 film, with Piggy Chops it will definitely be sexier!


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Wednesday, August 22, 2012

Betting big on the inorganic mode

First it was the Bank of Madura. Then, it was Bank of Sangli. And now, the Bank of Rajasthan. ICICI Bank is seemingly strengthening its presence in the Indian banking space by undertaking a slew of acquisitions much like its peer HDFC Bank did in the past. by Avneesh Singh

It was the February of 2008. The world was yet to come face-to-face with the debacle of the US banking giant Bear Stearns. Yet in India, officials of the largest private sector bank, ICICI Bank, had started feeling the heat. And it was not for the fact that they had already predicted the slowdown that was coming their way, it was due to the acquisition of the Centurion Bank of Punjab (CBoP) that proved the genesis of all headaches in the ICICI camp. CBoP had been on the radar of ICICI Bank for quite sometime already, but it was HDFC Bank that finally got hold of CBoP. ICICI Bank, which had held on to its numero uno position in the private banking space and second slot in the banking space apparently felt that it was losing its ground. It made ICICI realise that something’s got to give, if it wanted to avoid nightmares of the likes of HDFC Bank, Axis Bank and Punjab National Bank beating it with the lesson cane! It decided that growing inorganic was the route to redemption.

What followed was interesting. Despite the Bear Stearns episode in March 2008, the Indian banking scenario continued sauntering without many hiccups. There were promises in the air, especially the air above the Indian banks. But something set the cat amongst the pigeons – the crash of the banking behemoth Lehman Brothers, which filed for bankruptcy in September 2008. The world economy was heading for its worst crisis since the Great Dipression and Indian banks set off the alarm. One which set off the louded was ICICI Bank. Reason – during that point in time, it had an exposure of around 57 million euros in Lehman senior bonds and another $30 million in the insurance company American International Group (AIG), whose financial health too was as shaky as Lehman Brothers’. ICICI Bank was forced to pack its dreams (of steaming past others of its ilk in the Indian space) in a suitcase and catch the next flight to the land of protectionism. Times were too risky to take a plunge and ICICI Bank wanted to play safe.

More than a 21 months later, after a prolonged phase of silence, the bank has stepped back into its aggressive boots. And this time around, it has given clear indications of a desire to grow through both organic and inorganic means. Even Chanda Kochhar (CEO of ICICI Bank) has done much work towards rebuilding the perception of the bank amongst its customers. May 3, 2010, also saw ICICI open its 2000th branch in the country (it opened it in Andheri West, Mumbai). But there was more in store for the market. Withing 20 days, the Board of Directors of the bank approved an amalgamation of Bank of Rajasthan (BoR) with ICICI Bank, subject to approval by shareholders and Reserve Bank of India, therefore sending that signal of aggression to competitors and customers alike.


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Tuesday, August 21, 2012

From healing touch to heeling touch…

From healing touch to heeling touch… Women have an incredibly wider spectrum of influence than one could have ever anticipated!! 

It is natural to drop one’s guard while in conversation with the opposite sex; let alone the female touch in question. It is a fact that opposites attract, and it is not a matter of self deprecation if such a scenario comes to the fore because “Complex interplay of hormones and pheromones released during an inter-sex conversation is postulated to hinder abstract thinking, instant decision taking abilities, rationalisation and may influence intuitive abilities,” says Dr. Vinant Bhargava, Physician, Sir Gangaram Hospital.

From legendary epics of ‘Mahabharata’ and ‘Ramayan’ (not to forget Kekai’s tantrums in Ramayan which led to the exile of Lord Ram) to the present day ‘home frontiers’ and ‘cut-throat corporate arenas’, women have succeeded in turning the tables everywhere. It’s not the women who are at fault here. It’s human tendency to take advantage of a situation where undue leeway is being provided for one to behave as desired. Female touch is probably not the only driving force providing reassurance to an individual or the confidence to go ahead and bear risk. Point to be pondered here is that is there a possibility that it could be the ‘human touch’ which is the stimulant? A group of friends or a confidant is not subject to any caste, creed or sex. Hence how one deals, invests or operates around or without one’s support system is an individual’s call. The only disclaimer is ‘offer documents may be subject to market risks… please read the offer documents carefully before investing!’


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Tuesday, August 14, 2012

On the wings of some vanity & wax

Subhiksha was a dream flight, which crash-landed as soon as it took off; B&E presents a decisive story covering a summary of its flawed strategies and the way forward. by Pawan Chabra

Surviving One Bad Year: 7 Spiritual Strategies to Lead You to a New Beginning. In this shallow chick lit, Nancie Carmichael – an author who seems to have graduated from parenting books to self help hocus – spawns chapter after chapter of spiel on not only how to handle personal loss, but even bankruptcy! She doesn't stop there – there's more mumbo jumbo on how to handle depression, disappointment, betrayal, and yes, job losses too! Hilariously, if one does a post-hoc analysis, it just seems that if R. Subramanian, founder, Subhiksha, had even blindly followed the quirky advice conjured up by Ms.Nancie, Subhiksha might have been a better company than what it is now. But as they say, journalistic advice is as infidel a virtue as the devil's religion. Be that as it may, we still decided to go ahead and present a contemporary synopsis of what went wrong with Subhiksha and where is the erstwhile retail star heading to now!

Prosperity is the literal translation of the name Subhiksha from the Sanskrit language. To its credit, the retailer did remain true to the name for more than a decade with its business model, a legacy that even saw eulogies emanating sporadically from industry associations. Then how did the company manage to literally shoot itself? This case study provides lasting lessons in retail strategy.

Subhiksha commenced operations in 1997 and took the conservative route for nine years in the booming retail industry. The clear focus was on establishing its brand name in the country before going for the kill. After making consistent efforts to get a tighter grip on the Indian consumer for the past 11 years, it was announced in early 2008 that the retail chain will invest a whopping Rs.500 crore to increase the number of outlets to 2000 across the country by 2009. Was this target too aggressive, critics asked, keeping in mind that the company had just touched 150 stores across the country in the first nine years of its operations?

Quite possibly. Nevertheless, the company's sales were also growing by leaps and bounds; from a mere Rs.3.3 billion for financial year 2005-06 to Rs.8.33 billion for FY 2006-07, going on further to touch a mind-boggling figure of Rs.23.05 billion for FY 08. Soon enough, media and industry experts were reporting the Subhiksha model (a no-frills model aimed at gaining consumer confidence by offering the lowest prices in the industry attracting the price-sensitive segment of Indian consumers – the largest) as the most successful one in retail; even home-grown counterparts and several multinational firms started rolling out formats inspired from its business model. It was all looking like a dream come true, with R. Subramanian – an IIT & IIM alumnus – driving the growth story. Money was flowing in from PE players and industrialists. ICICI Ventures, which was an entrant during the early years of Subhiksha, became the second largest shareholder after promoters with an exposure of billions of rupees. Notably, PremjiInvest, the PE arm of billionaire Azim Premji, bought a 10% stake in Subhiksha from ICICI Venture in 2008 for Rs.2.3 billion. Subhiksha itself invested in an NBFC for future long term growth funding. With 1,600 stores already set up, even the ambitious target of 2,000 stores for the year looked very achievable.

But something, somewhere, started to go wrong. Reports started filtering in – employees complaining about unpaid salaries, suppliers complaining about huge outstanding payables, rents, bills, and more... Stores started shutting down when funds started drying up. However, the company claimed strongly that there was nothing wrong as these were normal economic slowdown issues and that the stores will be reopened by June 2009.

And then came the shocker! Reports came in that Subhiksha had inflated revenue figures, fudged accounting transactions, and transferred money to non-existing companies. An adamant Subramanian refuted all allegations, and refused to handover the company's reins. Push ultimately came to shove, and finally, facing extremely angry creditors, employees, shareholders (even Premji sent legal notices), and left with a bleeding skeletal firm, R. Subramanian, the brain behind Subhiksha, grudgingly shut shop, yet refusing to "run away."

As it now goes through a corporate debt restructuring plan, the chances of the retailer making a comeback look very bleak. “Subramanian is a great mind and his model was very successful but he was at the wrong place with the wrong people and took the wrong decisions. He has today lost his credibility in the Indian retail market,” says an industry expert to B&E on the condition of anonymity.

On hindsight, considering the fake inventory, fake bills and fake companies to which money was transferred, Subhiksha shares a lot of similarities with the largest scam in the Indian market, Satyam Computers Services – though Premji minces no words while referring to his investment in the retail chain as an error and titles the company 'the Satyam of the Indian retail industry’ in an interview to a business daily. But the bleeding retailer is quite fortunate as it has been able to stay out of problems of the magnitude that Satyam faced, where the founder Ramalinga Raju is behind bars and even the auditors and the sister concerns have tasted rough waters.

It is widely believed that the massive expansion plan – mistimed horribly with the onset of the economic slowdown – was the critical tipping point. “The business model per se was very strong and also makes sense in today’s environment; but it was the massive expansion that caused the failure. The empty shelves and a weak back-end changed the consumers’ perceptions about the company,” says Zahir Abbas, Associate Director-Retail, KSA Technopak. Our text messages and phone calls made to R. Subramanian are left unanswered. Even ICICI Ventures, which now holds about 23% in Subhiksha, and still has an estimated exposure of about Rs.1.06 billion in it, chooses to abstain from answering B&E's queries.


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Monday, August 13, 2012

MARUTI: TEN-TEN-TEN

Maruti Suzuki is well on its way to hit one million unit sales in this fiscal. But how does the market leader plan to prepare itself for the rougher road ahead?

Then there is the angle of Volkswagen; which has developed a sudden and heightened interest in the Indian market. After the German auto maker picked up a 20% stake in Suzuki Motor Corporation, it is said to be already influencing key strategy decisions. For instance, speculations are that the company may not renew its agreement with Nissan as the stake sale purchase by Volkswagen is primarily aiming at gaining strength in its India operations. Market watchers believe that German auto maker may not be very comfortable sharing its R&D developments with Nissan and the composition of the deal is going to change; though the company counters it. So Maruti Suzuki would most likely not renew that agreement. It will be interesting to watch how Volkswagen’s entry impacts future strategic decisions.

Going forward, increasing focus on logistics will also help the company bank high volumes in the long-run. Be it the construction of the rail track from its plant to Mundra port or the regional stockyards, which will help shorten the delivery time period, the company is trying its best to gain more efficiencies in all the pillars of its strategy for the Indian market. Analysts believe that with the increasing competition in the hatchback segment, the market leader is expected to lose some of its market share. However, keeping in mind the situation in the early 1990s in the economic liberalisation era; wherein various automakers landed on the Indian turf with bullish plans on the charts, Maruti Suzuki was able to protect its market share and is even today standing tall with a 50% market share. From eight manufacturers and 16 brands in the 90s, the industry today offers 69 brands by 17 manufacturers; but the one key fact unchanged is the leadership position.

However, with players like Toyota and Honda entering the small-car segment by 2011, Maruti Suzuki may have to cede some more of its huge market share. In fact, Nakanishi himself showed some concern with Toyota entering the small-car segment as he said, “I wasn’t worried because they (Toyota) weren’t serious about India so far. But now they are and will soon be coming out with their small car.” But considering the pace at which the Indian market is growing that may not be much cause for concern. It may have taken more than 25 years for Maruti Suzuki to sell more than a million in a fiscal; the race to the next million is expected to be on a highway. The company can even target 2020 as its year to sell two million in a fiscal as the volumes in the domestic market are expected to be double in the coming five years. Also, with the increasing focus on exports, the company may well derive a new slogan – ‘Twenty Twenty Twenty’. However, this time standing on the last Twenty (operating margins) will be a very tough task for Maruti Suzuki, all thanks to the new offerings in the Indian market which are expected to further ignite the price war among the auto makers. Being a leader in a market that continues to grow rapidly; Maruti will have to continue to strive aggressively for new customer acquisition; even if the last 20 takes a backseat.

B&E: What are the reasons according to you have attributed to the company’s mind-boggling growth during the current fiscal?
SS: We are enjoying one of the best growth phases ever as per our calculations; we will be hitting the one-million mark by the 23rd of March this year. This will be the first time that we will cross the on-million mark in a fiscal. The growth mainly came from the overall growth of the industry and as the passenger car industry got bigger we grew with it too. In fact, we never thought at the start of 2009 that we are going to cross one million this fiscal. But we surely discussed reaching the target of one-million unit sales within the 2010 fiscal during a cross-functional meeting in 2004.

B&E: With many automakers launching their hatchbacks, do you believe Maruti will lose its market share?
SS: Frankly, we don’t think so. We have been reading news reports claiming that the company will lose some of its market share as competition increases but internally, we are very much confident of defending our volumes. We have done that before in the 1990s when many players entered the Indian geographies when economic liberalization took place. A lot has been changing inside the company when it comes to the stake that various parties held as well as outside as the scenario changed in the automotive market. At one moment, there were 16 brands with eight manufacturers in Indian; we today have 17 manufacturers with 69 brands. But all the way through we have always kept a 50%+ market share.

B&E: Over the period of time, exports have been rising consistently; can we label it as the next growth path for Maruti Suzuki?
SS: Exports have seen a slow growth but a consistent one. It got a real boost due the scrappage programme that took place amidst a downfall in the overall global industry sales. The deal with Nissan for the A-Star, which it sells under the Pixo badge, also comes into picture. But that’s not all, Maruti Suzuki is taking exports seriously and we expect to grow many folds going forward. In fact, it is interesting to not here that Nissan also sells Pixo in the European market and we sell A-Star in the name of Suzuki Alto in the European markets. Though, there are only minor modifications in both the models, but both of them are very popular among consumers.

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