Kashmir - Paradise on Earth

Chicken Soup for the Taxed Soul

Each and every tax that the government imposes, gets collected, in the very end, from a person's profits. So, why not scrap all the taxes and levy just a single one, to be directly collected, once a year, from the end profits of the person?

(Guys, I'm NOT trying to be sarcastic or funny here. I got this idea sometime back and am asking you this question earnestly.)

A Failure of First Principles

Yet another post to add to the posts about the credit crisis. Although I don't work for a bank, I think the current credit crisis shows all the symptoms of a failure to follow sane and conservative banking principles. The reasons for the crisis described in this post, although not exhaustive, are an attempt to examine the problem from the point of view of a banking institution/lender issuing credit in highly speculative markets.

What happened - A Look at the Balance Sheet

The events leading to the credit crunch are common knowledge now. But, how do these events pan out in a banking institution's financial statements? Consider that I'm a bank/lender who offers a long term loan to a creditor. On my bank's balance sheet, such a loan would appear as an investment on which I receive yearly interest and am liable to receive principal over the payment period. Considering this is a long term investment, the debtor assures me he will back up this loan in case of default with an asset - in this case, his house. Mortgage backed securities is a term being thrown around for this kind of an 'IOU'. Such assets appreciated in price disproportionately with their real value because of speculative buying and selling of such securities. When the asset prices drop drastically due to such reasons, the effect on the balance sheet is disastrous. An investment in a secured loan, say $ 1.5 million, is now defunct and the only way to retrieve this investment is by taking possession of the asset backing that loan. However, the asset is now only worth $ 1 million, resulting in a $0.5 million write-off (bad debts) for the bank. In the event that a bank has invested a large portion of its credit in such markets, the write-offs are a major portion of its investments and we'll see a Bear Stearns.

Where did they go wrong - What can we learn ?

a. Risk Profiling and Credit Structuring

Lending in highly speculative markets has the uncharacteristic effect of making some banking institutions relax. Banks that are suffering or likely to suffer are most likely the ones who :

• Did not intelligently profile the risk involved in lending major portions of their credit in a speculative environment. Asset prices have seen a sharp and unrealistic rise and such volatility does not last long term (more on speculation later) in which case banks underestimated their risks. Or overestimated their gains.
  
• Did not responsibly structure their lending portfolios to diversify into stable markets, prone to less speculation. One of the first rules of investment - even in mutual funds or stocks - is to have a broad and diverse portfolio. Financial analysts examining this issue point out to the irresponsibility with which banks which are liable to go down have invested in unstable markets. If such banks had a foundation of stable portfolios from markets such as pharma, infrastructure and health services where speculation is less likely to influence your investment, there would have been a better chance of living to fight another day. It's a sad case of poor structuring where your most risky investments make up a major fraction of your credit.

b. Know where your debtor is coming from

A bank that fails to examine the credit-worthiness of a prospective debtor fails to do its job. One does not need to elaborate on this, except for the fact that a highly 'positive' market tends to build on euphoria and kill rationale in decision making.

c. Know where your money goes

A lot of people talk about complex securities and inter-linked securities. People complain that banks that had mortgage backed securities ended up using such securities to cover their own from their own creditors. What I do know is that when a bank which first does not analyze its risk on an investment properly, then passes on the risk on such an investment to gullible creditors has only compounded the sin. Creditors who did not realistically analyze the risk behind such securities were partially to blame. The solution is to hold banks accountable for the securities they market and tie these to a specific asset - which when assessed independently - can be shown to be overpriced or volatile.

Judging from some of these decisions, I believe the current crisis is a result of poor financing decisions, the principles of which have been lost in the illusion of short-term gains. The answer to this crisis does not lie in drastic measures but in a return to the forgotten first principles in banking

And now to touch upon speculation :

Speculation - Is it really that bad ?

It has been pointed out that the root cause of all this mess is a highly speculative environment. Hence instead of just regulating banking institutions, regulate speculation as well. I tend to disagree with this line of thought for a couple of reasons:

Suppose a product is scarce in the market and yet reasonably in demand. The price for such a product is high but expected to go higher due to the scarcity value and demand. A speculator, seeing the future potential of profiting from the sale of this product, comes to town and buys large quantities of this product at existing prices. This speculative buying pushes the product price even higher to a point where some consumers forego the purchase of the product. In other words, demand/consumption reduces by way of speculative buying. Secondly, when prices are higher than speculators like, they sell. This reduces prices and encourages consumption.

The bottom line here is : The short-term volatility in prices ends up regulating prices faster.

Speculators also tend to invigorate markets which do not have enough liquidity. A product that is low in demand will have a big disparity between the price a new entrant to the market is willing to pay and the asking price. A speculator, in conjunction with competing speculators, tends to reduce this disparity and create a more efficient market.

Regulating speculation for fixed periods of time (due to the above reasons) can also have the undesirable effect of prices changing with a huge lag with respect to demand and supply. The time lag will create more inefficient markets.

I believe one needs to think of addressing a major malady in the system - the folly of predatory lending and abuse of banking principles - which will come with more financial regulation. Such efforts will ensure greater robustness against volatility in secured lending than shooting small birds.

It’s strictly business

As the famous lines in “The God Father” go, it is very important to demarcate between personal and business issues. Let me cite Michael Corleone's words “It's not personal…. It’s strictly business”.

Like many, I was a keen follower of Mergers & Acquisitions which took place over the last few years. I am very impressed by the scale of acquisitions taking place across various verticals in the industry. I believe, owing to several factors, many industry verticals (irrespective of how mature they are) are going through a consolidation phase. In every industry, this phase is bound to happen at one time or the other.

I was also following the JLR (Jaguar-Land Rover) deal which the Tata Motors won. I am glad that Tata’s can use their expertise in turning around unprofitable businesses to turn around two iconic British brands. Like many, I too have my own concerns. Considering the portfolio of Tata Motors, terms of the deal etc, can Tata’s turn around these businesses. On the positive side, this deal could potentially make Tata Motors a “one stop” for car enthusiasts. Also, a typical customer could start with a Nano, upgrade to Indica/Indigo/Palio few years later and could upgrade to some high end model (Range Rover, X* series in Jaguar) when he/she could afford. So, a customer could purchase his first car and his last car with Tata Motors, provided that the customer is extremely satisfied by the service received from Tata Motors. Not to forget, the international market Tata Motors would be targeting with JLR. Of course, all this requires lot of effort and planning on behalf of Tata Motors.

I came across a post on JLR deal in BusinessWeek and it is worth motioning. For the post, click here

While this post is a very good write up on JLR deal, I would say I am disappointed by the comments section. After I read the comments, for a while, I really had second thoughts on free e-media. The context of the post is lost just in the first few comments and it looks as if the comments turned out to be arguments. Phew! (Few comments reminded me of dialogues in Rajnikanth's movie).

After I read the comments, I am all the more puzzled due to several questions that ringed in my mind. They are:

1) In this globalized world, how fair are the words “Indian (any country for that matter) Company”

2) What does it take for a company to be called an Indian company? Do the founders need to be Indian? Do the majority of operations focus on India? Do majority of share holders need to be Indian? Do all the share holders need to be Indian? Do the CEO and majority of the management team need to be Indian? Should the company be funded by Indian government and the company be responsible to the cabinet?

3) When Tata signing JRL deal can be compared to the victory/domination of Indian businesses over British businesses, what does Vodafone’s purchase of majority stake in Hutch signify?

4) Does the fact that every body is using electric bulb signifies the power of American innovation over ignorant rest-of-the-world.

All such comparison with foreign institutions and brands does no good to organizations and brands emerging out of India. Instead of focusing on differences, I think one should focus on common strengths and spread globalization to every corner of the world enriching people. At a time when Indians (including me) need to educate the rest of the world about India’s rich and diverse culture, all this rant and unnecessary comparison makes the task much more difficult.

By the way, congratulations to Tata Motors for sealing the deal. The real deal (turning the two brands around) starts NOW.

P.S: I have created a poll on my blog. You can express your opinion on the Tata-JLR deal by casting your vote @ http://vijaybhaskarvbc.blogspot.com

The Problem with the World Markets and How to solve it

“Yet another article related to the credit crisis? Noooooooooo… I can’t take it anymore! Have I not read, heard, seen, discussed, analysed, reanalysed the issue enough already? Then why do I need to go through another insanely long piece of shit discussing the same damn thing?”

If that was your first reaction upon reading the title of this post, then, well, I can understand your frustration. I too have begun to cringe at the sight of the words “crises” and “credit”, especially when they appear together. I have waded through seas of articles on the subject, which all seem to say the same thing, and at the same time, nothing at all. Most articles attempt at explaining the root cause of the problem. They don’t do a good job of it. Some try to propose solutions. They don’t do a good job of it either. With the exception of just a single article, by The Economist, none of the articles come even close to understanding the crux of the problem. But, unfortunately, the article by The Economist does not propose any solutions for the problem.

So, here’s my take on the REAL problem in today’s markets and the solution for the same. It’s kinda radical, so don’t hate me if you don’t agree with me. Nevertheless, I think you’ll at least have fun reading it. Well then, here it goes…

The price of something depends on 2 things, viz. demand and supply. (“Dude! What a radical proposal! I wonder if someone can get more radical than this!”) In a market where there are only 2 kinds of participants, viz. pure sellers and pure buyers (pure sellers are those sellers that are selling “something” that they themselves have “produced” and have not simply bought it from someone else, while pure buyers are those buyers that will use that “something” for their own consumption and not sell it further), change in the price of the product will reflect real supply-demand disparity, given that other conditions are near the conditions of perfect competition. For example, if we consider the entire supply chain as one “seller”, then a multiplex selling movie tickets is a pure seller and movie-goers buying them are pure buyers. For ease of understanding, if other factors show tendencies as in the state of perfect competition, the price of the movie tickets would rise if the demand rises relative to supply and would fall in the contrary case. So far so good.

But what if the sellers and buyers in a market are not of a pure nature? What if anybody and everybody, regardless of the consideration that whether he has produced the product or not or is the end consumer of the product or not, is allowed to buy and sell those products? What will be his motivation to participate in the market? To answer these questions, let’s bring back our example of multiplexes and movie tickets.

Let’s say that a movie is scheduled to be released on 1st January 2009. The producers decide to start selling its tickets from today itself. Nobody buys the tickets because the movie’s release date is far away. But, after a few days, suddenly the movie becomes extremely controversial. Almost everybody comes to know about the movie and gets really interested in watching it when it releases. They still don’t buy the tickets because the release date is far away. But a few smart people, realising that people will give anything to watch this movie when it releases, buy the tickets by the truckloads. Their calculation is that they’ll sell these tickets at the time of release at a higher price and earn fat margins out of it. A few days later, there are rumours that the movie might be shelved. So the guys who bought the tickets by the truckloads start selling them to other people who think that there are still chances that the movie may be released. As various positive and negative news keep coming out about the movie, such trading keeps happening and the price of the movie-tickets keeps going up and down.

Far fetched as the above example may seem, it summarises the way in which all “investment” markets function. The motivation of an individual or an entity, which is not a pure seller or a pure buyer, to participate in a market, is to simply profit by buying at a low price and selling at a higher price. He has no concern with the inherent value of the investment, only with its price movement. And herein lays the problem: speculation.

To be sure, in any investment market, the initial change in direction of prices, whether upwards or downwards, happens due to solid reasons. For example, when the Indian stock markets started rising in March 2003, it was because of real factors, such as the country’s growth potential in the near future. At this point of the cycle, people who understand the fundamentals of the market, and the companies, invest in them because they can see real corporate growth in the future. The question being asked at this stage is, “Will this company perform well in the future or not?” The change in prices at this stage is slow and steady. As the markets keep rising and start delivering good returns to its investors, they start attracting a lot of publicity. When others see that a few people are minting money by investing in a market, they naturally feel like getting their piece of the pie too. From this point on, most of the money that comes into the market is speculative. The question that is being asked at this stage changes to, “Will the price of this share/ commodity/ property go up or not?” The change in prices at this stage is extreme and volatile. (I have seen, with my very eyes, the share price of a company named Reliance Natural Resources Limited rise by 41% in a span of 5 and a half hours! And that too without any announcement by the company that could have greatly affected its future profitability.) This is the stage when newspaper headlines scream about new milestones reached and new peaks conquered. Insane predictions of future growth start flowing in (like an article published only a few months ago, proclaiming that the Sensex will reach 50,000 points by the end of 2008). But, at some point, the direction changes. First, the people who understand the fundamentals of the market, start selling their assets as they come to realise that the speculative boom will not last any longer. Prices fall as they make their selling. And then the entire cycle plays itself in the reverse, until the prices in the market have reached insanely low levels.

Each and every boom and bust cycle in each and every investment market can be explained by this hypothesis. Speculation consecutively plays the hero’s role and then the villain’s role in each of the stories. One may pick up any boom and bust cycle from the past century and it will display the above characteristics. The Indian stock-market boom of the early 90s, the dotcom bubble at the turn of the millennium, and the recent US real estate boom, which is the real culprit behind the subprime mortgage crises and the ensuing credit crises, are some of the examples from recent decades.

Economic theory says that markets will be extremely efficient at price discovery when there are a large number of participants, among other things. Today’s investment markets definitely have a large number of participants, if nothing else. So why are they not efficient at their price discovery? Why do we CONSTANTLY see such anomalies as stock prices rising by 41% in a span of 5 and a half hour, without any apparent reason? That’s because there is a fundamental flaw in the economic theory and thus in the markets that have been designed on its basis.

The economic theory of efficient price discovery in a market holds true only when the participants of the market are pure sellers and pure buyers. This is because it assumes buyers and sellers to be 2 mutually exclusive sets and does not consider the possibility that buyers may themselves want to become sellers once they acquire the products. So, when non-pure sellers and buyers enter the market, the economic theory breaks down and efficient price discovery becomes a dream. This is the root cause of the problem plaguing the world’s investment markets. (The current unprecedented boom in the commodity markets of the world seems to be a result of the same phenomenon. Let’s wait and watch how it turns out to be.)

Thus, the solution to the problem is quite simple. Keep the non-pure sellers and buyers out of markets. This means that only those market participants that actually “produce” and “consume” the objects offered in a market, should be allowed to participate in it.

Implementing this solution is easier than it seems. We do not need to check the background of, and approve licenses to, each and every individual and entity that wants to participate in a particular market. That’ll be a bureaucratic nightmare. We simply need to introduce 3 conditions for participating in a given market:

1. Buying an item from a market, should always result in an ACTUAL delivery of that item to the buyer.

2. All the derivatives of a given market that do not result in an ACTUAL delivery of the underlying asset should be removed from the market.

3. A MINIMUM lock-in period should be imposed, before the buyer is allowed to sell his purchased item in the market.

The third condition is a crucial one. For example, if the lock-in period in the stock markets is 1 year then only those individuals and entities who think that a particular company will perform well over the next year will buy that company’s shares, thus removing speculation from stock markets. In the case of the property market, such a lock-in period will be longer, perhaps 10 years.

The above 3 rules will ensure that the only market participants are the ones that are pure sellers and buyers and not speculators. This will not only lead to efficient price discovery in markets, but it will also drastically reduce the occurrence of boom and bust cycles that are an inevitable part of a speculative market.

Jooce

Check out this BusinessWeek article on a new path-breaking service: http://www.businessweek.com/globalbiz/content/mar2008/gb20080325_844094.htm?chan=top+news_top+news+index_global+business.

And check out the path-breaking service itself at http://www.jooce.com/.

For the love of Office Emails

Most of us would have resigned from our present workplaces by now! I did the same recently. Now, I belong to that breed of people who love to save/keep e-mails on office email ids saved. For this purpose, people usually take the backup of mails by copying the NSF file for Lotus notes or PST file for Outlook or Thunderbird Local folders and then keep them in hard disk somewhere and forget it later.

That defeats the whole purpose and is like keeping them away trashed and would not be of much help.
Enter Google again to my rescue!
We can upload all important (personal) communication on office email id to a new google account!

Google recently launched IMAP access of their mail
http://mail.google.com/support/bin/answer.py?hl=en&answer=75725
with its help, I can configure Thunderbird or any other email client I use at Office to make a new email connection, this time to a gmail account

Just follow these steps:
1. Create a new google account and enable its IMAP access ( Enable IMAP in the settings link on top right hand side)
2. In the Local Email Client at your office, go to the menu where you can Add a new account
and Create and Configure the New Google IMAP account as per the instructions in this page:
http://mail.google.com/support/bin/answer.py?hl=en&answer=75725

3. Now you should have two accounts listed in your email client say thunderbird. Now, just just drag and drop emails from office email account in thunderbird to google imap a/c in thunderbird

Do the third step taking mail size and speed of internet at your place in consideration Or the email client may seem to hang. I suggest moving mails to google account in chunks of 50 each.


Let me know of any queries !
-AJ

Bear Sterns Bail Out

To start with little history, Bear Sterns is a financial giant with 80 + years of experience in financial world. This company withstood The Great Depression, the stagflation of the 70s, the dot-com burst but succumbed to the subprime mortgage crisis.

Now what is subprime mortgage crisis?

Subprime mortgage crisis is sudden increase in foreclosures by home owners.

Now, who are “these” home owners and what is foreclosure?

These home owners are people with not so good (less than generally accepted) credit rating and ended up taking home loans with higher interest rate. Subprime loans provide an opportunity for borrowers with less than "not so good" credit rating to access loans at higher interest rates.

With the real estate prices’ increasing continuously, the lure of hedging on homes is too good to resist. Even if the lure is not good enough to entice people to buy homes at high prices, the fear that “if not today, I may never be able to buy a home in this ever rising real estate market” could also be a significant reason.

Let’s look at an example:

A person XYZ takes a loan at higher interest rate (subprime rate) when the real estate prices are sky high with the hope of refinancing at a low interest rates. If XYZ does not have good credit rating, he/she is not entitled to loans at attractive interest rates. However, XYZ can improve his/her credit rating by paying EMIs on time for one year. The problem arises when XYZ cannot pay as planned. The credit rating worsens and the chances of refinancing at lower interest rates are minimal. To add to the problems, if the real estate prices collapse in the midst of all this, XYZ is in real soup now. XYZ took a loan at higher interest rate when the home is valued at a higher price. Now, the home is not valued at the rates for which it was paid for. That means, XYZ is paying more than the current value of the property and he/she is not financially sound enough to manage this. So, XYZ chooses to foreclose the property. When this happens on a bigger scale, boooom, crisis starts.

So, how did a company which was awarded “Most Admired” securities firm in Fortune’s "America's Most Admired Companies" survey get involved in all this? Bear Sterns invested heavily in hedge funds that lost almost all of its value because of subprime mortgage crisis. One thing led to the other and finally, the share which was valued at 87 USD during the last week of February 08 is offered 2 USD on 14/15^th of March 08 by JP Morgan Chase. The firm whose net income during the previous year was 2.1 billion USD (source: http://www.businessweek.com/bw50/2007/74.htm) was purchased 236.2 million USD. That’s how quick fortune changes. One of my colleagues was talking about an English guy who holds 10% in Bear Sterns. Man, that guy would have wept his heart out after all this. I even came to know that few employees of Bear Sterns who hold stock options could not control their emotions during all this mess. After all, we are all human.

However, If one looks at the bigger picture, I think this is all part of economical cycle. Not everybody would get rich all the time. Few get rich, few get richer and this might mean few getting poorer. It’s all in the game. Mankind has seen many financial collapses like this in the past for different reasons though; many of which we don’t even remember vividly (For those who forgot, remember, there was a much bigger financial collapse just few years back. Does ENRON sound familiar?). The collapse of ENRON had far reaching consequences than the collapse of Bear Sterns. A typical investor in Bear Sterns is much richer than a typical investor in ENRON. Also, it is not as difficult to find another job for employees of Bear Sterns as it was for employees (most of them not highly skilled) of ENRON.

My point here is: We should all look at the bigger picture and not panic when a blip takes place in the economy. An economy is not bound to grow unprecedented. It is bound to have recessions. We should not loose confidence and rather work towards a better tomorrow and a brighter future.

DISCLAIMER: The contents of this blog are strictly my personal opinions and not those of any organization/institution I am a part of, nor made in any official capacity of such organization/institution unless expressly stated otherwise and where I am explicitly authorized to do so.

Web2.0 Startups –Indian Edition

Having a candid conversation with a friend the other day, I realized he was quitting his prestigious job at Credit Suisse NY to move back to India to materialize his dotcom dream.

What is that the Web can do for you? In this Web second edition what is otherwise known as the Web 2.0, there are certainly clear winners (lets call them Flickr, Facebook and Utube) with great potential for future revenues even though their profitability or business model is still being questioned very much. Some of my friends seem to have gone absolutely head over heels crazy for this Web stardom, not that I have not! They have tread another step further and left their secure jobs in the biggest cities around the globe to have their own web startup in India after listening to that inner voice deep down. I firmly believe one of them is surely going to do a Sabeer Bhatia or a Larry Page flick very soon. How good it is to be Mark Zuckerberg, the Harvard educated wiz kid who started Facebook only to realize i its now worth close to $750 million?

One should not forget the fact that many startups that go belly up for every Facebook or Google to emerge. It is very confounding at times to note how startups survive the initial hiccups and have different approaches to profit route. Well, after the initial thrust, one has to certainly look out for a model to channel in some kind of profits rather than just run the footnote Google ads.

But, I have been so enticed recently to the world of Dot.com every since Nokia, the company that I work for completely changed the corporate structure as a Dotcom company and acquired Ovi.com and twango.com Even the grand old Rupert Murdoch, believes the dotcom is the way of the future for News Corp,proving it with his recent online shopping of myspace.com.

The question now is how far can we stretch this Web, going forward?

Given the fact there are going to be some real smart bodies at ISB, it will be exciting to swap ideas looking towards a venture. www.lootstreet.com is a new startup that gained sufficient media attention just because it was by IIM grads, even the home page proudly paints the IIM story. I am very sure ISB too has big ones coming in the class of 2009. Some of the Indian startups I will be watching closely some exciting ones here in the near future

www.loandukaan.com

www.aisapaisa.com

www.lootstreet.com

North East - The last two days

Well - the last two days were definitely worth the trip - also they helped turn this trip from 'hopeless' to 'good'. Went for a jeep safari on the first day and was able to get many great shots of rhinos, elephants, water-buffalos, hog-deers . . . . Was great fun. Of course the fun cannot always continue and had to "suffer" an afternoon of site-visits (which were supposed to be visits to tea-garden) with my friend. However on the whole - very nice. Few photos at the end.

Yesterday was great - I was finally alone - and realised that I actually love my company. Went for an early morning elephant safari (got up at 4:00 !!!) - interesting - but the jeep safari was better. Spent the rest of the day exploring the place - chilling out and all to soon the day was over.

More later .. . - have to catch my flight now.

North East Day 3-4: Never again . . .

Never again am I going to let someone else plan my trips.
The last two days have been absolutely useless. Yesterday was spent waiting for the ILP and then travelling to Tezpur (3 hour journey which took almost 6 hours) - where we were to board a night bus for Tawang (one of the oldest monasteries in India right next to the China border). It was all fine as long as there was something to look forward to. Then all hopes were dashed - there were no night buses / jeeps / bullock carts !! You can reach Tawang only by jeep and they leave only at 5.30 in the morning. Also it takes more that 12 hours to reach. So that meant wasting one day to go and one to come back - that left me with a night when I could stay there. Made no sense at all. Plan 2 was to go to an eco-camp for rafting -- seems that was too expensive - no idea how much though. Plan 3 was to go to Bomdila (supposedly 3 hours from Tezpur and supposedly very beautiful). So we opted for plan 3 - little did I know it would take 5 hours to reach - 1 hour for lunch and 5 hours to come back !!!
So I ended up spending 11 hours for lunch - that ought to be a record. Finally I took matters in my hand and decided to spend my last two days in Kaziranga and stop sitting in buses / jeeps for the rest of the trip. So I'm writing this from a beautiful resort in the middle of the jungle . . . .. . . Lets see how the rest of my trip goes . . And as my school motto goes "Never Give In" - I'm not going to lose hope and discard this trip as totally hopeless.
More tomorrow . . . . . . .

Of People and Technology

The Man or the Machine?Analyze this...

There is an organization called Dell Computers which "was" market-leader in the PC business.There is an organization called Toyota Motor Corp. which "is" a market-leader in the Automotive business and by-far the most profitable auto-maker in the world.While the former is panting for breath with the competition catching up with it (or otherwise), the latter is rolling like a juggernaut.

Why this uncanny comparison between two non-competing entities?The point is this...Both Dell and Toyota are names to swear-by when it comes to supply chain efficiencies.Both have pioneered such great processes by virtue of which they had the competition running for cover.
Direct model from Dell was such a brilliant strategy that it threw the likes of IBM out of Business.And contrary to the popular misconception, there is something that is actually perfect in this world and that's the Toyota Production System.

While Dell's innovation relied mostly on Technology, Toyota relied on its people.

Dell had almost everything going right (which is against the laws of nature).If everything is going right...something has to go wrong and wrong it went.The competition soon caught up with the Lenovos and the HPs quickly realizing the benefits of mimicking the Dell model and the whole competitive advantage of Dell is fast fading away.

On the other hand, Toyota has proved to the world that smart people come in small packages and are not too abundant.Inspite of the huge consulting assignments that Toyota has done with a number of American companies on its production system, the world is yet to see anything even close to Toyota.No complex softwares for inventory optimization and Production Planning for Toyota.Just an inclusive manpower and some excellent execution strategies at its perusal.

Technology is definitely something but man seems to be everything for he clearly, still, seems to be the Master!

Mom & Pop vs Supermarkets

I visited my friendly neighborhood panwaala, Ashok, after a long time today. I was just getting pally with him. He inquired about my absence, "Long time no see bhaiya", I told him that I had been living on my stock for sometime. I observed that:

He knows the choice of his customers and the moment they come, he digs out their brand in a flash.
He is an enterprising person and always greet me with a smile.
He is benevolent enough to give me loose change whenever I need them.
He is open from 6 AM to 11 PM.
He is diversifying, he stocks up groceries, water cans, ready to eat, phone booth and other sundry things.
He gives credit to lots of his customers.
He knows most of his customers by name and address.

That made me ponder over the onslaught of supermarkets and hypermarkets on these Mom and Pop stores (hereafter referred as M&P) that dot the Indian landscape. No doubt the ripple effects are being felt by these small unbranded grocery and retail outlets, but these M&P stores might just have an ace up their sleeves.

M&P have few advantages over the multi million square feet retail chains. M&P know their clientèle and their preferences. M&P know their terrain and have deep penetration. M&P can improvise upon and provide customized service (for example door to door delivery) to their clients. I remember having a chat with a senior client member, he pointed out that his wife still likes to buy fresh vegetables from the sabziwala who comes every morning. He reasoned out, that his sabziwala knows how much quantity is consumed and which vegetables are preferred by his family. That sums up the advantage that M&P might be having.

In India unorganized retail still accounts for over 90 percent of the retail market, but M&P are facing a constant and increased threat from organized retail chains. These retail chains bank on the seamless supply chain that they have built and also on the economies of scale. Till now Organized retail has appealed premium and high end customers. But it wont be long before no-frills retails chains on the lines of Subhiksha and others give M&P a tough fight for the turf.

But Ashok is unfazed, he knows that market is big enough for everybody to survive and innovation will be the key to the survival of M&P in the times to come.

North East Day 2: Guwahati Temples

Today was a day for temples - it seems Guwahati is called a city of temples - there are quite a few of them here.

First we went to the Arunachal Bhawan (found it after a loong search - as it is in a small house on the end of a smaller street) and applied for the ILP (In-Land Permit) which is required for going into Arunachal. If you don't want to "waste" a day in Guwahati - I would suggest that you get the ILP from Delhi or Mumbai. Anyways - I missed out on that option - and spent the day in Guwahati. 

As I said - a day for temples - Kamakshi Devi (the line was sooo looooooooong I didn't even think of going in) - Umananda (small temple on a river island - very nice place to go) - had lunch - and the Balaji temple (very beautiful South Indian temple - nicely landscaped - unfortunately my camera went crazy - the mirror got stuck and many photographs came half black :-((((( )

And last of all Kalakshetra - a nice park with a small museum and a big open-air theatre - very nice place. 

Well - that was the end of the second day - quite uneventful and not the best - but lets hope for the best - should get my ILP tomorrow - and then its off to Arunachal - Bomdila and Tawang - then Kaziranga. Lets see what else can go wrong. . .

It seems the North-east area hates my camera - last time I had come to Calcutta - and my SLR was stolen - this time - first I got fined for using the camera yesterday - and today the mirror got stuck - now till I can get it repaired I've lost the ability for auto-focus . . . . . but I guess things could be worse :-)

North East Day 1: Shillong

Reached Guwahati early in the morning and met up with my old friend - Nakul. Even though we had met after many years - it felt as if we had met yesterday. Went to his place - met up with his cousin. Relaxed for a while and then had breakfast - which was so heavy it was more of a lunch !! 

Nakul had to go to Shillong for a small site visit - and asked me to tag along. Also a few architects from Nepal had come to attend a workshop organised by Nakul - and they joined us for the trip. Two hours up - the journey was through a small winding road. We stopped at the "Orchid" for some lunch - and it was absolutely beautiful. The lake was on three sides of the restaurant. and with the large windows it looked simply amazing. Unfortunately the food left much to be desired. 

Further on we went to Shillong Peak - which had a panoramic view of the entire city of Shillong - however the weather became foggy and getting good pictures was not possible. Still - it was beautiful. Then - but not before getting in a small tiff with the **supposed** authorities about the use of a camera - we went to the Shillong Club to meet Nakul's client - owner of one of the best restaurants (The Bamboo Hut) in Shillong and he asked us to wait in his restaurant while he took Nakul along to the new site. The food here was amazing and the ambience of the place was also cool.

None to soon the day ended and we reached home. . . . .

A few photos to show what I mean

Dushyant Ahuja

When we remember we are all mad, the mysteries disappear and life stands explained

Creating segments along the way

Usually a company introduces a new product in one of the target market segments. In not-so-common cases the new product creates a new segment altogether, mainly due to technological breakthrough achieved. But it is surely rare that new market segment is created twice in a row in the same industry that too by the same company.

I am referring to Tata motors.

Until Nano the lowest segment in 4 wheeler market was the ‘low end hatchback’. Much has already been talked about Nano and how it has created a sub ‘Maruti 800’ market segment. Less popular though is Tata motors vouch to shake up the sedan segment.

Budget 2006 brought in separate excise duty for small cars, 16% instead of usual 24%, which has been further brought down to 12% in this budget. The classification of a vehicle as small car is determined by the length of the car being lower than 4 metres (and also engine capacity upto 1200cc for petrol and 1500cc for diesel). By smartly modifying Indigo (entry level sedan of Tata motors) Tata motors got its length to 3.95 metres making it eligible to claim the excise rebate. The new car is called Indigo CS (compact sedan) & will be priced starting at a coooool 3.79 L. The price is set to target potential high end small car buyers. What Nano has done for small car segment, Indigo CS plans to do for the sedan segment. Also note that CS has created a new segment without any major technological breakthrough.

Indigo CS has one more key advantage. Indica, Indigo and Marina all have the same engine. The tooling and R&D cost of engine can be recovered from the volume sales of Indica. Hence Tata is in position to price CS aggressively to keep competitors at bay. Competitors also may come up with ‘sedanese’ versions of their hatchbacks. Although unlikely, they may also pressurise government to make the excise rule more stringent so that CS cannot be claimed as small car.

Whatever happens, the vacant space between high end hatchback and low end sedan will definitely see lot of hot action.

Honey, Whaddaya do for Money ?

It is the year 2015. The IPL is in it's 7th year running. Sachin Tendulkar still makes the odd guest appearance for the Mumbai franchise. He only bats left-handed because of a tennis elbow. MSD still trades for $2 million (give or take a few in terms of his depreciating value). Ishant Sharma switches sides so he can bowl to Ponting every game. A greying ShahRukh watches from the pavilion with a scintillating Deepika Padukone, who's rumoured to be dating a slimmer, sexier Ramesh Powar who's made a comeback to the IPL. Shoaib Akhtar runs in steaming from the pavilion end and gets hit for a six by Rohit Sharma. ShahRukh picks his phone and the newspaper headlines read the next day "Akhtar transferred to Mohali franchise overnight. Deal price is a record low of $1200. Rahul Dravid planning to resurrect career in T20 after retirement."

I'm not sure if this is your idea of the future of cricket. It certainly isn't mine. Having said that, the Indian Premier League is a major victory for what Lalit Modi likes to term "free market economics". We understand the term and we understand how it works when it comes to deciding insanely high prices, which are based on even crazier speculative bids, for cricketers who are supposed to be inhumanly talented. And in a fair sense, one would really have to be a socialist or communist to not appreciate all of this.

But, serious questions need to be asked if the mad moolah that dominated the recent IPL auctions will take away what matters most - the beauty and variety of the game. The IPL is about a fast, quickfire, TV friendly format of cricket - the T20. In other words, it is about marketing a game that's slam-bang in variety and caters to the low attention span cricket viewer. Assuming that the market does exist for this variety, what could be the long-term consequences of the league?

Classically, Test cricket is still hallowed territory for the game and this is where batsmen and bowlers have an even chance of being successful. In my books, I find it tough to compare a Test scenario involving Sachin Tendulkar grinding it out in the heat against a steaming Brett Lee on a seaming Perth wicket or a Anil Kumble weaving his spell on a 5th day turning pitch Vs. a T20 scenario of MSD or Symonds hitting poor Piyush Chawla for sixes on a flat pitch. Yes, cricket needs the thrill and excitement but an even contest over 5 days on a sporting wicket is the true test of a cricketer's character. A free market economist would say "Let Test Cricket die a natural death". I'd probably say cricket will die in the process.

What does IPL mean for the smaller cricketing nations? A lot of players from smaller nations go to build up numbers and make quick cash in these leagues. Nations like Sri Lanka and New Zealand already have a very small player base to choose from. In other words, the national teams sometimes lose out on availability of players. Bottom line : The IPL needs to be sanctioned and controlled by cricket's governing body like a dog on a leash.

Does the IPL bode well for younger players? Yes and No. The IPL is a tremendous opportunity for under-21s to play with some of the best in a world. But one could also argue that the slog variety of the game is not apt for development of technique. One may get to see a lot of Dhonis enter the world stage, but not everyone may survive without adequate first class experience. The IPL is not a panacea for world cricket. On the contrary, it needs to be viewed as a sideshow that makes a lot of money.

What about corruption? Match fixing? No one's talking about it with all the money involved, just yet. Stringent rules being enforced and constant monitoring of inter franchise transfers is necessary.

How do the younger players handle money? Will cricket's rules change to accomodate more batting favourable rules (free hits, powerplay modifications) ? Will the T20 format encourage development of bowlers?

Many more factors come to mind before one could blow the trumpet on the IPL's tremendous kickoff. The money is good. The brand is good. Free market is good. But is it all good for cricket?
Time will tell.

I can almost imagine MSD getting introduced to his to-be in-laws by his girlfriend who says :
"Honey, whaddaya do for money? "
To which, MSD scratches his head and replies :
"It was Chennai till Thursday, yesterday I think I got transferred to Mumbai....Or was it Kolkata?"

Now that's insane.

Its all about Money...Honey!!!

My favourite story of cricket is from another generation: In 1956, India defeated New Zealand in four days in a test match. The team, which was paid Rs 50 per day at the time, did not receive an allowance for the fifth day. When one of the players dared to ask a cricket official for an additional fifty rupees, he was curtly told: "Who asked you to win the match in four days!"

The world has changed for the good, since then. As the cricketers went under the hammer, one couldn't help thinking how dramatically the sport has been transformed. As business tycoons and film stars bid furiously for the big and not so big names in the game, a revolution seemed to be in the making. The sport finally was becoming a part of the great Indian bazaar.

Cricket, unlike a few other competitive sports, has been burdened with the myth that the men who play it do so for the “love” of the sport (I speak of world cricket…).While footballers were being traded places for millions, F1 drivers and Golfers were millionaires, cricketers were expected to bask in the sheer joy of playing the game. Which other sport would allow teams to play each other over five days, at the end of which there could be an "honourable" draw? Which other sport was played with such an insistence on the "rules" and "traditions" of the game? Soaked in romantic prose, cricket was branded for decades as the "gentleman's game".

In a way, all Indian sport has suffered in a model of socialism in which all big businesses were “evil” and sport was a only a distraction from professional activity. When did sports then, particularly cricket, start hogging the front page? From a feudal sport to being the great Indian dream, the transformation has been gradual and fuelled by the convergence of sports, entertainment and most importantly corporate India. 1983 victory was a landmark as it coincided with the onset of colour television and the sudden realization that cricketers are commodities (marketable…).From Kapil’s shaving cream ad (“Palmolive ka jawab nahin”…remember) to Dhoni’s hair gel to music endorsements ???(Royal Stag…mega music…just in case u wavered J), it’s come a really long way.

The IPL, as I see it, is a brilliant example of the 21st century business enterprise. It may have raised eyebrows as to whether its worth the hype, but, I would definitely like to give it the benefit of doubt. After all, do we want to slip back to the era where talented cricketers were treated as daily wage labourers and expected to pay obeisances to the officials for being selected? Or do we want to see the talented cricketers demand their rightful place in the market? Talent should never come and most importantly “go” for cheap…

Its not all about MONEY HONEY!!

Budget and its implications!! The short sighted view has had an impact. The share market saw its lowest trend and i am not so sure if farmers really know what is being offered to them, but banks for sure have an astrologically bad time. While the government is very pro in hitting the right chords when it comes to making emotional people happy, it fails to sustain the happiness for long.
Sometimes i wonder, with the best of brains in country serving as civil servants, is forming a right kind of financial policy so difficult? Don’t they know that charity is old fashioned now, enablement is the key. I am not saying that good things do not happen, i have seen employment cards scheme started by government, i have seen good interest shown by big corporates in procuring rural products, i have also been told that a big retailer is looking at a huge tie up with airline fleet for transferring products across for its stores, so yes, the need for the day has activated many brains. I also know that millions of dollars flow in India in the name of upliftment, but unfortunately, with so much of resource at hand, the outcome is negligible. So, it is really not a lack of resource for us anymore, it is the lack of connection between demand and supply.
What needs to get going is- Infrastructure, education, technical know how, corporations in each village to disseminate knowledge and connect with demand side in cities and places abroad. They are forbidden world. They have power to work and act, but they don’t know which direction is the world outside moving into. With such intelligent civil servants at our nation's disposal, we fail to form a smart governance policy. (They don’t have to slog in fields, they just have to show direction and hand hold. I believe sitting in one village is a waste of time for a civil servant, his job is to plan a strategy and delegate, there are teams which can be hired to implement. )
Since childhood, i have come across many civil servants and year on year my conviction is strengthened, that no one can challenge their intelligence. They go through rigorous selection process, they are all well read and they can create smart business models, but they don’t; because politicians don’t use them. I am just left wondering today, politicians in every country are supposed to be politicians, infact even in normal job, there are politicians. Civil servants can not be thrown out of job by anyone other than a president, and that has not happened in the history of this nation. They have power and brain to tweak around the system, keep everyone happy and still do good for nation. Lalu has got a railway system running with the help of these brains, then why do others fail? You can remain as bad as you are, still do good for nation, every progress will mean an addition in your capacity to receive bribe.
And then, it’s not about money, it is just a resource. A resource without proper utilization is garbage. Give away crores if that keeps people happy, but create a system underneath to ensure that it solves the problem at hand. Why don’t we incorporate analytical techniques when coming up with budgets? Have the problem statements, goals, solutions. Once we have the roadmap, incorporate the emotional factor (say 25% weightage) for vote banks and roll out the governance plan. I am not saying hit your pockets, you are politicians for a reason, but make use of resources you have (civil servants, corporate influence) and do something which makes you feel proud of your own power and improves your earning capacity in future.

India always had more brain than money. Use what you have more, leniently and be a bit stingy with what is not your strength. All nations have politicians with similar characteristics, because that is the kind of skill set needed for being one. Beaurocrats were meant to compliment the politicians, but the education system is faulty, they are just books with zero convincing and “marketing” capabilities, may be. Politicians have done a great job (hit the emotions), civil servants have failed(Right governance and progress goals) . System has been failing for investing so heavily on dormant brains for years in this nation. In the end, it’s not all about money honey, there is something called brain which ensures that money is given its right place.

The Budget is not BAD, but this is not the kind of budget a nation seeing transformational economic progress expects.

The 65,000 crore write off

There was always an expectation that the current budget will definitely look into the issue of farmer loans. Too often have we heard about failed crops and suicides. As Mr Chidambaram said during his budget speech that the country has a deep gratitude towards its farmers. Actually this is true. Do we ever wonder where the sack of potato or onions or chillies are coming from. We just go into the market & expect fresh batches of vegetables/fruits/cereals all the time.

But coming back to the point. Though this was expected to a great deal what was probably not expected was the magnitude of this offer. Rs. 65,000 crores is at any point of time a massive amount of money.

In the short term, there will be a drain on the financial system. As pointed out, it will have an effect on the profitability of all PSU banks particularly in the 4th qtr results of FY 07-08. We have to understand the fact that these loans are assets in the books of the banks against corresponding liabilities which are basically savings & current accounts i.e. our money. Now if the assets vanish ovenight the banks might be under severe liquidity problems. Good thing is that the Government proposes that these right-offs would be compensated by issue of bonds, securities etc. so that the entire effect is not passed on to the Banking system.

Another effect this will have is a dearth of investible money in the hands of the banks. Till the time the bonds are floated the Banks will have less of cash to disburse as loans. This may lead to a demand-supply gap in the short term and the interest rates will probably continue to be high. This will be actually contrary to the expectation of a softening interest regime and may actually contribute to an increase in inflation.

Further, the scheme talks of farmers with a certain cap of land holding. This I believe is the biggest pitfall. The biggest question here is who is going to monitor this aspect. The farmers would probably be at the mercy of local authorities to freeze their holding and there might be a scenario of immense kickbacks in this regard. Also, who is going to stop the big farmers from dissecting their landholding to less than the ceiling limit in the name of family members. In India, unfortunately, money can buy anything. I believe that the administration will be the most challenging aspect of the scheme.

Another point which has not been explored is the loans taken by the farmers from local moneylenders. These are the loans, with exorbitant interest rates, that drive people to take their lives. It's a reality that only a small percentage of farmers take loans from Banks. For most, it's the local moneylender who demand huge interest and heavy collateral from which there is no escape. This segment has not been addressed at all.

Probably from a macro perspective, it would have made more sense that this money be spent on infrastructure - better irrigation, better crop & cultivation technologies, cold freezers etc. This would have resulted in a lasting effect. Because, till the time these things are not in place, the next round of crops would also potentially be at risk of failure and the fresh loans disbursed to the farmers will also be at risk. This will give rise to a vicious cycle. Having said that, the elections are actually not far away and that probably is the biggest reason towards any kind of budget announcement. The infrastructure development may have taken 5-10 years to put in place but by that time there may be a new government who will walk away with the credit. On the other hand, this measure has an immediate impact and will certainly help once elections come around. This I believe is the only negative thing about this entire scheme.

Having said all this, apart from the doubts as expressed above, I am totally for this scheme. I believe any amount of money is worthwhile provided it saves a life. We do owe deep gratitude to our farmers and in a socialist set-up we have to do everything to alleviate their position. There are certain things, we in the city, take for granted. The reality in the villages is very different. "Equitable distribution of wealth" is a word we have been hearing for a long time. This scheme, if administered properly, may go a long way to do that.

picture abhi baki hai...mere dost!

Why is it that some movies get me? And I mean, get me hook, line and sinker? And a very tiny few of them? I am a Bollywood buff. But that's not to say I watch all the movies (actually, I do watch a lil more, but just because I have an unlimited internet connection to d/l the choicest of movies :-)

But why is it that those few movies get me? By the end of when I watch such movies, I go hyper! Not hyper in the sense of jumping around on a pogo stick but hyper mentally. I think more and surprisingly seem to think more clearly at the same time after I have seen such a movie. What is more surprising is that, the people that I watch such movies with, come out of the theatre with a "well, it wasn't as great as I expected it to be" or "that piece could have been handled deftly" kind of look on their faces. I mean, don't they get it? Or 'am I the odd one out? I dont know.


I remember this altercation I had with a dude who had issues with "Rang De...". At that time (even today), I wouldn't buy anything against such a brilliant movie...brilliant not coz it had a message et al...but for the simple reason that while watching the movie, I could relate and would have done exactly the same things.The issue that this guy had was that it promoted violence. Gimme a break...we're humans...unless we're shown sex and violence...we aren't excited.So why crib?I asked him if he liked "Swades"...he said it was boring...precisely for the lack of "action".I mean...either I'm nuts or this guy is so open-minded that his brain has started falling out.

Remember when we were kids, we used to read so many stories? And remember how all those stories had an ending. When we were tiny toddlers, almost all those endings were the "and they lived happily ever after" type. And as we grew older, we came across endings which were not necesarily happy but the story still had an ending. Is it not possible for a person to direct a movie and resist the temptation to put an 'ending' into it? Its not about just trying to be different from the rest of the film-makers...but the devotion to the original concept so that nothing sways it."Mithya", I thought, was a courageous attempt.


So, all you creative people...the proposition is this..."Succumb to the Temptation" (remember the brilliant Kwality Walls' Campaign) and execute it with a twist!!!