Friday, March 31, 2006

Looks are not everything

Well, we all know that dont we? But this post is about how sometimes aesthetics scores over functional value - and with disastrous effect.

Most new buildings in Bangalore have a weird arrangement of sliding glass doors and iron grills. The grills are inside and the glass is outside. Why? So that the building looks good from the outside. But if anybody has lived in Bombay, they would know that this arrangement is always better the other way round. Why? Because when kids play galli cricket, your grill saves your expensive sliding door glass 9 out of 10 times. Besides with the sliding window outside, it is tough to clean the glass by putting your hand through the window grill.

Many places I know have a terrace cafeteria. Curvy lines, arches, parabolas and what not dominate these roof top structures. Only, many a time they accumulate a lot of dust given Indias tropical dusty nature. And many a time they are made of fibreglass or equivalent plastic material that heats up (almost like a greenhouse). So, your canteen is a hot sweaty place that makes cafeteria food look worse that what it is.

In order to make their buildings/structures look grand/elegant, architects often add a gargoyle here and a column there which surely makes the building look good, but then, whats the point if it does not add any functional value or worse, becomes a hindrance in the day to day utility or accumulates dust? More on this too some other time.

Thursday, March 30, 2006

NDTV, Genpact media outsourcing

Just chanced upon this report in The Hindu Businessline that NDTV and Genpact (formerly GE) have created a joint venture for media outsourcing.

Business process outsourcing company Genpact (formerly GE Capital International Services) and broadcaster NDTV have announced a 50:50 joint venture to offer media outsourcing services to enterprises worldwide in areas such as editing, digitisation and closed captioning.

Familiar as I am with outsourcing, this is news to me...

"Currently 70 per cent of all media work is digital and virtually 70 per cent of this can be outsourced. In some ways, the media world is currently at an inflection point similar to the Y2K phenomenon, as decades of analogue experience is being converted to digital from major process-based operations to high-end functionality," Mr Pramod Bhasin, President and CEO of Genpact, said at a conference.

Genpact, in its former avatar is the big daddy of outsourcing. NDTV, with Prannoy Roy is no stranger to the world of media. It is good to see both Genpact and NDTV break out of their respective businesses to create a new opportunity.

Worldspace grows in India

Heres a report from Business-standard that says

...Almost two-thirds of the customers of WorldSpace, the US-based satellite radio broadcaster, are in India and the number is growing.

At the end of 2005, WorldSpace, which offers its services in more than 130 countries, had 115,306 subscribers, out of whom 74,574, or 64.67 per cent, were in India.

The subscriber growth in India in the last quarter of the year also surpassed the broadcaster’s overall subscriber growth...

Worldspace radio, from the little I have heard it, lacks the localization connect of FM. Second, it does not play the latest songs - it plays new songs, newish songs, but certainly not the latest songs. The other big thing is that it is contrary to what a radio is meant to be - in an age of portability, it is rooted in one place (this is sorted out with in-car receivers, only a matter of time before you see Worldspace car radios in India). And biggest thing in India - that it is not free in a business where all radio channels are free and have always been free. And subscriber experiences in getting the system installed have not been entirely pleasant (they charge you for extending the wires etc.).

This is not to say that it does not have its advantages. Few ads, 24 hours music, no yapping radio jockeys, a huge selection of channels - especially channels that help a Carnatic music fan hear his kind of music in, say, Guwahati and so on. And this is perhaps its biggest selling point that overrides the earlier disadvantages. With the introduction of a channel for the AOL (Art of living) celebrations, they proved that they too can connect - in a way nobody else can connect the globe.

The other question that seeks an answer is where is AIR? Couldnt they have done something similar, open up with a hundred channels free for air? Instead of brooding over falling revenues? If a paid service can grow so much, why cant AIR? Everybody in media is making money.

But coming back to Worldspace - Worldspace is treading a contrarian path. Will it continue to experience growth? Especially considering ipods (podcasts et al), streamed music over broadband and other personal music systems are becoming more and popular, cheaper and better?

Wednesday, March 29, 2006

Buses and windows

The latest Volvo buses not withstanding, most buses which ply on Indian roads are the older variety, the ones in which windows open and let the air in.

Most city buses (and all trains) have a window at the control of the passenger who sits beside it, meaning, these windows open vertically (like in trains where every window seat has control over a window). Amazingly, there are quite a few buses where windows slide horizontally across 2-3 rows. Therefore, in these buses, for every three rows, there is a row of seats that has no control on windows and have to be at the mercy of those ahead or behind. The erstwhile Pune Asiad buses were like this. On many an occassion I have found myself trapped between a row in front and a row at a back both of whom wont allow the window to be opened - result, me in the center, sweltering and sweating.

Windows can be asymmetrical only if they do not have to be opened, as in air conditioned buses, but if they have to be opened, like in non air conditioned buses, why have them asymmetrical in the first place? The whole point of a window seat is to have a window at your control.

Some smart alec must have thought about aesthetics and forgotten functional value. (More on this some other time, now that I got started on it.)

Exports, incentives and stories

In the 80s, Import- export firms were common place. They went under prefixes of suffixes like Impex, exim, exports, imports or imports-exports. They were also localese for "smuggling" or some form of duty evaded goods and the like. Stories like these where a set of diamond firms are under the scanner for misues of certain incentives are not unfamiliar. They would make you want to believe that exports in India, especially export incentives, leave a lot of scope for misuse.

Having been associated with a firm that used to export and having been in touch with many bankers in the export business, I can say that the truth is that there is a lot of misuse of these provisions. For instance, there is something by the name of packing credit wherein one can avail of cheap short term loans for raw materials procured for export and pay it when the customer pays for the finished product. Underinvoicing exports and overinvoicing imports are the most common. Money is fungible. Export laws, like other laws in India are drafted with immense spaces between the lines - meaning between those lines, subject to interpretation a lot can be done. The same is true in the import segment.

I am not saying that there are no legitimate businesses in this space, there are, but there are many who live on the thin line when it comes to export incentives.

Thursday, March 23, 2006

Indian IT, next steps - organic or inorganic

Over the last few months (or two years or so), Indias IT companies have discovered that the organic way to growth is not necessarily the best way. They have gone about breaking their current mode of working by acquiring companies across the globe.

TCS is at the forefront with its process based acquisitions. Wipro is there too with its string-of-pearls strategy. But the big difference is Infosys. After its acquisition of Expert systems Australia, Infosys has not acquired anything. Expert systems itself is not very different from Infosys and the work that it does, so the acquisition was not path breaking in itself.

TCS and Wipro by contrast have broken into newer areas be it pension processing, buying into banking product companies or picking up credit card processors, semi conductor design companies etc.

Infosys seems to be a laggard in this space, seems to, being the operative word. Is Infosys becoming too comfortable in its current mode of operation, even as it nears its 25th year of operation and 2 billion USD in revenue?

On the contrary, Infosys is actually going on a different path as compared to Wipro and TCS. Infosys has invested significantly in its consulting wing, which is led (and staffed among others) by former Big Five consultants. It has also sharpened its model by investing in training (it has a huge training centre in Mysore) infrastructure that enables it to impart sharper training. Infosys, though, as seen in this link, "We have acquired a company in Australia and have created a consulting company and are on the look out for good buy-outs. We look at companies for acquisitions based on whether they offer us downstream opportunities," he (NR Narayanamurthy) said.

So, on the one hand, theres inorganic growth. Acquire companies, customers, employees, footprints, mindspace - which is the route currently being taken by Wipro and TCS. This is a tough route with integration of these companies being a big challenge. Organic growth is tougher because a brand and newer areas of operation have to built without an existing base. So, what is the next step to growth. We will see.

Duh! Moment - Music Television

The cable television revolution hit India in 1991 with the Iraq invasion of Kuwait. Cable was around for some time before that, but this one was the impetus for the take off of the cable boom in India. After all, a war was being beamed live. Many TV channels were launched at about this time in India. Among others, MTV India made its debut as noted in this case study

"MTV", discusses the growth of MTV in India. MTV made its debut in 1991 when its distributor in India was the Hong Kong-based Star Network. Its India-specific operations started only in 1996 with the launch of `MTV India'. MTV is a 24-hour music channel that primarily caters to viewers in the age group of 15 to 34 years. MTV India features 70% Indian music and 30% international music. MTV India has consistently positioned itself as a youth channel, catering to the Indian youth with its mixed offerings of music, humor and fashion. MTV India has largely localized its programming content by showing more India-based programmes, which is a major departure from MTV's earlier avatar in 1991.

The first time I watched MTV, I went, Duh? A majority of it was a rehash or a replay of American programmes without a single reference to India. Indeed if you only watched the programmes, you could convince yourself that you are in some other part of the world. It was true that there was a hype of foreign, English songs etc. and the size of the market. It was also a belief in certain sections that the size of the English music listening crowd was very high. But truth is that, that market is at best a fraction of the entire total market. Some of the earlier FM Radio channels also discovered (and are discovering, even 15 odd years down the line) the same thing, that the hype for western music does not translate into listenership. As mentioned in the case study, MTV changed, over time bringing Indianness to its repertoire. Today it is 70% Indian and about 30% English.

Channel V however got it right, though I am not sure if it was the first time. Quick Gun Murugan and "We are like this only" from Channel V, brought V more eyeballs. The "we are like this only" attitude got V more than brownie points than MTV got from its hifalutin attitude. As director of that set of spots, Shashanka Ghosh says here, in this interview:

I had already done a series called Quickgun Murugan-this was a series of spots on Chanel V and it was said at one time that this pretty much redefined television and viewer sensibility across India. Basically the brief for this was that how d’you indigenize an international music Channel. So a writer called Rajesh Devraj and myself got together and we created this line called ‘we are like this only’. At that point it shook everyone up.

Quickgun Murugan - a take off on South Indian heroes (as opposed to Hindi film heroes) was a riproaring hit and music television was never the same again in India. MTV, picked itself up, dusted itself off, changed its content and well, became smarter. MTV Bakra is a case in point as is the Liftman.

In the initial days of liberalization ( the name we gave to our slow opening up to the world economy) there were many such Duh! moments when there were launches of "foreign" products on the premise that they were "foreign" or "imported". Today, 15 odd years down the line, such Duh! moments are rare with most brands doing their homework before entering India.

Tuesday, March 21, 2006

On margins and packaging

Many years back, buying stuff loose was the only way one could buy things like rice, pulses, sugar etc. For those who are not familiar with Indian market jargon, loose means, buying items that are not pre packaged or branded. You choose the weight and it it is weighed and packed right in front of your own eyes. For run of the grocery items like rice, wheat this is pretty much the way it is in most places. But for pulses and some other items, like spices branding was seen as the way forward. The good brands are really good, but there are many little brands that are little more than loose packages with a label and no real control on quality.

This week on our weekly visit to the wholesale market we came across a shop that was selling stuff loose just like in the good old days. For most items, the difference between his price and the price of a "labelled" "in house brand" was a good 3 odd rupees per kilo. And with the high end brand, the difference was much more. The quality of his items, seems, atleast to the eye, far better than the packaged stuff we were used to buying. We promised to check out this section of the market once again next week or so.

The point being, if you see a lot of these "branded" "no brand" stores coming up near your place, be aware that they are little more than your old grocery store in disguise - with more margins and little else to offer. The art of packing stuff in putting in a label in each packet also reduces the scope of something that the Indian consumer is famous for - bargaining.

"It is the printed price" they say. Well, you printed it, there is no sanctity in that. It is just way to ensure that their margins are not lost.

The question to ask is, Is there any value add in the brands that you buy or is it just packaging and a fancy label?

Monday, March 20, 2006

Furniture shops

Furniture shops are a dime a dozen in India. Much more than any other set of shops, except perhaps grocery, there are furniture shops. Some of them belong to the organized sector like Godrej, Style Spa, but far more than the organized sector are the unorganized sector shops. These shops have fancy names but little beyond that. They have a bunch of carpenters and some rudimentary machines to work wood. If one is not careful, you can be taken for a ride in terms of price, quality, dates and everything else. Why is this business so big?

My guess is there are a few driving factors that make every Ramu set up a furniture shop.

1) It is a high margin business. Between the money paid to carpenters to the end product sold as a single piece, the margins are huge. While carpenters charge about 500 per sq ft on an average including labour costs for woodwork (varying upto 1000 per sq ft, depending on which wood is used) the lower end carpenters come for much cheaper. Like the Indian IT model, a whole host of carpenters work under an umbrella brand- only unlike IT, profits are not shared with these carpenters who are from the hinterland and who are paid peanuts.

2) Some of these furniture shops are family/extended family run outlets. That allows them to cut costs and make more money.

3) Furniture making is a low skill job that, with a few skilled persons and lots of unskilled persons can be a money spinner.

4) No IP on designs. The typical modus operandi of these shops is to pick up a catalogue of one of the designer brand. How to pick up a famous furniture catalogue? Go to any raddi (junk newspaper) shop and you are sure to find a furniture design catalog for a few bucks. Show it to a carpenter and he can crank a replica for a fraction of the price.

5) The amount of leakages of wood from Indian forests is high. Since there is nobody who tracks where these shops buy wood from, my guess is many of these are fronts for the forest and timber mafia. This is also reflected in the amount of counterfeit brands available. These operate as "Number 2" (a parlance for tax evasion in localese) businesses.

In most new areas where there are new apartments being set up, the number of these furniture shops is huge. Similarly in places where there are new, unauthorized constructions coming up, on is sure to see a furniture shop or two. I have not been able to establish the connection between unauthorized construction/shops and furniture shops, yet, but I guess there is something there also.

Anything else?

Sunday, March 19, 2006

Electricians and literacy

Many weeks back I had posted a question on how can one design for illiterate people or how to overcome differences in language in terms of signage etc. Usage of standard colours, symbols immediately comes to mind. This question came to me some time back when I saw an electrician at work. It would be safe to say that an electrician in India is just above the rank of an unskilled labourer. Not in terms of his skills, but in terms of the way he learns the tools of the trade. Most electricians work in electrical shops and learn the tricks of the job, on the job.

They are not really familiar with wiring diagrams or circuits, indeed they know little beyond the red, yellow, blue and black. The beauty of the electrical wiring is that it is so easy to know, that makes it so easy for electricians.

Like the green dot, it is another way of communicating without the dependency of language.

The green dot

If you a vegetarian, you would be happy in India. The sheer range of vegetarian food on offer is mind blowing.

If you are fastidious about vegetarian packaged food too, watch out for the green dot. For over years now, the green dot is the symbol of vegetarian food. Apart from this you would see a red dot too for non vegetarian food (including hidden meat ingredients or egg, even in medicines, toothpaste etc.). This is useful since a lot of Indians would prefer to avoid hidden meat ingredients (such as egg in cakes); they are not vegetarians who avoid eating meat in raw form only.

My guess this is the only country which has such a symbolic system of marking vegetarian and non vegetarian food. In India about 20-30 percent of the population is vegetarian and such a nomenclature is a universal way of communicating the contents without dependency of language yet being indicative enough.

Thursday, March 16, 2006

Electricity bills on the spot

The march of handheld smart small technology has improved electricity billing in Bangalore. Of late, electricity bills are no longer in the old paper format. They are generated by a small handheld machine like credit card authorization printers. This thing prints out smaller bills on thermal paper on the spot, at the point of consumption itself. An inspector visits the site, enters the meter reading (or perhaps reads it via barcode - am not sure of this) and prints bills on the spot. So, we get our bills faster and without error. Because of the drudgery of the field visits for inspectors, earlier, metering locations used to be visited once in two months. So, one month you got the actual bill while the next month you got an estimation and in the third month arrears were adjusted. You can even receive the bill via SMS (text message).

A simple piece of equipment has reduced the process into a much more cleaner and smarter process that is more convenient. BESCOM is one organization that seems to be doing more to bring efficiency into its operations. Now how about getting electricity distribution right?

Managing crowds

How does one manage crowds in a country of a billion? Say, at the site of a temple, Tirupati, where the average waiting time can be about 6 hours? It is not because of anything else, but for the fact that millions throng the temple on weekdays and another few million more for the weekends. Festival times means a few more million. One obvious solution is to have a queue with an entry fee. So, those who want the free entry would stand for a longer time in the queue with the paid queue being a little shorter. The other solution, as used in a place like Tirupati is giving each devotee a biometric bar coded darshan timing that is tamper proof, water proof and cannot be duplicated.So, once you reach the place, you get a tag with a timing. At the appointed time you reach the place and stand in a queue (of about 3 hours on an average) and get your appointed "appointment with god". In a certain hour, only a certain number of devotees are allowed, therefore crowds remain manageable.

What if this happens in a shopping complex? ICICI bank ATMs are perenially crowded, despite their huge network as are their banks esp. on weekends. Big Bazaar has seen crowds throng its shops.

Indian railways were at the receiving end some years back. There were times when people would go overnight, sleep in front of the counters and get up in the morning to be the first in queue. Once it reaches this level, as it is seen in sports events, there is no control. Fans can queue up three to four days in advance, literally camping in front of the ticket counter with food and water. The Indian railways online service is a welcome service. As the railways go more and more online, there is less crowd at the counters. The volume online is not yet enough to leave the counters empty, but it is a beginning.

For some services like airlines, where ticket volumes (in terms of numbers) are still low, online is a good option as is tele booking (but this is yet to catch on in a big way in India since trust in services that is not face to face is still quite low). Online banking took a while to take off in India. Even now there are many who do not use an online booking/banking service for fear of their transaction getting cancelled at the last minute. ICICI Bank for its part has a token numbering system where the customer draws a number and waits for her turn.The bar coded darhsan timing type biometric identifier is one idea. Big bazaar is said to be toying with this idea.

One other solution is to have many counters operating at many places. Bangalores KSRTC has a bus booking service that is almost always within a few minutes walk from any place in Bangalore, thereby reducing the number of people at a single place. McDonalds (and it has serpentine queues at many of its outlets) has a system where there are service agents who take your order on a small paper that you pass it on to the counter when your turn comes. The counters are places where people wait and think and dither before they place their final order, by letting people think in the queue, the counter is no longer a bottleneck, thereby quickening queues.

Opening the counters 24 hours or extending the working hours or giving a discount for non regular hours (happy hour banking is a solution too) are other solutions. There are many ways of crowd management, and I am sure we havent seen the last of it yet.

Tuesday, March 14, 2006

Beyond the gloss

Two ad campaigns have been running for a while. The first one is, Andamans with the catchline- Emerald. Blue. And you.

The second is for Maharashtra - Leave the week behind.

Both the campaigns are good, indeed the Maharashtra one is really good. Close on the heels of !ncredible India, these are high class campaigns.

But between the high class and reality is a wide wide gap. The gap that makes tourism in India miserable. Athithi Devo Bhava (The guest is god) campaigns notwithstanding the tourism industry in India outside expensive charters is all about touts, harassment, cheating and downright robbery. Touts harrass tourists at every stage starting from a taxi service to a hotel room to tourist guides. Harassment by beggars and hawkers who want to sell trinket after trinket is another thing. Cheating - need I say more. Kerala is probably an exception, but then again as I said, outside expensive places and charters, not very.

Unless these user experiences improve, those glossy ad campaigns wont matter. And at that point, these campaigns wont matter since user experiences will drive India tourism. We need to get our basics right in tourism, otherwise, it is honestly a pain touring in India.

Monday, March 13, 2006

Labour arbitrage and Indian IT

Indias IT services companies are at the forefront of offshoring. A lot has been written about them - the TCS, Infosys, Wipros and Satyams. These companies have evolved from the bodyshoppers they once were to real system integrators that compete with the likes of EDS, IBM and the biggies.

But, like it or not (and this blogger is one who is a fan of Indias IT companies), there is a strong element of labour arbitrage in the model. Again, this is not a secret as far as IT services are concerned - neither is the salary low to be considered to be a sweatshop. In India it is far more prosperous to be working in an IT company than working in any place at a similar level (and this has been so for the past few years. (For employees, the big companies are good paymasters and also provide good benefits. Most companies offer insurance schemes, profit sharing schemes, ESOPs, subsidised food, subsidised transport, excellent working hours, flexi times, work from home facility, evening cab drop facility and so on.)

But, as I said earlier, labour arbitrage is a big part of the equation for these companies. A look at their recruitment pattern will show how. Many years back when some of these companies began operations, they looked for IIT engineers - from the choicest of streams. Work in these companies was never really the grade of these geniuses, and it was reflected in attrition among other things.

Then the companies began to look lower, any IIT degree and some selected degrees from the NITs and locally renowned colleges. These employees also did not come cheap with the year on year rise in salaries - and since these guys (all credit to them) were quite sharp themselves, found the jobs not to their satisfaction leading to attrition.

Salaries in this industry have been rising straight ever since the industry began save for the years of the dot com bubble. Therefore things came to such a pass that the salaries offered by these companies found no takers at the IITs, even many of the A lister colleges. Companies responded by going further down the value chain.

The economics of this is simple. Engineers especially the A-listers have to be paid well, need job satisfaction and even project management experience a couple of years down the line. Indias IT services model is highly people intensive. The career path here is module within 2 years, project lead within 2 more years and project manager within 6 years. So, what does a company do? Hiring has to happen, it has to get cheaper each year and profitability cannot be hit.

TCS has been hiring graduates (I mean non engineers) for donkeys years. Hence they are able to offer, usually, the lowest quote for all engagements. Wipro has been grooming graduates at WASE and hires graduates for certain positions. The big daddy of profitability, Infosys, has maintained an elitist air about itself and never really hired graduates on a large scale - anywhere near its hiring numbers of engineers. And that may change, shortly. Infosys legendary profitability can be maintained only by going lower down the chain of education and finding employees who will work for cheaper. The training and hands on work experience model (euphemism for throw in the sea and they will learn to swim with the sharks) of the Indian IT firm works well in bring employees upto speed rapidly. When the industry began, it was more throw in the sea and very little training, now the model is reversed for the most part. In any case, the gap between engineers and graduates is low (if any - and mostly perception driven) as far as the quality of work goes and with appropriate training, most employees deliver on a project (because of various reasons).

Note: Companies can, of course counter this by displaying attrition figures, but that is not the complete truth about the nature of jobs in this industry. True, there is money to be made via labour arbitrage even at the employee level and for the most part, this overrides job satisfaction. Scratch the surface and you will know about it. Many of those in the industry are not here out of passion, but out of the fact that this job pays well, so what the heck. Companies have their own cultural clubs, photography clubs, trekking clubs so employees get a good work life balance.

Coming back to the point, these companies have to do two things. One, go up the value chain of profitability by taking in high end work. Two, go down the command chain of education and get people who can get work done cheaper. It also means that certain classes of employees will be far highly paid than certain other classes, so profitability will continue to be intact. The only question is, how long? This is not a pessimistic post - on the contrary, it places its bets on the way these companies will counter high salaries and cost effectiveness and come out shining through.

Sunday, March 12, 2006

Punctuality

Some years back in a lecture back at B-school, our professor was faced with a class strength of 1/10th of full strength. The 6 odd students who were present had to listen to a lecture on the importance of attendance, punctuality and professionalism.

A few minutes into the lecture, I told him, "Whats the point of telling us this? After all, we are on time here. Those that need to get this message are out and not here."

Lecturing the punctual on punctuality hardly makes a difference does it not? As it happens, this great post has been up for a while at the Idea shop and proves very well as to how or why Punctuality is inefficient.

Madiwala meets mall

Madiwala is the site of Bangalores well known bazaar. It is a market for fresh vegetables, fruits at pretty good prices (a few rupees lower than the retail prices) apart from other things. The vegetables and fruits that reach here do so through a chain of elaborate middlemen and agents and so on. It is a value eroding chain. At each step, there is loss of vegetables, weight and a loss in the final value passed onto the customer because of the commissions. The price of many a vegetable can be cut by almost 50% after factoring commissions and middlemen.

Foodworld, one of the first grocery chains (nothing like Walmart, these shops are small) off the blocks, is a retailer thats been around for a few years. They have tried various means of enticing customers, like bundling various products (one fast moving, one slow) among other things. The newest idea of theirs (which I think is inspired by Big Bazaar - and which in India is a no brainer) is low(est) prices.

For the first time, I could see that the prices for many of their items is lower than the wholesale market of Madiwala. At Big Bazaar, everything is below MRP, even if its only 10 paise. Foodworld hasnt reached that league, but the point that I make is that why shouldnt customers go to a Big bazaar which is passing the benefits of its efficient sourcing? Why should we try and defend the kirana, which is essentially an inefficient business model? Or a model that makes customers pay for its inefficiency?

More organized retail is more growth for the country. With the growth of urban areas, organized retail is set to boom. You aint seen nothing yet.

Friday, March 10, 2006

When you buy a car...

...does it really matter that the excise duty on it is 12% or 16%? On a price tag of approximately Rs. 4 lakhs (4,00,000), does a price cut of Rs.12000 (thats 3 percent) really matter? Will that make you switch cars? Yes, it may make someone who is buying a cheaper vehicle to look up and think if he can afford a more expensive car with the difference and then some, but will it make a person switch? Unlikely. Will it make a person buying a scooter (cost approx 30,000 rupees) switch to buying a car (cost approx 3,00,000 rupees)? Again unlikely.

What it does do is that people think, I would have spent Rs.3.12 lakhs on a small car, so, "Let me buy a car worth Rs. 3.12 lakhs (which theoretically could be the next higher model - not necessarily the next higher segment) now" OR "let me buy the same car and splurge on the accessories".

Most people have decided on the car/vehicle they want. The price points that matter when you buy a car is not in thousands or tens. It is in lakhs. But our newspapers go ga-ga over small excise cuts in an item that costs a few lakhs.

Where these sort of price cuts of a few rupees work is in the small items, and here too there is a caveat. A price cut or a freebie would induce me to try a brand (or company) I know and induce me to switch- but not switch to some totally unknown brand. In fact I would be suspicious if a totally unknown brand offered me a buy 1 get 2 free offer.Seth has put the point across brilliantly, in Most people dont really care about the price.

Thursday, March 09, 2006

Corporate Social Responsibility

One of the comments to my post in (The Indian Economy Blog) TIEB, referred to this article by Milton Friedman, titled The Social Responsibility of Business is to Increase its Profits. The gist of the point made was that "ITC makes money by smoking, hence its CSR(Corporate Social Responsibility) is crap".

In the above piece, Milton Friedman himself makes the point,

"there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

Yes, the goal of a company is to make profits. The goal of a CSR, run by a company, is to increase its profits, one way or other. It could be by assuring quality of supply of its raw materials, securing its interests or simply increasing goodwill or brand awareness. In doing so, it does something that benefits society at large.

ITC may sell cigarettes, but does not ask people to choose smoking at gunpoint. It is a responsible corporate citizen, because it plays by the rules defined in the world of business. If ITC spends money on an initiative like e-choupal, should we say "good" or should way shoo away ITC from the e-choupal initiative and let the villages be in the dark ages of middlemen and price information asymmetry?

Likewise, where do we draw the line at whats evil and whats good? Sugar factories for instance. It is known that sugarcane crop drains the soil of water and nutrients. Sugar, causes diabetes. Indeed diabetes is more prevalent than lung cancer, so should we ban sugar too? How about cooking oil? It causes cholestrol and blood pressure. Maybe we should ban all those too? Then how about non profit institutions? Most of the Christian missionary institutions have had conversion as their agenda while they undertook so called CSR projects. Social workers, political parties have their careers and votes on their agenda.

If there was no ITC, indeed no company which produced cigarettes or liquor or anything else "evil", would the world be a better place? Perhaps marginally, perhaps not. And then again, where would we stop? Sugar? Cooking oil? Pesticides?

Lets not jump and in and compare a terrorist organization doing charity work. Companies which follow all the laws are not terror organizations that blow up 2 year old kids in crowded temples. Also remember terror organizations operate out of the framework of the law in the country.

Having accepted that, lets take out the CSR programmes. Is the society better off or worse off without these programmes? The society is better off. Now about the companies. If the companies produce liquor or sugar or cigarettes and make a profit, as long as they follow the rules established in the area where they operate in, why should someone complain? If it were not for the profit they make, would CSR exist? Would all those jobs they created exist?

Yes, CSR programmes are for profit or goodwill or something positive. To achieve this goodwill companies do some sort of service to society. Granted that our politicians will always (not counting exceptions) take bribes, money, kickbacks, donations. As long the work is getting done and the country progresses, what is better? They take money and do the work or they take money or do not do the work? Likewise, if any CSR helps our society move up in life, so be it. Let us not point fingers at CSR.

Update: In an offline discussion, it was argued that smoking is inherently evil, but sugar is not, hence the two cannot be equated. But poison consumed in micro quantities can be good, while too much of good food can lead to bad. The other question is, who decides that smoking is evil? It is the perception held by a certain set of people. There is no generalization of what is evil and what is good when it is consumed by humans. For example, according to Jains, potatoes and onions and anything that grows below the ground must be avoided, so if we followed Jainism (a true pacifist religion), we could say that CSR by a potato chip company is crap. You get the picture.

Wednesday, March 08, 2006

Mobile phones as a technology vehicle

I had written about mobile phones and how they help entrepreneurs get off the ground or expand their business, but this one is about mobile phone as a route to introduce the user to various new technologies.

The mobile phone today represents convergence to the end consumer. Much like how Niti here says in her post, The world is flat 2.0, the mobile phone has exposed technologies to many for whom if it were not for the convergence, this technology would be out of reach.

For instance, how many of us had a digital camera, an mp3 player, a PDA, a video recorder in college or just while we were at our first job? Today with a cellphone, these are all available to the youth. (Not just the youth, it is also available to many others.) I have seen cab drivers experiment with camera phones, as I have seen building contractors and the like. Real estate brokers often carry pictures of houses in their phones to show to prospective customers. This trend of convergence and exposure was covered in this piece in The Tribune:

...while on the other hand, the sale of mobile phones with cameras exceeds that of digital cameras, and now cellphone companies are coming with phones that double up as MP3 players too. In fact, cellphones have become all-in-one devices, with cameras, video cameras, multimedia, e-mail and other facilities. The expanding role of this convenient device will ensure a bright future for it.

Digital camera phones outsell digital cameras; is that a surprise. Not at all, but once they click their pictures and get used to it, they want more and they graduate to a "real" camera. This could be true for the other "converged"devices. Cellphones are thus, more than a communication device. They are about convergence of technology. They are also about getting used to new technology and thus technology spreads faster using the mobile phone as a vehicle.

Over the next few years we are going to see the cellphone morph into a carrier for many more technology areas than it is prevalent now with the phone becoming but one of the many functions it is capable of. The wallet, gaming, PDA et al etc. Kind of reminds me of the watch euphoria when the wristwatch was supposed to become everything. We all know what happened after that.

But what is important is also that, the cost of cellphones are going down day by day. Thus, they are the ideal vehicle to bundle new technology into. Mobile phones also help sampling. So, if you want users to sample a new game or software, the best way to spread it around is via a mobile phone download (how about making it free, or better still, paying users to download and spread the word?), especially in markets like India, where computer usage is far lower than cellphone usage.

Tuesday, March 07, 2006

More bang for the government buck?

Heres a fantastic piece about Walmart efficiencies. Titled, Wal-Mart's Shelf-Correcting System Is Model for Government,argues that the government (of USA) does two things well.

...Anyone who's ever filed a tax return or visited the Department of Motor Vehicles
understands that government does two things well: spends our money and wastes our time...

The piece goes on to describe, how during Katrina, the government was flat footed in
response and sent millions of dollars down the drain in wasted efforts.

...As Sen. Susan Collins (R-Maine) explained, the waste happened because the government
took a "pay first, ask questions later" approach
...

But there was another institution that did not fail.

...It would be better to look toward an institution that didn't fail during Katrina: Wal-Mart.

The world's largest retailer had 171 facilities in the path of the storm. But as Jason
Jackson, the company's director of business continuity, told a Senate committee, "We were
able to recover and reopen 83 percent of our facilities in the Gulf area within six days."
One key reason for Wal-Mart's success, Jackson said, is "associates who are dedicated to
their communities." That local connection helped it deliver goods when government failed.
As Investor's Business Daily reported in September, "While local and federal groups
suffered communications problems and bickered over who was in charge, Wal-Mart sprang into action."...

...Wal-Mart does what government intervention can't: It drives down prices
and makes life better...

Anybody who read the recent budget of India will agree with this.

We reap what we sow. We are the makers of our own fate.The wind is blowing; those vessels whose sails are unfurled catch it, and go forward on their way, but those which have their sails furled do not the wind. Is that the fault of the wind?......We make our own destiny.

The budget key features document opens with this quote of Swami Vivekananda and perhaps goes on to furl the sails. A quick glance at the above document leaves us with these figures with the pay first, ask no questions model.

Totally, INR 18,696 crores to be provided to the Bharat Nirmaan programme (last year it was INR 12,160 crores). For eight flagship programmes allocation to increase to INR 50,015 crore (last year it was INR 34,927 crore). Theres anther INR 16,901 crores provided as equity support for PSEs. And another INR 2789 crores as loans.

Just to break the monotony of numbers (there is a lot of numbers in the summary report), the point is, the pay first ask questions later means that a lot of good money is going down the drain with no accountability. What happens if targets are not met (as is seen in most programmes in the above report?). I doubt if the sky will fall, much less, if even a heartbeat will be skipped.

Why not rope in companies to do this work? I couldn't cite an example like Wal-mart for the purpose of comparion, but another corporate social responsiblity scheme came to my mind. ITCs e-choupal scheme (from its website) today looks like this...

...Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-based interventions in rural India. 'e-Choupal' services today reach out to more than 3.5 million farmers growing a range of crops - soyabean, coffee, wheat, rice, pulses, shrimp - in over 31,000 villages through 5372 kiosks across seven states (Madhya Pradesh, Karnataka, Andhra Pradesh, Uttar Pradesh, Maharashtra, Rajasthan and Kerala).

From the chairmans speech on the ITC website:

... Despite daunting implementation challenges, this (e-choupal) initiative now comprises about 5200 installations covering nearly 31,000 villages and serving over 3 million farmers. Over the next 7-10 years it is your Company's vision to create a network of 20,000 e-Choupals and over 700 Choupal Sagars entailing investments of nearly INR 5000 crores, thereby extending coverage to 100,000 villages - representing one sixth of rural India.

INR 5000 crores for 1/6th of rural India in 5 odd yearts, INR 30,000 crores for a networked India? And 50 plus years after independence many of our villages struggle for electricity, water and food - the basics. That (successive) government(s) have not delivered is an understatement. Indeed has any government program achieved as much as ITCs e-choupal has? Remember Rajiv Gandhis famous observation that out of a rupee spent by the government only 15 paise reaches the poor because implementation is so poor. Why not engage companies (such as ITC or others known for fairness) in such programmes and ensure greater accountability in implementing development programmes instead of pouring money into leaky buckets.

(Cross posted at The Indian Economy Blog)

Monday, March 06, 2006

Blogging at The Indian Economy blog

It has taken a while to get my brain started on this one. Writing at ones own blog is simple. It is like cooking at ones own home. You can mix and match, taste, add a little salt, stir it again and serve a Pav Bhaji while what you were trying was a Masala Dosa. The guests like what you offer and arrive for more.

Writing at an other blog, especially one like Indian economy is, in the above analogy, like a promotion to a chef at a restaurant. Not only is the name of the post (dish) important, every thing that goes into the post (dish) is important as is the presentation (garnish).

It has taken me some days to move from the right side of that blog on the list of guest contributors to the main side with a post.Now you know why. Here are the two posts that I posted there. 1, 2.

The discipline of discipline

A routine tea time discussion about the skills and arts that we (those in the discussion) had, soon boiled down to a discussion on discipline.

Can someone, anyone learn anything without discipline? In the post I linked, Kathy starts the post with a very persuasive

...If you want your brain to stay sharp, you have to work it...

The rest of the post is about the use of the brain in various other activities; read it for more dope.

My point is a step further, once you have started engaging the brain on something. In the post Only the learners survive, Amit makes a point on writers, which could be applicable to learning any skill.

...Some people then read a lot, and observe the craft of other writers, and write incessantly, and, crucially, are constantly self-critical. They're the ones who get better at what they do...

Kathy here has a nice post again on "How to be an expert". Read the full post and heres how she ends it.

And if the neuroscientists are right, you can create new brain cells--by learning (and not being stuck in a dull cubicle)--at virtually any age. Think about it... if you're 30 today, if you take up the guitar tomorrow, you'll have been playing for TWENTY years by the time you're 50. You'll be kicking some serious guitar butt. And if you're 50 today, there's no reason you can't be kicking guitar butt at 70. What are you waiting for?

For many people, the thought that they should have done something else comes at an age when they are pre occupied with something else - earning their daily bread. The best time to learn a skill, say music, is at a young age. Get your ears acquainted to music, play and internalize it - but it is also the age when your mind is not interested in discipline - it is interested in play. Discipline itself is a skill, which usually has to be acquired at a young age. Or is it?

Sunday, March 05, 2006

What was that again?

The penchant for naming things after the progeny of Jawaharlal Nehru has not abated. As I went through this years budget proposal, it came back to me. The dispensation of the Congress to name everything after Jawarlal Nehru or his progeny never ceases to amaze.

Just when I thought that the Rajiv Gandhi Grameen Vidyutikaran Yojana(RGGVY) was the last of them, the Rajiv Gandhi National Drinking Water Mission (RGNDWM) appeared on a blind curve on the budgetary speech. Under institutions of excellence there is a Rajiv Gandhi Centre of Biotechnology. Were these names decided by contests by any chance?

The Jawarharlal Nehru National Urban Renewal mission also features in the budget.
Remember Indira Awaas Yojana (IAY), that many people got confused with Awaaz yojana and instead of houses, many allottees got a tape recorder - not sure if it still exists these days though. Indira Vikas Patra (not to be confused with India Vikas Patra) was launched a few years back (not sure if they exist any more). And these are just the ones off the top of my mind.

Therefore, in the new city that is being created under JNNUR (cities to be named appropriately, JNNUR - 1,2 and so on unless decided otherwise), houses would fall under IAY (if it still exists). Water would be dependent on RGNDWM and electricity would be dependent on RGGVY. But we let that pass.

All around us there are of course countless Nehru science centres, Nehru dams, Nehru canals, Nehru townships, Nehru conference rooms, Nehru nagars, Nehru port trusts, Nehru museums, Nehru circles and Nehru bridges all over the country. Then we have Indira Gandhi airports, Rajiv Gandhi circles and what not.

If the Golden Quadrilateral scheme were to be relaunched it would perhaps be Jawaharlal-Indira-Rajiv highway scheme with all traffic islands, flyovers and speedbreakers named so. Golden Quadrilateral, Sarva Shiksha abhiyan and so on were missed opportunities!

Most cities in India have an Mahatma Gandhi Road (MG Road is Mahatma Gandhi road as is KG road Kempegowda road) and a Tilak Nagar. In Bombay there is only Chatrapati Shivaji. The airport is CS airport, the railway station is CS terminus. There are atleast 40 bus stops with a prefix or suffix of Shivaji and a few hundred slum colonies that are Shivajinagar or Sambhajinagar. That is without counting the statues.

Atleast these are named after historical personalities. Tamil Nadu apparently is trying to change its name to Jaya Nadu. After Jaya TV, Jaya radio, Jaya computers and Jayasoft, the next target is to launch a Jaya iPod with a cape over it. Buses are named Jaya, as are the bus stops. Rumour is that in Tamil Nadu nobody ever gets lost. They want to go to a place called Jaya by Jayabus and they always reach it.

To reach Nehru nagar, take an auto from Indira Gandhi international airport till Rajiv Gandhi Circle...

Friday, March 03, 2006

(Sur)real estate

India, like many other parts of the world is zooming away in the face of a real estate boom. In India there is a real estate boom in any direction you wish to see. Whether it is Bangalore, Pune, Calcutta or Chennai or Hyderabad or even already sky high Mumbai - the story is the same.

Just a few years back, Mumbai was dying in the face of a sharp shortage of housing options. But now things have reversed and there is a glut of housing options - if you have the money. Now apartments are more than just houses. They are about lifestyle. So while the first housing colonies had nothing but a security guard, these new housing colonies have a gym (spa, jacuzzi, steam), swimming pool (heated, lined with Italian marble). Some have a multiplex, shopping complex. There are those which offer a servant entrance.

The next step is creating an ambience. What does one differentiate in a house? So you now have themed houses. In Bangalore there are options themed on Resorts, Venice, Bali, Europe among other things. There is now a rush to "discover" new themes.

There are those who believe that this boom will continue, there are those who are not sure and those who think that this is "irrational exuberance" to borrow a phrase used by Alan Greenspan. But at this point, we see more action. JM Morgan has entered to take a piece of the action by investing in Mantri developers, one of the biggies in the Bangalore real estate scene.

The concern is that in India, stock prices are at the height of a boom (this time it is supposed to be different - really). As it happens, a boom in one sector (usually stocks) translates into a boom in another sector (usually real estate) with investors rushing to park their money in a safe place. Also, add the foreign exchange glut in India fuelled to a great extent by software engineers parking their dollar salaries in real estate (especially near the tech hubs). Low interest rates (relatively, as compared to 10 years back) over the last few years made bank loans easier. Needless to say, it became a self fulfilling boom. There is a latent demand for housing in India, but the people who buy today do so more with a view to make money out of rentals rather than with a view to stay in these houses. The end result is that people own multiple houses, when all they need is one (feel free to differ with me here) and real estate is now a speculators paradise.

On the other hand it is true that there is a lot of demand for real estate options in India. Vast portions of India are undeveloped or underdeveloped, but this is not necessarily where the boom is happening. Also, the "connections" in terms of better roads, urban transport systems, public transport, water and reliable electricity need to improve by leaps and bounds. People want cheaper, affordable (not low quality) housing options too, which atleast in places like Bangalore is non existent. The market at the premium end is only so much. A significant portion of the demand is real, but with about 20-25% (as per various estimates) driven by speculation.
But interest rates in India have slowly started rising. That means that loans will be harder to get (and service). Optimism about future salaries still holds true with India fairly at the bottom of the pyramid as far as outsourcing goes - there is still some space for rise there.

Is it a bubble? Right everybody is in a state of denial. Real estate creators (the builders) are laughing all the way to the bank. The banks are in turn sitting on crores of housing loans. The buyers (many of them) are using the combination of low interest rates and high salaries (and other income) to invest in multiple homes via housing loans. The stock market is seeing a time of boom too, even in the face of high oil prices.

The question is when will the boom snap out of this dream or will the dream run continue longer?

(Cross posted on The Indian Economy Blog)

Wednesday, March 01, 2006

On visibility

Some months back, we (me and my bro) had a discussion on some company strategies. The discussion was themed along the lines of "big" and "small". Loosely the points we discussed were these...

ISB recently tripled or quadrupled its student intake.
IITs are doubling their intake this year, IIMs are also taking a similar route.
ITC can be seen on shop shelves with its ready to eat range, biscuits, agarbattis, ready mixes and now plans to move into personal care products.

The common thread across all these questions is, "Arent these institutions/companies, diluting their brand?" or "Spreading themselves too thin?". So, shouldnt they focus on getting better than getting bigger? There are many answers to this question, but one of the answers to getting bigger is about the topic of this post.

Visibility is a key. With 30 students or 2 products in 20 cities, you are hardly visible. If you arent visible in the market, or barely visible, you are invisible. Nobody sees you, nobody buys you. But if you are visible across the spectrum, chances are that the growth will be a self fulfilling cycle in itself (for that you need deep pockets or your brand needs depth). For the IITs and IIMs, quality wont be affected because more than the current intake of the IITs or the IIMs, there are a lot of students who fall out of this elite group, not because they are not capable, but because they do not manage to get in.

The greater the brand spread, the greater is the visibility (if you have deep pockets or if your brand is deeply entrenched, otherwise it is a case of squandering good money). If quality drops, then it is a cause of concern, but with the levels of exams for IITs and IIMs, that should not be a real concern. Of course they need to get better profs to conduct their courses.

As for a company like ITC or a new brand like ISB, with a few products and students, they would still be rarefied. To make a mark in the market, you need muscle and this will come with quantity (alumni power, network, brands across categories), rarely with anything else.

Needless to say, it is not the only strategy. You can stay small, be a niche player. Which is why visibility is a key if you want to be a biggie. Especially when you are taking on global biggies like Harvard and Stanford et al, or if you are taking on a biggie like HLL.