Tuesday, July 31, 2012

Policy-BIHAR: RIGHT TO PUBLIC SERVICE ACT, 2011

The new Right to Public Services Act empowers people in Bihar to get government officials to act in a time-bound manner. Will public servants finally wake up to the tasks-at-hand? 

But on the whole, the Act seems to be showing its effect on the progress of work in the state. Tirhut Commissioner S.M. Raju claims that work is being delivered in accordance with the time frame of the Act. “Of course there are some corrupt officers who indulge in malpractices,” he admitted, adding that 6-8 officers in the district have been deputed to monitor and ensure that work follows the Act. A Deputy Director posted in the state secretariat told B&E that the RTPSA had created panic amongst officials who are either corrupt or are passive in delivering their duties. “The applicants have now begun confronting these officials in the Secretariat after the implementation of the Act,” he says.

For the RTPSA, there is a long road ahead and such occurrences in the very initial stages should be nothing less than encouraging. Here is a look at how the Bihar RTPSA works. The Act covers 50 services provided by the 10 key departments of Health, Transport, Education, Food & Civil Supplies, Registration and Social Welfare. It was a conscious decision to narrow down the Act to 50 services, instead of “going for random services”, which is what sets apart the law from that in Madhya Pradesh, says Deepak Kumar, Principal Secretary of Bihar’s General Administration Department (GAD). A devoted team of 1,948 people, besides the existing set-up, has to ensure that the services sought are delivered within the stipulated time – varying from 7 to 30 days – with a provision of right to appeal in case of delays before two layers of appellate authorities. An officer is to pay a fine of Rs.250 for delay per day, with maximum penalty not exceeding Rs.5,000.

With Bihar now set to enter an era of this much-needed reform, the government has also decided to monitor the implementation of the RTPSA online. Bihar Prashasnik Sudhar Mission (BPSM), a joint venture of England’s Department for International Development and the government of Bihar, would play the role of the watchdog. Under the proposed system, BPSM would set up a monitoring and analysis wing in Patna. It would receive reports from all the officers appointed to deliver services to people under the new Act. The same would be the case with appellate authorities entertaining complaints if an officer fails to deliver a service, which falls under the purview of the act, in stipulated time. Officials at both these levels would have to send reports with details – like the number of applications received, the number of applications disposed of and the number of applications in which services could not be delivered.

Though the primary responsibility for work disposal rests with the designated officers (BDO/SDO/DM/SP), all employees involved in the process till the lowest level are given a fixed time to dispose work. An Information Technology manager (who has to be a software engineer) in each district, is to coordinate with respective District Magistrates. The 10 selected departments also have an IT manager each to coordinate with respective Principal Secretaries. This works out to two IT managers at the Bihar Prashasnik Sudhar Mission Society, besides 729 IT assistants across the state. “To avoid crowding, each block counter has to put up a disposal list for the next working day,” says Principal Secretary Kumar. Speaking of checks and balances, Kumar further adds that action would be initiated against a block counter in case of reports of a massive jump in serial numbers of applications disposed of, indicating the involvement of middlemen.

A unique feature of the Act is that not only the designated officers who are supposed to deliver services to people would be bound to act in time-bound manner, there would be a fixed time-frame for appellate as well as the reviewing authorities for disposing off the applications received at their level. Under the Act, even lower level employees have the right to appeal in case of vindictive behaviour by their seniors in government departments. Another crucial element is that the poor performance of officers would be visible in their Annual Confidential Report (ACR), a crucial record for future promotions. The reviewing authorities, who would be at the highest level of implementation of the Act, would also have to submit detailed reports to the cell to be set up at BPSM through e-mails. The cell would be manned by 4 programmers and an IT manager, whose task would be to generate reports on the basis of inputs provided by government offices. Senior BPSM officials would analyse the reports for assessing the performance of the officers.

The effective use of technology in monitoring the progress of this ambitious legislation will be crucial to how far it goes and how impacting it becomes in the long run. The move has already created quite a flutter in the power corridors of Bihar. For corrupt officials, it is panic time. Some may contest that this ‘hanging a sword over your head’ mechanism is not the right way to bring about the desired reforms. However, one must not forget that Bihar is that state which has suffered from maladministration, corruption and a general public perception that the government machinery just doesn’t work for far too long. For the Bihar government, this is best step forward to usher-in an era of much-needed accountability in the state machinery.


Read more....

Source : IIPM Editorial, 2012.

An Initiative of  IIPMMalay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM's Management Consulting Arm-Planman Consulting

IIPM Prof. Arindam Chaudhuri on Internet Hooliganism
Arindam Chaudhuri: We need Hazare's leadership
Professor Arindam Chaudhuri - A Man For The Society....

IIPM: Indian Institute of Planning and Management

Monday, July 30, 2012

Control, and Release

Spurious and Counterfeit Drugs are flourishing in India. Interestingly, Their Proliferation is aided by both the lack of Government intervention on one end and excess of it on the other

People take medicines to be cured of diseases; but the reverse is more of the norm, as substandard and spurious medicines are now widely available in India. A survey conducted by Central Drugs Standard Control Organisation (CDSCO) in India from 2006 to 2010 revealed that around 5% and 0.3% drugs are substandard & spurious respectively.

A raid by Delhi Police at central Delhi’s medical wholesale market, Bhagirath Place on June 3, 2011 and at Agra on June 8, 2011, brought to notice that 115 different kinds of medicines (worth Rs.4.2 million) were being sold without any licenses. Food and Drugs Administration Department also busted a major racket of spurious medicines at a godown in Kesri village near Saha Industrial Park and at a pharmaceutical company in Faridabad. Around 3.88 lakh spurious tablets have also been recovered from Lincoln Pharmaceutical Factory, Ambala. Although the Indian pharma industry is one of the fastest growing sectors, it is badly affected by this problem as the retail sector is extremely fragmented and unorganised. There are over 800,000 pharma retailers across the country, but the organized sector accounts for merely 2-3% of the business. Ranbaxy’s Fortis, Pantaloon’s Tulsi, Apollo Pharmacy et al are some of the few handful of organised pharmacy retailers in the business.

So is the answer forcing all unorganized pharmacists to sell off to an organized retailer? Not at all. Under the Drugs & Cosmetics Act, a drug retailing shop can be run only by a pharmacist and only after procuring a valid drug retailing license.


Saturday, July 28, 2012

No Easy Answers Online

The new Websites Created for Punjab Elections would not alter outcomes too much, considering their limited reach and impact

In the upcoming Punjab Assembly Election 2012, all candidates from various political parties will have their own personalised websites and individual call centres; which have been designed by a Delhi-based NGO named Srishti. Such convergence would bring all candidates under one roof to facilitate a comparison of performances, ideologies and various development activities carried out by these candidates. This will eventually allow all candidates to promote themselves to the educated masses of Punjab – especially to Punjabi NRIs, as they have also been given voting rights.

However, it must be considered that around 66% of the population of Punjab lives in rural areas and has very limited access to the Internet (less than 5% Indians have ever used the Internet; World Bank). As per Census 2011, the literacy rate of Punjab is 76.7% with the difference between urban and rural areas being close to 15%. Above all, the number of people exercising their voting rights is much higher in rural areas than their urban counterparts. So, although the system shows promise, it will have limited reach to the target audience. Individual call centres would be used so that individuals can leave suggestions and give feedback; but even then the impact of that on rural voters is quite questionable with their limited means.

On paper, the entire concept may seem democratic but the utility won’t reach the real audience. Policy makers should rather focus on a better multilingual information sharing platform in order to make the scheme more economical and socially beneficial.


Friday, July 27, 2012

“We are Looking at Profitability, NOT Volumes”

Milind Bade, GM - Marketing, Bajaj Auto

B&E: How has the company been able to achieve such impressive numbers?
MB: What has happened over the past few years is that we have started to focus on selective products. For instance, within motorcycles, we entirely focus on Discover and Pulsar and this focused approach has given us an advantage to charge a premium, which has helped us keep our margins steady. As the focus is only on two brands, even our marketing spends have come down significantly.

B&E: Your entry level bike Discover is priced a notch above the other bikes in the entry-level. Has this strategy paid off?
MB: We have made a conscious attempt to operate only at the top and middle-end of the market. Unlike our competition, we earlier used to operate with a one segment, one brand philosophy but we today have several variants under the family. Our case is totally different from the competitor who has only two brands to talk about. Earlier, Discover was the 12th largest selling brand in the country, today it is the second-largest. We have a different approach to the market unlike many companies who have divided it into traditional segments.

B&E: Bajaj Auto surely comes on the top when we talk about margins in the industry, are you also eying to grab the top slot on the sales charts?
MB: As you rightly mentioned, we have the best margins in the industry, we are looking at profitability of our operations rather than mindlessly chasing volumes. We are not running ahead with the formula of chasing top-lines and assuming that the bottomline will automatically follow. In fact, we are not running with the #1 slot in mind. If that happens, it will happen as we continue to move towards a better future. We will continue to invest in our brands as it gives Bajaj an edge to command a price advantage over the competition. As of now, both Discover and Pulsar are in a very strong position in the two-wheeler market and the entry of Boxer will take it to the next level. Moreover, the next-gen Pulsars and Discovers are also expected to bring additional volumes to the company.


Source : IIPM Editorial, 2012.

An Initiative of IIPMMalay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.

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

IIPM: Indian Institute of Planning and Management

Thursday, July 26, 2012

IPL 4: On a Gravy Train?

In its Fourth Edition now, The IPL Continues to Grow even though Franchises Need to look for and Exploit Alternative Revenue Streams.

Analysts are often flummoxed as to why successful businessmen don’t mind throwing huge sums of money to buy franchisee teams of the Indian Premier League (IPL). In January this year, two new teams in the IPL fray were snapped up for mind-boggling sums: Subroto Roy of Sahara Group bought Pune Warriors for $370 million and a consortium of businessmen forked out $333 million for Kochi Tuskers. In 2008, when the IPL was launched, one puzzled analyst asked India Cements’ Vice Chairman N. Srinivasan, owner of the Chennai franchisee, about his rationale in shelling out $91 million for buying a cricket team, which apparently did not make any business sense to his core activity of cement manufacturing. But for Srinivasan, investing in IPL was a very clear decision taken solely with a view to building his brand visibility throughout the country. For quite sometime, India Cements had been trying to shed its conservative image and grow beyond its traditional southern markets. Buying into IPL could prove to be a brilliant marketing strategy if the company is able to leverage this association for growing its core business and become a pan-India entity.

It’s not just companies like India Cements that stand to make hay from the shining IPL sun. IPL-4 saw close to 120 brands piggyback on its popularity and make this annual mixture of fun, entertainment and cricket a perfect pitch for brand activation. Tata DOCOMO, Godrej, Volkswagen and many leading brands have taken various marketing initiatives exclusively for the latest edition of IPL-4. Digital imaging brand Canon also joined the IPL bandwagon this season and launched its new range of cameras supported by a campaign featuring its brand ambassador Sachin Tendulkar. Others like Vodafone and Videocon, joint presenting sponsors for the tournament, allocated up to Rs. 600 million each in media spends for 180 seconds of commercials per match. And a record 11 associate sponsors – Samsung Mobile, LG, Hyundai, PepsiCo, Tata Photon, Havells, Cadbury India, L’Oreal, Godrej, Volkswagen and Hyundai – dished out Rs. 400 million each for 120 seconds of commercial time. Every IPL season generates around 12,744 10-second slots but this year it was more as the number of matches were up to 74 from 60 last year.

Also, while IPL-3 had a TV viewership of around 143 million for its 60 matches, this year the figure was already 170.5 million viewers for the first 43 matches in IPL-4. As advertising rates were up 15-20% this year to Rs .65 million for 10-second spots, tournament broadcaster Sony Entertainment Television, which paid $1.64 billion for a 10-year deal, expects to recover Rs 10 billion through channel advertising from IPL-4 itself. The government, too, expects to haul in Rs 3 billion in taxes as compared to Rs 1 billion it raked in from IPL-3.

The growth in this innovative cricketing property over the years has been a source of delight for millions of cricket-loving fans and IPL stakeholders as well. Despite recent controversies and allegations of money laundering by some team owners and the ignominious exit of former IPL commissioner Lalit Modi, the brand has continued to grow. There were more teams (from 8 to 10), more matches (74 compared to 60 last year) and even higher TV revenue (an expected Rs 10 billion compared to Rs 7 billion last year) as IPL-4 season kicked off in April with a better TV rating as compared to the last season (7.14 compared to 5.9 last year for the opening game). Brand Finance, a global consultancy, pegs the overall brand value of IPL at nearly $3.7 billion today, a surprising drop of 11% since last year when it was valued at $4.13 billion. “The fall in IPL’s brand valuation is directly correlated to the controversies that the tournament has faced over the past few seasons,” says cricket expert & commentator Gautam Bhimani.


Wednesday, July 25, 2012

Now to Get The Collaborative Model Up

The Positive Trend in Gold Prices as well as The Gradual but Visible shift towards Organised Retail Chains is doing Gitanjali Group a World of Good. As it Celebrates its Exceptional Performance in The Past Fiscal, it also needs to sort out some of The Positioning Issues it Currently Faces

By the end of April, gold, the most preferred precious metal for every occasion in India had touched a price of Rs.22,470 per 10 grams, a growth of 31% since the beginning of this financial year. With definite conviction, and if we were to use a moribund cliché, players are seeing only bright and ‘shiny’ days ahead.

Riding on this wave is the country’s leading jewellery retailer in terms of retail presence – Gitanjali. For the quarter ending December 2010, the company posted net sales of Rs.26.54 billion, a growth of around 46.47% yoy. Net profit was far better at Rs.1 billion, a growth of 147.4% yoy. The company is ranked 17 in the B&E Wealth Creator list in terms of percentage growth in mcap for the financial year ended March 2011, with mcap growth of 107.77% yoy. “After the slowdown, demand has suddenly emerged, so jewellery consumption for both consumers as well as for stockpiling has gone up,” affirms Mehul Choksi, MD, Gitanjali Group. Paying heed to the US market has also shown positive signs. Gitanjali Gems Ltd. manage to record a sales growth of 15% in the US. So for this year too the group has big plans for US and European markets.

For the financial year ended 2010-11, Gitanjali evinced an astonishing growth of 40% from its branded jewellery retailing in India. The jewellery consumption pattern in India is changing and with inherently family jewellers offering limited and mostly age old designs, the modern branded retail chains, which offer jewellery for every occasion, are becoming popular among Indian consumers. This is palpable in the findings of Gems & Jewellery Exports Promotion Council report, which states that organised retail jewellery sales have been growing at 35-40% against the family jewellers’ growth rate between 5-10%. So Gitanjali definitely has a good time ahead and is planning to roll out more new products. But when it comes to retail penetration, the group is facing some issues. Its many strategic alliances for retailing international brands are getting affected due to the group’s own brands. For instance, Dubai-based Damas put a stymie to the Indian retail project with Gitanjali due to the organisation’s internal problems related to the Gitanjali group’s own brands. And with this two year venture coming to an end, the group has also been hesitant to launch a new tie up, even as main competitor Tanishq ramps up presence to 45 cities on the basis of a single brand.


Tuesday, July 24, 2012

Stratagem-INTERNATIONAL-TECHNOLOGY: BUBBLE IN THE MAKING

Question is: Will such a situation occur? The ecosystem does lack antibodies. Since early last year, investment banks have shifted gears, and money to grab a pie of the Internet machines, has started flowing-in thick. Just six months after paying a record $550 million to settle a Federal fraud case, in January 2011, Goldman Sachs (along with Russia’s Digital Sky Technologies) invested $450 million in Facebook (with a promise to help raise another $1.5 billion), valuing the social networking site at $50 billion (valued more than the world’s second largest automaker GM – $47.91 billion – and 200% more than the world’s largest aircraft manufacturer Airbus-EADS – $16.96 billion). Groupon, a deal-of-the-day website, turned down a $6 billion takeover bid by Google in January 2011, and is now planning an IPO, which will make it a $25 billion entity. Surprisingly, Twitter, which still hasn’t broken-even (it officially launched its first revenue model in March 2010, called “Promoted tweets” revenue model, four years after its launch), carries a price tag of $10 billion. Over the last five months, other VCs have also raised huge sums to invest in tech start-ups. Accel Partners, is about to raise $2 billion for investments in Facebook’s China and US operations. Others like Bessemer Venture Partners, Greylock Partners, Sequoia Capital, Andreessen Horowitz & Kleiner Perkins Caufield & Byers have collectively raised more than $4.5 billion since September 2010.

Speaking to B&E from New York, Greg Blonder, Former Chief Technical Advisor at AT&T, while explaining the rationale behind these deals says, “These valuations are too high for any single company. They are preferring PE funding for now because private stock sales retain much of the valuation bump. Furthermore, big banks need a conduit of private sales to feed their large clients who are otherwise dissatisfied with conventional investments. It’s simple economics – supply, demand and greed.” Even Prof. Steve Blank of Haas School of Business, in his 2011 paper titled, New rules for the new bubble, discusses the danger of over-valuations in the Internet market. He writes, “The signs of a new bubble have been appearing over the last year. It is being driven by market forces on a scale never seen before in the history of commerce.” There is some reassuring science too. One like this – in 1999, 308 tech companies came out with IPOs, while 2010 saw only 20 such instances. Accepted. But the game has just got riskier. Can you imagine someone valuing a cash-guzzling Twitter for $10 billion a decade back? According to Dealogic, a total of 5,100 inorganic deals were executed in this sphere last year – the highest since 2000. Moreover, the average deal size at $46 million is also higher than the average deal size in 2000 ($40 million). An analysis of the S&P 500 composite index (which include 75 tech stocks) based on Tobin-q for a cyclically adjusted P/E values also reveals that stocks are today overvalued by 40%. As of April 14, 2011, the P/E ratio of the technology sector stood at 17.61 – lower than the current P/E ratio estimates of Facebook (50) and Twitter (28).

Now that we know that there are chances of a bubble, what is it that can be done to control it? The key lies in a Fed intervention, which can control hyper sentiments in the market by sharply increasing Fed funds rate. But such a move might lead to all PE firms, VCs and angel investors from turning their head away from funding ideas germinating in university classrooms and company boardrooms. Some even debate that using a economy-wide hosepipe to control a growing fire in a particular sector isn’t very smart. Actually, it is, for this fire, though largely unseen by most now, threatens the world. Agreed. Every start-up is not Facebook. But investors around the world do not deserve bankruptcy because of one Harvard dorm-trick!



Does Hasan Ali Really Exist ?

This is one guy who must be inspiring awe and envy even amongst gold-plated and pedigreed billionaires like Sunil Mittal, Mukesh Ambani and Kumar Mangalam Birla. And why not? If you go by sensational media reports, this obscure stud farm owner blessed with a poker expression and fancy sunglasses, has stashed away more than $8 billion outside India. Currently in custody and being prosecuted by the Enforcement Directorate, the curious case of Hasan Ali Khan keeps getting more headlines simply because the Supreme Court has started asking uncomfortable questions to the Government. There are loud whispers, sly leaks and naughty innuendos about Hasan Ali 'managing' the black money of sundry high and mighty in the country.

But come on: if this guy was really worth $8 billion, do you really think he would be cooling his heels behind bars like a common criminal? That's not the way things happen in our beloved country. My wager is that if Hasan Ali was actually worth even a fraction of that fabulous amount, he would comfortably ensconced in a five star hospital, with a bevy of doctors with impressive credentials swearing on Hippocrates that his very life depends on his presence inside a hospital. Why, if the media (at least some parts of it) and a suddenly active and aggressive Supreme Court were not pursuing the matter so relentlessly, Hasan Ali would be watching horse races in Pune, Mumbai and Bengaluru. Let us be grateful that he is at least in the dock.

But let us also be realistic and accept the fact that nothing much will come out of this Hasan Ali case after the fire and brimstone has started petering out and is replaced by a new set of scandals to be lapped up by the media. Some of you will recall the notorious case of the Jain diaries back in the 1990s when sensational disclosures about the stashing away of ill-gotten wealth in foreign banks was disclosed. The matter went to Supreme Court and numerous politicians were accused – either directly or through strong rumours – about being involved in that case of money laundering. The fact is, nothing much came out of that and not a single person of any significance was convicted of any crime or forced to bring back any ill-gotten wealth from foreign banks.

But more than the long-buried Jain Hawala case, the curious case of Hasan Ali resembles yet another notorious caper that emerged from Maharashtra. [Isn't it funny how the most notorious cases of corruption and anti-national activities emerge from that State?] Yes, I am talking about Abdul Rehman Telgi and the brazen manner in which he could print fake stamp papers worth thousands and thousands of crores of Rupees and get away with it. After a lot of hue and cry, Telgi was arrested and tried. There was compelling evidence that Telgi alone could not have done all that without the patronage of political Godfathers in Maharashtra. Most of us know the names of those political Godfathers.


Friday, July 20, 2012

Madam President, Please read this

People don’t Wish to see The President as a Government Spokesperson

We agree that we had no direct say or role in her election. But still, as citizens of India, we do believe we have the right to ask our honourable President Ms. Pratibha Devisingh Patil to refrain from being the spokesperson of the ruling government.

Her recent address to the Parliament to inaugurate the budget session was historic in this context. It was dedicated in praise of the UPA II and its contributions in reshaping the future of India. It was ironic, especially when the country faced some of it worst challenges in history during the regime; including inflation, separatism, terror threats and also some of the world’s worst scams including CWG, 2G spectrum and Adarsh society. She even applauded UPA II as “My Government”, some 54 times in the entire speech while praising its every policy.

In all probability, and to Pratibha Patil’s defence, we also accept that this “my government” complex is a legacy of the British era. When Queen Elizabeth II addressed both British Houses of Parliament on May 26, 2010, she termed the government as “My Government.” Her first statement was, “My Government’s legislative programme will be based upon the principles of freedom, fairness and responsibility,” while the last was, “My Government is committed to spend nought point seven per cent of gross national income in development aid from 2013.”

Terms like “my government” might not be wrong per se, but when combined with unbecoming praise of the government, especially during times when the government is riddled with calumnious and corrupt individuals who care two hoots for “our country,” the patronising praise clearly falls out of place.

Read more....

Source : IIPM Editorial, 2012.

An Initiative of IIPMMalay Chaudhuri 
and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles. 

IIPM Best B School India
Management Guru Arindam Chaudhuri

Rajita Chaudhuri-The New Age Woman

IIPM's Management Consulting Arm-Planman Consulting



Thursday, July 19, 2012

How The Arab Uprising is a Change of Civilisation and how it brings an End to The American double Standards. Also, what India Must Learn

The kind of double standards practiced by America for decades, even as it arrogantly talks about democracy and preaches the virtues of free speech, dissent and human rights to the world from a pulpit, is a shame to say the least. The fact is, be it Latin America, Asia or Africa, America has always supported brutal dictators who have tortured and killed their own citizens in the most horrific manner. Chile, Venezuela, Argentina, Brazil, Nicaragua and Bolivia are classic examples from Latin America. South Korea and Indonesia were classic examples in Asia; and Pakistan, of course, is the ultimate showcase of American double standards. During the Cold War, when the Soviet Union was the foe, American strategic cowboys used to argue that propping up unsavory dictators in strategic pockets was a necessary evil because America had to stop the march of Communism, which apparently was supposed to be far worse when it came to freedom, free speech, dissent and human rights. After the Soviet Union disappeared and Communism was no longer the enemy it was for decades, many had hoped that America would actually help other nations move away from dictatorships and authoritarian regimes to democracies. Sadly, those hopes were belied and crushed when America started citing the Global War on Terror as an excuse to encourage and prop up nasty dictators. Of course, most of these dictators happen to be now in the Arab world whose oil reserves are the real reasons for American interest rather than the mumbo jumbo and nonsense double speak about democracy and human rights.

Many readers of this magazine were not born in 1979 when the first people’s movement swept across a country in West Asia – better known by American strategic cowboys as the Middle East. I am talking about Iran, the country that America is trying very hard to isolate, punish and even pulverize if given half a chance. For decades prior to 1979, the ruler of Iran – the Shah – was a staunch ally of America, as well as of Israel. In fact, the Americans had installed the reign of the Shahs in Iran by happily encouraging a coup against a popular and democratically elected Prime Minister of Iran, because that man had refused to bow down to the diktats of Uncle Sam. In comparison, the Shahs were deeply unpopular, extremely authoritarian and ruled Iran ruthlessly with an iron fist – using torture, detention and even murder by their secret service to smother dissent. All of a sudden in 1978, America was caught napping as popular protests by citizens swept through the cities of Iran. Ayatollah Khomeini came back from exile and the Shah had to flee Iran in disgrace as the country became an Islamic Republic. Since then, the “staunch ally” Iran has become an implacable enemy of America.

There was a sense of ironic déjà vu as I read with excitement about citizens in Tunisia rising in popular revolt and throwing out the dictator – a staunch American ally who ruled that country ruthlessly for more than two decades. That sense was reinforced when reports started pouring in from other Arab nations about citizens marching on the streets demanding that their hated dictators give up power to the people. Egypt has become a symbol and icon of the suppressed aspirations of millions of Arabs finally finding an outlet. The President Hosni Mubarak – again an American plant – has ruled Egypt like a classic dictator for more than 30 years. Mubarak was in the process of trying to install his son as the next ruler when the sudden wave of protests engulfed his country. More than the people’s revolt in Tunisia – which actually opened the doors and the floodgates for citizens in other Arab nations – it is Egypt which is causing more sleepless nights in Washington. As of now, Egypt, to use that familiar cliché again, is a staunch ally of America and even a de facto ally of Israel. It is the only major country in the Arab world to have formally diplomatic as well as outwardly cordial relations with Israel. It is also the acknowledged leading nation and leader of the Arab world. What happens in the streets of Cairo and Alexandria has a huge impact on the rest of the Arab world. Of course, citizens in Arab nations have been watching in helplessness, frustration and rage till now as Egypt repeatedly winked at the atrocities committed by Israeli troops against innocent Palestinians in the name of fighting terror. Cables released by WikiLeaks also show that the United States has had no illusions about the regime. Washington and its allies now stand thoroughly exposed for using aid of over $2 billion a year and silence over internal repression to turn Cairo into a crucial agent of their regional policy, particularly in suppressing demands for justice for the Palestinians. The Egyptian people’s uprising is showing the world that this highly prized Western ally is utterly devoid of legitimacy. And without doubt, that message will echo through every other dictatorship in the region.

As of right now, a nightmare is haunting Tel Aviv and Washington over the nature of the regime that will take over eventually in Egypt. The best case scenario for the strategic and foreign policy cowboys in America and Israel is a situation in which Egypt evolves from a strong arm dictatorship to a country ruled by a moderate Islamic party like in Turkey. Incidentally, Turkey is yet another staunch ally of America and Israel in that region of the world awash with oil, which is increasingly taking a stand that goes against the stated strategic interests of America and Israel. In the recent past, Turkey even sent a ship on a humanitarian mission to help Palestinians whose life had become a living hell because of a blockade imposed by Israel. That ship was attacked and stormed by Israeli troops, killing Turkish as well as American citizens who were going to Palestine on a mission of peace and empathy. No wonder, relations between Turkey and Israel have soured dramatically after the event and many have even started nursing fond hopes that an ‘Islamic’ Turkey will become the new leader against an Imperial America and its ally Israel. Egypt becoming another Turkey will surely become a headache. But it will be a nightmare if the country falls into the hands of Islamists like the Muslim Brotherhood – the organisation that gave the Al Qaeda number two Al-Zawahari to the world – take control of the country and emerge as another Iran, implacably hostile to America and Israel. And don’t think for a moment that such a situation will never come to pass. Who had ever dreamt even in 1978 of Iran becoming what it is now in 2011?


Wednesday, July 18, 2012

Does R&D Really Pay?

When Apple came up with Mac, IBM was investing 100 times more in R&D than Apple... when Xerox was spending billions at its PARC research centre, others were becoming market leaders in laser printers and mouse, which Xerox invented... and now, when western CEOs are shying away from billion dollar R&D investments, Indian CEOs have began to pour in more and more... and that’s for a reason for sure!

Research & Die! That’s exactly what we said in 2006 (see 4Ps B&M issue dated September 14, 2006) when we argued that those prodigious commentaries on R&D’s capacious contributions to top & bottomlines, and those golden treatises on the voluminous powers of R&D were equivalent to one huge and most impressive looking word: Balderdash!

It all started at the start of this century when Dr. Scott J. Wallsten of Stanford wrote a paper titled ‘The R&D Boondoggle’, where he very strongly commented that internationally, leading firms have started investing lesser and lesser in R&D. And the reason, he deliberated, was that in general R&D spenders had received considerably lesser benefits than all others around them... Since then, time and again, researches have kept proving how even in the industries where R&D was supposed to provide the biggest benefits, it has gone on and accumulated losses that are statistically significant and not ignorable. What can be better examples than Sun Microsystems and Xerox, two prolific R&D investors? After investing over $2 billion in R&D every year for a decade and wiping out a large share of investors’ money, while the former finally got sold to Oracle, Xerox, which kept investing in R&D through its PARC research centre, failed to make money on its patents; even the laser printer and mouse, two of Xerox inventions, are now cash cows in the hands of competitors.

Unarguably, the devastation that the spectacularly researched Resilience Report (2005) of Booz Allen Hamilton, which surveyed the top 1,000 R&D spenders across the world (who constitute around 90% of the global corporate R&D spending) over six years, caused on the world of R&D remains unequalled till date. The report undertook the most massive correlation analysis between R&D and performance. We note here two statements from the report that have attained significance at least in contemporary history. The report statistically proved that “lavish R&D budgets don’t guarantee performance.” In fact, statistically again, the report turned the R&D world around with the statement that there existed “no correlation” between R&D spend and any performance factor (sales, profitability, shareholder return...). “No Correlation!”

To reconfirm if the trend sighted by the research still prevails, when we at B&E, with the statistical and research support of the IIPM Think Tank, carried out a similar correlation test on the top 20 R&D spenders in 2010 among the Fortune 500 companies (US) including the likes of Microsoft, Intel, Apple and IBM, the results came out to be even more shocking. The results indicate that over the past 5 years CAGR growth in R&D expenditure as a percentage of revenue has resulted in a decrease in revenue as well as profit and market capitalisation of these companies as they bear a negative correlation of 0.50, 0.64 and 0.36 respectively (see table below). Justifying the fact in a more intriguing manner Steve Ballmer, CEO, Microsoft, once said, “The lifeblood of our business is that R&D spend. There’s nothing that flows through a pipe or down a wire or anything else. We have to continuously create new innovation that lets people do something they didn’t think they could do the day before.” Microsoft under Ballmer has seen its m-cap destroyed from $580 billion at the start of this century to $230 billion right now (as on January 20, 2011). Despite his public statements, a fire-fighting Ballmer has reduced the company’s R&D billings as a percentage of revenue by 0.92% from 14.87% in 2006 to 13.95% in 2010. On similar lines, HP too brought down its R&D spend as a percentage of revenue by 1.57% between 2006 and 2010. Microsoft and HP managed to uplift their turnover by 41% to $62.4 billion and 37.5% to $126 billion respectively during the period R&D spend was reduced.

On the other hand, despite doubling up its R&D expenses from 4.11% of revenue to 9.53%, revenue per R&D dollar spent by Boeing has fallen dramatically to $10.50 in 2010 from $24.30 in 2006. The situation is no different for companies like Merck and Cheveron, which opted the R&D root to add to their top-lines over the past 5 years. In fact Merck, after investing more than $5 billion annually in R&D, with approximately 10,000 people, and with thousands of patents filed every year, has been able to introduce less than half a dozen new products in as many years. And their heart stopping story of Vioxx is a fable!

These results leave no doubt as to which way CEOs need to go when it’s about spending on R&D and the rate of acceptance of the fact is certainly improving at a smart rate. Be it MIT’s ‘Corporate R&D Scorecard’ – which proved how the top 150 corporate R&D spenders were investing significantly lesser and lesser in R&D – or the recently published (Winter 2010) Booz and Company report titled “The Global Innovation 1000” for 2010 – which indicated how the top 1000 R&D spenders of the world have cut down on their allocations on the front by 3.5%, to $503 billion in 2009 – they all stand tall vowing for the changing mindset. For that matter, over 55% of the global CEOs, who participated in 2010 NYSE Euronext CEO Report gave a huge thumbs down to any increase in R&D spending.


MEXICO’S ECONOMIC REBOUND

So far, so good. The Mexican Policy Makers now need to get back to The Drawing Board if they want to Convert The Recent Rebound in Economic Activity into a long-term Sustainable Recovery. 

Further, much of the boost to the economic numbers comes from the Mexican government, which stepped up its assistance to the economy during 2010. Government consumption expenditures increased by 5.7% during Q2 2010 compared to a meager increase of 0.6% during Q2 2009. No doubt, the rebound has some teeth if Mexico’s export sector (exports of goods and services grew by 28.8% y-o-y during H1 2010) is examined, but this positive performance too is negated by a 25.9% increase in the imports during the same period.

So, is there a way out for this crime-prone nation that also has a history of bad economic decision making (Economic Deterioration in the 1970s, 1982 Debt Crisis, 1995 Tequila Crisis, to name a few)? While Banco de México didn’t respond to the queries sent by B&E (till the time this magazine went to print), Eugenio J. Aleman, the US based Senior Economist at Wells Fargo Securities tells B&E, “The Mexican economy requires serious reforms that must include constitutional changes to allow FDI in the all-important petroleum sector. However, we believe there is no political will to do this today. Maybe a change in the political landscape in the coming years will create the opportunity to move in this direction.”

No doubt, the government’s responses to the recent global financial crisis have helped the country weather the 2009 recession, but then Mexico’s key challenge now will be to reform its tax system to replace the declining share of oil revenues (which constitutes about 40% of total revenues) with tax revenues as the oil production in the country has fallen from over 2 million barrels per day in 2005 to below 1 million barrels per day. With Mexico’s tax revenues representing only 10% of GDP (Mexico has one of the lowest tax collection rates in Latin America), policymakers will now find it hard to meet the economy’s growing needs.

Further, Mexico’s over dependence on US, which makes it vulnerable to the economic threats, also needs to be done away with. Although Mexican policymakers have done their bit over the last 20 years through trade liberalisation, privatisation efforts, and a floating exchange rate regime, these policies have not been enough to protect Mexico from fluctuations in the US. What’s more? Mexico shipped about 80% of its total exports (about 26% of its GDP in 2009) to US last year. Thus, a change in US demand can have a severe impact on Mexico’s economic health.

No doubt, the Mexican economy is rebounding, but there is nothing much for policy makers to actually celebrate. And if they really want to do so, they definitely need to get back to the drawing board to craft structurally logical polices that ensure a steep rise in the gross fixed investments and tax revenues apart from some serious reforms which includes allowing FDI in all-important petroleum sector. Else, the war on drugs may soon become their secondary focus!