Wednesday, May 8, 2013

When GM went broke four years ago, not many gave it a chance to come back from rehab. Those Cassandras are now eating their words as the lumbering giant strikes back with a vengeance.
 

A lot has changed for General Motors (GM) since it went adrift in rough seas four years ago. In the summer of 2008, about a year before GM became a ward of the state, its CEO Rick Wagoner was desperate to catch at straws in a futile bid to prevent his company from going belly up. The financial results for the 2008 spring quarter left no one in doubt about GM’s bleak prospects: a $15.5 billion loss, its third-worst in a century. GM’s revenue in North America had fallen $10 billion y-o-y (33%). And for the first time, after donning the mantle of being the no.1 car maker in the world from Ford in 1931, GM lost that position to Toyota.

But the worst was yet to come. Finding itself at the end of financial tether, Wagoner flew to Washington DC, cap in hand, to ask for $10-12 billion of easy loans from the Fed. But his demeanour – flying in a private luxurious jet at the company’s expense – rubbed many in Washington the wrong way. In quick time, Wagoner was booted out and the doddering company was offered a lifeline in the form of government bailout funds after being put under bankruptcy court protection. GM declared in its filing that it had $172 billion in debt and $82 billion in assets. Its m-cap having plumbed the depths of investor confidence, stood at $2.21 billion in March 2009 when Wagoner departed. The value of GM stocks had cratered to $3.62 as against the trading levels of above $70 when Wagoner had joined as CEO in June of 2000.

Wagoner’s exit did not exactly move GM away from over the hump. Through the initial months of restructuring, the company became a revolving door for a succession of CEOs who drifted in and out without making an impression. It was only after Daniel Akerson arrived in September 2010 that the company once again rediscovered its competitive gene. Since then, the automaker, which had lost about $100 billion in the years before its 2009 bankruptcy, has been consistently profitable. In the latest quarter (Q4, 2011), GM made $1.7 billion in profits, besides having already repaid $24.1 billion of the $49.5 billion in government aid it had received. But the biggest icing on the cake was that GM’s worldwide sales rose 7.6% to 9 million vehicles in 2011, helping the auto major to once again grab pole position as the world’s no.1 car seller (a position it had ceded to Toyota in 2008). That’s surely a remarkable achievement for a carmaker that looked completely down in the dumps until two years ago.

The uptick in sales came about on the back of the strong showing by its flagship Chevrolet brand, which sold a record 4.8 million vehicles last year (more than total sales of brands like Nissan and Honda). European carmaker Volkswagen was the second-largest seller of vehicles worldwide whose sales rose 14.3% to 8.2 million vehicles followed by the likes of Toyota, which expects its 2011 sales to come in at around 7.9 million vehicles, down about 6% from 2010. Analysts attribute GM’s recent swell performance to its strong US and China operations. Being the two biggest markets for carmakers today, GM has done well to wedge the China market open in its favour by collaborating with its local partner (SAIC Motor Corp), a strategy that has paid off handsomely. In 2011, GM sold more than 2.5 million vehicles in China, registering an 8.3% increase from the previous year. In the North American home turf, GM clocked sales of over 2.5 million vehicles at a 13% growth trajectory last year.

According to Jeremy Anwyl, Vice-Chairman of Edmunds, GM was lucky to have come out of its bankruptcy and consequential restructuring at a time when global market conditions were once again turning favourable for the automobile industry. “The bankruptcy allowed GM to cut costs and fundamentally restructure its operations from a cost & incentives perspective.”


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
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Tuesday, May 7, 2013

A Europe of solidarity...

The only way to reverse the trend in the European Union is to recapture the spirit of solidarity that animated the European project from the start

Originally, the European Union was what psychologists call a “fantastic object,” a desirable goal that inspires people’s imaginations. I saw it as the embodiment of an open society – an association of nation-states that gave up part of their sovereignty for the common good and formed a union dominated by no one nation or nationality. The euro crisis, however, has turned the EU into something radically different. Member countries are now divided into two classes – creditors and debtors – with the creditors in charge. As the largest and most creditworthy country, Germany occupies a dominant position. Debtor countries pay substantial risk premiums to finance their debt, which is reflected in their high economy-wide borrowing costs. This has pushed them into a deflationary tailspin and put them at a substantial – and potentially permanent – competitive disadvantage vis-à-vis creditor countries.

Recent developments seem to offer grounds for optimism. The authorities are taking steps to correct their mistakes, especially with the decision to form a banking union and the outright monetary transactions program, which would allow unlimited intervention by the European Central Bank in the sovereign-bond market. Financial markets have been reassured that the euro is here to stay. That could be a turning point, provided it is adequately reinforced with additional steps toward greater integration.

Unfortunately, the EU’s unfolding tragedy characteristically feeds on such glimmers of hope. Germany remains willing to do the minimum – and nothing more – to hold the euro together, and the EU’s recent steps have merely reinforced German resistance to further concessions. This will perpetuate the division between creditor and debtor countries.

A widening gap in economic performance and political dominance is such a dismal prospect for the EU that it must not be allowed to become permanent. There must be a way to prevent it – after all, history is not predetermined. The EU, originally conceived as an instrument of solidarity, is today held together by grim necessity. That is not conducive to a harmonious partnership. The only way to reverse the trend is to recapture the spirit of solidarity that animated the European project from the start.

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
 
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Unforgivable conduct

Cases related to corruption in the Indian defence establishment must be dealt with severely

For long, it was believed that the Defence set-up in our country is above the purview of corrupt practices. That, too, has now been proved wrong owing to alarming irregularities. Army canteens are a case in point, which are now getting exposed as breeding grounds of corruption. In June this year, CBI arrested CSD’s Joint General Manager (JGM) Brigadier Anuj Kainthla in connection with a corruption racket for taking a bribe of Rs.7.5 lakh from a private firm Sankalp Consumer Products to unfairly promote the products of manufacturers that the latter represents. Another JGM Bikas Ranjan Daschaudhary was also arrested along with Sankalp Director Milind Govilkar, after he was caught redhanded while taking a bribe of Rs.1.25 lakh from the latter.

CSD, which has an annual purchase bill of around Rs.100 billion, has 600 suppliers to supply over 4000 items. Interestingly, the credentials of 200-300 suppliers are questionable and proper guidelines are allegedly not being followed in vendor selection. Irregularities are being seen in other defence wings too. CBI questioned Jatinder Singh, ex-Commandant of the National Defence Academy in September 2012 regarding a recruitment scam of C-grade officers, where the total bribe money had supposedly reached Rs.17.6 million.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
 
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Sunday, May 5, 2013

India shining for sony?

The consumer electronics major may be losing its brand halo in Europe and America but it continues to grow its business in India centred around TVs, laptops and smartphones

Just a couple of months after taking charge as President and CEO of Sony Corp, Kazuo Hirai visited New Delhi and Mumbai to strategise on new growth opportunities in India. The troubled global consumer electronics major saw its operating profit slid 77% to $80 million and it suffered a net loss of $314 million for the first quarter of the current fiscal ended June, results for which were announced in August. The figures, which incorporate Sony’s entire operation, represent a fourth consecutive year of losses for the struggling Japanese firm. With the company suffering losses globally due to adverse conditions in its major markets such as Europe and the US, Sony has set its sights on emerging markets like India to assuage the gravity of its losses. In line with this game plan, Hirai announced that Sony is targeting to treble its India revenue to Rs.200 billion by 2015. Sony India had clocked a turnover of about Rs. 63 billion in 2011-12 and is expecting a 35-40% growth in the current fiscal.

At first blush, Sony India’s revenue target looks too good to be true. But the company’s confidence in India is bolstered by the fact that unlike its American and European markets where consumer confidence has crashed dramatically, India still comes across as a country with strong economic fundamentals and where demand for consumer electronics among its youth and middle class still holds good. Also, compared to the revenue targets set by its competitors like LG and Samsung (both aiming around $10 billion by 2015) and even Panasonic, which is aiming to reach Rs.250 billion in the same period, Sony’s figures appear remarkably modest. But making good on one’s target could be a slippery goal to achieve, especially in the times of economic downturn. One only needs to look at how miserably LG failed in achieving its stated FY 2011-12 revenue target of Rs.200 billion, closing the fiscal just above Rs.160 billion. The main reasons for the debacle were the failure of its smartphone category, and increased competition in the ACs and flat panel TV space. The danger for Sony is that it might fall into a similar trap, in its blind dash to reach its 2015 target.

There are other speed bumps on the way too. One major wrinkle in Sony’s India plan is that the company has a limited product line. As competition in the consumer electronics domain is ruthless, competitors like Samsung, Apple, LG and others can be counted on to give no quarter without a good fight. Moreover, competition will intensify even further, especially in Sony’s flagship product category of flat panel TVs. Currently, the flat panel Bravia range contributes the lion’s share of Sony’s revenue at 35%, followed by consumer PC range Vaio at 20%, and the digital camera range Cyber-shot at 15%. Its other divisions like Mobile, PlayStation gaming et al contribute the rest.

The company has hitched its hopes high as it believes that unlike other consumer durable players, it is not a category player. “We are more of a brand player. So we don’t sell televisions, we sell Bravia. We don’t sell laptops but Vaio, and we don’t sell cameras but Cyber-shots,” avers Sony India Managing Director Kenichiro Hibi, who took over the reins of the Indian operations in July this year. So unlike other leading consumer electronics players, who build their category portfolio around a slew of product lines, Sony believes in keeping a simple and narrow focus: pick up a hero brand from a category and build onto it, rather than aim to spread thin in a category.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
 
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Friday, May 3, 2013

Quest of the headless horseman...

China is overtaking India in its quest for growth by leaps and bounds, and it’s doing so by embracing innovation. However, except for a few instances, the ecosystem for fostering intellectual property continues to be dismal in India

Patents are funny little things. To understand what we’re trying to say, consider this – “A method for creating networking database containing a plurality of records for different individuals in which individuals are connected to one another in the database by mutual recognition of a relationship. This mutual recognition of a relationship is inferred by the possession of the Guest Key of one member by the other member. This paradigm for network expansion allows users to proactively grow their networks both using the site features and using tools they may be more familiar with, such as email, messaging, talking, etc.” If you’re feeling that we have crammed up a significant space with a definition straight out of a software programming manual, which for now makes no sense at all, then you’ll probably be shocked to know that this in summary is what defines a social network. This in fact is the abstract of the first ever social networking patent that was granted to inventors Jared Morgenstern and Edward Lim. The original assignee of the patent was Sixdegrees.com – a now defunct portal which was in some ways a shadow of what Facebook has evolved into. It was ahead of its time and therefore had to shut shop. However, the patent was later, in 2003, acquired by Reid Hoffman (Co-founder, LinkedIn) and Mark Pincus (Co-founder, Zynga) for $700,000 fearing that if resourceful players like Yahoo get their hands on it, they’ll bring the entire social networking ecosystem to a standstill for a significant amount of time. Their anxiety was compounded by the fact that most social networks during those days were start-up which were having trouble putting up money for basic infrastructure like servers. Had Yahoo (which was also a bidder) acquired the patent and gone on an offensive, these new businesses would have had no choice but to close down. For now, the owners of this seminal patent are, well, sitting on it. Pincus is out of the social networking business (before Zynga he had been a co-founder at a social network called Tribe.net). But Hoffman is very much on the same terrain. And his website LinkedIn is emerging as one of the most successful and sustainable social networks after Facebook. If for some reason he decides to sue Facebook, the latter will have no choice but to either settle down for an obnoxious amount or licence out some of its own patents in exchange for Hoffman’s.

In fact, very recently, Mark Zuckerberg experienced first hand what it might mean to get locked into a patent battle with a rival. After joining Yahoo, Scott Thompson – the now fired CEO – spearheaded the filing of a 10 patent infringement lawsuit claiming that Facebook had been violating Yahoo patents in the areas of news feeds, advertising and privacy settings. Instead of plunging into the battlefield Facebook agreed to licence its patents in exchange for Yahoo’s apart from strengthening the existing advertising and content sharing partnership. Before this unsolicited drama, the social network had to cough up $40 million to acquire some patents from Friendster (a social gaming site founded in 2002) in 2010. Now with privacy becoming a huge issue, Zuckeberg has finally managed to get a patent for ‘Dynamically generating a privacy summary’ which he had applied for in 2006. The patent defines the process of displaying a user’s profile based on his/her privacy settings. The development will help the now listed company by protecting a significant part of the social networking experience. Other social networks might have to eventually license out the patent from Facebook.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
 
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Thursday, May 2, 2013

The famine that India did not waste!

Between 1965 & 1967, the Government of India was up against an extremely daunting challenge – the Bihar Famine. It compelled the then PM Indira Gandhi to realise the importance of self sufficiency in food for India’s long term interests. This realisation led to the Green Revolution, and things were never the same

It was circa 1966-67. Anil Vibhakar, then a high school student, has chilling memories of the last famine that hit his home state Bihar, along with other parts of India. “Newborn babies and young infants cried and shrieked for their mothers’ milk. But young mothers were not in a position to generate milk in the absence of enough food,” he recalled.

Vibhakar, now a senior journalist based out of Gaya, also recalled how many people vomited after eating wheat chura. Ultimately, they developed a taste for it and mixed it with milk powder and also made kheer (Indian dessert) out of it. In adjacent Jehanabad, Bali Ram Mishra narrates how pregnant women were most affected in light of poor calorie intake and found it hard to deliver babies. Similarly, Vijendra Singh in Patna recalls how his grandfather failed to grow even a blade of grass and the family carried on for a few months with a reserve stock of food.

On account of a decline in death rates, India’s population grew from 300 million in 1947 to 500 million in the 1960s. This led to increased demand for food and India’s food imports rose from 1 million tonnes in 1950 to 10 million tonnes in 1966.

The genesis of the Bihar famine lay in the successive monsoon failures of 1965 and 1966 that affected south Bihar, currently Jharkhand. Some reports peg the total loss of lives at 2,500. The year 1965 was already a year of deficient rainfall. Then a double tragedy struck by way of floods in north Bihar and poor monsoons in the south.

As a result, foodgrain production declined to less than 25% of the normal in large parts of south Bihar. Annual production in Bihar fell from 7.5 million tonnes to 3.5 million tonnes and availability of foodgrains declined from 13.4 ounces to 6.5 ounces per head. Some 30 million people faced scarcity and famine with around 18.8 million cattle. Studies pointed out that food shortage in Bihar was significant in 17 out of 17 districts, with 9 districts producing less that 50% of normal output.

The Congress Working Committee decided to hike the central allocation to the state. In a month’s time, the allocation of foodgrains to Bihar from the central pool increased from 70,000 tonnes in October 1966 to 150,000 tonnes in December that year and further to 2,25,000 tonnes between April-October 1967. Thanks to the US Public Law 480 Program (PL-480), India got continued food supplies and the Bihar Famine did not precipitate a national calamity. PL-480 or Food for Peace is a funding avenue by which US food can be used for overseas aid. It was signed by then President Dwight D. Eisenhower in 1954 after US produced surplus grain and as a result, global prices crashed. But PL 480 was given to countries that didn’t antagonise US geopolitical interests.

Food imports were used by US to arm-twist ‘non-aligned’ India into accepting its position. Leading US political scientist Paul R. Brass, in an article titled Political uses of Bihar Crisis: The Bihar Famine 1966-67, wrote: “Lyndon Johnson was known to be angry with Mrs. Gandhi (Indira Gandhi) and the Government of India for their disagreement with US Policy towards Vietnam and he adopted ‘short-tether’ policy of adjusting the release of aid, including food aid, to India...” The US still uses food imports as a diplomatic tool as is visible in recent cases of North Korea and Iran. It denies food even on commercial terms.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
 
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Wednesday, May 1, 2013

The pro-India view

H.E. Peter N Varghese AO Australian High Commissioner to India

The India-Australia coal trade is a token of India’s growth story driven by huge domestic demand, which is one of the highest in the world. Earlier, the imported coal from Australia was mainly cocking coal used for domestic consumption but the future import usage would be centered on thermal power generation, another important prerequisite for India’s growth story. It would be myopic to look into India’s growth with quarterly or yearly results – India’s economy has undergone many twists and turns – from Hindu rate of growth to a fast paced one from the time of liberalization. That notwithstanding, a massive pool of young population would be the key to India’s success in the long run. In this age of globalization, India’s economy is not a phenomenon in isolation, rather its being impacted by the global economy and economic meltdown in Europe and North America always have a negative effect on it. The strength of Indian economy is based on certain factors viz. it is a consumption based economy, its high savings and high investment level, and then if it can win the challenge of education for its citizens. Economy is a part of an ecosystem and it does not exist independently. Economic growth and political stability are clearly inter-related. Further, India’s democracy is the pillar of strength for its economic advancement, which provides as shock absorbers, so that in the long term economic growth speeds up.


Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri
 
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