IIPM - History: April 2013

Tuesday, April 30, 2013

International

CNOOC: canadian buyout
The dragon goes off on oil hunt
In a world that shows an unquenchable thirst for energy, Chinese business dragons are leaving no stone unturned to grab available resources. Recently Chinese offshore oil and gas giant CNOOC announced that it will buy Canadian company Nexen Inc. for a whopping $15.1 billion. Nexen is Canada’s 12th-largest energy company with a capacity to produce about 213,000 barrels of oil or its equivalent per day. This is not the company’s first attempt to go for a big ticket acquisition in the energy resources of North America. Back in 2005, CNOOC had attempted to acquire U.S. based Unocal for $18.5 billion. But the attempt proved futile due to the political turmoil it kicked up in the U.S. Since that abortive bid, Chinese companies confined themselves to buying minority stakes overseas. However, the current acquisition, if it clears the regulatory hurdles in Canada, will consolidate CNOOC’s holdings in Canada. CNOOC intends to set up its regional headquarters in Calgary and increase spending to develop the Canadian company’s energy reserves. The company has already chipped in with about $2.8 billion investment in other energy projects in Canada. However, the Canadian government has recently been very conservative in allowing foreign companies to invest in the country’s natural resources. Further, the deal also needs to be cleared in the U.S. by the Committee on Foreign Investment. This is because Nexen’s deepwater assets are largely based in the Gulf of Mexico and in the U.K. and CNOOC will need to take an operating licence for its North Sea operations. While the energy boom in North and South America is luring the rest of the world to explore the opportunities there, the macro challange will be to establish a collaborative framework to allow the countries with the resources and the countries with the expertise to work together to harness the fruits of this boom.

facebook: advertising revenue
Investors want to see more money
In the race for dollars coming out of digital advertising, Google still leads the business, but Facebook numbers make it a strong contender as well. Of the two, Google is doing better; CEO Larry Page claims a $2.5 billion run rate for mobile ads, which appears to give the company more than 100% of the global market. However, even that’s not enough for investors, who fret that Google’s cost-per-click keeps falling as mobile ads become more prominent. Google customizes its advertisements based on what one searces for, whereas Facebook customizes its advertisements based on who you and your friends are. During the company’s second-quarter earnings call with analysts, Facebook claimed it was making about $500,000 a day off its mobile ads, which would amount to $182.5 million over the course of a year. Its ad revenue stream was $992 million for the quarter, up 28% year on year and 14% sequentially from the previous quarter. That’s healthy growth but Facebook is still under intense pressure to show that it is growing fast enough. Advertisers are looking forward to have more concrete evidence that actual advertising on Facebook offers a return on investment.

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face

Thursday, April 25, 2013

Eight years of UPA and eight & a half lessons

Most newspapers, magazines and television channels have been spouting wisdom and much more about 3 years of the current UPA regime. I think, it would be more honest to look at 8 years of the UPA. After all, it was in 2004 that Dr Manmohan Singh was appointed (mark my words: appointed, not elected) the Prime Minister of India. The composition of the alliance may have changed, like the Left no longer being a part of the dispensation. But the core of the UPA has remained the same over the last 8 years.

Before I write about the eight and half lessons that we Indians can draw from 8 years of the UPA regime, allow me to describe the two principal leaders of UPA. First, Sonia Gandhi. No matter what her critics say, the fact is that she has revived the Congress when it looked like all was lost and displayed more political astuteness and maturity than most other leaders. Then Manmohan Singh. No one can doubt his personal integrity and the wealth of experience he has as an administrator. Besides, no one should even begin to doubt their commitment to India.

And yet, things are in a sorry shape and the remarkable story of the rise and rise of India is now becoming one of gloom, despair and anger. Very clearly, something has gone horribly wrong. I don’t need to bore you by recounting statistics to show how badly things have gone wrong. It is crystal clear that the two top leaders of the UPA and their advisors must do something drastic, and something soon. Otherwise, the India growth story and the UPA will both be history in 2014. But before they do anything, here are eight and half lessons they can draw upon.

Lesson number one is perversely biblical – the road to hell is paved with noble intentions. Sonia Gandhi gathered together a band of highly educated, articulate and committed individuals and formed the National Advisory Council. No one doubts the sincerity of the NAC members and their noble intentions. After all, who in her right mind would refuse to accept inclusive growth as an ideal? And we all applauded initially when a landmark legislation like RTI was passed. We were less enthusiastic, but still reluctantly supportive, when it came to the NREGA. We wondered how the Food Security act would be implemented in corrupt India. We shook our heads in wonder when the Forest Act was being foisted. And the logical climax was when the horror called the Communal Violence Bill was midwifed. These noble intentions will rip apart the very fabric of Indian society. I am all for resurrecting Mother Teresa and letting her run India. But is that how you run a complex nation in the 21st century?

At least the jholawala NAC types look suitably humble, if infuriatingly sanctimonious. Lesson number two is about the so called political deal makers of the UPA, who have been insufferably smug and arrogant when it comes to dealing with opponents. Most of us remember how Congress spokesman Manish Tiwari had to go quiet for months after heaping abuse on Anna Hazare. We forget how UPA managers simply did not bother to consult any opposition party on how to tackle the movement growing around the Lokpal Bill. And do remember how leader of the opposition Sushma Swaraj protested that her opinions were rudely ignored when it came to appointing a new CVC. It was only when the Supreme Court cancelled the choice of the UPA that its arrogance was exposed. Confidence is great, insouciance is maybe ok, but arrogance usually comes back to haunt you.

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Tuesday, April 23, 2013

R&D’s ultimate challenge: The ecosystem conundrum

A Tuck-IIPM Think Tank-B&E global joint study on innovation ecosystems

Does R&D actually create long term value for a company, or on a larger canvas, an economy? A number of research papers have tried to establish a correlation between the two. A 2004 IMF working paper titled R&D, Innovation & Economic Growth: An Empirical Analysis, prepared by Hulya Ulku, concluded that “there is a strong positive relationship between innovation (patent stock) and per capita GDP in both OECD and non-OECD countries”. Pelin Demirel, Nottingham University Business School and Mariana Mazzucato, The Open University, Economics Department, empirically analysed whether R&D led to improved growth in the US pharmaceutical industry between 1950 and 2008 in their paper titled, “Innovation and Firm Growth: Is R&D worth it?”. They saw mixed results, and concluded, “For large firms, patenting is the main criterion that allows firms to grow through their R&D efforts. For small firms, on the other hand, it seems harder to achieve R&D led growth.”

As developing economies increase their play in global economic growth, there seems to be a corresponding increase in their share of global R&D as well. The UNESCO Institute for Statistics reported that the number or researchers in developing countries has increased by 45% from 2002-2007. In 2007, developing countries had around 500 researchers per million inhabitants (3,600 is the average in developed countries) and accounted for 24% of expenditure. Unsurprisingly, India PM Dr. Manmohan Singh recently lamented our poor spends in R&D (0.9% of GDP) and the irony that MNCs like GE and Motorola had set up world class R&D centres in our country while our own industry lagged far behind.

However, this particular cover feature, which is a joint study between the Tuck School of Business (ranked number 1 in the Economist’s ranking of full time MBA programs globally last year), B&E and IIPM Think Tank along with primary reserch insights from the Indian Council for Market Research (ICMR), views R&D from the perspective of how we can maximise its outcomes, rather than just how much we can spend. Prof. Ron Adner, an award winning professor of strategy at the Tuck School of Business with a decade of research in the field of innovation behind him, provided the basis of this joint study with his seminal work on innovation ecosystems. In his widely acclaimed book The Wide Lens, he critically examines why the best of customer-driven R&D can fail to produce a successful product/service if the ecosystem for innovation that the company resides in (which includes the entire value chain) is inadequately equipped for that innovation.

Read more......

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Friday, April 19, 2013

BandE Indicators

India’s energy demand on rise
The Indian economy has continuously recorded high growth rates and has become an attractive destination for investments. It’s this superlative growth that has been driving up energy demand in all sectors. For instance, at present, more than 45% of total final energy in India is consumed in the building sector. This share is expected to go up manifold as real estate boom in India continues to surprise the world.

Vehicles add to the burden
India’s vehicle fleet too is likely to grow six-fold to about 380 million vehicles, including two-wheelers, by 2030. With this growth, India’s total energy demand is likely to increase manifold. Meeting this demand would mean that India’s share of world energy consumption would rise significantly, and thus India would have to find and secure energy resources much faster than other countries.

Read more.....

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Monday, April 15, 2013

Is Greece eventually moving towards a eurozone exit?

It was expected that multi-billion euro bailout packages and stringent austerity measures would create the desired effect and save Greece. But given the events post the 50% write down, which reduced Athens’ debt by €100 billion, it seems Greece’s exit from the eurozone is a ‘very real’ possibility.

On July 21, 2011, Angela Merkel, Germany’s Vice Chancellor convened an emergency meeting in Brussels (Belgium). Member states of the eurozone were summoned to take key decisions pertaining to addressing the crisis. But more importantly, the meeting called for deciding on the fate of Greece – which without more money being injected – was about to default on its overwhelming debt which stood at €91 billion. At the end of the meeting, Greece was granted yet another bailout worth a staggering €109 billion taking up the total amount of money pumped into the Hellenic Republic to €200 billion. The eurozone’s rescue fund – the European Financial Stability Facility (EFSF) – was also boosted by €190. While the repayment period was extended to 15 years from the erstwhile 7 years, interest on repayments over bailout funds was reduced to 3.5% from 5%. These relaxations not only indicated that keeping the Union intact was of paramount importance to the Europeans, but also convinced markets across the globe that Athens would not default on its debt – not in the near future at least.

But as it turns out, expecting anything out of the bargain was utter hogwash. An October 21st revaluation of Greece’s financial condition revealed that the EFSF – given its commitments to Ireland and Portugal apart from Greece – was not well equipped to support the mounting debt ailing Athens. A fresh analysis reveals that Greece would be needing €252 billion to finance its debt instead of the €109 billion agreed upon on July 21. Eurozone members realised that at this pace, Greece would end up eating into the funds reserved for Ireland, Portugal and Italy. As a result, another meeting was summoned on October 27. After more than 10 hours of negotiations, eurozone members finally came out with a supposed plan to save Greece – the private sector agreed to take a 50% cut on Greek bonds, which in turn reduced Greece’s debt by €100 billion. Prior to this, the Hellenic Republic’s debt burden amounted to 160% of the value of the economy. Now it has come down to 120%. Further, the deal also encompassed a bailout package of another €100 billion.

However, nothing seems to have changed. Instead of receding, yield on Greek bonds surged (yield on 10-year debt jumped 235 basis points in the week following the new arrangement). Moreover, Greece will only manage to repay its creditors if the recovery rate is strong. The possibilities of this happening look bleak once you consider that Greece would have a GDP equivalent to 2008 levels in 2015 (that makes it the slowest recovery in eurozone)!

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Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

To the spirit of exploration

The recent margin pressures faced by Godrej underscore the fact that its international acquisitions are a step in the right direction. Now it’s time to consolidate.

As a strategy to scale up business and growth, the $3.3 bilion real estate-to-soaps conglomerate Godrej Group has always been known for its strong tradition of joint ventures and acquisitions. Once synonymous with locks and safes, the group today has a presence in FMCG, consumer electronics, engineering, IT and other fields and has around two dozen companies dealing with everything from aerospace to chicken feed. Last fiscal, the company had a net revenue of Rs.25 billion and net profit of Rs.4.4 billion. But till around four to five years ago, Godrej was predominantly a domestic Indian FMCG company with a good cash flow. Like most Indian FMCG companies, it focused on diversifying its product portfolio and expanding its distribution reach. If a really good acquisition target came along, the company was willing to show some ambition, but there wasn’t anything exciting beyond that. Still, business was good and cash flow even better. After provisioning for its business requirements, the company was still left with a pile of cash, which it liberally gave out to its shareholders. As such, it had a high dividend payout ratio and dividends of upto 70- 80% was not uncommon. The company believed in giving back to shareholders and it thought that paying big fat dividends was the best way to do it. Then around 2005, Godrej started thinking of putting its cash to better use. That was the time when homegrown FMCG giants like Marico, Godrej, Dabur, Emami and Wipro started sprouting ambitions for inorganic growth and realised that the home turf alone was not good enough for expansion and growth.

With plenty of cash to boost its confidence and acquisitive yearnings, finding suitable acquisition targets hasn’t been a hurdle for the group’s flagship company, Godrej Consumer Products Limited (GCPL). The company has been on a global shopping spree for the past several years. There was a realisation that if the company wanted to push beyond its existing levels of growth, it would have to alter its current business paradigm. In 2005, GCPL, for the first time, began trying out different business models and exploring different geographies in the quest for global growth. That year, it made its first acquisition in the UK when it bought Keyline Brands. Since then, the company has made roughly one foreign buy every year. It bought Rapidol and Kinky in South Africa in ‘06 and ‘08 respectively, Tura in Nigeria in March ‘10, then Megasari Makmur in Indonesia in April ‘10, followed by Issue and Argencos in Latin America in May and June of ‘10. The group, according to an IDFC Securities report, has already spent over $600 million on its international buys, mostly in emerging markets where demographic and behavioural profiles are similar to that of India. These acquisitions have not only helped Godrej build a presence in new geographies such as Europe, Latin America and Africa, but also helped it cross-sell its home-grown brands. An additional incentive to invest in these markets can also be traced to the fact that multinationals like Unilever, L’Oreal and Procter & Gamble don’t have a domineering presence in these regions, which provides ample scope for regional brands to grow.

Read more...

Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Friday, April 12, 2013

“Despite a Saturated UAE Market, our Subscriber Base Grew”

With 135 million mobile subscribers, UAE’s Emirates Telecom Corp. (Etisalat), is a $9 billion-a-year topline earning name. Ahmed Bin Ali, Group Sr. VP & Global Spokesperson for Etisalat, talks to B&E’s steven philip warner, about his company’s fight in a saturated domestic market, its 4G dreams, multi-billion capex plans and why the company scrapped a $122 million plan to bid for Syria’s third mobile licence.

B&E: Emirates Telecommunications Corporation, Etisalat, currently operates in 18 countries across Asia, the Middle East and Africa. There is speculation that you are looking to expand into new geographies outside the continents you are currently operating in. Is that true?
Ahmed Bin Ali (ABA): No. Actually, for the present, Etisalat is focussed on expanding strategically within our core markets of Asia, the Middle East and Africa. You need to understand that we are in a position where we have already developed a significant footprint and established a presence in the most active and fastest growing markets in these regions. Our operations in these regions are growing strongly, and we are quite a satisfied company with our current continents where we operate in, for now.

B&E: So you say, you sit very comfortable in terms of geographies. Since 2006, Etisalat has invested close to $5.74 billion as capex in these markets – a larger chunk of which was in overseas markets, outside the UAE. But there are some danger signs when it comes to your payoffs. As compared to the previous year, your net profit actually fell by 13.6% in FY2010. Do we take this as a sign of some uncertainty in your international investment strategy?
ABA: In FY2010, our international operations increased their contribution to our Group’s revenues to 23% from 16% in 2009, and profits to 7% from less than 1% the year before. Given the relative young age of our operations, these are good indicators that our investment strategy is on track. Today, we continue to have a strong balance sheet and are rated amongst the most creditworthy operators in the world by global credit rating agencies. This means we even have the ability to engage in acquisitions.

B&E: In March this year, the company withdrew plans to bid for Syria’s third mobile licence. The company said that the terms of the deal did not offer sufficient value for its shareholders. Could you please elaborate?
ABA: True. Earlier this year, Etisalat decided not to proceed and compete in the Syrian mobile bid, despite having earlier qualified to participate in the process. Etisalat conducted an extensive and careful study alongside financial advisors, legal experts and technicians and determined that the terms and conditions of the bid would not enable Etisalat to achieve its objectives regarding the technology and value we wished to bring to the market. We worked hard to develop this opportunity, but we had hoped the terms and conditions would have been more attractive.

B&E: Etisalat plans to invest $15 billion (Dhiram 55.09 billion) to upgrade its telecommunications networks over the next five years to meet the expected demand in online data usage. How do you plan to finance the expenditures?
ABA: Etisalat has a variety of tools which it can access to finance its payments – including cash. We are not highly leveraged and have strong relationships with all the major international and regional banks. We are a long-term investor and although the capex may rise in the short-term, this infrastructure is essential if we are to compete several years down the road. The growth in Internet usage is such that if operators do not put in place fiber optic networks and new wireless broadband technologies right away, the consumer will find their experience greatly reduced. And we are aware of that.

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Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

Thursday, April 4, 2013

Exercise in Vanity?

Apart from The Usual delays on Second Generation reforms, The Indian Government is far from Positioning itself as investor friendly, as The Cases of Cairn and POSCO prove,

In the real world, principles or established beliefs have to also be viewed with respect to how expensive it is to abide by them. India abided by a certain set of principles before 1991, and they cost the nation decades of economic prosperity. But the balance of payments crisis compelled the country to begin to embrace a free market economy against the conventional mindset. In retrospect, of course, the crisis was the greatest boon in the history of independent India.

As India faces the prospect of a serious drop in GDP growth rates again after the global recessionary phase, the incredibly slow pace of second generation reforms in areas like infrastructure, cost of capital and labour reforms has seriously hurt business sentiment. Besides, there is a raging debate on opening up sectors like multi-brand retail, financial services, defence, et al to FDI, where policy makers again mull over how such a decision may affect the economy and the masses. Questions on the government’s tardiness with respect to opening up FDI could get even more discomfitting if the financial situation worsens.

Recent data on FDI is indicative of aa negative sentiment, as the FDI for FY 2010-11 stood at $27.02 billion, which was an alarming drop of around 28.4% yoy (figures from the Department of Industrial Policy & Promotion). It is not like India was breaking any records in the past few years either. FDI remained relatively static at $37.76 billion in FY 2009-10 compared to $37.84 billion in FY 2008-09, which, in turn, was a growth of around 8.64% over the previous year.

Also, take a look at the countries contributing FDI in terms of equity inflows. The leading contributor is Mauritius, which contributed $6.98 billion or 35.9% to the total inflows of $19.43 billion for FY 2010-11. This was followed by Singapore at $1.7 billion or 8.7% and US at $1.17 billion or 6%. This unique group of nations contributed nearly 50% of total investment. Mauritius is a haven for FIIs, as India has a Double Taxation Avoidance Agreement with that country. But why does FDI still shy away from Incredible India so overwhelmingly?

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Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles