South Asian economy: Benazir's assassination impact

Generally, I am very much indifferent to what is happening in the neighboring countries of India. One of the main reason behind this can be I am not a fan of cricket and I do not follow its news either. But the assassination of Mrs Benazir Bhutto has made me thought about neighbors of India and economy of south Asia. For the last couple of years most of the countries in this region have enjoying good economic growth. Most of this growth is because of the increase in outsourcing to these countries from western countries. Suddenly if we see most of the countries in this region are also facing severe political unrest. from economical point of view most of the countries are too small to have any global impact. Indian and Pakistan are two of the major power in this region and Pakistan is playing and important role as close ally of USA in this region. Pakistan also has one of the largest and most powerful army in this region that is interest for the world. Though Pakistan has a long history of having military rule but this time situation seems quite different. Mr. Mussaraf seems to become the only remaining choice for the people of the country. After Mrs Bhutto, there is no consensus on the future leader for the party. There are some names coming up for discussion but none of them has as strong mass appeal as Mrs Bhutto had. Well, what happens to PPP party and politics is internal matter of the Pakistan but this incidence has created a situation of unrest in the region. This unrest is not good for the growing economy of the region. Perhaps for the first time in the history of Pakistan, it was having growth year after year. But this situation is not good for Indian economy either. It is not good to have military ruler in the neighboring country and particularly when the countries are arc rivals. Though Indian economy is self-sufficient in many sense but the kind of growth it is obeserbing for last 4-5 years can not be achieved solely by internal growth. India should try to do whatever it can do diplomatically to bring democracy back in Pakistan as soon as possible. Though India is known for its wait-and-watch policy rather than doing anything. It did not do much in case of Berma recently too. Though India has central government with the support of left parties but there is not much political unrest. Another political party, BJP, is gaining support in regional elections in India that is good sign for business community. This party had done some good work for the economic growth that we are seeing now. Investors should not much worry about investing in India as fundamentals are still strong in indian companies and vast pool of young talent is there to drive the growth for many years to come. Happy investing in South Asia!

True value of the product

Today I was out to work in a crowded football stadium. I was operating one till (counter) in the busy day where thousands of football fan were pouring in. After working for few hours when I was coming back to my residence I thought to spent some time in the market to watch the customers doing boxing day shopping. To my disappointment it was not a very exciting day, customers were not too excited about the discount and most of the people in the market were there to spend some time because they were getting bore at home. I found one bench in the market and sit there for more than a hour. I was watching two guys and one girl trying to sell something to clean nails. of course no one was coming to their shop and they were trying to stop every passer by saying "May I ask you a question? May I see your nails? Sir, Madam". I was thinking to go ahead and talk to them what exactly they were trying to sell. Fortunately I did not have to venture there, a lady came and she stayed there to listen about their product. Honestly, I did not find (by listening their conversation from distance) anything that could have attracted me to visit their shop. And I realized they don't have anything that customers can find any value with. They had a product but it was difficult to recognize the value of the product for the customers. Even these young guys (and girl too) had no idea about how they can market their product. I was thinking is it enough to manufacture a product and put in the market. I know there are lots of products for the nail care in the market and they sell for good price too. Product these guys were selling might also be good (I am not an expert in this nail-related stuff so I might not have picked the value) but no one was interested in listening them was really surprising. I feel this was because they had chosen wrong place to promote the product. I think time was also not good for this kind of things. In a busy shopping mall, very few people will be interested in listening to any new product. and rarely anyone would like to spent one hours to see what they can do with their nails. Most of the passerby were in the market to find something good in the sale and there are so many shops to roam around and too many things in the mind to buy (if they are on sale). Time of this Christmas sale was also not good to be in the market. I think people are ready to spend some time on new experiences when they are relaxed.
I like what Mr. Warren Buffet says about product. Any product that customers like is a good product. When customers can recognized themselves and can identify the value without much marketing/advertising, product will have huge success. That we can see in the case of Disney worlds, Disney Movies, customers love Disney all over world and they are sure of good value so they are willing to pay even a premium on this. Compare it with McDonalds. Perhaps all of us dislike it. We go there because it cheap but we dislike it. He argues it is not good for the long life of any product.
I want to say in the end that if true value (taking care of "place" and "time") of a product is recognized and communicated to customers it can be a big success otherwise no one stops to buy whatever efforts are made. Happy Marketing!

2007: A long year with lots of challenges

We are anxiously waiting to end this long year that had been quite challenging for the business leaders of the world. I say it long year because there were so many challenges during this year that everyone wants this to end. There were not many serious problem in the world politics so it was good for the business but there were continuous tension between United States of America and Iran and it was one of the reason for high fuel prices. Though the main reason for the high fuel prices was high consumption was some of the developing economies. At this time of point OPEC countries are also worried about the rising fuel prices but they are reluctant to increase the output or to start new facilities. Perhaps they want to avoid the repeat of the 80s when over production caused steep downfall in the oil prices. Input cost for most of the manufacturing, service industry has gone up as well but somehow overall economy is doing well.
One of the major problem of this year has been subprime lending and it caused most of biggest investment to write down billions of dollars in last few months. CEOs, chairmen and top management at many of these investment banks (Meryl Lynch, Citibank etc) lost their jobs and new management is facing horrendous task of resolving these problems. it is not easy task and lost of money will be lost because of this subprime lending. Only Goldman Sachs seems to be a clear winner in this time of extreme turmoil. Federal bank is trying to help these banks by providing loan (through auction) without creating excessive liquidity in the market. Recently Singapore's fund have also come forward to help Merill Lynch. These major will help these investments in short term but they need to do a lot more to clear bad debts, increase profitability and performance. Not a good year for these investment bankers.
For some of the major technology companies, Google and Apple, this year has been fantastic. They have launch new product and customers are accepting them willingly with open arms. Apple has entered a domain of mobile with the launch of iPhone this year. It has also become popular as other products of Apple. Though price tag may be an issue for further growth but Steve Jobs has learn the art of making money. They will reduce the price later on as they did in case of Apple iPod. on youtube, Google has recently made a strategic alliance with the Queen Elizabeth II, http://www.youtube.com/theroyalchannel. this channel may not bring anything in terms of revenue for the Google but it will make surely make too popular online (it is already popular though) but the traffic will drastically increase and in future many more rich and famous people choose the same way to go online through youtube. A wonderful move! Microsoft has no major good news this year. Vista is not being accepted by many as MS might have hoped. Many of the copies of Vista will be sold because it is pre-installed on many notebooks and PCs. People are not finding it as user friendly as it was believed to be. there are lots of hardware and software integration/upgrade requirements and these are not very good for average user. there are so many version of MS office and all of them are not compatible with each other that is a problem for Microsoft. I think it has created so many different versions and probably it is danger of losing to itself. Recently it also lost EU competition case. Now it will not be in strong position in future when more and more anti-competition law suites will be filed against it. And Bill Gates wants to retire from Microsoft soon.
These are some of the thoughts come to my mind in this morning. I have already talked about growth in SE Asia in my other blogs. Wish you all a Marry Christmas and a very happy new year.

Merger and Acquisition

M&A is one of the biggest activity in the corporate world. It takes lots of time and interest of the senior management in the industry, banks, lawyers, accountants etc. M&A is important for many reasons. One of the reason behind this is the growth of the acquirer company inorganically. companies can grow rapidly using this approach. though it has its problem too. It brings different operation processes, accounting practices and corporate cultures together. Solving these problem is not easy and if proper planning is not done before the M&A, it can hurt the combined entity severely. A lot of academic research has been done (and it is still and ongoing topic for researchers) to identify the benefits of the M&A but it is difficult to estimate the real benefits. Some of the researcher have tried to calculate average gain for many mergers over a period of years. This does not seems to be in efficient way. There are a few other researchers who have tried to follow a few mergers from their first public announcement to the completion. though the later gives an tool to understand the merger activity closely but it can not be generalized. one of the biggest problem in evaluating the gain/loss of the merger is the existence of target company is lost in most of the cases. so it is very difficult to find what is happening to the target or acquirer company as individual. one can not say the growth or slowdown after the merger is because of the merger activity or some other reasons. Other problem is the change in the accounting practices. It makes lots of difference in the valuation of the business and sometime it can be too big. when the accounting practices changed in USA, AOL had to show loss of $54 billions as a loss of goodwill in TimeWarner merger case. sometime because of the competition policy, some of the divisions of the target company needs to be divest so target company does not remain what it was acquired originally. sometime management also plays the finger-pointing game inside the company after acquiring a new company. they tend to put higher overheard and administrative cost because of the merger of the target company since there is no mechanism to find out the real data, success/failure of the merger can not be evaluated easily based on the annual reports. many other factors need to be taken into account. Many a time there are some of the hidden agenda of the management behind the merger activity. management buy target company to strip it of good assets and then sell the bad assets after a few years and in turn making their company stronger. in this case there is no way merger can be evaluated. Despite all these problems, careful scrutinizing the annual reports and press release etc gives an overall idea about the success of the merger.
Mergers are not always good for the shareholders of the acquirer company because most of the time target company share prices go up because of the competitive bidding my multiple companies and legal, consultancy cost also goes up in many of the cases.
My experience of dealing with post merger activity has been a big learning about how the management work and react to these activities.

Customer service and my experience

In any business one of the most of important aspect to stay competitive and for long time is the customer service. Yes, every marketing book will tell this. If we dig a little with this is not only marketing books, but almost all the fields of management tell the same story. When we investigate supply chain, operations, strategy, human resource etc, all are talking about customer satisfaction. The type of customer may be different in every talk. It may be a B2B, B2C business. Human resource also talks about customers, for them customers are the prospective employees or current employees. Only difference is the nature of the customer. When there is so much talk customer then why business don’t understand customer service at all. I don’t really have time to explore many services but whatever I have experienced till not I have found that customer service is very low in UK business. I have many examples to prove my argument. I live in city centre and go to university by bus every morning. There is a schedule pasted on each bus stop but that is only for reference, rarely any bus turn up on time. It will be better if it is written on the schedule that bus will come after the time printed on the schedule. It is very bad experience when professors are strict about time. Other interesting place is the NHS. They have a wonderful system of appointment. You for anything, stand in the queue and get an appointment to see GP after one week, then there is another appointment for blood test or Xray after one or two weeks, then another appointment. One of my colleague was bleeding in the hand, he had to take appointment that was after one hour. He lost around half a litre blood. I booked a ticket on onerailway and now for cancelling the ticket I need to trust royal post. If the ticket is lost in the transit they will not refund. Shouldn’t the cancellation/refund we straight forward as the purchase of ticket is? But who cares customer has given money, we don’t want to return is the message from companies. There are many other examples but these might have given a fair idea of poor customer service.Question that comes to mind is why it so? Why companies don’t bother about customers? One of the reason I see is the monopoly. It is strange to say monopoly here but it is true. Most of the business are heavily regulated by government. Entry is not easy or very expensive. Generally there is only bus operator in one city, even if more operators are their route will be divided so there is no completion. Same things happen in case of rail travel. There are so many rail companies (I think around 26 in total) operating independently in UK and they have little interest in sharing information or network. These companies share network just because they have to. But there are so many restriction on ticket that a customer is forced to take either high price ticket or odd timing or same network trains even if they have poor service. Supposedly private companies should serve better than public companies but sadly some of the neighbour socialist countries have much better services (fast euro trains and on time departure) without having much competition from private players. Just having private players does not help customer, there are many other factors that need to taken into consideration. One of the solution is to have more competition and watch the formation of cartels. As in case of mobile operators. Most of the mobile operators have almost same plans without much distinction. They have a implicit policy to charge £10 per month for very little talk time. They encourage customers to spend more than £15 per month. PS: All these are my personal opinions of experiences I have till now. I may be unlucky to find rare bad experiences.

Economic boom when oil prices are rising

One of the mostly quoted topic in news papers for last one year has been high price of oil. There has been speculation about different price barrier at different time. At point everyone was talking that $60 per barrel is the limit then $90 came and not it is near $100 per barrel. As the demand in winter in USA will increase it might further go up. There were request from many oil consuming countries to OPEC last month to increase the oil production, these were rejected. Over this period of high oil prices, there has been a period of economic boom (particularly in south-east Asia and middle east). This is very different from the last time when the oil price went up in 70s. This time it seems that economy does not care much about the oil prices. Though the input cost for raw material and energy is increasing everyday but companies are generating heavy profit every quarter. In fact economic boom has gone to an extent when companies are actively seeking in very large sized merger and acquisition. Though economist will try to give many answers to this. I have my views. One of the major force behind these, as I understand, is the globalization. This has changed the whole business and economics environment. Now we source all the inputs for business where they are cheaper. We source money from where it is cheap, send manufacturing work where labour is cheap, send design and r&D work where educated labour is cheap. Combination of all this makes a balance. So today even if oil prices go up, other inputs can be found cheaper somewhere in the world and that helps in reducing in the overall cost. The other issue when the money goes to oil rich countries, they also invest it somewhere. One of the place to invest in the past was US treasury bonds for most of the countries. But now the situation is changing and countries are looking for other places to invest money and get higher returns. A large proportion of this money is going to south-east Asia. Oil rich countries are generally very much interested in investing real estate projects. Many of the big real estate project in countries like India, Singapore, Korea etc are being funded by these oil rich countries through foreign investment. to manage this huge amount of money, almost all the banks are opening branches in the middle east and managing money in the form of private equities. So in a sense, money that goes to oil rich countries is going back to the countries where money is needed more. When money is available in excess oil prices are not big concern. And top of all this, economy has gone to such an extent where the higher prices of inputs can be transferred to the consumers. Consumers demand high salary from their employers next year. No problem, it will be done. Everyone is playing with huge money. Though I don’t know it is sustainable growth or not. Neither do I know how big income gap it is creating between poor and rich. But in near future this economic growth doesn’t seems to stop. Recently USA has published a report saying that Iran has no more nuclear weapon program since 2003, it may ease tension and in turn oil prices. Effect of this economic boom is more visible in the share market of south east Asia. Petro China has become one of the largest oil company in the world (in terms of market capitalization). Though share market is a illusion and has gone to a level where it seems that most of the companies don’t have fair value. But I am hearing this for more than a year. I sold some shares last year and now I feel pity on me. Share prices have gone even higher where they were last year. Indian share market has risen almost 3 times in last 3 years. One might have made huge money if this was known, some of the shares are at 10 times of where they were 3 years back. Though share market is not a real indicator of economy, but to a large extent it tell the confidence of the investors in the economy and it can be inferred that this economic boom is there to stay.