The internet craze is back!

Looking at the newspapers in India these days, you would be forgiven if you felt a sense of deja-vu.  An internet gold rush, new models coming up every day, massive PE investments, fresh millionaires… did we just get transported back to Y2K?

Yes and no, it seems.  Yes – because the stories and the mood are the same.  No – because the underlying activity is a lot more real this time around.  Business models are built on revenue models.  There are now more than 80 mn internet users in the country.  Among the more attractive consumer segments (SEC A and B), internet penetration is near total.  A true web-generation has emerged.

How will is this panning out from a business perspective?  Well, travel has already moved online with a vengeance (perhaps repaying us for all those long hours we spent in queues trying to get tickets) – when’s the last time you didn’t buy a ticket off the net?  But that’s not the only segment.  Snapdeal claims to do 10,000 transactions a day (and are now in the market to raise 200 Cr).  Flipkart (valued around a 1000 Cr)  is rumoured to do revenues of 75 Cr.  If that sounds small –  compare that to the 200 Cr odd that Crosswords and Landmark make after dozens of years in the business.

The party’s just begun – and barring another recession, we’re certain to see mind-boggling levels of activity in this space.  And hopefully, we won’t be experiencing a sense of deja-vu in 2021!

Your Movie MBA: Bring us your dialogs

Keen to revitalize our flagging blogging enterprise, we have come up with a uniquely desi formula. We will use iconic movie dialogs from hindi movies to deliver management gyan. In what we hope will be seen retrospectively as a brilliant marketing move that sparked international frenzy and fandom, we will use this platform to advance dubious management insights based on famous movie lines.

That’s the plot, or the twist in the plot. Mogambo, khush hua?!

We could choose hollywood lines as well as bollywood, but our desi hearts are etched deepest in hindi. Nary an NRI meeting is consummated until someone brings forth a gem from deep inside. Who can reject the cultural significance of “Mere paas Ma hai“, or “Jaani, yeh bachchon ke khelne ki cheez nahi hai“, or even “Kitne Aadmi thhey“? Who amongst us has not used the line “Thoda khao thoda phenko” to explain to their host why the excess pulaoo at the party must be thrown away?

 

Update:

Broker ya Party?

Basanti, in kutton ke saamne mat nachna

Aaj Andhe Hain

What is an old economy business model?

At the time of the dot-com boom, we all started differentiating companies as being new-economy vs. old-economy.  The way we thought about these companies was a bit like this:

Old-economy stocks represent large, well-established companies that participate in more traditional industry sectors and have little investment or involvement in the technology industry. In contrast, so-called new-economy stocks are heavily involved in the technology sector and the more successful companies are able to build value at markedly higher growth rates.

But over the last decade, I think that distinction has become a little less stark.  Traditional manufacturing companies have regained some of their edge, and newer technology businesses have started looking a little less exciting.  This is probably more true in India, where technology companies are largely services oriented.

I think that today the way we think about old economy companies is more to do with the mindset of the management team, than the choice of industry. And central to that mindset is an obsession with making money.  Here is my take on how an “old economy” company thinks about money:

Cash is king, queen and knave.  P&L statements are for the birds. What matters is how much cash we generate, and how much of it flows to the owner

Profits are only one driver, and an inefficient one, of cash. After all, one has to pay corporate taxes on profits, and dividend distribution taxes thereafter.

What you don’t pay is yours to keep. An expense ain’t an expense unless you actually pay your supplier.  There are more fish where that one came from.

Tax planning, the (mucho) smarter way. Instead of paying taxes, find ways to take what the government collects from others.  Capturing those subsidies is a great starting point.

No compromises on capital investments. Especially when it flows back to my own, privately held companies.

Debt = Equity – shareholding. What if we don’t pay back the bank?  No, really.

 

Guest Post: Turning corporate mantras on their head

This is a guest from our friend, Aarti Shyamsunder. Aarti works for a large IT services company from their Mysore campus. She loves old movies, fine wine and long walks on the beach. No, seriously, she moved to Mysore because she could smell the surf from her high-rise apartment! She’s an industrial/organizational psychologist in an IT and business consulting organization. Her role involves working in leadership development, assessment and research. She lives and works in Mysore, India where she relocated about a year ago from the United States. Thanks for the post, Doc!

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SARTNAM: Turning corporate mantras on their head

Recently, cooling my heels at Bangalore airport waiting for a (much-delayed) flight, I was casually eavesdropping on conversations happening around me. Bangalore being Bangalore, I was surrounded by mostly corporate types on business trips. Listening to the buzz of corporate jargon I was tempted to shout out “Bingo” every time someone said ‘synergy’ or ‘leverage’ or ‘strategic fit’!

It got me thinking about corporate mantras and how useful they are. Usually, clichés are clichés for a reason – because they apply (and appeal) to the lowest common denominator. However, is this true of all clichés, corporate mantras included? See what happens when we turn some of them upside down…

1.       “We reward innovation” – There’s tons of research around how creativity can be stifled by extrinsic rewards. Innovation is not something that can be incentivized (Bingo!) – it emerges from individuals and their context. What about innovating on the kinds of rewards we give instead? Money, hate to break it, dear HR department, isn’t everything.

2.       “Deliver today, innovate tomorrow” – This mantra focuses on delivering and living the not-so-romantic QSQT (Quarter Se Quarter Tak) life while postponing innovation. As if delivery and innovation need to be mutually exclusive. With the right culture, encouragement from leaders, resources and outlets for creativity, this needn’t be the case. Serendipity, as it turns out, is indeed too important to be left to chance and organizations that plan for this can be highly innovative and highly productive.

3.       “Profit is an opinion, cash is real” – From my limited understanding of this (I’m just a lowly psychologist, not a worldly-wise MBA J), it means that profits or earnings may not necessarily be visible to the world, but cash – in the form of shareholder dividends and such – is real and tangible. Now I’m thinking of good-old motivators like profit-sharing and gain-sharing (Bingo! Bingo!). Archaic and quaint though they may seem, they certainly seem(ed?) to work. In fact, one very successful formula calls for more and more variable pay based mainly on profit-sharing as one climbs the corporate ladder. This adds uncertainty to the monthly paycheck but also places accountability on senior leaders to be productive and profitable.  So profit can perhaps be made more real and tangible after all. As for cash – well, just like stupid, cash is as cash does.

4.       “Kiss up, kick down” – While this isn’t a corporate mantra organizations will actually endorse, sadly it’s often the way things work.  Telling the higher-ups what they want to hear regardless of how true it is stifles growth, and distances the masses. So does the command-and-control of said masses that goes with this culture. Now, think about kissing down and kicking up instead – nurturing talent and growing your employees, while questioning those above you and constantly challenging the status quo. If this sounds refreshing, perhaps it’s time for this mantra to be turned upside down!

Superstar: The real deal!

No sooner had I written a post on “Superstars of the corporate world”, my favorite internet time-sink came out with a post on the Real Superstar- Rajinikanth. I am humbled by this. Rajini Saar knows everything, he does. He is making American ezine write about him. Very well Saar!

http://www.slate.com/id/2267820/

Saar has been introduced appropriately. Here is the actual quote.

This is Rajinikanth, and he is no mere actor—he is a force of nature. If a tiger had sex with a tornado and then their tiger-nado baby got married to an earthquake, their offspring would be Rajinikanth. Or, as his films are contractually obligated to credit him, “SUPERSTAR Rajinikanth!”

Vatch out Hollywood! Yindian movies are coming to a theater near you…and before you know it, your kultural monapaly will be demolished. Peepul all over the vorld vill be vatching yindian moviej. And singing yindian sawngs. Favorite greeting will be “Abey! Kuttey!”, and favorate gaali vill also be “Abey! Kuttey…main tera khoon pee jaounga”. Just vatch it! Eh!

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More seriously, I think Indian movies are becoming slicker by the day, and with arguably better (!) storytelling than Hollywood. I have heard from friends that Indian movies are dubbed and sold in countries far beyond the reach of the expansive Indian diaspora. Obviously, if we can watch Hong Kong movies, they can watch Indian movies. The main problem used to be distribution reach into theaters. Once the Indian distributors figure that out, I am betting that Indian movies will do better than Hollywood in the long run. Indian movies are cheaper to make (the old Rupee-Dollar story), and can have themes more relevant to the developing world than standard American fare. As for the song and dance- well, audiences will have to get used to them! 😉 I’m looking forward to the time when Hollywood films start inserting in a gratuitous song/dance to show a couple romancing. World movie watchers…you are welcome!

And the world goes to… Ameerpet!

Did you know about a place called Ameerpet?  It’s a small corner of Hyderabad where a 100,000 people are studying technology at any point of time.  What Kota does for engineering aspirants, Ameerpet does for tech aspirants – namely plug the gap between college education (or lack therein) and what it takes to get a job.  Yesterday’s Economic times had this article.

Ameerpet picked up on the desperation of thousands of students like Sudha when, almost a decade ago, it morphed from a quiet, residential neighbourhood into a renegade IT hub. Every crumbling building here seems to be crammed with institutes offering courses in SAP, Java, Oracle, C, C++ and a host of others. The training institutes range from a hole-in-the-wall place to large sheds converted into classrooms that pack in a few hundred students. There is at least one new institute springing up every day, but most are low on credibility and use unauthorised software.  Every day, hundreds of people like Sudha throng Ameerpet. They come searching for low-cost courses; for the experience of working on ‘live projects’, which are smuggled from all over the world, or for a crash course to upgrade their skills.

Many people come from villages to pick up tech skills and join the employment pool – more on that subject in a later post.  Employees of tech companies come here to brush up their skills (and actually learn what their companies are trying to teach them through e-learning modules).  Many of them also teach here, earning a 500-1,000 an hour.

Its a sad reflection on our colleges that students need to go through significant additional training in order to be employable.  At the same time, it’s a testament to private enterprise that finds a way to fill the gap.  Getting to acceptable standards of employment is often good enough.

As a trainer at an Ameerpet institute puts it: “It’s like having a plasma TV and a basic one in front of you. The basic one may not give you the superior quality and status symbol of the plasma, but does it mean it is not doing its job at all?”

Incentives to learn

Narayan Ramachandran has a column in today’s Mint, talking about India’s missing educators – focussing on absenteeism among teachers in India’s schools (a point we have been referring to on-and-off in this blog).  He states that there seems to be a clear correlation between improving teacher attendance and student learning.  However, teacher absenteeism is a very complex problem.  For e.g.:

* Higher pay is not associated with lower absence

* Para-teachers, who work on contract and whose jobs are not guaranteed, are equally likely to be absent

* Attendance in unaided and government-aided private schools is only marginally higher than at government schools

All this points to a lack of dis-incentives (or, in less polite terms, the stick).   Which is then the focus of most interventions.  Narayan lists out several of the good ideas floating around:

1. Introduce a voucher system that allows households to choose between public and private schools

2. Introduce a credible process of monitoring teacher attendance, and link it to some form of variable pay

3. Create an output orientation that is around student learning and use that to measure quality of teaching (not the input metrics like classroom ratios etc)

The first solution is probably a good one, but has too many complex implications – and will be difficult to push through politically.  The second and third ones are good too, but have limitations.  For instance, measuring the output ignores the quality of the input.  Something that the schools in LA have discovered (covered in our previous post “Scoring the Teachers”)

An aspect I find less talked about is the student’s incentives to learn, and parents’ incentives to make sure they do.  Many people struggle to understand the cost-benefit of a good education.  It’s hard for them to see the NPV of investments in education – and many of them fail to take it seriously.  I’ve encountered a few volunteer groups in Bangalore that try and educate students about this – by displaying heroes from their community and educating them about employment (and salary) opportunities.  But these may be sporadic efforts.

We’ve assumed that there is a demand for education, and are killing ourselves on a supply solution.  But what if we focussed on strengthening the demand instead?  Would that not help create a stronger supply base?

We’ve seen it work everywhere else.  Why not in education?

The frontiers of outsourcing

Two non-conventional areas of outsourcing discovered:

1.  The Virtual Personal Assistant (VPA) – who among other things helps arrange dates for you through online dating sites.  Hilarious story here, discovered thru Marginal Revolution (who also seems to have a thing against Krugman).  Read the story till the end to get the plot for the next Hollywood blockbuster – Love Story, outsourced (title credits, me)

2. Outsourced wombs – there’s apparently a half billion dollar surrogacy market in India with 350 clinics offering the service across India, at about a fifth of US costs (potentially a more compelling economic proposition than conventional BPOs).  Full story here, discovered via the freakonomics blog.

So, I think we’re gradually getting a slice of the full lifecycle.  From online tutors, to dating assistance, outsourced wombs, medical tourism and religion (eat, pray, love) – India’s got it covered.

Abject poverty and extremism in India…

In an earlier post, I had talked about the growing Maoist-Naxalite pressure on rural India as a possible Black Swan event. Here is a fantastic article on the subject of growing Naxalite violence in India. This is perhaps one of the best articles I have seen on this subject in the western media. I have some comments on the issue which are below the blurb, so read on…

Fire in the Hole: How India’s economic rise turned an obscure communist revolt into a raging resource war.

But plenty of Indians have missed out. Economic liberalization has not even nudged the lives of the country’s bottom 200 million people. India is now one of the most economically stratified societies on the planet; its judicial system remains byzantine, its political institutions corrupt, its public education and health-care infrastructure anemic. The percentage of people going hungry in India hasn’t budged in 20 years, according to this year’s U.N. Millennium Development Goals report. New Delhi, Mumbai, and Bangalore now boast gleaming glass-and-steel IT centers and huge engineering projects. But India’s vast hinterland remains dirt poor — nowhere more so than the mining region of India’s eastern interior, the part of the country that produces the iron for the buildings and cars, the coal that keeps the lights on in faraway metropolises, and the exotic minerals that go into everything from wind turbines to electric cars to iPads.

…and another from the same article…

In a sense, however, India has already lost this war. It has lost it gradually, over the last 20 years, by mistaking industrialization for development — by thinking that it could launch its economy into the 21st century without modernizing its political structures and justice system along with it, or preventing the corruption that worsens the inequality that development aid from New Delhi is supposed to rectify. The government is sending in Army advisors and equipment — for now, the war is being fought by the Indian equivalent of a national guard, not the Army proper — and spending billions of dollars on infrastructure projects in the districts where the Maoists are strongest. But it hasn’t addressed the concerns that drove the residents of Chhattisgarh and Jharkhand into the guerrillas’ arms in the first place — concerns that are often shockingly basic.

So, as ultra-educated and semi-resident Indians, what are we to do about this? I used to think earlier that this was a propaganda war, and it was just a question for the Delhi Sarkaar to build out an outreach and communication program. After all, what could be wrong with progress in the form of mining jobs and development? Who would argue with that, and why would people come in the way of progress in such a violent manner.

Damage caused by mining: If you want to read up on the damage caused by mining, check out this latest article in Wired Magazine, which brilliantly outlines the problems faced by a Superfund site after the mines have dried up. It’s not online yet, but I will post the link when it’s live.

My views have changed. Unfortunately, this is an armchair expert’s view, formed by watching movies like Avatar, Peepli [Live] and Hazaaron Kwhahishen Aisi. It is clear that development and industrialization has asymmetric benefits. People who “donate” their land rarely get much good out of the exercise. Does that mean I support the Naxals? No! But I can understand them better.

The funda of farmer suicides

Posting [LIVE] from Peepli.

In recent years, there has been an increased awareness of the unfortunate rise of farmer suicides in rural India. By most estimates, about 200,000 farmers have committed suicide in the last 20 years, with the recent years averaging more than 17,000 a year. Grim statistics indeed. These suicides have largely been concentrated in the Indian agrarian states of Maharashtra, Andhra Pradesh, Karnataka, Madhya Pradesh and Goa.

“India lives in her villages“, as Mahatma Gandhi didn’t say. About 73% of the Indian population still lives in India, and a large majority of the folks are dependent on agriculture for subsistence. Many of these farmers are poor, manual workers and uneducated- very poorly equipped to compete in the world economy as they are.

The base post on farmer suicides was written by P Sainath, who is the editor for The Hindu, a big and respectable Indian newspaper. Through his award-winning reporting, he brought attention to this subject. Here is a great update post from Sainath on this.

So why are the farmers committing suicide? I am going to focus on two competing, yet reconcilable, narratives that have been put forward. One represents the extremely successful activist community, spearheaded by Vandana Shiva, and the other representing the views of a broader “economist” community.

Simply put, the activist viewpoint is that the greedy multi-national seed and chemical companies have colluded to create monstrous patented and genetically modified monoculture of seeds that cost the farmers their livelihoods, land and, ultimately, lives. Meanwhile, the global trade in seeds creates conditions that allows heavily subsidized American grain to rush into the market, lowering the effective rates. In other words, the rapacious Americans are to blame. This viewpoint has been very eloquently articulated by Vandana Shiva, who has appeared Al Gore-like in her presentations to a shamed-western-media. Here are a couple of great reads: Vandana-on-HuffPost, and here’s an audio post.

Rapid increase in indebtedness is at the root of farmers’ taking their lives. Debt is a reflection of a negative economy. Two factors have transformed agriculture from a positive economy into a negative economy for peasants: the rising of costs of production and the falling prices of farm commodities. Both these factors are rooted in the policies of trade liberalization and corporate globalization.

The other viewpoint takes a more scholarly approach to the grim data. The best point of view I came across was this research published by International Food Policy Research Institute. I initially assumed that this is an industry-funded-one-sided piece, meant to allow greedy seed and fertilizer companies to assert their point of view. I was wrong. This is a well researched and balanced piece of work. It combines a meta-analysis of several other lines of research. The truth, in their opinion, is more nuanced, though no less grim. The multinational seed companies are, indeed, selling patented and GM seeds that are terribly expensive.  The seeds give much higher yields with a careful selection of chemicals, and under irrigated conditions. In India, the farmers are uneducated on their proper use, and still depend on the monsoons for irrigation. This means that the farmers take debt to buy seeds that are essentially a gamble. The yields turn out to be poorer than the costs would justify. Crop failure results infrequently. This created a vicious cycle which ends, sadly, in the farmers committing suicides. Here is the 64-page report, which I recommend highly. Here is the chart that lays out the situation brilliantly on page 45. Too bad they aren’t as eloquent as Vandana Shiva!