Posting [LIVE] from Peepli the next few days


Posting [LIVE] from Peepli!

Over the next week or so, Amit and I will be posting about issues that came up in the new movie “Peepli [Live]”. This isn’t a movie review site, so if that’s what you’re looking for, please check out these fine reviews here, here, here and here.

All you need to know is that the movie is a fantastic satire from the house of Aamir Khan. The issue they tackle is farmer suicides, and the story wheels around other modern Indian issues. The media circus, caste politics, general apathy and perverse incentives. Great stuff, put together in a great movie.

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Games countries play


As most people in India already know, the Delhi government is shakily preparing to host the Commonwealth Games 2010. Shakily because the city doesn’t seem any more close to being ready than when I visited in April, and January before that. While the closet is barely built, skeletons have already started to pop out. At an alarming rate. The joys of being the host to multi-national games. Woo hoo!

There are two events this past week that caught my attention. Number One was the past Sports Minister wishing for the rains. Why, you ask? Because, “firstly it will ensure a good agriculture for the country and secondly it will ensure that the Commonwealth Games are spoilt”. God bless the last remaining free-speaking-politician in India, but this is hilarious. Of course, the Commonwealth Organizing Committee Chief was quick to get the party brass to pull a gag order on his errant colleague, and has this to say about him… (had he) “continued as the sports minister, India could never have hosted the Game”. Political intrigue. Where would we be without it!?

Number two, the skeletons. The routine fare of desi anti-corruption brigade. The leaky roofs. The stinky pools. The “friendly” tennis court contract. It’s all showing up exactly two months before the actual event. Read this. If the corruption surrounding the IPL is any indication, this episode would get murkier very soon.

That calls for a separate post on the faulty economics of hosting multi-national games. Scores of research papers have been written about the lack of a “business case” for countries to play host to these expensive shows. The same debate is playing out as we speak in London, which is host to the 2012 Summer Olympics.

Here’s a summary of one report: (link here)

Cities vigorously compete to host sports mega-events because they perceive that doing so will enhance their image and stimulate their economies. International sporting events require substantial expenditures on infrastructure, organization and security and critically depend, therefore, on public subsidization. The ability of event promoters to secure public funds often depends on convincing a sometimes skeptical public that hosting the event generates economic profit. A motive for exaggerating the impact of a mega-event clearly exists. Our own previous examinations of mega-events, as well as the research of other independent scholars suggest that the true economic benefits are typically far less than the numbers touted by  promoters. Cities and countries would be well advised to more thoroughly evaluate booster promises of a financial windfall from hosting a sports mega-event such as the World Cup and Olympics before committing substantial public resources to such an event. Indeed, hosting these premier events may be more of a burden than an honor.

Here’s the IMF’s take on the story playing out in UK around the 2012 Olympics. (Link here)

London expected its 2012 Games to cost less than $4 billion, but they are now projected to cost $19 billion (Sports Business Daily, 2009). As expenses have escalated, some of the projects have been scaled back—for example, the planned roof over the Olympic stadium has been scratched—but the stadium will still end up costing more than $850 million, against the initial projection of $406 million. The government has been unsuccessful in its effort to find a soccer or rugby team to be the facility’s anchor tenant after the 2012 Games. This will saddle British taxpayers with the extra burden of millions of dollars annually to keep the facility operating. It is little wonder that London Olympics Minister Tessa Jowell said, “Had we known what we know now, would we have bid for the Olympics? Almost certainly not” (Sports Business Daily, 2008, citing the London Telegraph).

These events are white elephants. The facilities created for these events are rarely used again with the same vigour. Instead, the cities are saddled with a maintenance bill that they cannot afford.

Should have paid for another airport in India. Or a dozen. Just a suggestion!

Mobile music


Universal just tied up with Reliance Communications for a music distribution deal.  Pretty straightforward logic.  Reliance has access to ~ 11 Cr subscribers, Universal has ~ 300K songs.  Physical sales in India have been on a terminal decline, while mobile sales continue to grow.

I wish one could get numbers on how well the deal works out for Universal though.  Reliance’s customer base is primarily SEC B/C, not necessarily downloaders of English music.  Apparently, even existing Indian music providers don’t make a whole lot of money from Reliance’s subscriber base.

Of course, the grip that mobile operators have over the music providers is not funny.  Being the dominant channel, they are able to corner anywhere between 50-80% of the total consumer spend on mobile music.  And that isn’t going to change anytime soon!

Death of the kirana shop


According to an ET report today (based on a Nielsen study), modern retailers have been taking the lead in price cuts and are now able to exploit economies of scale.

Early this year, when escalating prices were crunching household budgets, modern retailers were more responsive in cutting or holding prices of day-to-day products than traditional retailers, thanks to their ability to check operational costs, bargain hard with suppliers and launch private labels.

According to a study by The Nielsen Company, modern retail dropped prices by more, or increased them by less, for more product categories than traditional retailers, or kiranas, between the last quarter of 2009 (Oct-Dec) and the first quarter of 2010 (Jan-Mar).

“The power of modern retail lies in the scale and efficiencies which we have built over the years,” says Kishore Biyani, CEO of Future Group that operates retail formats such as Food Bazaar, Big Bazaar, Pantaloon and KB’s Fairprice stores.

You can read this another way.  Modern retail is killing the kirana shop.  A small shop doesn’t have the scale (and hence bargaining power) to get lower costs from suppliers and will increasingly find itself uncompetitive with modern retailers – who offer superior shopping environments and lower costs.  Yes, this story still has some time to play out and the kirana shop still has some tricks up his sleeve – but we’re at the beginning of the end.  Even if the current generation of neighbourhood shops survive, it’s hard to see the next generation taking up the mantle.  More likely they will become a franchisee of another chain to leverage their assets and relationships.

So, in what way are modern Indian retailers better than foreign retailers?  A week back, a political party in India re-emphasized its opposition to foreign retail with the argument that “multinational corporations with their predatory pricing and large cash reserves can crush India’s existing retailers”

Umm.. isn’t that what modern Indian retailers are doing anyway?

Water, you saying? Firangi Pani, and how!


There’s a fantastic bar restaurant in Bangalore called Firangi Pani. I always go to their sister restaurant, called Saheb, Sindh, Sultan. I was reminded of this bar (which, by the way, translates as “Foreign Water”…in their case referring to alcoholic beverages), when I read this story on Fast Company. Here is the link.

There is a company that is planning to ship water from pristine sources in Sitka, Alaska to India. I was in Alaska a couple of weeks ago and can confirm that, yes, indeed, the water is pristine! Being a desi, I can confirm that water is indeed in short supply in India. QED, no!?

Just in case you think this is crazy, I’ll have you know that one of the first self-made millionaires in the US was a New Englander gentleman called Frederic “Ice King” Tudor, who shipped ice from US’ east coast to the Carribean and, ahem!, India way back in the 1800s. The business model works, despite what our intuition might suggest!

Will add a new twist to the firangi pani story. Hopefully they won’t price it at the same level as Evian.

IT Results season: How long will the Salmon season last?


As many of you know, I am working with Basab Pradhan on a book on Offshore Services. We’re offering an insider’s view into the industry, and explaining the workings of the industry as part of the book. In a recent post, Basab talks about the quest for higher bill rates, which is one in a series of recent posts leading up to the book.

The book is due out early next year.

Well, earnings season is upon us, and all the IT Services and BPO companies will be unveiling Q1 (of the Indian financial year) results this entire month. The financial markets are waiting with bated breath- this quarter will be a sign of how the rest of the year will turn out.

Many within and outside the industry have asked the question: Has competition and commoditization increased in the offshore services space, now that there are several large Indian IT Services companies? Competitive differentiation continues to be challenging, and companies are yet to evolve completely new ways of competing with each other. As of today, however, the investor presentations from the large companies seem mutually inter-changeable. The strategies look similar, and in fact, the sections on “competitive differentiators” read like they were minted in the same PowerPoint mill. Check out example one (page 10), and example two (full document).You’ll see a notable exclusion in the links, but you can Google the investor presentations from *all* the other major companies (!). They all say the same thing.

Reminds me of the famous “It’s different!” ad campaign for a ketchup brand in India…no one would say exactly “what” was different, but just repeat that “it’s different”. Same thing here, I suppose. “We’re a different kind of IT Services company”.

So, Is the party over for offshore companies? You’ll, of course, have to read the book to find out. But here, for this post, let me offer an analogy.

I was in Alaska on vacation a couple of weeks earlier, and the local tourist outfits were preparing for salmon-season. You can look it up online, but basically salmon like to lay their eggs in the exact same spot that they were born in. Every year, in July, the salmon start returning back to their source streams to lay eggs. When the season is in full swing, the streams are full of red colored salmon “climbing up” the stream, trying to find their way back to their original birthplace. At it’s peak, salmon can be seen jumping all around the streams in Alaska. Brown bears come down to fish during this season. Given the plentiful jumping salmon all around, the brown bear have to do nothing additionally in order to be successful at fishing. All they have to do is (1) stay in the stream, (2) keep their mouth open, and (3) wait for the salmon to drop into their mouth. It’s that simple. Here’s a great photo series that tells the story.

In many ways, the Indian IT Services companies have been the beneficiary of an offshore mega-trend. Over the last 10 years, offshore has moved from being a peripheral activity, performed by the trend’s “early adopters”, to being center-stage, when everybody is doing it. All large companies have had to respond to the pressure to offshore. Companies that were initially reluctant to join this rush to offshore, 10 years ago, ended up being influenced by the positive examples of companies who had offshored and reaped the benefits of cost reduction and assured delivery. A cascade effect was set into motion, as each new convert to offshoring influenced many others to join in, and so on. To be successful in this business, the large offshore IT Services companies merely had to (1) be in the market, and (2) have a willingness to sign deals, and (3) wait for the deals to flow in.The cost of sales for these companies is at its historical low, while the margins are still near their historical  peak. It’s logical- Why invest more in a sales force when the mega-trend is in your favor? The results have been no surprise: Other than one US based offshore company, all the other companies have grown within the same range, and have each stated similar “breakthrough strategies” all the while.

Is salmon-season over for the big bears of IT services? The results coming out this month will tell us if the big bears have learnt new hunting tricks. Or, are they still standing in the stream with their mouth open?

Photo credit: Peter Roundie on Flickr.

Photo credit: Peter Roundie on Flickr.

Companies covered: INFY, TCS, CTSH, ACN, WIT, PTI

Poll: Returning to India-What factors are important?


Building on the response to my earlier post on “Mathematics and Thematics for NRIs“. Here’s a quick poll to check which factors are important to you. Click “View Results” at the bottom to see what people have said so far.

Living longer


I’d heard of this anecdotally, but here’s some data on life expectancy in India.  In 1960, the average Indian could hope to live to about 42.  In 2008, that number has gone upto 64.  By the time many of us get to 60, advances in science will help many of us get to 90+.  It may not be a pretty life, with needles and drugs, but for what it’s worth, you’ll live longer.

One generation of Indians has already benefited and suffered from this increase in longevity.  The benefits are obvious.  The problems sometimes less so.

Consider the dramatic increase in the cost of living and the relatively lower savings potential of people who retired in the 90’s.  Not all of them had the right investments, and several of them now struggle financially.

In an older age, this would not have been such a problem.  Joint families took care of the aged.  Not always pretty to look at, but a social norm ensured a certain level of decency for the elders.  But  nuclear families and the promise of the west have robbed many people of the happy old age.  Instead, many are now shuttling between children’s homes (Baghbaan anybody?) or hoping that their children will visit.  Many are reliant on the kindness of neighbours.  Old age homes have not yet developed as a concept (although old age communities are now springing up across India).

Ideally, people should be allowed to work longer.  But how?  The retirement age hasn’t changed much in the last 50 years – maybe from 58 to 62?  A generation of younger, more energetic Indians lay first claim to the jobs on offer.  The skills that were so useful in the license raj economy are seen as less useful in the global, service economy that is India today.

We can’t say that our generation wasn’t warned.  The question is what shall we do (Ok, besides trying to accumulate more wealth)

Peter Drucker has written about it here.  The essential issue is one of “managing the second part of your life”, and one of his key points is that one needs to start early.  People do not start doing something at 60.  They start at 35/40 and become good enough at it by 60 to consider it as a serious occupation.

Absolutely.  One spends about 20 years in formal education preparing for a career.  That career starts in our 20’s, when we’re at our physical best and mentally flexible.  Trying to start something at 60 is not going to work.  We aren’t going to be able enough, or bold enough to experiment.  So start early.  Experiment.  Moonlight.  Change careers.  Mentor a start-up.  Take a class in your kid’s school.  Do a PhD.

Just don’t get stuck in the rut of the job at hand.  You’ll need more than that when they hand you the golden fob!

PhD problem


The US can rejoice.  PhDs trained in the US are likely to stay back in more cases than not.  In this article in the WSJ theres data to refute the contention that Chinese and Indian PhDs are moving back to their home countries where opportunities abound.

62% of foreigners holding temporary visas who earned Ph.D.s in science and engineering at U.S. universities in 2002 were still in the U.S. in 2007, the latest year for which figures are available. Of those who graduated in 1997, 60% were still in the U.S. in 2007

Specifically, 81% of Indians who completed their PhDs in 2002 were around in 2007 (chart below).  One of the interviewees puts it well

“One of the most important things with an academic background is the work that you do, and is it exciting? I’m not saying there is no exciting work in India. Many people have gone back and started companies.”

Apparently things haven’t changed that much since I finished engineering.  Want to excel in technology? Go to the US.  Want to stay in India?  Do an MBA.

[GRADS]

Great for the US.  Not so good for India.  PhDs are critical to the process of innovation and advancement of knowledge.  We need to find a way to get them back, and a booming economy is not enough.

Education: Worse to Bad


TIE has formed a special interest group (SIG) on education, which is great.  I wonder why we don’t have a lot more SIGs in Bangalore – ostensibly the silicon valley of India.  Perhaps entrepreneurial activity in the city isn’t all that it is cracked up to be?

Coming back to education.  A couple of quick observations:

1. Scale continues to be the biggest challenge for entrepreneurs.  Whether in terms of students, teachers, infrastructure

2. In the quest for scale, quality seems to be taking a back-seat – the general focus still seems to be on improving the masses and improving employability.   This is not to say that there are no quality players – there are several – but they are a marginal voice today.  This despite the relative lack of price sensitivity in the sector.  I see this with a lot of schools too – a desire to replicate the model, but not the soul.  Sadly, a DPS in Bangalore is not considered the same as a DPS in Delhi

3. Technology provides some opportunities to address both scale and quality  – but not many people have cracked the model so far

4. Regulations are improving, but are still a challenge.  Most entrepreneurs are forced to work outside the mainstream – or find areas where there are currently no regulations (e.g. e/m learning, test prep, primary school etc).  Alternately, you have to find a way to work extensively with government (e.g. Educomp)

5. Supply is improving.  We’re still on the upward part of the hype cycle – so there is a lot of entrepreneurial and VC activity in the space.  Several models are being experimented with

Overall, its not time yet to bring out the bubbly.  But things are improving.  As one panelist put it very well, things are going from worse to bad.

There’s still hope!