Demonitisation and the Conjuring of Dark forces…

Mr. Modi is full of action and an intent to progress. That makes him a popular world leader with less populist policies. Just as when he was looking invincible, he has taken the biggest risk. The demonetization might end up as a botched up operation.

Like one mistake don’t make the doctor bad, Modi has built up huge credibility, this one misstep is not going to make him less endearing to his supporters and many Indians who voted him to power. One reason being, there is no one else.

Only that when great leaders make one mistake and followed by many mistake, they get trapped in a vicious cycle.

No doubt on the strategy, but why the execution of demonitisation is in a mess today?

The timing was all wrong. After not so good two season, this year was a very good season with copious rainfall for the farmers. And exactly at the time when the commodities were taken to market is when the market liquidity affected the price of the commodities. Even vegetable prices are low. There are arguments that if the farm prices are lower that should have reflected in the food prices. Not necessarily, even in case of perishable commodities farmer has no holding power nor facilities, the produce is immediately sold to market. It is the trader who might have held the produce and gained thereafter.

October to January is the time when the fishermen get very good price for their produce and also the consumption is higher. Prior to that from April onwards is summer and the non-veg consumption is less, then come the trolling ban, thereafter is various upvas/lent because of which the consumption is very less. During maximum consumption time,  demonitisation sucked cash out of the market. At Sassoon docks it was a sight to watch very high priced seer fish going sold for a bargain price. And fish is an expensive commodity with one Kg costing 10 USD for seer fish.

Diwali is an auspicious time for taking possession of the home for the new home buyers. 3 to 4 months after Diwali is a good earnings time for the carpenters, electricians, plumbers, the blue collar workers. None of them get paid by cheque or credit card. The small time contractors does all transactions in cash and the sellers to these small contractors do not accept cheque too. Many people who took new homes postponed their further work. This impacted the earnings of blue collar class of people.

The mom and pop stores and the small time road side vendors had a customer segment. This was a section of purchasers who were not comfortable with the organized retail environment. These customers were not comfortable with the card transactions and also the buying experience in a organized retail shop. All these reluctant customers were one shot migrated to the organized retail points like , nilgris, foodbazars, Hypercities, Dmarts etc. And the small time sellers who were dependent on these customer segment got impacted. Their sales may not come back to them because almost a month the customers were away from them with a different type of buying experience and they may not go back now. 

It will be interesting for the social scientist to observe the changes in spending habits and buying behaviors post demonitisation. Many families as a discipline use cash for their expenses and use credit card only in very unavoidable circumstances. When they are extinguishing the cash in their hand, there is a clear idea how much savings from the monthly kitty is getting burned out. Need to be seen the impact of excessive use of the credit card and the impact on family savings. This all on a sudden migration to the card spending is certain to bust at least few families.

A section of right wind media army kept broadcasting news that all dissent is because the rich do not want to stand in line with the poor hence the noise. On the contrary the maximum impacted was the poor. Rich had their drivers and others who will go and stand in ATM line. And in metros there came up even startups offering runners services where someone will stand in queue for one.

While the earning from the exercise is quantified, it also need to be noted the loss of the above mentioned part of the GDP.

This article is actually about the challenges that PM Modi government will face from here on going forward.

All sections of the society is now looking for the rewards for their ‘sufferings’ due to this exercise. Salaried class, ‘after the hours’ of standing in queue for cash believe all the exercise was done for them, so as to reduce their tax burden. They are counting the amount of cash seized in all the raids and the tax paid on the deposits to pay for the national expenditure and reduce their burden. This is also a very vocal class. They need to be kept happy.

There is another not so vocal class, but this one erupts like a volcano. This is the section mentioned above in this article. They don’t appear in media with their woes, but politicians are afraid of this class. There is  already noise for  direct debit of returns from demonetization to these people accounts.

If one read the analyst predictions before the demonetization (Try read this, it is interesting how the projections can go wrong) almost everyone predicts about the sensex closing at 29K to 30 K 2016 end. And the underlying theory everywhere was about rural consumption. Which is now reflecting negatively in the numbers now. Markets seem to be for a prolonged no growth period as the impact of the negative earnings are to be there till the Q1 results are out.

But the problem is economy is like a Huge goods train. Once it is slowed to gain momentum it will take time and input to push it. All eyes are on the budget. All sections are expecting government will do something to kick start the growth.

But there are some uncontrollable factors which may tie finance ministers hand.

 A lot of courage to government in taking risks came from the positive oil dividends due to the low crude prices. Now the crude prices are almost double from the lowest and seems to be on the uptrend. Oil is an input which goes into the all part of the economy. This doesn’t seem to be on the favorable side now.

Another issue is Hindustan during Trumpistan: It is yet not clear how the new administration will open its gates to India. But at least if Hilllary was the president it would have been a continuity and nothing negative would have come if not positive. Any impact on the young IT population will have its ramifications on the economy as a whole. This earning crowd is also the biggest spenders in the economy. Be it the new homes, vehicles or movies.

Due to the increased hostilities with Pakistan, government speed tracked many defense spending projects. Billions of dollars are earmarked for modernization of all the three forces.

India has chosen to take up a diagonally opposite line from China. The Chinese in a way didn’t do much to block their parallel economy. In fact many economists said the parallel economy helped both India and China wither the global recession. Whatever that may be, the parallel economy drives up prices, increases inflation, cheats government from giving taxes but also creates more livelihood. There will be always less number of stomach going to bed empty when activity is high in economy.

What could have been done better?

No doubt the current 1% of people paying taxes is quite small and this needs to go up. Several steps could have taken to incentivize the public spending in digital mode and dis incentivize the cash.

 Progressive monthly penalties could have been levied on all cash withdrawals and transactions. Starting immediately with the urban areas and slowly all across the country. VAT and service tax could have been increased with a payback option if the transaction was done digitally in B2C businesses.

The real challenge is if the things go wrong and do not improve in months to come all blame going to ISI, Pakistanis, Communists, Mughals, Nehru etc.

And further things don’t improve then the fringe elements will be busy identifying ‘more ISS and ISI’ in India.

When the economists fail to deliver dark forces start conjuring to thrust the reasons of the failure to sections of society which has always happened in history.

Welcome Electric Age, The mother of all disruptions

It is well mentioned in the article hyperlinked below how Elon Musk is pioneering an electric transporting ecosystem and how he is preparing his companies to be at the cusp of this big change.
http://goo.gl/1Hsyom

So far there are many examples of how innovative companies have disrupted the industry and killed many an organizations. But with what Elon is unveiling, it is not companies and industries but several sectors and even nations are not going to be the same again.

This is akin to what the internal combustion engines have done to the steam age. Imagine the change world has been through when Coal gave way to Diesel.

It is now, not if, but the question is when, electric vehicles will be the main people movement solutions for the world. Signals are ample enough to suggest time is not far away. Recently India’s transport minister Mr. Nitin Gadkari has invited Tesla to set up a factory in his country.

Padmasree Warrior, former Chief Technology & Strategy Officer (CTO) of Cisco Systems, and the former CTO of Motorola, shifted from a venerable position with CISO to NextEV, an electric vehicle company based at US as its CEO. As of 2014, she is listed as the 71st most powerful woman in the world by Forbes.

All this shows the confidence now world has in the electric energy for transporting solutions.

Now if cars and trucks can go electric way, why does the ships need diesel engines. Imagine the reduction in ocean pollution if all waterways transport is through electric motors.

 If this is the way world will move in future, why does the world need all the crude that it burns today? What is the need of all the refineries and oil tankers? Very soon the petrol stations are going to face the ‘Kodak moment’.

World will no more need the noisy generators for generating electric power.

Now list down the name of companies that you know who dot this shaky landscape. The car companies, the oil companies, the refining and logistics companies, the oil distribution companies etc.…  

What will happen to the Petro Dollar nations? It is time for some of them also to face the ‘Kodak moment’.

This is now not just disruptive ideas or organisations but transformational ideas and organisations...

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Business Strategy of Elon Musk: Developing a whole industry ecosystem to monetise.

While companies are busy filing for patents and defending them with the best law firms, Elon Musk has surprised everyone by declaring that he will open source Tesla patents for free.

Whole business world was bewildered at first and some quarters started singing paeans to the maverick entrepreneur who is now worshipped like Steve Jobs by the technoholics.

Of course while this is going to benefit world, a close look will reveal it is also a business strategy of developing a business ecosystem with a possible revenue stream from users.

First let’s understand the progress of Tesla from a successful product to a full winning ecosystem.

 The car was introduced to the luxury segment. It is important for a new product to be successful here to become an aspiration for rest of the population. In the luxury segment there is a small segment of rich customers who value the green and clean tech. Tesla was attractive to them, since it offered the 0 to 60 acceleration of a Porsche and then zero emission.

Having demonstrated the technology Elon worked on the scale and cost. With a range over 500 kilometres and nationwide charging stations, convenience got set in. Low operational cost lowered the lifecycle cost of the product. Along with the charging stations where a tesla customer has free charging facility, came the robotic battery exchange set up. A discharged battery is replaced with a charged battery by robotic arms. The vehicle can be quickly on road, in fact much faster than from a fuel filling station. Slowly the product is graduated from the luxury segment to the ‘need and want’ segment.

This segment once growing, is going to be so large, there is going to be several followers/imitations for the product. Big daddies of the automobile industry have no option but to start making electric vehicles (EVs).

This is what Elon is waiting for.

Everyone knows, the automobile industry is a huge ecosystem business. There are several hundred vendors supplying the parts around the main factory.

Like SpaceX, Elon almost made all parts for Tesla in-house. In other way, unlike the century old motor car business, EV's is a relative new industry and Elon didn’t have good suppliers for the type of quality and performce he was expecting. Many components in Tesla are unique compared to the usual fuel consuming cars. For the new entrants it will make sense to buy from Elon than reinventing the wheel.

Elon is making huge giga factories for manufacturing of the batteries. Other players will have no choice but to get into a supply agreement with Elon.

The nationwide charging stations for Tesla will be free for its customers but Elon will be charging fee for the other customers. Obviously it doesn’t make sense to compete with Tesla for the new makers. Elon has backward integrated for power with solar city, his other company for electricity supply to these charging stations. Now it will be like Elon owns all the gas stations in U.S. Cost for him will further go down with more cars charging on his charging stations.

Other logistic advantages will start kicking in. Unlike the huge and complex storage and transportation logistics of the fuel stations the Tesla charging stations just need a power supply. No replenishment is needed by tankers or the pipelines. This will be a game changing situation in the automobile energy supply business. Over a period of time financial and environmental advantages will kick out the traditional fuel stations. Gas stations will go soon the Kodak way!

Over a period of time Elon may not be looking at just making a electric car. He will be looking to revolutionize the transportation industry. For example world’s water bodies ie rivers, lakes and oceans have today boats and ships powered by the fuel guzzling engines. It is highly possible to imagine the heart of all those vessels to be powered by Tesla style electric motors. And like the nationwide charging stations there can be floating solar stations for these vessels to charge at sea.

Like Microsoft and Google, Tesla is on way to become world’s biggest monopoly company. This can bring some regulatory challenges. Intelligent as he is, may be one reason Elon is having separate companies for making cars, for batteries and power production.

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The Last Moghuls of the shrinking business empires

Her clients visit her when they are in a good mood but also sometimes when they are very unhappy. Happy ones are rich singles or those who cheats their wives. But today, she has a depressed soul to take care. From her experience, this class come to her to talk their mind and most often winds up without having her flesh service. In her initial days she could not make anything out of their talk. But then, even a rock gains some wisdom if wise men whispers into it every day.

She told her 'visitor' her name is Saria that may be her name or may be the 'name of the day'.

Usually she starts the conversation, keeps the guest at ease, and once they start talking it is nonstop and never-ending. She has to just stay awake. These days in between she asks some queries primarily to keep her awake and to let client know she is listening.

“Gentleman tell me, why are you so filled with sorrow and gloomy? You look like an emperor whose empire has gone to dogs”. Her day with the client has started.

Visitors head tilted up, he asked the lady, “You seem to be from Asia, have you heard about the great old empires, the Mughals, the Ming’s, the Samurais? Knowingly well that a slut will have interest only on the thickness of the client’s purse and not in learning about empires.

“The winds of change slowly paved way for the new masters of the world and the old ones started to fade away”.

“Once powerful and wealthy lords gave way to the new order, decayed then perished”.

“Something similar is happening to the business world. The winds of change are blowing out the old feudal lords and the new order is taking shape”.

“When one sees a funeral possession, the thought is “Oh it is someone; I have a long way to go”. All prayers accompanying a dead body has one line, It is today me tomorrow you. But the onlookers never care”.

By now she understood the client’s baggage. He is either a long timer in a big company who has been shown the door or someone whose own business is in doldrums. All her clients are from the businesses. In Her opinion this is a very unimaginative class. They only have to talk about businesses and economics even, when they talk to a slut.

What is the change that is bothering you? She gain just asked for the sake of asking.  The visitor continued as if in a trance.

“Graveyards of industrial world are getting filled with corpses of once flourishing companies eliminated “for nothing of their mistake” as CEO of the world’s largest mobile phone company lamented. But the dead souls can be happy in their final resting places because more will follow”.

The visitor stopped for a while. She though it apt to ask a question. “But was it for nothing of their mistake, and what wrongs did they do worth getting a death sentence?”

Visitor felt encouraged by this query from his women of the night. He continued..

“Long ago when your father’s letters reached your mother over a week time, the world was very much disconnected. Big worry for the businesses in those times was risk. The messiahs came, and they prescribed diversification. Companies got into myriad business”.

“Now some magicians came. They connected the world. Connection brought the knowledge about the new markets and came competition. Now messiahs pronounced new pills. You do what is best for you and leave rest to others who are best at it”.

“New magic pill was core competency. Identify your strengths and focus on it, this will help one to do things more efficiently and keep competition at bay. This worked for quite some time until now. But everything under the sun starts decaying after some time and this strategy too started greying”.

“Like the cholesterol clogs arteries and makes the heart weak of a sedentary person, there were somethings that clogged organizations veins and made them prone to decay”.

“To make them more efficient organisations started practising shared services concept where in businesses will be fighting for the services and resources within a company. Idea was to help internal competition and define service levels. But over a period of time this led to the creation of functional Silos. Business supporting services started getting arrogant. The breadwinning commercial person started to get a feeling of being side-lined. Organisations are infected with entrenched power centres and are like an obese human with bloated heart and clogged brain with narrow arteries”.

“By the time a senior executive reach the corner suit he already has enough in life. The worst fear for the top guns is not business but a prosecution due to an exploding plant or loss of face at the posh golf community due to a discrimination suit by an employee. EH & S got cult status in companies. SOP’s became the new bible. And these two became important tools for smart people when they did not want to work”.

“Wall street success became more important than the shop floor success. Smartness became a more important trait than passion and hard work. A bunch of thugs slowly started to rise up in ranks. At least some places the people mix became more toxic with the rapid acceleration given to some highly ambitious and smart females who gave more importance to internal networking stuff than taking care of business.  With all these the business started drifting away from the customers like a boat away from shoals of fish”.

The old big business will not collapse all on a sudden. Though the decay started very early and the business are pregnant with criminal inefficiencies it is not that the roof will come falling over. Entry barriers due to the capital scarcity and technology helped organisation to survive till this moment.

But like the old empires could not resist the winds of change, the free minds, disruptive ecosystem and capital availability will spring many more teslas, bitcoins and bring down many a hundred year old companies…

By this the man got ready to go, paid his days fee and got up to leave. She thought, be it happy fun seeking customer or spent men vomiting wisdom both the inoculations are anyway waste with her.

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What Making in Defense in India, shouldn’t be the unmaking of?

India is planning mega defense projects. With years of beurocratic wrangling and an indecisive earlier minister, old soviet systems are crumbling. The fourth largest defense in the world is all on with a big shopping list. But this time serious efforts are on to see that some ‘war-toys’ are also manufactured locally.

Here are the top three reasons why it makes sense to make this stuff locally.

Number 1: Like you and I know, these weapons may never be used.

Number 2: A bit deep point. The defense technology is at the tip of an inflection point. To make this clear, gunpowder changed the rules of the game hugely from 16^th century. Then trench warfare changed the game during First World War. Nuclear weapons rewrote again the rules post second world war. And now Robotics and artificial intelligence will wipe out human presence itself from the battle field. Multimillion tanks or aircraft carriers which are huge assets will be sitting ducks for intelligent projectiles which can search, acquire and destroy targets. Advanced iron dome sort of technology can sanitize the skies from even a mosquito, forget a warplane. So we are at an inflection point today. Hence it doesn’t make sense to buy these expensive toys which anyway will be useless in a decade or two.

Number 3: Making in defense will increase capability of local industry and lot of technology will cross over to the other commercial industry space.

While all these hold true here are other three potential negative side of the policy.

Number 1: Earlier it used to be small scout teams from forces having interface with the business people of the defense companies. But now there will be more interfaces. There is a chance for increase in corruption within the forces. Another issue can be attrition of top talent to private companies.

Number 2: By encouraging the Indian private sector to invest in weapons, we are enlisting powerful corporates into the war-party. At present there are a lot of talks facilitated between the government of India and Pakistan at the aegis of the businessmen. Because today it really not makes sense for the business people, that both nations fight. They can do more business with peace than war. This situation is going to be revered.

Number 3: Danger of Nation held in the grip of a powerful lobby for which peace is not an incentive. It is widely believed that the collapse of the Soviet Union was not something like a complete surprise for the US intelligence agencies. Soviet Union was rotting for a very long time. It is unbelievable that the snooping mechanism of the US could not get wind of this at all. What seems is, the fact was hidden or not reported by the CIA and its siblings. They continued to portray the soviet monster as a threat to world. Several defenses and intelligence spending and the budget increases were based on this soviet threat. It was also not in the interest of the defense lobby that suddenly a huge threat vanished away. Today the Indian business aspire for peace with Pakistan, but if there is billions of dollars invested in the ‘business of war’ the ‘business of Peace’ will soon become an orphan. Business will lobby and influence to keep the threat alive so that there is utility for their toys.

So while making is good in defense, this should not result in the unmaking of many other things…

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The invisible third-leg of The Great Saudi Oil Strategy

Over the past two months all media mixes had at least one discussion or debate on oil strategy by the Middle East kingdom. Mostly all the discussions arrived at one conclusion, the Saudis want to drive other producers out by making them bankrupt.

Is it the true strategy? May be yes may be no or may be yes and no.

But for sure, apart from what the young prince in control, is telling the world, there should be much more which the prince is not disclosing to the world.

National strategies are also like that of big corporations. When Google told the world that they are going to contribute to world by taking internet to the remotest part of the world through the floating balloons, this looked like a charitable act. A little while later we realized what must be happening and this is now a major marketing strategy component for corporations http://goo.gl/g6YIjQ . And when Zuckerberg said he is going to read at least two books in a month, we again clapped ‘Wow what a missionary act’. But what Zuckerberg was doing is an integral part of the endorsement strategies across the businesses. http://goo.gl/QpLkwr . So the moral of the story is what you see is not what you see and what you hear is not what you hear.

99% of the time what we see are symptoms of strategy but not the real strategy. This always lies in the background.

There are three legs to the Saudi strategy. But for the world only two are visible and not the third one. Because they aren’t speaking about the third one. Why are they not speaking about the third one? Because the first two are beneficial to the world and the third one is most effective but detrimental to the rest of the world.

We are fairly clear about the first two. Ie diversifying of the Saudi economy (http://goo.gl/h4ayGS) and then flooding the market with oil to drive out competition. Both of these have favorable effect to rest of the world. In the first case this results in more jobs for the skilled workers. And in the second case this result in cheap oil as input to rest of world economy.

But apart from these, it appears there is another tactics to increase the price in the long term. Close to half a decade of high prices resulted in world using technology to reduce or increase efficiency of oil. Vehicles turned more fuel efficient and gas guzzling models like hummer had to be mothballed. But now there is a reversal in trend because of sustained cheap oil prices.

In fact what Saudi is doing is using the commodity for creating demand across the world. Oil is replacing coal in energy plants, sedans are getting replaced by SUV’s, more and more vehicles are coming on road every day. In short, more oil is getting consumed in the world on a day to day basis. Or they are bloating the per capita consumption of oil across the world.

Those who track the energy economics know, periodically there happens an event which brings hiccup in the oil supply. In seventies there was the Iranian oil embargo, and then came the Iran-Iraq war, Iraq invasion of Kuwait, Disturbance in Libya etc. And this is when the Saudis will choke the supply. Having used to consuming certain quantity, it is not possible to drastically reduce the consumption. For example, a newly safety conscious Chinese business man will not easily forego his SUV even if he has to pay more to the fuel price. This is when the Saudis will extract their premium.

Saudis know oil as a commodity always has its upcycle and down cycle. But what they are trying to do by bloating the consumption is to shorten the down cycle.  

The new M&A’s season and Impact on Employees

M&A’s of 90’s were propelled by the concept of core competency. Lot of consolidations across the sectors happened during the nineties.

It is time for once again another stage of consolidation. This time it is propelled by the disruptive technologies.

Mr. Anand Mahindra of India’s leading automotive business famously mentioned, he is no more competing with the likes of Ford and Toyota’s. But with the Uber and Ola’s.

At the top of businesses, there is huge restlessness now. It is now technology competing with business and no more business competing with the business. All on a sudden strategic management, Six Sigma –Lean, like efficiency tools became outdated. They have become old school. All these, practiced, proven business tools are best effective in somewhat predictive business environment. Even MBA is dead, long live MBA’s. Big businesses are like a blind folded Ninja warrior. No one can predict who and where from is the next competition going to come. With no history, pedigree or experience, it is today possible to put together business from the scratch. Tesla is an example.

Only someone needs an idea and the moment an idea is born the end is near to some business somewhere.

Sometimes the ideas are wonderful, brings a huge value addition to the ecosystem. But also sometimes the startups are like Kamikaze’s killing them and taking down a lot of things along with it. There are businesses models propelled by reckless investors, not generating profits, but strategize for valuations at the expense of profitability. They bleed every day and also cut the veins of some good business too.

Lifecycles are no more about products but about organizations as such itself!!

An old business is no more a good thing to hear. Old is good where experience matters and experience is good when we are talking about known stuff. The problem is, competition is no longer known and need an entirely new set of skills to fight off.

While the above summarizes reasons behind todays M&A’s and why it is going to be only the beginning of a new season of M&A’s. Predatory bloodthirsty agents and investment bankers know about this restlessness at the top. They are waiting to tear apart businesses.

What are signs the employees can watch out for?

Like a father preparing a young girl for marriage, look out for the signs the management is decking up the business for attractive valuations. All on a sudden there can be mushrooming of new projects increasing values of future delivery lines. There can be unexplained slackening of the processes to increase the market share. No more there is a delayed release of products and technology to market and no more talks of cannibalism from own range of products. All talks are about market share and sales.

Knowing early help employee to be prepared for the troubled times ahead. Because once M&A is announced, task of both the board and the CEO’s is to make sure how it works better. In other way it is all about cost cutting. Only one business delivery and support systems needed, obviously someone loses out in the musical chair that follows. There won’t be any more special programs to retain the promising employees, no more expensive expat programs and in fact no more succession planning needed. Very soon the C.V’s will lose its lustre because there will be a lot of them floating in market.

Jumping the ship may not be the answer always since outside world is nothing better for sometimes to come. Best thing is to start looking out for job and keep options ready, in case you don’t have a chair when the bell stops ringing.

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Is your provident fund part of an economy stimulus program?

Governments across the world want citizens to put their money to work. Money lying idle and earning interest is not desirable for a growth less economy. Bank of Japan introduced the negative interest rate also some European banks. Governments want their citizen to sweat their money out. It was surprising a stable and strong government in India dilly dallied on its provident fund policy recently.

Almost four months before there was a statement saying government intends to hold back 25% of the amount till the contributor attains retirement age. Then government went a step ahead, without even giving a waiting period, they declared 50% of the amount cannot be withdrawn till the retirement age. A budgetary announcement followed that 60% of the employee contribution will be taxed at the time of withdrawal. Later this was rolled back. Latest news is withholding of the amount is put off till April end and will be effective from May.

In this era of data analytics and scenario building tools tough to believe all these are disconnected events. Especially when the top minds in the world are advising this government.

A bit of calculation on back of hand told the real story.

The total size of the money with the PF is 128 Billion as on 2016 March. Assuming the 80:20 rule, 80% of this amount should be from 20% of the high income contributors. And if I am one in this group, I will certainly a bit restless once I see all these dillydallying. And if given a window, first thing in my priority list will be to take this amount out.

And what will I do after taking the amount out. It doesn’t make sense to invest in fixed deposit due to the tax outflow. The best choice for me is to pay back the home loan and reduce the size of the EMI. Suddenly I have free credit limit with bank and more risk taking ability since the outstanding liability is small. Now I think about investing in a second property!

Gotchaa!!...even a 20% contributing population withdrawing money is close to 20 billion USD. Come good times for the home loan segment and the reality, which will have a cascading impact on many other sectors.

What you see is not what you see and what you hear is not what you hear; when coming to smart and intelligent governments. 

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The Chinese Rear Entry Play

World was very busy, planning for the crash and hard landing of the Chinese economy. The symptoms were very much there. Shanghai Composite index was plunging and trading was even halted. Renminbi was losing to dollar. http://www.indussprouts.blogspot.in/2016/02/end-game-china-version-11-enter-dragon.html

Pundits were giving their analytical commentary on a day to day basis. The diagnosis was consistent. All ills of the economy were due to the famed export oriented manufacturing model. And the prescription was also in unison. ‘Now China need to focus on the domestic consumption as a theme and government should formulate policies to increase domestic consumption’.

Chinese are excellent in copying machines or reengineering technology. But coming to national policy, it does seem that they will hear all but listen to no one.

Those who have read Pearl Buck’s books will understand the Chinese public Psyche. No amount of ‘Helicopter Money’ will force spending from the Chinese. So the theme of Domestic Consumption cannot be the only tool for the Polit Bureau.

But what about the huge industrial infrastructure erected for mass manufacturing? More important what about the huge number of farm hands moved from rural areas to the newly set up industrial villages? Having produced for all world for two decades it is not easy to depend on only domestic market for utilizing those production capacities. And there is an inflection point beyond which building structures won’t help the trigger growth.

The picture became clear during a recent travel along with an Indian steel company big shot. His problem was a European heavy machinery firm which was buying steel from him suddenly stopped buying product. A bit of research told me, that company has already changed hands and now a consortium of Chinese was the majority shareholder. So, I assumed they would have shifted the procurement to the Chinese Steel.

Putzmeister another iconic German company is now only German in name and owned by the Chinese. And so is the once most respected European Ag-Chem company Syngenta.

Chinese are aggressively buying up the good companies and brands that consume industrial bulk chemistry and steel. Or wherever possible they are busy taking majority shareholdings in companies. When companies aren’t available they are buying the retired brands and making it live.

And when the successful companies aren’t yielding, the Chinese start a company from the scratch, they poach the experts from the resisting companies and replicate the competitors business in short time.

In all these cases no need to say the first right of refusal for the procurement of raw material is with Chinese suppliers.

Trade penalties are increasingly imposed on Chinese finished goods. Finished goods take away livelihood from importing countries. But when the goods come in the form of intermediary chemicals or semi-finished steel parts, they often escape trade barriers. Nations find it tough to arrive at grounds at which they can block these imports since they also want investments.

So now at the front end China is building up consuming companies and at the back end in china, factory lines assemble semi-finished materials. Slight shift they made from producing the commoditized brown goods stuff to chemistry intermediaries and industrial parts. Anyway the labor population is still getting engaged. 

And who is complaining? Many of these erstwhile legendary European companies are holed up in low or negative growth areas. World was clamoring to allow renminbi to appreciate. When world was accusing China of currency war, the Chinese allowed currency to slowly appreciate and still they were at advantage, it became easy in foreign acquisitions.

Every strategy has its shelf life. Living by mass producing already commoditized technology worked for two decades. And China knew one day it will be over. The second one is rolled out. But this time hurdles will be arriving too early. An American court allowed blocking US markets for Sany heavy cranes, a Chinese company making heavy duty cranes. It is alleged Sany recruited a US competitor experts and was building markets based on stolen expertise. Chinese would have already made a plan for the next stage, lets wait and see.

What is there for us, practicing managers to learn from the Chinese?

Every strategy has its shelf life, implement one with another in your bag to take out when the first one loses wind. Usually we differentiate a strategy and tactics with the time span in which both operate. IN this highly competitive world slowly strategies are getting reduced to mere tactics.

A successful strategist should be like a magician with many tricks hidden in his hat!!!!

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WHAT SCARCE RESOURCE WILL NATIONS FIGHT FOR IN 2025?

What is going to be the scarcest resource on Earth by 2025? My interest in economics made my ears pick up this question by a teacher to the commerce under grads on a study tour, travelling in the same train as I was.

As the kids started giving their thoughts, I too started exploring the answer in my mind. Could it be Oil? Could it be food? Could it be Platinum? Could it be iron ore or other commodities?

Each answer has its own back up stories. With the rising population and energy consumption, oil people have their slide decks declaring obituary to the oil reserves.

Food companies run around with their projections, how India add an Australia every year and resulting food shortage.

Some say, with every ounce of platinum that is mined, the total available platinum is getting dwindled and soon it is going to be extinct.

One kid said it is going to be water. I recollected several lines by luminaries of development economics that the next world war is going to be for water. So could it be water?

The answer from teacher prompted me to think in a different line.

The scarcest resource on Earth by 2025 is going to be people, the teacher said and paused.

While they were debating, my mind too started working logic. Then why do we don’t see anyone talking about this?

May be, People like to project what they like to see grow big. If I am in oil, I like to project oil big and If I am in food, I like to make food big.

Of course, not many see commercial interest in people. Whole of Europe is debating how to make it a gated world. The most prosperous nation is fighting an election where main topic is how to shut the door for immigrants. Population control is the major topic for big Asian countries.

At present non one want People.

We know in marketing, it is always a little extra that is either making the demand or killing the demand.

Images of couple of hundreds of people getting blocked at the border in Macedonia or the talk of a big wall in US – Mexican border, paints a very bleak picture about ‘People resource’.

But yes in 2025 every nation on earth will be vying to get people to reside, like the way today builders are marketing their townships.

 A lot part of the world is aging. Contribution to the people basket of the world largely comes from Indian subcontinent, China and immigrants from the disturbed parts of Asia. Over the next ten years economic situation and quality of living will be a lot better in these countries. May be then, people will lose their interest to go wandering. While for many more years to come there are parts of world requiring a steady flow of immigrants, like Australia, Canada etc. And surely, sense will prevail after a lot of bloodshed in the presently disturbed nations. And no more they will go out as unwanted guests.

With no people there is no consumption, no consumption, no production and a sterile economy.

Sooner or later, the CEO’s who run nations will discover, Every Human instead of nuisance is an opportunity, instead of a burden, is the beginning of a beautiful future.

I agree with the teacher, The scarcest resource by 2025 is people.

indussprouts@gmail.com

A TRUMPET WITH THE WRONG NOTE

“Donald trump calls for a total and complete shutdown of all Muslims entering the Unites States”. Could not believe these lines. Since these were spoken by a person who is a candidate for American Presidency.

It is not about Donald Trump or America, it is more about America and the world. If he would have said those lines earlier it wouldn’t have mattered. What matters is, now he has a significant support base, because of which he is a candidate. And hence these are the lines not from a fringe politician but almost from a significant segment of informed people in world.

There is a segment of Americans supporting him and there is a large segment of Americans who are silent. These two make a huge segment of American population. And that is most worrying factor. What come to mind often is the lines by Albert Einstein “The world is a dangerous place to live; not because of the people who are evil, but because of the people who don't do anything about it”.

And then there is another segment of Americans who are more ‘caring and humanely’ and they like Donald because, he is honest about his opinions and is very forthcoming about it. What it means is, there are lot more people with concealed venom, but he is one who is spewing it. So better to be declared poisonous than conceal the hatred.

This trumpet is no more fringe politician, he is closer to mainstream. And you, American people have made him travel the distance so far.

American values do stand as a lighthouse to the world. Lot part  of the world is in darkness. This hatred spewing is no more happening in some corner of the world. But in America, and that is a worry. It is a worry for people like us, who are non-Americans.Because having an island of hope is very important, because it can be the destination to which rest of the world can travel to. And that hope is the driving force in our lives when we face hatred around us.

Dear Americans don’t destroy our hope. Time to keep off this trumpet with the wrong note.

Do please let us know your feelings at indussprouts@gmail.com

END GAME CHINA VERSION 1.1, ENTER THE DRAGON 2.1

Over good part of last quarter the thinking part of the world was busy analysing the Chinese stock market crash and what the future beholds for the middle kingdom. We have done our bit of analysis and it is as below.

China and Chinese economy was the result of a globalised economy. The then Godfathers of the world economy prescribed nations to produce only what they are good at, and import stuff if it was made cheap somewhere in the world. Asian tiger economies were the first to make use of this precription, but China perfected it. China became the manufacturing back yard for most of the goods consumed in the world. The scale allowed it to reduce cost and supported by cheap credit the export boomed and so the economy.

But everything in world come with a shelf life, even economic models too. It now seems that this strategy has run its course and shelf life for this model is now nearing expiry date.

China mostly operated at the commoditised technology. Unlike Japan where the products are of high end technology Chinese products were mostly low end mass produced stuff. The driving edge of these products was cost. But increasingly nations found that this Chinese intervention in market was detrimental in the long term. Take an example of a case where a country is manufacturing ceramic cutlery. Now there are hundered or more companies making the same stuff. But a single trader importing the stuff from China disturbs the whole market. A single consignment from China kills the price in market. And margins of all the local players are eroded bringing hardship to employees and other stake holders. Obama was the first to realise it and gave thrust for manufacturing in America. Other countries followed. As more and more countries venture out to protect the local players and create jobs in their country it seems the whole Chinese economic model has run its course.

So what is in store for China?. The Gurus now started predicting the fall of communist party and even chaos in China. Is all that gloom for china? It doesnt seem so.

China has learnt that dumping cottage industry and low end technology stuff only antagonises communities and governments. The solution lies in moving up the technology ladder. For example today there is not a single Chinese company that come to our mind when we think about companies like GE, Siemens, Boeing, Komatsu, Caterpillar, Hitachi, Philips etc. These must be the new targets that China must now focus on. Nations also will welcome these products, unlike the commoditised low end technology products. High end Chinese products will drive down the prices of these MNC’s and these are products that play as a input role in the economic growth. And this will herald a new era of technological leadership in world. Life will not be same for so called todays developed countries.

But it will not be easy for China to make this transition. An authoritarian system is good for a assembly line economy, where there is no originality in output generated. Pundits say that to move up the technology ladder and innovation a free thinking society is must and not one which is trained to think through established matrix.

Chinese are one of the most practical societies in the world, and they will find their own ways.

Lets await for a China version 2.1 , because that is good for the developing part of the world..

Please let us know your thoughts on indussprouts@gmail.com

TECHNOLOGY AND ARTIFICIAL INTELLIGENCE CREATING A CEMETRY OF LOST LIVLIHOODS

In future if many do not get a job or do not even get called for an interview, Amelia and Watson may be blamed.

Amelia speaks twenty languages and can read and memorise a hundred film scripts in seconds. Watson has defeated many a quiz champions by huge margins.

It is obvious that prospects with these type of qualities can qualify thumbs down in any interview. Only that they are not humans. They are artificial intelligence software created by the tech bigwigs. Who can do multiple jobs at alacrity that will outmatch hundreds of brilliant engineers put together.

Robotics mixed with artificial intelligence is already wiping out huge number of outsourced basic jobs in Europe and US. Europe learnt its lesson hard when China flooded their market with cheap products. Many European businesses suffered due to the high cost of manufacturing in Europe due to the relatively huge cost of labour. Now the tables are getting turned back. Cutting it short many a jobs in flesh and blood will be replaced by codes and machines!!.

The web based selling platforms have now started selling also services on their platforms. Overall there is going to be lot of better ‘expertise discovery’ happening more efficiently through these companies. So first it was the turn of the small business to get hurt but now also the blue collar jobs. One may argue these platforms will help in better job discovery and more employment. The counter argument to it will be when more information efficiency is attained there will be also some resource reduction.

It is true that technology and net usually deliver more efficiency and create growth in business. But there is a certain amount of replacement happening with these and the problem is when the job creating is at a slower pace than the job destruction. The symptoms show that world is at the cross of this inflection point.

It is not that all on a sudden the roads are going to be filled with driver less cars driven by Google, but these successful demonstrations signal the extremes to which the things can go.

The bad news is all these are happening when the commodity markets are going through a bad period. So now all the positive sounds are going to be negative noises about the BRICKS..

There will be challenge for countries like India where huge number of young people are joining the workforce. Today, two-thirds of India’s population is under the national average of 26. One billion jobs need to be in market by 2022.

The impact of technology is much deeper than we think and has entered all segments. Machines and chemicals are replacing increasingly agricultural labour in all parts of the third world. So long as they were absorbed in the booming housing and real estate segments it was ok. But the problem starts when the spending is cut down by the young population impacted by technology and internet. Here is where instead of benefits now pain starts trickling down.

Please do let us hear you at indussprouts@gmail.com

THE TWIN VICIOUS CYCLES STOPPED BY PRESIDENT OBAMA

Much has been written about the vicious circle which the US was in while issuing the govt bonds which were lapped up by China. And the ever present budget deficits required even more govt bonds and more market access to China in return for purchase of the govt bonds.

Barak Obama put an end to it by supporting manufacturing activity in US. Making it less dependent on Chinese imports. Manufacturing helped create jobs in U.S and increase govt revenues. Reducing the need to feed on chinese financing in exchange for market access.

It was another time matured vicious cycle operating in the energy markets across the world. Oil , War and military industry. It was hugely economical for the oil producing countries to have always a burning pit in their backyard. The investment needed for the scale of violence was always very small. Small dollars here and there. And this always kept the oil prices very high. A perceived tension in middle east always cast a risk on future supply of oil and this increased the oil price. The perceived threat due to the small small smoking boulders helped the middle east countries to justify for the heavy military spending. Big ticket military purchases helped steady flow of grease money from the armament companies. U.S arms industry was happy, shareholders were happy, the Sheikhs were happy ( Read good revenue from oil and ‘side’ payments), Israeli was happy because American Jews were happy, American Jews were happy because their shares in military industry gave good returns and they are also in energy trading. A small round of shell cost nothing but a shell going off in Beirut or Syria gave huge returns to all the above stake holders.

Problem started only when someone else also started playing the same game. And this time it was Russian president Putin who wanted ticket to play the same game. He already was a player with his own play in Syria with some flying birds there.

It was then Putin realised lobbing a dozen shells to Ukraine cost nothing for him, but it will keep the CIS, Caspian energy markets to boil. Good returns to Russia. And good excuse increasing military spending too. He realised this was a all profit game with little loss.

Any game has no value if the trophy is not coveted anymore. Obama decided to stop playing the game. There is no more fun when others understand the trick of the game and start playing the same. He decided to kill the trophy. And here the trophy was Oil. First step was to make it plenty available. With good institutional support domestic production exceeded U.S demand. And the next big step was to release Iranian crude to market. Now this meant if someone plays to cut short supply he will lose the market share. Israelis, Sheikhs, Jews Russian all are unhappy. But unlikely that this is going to be like this for long…too many unhappy people….and the investment needed for the happiness is too small ….a couple of shells to lobbed here and there….Putin had only begun his game, he will not allow the game to be over soon……That is why I started buying energy shares…..

Please wrtite your feedback to indussprouts@gmail.com

MOON-SHOT STRATEGY FOR GREATER VISIBILITY

Google declared that it scrapped the Google glass strategy. However, the driver less cars and balloons to take the internet to faraway places is continuing. Amazons drones are still hogging the limelight. For laymen the Google glass project will look like a project gone waste with lot of money wasted. And the balloons and drones will look like ‘ideas of the imagination gone wild’ and a waste of shareholders money.

But lo…some of the brilliant minds in the world, are they wasting money? Answer is no.

There is where we need to understand about the moon shot strategy.

In nutshell this is nothing but publicity efforts of the company. What come as a news item about a company gets more attention from the stakeholders than the paid advertisements. The business media is always on a prowl for news for their consumers. As the ‘reading quotient’ or the attraction for these news is big for their readers the media laps up on the news about these net gen futuristic looking consumer items.

If organisations are to spend for advertisement, this is a lot of money and the impact is always not as big as it can be with the lime light from the “moon shot strategies”.

In addition, occasional news springs about these futuristic ideas in ‘flesh and blood’ like drones or wearable computers give a huge credibility to the company. Investors are on the lookout for the companies that can last next couple of decades and a foot print for the company in the next gen ideas give boost to the ‘pipeline product’ case of the company.

Time to think what if your companies ‘moon shot strategy’?

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HUMAN MATTER IN ORGANISATIONS

It was particularly distressing news in some in media and the followed by clarification of a technology company, on people retrenchment. Many are waiting for cues from the leader and the action from leader become an excuse to let loose trigger happy people managers. What was more disappointing was that the company in midst of the controversy is otherwise a most respected group. And this has given more legitimacy for rest of the crowd to take sword. Today it is possible to get an office boy and an IT professional at almost the same salary level. Huge number of professionals is on the road looking for the jobs.

The biggest and the cheapest raw material that a country like India has is Humanity. And all these ‘Human Waste’ expelled out from all these ‘respected’ companies is creating a different type of pollution.

We need to understand the reason for these announcements.

Historically market cheers to cost reductions. It is a regular feature for the wall street companies to announce cost reductions when the environment is challenging. Analysts focussed on profits always love these announcements.

Only way to stop this from happening is to disincentivise this action and reward the reverse of the same. Ie organisations need to be rewarded for their ‘human matter’.

It is a high time that an independent agency does a rating of the companies on their ‘Human Matter’, beyond those big sounding lines in the front page of the websites.

And if general public who are the retail investors give a thumps down to those stocks with less ‘Human Matter’, there the organisations will become more respectful to the People.

We like to hear you at indussprouts@gmail.com