Monday, September 10, 2012

Another breach into the dragon’s lair?

Mobile handset production in India has seriously lagged the Telecom Services Revolution. Current trends provide an opportunity to rectify this anomaly. Can India take it up when it matters?

Post liberalisation, the grand telecom story has been a flagship of India’s corporate prowess, and has developed business models that are benchmarks for players across the world. However the flip side of the story is that while players, both Indian and international, have lined up in good numbers for the telecom services space, a similar exuberance wasn’t visible in the telecom handset manufacturing space in the initial years.

Slowly but surely, the MNCs that saw India as a market also started seeing its potential as a manufacturing hub. LG has manufacturing facilities for handsets near New Delhi and on the outskirts of Pune. It is further planning now to set up a facility in South India to exporting handsets from here to European and CIS countries. Its Korean counterpart Samsung also manufactures mobile phones at its facility in Chennai. Market leader Nokia set up its plant at Sriperambadur, Chennai with a manufacturing capacity of 5,00,000 units per day. The Indian Cellular Association (ICA) came out with a report titled ‘Enabling the mobile handset and component manufacturing value chain in India’ in 2005, where it had mentioned that indigenous design and manufacturing would help companies achieve higher localisation.

Considering the present scenario, the field is expected to split wide open now with the right impetus. India has become the world’s second largest mobile handset market with handset sales expected to reach 140 million units in 2010 and grow to 206 million units in 2014, a CAGR of 20% (Gartner). Trends could soon change, considering the thrust being provided by the emerging domestic players who have eaten up a substantial market share from established international players in a short time. As was reported by IDC some time back, market leader Nokia saw its market share drop alarmingly to 36.3% in 2009 compared to 54% in the previous year due to players like Micromax, Spice, Lava, Karbonn and G’Five (read related story on G’Five in this issue of B&E).
 

Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face
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Saturday, September 08, 2012

“Luxury car segment is set to double every 3 to 4 years”

Though the luxury car segment is at a nascent stage in India, it has a huge potential to grow big if the makers can lure the upper middle class customers, says K. Kumar, Senior Director, Deloitte India

B&E: Luxury cars have started catching the fancies of Indian consumers. How do you think the sector is evolving?
K. Kumar (KK): The Indian car market is reasonably young and evolving – the luxury car market is also at its infancy. The size of this segment is anything between 15,000 to 20,000 – minuscule as compared to the overall market size of 2 million per year. The car penetration is about 11 per 1000 of the population. There seems to be a reasonably consistent view that the luxury car segment will reach its maturity only at a point when the penetration reaches anywhere between 25 to 30 per 1000. Another issue is the price of the luxury cars. In India, these machines are sold at a premium, relative to prices in other countries and the per capita income of the target audience. Further, usage of cars here is largely intra-city. Therefore, apart from the snob value, users actually do not get a chance to fully use the features of a luxury car. However, as the roads get better and cars are driven on highways, there will be an objective requirement to look for features that luxury cars offer.

B&E: As compared to India, the Chinese luxury car market is not only stronger, but boasts of higher growth prospects too. What is your take on luxury car market in India vis-a-vis China?
KK: In my views, the Chinese luxury car market is at least a decade ahead of India. It is one of the most promising markets for manufacturers. So, the fact that some of them have already established manufacturing plants should not come as a surprise. For that matter, the Volvo acquisition by Geely would end up helping this market to grow further. At the same time, considering that the country is set to enjoy a GDP growth of over 10%, this market has no down side risks in the near future. Further, the car penetration in China is already in early 30s. As this number grows and affluence spreads to the Central and Western regions, the demand is bound to grow strong.

B&E: What are the key challenges for luxury brand makers in India?
KK: The first and the foremost is to develop the category itself. The segment might be growing fast, but it’s only due to a low-base effect. So, they primarily need to expand the category to a bigger size. And the key for the same is the price factor. They need to bring down the price to a level where it can be accessible to the upper middle class customer.

Given the low sales volume, the second challenge is covering the market for sales and services. Certainly, it will be lot easier for those manufacturers who have other segments of products, as they can support their luxury brands through the existing networks. However, the problem is that most of the premium luxury manufacturers do not operate in the lower segments. So, a possible solution could be customisation of these cars to cater to the Indian needs and thereby increasing the volume.

B&E: What value does the numero uno position carry for a luxury car maker?
KK: It is important for manufacturers in any segment. This not only enables them to retain existing customers, but also helps in attracting new ones at a relatively lower cost. This also gives a strong bargaining power to the auto makers against the suppliers, dealers and other partners. By creating a perception of good resale value, it helps customers get better financial deals. Lastly, it is also useful in containing the up-front discounts that have to be given at the point of sale.


Read more.....

Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face



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Thursday, September 06, 2012

The pangs of indecision?

Ranked amongst the world’s top 1000 banks in 2009 by The Banker, London, Karur Vysya Bank is perhaps the least written about banks in India. But with an obscenely mammoth Rs.300 billion plus business being churned out an NPA ratio which is amongst the lowest across India, the bank can just not be ignored. B&E investigates what’s up with the bank?
 
Well, that’s actually the full story. Less written, lesser known, and mostly growing by organically propelled momentum, the bank has never been a case study to be analysed in a similar platform as the State Banks/HDFCs/ICICIs et al. Yet, not only has the bank conjured up obscenely huge margins (last three years’ aggregate profits were close to Rs.780 crores), the bank has also slowly but surely crossed the oceanic stamp of being just another South Indian bank to becoming a national player. With Rs.330 billion of total business, whatever you do, you simply cannot ignore this bank which, unbelievably, is a 96 year old institution! B&E jumped headlong into the issue to find out what gives in this erstwhile heavily tradition driven institution, whose unique jumpstarts are getting evidently more regular than competitors can handle. First the flat financial situation. Karur Vysya Bank (or KVB, if we may) has churned up total deposits at Rs. 193 billion and total advances at Rs. 137 billion for FY 09-10. Apparently, KVB is the first private sector Tamilnadu bank that has gone beyond the Rs.300 billion gross business mark. Creditably, it has a net interest margin at 3.23%, and of course, the current 350 branches. We’re told by the top management that not only are they trying to increase this to 800 branches by 2015, but also achieve a business figure of Rs.1,250 billion by the same period. In other words, an all India presence that challenges the current national banking leaders. The question is pretty simple: can they really make the jump or is this a simple case of an over-targeted strategic intent?
 
the marketing paradigm

They say to understand a man’s character, look at his shoes. We say to understand a bank’s character, look at its bad loan ratio. Applaudably, the battle has been won by KVB before it even starts. If ICICI Bank had a bad loan ratio of 5.14% for 2009, KVB has the same at an electrifying 1.67%. And don’t even think about reaching the holster for shooting the NPA ratio bullet. At 0.23% NPA ratio for 2009, it’s quite clear that Karur Vysya is miles ahead of being a simple push over for competitors. “In FY’11, we will touch Rs.420 billion and Rs. 500 billion by FY’12. The bank is targeting a 28% surge in both credit and deposits”, says Group Chairman of the bank, P. T. Kuppuswamy, to B&E, adding that the CASA (current and savings account) component is likely to go up by 2% to 26%. Apart from this, during Q1 2010-11, Karur Vysya Bank has recorded a 16.57% rise in interest on advances of Rs.3.71 billion, up from Rs.3.18 billion that was registered during the corresponding quarter last fiscal. Before you think the eulogies are piling up more than normal, stop for a moment and imagine the scenario that KVB achieved much of what it did during the economic slowdown.

So where does the most unkindest cut of KVB actually exist? The answer is quite simple: just below the scratchable surface. It’s a straightforward fact that while South India depends on age-old paradigms for business development (when was the last time you read a Hindustan Times in Chennai?), the rules that drive business in most of the remaining high net worth parts of India are pretty massively different; and KVB has not been exposed to much of this scarring world till now. Yes, they’ve made quite a massive and efficient machinery running down south – but to expect similar growth in a vagary driven and real-estate stricken Mumbai, for example, can never be reasonable. And the factor where KVB can and would take a massive hit is their marketing paradigm. In the current financial year, Karur Vysya Bank has applied to the Reserve Bank of India (RBI) for 70-100 new branch licences in 2011-12. With this move, the bank hopes to have 375 operational branches by the end of 2010. But till now, unless you’ve been a crazed stalker-fan of KVB, neither would a prospective customer be able to recall any of KVB’s advertisements, and the products don’t even make the alphabetical list of the feedback form – in other words, KVB suffers from dismal brand recall in almost all non-south geographies. But it’s not as if the bank doesn’t realise this – in fact, they’ve gone many steps into this issue. During the Jan-March 2010 quarter, KVB had commissioned one of the Big six consulting firms, Boston Consulting Group to prepare a growth road-map for its future. Currently, post the consulting recommendations (which primarily focused on advising the bank to improve its low-cost deposits and expand exposure to the small scale sector), the bank is apparently implementing interim changes to marketing strategies and organisational structure too. The difference in the bank’s marketing communication is quite evident, one should mention. While the age-old vision statement of the bank still starts with the dodgy “delight the customer continually” paraphrasing, one look at the bank’s print ads shows the suave and classy communication change (see first page snapshots). These ads are a far cry improvement from the cheesy recruitment ads the bank used to give – and still gives – which earlier were their only source of letting the public in South India know that they existed! 


Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face

          
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Wednesday, September 05, 2012

Do it while the internet is still cheap!

Bruce Clay, Internet Marketing Guru and Founder of Bruce Clay Inc. Talks to Virat Bahri of B&E on search engine OPTIMISATION (SEO) – and on how is it like working with Lindsay Lohan and CNN at the same time

B&E: When internet penetration in India is so low & companies find offline investments more lucrative, why should they invest in SEO at this jucnture?

Bruce Clay: If you believe that the web will be big in the future, and you know that you will be there eventually anyhow, by waiting, you are giving your competition an opportunity to become established. There’s still sufficient value today to justify doing it even at lower percentages. It really is the ‘claiming your turf’ advantage. Given that you are going to do it anyhow, waiting is only going to harm you. It gives your competition the opportunity. It isn’t right to give that up when the cost of going on the internet is generally less than the benefit of being on the web. I can’t imagine that there are many keywords that aren’t going to pay for themselves on the internet. You would want to take advantage of being there. SEO is the most cost effective process. There is pay per click, the ads that you run in Google and they are very expensive compared to the cost of SEO. The organic/SEO space gets 7 out of 8 clicks on Google, while the ads only get 1 out of 8. You are going to spend on ads anyway, so why not start early and get onto the free listings. My recommendation is, there is no good reason not to, unless you simply cannot afford it.

B&E: Are Indian search engine user habits dramatically different compared to other markets you have worked in?

Bruce Clay: No. There may be a crossover at a language level, based on what people are looking for. But Google supports language, so you should do ok. The real issue I think is that users in every country have learnt to be very very targeted. They have learnt to search for more words rather than fewer words. They search for 3 words and not one word 58% of the time. When people do that, they get results that are more appropriate and targeted to that particular query. That is universal. So you will not see many differences in India.

B&E: How significant has been the change in the SEO and search engine space since the internet originated?

Bruce Clay: I was fortunate. I started doing SEO in 1996, almost 3 years before Google. Back then, there were 19 search engines – and Google was not dominant. Today, there are only a few major ones, rest have been merged or acquired. We have a very long history of search engines going away. I don’t think Google is going to be dominant. In 2009 or 2008, their market share actually shrank. Certainly, what I think we are finding is that similar to what happened to browsers – In the beginning there was Netscape, then there was IE, then there was Firefox and then along came Chrome – people are changing with respect to the search engines they’re using. I still think there is going to be room for a new search engine in the market, but I don’t know if it’s going to any time soon compete with Google. In 1996-98, it was to be able to go to a search engine result and when I looked at the pages, 1, 2 & 3 maybe had some sort of SEO on it. Now, there are hundreds. And they all have something. As the marketplace gets more optimised, quality of top sites are improving. People who do searches do not have to go as far. In 1996, people would search – go through page 1, 2, 3 & 4, switch to different search engines. Now, if you don’t find it on page 1, you change your query and do it again. You add some words and do another search.


Source : IIPM Editorial, 2012.
For More IIPM Info, Visit below mentioned IIPM articles.
 
IIPM : The B-School with a Human Face


 
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Tuesday, September 04, 2012

“PROFITS VS SOCIAL IMPACT IS A CHALLENGE”

THE MICRO-FINANCE SECTOR IN INDIA HAS RECORDED MORE THAN 100% GROWTH IN THE LAST FEW YEARS AND THE GOOD RUN IS ATTRACTING FOREIGN FIRMS LIKE BLUEORCHARD FINANCE S.A., WHICH MANAGES CLOSE TO $1 BILLION IN ASSETS AND SPECIALISES IN MICRO-FINANCE. B&E’S AVNEESH SINGH TALKS TO CEO JEAN-PIERRE KLUMPP

B&E: As a leading investor, how bullish are you on the future of micro-finance, particularly in India?
Jean-Pierre Klumpp (JPK): We are highly optimistic about India’s future. It is a fascinating market because of its size and is in many respects a world in its own. Even as far as the population is concerned, it has both the top of the pyramid – which is doing really well and is recognised around the world – as well as the bottom of the pyramid that despite being very broad, does not have any access to finance. We, as micro-finance irrigators, now need to provide developmental aid to this very section of the society. In fact, because of its demographics, India needs to have something that is almost mechanical in deploying the first level of financial irrigation so that the individual germ of labour and creativity can be fertilised in such a way that it comes out on its own. An idea is just a small seed and micro-finance institutions (MFIs) basically act like water, which makes it come out as a plant. Further, when it comes to financing, there are many regions in India which are absolutely dry. So we would like to fill that void. We are motivated by the growth that the Indian economy is showcasing and as such would like to play a harmonious & balanced role.

B&E: Will MFIs continue to depend on banks for capital infusion or are there new financing structures available to them?
JPK: If you want to grow you need to have private capital. So either you are a private equity investor yourself or you find one who invests in MFIs. In fact, private equity is the blood in the institution that helps in the transformation and growth of MFIs. However, I am happy to say that soon we will have other funding options like non-convertible debentures (NCDs) and commercial paper, which will be a boon for MFIs. Then, we also need securitised products like Collaterised Debt Obligations (CDOs), but we need to be careful with them as after the financial crisis they do not enjoy good reputation. Slowly, we need to substitute bank loans with funding from other sources which include funds from private players.

B&E: Recently, a lot of financing deals, both equity and debt, have taken place in the global micro-finance space? How will this impact the future investments in the sector?
JPK: This industry is still very young and that is what is opening a debate. Take India for instance. I think the recent IPO of SKS Microfinance raises a question about whether the public sector is ready to invest in these kind of institutions. If you look at the market, it is self structuring and this is what will bring discipline in the institution. You are going to the market and finding investors but as soon as you do something that the investors do not like, they will leave you. I think the last transaction brings in market discipline. However, the challenge is to manage a double bottomline (provide investors with both a financial return and a social impact). Though, there is no romance in finance, in micro-finance there is a little romance because you like the idea of making such a big difference. The last transactions show that micro-finance has the ability and skill set to attract talent who can manage these transactions. But they have to make sure that they can cope with complexity of the transactions because if anything goes wrong, then it will not only impact the individual but the industry as a whole.


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Monday, September 03, 2012

Life @ Ctrl-Alt-Del!

Can virtual life substitute your real one?

When was the last time you packed a picnic basket and scooted off with friends and family on a weekend trip, or spent a lazy Sunday reading your favourite book, or enjoyed a game of chess or carom at home? Maybe yesterday or an hour ago, is that what your status message reads? Or is that what your virtual life update of the hour is? Well, it might sound like an oxymoron, but some strongly feel that virtual life is a ‘real’ nice place to be! But the irony is that there is more to real life than virtual life. The rituals of family get-togethers, chat sessions between friends, relishing art and theatre, playing a rugged and nerve-racking game of tennis, basketball or cricket, are evidently dying a slow death in the present-day scenario due to alarming time constraints. Yet strangely, people have become hooked to a virtual life when the real one was already quite a handful!

Virtual life is a computer simulation of life, which gives us humans a platform to live a life of our dreams. A fantasy world can be created and lived in. One can not only buy houses, clothes, cars and food, run shops and earn money, adopt children, hold art exhibitions; you can even teleport your avatar from one destination to another in a jiffy, express various emotions, own virtual real estate and even own virtual pets capable of being trained! One way of looking at such life is how Dr. Ajay Pal Singh, Psychiatrist, Max Health Care, sees it, “I feel it has more positives than negatives. It’s a good way of venting out emotions. It acts like an escape from the day-to-day drudgery. It can be related to day-dreaming and it fosters creativity if indulged in moderation.” Of course excess of anything is bad and things meant for our recreation have now been given so much importance that many are slaves of it without as much as realising the same.


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Saturday, September 01, 2012

TO EARN PROFITS, ATTRACT INVESTORS!

Global Investment Guru Jim Rogers, who Co-Founded the Quantum Fund along with George Soros (The Fund Returned 4,200% in ten years, as compared to the S&P 500’s 47% in the same duration), believes that commodities are a strong investment avenue for indian firms, and that the govt. should cooperate to make india inc. more profitable

When the economy gets better after the ongoing recovery mode, commodities will go up. And even if it doesn’t get better, commodities will remain the hot favourite, as governments would press to print more currency and whenever the government has done that in the past, real asset prices tend to go up, be it rice, wheat or natural gas. In the present situation, a credible investment and productive capacity for 25 or 30 years in the commodity field will be excellent whether the economies get better or they don’t. Most of the commodities tend to be fruitful but for the near future that is 2 to 3 years, agriculture will be a golden call.

With the recent mergers and acquisitions (M&As) activity heating up the Indian market, like any other economy, Indians are shelling-out a little extra for the target company. But these M&As are of no sense as they normally destroy value. Forget about making-profits with these deals. If an Indian company can, it should rather invest in the stock market over M&As as there is a lot of liquidity in the Indian market and a huge potential in stocks. So stocks are the right way to go if you want to make profits.

Talking about the comparison between India and China, when returns are considered, the Chinese market will outperform India in the short-term, but with India allowing foreigners to invest in the Indian market, India will be a much better market in comparison to China in the long-term. But considering the manner in which the government behaves and acts on important economic and corporate decisions at present, I am not really sure that the government in India actually means good. But if it does, India is really the place of more interest. Hence, for the time being, China is the preferred destination and Chinese companies would be my desired targets.

Talking about profit-making in the farm & agricultural sector in India, at present, a lot has to change. There has to be definite reforms in different sectors in India to unlock their potential specifically in agriculture, where India can be a leader in the global economy, as India has the soil, weather & location. Unfortunately, the government is ruining agriculture with all kinds of restrictions and despite thousands of Indian farmers committing suicide every year, the government is allowing the restrictions to develop. A farmer in India cannot have more than 5 hectares of land and these Indian farmers can never compete with their counterparts sitting in Australia and America. A farmer in India has the potential to own 10,000 hectares. The Indian government should open up the agricultural sector, so that it becomes much more competitive.


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