Showing posts with label GDP growth. Show all posts
Showing posts with label GDP growth. Show all posts

Tuesday, April 16, 2013

Recession redux?

With Stress in European financial markets continuously getting worse amidst talks of bailout packages for greece, a sustainable solution is yet to be found. Real economic indicators are not yet indicating a recession, but markets remain unsettled due to deteriorating sentiments and speculations about the future of the European union.

Crisis beyond EU

Consistent with the other large industrialised European countries, UK’s growth has slowed down considerably in the second quarter of the year. There is little doubt that fundamentals in the economy are not very strong, but it has also been hampered by global macroeconomic environment. The European debt crisis or the fear of it is also adding to the existing bad sentiment. Confidence in global growth has waned. Consensus forecasts for GDP growth have declined across the industrialised world. The Deloitte Stress Index is also showing the highest reading in the last two years. Real personal disposable incomes have declined by around 3% yoy, the sharpest decline since 1976. Even the optimism in UK’s CFOs has dipped to levels seen during the recession in early 2009.

US under risk

During the global economic downturn of 2008-09, manufacturing in US went down by 15%, the highest decline since World War 2. In late 2009, it recovered significantly from depressing levels, but it is again fading in 2011 due to natural calamities in Japan and a poor domestic demand. If US businesses have been able to post record profits, it is all because of their strong overseas operations, but any recession in Europe can make its dent on the prospects of American businesses as slowdown in exports to Europe will slow down overall manufacturing. It seems like a turn of tables. In 2008, it was US that brought recession to the world. Now, Uncle Sam is hoping that the ensuing debacle in EU doesn’t precipitate a crisis in its economy.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
 
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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.


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Source : IIPM Editorial, 2012.
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Friday, August 03, 2012

How The Asian Way Shows The Way

Some of you; actually many of you who might have spared a glance or two for the visuals in this page must be wondering if some madness has crept over me. This is supposed to be a special package for Indian PSUs. Then what in God’s name are logos of celebrated private sector companies and multinationals like Toyota, Honda, LG, Samsung and many others doing here? And what possible connection could these private sector behemoths have with Indian PSUs?

The answer is quite simple, actually. For close to forty years, the stupendous success of the Asian way has been staring Indian policy makers in the face; to be largely ignored. Not many would now be familiar with the acronym MITI. But for those who followed the media and the academia in the 1970s, 80s and 90s, MITI was probably as well known, if not better known, than acronyms like IMF, ADB and UNICEF. It was the Japanese magic wand that triggered fabulous GDP growth rates for decades after the Second World War and played a key role in the emergence of world beating multinational brand names like Sony, Toyota and Honda. The Ministry of International Trade and Investments in Japan did what the Planning Commission in India has never been able to do successfully: Think about 20 years into the future and try to implement a set of policies that would lead Japanese companies and the economy to that desired destination 20 years down the road. Sure, the Japanese companies in question were completely owned and managed by private sector players, but the Japanese State – through MITI – and the private companies shared a strong vision about the future and how to go about realising that future. The Japanese economy has lost much of it’s sheen after two decades of stagnation. But the public private partnership forged there has delivered unparalleled prosperity to Japanese citizens. Something similar happened with South Korea starting in the late 1960s. Incidentally, South Korea was a de facto colony of Japan for much of the first half of the 20th century. In the 1960s, the per capita GDP of South Korea was lower than that of India. It was then that the guys who ruled South Korea thought that their best bet lay in imitating their erstwhile colonial masters Japan. The state offered unprecedented support through cheap loans, capital infusions, high tariff barriers and export subsidies to then unknown entities like Samsung, Hyundai, LG, Daewoo, Pohang and Posco. Even the most prescient analysts of that era had not envisaged that brands like Hyundai, Samsung and LG would be world leaders and steel makers like Pohang and Posco would one day be the most technologically advanced and cost efficient steel makers in the world. No doubt, the entrepreneurs behind these multinationals were dynamic enough to capitalise on emerging opportunities. But even they would not deny that all the success they achieved happened primarily because the State gave them unstinted support during their formative years.

History – sometimes of the successful variety – often repeats itself. What the Japanese did first and then the South Koreans did later became the drawing board for China after the regime under Deng Xiao Peng ushered in an era of market friendly policies back in 1978. This unique version of socialism practiced by China too has led to unprecedented success. To give you just a few examples, the steel output in China was less than that of India in the late 1960s. Now it is more than 15 times as much. Today, China sells more than 10 million four wheelers every year, more than five times that of India. And of course, who can forget that China is now the second largest economy in the world and breathing down the neck of the United States. And mind you, unlike Japan and South Korea where private sector companies have played a key role, it is State owned entities in China that have been the drivers of growth and prosperity. China often practices the most predatory form of Capitalism and the labour policies it follows could prompt comrades like Prakash Karat to rise up in revolt. And yet, the State has been relentlessly pursuing the vision that became the mantra more than thirty decades ago.

The obvious question that needs to be asked is: If Japan, South Korea and China can achieve unprecedented growth and prosperity by being smart enough to nurture a strategic partnership between the State and capital, what has stopped India from doing the same? There is no dearth of world class public sector companies in India. Many of them have survived the brutal onslaught of global competition.


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