I did a whirlwind trip of Europe on work, screwup by Lufthansa meant I spent time in Paris, Munich, Brussels & Frankfurt instead of heading straight to Brussels, a place i have spent time in the past and have come to love. Brussels to me is the bangalore equivalent of Europe ( or should it be vice versa?) multi cultural, close to larger cities but with a distinct lovable personality of its own....
Its been 6 long years since I spent my last stint in Europe, so some changes I noticed...
1. There are beggars on the streets : I stomped around Europe last time and none of the main cities seemed to have them, some in Paris, but that was also very rare. This time, it was in your face, people at corners, reminded me of what a foreigner might face in India, women with kids, kids chasing you and youngsters with no apparent reason to be begging....what changed? Was astonished and my local contacts, they blame it on the new nations in EU, the slowdown and illegal migration but yes they too seem to notice the change
2. Understanding the demographic dividend - a lot of research reports talk of the youth and the push that will give India as a nation. Any public place in India will have screaming kids and across age groups, then you see youngsters on the verge of marriage and you know this engine is going strong for a few decades atleast....I roamed around in the streets of Brussels and the large other airports and only place I saw kids was Terminal C of Frankfurt and you guessed it right , thats where planes to India were departing from. Else, the concern of a greying economy, the strong social safety system and its future working, its impact on business, the world view that will emanate from Europe will be very interesting to watch
3. Investment in infrastructure : a constant thing you will hear from foreigners is the construction which seemed to be going on in China and India.... but what surprised me was the amount of construction I saw in Brussels, ofcourse, neighbourhoods looked vacant, the airport terminal too big for the number of passengers but the constant spending on upgradation, not general maintenance mind you, is so huge, I came back even more convinced we India need to do more. Our public planning systems are letting us down and our politicians doing us a disservice in planning public spending. The private sector is also not too behind, take the Bangalore Metro as a example, I have lost count of when they shut down half of MG road in Bangalore and Navayuga is taking all the time in world to even build the basic pillars....the full fledged metro is far away....no accountability is killing all of us....
4. Spoilt by Taj : I have in the past spent a lot of time at Taj palace, Mansingh road, Delhi and trust me they have spoilt me. I stayed at the Airport Sheraton in Brussels and while I have no complaints, the small touches by Taj, the personal warmth simply make every stay that much more comfortable. I am sure if they can get it right, the hospitality industry from India can rule the world.
5. The growing irritation about Muslims : The one thing I thought very highly of Europe was the sense of fairplay and their ability to recognise another culture and work with it. To a level, I think Europe is ahead in terms of such refinement but this time, the number of people who spoke to me of growing disenchantment with the local muslim populace was surprising...as one person said, I am ready to accept their practices, but are they ready to accept me? I used to think the ghettoisation of muslim communities was a very India specific phenomena due to our peculiar vote bank politics, but seems its a larger issue... I am not sure of the causality, but the clash of civilizations seems a larger issue and on the ground far widespread...
6. Queue control : a minor issue, I was standing in the queue at Brussels and when someone tried to barge in the lady manning the counter just stood up and asked the person to join the queue....that simple act increased the sanctity of the queue, in India the person at the counter somehow doesnt think its his job to manage this part of the equation and leads to situations. We Indians due to our scarcity mentality have a disrepute for being able to stand in a queue but I think the other part of the equation is also required.
Bottomline, I had my doubts about India slowing down and all the fear mongering in the media about our economic prospects, but I came back more convinced that India, if we help ourselves, politicians willing, bureaucracy moving its wide bum (I would be happy if the last 2 dont add anything as long as they dont screw up) we will move forward....
Sunday, November 2, 2008
Monday, October 20, 2008
Death of a tradition?
Typically a language is not a standalone entity. It coexists with a culture, a way of life and comes bundled with folk tales, proverbs, folk songs, literature, slang, mythology. There is also the script, the grammar, pronunciation which are the building blocks of a language but I am not going to talk about them here. I am more concerned with the first few things I referred to. Ofcourse there do exist languages which might not have all the elements, but I am concerned about every single one of them
Supposedly we have 6912 active languages today ( Source: Ethnologue) and more on the verge of extinction every day. So everytime a language is lost we lose each of the elements I named. There are scholars and researchers about loss of languages and their preservation and efforts are on, but I feel every stone in the foundation is important…. Ok that was a long preface to what I wanted to say
I have friends from Bengal and the joy that arrives (and the sluggishness if I may say so) in their lives with the arrival of Puja is to be seen to be believed. Navratri or Dasara is a celebrated widely in India and the pandal culture of Bengal, the dandiya culture of Gujarat, the ram lila in parts of North India are all distinct forms of celebrating the same sentiment - victory of good over evil and worshipping the feminine form of 'shakti' ( although I am itching to deviate here and talk of how this is derided by certain cultures as 'pagan" I Desist). Karnataka has a very distinct form of celebrating Dasara - days of pooja - I remember Saraswati pooja, where my books got all the attention, to Ayudh Pooja, the day when we as kids got together and cleaned the vehicles and worshipped every form of tool , to vijay dashami a simple pooja to seek blessings - a part that never was practiced in my own home but have seen is the "Doll arrangement". It is a unique form of depicting mythology, themes from the texts and anything considered worthwhile….. As a kid although I have seen such arrangements I never appreciated it.
This time, I kept thinking, it’s a part of our tradition as Kannadigas (maybe a sweeping generalization, not sure if the practice is so prevalent in North Karnataka or in other Dravidian states) but I don’t see the sensitivity to this dying aspect of a festival. Also I kept wondering how and why is it that we don’t have such things on a grand scale in the form of pandals like we celebrate Ganesh festival or why didn’t it evolve into the Pandal culture of Bengal - Giving it a public form might bring back this practice of our culture which served a interesting purpose of being educational while fun.
As an aside, the practice of "doll arrangement" is associated with some wonderful songs in Kannada movies, so if it doesn’t revive very soon, those movie clips will be the only record of this bit of culture….hope it doesn’t come to that
Supposedly we have 6912 active languages today ( Source: Ethnologue) and more on the verge of extinction every day. So everytime a language is lost we lose each of the elements I named. There are scholars and researchers about loss of languages and their preservation and efforts are on, but I feel every stone in the foundation is important…. Ok that was a long preface to what I wanted to say
I have friends from Bengal and the joy that arrives (and the sluggishness if I may say so) in their lives with the arrival of Puja is to be seen to be believed. Navratri or Dasara is a celebrated widely in India and the pandal culture of Bengal, the dandiya culture of Gujarat, the ram lila in parts of North India are all distinct forms of celebrating the same sentiment - victory of good over evil and worshipping the feminine form of 'shakti' ( although I am itching to deviate here and talk of how this is derided by certain cultures as 'pagan" I Desist). Karnataka has a very distinct form of celebrating Dasara - days of pooja - I remember Saraswati pooja, where my books got all the attention, to Ayudh Pooja, the day when we as kids got together and cleaned the vehicles and worshipped every form of tool , to vijay dashami a simple pooja to seek blessings - a part that never was practiced in my own home but have seen is the "Doll arrangement". It is a unique form of depicting mythology, themes from the texts and anything considered worthwhile….. As a kid although I have seen such arrangements I never appreciated it.
This time, I kept thinking, it’s a part of our tradition as Kannadigas (maybe a sweeping generalization, not sure if the practice is so prevalent in North Karnataka or in other Dravidian states) but I don’t see the sensitivity to this dying aspect of a festival. Also I kept wondering how and why is it that we don’t have such things on a grand scale in the form of pandals like we celebrate Ganesh festival or why didn’t it evolve into the Pandal culture of Bengal - Giving it a public form might bring back this practice of our culture which served a interesting purpose of being educational while fun.
As an aside, the practice of "doll arrangement" is associated with some wonderful songs in Kannada movies, so if it doesn’t revive very soon, those movie clips will be the only record of this bit of culture….hope it doesn’t come to that
Saturday, September 27, 2008
Chit funds - basics
I did a post once -of-p2p.html and keep getting queries about chit funds... so here goes a post which captures the basics of chit funds. (Disclaimer : I claim to be no expert in this and is purely based on my participation in them a few years ago)
A chit fund is a purely Indian invention of accessing money. To that extent I have in the past compared it to peer-to-peer lending. A few people come together, pool a fixed sum of money for a fixed period regularly and every month based on the need, the money is taken by a member. Lets work with an example : Chit A is for 12 months of 1000 each, so the pool available is 12000 (a small technicality, if there are 24 people in the group then 2 chits will be available that month and so on). So all people pay the money to either a designated person or to the chit fund or operator, and then people who require that money bid for it. So if I were to say bid for Rs 1000, then I will get 12000-1000. I now keep paying my 1000 monthly. What happens to the 1000 I paid? - usually a small portion of it goes to the chit fund/operator as charges. The rest are divided amongst the group in either of 2 forms - as a cash payout or as a deduction from the next payment due. Also there is a variation where there is something called a double chit, which is essentially all the bid amount is collected and is available to the group to bid, so that the time period for which you pay the chit is reduced.
What determines the bid amount - multiple factors but most basic is the cost of carry and the demand for money from amongst the group of members. So the bid amounts are usually higher in the initial stages and keep falling, in large chits mostly towards the end bidding does not happen and base bids are fixed. Also most chit have a reserve price and a minimum tick. The demand and supply works differently - if a group consists of mostly businessmen who are looking at short term funding the rates tend to be higher compared to group of housewives - basic concept of benchmark rates and the return that people can get on the money that they took out of the chit. People ask me why shouldnt they just go start a recurring deposit in a bank - both inculcate the same regular saving habit. Simple answer - power of compounding and higher return. Typically if the group you belong to is of people who bid higher then the return on your investment is high and a RD pays you interest in the end, a chit fund is immediate.
But the fundamental laws of finance - risk and return correlation run true here - higher bids mean people are desperate for that cash, which in turn means strained finances (not an issue if it is a temporary cash flow problem) but if it is long term - one runs the risk of default. Also the other problem is of chit fund operators absconding with the money. so the due diligence that you should carry out is check on the operator first and then your group members before you start. Dont bid unless you need the money and have a good use in mind which will pay you more than what you paid them.
The industry is now regulated, so check if the chit is registered and then step into it. Stick to the biggies, there might be safety in numbers. Avoid mom-pop setup unless you trust those guys with your kids.
A chit fund is a purely Indian invention of accessing money. To that extent I have in the past compared it to peer-to-peer lending. A few people come together, pool a fixed sum of money for a fixed period regularly and every month based on the need, the money is taken by a member. Lets work with an example : Chit A is for 12 months of 1000 each, so the pool available is 12000 (a small technicality, if there are 24 people in the group then 2 chits will be available that month and so on). So all people pay the money to either a designated person or to the chit fund or operator, and then people who require that money bid for it. So if I were to say bid for Rs 1000, then I will get 12000-1000. I now keep paying my 1000 monthly. What happens to the 1000 I paid? - usually a small portion of it goes to the chit fund/operator as charges. The rest are divided amongst the group in either of 2 forms - as a cash payout or as a deduction from the next payment due. Also there is a variation where there is something called a double chit, which is essentially all the bid amount is collected and is available to the group to bid, so that the time period for which you pay the chit is reduced.
What determines the bid amount - multiple factors but most basic is the cost of carry and the demand for money from amongst the group of members. So the bid amounts are usually higher in the initial stages and keep falling, in large chits mostly towards the end bidding does not happen and base bids are fixed. Also most chit have a reserve price and a minimum tick. The demand and supply works differently - if a group consists of mostly businessmen who are looking at short term funding the rates tend to be higher compared to group of housewives - basic concept of benchmark rates and the return that people can get on the money that they took out of the chit. People ask me why shouldnt they just go start a recurring deposit in a bank - both inculcate the same regular saving habit. Simple answer - power of compounding and higher return. Typically if the group you belong to is of people who bid higher then the return on your investment is high and a RD pays you interest in the end, a chit fund is immediate.
But the fundamental laws of finance - risk and return correlation run true here - higher bids mean people are desperate for that cash, which in turn means strained finances (not an issue if it is a temporary cash flow problem) but if it is long term - one runs the risk of default. Also the other problem is of chit fund operators absconding with the money. so the due diligence that you should carry out is check on the operator first and then your group members before you start. Dont bid unless you need the money and have a good use in mind which will pay you more than what you paid them.
The industry is now regulated, so check if the chit is registered and then step into it. Stick to the biggies, there might be safety in numbers. Avoid mom-pop setup unless you trust those guys with your kids.
Saturday, September 20, 2008
so it serves them right?
A lot of my friends speak to me about the current market mayhem and the feeling they seem to have is it is wrong for tax payers money to be used to bail out the excesses of a few 'rich spoilt bankers - let them fry in hell'. yes I am one of that creed of bankers, those arrogant self professed 'masters of universe' as Thomas Wolfe put it.... but hear me out...
what did these bankers do which has brought the great market to its knees? a simple concept called leveraging....using 26 bn dollars as in the case of Lehman to create a balance sheet of ~400 Bn...thats the beauty of the system and this is not the forum to explain what was happening...
Just that, remember when these same bankers were driving up prices of that corner plot (directly by investing or indirectly by giving money to that builder to build his land bank) we didnt hear too many cribs from people who flipped that apartment they bought during construction for a 50% return in 12 months....or when these banks needed backend support on research and spawned a few 100 of KPO's in India creating jobs or giving those great IT companies large amount of business....remember financial services probably has the largest trickle down effect after pure manufacturing in terms of ancillary jobs created.... so lots of wealth was created...
and where did this wealth come from : the main investors in all this were supposed to be hedge funds and sophisticated investors who knew what they were getting into (different point that I dont think anyone knew what the heck was happening) and ofcourse those pension funds - again with well paid fund managers...so hopefully some wealth got shifted in this process..... a lot of it got destroyed but was it all created by this swell of financial engineering....
so dust to dust is what has happened....and as it is said great fortunes are made in the ruins of financial markets and realized in bull runs....so keep investing.... dont listen to the experts on TV, do your research or else just buy an index fund...and while you are it, spare a thought to all those people who lost jobs, lost pots of money....a fool and his money part ways, but it still hurts to be a fool...
and yes, when we were back in school, Lehman, Bear, Merrill were the ones we dreamt about....great institutions having been through 100+ years seen the great depression, the meltdown, the dot com crash....gone...RIP
what did these bankers do which has brought the great market to its knees? a simple concept called leveraging....using 26 bn dollars as in the case of Lehman to create a balance sheet of ~400 Bn...thats the beauty of the system and this is not the forum to explain what was happening...
Just that, remember when these same bankers were driving up prices of that corner plot (directly by investing or indirectly by giving money to that builder to build his land bank) we didnt hear too many cribs from people who flipped that apartment they bought during construction for a 50% return in 12 months....or when these banks needed backend support on research and spawned a few 100 of KPO's in India creating jobs or giving those great IT companies large amount of business....remember financial services probably has the largest trickle down effect after pure manufacturing in terms of ancillary jobs created.... so lots of wealth was created...
and where did this wealth come from : the main investors in all this were supposed to be hedge funds and sophisticated investors who knew what they were getting into (different point that I dont think anyone knew what the heck was happening) and ofcourse those pension funds - again with well paid fund managers...so hopefully some wealth got shifted in this process..... a lot of it got destroyed but was it all created by this swell of financial engineering....
so dust to dust is what has happened....and as it is said great fortunes are made in the ruins of financial markets and realized in bull runs....so keep investing.... dont listen to the experts on TV, do your research or else just buy an index fund...and while you are it, spare a thought to all those people who lost jobs, lost pots of money....a fool and his money part ways, but it still hurts to be a fool...
and yes, when we were back in school, Lehman, Bear, Merrill were the ones we dreamt about....great institutions having been through 100+ years seen the great depression, the meltdown, the dot com crash....gone...RIP
Sunday, September 7, 2008
What governments jobs do.... a positive side effect...
Most kids in India today would'nt want to be caught in a government job (when I say a government job here, please read it as quasi government, public sector undertakings, nationalized banks and such) but a small thought crossed my mind the other day. Our generation, the post liberalization, middle class generation is aiming higher, dreaming big and trying to reach out we should realize that a major part of this is due to our education ( oh yes, there are cribs there too, but still the base is education). Our education irrespective of public/ private schools etc was mainly possible due to the stability of earnings offered by these government created jobs in our parents generation... combined with the middle class interest in education and the quest for a stable 'service sector job' parents skipped meals, gave up promotions, stuck to lower paying jobs just to keep their kids education intact. Basic necessities like books, food, private tutions, cycles/ bikes to school were all financed by the salary of these government sector anchored jobs. The government created a large working middle class which created our generation of 'aspiring to beat the world to reclaim our spot under the sun' generation.
So it is quite understandable that even today a government job is something to clamour for. The fight for reservations, the huge army of clerks, peons, sweepers, gardeners that have been created will hopefully push more and more people out of the 'safe zone' of a government job. Ofcourse there is the whole side income which a government job creates, the sense of power, the 'mai baap, ji hukum' sense…. The perks of being government, but yes the government has served some purpose.
It takes a generation of stable job to take a family out of poverty to middle class ( not withstanding 'acts of god' like medical emergencies, loss of wealth due to bad habits, low financial education that leads to low capital creation, etc) and probably takes a generation of entrepreneurship to lift a family to the 'rich category' - the disconnect I see in my own case and many of my friends is we have gone through the former phase, but have very little clue of how to do the latter - we lack role models in close circles, capital large enough to allow the freedom of a large gestation period and maybe the ability to take a risk and bite the bullet….
But yes, the above view probably helps me think, the taxes I pay is doing something to the country since a large part of it is being used to pay this army of government employees…. Since I don’t see the roads, don’t have enough power, lack basic infrastructure or a social security system being created…… yes it’s a sorry view to take, but atleast I get less frustrated !!!
So it is quite understandable that even today a government job is something to clamour for. The fight for reservations, the huge army of clerks, peons, sweepers, gardeners that have been created will hopefully push more and more people out of the 'safe zone' of a government job. Ofcourse there is the whole side income which a government job creates, the sense of power, the 'mai baap, ji hukum' sense…. The perks of being government, but yes the government has served some purpose.
It takes a generation of stable job to take a family out of poverty to middle class ( not withstanding 'acts of god' like medical emergencies, loss of wealth due to bad habits, low financial education that leads to low capital creation, etc) and probably takes a generation of entrepreneurship to lift a family to the 'rich category' - the disconnect I see in my own case and many of my friends is we have gone through the former phase, but have very little clue of how to do the latter - we lack role models in close circles, capital large enough to allow the freedom of a large gestation period and maybe the ability to take a risk and bite the bullet….
But yes, the above view probably helps me think, the taxes I pay is doing something to the country since a large part of it is being used to pay this army of government employees…. Since I don’t see the roads, don’t have enough power, lack basic infrastructure or a social security system being created…… yes it’s a sorry view to take, but atleast I get less frustrated !!!
Wednesday, September 3, 2008
Follow up on "The Pygmy Effect"
(Reader Warning : Long post ahead - this is in reply to Aditis comment on my last post - Pygmy effect)
Hey Aditi, welcome back was afraid I had lost a reader, and thanks for taking time out to comment, and apologies for not having replied back on the previous ones….
Here goes : Why pick on the family owned entities : I don’t think I have too much of a hope for the government entities… they served a purpose in the planned economy stage and are probably tied down due to vicious cycle of their own (some of them are fantastic organisations mind you - there is a nice theory on their second level contribution to the economy - subject of my next post), you have highlighted a few reasons and there are many more… I am a born capitalist when it comes to matters related to capital finding its own way and demand being addressed (my socialistic tendencies are there but as one of my well known Profs told me "if u think you are best suited to earn money then do that damn thing, leave social upliftment to the ones more qualified to do it, if money is all u can contribute so be it!!!". There is a role for a regulator but mostly the I love the concept of a market, make it competitive, let labour and capital flow freely and then magic happens
But the decision to analyse the family owned firms is (my guess here on the number) probably 80% of the enterprises in India are family owned or controlled and unless they are able to come out of the cocoon of treating the business as an extension of family and self, ( don’t know your background, but in corporate law, what I am saying is similar to the divorce of management and ownership or what we call the lifting of corporate veil but more on a financial and operational control part is what I want) the companies will not grow…. Why do I want them to grow : multiple reasons - industrial cycle follows a predictable pattern : unorganized sector - few organized - many organized - large companies/ small unorganized - niche warriors with large companies - multiple smaller but larger than stage 3 companies. In the past when you had tariff barriers, information asymmetry, no 'global supply chain', the market and the competition was largely local and we could get away. But since we are opening up and largely the world trade is becoming freer, this phenomena is both an opportunity and a risk…. If you are not large, you might be the largest organised player in India but in the global industry cycle you are already in 4th stage and risk getting wiped out and even if I assume we will be able to graduate to the next stage and occupy niches, there is lot to be done……..
Size gives a different swagger to your moves, opens up your mind (makes you reckless also!!), allows you to see at an opportunity differently, allows you to setup systems, attract professionals, attract capital, beat down the bank which will offer you PLR when you are a 30 cr company and will offer you PLR -300 bips when you 300 and then allows you name your terms when you are 1000 and will restructure loans to suit you when you are 3000 ( don’t believe me, check the CDR packages doled out in this country in the last downshift we saw - case study a few steel companies, oil companies). Economics 101 teaches us about Scale and Scope economies - a critical mass sets off a chain reaction - talent attracts talent, money attracts money, opportunities attract opportunities
And on the other note, why are professionals important : a entrepreneur serves a purpose in the birth and evolution of an organization, his/her intolerance to status quo and creativity gives birth to a business, his hunger for more gives fillip to grow and his/her 'animal instincts' (its an economic term :) ) keep the economy growing when both fiscal and monetary policy are screwed up…. So by definition, they come with vision…. Some prodding is required to enhance its coverage and scope, this is the void advisors (pseudo, proxy, quacks, intelligent, experienced, effective, gyan giving - various forms of consultants!!) come in…. A professional on the other hand is by definition mostly attuned to a systems mindset - setup/ follow/ break systems mode….not a radical free thinker…. The fear of failure for most professionals is what he feared when he gave his last entrance exam but for an entrepreneur it is that order which if it did not materialize would have meant 30 employees going without salary and his precious wealth vanishing…. The reactions are different in the face of adversity and the capability to visualize is different. I once was presenting to a very successful entrepreneur and told him they will need 800 cr to meet his vision, he said 'Why not' but it had taken me 15 days to convince his whole management team to even persuade them to let me present this to him :)
And on the visionary note : they are far and few I agree…… but there are levels in visionary behaviour I think - like sports which starts are second division to olympics/world cup level - you need to define the level you want to operate…. My advise is "everyone jump 3 steps on the vision, atleast then we will have a few more nationally important entities (and Olympic gold!!) . 'Cutting corners' is by definition an dangerous area, but one of the IAS officers I worked with used to say, "only thing which is atleast light shade of grey is the word illegal, both immoral and unethical are new shades which can be called 'invisible grey' " - So in this I will go by what my B-school taught me - don’t do that thing which you don’t want your mother to read in the next days newspaper - my sole test :) else we are all prisoners of choice - the master piece 'Bhagvad gita' was born out of doubt and the problem of choices to be made.
And lastly, is profit a byproduct of vision or can that be the vision? Yes it can be your vision, but I would say it’s a gulli cricket level vision, if you defined your vision as "I will make 100 cr profit in year 2010" (unless you are making 1 today). A business in my mind, a tool/ a purpose/ a calling of a higher order that cannot be just confined to profits, but profit is an essential ingredient and probably not the end result, its just one of the many measures…..
And on a lighter note, yes maybe a tinge of disappointment, I keep telling my friends if my grandfather had been a land grabber or even a normal bribe seeking government employee rather than the well respected but not well paid writer he was, I would also have been employing people like myself rather than peddling my wares to the corporate world :) so yes, ovarian lottery worked in a different form in my case…..now its left to the rich/influential father in law to do the trick - hope I atleast get a consolation prize there :) !!
Hey Aditi, welcome back was afraid I had lost a reader, and thanks for taking time out to comment, and apologies for not having replied back on the previous ones….
Here goes : Why pick on the family owned entities : I don’t think I have too much of a hope for the government entities… they served a purpose in the planned economy stage and are probably tied down due to vicious cycle of their own (some of them are fantastic organisations mind you - there is a nice theory on their second level contribution to the economy - subject of my next post), you have highlighted a few reasons and there are many more… I am a born capitalist when it comes to matters related to capital finding its own way and demand being addressed (my socialistic tendencies are there but as one of my well known Profs told me "if u think you are best suited to earn money then do that damn thing, leave social upliftment to the ones more qualified to do it, if money is all u can contribute so be it!!!". There is a role for a regulator but mostly the I love the concept of a market, make it competitive, let labour and capital flow freely and then magic happens
But the decision to analyse the family owned firms is (my guess here on the number) probably 80% of the enterprises in India are family owned or controlled and unless they are able to come out of the cocoon of treating the business as an extension of family and self, ( don’t know your background, but in corporate law, what I am saying is similar to the divorce of management and ownership or what we call the lifting of corporate veil but more on a financial and operational control part is what I want) the companies will not grow…. Why do I want them to grow : multiple reasons - industrial cycle follows a predictable pattern : unorganized sector - few organized - many organized - large companies/ small unorganized - niche warriors with large companies - multiple smaller but larger than stage 3 companies. In the past when you had tariff barriers, information asymmetry, no 'global supply chain', the market and the competition was largely local and we could get away. But since we are opening up and largely the world trade is becoming freer, this phenomena is both an opportunity and a risk…. If you are not large, you might be the largest organised player in India but in the global industry cycle you are already in 4th stage and risk getting wiped out and even if I assume we will be able to graduate to the next stage and occupy niches, there is lot to be done……..
Size gives a different swagger to your moves, opens up your mind (makes you reckless also!!), allows you to see at an opportunity differently, allows you to setup systems, attract professionals, attract capital, beat down the bank which will offer you PLR when you are a 30 cr company and will offer you PLR -300 bips when you 300 and then allows you name your terms when you are 1000 and will restructure loans to suit you when you are 3000 ( don’t believe me, check the CDR packages doled out in this country in the last downshift we saw - case study a few steel companies, oil companies). Economics 101 teaches us about Scale and Scope economies - a critical mass sets off a chain reaction - talent attracts talent, money attracts money, opportunities attract opportunities
And on the other note, why are professionals important : a entrepreneur serves a purpose in the birth and evolution of an organization, his/her intolerance to status quo and creativity gives birth to a business, his hunger for more gives fillip to grow and his/her 'animal instincts' (its an economic term :) ) keep the economy growing when both fiscal and monetary policy are screwed up…. So by definition, they come with vision…. Some prodding is required to enhance its coverage and scope, this is the void advisors (pseudo, proxy, quacks, intelligent, experienced, effective, gyan giving - various forms of consultants!!) come in…. A professional on the other hand is by definition mostly attuned to a systems mindset - setup/ follow/ break systems mode….not a radical free thinker…. The fear of failure for most professionals is what he feared when he gave his last entrance exam but for an entrepreneur it is that order which if it did not materialize would have meant 30 employees going without salary and his precious wealth vanishing…. The reactions are different in the face of adversity and the capability to visualize is different. I once was presenting to a very successful entrepreneur and told him they will need 800 cr to meet his vision, he said 'Why not' but it had taken me 15 days to convince his whole management team to even persuade them to let me present this to him :)
And on the visionary note : they are far and few I agree…… but there are levels in visionary behaviour I think - like sports which starts are second division to olympics/world cup level - you need to define the level you want to operate…. My advise is "everyone jump 3 steps on the vision, atleast then we will have a few more nationally important entities (and Olympic gold!!) . 'Cutting corners' is by definition an dangerous area, but one of the IAS officers I worked with used to say, "only thing which is atleast light shade of grey is the word illegal, both immoral and unethical are new shades which can be called 'invisible grey' " - So in this I will go by what my B-school taught me - don’t do that thing which you don’t want your mother to read in the next days newspaper - my sole test :) else we are all prisoners of choice - the master piece 'Bhagvad gita' was born out of doubt and the problem of choices to be made.
And lastly, is profit a byproduct of vision or can that be the vision? Yes it can be your vision, but I would say it’s a gulli cricket level vision, if you defined your vision as "I will make 100 cr profit in year 2010" (unless you are making 1 today). A business in my mind, a tool/ a purpose/ a calling of a higher order that cannot be just confined to profits, but profit is an essential ingredient and probably not the end result, its just one of the many measures…..
And on a lighter note, yes maybe a tinge of disappointment, I keep telling my friends if my grandfather had been a land grabber or even a normal bribe seeking government employee rather than the well respected but not well paid writer he was, I would also have been employing people like myself rather than peddling my wares to the corporate world :) so yes, ovarian lottery worked in a different form in my case…..now its left to the rich/influential father in law to do the trick - hope I atleast get a consolation prize there :) !!
Tuesday, August 19, 2008
The pygmy effect
Indian companies by global standards are small in size.... in terms of turnover, balance sheet and scale of operations. This has roots in history to the planned experiment with socialism, the licence raj which curtailed growth in its own way, the romantic notion of self sufficiency through small scale industries, the fabled piece of legislation the Monopolies Restrictive Trade Practices Act. But these would be immediate identifiable causes, slightly offbeat would be the late arrival of industrialization to India but during the rule under colonialism which anyways had perverse intentions to not let Indian companies grow large. I also think of two reasons why probably Indian entities never grew too big...
1. Lack of capital formation : India was and is still a rural driven agrarian economy. In such cases capital formation is closely linked to the productivity of the land, which in Indias case is led by the monsoons. Monsoon failure meant subsistence. Also the water tight compartments of castes around professions meant that the rich trading community and the artisan community were different, so while India gave birth to financing systems like Hundis, chit funds and micro entreprenuership, modern notions of shared ownership did not take off. Even when the modern company form took root , we had the relic which a lot of people wouldnt have heard of called the controller of capital issues.... so lack of capital meant, companies remained small...... financing expansion through internal accruals which anyways were suppressed to pay lower tax or thorough bank debt which came at phenomenal costs. Add the Indian aversion to debt and its a potent cocktail of capital deficiency which would kill large scale global ambitions.
2. The 200 cr barrier - The Indian entrepreneur is hands on (I have great respect for them - more about it in a later post) and likes to be in control. So usually the organization is an extension of his/her personality. Also since most Indian promoters never diversify their personal balance sheets from that of the company, maintaining control becomes essential to ensure safety of personal wealth and family standard of living (again a perverse tax incentive means a posh bungalow, a swanky super car and the summer getaway are all financed by the company as a perk!!). A very easy way of exercising control is through filling up the company with family members - bottomline your ability to procreate is the barrier to growth and since blood is thicker than water, professionals never succeed in such companies, so every small decision ends up with papaji/lalaji/chairman/ founder or whoever is the head.....growth gets squeezed. I usually ask a question to ascertain if this is a problem with companies when i first start working with them - do you know which debtors you wrote off last year? if the answer is names of debtors i have an issue, if the answer is something like we had a review / we have a policy - then yes, systems have taken over.... and why do i call it the 200 cr barrier - most Indian companies cant seem to get out of this vicious cycle and get stuck around that number - if you broke through that, then according to me you have built a middle management which runs the company.....All you then need is a visionary!!!
If Indian companies have to dominate the world stage, grow large and enhance their reach globally, I think somewhere they will need to address these 2 issues.
(and before you start commenting - I know there are well run professional companies in India - L&T et al, but if you remove the family conglomerates, I can count such companies with ease....)
1. Lack of capital formation : India was and is still a rural driven agrarian economy. In such cases capital formation is closely linked to the productivity of the land, which in Indias case is led by the monsoons. Monsoon failure meant subsistence. Also the water tight compartments of castes around professions meant that the rich trading community and the artisan community were different, so while India gave birth to financing systems like Hundis, chit funds and micro entreprenuership, modern notions of shared ownership did not take off. Even when the modern company form took root , we had the relic which a lot of people wouldnt have heard of called the controller of capital issues.... so lack of capital meant, companies remained small...... financing expansion through internal accruals which anyways were suppressed to pay lower tax or thorough bank debt which came at phenomenal costs. Add the Indian aversion to debt and its a potent cocktail of capital deficiency which would kill large scale global ambitions.
2. The 200 cr barrier - The Indian entrepreneur is hands on (I have great respect for them - more about it in a later post) and likes to be in control. So usually the organization is an extension of his/her personality. Also since most Indian promoters never diversify their personal balance sheets from that of the company, maintaining control becomes essential to ensure safety of personal wealth and family standard of living (again a perverse tax incentive means a posh bungalow, a swanky super car and the summer getaway are all financed by the company as a perk!!). A very easy way of exercising control is through filling up the company with family members - bottomline your ability to procreate is the barrier to growth and since blood is thicker than water, professionals never succeed in such companies, so every small decision ends up with papaji/lalaji/chairman/ founder or whoever is the head.....growth gets squeezed. I usually ask a question to ascertain if this is a problem with companies when i first start working with them - do you know which debtors you wrote off last year? if the answer is names of debtors i have an issue, if the answer is something like we had a review / we have a policy - then yes, systems have taken over.... and why do i call it the 200 cr barrier - most Indian companies cant seem to get out of this vicious cycle and get stuck around that number - if you broke through that, then according to me you have built a middle management which runs the company.....All you then need is a visionary!!!
If Indian companies have to dominate the world stage, grow large and enhance their reach globally, I think somewhere they will need to address these 2 issues.
(and before you start commenting - I know there are well run professional companies in India - L&T et al, but if you remove the family conglomerates, I can count such companies with ease....)
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