Monday, July 30, 2012

Scrutiny-CAPITAL PUNISHMENT: SHOULD IT BE ABOLISHED?

The intentional homicide rate in Southern African countries including Botswana (poverty rate 31%), Lesotho (43% poor), Namibia (49% poor) and Swaziland (63% poor) is around 37.3 per 100,000 population — much higher as compared to the world average of just 7.6 per 100,000! On an average, the homicide rate in Africa was 20 per 100,000 while it was only 5 per 100,000 in USA, where the poverty rate is relatively lower at 13% and the literacy rate is 99%. Compare the South African and global figure to the intentional homicide rate of Norway, which is a puny 0.60 homicides per 100,000 population. Norway again has a literacy rate of 99% and poverty rate at a stunningly low figure of 0% as per international standards (and 4.4% as per Norway’s own very high definitions of poverty). In the same way, Cuba’s intentional homicide rate is 5.5 per 100,000; literacy rate is 99.8% and poverty rate is close to negligible. Austria, similarly, with literacy rate of 99% has only 6,915 prisoners. It encounters 2 murders, 7 rapes and 3115 thefts per 100,000 population, on an average. Germany and France (with substantially high literacy rates), have homicide rates of 0.84 and 1.7 per 100,000 population respectively. Interestingly, they all abolished capital punishment years back. Countries like Iran (poverty rate of less than 2%) and Pakistan (22.6% poverty rate), have corresponding homicide rates of 2.9 and 6.8 per 100,000 people respectively.

It’s widely seen that criminal activities increase in a nation when capital punishment is abolished. According to data published by the UK Home Office, the homicide rate has doubled since 1965, after UK abolished capital punishment. The total unlawful killings in UK were 300 in 1964 which increased to 565 in 1994 and to 833 in 2004. Murders and assaults saw an increase of 125% during 1965 to 1969 – the same period when Britain abolished death sentence for murder.

Putting things into the right perspective, nations that are still struggling to provide basic amenities like education, health care, employment to their people should use capital punishment as a means to create a sense of fear, which is a deterrent to commit heinous crimes – more because in societies where a significant mass has not evolved sociologically and culturally, and which suffers illiteracy and poverty, the propensity to commit a heinous crime increases when there is no fear of death in return. Thus, while the propensity to commit a murder will not increase in Norway even if the mass murderer Breivik were to be pardoned – as the exquisitely literate society has over decades imbibed deeply embedded moral values and have advanced on the social scale – the reverse is true for poor, illiterate and underdeveloped/developing societies.

The United Nations General Assembly appealed to every country to abolish capital punishment by adopting non-binding resolutions in 2007. Thankfully, developing and underdeveloped nations did not follow this unsolicited piece of advice. Controversial this may be, but it may even help these nations in allowing general public the choice of attending these executions, which should anyway be held quite regularly. The advice may also hold true for India, with a 2.8 intentional homicide rate. Death for death, life for life; the new fundamental.



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Saturday, July 28, 2012

Ready & Waiting for that Exit Call

Telecom M&As are waiting to happen, but Archaic Regulations are Preventing them from happening. The new Telecom Policy 2011 should provide some reprieve and foster healthy, and less severe competition in the sector

The telecom sector in India is still governed by the old and stale National Telecom Policy (NTP), which was announced in 1999, though much water has flowed under the bridge since. India has more than 800 million subscribers. Today, the country is the second largest telecom market in the word after China and the third most attractive Foreign Direct Investment (FDI) destination. As per the Department of Industrial Policy & Promotion, Ministry of Commerce and Industry, India attracted $10.5 billion in cumulative telecom FDI from April 2000 to January 2011. Telecom is attracting the largest FDI after services and the IT industry.

Telecom M&As in India gained momentum in 2008, when the government decided to award new telecom licences. Japan’s telecom major NTT DOCOMO acquired 26% stake in Mumbai-based Tata Teleservices (TTSL). The company is likely to buy into a Rs.30 billion rights issue by TTSL. Similarly, Telenor Group of Norway acquired a 67.25% stake in Unitech Wireless for $1.36 billion and Etisalat DB took up 45% stake in Swan Telecom for $900 million; the two deals that really fuelled the 2G spectrum controversy. In 2009, Bahrain Telecom acquired 49% stake in S-Tel for $225 million. Operators like AT&T, Telekom Italia are still looking to invest in India. But M&A activity on the domestic front has been negligible. Though the number of players in the sector has touched 15 unlike the global average of 3-4, consolidation is still not on us. The top six players command a subscriber share of over 86%, while the remaining 9 have less than 14%. Idea’s merger with Spice and Reliance Industries’ 95% stake buy in Infotel Broadband for $1.03 billion are the two major domestic M&As in the past few years.



 
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Friday, July 27, 2012

The Fifth time in a row, there is no Airline Company

For The Fifth time in a row, there is no Airline Company in The B&E Power 100 list. Swati Sharma Writes on why there will be none Next Year too.

There are two reasons why even after five years of annual losses, airlines in India have failed to move out of the red zone. First, the rise of ATF price by 51% during H2, FY2010-11, made fuel dearer than anticipated. For instance, due to the rise in crude, Jet shelled out Rs.12.79 billion on fuel during Q4 last year – as compared to a fuel bill of Rs.8.36 billion during the same period a year back. This eroded Jet’s margins by Rs.3.43 billion, thereby wiping out all the hard work done during H1, FY2010-11 and resulting in a loss of Rs.858.4 million for the year. While pointing out other factors ailing the aviation market in India besides ATF prices, Ketki Mahajan, Aerospace Analyst at Frost & Sullivan, tells B&E, “Airlines can no longer work on low cost model. This is because of high crude oil prices, and high aviation fuel tax levied by various states, high airport charges and rising service tax on fares.”

The increase in fuel cost (to unprecedented levels, which rose to 39% of operating cost by Q4, FY2010-11), coupled with the second big problem, the presence of fare wars (triggered-off by Air India and which became prominent during Q4 last financial year), made profit-making an impossible task to achieve. So the question remains – will Indian airlines finally get into the act of making profits when B&E Power 100 knocks on the doors of India Inc. again next year?
The year began on a note which was tough to digest for aviators across the world. For debt-laden Indian carriers, it was a nightmare of a beginning, with crude crossing the $114-per-barrel mark. Then there is the fact that at present, the situation arising out of the inability of the players to pass on the price hike to passengers is made worse with state governments adding more taxes on the players, with no intentions to lower the already high sales tax on ATF. Infuriated on this attitude of the government, Sudheer Raghavan, COO, Jet Airways, tells B&E, “Sometime, we wonder why we are in the airline business at all. Not just Jet Airways’ but the entire sector’s future is questioned. We already have so many taxes; and by imposing more of them, the policy makers are only shackling us.” At present, airlines are paying Rs.57,166.96 per kilolitre of fuel – 33.5% more than what they were doing 12 months back. Do you even expect their already loss-making situation to improve with costs rising? Let us not day-dream.

Fact is, B&E Power 100 next year will yet again, see no Indian airline being featured in the list. Reason: the carriers are all set to lose more money in FY2011-12 than they did the previous year, due to higher ATF prices & excess capacity. In June 2011, IATA even slashed down the worldwide profit forecast for the industry for FY2011, to $4 billion – due to an increase of 53.5% in operating cost as compared to FY2010. With average oil price forecasted to remain around the $100-plus zone during the better half of EY2011-12, and with fuel constituting 30-50% of an airline’s cost in India even during the coming 12 months (internationally this value is around 14-15%), under ordinary circumstances, you could expect the top three airlines in India to lose anywhere in the range of $2.2-2.5 billion next year. And given that there is a lean quarter starting next month (July-September), expect a couple of fare wars, which will only make the air-pockets deeper. Forget about profits for the immediate year ahead, the question for Indian airlines is to face the issue of sustainability in the long run. Some short-terms therapies might surface, but how long and at what cost will they help prolong life in the air? [Or perhaps they will.


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Thursday, July 26, 2012

Stratagem-INTERNATIONAL : DEUTSCHE BANK: CEO JOSEF ACKERMAN’S SUCCESSOR

Deutsche Bank’s CEO Josef Ackerman is Opposed to The Idea of The Non-German Speaking Anshu Jain becoming his Successor. Reason – he finds Jain Unsuitable and has his Own Choice for Crown Prince. For The $55 billion giant, This may Prove The First Step to Losing The Future.              

Talk of track record. Run through the company’s latest annual report (FY2010), and you will understand why Jain is good at delivering birdies even off the golf course. The Corporate & Investment Banking (CIB) unit headquartered at London, which Jain heads, contributes to 72.3% of the group’s topline of $42.31 billion. Jain is known today as one of the key architects of DB’s investment banking unit. In 2001, judging his abilities, the-then CEO Rolf Breuer appointed him as the head of the-then rather small Global Markets sub-unit (dealing in debt sales & trading business). It was then just a $1.4 billion-a-year topline earner. Last year, that sub-unit alone made $18.8 billion. Since he came on board, Jain’s story-of-rise at DB has run parallel to the bank’s growth. In 2004, Ackerman himself made Jain the co-CEO of the CIB division, alongside Michael Cohrs (who retired in 2010). And since then, the contribution of this unit to group sales has risen from 15% to 72.3% (FY2010). The slowdown presented the heads of many investment banks an awkward stage to perform on. Jain has done exceptionally well so far. His previous employer Merrill Lynch was forced to its knees in the slowdown-marred 2008 & 2009 (most others of its clan had to endure the boiling pot too). On the contrary, under Jain, Deutsche’s CIB unit remained the mainstay for the group, contributing to 32.8% & 67.3% to its topline during FY2008 & 2009 respectively. While speaking to B&E about Jain’s (and DB’s) performance during the downturn, Paris-based Scott Bugie, Primary Credit Analyst at S&P, says, “Though the failure of Lehman Brothers & Bear Stearns, and the downsizing of other competitors such as Merrill Lynch, UBS, and Morgan Stanley due to the severe troubles of the wider investment banking industry in 2007-2009 provided Deutsche Bank and certain other peers with an opportunity to expand market share in some areas, such as prime brokerage, in our opinion, during the industry downturn and the recession, Deutsche Bank remained in the better performing half of the sector from 2007 to 2009.” Since 2004, except for 2008, his division has contributed between 60-80% to the company’s topline.

Under ordinary circumstances, the head of your largest and most profitable division (the CIB unit recorded pre-tax profits which was 150.9% more than that of the group for the past year, with a manpower count which is only 7.8% of the total), and one which delivers a ROE of 32%, as compared to the group’s 10%, is usually preferred as the most deserving for the CEO crown. Not in Jain’s case. Draw up a table of the five highest annual profits recorded by any division in the history of this 140 year-old company, and it all turns out to be those years since Jain took over as CIB’s head. Now, he is faced with a situation, where the Chairman of the Board of Directors of his “global” company is hell-bent on pitting him against a German, who is more of an academician, and has never worked in a capitalistic set-up before. Between 1982 & early 2002, Weber taught economic theories at the University of Bonn, the Goethe University, Frankfurt and the University of Cologne. And between March 2002 and April 2011, after serving on the advisory panel to the Deutsche Bundesbank, he finally retired as the President of the central bank. Here we ask: if Weber was to wear the CEO robe this day, would he be able to motivate 100,000 plus employees to achieve a 15% ROE target (for the group) that Ackerman so proudly announced for the ongoing financial year? Doubtful.

There is another side to the tale. What if Jain is not chosen? Chicago-based Dr. James Butler, MD of The Rigley Group (former Senior Credit Analyst at Merril Lynch), tells B&E, “The fear is that if an outsider is chosen, you will lose 3 to 4 heads of departments – namely Jain and probably even the Chief Risk Officer Baenziger. And this will turn out to be a huge loss for Deutsche Bank, perhaps unrepairable. If it is internal, you will still lose Jain if he is not chosen. That is like losing you best guide in the dark, dense Amazonian forests.”

The number of M&As and dealings in equity capital markets that Deutsche Bank has undertaken in the recent past and the many that it would be involved in going forward, also requires Jain to be on top. Being an investment banker involved in $42 billion worth of M&A deals & $79.8 billion in IPOs during FY2010 alone, means a direct impact of $7.2 billion to pre-tax profits for FY2011 from just the acquisitions for DB (estimates by DB officials). As London-based Equity Analyst at S&P Frank Baden tells B&E, “The risks attached to DB’s growth are due to the company’s need to remain competitive in the global securities business by diversifying, and with a greater focus on asset management. Also, there are large integration risks related to recent acquisitions.” Asset management, debt and securities business – this is Jain’s homeground, let him play skipper.

Even if we were to overlook performance and talk about the time spent in the company, learning culture, none of the other insider prospects have served so many years under DB’s roof to be as eligible as Jain. All others – Bänziger, Lamberti and Krause are younger at the company. And how about the fact that today, of the 30 most valuable-listed German companies, nine are led by non-Germans? We have an analogy here – American Bob Diamond, was made the CEO of one of Europe’s (and England’s) most treasured banking brands Barclays (in September 2010), based on his performance, despite having a Briton for predecessor (John Varley), and a weaker than usual political links.

Why should Jain be chosen as the next CEO? Because he earns more than Ackerman? [For FY2010, Jain took home $16.7 million in compensation, as compared to Ackermann’s lower $8.99 million.] Actually, a financial firm which earns three-fourth of its revenues from investment banking and corporate banking should have an investment banker to lead it. Barclays (led by Diamond), JP Morgan (Dimon), Morgan Stanley (Gorman), BofA Merrill Lynch (Montag), UBS (Gruebel) – all these firms which earn most of their income through a channel similar to DB, have an investment banker on top. If Weber is politically well-connected, he can serve as the Chairman and keep himself busy with members of the German parliament. The perfect solution would be to create a management structure where there are two co-CEOs – Jain and Bänziger. While Jain will take the Investment Banking division to newer heights, Bänziger (the third-most likely candidate for CEO) can take care of the retail business to give adequate diversification and cushion against the risk of another meltdown soon. Weber as Chairman ensuring political outreach, Jain & Bänziger in place, and risk diversification taken care of, Ackerman should stop his search for an excuse under the garb of hypocrisy. Too slow a succession planning process can kill an organisation, no matter how big. And then, Ackerman can offer no excuse for his procrastination – not even a water-tight travel schedule.



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Tuesday, July 24, 2012

Theory“I” talks about how Global Management concepts

Theory“I” talks about how Global Management concepts are now getting Influenced Significantly by lessons from The Indian Context, both Culturally and Professionally. With more and more Indians taking up Global Leadership roles across the World in Varied Areas of Society,polity and Industry,is The World getting Enmeshed with and finally Accepting The Indian style of Management? By Arindam Chaudhuri

Of course, there’s the opposing argument – and quite convincing for that matter – that an Indian who has lived in America for two to three decades perhaps has become completely disconnected with what is being Indian and would have completely forgotten the ‘life lessons’ which I’ve purported above. To sweep away this argument would take less than a moment. Just walk into the home of any Indian family that has spent this argumentative two to three decades in the United States, spend a few hours with this family, and you get to understand the logic of what I’m putting forth. They might be Americans in terms of their citizenry – and I have no issues with that – but the legacy of their Indianness goes much beyond simply the name, and much deeper than the religion connection that also plays a heavy card. And that’s where the Indian-style-of-management hypothesis, the Theory I of it all, comes back in one big wave.

Since the 1950s, management theory and practice has been heavily influenced by the likes of Alfred Chandler, Igor Ansoff, Peter Drucker, Herzberg, Fayol et al. Their theories and those of their peers defined how CEOs and institutional leaders ran their companies and managed their people. McClelland, Skinner, Maslow while building on Elton Mayo’s work became iconic proponents and definers of human behaviour in the 1960s-80s periods. Blake and Mouton added to their celebrity quotient by inventing the Managerial Grid. Hershey and Blanchard went many steps ahead and beseeched the ‘leader’ bunch to become situational leaders – in other words, to moderate their leadership skills depending upon their followers. Giving them glittering company were Levitt, Kotler, who redefined marketing in ways nobody else could, and more contemporarily, Ries and Trout. And then Michael Porter happened to the strategy world, where cost leadership, product differentiation, competitive advantage became terms as common as the morning weather forecast for every CEO. Yes, the list is exemplary and par excellence – more because what these people said, worked.

But somehow, somewhere along the line, the Americanness of it all went completely unnoticed for many decades. There were no questions asked on whether management and leadership philosophies from other parts of the world could perhaps work better. How often has one heard of an American organisation adopting the Japanese management style to surge ahead? Perhaps never. And how often has one heard of the reverse? Probably never again. However, I do remember reading somewhere that when IBM in America was making losses while IBM in Japan was making profits, IBM-USA tried to adopt the Japanese management style to turnaround. Well, the result...increased losses!
 
Predictable? Should be. It is most likely that a style that is successful in Japan would not be as successful in US; and vice versa too. People are different, cultures are different and so is the life-style. That is the reason why Japan has developed its own management style and the US its own. If we take a deep look into the American management style, we realise that it is absolutely fine-tuned to the American culture and way of living. The people in the West grow up, mostly, with very less emotional security due to factors like high divorce rates, single parent families et al. As they grow up, they do tend to find a sense of stability in this seemingly unstable and insecure atmosphere. Thus, when they enter into their job lives and see a management culture prevalent, which is contractual in nature with the hire and fire style of management, they don’t get disturbed. In fact, this motivates them to work harder; and a typical American might metaphorically say, “We are tough guys and as long as we are good, the company keeps us, else we go out”. The bottom line is that the fine tuning between the culture at home and at job works wonders and enhances productivity & motivation.

Looking at the Japanese set of companies, one finds concepts of life time employment working wonders out there. A Japanese finds a bonded culture in his organisation, unlike the American contract culture. If we look into the Japanese lifestyle and culture, we would find the importance of bonds being very high. The Japanese have strong family ties and a strong sense of community. From such an upbringing, they feel at home when they see a bonded style of management on the job. The typical Japanese would say, “I am a Honda man (and not that I work for Honda)”, displaying the bond that he shares with his company. The point that gets highlighted again is that a management style, which flows out of your own culture and roots, would any day motivate your people much more than one which is adopted from somewhere else. I am actually attempting to disprove my Indian style of management hypothesis much before I’ve even proved it. But seriously, it doesn’t take a post doctorate to understand that nationally bound management and leadership concepts should be able to succeed only in those geographies and demographies for which they were originally intended. Therefore while America is the world’s largest economy, Japan the second largest and China racing down their necks, all three have brilliantly different management styles – and all three have similarly different cultures; therefore, the match between their cultures and management styles is perfect. Then why should an Indian style of management succeed (say in the West) where almost all others have failed on the portability parameter? The answer to that lies in the genesis of the Indian style of management.

This genesis that I am alluding to is what can be encapsulated quintessentially by the term ‘Indian culture’, with one significant facet of it being the wondrous quality of not trying to impose its own character, but in trying to modulate the character of individuals and entities around to the benefit of the larger good. If that sounded over the top, let me simplify it by the term, Theory I. 
 

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Friday, July 20, 2012

An Unequal Music

For The Music Industry, Buffeted by Declining sales of Albums and Slowing Digital Downloads, The Writing on the wall is clear. Embrace Innovative Business models or go under.

If you watched Beyonce Knowles perform during the Grammy Awards last month, you could be forgiven for thinking that the music industry is on a roll. Award nights, like the Grammy’s, never fail to throw up new music sensations and once in a while their newly-recorded albums soar to the top of charts, hauling in record sales in a matter of weeks. As for the established stars à la Britney Spears or Rihana, it’s no conceit on their part to think of the world as their oyster, with legions of music aficionados waiting eagerly to lap up their muscial offerings. The current pop sensation, Lady Gaga’s debut album The Fame has sold over 3 million copies worldwide and has spawned several hot tracks, which have become international chartbusters. But it would be naïve to think that the music industry is wallowing in the moolah. The truth, alas, is more sombre.

At the end of last year, the music business was worth half of what it was ten years ago and the decline doesn’t look like it is going to be arrested any time soon. According to the latest data given out by the International Federation of the Phonographic Industry (IFPI), global revenue from digital music sales, inspite of increasing 6% to $4.6 billion in 2010, was down from a 12% increase in 2009. The overall recorded music market decreased approximately 9% in trade value, according to IFPI’s “Digital Music Report 2011.” While digital revenue accounted for 29% of the global music industry’s total revenue in 2010, the report estimates approximately 95% of all global downloads were via illegal services. Not too long ago the music industry was in much better shape when global recorded music sales stood at a staggering $26.9 billion in 1999.

The phenomenal decline since then can be traced back to the June 1999 debut of Napster, a peer-to-peer file-sharing service that gave users access to free music. Not only did Napster help change the way most people got music, it also lowered the price point from $14 for a CD to free. Although Napster was forced to shutter its service in 2001, under overwhelming industry pressure, other Napster-like clones moved in quickly to fill the void. In the time between Napster’s shuttering and iTunes’ debut in 2003, many of Napster’s 60 million users found other online file sharing techniques to get music for free.

In hindsight, Napster only acted as a catalyst for forces that were soon to alter the dynamics of the music business. It set the trend for the way music content is distributed, sold and marketed over interactive channels. Today, music can be accessed for free and legally downloaded. Internet radio services such as Pandora and Grooveshark, and music services such as Spotify have started giving users access to free but legally downloaded music. Result: there is now a generation that believes music is available to download for free on the internet. The sheer size in terms of number of tracks obtained through internet downloads as well as via illegal file sharing on mobile phones is growing and is much larger than legal purchases of music.



 
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