Uday 2012

UD A Y
Journal of Master of International Business
Volume 4 Issue 1
2012
A New World Economic Order: Survival of the Fittest?

Master Of International Business
Department Of Commerce Delhi School Of Economics University Of Delhi
UD A Y
The stage is set for the decisive spectacle. crossed in a Their they paths are have
and
engaged at a
struggle
unforeseen
scale unprecedented. The course has bent. The grand finale has commenced. History decides to
repeat once more severe than ever, unrelenting, vicious! It is the clash between sense and greed, merit and and mediocrity, prudence and
arrogance,
survival
destruction!
The bugle calls echo once more. The worthy are sought. Only the worthy are sought!
The search is on. Crowns await their prince! Revaluation Begins!
UD A Y
Editorial
From the Editors Desk
Stepping Up
he iconic fairytale The Emperors New Clothes by Hans Christian Anderson is a classic metaphor for collective denial: Two swindling weavers find a cunning way of making merriment by promising to make the emperor a dress invisible to those unfit for their positions. None, including the king, deny the obvious fact that no such dress exists so that when the king parades before his subjects wearing the new dress, all of them laud the absolute beauty of the creation, for fear of being regarded unworthy and stupid. Eventually it takes the honesty of a child, who cries out But he isnt wearing anything at all! to expose the obvious reality. The story closely mirrors our experience by the end of the first decade of the new millennium. And we can no longer deny; the facts lay exposed. The last decade (and counting) is an era of crises. And while the nuances differ, an underlying commonalty binds them all: these crises were not supposed to happen! In some sense, they were created, laying the foundations and then raising them brick by brick until an overpowering structure eclipsed us almost completely! In this issue of Uday, Dr. K. V. Bhanu Murthy gets to the core of the debate. He argues that the financial industry innovated itself into a nasty mess over the years. Why did we innovate tears? What are those warning signs that stare at us blatantly while we refuse to recognize? The Big Idea feature of this issue deliberates upon all this while attempting to bring out the tell-tale signs of looming crises. Also featured is Ms. Gunjan Vedas case for e-commerce. The CEO of INDIAreads.com, a pan-India online bookstore, brings forth interesting arguments making an enriching read, for, the assemblage of ideas, knowledge, expression and experience speaks! Also take a look at the articles by Professor S K Jain and Professor Sumati Varma. The former draws a layout for foreign market selection, claiming that there might be bumps along the road of internationalization, but you can anticipate them and, if you follow some key principles, gain a competitive edge. Professor Varma too dwells on internationalization, albeit of a rarer assortment; she is talking about the born-global firms adept at leap-frogging the traditional stages of progression to enter the global markets instead, from almost day one. To add to our treasure, and thats not an exaggeration, we have called on some of the best corporate minds the nation over, rich in experience and idea, to share their views and explain the dynamics of their respective industries. Read on to get in-depth outlooks on a range of topics spanning sectors of insurance, food industry, hospitality industry, research, brand management, economy and more. The master story-teller Salman Rushdie tells us that within the secrecy of our own heads, we can hear voices talking about everything in every possible way. This issue of Uday is a manifestation of priceless voices breaking through the secrecy of their own heads! And its all yours to devour. Happy reading!
-Jayeeta Bhattacharya
Editor-in-Chief
UDAY 2012, Vol. 4, Issue 1
MIB. Deptt. of Commerce, DSE
Message
Message from the Dean
t is with immense delight that I present to you all Uday 2012, the annual journal of the Master of International Business programme. The theme for the current edition of Uday is A New World Economic Order: Survival of the Fittest? It is an appropriate theme as the world is now in a state of flux and a new world order, especially in the economic world, is all poised to come. What would be the dynamics of the business and economic environment in future hence becomes an important aspect to ponder on, as the world is in a state of dilemma: to resurrect the old or invent the view. The theme also becomes relevant in the perspective of India. As the focus point of the worlds power is gradually shifting from US and Europe, India will have to prepare a new plan for its journey ahead. She has to think hard about new business models and practices. While it is essential for India to maintain its growth momentum, it should also be concerned to ensure greater equity among its masses and creating an environment that would facilitate Indias growth in times to come. Growth sans equity and stability is no growth at all. I would like to convey my best wishes to the editorial team of Uday and I hope that the journal would be able to achieve its intended objective of furthering knowledge in the domains of business management and economics. Dean, Faculty of Commerce, Head, Department of Commerce, Delhi School of Economics, University of Delhi
-Prof. K. V. Bhanu Murthy
Message
Message from the Course Coordinator
ur world is undergoing a revolution these days. We are seeing new chapters being written in the history of mankind in all spheres of society- be it politics, economics or science. Especially in the world of economics and business management, a state of transition is being observed as centres of economic power are shifting and age old business practices are being questioned. In this light, it becomes pertinent for us to understand what would be the structure and architecture of our economic world tomorrow so that we are better prepared in meeting the challenges and opportunities which the world would offer to us then. In a time when so much is happening all around the business and economic world, it becomes important to deliberate on what strategies will ensure the survival of nations and who, at the end, will emerge victorious and at the top. Uday, 2012, the current edition of the annual business journal of the Master of International Business programme (MIB), is an initiative to encourage a discussion on the changing aspect of our business and economic world. Based on the theme A New Economic World Order: Survival of the Fittest? the journal is aimed at bringing in an analytical discussion on the expected future trends of our business world. I extend my best wishes to Uday and hope that it would provide a platform to professionals, students and academicians of international business to express their insights on key issues pertaining to the business and economic world. Course Coordinator ,Department of Commerce, Delhi School of Economics, University of Delhi
-Dr. Kavita Sharma
Contents
Contents
5 7 9 11 13 17 22 25 29 33 36 38 41
The Looming Challenge to the World: Decoding the Warning Signs -Prof. K. V. Bhanu Murthy (Dean, Faculty of Commerce; Head, Dept. of Commerce, DSE, DU) Indian Economy: Undergoing Turmoil? -Aayam Banerjee (Sr. Associate at Milestone Religare Investment Advisors) Indias Next Big Export: Capitalism Version 2 -Subrata Barman (Sr. Advisor, South Asia, IFC, World Bank Group) The Indian E-commerce Story: Boom or Doom? -Ms. Gunjan Veda (CEO, INDIAreads.com) A Perspective on Global Insurance Market:Trends & Growth Drivers -Kanchana V (Senior Marketing Analyst, Risk Management Solutions India) Identifying and Selecting Foreign Markets: A Strategic Perspective -Dr. Sanjay K. Jain (Professor of Marketing and International Business, Dept. of Commerce, DSE, DU) Why we need to Think about New Ways of Building Brands? -Soumick Nag (Planning Director, Ogilvy & Mather) Accelerated Internationalisation Experiences: Lessons from the Indian Born Global Firm -Dr Sumati Varma (Associate Professor, Delhi University; Consultant, World Bank.) Implications of Agriculture Based Negotiations on Developing Countries in Doha Development Agenda -Parshant Atkaan (Research Associate, IIFT, Delhi) Food Industry In India: Challenges and Opportunities -Ayan Bhattacharya (Category Manager B2B at Cargill Inc.) Revenue Management In Hospitality Industry -Arunangshu Bhattacharya (Director, IIME School of Hospitality, Gurgaon (NCR)) Decoding Visiting Cards: Reading Big Changes in Small Print -Kishore Chakraborti (Vice President, Consumer Insight & HFD, McCann Erickson, India) The Changing Dynamics of Business -Abhishek Agarwal (Student, IIM Lucknow)
Keynote Ar ticle
The Looming Challenge to the World: Decoding the Warning Signs
Dean, Faculty of Commerce, Head, Department of Commerce, Delhi School of Economics, University of Delhi gradual unification by hinting a possible breakup even while Mario Draghi, president of European Central Bank (ECB) says he would do whatever it takes to protect the euro, the crisis has clearly underscored the flaws in the common currency. The crisis, as recognized today, began in late 2009 when a new government in Greece revealed that its predecessors had concealed enormous deficits. From then on, it enveloped the Eurozone nations of Ireland, Portugal, Italy, Spain and even Germany and France and rest of the world amidst bailout packages, revised bailout packages, falling governments, credit downgrades, austerity measures, protests against austerity demands, soaring unemployment in Europe coupled with stubbornly high deficits, fear of contagion and predictions of Greeces fallout from the Eurozone. So, what started it all? On 9th December 2011, EU leaders agreed on a new fiscal compact for Eurozone: to limit governments structural borrowing to just 0.5% of their economies output each year. The pact, which will come to force once 12 out of 17 Eurozone member states ratify it, will also limit their total borrowing to 3%. But, wait. Doesnt this sound familiar, 3%? Way back in 1997 when the euro was being set up, they agreed on the exact 3% borrowing limit. What went wrong was a non-adherence to this rule. Italy, without surprise, was the worst offender, regularly breaking the 3% annual borrowing limit, but the other big nation flouting the rules was, surprisingly, Germany, borrowing more than the limit for four years from 2003. In fact, both Ireland and Spain ran budget surpluses, staying within limit from the euros creation in 1997 to at least till 2007. Greece was in a class of its own though, it chose to manipulate statistics while never actually going by the rule. The markets, however, show Germany to be the safe haven while nations like
-Prof. K. V. Bhanu Murthy
inancial crisis is not a new term; virtually every decade and every location has witnessed some or the other kind of it. In general, these crises have been generated by factors such as overheating of markets, excessive leveraging of debt, credit booms, miscalculations of risk, rapid outflow of capital from a country, unsustainable macroeconomic policies, off-balance sheet operations by bank, inexperience with new financial instruments, and deregulation without sufficient market monitoring and oversight. By the time the dot com bubble burst in the beginning of the previous decade, we had already been heading to a housing bubble en route to further crises featuring almost all the causal factors. The US economic turmoil Questions regarding a possible end of Americas economic supremacy have started doing rounds, albeit in hushed undertones. While its premature to make predictions, the last couple of years have certainly served to raise eyebrows as to complacency settling in this hegemony. For now, the American debt crisis is over. Thanks to a last minute deal between President Obama and his Republican opponents, who actually conducted themselves like squabbling schoolchildren, the American debt ceiling was raised by more than two trillion dollars, thus allowing the US to keep borrowing money to fund the nations operations. But how did it come to this? The decade after the WW II saw the heydays of US power and prosperity and in the Fifties, it produced a quarter of the worlds exports, half the worlds steel and one in every two cars, putting it far ahead of competitors such as Britain, Japan and West Germany. The first cracks, however, started to appear in the 1980s with Ronald Reagan winning power by promising to cut taxes and increase defence spending thus beginning the trend of borrowing billions. Two back to back wars, in Afghanistan and Iraq, accompanied by slashed taxes, poor output, collapse of house prices, and slowdown to around 2% since the crisis of 2008, meant the US government, in President
Obamas words, cant pay its own bills. Debt, continuing to soar, stood at $13.5 Trillion last year and by 2021 is predicted to reach an eye-watering $26 Trillion. One wonders the IMF response to these figures had it been any nation but America. A default by the worlds largest economy, as was surprisingly within sniffing distance when the Congress couldnt reach to a consensus on Americas debt ceiling, would probably plunge the world into a second recession, spelling disaster for thousands the world over. The Americans have two simple options: cut spending or raise taxes. For now, they prefer
Two back to back wars, in Afghanistan and Iraq, accompanied by slashed taxes, poor output, collapse of house prices, and slowdown to around 2% since the crisis of 2008, meant the US government, in President Obamas words, cant pay its own bills.
to pretend that the predicament would simply go away. Its only in the best interests of the Americans in particular and the world in general that they put things into right perspective before it gets too late. Euro Crisis Even before the world could regain footing after the unprecedented financial slowdown of 2008, the Eurozone crisis hit the global economy. Threatening the continents 60 years progress towards
Keynote Ar ticle
Spain and Ireland are termed risky. So, lets get down to the real cause of the crisis: not the government but private sector- companies and mortgage borrowers who were taking loans encouraging a debt-fuelled boom in the backdrop of very low interest rates in southern European countries when they joined euro. All that debt enabled more and more imports by Spain, Ireland and even France, while Germany became an export powerhouse. To add to the bad news for Southern Europe, during the boom years, wages rose in south and in France, while the German Unions held wages, thus rendering the Spanish or Italian worker uncompetitive making it harder for them to export. In a nutshell, no one in the southern Eurozone nations wants to spend; companies and mortgage borrowers are busy repaying debts; exports are uncompetitive; recession has well begun. Hence the nasty dilemma, cutting spending would almost certainly deepen the recession and not doing so risks a financial collapse! China and its economic imbalances Chinas official GDP growth rate has fallen sharply last month Beijing announced that GDP growth for the second quarter of 2012 was a lower-than-expected 7.6% y-o-y, the lowest level since 2009 and well below the 8.1% generated in the first quarter. Industrial production was also much lower than expected, at 9.5% y-o-y. Notorious for its inaccuracy of economic statistics, some experts believe that Chinas economic problems are greater than reported. It is very difficult to tell what is really going on in the Chinese economy. Data is sparse or unreliable. China, adopting a state capitalism model mainly functions thus: 1) capitalize on low wages to spark growth through exports and industrialize quickly with hefty amounts of investment, 2) guide the whole process with the hand of the state, 3) employ industrial policies and state-directed finance to progress into more evidenced by the Japanese or the Korean experience of the 90s. But the learning still needs to be imbibed! Paul Krugman, in an article titled Innovating our way to financial crisis wrote: The policy makers left the financial industry free to innovate and what it did was to innovate itself, and the rest of us, into a big, nasty mess. The mess has been there all along, its just too evident to look away now. We
...no one in the southern Eurozone nations wants to spend; companies and mortgage borrowers are busy repaying debts; exports are uncompetitive; recession has well begun.
and more advanced sectors. This model, although capable of generating quick economic growths for a while, is susceptible to crashes. Depending on state-directed subsidization to make investment in certain sectors more attractive and less risky, control of the exchange rate to spur exports, availability of cheap credit, non-commercially oriented banks acting as a tool of governmentdevelopment policy, and thus creating astronomical growth, the model mainly thrives on manipulating prices. But prices cant stay wrong indefinitely, as
have made grave mistakes; the decisions made and actions taken in the last couple of years have seriously undermined our credibility to handle major crisis situations. Lessons to learn are Notorious for its inaccuracy of econo- aplenty and reasons to bemic statistics, some experts believe that lieve that we would scarce. Chinas economic problems are greater In times of global economic than reported. It is very difficult to tell certainty, lets hope that betwhat is really going on in the Chinese ter sense prevails!
economy.
Prof. K.V.Bhanu Murthy, is Dean, Faculty of Commerce & Head, Department of Commerce, Delhi School of Economics, Delhi University. Prof. Murthy is a Ph.D. in Economics from Department of Economics, Delhi School of Economics, in the area of Industrialization Strategy. He has authored more than 60 research papers in national and international journals. Social Science Research Network Library (SSRN) has rated thirteen of his papers in the TOP TEN LIST in the world, of which 6 are in the All Time Top Ten List. AllExperts.com (the largest and oldest experts website in the world) has rated him as the best expert in Economics (in the world), in November 2000. A recipient of various international and national awards for research and outstanding contribution to education, Prof. Murthys recent research interests are in the areas of banking and finance, econometrics, environmental economics, agricultural market efficiency, international business social responsibility and business ethics.
Indian Economy: Undergoing Turmoil?
Corporate Ar ticle
Sr. Associate at Milestone Religare Investment Advisors
-Aayam Banerjee
e are indeed passing through some challenging times. Indias Q4FY12 GDP was a meagre 5.3% on a YoY basis the lowest quarterly reading in a long time. Even in the global financial crisis of 200809, the quarterly GDP had bottomed out at 5.6%. The deceleration in Q4FY12, along with revisions to earlier data, has resulted in the government lowering its FY12 GDP estimate from 6.9% to 6.5%. Most economists are now predicting similarly lacklustre growth of 6.0% to 6.5%% in FY13. These projections are based on three major factors: 1. Agricultural growth based on the historical average of 3%: However, monsoons remain an unpredictable factor. Unfavourable monsoons can substantially affect the agricultural sector and drag the economic growth rate to below 6%. 2. Industrial growth in the 4 to 4.5% range: Based on the continuing inaction on the policy front and the resultant execution related challenges, economists are projecting industrial activity to remain subdued for the coming year. 3. Deceleration in services growth from 8.9% to 8.0%-8.5%, due to the overall challenging macroeconomic environment. We have had a bad start to the monsoon this year, with the total rains to date being only 78% of normal, for the week ended July 18, 2012. Rainfall in some of the key agricultural states, like Punjab and Haryana, is less than 35% of their historical average. While the Meteorology Department is projecting normal monsoons going forward, there are also reports of an increasing probability of El Nino. In spite of the reduced contribution of agriculture to our GDP and stabilising factors like NREGA, our economy is still dependent on a good monsoon as a large proportion of our workforce continues to be engaged in agriculture and the low proportion of irrigated land area, leading to strong correlations between rainfall levels with agricultural growth and consumption levels. The global economic environment also remains volatile. Global growth forecasts have been slashed over the last few months. Nouriel Roubini, a famous global
India now a gasping elephant , says HSBC economist and someone who predicted the collapse of United States housing market in 2008, has predicted that the global economy will see a perfect storm in 2013. Such unfavourable global developments, if they actually occur, have the potential to adversely impact the Indian economy by reducing or reversing capital inflows- a truly unfavourable outcome for a capital-scarce economy like ours. Our budget deficit for FY13, equivalent to 5.1% of the GDP, is underpinned by three major assumptions: nominal GDP growth of 14% (Real GDP of 7.6% and inflation of 6.5%), revenue growth of 22.7% and expenditure growth of 13.1%. However, most economists feel that the economic growth rate will be lower and the expenditure growth will be substantially higher this year leading to a fiscal deficit of 5.5% or higher for this year. However, there is now increasing concern among investors that this increase in fiscal deficit is structural and not cyclical. The sudden worsening in our Current Account Deficit (CAD) from 2.7% of GDP in FY11 to 4.2% in FY12 has been the primary catalyst in the depreciation of the INR. The rise in the CAD was mainly a consequence of excessive oil and gold imports. These commodities, which on a net basis are our two largest import items, caused the trade deficit to expand to 10.2% of the GDP in FY12, compared
However, most economists feel that the economic growth rate will be lower and the expenditure growth will be substantially higher this year leading to a fiscal deficit of 5.5% or higher for this year.
to 7.8% in FY11. However, most economists expect our CAD to reduce to 3.4% of the GDP, on the back of lower crude oil prices and moderating gold demand. There by our balance of payments is expected to be marginally in the red or show a modest surplus for FY13. The last few days have also seen two rating agencies Fitch and S&P - place India on their negative watchlist. There was a lot of media discussion on the same, especially about the S&P report, which was provocatively titled Will India become the first fallen angel among the BRIC nations? Apart from the concerns related to the fiscal deficit and the current account deficit that were raised earlier, they also mentioned the slowing economic growth coupled with the political logjam as the driving factors for the revision in their outlook. Taken in conjunction with the recent RBI statement stressing about the need to tackle supply-side constraints, the ball is back in the governments court for creating an environment which is conducive for investment. While the
Corporate Ar ticle
probability of a downgrade seems low, definitive steps are the order of the day to restore confidence, drive growth and consolidate fiscal balance. As for the past couple of years, inflation levels remained elevated, measured using both the WPI and the CPI benchmarks. The manufactured non-food product inflation, which is used by the RBI as a proxy for core inflation turned out to be 4.89%- in keeping with the recent past. The inflation rate going forward is expected to be influenced by the following factors: 1. Food inflation: A below-average monsoon could impact food production and drive food prices and consequently the headline inflation number. The recent increases in the Minimum Support Prices of food grains are also expected to influence an upward trend in inflation levels. 2. Moves to reduce suppressed inflation: In its various statements, RBI has been demanding a reduction in suppressed inflation, which is primarily an outcome of subsidies on fuels, fertilisers and power. Any such move, especially on fuel subsidies, while beneficial from a broader perspective, is expected to further fuel the headline inflation. 3. International commodity prices and the INR exchange rate: Any increase in the global commodity prices as calculated in INR, either by way of a rise in the USD price of the commodities (possibly driven by an unconventional stimulus like QE) or a renewed depreciation of the INR, may also lead to a renewed surge in inflation levels. In its previous monetary policy, the RBI adopted a hawkish posture and stated that the high levels of inflation indicated serious supply bottlenecks and sticky inflagovernment is critical to counter recent economic deceleration. The change of guard at the finance ministry, some believe, could lead to some reforms like fuel price hikes. However, the probability of substantial unpopular reforms (like railway tariff hikes, pension reforms, FDI in retail, etc.) seem rather unlikely during the continuance of the basic causes for the lack of policy decisiveness, like populist allies and the dual leadership structure of the government. Regardless, investment sentiments could definitely improve along with a reduction in the hackles of a dysfunctional political situation through the implementation of a number of measures that are relatively noncontroversial from a political perspective, such as: 1. Power: Tackling apprehensions on availability of coal and losses/debts of SEBs 2. Telecom: Removing ambiguity on spectrum pricing norms 3. Mining: Transparency on regulations, especially land acquisition and environmental clearances 4. Taxation: Clarifying concerns on retrospective taxation and GAAR 5. Fiscal Reforms: Introduction of GST and DTC 6. Investment: Efforts to address delays in specific projects on a case-bycase basis.
The last few days have also seen two rating agencies Fitch and S&P - place India on their negative watchlist. There was a lot of media discussion on the same, especially about the S&P report, which was provocatively titled Will India become the first fallen angel among the BRIC nations?
tion expectations. In addition, the RBI feels that the interest rates are a minor factor in the investment slowdown (and a major factor being inaction by the government in pushing through key reforms), hence, a rate cut at this stage is likely to exacerbate inflationary pressures. In light of this, most economists do not expect RBI to cut interest rates in the near future. In light of the recent concerns about global growth, policy support from the
Aayam is a part of the investments team of Milestone Religare Investment Advisors a private equity fund focusing on growth capital investments in healthcare, education and infrastructure ancillaries. Prior to this, he was a part of the Structured Finance Group of ICICI Bank, where he handled multiple mandates in leveraged lending, debt markets, M&A advisory and equity-linked products space. He has also worked in the business consulting arm of KPMG and the Strategic Marketing team of Piramal Healthcare (now Abbott Healthcare). He graduated in mechanical engineering from Mumbai University and followed it up with an MBA from IIM Calcutta.
Indias Next Big Export: Capitalism Version 2

-Subrata Barman
s a child, when I first read the book a tale of 2 cities by Charles Dickens, I never quite understood the meaning of the opener It was the best of times, it was the worst of times. It was a contradiction how could this be true? Little did I realize that I would face this at many stages in my life. As a development professional, I cant help but wonder how true this is when one considers the role of private sector in development. One the one hand, there is increasing cynicism of what role (if at all!) private sector has played in development, while on the other hand, it is becoming increasingly clear that private sector holds a significant part of the solution to eradicating world poverty. Addressing the problem of poverty is perhaps the biggest challenge that the modern world faces. In other words, the worlds most complex problem requires the best brains and, if I may say so, the best hearts to address this challenge i.e. people with high IQ and EQ. This is a rare breed and perhaps this could explain why we have not yet been able to resolve this problem. At a fundamental level, it looks rather easy and simple what forces can really stop the supply of basic services to poor people, be it safe drinking water, regular electricity, good education, reliable health, affordable houses and so on - something that the top 3 billion population of this world takes for granted. One obvious theory could be that the solutions that helped serve the top 3 billion might not work for the bottom 4 billion. It would not be unfair to claim that Capitalism, in its many forms and shapes, has played a significant role to serve the needs of the top 3 billion. However the same principles of capitalism do not seem to be working for the bottom 4 billion. This is where the new form of Capitalism lets call it Capitalism Version 2 (CV2) becomes relevant. This new version is being pioneered by the rare breed people with high IQ and EQ. They are being called by various names social enterprises, inclusive businesses, companies that create Shared Value and so on. It is a new way of doing business, irrespective of the size and age of the organization. It could be a start-up with this philosophy or an old organization
Corporate Ar ticle
Sr. Advisor, South Asia, IFC, World Bank Group
Addressing the problem of poverty is perhaps the biggest challenge that the modern world faces. In other words, the worlds most complex problem requires the best brains and, if I may say so, the best hearts to address this challenge i.e. people with high IQ and EQ.
that has woken up to this new paradigm. These are the companies that believe in the principle of sharing wealth as it gets created with not only its shareholders but also its other stakeholders. They are highly focused on delivering value to their clients, constantly inPrivate sector can act as an engine to eradicate novating and trying to make poverty basic goods and services affordable and within reach of the under- re. As a country with the largest number served consumers. Central to their busi- of poor people in the world, India cannot ness model is a structure that combines help but promote such solutions. And elements of private and public benefit in the good news is that India is indeed becarrying out their core operations. These coming the hotbed of these innovations. are the companies that are proving that When private sector finds a solution that private sector indeed has a legitimate role is financially sustainable, with a huge unto play in development. Let me demons- tapped market, it pulls all stops to capture trate this through an example a bottle of the market. I feel India is at the cusp of safe drinking water sells at Rs 15 in urban this revolution, a revolution that can truly areas in India today. To expect that the demonstrate the legitimate role of private poor of this country (who earn less than $ sector in development. And what link does this have on ex1.25 per day) can afford to spend almost 20% of their daily income on a bottle of ports? Lets look at some numbers. Inwater is a far cry. So what does the poor dias IT-BPO exports are valued at USD person do, if they have the same aspira- 70 billion in FY12 and comprise a whoption (or the basic need) to drink safe wa- ping 58% market share of the global sourter? Can the rare breed of entrepreneurs cing industry. As per the IFC-WRI pusupply the same water at a fraction of this cost in a financially sustainable manner Central to their business model is a structure that that is affordable by the poor? If yes, combines elements of we have a solution that is fundamentally private and public benefit different from the traditional model and in carrying out their core we have a huge untapped market to be operations. These are the served. To crack a solution of this natucompanies that are provre, one would not only need to be innoing that private sector invative, but also display a strong passion deed has a legitimate role to serve the poor. There are numerous to play in development. examples that follow the CV2 model and this is where India comes into the pictu-
Corporate Ar ticle
blication The Next 4 Billion, the BoP market size for basic services (food, water, health, education, ICT, housing, etc) is USD 5 trillion. This is a huge market waiting to be served with affordable products and services, a significant part of which can be tapped by sustainable private sector solutions following the CV2 model. Even if Indian companies were to garner only 2% of the market share, you have a USD 100 billion market to be tapped in markets such as Africa, Latin America and Eastern Europe, besides Asia indeed a big export market waiting to be tapped. In conclusion, I am reminded of what Benjamin Franklin once said, The poor have little, beggars none; The rich too much, Enough not one. Its high time the private sector steers the ship of Capitalism where we have Enough for Everyone. (The views expressed are personal)
Mr. Subrata Barman works for the International Finance Corporation, private sector arm of the World Bank group. He is responsible for designing and managing inclusive development projects for IFC, primarily in the areas of agribusiness, infrastructure and waste management. A key aspect of his work is to increase the development impact of private sector interventions through design and delivery of sustainable business models. Subrata is an engineer from ISM Dhanbad and a post graduate in management from IIM Ahmedabad.
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The Indian E-commerce Story: Boom or Doom?

year old Dana Sema from Dimapur (Nagaland) just received her copy of Toni Morrisons Home. The book was released in India 3 days back. To a reader living in Delhi, where there is a bookshop in almost every locality, not to mention the ubiquitous children selling pirated copies at every intersection, Danas excitement on the delivery of her package would seem like an over-reaction. But consider this: till last year, Dana had to wait for her bi-annual visit to Kolkata to update her library and to purchase reading material for the next six months. Her local bookstore stocked a couple of new titles the quintessential bestsellers - a month or so after their release but Dana never got quality reads the literary equivalent of art movies - in Dimapur. With dozens of sites selling books online, she is today a happy reader. Her not-so-crazy-aboutbooks friends are happy too. They can now get gadgets and accessories, clothes and jewellery top brands which cannot be found in the markets bordering Burma - sitting in their homes. Their shopping and stocking trips to Kolkata have declined consistently. In recent times there has been a spurt of articles on the future of e-commerce in India. From the euphoric this-is-theplace-to-be-in conviction three years ago to the doom and gloom and the-dotcombubble-is-about-to-burst prediction, we seem to have come a full circle. Yet, what is forgotten in these debates are people like Dana for whom e-commerce is a way of finally being at par with their peers across the country. True, her internet connection is slow and often breaks down, but still she feels empowered. And that essentially is why e-commerce, and e-tailing, is here to stay, albeit with a few vital course corrections. The Case for E-commerce: Lets hear the numbers The Little Prince (Antoine de Saint-Exuprys masterpiece, for the uninitiated a must read) said that grownups love numbers; this is especially true of grownups in economics and business. So let me adopt the vocabulary of numbers to show why e-commerce is here to stay. Since the introduction of internet in India in 1995, we have achieved an internet penetration rate of 10.2% (as against almost 80% in Japan & United States, 38% in China and 32% globally (source: Internet World Stats 2011 estimates)). A seemingly dismal figure, till you translate it into actual numbers (yes, being the second most populous country in the world does have some advantages!). As of December 2011, India has the third largest number of internet users in the world, i.e. over 121 million. With 40 million people logging in from work, 30 million from cafes, and 11 million from home based broadband connections, an average Indian is online for approximately 16.5 hours a month thats the same
Corporate Ar ticle
-Ms. Gunjan Veda
CEO, INDIAreads.com
With the growth of nuclear families and a highly competitive corporate culture, time has become a scarce commodity and doorstep delivery services, the new urban mantra. Choice and convenience, the two cornerstones of e-commerce, are in great demand.
time that he or she spends watching TV in a week. These figures are expected to go up dramatically with the rapid increase in internet penetration in rural India and the governments plan to connect all gram panchayats with high speed broadband by 2014. In numeric terms, India is expected to have at least 376 million internet users by 2015 with a broadband household penetration of 15.6%. And that is important because the speed of your internet connection has a direct co-relation to your propensity to carry out online transactions. Further, people are no longer just connected through computers. As the mobile revolution carries 3G services to the
countryside, more and more people are indulging in smart browsing on their smart phones. Within 6 months of the services being announced, 10 million people were sold on the idea of a 3G connection; this penetration is expected to reach 22% by 2015. Now let us examine another aspect of our development story. With rapid urbanization, Indian cities are choking. Traffic is horrendous; real estate prices are sky-rocketing. Further, with the growth of nuclear families and a highly competitive corporate culture, time has become a scarce commodity and doorstep delivery services, the new urban mantra. Rural connectivity has generated awareness and a demand for greater access to goods and services hitherto restricted to the metros. At INDIAreads, 50% of our orders are from tier II and III cities. In other words, choice and convenience, the two cornerstones of e-commerce, are in great demand. So, the last few years have seen a mushrooming of e-ventures. According to digital marketing research firm comScore Inc, there were 1877 online retailers in India by May 2012, covering areas as diverse as fashion, real estate, matrimony and travel. This has generated 10 million online shoppers in the country, who carried out e-commerce transactions worth rupees 45,000 crore in 2011 . By 2015, the number of online transactors is expected to go up to 38 million. The value of transactions is expected to reach anything between $70 billion or $260 billion by 2024-25. Perhaps, now you will understand why investors put in $392 million in 38 e-commerce deals in 2011. From Dotcoms to Dotbombs: Cause for worry The numbers tell the story of an e-commerce boom but industry pundits are worried and with good reason. In India, as in the US of the1990s, the e-commerce industry is following the go fast or get lost model wherein companies operate on sustained net loss basis to capture market share in the hope that once hooked their customers will continue to avail their services despite a hike in rates. So instead of focusing on the dual benefits of choice and convenience, sites are competing to increase their customer base by offering unrealistic discounts and dang-
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ling carrots like free shipping. The recent proliferation of deal sites has admittedly attracted a lot of customers, who were initially reluctant to transact online. Nonetheless, these customers have demonstrated the fidelity of a fickle minded Casanova. They go where the best offers are. As most discounts that were offered to attract consumers were unviable to begin with 45% where industry margins are barely 20-25% - companies are finding it increasingly difficult to stay in business. Cash acquired through generous VC funding is being burnt without any traces of profitability suddenly raised questions vis--vis the sustainability and direction of Indias ecommerce boom. Carrots versus Convenience: The need for course correction Nobody doubts that e-commerce is here to stay. Given the reality of the Indian urban landscape and the problem of the peripheries, online purchases and transactions will continue, and that too with an increasing tempo. But will the companies currently driving the industry survive? Not if the current lets-spendfreely-and-revenues-will-follow trend continues. There is a need for companies to revert to the basics of e-commerce, to trumpet its real advantages choice and convenience- as against the carrot of a 365 day sale. Only then will sustainable models be developed. This has been done to some extent in the travel segment, which currently accounts for almost 80% of our e-commerce transactions. In fact as many as 28% of the travel bookings in India are carried out online. The success of the IRCTC model, where instead of getting discounts customers are charged, and willingly pay, a convenience fee, speaks for itself. According to Adventus, 117 million transactions are carried out through the portal; 4 lakh tickets are sold every day making it Indias largest e-commerce portal. This is despite the fact that IRCTC does not offer Cash on Delivery. While it is true that the Indian customer is currently wary of using credit cards in general- in fact the number of cards issued has declined- and specially for online transactions where they have to pay in advance for a product they have neither seen nor examined, in the long run e-commerce works through the use of online payment facilities. In countries like China and Russia, where CoD was used to address similar issues of trust, it has been established that profitability is severely affected. Also given the fact that as of February 2011, there were 7.57million credit cards and 273.65 million debit cards in India, companies need to start evolving strategies that encourage the consumer to pay online. This is important for long-term viability. E-Services: The new mantra? Even as the quest for sustainable models of e-tailing that address issues of delivery and inventory management continues, focus is shifting to e-servi-
The cash on delivery model, adopted to circumvent credit card wariness has compounded costs, created logistical difficulties and resulted in a significant number of returns, creating inventory issues and dead stock.
ces. Many companies feel that while the customer might be hunting for discounts online in the products category, he or she will be willing to spend on services that make life easier. Plus, profitability is easy in segments where servicing includes delivery of third party products be they movie tickets, groceries or books as the manufacturer/vendor too is willing to pay a premium for capturing the online market. Hence the advent of sites likeeasyfix, bookmyshow and deliveryoncall. Will they deliver and most importantly, will the Indian customer deliver on the hopes that these e-commerce ventures have pinned on them? That remains to be seen. However what is evident is that irrespective of the fate of the companies, the future of e-commerce and even e-tailing in India remains bright. The latest report by global research and advisory firm, Forrester, predicts a compound annual growth rate of 57% for the e-commerce market in India between 2012 and 2016 - the fastest in the Asia Pacific region (source: Asia Pacific Online Retail Forecast, 2011 To 2016 by Forrester Research Inc). So if you, my dear customer, are reading this, dont worry. E-commerce is here to stay, albeit with a few course, or should we say, price corrections.
and as the Indian consumer has demonstrated a remarkable canniness, migrating to new sites that offer bigger discounts, closures and acquisitions have started. The cash on delivery model, adopted to circumvent credit card wariness has compounded costs, created logistical difficulties and resulted in a significant number of returns, creating inventory issues and dead stock. Estimates of failed CoD purchases vary from 10 to 40%. This is particularly significant, because currently, for e-tailers, 50-60 % of online transactions are CoD. Moreover, e-tailers have to either rely on a struggling and unprofessional logistics industry for ensuring timely delivery of their products or establish their own delivery network, which coupled with inventory management is an extremely expensive proposition. All this has resulted in a slowdown in VC and PE funding. Coupled with the inflated valuation of many bigger players a valuation based on market share acquired at unjustifiable costs, sometimes as high as Rs.5000 per user it has
Gunjan Veda is the Founder CEO of INDIAreads.com, an online library cum bookstore with a pan-India presence. She is the co-author of Beautiful Country: Stories from Another India published by HarperCollins India. Ms. Veda began her career as a journalist with the Indian Express and given her specialization in conflict studies, worked with an NGO in north-east India. Before she started INDIAreads, she was officer on special duty with the Planning Commission. She enjoys travelling, writing and photography.
12
A Perspective on Global Insurance Market:Trends & Growth Drivers
Corporate Ar ticle
nsurers are facing extraordinarily difficult times, with the U.S. and Europe struggling to cope with their economies and a double-dip recession still around. As we head into 2012, the insurance market appears to be moving in fragmented directions. 2011 was the second most costly year for overall insured losses, had the highest-ever level of insured earthquake losses, and, in Thailand, saw the most costly single flood event in history. According to the United Nations, the economic impact of natural disasters in 2011 was the highest in history costing at least $380 billion. While the insured loss for these events will be minimal compared to the total economic loss, the insurance and reinsurance markets have been largely hit. As a result, the price for natural catastrophe insurance is rising with underwriters labelling regions nat cat zones or Natural Catastrophe Zones that were not previously considered as such. Capacity has reduced and underwriters are putting a heavy emphasis on technical pricing. Some underwriters are pulling out of geographies or lines of business completely to stabilise their portfolios and address profitability issues. Insurance companies across the industry will have to overcome significant hurdles as they look to bolster their top and bottom-lines in 2012. Low interest rates in the U.S. are making it difficult for life insurance and annuity (L&A) writers to deliver attractive returns to prospects. At the same time, persistently high unemployment is putting a crimp in disposable income, which could make it harder to expand sales of financial products such as individual life insurance or an annuity for retirement. The disasters have also put the focus on business interruption, contingent business interruption and supply chain risk. The losses from these large-scale events have largely stemmed from the knock-on effects to the supply chain, which is covered through contingent business interruption insurance. As a result, insurers are reducing or eliminating sub-limits for this type of cover.
Senior Marketing Analyst, Risk Management Solutions India options, products with structured guarantees are likely to continue to struggle in this low interest rate environment.. On the life side, carriers have a large uninsured and underinsured population to target and hence develop right products and marketing mix strategy for this untapped segment.
-Kanchana V
Yet even in such uncertain economic times, there are opportunities to generate profitable growth by attracting new customers as well as taking market share away from competitors. Insurers can achieve this by innovating new products and tweaking existing ones, re-evaluating their distribution systems, reconsidering their marketing strategies and reinventing their customer experience. Global Trends in Insurance In the Property & Casualty (P&C) sector, insurer top lines will benefit from rising prices, prompted by high 2011 catastrophe losses and subsequent hikes in reinsurance premiums. In personal lines, auto and homeowners, carriers have consistently seen higher rates, while the soft market in commercial lines appears to have bottomed out, with carriers and brokers reporting significant premium increases on renewals. In the L&A sector, while variable annuity sales are growing and more consumers are seeking retirement income
Insurers need to innovate new products and tweak existing ones, re-evaluate their distribution systems, reconsider their marketing strategies and reinvent their customer experience.
Key Trends in Insurance Market: Rising Global Property Catastrophe Rates Property catastrophe rates continue to rise in the second quarter of 2012, with major geographies experiencing increases, particularly those that experienced large losses in 2011. Although capacity remained plentiful in the second quarter of 2012, some insurers reduced their exposure to natural catastrophe risk and a small number stopped writing new business altogether. No new capacity entered the market. Some European insurers began restricting the capacity offered in certain critical catastrophe zones, while others imposed additional sub-limits. Changes to risk models especially those of Risk Management Solutions Version 11 implemented in late 2011 also contributed to rate increases in the first half
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of 2012. However, the good news is that many international insurers remain well capitalised and are keen to write new business in geographies and classes that were unaffected by the natural catastrophes at competitive rates. Liability Markets Firming Up The multiyear slide in liability insurance rates showed signs of moderation as general liability and professional liability insurance rates were typically stable at renewal in most major geographies. ciated with the use of social media. Energy Insurance Market Competition and high capacity levels have buoyed the energy insurance market in Asia and the Middle East in the first quarter of 2012. Potentially tougher insurance market conditions are expected for the rest of this year in the onshore, upstream property segments, and control of well areas of the energy market. Cyber Insurance With the advancement in technology, cya failure of computer security. Coverage for risks associated with cloud computing is now available for losses suffered from the failure of an insureds cloud provider. Pricing in the global cyber insurance market remained flat last year, primarily due to competition from new insurers entering the market. Growing in a Challenging Economy Emerging Destinations for Insurance Carriers With the U.S. and Western European economies failing to deliver consistent, large-scale growth, insurers are seeking greener pastures in emerging markets such as China, India, Taiwan and Brazil. Despite the obstacles like stringent local regulations, infrastructure and distribution challenges, tax considerations as well as cultural differences in such countries the need for insurance coverage to meet the financial security demands of a growing middle class could provide significant growth opportunities for insurance players with the right resources and capabilities. Emerging Asia and Latin America have contributed the most to emerging market insurance premium growth. Insurance premiums in emerging markets have expanded robustly by 11.0% per annum in real terms over the last 10 years, compared with 1.3% growth in industrialised economies. This trend is expected to continue and is attracting the attention of global insurers looking to move beyond saturated markets. The low insurance penetration rates in these relatively untapped markets provide plenty of room for new insurers to set up and acquire a market share. The Asia-Pacific region is already an attractive target for carriers, accounting for 23% of global M&A insurance activity in the first half of 2011, up from 12% in fiscal year 2010. The growing consumer class, rising insurance awareness and greater infrastructure spending have made India and China the two most promising markets in Asia compared to Europe and the Americas, which are relatively mature insurance markets. In addition to being the biggest economy in the APAC region, wages in China have been rising, and insurable exposures both commercial and personal have been expanding among a growing middle class. However, Chinese economy is coping with inflationary pressure and an aging population and therefore poses
Rate reductions were less common and renewals were flat in most global liability insurance markets. Trade Credit Insurance Demand for trade credit insurance increased across all geographies in the first quarter of 2012 as buyers unease about creditworthiness in the Eurozone drove demand higher. Asia witnessed an increase in demand by up to 60%. Social Media and Employment Practices Liability The growing use of social media by companies has implications for the employment practices liability market. Insurers are increasingly examining issues that impact companies risk profiles, like balancing employees personal and work-related activities and computer and internet usage policies. Infringement of intellectual property is also a risk asso-
With the U.S. and Western European economies failing to deliver consistent, largescale growth, insurers are seeking greener pastures in emerging markets such as China, India, Taiwan and Brazil.
ber security has become a key operational risk for insurers. Also, the growth of cloud computing means that many companies now have increased dependence on liability from a vendor or trading partner. One of the latest innovations from insurers is a broadened business interruption trigger that may provide coverage for loss of income where an insureds system suffers an outage due to a failure of technology, without the requirement of
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Indias burgeoning middle class, rise in disposable income and younger demographic profile are attractive factors for insurers seeking growth.
some challenges for new market entrants. Indias burgeoning middle class, rise in disposable income and younger demographic profile are attractive factors for insurers seeking growth. One obstacle, however, is that the Indian government limits foreign direct investment in cross-border M&A, meaning foreign insurer participation in joint-ventures with domestic firms is capped at 26%. Regulations in India thereby limit direct investment opportunities for foreign carriers. A move to increase that ceiling was recently tabled in Parliament. Taiwan is another Asian market that shares similar characteristics. Taiwan had the highest insurance penetration of 18.4% in Asia in 2010, driven mainly by the immense po- Current state of distribution across geographies pularity of ULIPs. Similarly, Brazil rriers looking to enter these markets. has seen strong economic growth, fuelled partly by a young population that is inDistribution Options creasingly in need of financial products The life insurance sector is ready for a and services. Markets in the Middle East transformational change when it comes and North Africa region also offer a rich to modernizing its distribution system. and sizable prospect base to tap, but the Insurers are trying to fully integrate sales recent Arab Spring may not allow for leads, applications, underwriting and poinsurer business to bloom in the short licy issuance electronically. Implementaterm, as political instability is likely to tion of advanced predictive analytics is discourage investment while new goveralready producing reliable underwriting nments are established. Insurers might with decisions delivered within minutes also need to tailor their product offerings to finish a transaction. Also, an insurers to be Takaful (Islamic) compliant, an area ability to be accessible 24/7 by offering in which many Western carriers lack ex-
pertise. Because emerging markets have their own characteristics to contend with, insurers looking to expand internationally will be challenged to tailor their product offerings. China, for instance, has more of an aging population, while India and other emerging markets skew far younger. Local joint ventures will have to be established, distribution strategies must be customized, and different regulatory compliance demands must be met by ca-
multiple contact options- online, over mobile phones and in person, is becoming a very important consideration when making a purchase decision. Those carriers that are able to better integrate data-based, analytical considerations to objectively assess their sales force while delivering a multi-channel experience for consumers will likely be more successful in achieving long-term growth & retention.
2011-12. According to Swiss Re, among the key Asian markets, India is likely to have the fastest-growing life insurance market, with life premium poised to grow at a CAGR of 15% for the next decade. The insurance industry is expected to be a major contributor to the countrys economic growth. There is immense potential as the working population (2560 years) is expected to reach 795.5 million by 2026. The projected per capita GDP is expected to touch INR 100,680 in FY26, which is indicative of rising disposable incomes. The demand for insurance products is expected to increase in light of the increase in purchasing power. Health insurance premiums are expected to increase to INR 300 billion by 2015. The pension sector, due to its inadequate penetration (only 10% of the working population is covered) offers tremendous potential for insurance companies to be more innovative. The insurance sector is best placed to channelize long-term funds toward the productive sectors of the economy. Therefore, the liberalization of FDI norms for insurance would not only benefit the sector, but several other critical sectors of the economy. E-governance, issuance of e-policies and e-payment are the latest developments happening in this sector.
Mergers & Acquisitions Despite tough economic conditions, insurers can expand by merging with or buying other carriers. Deals tended to be strategic acquisitions in 2011, with buyers adding new product lines and distribution channels, as well as expanding their geographic reach into emerging markets internationally. Sellers, on the other hand, shored up their bottom lines by divesting non-core or underperforming business and subsidiaries, while withdrawing from foreign markets where they lacked sufficient scale. With more carriers undergoing India A Lucrative Destination for Insurers strategic reviews for potential M&As The Indian life insurance sector has witnessed exponential growth during the last decade, driven by innovation in of late, the stage is product offerings like ULIPs and aggressive distribution strategies (e.g. development of bancassurance) by private sector players since the opening up of the sector in 2000. LIC continues to be the leader in the life segment with a perhaps set for bimarket share of around 81% in terms of new business policies and 71.3% in terms of new business premium during gger deals in 2012. Operational Excellence One major uncertainty in terms of cost is the impact of regulatory reform, both in the United States with the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act and in the European Union
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with Solvency II capitalization requirements and new accounting standards under development. Improving the quality of an insurers decision-making process by taking enterprise risk management to the next level has become essential. Insurers can benefit by making the ERM discipline part of their operations system, spreading ownership of risk across the operation and improving risk disclosure and governance. In addition, sound ERM practices will better prepare companies for worst-case scenarios such as black swan events including collapse of a government, a devastating cyber-attack or another major terrorist attack. Another threat to operational excellence is the aging of the insurance workforce, with shortages anticipated in claims and sales, actuaries, financial managers and systems analysts. Employee retention should be given importance before the employees shift jobs to competitor companies. Regulatory Changes The unanimous adoption by the International Association of Insurance Supervisors (IAIS) in October 2011 of revised Insurance Core Principles (ICPs) will have a long-term effect on the industry. The ICPs, are the best practices of regulation and supervision, and form the basis of the evaluations of national or other regulators by the International Monetary Fund (IMF). The implementation of European Solvency II initiative continent-wide is expected to be delayed until the beginning of 2014. In addition, certain insurers may face increased regulatory burdens if they are designated as a systemically important financial institution (SIFI). The Financial Stability Oversight Council (FSOC) has issued revised proposed criteria for comment, and the rules are expected to go into effect early in 2012. Internationally, the IAIS is on track to issue its definitions for Global SIFIs by early next year. Product Innovations Apart from revamping existing products, innovations in different product lines are being considered by insurers. In commercial lines, emerging exposures are prompting coverage for cyber-liability, green construction, nanotechnology, political risk and the professional liability of meeting new regulatory demands. In personal lines, new products are being launched to offer private unemployment insurance. On the life insurance and annuity side, more hybrid products such as incorporating a long-term care benefit into a life or annuity product and new retirement plans are coming up. Use of Predictive Analytics Predictive analytics for better claims management and underwriting, assessing distributors and recruiting talent are making significant impact for insurers. Social media is being increasingly used by many insurers. Many insurers are actively using metrics to determine whether social media is helping in attracting and retaining customers and benchmark against what their competitors are doing in the same public space. Analytics can also be used to gather more insights on buyer needs for better cross-selling. Such data could serve as an advanced form of customer relationship management (CRM).
Anyone can be a high-impact critic or investigative journalist given the viral nature of Web communication, with the potential to sway the perception of a carrier among clients.
prospects to get quotes, check their coverage, make payments or track claims progress. Others are more prospective and educationalassisting prospects in determining how much life insurance they might need. Many carriers are experimenting with QR codes in their advertising and marketing materials. Capability clouds are also on the rise, delivering service capabilities while adding computing and storage capacity for insurers more quickly and less expensively than if they tried to launch the same applications inhouse. Some insurers are moving their systems into virtual cloud computing facilities, while others are replacing their legacy systems by outsourcing their platform and even staff to third parties rather than building and maintaining such programs internally. Some are outsourcing entire business processes, such as claims administration. Reputational Risk Management Since insurers often grapple with reputational risk and negative perceptions, one potential innovation would be to proactively track mainstream, trade and social media and timely respond to negative publicity or misinformation. Anyone can be a high-impact critic or investigative journalist given the viral nature of Web communication, with the potential to sway the perception of a carrier among clients. Although slower economic growth will affect demand for life and non-life insurance, premium growth is expected to revive in emerging markets. There are no easy answers for insurers looking to grow their business in this volatile environment. However, even in economic conditions as challenging as these, insurers can make a positive impact through sound, strategic investments in emerging economies to secure growth and expand sales, achieve operational excellence and drive innovations.
Improving the quality of an insurers decision-making process by taking enterprise risk management to the next level has become essential.
In terms of fighting fraud, predictive analytics can play a major role not just in exposing hard-core cheating but also Softer fraudsuch as inflating legitimate claims to cover deductibles. Technology Transformation There are a number of technology trends on which insurers can capitalize to improve customer experience as well as the efficiency of their operations. Social computing is being used more regularly within insurance companies to improve collaboration, particularly as carriers expand domestically and globally. In addition, insurers can capitalize on the rapid growth of smart phones, tablets and other Web connected devices. Some insurers have enabled claims reporting and documentation to be filed from the site of a loss over a smart phone. Others allow
Kanchana is an expert in marketing communications with experience in diverse industries and organizations like Bank of America, Business Standard and Risk Management Solutions Inc. Her forte lies in Business Research, Competitor Intelligence, Impact Evaluation and Analysis, Content and Tonality Analysis and Strategy and Change Management. She has been a leading participant in several business forums both in India and abroad. Kanchana is also an avid writer and is a regular contributor to various web media on topics of industry interest.
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Identifying and Selecting Foreign Markets: A Strategic Perspective
Academic Ar ticle
Professor of Marketing and International Business, Department of Commerce, Delhi School of Economics, University of Delhi In the highly competitive markets in the world today, unplanned and ad hoc ways of decision-making can prove to be a costly mistake that no fund-starved business firm can afford. The same holds true for the foreign market selection decision. When a firm decides to go international, it faces the first and foremost task of identifying potential foreign markets and selecting one or few of them as its target markets. Entering into foreign markets and building a base in the selected markets entails huge financial as well as manpower outlays that have to be incurred for undertaking market research studies, locating and negotiating with overseas intermediaries, setting up logistics and administrative support centres, building brand/ company name and generating customer patronage in the international markets. Foreign market selection is a key and strategic decision in the sense that it defines and shapes the companys future growth charts (or its reverse). Foreign market selection decision is, moreover, faced by the companies not only at the initial foreign market entry stage, but also during the post-entry expansion or contraction stages for effecting changes in the market portfolio. As against adoption of a reactive and informal approach as in vogue in many companies, the paper outlines procedure that companies can use for objectively and proactively deciding about the foreign markets, thus warding off pitfalls of unwise and poor market selection decisions. electing foreign market is the first and foremost step in the international marketing planning process. It is a crucial decision having long term and profound implications for the firms future operations and profitability. Apart from being a critical issue faced by the firms at the initial market entry stage, foreign market selection decision continues as a major concern even during the post foreign market entry stages when due to changes in the environment of poor company performance the company has to consider divestment from some markets and/or making inroads into other emerging markets. Out of a total of more than 195 countries in the world, selecting one or few market(s) is a daunting task. As against the use of ad hoc or reactive approaches in vogue in many companies, adoption of a systematic and strategic approach to the resolution of this crucial issue can go a long way in arriving at a relatively more objective and predictably profitable decision (Kumar et al., 1993; Douglas and Craig, 1989 and 1992). Approaches to Foreign Market Selection Various approaches used by the firms for foreign market selection can for the sake of better comprehension be classified into two broad categories (Albaum et al., 2005): Reactive approach Proactive approach A reactive approach is more of an unplanned approach to foreign market selection. Under this approach, the firm does not make efforts on its own to actively search for the overseas markets. It rather acts passively waiting for the
-Sanjay K. Jain
Out of a total of more than 195 countries in the world, selecting one or few market(s) is a daunting task. As against the use of ad hoc or reactive approaches in vogue in many companies, adoption of a systematic and strategic approach to the resolution of this crucial issue can go a long way in arriving at a relatively more objective and predictably profitable decision
product might be there in the world that the firm has not explored. Secondly, this is a risky approach as the firm might have to drop this market later on when repeat orders stop coming to it or when the firm desires to withdraw from the chosen market because it finds some other countries as more lucrative markets in terms of both the growth and profit potentials for its products. A proactive approach, on the other hand, is a deliberate and more market-oriented approach that involves active participation the part of the firms desirous of entering into international markets. The proactive approach can be of two types: informal and formal. A proactive but informal approach is when the management of a firm makes deliberate efforts to identify and select foreign markets, but all this is done in an informal and casual manner. A few executives sitting together over a cup of tea, for example, cursorily discuss about the possible markets and select one or few of them without having undertaken a detailed and systematic investigation. The other way can be talking
inquiries or unsolicited orders to come from foreign buyers, import agents, etc. Unsolicited order means that orders come to the firm without it having made any direct attempt in the direction. During journeys or conferences, it sometimes happens that foreign buyers come into contact with the executives of the supplier firm and finding that the supplier firm manufactures or trades in products of interest to them, they make further enquiries and place order with the supplier firm. The supplier firm thus is able to bag an export order even not having made any effort in that direction. This approach is in general used by small firms. A foreign market thus gets selection without having made a detailed and systematic exploration and investigation. It is, however, not an ideal approach. First, it is quite possible that some other more profitable export markets for the given
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elementary and straightforward, market definition for many products in todays complex and ever changing markets is actually a tricky affair. To illustrate, say the product in question is a hand-crafted wooden piece of some animal, say camel (see Figure 1). Depending upon how the company desires to market the product, one can think of two possible major markets to which this product can be destined: handicraft market and toys market. Since the two markets differ in terms of market structure as well as potentials, they entail varying marketing ramifications. Marketing the wooden craft in the handicrafts market would involve competing with suppliers mostly from the developing countries, whereas it can face competition from both the developed and developing countries in the latter market. Differences in competition as well as other environmental factors in these two markets require different positioning and marketing mix strategies. Hence, a correct market definition is a crucial step in foreign market selection process and needs to be undertaken with great precaution. While defining the market, however, one should be wary of using either a too narrow or too broad market definition. In the case of woodcraft piece mentioned above, for example, defining the market as wooden proceeds for preparing a list of countries that seem to be having good market potential for the companys product. High potential foreign market identification is done on the basis of desk research, i.e., using secondary data. Various published and online sources are used for gauzing the current demand or consumption of the given product. Primary data collection at this stage is avoided as it can turn out to be quite expensive and time consuming process in surveying each of more than 195 countries in the world. As will
to acquaintances that might have been having past experience of exporting to select countries. This informal approach to international market selection runs the risk of missing finer points. Some markets might not appear appropriate markets for being currently of small size, but the same markets may turn out to be highly lucrative markets if certain other aspects such as growth prospects or profitability of operations are taken into account. A proactive approach and formal approach in contrast is based on a systematic process of identifying potential markets and undertaking a detailed investigation in each one of such markets before selecting finally one or few of them as the firms target markets. Due to being more objective and systematic, this approach is preferable to informal approach. Proactive and formal market selection approach and steps involved in this approach are discussed in the following section. Steps in Proactive Formal Approach to Market Selection Proactive formal approach follows a sequential process. Initially a list of high potential markets is developed based on desk research. Then a detailed evaluation of each of the shortlisted markets is undertaken with the help of the primary data to drop the countries that are not that much lucrative. Since the cost of undertaking foreign market surveys for collecting primary data is exorbitant, elimination of the less promising markets in the earliest possible stages of the sequential proactive market selection process greatly helps the firm save time and money. Major steps in sequential proactive foreign market selection process are outlined below. 1. Defining market It is necessary that the firm clearly defines its market. Although seemingly
A proactive approach and formal approach in contrast is based on a systematic process of identifying potential markets and undertaking a detailed investigation in each one of such markets before selecting finally one or few of them as the firms target markets.
be discussed shortly, survey of foreign markets is moreover not required at this stage. The purpose at this stage is just to identify high potential markets based on select macro factors such as local production, imports, demand and/or consumption of the product (Cavusgil, 1985; Connolly, 1987; Young et al., 1989; Ball and McCulloch, 1993; Papadoupoulos and Jansen, 1994; Daniels and Radebaugh, 1998; Rahman 2001). Last three or four year statistics in respect of these parameters for various countries in the world can easily be compiled from published and online sources.
Wooden Crafted Pieces of Camels: Do These Constitute Handicraft or Toys Market? handicrafts market would severely restrict the firms entry into other types of handicraft markets such as metal handicrafts if the firm decides in future to enter into such markets, while a definition of market piece of wooden craft as consumer product market would result in overestimation of market size and improper identification of competitors and distributional channels. 2. Identifying High Potential Foreign Markets Once the market has been defined, one Based on current and potential consumption and demand, counties in the world can be classified into three broad types of markets: existing, latent and incipient markets. Existing markets are the markets which are already meeting the local demand by importing the product under consideration, and hence can be construed as potential markets for the given product. Larger the imports of the product into a country, higher are considered to be market potentials for that product in that country. Latent markets, on the other hand, are the markets/ countries
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where though there is a felt need for the product, the need is currently being met through consumption or use of substitutes or alternate products. There is no or little direct demand for the given product in those market right now, but demand can emerge over time as the people become aware of the given product and develop a preference for it for being superior in quality, design or price competitiveness. Incipient markets are comprised of markets/ countries where there is currently no felt need for the product, and hence there is no demand for that kind of product or its substitutes. Although there is no demand for the product right now, these countries can emerge as important markets in future. With changes in the socio-economic environments in these countries, consumers can start demanding the given product in some distant future. While the existing markets are point of attraction for all types of firms - small as well as medium and large enterprises, the latent and incipient markets are of great interest to large size multinational corporations. Instead of waiting for the demand for the products to come up in future, these firms even proactively enter into these markets and invest heavily to build awareness and demand for the product. Once the demand for the product picks up, these corporations emerge as the market leader by capitalizing upon their first mover advantage. As mentioned earlier, the high potential markets are identified through desk research. It is called desk research as one does not visit foreign markets to survey intermediaries and final consumers of the product. Instead sitting on a desk, one analyses secondary data compiled from various published and online sources. Field research is undertaken at latter stages when already a few high potential markets have been identified and more detailed and micro level information is needed to identify the most promising ones. The major steps involved in desk research are as follow: Identifying product code numbers: Internationally accepted codes are SITC (Standard International Trade Classification), BTN (Brussels Tariff Nomenclature) or CCCN (Customs Commodity Code Number). Many countries have their own codes too for compiling foreign trade data such as India Trade Classification - Harmonised System (ITC HS) code prevalent in India. One needs to correctly ascertain the export product code number so as to be able to look at relevant places or tables in the published sources for collecting information about foreign trade in that product. For a firm interested in exports banana exports, for instance, the relevant SITC (Rev. 4) code is 057.3. The corresponding code number for this product as per Indian trade classification is ITC-HS 080300. Gathering information: Having identified the product code, one proceeds one proceeds with data collection task so as to be able to assess as to which countries in the world are currently importing and how much. Some of the information that needs to be collected in this respect is as follows: - Importing countries - Import values - Import volumes - Rates of import growth/decline - Sources of import - Import prices Major sources for collecting the aboport parameters, the firm selects top few countries that appear to be major markets for the product. And these are the select countries which undergo further evaluation outlined in succeeding steps. It may not be out of place to mention here that while it is easier to identify and rank the existing markets, the same does not hold true for estimating market potential in the latent and incipient markets. Owing to absence of demand and consumption for the product in question in the latter countries, and hence absence of imports and import statistics, it is not possible to rank the latent and incipient markets in the same manner as is done in the case of existing markets. Rather one has to resort to indirect methods to estimate the demand for the product in these countries. Data relating to production and consumption of substitute products are analysed and demand for the product is estimated by taking into account other factors such as likely changes in income or life style in future in these countries. Local production of the product, if any, is estimated and subtracted from the demand forecasts so as to arrive at future import potentials. Based on these estimates, latent and incipient markets are ranked and shortlisted for more rigorous screening in the subsequent stages. 3. Preliminary Foreign Market Screening The shortlisted high potential markets in step 2 undergo further screening so as to eliminate countries which are out rightly unapproachable or servable, and hence need to be dropped. Among possible reasons responsible for an outright rejection of some of the identified markets could be embargoes imposed (either unilaterally or as a part of decision of a regional grouping or international alliance of which the home country is a member) on exports to some of the shortlisted countries by the home country government, import embargoes imposed by the host country government, formidable tariff and other non-tariff barriers such as quota restrictions, technical standards, para-tariff measures etc. Bans on exports/ imports can be either product specific (e.g., ban on exports of uranium to Iran, bans imposed on imports of poultry items from certain Asian nations due to the reasons that these items were suspected to be infested with swine flu virus) or even in the form of total bans on foreign trade with select countries such as the ones imposed during the situations of wars. Other reasons for eliminating some countries from the shortlisted list include
market proximity here does not refer to geographic distance (i.e., physical distance between the locations of two countries) alone, but also includes cultural distance (host country differing culturally from the home country and hence difficulty perceived in using a similar marketing approach there) and psychic distance (i.e., feeling of uncertainty because of unfamiliarity with the foreign market, and hence perception of greater risks in dealing with people and firms in the foreign country).
ve mentioned information include: UN International Trade Statistics Yearbook, Commodity Trade Statistics (UN Publication) and publications of export promotion councils (EPCs) and commodity boards in the exporting countries. Ranking importing countries: Based on the collected information, countries currently importing the concerned product are ranked so as to be able to shortlist the high potential markets. The counties can be ranked on the basis of any one or a combination of parameters such as import volumes, import values, growth in import values or volumes over time, per unit import price. Per unit import price is calculated by dividing the total import value by total import quantity/volume in a given year. Short listing select high potential markets: Once various countries have been ranked on the basis of various im-
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various operational hurdles like lack of shipping links, exorbitant transportation costs, high costs of product adaptation and difficulties envisaged in providing after-sale services or conforming to technical standards in vogue in some of the shortlisted countries. 4. Market Attractiveness Analysis The preliminary screening leaves us with markets which have high potentials based on select macro indicators and are also approachable. Since the analysis has been done on the basis of select macro indicators alone, it is possible that some of shortlisted countries might not turn out to be quite promising ones if a more detailed investigation of these countries is undertaken considering micro as well as other macro level factors (Cavusgil, 1985, Walvoord, 1980). In order to inch closer to the most promising markets, it is imperative to take into account not only the present market size or past growth, but also the future market potential and growth prospects in the shortlisted countries. Furthermore, one needs to be concerned with not only the total market potential (i.e., market size for the product class as a whole), but also the sales potential (i.e., the share that a given companys product or brand can acquire in the total market). Some of the factors that need to be taken into account at this stage for undertaking market attractiveness analysis and estimating sales potential are as follows: Product acceptability: Products vary in features like size, quality, colour and design which have a direct bearing on their acceptability in foreign markets. Price competitiveness Customers buying behaviour and servicing requirements such as tastes and preferences of customers, customer approachability, delivery schedule norms, availability of product servicing infrastructure, etc. Market competition: Nature (i.e., whether it is price based or non-price based) and extent of market competition. Market size and sales potential Physical distribution infrastructure and cost: Availability and cost of warehousing, transport and insurance services Foreign trade policy and regulations: Custom duties, quota and other non-tariff measures, foreign exchange rate and controls, if any. Macro-environmental characteristics: Geographical, economic, socio-cultural, political and legal conditions prevailing in the market and their impact on product acceptability and sales profitability. The analysis up to the preliminary foreign market screening stage primarily involves use of secondary data. Up-to-date and detailed market information about various micro and other macro indicators is, however, generally not available in the secondary sources. Hence, one needs to conduct overseas market research studies to collect the primary data. Observation of products on sale in retail stores and their prices, holding discussions with intermediaries and officials of trade and industry associations or conducting a survey of final consumers to understand their buying and consumption behaviour are some of the techniques that the firms use for collecting the firsthand information about these markets. 5. Target Market Selection This is the final stage in the proactive foreign market selection process and involves resolution of following three issues: Determining number of countries a firm should enter into Choosing specific countries as firms foreign markets Within the chosen market(s), selecting specific segments as firms target markets Determining number of countries a firm should enter into: While going international, the company has to decide the total number of countries that it will like to venture into. The number is decided keeping in view the companys market coverage strategy: market concentration vs. market spreading strategy. Market concentration strategy involves concentrating concentrate on one or few foreign markets. Market spreading strategy, on the other hand, represents the situation when a firm decides to extend its operations to as many countries as feasible, of course subject to the availability of funds and manpower. Both the strategies have their own sets of advantages and limitations. Concentrating on only one or a few select markets enables the export firm to gain over time the in-depth market knowledge, achieve greater market coverage and have greater control over its market operations. But the option is not without its share of disadvantages. By putting all the eggs into one basket, the company exposes itself to greater uncertainty and risks. Given many uncertainties that are characteristic of markets these days, concentrating on one or a few market raises the stakes a bit too high, potentially vulnerable enough in the worst case scenario to altogether throw the company out of business. Market spreading strategy is, in contrast, a more secured way of diversifying market risks. Companies employing this strategy also enjoy greater flexibility in their operations and stabilization of sales and profits for being less dependent on particular market(s). Apart from lower risks and greater stability of sales and income,, it is sometimes a better idea to gain smaller market shares in many countries than going in for a relatively a high share in a single or select markets because the former can be gained at lower costs without the risks of retaliation from competitors as well as without compromising upon the total sales revenues as the sum total the shares in different markets might turn out be as big as a large share(s) in one or few markets. The choice between the two strategies discussed above is a function of many factors listed in Table 1. Choosing specific countries as firms foreign markets: The next logical step is identifying particular country/countries. No doubt market potential plays an important role, but the companies do take into account other considerations even if these are less objective. In selecting the most attractive market(s), two additional factors emerge to be especially of crucial importance: (a) compatibility with companys objectives, resources and skills, and (b) market proximity. Firms prefer operating in markets which are compatible with their objectives and resources. Additionally, firms in general have a preference for countries or markets that are closer to them. Market proximity is an important consideration in foreign market selection. Countries that are not proximate to the home country are generally avoided. It should, however, be kept in mind that market proximity here does not refer to geographic distance (i.e., physical distance between the locations of two countries) alone, but also includes cultural distance (host country differing culturally from the home country and hence difficulty perceived in using a similar marketing approach there) and psychic distance (i.e., feeling of uncertainty because of unfamiliarity with the foreign market, and hence perception of greater risks in dealing with people and firms in the foreign country). Within the chosen market(s), deciding specific segments as firms target markets: Having selected one or few specific countries as the markets for the product, the firm has to decide whether it would like to operate in the entire market or would focus on one or few segments
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Factors favouring market spreading A. Company Factors High management risk consciousness Growth through market development Limited market knowledge B. Product Factors Specialized uses Low volume Non-repeat purchase Early or late stage in PLC Standard product Low service contents C. Market Factors Small markets small volume due to specialized product uses Unstable markets Many similar markets New or declining Low source loyalty High competition D. Other Factors Low communication costs for additional markets Low handling costs for additional markets Low physical distribution costs for additional markets Factors favouring market concentration A. Company Factors Low management risk consciousness Growth through market penetration Ability to pick up best markets B. Product Factors Generalized uses High volume Repeat purchase Middle of PLC Product requires adaptation Low service contents C. Market Factors Large markets high volume due to general product uses Stable markets Limited number of comparable markets Mature markets High source loyalty Low competition D. Other Factors High communication costs for additional markets High handling costs for additional markets High physical distribution costs for additional markets Select References
Albaum, G., Duerr, E. and Strandskov, J., (2005), International Marketing and Export Management, 5th ed., Pearson Education Ltd. and Dorling Kindersley (India) Pvt. Ltd, Delhi. Ball, D. A. and McCulloch, W. H. Jr., (1993), International Business Introduction and Essentials, 5th ed., Richard D. Irwin, Homewood, IL. Cavusgil, S. T., (1985), Guidelines for Export Market Research, Business Horizon, Nov-Dec, 27-33 Connolly, S. G., (1987), Finding, Entering and Succeeding in a Foreign Market, Prentice Hall, Englewood Cliffs, NJ. Daniels, J. & Radebaugh, L., (1998), International Business: Environments and Operations, Addison Wesley Douglas, S. P. and Craig, S. C., (1989), Evaluation of Global Marketing Strategy: Scale, Scope and Synergy, Columbia Journal of World Business, Fall, 47-59 Douglas, S. P. and Craig, S. C., (1992), Advances in International Marketing, International Journal of Research in Marketing, 9, 291-318. Kumar, V., Stam, A. and Joachimsthaler, E. A., (1993), An Interactive Multicriteria Approach to Identifying Potential Foreign Markets, Journal of International Marketing, 2(1), 29-54 Papadopoulos, N. G. and Jansen, D., (1994), Country Method-of-Entry Selection for International Expansion: International Distributive Arrangements Revisited in Papadopoulos, N. (ed.) Dimensions of International Business, Vol. 11, The International Business Study Group, Carleton University, Ottawa, pp. 31-52. Piercy, N. (1981), Export Strategy: Concentration on Key Markets vs Market Spreading, Journal of International Marketing, 1(1), 56-67. Rahman, S. H., (2001), The International Market Selection Process: A Study of Successful Australian International Firms, Journal of International Marketing and Exporting, 6 (2), 150-160. Rahman, S.H. (2006), International Market Selection Process: An Investigation of the Relevance of Business Operating Environment, Journal of International Business Research, 5(1), 73-86. Walvoord, W. R., (1980), Export Market Research, Global Trade Magazine, May, 83 Young, S., Hamill, J., Wheeler, C. and Davis, J. R., (1989), International Market Entry and Development, Prentice Hall, Englewood Cliffs, NJ.
Source: Piercy, N. (1981), Export Strategy: Concentration on Key Markets vs Market Spreading, Journal of International Marketing, 1(1), 56-67.
Table 1: Factors influencing international market spreading and concentration Concluding Observations Foreign market selection is a key decision for firms desirous of entering into international markets. It is a strategic decision as setting up business in a foreign country is an expensive proposition and has a significant bearing on the firms operations and performance in the long run. To avoid pitfalls arising from wrong selection of foreign markets, business firms need to adopt a proactive and formal approach. Adoption of a sequential approach outlined in this paper can greatly help the firms dropping the less desirable markets in the initial stages of the process, thus enabling the management to fruitfully devote their time and money to identification and selection of most promising markets.
therein. The given market may not be a homogenous one, and it, therefore needs, to be segmented in groups of customers who have identical needs and behaviour. Besides geographic location of the customers, a given market may be divided into different segments on the basis of buyers demographic and psychographic characteristics. Different segments entail different expression of needs, thus demanding use of a differentiated approach to marketing strategy formulation. Depending on its objectives, resources and also compatibility with its present line of product, the firm can choose one or two segments that best serve its interests and evolve marketing mix strategies as appropriate for reaching the customers in the selected target market segment(s).
Dr. S. K. Jain is currently a Professor in Department of Commerce, Delhi School of Economics, Delhi. Prof. Jain specializes in the areas of marketing and international business, business ethics and corporate social responsibility. He has been actively engaged in post-graduate teaching and researches in these areas for about three decades. Earlier he has been Professor and Dean (Training and Placement) at School of Management Studies, GGS Indraprastha University, Delhi. Before that, he has also served as a senior faculty at the Indian Institute of Foreign Trade (IIFT), Delhi and Shri Ram College of Commerce, University of Delhi. Professor Jain is alumnus of Shri Ram College of Commerce and Delhi School of Economics. His work has been published in various national and international journals including Journal of Global Marketing (USA), Economics and Political Weekly, The Economic Times, etc.He is the author of the book Export Marketing Strategy and Performance: A Study of Indian Textiles. He is member of various Academic institutions and associations. He has also served as expert member of various course curriculum development committees set up by state and national organizations such as PSSIVE, NCERT and UGC.
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Corporate Ar ticle
Why we need to Think about New Ways of Building Brands?
Planning Director, Ogilvy & Mather
-Soumick Nag
We are living in an age where millions of colors became 256. Difference is the enemy. Generic culture hypnotizes us all into generic patterns, where control is visibly invisible. Danger is replaced by fear. New means upgrade. Risk is obsolete -Neville Brody Whats a brand? Nothing but words and images. here is a striking similarity between news-stands and brand shelves what could be more uninteresting than Magazine Covers? Mechanical, Unambitious! The sorry state of magazine covers talk a lot about the diminishing aesthetic sense of our society. There is no attempt to create any meaning and do anything exciting. The same holds true for brands. Half of the brands (occupying retail shelves) have no intentions to create a meaning. They are all slowly but steadily moving towards an unceremonious demise. The big idea is missing. The burgeoning popularity of sameness today is the code for brand building initiatives. The kernel of the disease is Intellectual Recession in thinking. Everybody is looking for a formula! Brand builders are chasing the safe, tried & tested path to achieve natural growth of the brand. As a result its impossible to describe the difference between Brand A and Brand B in a single word. Category after category, brands are talking the same thing in different languages. The rigor and precision is missing in the process of building brands. Even while David Ganger, Esquires editor-in-chief since 1997 says the big idea cover is not something a mature, successful magazine can do every month, and while similar parallels can be drawn in case of brands too, one has to admit that everybody is too busy managing the historical variables of building brands while ignoring the new source of influences. And this probably accounts for the missing big idea in brands. Commercial pressure too squashes ideas. The pressure to sell more is the
The burgeoning popularity of sameness today is the code for brand building initiatives. The kernel of the disease is Intellectual Recession in thinking. Everybody is looking for a formula! Brand builders are chasing the safe, tried & tested path to achieve natural growth of the brand.
one and only mandate. So brand builders are forced to embrace short cuts of brand building. There is nothing wrong with it but the usage of Synonym and Antonym (Synonym copy the competitors idea and create a semblance, Antonym- create a polar opposite meaning for the brand... even when its not required) as a tool of brand building is a disastrous endeavor in the process of building brands. And welcome to the new cultural moment! The world today is one of big media companies where the bottom line looms larger than ever. A large critical mass is happy watching than reading. The pleasure of text is missing good content is becoming obsolete. Everybody is interested in whats the breaking news of the hour? Celebrity has intruded almost everywhere. New media choices
whoosh towards you every hour. Our Hypothesis: 1. Like electrons, social values have started travelling in a zigzag manner, taking a lot of detours. -Everybody is busy in archiving life; there is no time to examine it. There is no inquest! 2. Brands are trying hard to become relevant and meaningful. -The surviving instincts are overshadowing the creator mindset! 3. English Speaking urban India is shifting towards Low-context Culture. In a world increasingly divided between right-brainers and left-brainers, its important to create a meaningful fusion between words and images to create an ever lasting impact. But the trillion-dollar question is: How can this idea be applied to business today? Our Manifesto: We welcome: no copy/paste, no use of unnecessary jargons, no practice of unnecessary hypes, no slaves to research, and no meaningless, clever ideology! We are against the validation (read risk averse) mindset of brand builders. In the Harvard Business Review article
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Though we are optimistic that someday brand managers will be able to see past unwarranted debates on morality of brands (stop weighing whats right and wrong for brands), we believe the only way to overcome intellectual recession is to change the flight of thinking as Heisenbergs theory of uncertainty stated, the act of observing changes the thing observed!
(April 2012) titled The Real leadership lessons of Steve Jobs, Walter Isaacson has stated an interesting story- when Jobs took his original Macintosh team on its first retreat, one member asked whether they should do some market research to see what customers wanted. No, jobs replied because customers dont know what they want until we have shown them. That reminds me of Henry Fords line If I would have asked customers what they wanted, they would have told me, a faster horse! We are not against research but we are against the way research is done - 50 years have gone by since Vance Packard wrote the Hidden Persuaders; 60 years since Ernst Ditcher talked about the importance of motivational research! The truth is even in 2012, most of the researchers dont know how to apply the theories of Curl G Jung and Ronald Barthes in real life situations. Time and again we do talk about (name-dropping)Semiotics, Behavioral Economics, Ethnography but the intellectual recession in thinking limit the scope of research into two old Qs Qualitative and Quantitative research. Our idea is simple. Our idea is to encourage brand builders to see things differently. We are telling them to get rid of the theory of marketing and overhaul managerial mindset. The bedrock of our idea is based on connecting the unconnected dots. When was the last time you encountered any thinking culture (in any marketing organization) that inspired shock and awe, which actually challenged anything? Our Approach: 1.) Change the source of Inspiration Brand lives in a society. When the society acts like streaming particles, its important to understand its vectors. We have found 4 streaming values of the Society: a. People are comfortable with expressing greed b. People look for role models c. People have layers of identity d. People want to express themselves
fully (The findings have emerged from discussion with specialists in several fieldsclinical psychologists, Yoga therapists, nutritionists, NGO workers, sociologists, business consultants and policecrime bunch)
The big question is how brands can use social insights to connect a chord with urban people? Why cant a brand have several identities in several mediums? Why cant a brand stand for greed only? Though we are optimistic that someday brand managers will be able to see past unwarranted debates on morality of brands (stop weighing whats right and wrong for brands), we believe the only way to overcome intellectual recession is to change the flight of thinking as Heisenbergs theory of uncertainty stated, the act of observing changes the thing observed! Real life Case Is there any relation between menu boards (of quick serve restaurants) and urban working class? We believe a menu board is a reflection of the daily life of the urban working class. What does the urban working class seek? 1. Convenience 2. Actionable information (dont want to miss the latest cool thing) 3. Reclaimed time ( on an average a person spends at least an hour a day waiting in queues metro, parking, lift, shops, ATM counter) 4. Zero confusion (key-word is the buzz word!) 5. Social stories (gossip, scandals and drama) Why do marketers of the QSRs need to study the movements of the crowd to build the brand aura? Like modern cities, restaurants are designed on a fixed, gridded field that allows for easy navigation. People do follow the invisible map of the restaurant: everything is programmed - stand in the queue, wait for your turn, occupy your seat And the gridiron helps brands to organize space too. We have observed that most of the quick serve restaurants menu boards are passive and confusing. QSRs are the sign of Indias (urban) cultural shift - where habits are being replaced by cultural surplus and values are being questioned by
capitalist hypothesis. The brand managers of QSRs must try to get inspiration from Gary Hustwit (the director of the documentary Urbanized) to create new kind of appeal to the consumers. We believe the best book on Consumer Insight is not written by marketing whiz kid of a global brand but By Sir Arthur Conan Doyle: Is there any other point to which you would wish to draw my attention? To the curious incident of the dog in the night time. The dog did nothing in the night time. That was the curious incident, remarked Sherlock Holmes. - a conversation with Inspector Gregory in Silver Blaze 2.) Change the nomenclature of consumers and understand what they are buying into We have said no to the typical profiling of consumers, which is generic. Here we have defined consumers as Chromosome and focused on three things the language they speak, interactions with media and interaction with global brands (a recent experience in India). Introducing Chromosome D Delhis English speaking people: Each day, the average English speaking Delhiites spend around 4 hours consuming information (Google search, official mails, social media etc.). They are filled with unquenchable ambition in their occupations and know that answering work related e-mails and texts are 24x7 responsibilities. They are adept at managing lifestyle status- getting the right clothes, the right haircut, healthy diet, struggling for approval - from a T-shirt to new business/ job offer - among peers and friends, both online and offline. We are talking about the consumer class that forced all premium international brands across categories, Home dcor, apparel, watches to name a few, to sell at a discounted price (40% to 80%).They are not going to settle for any kind of stereotyped consumer community. They are exuberant explorer neutralizing preconceived perceptions about brands and starting to experience new brands (if you are interesting and relevant to my need I am game!) We need to concentrate our focus into What they are buying into not what they are buying Change the Focus They (Delhis English speaking urban
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class) are buying into cultural surplus new wants are replacing the old ones. They are weaving cultural connections with countries like Germany (Bosch, Rolf Benz, and Hacker), Sweden (Hastens), Denmark (Bo Concept, Jack & Jones), Italy (Gas, Italsofa, Ducati, Police, Natuzzi), Spain (Zara) and France (Sisley) to name a few. Its important to exaadvertised My new year resolution is to shop more. People buy global brands to express their identities, to bond with different culture and to create a distance from mass society. Conclusion Urban Indians, in 2012, are flooded as never before by materialistic culture: look at the malls, the lifestyle displays on television and newspapers, and the logos people wear. More materialism is the order of the day. Brand Language Latest RBI (14th may 2012, Reserve Bank We Are German. of India) data has Be Younique Inner Force shown that Indians Be Stupid are lavishly spending The English Bag through credit cards Wake Up New Delhi (credit card spending Space For Your Style by Indians rose 28% French Fashion Wear Open Minded Design to Rs. 96,000 crore Refresh Your Wardrobe in 2011-12 from Rs. Independent People 75,000 crore in the Urban Design previous fiscal year, the highest in four years: source: HT Business). Materialism is predicted to be steady, with the urban Indians focus on personal success: access to global brands provide both individual pleasure and signs of success. We believe the so called liquid culture is looming over the Indian sky making it imperative to understand what kind of behavioral pattern is forming. We are introducing our model titled as Liquid brand culture explained with the
In 2012 January, Sisley advertised My new year resolution is to shop more. People buy global brands to express their identities, to bond with different culture and to create a distance from mass society.
example of Chromosome D: Four questions emerge: 1. What are the influences macro, micro and social? 2. What are the new reference factors i.e. what are the things forming the new choice architecture? 3. What are the tempting elements to emulate or bond with? 4. What are the new desires to adapt? To connect a chord with new age consumers (Chromosome D): Use illustration Try and use very , very condensed sansserif type Application of info-graphics will always be a plus (Times of India, HT use info-graphics, English magazines, signboards on malls heavily use sans-serif condensed typography). 70s marketing wisdom says creating a brand is about differentiating your offerings (product/ service). Think again.
Brands Bosch Police Graham Diesel Carlton Hastens Alcott Elle Italsofa Veromoda Sisley Boconcept
Country of origin Germany Italy UK Italy UK Sweden Spain France Italy Denmark France Denmark
Category Music System Eye Gear Watch Apparel Bag Bed Apparel Apparel Sofa Apparel Apparel Home Decor
mine what these brands are saying: These brands are the flag bearer of low-context culture- a term popularized by the anthropologist Edward T Hall to describe cultures in which people are individual oriented, task centered, care about privacy, and tend to have more interpersonal connections of shorter duration. These brands are busy on explaining the geography of thought to the new breed of Chromosome D. Their languages are crafted and crisp (a reflection of lowcontext culture) - Police: Be Younique. They are creating a new kind of brand aura and encasing an already intensified trend in India- embracing global goods. Welcome to the birth of new greed and want. These people are no more interested in building long term relationship with brands (a reflection of low-context culture). As a result of economic success the individual has taken center stage and the demand for new desire is more popular in India today than it was a decade back. Global brands (now available in India) have been started connecting with English speaking urban consumers in an appropriate fashion. In 2012 January, Sisley
Mr. Soumick Nag is Planning Director at Ogilvy & Mather. He has a keen interest in typography and linguistics. Mr. Nag has authored several pieces on strategy and branding in Business Standard and is the founder of Goldilocks: a monthly magazine on linguistics
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Accelerated Internationalisation Experiences: Lessons from the Indian Born Global Firm
Academic Ar ticle
Associate Professor, Delhi University; Consultant, World Bank.
-Dr Sumati Varma
he last two decades have witnessed radical changes in the global competitive landscape led by the emergence of firms from the developing and emerging economies. Notable among these are young firms that come into existence with a geocentric orientation and are characterized by important foreign operations at the time of founding or shortly afterwards. Innovations in manufacturing, information and communication technology and increasing liberalization in the emerging markets have enabled the birth of this new class of start-ups that view the global market as their natural home. The first such young firms chronicled in the literature were exporters from Australia, but subsequently other complex forms of venturing such as joint ventures, wholly-owned subsidiaries or franchising networks have also been used as the mode of entry. This study focuses on Indian firms from the information technology sector that have used acquisition as their mode of first global entry. Variously described as global start-ups, born globals, or international new ventures, born global firms almost bypass internationalization as a process, as they start operating from day one in global markets as global players, servicing their customers wherever they are to be found. Characterized by features of accelerated internationalization these firms are increasingly active in the international economy leading to changes in the dynamics of international competition. The increasing incidence of outward FDI from the emerging markets like India in the period 2000-07, led by M&A activity by firms in the IT and pharmaceutical sectors witnessed the emergence of the born global firm in the Indian context as well (Varma 2010). Prior to this, outbound FDI from India was insignificant due to the inward looking protectionist regime. A few Indian enterprises were investing abroad in the mid-1960s (Lall 1986), but outward investment activity became significant only since the onset of economic reforms in 1991. Since then Indian outbound FDI has undergone long term transformations in its character covering industrial structure, geogra-
Innovations in manufacturing, information and communication technology and increasing liberalization in the emerging markets have enabled the birth of this new class of start-ups that view the global market as their natural home.
phical composition, ownership controls, entry modes, motivations, and sources of financing. In this context, this paper examines the characteristic features of the Born Global firm, its emergence in the context of the Indian IT sector and implications in the context of a changing business environment. The Born Global Firm The Born Global Firm, also known as a global start-up, or an international new venture is a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries (Oviatt and McDougall, 1994). The term was originally coined for a group of Australian manufacturers who began exporting just two years after coming into existence (Rennie 1993). The traditional MNE (Caves 1971) is characterised as being a large, well established firm servicing multiple markets, making its global presence in incremental internationalizing steps (Johanson & Vahlne 1977). The born global firm in contrast, uses an internationalisation strategy that
is seen to contradict the stage model of internationalization (Knight & Cavusgil, 1996), as it takes decisive and firm steps in the global market almost from inception. Studies on the phenomenon of the born global firms have been based on a variety of theoretical dimensions and have focused on several different issues. These include explanations for its rapid internationalization: global niche strategies (Almor, 2000), the ability to raise capital externally (Bonacorsi, 1992), entrepreneurial vision and capabilities (Knight, 2000), and reliance on international networks and strategic alliances as a substitute for the firms own assets (Coviello & Munro, 1995). Shorter product life cycles are another factor causing born global firms to adopt an international perspective regardless of their age and size (Oviatt and McDougall, 1997). This causes a predominance of Born Global firms in technology and knowledge intensive industries where short product life cycles force firms to internationalise in order to be able to amortize their R& D expenses (Rennie, 1993). Other important factors triggering the emergence of Born Global firms are significant advances in the production, transportation and communication areas, the increased importance of global networks and alliances, and more elaborate capabilities of people, including those of the founder/entrepreneur who starts internationalizing the firm early (Knight and Cavusgil, 1996). In the emerging economy context the role of institutional support including policy changes is also a significant explanatory factor for the emergence of the born global firm. In the Indian case for example, changes in outward FDI policies such as raising the permissible outward investment limit for Indian business served as an impetus to a sudden burst of M&A activity (Varma 2009), including some BGAs (Varma 2011). The establishment of the National Innovation System (NIS) framework also explains how strategic government intervention and related institutional support contributed to skill formation and development of an entrepreneurial orientation, leading to
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the emergence of MNEs from the Indian IT industry. The Indian IT Industry: A Profile There have been four discernable waves of development of the Indian IT industry. The first wave in the 1970s and 1980s created the offshoring model, which led to the birth of some of Indias premier IT firms. The second wave in the 1990s built up the BPO business. The third wave from 20002006 witnessed an unprecedented spree of acquisitions abroad. The fourth discernable wave - 2006 onwards, seems to be focusing on the development of software products. The growth of the Indian IT industry is rooted in organizational capabilities, consisting of critical competencies and embedded routines developed during the era of dominance of the computer hardware industry. This included development of productive apparatus for manufacturing hardware, spreading computer awareness and education, and honing programming skills accumulated from the necessity for developing custom software for the machines. This became the basis of the competitive environment in which the software industry subsequently flourished. The story of the IT industry began with the establishment of linkages through exports. Starting merely as providers of manpower to be expatriated to firms elsewhere, time and cost arbitrage ensured that the IT industry sector was to be characterized by off-shore centers where efficiency mattered. And subsequently it grew vertically toward product development. Firms enriched in cash by providing manpower and in-sourcing found in customer acquisition the sustainability of revenues and profitability, while other players relied on the acquisition of products to move in the hierarchy of capability maturity. The abundance of a low-cost, skilled English-speaking workforce willing to turn its work day around became the genesis of the offshoring model. This was facilitated by an enabling policy regime that included establishing software technology parks and allowing increased inflows of FDI. Both of these enhanced organizational learning leading to the development of an enhanced set of skills and capabilities for the IT firm. Increased competition because of foreign MNCs forced the domestic IT firm to look towards foreign markets, while existing linkages and learning enabled it to leverage existing capabilities towards international forays.
Since 2000, outbound FDI from India began to assume proportions of a major phenomenon, with OFDI from IT comprising the single largest sector investing abroad.
2001 and with Cendant Corporation USA in 2004 and important acquisitions were TopAir, Avient Technologies, Discovery Travel Systems and VISaer Inc. Four Soft Limited Four Soft Limited is the worlds largest transportation and logistics software products company. Initially promoted as a private limited company by technocrat Palem Srikanth whose global experience includes both his education at Stanford and prior global work experience in supply chain management, the company owes its existence to the governments EOU/STP scheme and has moved up the technological capability ladder by obtaining various ISO and SEI-CMMI certifications. It has used a variety of modes of international entry and has a global presence in 10 countries. MphasiS MphasiS Limited (then MphasiS BFL Limited) was formed in June 2000 after the merger of the US-based IT consulting company MphasiS Corporation (founded in 1998) and the Indian IT services company BFL Software Limited (founded in 1993). The company was founded by Jerry Rao and Jeroen Tas, both former Citibank employees. Starting out as a BPO and application services outsourcer in the BFSI segment, it subsequently moved into telecom and health industries as well. Its global character was evidenced by an Indian CEO, a Dutch president and more than a dozen subsidiaries in Europe, the US and Asia. It enhanced its technological capability through both domestic and overseas acquisition cum alliances based strategy, making it among the top software exporters of the country within a couple of years of coming into existence. It was acquired by software services firm EDS in 2006, which in turn was acquired by HP in 2008. Moschip Semiconductors Founded in 1991, Moschip made its first acquisition in 2001. A firm with a geocentric orientation, its chips are designed in India, manufactured in Taiwan and sold through its offices in USA. The
Since 2000, outbound FDI from India began to assume proportions of a major phenomenon, with OFDI from IT comprising the single largest sector investing abroad. It is significant to note that it was led by a spate of M&As targeting firms across continents, but the majority of these were in the USA and Europe, driven predominantly by market seeking motives, followed by the search for products and increased efficiency. 12% of these acquisitions were made by firms which were only five years into corporate existence (Varma 2009). Indian Born Global Acquirers This paper briefly discusses the internationalization experiences of five born global firms from the Indian IT sector. The selection is based on reported M&A activity of the Indian IT industry during January 2001 to March 2007 using secondary reported firm-level data from studies by consulting firms such as UBS, Accenture and MAPE, as well as Prowess, the Centre for Monitoring Indian Economy (CMIE) database. The study also examined published firm-specific information and media coverage (including their websites) to assemble a final data base. IBS Software Services IBS was incorporated in 1997 in response to the global need for a software solutions company in the fast growing travel, tourism and logistics industry. It began global operations in 1998, had a presence in three different geographies by 2001 and made its first overseas acquisition in 2002. Its founder V.K Mathews, an aeronautical engineer from IIT Kanpur, has varied global experience in the travel industry. It has used a strategic mix of alliances and acquisitions to emerge as a leading international player in the travel space. Some of its notable alliances were with Oracle Corporations, Sun Microsystems and BEA Systems in
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firms CEO K Ramchandra Reddy is an electronics engineer with a global vision acquired through both his education at Winconsin and work in Silicon Valley, USA. A serial entrepreneur, Reddy has several start ups to his credit, besides having the credit for designing the worlds first DSP chip. He also has extensive experience in sub contracting and manufacture of semi conductors. The firm has a global presence in all the continents. Vmoksha Technologies Vmoksha Technologies is an IT Services Company headquartered in Bangalore, India as a private limited company. Since its inception in May 2001, Vmoksha has duct development, assisted by government policy which focused on investment in technical education leading to the development of a pool of English speaking trained manpower In the current context, institutional policy change as a result of liberalization of the domestic economy facilitated aggressive venturing into global markets through the acquisition route. The 1980s witnessed the earliest cautious efforts to employment, prior networks and technological expertise which make them aware of new international opportunities that others remain unaware of. Unlike most international M&A transactions that typically feature stock swaps in the financing arithmetic, Indian acquirers have for the most part paid cash for their targets, helped by a combination of internal resources and borrowings. Indian companies were also creating new international financial vehicles such as special purpose vehicles (SPVs) and setting up subsidiaries to route payments and take advantage of favourable tax regimes in countries like Mauritius. Private equity funds also emerged as a major source of money for Indian acquirers of overseas companies. Conclusion This paper is a pioneering study on the Born Global phenomenon in the Indian context. It contributes to the literature by highlighting the emergence of the Born Global Acquirer, a species that was not visible earlier. Born Global firms are emerging in substantial numbers worldwide, and reflect an emergent paradigm, with the potential to become a leading species in the ecosystem of international business. In this sense, the born-global phenomenon is heartening because it implies the emergence of an international exchange system in which any firm, regardless of age, experience, and tangible resources, can be an active international business participant. The born global firm may be considered the harbinger of be a more diverse international business system in which any firm can hope to find a place. Future research should aim at deepening our understanding of early adopters of internationalization, which represent a widespread, ongoing trend. REFERENCES Almor, T. (2000). Born global: the case of small and medium sized, knowledge-intensive, Israeli firms. In T. Almor, & N. Hashai (Eds.), FDI, international trade and the economics of peacemaking. Rishon LeZion, Israel: The College of Management, Academic Studies Division Bonacorsi, A. (1992). On the relationship between firm size and export intensity. Journal of International Business Studies, 23(4), 605625. Coviello, N.E., & Munro, H.J. (1995)
Unlike most international M&A transactions that typically feature stock swaps in the financing arithmetic, Indian acquirers have for the most part paid cash for their targets, helped by a combination of internal resources and borrowings.
emerged as a key player in the global IT outsourcing space. Vmoksha currently has operations in the US, Europe and the Asia Pacific region (development centres in Bangalore and Singapore). It is the first company in the world to directly go for CMMI Level 5 assessment without being assessed at intermediate levels and the 16th IT company in the world to achieve CMMI Level 5. It is the second company in the world to be assessed for all the four disciplines of CMMI Software Engineering, System Engineering, Supplier Sourcing and Integrated Process and Product Development. The company was included among SMEs from India poised to succeed on account of the strong offshoring model and included among the top 100 outshorers of the world in terms of revenue. Analysis and Discussion This paper has profiled five firms that may be categorized as Born Global Acquirers, since they came into existence with the geocentric orientation that helped them consider the global market as their natural home, ostensibly contradicting the classic stage theory of expansion into the global market after a few years of domestic success. The firms profiled here belong to the IT industry which is the most globalised and internationalised sector of the Indian economy. The industry has rapidly moved up the value chain from body shoppers to customised pro-
liberalize private investment and trade, leading to the enactment of policies aimed at ensuring Indias inclusion in the global software boom. Using a flood in flood out feature, which led to the growth of thousands of small software companies in the country.increasing export as well as local development, (Dataquest, 1987:87) marked the beginning of networks of learning for the industry, which were later enhanced into personal networks of valuable reputations based on quality and productivity and got utilized for aggressive outward venturing. The acquisition experience of these firms has also been the result of innovation springing from internal R&D drawn from its own accumulated knowledge of the IT industry and domain experience gathered elsewhere. The linkages developed by entrepreneurs through prior experience in the IT industry and other domains enabled them to take the decision to acquire, facilitating leapfrogging and springboarding behaviour to be able to leverage their resources for acquisition purposes in the global market. All firms profiled in the study have been led by individuals with prior international experience of both the IT industry and also other domains, using opportunities in prior networks and the tacit knowledge vested in these leaders for rapid internationalization. This is consistent with Keeble et al (1998) that competencies embodied in the founder/entrepreneur often relate to a new and specialised technological niche which provides the opportunity for internationalisation. These competencies are derived from previous
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Growing the entrepreneurial firm. European Journal of Marketing, 29(7): 49-61. Johanson, J., & Vahlne, J.-E. (1977) The internationalization process of the firm: A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1): 23-32. Keeble, D, C Lawson, H Lawton Smith, B Moore and F Wilkinson (1998) Internationalisation Processes, Networking and local embeddedness in technology intensive small firms, Small Business Economics, 11,327 342. Knight, G.A., & Cavusgil, S.T. (1996). The born global firm: A challenge to traditional internationalization theory. Pp. 11-26 in T.K. Madsen (Eds.), Advances in International Marketing, Vol. 8. Amsterdam: JAI Press. Nayyar D (2008) Internationalisation of Firms from India : Investment, Mergers and Acqusiitions, in Trade and Globalisation, Oxford University Press, New Delhi. Oviatt, B.M., & McDougall, P.P. (1994) Towards a theory of international new ventures. Journal of International Business Studies, 25(1): 45-64 Rennie, M.W. (1993). Global competitiveness: Born global. The McKinsey Quarterly, 3: 45-52. Varma, Sumati. (2009). International Venturing by IT Firms: A motive analysis. Journal Of Emerging Knowledge On Emerging Markets, 1(1). http://www. icainstitute.org/ojs/index.php/working_ papers/article/view/24/11. Varma, Sumati (2011) Born Global Acquirers from Indian IT an Exploratory Case Study, International Journal of Emerging Markets, 6 (4): 351 -368, Emerald Publications.
Dr. Sumati Varma is an Associate Professor of Commerce at Sri Aurobindo College (Eve), Delhi University. She is a consultant with the World Bank, and curriculum expert in Business and Economics for the first ever interdisciplinary program in American Studies for Indian Universities at the American Centre. Dr Varma is also the recipient of the prestigious IVLP fellowship for 2011, awarded by the US government. She has three books and numerous papers in national and international journals to her credit.
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Implications of Agriculture Based Negotiations on Developing Countries in Doha Development Agenda

-Parshant Atkaan
ABSTRACT Agriculture is perhaps the pivotal point of Doha negotiations. It is seemingly the only issue out of 19 others on which the negotiations are hanging since 2001. From the developing countries perspective, agriculture is the source of sustenance and from developed ones view it is a source of additional income. Under the increasingly globalized world, every country wants to maintain the momentum of growth to be competitive. Priorities in mutual cooperation are sidelined at multilateral level and everyone fights and justifies its own interest which makes the aftermath of delay in cooperation equally alarming as the loss otherwise may be. This paper is an analysis of concerns of developing countries in agriculture negations in Doha round and implications which may surface. Key Words: Agriculture, Developed Countries, Developing Countries, Tariff, Subsidy, Negotiations
Research Paper
Research Associate, IIFT, Delhi
1. Introduction he fourth ministerial conference which started at Doha and popularly known as Doha round (the round herein after) is based on the agenda of development. Envisaged development is oriented and supposed to benefit the developing and least developed countries. Under the propaganda of development, it is ingenuous to demand reciprocity by the developed countries. If the round is to succeed, developed countries need to pay heed to the valid and natural apprehensions of the DCs and LDCs. Developed countries, out of their privileged position, are posing a hindrance to the conclusion of the round. The analysis provided in the appendix portrays a picture of current scenario of the fact that the developed countries are capitalizing on the trade of agriculture owing to advanced technology which they use in agriculture. The five commodities shown in the list are the staple commodities for any country. The trade liberalization has diverted the share of trade in favour of affluent and developed states, thanks to biased policy approach adopted by the developed countries e.g.
of the DCs and LDCs are also significant special safeguard mechanism and non-tacontributors to trade in agricultural comriff barriers are prominently used by the modities but when compared to the devedeveloped countries in one way or the loped countries, the disparities are stark. other. The paper also shows that the subFor example, although the LDCs in Afrisidies and tariff imposed by the develocan continent are significant producers of ped countries on the agriculture trade of cotton, they find it difficult to compete the DCs are exorbitant and unjust. with cotton farmers in USA because of Since the advent of International Trade the subsidies USA provides. Organization (ITO), GATT and WTO, the negotiations on tariffs have been critical 2. The Expectations under Doha in making the trade freer with time. By taRound king a step by step measure to reduce taAlthough WTO is a multilateral organiriffs, member countries of the WTO tend zation, the Doha round has become a moto lower the relative costs for increasing nologue where developed countries uniavenues of trade. In this way, it is hoped laterally want to enforce their mandate. that exchange of commodities through The proclaimed intent of the round is to export and import would lead to producopen trade in agriculture and reap the betion becoming efficient. The mechanism nefit mutually where the LDCs and DCs of free trade, as advocated by WTO, must develop equitably. The declaration works on the principle of efficiency and of the round commits it in following productivity. With liberalization of trade, words: the costs come down and goods become We commit ourselves to the objective more affordable. The competition in an of duty-free, quota-free market access for open economy breeds quality and elimiproducts originating from LDCs. nates inefficiencies. This is the theoretiFrom the above declaration, it can be cal rationale of multilateral trade agreeseen that the round has a developmental ments under the aegis of WTO. However, agenda and assigns priority to the concerin reality, it often becomes predatory in ns of LDCs which is perhaps not an overt nature, apparent in trade of agricultural objective of the proposals submitted by commodities. Majority of large countries the developed countries which is clear which happen to be major producers and from the expectations of the developed exporters of agricultural commodities are countries. either developed or developing countries. Developed countries propose (source: With the add-on advantage of technologihttp://fpc.state.gov/documents/organizacal competitiveness, the trade in agricultion/61057.pdf): tural commodities becomes wholly bia Reduce all forms of tariffs and export sed towards developed countries. A few Table-1 Subsidies provided by USA to its cotton farmers.
Country Burkina Faso Mali Benin Chad Togo CAR India US Subsidy (USD Bn) 4.2 4 3.5 2.4 1.5 1 115 3 Farmers (Mn) 14 14 7 9.5 5.5 4.2 500 0.03 Subsidy Per Farmer(USD) 30 28.57 50 25.26 27.27 23.8 .23 10000
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subsidies Ambitious market access to the developing countries market SSM for selected agricultural commodities Reduction in the list of sensitive products and tariff related quotas to only those products What developing countries want out of the round? Tariff cuts in differential manner favouring DCs and LDC Non-tariff barriers to be addressed Export and domestic subsidies by developed countries to be eliminated or substantially restricted Longer implementation timeframe for developing countries Preferential access to developed country market The key agriculture negations in Doha round are based on: reducing agricultural subsidies the access to global markets and liberalization in global trade and sustainable economic growth in developing countries The major issues of conflict are: Special safeguard mechanism: Developing countries insist on taking safeguard mechanism if trade causes injury. Developed states decline it on the basis of offering scope of protectionism. Formula for designing tariffs: Developed countries want mixed formula (a mix of the Uruguay Round formula, Swiss formula and duty free for a minimum percentage of tariff lines for tariff reduction). DCs prefer Uruguay Round formula which favours them. Schedule of the tariff reductions. DCs but also a burden on the taxpayers of the developed countries as the graph shows in Fig.1. If developed countries did not subsidize their agriculture, the world price of agricultural products would be at the level of P2. Developed countries would produce Q1 of the worlds agricultural commodities, and DCs and LDCs would produce from Q1 to Q3. The agricultural subsidies in the developed countries increase their export of agricultural products to the level of Q2. DCs and LDCs export is squeezed from Q2 to Q3. The green portion i.e. A is the amount of subsidy paid by taxpayers in developed countries. The yellow one i.e. B is the damage to the DCs and LDCs. In reality, the negative effect on the livelihood of the population on DCs and LDCs are comparatively wider. E.g., Indias agriculture provides employment to 53% of its 93% unskilled labour. Since the liberalization of trade in textiles, the trade share of India has faced unique set of challenges which include looming vulnerability to its poor people and emerging gender issues. Textile majorly employs women labourers. Thus, it is natural that developing countries like India, China or Brazil would not compromise the livelihood of their more than 75% of their populace directly or indirectly surviving on the agriculture and allied products. always practiced to be reduced under the framework of WTO. The figure below shows that tariff is the main factor of the price distortion in the agricultural trade. The advantage of tariffs reductions would go to those countries which are Fig.-3: Proposed phase wise reduction of tariffs under Doha Round for Developed countries (source: Economic Research Services, US Deptt. of Agriculture)
net exporters of agricultural commodities. Table in Appendix-1 shows that net gainer of the liberalization of trade in agriculture are only developed countries as they maintain the highest rate of tariffs on agricultural commodities which is evident from the table below (source: Global Agriculture and the Doha Round: Market Access Is the Key:US Deptt. of Agriculture). Table 2: Rate of tariffs by developed and developing countries. Applied Tariff Bound D e v e l o p e d 54% Countries Developing 36% countries World Avg. 19% 0-100% 0-150% 62%
4. The dilemma of Subsidy, Tariff Reduction and SSG Subsidies and tariffs are major pet peeves in agriculture based negotiations. Subsidies are comparatively less observable and difficult to challenge as there is no mandatory obligation on the WTO members to formally articulate their type and extent. A welfare program for farmers can also be interpreted as subsidy. Tariffs are the converging point in 3. Theoretical Perspective agriculture based negotiations where A theoretical analysis shows that subsithe members seek incentive to capitadies provided by the developed countries lize on the new bound tariffs which are are not only the challenge to LDCs and Fig-1: Effect of subsidies provided by developed countries.
X3 X2 P2 Price A P1 X1 B Q1 Q2 Quantity Q3 W
W: Overall world trade X1: Trade of DCs and LDCs X2: Export of developed countries with subsidy X3: Export of developed countries without subsidy A: Burden on tax payers of developed countries B: Loss of DCs and LDCs
DCs and LDCs demand from the developed countries to lower the tariffs below the common minimum rate. Developed countries are reluctant to do so because they want to protect their market from the under-quality agricultural goods from the LDCs and DCs. Fig.3 and 4 show the proposed phase wise reduction in the tariffs by developed and developing countries respectively. Various discounts and facilities are offered to LDCs and DCs in terms of time and special safeguard mechanisms (SSM). Although SSM are for LDCs and DCs but developed countries have widely exploited the SSM to protect its own trade while LDCs and DCs could not make the most of the provision owing to their
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Fig.-3: Proposed phase wise reduction of tariffs under Doha Round for Developed countries. Fig.-4: Proposed phase wise reduction of tariffs under Doha Round for Developing countries.
low standard agricultural goods (source: Doha round of multilateral trade negotiations-critical issues in trade development pertaining to India-RBI Staff Studies: Monika Kathuria,2010). SSM can only be employed if the products are equally competitive or there is an evidence of injury caused to domestic products, which is a subjective topic. The tariffs remain the cause of concern for concluding the
who already spend more than 60% of their income on food, higher food prices further reduce their ability to pay for medical care and their childrens education. Not only for DCs of Asia, LDCs of Africa too are largely dependent on agriculture for their economic growth where 40% of exports and 35% of the GDP come from agriculture alone and it employs 64
tantly severe. The DCs and LDCs would suffer from the increasing protectionism by the developed countries. The level of protectionism in-fact is predicted to double from the current level (source: International Food Policy Research Institute). Estimates show that the quantum of loss could be up to US$809 billion in world trade volume and US$184 billion in real income by 2025 which would endanger DCs and LDCs particularly. 6. Concluding remarks The delay in conclusion of the round is a net loss for both developed and developing countries where LDCs and DCs would suffer more in the long-term. Opening of trade in agriculture could pave the way for low prices, increased productivity and investment which in turn can stimulate the activities of both forward and backward channels of the value chain in agriculture. LDCs and DCs should avoid the delays by focusing on a common tariff rate over domestic subsidies and developed states need to offer market access to products from other countries. Apart from this, the onus should be on the developed states to offer tariff preferences to the LDCs without seeking reciprocity. Agriculture is more than a necessity for the livelihood of the poor states and therefore there is a need that values of equitable development is enforced via trade. Bibliography 1. Developmental aspects of the Doha Round of negotiations - By WTO Secretariat, 2008 2. Antoine Bouet and David Laborde, The Potential Cost of a Failed Doha Round, December 2008, In-
Fig-5 Effect of Doha round on Agriculture Tariffs (source: OECD, PSE/CSE database, 2011).
round. DCs and LDCs are facing a chronic challenge of inflation which mainly accounts to the food prices and oil (source: Headline inflation in developing countries has accelerated recently: World Bank 2011). Inflation in India or China has been even severe. Opening up of trade in agriculture may provide a much awaited remedy. In this regard, the DCs need to be proactive to reach a consensus for negotiations and break the status quo by avoiding defensive approach. ADB Chief Economist Changyong Rhee said (source: Inflation may push millions from developing countries to poverty: ADB Report), For poor families in developing Asia,
% of the population. Developing countries cannot afford to eliminate the subsidies as there exist major concerns about food security, rural development, poverty eradication, and protecting small-scale and subsistence farmers. 5. Consequences of not concluding the round Various international think tanks and organizations have predicted a huge loss as a result of the round remaining inconclusive. World Bank has already concluded that the damage of delaying the conclusion of Doha Negotiations may run into hundreds of billions of dollars. Considering agriculture, the loss may be unrepen-
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ternational Food Policy Research Institute. 3. Daniella Markheim and Brian M. Riedl, Farm Subsidies, Free Trade, and the 4. Doha Round, February 2007, The Heritage Foundation. 5. Michael Ferendinos, The development dimension of the Doha Development 6. Round and its impact on developing countries, October 2007. 7. Global Agriculture and the Doha Round: Market Access is the Key: Economic research Services-US Deptt. of Agriculture 8. Doha Round of Multilateral Trade Negotiations-Critical Issues in Trade Development Pertaining to India-RBI Staff Studies,2010 Appendix-1
Goods Top Producers China, US, India, Brazil, Pakistan, Turkey, Cotton Greece, Syria, Mali US, India, China, Russia, France, Germany, France, New Zealand, UK, Turkey Top Exporters US, Australia, Uzbekistan, Brazil, Greece, Mali, Egypt, Burkina Faso, Zimbabwe, Tajikistan Top Importers Net Agriculture Exporters Remarks
9. WTO Doha Round: Agricultural Negotiating Proposals: congressional Research Services of the USA 10. The Doha Text: WTO 11. Multilateral Trade Agreements WTO 12. The Doha Round Briefing Series-International Institute of Sustainable Development
China, Turkey, Indonesia, Mexico, Thailand, Pakistan, Russia, South Korea, India
EU, Mexico, Algeria, Saudi Arabia, China United States, France, Netherlands, Germany, United Kingdom, Canada, Australia, Italy, Belgium, Spain
Maximum world average tariff exist on these commodities Subsidy is high in case of Dairy Products, Rice, Wheat and cotton Developed countries have maintained a high tariff rate in addition to subsidies There has been a continuous increase in the global prices from 20-40% in these commodities Inflation is hitting the top developing countries i.e. China and India for example. Developing countries agriculture is mainly for domestic consumption oriented and less dependent on other economies
Dairy Products
Australia, US, New Zealand, EU
Rice
China, India, Indonesia, Vietnam, Bangladesh, Thailand Myanmar, Philippines
China, India, Indonesia, Pakistan, Bangladesh, Vietnam, Thailand, Japan, Philippines, Brazil, US,Canada,Australi a,France,Argentina ,russia,Germany,U K,Khazakhstan,Indi a Brazil, EU, Australia, Thailand, India, South Africa, Cuba
Philippines, Nigeria, Iran, Saudi Arabia, Iraq, Malaysia, Cote d\'Ivoire, South Africa, Indonesia, Brazil
Wheat
China, India, Russia, US, France, Canada, Germany, Australia, Turkey Brazil, EU, India, China , US, Mexico, South Africa, Australia
China, Japan, EU, Brazil, Indonesia, Egypt, Mexico, South Korea EU, Indonesia, US, Russia, UAE, Japan, Korea, China, Malaysia, Japan
Sugar
Mr. Parshant Atkaan is a Research Associate-International Projects Division at Indian Institute of Foreign Trade, Delhi. He is currently working on an International Project between Government of India and African Union for setting up India-Africa Institute of Foreign Trade and facilitation of other areas of co-operation. Previously he was associated with Confederation of Indian Industry, CII in their executive innovation division, Gurgaon. He was also associated with United Nations Economic and Social Commission for Asia and Pacific, UNESCAP and UNCTAD-India for various projects. Apart from his research interests, Mr. Atkaan is also a certified technology consultant certified by the Ministry of Science, GoI. Prior to working at IIFT, he has had stints in the corporate sector at Hero Honda Motors and HCL. He is a mechanical engineer from NIT Kurukshetra and post graduate in Master of International Business from Delhi School of Economics. Other publications by the Author include: 1) Geo-Economic Strategy and Reflectivist Institutionalism: A Situational Analysis of International Seabed AuthorityS Role Vis--Vis Strategic Pursuits of China and India in the Indian Ocean ; SSRN NewYork, Sep, 2012 2) Will the 2012 US presidential election affect US foreign policy? ; Project Firefly, St.Gallen, Mar 2012 3) Inclusive Growth: Capacity Vs. Willingness; SAR Economist; Oct 2010
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Food Industry In India: Challenges and Opportunities

-Ayan Bhattacharya
table competitive edge in the global market place. Increased income levels, cheap credit facilities, higher disposable income have resulted in greater spending and consumption among consumers. Increased mobility, exposure, increased aspirations and availability of a wider range and products, have also contributed to shifts in spending orientation. In the
Corporate Ar ticle
Category Manager B2B at Cargill Inc.
ble oils, staples, alcoholic and non alcoholic beverages, breads and bakery, confectionary and packaged foods are the key sub-sectors in the industry, which offer tremendous growth potential and investment opportunities. Fruits & Vegetables The total market size of fruits and vegetables is estimated to grow upto US $ 75 billion in 2015 from the current US $ 60 billion. A huge potential lies in this subsector for the food processing industry. Though fruits and vegetables contribute about 23% of the entire food industry, its contribution to the food processing industry is only 4% with the primary processed items being fruits pulp, juices, drinks, jams, squash, pickles & chutney. Dairy The total market size of the dairy industry is estimated to grow upto US $ 85 billion in 2015 from the current US $ 65 billion. The major value in the dairy industry comes from the processed category which is 73% in value terms and about 35% in volume terms. The processed category primarily comprises of packed liquid milk, cheese, packaged paneer, khoya and skimmed milk. Marine & Fish The total market size of the marine and fish industry is estimated to grow upto US $ 12 billion from the current US $ 10 billion. The huge coastline of India offers plenty of opportunities for the growth of the marine industry. About 25% of the total production is exported. Conventional cleaning & cooking fish is slowly giving way to convenient products. Spray dried products, fish protein concentrate, battered and breaded fish and fish-paste based products are being demanded by customers. Investments in packaged marine processing plants are seen as ideal investment options due to the vast untapped marine resources and export potential. Non-alcoholic beverages This category is broadly classified into carbonated drinks, non-carbonated drinks and hot beverages such as tea and coffee. The non-carbonated drinks contain fruit juices and fruit-based drinks, energy enhancing beverages (like sports drinks and energy drinks) and packaged drinking water. The non-carbonated drinks account for more than US $ 2 billion and
Apart from the huge production base, India has the advantage of low cost of production, thus providing an unbeatable competitive edge in the global market place.
affluent and middle class, the percentage share of food expenditure vis--vis other products/ categories has dropped, the total expenditure on foods has increased across all the classes. Initially food expenditure was concentrated around basic food items like food grains, vegetable oils, and sugar; there is now an inclusion of fruits & vegetables, eggs, meat, beverages and processed food in their repertoire contributed both by increased availability and affordability. There is an increasing trend of a shift from food security to nutritional security and convenience shopping. Overview of the Food Industry in India The size of the Indian Food Industry is estimated at US $ 225 billion in 201011 and is slated to reach US $ 300 billion) by 2015 with the increasing share of processed food (in value terms) from 43 percent to 50 percent. The Indian Food Industry is highly fragmented and is dominated by the unorganized sector. Food Processing being the major sector in the Indian Food Industry stands at US $ 85 billion and gives direct employment to about 3 million workers. The organized food retailing and food services are other emerging areas growing with the annual growth rate of 25 percent. Fruits and vegetables, dairy products, marine and fish, meat and poultry, edi-
ndia is one of the fastest growing economies in the world. While we are moving towards becoming a services-led economy, agriculture still contributes 17 percent to the total GDP and employs about 60 percent of the population. The income enhancement of such a large section of society is possible only through adding value and removing inefficiencies in the food value chain. That is why the food industry has been accorded a high priority status by the government which is facilitating its growth by providing policy frameworks and initiatives at various levels. In the year 2010-11, the size of the food industry in India was estimated at around US $ 225 billion, of which the food processing industry accounts for about US $ 85 billion. At present, Indian food processing industry is growing at the rate of 13 percent per annum and it has higher potential to explore particularly in the sectors such as fruits and vegetables, packaged foods, beer and wine. Therefore, it offers tremendous opportunities for all stakeholders in the areas of production, processing, marketing, supply chain, infrastructure development, technology up gradation and education. The diverse agro-climatic conditions in India offer huge potential for production of a wide variety of crops from cereals, pulses to fruits and vegetables all round the year. Apart from the huge production base, India has the advantage of low cost of production, thus providing an unbea-
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Corporate Ar ticle
the carbonated drinks about US $ 1.5 billion. India is the largest producer of tea in the world with a total turnover of about US $ 2 billion. Alcoholic beverages Beer and wine are two emerging sectors in the alcoholic beverages category. The total market size of the beer and wine industry is expected to grow to about US $ 5.5 billion from the existing US $ 3.8 billion. Cattle Meat & Poultry The total size of cattle meat and poultry products is estimated to be about US $ 12 billion from the current US $ 7.2 billion. Since cattle meat is not consumed on a large scale in India, it is processed and targeted for exports. Other major industries The other categories of the food industry in India include: Packaged foods (like ready-to-eat foods, chips, snacks etc.) Grains and staples (like rice, wheat, sugar and edible oil) Bakery and biscuit sector Confectionary sector Functional foods (like health and energy drinks) Key Growth Drivers With changing needs and lifestyles of consumers, global as well as Indian food consumption patterns are rapidly evolving. Higher disposable incomes have resulted in greater spending and past decade. Increased mobility, exposure, aspirations and availability of a substantially wider range and products have also contributed to shifts in spending orienand government support Augmented investment inflows Growth Opportunities The integrated development of the entire food value chain offers many opportunities at every level. Key segments with the largest growth potential for processing are dairy, fruits and vegetables, wine, confectionary and poultry. The demand for segments like readyto-eat, convenience foods, functional foods, health drinks, flavoured milk and fruit juices are growing very fast. Due to the rising need for quality and value added products, opportunity lies in strengthening the backend of the food supply chain by investing in modernization of agricultural technologies, farm machineries, training and capacity building, research & development and quality testing laboratories. Tremendous potential for investment exists in setting up agricultural infrastructure cold chain logistics, supply chain management, food parks and wholesale markets as well as up gradation of the existing market infrastructure. Organized food retailing and food services are the other fastest emerging opportunities; organized food retail is expected to grow to US $ 50 billion by 2015. Indian farm produce offers a unique aroma, flavour and taste and if processed, packaged and marketed properly, will attract global consumers. Thus, promotion and branding are important areas where investment needs to be made. Export demand is increasing for the food products like pickles, chutneys, fruits and vegetables (canned, frozen and dehydrated), concentrated pulps and juices, packaged meat and marine products. An additional opportunity of US $ 100 billion can be realized by 2015 with coordinated efforts among the government, industry and farmers. Promotion of Indian food items at international level by the government and the industry is essential. Challenges and Potential Stumbling Blocks To unleash the growth potential of the Indian Food industry certain challenges need to be overcome. These challenges include addressing current gaps in the value chain as well as leveraging on various advantages that the country provides.
Change in food habits has been brought about due to the boom in internet, mass media and exposure to lifestyle in developed countries.
consumption among consumers. Change in food habits has been brought about due to the boom in internet, mass media and exposure to lifestyle in developed countries. The following data shows the shift in food habits over the Change in food habits More health conscious now Eat more junk food now
tation. In addition, openness to experimenting with processed and convenience food and the increased phenomenon of organized food retailing have also led to reorientation of the entire food business. Increase in food retail is a massive driver for the food industry in India. The organized form of food retail accounts for hardly one percent of the food consumed in India. Organized food retailing has grown by almost 25 percent per annum over the last three years and the momentum is likely to increase with the entry of large multinational corporates and possible relaxation of the Foreign Direct Investment policy. The proliferation of organized retailing in India is also altering food consumption patterns, promoting imported foods, branded foods and processed foods. Other important drivers behind industry growth are: Huge production base Increased export opportunities Favourable regulatory environment % 51 15 15 15 5 5
Eat less often at roadside eating joints or carts Eat more food now Eat out at hotels more often now Eat western cuisine more often now Table : Shift in food habits over the past decade
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Research and Technological Development Weak research and development on latest technologies in food technologies like nanotechnology, novel food concepts like functional foods and innovative packaging. Lack of processable produce and irregular supply due to Indian agriculture being dominated by production driven market supply rather than market driven production. This leads to inconsistency in supply and quality of produce. Global Quality Standards Meeting global standards of quality with up-scaled production remains a big challenge. The issues of traceability in fresh produce and poor hygiene in packaged foods also remain a concern. Skill Gap At each level in the value chain there are strong deficiencies in technical knowhow and support with gaps in the transference of research from the laboratory to the industry. This gap needs to be bridged by finding the right balance between applied research, capacity building and ensuring strong public private partnerships. Food regulations and taxation issues The Food Safety & Standards Act that has been recently implemented as one law governing the entire food industry in India is still in its infancy and awareness about the law across the food chain remains a big concern. In India there is no uniformity in the taxation system across states and the lack of political will in this matter has only made matters worse. Poor market linkages The food value chain in India is highly fragmented and dominated by a large number of middlemen. This leads to increased inefficiencies in the marketing system due to which production, processing and marketing of produce suffers from under investment. Improvement in market infrastructure and identification of new export markets remain as key challenges.
Due to the rising need for quality and value added products, opportunity lies in strengthening the backend of the food supply chain by investing in modernization of agricultural technologies, farm machineries, training and capacity building, research & development and quality testing laboratories.
Institutional mechanisms such as reforms in agricultural marketing and warehousing facilities coupled with increased participation from banks and extension agencies would go a long way in reducing problems faced by the agriculture and food sector. Way Forward Policy level efforts should be initiated by the government in consultation with farmer groups and the industry to minimize the prevailing gaps amongst various stakeholders. There is an urgent need to create and augment strong at production infrastructure, processing infrastructure, distribution and market infrastructure, along with emphasis on augmenting
support infrastructure at the same time. The increased investment needs to be seeking from the private sector for infrastructure development. The amendment of the APMC should be implemented in the original spirit to reduce the malfunctioning of the Indian marketing system. Efficient price discovery mechanism should be evolved to safeguard the interest of different stakeholders for agricultural produce such as web based spot exchanges will help in fair price discovery. Systematic efforts should be made to brand Indian fresh and processed food products in the international market. Sincere efforts should be made by the government to help the Indian players to meet the global quality standards. The enabling regulatory environment through the initiatives like Food Safely and Standard Authority will continue to boost the pace of change in this sector. Though some initiatives have already been taken by the government, still there is urgent need to harmonize and standardize Indian quality standards to commonly accepted standards in the global markets. There is further scope in lifting restrictions on exports and imports, harmonization of the taxation system, smoothening tariff barriers and transparent merchandizing for price discovery of food products.
Ayan Bhattacharya is a specialist in food and agribusiness with a rich industry experience in the food & beverages and FMCG sectors. He has worked with companies like Dabur and AgriWatch in the past and is currently working with Cargill India. Ayan has done a significant amount of work in the food and agribusiness space in India and also featured as an expert in several media outlets like the Financial Times, NDTV and the Economic Times.
35
Revenue Management In Hospitality Industry

-Arunangshu Bhattacharya
Academic Ar ticle
Director, IIME School of Hospitality, Gurgaon (NCR) ment implements the basic principles of supply and demand economics in a tactical way to generate optimum profit at the same time ensuring that the customer feels delighted. There are three requisites for revenue management to be applicable: Limited amount of resources available for sale. Resources are perishable. This means that there is a time limit to selling the resources, after which they cease to be of value (for the customer) Different customers are willing to pay different prices for using the same amount of resources (as per their perceived needs). We can clearly see that though the resources lie with the business, their value in the eye of the customer changes with time and it is this value that a revenue manager keeps track of. Here lies the competence of a successful revenue manager. Ray Croc, the founder of McDonalds had once said, If you work just for money, youll never make it; but if you love what youre doing and you always put the customer first, success will be yours Sometimes the term Yield Management is interchangeably used for Revenue Management but this usage is improper. Yield management is described as a demand-based management strategy, first initiated by commercial airline companies. It seeks to maximize income via manipulation of selling prices. It differs from revenue management on the basic premise that it is aimed towards maximizing profit which is in direct contrast with the main objective of revenue management that aims to optimize profit. The process of Revenue Management has 3 basic steps. 1. Forecasting demand 2. Inventory and Price Management 3. Distribution Channel Management Forecasting Demand: To create accurate demand forecasts, revenue managers evaluate their establishments past performance over the corresponding period as well as the current buyer demand for their products and service. Then they analyze these data to estimate future demand.
t all started many hundreds of years ago when man started to venture out of his native home/village to far off places, in search of better opportunities. He often had to travel overnight and had to stay somewhere for the night en route his destination. People opened their homes and kitchens to these weary travellers and an industry was born. Hospitality industry is formally defined as An industry that provides food, beverages, lodging, travel, or entertainment services to people away from their homes, against monetary consideration. Oxford Dictionary defines hospitality with a much wider domain, viz., friendly and liberal reception of guests or strangers Over the years Hospitality has emerged as the single largest industry the world over and has come to encompass all such businesses where Service is extended to a Guest (this is how the customers are referred to) with a smile. In modern times this industry encompasses the following business establishments. 1. Hotels and motels (bistros, five-star restaurants, wine bars and brasseries). 2. Restaurants (classical, international and specialist cuisines). 3. Reception centres (weddings and conventions). 4. Self-serve outlets (cafeterias and canteens). 5. Clubs (service clubs and sporting clubs). 6. Fast-food outlets 7. Short-order snack bars (coffee shops, gourmet delicatessens, cafes and milk bars). 8. Private catering firms (dinner parties, large parties, business lunches and conventions). 9. Hospital (public, private and nursing homes). 10. Institutions (live-in colleges, boarding schools, hostels and camps). 11. Transport catering (train, ship and airline). 12. Defence force (army, navy and air force). (List taken from Magris & McCreery, Introduction to Catering, Hospitality Press, Melbourne, 1989) If one wants to be in the hospitality business, he would, naturally, rather want
Customers transact keeping in mind their perception of value of the goods and / or services and NOT what the business evaluates as its worth. The true value of a product or service is equal to what a buyer will willingly pay for it.
to be involved in a profitable hospitality business. That would be a logical choice because, in the long run, only profitable organizations stay in business. However, it is important to recognize that if an organizations primary focus is maximizing profits, it will, actually, inevitably go out of business eventually because it will lose out to organizations that know enough not to focus on maximizing profitability alone. The traditional definition of profit is the excess of revenue over expenses. The revenue managers definition however will be different and it would read profit is the net value achieved by a seller and a buyer in a business transaction. In simpler terms revenue managers consider a business transaction as ideal in which the customer feels that he has got more than what he has paid for and at the same time the establishment makes an optimum profit. This however is a very crude form of defining revenue management. Let me try to get you a more formal way of explaining what revenue management is. Revenue management is a technique to optimize the revenue earned from a fixed, perishable resource. The challenge is to sell the right resources to the right customer at the right time. Revenue manage-
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Academic Ar ticle
The challenge is to sell the right resources to the right customer at the right time. Revenue management implements the basic principles of supply and demand economics in a tactical way to generate optimum profit at the same time ensuring that the customer feels delighted.
Inventory & Price Management: A competent revenue managers main tool is differential pricing. He judiciously juggles with 2 parameters price and volume of business - and arrives at the right combination that yields optimum profit to the establishment at the same time ensuring that the customer is delighted as he thinks that he has received more than he has paid for, resulting in a win win situation. Distribution Channel Management: Distribution channels are the media through which business comes the way of an establishment. It is primarily of 2 types: Electronic and Non-electronic. The electronic channels are mainly 1. Internet (a well-known distribution channel as many potential customers make use of it to garner information about an establishment.) 2. Television channels 3. Radio. Non-electronic channels could be the following: 1. The staff that greet and serve the customer in person on the premise. 2. Staff responding to telephonic enquiries. 3. The local government agency responsible for promoting travel and tourism in the area in which the establishment is located. A revenue managers efficiency is maximized when he ensures the following steps: Calculate the total revenue generated by each channel on a periodic basis Ensure that each channel is operating at maximum effectiveness and efficiency Offer rate discounts through these channels Evaluate each channel during every team meeting To sum up I give below the 10 commandments of Revenue Management.
These are being increasingly believed in and applied the world over to survive and flourish as a business in the fiercely competitive world of hospitality. 1. Purpose of business is to delight the customer. 2. Successful businessmen focus externally on their customers needs and NOT internally on their own needs. 3. Customers transact keeping in mind their perception of value of the goods and / or services and NOT what the business evaluates as its worth. 4. The true value of a product or service is equal to what a buyer will willingly pay for it. 5. Product quality is important but equally important is the quality of service in the hospitality world. 6. Any change in product quality, service quality, or price will have a direct impact on buyers perceptions of value. 7. Price is not just a number. It is a very powerful message sent to a potential buyer from the seller. 8. Different buyers place different values on the same products or services, and as a result are willing to pay different prices for them. 9. Strategic and flexible pricing of goods and services keeping in mind the perceived value of the same in the minds of potential customers is imperative 10. Revenue management teams raison detre is to OPTIMIZE and not MAXIMIZE profits.
Mr. Arunangshu Bhattacharya started his career in hospitality industry trained as a chef with Oberoi School of Management (OSM) (Oberoi Centre of Learning & Development now) and is currently the Director of IIME School of Hospitality. His core competencies are food & beverage, front office operations and management, and soft skill. A certified trainer of trainers by the DoPT, Ministry of HR, GoI, his hospitality academic career spans over 20 years. He is a certified hospitality trainer from Robert Gordon University, Aberdeen, UK and Food & Beverage trainer, certified by the Educational Institute of American Hotel & Lodging association (AHLA-EI). Among his other distinctions include being awarded Rashtriya Vidya Saraswati Puraskar by Indian Solidarity Council, New Delhi.
37
Decoding Visiting Cards: Reading Big Changes in Small Print

-Kishore Chakraborti Visiting card is a printed identity to introduce oneself to the world. It gives an opportunity to script a plaque for oneself. It is an instrument that turns nobody into somebody, an instrument that offers access and introduction.
troduce others working or associated with him. Visiting cards continuously play this dual task of establishing the identities of the introducer and introduced. That, probably, is the reason why companies agony over the nitty-gritty of printing a visiting card. Corporate manuals specifically give guidelines what font is to be used, what specific place the company logo should be positioned, the ratio between the name and the address panel. If corporate colors are to be used, then the color code and patch are also given. Glorification of the corporate is done, sometimes through inclusion of mission and vision statement in the cards. There is an almost deliberate effort to tone down individual code. In terms of hierarchy, visiting cards follow an inverted pyramid model. The corporate takes the front seat with the logo color scheme and brand. The individual, if he is there, takes either a back seat or does not take any permanent seat at all. At a glance the card flaunts the company name and then, in small print, comes represented by Mr. XYZ. Conspicuous by absence in these types of visiting cards are individual de-
Corporate Ar ticle
Vice President, Consumer Insight & HFD, McCann Erickson, India
visiting card communicates at multiple levels, much beyond its functional capacity. Consider the following statements: I looked at my first visiting card. My name looked so beautiful- this is probably a feeling which is universal in nature. It is like a dialogue with self. Can you get me a card of the doctor? I will tell you how good he is - here it acts as an evaluation card. I wrote a complaint letter to the head of the marketing department and attached a card of mine; the reply came within a few days- the role of the card here is that of a highlighter. Hindi films are full of stories where visiting cards play the role of destiny - Keep my card and meet me in my office is a destiny changing dialogue. Will the vagabond hero meet his disguised mentor or will he lose the card to a pick pocket and will plunge into deeper depths of depressing struggle for the next three hours? A visiting card stands at a kindred point of tragedy and comedy. What lies at the core of a card? At a first glance it is a rectangular piece of paper. At a deeper level it is a printed identity to introduce oneself to the world. It gives an opportunity to script a plaque for oneself. It is an instrument that turns nobody into somebody, an instrument that offers access and introduction. There is an identity we are born with. Sometimes it is considered in the caste Brahmin, Kshtriya, Vaishya etc. - sometimes, it is the family background Surya Vansha, Chandra Vansha, Thakur Khandan. Ancestral profession is a strong even today - Lohar, Sonar, Engineer, Contractor, Daruwala, Topiwala, Palkiwala and so on still work as the sire name and define where we come from. One is born with these invisible cards. Those less privileged still need an introduction - and here the corporate and business houses play the introducer and issue parichaypatra (identity) to their employees, both for the social and commercial transaction. Essentials of introduction- still revolve round the age old parameters of qualification and experience (goon & karm); but before any introduction takes place, the introducer needs to introduce himself first. Once the antecedents of the introducer have been established, only then he attains the so-called gazette status to in-
signation; for example Mr. X of Hospitality Team, Ms. Y of Customer Services. It is almost as if human resources are also to be inventoried and grouped and stocked in batches. When specific designations are to be printed, the company manual prescribes exact point size to be used and ratio to be maintained in relation to the company name. Globalization saw cards being printed in multiple languages. Advice and instructions about card etiquette become part of the corporate training. Below is an extract from an instruction manual for
Visiting cards continuously play this dual task of establishing the identities of the introducer and introduced. That, probably, is the reason why companies agony over the nitty-gritty of printing a visiting card.
the Indian executives on how to approach Japanese clients: If you are visiting Japan on business, double-sided business cards in Japanese and English are a must. Why? They show potential partners that you are serious and that you understand and respect their culture. This small effort on your part establishes trust, and maximizes your opportunity for excellent results. Business Card Exchanges Guidelines: Cards are exchanged at the beginning of a meeting; make sure you have enough available for everyone. It is best to stand up when exchanging cards with those of
The twain shall never meet
Living together
Hum kisse se kam nehi
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Corporate Ar ticle
In his visiting card, he violates all the rigid company codes laid down in the mother companys communication manual. These are all significant changes, but the changes that came about in the case of small traders, shop owners and roadside vendors are nothing short of a silent revolution. A new breed of usersmilkmen, barbers, tailors, kirana shop owners, vegetable vendors, washer men, masons, carpenters- have become major users of visiting cards. Thirty years ago, the card was an accessory too fancy for their business. Anybody flashing one could even risk being ridiculed by his own customers. Today, however, it is an
Growing inflation and the desire to grow faster are continuously putting pressure on small business men and traders to venture into areas hitherto unrelated to their own traditional businesses. Even lateral expansion needs to be communicated.
both the ventures on opposite sides and life goes on. For a trader, the best introduction is through the brands he stocks. His card is a sum total of logos and they give him a cumulative identity. His retail power lies in brand proliferation. There is a significant change in the look higher rank. of cards. They have gone from simple Facing your counterpart, bow slightblack and white to two colour line jobs ly and hand your card (with the Japanese to four colour half tone covering a jourside pointing up!) either with your right ney from words to picture. What they hand or both hands. The same rule apreplicate in cards is their idea of 5x2 adplies when receiving a card from someovertisement released in the newspaper. ne else. The pictures featured are, primarily, the Make time to review your counterphotographs of products. If human faces parts card carefully. You might want to appear they appear as the representatives of the consumers. Card is speak his/her name and poan extension of their showsition to be sure of correct case window. The more you pronunciation. If the meaning Lateral business show, the more you sell. Naof his/her job position is in extensioncatering, tent mes are clubbed together. any way unclear, it would not &light Titles disappear. If a persons hurt to ask for an explanation. nickname is popular, there is Basically, you want to show no effort to hide it. Goldie interest in and respect to the features in parenthesis with other party. Honey. One has to make DO NOT shove the card an effort to locate the name into your back trouser poGrocery to cket! If you are meeting in of even the proprietor. The packaged water passing, then you may just protagonists in these cards lateral extension carefully place the card in a are the free home delivery shirt pocket or in a wallet or messages- big and bold, hinotebook. ghlighted with colors. all-important business tool for them. Their sole marketing mantra is servi If you are seated at a meeting, place Why has the card acquired sudden sigce with a smile- Mera customer khush the card gently on the table in front of nificance for them? Growing inflation to main khush. Todays corporate too you. Look at it often during the meeting and the desire to grow faster are contiseem to have taken a leaf from the kirain order to refer correctly to your counnuously putting pressure on small busina guy. More and more corporate houses terparts name and position. If you are ness men and traders to venture into areas are using the happy faces of customers meeting more than one person and have hitherto unrelated to their own traditional on their cards as a proof of their success. received multiple cards, arrange them nebusinesses. Even lateral expansion needs Thus, a paradigm shift is seen in visiting atly in front of you. to be communicated. Card continuously card communication-from who I am to reminds the target group that your milk how you relate to me. Globalization has its down-side too. man is now weaThis classic corporate code undergoes ring multiple hats. changes as the market forces clash, corCard bridges the porate rivalries go through phases of tradition and totakeovers, mergers and acquisitions. Viday. The son of a siting cards of these phases reflect the sweet meat shop history of this battle for survival. owner decides As outsourcing becomes the order of to toe the line of managing todays business, the corporatraditional he te identity as reflected in cards becomes ventures into cafar more remote and distant. A third party ble operation. identity and designation is born a creaThe card features ture called DSA (Direct Selling Agent).
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Corporate Ar ticle
More and more corporate houses are using the happy faces of customers on their cards as a proof of their success. Thus, a paradigm shift is seen in visiting card communication-from who I am to how you relate to me.
Visiting cards have also started doubling up as invitation letters. The ritual of printing holy and auspicious messages and pictures at the top of the card is imported from the traditional Indian format of writing letters. Trade merges seamlessly with religion- grahak mera devta, shop
mera mandir, guru kripa, Shubh Labh,SreeGaneshayonamo. Pictures of deities are also added, never mind if the product featured by their side is sanitary ware. Language is no bar either English is fine, Hindi is ok, mixture of Hindi and English- no one cares. Grammar and punctuation take a backseat. Property dealers boldly declare Flats hi Flats; a tailor promises in Hindi Ladies and gents free home delivery. Communicate at any cost. Make the best use of either side of the card. A visiting card is also a guarantee card and cash memo, a
The heroes are the products and free home delivery. Sabji on call. Pizza on line
Report card
Clever use of both sides
menu card and in some cases even a report card. Add more consumer value to the visiting card. Compel him to keep it as an important document. If he keeps he will remember. If he remembers, he will come. What could be the future of visiting cards in the digital era? Digital technology is fast invading every communication domain. Mobile handsets already feature digital transfer facility of business cards from existing contact details. Tomorrow handsets will probably feature compact scanner. Smart business people will exchange bar codes instead of cards. Swipe the code in your mobile you have the card in your handset. Cards will metamorphose in codes; another word will become obsolete in the digital era.
Who cares for English &grammar
Mr. Kishore Chakraborti, Vice President, Consumer Insight & HFD, McCann Erickson has been involved with advertising for more than 25 years in different capacities client servicing, copyrighting, strategic planning and managing brands & branches. A graduate in English Literature and Law, he did his post graduate diploma in advertising and public relations. He has attended professional courses on Strategic Brand Management at IIM-C and the MCA Asia Pacific advance course on communication and brand management. He is a part of the McCann Worldgroup Global Training Team and runs training programmes for McCann Erickson India across all its discipline, apart from being a visiting lecturer at a number of B-schools in India and abroad.
40
The Changing Dynamics of Business

Academic Ar ticle
he world, as weve known it, is rapidly changing. People versed in more than language are well educated and affluent with lots of disposable money. Changing travel needs, work pattern, skills requirements are giving rise to lots of opportunities and eradicating the obsolete ones. Technology is driving the world towards a common platform where a resident of China wants the same consumer goods as one living in the US. Achieving economics of scale is as much of prime importance to companies as is achieving political and social synergy with the countries they are operating in. The world is looking forward to Asia and the latter is responding with great zeal. Asian populace of 68.4% in the age group of 18-25 as compared to median age of 36 in USA and the corresponding figure of 37 years in Europe mean that the Asian markets have the right demographics for outsourcing. This was rightly recognized by western countries and it gave birth to BPO service industry which was fuelled by the so called 4M culture of Mall, Mobile, McDonalds and Motorbike. The number of fortune 500 companies from Asia too has risen from 50 in 2010 to 186 in 2012, most of them Chinese and Japanese. Another interesting observation is about developing core competencies. Businesses are willing to invest in lots of diverse businesses. This is in sharp contrast to earlier approaches by companies. Take the example of IBM which has survived 90s downturn with divesting in unrelated businesses. A point which holds much greater significance today is customers urges for complete products, the one which can solve all their needs. Businesses are striving to achieve precisely that. The distinction between industries is blurring, at least for technology firms. Consumer buying behaviour has undergone significant changes. They are more knowledgeable, environment conscious and rely more than ever on non-market controlled promotional sources. Internet as a promotional tool is becoming more effective by facilitating targeted advertising. The political implications are also of severe significance. Brazil has low environmental constraints and they allow even risky industry practices without imposing safety measures as high as those
Consumer buying behaviour has undergone significant changes. They are more knowledgeable, environment conscious and rely more than ever on non-market controlled promotional sources.
in developed worlds. Likewise if we see China, they have able to leverage human resource because of strict government regulations imposing tough decisions. Political environment in a country decides which business will be allowed, what are the policies to run them or whether they are feasible at all or not. This presents a serious implication to managers and entrepreneurs all over the world. Business acumen is needed for long term sustainability in such a volatile environment. Developing managerial skill suited for this dynamic an environment is in itself becoming a major challenge. Companies want managers who can work in uncertainty, take quick decisions, value contributions and arent afraid to venture into uncharted waters .This is more apparent in case of a service company. Company organisation is becoming flatter thereby giving their employees at least some experience in every major division. Their continued monitoring and assessment helps in recognizing gaps and talents and also helps in weeding out those who are not up to the mark. Employee involvement is encouraged at every stage which helps them come up with creative ideas. Another concept which is becoming increasingly popular is of starched goals. In this concept managers are given optimistic, at times inflated, targets and substantial autonomy in ways to achieve the same. This really has helped many companies to achieve better results year after year by motivating and allowing employees to use different methods rather than stick to the conventional ones. Of course those who are successful are handsomely rewarded.
Student, IIM Lucknow Businesses are intent on building long term customer relations. Reaching out to the customer is gaining greater importance in todays businesses. Market researchers are laying more and more emphasis on customers latent desire rather than carrying on with their own assumptions and understanding of consumer needs. For some visionaries like Steve Jobs it is an almost intuitional talent but others too are catching up, intent at acquiring the same with the help of advance technologies like eye movement recognition, touch sensors and brain map sensors. We see a shift from asking questions to observing customer behaviour though the former is still an important part of market research. Product development too is done keeping the customer in mind and by involving them. In case of technology based product, problems of technology obsolesce and disruptive innovation has never been more pressing. Kodak is a sad example of this, which provides some very interesting business lessons. One of the best known brands of past century, Kodak, probably suffered under the illusion of a perfect product. Having taken a decisive lead and even with the discovery of digital camera, Kodak failed to capitalize on a very promising market position. They failed to identify the new markets opened by this disruptive innovation, which in essence was caused by weak leadership and a lack of dynamic strategy. Kodak probably suffered from complacency. It is by now more than clear that much depends on the acumen of people operating a business. For running a successful business, two different kinds of people are needed. First is the innovator whose main concerns are to identify new ideas and develop them into viable opportunities. The second kind consists of those who convert these opportunities into viable businesses. Great leaders can be found in both the types. The confluence of both bring out the best results: innovation and implementation both are at the heart of a successful run. A product, howsoever revolutionary, needs to be sold and more often than not, people buy an idea served well. Else many noble ideas havent survived to see the light of the day. Keeping pace with changes and adap-
-Abhishek Agarwal
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Academic Ar ticle
ting and/or improvising on the demands of the situation draws the line between success and failure. Information technology, for instance, is on one hand becoming more complex by the day and at the same time is easier to use. It has greatly impacted and altered the way of doing business. There are multiple dimensions in the use of an information technology system, revolving around its primary functions of information transfer, sharing and processing. Use of IT becomes increasingly important if we consider the fact that today companies want to extend their presence in multiple markets; interconnectedness, although entailing its own benefits and drawbacks, has never been so possible. Apart from reaching out to different nations, these sub-units, howsoever autonomous, need to have a strong link with the parent company in which IT plays an important role. The same need becomes more strategic if the business is knowledge oriented like those of Boston consulting group or Mckinsey and Co. Mckinsey especially has taken lots of steps to consolidate the knowledge generated by its highly talented and motivated employees and made it available to all its consultants across the globe, which have significantly helped in lessening the time required in dealing similar situations. This also facilitates resource sharing. Companies now want their presence all across the supply chain. They tend to achieve it by increased collaboration with buyers and suppliers which ensure better relations as well as saving in inventory carrying cost and increases reliability in service. Illustrating this are companies like Wal-Mart and P&G, both of which share data on real time basis, so that manufacturing can be scheduled according to demand which saves significant cost. A more forceful impact of strong logistic system can be seen in the advent of online stores which dont carry an inventory, thus giving birth to a whole new business model in e-commerce. Another phenomenon, not entirely new though, involve presence of companies across the value chain by vertical and/ or horizontal integration. Mergers & Acquisitions in itself is very crucial for a companys growth. They help in acquiring strategically important resources and provide new and innovative ideas which can be developed into products. Companies also go for M&A to gain entry into a particular geographical area. Trends of acquisitions also indicate where the world economy is shifting and who the big players in the present economic scenario are. A more subtle impact all these changes are making concerns accessibility and modes of payments. Now the technology has become advanced enough to enable people to just scan items with their smart phones to know the best deals and price in a particular locality. This has led to comparative analysis between brands on a range of parameters and most marketers know that their customers are more awa-
The business environment is dynamic and market may react in unpredictable manner even to a seemingly sensible move. Being proactive in identifying future market trends is extremely important. Risk management too is claiming its rightful attention.
used to guess needs, desires and requirement. According to studies customers tend to filter ads which they think are against their views or which they think doesnt contain information needed by them. So these targeted ads arguably are better suited to attract attention of users. Another trend which is sweeping the world is that of green technology which also extends to organic products. This has become significant due to increased awareness due to education and research into climate change and its implications, primarily facilitated by various organizations and NGOs but lack of awareness among masses is still a big barrier. Companies are trying to develop better ways of utilizing renewable resources or increasing the efficiency of existing systems. The popularity of such technology is on an increase but still viable mass adaptation has not been achieved due to economic sustainability and suspected lobbying by conventional energy provider companies. An important aspect of business today concerns corporate governance meant to protect the rights of shareholders and stakeholders in a company by a board which is independent of its management. Good corporate management not only builds confidence among all parties but also sends out positive signals about the economy. The importance of corporate governance has increased in the wake of recent financial crises which has seen non-adherence to rules and fair practices as the prime cause of economic downturn grasping almost the entire world. In essence there is no fixed method to start or sustain a successful business. The business environment is dynamic and market may react in unpredictable manner even to a seemingly sensible move. Being proactive in identifying future market trends is extremely important. Risk management too is claiming its rightful attention. Business is all about strategy and the winners do it well.
re than ever. The present global economic climate too poses major threats to businesses across the world. The developed markets are experiencing almost no growth because of economic downturn. So all the leading companies are focusing more on developing countries where a large section of population is promising, though still not as affluent as their counter-parts in developed nations. These countries pose a challenge in term of strategy formations and implementation. Companies, especially those in FMCG, want to capture the bottom of pyramid. They have implemented various process innovation unseen before to capture this market, some of which are making small SKUs including working on packaging and logistics. If we look at todays world we can identify certain megatrends which are there to stay and are not limited by geography. First of course is the advent of social network. Today the world is connected; people want to tell each other what they are doing. This has altered the field of marketing. Now marketers have a tool which is both innovative as well as destructive in nature. Most of the companies today operate their pages on various social networking sites, which allow them to get feedback from their customers and expand their customer base. Advertisements which go viral reach a large mass with practically no expense. Likewise information shared on these sites can be
Abhishek Agarwal is a student at Indian Institute of Management, Lucknow, 2011-13 batch. He is majoring in Marketing. He is a mechanical engineer from Jadavpur University, Kolkata. His areas of interests are strategy formation and implementation.
42
Credits
The Editorial Board (Left to right) Jayeeta Bhattacharya, Purnava Ganguly and Zarmina Parvez Patrons Prof. K.V. Bhanu Murthy Dr. Kavita Sharma
Design Abhinav Kumar Singh
2012 Volume 4
Issue 1
Contact us at http://www.mibdu.ac.in, email: editboard.uday@mibdu.org

Uday 2012

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UD A Y

Journal of Master of International Business

A New World Economic Order: Survival of the Fittest?

The search is on. Crowns await their prince! Revaluation Begins!

From the Editors Desk

UDAY 2012, Vol. 4, Issue 1

MIB. Deptt. of Commerce, DSE

Message from the Dean

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UDAY 2012, Vol. 4, Issue 1

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Message from the Course Coordinator

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