Outlook Business 4Apr09

THE GUTSY GREEN MANOil’s falling. Still, Pramod Chaudhari is placing all his bets on ethanol

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April 4, 2009 FOR DECIS ION MAKERSRs 20

Countries are slamming the door on foreign trade, labour and Countries are slamming the door on foreign trade, labour and capital. That may prolong the recession, not shorten itcapital. That may prolong the recession, not shorten it

The Perils OfPROTECTIONISM

HOT SEATRONNIE SCREWVALA

LEFT, RIGHT AND CENTREYechuri, Sinha and Chavan on how they will jumpstart the economy

INSIDEwww.outlookbusiness.com March 22-April 4, 2009 volume 4 > issue 7

OutlookBusiness > April 4, 2009 1

28 The Last Lap Suitors are lining up. The sooner Satyam is sold, the better

32 New Flight PlanWilbur Ross wants to transform SpiceJet from a loser to a winner

36 Green WarriorThis is Pramod Chaudhari’s stand: Praj Industries will rise or sink with ethanol

56 A New TurnUnder Siddhartha Lal, Eicher Motors is stepping out of its comfort zone

COVER STORY

Building Barriers A wave of protectionism is sweeping across the globe, hampering the fl ow of trade, labour and capital. Countries are hoping this will help domestic economies, but it will only harm them. Eventually, this could prolong the global recession. India, too, will get caught in the crossfi re that could undo the benefi ts delivered by many years of globalisation

54 InterviewRon Hira doesn’t want H-1B visas.He wants to keep American jobs in America

96 DiaryPolitician-speak on protectionism that will leave you in splits

FEATURES 68 Home, Green HomeBangalore builder Total Environment crafts eco-friendly homes tailored to individual needs

72 Desi Disneys Not content doing work for Hollywood, Indian animation companies are fl exing their creative muscles

74 Boardroom GodsKishore Biyani is using mythology to re-engineer management at Future Group

80 Fitness OutsourcedA Chennai-based company puts together gyms for 35 companies and several homes, besides running its own centres

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4 Letters82 Data Pages92 Books94 Diversions

COVER DESIGN: SUMEET GUPTACOVER PHOTOGRAPHS: BHUPINDER SINGH

LIFE

REGULARS

86 Fast And DumbFormula 1 has hit a pit stop, and it has only itself to blame

88 HEY!Radio City CEO Apurva Purohit learnt management on the hockey fi eld

TAKE ONE

6 Still ShoppingSales fi gures of consumer durables fi rms throw a surprise

8 Booth BusinessWhat the coming general elections mean for coke and copters

9 Booted OutPE investors show Peter and Indrani Mukherjea the door at INX

10 Inward HoGlobal companies are stepping up India acquisitions

16 India LogicMukesh Aghi of Steria on why India matters despite not being a market

18 Slumdog LessonsThe movie draws Hollywood and Bollywood closer

64 The Intrepid Gamer UTV Software CEO Ronnie Screwvala is betting big on the gaming industry. He says thatthis business and new mediawill be as important as his core movies business

HOT SEAT

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19 Post-Poll Economy Leaders of key political parties chart out the economic agenda for the next government

20YashwantSinha

22PrithvirajChavan

24SitaramYechuri

2 OutlookBusiness > April 4, 2009

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Curious Case Of WiMaxIf faster broadband connectivity is what companies and other enterprises in India are looking for, WiMax should be a bet-ter bet for them than 3G (The Case For WiMax, March 21). Both technologies serve different objectives for a consumer. While 3G will help callers, WiMax is ideal for surfers. Although 3G may seem to be a good idea now, given its success in other parts of the world and what it can do, WiMax will pay rich dividends in the longer term.

AnanthakrishnanHyderabad

Match FreezingThe Indian Premier League (IPL) has its work cut out this year (Diamond In The Rust, March 7). The franchises splurged once again at the auctions this year. Early indications were that the slowdown would bypass the event. But now that there are issues with security and elections, the economy, Sony Entertainment Television and the participation of foreign players, things are not getting easier for IPL.

S SudhirMumbai

Gains In LossesThe motto of players in the direct-to-home (DTH) business seems to be: throw more, reap more (Great Expectations, March 7). The prospect of big losses in the coming few years doesn’t faze them at all. Given the size of the Indian market, they have reason to believe. Estimates

show the number of households tuning in to DTH services is increasing at a fast pace. So, it seems, the money that DTH players are losing today is an investment for a beaming future.

D PrabhuCoimbatore

Effective PillThe feature At The Flip Of A Pill (Janu-ary 24), which traced Biocon’s efforts to develop the world’s fi rst oral insulin drug, was an excellent read. Well-researched, the article deftly tracked the drug’s de-velopment, as well as the risks involved in the course. It even looked at what Bio-con’s competitors were capable of. A com-plete article. I hope to see an update on the story sometime later in your magazine.

A PadmanabhanMumbai

Down To EarthThanks for telling the story of the Grama-teller, the poor man’s ATM (Low-Cost Cash Box, March 7). Such inventions have the potential to revolutionise rural life. The fact that this machine is cost-effective and energy-effi cient should make it a favourite of fi nancial institutions looking for easy ac-cess to India’s rural households.

Sudhakar NaiduWarangal

Progress ReportWe will remember the UPA for its broken promises (The UPA Scoreboard, March 7). Though it has introduced many inter-esting initiatives such as the NRGES, it has failed to bring about any signifi cant change to the lives of the poor.

S BhagatDelhi

Correction Gary Steel, the newly appointed Chairman of ABB India, is still the Head of HR and Sustainability in the parent company.

www.outlookbusiness.com

Editor-in-Chief: Vinod MehtaPublisher: Maheshwer Peri

Editor: M AnandDeputy Editor: Ashish GuptaFEATURESAssociate Editors: Nandita Datta, Snigdha SenguptaSenior Assistant Editor: Sudipto DeyAssistant Editors: Anurag Prasad,Sebastian PT, TV MahalingamSpecial Correspondents: Ajita Shashidhar, Kunal N Talgeri, Sriram SrinivasanPrincipal Correspondent: Sharada BalasubramanianCorrespondent: Rajiv BhuvaCOPY DESKSenior Editor: Avinash SinghAssociate Copy Editor: Allan LasradoSenior Sub-Editors: Navan Ignatius, Jinoy Jose PARTChief Designer: Sumeet GuptaSenior Designer: Manish MarwahIllustrator: Arindam ChakrabortyGraphics: Kishore DasPHOTOPhoto Editor: Vivan MehraSenior Photographers: Bhupinder Singh, R A Chandroo Saptarshi Biswas, Soumik KarPhotographers: Nilotpal Baruah, Priyam Dhar, Vishal KoulSPECIAL PROJECTS Editor: Naren KarunakaranONLINE Editor: Vijay Srinivas

BUSINESS OFFICEPresident: Indranil RoyADVERTISEMENTNational Manager: Pankaj JayaswalAssistant General Manager: Moushumi Banerjee Ghosh, Kabir Khattar Regional Managers: Amit Vaz, Sushil MenonManager: Praveen KumarCIRCULATIONVice President: Niraj RawlleyNational Heads: Himanshu Pandey (Business Development), Alex Joseph (Retail)Regional Managers: Anand Shirali (West), Arokia Raj (South), Yogesh Mohan (North)Senior Manager: B S JoharManagers: Anindya Banerjee (West), Indranil Ganguly (East), Mukesh Lakhanpal, Ramesh, Vinod JoshiDeputy Manager: Shekhar SuvarnaMARKETINGHead: Roopam SinghPRODUCTION & SYSTEMSAssistant General Manager: Rakesh Mishra Managers: Deshraj Jaswal, Shekhar Pandey, Sanjay NarangDeputy Manager: Trilok Singh RawatACCOUNTSManagers: Chetan Budhiraja, Kuldeep KothariADMINISTRATIONSenior Manager: Rajendra KurupManager: DR Wadhwa Associate Manager: Bobby MathewsHEAD OFFICEAB-10, Safdarjung Enclave, New Delhi 110 029;Tel: (011) 26191421; Fax: (011) 43552287;Customer Care: (011) 26191091;Other Offi ces: Mumbai: (022) 30612222,Fax: (022) 30612233; Kolkata: (033) 40085012; Chennai: (044) 28582250, 28582251,Telefax: 28582250; Bangalore: (080) 25582806/7,Fax: (080) 25582810; Hyde rabad: (040) 23375776,Fax: (040) 23375676;Printed and published by Maheshwer Peri on behalf of Outlook Publishing (India) Pvt. Ltd. Editor: M Anand. Printed at Infomedia India Limited, A Wing, Ruby House,J.K. Sawant Marg, Dadar (West), Mumbai 400028, and published from AB-10 Safdarjung Enclave, New Delhi 110029Published for the fortnight of March 22-April 4, 2009

The cover story on India’s cost savers shows that companies that were prepared to meet any untoward turn in business have had less diffi culty in swimming through rough waters. However, have the tough conditions and the cost-cutting affected the quality of their goods and services?

Siddarth Kochchar | Jaipur

TALK BACKEmail [email protected] Editor, Outlook Business, Nafed House [8th fl oor], Ashram Chowk, New Delhi 110 014, NCR, India


OutlookBusiness > April 4, 2009

TAKE 1

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THE GOVERNMENT’S three-tranche Rs 85,000 crore stimulus package aimed at arresting the alarming slide in econom-ic growth seems to be working, at least as far as the consumer durables sector is concerned. Aft er the scare of job losses and consumers zipping up their wallets, industry players are beginning to see de-cent growth.

LG’s home appliances business has grown by 29% in January and February. Th e sale of LCDs is up by 153%, while colour TVs have grown by 12%. Amitabh Tiwari, Busi-ness Group Marketing Head, Home En-tertainment, LG Electronics India, expects the durables business to grow at 28% in the fi rst quarter of 2009.

Samsung’s home appliances business, too, has grown by around 30% in January and February. CTV sales were good, says Ravi Zutshi, Deputy Managing Director, Sam-sung India. “Flat TV sales were up by over 30% and Panel TV sales by over 50%.”

Th ese two companies seem to have out-performed the rest of the industry. While market researcher ORG-GfK doesn’t have February fi gures yet, industry growth in January was fl at, says Sameer Shukla, Head, ORG-GfK Marketing Services India. But he adds that manufacturers are passing

on the benefi t of two excise duty cuts (4% and 2%, announced as part of the stimulus packages) to consumers, and that probably will show up in the February sales.

Last month, Samsung reduced the price of its LCDs by 1.2-1.7%. Plasmas are now cheaper by Rs 1,000-2,000. Prices of di-rect-cool and frost-free refrigerator models have come down by 1-1.5% and washing machines by 1-1.6%. LG, too, has reduced prices of its 29-inch CTVs by 5%. Prices of frost-free models in the high-end have come down by 3%; and for top-loading washing machines, by 5%.

Th e stimulus package, the sixth pay commission dues and lowering of the excise duty helped buck the trend, says Zutshi of Samsung. Along with this, the wedding season has also encouraged sales. “Th e marriage season is a prolonged one starting from February till June 2009. So, there will be enough impetus,” says LG’s Tiwari. Th e company’s March target is Rs 810 crore and for the fi rst quarter, Rs 2,330 crore.

With a growth target of over 25% this year, Samsung, too, is quite upbeat. It is

banking on the Indian Premier League (that now seems to be in doubt, though) to boost CTV sales. Along with this, Zut-shi adds, the new product launches will continue to lure customers. Samsung has introduced 25 new AC models. And a new line of refrigerators is due for launch in the coming weeks.

Consumer sentiment is certainly positive, says Ajit Joshi, CEO, Infi niti Retail, which runs consumer durables and electronics chain Croma. He has just opened two stores in Hyderabad. “We plan to add another 20 to the existing 30 stores in the com-ing fi scal,” he adds.

Slowdown is a perception, points out Shukla of ORG-GfK. “Th e middle-income

groups greatly contributed to the dura-bles industry as growth came from the mass-market segments,” he observes. As per ORG-GfK fi gures, the durables industry grew by 10-11% in 2008 and the consumer electronics industry by 12-14%. CTVs, for example, grew by 10-12%, LCDs by 150% and home appliances by 8-10%. Finally, there is something to cheer about. <

—Sumita Vaid Dixit

LG’s home appliances business grew 29% in January and February; Samsung’s 30%

FIRST

Still Shopping

At a time when low or negative growth is the norm, the two consumer durables giants have posted stunning 30% growth

HOT CAKES: Samsung’s fl at TV sales rose 30% in January and February; panel TV sales rose 50%

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TAKE 1

THE WORLD’S largest democratic process, involving about 714 million eligible voters in 543 constituencies to elect the 15th Lok Sabha, will also mean huge expenditure—about Rs 10,000 crore, according to the Centre for Media Studies (CMS), a New Delhi-based research group. Th at spells good news for companies in sectors as diverse as soft drinks, liquor, print-ing, media, chartered helicopter services, utility vehicles and private transport.

“About 50-75 helicopters and small planes will be used in this election,” estimates Captain GR Gopinath, Founder of Dec-can Aviation. “Th is is one service that political parties can’t do without. Th ey will have to move star campaigners from one part of the country to another in quick time.” He estimates that the sector will earn about Rs 100 crore in 45 days, even though business leaders may also lend their private jets and cop-ters to politicians.

“Having a great helicop-ter is not suffi cient if you haven’t stocked extra fuel, spare parts, extra pilots and so on. Th erefore, the charges during elections are also high,” Gopinath explains. Th at won’t be a problem, though. “Politi-cal parties are recession-proof and are fl ush with funds,” he says, based on his experience with many elections over the past 14 years.

Also, expect a 10-15% spike in soft drink sales during the polls. “If the elections were held in winter, the surge would have been only about 2-3%. But in summer, it should be at least 10%,” points out Prasanna Kumar, a distributor for Coke in Karnataka.

Liquor, it goes without saying, fl ows freely during election time. “Th ere will be a surge in sales, but it will primarily be in the low-priced segment,” says a liquor industry insider. “Th e peak will be during the last three days of each polling date in the fi ve-phase elections.”

Elsewhere, the jeeps will roll. “Elections are likely to push new SUV sales in a few states. But it will be diffi cult to estimate the impact,” says Dilip Chenoy, Director General of Society of Indian Automobile Manufacturers (SIAM). Th e used-vehicle

sectors will benefi t more as parties will be wary of splurging on new vehicles, for the Election Commission (EC) will be watching. Demand for chartered vehicles and small-time pri-vate taxis will also increase.

Media companies, and to a lesser extent advertising agencies, will also gain. “Th e total outlay for advertising in the mass media may be about Rs 400 crore, but large advertising organisations may get only half of it,” says MG Parameswaran, Executive Di-rector and CEO of Draft fcb-Ulka, Mumbai. “A lot of spending happens ‘below the line’. Th at is where small players get a large slice of the cake,” says Parameswaran.

Th e use of posters and pamphlets may have dropped. “Still, printing industry revenues could rise 2-5% in the elec-tion quarter,” says Govind Bhargava, General Secre-tary of the All India Fed-eration of Master Print-ers, the apex body of the industry.

A bunch of small, unor-ganised players like food-caterers, stage and rally or-ganisers and the like will also benefi t.

Th e CMS has a fairly good idea of how the Rs 10,000 crore is likely to be spent. “Th e EC alone will incur about Rs 1,200 crore with the government agencies—both Centre and states—spending about Rs 700 crore in organising the elec-tions,” says CMS Chairman N Bhaskara Rao. Th ough each candidate is legally al-lowed to spend Rs 25 lakh for the Lok Sabha, the actu-al spend will be many times

over. Assuming there are four active candidates in each constitu-ency, this will lead to a spend of Rs 2,500–3,000 crore. Th ere is no such curb on party spends. He estimates that the Congress and BJP could together spend up to Rs 1,000 crore.

“Elections do mean extra spending,” says Rajiv Kumar, Di-rector and Chief Executive of Indian Council for Research on International Economic Relations (ICRIER). “But I don’t think it is an economic stimulus. Even if the amount is estimated to be in the range of Rs 10,000 crore, it is still only about 0.2% of the economy.” But in the current economic environment, even that is a welcome relief. <

—Sebastian PT

Polls Of FortuneELECTIONS

General elections means big spending—Rs 10,000 crore, by one estimate. For select industries, that means a spike in demand

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LESS THAN a month aft er discount-re-tailer Subhiksha plunged towards bank-ruptcy, INX Media, another private-eq-uity backed company, is hurtling into a crisis for precisely the same reason—poor cash management.

Th e husband-wife combine of Peter Muk-erjea (Chief Strategy Offi cer) and Indrani Mukerjea (CEO) that was running the com-pany since its inception about 18 months ago was forced to step down by their PE in-vestors, including Temasek Holdings, New Silk Route, New Vernon and Kotak Private Equity. A bunch of others like the SREI Group and some large corporate houses are also invested in the company. Together, they own over 80% of INX.

Industry insiders say that it was the Mukerjeas’ extravagant management style, poor cash management, lack of imagination in content creation and fee-ble entrepreneurial skills that proved to be their undoing.

Th eir profl igacy was evident from the be-

ginning. INX Media spent Rs 60 crore on distribution (unprecedented at that time), set up a plush offi ce at Grant Road in South Mumbai, and had an opulent marketing budget (Rs 60-70 crore during launch). “Reckless cash manage-ment has led INX to this debacle,” says a former Star TV employee. Even their hiring strategy was excessive. Th ey recruited a number of expatriates in senior management, including former Star employees Anthony Pettifer (Brand Di-rector) and Richard Platt (Programming Consultant), at huge pay packets. “What was the need to spend crores on foreign talent when India has a surfeit,” asks an analyst. Platt’s and Pettifer’s contracts have not been renewed.

Th e company launched three chan-nels—9XM (a music channel), 9X (Hindi general entertainment) and NewsX (an

The Mukerjea duo’s extravagant management style, reckless cash spends and unimaginative content led to their exit

INX MEDIA

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English news channel)—and is estimated to have spent about Rs 400 crore. But the content was unimaginative, a mere copy of what Star TV, the industry leader and Peter Mukerjea’s former employer, was dishing out.

Barely a year aft er INX Media raised $250 million from PE investors, it had run out of cash and was desperately looking for a fresh investment of $150 million. But there were no takers. In an interview with this magazine last December, Peter Mukerjea had admitted the company was in trouble and there was no money to run it beyond that month. “As a new company which is still a couple of years from break-even point, this liquidity crunch has a diff erent impact altogether. We are totally reliant on fresh funding...” he had admitted. Industry players scoff at that. “Th ey could have saved at least 40% of the cash they had raised,” says a senior media planner.

Private Equity investors, who had given the Mukerjeas unrestricted authority in running the company, are now ruing their decision. “We had no domain expertise and had completely relied on Peter,” says the head of a PE investor. “We can’t take decisions on programming.” He says in-vestors began to get anxious when newer entrants like the Viacom and Network 18-promoted Colors leapfrogged ahead of INX. “We entered the market thinking that there was a gap, but we saw Colors fi lling it up eff ortlessly,” says the PE honcho. As investors, they had never imagined Muk-erjea could go wrong. Now, the PE fi rm is even exploring the possibility of selling the company in parts. One part—news chan-nel NewsX—was sold in January, report-edly for Rs 50 crore. Th ere is also some

speculation that INX Media could be merged with Multi Screen Media (MSM), which runs the Sony bouquet of channels in India. MSM is headless aft er the exit of CEO Ku-nal Dasgupta, and is also in dire straits. A highly

placed source from Sony’s international operations, however, says that these talks have broken down.

Th e PE investors roped in media industry veteran Pradeep Guha three months ago as a consultant for INX. Th ey have also set up an investors’ committee that is looking at day-to-day management. Still, a revival will be a long haul and drain more cash. <

—Ajita Shashidhar

INX spent Rs 60 cr each on distribution and marketing, and set up a plush offi ce in South Mumbai

LOSS OF FAITH: PE fi rms have shown Peter Mukherjea and Indrani the door

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The IPL has been jeopardised by recent events

March 3: Attack on Sri Lankan team in Pakistan. P Chidambaram suggests that the IPL, scheduled to be held between April 10 and May 24, be postponed.

March 4: IPL organisers say matches will be held with a gap of 48 hours after election days in all venues. BCCI says it won’t require central forces and will manage with state police.

March 5: IPL sends revised tournament schedule to the government.

March 9: Associations of international players say it is imperative to talk to IPL organisers about security. State cricket associations express discomfort in managing security for IPL.

March 13: Andhra Pradesh, Karnataka and Delhi express inability to provide security for IPL.

March 14: BCCI terminates contract with IPL broadcaster Sony, accusing it of breach of contract. This is in response to Reliance’s DTH arm, Big TV, cancelling a deal worth Rs 137 crore with IPL after Sony signed on Reliance rival Airtel’s DTH service as an advertiser.

March 16: Sony goes to court seeking an injunction to restrain BCCI from inking any new agreement related to the T20 tournament. A meeting between BCCI and the Home Ministry fails to break the deadlock regarding the schedule.

INDIAN PREMIER LEAGUE

10

INBOUND M&A

Visitors On Deal Street

CORPORATE INDIA’S overseas M&A out-ing hit historic highs in 2008 with the $2.3 billion Tata-Jaguar Land Rover deal. How-ever, in the aft ermath of the global fi nancial meltdown, big-ticket acquisitions overseas no longer seem such a good idea. Still, In-dian companies remain in favour as acqui-sition targets for foreign companies look-ing for a foothold in this market—because growth elsewhere in the world has come to a near standstill.

Inbound M&A deals have tradi-tionally trailed out-bound deals, and it is too early to as-certain whether the trend will change this year. Inbound and outbound deals re-mained more or less on par during January and February. How-ever, recently, sectors like hospitality and telecom have been in the spotlight as for-eign companies have been acquiring do-mestic players in these sectors.

French food services major Sodexho said in a press release on March 10 that it has “signed a binding agreement to acquire Bangalore-based Radhakrishna Hospital-ity Services Group”, but did not reveal the deal size. Th e deal is signifi cant given the relatively unorganised nature of the food services or catering business in India. “It

could work as an incentive for other play-ers in the sector to become organised,” says Harish HV, partner with corporate M&A advisory fi rm Grant Th ornton.

While 2009 is yet to play out, 2008 was an interesting year for inbound M&As. Th e top three deals (See table: Overseas Calls) were well over $1 billion in terms of size. Th e

deal that stood out, however, was the $1.7 billion acquisition of Ranbaxy by Daiichi Sankyo, says Harish HV. “Th e trend to-wards inbound deals probably changed with that. It showed that promoters of large family-run businesses are will-ing to sell to realise value,” he says.

Th is, in fact, has been one of the con-straints of the Indian

inbound M&A market. Th at could now change for a couple of reasons. First, many family-owned businesses are now helmed by second-generation promoters, who are of a diff erent mindset. Th ey are more open to selling their stakes in order to realise better value and move on to newer busi-nesses. Second, the economic downturn has blocked access to capital. Promoters realise foreigners, hungry for new markets, can give them the best value. <

—Snigdha Sengupta

Jinxed

Saturated markets elsewhere are forcing foreign companies to look at acquiring cash-strapped Indian fi rms

STUMPED: IPL is on a sticky wicket

Overseas CallsAcquirer Target Acquisition

Price ($ mn)

NTT DoCoMo Tata Teleservices 2,700Daiichi Sankyo Ranbaxy Laboratories 1,704Telenor ASA Unitech Wireless 1,360Emirates Telecom Swan Telecom 900CRH Plc My Home Industries 456Lafarge SA Ready-mix concrete

business of L& T370

Petronas Cairn India 355HSBC Holdings PLC IL&FS Investmart 242Fresenious Kabi Dabur Pharma 218Xchanging Plc Cambridge Solutions 153

Source: Grant Thornton

PTI

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TAKE 1

Even as airports in Asia are dropping charges, their Indian counterparts are levying new fees and user charges

AIRPORTS

CRISIS TALK>

This is the time to create alliances. Despite the arrogance of the CEOs, the market is taking us in that direction—SERGIO MARCHIONNEFiat CEO on surviving the fi nancial meltdown

POINT >

We may see the recession coming to an end this year. The biggest risk is that we don’t have the political will, the commitment to solve this problem, and that we may let it just continue— BEN BERNANKEUS Federal Reserve Chairman predicting that the US recession will end this year

I have high regard for Sergio, but he’s not Moses. Historically speaking, going for more volume does not equate to sound fi nances—DIETER ZETSCHEDaimler Chairman responding to Marchionne’s prediction that in two years’ time, there may be room for only six global mass producers

COUNTER POINT >

WORDS WORTH >

The philosophy of protectionism is a philosophy of war—LUDWIG VON MISESAustrian Economist

AIRPORTS IN Korea, Japan, Singapore, Malaysia and China have all dropped their charges over the last six months in a bid to make fl ying attractive. But the exact oppo-site is happening in India. Aft er Mumbai, Delhi, Hyderabad and Bangalore—all of which have introduced user development fees ranging from Rs 100 to Rs 1,300 per passenger—the Airports Authority of India (AAI) is now levying similar charges in nine smaller cities including Goa and Ahmedabad. More air-ports like Chennai and Kolk-ata are also likely to join the list aft er their infrastructure is upgraded. Earlier this year, the Ministry of Civil Aviation had allowed all airports to hike landing and parking charges for aircraft by 10%.

Sample this: Malaysian Air-ports Holdings slashed landing charges in the country’s airports by 50%. But in India, the company, a part of the GMR Group led consortium that owns and operates the new international airport in Hyderabad, has in-troduced fees of Rs 375 for each domestic passenger and Rs 1,000 for every interna-tional passenger. It has also been asking airlines to pay for the use of aerobridges and display screens in their counters.

“All the non-metro airports currently being modernised are loss-making ones,” VP Agrawal, Chairman, Airport Author-ity of India says in defence. Th e AAI had

earmarked Rs 6,500 crore to upgrade these airports and a third of it was to come from private partners, mostly from development of the real estate in and around the airports. But the crash in the real estate market has put paid to these plans.

AAI’s internal accruals also seem to be in jeopardy as falling air traffi c has led to a drop in revenues. It has already sought the government’s nod to issue infrastructure

bonds. It needs to invest Rs 12,000 crore to modernise and upgrade airports in the 11th fi ve-year plan.

Airlines are not happy with the charges. “Th ere is a lack of transparency in determin-ing charges and ineff ective consultation with airline cus-tomers,” the International Air Transport Association

(IATA) said in a recent statement. Air-lines say that the new fees and user charg-es will stifl e recovery of the sector, which is likely to end this fi nancial year with a $2 billion loss.

Analysts say most airport expansion plans were drawn between 2002 and 2008, when air-passenger numbers more than doubled. Airlines are irked because these hikes are coming when the government is in the process of setting up the Airport Economic Regulatory Authority, which has the man-date to oversee all these issues.<

—Sudipto Dey

The AAI is now levying user development fees in nine smaller cities as well

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Acting Pricey


Steria spent £472 million on Xansa. What was the ra-tionale behind paying such a high price?In 2007, Steria was mostly limited to continental Eu-rope. Xansa was also strug-gling to go beyond the UK. Th eir management team was willing to make a deal. Th e ac-quisition gave us a ready cus-tomer base in the UK. Also, Xansa was strong in the BPO space, where we did not have any presence.

At that time, European com-panies were looking at cost ef-fi ciencies to compete globally, and they wanted to off shore IT work. Steria could off er these services with Xansa, with a footprint in India.

What has changed for Steria India in the recent past?We have realised that the com-pany needs to start looking beyond Europe and begin exploring other geographies such as India and Asia-Pacifi c countries such as Australia.

Steria is not a known brand in India, which is a brand-con-scious society. My fi rst chal-lenge was to build the brand in India. Next was to recruit the best talent and build a co-hesive team.

How much does India contribute to Steria’s overall revenues?Zero. We are a Europe-centric company, and the $500 billion market has kept us too preoccupied to explore the Indian market yet. We are building ourselves up to tap it. We need to build the brand in India to at-tract the best talent here.

Are your hiring plans on track?In 2008, we said that we would double our employee strength of 5,000 in three

years’ time. We grew 15% by the end of 2008, and have reached about 6,000. Th is year, our headcount should reach around 8,000. We are still hiring, with a small bench-strength and a conservative-growth approach.

What strategy do you have in mind for India?It’s a solution-based strategy. We are not here to give cheap-er and faster services to our Indian customers. Th e big-gest challenge in this coun-try is to off er the best-in-class solution. For example, Delhi’s traffi c needs a world-class so-lution, and we can look at Sin-gapore’s traffi c management system, which is one of the best in the world, as a solu-tion. Delhi will have it soon. We are working with the Del-hi government to deploy the system before the 2010 Com-monwealth Games.

Why did you set up a training academy in India?A good learning environ-ment is the most important thing that any company can

give its employees af-ter its vision, mission and targets. With our academy in Chennai, we wanted to send out a message that Steria India is at par with any other Steria offi ce in Europe.

Th e academy serves two purposes: one, obviously, is academics. Th e other, more importantly, is that employees from Eu-rope will learn more about India. We have become India’s brand ambassadors and we want to change the perception of the country. Th is becomes important to build the bond between diff erent teams. Our prime market, continental Europe, is sill quite ignorant about India. <

MUKESH AGHI> Chairman and CEOSteria (India)

Q&A


In 2007, IT services fi rm Steria spent £472

million to acquire Xan-sa. Its India chief tells

Anurag Prasad why the company made such a

costly acquisition

“We want to movebeyond Europe”

SAPT

ARSH

I BIS

WAS

TAKE 1

TAKE 1

EXECUTIVE DIARY > WORLD

nology company. The com-bined entity will become the seventh largest pharma company in the world. The deal comes days after Ger-man major Merck snapped up Schering-Plough for $41.1 billion, and a few weeks after the world’s largest pharma company, Pfi zer, bought Wyeth for $68 billion. That makes it about $160 billion in Big Pharma deals so far this year. With new research pipelines drying up and generics throng-ing the market, companies are resorting to strategic buys as they get newer products to peddle and better access to emerging markets.

ROUGH CUTAILING US carmaker General Motors has said its cost-cut-ting efforts are starting to pay off and that it will not need the $2 billion of funding it had previously requested from the government. Earlier, it had said it needed $2 billion to avoid running out of cash by March-end. The company re-ceived $13.4 billion in aid in December and has requested for another $16.6 billion. The announcement came even as pressure was mounting on the company to be forced into bankruptcy protection after its auditors said that they had no confi dence in its ability to sur-vive the steep decline in auto sales amid the economic cri-sis. General Motors and Chrys-ler have until the end of March to show President Barack Obama’s task force that they are making progress on their restructuring plans.

$50 BILLION, 150 YEARSBERNARD MADOFF, the 70-year-old US fi nancier, has been sent to jail and is awaiting his sentence after he admit-ted that he ran a vast Ponzi scheme and robbed thousands of investors of their life sav-ings. Madoff is the only person accused in Wall Street’s big-gest and longest fraud (esti-mated at around $50 billion and running since the early-1990s). His fraud had world-wide exposure and his victims include banks like HSBC, the Royal Bank of Scotland, BNP Paribas, pension funds, indus-try leaders and celebrities in the US. Prosecutors are inves-tigating whether others had joined him in the crime. They are also continuing work to see how much of the stolen money can be recovered. Madoff could receive up to 150 years when he is sentenced in June.

MERGER MANIA IT’S BEEN a busy time for big pharma deals. After a nine-month struggle, Swiss drug major Roche has fi nally acquired Genentech for $46.8 billion. Genentech is widely considered the world’s oldest and most successful biotech-

Pain At The Bottom Of The PyramidTHE GLOBAL fi nancial crisis that originated on Wall Street will have a lasting impact on the lives of the world’s poorest people, several studies have warned. Reduced GDP growth rate in poor countries in 2009 will push an estimated 46 million people into poverty, according to a recent World Bank report. Many countries will see their per capita incomes stagnate, and in some cases, the per capita income could shrink.

Export-oriented and urban-based sectors (textiles, jewellery, construction, mining, manufacturing) are witnessing huge layoff s. Up to 30 million workers could become unemployed globally, says the International La-bour Organisation. Workers are migrating from cities back to rural areas, and this will stymie the economic development of poorer countries, which was fuelled to a great extent by movement of labour away from agricul-ture to industries. Declining wages and falling remittance fl ows are also having a strong welfare impact on these economies, increasing poverty and inequality.

Fiscal pressures in these countries will result in the poor getting lesser services, particularly at a time when they are migrating from private to public education and health services. Children will be withdrawn from schools, people will be forced to buy less nutritious food and healthcare will get lower priority. Th ese will have long-standing eff ects, as the children, once removed from school, will fi nd it diffi cult to make good their learning gaps. And the impact of malnutrition and reduced food consumption may be irreversible.

Bernard L Madoff


00

GO FIGURE

TAKE 1

91.4 The reading of the NCAER Business Con-fi dence Index for January. This is a seven-year low, down 41% from a year ago.

3.45%Monthly dip in the average income of workers in labour-intensive sectors in India during the third quarter of this fi scal, according to the government.

$23.9BN Loss posted by US mortgage major Freddie Mac in the fourth quarter. The fi gure for Fannie Mae, its sister concern, was $25.2 billion.

18

VIVEK THAKKAR


SINCE THE mid-1990s, a handful of Hindi fi lms have enjoyed outstanding success abroad. Th e overseas distribution of fi lms from Dilwale Dulhaniya Le Jayenge (1995) to Kabhi Alvida Naa Kehna (2006) were primarily managed by Mumbai-headquar-tered production houses. Th e audience comprised mainly the 25 million-strong NRI diaspora, notably in the US and UK. However, the success of Slumdog Million-aire has been unique: while the content is primarily Indian, the fi lm has transgressed NRI audiences on the back of large-scale distribution by Fox Searchlight.

So, while the erstwhile all-time overseas grosser in Hindi, Kabhi Alvida Naa Kehna clocked Rs 44.5 crore (as per Box Offi ce India statistics), Slumdog Millionaire had made Rs 58.7 crore in the US alone by March 1. Th at it is not an Indian produc-tion merits iteration, but the fi lm has shown the way for the Indian fi lm industry (both content and talent) to go global.

Foreign studios also gain from such joint productions. “While foraying into local markets, it helps them form partnerships with Indian talent who understand the mar-ket,” says Siddharth Roy Kapur, CEO, UTV Motion Pictures.

Th e number of Indian fi lms receiving distribution muscles from co-productions has been on the rise. Take the UTV Motion Pictures-Fox Searchlight Pictures produc-tion, Th e Namesake (2007), for instance. Th e fi lm was directed by Mira Nair, while Fox Searchlight and UTV co-fi nanced it. Most crucially, Fox Searchlight distribut-ed it globally, while UTV distributed it in South Asia. In the US, Th e Namesake was shown on 327 screens.

“If you don’t have a worldwide distribu-tion lock-in, it becomes a diffi cult prop-osition,” points out Kapur of UTV. “It is much better to be able to de-risk yourself right from the beginning with the help of international distributors.”

Reliance Big Entertainment has been forg-ing tie-ups with foreign studios mostly at the script-development stage itself. Its yet-to-be-released Kites, directed by Anurag Basu and starring Hrithik Roshan, has a host of foreign cast members. Th e company is slated to make as many as 10 Hollywood fi lms. Th is is unchartered territory. “Such projects will open up more revenue streams for In-dian fi lm companies, apart from enabling them to work with advanced techniques,” states the FICCI-KPMG Media & Enter-tainment Industry Report 2009.

Th e report sheds light on the benefi ts of joint productions, including subsidised fi nance. An Indo-UK treaty, for instance, provides co-productions the opportunity to waive off import or export duties on any production equipment.

Amid the slowdown, tightening of fi lm ties between Bollywood and Hollywood may be the way forward for both. <

—Kunal N Talgeri

DEEP POCKET

36

74

Slumdog Millionaire has a host of cues for Indian production houses looking to go global

FILMS

Crossover Millionaires


ECONOMIC AGENDA VIEW

HE 15TH LOK SABHA ELECTIONS ARE BEING HELD in the backdrop of an economic crisis that is worsening by the day. Th e dream run of 9%-plus growth has come to an abrupt end, and managing even 5% seems diffi cult.

Many sectors in manufacturing and services are seeing a sharp de-cline. Job losses are widespread and many of those who have jobs are unsure of retaining them. Th e next government, therefore, will have its hands full.

But, while the economic crisis becomes clearer, the political picture is only getting murkier. Alliances are being formed and broken by the day, with regional and small political players jumping from one coali-tion to another. From Navin Patnaik’s BJD ending its 11-year-old as-sociation with the BJP in Orissa to the Trinamool Congress tying up with the Congress in West Bengal, the backdoor manoeuvrings are on in full swing. Consequently, it’s anybody’s guess as to who will emerge victorious on May 16, when the last votes are counted. Th ere are three possible outcomes: the Congress-led United Progressive Alliance (UPA) retaining power, the BJP-led National Democratic Alliance (NDA) making a comeback, and a third alternative, comprising the Left and regional parties, forming the government with or without support from the Congress or the BJP.

While the two big national parties will greatly determine the economic agenda if either of them lead the next government, the Left parties will have an important say if a third alternative comes to power or if they extend support to a UPA government. Whoever it is, with infl ows of foreign money falling and tax revenues declining, the new government will be hamstrung in its eff orts to kick-start the economy. Th e full Budget, which is due to be presented in June, will be its fi rst opportunity to take some hard decisions to get the economy back on track.

Th e three columns that follow off er some sense of the kind of poli-cies each of the three pivotal players is likely to pursue. Putting forth the BJP’s viewpoint, former Finance Minister Yashwant Sinha believes that spurring consumer and investment demand will do the trick. Th e Congress, on the other hand, will focus on continuing economic pro-grammes launched during its current tenure and doing more of what it did in the past fi ve years, says Prithviraj Chavan, Minister of State for the PMO. On its part, the Left , says Sitaram Yechury of the CPI(M), will push for massive public spending, fi scal defi cits be damned. <

TSebastian PT

IF WE COME TO POWER...

What’s the economic agenda of the three central players vying to form the next government?

19

YashwantSinha

Sitaram Yechuri

Prithviraj Chavan 22

24

20INSIDE

ILLUSTR

ATION

BY AR

IND

AM


HERE IS LITTLE DOUBT that the global slump will go on for a long time. Th e next government will have the unenviable task of stimulating growth while keeping the fi scal defi cit at manageable levels and balancing infl ationary tenden-cies. Th e UPA government could have built ‘hurricane shelters’ when the economy was buoyant. For instance, it could have met fi s-cal targets such as keeping the fi scal defi cit below 3% under the FRBM Act, at least in Budget 2008, well before the global fi nan-cial meltdown started. Instead, it went on a sop-disbursing spree, and was caught un-prepared when the global lag hit India.

Given this scenario, if the BJP-led coali-tion comes to power in the forthcoming general elections, the government’s prime focus would be on increasing demand lev-els and improving overall confi dence. Th at is, the two kinds of demand—consumer and investment—will have to be given a huge fi llip. Improving the purchasing power

of the consumer is very critical because only then will the other basic economic postulates of increased production and more jobs follow. Further, more invest-ment has to be directed towards indus-tries during this downturn through proper policy initiatives.

Th e secret of the Indian economy showing substantial growth in recent years can be traced back to the policies of the AB Vaj-payee-led NDA government. We focused on reducing interest rates—be it hire-pur-chase, lease, purchase of dwellings, etc—on the one hand, and investing in large in-frastructure projects such as national highways, on the other. Th is is exactly the process that has to be reverted to.

Interest rates will have to be reduced to 5-6%. Th is will spur housing in a big way and, consequently, re-juvenate industries such as steel and cement. But infl ation will also have to be tackled with caution. Th ough headline infl ation has declined, food infl a-tion is still in double dig-its, and this is going to be a big challenge.

Talking of big public spending on large infrastructure projects is one thing and executing it in the backdrop of declining revenues is another. Th ere has to be a para-digm shift in policy formulation and im-plementation in the given scenario. Many big core-sector projects have to be funded through ‘outside-the-Budget’ fi nancing.

For instance, the Delhi-Mumbai rail freight corridor, national highway corridors that are on a BOT (build-operate-transfer) basis and large irrigation projects that can be fi nanced through user charges would fi t this model. Th e internal rate of return (IRR) of each project will have to be as-

sessed fi rst and the money raised through the market. A special purpose vehicle (SPV) can be created, with the government pro-viding the seed capital.

Social sectors, especially health and edu-cation, are still in need of huge investments and better delivery systems. Here, again, there has to be a change in mindset—the number of social schemes under the Centre has to be reduced to about 10. Th e pattern for all the schemes under the Centre has to be similar to what we introduced under the Pradhan Mantri Gram Sadak Yojana, where the Centre alone funds and monitors

the scheme. Th e Centre will have to ensure that the schemes work.

While schemes such as the Sarva Shiksha Ab-hiyan, National Rural Health Mission and the National Rural Employ-ment Guarantee Scheme remain with the Centre, the remaining schemes and resources should be transferred to the states. Th is way, even the states will not object to the proposal.

Micro-management by the Union government and the Planning Commission should go. Th e states and pan-chayats should be given reasonable au-tonomy to manage schemes for education, health, rural infrastructure, electricity and so on. Even for urban revival, municipalities will have to be empowered to raise funds and manage schemes. Systems will have to be created that will increase effi ciency so that every paisa spent on the schemes reaches the target.

Diffi cult times can be opportunities in disguise for change for the better.And, the BJP is well prepared to meet the challenge. <

(As told to Sebastian PT)

T

More Bang And More BucksReturn to the NDA formula: stoke investment and consumer demand, and build infrastructure

YASHWANT SINHANATIONAL VICE-PRESIDENT, BJP

Many big infrastructure projects willhave to be bankrolled through‘off -Budget’ fi nancing

VIEW ECONOMIC AGENDA

20


HE UPA GOVERNMENT has, in the last fi ve years, delivered on the people’s aspiration of change for the bet-ter, with the aam aadmi being the central focus of every policy. Revolutionary steps such as the National Rural Employment Guarantee Scheme (NREGS), Unorganised Sector Social Security Act, Agricultural Debt Waiver and the Right to Information Act not only help alleviate the condition of the poor, but also insulate them from the vagaries of economic shocks, while mak-

ing the administration more accountable. Our high economic growth rate ensured a frontal attack on poverty.

Unprecedented expenditure on infrastruc-ture, both urban and rural, and a huge step up in public spending on the social sector, was possible because we had more to spend. A greater outlay was made possible by high tax revenues, which was the result of a sus-tained high growth rate. Even the historic civil nuclear deal with the US is a major step in securing our country’s energy needs for the future. Our policy successes during the last fi ve years and promises of more of the same will bring us back to power.

Our main thrust during the next fi ve years will be on the continuation of our aam aadmi policies of the last fi ve years, with a clear objective of ending abject poverty in our tenure.

Until the last year, the economy was growing very fast. We were able to keep the fi scal defi cit with-in the limits of the Fiscal Responsibility and Budg-et Management (FRBM) Act; exports were growing steadily; forex reserves were comfortable; the rupee was strong.

However, the oil shock in 2007-08 hurt us badly and infl ated our subsidy bill for energy and food. We were relieved when oil prices came down, and brought down infl ation with it. But the current global meltdown is causing us worry, as it impacts the growth rate and jobs.

So, our future policy response will contin-ue the emergency measures in the shape of stimulus packages and sectoral benefi ts, as has been done with two stimulus packages and tax cuts in the past three months.

Finance Minister Pranab Mukherjee has already indicated that the new government

will formulate tax and expenditure policies that will help sustain a GDP growth rate of 9%, with the agriculture sector growing at 4%. We not only have to protect jobs, but we also have to create millions of new jobs annually. A massive thrust on infra-structure will continue. Th e public-pri-vate partnership route, as well as the vi-ability-gap funding model, will continue to be used depending on the appetite of the market to invest in India. Th e UPA will continue the investment-friendly regime to attract foreign investors to the infra-structure sector.

We will also continue to expand the range and reach of the social safety net to insulate the vulner-able sections of the soci-ety from the disruptive ef-fects of economic cycles. Universalisation of edu-cation will be extended to the secondary level; the scope of the mid-day meal scheme will be wid-ened; the health scheme will be extended to urban areas; rural and urban in-frastructure development projects will be continued

with new vigour. Th e NREGS will guarantee more than 100

days of work and will be extended to urban areas as well; the skill development mission will be fully rolled out to impart marketable skills to the youth of the country.

Agriculture will remain the mainstay of the economy, as it employees the maximum number of people. What agriculture needs, besides public investment, is knowledge input. Massive expansion of agricultural schools, polytechnics and universities will happen. Developing secondary occupations for farmers so that they have continuous cash fl ows will be a priority. <


T

Much More OfThe Same‘Aam aadmi’ policies of the past fi ve years have delivered. Th at will be the bent in future too

PRITHVIRAJ CHAVANMINISTER OF STATE FOR THE PMO


22

Th e NREGS will guarantee more than 100 days of work and will be extendedto urban areas as well


E LIVE IN ANaltogether diff erent world today—the global recession has changed everything. Th e next government will have to realise this and get unstuck from the prevailing mindset. It is important to get the right perspective on what caused the slowdown, remove the blindfold of ‘neo-liberal’ idealism and real-ise that the earlier parameters that related to 8% growth are no longer relevant. Th is is the time to go in for unhindered massive public spending to provide the people with purchasing power. Th is is not the time to worry about fi scal defi cits or consequent infl ationary tendencies, which is irrelevant under conditions of no supply constraints or credit ratings.

If the government doesn’t spend, who will generate jobs and spur demand? If there is no money in the people’s hands, where is the question of demand going up or, for that matter, infl ation? Th e government is living in a peculiar hangover. Th e need of

the moment is a change in mindset. What caused the global fi nancial melt-

down was the inability of the consumer to return cheap loans. Th at triggered the whole crisis, which has led to a recession globally. If the basic problem is that the consumer has no money in his hands to spend, then your bailout packages have to address that. It is important to strength-en the bottom-end and not give packages to the top-end. Th e recent bailout pack-ages to big companies have only helped them balance their balance sheets, with the consumer gaining precious little. For instance, the government has reduced the price of aviation turbine fuel (ATF) substantially, but airlines have hardly passed on the benefi ts to consum-ers. Air traffi c continues to be low.

Unless you strengthen the purchasing power of the people, the economy can never come out of a slowdown. For that to happen, a huge amount of public investment is re-quired. Th e focus should be on building your social infrastructure—public health, sanitation, internal waterways, rural infrastructure, construction of wells and minor irriga-tion works. We have a situation where a thousand children die every day due to diseases that are preventable. Th ere is so much that can be done.

Th e next government should, undoubt-edly, go in for big infrastructure projects without worrying about foreign direct in-vestment (FDI) or private participation. We have to fi rst build our infrastructure. FDI will automatically follow when they see the facilities. Also, when private companies are themselves seeking bailouts, where is the question of them investing with the govern-

ment? And, their participation only seems to burden the consumer. For instance, the private players modernising the major air-ports are now imposing user charges to overcome losses caused by the slowdown. Th is only reduces the purchasing power of the consumer further.

Th at apart, the concern about fi scal defi -cits during a slowdown makes neither eco-nomic nor common sense. No slowdown can be overcome without massive defi cits. Franklin Roosevelt’s ‘new deal’ was all about that. Let us not worry about defi cits as they will be eventually overcome when economic

activity expands. In fact, the UPA gov-

ernment should have spent more in the years before the global slow-down set in. In each of the four years of the UPA government, the revenue surplus was more than 20% annually. However, the expenditure increas-es that were announced in the various Budgets were never more than 10%. Not spending the remaining 10% is the biggest mistake made

by the UPA government. We have always been critical of this restricted spending. Th e government was then keen to follow the concerns of the Fiscal Responsibility and Budget Management (FRBM) Act and was trying to keep the fi scal defi cit below 3%. Th at preoccupation on continuously reducing fi scal defi cit is what I call “fi scal fundamentalism”.

If they had spent as much as they should have, they would have met the global reces-sion in a better manner and saved many jobs. What is needed now is a ‘fresh new deal’ of massive proportions. And, a fresh mindset in the next government. <


W

A ‘Fresh New Deal’Roosevelt’s ‘new deal’ aft er the Great Depression was dismissive of defi cits. We need an encore

SITARAM YECHURICPI(M) POLITBURO MEMBER

24


Th is is the time to go for liberal public spending to boost the purchasing power of the people

this is the second instance of a marquee customer publicly admitting to diffi culties on account of Satyam’s misfortunes, which show no signs of ending anytime soon. In fact, if the initial bunch of known potential bidders (See table: How Th e Bidders Stack Up) is anything to go by, neither customers nor employees are confi dent that it will be business as usual once the bidding process is completed.

Customers Sulk“Business continuity is paramount in an IT services outsourcing engagement, more so when it involves a large off shore com-ponent. None of the known bidders who have submitted EoIs inspire that confi -dence,” says a consultant with a leading European outsourcing advisory fi rm, which has been working with Satyam for some

years. And, as the SanDisk fi ling shows, customers are beginning to hurt. Indus-try sources say that even large customers (more than $5-10 million in annual con-tracts) such as Merrill Lynch, Caterpillar, Nissan, GlaxoSmithKline and Citigroup are already in the process of transitioning work out of the company. Market watch-ers believe that GlaxoSmithKline is mov-ing most of its work to Cognizant, while Pfi zer, a smaller engagement, is likely to move entirely to TCS.

Even though customers are largely tight-lipped about their current relationship with the company, they admit that they are watching events closely. Philadelphia-based health services fi rm CIGNA has been outsourcing application development and maintenance work for its back-offi ce sys-tems to Satyam. “CIGNA has been closely

following the recent events regarding Saty-am, their senior leaders, and their fi nancial challenges...we have detailed contingency plans so that regardless of what happens with any of our vendors, processes are in place,” says the company’s spokesperson, Joe Mondy. “Th e quality and continuity of the operations with which Satyam deals con-tinue uninterrupted. Our actions regarding any potential change in our relationship with Satyam are confi dential,” he adds.

A Nissan North America spokesperson admitted that even though the “quality and continuity of work” with Satyam con-tinues “uninterrupted”, the company will monitor the situation with Satyam closely. Recently, the United Nations said that it plans to cancel its contract. “Contracts with Coca-Cola, Pfi zer and Novartis may not be much in terms of dollar size, but they

Larsen & TourbroThe Mumbai-based engineering major, led by AM Naik, already owns 12% of Satyam. Its presence in the IT services business, through subsidiary L&T Infotech, has not been impressive. L&T Infotech employs 10,000 people, and counts Chevron, Freescale and Hitachi among its clients. The fi rm has been around for 12 years, but ranks as a mid-tier player. In fi scal 2008, it made a net profi t of Rs 212 crore, on revenues of Rs 1,619 crore. Buying Satyam could catapult it into the big league (in terms of delivery capabilities), but many doubt Satyam’s customers will be confi dent of L&T’s ability to manage complex global contracts and clients.

Spice GroupThe New Delhi-based Spice Group, helmed by BK Modi, is the only one in the list of known contenders that does not have a track record in the IT services space. Customers are likely to repose the least confi dence in this bidder. Also, if Spice does buy Satyam, it will have a tough time holding back key and senior executives, say IT analysts. This would be further incentive for customers to jump ship.

Tech MahindraM&M group company Tech Mahindra, which employs 24,000 people, is seen as one of the rising stars among India’s second-rung IT services companies. However, it continues to be heavily dependent on the telecom sector for its revenues—over 80% of its $934.7 million fi scal 2008 revenues came from telecom. Further, it still derives more than 60% of its revenues from British Telecom, which also owns a 31% stake in the company. Satyam will certainly help the company to diversify into other verticals. But given its inexperience in executing projects in non-telecom verticals, customers may choose to move to a tested player.

iGate CorporationNasdaq-listed iGate Corp may have just the man Satyam needs right now in CEO Phaneesh Murthy, who is largely credited with setting up Infosys Technologies’ North American operations in the 1990s. But, among the four known contenders, iGate’s resources are the leanest. It reported a net income of $29.3 million, on revenues of $218.8 million, for the fi scal year ended December 2008 and employs 5,800 people. Murthy has been quoted in news reports as saying the company will team up with a private equity investor to fi nance the acquisition.

HOW THE BIDDERS STACK UP

FEATURE SATYAM COMPUTER

28 OutlookBusiness > April 4, 2009 OutlookBusiness > April 4, 2009 29

Customers are deserting Satyam fast. The earlier the company is sold, the better it is for its employees, clients and the buyerTHE

RUSH TO SELL

AM Naik BK Modi Anand Mahindra Phaneesh Murthy

TV Mahalingam & Snigdha Sengupta

TIME IS RUNNING OUT FOR THE BELEA-guered Satyam Computer Services. On February 26, days before the company’s government appointed-board admitted expressions-of-interest (EoIs) from potential bidders for a 51% stake, California-based SanDisk told the US Securities and Exchange Com-

mission that it may replace the soft ware services fi rm as a vendor. Th e storage devices maker has cited “project delays and loss of productivity” due to Satyam’s fi nancial diffi culties as the reason. It suggested that if Satyam were to lose key personnel, or declare bankruptcy, the storage major would be forced to engage a new vendor, albeit at a signifi cant cost. Aft er the termination of Satyam’s services by US insurer State Farm Insurance in mid-January,

are marquee clients. Th eir loss may aff ect the prestige of the client roster more than the numbers themselves,” says a market analyst in Mumbai.

Lingering Haze Th e crux of the problem lies in the con-tinuing ambiguity around the company’s true value. Its books are yet to be re-stated aft er promoter and Founder B Ramalinga Raju confessed to fudging accounts worth Rs 7,800 crore on January 7. Th ere is still no clarity on how many of the 600-odd stated customers will actually show on its roster when the company closes its books for this fi scal. Industry analysts say that even the $250 million worth of new contracts that the company claimed to have won in the third quarter ended December 2008 are suspect. “Th ese contracts may have been acquired earlier, but not announced,” says an equity analyst based in Mumbai.

Such factors, say analysts and industry sources, may have contributed to keep seri-ous bidders out of the race. Even Big Blue IBM, which, a few years ago, was speculated to be making a hostile takeover play for Sa-tyam, has been conspicuously absent from the bidding process. “It’s easier and cheaper for an IBM to move customers and key people to its own facilities rather than tak-ing the risk of buying the whole company. In any case, they don’t have much faith in the top management” says the consultant with the European advisory fi rm. None of the much-speculated Indian IT services contenders, chiefl y TCS and Cognizant Technology Solutions, have shown an iota of interest either. “Th e legal liabilities and complications of this deal alone make it un-viable,” a source at Cognizant told Outlook Business. While the board has suggested that the fi ve to eight bidders who have sub-mitted EoIs include a couple of big-ticket

private equity fi rms, the response to the deal has been lukewarm in Mumbai’s pri-vate equity circles. “Th e company’s current fi nancial situation is a black box. Th ere is still a question on whether the investment can be turned around to make decent re-turns in three to fi ve years,” says the head of bank-backed PE fi rm in Mumbai.

Panic Sets InTh ese reasons give Satyam’s already nerv-

United Nations: Suspended Satyam from its list of ven-dors in January and is now said to be in discussions to termi-nate services.

State Farm Insurance: In mid-Janu-ary, the Chicago-headquartered insurer was the fi rst customer to an-nounce the termination ofits contract with Satyam. Analysts put the size of the contractat $50 million.

Nissan North America: The auto major told Outlook Businessthat the “quality” of work with Satyam remains unaffected.But the copmany is speculatedto be moving part of its work toother vendors here.

Customer Speak

FEATURE SATYAM COMPUTER

30

ous and worried customers enough cause to jump ship. Going by the buzz within the company’s ranks at its Hyderabad head-quarters, several customers may not want to wait until the exercise of fi nding a buyer is completed. “Many of our delivery heads are in active discussions with customers to move projects to other vendors along with the delivery team,” says a mid-level

manager engaged with one of Satyam’s pharma contracts.

Indeed, the risk of employee attrition is more real now than ever before. Many of the company’s senior executives based in the US for business development are in the job market. However, that’s not the big worry for Satyam, which has never been known for exceptional front-end capabilities. “Th e company’s strength has always been its off -shore delivery capability, and that is what

competitors are targeting,” says a consul-tant with another US-based outsourcing advisory fi rm. Sources in the company say that in the last three to four weeks, panic has set in and delivery heads, particularly in the telecom and SAP practices, have started fi rming up plans to move on. “In the next few weeks, I expect several 15-20-member delivery teams to start moving out,” says the consultant.

Th ere are some who believe that Satyam still has a fair chance at getting its act to-gether. “If you look at the number of clients who are speculated to be leaving Satyam, it’s less than a dozen. Given that Satyam had over 600 clients at last count, that’s miniscule. A lot depends on the credibility of the new buyer and how eff ectively that buyer communicates to the marketplace,” says Diptarup Chakraborti, Principal Re-search analyst, Gartner.

As the bidding process gathers steam—the registered bidders will have to show proof of cash worth Rs 1,500 crore on March 20—Satyam’s customers can only hope that the credibility and profi le of the bidders will improve. Th at is easier said than done. <

CIGNA: Analysts say that a back-up transition is already in play, but the Philadelphia-headquartered com-pany told Outlook Business that it is still watching the situation.

SanDisk: In a February SEC fi ling, California-headquartered storage devices major SanDisk admitted that Satyam’s fi nancial diffi culties have resulted in “project delays and loss of productivity”. The fi ling goes on to state that if Satyam were to lose key employees or declare bankrupt-cy, SanDisk “would have to engage a new integrator, which would likely result in signifi cant delays in our im-plementation and additional cost”.

GlaxoSmithKline: Industry sources say that Cognizant Technology Solu-tions, which has offshore delivery headquarters in Hyderabad, has been approached by the London-based pharma major to take over its Satyam contract.

Employee attrition is more real now than ever before. Many top executives based in the US for business development are in the job market


SpiceJet is talking of acquiring another player. Given the airline industry’s sorry marital record, that is worrying

FEATURE AVIATION

Sudipto Dey

FOR ALL HIS FABLED ABILITY TO BUY INTOtroubled companies, restructure and turn them around, American investor Wilbur Ross Jr hadn’t really run an air-line until August 2008. Th at was when he bought an undis-closed equity stake in SpiceJet for $80 million. If his inex-perience in aviation was a handicap, it didn’t show. Slowly,

but surely, Ross, Ranjeet Nabha, the India operations head of his private equity fund, WL Ross India, and Sanjay Aggarwal, his handpicked CEO, have begun to the turn the budget airline’s fortunes around. But just as the airline is fi nding its feet, Ross is priming it for a risky leap of faith.

“Th e LCC (low-cost carrier) space is not big enough for fi ve players (SpiceJet, In-diGo, GoAir, JetLite, and Kingfi sher Red). Our investors (read Ross) believe there will be consolidation,” says Aggarwal. “And we will lead the consolidation by buying a com-petitor.” Th is shakeout, he believes, will play out over the next 12 to 18 months. “Th e current market can take two full-service carriers and two low-cost ones.”

Rumours of SpiceJet talking to the Wa-dia-family-owned budget carrier GoAir of a merger have been doing the rounds. However, both sides are mum on the issue. Th e talk, however, had the desired eff ect on the SpiceJet scrip, which surged almost 10% to close at Rs 13 on March 9.

Some call it false bravado. “Indian air-lines are past the consolidation stage,” says M Th iagarajan, Managing Director, Para-mount Airways. “Th ey are in the elimina-tion round.” A few suspect this is posturing on SpiceJet’s part to lure more investors.

But Ross is known to take such audacious gambles—and pull them off . His classic approach is to buy an ailing company in a troubled sector, turn it around, use it to make more acquisitions, and ultimately build a big empire with small initial in-vestments. He did it with steel earlier this decade. He bought a few steelmakers for $2 billion when the US industry was strug-gling, bundled them into one company, International Steel Group, and sold it to

Lakshmi Mittal for $4.5 billion in a few years. He did something similar in the global auto component industry when he bought several ailing fi rms and turned them around to create the International Automotive Group. Now, it appears, he is attempting the same in India’s aviation sector through SpiceJet.

Against The TideBarely four months ago, SpiceJet had out-standing dues of Rs 150 crore. Today, it is getting discounts from suppliers for paying bills on time. Th e airline is, in fact, confi dent that it will hit the break-even mark in fi scal year 2010. If that comes to pass, it will be a seminal event for an industry that has been

An American EagleOn The Wings Of

NILOTPAL BARUAH

We will lead the next round of consolidation by buying out a competitor as and when an opportunity presents itself

—Sanjay AggarwalCEO, SpiceJet

32 OutlookBusiness > April 4, 2009 OutlookBusiness > April 4, 2009 33

plagued by losses across the board. SpiceJet has reason to sound confi dent—

the LCC actually recorded a net profi t (be-fore extraordinary items) of Rs 80 lakh for the third quarter (October to December 2008) of the current fi scal. Th is was largely due to the sharp fall in the price of aviation turbine fuel (ATF). Only a one-time charge of Rs 18.7 crore to settle a legal dispute with SK Modi, the original promoter of the airline, over some pledged shares relat-ing to the airline’s earlier avatar, ModiLuft , marred the results. Th e extraordinary item left SpiceJet with a net loss of Rs 17.9 crore for the period.

During the same quarter, Kingfi sher Air-lines’ net loss stood at Rs 626 crore, while Jet Airways’ net loss amounted to Rs 236 crore. Although it would not be fair to make a comparison between the LCC and the full-service carriers because of fundamen-tal diff erences in their business models, the diff erence in profi tability does refl ect SpiceJet’s improving position.

A Fresh OutlookOver the last seven months, Ross has qui-etly gone about revamping the airline. For a start, he took two seats on the SpiceJet board, one for himself and the other for Nabha. Next, he began looking for a new CEO to head the company’s operations. He found the man he wanted in Aggarwal. But it wasn’t easy roping him in.

When Aggarwal was off ered the top job at SpiceJet in August 2008, airlines across the world were reeling from the runaway cost of ATF, which had almost doubled over a six-month period. Fares had been hiked, but planes were fl ying empty. Th e industry was in a tailspin.

Moreover, SpiceJet, which was wooing him, had closed the fi rst half of fi scal year 2009, ended September 2008, with a whop-ping Rs 325 crore loss. In contrast, its net loss for the whole of the previous year was Rs 133 crore. SpiceJet’s marketshare had dropped to 8% in September 2008. Mean-while, arch-rival IndiGo had taken over the top spot in the budget segment with a 10.3% share. Making matters worse, SpiceJet’s dues to oil marketing compa-nies, aircraft leasing fi rms and airport operators were mounting. So, in spite of having the right pedigree—he had spent 16 years in the US, including six with US Airways and fi ve with a private jet company—Aggarwal hesitated at the thought of heading a loss-making airline.

When he met Aggarwal, Ross perhaps had an inkling of what was running through the other’s mind. In the hours that followed,

he outlined his plans for the airline. Ulti-mately, it just took one line: “We are not in the business of writing off our money,” he told Aggarwal, who was convinced of Ross’s intentions.

Th e new CEO found the work culture at SpiceJet very laid back. Within a few days of joining the airline in October last year, Ag-garwal realised he was “in a company that was safe but lethargic. It had great people to work with, and a very good brand identity, but it needed a breath of fresh air.”

Aggarwal says Ross gave him a simple and clear-cut brief: plug cash outfl ow and expand the business. He went about the job with a missionary zeal. In keeping with the general economic mood, existing supplier contracts were reviewed and fresh contracts signed with new terms and conditions. Th e airline’s 2,300-odd employees, including pilots, cabin crew, ground- and front-of-fi ce staff , were also told not to expect any increments in 2009. Th at alone will save the carrier Rs 20-25 crore annually.

Today, in addition to nearing the break-even mark, the airline has increased its mar-ket share to 11.8 % in January and 12.6% in February. “We will fi ght for market share and there will be no compromise on our bottom line,” says Aggarwal. “We are aim-ing for break-even by next fi scal (FY10),” he adds. Th at may happen if ATF prices continue to remain at current levels.

Now, even as they continue to work on making the airline profi table, Ross and Ag-garwal are upping the ante for others in the budget airline space. A merger with GoAir, however, won’t be much of a bargain given that the latter controls barely 2.5% of the low-cost space. Moreover, SpiceJet has sig-nifi cant capital requirements and needs a further injection of funds. Aggarwal, how-ever, insists that the cash infusion by Ross will last for several years. Th e airline’s accu-mulated losses are pegged at Rs 850 crore

and it is still a zero-debt company.Th e fi rst round of M&A activity in

the sector, between 2005 and 2007, achieved nothing, a fact that was crystal clear in FY09, when the industry as a whole was reeling under losses to the tune of Rs 8,000 crore. In hind-sight, analysts believe both Kingfi sher Airlines and Jet Airways would have been on sounder fi nancial ground had they not taken the M&A route to buy Air Sahara and Air Deccan, respectively. Letting Air Deccan and Air Sahara exit the market on their own, they say, would have been the smarter thing to do. Can SpiceJet prove them wrong with an acquisi-tion of its own? <

Source: Company website, Ministry of Civil Aviation

The Wilbur Ross Effect After Wilbur Ross landed in SpiceJet, in August, its losses have fallen and market share risen

Net loss (Rs cr)

Market share (%)

0

-50

-100

-150

-200

-250Jan-Mar

2008Oct-Dec

2008

-127.5

-18.0

14

12

10

8

6Jan

2008Feb

2009

10.3

12.4


FEATURE AVIATION

We are not in the business of writing off our money

—Wilbur L Ross JrChairman, Wilbur Ross & Company


FEATURE PRAJ INDUSTRIES


GREEN GAMBLE

Oil is cheap again. But Pramod Chaudhari is still betting that ethanol, the clean fuel, will be a sound

business for the future

3736

Rajiv Bhuva

PRAMOD CHAUDHARI BOUGHT A SMALL lot of about 29,000 shares of his company worth Rs 24 lakh, on October 8, 2008. Th is was the fi rst time that India’s ethanol evangelist and the chair-man of Praj Industries had bought his company’s shares from the open market. To an outsider, the

timing would have seemed awfully wrong. Over the next few weeks, oil prices slid inexorably downwards and the sheen wore off global companies that produce ethanol (a biofuel alternative to conventional fos-sil fuels). Verasun Energy Corp, an $848 million ethanol producer, went bankrupt. Others, including Pacifi c Ethanol, which has Bill Gates as a big investor, saw their share prices go into a free fall. It was a time to sell ethanol stocks, not buy.

But Chaudhari and his family kept buy-ing the Praj stock off the market. He would buy at least fi ve to six times every month. Some transactions were small—less than 9,000 shares worth about Rs 5 lakh. Some were big—almost 100,000 shares worth Rs 7.7 crore.

Over the past six months, oil kept sliding. Th e bad news kept coming. Th e share prices of ethanol companies, including Praj, kept falling. (Pacifi c Ethanol went from $40 to 25 cents.) But Chaudhari kept buying—qui-etly, yet frequently and with clear resolve.

“Th is establishes faith in the future of the company,” says Chaudhari. Th e last trans-action recorded before this issue went to press was about 256,00 shares, at about Rs 50 a share. In all, Chaudhari had invested Rs 21 crore in 26 transactions and bought 1.75% of the company.

In a season when promoters were pledg-ing their equity stakes, Chaudhari was among the rare exceptions to increase his holding. It was his own, quiet way of re-affi rming his belief that ethanol was still the best hope for Praj Industries—and for a cleaner, greener world.

It takes a lot of faith to believe when every-body else is giving up. And it is Chaudhari’s unwavering belief in ethanol that could be Praj Industries’ biggest asset. Or if things go wrong, its greatest undoing.

Aft er a four-year climb, oil prices have dropped sharply, putting Praj Industries’

We have established technical feasibility of our second-generation ethanol technology at a pilot scale and aim to go commercial by 2011—Pramod ChaudhariChairman, Praj Industries

SOU

MIK

KAR


Vinod Khosla Holding in Praj|5.95%Market value|Rs 51.1 crGain/loss|-61%

ethanol-centric business model through a severe test. Praj sells technology and en-gineering services to global fi rms that set up ethanol plants. Between 2003 and 2008, rising oil prices (it shot up from $30 per barrel to $145) propelled Praj Industries into a high orbit. As oil became more ex-pensive, demand for ethanol soared, gener-ating loads of business for Praj. Its revenues grew from Rs 98 crore to Rs 768 crore and its market capitalisation from Rs 44 crore to Rs 2,737 crore. It also attracted big money from marquee investors like the Tata Group, green capitalist Vinod Khosla and hotshot investor Rakesh Jhunjhunwala (See box: Th e Triumvirate Th at Is Backing Praj).

But in the past eight months, oil prices have dipped 68%. Th e Praj stock has had a hard landing, falling 77%. Its order book dipped from Rs 950 crore in September 2008 to Rs 800 crore in December. Its US and Brazilian subsidiaries (both big etha-nol markets) are yet to break-even. Sev-eral ethanol producers in the world like Aventine Renewable Energy Holding, Pa-cifi c Ethanol and Green Plains Renewable Energy, all potential Praj customers, have reported huge losses in recent quarters. A few more are tottering on the brink. Faced with a real threat of being yanked out of his high growth orbit, Chaudhari is grappling with a tough question: is Praj Industries’ dream run coming to an end?

Chaudhari doesn’t think so. He believes ethanol will still be the fuel of the future, and is continuing funding research on new-er and cheaper bio-sources. He has just announced a breakthrough: the cellulosic biomass to ethanol technology, a second-generation process to extract ethanol from corn cob and sugarcane bagasse, both waste products in food production.

So far, ethanol has largely been extracted from the main food sources, namely sug-arcane molasses, corn and wheat. Th e new technology will enable companies to pro-duce ethanol from food waste, not food. A team of scientists are also working on taking the company from the second-generation

to the third in biofuels. “We are currently working on algae (as a source for ethanol). It will take at least four to fi ve years to get commercialised,” says Chaudhari. All this research is being done at Praj Matrix, a re-search hub in Pune, that it set up last April with an investment of Rs 50 crore and a head count of 50 scientists (75 now).

The Food-Fuel ParadoxTh e idea for the cellulosic biomass to etha-nol technology was originally hatched in a diff erent economic environment. In April 2008, when Praj started work on cellulosic ethanol, the world was gripped by a food versus fuel debate. High oil prices were sucking food products like sugarcane, corn and wheat into biofuel production. Th is sent food prices soaring and even threatened to unleash a global famine, especially in the developing world. “Even hedge funds were very active in commodity trading, leading to humungous price rises,” says Shashank Inamdar, CEO and Managing Director, Praj. Th e biofuel industry was severely challenged in the furore that en-sued. Until then, Praj had evolved its tech-nology, moving from sugarcane molasses as feedstock to starchy feedstock, namely corn, wheat and cassava. But these were all fi rst-generation biofuels and competed with food sources.

By the time Praj unveiled its new tech-

Rakesh Jhunjhunwala Holding in Praj|8.47%Market value|Rs 72.2 crGain/loss|NA

Tata CapitalHolding in Praj|7.32%Market value| Rs 62.88 crGain/loss|-81%

THE TRIUMVIRATE THAT IS BACKING PRAJ



nology of extracting ethanol from agri-waste and non-food products, the food versus fuel debate had turned on its head. Food prices have now dropped due to a variety of reasons. Agricultural produc-tion has grown 23% in North America and Europe, compared to a 20% decline last year. “Th e problem now is of surplus grains,” says Chaudhari.

The Second GenerationNevertheless, the technology is still rel-evant, though it is likely to go commercial only in the next three years. Globally, com-panies manufacturing ethanol using fi rst-generation technology are slowly dying. Th ey are being replaced by several newer companies that are betting on second-gen-eration celullosic ethanol, the kind Praj has developed.

But the problem is that second-genera-tion ethanol is still not cost-eff ective. It can cost $2.5-3 a gallon—quite high compared to ethanol from conventional food sources ($1.5-1.7 a gallon) and regular gasoline prices of ($1.5-1.8). “Currently, on its own, cellulosic ethanol is not cost-competitive,” concedes Inamdar. Th ere are other chal-lenges too. Th e sourcing of agri-biomass (corn cob, bagasse, etc) is an issue, concedes Chaudhari. But going forward, costs will come down.

To begin with, using waste, not foodgrains, will help, once companies fi nd effi cient ways to source the biomass. Second, conventional ethanol plants can upgrade to cellulose ethanol easily. “Th e plant would require an add-on module with a relatively smaller investment to extend the utilisation,” says Chaudhari. Further, many ethanol plants work for part of the year, as foodgrain pro-duction is seasonal. An add-on second-generation module that can use waste from the conventional mother plant can extend the production cycle for greater utilisa-tion, believes Inamdar. “Ethanol plants in India operate at 60% utilisation levels and the 40% under-utilised capacity can be optimised.”

Many believe second-generation ethanol prices could come down substantially by 2012 or so. And if feedstock challenges are overcome, ethanol production could surge, giving companies like Praj more new busi-ness. But that promise is still on paper. So far, ethanol has promised more than it has delivered. Only the naïve would rush to any conclusions until many companies kick-off commercial production using second-gen-eration technologies. Among the skeptics is Arjun Murti, Head, Global Energy Equity Research, Goldman Sachs, the man who had, in May 2008, famously predicted that

Hunt For The ElixirPraj Industries has worked on three generations of biofuel technology

Conventionally, ethanol has been produced from molasses. Praj has also promoted sweet sorghum as an alternate energy crop for ethanol production

FIRST-GENERATION

SECOND-GENERATION

THIRD-GENERATION

Molasses

Starchy Feedstock

Praj has developed technology to manufacture ethanol from grains like corn, wheat and cassava

Agri Biomass

Praj has achieved breakthrough at pilot scale for cellulosic ethanol. The feedstock includes corn cobs, sugarcane baggase. Praj’s research centre is also working on variety of grasses to be used as feedstock. The commercial demo plant would be up by 2011

Algae

Praj is separately working on algae as possible feedstock for biofuel. However, this could take at least 4-5 years to get commercialised

Ripple Effect

Praj

Oil

Praj’s fortunes have risen with oil—and fallen with it

oil would touch $200 a barrel, when it was trading at $120. “Next generation biofuels such as cellulosic ethanol are still years away from commercial viability,” he had concluded in that report. Much has hap-pened since, but doubts persist.

It will be a few more years before Praj starts building ethanol plants (for clients) using its new technology. “We have estab-lished technical feasibility at a pilot scale and aim to go commercial by 2011,” says

Chaudhari. Simply put, it is going to take a while before Praj’s revenues get a boost from its second-generation ethanol tech-nology. But Chaudhari is happy to wait and keep investing. Th is is his big, green gamble, and he fancies his chances.

More importantly, Praj has enough cash to last the wait. Besides operational cash fl ows of about Rs 100 crore a year, the company had free cash of Rs 240 crore (as on March 2008). “Praj is trading at an attractive level given the company’s current cash position, which translates to Rs 20 per share,” Sanjay Manyal, Analyst, ICICI Securities said in a research note released in late-January.

Th e company is also debt-free and has funded two recent projects—the expan-sion of its engineering-manufacturing facility in Kandla (Gujarat) and Praj Ma-trix—with internal accruals. “We are not worried about funding our current tran-sition path,” says Inamdar.

The Case For EthanolFor governments, mainly in Western countries, biofuels (especially ethanol) are emerging as a clean and cheap fuel option. Many of these countries have taken initia-tives to promote biofuel usage. Mexico has mandated 10% blending of bio-ethanol. Th e European Union, in December, adopted a renewable energy directive mandating 10% biofuels blending in all transport fuels by 2020. Th is mandate requires an addi-tional capacity of 12-14 billion gallons of bioethanol. Recently, the US advanced its renewable fuels target of 11 billion gallons from 2012 to 2009.

“Th ese measures refl ect a global commit-ment towards biofuels and provides Praj with many opportunities,” observes ICICI Securities’ Manyal. Another Mumbai-based brokerage, Finquest Securities, forecasts Praj’s revenues to grow by 10% in FY10 as a result of the demand from European Union and the US. Global business forms about 60% of Praj’s orders. “Going forward, our international business proportion will keep increasing,” says Inamdar.

Th e US energy bill has specifi cally laid out the path for advanced biofuels production: 21 billion gallons by 2022, of which, 16 bil-lion gallons should come from cellulosic ethanol. “Th ey (US) have a well-defi ned subsidy of $1.1 per gallon, which is a large incentive,” says Inamdar, who believes that the US and Europe would be the major market for cellulosic ethanol. “Encouraging policies supplemented with fi nancial sup-port from government make them distinctly attractive,” Inamdar adds. For Praj, despite the weak barrel, hope still fl oats. <

Prices rebased to 100

Jan 2, 03 Mar 9, ‘09

300

200

100

0Rs 3 Rs 46

Jan 2, 03 Mar 9, ‘09

160

120

80

40

0

$31

$47

Nymex crude

Share price (Rs)

( $ per barrel)


COVER STORY PROTECTIONISM


Right now, there’s something our citizens can do for their country: bet on Spain, bet on our products, our industry and our services — bet, in short, on ourselvesMiguel Sebastian, Industry Minister of Spain

We want to stop moving factories abroad, and perhaps we will bring them back. If we are to give fi nancial assistance to the auto industry, we don’t want to see another factory being moved to the Czech RepublicNicolas Sarkozy, President of France, in a TV interview in February

We will restore a se nse of fairness and balance to our tax codes by fi nally ending the ta x breaks for American corporat ions that shi pour jobs overseasBarack Obama, President of the United States, to Congress

There are some who want to extinguish the fl ames of the crisis with the fuel of protectionism and still others who want to have a boat of their own, a national boatMirek Topolánek, Prime Minister of the Czech Republic, responding to Sarkozy in the European Parliament on February 17

Can anybody here say that they don’t want British workers to get jobs in our country?Gordon Brown, Prime Minister of the United Kingdom, in the House of Lords, in early-March

WALLED MARTWorld leaders are building barriers to protect their workers and indu stries. Such tendencies protect little, they erode a lot—for everybody

ASHISH GUPTA

n THE US STIMULUS BILL HAS A ‘BUY AMERICAN’ PROVISION IN THE $150 billion public infrastructure projects it is launching to kick-start the econo-my—only material made in the US should be used. However, while allowing the 27 European Union members and 12 other countries to bid for these contracts, the bill keeps out the four BRIC (Brazil, Russia, India and China) economies.n Turkey has increased import tariff s by 15 percentage points on goods coming from developing countries that don’t have a free trade agreement with it. n Malaysia has banned the hiring of foreign workers in factories, stores and res-

taurants. In Britain, UK Prime Minister Gordon Brown’s slogan “British jobs for British workers” has become a rallying cry. n Th e €6 billion lifeline the French government is extending to three of its home-grown automakers—Renault, Peugeot and Citroen—comes with the rider that they will not move plants to other countries and use them to service home de-mand; they will have to shut down overseas plants that are doing so.n When Citigroup arranged an $8 billion loan for public authorities in Dubai and Bank of America lent $7 billion to the China Construction Bank, they drew fl ak from a Congressional committee. Why were they using the $200 billion US bailout money to lend to foreign borrowers instead of domestic ones, it asked.

42 43


Th ey are just gusts today, but they are already putting some of the aff ected sectors, businesses and individuals through the blender. More worryingly, in a world economy that is hurtling downhill and whose bottom can’t be seen today, these gusts have the potential to become storms. Although governments pitch such protectionist tendencies as home fi xes for the current bout of economic hardship, this inward-thinking strategy can backfi re and prolong the world recession.

“Protectionism is a misnomer,” says Manoj Pant, Professor, School of International Studies, Jawaharlal Nehru University, New Delhi. “In the long run, it protects nothing, but erodes competi-tiveness, growth, employment and real incomes. Th is has never been more true than it is now.” A tit-for-tat spiral into protection-ism, says Pant, will not only be self-defeating, but also exacerbate the global downturn.

Turning Inwards“Protectionist sentiments grow in a downturn,” says Maryscott Greenwood, Executive Director, Canadian American Business Council. Governments, today, are resorting to four types of protectionism. Trade protec-tionism, the fi rst type, is the most rampant and the one with the maximum ramifi cations for nations. In order to breathe life into their domestic industries, countries are raising old barri-ers or erecting new ones against participation by entities from other countries.

According to a study by Elisa Gamberoni, a World Bank econo-mist, and Richard Newfarmer, the World Bank’s special representa-tive to the UN, between December 2008 and February 2009, gov-ernments have proposed or enacted 78 trade-restricting measures. Ironically, these include 17 of the G20 countries, most of which have, over the years, championed the cause of free trade.

Th ere are diff erences in the ‘economic nationalism’ strategy followed by developing and developed nations. Th e developed world has, historically, relied on subsidies, primarily in agricul-ture. Now, they are also looking at preferential terms for domestic industries, a case in point being the US infrastructure push and the debate on outsourcing. Developing countries, by comparison, have mostly relied on prohibitive tariff s and quantitative restric-tions on imports. In 2009, Ecuador, for instance, has put quantity restrictions on about 900 items like Peruvian shampoo, Chilean grapes and American shoes.

Th e second kind of protectionism being practiced is labour protectionism—restrictions on labour movement. With unem-ployment rates at record highs and job losses increasing by the day, workers and unions are fanning the fl ames of economic na-tionalism, and forcing governments to act to protect their inter-ests. In January, in the UK, British workers struck work due to a dispute over the use of Portuguese and Italian contractors in oil refi neries, which triggered several sympathy protests.

In the US, the noise against outsourcing among workers, think tanks and policymakers has increased. “Call this ‘xenophobia’ if you will, but the pain is real,” says Les French, President of Wash-Tech, the technology workers’ union in the US. “Opposition to both outsourcing and guest-worker programmes grows in pro-portion to the pain felt by those losing their jobs and seeing their replacements come from abroad.”

Such outpourings are now having an impact. In January, Ma-laysia banned the hiring of foreign workers in factories, stores

and restaurants. In the US, soon aft er Microsoft announced plans to axe 5,000 jobs, US Senator Charles Grassley, a long-time critic of the H-1B programme, demanded that the company give priority to Americans over H-1B workers in retention.

Th e US stimulus bill, in fact, places restrictions on hiring of foreign workers by fi nancial entities being bailed out by the government. Says Matthew No-lan, Partner, Arent Fox, a US law fi rm: “Th ey can’t apply for visas

for highly skilled immigrant workers.” Recently, Bank of Ameri-ca, which has already received $45 billion from the government Troubled Assets Relief Programme (TARP), withdrew job off ers to foreign MBA graduates.

Mostly under directives from their saviour-governments, fi nan-cial entities that are in trouble are also practicing the third form of protectionism: capital protectionism. Th e US, UK, Germany, France, Greece and Denmark governments have told the banks they are hand-holding to lend their scarce capital to domestic companies and households, rather than to foreign ones. “Govern-ments are infl uencing banks’ commercial decisions and distorting credit allocation to sectors that they might consider politically important,” says Arpitha Bykere, Lead Analyst, RGE Monitor for South and South-East Asia, US and International Trade.

Similarly, the French government has promised to provide €5 billion to French banks on the condition that they lend mostly to cash-strapped airlines that might cancel, or reconsider, orders

FROM THE MIGHTY US TO TINY ECUADOR, FROM STAUNCH capitalists like the UK to communist regimes like China, the winds of pro-tectionism—economic policies that provide preferential treatment to a chosen few in the name of ‘home advantage’—are blowing across the world. Th eir points of origin lie in sectors of consequence, like banking, automo-tives, IT, steel and textiles, to name just a few. And they are grazing every important aspect of the way the world does business—foreign trade, labour movement, capital allocation and asset building.

It leads to ineffi cient allocation of labour and capital, and trade distortions. An integrated world means the fallout is wide and deep

Disunited Colours Of ProtectionismSince December, many countries have changed policy or made statements of intent that restrict, even cut off , access for the outside world. Th ey cover four major areas and their impact is sweeping.

ASSETSFRANCE Promised €5 billion to

French banks on the condi-tion they lend mostly to cash-strapped airlines that might cancel orders with European aircraft manufacturer Airbus. A €6 billion bailout pack-age for carmakers Renault, Peugeot and Citroen has two riders: they should not lay off workers at home and they should not set up plants in other countries to service home demand. The coun-try also created a $25 billion fund in November to “protect strategic companies from for-eign predators”

TRADEARGENTINAIncreased restrictions

on imports of items such as Brazilian and Chinese cutlery, and Thai air-conditioners; im-posed licensing restrictions on auto parts, textiles and televi-sions, among others

BRAZILIncreased import duty

on wine, leather and leather products, dairy products, wooden furniture, peaches and textiles

CHINABanned imports of

Irish pork, Belgian chocolate, Italian Brandy, British sauce, Dutch eggs and Spanish dairy products; altered value-added tax rebate system to promote exports; imposed restrictions on raw material exports; can-celled export licence require-ments; increased rebate on duty drawback for exporters

ECUADORIncreased import du-

ties on 940 products

EUROPEAN UNION Imposed duties on

preserved fruits from China, as well as on welded tubes and pipes from Russia, Bela-rus and China

INDIACut excise duty across

the board; hiked import du-ties and placed quantitative restrictions on steel products; imposed 20% import duty on palm oil; lifted ban on Chi-nese toys, but with restric-tions; raised rebate on duty drawback for exporters

INDONESIAImposed licensing re-

strictions on imports of about 500 items; placed limits on imports of garments, electron-ics, toys and food; cut VAT

KAZAKHSTANRaised import duties

on certain goods from China

RUSSIAHiked import tariff on

cars to 35%; increased import duties on some metal prod-ucts, farm machinery, food products and rubber products; cut limit on poultry imports

SPAINIndustry Minis-

ter Miguel Sebastian has

launched a ‘Made in Spain’ drive, exhorting Spaniards to buy Spanish clothes and take ski holidays in Sierra Nevada, Spain, instead of the Alps

TURKEYIncreased duties by

15% on imports from devel-oping countries that don’t have a free trade agreement with it

UNITED STATES Made the $150 bil-

lion spend on public works conditional to use of material made in the US or 39 other countries that have a free trade agreement or an agree-

ment on government procure-ment with it. Excluded China, Russia, India and Brazil, among others

CAPITAL

ARGENTINA, ICELAND, INDONESIA, UKRAINEImposed restrictions on availability of foreign exchange

CHINADirected banks to

lend more to export-oriented fi rms, and to small- and medium-sized companies

RUSSIAImposed restrictions

on availability of foreign exchange. Its central bank has also advised Russian banks to channel credit to domestic producers if they want to access central bank funds

UNITED KINGDOM Royal Bank of

Scotland, the benefi ciary of a big government bailout, has said it will cut back or withdraw from 36 of the 54 countries it operates in. The government has also asked the bank to give priority in lending to domestic entities

UNITED STATES Asked the 300-odd

banks that are receiving government largesse to give priority in lending to domestic companies and individuals

UZBEKISTAN Imposed limits on

imports of consumer goods by placing restrictions on access to foreign exchange

LABOURKAZAKHSTANHalved quota for

foreign labour

MALAYSIABanned hiring of

foreign workers in factories, stores and restaurants

UNITED STATES Imposed stringent

conditions on hiring of H1-B workers by fi nancial entities benefi ting from the government bailout; has asked companies to retrench foreign workers before locals

UNITED KINGDOM Wants “British jobs

for British workers”


LIFT OFF: French banks have been asked to lend money to airlines that have placed orders with Airbus


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with European aeroplane manufacturer Airbus. “We could well be a seeing a situation when private banks increasingly become state-owned and state-directed,” says an investment banker.

France is the most active on the fourth type of protectionism: asset protectionism—preventing assets from going out of the country. Besides off ering a conditional bailout to French auto companies, and ensuring business for Airbus, President Nicolas Sarkozy’s government has also created a $25 billion sovereign wealth fund in November 2008 to “protect strategic companies from foreign predators”.

The India Impact With the recession in the world economy deepening, the Inter-national Monetary Fund (IMF) expects global trade to fall by 2.8% in 2009—the fi rst contraction in almost 30 years. As coun-tries see a serious drop in their national growth and exports, elected representatives are being forced to take the ‘economic nationalism’ route to pacify domestic constituents. Although these measures comply with the rules of the World Trade Or-ganisation (WTO)—the body that oversees world trade—they discriminate against foreign companies, workers and investors. “Th ey use legitimate discretionary powers at their disposal to keep out foreign competition,” says Pradeep S Mehta, Secretary

General, Consumer Unity and Trust, a think-tank that looks at WTO and other regulatory issues.

In terms of money at stake, the US is proving to be the most protectionist. It doesn’t want to proceed with the already-signed free trade agreements (FTAs) with Panama, Colombia and South Korea. Forget about new FTAs, it is talking about renegotiating NAFTA. All this on top of the fi scal stimulus bill’s terms and conditions. Says Greenwood of the Canadian American Busi-ness Council: “Such provisions will have an adverse impact on both the US and its trading partners, like Canada. In the long run, it will deplete the competitive advantage of the US.” Over a period of time, protectionist policies result in ineffi cient allo-cation of labour and capital, and create trade distortions. And given that the world is more integrated than ever, its fallout will also be wider and deeper.

Today, goods are no longer made in just one country. Th e produc-tion chain has many more links and winds itself through several countries. If, say, the US stops imports of laptops assembled in China, it not only throws China’s laptop assemblers into disarray, it also aff ects thousands of component-suppliers in countries like Taiwan, South Korea and Vietnam.

A reduction in Chinese exports to the US hurts India too. China is forced to cut output, which means it buys fewer inputs (mostly commodities) from countries like India. In January to October 2008, India’s exports to China fell to $345 million—a drop of 65% over the 2007 fi gure of $1 billion.

In 2009, because of falling demand and protectionist measures, India’s total exports are expected to contract in dollar terms. Admits A Sakthivel, President, Federation of Indian Export Or-ganisation (FIEO): “We will be lucky to cross last year’s export target of $163 billion. Most sectors have been registering nega-tive growth since October.”

India has more to lose than gain in a protectionist world. Th e WTO Doha negotiations will drag on for a few more years. And India’s eff orts at signing free trade agreements—the fast road to increasing trade—with countries such as Korea, Japan and the

A tit-for-tat spiral into protectionism will not only be self-defeating, but also prolong the global downturn

LABOUR PAINS: In February, British workers struck work over the use of foreign labour at a French-owned oil refi nery in eastern England

46

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EU will be pushed back, as countries will now have a large wish-list of items on which they wouldn’t like to cut tariff s.

Shrinking trade means loss of business for Indian exporters. In an uncertain demand environment, even exporters who are in business will fi nd it more diffi cult to get a guarantee for a let-ter of credit. Compounding the problem is the acute shortage of global funds, which not only hurts fi nancing of trade, but also domestic capital needs.

Foreign capital played a big role in taking India’s GDP growth to 8-9%. If foreign banks, directed by nationalist urges rather than economic logic, choke external supply, it will aff ect the growth plans of Indian companies. With more domestic demand compet-ing for less capital, it will exert upward pressure on domestic interest rates.

Even in labour, India has much to lose. It is one of the largest suppliers of human capital to the world, which serves its own interest, as it may not be able to absorb everyone at home. Mi-grants are also a source of capi-tal. Be it soft ware engineers in the US or construction workers in the UAE, they earn a multiple of what they would earn in India, and remit it. Economists Arpitha Bykere and Rachel Ziemba, in a paper titled Th e Re-emergence of Global Protectionism: A Newer Version of Smoot-Hawley, say: “Th ere are reports the UAE has instituted policies to protect jobs of its nationals. Th is will reduce remittance fl ows to other countries in the Middle East and North Africa and to South Asia.”

Other countries will also see a similar interplay between protec-tionism and their economies. Say Bykere and Ziemba: “As Russia contracts, Central Asians working in Russia are losing jobs and are facing greater pressure from nationalist groups. With remittances

as high as 30-50% of GDP in many Central Asian countries, the reduction in remittances will exacerbate the contraction.”

Tit For Tat If countries start to retaliate, it can become more sweeping. Jag-dish Bhagwati, Professor, Economics and Law, Columbia Uni-versity, argues that India and China can raise tariff s on items that are of export interest to the US. It’s a realistic possibility, as tariff s on most commodities in both countries are far lower than their respective WTO ceilings.

Th ey can also retaliate in other ways to hurt the US. For example, they can shift their commercial aeroplane purchases from Boe-ing (of the US) to Airbus (of Europe), and of nuclear reactors from American to French fi rms. Th at will, probably, raise cries of further retaliation by some US senators. Says Bhagwati: “Th e notion that the US will continue to be a player and a referee no longer works. So, we would have a Hobbesian chaos.”

In the auto industry, for ex-ample, aft er the US govern-ment bailed out General Mo-

tors, Chrysler and Ford, several other West European countries like Sweden, France, Germany, Italy and Spain did the same for carmakers in their countries. “When the Americans put up $30 billion to support their auto industry, you cannot accuse any coun-try of being protectionist,” Sarkozy remarked. In Europe, though, the support being provided by Western European countries to their auto companies could pose an uncomfortable question to the single-market ideology of the EU. France and the Czech Republic have been trading barbs on the location of automobile plants, and any moves on either side can create challenges.

17 of the G20 countries, champions of free trade, have proposed or enacted trade-restricting measures between December and February

LIFELINES: The French struck work in Lyon in January to force the government to do more to protect jobs and wages

50

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In a recent paper titled Buy American: Bad for Jobs, Worse for Republicans, economists Gary Clyde Hufb auer and Jeff rey J Schott from the Peterson Institute of International Economics, Wash-ington, show the extent of damage that protectionism can cause the US because of its $150 billion diktat on public infrastructure. According to the authors, the ‘buy American’ provision will add 500,000 tonnes to US steel production. Because steel is a capital-intensive industry, it will add only 1,000 jobs.

Now, say, the top 12 trading partners retaliate, and decide to cut off US participation in their government programmes. Th e authors extrapolated that the value of US participation in public projects of other countries was $104 billion. At least a small share of these exports was at risk of “echo or retaliation measures.” Even if 1% of those exports were lost, they estimate, the US would lose 6,500 jobs; if it is 10%, as many as 65,000 jobs could vanish.

Come Undone It’s something the US experienced the last time it went into a protectionist funk, of far greater import, in the wake of the great market crash of 1929. Th e Smoot-Hawley Tariff Act, passed in 1930, raised import tariff s on about 20,000 items to record levels. Many countries retaliated and increased tariff s on US imports. All this had a catastrophic eff ect on trade and employment. In 1933, trade of most countries fell 50-80% from 1930 levels. US imports plunged 66%, exports 61% and GDP 50%; unemploy-

ment rose from 3% in 1929 to 25% in 1933.Today, the contours of the world economy and the rules that

govern it are very diff erent. Economists Bykere and Ziemba, in their paper, say: “Th e probability of these measures becoming signifi cant enough to lead to a trade war like in the 1930s might be low given that countries understand that retaliation eff ects will be counter-productive for domestic growth and jobs.” Th ere’s also the WTO to go to, which wasn’t the case in the 1930s.

However, protectionism can set the world economy back by many years. It was aft er the end of the Cold War in the late-1980s that globalisation came into its own and enabled developing economies to express their strengths and fl ourish. Trade between countries got organised under the aegis of various trade blocs and the WTO. Movement of goods and services, and labour and capital, got freed. Th is increased asset effi ciency made goods and services cheaper, allowed for innovation, lift ed world output as a whole and spawned possibilities.

South-east Asian nations like South Korea, Th ailand and Taiwan, and Central American countries like Mexico, took their economies to another level on this export-driven growth. Even developed countries saw new markets open up for them. Th ey were the ones who negotiated, pressured and arm-twisted developing economies for greater access. Now, ironically, they lead the barrier brigade, while developing ones, especially the ones that are coming into their own, are crying for access. “Protectionism can seem benefi -cial at fi rst...But in the long-term, it wounds countries, above all, poor countries, which need to sell their goods to rich countries,” Brazilian President Luiz Inacio Lula da Silva said in an interview with the Wall Street Journal earlier this month.

If this march down the road of protectionism gathers pace, it will tug at these linkages that were established or getting established in line with an economic model that had a reasonable degree of global consensus, and snap them. Th ey will be joined together again, but if effi ciency and competitiveness are not guiding fac-tors, goods, labour and capital won’t fi nd their way to where they are wanted or where they will be valued fairly.

Th e coming years are going to be a tussle between protectionist forces and votaries of free trade. Although the protectionist noises are coming from the highest quarters, there is also some recog-nition of the fl ip side of this phenomenon. Also, at some point, the free trade supporters will exert pressure to counter shrinking trade. Take Obama’s declaration that he will stop tax credits to US companies that outsource jobs. Says Ron Hira, Assistant Profes-sor of Public Policy at Rochester Institute of Technology, and an expert on outsourcing: “MNCs hold a lot of power in Washing-ton. Th ey will fi ght any attempt to eliminate these breaks.” (Turn to for full interview with Hira.) If protectionism still wins the day, the world will be the loser. <

With TV Mahalingam in Mumbai and Sharmistha Chakraborty in Washington DC

The ‘buy American’ clause will create 1,000 steel jobs. But if the US’ trading partners retaliate, it could lose 6,500-65,000 jobs

ALIEN TREATMENT: Demonstrators protest outside the Malaysian embassy in Jakarta against abuses suffered by Indonesian migrant workers in Malaysia

52

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OutlookBusiness > April 4, 2009 OutlookBusiness > April 4, 2009

workers probably won’t join a traditional union. So, there needs to be some new organisational model.

How many tech jobs have been lost in the past US in the couple of months? How many more job cuts do you see coming in?It’s hard to get a real-time, aggregate picture. Major technology companies have announced major job cuts. Th e semiconductor and auto sectors have been hit hard. Sectors that are huge consum-ers of technology like banking, insurance, auto and infrastructure are reducing spending. Th e other negative is the probable cuts in defence spending (for example, technology conglomerate United Technologies recently said it would slash about 12,000 jobs).

Obama’s easing up on the war eff ort will adversely aff ect Ameri-can engineers. War is good for the engineering labour market. On the positive side, some of the government stimulus spending will help engineers in infrastructure, alternative energy, healthcare and IT. Th e net eff ect is that engineering unemployment will rise in the near term, and the job market for them will remain poor for the next 18 months at least.

IT services fi rms like Infosys, IBM and TCS say that the cost sav-ings they provide through outsourcing, especially offshoring, are vital for the survival of their American clients, which, in turn, will

protect American jobs...Of course, they will say that, as it serves their purpose. Americans have to understand that companies, whether they are US-based or for-eign, will promote their own interests. IBM’s CEO Sam Palmisano doesn’t get paid based on how many American employees IBM employs. He doesn’t care if the policies he advocates are bad for American workers, including his own, or for the US economy. What’s good for IBM is not necessarily good for America, and vice versa. IBM will lobby for policies that are good for IBM’s executives, even if they are bad for the American economy. Further, compa-

nies have a disproportionate infl uence over the political process, which is why we have dysfunctional policies like H-1B and tax breaks for shipping jobs overseas. Th ese are good for companies, but bad for the US economy.

But experts say that outsourcing will benefi t the US economy...In 2004, Nobel Laureate Paul Samuelson explained what economic theory can and cannot tell us about outsourcing. He showed that there are scenarios where outsourcing can make America poorer. Samuelson wrote the article to correct the “polemical untruths” being perpetrated by economists like Jagdish Bhagwati.

Further, even the strongest advocates of outsourcing have stat-ed it will be bad for American workers. For example, a study by McKinsey’s Diana Farrell shows the US gets $1.12 back for each $1 off shored. Th e study—a lobbying document, not a serious analysis—also found that American workers get 72 cents of that $1 before off shoring, and only 45 cents of the $1.12 aft er outsourc-ing begins. So, even the biggest proponents of outsourcing fi nd that American workers lose from outsourcing. It’s also impor-tant to note that Farrell was appointed by Obama to the National Economic Council—the highest organisation within the White House providing economic advice. Th is is a clear indication that Obama doesn’t take outsourcing seriously. <

What are your main objections to the H-1B programme? Th e H-1B programme is meant to supplement the US workforce where there are specifi c shortages. But some loopholes in the law helped companies use it to pay below-market wages and force US workers to train their replacements. Instead of complement-ing the US workforce, employers used the programme to replace American workers.

The recent bailout package has restricted those who receive re-lief from hiring H-1B visa holders. Will this move reduce H-1B-worker use by American fi rms, especially on Wall Street? Th e Troubled Assets Relief Programme (TARP) legislation will have a small impact on the abuse of H-1B by banks. Many of the banks have policies in place where they force US workers to train foreign replacements. Th is trend sometimes results in trag-edy, as in the case of Kevin Flanagan, who was forced by Bank of America to train his foreign replacement. He was so distraught that he committed suicide. Th e H-1B programme has been over-subscribed for the past few years. Demand has been fuelled by the fact that H-1B workers are cheaper. It has nothing to do with the supply or demand in the US labour market.

Research by organisations such as National Foundation for Amer-ican Policy (NFAP) suggests that fi ve jobs are created for every H-1B worker who comes to the US. Indian IT industry bodies like Nasscom use this statistic to defend H-1B in its current form... Th is is an absurd assertion, and anyone making it should be laughed out of the room. First, the study didn’t say what you’re claiming it did. It found a correlation between H-1B hires and worldwide increases in jobs in a cherry-picked sample of fi rms. Th e study has more fl aws.

For example, the sample purposely excludes the top H-1B em-ployers, and the number of H-1Bs is compared to global, not US, employment. Another way to interpret the fi ndings, probably more accurately, is to say H-1Bs gobbled up one out of every six new jobs created by these companies.

President Obama recently said he will cut tax breaks to compa-nies that outsource. What tax breaks are they getting now? Th e tax break has to do with a deferment that US-based MNCs get on profi ts from their foreign operations. Companies don’t want to repatriate the money and pay the 35% corporate in-come tax. So, they keep the profi t overseas and reinvest there. Th e upshot of this is that tax laws are creating an incentive to keep profi ts overseas (investing in operations and creating jobs there) rather than bringing them back to the US, to be invested and creating jobs here.

Th ink about how this contrasts with India’s tax holidays for BPO and IT exports and the soft ware technology parks. To say that the US policy is a basket case is an understatement. But it also shows the power of US MNCs to drive policies that favour them, even at the expense of the American economy and workers.

Will repealing tax breaks help save American jobs? It will be politically diffi cult for Obama to get this fi x through. US MNCs are very powerful politically, and there isn’t any or-ganised and infl uential constituency that wants to fi x it. Instead, it adversely aff ects most Americans, not one group. Take Intel Chairman Craig Barrett’s comments aft er a recent visit to Wash-ington. He characterised the proposal to fi x the loophole as a “tax increase” and vowed to fi ght any eff orts to reform what is clearly in the interests of America. So, you’ve got the top CEOs of the top American companies arguing for tax incentives to off shore jobs. Even if Obama got this ‘fi x’ through, it would have little ef-fect on outsourcing. He is using this for political points, not for serious policymaking.

You have said American engineers must unite to save jobs. Why should an educated, highly-qualifi ed workforce organise itself?Th is is one of the major issues American white-collar workers are facing. Except for a few groups like doctors, lawyers and nurses, workers have no representation in politics. We need some or-ganisational innovations to address this issue. Most white-collar

The H-1B programme has become a way to replace

American workersDr Ron Hira is an assistant professor of public policy at Rochester

Institute of Technology, New York, where he specialises in engineering workforce issues and technology policy. Known for his opposition to US

outsourcing laws, Hira has written a book and testifi ed before the US Congress twice on the issue. He explains his stand to TV Mahalingam

54 55


H-1B demand is fuelled by the fact that these workers are cheaper. It has nothing to with US supply or demand

December 1997Father Vikram Lal steps down as Eicher Motors CEO. Professionals take over

1999Son returns, joins the marketing division of Eicher Tractors

2001Lal takes over as Head of Marketing and Product Development Division of Royal Enfi eld in January; becomes CEO in March

July 2008Volvo Eicher Commercial Vehicles (VECV) becomes operational

May 2006Lal takes over as CEO of Eicher Motors

two years, the division returned to profi ts. In the eight years since Lal took over, Royal Enfi eld has undergone a reinvention, with a more dynamic management approach, new models and fresh appeal.

Now, Lal is putting on the gloves for an-other challenge. He is looking to transform the group fl agship, Eicher Motors, whose reins he took over in May 2006, from a commercial vehicles (CVs) player of mod-erate signifi cance to an industry leader. It’s a challenge of a diff erent kind. While Royal Enfi eld was primarily an internal fi ght to discipline oneself, this one is about wrest-ing market share from the two giants of the Indian CV market, Tata Motors and Ashok Leyland, that too at a time when demand is seeing a severe pullback and there is little appetite for new off erings. And, in this one, the stakes for the Eicher Group are about 10 times higher than they

were in Royal Enfi eld.

Truckin’ With VolvoTh is story also goes back a few years, to 2004, when Lal took over as Chief Operat-ing Offi cer of Eicher Motors, and the team there was taking stock of the business. “We said that we are comfortable today, but this doesn’t mean it will always be like that,” he recalls. “We were not a market leader, or even among the leaders, in any of our businesses.” Th at had to change.

Rather than be mediocre and mid-sized in two businesses, the group decided to make one business number one in the long-term, at least start growing faster than the market. In the toss-up between tractors and CVs, its two main businesses then, CVs got the vote. Eicher didn’t have a credible story to sell in tractors, where it was number fi ve.

Lal wants to transform Eicher Motors from a middling commercial vehicles player to an industry leader

One, heck, this shy, unassuming boyish-looking man in denims and leather heads a Rs 2,500 crore company and is trying to take it places. Two, he loves his bike. Th ree, he has a mind of his own. He goes about doing business in an understated way, but he sure means business.

Th e fi rst time the world noticed he meant business was in 2002-03, when it was re-vealed that he had turned around Royal Enfi eld—makers of the iconic 350 cc Bullet motorcycles. Th at story goes back to 2000, to an Eicher Motors’ management meeting, where the people assembled were debating what to do with the gasping Royal Enfi eld Motorcycles division. Other motorcycle manufacturers were pressing on the throt-tle, the Bullet brand was in decline, the division was making losses, and Eicher couldn’t justify the resources assigned to it. Th e board even talked sale.

Th en, Lal, all of 27 years then and only in the second year of his second stint at Eicher, talked. From his heart and from his gut, for the bike and the brand that were constant companions in his formative years, includ-ing on a voyage of discovery and adventure in Europe in 1996-97. “I asked the board for 24 months to make it profi table,” says Lal, and took over as CEO of Royal Enfi eld in March 2001. He kept his word—within

Such A Long JourneyIn his 14 years at Eicher Motors, Siddhartha Lal has gone from management trainee to turnaround manager to young leader

1995Siddhartha Lal joins Royal Enfi eld as management trainee; stays for two years before leaving to pursue engineering studies abroad

2000Eicher board weighs options on Royal Enfi eld; Lal asks for two years to ride it back into profi ts 2005

Eicher Motors sells its tractors division to TAFE for Rs 310 crore

January 2004Lal takes over as Eicher Motors’ Chief Operating Offi cer

December 2007Formalises joint venture between Eicher Motors and Volvo

Anurag Prasad

C’MON GUYS, LET’S WRAP THIS UP. I GOT to rush. It’s my wife’s birthday,” he pleads, ig-noring the pleas of our photographer to do something on or with or around his retro bike. And so, at 5.30 pm on a cool March evening, about fi ve minutes into the photo shoot, Sid-

dhartha Lal—the 35-year-old Chief Executive Offi cer of Eicher Motors—zips up his Enfi eld jacket, checks his leather gloves, straps his hel-met, joins the rush hour and disappears into the Delhi sun-set for a birthday. As the sput-ter of his turquoise blue 1955 Bullet Classic fades away, three thoughts cross the mind.

Siddhartha Lal earned his spurs turningaround Royal Enfi eld. He’s now on a bigger mission: retooling group fl agship Eicher Motors

Lal And The Art Of Auto Maintenance

PHOTOGRAPH AND IMAGING BY SAPTARSHI BISWAS; GRAPHIC BY MANISH MARWAH

FEATURE EICHER MOTORS

2003Royal Enfi eld back in black

Rs 108 cr

Rs 608 cr

GRAPH SHOWS MARKET CAP IN RS CRSOURCE: COMPANY REPORTS, CMIE PROWESS

“Th e size of the CV market and profi tability is much more than tractors,” says Lal. In June 2005, Eicher sold its tractors division to TAFE for Rs 310 crore.

Th e other thing Eicher fi gured out was that it had to look beyond its existing seg-ments of light commercial vehicles (LCVs) and medium commercial vehicles (MCVs). “Th e LCV and MCV segments were too small for us to survive in the long-term,” says Lal. “Th e larger players, with their width, could cross-subsidise and squeeze us out of the market. We were at risk.” So, Eicher decided to get into HCVs.

HCVs should have been a logical exten-sion for Eicher, but it struggled to do it alone. Th e company launched a few HCV models in 2006, but those came and went, and hardly anyone noticed. Th e realisation that it will be diffi cult to develop competi-tive trucks, that too while putting a large sum of money at stake, Eicher readied itself for a partnership.

It found suitors, who liked what Eich-er brought to the table in terms of reach and reputation. Th ese included Volvo and Mercedes. Aft er several rounds of negotia-tions over two years, Eicher threw in its lot with Volvo, for a 50:50 joint venture. “Th ey liked our compact and cost-eff ective pro-duction line,” says S Sandilya, Chairman, Eicher Group.

In order to best tap the potential of the new venture and ensure Eicher Motors’ operational continuity, Volvo and Eicher transferred their respective Indian CV op-erations to a new company, VE Commercial Vehicles (VECV). So, in May 2008, Eicher

transferred its entire truck and bus opera-tions, and its components and engineering design services divisions, to VECV. Volvo did the same with its existing Indian truck sales and distribution operations.

Volvo also invested Rs 1,082 crore in VECV for a 45.6% stake. Th e balance 54.4% is held by Eicher Motors. Volvo also bought 8.1% in Eicher Motors, which meant its ef-fective holding in VECV was 50%. Explains Lal: “If either had a majority shareholding, the level of trust would not be there. Th ey would have hesitated in transferring tech-nology and expertise, we would have been conservative living in the constant fear of being kicked out.”

Th e tie-up fi lls crucial missing links for both players—technology and expertise for Eicher, production at emerging-market costs and a 300-strong sales and support network for Volvo. Th e Swedish company has identifi ed India, China, Japan and South Korea, as its focus growth markets in Asia, which account for 18% of its revenues.

So far, Volvo India was selling trucks in the 40-49 tonnes category, while Eicher was present in the 5-40 tonnes segment. However, Volvo is not just about 40-49

tonners. Its range starts from 16 tonnes, which can provide a valuable upside to Eicher’s existing range in terms of manu-facturing and technology inputs. Volvo can also choose to bring in new products in the lower tonnage segments. “Volvo makes brilliant trucks for emerging mar-kets, but they have not been able to meet cost targets,” says Lal. “We need to create business models, not just truck models for developing markets.”

Look, Feel, SenseFor Lal, who is the Managing Director and CEO of VECV, building business models for developing markets has two aspects. Th e fi rst part is managing production costs. Th e second part, which is central to his sales and marketing strategy, is what he calls “customer profi tability”—how to ensure a customer gets the best returns possible from a truck. Th at’s an outreach exercise, and involves understanding a customer’s loads and usage patterns, and suggesting suitable models.

Lal narrates an anecdote to make his point. Once, in the Western Ghats, he saw overloaded trucks labouring uphill, as their engine power was inadequate to haul that load. Such addition in journey time not only adds to delivery costs, it also causes greater wear and tear to the truck, and low-ers the transporter’s profi tability.

Lal is banking on a new range of trucks—with better engines, greater fuel effi ciency and more spacious cabins—to give greater value for money to transporters. In the process, he hopes to carve out a space in the

With better Eicher and Volvo products, Lal hopes to build a niche in HCVs and increase his 4.5% market share

For A Greater Share Of The Pie

Market size is sales for 2008-09 (April to February) Source: Society of Indian Automobile Manufacturers

With an overall share of 4.5% in the commercial vehicles segment, Eicher is dwarfed by the two biggies, Tata Motors and Ashok Leyland. However, with the Volvo JV, it hopes to make up ground

Light commercial vehicles (LCVs)Vehicle size: 3.5-7.5 tonnes Market size: 203,000 units

Medium commercial vehicles (MCVs) Vehicle size: 7.5-35.2 tonnesMarket size: 175,000 units

Heavy commercial vehicles (HCVs) Vehicle size: Above 35.2 tonnes Market size: 5,000 units

Others13.5

Eicher Motors2.2

Ashok Leyland0.5

Tata Motors58.9

Mahindra &Mahindra

24.9

Marketshare (%)

Eicher Motors7.4

Marketshare (%)

Others4.4Tata Motors

61.2

Ashok Leyland26.9

Eicher Motors0.8

Marketshare (%)

Others15.9

Tata Motors55.5

Ashok Leyland27.5


FEATURE EICHER MOTORSG

RAPH

IC B

Y KISH

OR

E DAS

HCV segment. Lal expects to grow faster than the market, thus increasing his market share in CVs from the current 4.5%.

Th e way he thinks about the automobiles business, Lal draws from diverse infl uenc-es—from engineering fi nesse to design pa-nache, from customer psyche to cost man-agement, and, most importantly, return on capital. “Siddhartha doesn’t carry any bag-gage and will even question fundamentals if change is required,” says Sandilya, who has spent over 30 years with the group.

Take design, which Lal emphasises on because it shapes the fi rst impression of a vehicle. Trucks, he says, have to look sturdy and strong, the technology inside comes later. It’s something he learnt during his stint with the tractors division, when he travelled to rural India.

A similar thought played an important part in turning around Royal Enfi eld. Back then, one of the things dragging down Roy-al Enfi eld was that it had multiple engine platforms, but it hardly registered with customers and only added to costs. Th e company, then, decided to have just one engine platform in two variants—350 cc for Indian markets and 500 cc for export mar-kets. On this base, Royal Enfi eld launched new models (Th underbird and Electra) and started tweaking the design of the bikes,

sometimes evoking extreme, but profi table, reactions. “Th e Bullet faithfuls hated the Th underbird. Th e Th underbird owners loved the new look.”

Beyond The SlowdownWith trucks, Lal will be hoping for a more homogenous reaction to the new products. VECV will use the capacity in Pitham-pur, Madhya Pradesh, of 4,000 units per month. Th ere won’t be any co-branding of the products under the new arrangement. Th e Eicher range of products will be rolled out from Pithampur, whereas the Volvo trucks will be assembled and sold through the Eicher network.

It’s not the best of time to launch some-thing new, more so in the CVs business, where demand closely tracks the state of the economy and which is seeing a serious slump in demand. In the 11 months to Feb-ruary, Eicher’s CV sales dropped 37% over the corresponding period of the last fi nan-cial year—more than the industry average (21%), Tata Motors (22%) and Ashok Ley-land (35%). Capacity utilisation is dismal. During the same period, Eicher recorded a capacity utilisation of 35%, way below the 60% recorded by Ashok Leyland. Says Lal: “Some of the companies have dumped inventories on their dealers. We have, in

fact, reduced inventories with our dealers to give them more liquidity.”

Lal is thinking beyond this slowdown. “Returns might not be visible in the short-term, but we are expecting huge returns in the long-term.” In the coming months, there is plenty of work to be done for VECV to reorient itself to the new arrangement and the greater ambition. Th ere are plans to revamp the entire chain—procurement of components, manufacturing, distribu-tion, sales and service—over the next few years. To begin with, an experienced Japa-nese hand is working closely to increase productivity and create more capacity at the existing Pithampur plant. “With him around, we can even squeeze out 6,000 units,” grins Lal, though he will have to wait for demand to revive to make that increase count.

Lal has earned, not inherited, his spurs in Eicher, going to the trenches and deliver-ing results when it mattered. His patient, easy-going, informal, open-door, respon-sive management style has found takers in a group that hasn’t always moved with the times or milked upturns. Th e Volvo deal is, perhaps, its most signifi cant gambit so far to change that. “Th e pot of gold at the end of tunnel is so large that it is worth the shot,” says Lal. <

While Royal Enfi eld was an internal fi ght to discipline oneself, this one is about wresting market share from the two commercial vehicle giants

STOP: In the current fi scal, Eicher Motors’ capacity utilisation has been just 36%


FEATURE EICHER MOTORS


Th e centerpiece of UTV Soft ware Communications is its motionpictures business, bringing in about 45% of its revenues today.As important and as high-profi le this business is to the company, CEO Ronnie Screwvala declares: “It is not our biggest driver.” Th at status is now reserved for gaming and new media (Internet). With four acquisitions in the last two years, an investment of about Rs 370 crore and the world as its target market, UTV is getting ready to makea splash in these two emerging businesses.Screwvala has always held that, in terms of vision, UTV is at least fi ve

years ahead of other Indian media companies. It’s an audacious claim that will be tested by its gaming gambit. Ajita Shashidhar spent an aft ernoon with Screwvala at his plush offi ce in Andheri in Mumbai, and quizzed him on his gameplan.

In gaming, Indiais not our target

market, the world isLast year was great for UTV Motion Pic-tures (the fi lms division of UTV). Jodha Akbar and Fashion were blockbusters. Meanwhile, you have also been active in the gaming and the online spaces, mak-ing several acquisitions last year. Are you looking at these new businesses to be ma-jor drivers for UTV in the coming years?Everyone looks at it from an Indian per-spective until you have a Slumdog Million-aire. Th en, everyone wakes up to it like, ‘hallelujah, what happened!’ It was always staring at you but nobody got it, and it took some Oscars for everyone to get it.

Similarly, in the gaming business, it is critical that everyone understands the size and scale of the market here. We are in the gaming business because we believe that it

is an automatic extension of us being in the content business. Gaming, as an industry worldwide, is double the size of the mo-tion picture industry. Console gaming is a $30 billion industry. Online gaming is also growing very fast and people expect it to be another $10 billion industry. Of course, you have the mobile gaming industry. So, if you look at all three segments, we have it covered with three companies (Ignition Entertainment for console, True Games for online and India Games for mobile gam-ing). I would see this as the major growth factor for UTV by 2010.

In new media, it was natural for us to look at Internet and digital. New media is a platform, just like broadcasting. Under this segment, we have verticals such as busi-

HOT SEAT RONNIE SCREWVALA

65

PHOTOGRAPHS BY SOUMIK KAR


ness and technology, which are very allied to each other, and entertainment. Here, we want to have leadership, just as what we want in gaming and movies.

How much have you invested in this new media space?About Rs 370 crore, through a mix of ac-quisitions and investing in the ideas. We had envisaged a total investment of around Rs 400 crore. So, now, we are almost in the last leg.

UTV Motion Pictures has been the key driver for UTV all these years. Do you ex-pect the gaming and online businesses to outperform movies?I won’t say movies is our biggest driver. It may be the most high-profi le contributor to

our revenues, but it contributes only 45%. Gaming and new media will be around 20% this year and we want that to increase to 40% in the next two years. Th is segment will at least be at par with movies, if not more.

Th is year, we plan to do Rs 15 crore-plus business in the online space. For a start-up, that’s huge. Not that many companies record that kind of revenues in their fi rst year of business. Over the next two years, as a percentage, I don’t think it will contribute more than 5% to the top line. But it will be a signifi cant 5%. Internet is not really about revenues, it is about many other aspects of penetration that we want to do. So, when it really matures, it will go into a diff erent

sphere. Th e next couple of years, our key growth engines will be gaming and mov-ies, but our focus will continue to remain on broadcasting and new media.

Your broadcasting business has been incurring huge losses recently. Do you think the gaming and online businesses are recession-proof? In the broadcasting business, if anyone is losing money, it would have been in their business plan to lose that kind of money. I don’t know why suddenly investors and analysts are shocked. Everyone who gets into the broadcasting business must be prepared to lose money for at least three years. We are all in investment mode.

Of course, there is a lot more pressure in broadcasting. As far as gaming is con-

cerned, it is a total content business. Broad-casting is a combination of advertising, car-riage fees and many other such elements. Th e geography we are looking at, as far as broadcasting is concerned, is India. And in gaming, we are looking at the world market. For us, the biggest market is the US, Japan and European Union. India wouldn’t even constitute 0.5% of our business.

So, the question of why (we are getting more involved in gaming) in this kind of an economy doesn’t arise. Moreover, these games will be released a year from now. So, why should I go slow on my investments when I know that when things come back to a certain extent, we will be ready with

those games? Th at is all the more reason for us to stay on track.

In the last quarter, gaming worldwide grew by 18% on a quarter-on-quarter basis. So, gaming is pretty much recession-proof because people play more when they are at home. You buy a game for $50 and you will use it for a long, long time. We made these investments a year back, when most pundits didn’t even think there would be a slowdown. It is pretty much part of our plan. Th erefore, wherever we are in invest-ment mode, we are staying completely on course. Only in broadcasting have we scaled down our costs.

Where have you cut costs in the broad-casting business? We have not cut costs. We have brought

down our scale of costs to a diff erent level. It is much easier to cut costs in boutique channels, which we have, than in general entertainment channels. In a general en-tertainment channel, you need a minimum of fi ve hours of original programming eve-ry day. Th e moment you stop that, your gross rating points (GRPs) can plummet from 70 to 29. Th erefore, it’s a risky space to be in.

Basically, we are running a tight ship. Th ree of our four channels are content-based—UTV Movies, Bindaas Movies and World Movies. Content costs have come down by 40-50% worldwide. We are buy-ing the same amount of content, but at a

much lower cost. Most of the content we acquire is international content. Th e other area where we have saved costs is carriage fee, which again has dropped by 30-40%.

How do you plan to take your fi lms busi-ness ahead?We had a good 2008 from all perspectives. We have also been able to demonstrate that there is no such thing as a small movie. We have been very committed to our market-ing strategies. We have focused on a good script, we have focused on the director’s vi-sion and we backed it to the hilt. And, that’s what we plan to do going forward.

Th ere is no question of pumping in more money, as UTV Motion Pictures has already done a fair amount of its investment. At the moment, we need to see how we can

rotate it and scale it up.

The movie industry is going through a rough patch, with many fi lmmakers shelv-ing projects. What’s gone wrong?Th e biggest problem was that everyone wanted to get into the movie business, but didn’t know how to produce. Th ey went ahead and bought movies at a very high cost. Th e people who make the content are continuing to make it thinking someone will acquire it, but now there is nobody to buy it and release it.

Th e motion pictures business will not only correct in terms of prices, it also has to shrink in terms of number of releases.

Th ere were three to four movies getting released every week. We need to go back to a maximum of two.

In the past few months, valuations of media companies, including UTV, have crumbled. How do you see the industry panning out in the next few months? Th ere are several companies in the private space that can drop dead, and nobody will notice. Th en, you are left with companies in the public space. Th ere are about 30 listed media companies. Of them, 20 don’t have a business model to be listed. Th is was ob-vious from 2000-2007, as they were just there. Th is lot includes a few motion pic-ture companies and a few television content companies. Th ey don’t have the scale to be listed. Th ey may be producing three mov-

ies or TV serials a year, but do they need to be a listed entity? No. Th en, there are a couple in broadcasting, one or two movie companies, media fi rms and music com-panies. Even a pure-play music company has no business of being listed.

So, what are the challenges for them? It is growth. Th ey have to fi rst grow the mar-ket, and the overall supply too has to shrink. Th ere is too much supply in the market, and that has to go down. Th e number of channels needs to shrink, the number of movies getting made needs to shrink.

Do you expect some of the media compa-

nies to succumb to the slowdown? I don’t know. But thank god for the slow-down. Th e good news is that due to the slowdown, the stable companies can go back to their business. Th e other good news, for the industry, is that the slowdown has come two years before its time. It is sharper, but overall, it will be less costly. Otherwise, in the next two years, people would have put in a lot more money. Now, whoever was putting in more money has stopped. So, the correction will be faster.

Walt Disney has a 32% share in UTV Software. How do you plan to take this tie-up ahead?We have had a strong strategic alliance. Th ey have a one-third share in UTV, which is strong. Th ey have a 55% equity stake in

the company today, which resulted out of a 20% open off er. However, I have a right to buy back 20%, taking it back down to 32%. Today, their voting right is capped at 32%, even though their equity share is higher, and I have a right to buy back the shares over the next four years.

Th ey have invested into a company, they are not investing in projects. Th ey have in-vested into the fact that all these verticals pretty much mirror what they do in the western markets. Having said that, there will be synergies we will tap. For example, we are distributing all Disney movies in India. Wherever we fi nd strategic interests, we will look at them. <

HOT SEAT RONNIE SCREWVALA

March2005

August2006

March2007

September2007

December2007

February2008

May2008

September2008

December2008

UTV Software Communications goes public

Sells its kids channel, Hungama TV, to Walt Disney for $31.1 mn. Walt Disney also buys 14.8% in UTV Software for $14 mn

Pays £7 mn for 70% in UK-based Ignition Entertainment, a console gaming company

Gets into the broadcasting business with UTV Bindass

Buys 59% in mobile gaming company India Games for $10.5 mn

Launches UTV World Movies and UTV Movies.Walt Disney increases its stake to 32.1%

by investing Rs 805 crore. Also picks up 15% in UTV Global Broadcasting for Rs 119 cr

Launches business channel, UTVi.Buys 76% in ITNation, an online technology fi rm, for Rs 15 cr

Buys 80% in True Games Interactive, a US-based online gaming start-up, for $8 mn

Walt Disney increases stake to 55% (with 32% voting rights)

66 67

On A Signing Spree

GRAPHIC BY MANISH MARWAH

We built individual gardens in our apartments to make them look like bungalows— Kamal Sagar, Director, TEBS

FEATURE HOUSING

MADE TO ORDER

At a time when builders are strug gling to sell houses, this man’s innovative, customised homes are still in demand

Nandita Datta

ROCK BANDS PINK FLOYD, GRATEFUL Dead and Social Distortion may not have much in common, but their songs Cirrus Manor, Scarlet Begonias and Reach for the Sky sure do. Th ey are the names of housing colonies built by Total Environment Building Sys-

tems (TEBS), a little-known realty fi rm in Bangalore. Th e company has created a unique business model by focus-ing on building comfortable living spaces that are in har-mony with nature. Th is innovative approach in construc-tion has helped it create a niche for itself even as real estate developers struggle with free-falling prices and overloaded

TEBS homes fall in the premium category—units cost upwards of Rs 70-75 lakh—they are not lifelessly opulent because the idea is to go beyond just concrete and stones to a living style closer to nature.

Building An Idea TEBS homes are custom-designed to the tastes and needs of the owners even be-fore construction begins. So, whether it’s knocking off walls or changing the pattern of cupboard shelves or drilling holes in the wall to hang paintings, every minute detail is planned and designed well in advance. Says Sagar: “We are, perhaps, the only fi rm in the country to do this.” TEBS homeowner AN Rao agrees: “I see enormous detailing, patience and willingness to co-create the apartments with all of us. I haven’t seen this in other builders.”

So, it’s not surprising that TEBS has so far not felt the need to advertise. Its proper-ties (12 residential and two commercial) have been sold through word-of-mouth publicity. Sagar claims people oft en leave

messages on the TEBS website inquiring about upcoming properties. Homeowner and veteran journalist Veeresh Malik says several of his friends have bought TEBS homes aft er seeing his apartment at Scarlet Begonias in Bangalore’s southern suburb of JP Nagar.

Sagar’s tryst with TEBS goes back to 1996, when he moved from Pune to Ban-galore, high on his success at Poonawala Stud Farms, where he handled everything from design to construction. Aft er fi nishing it, Sagar says, he couldn’t imagine working as a designer involved only at the drawing-board stage. “I wanted to see my designs transformed into something real and be part of that process,” he adds. Egged on by his IIT friends—who promised to buy his apart-ments if he created something freaky—Sa-gar turned entrepreneur. A few days later, he convinced three of his erstwhile batchmates to join him. Sagar would focus on the design and construction aspects, while his friends would do the rounds of corporate houses to tap clients.

Right since inception, TEBS’ vision was to build homes, not houses. Th is result-ed in the fi rm adopting an inside-out ap-proach—the main focus would be on the apartment and not the landscape around it. Th is was in sharp contrast to the outside-in approach that other developers and build-ers in Bangalore had at that time. TEBS was also infl uenced by the transition from the bungalow culture to apartments that Bangalore real estate was witnessing in the early- to mid-1990s. Recalls Sagar: “We asked ourselves what the key diff erence was between a bungalow and an apart-ment. We fi nally fi gured it was the garden, and decided to build individual gardens in our apartments.”

A plot of land was identifi ed in the east-ern suburb of Bangalore, but there was no money to buy it. All friends who had prom-ised to buy Sagar’s apartments chickened out. Undeterred, Sagar mailed his designs to four former college-mates in Mumbai; they liked what they saw and paid Rs 25,000 each as booking amount. Th is money was

inventories. Sample this: TEBS, with rev-enues of Rs 150 crore last year, does not have too many unsold units—three of its fi ve ongoing projects have been sold out. Of the other two, the fi rst phase of one project is almost sold out (17 units left out of a total of 213), while the second project has done 30% so far. “Th at’s the advantage of a high-quality off ering,” says Kamal Sa-gar, Director, TEBS.

So, what did this developer do diff erently to weather the slowdown? Sagar, an IIT Kharagpur-trained architect, builds homes that are in sync with the outside environ-ment. It’s not about green buildings—al-though there is a lot of thrust on greenery and open spaces. It’s about blending the indoors with the outdoors. Th is means us-ing natural building materials (that absorb less heat and keep the insides cool), fewer walls (to allow natural light and air to fl ow in unobstructed), a terrace garden and even a water-body in every home it builds.

Th e idea, Sagar says, is to treat each apart-ment like an independent bungalow. While

68 69OutlookBusiness > April 4, 2009OutlookBusiness > April 4, 2009

GREEN HOUSE: Terrace gardens, natural building materials and fewer walls are some USPs

PHOTOGRAPHS BY JAGADEESH NV

used to pay the advance for the land (the total cost was Rs 13 lakh), and, fi nally, TEBS moved from an idea to a functional enter-prise. Aft er some aggressive hard-selling that involved sending mass mailers with the fl oor-plan attached to mid-level corpo-rate executives, the remaining eight units were sold in a month.

Brick By BrickBecause TEBS’ apartments were to be de-signed and built diff erently from what was on off er from other realty fi rms, the cost of construction (at Rs 1.3 crore) exceeded the sales price (Rs 1.03 crore). “We used wire-cut bricks from Kerala and Kota stone for fl ooring. We transported gunny bags full of Ipema creeper cuttings from Pune to run along the big windows we had built. None of these came cheap,” recalls Sagar. Unfortunately for him, home-own-ers refused to cough up the extra amount and the company had to bear this additional expenditure. To save TEBS from going under, the promoters had to act quickly and fi nd a new set of buyers for a sec-ond project—the booking amount would be used to complete the fi rst project.

Another round of hard-selling saw 16 executives from IT-fi rm Mi-croland signing up. As part of the deal, they agreed to buy a plot of land identifi ed by TEBS, which it would use to build homes for them. But, as before, the cost of construc-tion was higher than the sale price. A large chunk of the cost-overrun (Rs 20-22 lakh) was on account of the individual terrace gardens in each apartment—the multi-layer waterproofi ng to prevent seepage wasn’t cheap. Once again, TEBS bore the additional expenditure. “We had no op-tion. Cash-fl ow was important—we had to quickly move from one project to an-other to keep our fi nances going,” recalls Sagar. Fortunately, for the company, the third project came close on the heels of the second project—the same landlord of-fered some adjacent pieces of land. Soon, construction was on in full swing.

On completion, the terrace gardens at-tracted immense interest. Competition, too, acknowledges this innovation. Th e general manager of a large reputed real estate fi rm in Bangalore admits: “Eve-ryone, including us, imitated TEBS and started off ering terrace gardens with our penthouses. But seepage was a common complaint and, hence, we had to stop. But even aft er 10-11 years, none of TEBS’ ter-race gardens face any seepage issues—they

seem to have mastered the art of building terrace gardens.” Sagar says it’s no rocket science and the trick lies in the several lay-ers of water-proofi ng.

Th e terrace garden concept put TEBS into a new orbit. Off ers started to pour in and customers were now willing to pay a premium for a TEBS home. Around the same time, TEBS also realised that off er-ing a uniform fl oor plan to everyone wasn’t working, as no two families had the same needs. Post-construction, alteration adds to cost, besides being tedious and extremely stressful. Allowing people to customise their homes down to the last detail at the design stage was a runaway success. Th e company started out by making customised paper designs for all its home owners based on individual requirements, but has since

moved to a proprietary soft ware that allows customers to re-design their living space and simultaneously keep tabs on cost.

Unlike the competition, TEBS does not outsource work to third parties—except for electric and plumbing work, everything is done in-house. Th e company even makes most of the components that go into build-ing an apartment. Th is includes a factory to build door and window sets, a fabrica-tion unit for metal work, a furniture unit for wood-work, etc. “Th ere’s no other way you can control quality,” argues Sagar. Th e use of natural building materials like ex-posed wire-cut bricks instead of cement blocks, Kota or Jaisalmer stone instead of

vitrifi ed tiles, and hard-wood windows in-stead of aluminium ones is expensive and time-consuming. Improving the quality of the fi nished product and making it main-tenance-free also results in higher cost of construction and longer timelines.

Slim PickingsSagar admits TEBS operates on thin profi t margins. “Th e competition does much bet-ter than us,” he rues. “But we will not com-prise on the quality of inputs used. Maybe, in due course, the market will recognise our eff orts and pay a higher premium for our products. Until then, we will continue to operate on wafer-thin margins.” Apart from designing and building homes, TEBS also maintains them. Interestingly, despite its premium price-tag, 70% of the compa-

ny’s customers are salaried professionals, drawn mainly from the IT sector.

But, as a differentiated builder with a unique busi-ness model, is TEBS better off than its competitors, many of whom are struggling with large inventories? Sagar says he does not have too many unsold units and that he does not foresee a situation where his homes will remain unsold. “While we work on very thin margins, we have only a few projects that are on currently. So our risk is minimal.” TEBS has not committed to

any new project, and that should work to its advantage. But Sagar is quick to point out: “It’s not as if we have stopped plan-ning new projects. We will come up with new plans, but at the moment, our focus is on completing ongoing projects.” TEBS is also looking to diversify its geographical risk. It has made a foray into Pune and Hy-derabad, two cities that Sagar claims have customer mindsets similar to Bangalore’s. Plans to enter Chennai, however, have taken a backseat. TEBS has also entered the luxury home market, where units cost in excess of Rs 2 crore. Th e segment hasn’t seen a slowdown, as supply is limited.

So far, the lure of the Total Environment brand has worked in Sagar’s favour, but can the downturn sink him? Detractors say it’ll be a tightrope walk because TEBS operates as a start-up even today, aft er 13 years of operations, annual revenues of Rs 150 crore and a workforce of 380. While admitting that the days of easy pickings are over, Sagar says his unique business model and the low risks associated with it should stand him in good stead. <

Allowing people to customise their homes down to the last detail

at the design stage was a runaway success

FEATURE HOUSING


Anurag Prasad

LORD HANUMAN DID WHAT GHATOTKACH, Ganesha and even a Romeo couldn’t. He got people to watch his antics as he burnt Lanka and wreaked havoc on Ravana’s army. Th e animation movie Hanuman 1, released in 2005, thus did what no other Indian animation fl ick had done before—it

got the audiences to the big screen, and made a tidy profi t in the process. Th e fi lm, produced at a cost of about Rs 3 crore,

The Indian animation industry started out by doing work for foreign companies. Increasingly, it is developing characters, lines and voices of its own

Riding on own content, the industry’s size is projected to increase from $460 mn in 2008 to $1.2 bn in 2012—a CAGR of 27%grossed almost Rs 10 crore at the box offi ce.

Conceived and executed by Silverline Tech-nologies and released by Percept Picture Company, Hanuman 1 marked the coming of age of the Indian animation industry.

Until recently, Indian animation com-panies were mostly back-end production houses for American studios. Today, how-ever, the industry is coming into the lime-light with its home productions. “Animation studios are spending close to Rs 30 crore per project,” says Alpana Mishra, COO, UTV Motion Pictures. UTV plans to release two fi lms next year: Arjun-Th e Making of a War-rior and Alibaba Aur Chalis Chor.

Tapaas Chakravarti, Chairman and CEO, DQ Entertainment International, agrees: “Th e animation industry started as a pure services business, like the IT industry, about 10-12 years back. But players soon real-

ised that the entertainment sector did not work like the technology sector. Th ey had to move up the value chain.”

Th e success of Hanuman 1 has spurred many other players. A Nasscom-Ernst & Young report says the industry will grow from $460 million in 2008 to $1.2 billion in 2012—a CAGR of 27%. Th e numbers are small compared to the $80 billion global industry. But the growth is encouraging Indian animators.

Th e winds of change are already visible in the shift from low-end outsourced jobs to concept-to-screen contracts. And increas-ingly, animation houses are partnering with Bollywood and Hollywood studios to come out with international quality shows and fi lms. Margins have gone up by 10-15% due to this shift , says Chakravarti of DQ. Of the 100 or so fi lms that are

currently in the pipeline, 28 are already in production, and about 15 are scheduled for release in 2010.

Still EvolvingHowever, progress has been slow. Four years aft er Hanuman 1, the Indian animation industry is still waiting for its next big hit. Even on television, Japanese shows domi-nate, though the characters and themes are alien to the culture here. Pokemon and Dragon Ballz on Cartoon Network, Do-raemon and Ganso Tensai Bakabon on Hun-gama and Ninja Hattori on Nickelodeon are some of the popular Japanese shows here. Hollywood fi lms are far ahead of any Indian production in terms of quality and storylines. Moreover, some recent local

launches have bombed badly. Th e biggest failure was Roadside Romeo, produced by Disney and Yash Raj Films. Analysts say the Tata Elxsi team did a great job on the animation, but the theme and target audi-ence did not sync. “Th e romantic theme did not appeal to the kids and adults could not appreciate the dubbing by the Bollywood stars,” says a critic. Jumbo, a Th ai movie that was dubbed in Hindi with Akshay Kumar doing the voiceover, also tanked.

“None of the Indian animation fi lms have got the desired audience, but that is more to do with the content and a poor script,” says P JayaKumar, Managing Director of Toonz Animation. “If Indian audiences can con-sume Western animation fi lms, why won’t they consume homegrown content?”

Perhaps, the biggest constraint has been tight budgets and lack of characters with global appeal. Th e Rs 10-12 crore budget for an Indian animation movie means the fi nancial risk is hedged, but quality takes a beating. “How can we compete with a $100-200 million Hollywood production that is three to fi ve years in the making with something produced within $2.5 mil-lion?” asks Toonz Animation’s JayaKumar. Th e company recently acquired rights to produce a movie and a TV series based on stories from Chandamama. It’s also working on a movie based on Lord Shiva.

Toonz was the fi rst company to animate a folk character, with its Tenali Raman series. Th e project, which cost around Rs 6 crore, established the studio’s—and India’s—cre-dentials in producing original animation fi lms. However, the show took nearly fi ve years to turn profi table.

Partnering For Profi tsStudios are looking at new business models, including partnerships, to produce fi lms and shows. Sometimes, the partnership may just be an investment. In return, they get to own a big chunk of merchandising rights. Some are even negotiating distribu-tion rights. Th is ensures fl ow of money even if there is no cash fl ow in the short term. For example, Toonz has bought the rights for the PlayMobil characters and will be producing content (fi lms, TV serials, etc) to be distributed by Sony Pictures.

Today, global companies are looking at India for co-production. “Indian studios are now on par with American, European or Japanese production houses in terms of skills and infrastructure. But it will be an-other three to four years before we can actu-ally produce world-class content,” says DQ’s Chakravarti. Almost 70% of the company’s content is co-produced or with back-end rights (including home video, TV, DVD, music, merchandising, etc). Some of DQ’s production properties include Iron Man, Large Family and Little Nick.

Th e impact of the economic downturn also cannot be ignored. Big companies like Toonz or DQ may not be severely hit as they have a number of movies and content deals, both their own and co-productions, in the pipeline. But smaller companies will suff er as they depend on outsourced work.

Still, the industry is young. Th e Japanese style of Anime has a robust domestic mar-ket, but it took almost 50 years to develop that style and build that market. Indian companies started end-to-end productions only about fi ve years ago. So, they’re still on the learning curve.<

With inputs from Ajita Shashidhar

FEATURE ANIMATION


101 Animations

TOON MANIA: (clockwise from top) Hanuman, Paddy’s Page, Cowboy Maharaja, Tenali Raman and Freefonix are completely homegrown characters

7372

TV Mahalingam

THE FUTURE GROUP IS LOOKING FORDuryodhanas. No, the group is not auditioning for the role of the evil Kaurava for an in-house Mahabharata play. Nor is Future Group CEO Kishore Biyani planning a plunge back into show-biz with ideas to fi lm Indian mythology’s greatest

epic. But the hunt for Duryodhana is on, nevertheless.“Duryodhanas are employees who play

by the rules but whose intentions and integrity are questionable. Th ey are the ones who come to offi ce before time, leave aft er time, but spend the whole time in of-fi ce playing solitaire,” says Biyani with his characteristic wry humour. “I have asked my departmental heads to look out for such Duryodhanas,” he adds.

Duryodhana is not just another catchy

way to describe employees who play hooky. It’s a part of a whole new lexicon that the Future Group is working hard to create. To achieve this, Biyani has hired a mytholo-gist. Dr Devdutt Pattanaik will help cre-ate a vocabulary, symbols and, eventually, a unique style of communication drawn from Indian mythology to achieve Biyani’s ultimate goal: make retail a religion across the length and breadth of the group. His formal designation: Chief Belief Offi cer.

Retail Mantra“Retail is our religion. Customers are our gods. Th e stores are our temples. In every temple, there are rituals, there are customs. We have to enshrine customers as our gods in our minds. Devdutt will dip into Indian mythology and help us create these rituals, symbols and vocabulary,” says Biyani, who,

in his own words, is a “borderline atheist” who has neither prayed since his early teens nor visited a temple. But that does not stop him from understanding or harvesting the power of mythology in a country where there is an auspicious time, method and place for doing everything—waking up, bathing, marrying and even dying.

Take the Kartha ceremony the group has put in place. Kartha in Sanskrit means crea-

tor or the head of a family. Every time some-body is hired to head a Future Group store, he or she is anointed as a Kartha. Th at does not just translate to a fancy designation on a rectangular visiting card. It’s much more. “We seat the Kartha on a chair and all the employees stand around him. His family members—wife, siblings and parents—are invited to the ceremony. His boss reads him out his duties as a Kartha, which is to ensure the welfare and happiness of em-ployees and customers,” says Sanjoy Jog, Chief People Offi cer, Future Group. Sounds tacky? Well, the results are not.

“Th e store manager of the last store that we opened (in Surat) had worked all his life for an MNC. As his duties were being read out, tears rolled down his cheeks. We have beaten the life out of the competition in that place. What would have taken us

The Atheist TurnsTo Mythology

Kishore Biyani is “a borderline atheist”. Yet, he’s got a Chief Belief Offi cer delving into mythology to shape management at the Future Group


FEATURE MANAGEMENT

ILLUSTRATION BY ARINDAM

“Retail is our religion, customers our gods, the stores our temples. We have to enshrine customers as our gods in our minds

—Kishore BiyaniCEO, Future Group

74

FEATURE MANAGEMENT

OutlookBusiness > April 4, 200976 77OutlookBusiness > April 4, 2009

six months in terms of aligning mindsets happened with a single ritual,” adds Jog, whose offi ce in suburban Mumbai has 11 Ganesha idols.

Drawing ParallelsSceptics might scoff that an induction like this might work only with blue-collared workers, and not the highly educated. Th e experience shows otherwise. When the Future Group appointed the CEO of its insurance business, it decided to have the same ceremony. “Halfway into the cere-mony, Jayant (Khosla), the Kartha, an IIM-A graduate with more than two decades of MNC experience, started choking up,” says Jog.

Jog argues that fables and tales from mythological texts succinctly explain a theoretical sounding management con-cept, something that a 20-page case study from the Harvard Business Review would labour to get across.

A sample: the age-old tale of Kalia the snake. Legend has it that Kalia the snake lived in a lake outside Mathura. Th e snake was so venomous that it poisoned the whole lake. When Krishna subdues the snake and asks him why he is afraid to move, Kalia says that he is afraid of being eaten up by Garuda the eagle, who is hovering outside. So, Krishna assures Kalia safe passage, and all’s well again. Pattanaik narrated this sto-ry and interpreted it as a case for change management. Kalia does not move because he is afraid to leave the familiarity of his comfort zone, and ends up poisoning the whole lake. So, it’s important he moves. Moral of the story: change might be tough and scary, but if you don’t, you will take everybody down with you. “When Patta-naik narrated the story, the rationale for change management was clear to every person,” says Jog.

Meanwhile, the Vishwakarma of the Kartha ritual, Pattanaik, is busy meeting the Future Group’s senior management, brainstorming, evangelising, telling them stories of gods and goddesses, and sum-marising their lessons. He narrates yarns of legendary king Vikramaditya and the sagely ghoul Vetal and fables from the Mahab-harata to prove a subtle point or two about change management or handling tough times. “We’re looking at stories that have lasted the test of time, like the Ramayana, the Mahabharata and the Bible. Th at’s proof of their eff ectiveness,” says Pattanaik, whose favourite mythological text is the Bible.

Pattanaik, himself, is a bit of an oddball. A doctor by training, he has worked for 14 years in several roles in the pharma in-dustry. Eight jobs in 14 years, beams Pat-

tanaik. He took to reading mythology af-ter he passed out of medical college to get over the frustrations of a boring job, and discovered a passion. Since then, he has authored 14 books on mythology.

Different Strokes “Biyani has great intuition about the intui-tive sense of India. What I have is a vocabu-lary. We clicked because our understanding of Indian-ness matched,” says Pattanaik, who believes that Indian businesses are ap-ing the west by putting too much emphasis on “processes” over intuition and culture. “You cannot standardise a smile. Similarly, you cannot standardise service for a coun-try as diverse as India,” he adds.

Th e diversity of India—in terms of re-ligion, culture and economic power—is something that the Future Group tracks closely and, thereby, profi ts from. Th at, perhaps, explains why a Big Bazaar store in Sangli (Southern Maharashtra) organises a kumkum ceremony for its women clien-tele. Or why a Big Bazaar store in Mumbai Central is the only store in that format that stocks burqas. Th e area has a signifi cant Muslim population catchment. Th e store organises an ift aar party during the holy month of Ramzan.

“Women in Northern India would hate it if a shop-fl oor assistant stared over their shoulder or tried to help them. On the other hand, a maami in Tamil Nadu would prob-ably love it if a sales person tagged along holding her shopping cart,” says Jog. “One system, one process doesn’t work for the country. Th erefore, it makes sense to work

preferred form of greeting at the Future Group. Most of the mails that Biyani gets from employees begin with a Namaste. Th at seems to be the crux of what the Fu-ture Group is doing—an anti-thesis of the McDonaldisation of service. Service with a smile, but no forced ones, please.

“What’s the purpose of creating a stand-ard operating procedure? It is unsuper-vised compliance,” says Group Customer Director Damodar Mall. “And what’s the world’s greatest example of that—of peo-ple following rules, mores, irrespective of their background or education? It’s reli-gion. When we realise that, why can’t we use the vocabulary and symbols of that world, and take it to enhance the world of business,” asks Mall.

The Storytellers Ask Pattanaik about what he has in store for the group, and the Chief Belief Offi cer has this to say: “We hope to create kathakars (storytellers) who will take the message throughout the organisation. How did the Bhakti movement spread across the coun-try? It spread through songs and stories sung from one person to another.”

A movie buff , Biyani has been an ardent student of storytelling. His presentations, be it to employees or ministers, are peppered with Bollywood characters like Bunty Aur

Babli or comic heroes like Tintin. With Pat-tanaik on board, those characters are likely to give way to mythological characters like Krishna or Moses. Th at’s a signifi cant shift , as they are part of our phyche and infl uence us in more ways than we know.

Critics might argue that workplaces, worldwide, are moving towards becoming secular environs, antiseptic offi ces, which, in a perfect world, should be as far away as possible from religion and mythology. First-ly, it’s not a perfect world. Secondly, here’s a pointer in the other direction. Nike is not a randomly chosen name. It’s the name of the Greek goddess of strength, speed and victory. Apollo, Amazon, Delphi, Mars, Odyssey and Olympus are a few brands that are named aft er popular mythological characters. Th e Future Group is simply tak-ing mythology to another level. <

Religion is the best example of people following rules regardless of who they are. Why can’t we take that vocabulary to the world of business?

—Damodar MallGroup Customer Director, Future Group

The Bhakti movement spread from one person to the next through songs. We hope to create kathakars to take the message through the group

—Dr Devdutt PattanaikChief Belief Offi cer, Future Group

Fables and mythological texts succinctly explain a management concept that a 20-page case study would labour to get across

—Sanjoy JogChief People Offi cer, Future Group

on beliefs and culture.”It’s an insight that Kruben Moodliar, a

fourth-generation Indian from South Africa and CEO of Future’s learning initiatives, gained while interacting with his trainees. A retail professional, with decades of in-ternational experience in setting up proc-esses and standard operating procedures, Moodliar had a tough time making train-ees and staff follow a simple process like the opening and closing of a store. “Th ey would constantly fi nd new ways of doing things,” jokes Moodliar. So, when the com-

pany wanted to open a new store in Agra, the employees were boarded onto a train and packed off to the group’s training centre in Ahmedabad. Among other things, the employees were asked to repeat a simple chant daily: “I’m getting better everyday, I recognise that you are getting better every-day. We are getting better everyday.”

“It’s amazing what this has done to the store. Whoever walks in says that the vibe in the store is fantastic. Employees are also asked to greet each other with a Namaste,” gushes Moodliar. Namaste, in fact, is the

PHOTOGRAPHS BY SOUMIK KAR


Sharada Balasubramanian

RAMESH SHIVA, CEO, SABARI GROUP OF HOTELS, CHENNAI, didn’t really think he could build a body to match Arnold Schwarzneg-ger’s, but he decided to give it the old college try. Unfortunately for him, the nearest gym was some distance away, and he didn’t fancy the atmosphere of the place anyway. So, the 36-year-old Shiva did the next best thing—he went out and bought one, literally. He visited a

showroom and purchased equipment that would let him work out at home almost like he would have in a regular gym. “I spent about Rs 3-4 lakh on four diff erent

In Good Shape

Gym chains are a dime a dozen in the country. FitnessOne stands out because it sets up

gyms for companies and individualsof Fitness Management, to off er certifi cate programmes to trainers. Th e company has also got into equipment retailing with its own brand, Propel. Th e equipment is made in Taiwan and Korea. “Our products are priced 60% below international brands. It’s the same equipment minus the premium for the brand name,” he claims.

With revenues from corporate clients falling because of the economic slowdown, Anand has decided to focus on his own health clubs. Th e plan is to set up 30-40 gyms in the next 18 months at a cost of Rs 15-20 crore. “We thought it better to ease up on the franchisee front and have our own centres because the eff ort that goes into both—training people, setting up the place, etc—is the same,” he says. Th e expan-sion will be fi nanced largely by internal ac-cruals and loans. “If markets improve and provide the opportunity, we may look out for private equity,” says Anand.

With a market penetration of just 1% in India (in the West, it is 15%), Anand is hoping that things will look up once the economy improves. Until that happens, he will have to count on the likes of Ramesh Shiva to butter his bread. <

ment plans for individuals and corporates who cannot aff ord to pay the full amount up front.

First Steps Anand, who returned to India in 2003 af-ter working in the US for two decades as a pilot, is himself a fi tness fanatic. Th e fi rst thing he did when he returned was look for a health club. To his chagrin, there weren’t any that were to his liking. But the optimist that he is, Anand spotted an opportunity in the lack thereof. “Being a pilot, I had mem-berships to many fi tness clubs in the US. I realised that most health clubs in India were in bad shape and that there was a market for well-run, well-equipped gyms.”

Aft er months of planning and looking for a location, Anand opened his fi rst gym in Chennai in 2004, spending Rs 2.2 crore. “My family and friends funded me,” he says. Real estate costs, interior decorations, trainers’ charges and equipment costs ate up most of his budget. But the return on investment was quick for that gym and the others that followed—each centre recovered its costs within six months to a year.

Since then, there has been no looking

back. Today, FitnessOne has expanded be-yond Chennai, to other cities in the South. It has 10 self-owned gyms: fi ve in Chennai, four in Bangalore and one in Coimbatore. Th e company also has 56 franchises and 35 corporate clients. It has 435 employees, including trainers and maintenance staff . Impressed by the company’s sterling show, Mauritius-based India Equity Growth Fund, part of Reliance Asset Management (Mauritius), bought a 4.5% stake in FitnessOne in 2007, valuing it at Rs 100 crore. All this has come within fi ve years of the fi tness chain’s launch.

About three years aft er setting up his fi rst health club, Anand decided to open fran-chises and set up gyms for corporates and individuals. “We felt that outsourcing fi tness services to companies will help us garner more revenues.” His intuition was spot on. Th ough he doesn’t disclose revenue fi gures, he does say that, last year, corporate gyms constituted about 22% of revenues, while franchises and home-gyms accounted for 10% and 5%, respectively.

Apart from setting up gyms for corporates and individuals, FitnessOne has opened an institute in Chennai, called Academy

FEATURE ENTERPRISE

Our products are priced 60% lower than those of international brands. It’s the same equipment minus the premium for the brand name —Vivek AnandFounder, FitnessOne

80 81

items of equipment. Now, I can work out at my own convenience, in my own home,” Shiva exclaims proudly, fl exing his muscles to show his considerable progress in look-ing like Conan the Barbarian.

Elsewhere in the city, employees of Saint Gobain are hard at work as they go about the business of making and selling a thing that is brittle by nature. At day’s end, how-ever, glass is the last thing on their minds. All they can think of is becoming lean and tough. Like Shiva, they too begin work-ing out, not at home, but in the company’s state-of-the-art gym. Spread over 4,000 sq

ft , the gym cost Saint Gobain Rs 80 lakh. Th e smell of sweat pervades the air as they pump iron with a zeal that would make Arnie proud. Trainers walk around the gleaming equipment, keeping a watchful eye on their wards.

Ramesh Shiva and the gym-visiting Saint Gobain employees have two things in com-mon. Th ey are all fi tness fanatics and they mostly use equipment supplied by FitnessOne, a Chennai-based fi tness chain. Vivek Anand, the company’s Founder, sums up FitnessOne’s philosophy in what sounds uncannily like Microsoft ’s mission state-

ment: “We aim to be present wherever peo-ple want to work out, be it at home or at the workplace.”

Apart from setting up customised gyms for more than 35 corporates, including Saint Gobain, Ashok Leyland, ABN Amro, Biocon and Motorola, FitnessOne has also installed numerous home-gyms, tailored to meet the fi tness needs of individuals. Th e equipment needs as little as 60 sq ft of space. Th e cost of setting up a home-gym varies from Rs 40,000 to Rs 1.5 lakh, depending on the fi tness goals of the indi-vidual. FitnessOne also has fl exible instal-

R A C

HAN

DR

OO


WORLD


INDIA

Country Index Index Value Change % 52-week 52-week Current Forward GDP at current GDP growth at (Mar 11) 15 days 1 year high low PE PE prices ($ mn) constant prices(%)BRAZIL BOVESPA 38,286 0.3 -38.4 73,920 29,435 9.4 8.6 1,835 4.4CHINA SSEC 2,133 2.5 -47.6 4,055 1,664 20.0 11.9 6,991 10.0FRANCE CAC 40 2,650 -3.4 -43.6 5,142 2,465 7.0 6.4 2,046 2.1GERMANY DAX 3,873 -1.8 -41.3 7,231 3,588 7.6 7.2 3,653 1.0HONG KONG HANG SENG 12,001 -7.1 -48.8 26,387 10,676 8.0 7.0 216 4.6INDIA BSE SENSEX 8,343 -6.6 -48.3 17,735 7,697 12.2 9.0 2,988 8.4JAPAN NIKKEI 225 7,198 -4.7 -44.0 14,601 6,994 8.5 8.1 4,289 1.9MALAYSIA KLSE 838 -6.2 -32.0 1,305 801 9.2 8.0 357 5.5MEXICO BOLSA 17,712 -1.9 -39.5 32,292 16,480 9.2 7.7 1,346 3.4RUSSIA RTSI 987 7.0 -67.1 3,713 788 5.8 4.5 2,087 7.0SINGAPORE STRAIT TIMES 1,493 -7.4 -48.8 3,269 1,455 6.0 6.4 228 6.0SOUTH AFRICA JSE AFRICA ALL SHARE 19,016 0.1 -38.1 33,309 17,770 9.2 6.6 467 4.7SOUTH KOREA KOSPI 1,128 5.2 -32.0 1,901 892 11.1 7.7 1,200 4.7THAILAND SET 415 -3.5 -49.8 886 384 16.4 7.8 519 4.5UNITED KINGDOM FTSE 100 3,681 -6.0 -36.3 6,377 3,460 7.7 7.0 2,137 2.8UNITED STATES DOW JONES 6,945 -3.3 -42.7 13,191 6,440 9.3 7.4 13,843 2.3SOURCE: MARKET (YAHOO FINANCE AND BLOOMBERG), ECONOMY (IMF)

MARKET ECONOMY

Commodity Prices

WORLD VIEW

Exchange Rates

1 USD In INR 1 month 12 months 1 month 12 monthsCanadian Dollar 1.255 40.002 -3.5 -29.7 1.255 1.251Chinese Yuan 6.837 7.341 -0.1 3.7 6.906 6.906Danish Krone 5.848 8.583 -0.3 -19.4 5.857 5.884Hong Kong Dollar 7.754 6.473 -0.1 0.4 7.752 7.743Indian Rupee 50.190 - -5.8 -28.0 -50.335 51.131Indonesian Rupiah 12,050 0.004 -1.0 -31.0 12,200 13,600Japanese Yen 97.891 0.513 -6.9 6.5 97.845 96.767Kuwaiti Dinar 0.295 170.424 -1.7 -9.2 0.303 0.380Malaysian Ringgit 3.670 13.676 -2.2 -15.9 3.670 3.670Phillipine Peso 48.095 1.044 -2.5 -17.5 48.095 48.095Saudi Arabian Riyal 3.753 13.375 -0.1 -0.1 3.753 3.754Singapore Dollar 1.528 32.854 -1.3 -10.2 1.528 1.526Swedish Krone 8.777 5.718 -4.7 -43.0 8.780 8.715Swiss Franc 1.169 42.924 0.7 -11.8 1.169 1.157UAE Dirham 3.673 13.664 -0.3 0.0 3.676 3.692 Currency/USD In INR 1 month 12 months 1 month 12 monthsAustralian Dollar 0.650 32.618 0.8 30.1 0.648 0.640Euro 1.274 63.949 0.3 16.3 1.274 1.276Great Britain Pound 1.426 71.561 3.2 30.9 1.426 1.426New Zealand Dollar 0.513 25.752 2.3 36.0 0.512 0.504

Spot Rates Forward Rates

Global Snapshot Wholesale Price Index

FDI Infl ows

Money SupplyAs on

February 13 Amount % Amount %M3 Money 45,90,189 36,039 0.8 7,62,878 19.9Components : Currency with the Public 6,52,440 18,364 2.9 97,533 17.6DD with banks 4,96,609 -15,244 -3 18,279 3.8TD with banks 34,34,186 32,591 1 6,44,824 23.1Other deposits with RBI 6,953 328 5 2,242 47.6

Source: RBIFigures in Rs crore

Foreign Trade

INSIDE TRACK

Industrial Output

Year-on-year change in % Source: MOSPI

Jan 06 Jan 09

16

12

8

4

0

-4

11.6

0.5

Forex Reserves

Source: RBI

Aug 05 Feb 09

350

300

250

200

150

100

50

0

As on Feb 27: $249.2 mn

Infl ation vs G-sec Yield

Jan 7, 2006 Feb 28, 2009

2.4%

Figures indicate year-on-year change

180

160

140

120

100

80

Note: Figures rebased to 100 to enable comparision Source: MOSPI

5.8%Fuel, power, light & lubricants

4.0%

All commodities

Primary articlesManufactured items-5.1%

As on March 12 Source: Mecklai Financial & Commercial Services

Apr 25, ‘07 Mar 12, ‘09Values have been rebased to 100

125

100

75

50

25(Figures as on March 12, in $/tonne)

1,2163,6351,300Aluminium Copper Zinc

Metals

(Figures as onFebruary 25, in$/standard traded unit)Jan 1, ’08 Mar 11, ’09

Gold Silver Palladium Platinum949 1,388 200 1,045160

120

80

40

Values have been rebased to 100

Precious Metals

Coffee Cotton Sugar105

Apr 25, ‘07 Mar 11, ‘09Values have been rebased to 100

300

250

200

150

100

50

(Figures as on March 11, in cents/lb)

Rice Wheat42 19 12 558

Agri

Price for Light Crude ($/barrel) Source: Viratech, LMEJan 2, ‘08

42

160

120

80

40

0Mar 11, ‘09

Oil

100

15 Days Change YoY Change

Feb 2009

14

12

10

8

6

4

2

0

10-year G-Sec yield (%)

Monthly inflation (%)

Jan 2002Source: ASA,PNB Gilts

6.39

2.43

Different Standards International Financial Reporting Standards, or IFRS, is the next frontier in fi nancial reporting. As the deadline of April 1, 2011, for ‘public interest entities’ (includes listed and unlisted companies) to move to IFRS approaches, the preparedness of Indian companies leaves much to be desired, says consultancy fi rm Grant Thornton. In a recent survey conducted among senior fi nance and accounting executives in India, it found that many unlisted companies were not confi dent enough of moving to the unifi ed accounting standard—about 97% of respondents said only listed companies will be able to prepare IFRS statements from April 2011. The survey report notes that lack of awareness on IFRS methods could be a major reason for this assessment.

Source: CMIE

How Free Is The Trade?A country’s openness to trade is often measured by its sum of exports and imports as a share of its GDP. A more direct measure is its average tariff rate. The average tariff rate for the world fell from about 30% in the early-1980s to about 10% in 2005. According to the latest World Development Report of the World Bank, tariffs are highest in Africa, South Asia and Western Asia, and lowest in member-countries of the Organisation for Economic Co-operation and Development (OECD). It also says that poor countries restrict trade more than rich countries using tariff and non-tariff barriers. Non-tariff barriers, on an average, account for about two-thirds of total trade barriers, with a higher proportion in rich countries than in the poor ones.

Change (%)

Figures are in $bn *Apr-Mar Source: Commerce Ministry

Total*

Apr MarJun Aug Oct Dec Feb

24.5

15.7

21.2

1.4

6

5

4

3

2

1

0

2008-09 2007-082006-07

4.4

3.8

Dec 2008

80

60

40

20

0

-20Sep 2007

ExportsImports

Growth %

82 83

Figures show % of respondents who agree

Who Is IFRS-Ready?All ‘public interest’

entities3

50

All listed companies Top 500

companies

33

14

Top 100 companies

Average TariffsOECD countries

Eastern Europe & Russian FederationOther high-income countries

Southern AfricaCentral America & Caribbean

South AmericaSoutheast Asia & Pacifi c

Western AfricaWestern Asia

South AsiaEastern Africa

Northern Africa0 5 10 15 20

Note: Figures are the unweighted mean of a country’s average tariffs Source: World Bank 2006

In 2005 (%)

3.06.67.58.09.7

9.910.313.0

13.216.0

17.017.0


CORPORATE


MARKETS

Corporate Debt

Resources Raised From Capital Markets

Source: CMIE

Total Domestic Overseas Equity Debt Public Rights Private placementMAY-08 4,699 4,586 113 1,649 2,937 307 10 4,268JUNE-08 4,868 4,501 366 2,601 1,900 1,226 439 2,836JULY-08 2,790 2,208 582 508 1,700 94 167 1,946AUGUST-08 10,267 10,267 0 8,067 2,200 262 104 9,901SEPTEMBER-08 15,842 15,833 9 8,973 6,860 31 8,714 7,088OCTOBER-08 3,919 3,919 0 251 3,668 26 102 3,791NOVEMBER-08 11,635 11,635 0 3,738 7,896 0 146 11,488DECEMBER-08 16,398 16,398 0 1,464 14,934 41 1,349 15,007JANUARY-09 12,735 12,735 0 119 12,615 0 0 12,735APRIL 07-JANUARY 08 175,871 145,412 30,459 107,480 37,977 49,017 8,084 88,301APRIL 08-JANUARY 09 89,879 88,747 1,131 30,549 58,198 2,002 11,034 75,710All fi gures in Rs cr

Domestic (by asset class) Domestic (by issue type)

As on March 9 Source: CMIE & BSE

FII Net Flows

Feb 26, 2009 Mar 9, 2009

0

-200

-400

-600

-800

-1.6

-453.2

Net FII infl ows into equity Rs crFeb 26-Mar 9 (3,151)2008-09 (up to Mar 6) (50,696)2007-08 53,404

Highest index gainer: BSE IT (-3.0%); Highest gainer in BSE IT over last fortnight: Mphasis (12.0%, Rs 179)

VALUE HIGH LOW 15 DAYS 1 YEAR 3 YEARS

BSE 100 4,160 9,433 3,949 -8.0 -50.7 -25.1BSE 200 963 2,214 922 -7.9 -51.5 -27.5BSE 500 2,983 7,066 2,899 -7.8 -53.0 -29.6BSE BANKEX 3,633 9,306 3,599 -15.1 -56.9 -30.2BSE CG 5,453 14,774 5,394 -7.6 -59.1 -31.3BSE CD 1,472 4,774 1,453 -6.6 -64.5 -53.6BSE FMCG 1,803 2,530 1,549 -10.6 -17.7 -9.5BSE IT 2,025 4,747 1,988 -3.0 -43.3 -45.8BSE MIDCAP 2,553 7,369 2,548 -7.4 -62.3 -48.8BSE PSU 4,676 8,283 3,853 -6.0 -38.6 -18.7BSE SENSEX 8,160 17,736 7,697 -8.3 -48.8 -22.8BSE SMALLCAP 2,867 8,936 2,864 -8.5 -65.2 -54.5NIFTY JUNIOR 3,595 9,541 3,588 -9.2 -56.4 -42.0S&P CNX NIFTY 2,573 5,299 2,253 -6.9 -46.4 -17.8

Indices Watch

NSE: F&O turnover (Rs 3,39,498 cr)25,000

20,000

15,000

10,000

5,000

0 Feb 26, 2009 Mar 9, 2009

Index futures Stock futuresIndex options Stock options

8,181

9,771

19,007

938

Source: NSE

MF Net Flows

Feb 25, 2009 Mar 6, 2009

300

200

100

0

-100

-200

-300

130.0 129.3

Net MF infl ows into equity Rs crFeb 25-Mar 6 (206) 2008-09 (up to Mar 6) 4,8292007-08 19,896

Price (Rs) 15 days 1 yearTop 10 GainersBombay Rayon Fashions 111 25.9 -58.9Amtek Auto 84 23.7 -68.5Amtek India 31 16.8 -72.9Nava Bharat Ventures 125 14.4 -28.0Mphasis 179 12.0 -13.4Hindustan Zinc 354 10.3 -38.5Mcleod Russel India 47 10.2 -25.6Redington (India) 98 9.8 -68.3Birla Corporation 161 9.0 -23.8Berger Paints India 36 8.1 -1.5Top 10 LosersRolta India 43 -51.2 -84.6Everonn Systems India 90 -35.0 -86.0Ranbaxy Laboratories 135 -34.9 -68.8Aban Offshore 232 -34.8 -93.3Vishal Retail 27 -33.4 -96.6Tanla Solutions 22 -31.0 -93.0Indian Bank 65 -30.1 -63.3ICSA (India) 55 -28.9 -87.2Reliance Capital 281 -26.2 -79.1Indage Vintners 44 -25.8 -92.8

BSE 500: Gainers & Losers

Leaders and laggards: equity NAV (Rs) Return (%)Top fiveJPMorgan India Alpha 10.4 0.2ING Dynamic Asset Allocation 10.1 0.1Escorts Growth 34.6 -1.0Escorts High Yield Equity 7.1 -1.5UTI Wealth Builder-Series II 9.9 -2.6Bottom five SBI Magnum Sector-Emerging Bus. 11.5 -10.0JM Hi Fi 3.6 -9.9Canara Robeco Multicap 5.7 -9.8JM Multi Strategy 7.1 -8.9Canara Robeco Equity Div. 20.1 -8.9

Cash market turnover (Rs 88,182 cr)12,000

8,000

4,000

0 Feb 26, 2009 Mar 9, 2009

NSE BSE

6,525

2,201

Source: NSE & BSE

9,617

2,632

REAL ESTATE: MUMBAI (RETAIL RENTALS)

Source: SEBI

NAV date: Mar 9 Returns for two weeks (%)Source: mutualfundsindia.com

As on March 9 Source: CMIE

Revenues Net profi t Revenues Net profi t Op. margin* RoCE PE Mkt cap (Rs cr)TCS 19,371.6 4,508.8 19.6 29.2 30.2 43.2 10.8 46,513.4WIPRO 18,087.7 3,063.3 20.1 26.1 22.4 27.4 10.5 31,046.9INFOSYS TECHNOLOGIES 16,692.0 4,470.0 21.6 34.8 35.6 33.3 13.2 70,271.7HCL TECHNOLOGIES 4,785.8 780.6 15.4 20.3 23.2 23.3 6.7 6,007.8TECH MAHINDRA 3,724.3 342.2 44.4 31.0 13.3 68.6 3.3 3,202.3ORACLE FINANCIAL SERVICES 1,879.7 410.9 16.6 29.9 28.1 14.5 8.8 5,183.7LARSEN & TOUBRO INFOTECH 1,597.0 211.1 25.9 60.5 18.2 36.4 NA NAMPHASIS 1,496.0 264.5 56.5 67.9 24.1 22.4 8.8 3,814.2FINANCIAL TECHNOLOGIES 1,355.1 961.3 139.9 209.1 92.6 76.8 6.6 2,129.5PRITHVI INFORMATION SOLUTIONS 1,131.0 63.7 35.4 20.7 8.3 13.5 1.3 57.4

TCS CSC REVENUES ($ BN) 4.3 17.1OPERATING PROFIT ($ BN) 1.2 2.5NET PROFIT ($ BN) 0.9 0.9OP. MARGIN (%) 27.1 7.1NET MARGIN (%) 21.1 5.4ROE (%) 47.5 16.3PE (TIMES) 8.4 5.8MARKET CAP ($ BN) 9.0 5.21-YEAR RETURN (%) -41.2 -20.3DIVIDEND YIELD (%) 3.0 NA

Financials (Rs cr) 3-year CAGR (%) Ratios (%) Valuations

Source: CMIEFinancials for 2007-08; PE and market cap as of Mar 11; NA: Not applicable as company is unlisted; Satyam Computer was ranked number 4, but wasn’t considered as its fi nancials are yet to be restated

($1 = Rs 51.70) Source: CMIE, Yahoo Finance

India compared

52-WEEK % CHANGE

Change (%)

SECTOR SNAPSHOT: SOFTWARE

GR

APHIC

S BY K

ISHO

RE D

AS

Infrastructure Throughput

Nov 07

Railways (freight traffic)

16

12

8

4

0

-4 Dec 08

7.5 3.0

Apr-Dec 07 8.4% 572 mn tonnesApr-Oct 08 6.0% 606 mn tonnes

Nov 07

Power (generation)

12

8

4

0 Jan 09

5.8

1.4

Apr 07-Jan 08 6.3% 586 billion KWHApr 08-Jan 09 2.5% 600 billion KWH

Dec 07

Ports (traffic at major ports)

20

10

0

-10 Dec 08

7.6

0.0

Apr-Dec 07 12.5% 378 mn tonnesApr-Dec 08 3.4% 391 mn tonnes

Port-wise traffic

KandlaVishakhapatnamMumbaiChennaiJNPTHaldiaParadipNew MangaloreMormugaoTuticorin

Share (%)

Change for April-December on a y-o-y basisSource: CMIE

14.212.311.210.6

9.88.38.17.16.84.2

Change (%)16.8

0.89.6

-1.6-10.6

5.7-1.2

314.3

6.7

Commodities Production

Nov 07

Sugar

20

0

-20

-40

-60 Dec 08Oct-Dec 07 -12.8% 6.4 mn tonnesOct-Dec 08 -6.1% 6.0 mn tonnes

-40.1

-10.7

Oct 07

Tea

30

20

10

0

-10Dec 08

16.8

Jan-Dec 07 -1.3% 945,000 tonnesJan-Dec 08 3.8% 980,000 tonnes

-2.3

Oct 07

Edible oil

40

20

0

-20Dec 08

Nov-Dec 07 15.2% 241,000 tonnesNov-Dec 08 36.1% 328,000 tonnes

30.2

52.3

Sep 07

Sugar prices

2,200

2,000

1,800

1,600

1,400

1,200 Jan 081,356

Price of small grade(Mumbai) in Rs per quintal

2,008

Graphs show monthly change on a y-o-y basis in %

Graphs show monthly change on a y-o-y basis in % Source: CMIE

Mutual FundsTop 10 fund houses AUMs (Rs cr) Change (%)Reliance Capital 81,627 7.2HDFC 56,864 10.6ICICI Prudential 53,514 12.6UTI 49,225 6.6Birla Sun Life 48,556 15.2SBI Funds Management 27,627 2.5LIC 24,268 29.6Franklin Templeton 19,408 0.5Tata 19,300 -4.2Kotak Mahindra 17,262 9.8Total 5,00,973 8.7AUMs are monthly average for February, change shows increase or decrease over January Source : AMFI

Rent in Rs per sq ft for average bare shell Source: Cushman & Wakefi eld India

Change (%)

Rent (Q4) 3-month 1-year

South (CBD-Nariman Point) 375 -25.0 -14.8

Central (Worli) 325 -18.8 -18.8

Central (Lower Parel) 200 -35.5 -35.5

Suburban (Bandra-Kurla) 300 -22.1 -22.1

Suburban (Andheri) 135 -25.0 -25.0

Suburban (Powai) 100 -9.1 -9.1

Suburban (Malad) IT 80 -20.0 -11.1

Suburban (Malad) Non IT 120 -20.0 NA

84 85

Avinash Singh

THEY HAVE BEEN KNOWN TO SNOOPinto each other’s work, raise questions about their rivals’ motives, character and man-hood—and, of course, deny all of it. So, ear-lier this month, when the 10 Formula 1 (F1) team principals jointly outlined proposals

that would, ostensibly, make it more aff ordable for them to race fast cars, the irony was striking, to say the least.

THE ENEMY

INSIDEFormula 1 is its own worst enemy. Always has been, always will be

Th e world’s most expensive sport, which doesn’t acknowledge the law of diminishing returns, was talking cost-cutting—not in fractions, but in straight halves. Th e grey-haired men with massive egos, who share morally ambivalent relationships at the best of times, were trusting one another to think about the greater good of the sport.

If F1 history is any marker, the fun and games start now, as much off the race track as on it. In good times, the F1 fraterni-ty would put a tax accountant to shame with its interpretation of rules. In these bad times, when there is unprecedented pressure to cut costs without losing com-

petitiveness, moral codes are bound to get stretched, and disagreements erupt over the agreement.

Forced Pitstop It’s not as if the teams wanted to scale down the scope of their operations or stop spend-ing gazillions on, say, craft ing a piece of bodywork that magically allows air to pass through rather than impede the moving car. It’s just that sub-prime and its fallout forced their hand.

Th e crisis has already forced many to leave F1. Honda, one of the six car manufactur-ers (traditionally, the guys with the money)

Mercedes told Ron Dennis, the co-owner of McLaren-Mercedes, that it didn’t have money to burn as in the past, he had no choice but to join Briatore. Bernie Eccle-stone, the maven who has been running F1 since 1978, probably empathised, given that he’s in the midst of a costly divorce that could take some billions out of his personal fortune. When the F1 boss heard team own-ers complain that they couldn’t aff ord to spend like this, but couldn’t aff ord to stop spending either, he had no choice but to call in the artillery.

Th e artillery, in this case, came in the shape of FIA President Max Mosley, a man who likes to wear Nazi uniforms and get whipped by women in leather outfi ts. When it comes to the sport and the men that drive it, however, Mosley doesn’t mince words. Recently, the 68-year-old summed it up for German magazine Der Spiegel: “Th e endeavour for success has succeeded over any kind of fi nancial discipline. Formula 1 is becoming ridiculous.”

Since 1990, 28 teams have either changed

hands or vanished. According to F1 Rac-ing, in 2005 (the only year for which fi gures are available), Ferrari spent $426 million, Toyota $397 million, McLaren $359 mil-lion and Renault $258 million. Minardi’s was the lowest spend—at $39 million, it was around Michael Schumacher’s salary for that year from Ferrari. Th at year, Re-nault won both the driver’s and construc-tor’s trophies, and Ferrari and Schumacher were a distant third.

Racing As Usual Mosley wants F1 to reorganise itself in such a way that each team won’t spend more than $50 million per season. In that pe-nurious backdrop, earlier this month, the team principals, through their grouping, Formula One Teams Association (FOTA), outlined the ‘low-cost version’ of F1, rela-tively speaking—because F1 will still be the world’s most expensive sport. Th e major proposals are cheaper engines, standardisa-tion of some electronic equipment, lesser on-road and wind-tunnel testing, limits

on iterations to the chassis, bodywork, etc, and elimination of a wide range of exotic metallic and composite materials.

Each proposal is an admission by teams that so obsessive and limitless is the pursuit of success in F1 that they can’t turn off the spending tap—unless someone does it for them. Th at is what these proposals partly do. So, everyone will scale down. But in the absence of a universal spending cap, they will scale down in proportion. So, the night-and-day gap between a Ferrari and a Force India will remain.

More importantly, the urgency to win or move up the grid will move teams to work around the curbs on testing and devel-opment—like the diff erence between tax avoidance and tax evasion. Sooner rather than later, someone will push the envelope. Someone else will follow. It will eventually become a self-perpetuating cycle, one that turns cost-cutting into a self-defeating ex-ercise. And the team principals will go back to calling each other names. Th at’s how it has always been in F1. <

in the sport last year, has ended its second solo stint with F1. Word is, if Toyota has another middling or disastrous season, as it has had since it entered the sport in 2002, it might follow Honda. Elsewhere, the sub-prime victims are also pulling out. Two major sponsors, ING for Renault and RBS for Williams, have said that, come 2010, they would use their precious mil-lions to generate tangible revenues instead of intangible benefi ts.

For an industry that prides itself on preci-sion and measures itself in fractions, con-clusive or offi cial numbers—for anything—are hard to come by. By some estimates, ING, along with Vodafone, was the second-largest spender in F1, aft er Philip Morris cigarette brand Marlboro. According to a Formula Money report, ING pumped $86 million into F1 in 2008, with $65 million going to Renault, representing more than half of the team’s sponsorship revenues.

So, when Flavio Briatore, the crusty Italian who helms Renault, realised that about a fi ft h of his team’s budget will go poof next year, and that there aren’t many sponsors willing to pay that kind of money to have their names splashed on his cars, he had no option but to scale down. Likewise, when

So obsessive and limitless is the pursuit of success in Formula 1 that teams admit they can’t turn off the spending tap—unless someone does it for them

LIFE FORMULA ONE

REU

TERS

86 OutlookBusiness > April 4, 2009 87OutlookBusiness > April 4, 2009

Avinash Singh

THEY HAVE BEEN KNOWN TO SNOOPinto each other’s work, raise questions about their rivals’ motives, character and man-hood—and, of course, deny all of it. So, ear-lier this month, when the 10 Formula 1 (F1) team principals jointly outlined proposals

that would, ostensibly, make it more aff ordable for them to race fast cars, the irony was striking, to say the least.

THE ENEMY

INSIDEFormula 1 is its own worst enemy. Always has been, always will be

Th e world’s most expensive sport, which doesn’t acknowledge the law of diminishing returns, was talking cost-cutting—not in fractions, but in straight halves. Th e grey-haired men with massive egos, who share morally ambivalent relationships at the best of times, were trusting one another to think about the greater good of the sport.

If F1 history is any marker, the fun and games start now, as much off the race track as on it. In good times, the F1 fraterni-ty would put a tax accountant to shame with its interpretation of rules. In these bad times, when there is unprecedented pressure to cut costs without losing com-

petitiveness, moral codes are bound to get stretched, and disagreements erupt over the agreement.

Forced Pitstop It’s not as if the teams wanted to scale down the scope of their operations or stop spend-ing gazillions on, say, craft ing a piece of bodywork that magically allows air to pass through rather than impede the moving car. It’s just that sub-prime and its fallout forced their hand.

Th e crisis has already forced many to leave F1. Honda, one of the six car manufactur-ers (traditionally, the guys with the money)

Mercedes told Ron Dennis, the co-owner of McLaren-Mercedes, that it didn’t have money to burn as in the past, he had no choice but to join Briatore. Bernie Eccle-stone, the maven who has been running F1 since 1978, probably empathised, given that he’s in the midst of a costly divorce that could take some billions out of his personal fortune. When the F1 boss heard team own-ers complain that they couldn’t aff ord to spend like this, but couldn’t aff ord to stop spending either, he had no choice but to call in the artillery.

Th e artillery, in this case, came in the shape of FIA President Max Mosley, a man who likes to wear Nazi uniforms and get whipped by women in leather outfi ts. When it comes to the sport and the men that drive it, however, Mosley doesn’t mince words. Recently, the 68-year-old summed it up for German magazine Der Spiegel: “Th e endeavour for success has succeeded over any kind of fi nancial discipline. Formula 1 is becoming ridiculous.”

Since 1990, 28 teams have either changed

hands or vanished. According to F1 Rac-ing, in 2005 (the only year for which fi gures are available), Ferrari spent $426 million, Toyota $397 million, McLaren $359 mil-lion and Renault $258 million. Minardi’s was the lowest spend—at $39 million, it was around Michael Schumacher’s salary for that year from Ferrari. Th at year, Re-nault won both the driver’s and construc-tor’s trophies, and Ferrari and Schumacher were a distant third.

Racing As Usual Mosley wants F1 to reorganise itself in such a way that each team won’t spend more than $50 million per season. In that pe-nurious backdrop, earlier this month, the team principals, through their grouping, Formula One Teams Association (FOTA), outlined the ‘low-cost version’ of F1, rela-tively speaking—because F1 will still be the world’s most expensive sport. Th e major proposals are cheaper engines, standardisa-tion of some electronic equipment, lesser on-road and wind-tunnel testing, limits

on iterations to the chassis, bodywork, etc, and elimination of a wide range of exotic metallic and composite materials.

Each proposal is an admission by teams that so obsessive and limitless is the pursuit of success in F1 that they can’t turn off the spending tap—unless someone does it for them. Th at is what these proposals partly do. So, everyone will scale down. But in the absence of a universal spending cap, they will scale down in proportion. So, the night-and-day gap between a Ferrari and a Force India will remain.

More importantly, the urgency to win or move up the grid will move teams to work around the curbs on testing and devel-opment—like the diff erence between tax avoidance and tax evasion. Sooner rather than later, someone will push the envelope. Someone else will follow. It will eventually become a self-perpetuating cycle, one that turns cost-cutting into a self-defeating ex-ercise. And the team principals will go back to calling each other names. Th at’s how it has always been in F1. <

in the sport last year, has ended its second solo stint with F1. Word is, if Toyota has another middling or disastrous season, as it has had since it entered the sport in 2002, it might follow Honda. Elsewhere, the sub-prime victims are also pulling out. Two major sponsors, ING for Renault and RBS for Williams, have said that, come 2010, they would use their precious mil-lions to generate tangible revenues instead of intangible benefi ts.

For an industry that prides itself on preci-sion and measures itself in fractions, con-clusive or offi cial numbers—for anything—are hard to come by. By some estimates, ING, along with Vodafone, was the second-largest spender in F1, aft er Philip Morris cigarette brand Marlboro. According to a Formula Money report, ING pumped $86 million into F1 in 2008, with $65 million going to Renault, representing more than half of the team’s sponsorship revenues.

So, when Flavio Briatore, the crusty Italian who helms Renault, realised that about a fi ft h of his team’s budget will go poof next year, and that there aren’t many sponsors willing to pay that kind of money to have their names splashed on his cars, he had no option but to scale down. Likewise, when

So obsessive and limitless is the pursuit of success in Formula 1 that teams admit they can’t turn off the spending tap—unless someone does it for them

LIFE FORMULA ONER

EUTER

S

86 OutlookBusiness > April 4, 2009 87OutlookBusiness > April 4, 2009

GOAL KEEPER,

GOAL SETTER

Once, as a goalkeeper, she imperiously fended off attacks

on the hockey fi eld. Today,she plots strategy and

directs traffi c for a young team at a radio station.

APURVA PUROHIT, CEO ofRadio City, has come a

long way since she took off her pads. But the lessons hockey taught her are etched deep in her mind. AJITA SHASHIDHAR

caught up with herrecently in Mumbai to

fi nd the parallels

She was once the custodian of the Tamil Nadu hockey team. Today, she plays a somewhat similar role at Radio City. Apurva Purohit, CEO of the popular radio station, doesn’tneed to pad up for her new job, nor does she need to dive and slide, but she has to be constantly on her toes to rally her team and best opposing radio stations. Th at’s something that comes naturally to her, just as it did when she was egging on her teammates from the goalpost, nearly 25 years ago. Th e learnings from that time have remained with her to this day,

Ironically, Purohit fi rst picked up a hockey stick out of compulsion, when she was 18-years-old. At Stella Maris College, Chennai, it was mandatory for all students to pursue at least one sporting activity. While most of her classmates opted for cricket, Purohit, who found the game too lengthy, opted for hockey instead. In no time at all, she found herself in the col-lege team, despite never having played the game before.

Purohit was a natural athlete, but had confi ned her sporting activity to the 100-metre dash in school. She took to hockey like a duck to water. Her speed and agility caught the coach’s eye. To top it all, she had superb hand-eye co-ordination, an essential pre-requisite for the job. Soon, she was putting her body on the line, blocking balls fl ying towards her. Th e hard work paid off . Within months, she was representing Chennai. Not long aft er, she was selected as the Tamil Nadu goalkeeper and criss-crossed the country to play at various inter-state tournaments.

She helped her diff erent teams win many a tournament, and the certifi -cates and trophies remain a source of pride to this day. Th e collection is quite impressive, considering she played for only three years. Aft er her graduation, Purohit decided to unpad and pursue higher studies. She cracked the CAT and got into IIM-Bangalore.

Life LessonsNearly 22 years have passed since Purohit last played a hockey match, but the lessons she learnt on the fi eld are still fresh, and guide her both in her personal and professional life. “I acquired valuable management lessons during my short stint in hockey, lessons even my B-school degree didn’t teach me.” Th e goalkeeper’s job, she says, isn’t popular because it is extremely dangerous at the best of times, even with all the protective gear. “It requires a lot of courage and confi dence to face balls that are fl ying past one’s face like bullets,” says Purohit. Th at same courage and confi dence helped her build Radio City up from just four stations in 2005, when she took over, to 20 stations today. Many of the stations have

HEY! APURVA PUROHIT

SOUMIK KAR

broken even and most are market leaders in their cities.

“Hockey makes you tough, and goalkeep-ing more so. It’s a lonely position, and if you don’t have the nerve to face the danger, you have no business standing under the bar,” says Purohit, intensity writ large on her face. “If you’re the CEO of a company, it’s pretty much the same—the buck stops with you.” Th e Radio City chief explains how even during practice, the keeper is pretty much used as a target, as one player aft er another hammers the ball at the goal, oft en at face-level. Sometimes, inadvert-ently, two players take a crack simultane-ously. But neither this nor the injuries that were part and parcel of being a custodian deterred Purohit. She was good in the goal, and she enjoyed being there.

Th e skill that she values most from her hockey days is communication. During matches, while her team-mates were in the thick of the battle, Purohit had a perfect view of the run of play. She could spot the weak links in the oppo-sition’s defence and point those out to her players. Holes in her own defence were also plugged in this manner. Tactics had to be modifi ed constantly; for in-stance, a dangerous forward on the opposition’s team would fi nd it hard to make a breakthrough with Puro-hit keeping her full-backs on her tail. Of course, de-spite this, there were many attempts on goal.

Th e other lesson hock-ey taught her is to have a “positive attitude”. She recalls an i n -cident that took place during the Women’s Federation Cup in Chandigarh. Her team had lost badly in the fi rst two matches and the selection for the third one was on. Puro-hit stood dejectedly in one corner blaming herself for the defeat. “My captain came up to me and said that I was passing wrong signals to the selectors. She was right—I was dropped for that game.” Th at experi-ence was ingrained deeply in her psyche. “Today, if I have to appraise two team mem-bers who haven’t achieved their targets, I will support the one who has a fi ghting spirit rather the one who accepts defeat. I strongly believe that employees shouldn’t be judged on skill alone, but also on the

basis of their attitude.” Not surprisingly, her experiences as a

hockey player fi gure prominently in her discussions with her team at Radio City. “She narrates anecdotes from her hockey days and relates them with the current work situation eff ortlessly,” says a former colleague of hers.

Those Were The DaysApart from the management mantras she has imbibed from the sport, Purohit also has fond memories of her team members and the fun they had together. Since she was from the Northern part of the coun-

try, many of them were initially wary of her. “I remember one girl bought herself a sleeveless outfi t and her parents promptly blamed me for polluting her!” she says with incredulity. All it took for Purohit to be-come one with the team was pick up a few Tamil phrases. “I even learnt some slang without knowing what the words actually meant. Once it got me into trouble with a teammate,” she says, breaking out into a paroxysm of laughter.

Purohit’s mother always told her that “adaptability was the greatest form of in-telligence”. And, adapt she did. “We were oft en asked to spend nights on school cam-puses of towns in interior Tamil Nadu. Of-ten, we had to sleep on railway platforms

during our tours,” she recalls. However, the hospitality of the organisers made up for all the hardships. “I can never forget the steaming hot idlis and sambar. I also loved mor (butter-milk) which used to be served with each meal.”

Since those days, she has always remained a sambar-loyalist. “At IIM, there was the sambar brigade and the dal brigade. Since I am a North Indian, I was expected to join the dal brigade. But I was a sambar loyalist, and pleaded with the caterers at the canteen to serve us sambar seven days a week,” she says.

Teamwork Is KeyPurohit believes nothing can beat team-

work. At Radio City, she ex-plains, there is oft en a confl ict between her sales and program-ming teams over commercial time—the sales team wants to push in as many commercials as it can, while programming is not comfortable accommodat-ing that many, as it interferes with the content. “I always tell them that there has to be some give-and-take between the two functions. Th at can happen only if they work together, keeping the greater interest of Radio City, the team, in mind.”

Does she regret having given up hockey? “Not really,” says Puro-hit. “I feel there is a right time for everything in life. I have done so many other things since then. I pursued my studies, worked, got married, had a child. And I have enjoyed all these as much as I enjoyed playing hockey.” She is not actively involved with any sport today and prefers yoga instead to stay fi t and de-

stress. But Purohit makes it a point to cheer her company’s football and cricket teams each time they participate in a cor-porate tournament.

Both her husband, Sanjay Purohit, the Ex-ecutive Director of Cadbury India, and her son Siddarth, are keen sports enthusiasts. “I oft en watch cricket matches at Shivaji Park with Siddarth, who is a cricket fan,” she says. Th e family has travelled all over the world to watch cricket matches.

So, what plans now that the second half of her life has begun? Purohit and her fam-ily love to travel, and that will be the main item on their agenda, the slowdown not-withstanding. If you happen to be in the Netherlands, don’t be surprised if you bump into her near a hockey stadium. <

HEY! APURVA PUROHIT


“Goalkeeping is tough.

If you lack the nerve,

you have no business

being under the bar”

BOOKS

OutlookBusiness > April 4, 2009 00OutlookBusiness > April 4, 2009 93

THIS IS the advantage that Oppen-heimer had and that Chris Langan

lacked. Oppenheimer was raised in one of the wealthiest neighbourhoods in Manhattan, the son of an artist and a successful garment manufacturer. His childhood was the embodiment of concerted cultivation. On weekends, the Oppenheimers would go driving in the countryside in a chauffeur-driver Pack-ard. Summers, he would be taken to Eu-rope to see his grandfather. He attended

the Ethical Culture School on Central Park West, perhaps the most progres-sive school in the nation, where, his bi-ographers write, students were “infused with the notion that they were being groomed to reform the world.”

As a child, Oppenheimer was pas-sionate about rock collecting. At the age of 12, he began correspond-ing with local geologists about rock formations he had seen in Central Park, and so impressed them that they invited him to give a lecture before the New York Mineralogical Club. Dreading the thought of ad-dressing an adult audience, Robert begged his father to explain that they had invited a 12-year-old. Greatly amused, Julius encouraged his son to accept the honour.

On the designated evening, Rob-ert showed up at the club with his parents. The startled audience of geologists and amateur rock collec-tors burst out laughing when he ap-proached the podium; a wooden box had to be found for him to stand on so the audience could see more than the shock of his black hair sticking up above the lectern. Shy and awk-ward, Robert nevertheless read his prepared remarks and was given a hearty round of applause.

Is it any wonder Oppenheimer handled the challenges of his life so brilliantly? If you are someone whose father has made his way

up in the business world, then you’ve seen, fi rsthand, what it means to ne-gotiate your way out of a tight spot. If you’re someone who was sent to the Ethical Culture Schools, then you aren’t going to be intimidated by a row of Cambridge dons arrayed in judgement against you. If you studied physics at Harvard, then you know how to talk to an army general who did engineering just down the road at MIT. Chris Lan-gan, by contrast, had only the bleakness of Bozeman, and a home dominated by an angry, drunken stepfather.

Sudipto Dey

SUCCESS NEEDS GENIUS, BUT THERE’S NO such thing as a self-made genius. At least, that’s the premise of Malcolm Gladwell’s Outliers. Th e author contends that there are other factors that contribute to someone becoming successful. Th ese include place and time of birth, family and cultural

background, opportunities and circumstances, and what the individual made of those opportunities. Together with genius, these factors create an outlier achiever. An outlier, by defi nition, is some-one who doesn’t quite follow the beaten path. He falls outside the mean. And just as there are outlier achievers, there are also outlier underachievers.

Gladwell, who has already penned two bestsellers, Th e Tipping Point and Blink, has devoted a good part of Outliers to explain how a genius becomes an outlier achiever. Right through the book, he harps on the ‘10,000-hour rule’, stating that success in anything can be achieved by practising a specifi c task for at least 10,000 hours. He cites the Beatles as an example. Th e Brit-ish band performed live gigs in Hamburg,

Germany, over 1,200 times between 1960 and 1964, crossing the 10,000-hour mark. Th e writer feels those hours helped hone the band’s talent and laid the ground for them to become fantastic.

Again, Gladwell says Microsoft Founder Bill Gates met the 10,000-Hour requirement because of some fortuitous circumstanc-es—at age 13, he got access to a mainframe computer, thanks to his mother’s circle of friends, and spent thousands of hours pro-gramming on it.

A Nice ReadGladwell’s writing is easy and his eff orts to simplify a rather complex issue in the sim-

McNealy, Vinod Khosla, and Bill Joy were all born between 1953 and 1956, and were well equipped to ride the personal comput-ing wave that swept the world in 1975.

Apple Founder Steve Jobs benefi tted from growing up in Mountain View, California, in the heart of Silicon Valley. He attended evening talks by Hewlett-Packard scien-tists, hobnobbed with H-P founder Bill Hewlett, and even had a summer job with the company. He later went on to make the celebrated Macintosh computer.

By the end of the book, Gladwell has dimmed the halo around many successful people, reducing their brilliance to back-ground, timing, circumstances and sheer luck, without demeaning their intellect and eff ort. Th e writer is brutally forthright, when he says: “(Th e outliers) are products of history and community, of opportunity and legacy. Th eir success is not exception-al or mysterious. It is grounded in a web of advantages and inheritances, some de-served, some not, some earned, some just

plain lucky—but all critical to making them who they are. Th e outlier, in the end, is not an outlier at all.”

You have to admire the man for the zeal-ous manner in which he has made his case. However, the data on which he has based his theory is too small. And, moreover, even if it were true, that would mean that poor people would never be able to become successful. Th e world has enough examples to prove otherwise. Nevertheless, Outliers makes for a great read. <

plest language are to be lauded. However, the message starts becoming repetitive half way through the book. Oft en, it seems as if the writer is stretching an anecdote to make it fi t into his line of thinking.

Th e book, which has been written for an American audience, has some riveting sections. For instance, Gladwell has also touched on outlier underachievers. Take Christopher Langan, who was self-taught and had an IQ of 195-210. Langan did well in school, but diffi cult economic and fam-ily circumstances forced him to drop out, and he never rose to the top. In contrast, J Robert Oppenheimer, who matched Langan in brilliance, did well because of an affl uent family background. He went on to head the Manhattan Project, which developed the atom bomb (though some would be loath to consider that an achievement).

Th e writer states that a person’s time of birth could play a huge role in his success. It is no coincidence, he says, that several stalwarts in the American IT industry were born within years of each other. Paul Allen, Bill Gates, Steve Ballmer, Steve Jobs, Scott

It’s not about being smart. It’s about beingin the right place at the right time.

At least, that’s what Malcolm Gladwell’slatest book would have you believe

The SecretOf Success

OUTLIERSAuthor: Malcolm GladwellPublisher: Allen LanePrice: Rs 399/-Pages: 309

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TRUE OR FALSE? Bill Gates, Steve Jobs, Michael Jordan and Mozart made it because of fortuitous circumstances

< The concept of the ORGAN was created in 246 BC by Ctesibius o f A l e xand r i a . He invented a mechanical flute-playing instrument with wind pressure regulated by means of water pressure, called a hydraulis.

< Ib on the South Eastern Railway and Od on the Western Railway are the shortest STATION NAMES in the Indian Railways’ network. Venkatanarasimharajuvariipeta on the Arakkonam-Renigunta section of the Southern Railway is the longest station name in the Indian Railways’ network.

< When a GIRAFFE is born, it falls from a height of six feet, normally without being hurt.

< Underground is the only word in the ENGLISH LANGUAGE that begins and ends with ‘und’.

< Charlie Chaplin won third prize in a CHARLIE CHAPLIN look-alike contest.

< Playing CARDS were standard issue for British pilots in WWII. If captured, they could be soaked in water and unfolded to reveal a map.

< Lake Nicaragua, the largest lake in Central America, boasts the only FRESH-WATER SHARKS in the entire world.

< DONALD DUCK comics were once banned f r om

Finland because the cartoon character didn’t wear pants.

< The world’s fi rst law criminalising PORNOGRAPHY was enacted by the Parliament of the UK in 1857 in the Obscene Publications Act.

< CRICKET was played in Kerala’s Thalassery town much before it was introduced in Calcutta in 1860.

Photography is truth. Cinema is truth twenty-four times per second.”

Jean-Luc Godard, French fi lmmaker (1930- )

ADVERTISING

If advertisers want to connect emotionally with consumers, they need to communicate in the vernacular. That’s what researchers at Erasmus University in the Netherlands have found after studying bilingual and trilingual populations in Europe. They tested different slogans with participants and found differences in how the messages were perceived. The researchers found

Mother Tongue

ACADEMICS

The Indian government is keen on having a unique symbol to denote the rupee. To this end, it has decided to hold a public competition to design a symbol for the rupee. Currently, Rs is used to denote rupees. Experts say that since this is an abbreviation, it is not really a symbol for a currency. Nepal, Mauritius, Pakistan, Sri Lanka and the Seychelles also call their currency the rupee and use the same abbreviation, which is perhaps why the government wants to differentiate the Indian rupee.

India is not the only country without a currency sign; in fact, most world currencies have no specifi c symbol, excepting a few major ones like the US dollar ($), the British pound (£) and the Japanese yen (¥).

Many of these currency signs have an interesting history. The dollar sign is a corruption of the Spanish-Mexican ‘P’s’ for

Sign ValueCURRENCY

Best of the WORLD

BODY COPY: Don’t be lost in the weird world of investments

AGENCY: Leo Burnett, Sao Paulo, Brazil

CLIENT: AE Investmentos

IN A FIRST, the Liverpool Hope University in the UK has launched a Master of Arts degree course on the Beatles. The post-graduate course in musicology is designed to study the impact of the Fab Four on popular music and society. Students have to take four 12-week modules and prepare a dissertation. Explaining why the course was launched, Mike Brocken, a senior lecturer in popular music, says: “There

are over 8,000 books about The Beatles, but there has never been serious academic study and that’s what we’re going to address.” The course, ‘Beatles, Popular Music and Society’, starts in September.

While the Fab Four certainly deserve having a course dedicated to them, there are some curricula in other universities that make one wonder about the rationale behind them. For instance: ‘Arguing with

Judge Judy: Popular Logic on TV Judge Shows’ is a programme offered by the University of California, Berkeley, in the US. The course is “an exploration of logical fallacies that are often presented by defendants and plaintiffs on court television shows like Judge Judy and The People’s Court.” If that one is unusual, the next one is downright wacky; the University of California, San Diego, has a short-term programme on ‘Underwater Basket Weaving’.

The College of Charleston, South Carolina, tops them all. It has a summer course called Myth, Baseball, and the Meaning

The Fab Four, and a crazy lot of academic programmes

of Life. Students have to take a critical look at many of the myths that have grown around baseball and use the sport as a mirror to understand the experience of life in America. In Massachusetts, Merrimack College has something for those with a theological bent of mind: a course that explores “spirituality” and analyses prayer, sacraments and pilgrimage as ways of understanding running. College students’ actual experience with running is shared, along with ways that running creates a connection with the world and with God. Given the times we live in, perhaps, these programmes are par for the course.

pesos or Spanish dollar. The ‘S’ gradually came to be written over the ‘P’, developing a close equivalent to the ‘$’ mark.

The pound sign (£) is derived from librum, the Latin word for balance and the basic Roman unit of weight. The £ symbol is also known as the lira sign. In Italy, before the country adopted the euro, the lira sign was used as an alternative to the more usual L to indicate prices in lire, always with double horizontal lines. Other nations, such as Lebanon and Syria, continue to use the lira sign to denote their currency. There are other countries whose currency is called the pound, but that do not use the symbol.

The ¥ sign stands for renminbi, which literally mean people’s currency, and is shared by two countries—Japan and China. And, the euro sign (€) was designed by Belgian artist Alain Billiet for the European Commission in 1996 and is used in 27 countries in the European Union.

believe this is not due to differences in languages or diffi culty in understanding copy in other languages. They say that the emotional advantage of a consumer’s native language depends on personal memories and the context in which those memories were generated. Thus, reading or hearing a word unconsciously triggers memories of situations in which that word played a role. Because consumers usually have more personal memories with words in their native language, marketing messages in their native language tend to be perceived as more emotional, the researchers claim.


that, in general, messages expressed in native languages tend to be perceived as more emotional than messages expressed in their second language. The authors

A Different Course

Compiled by Jinoy Jose P

GETTYIM

AGES

94 95


PROTECTIONISM

ILLUSTRATION BY VIVEK THAKKAR

Stop WhiningCALIFORNIA GOVERNOR Arnold Schwarzenegger has some advice for those who are feeling the heat of the recession. Stop whining, is the succinct message from the Austrian Oak. “We can complain and whine and resign our-selves to defeat or stand up and challenge ourselves...that’s what winners do. Los-ers whine, but winners move forward in a positive way,” said the Terminator star at the sidelines of the Cebit tech fair at Hanover, Germany. Th e seven-time Mr Olympia also believes that pro-tectionism is a bad thing. “Th ere’s talk in the US about protectionism and I think it’s the wrong way to go...I hope that our country doesn’t start dialogue in the other direction. I will do every-thing in my power to stop that,” said Schwarzenegger.

Given the fact that the Austrian-born Schwarzenegger made his millions in the US and now holds the gubernato-rial offi ce of California, that stance is hardly surprising.

Traitor, Coolie, IndianFOR A business that’s about plain bits and bytes, IT services outsourcing has attracted a lot of strong language. A former bureaucrat once termed India’s IT workforce as ‘cyber coolies’. John Kerry, who ran for the presidency of the United

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The Cocaine TrapWhat do protectionism and cocaine have in common? Both are addictive, both can give a good high and both can cause a quick demise. Richard Fischer, President and CEO of the Federal Reserve Bank of Dallas, drew this interesting parallel. He describes protectionism as the crack cocaine of economics. “We cannot aff ord to go down that path. And I hope our senators, Democrat and Republican, will be sensible on that front,’’ says Fischer. In fact, the US may have already dipped into the cocaine pile and started sniffi ng it. Th e ‘Buy America’ slogan and the ban on those benefi ting from government aid from hiring H-1 B visa holders are just the aft er-eff ects, he bemoans.

Worst Guy In EuropeTHIS IS a shocker. Debonair French President Nicholas Sarkozy has been dubbed as the “worst guy in Europe”. No, it’s not that some are jealous of him for having the glamorous Carla Bruni as his arm candy. Th ough most European countries have turned to some kind of protectionism to save their industries and jobs, Sarkozy is alleged to have been the most vocal about the whole aff air. He ruffl ed a few feathers in Europe when he told French carmakers in Czech Republic and Slovakia to shut down their plants and return home. Czech President and European Union President Vaclav Klaus was so rattled that he has been openly talking about retaliation. Robert Fico, Prime Minister of Slovakia, said that if France doesn’t stop its brutal protec-tionist sabre rattling, he will send Gaz de France, the French natural gas com-pany—a current stockholder in Slovak gas companies—back home.

Sweden, which is tipped to take over the European Union presidency from the Czech Republic in July 2009, too has been lamenting that France has contract-ed a deadly, protectionist virus. It fears that the €6 billion in loans that France has granted its carmakers might hurt the competitiveness of Swedish cars. <

—TV Mahalingam and Ashish Gupta

States in 2004, brand-ed companies that outsource as ‘traitors’, putting the likes of IBM, Citibank in the same league as cold war spies Ethel and

Julius Rosenberg. Obama, many hoped and prayed in India, was a man dyed in more liberal ethos. Eyebrows were raised, but just a tad, when he brought up out-sourcing during his preliminary jousts with Mrs Clinton. Aft er all, the elections were still a while away and Obama was a dark horse. But when the former Illinois senator, in his maiden address as Presi-dent to the US Congress, spoke of ending tax breaks to companies that move jobs, many a Nasscom member’s heart was bro-ken. It’s back to 2004, and this time, it’s not just some president hopeful shooting off some ‘political rhetoric’, like Nasscom used to brand it.

Outlook Business 4Apr09

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Transcript of Outlook Business 4Apr09