Ever since the Indian government banned smoking in public places in 2008 in a bid to curb tobacco consumption and also put a ban on direct and indirect advertising of tobacco products and sale of cigarettes, tobacco firms and cigarette lighter manufacturers have been finding it difficult to promote products directly related to smoking and hence are looking at brand extensions of their products.One such company is Zippo, the world's largest manufacturer of lighters, which will complete its 80th anniversary this year. The US-based lighter maker is now looking at products beyond lighters in the Indian market and is also planning its first ever exclusive outlet in Mumbai followed by Delhi.Zippo is currently available at 150 retail points in India.Zippo is focusing not just on the high-end windproof lighters, which contributes 53 per cent to the company's total turnover, but on a range of lifestyle products such as watches, perfumes, leather accessories, apparels, travel bags, backpacks, watches, sunglasses, wallets, pens, liquor flasks, outdoor hand warmers and even playing cards."We do not have any exclusive outlet anywhere in the world but will set up our first ever store in Mumbai. We are already in talks with a Mumbai-based listed developer to set up a 1200 sq ft exclusive outlet in the city," the company's director for global marketing, David B Warfel, said.He also added that the company is looking setting up 3 flagship stores in India in the next 18 months, thus pointing out the importance of Zippo's presence in the Indian market. Currently, India contributes only 4 per cent to the global sales and the company is expecting a growth of 2.5 times in the next 5 years."We se a huge potential in the Indian market and hope that it can rival China in terms of volume and value over the next 5 years. At present 10 per cent of our overall sales comes from China," Warfel said.Warfel said the growth will be coming in from the Zippo-branded lifestyle products. "Our customers are mainly the urban youth and women, who buy our products to gift them to their male counterparts."Apart from lifestyle products, the other two important categories, that the company wants to focus are home decor and camping supplies, that includes products like grills, tents and handwarmers to name a few.Zippo entered the Indian market 5 years back with RBT Trading Company as its local distributor. However, the company wants to continue with the partnership as it helps them to understand the local market better and provide a broader distribution channel.Zippo already sells its lighters in more than 160 countries through wholesalers and other distributors.While, Warfel did not divulge the investment details in India, he added that the company has tripled its marketing expenditure in the last three years and the investment will continue to grow in 2012 with the key focus on the top 10 cities of the country.Currently, the Zippo products are imported from its manufacturing facility at Bradford in Pennsylvania and partly from Italy, China, Japan and South Korea.Brand experts feel that it makes sense for the company to extend its product line beyond just lighters as globally the anti-smoking laws are getting stringent. However, it is just testing waters and hence too early to comment on whether the strategy will work.However, Warfel feels that Zippo plans to stick to products closer to its core products.Zippo will initially push its expanded product line in the overseas market as the foreign consumers though familiar with the brand are ready to experiment with other products as they are not stuck to its "only lighter" image. It expects 60 per cent of the business coming from outside the US market, Warfel said.
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Last week, the mood in the market remained subdued on global and local factors. For the past three weeks the turmoil in the US and European economies have kept markets weak. Domestically too, various scams, delays in decision making, high inflation and interest rates have kept markets edgy and thus turned sentiments negative among investors who have been sitting on the sidelines. These factors have also kept the FII fund flows muted, which in turn impacted markets. Last week (in three trading sessions), FIIs sold equities worth more than half a billion dollars.The week started on a weak note with players building short position in the future & option (F&O) market in anticipation of the market melting on global fear, especially the Euro-zone debt crisis. On Tuesday, 4 October 2011, the selling in the market pulled down the Bombay Stock Exchange (BSE) Sensitive Index (Sensex) to its 20-month low of 15,745.43. The market lost ground after rating agency Moody's downgraded State Bank of India of concerns over its capital situation and deteriorating asset quality.In fact, since the beginning on the new October 2011 future & option (F&O) series that started last Friday on 30 September 2011 till Wednesday, 5 October 2011, the market lost each day losing 5.4 per cent or 905 points in four sessions. But on Friday, the Indian market snapped its four days' losing streak playing a catch-up to its Asian counter to end 3 per cent or 440 points higher with Sensex ending above 16,000. The sharp upturn in the market on Friday was due to the Bank of England announcement indicating additional asset re-purchase facility of £75 billion and the positive comments from European Central Bank on additional support for European banks. Though the rise didn't help much, for the week ended 7 October 2011, the Sensex ended in negative territory with a fall of 221 points at 16,232.54. Overall, the market lost one per cent last week. On Thursday, markets were closed following holiday on account of Dassera.The market managed to recover on Friday, but can it maintain its upward movement?There is no element of surprises left in the market and it can handle global and domestic shocks, but global events don't favour any upwards move. Despite the better-than-expected reports on the US job market, the US market ended weak on Friday following the ongoing concerns about European debt problems in Greece, Portugal, Ireland, Italy and Spain. This was due to rating agency-Fitch downgrading credit ratings of Italy and Spain. Adding to the woes was Moody's downgrading 12 UK financial institutions.Dipen Shah, head of fundamental research at Kotak Securities says: "It is difficult to ascertain whether the problems of Euro zone will be solved in the near term or not. This uncertainty makes it difficult to judge the longevity of the recent uptrend in markets." However, he feels if there aren't any major shocks in developed economies, markets may not fall significantly.In such a scenario where do we see markets advancing from here?"It is very difficult to give a call on the market movements in the short-term. However, IIP numbers and the quarterly results, which will start flowing in, will influence the markets," says Shah.On Monday, 10 October 2011, there could be some action among telecom stocks with the government unveiling the draft guidelines for the new telecom policy. The guidelines are expected to include rules on pricing of second-generation radio airwaves and mergers and acquisitions in the sector. Bharti Airtel and Reliance Communication account for 3.25 per cent weightage of the Nifty and any positive news could act as a trigger for the market.The industrial production (IIP) for August that will be announced on Wednesday could also help the market move upwards. "If it beats market expectation of 5.5 per cent, we could see some action in the market," says Shah. According to market estimates, IIP numbers are expected to record a growth between 5 and 5.5 per cent in August as against 3.3 per cent growth in July. While the inflation numbers this week (on Friday) will be crucial as it will give an indication on the Reserve Bank of India's (RBI) stance on interest rates. On 25 October 2011, RBI will announce its half yearly monetary policy.The week will also mark the onset of the September ended corporate results. On Wednesday, software bellwether Infosys will unveil its second quarter corporate performance.Though the street isn't expecting much from the results, any positives could boost the market and visa versa. "Overall earnings growth will remain muted because of lower revenue growth in a few sectors and due to the high raw material prices and interest rates," says Shah. "We need to take a stock-specific approach and companies which outperform the reduced expectations, may see a rise in the stock price."So what should investors do in the current scenario? "Stay on sidelines, but start investing for the next two years," says Gurunath Mudlapur, managing director of Atherstone Capital. "Every dip is an opportunity to accumulate the stock. Today you can start investing 5-10 per cent of your cash in companies related to the Indian consumption story." Agrees Shah who himself is willing to bet 65-70 per cent of his cash in equities at current levels. "Valuations are not unreasonable at current levels and for the next 1-2 years equity is the only asset that can give a return of 15 per cent per annum," says Shah.Overall it seems to be an action pack week dominated by domestic events.
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For the last fiscal year, Gujarat state had the highest electricity tariff rates for industry among all the major states in India. And yet nobody would argue with the fact that industry is still thriving in Gujarat. Unlike the popular rhetoric high industrial or domestic tariff rates do not scare away the industry, bad governance does. As per an analysis by policymakers, Gujarat also has some of the lowest staff cost on per unit sales basis and therefore the board is pretty efficient when it comes to employee productivity, if that is any clue towards better governance. In fact higher electricity tariffs will not necessarily lead to lower production but it will lead to smarter use of electricity, pushing the consumers to do more with less electricity. That is not bad for a power strapped nation like India. However in spite of higher electricity tariffs being an obvious and easily implementable solution, they continue to be a taboo for Indian states. Many state electricity boards have failed to increase the power tariffs over the years to cover their losses which emanate both from their operational inefficiencies as well as low electricity tariffs. Instead what seems like a Ponzi scheme, they continue to raise more debts to cover their earlier losses while failing to plug either lower tariffs or their operational inefficiency. State electricity boards (SEBs) across the country are bleeding financially and their ill health does not bode well for either conventional or renewable power producers.As per CEA, as many as thirty three power plants are running dangerously low on coal inventories currently, with available inventory for less than a week as against a stipulated fifteen days stock. However given their health the SEBs are neither in good shape to make up their stocks through imports nor are they able to keep up their existing payment schedules. State electricity boards are frequently defaulting in their payments to Coal India Limited (CIL). Simple economics will dictate that Coal India should not be selling more coal volumes to such customers but step up its supplies to more lucrative customers such as steel and cement manufacturers or even to independent power producers who are known to keep up their payment schedules. Since these other customers may not be able to mop up the entire CIL production, therefore CIL should have little incentive to increase production to continue supply to SEBs. However on the contrary the power ministry expects coal India to step up its supplies to power plants. On a macro level this continued disarray in coal supplies is increasing supply chain risk for coal based power plants and if this continues, it will also eventually also result in higher cost of finance for coal based power plants. Increased tariffs will allow the power producers to make up their stocks through coal imports as imported coal is around five times the cost of domestic coal. However higher tariff will not entirely solve the problems pertaining to poor operational performance although improved financial health can at least allow the SEBs to raise capital for equipment and infrastructure upgradation that can ultimately allow for better operational performance.On the other hand the renewable energy power expansion also depends upon the prudent financial health of SEBs. Renewable Energy Certificates (RECs) mechanism is a laudable policy instruments introduced in India to incentivise renewable energy generation. The mechanism has been designed to ease the financing of renewable energy projects. While the mechanism is in itself well designed but its effectiveness has been stymied by one practical reason- the poor financial health of state electricity boards in India. The mechanism will obligate the distribution companies to procure a certain share of their electricity from either renewable energy sources or through procurement of renewable energy certificates (RECs). The cost of buying each REC will go towards improving the financial viability or renewable energy projects. Theoretically both state owned and private distribution companies will become buyers of RECs but practically bulk of these buyers will be state electricity boards and their actions will dictate the state of market. The poor financial health of state electricity boards will make it difficult for the states to keep their REC obligations much like their obligations to pay for coal they purchase. The banks are now beginning to refuse to lend to the SEBs for their working capital requirements, part of which goes towards the payments for coal purchases and a part of which could have eventually also gone for REC purchase. This will curtail the ability of the SEBs to pay for their REC obligations in future, which will restrict the RECs from becoming a bankable commodity. In some of my interactions with financial institutions, the ill health of SEBs and the implied inability to purchase RECs has come out as the biggest factor why the financial institutions will not consider RECs when appraising projects. If the RECs don't become a bankable commodity - which is increasingly looking certain now- then it will not ease the financing of renewable energy in the same way as they were designed to.Higher electricity tariffs will also lead to other interesting developments- Increased electricity unit cost may encourage greater number of consumers to install renewable energy units in their premises. Such decentralised energy generation units will be interesting for a number of reasons like leading to greater use of smart grids or achieving greater energy self dependence. Higher tariffs however will not be a panacea for SEBs. They will probably have to also embark upon a more determined path to improve their operational efficiency. SEBs in India have been in past requesting tariff increases to cover their losses although their continued dismal operational performance has failed to convince the policy makers on many occasions that increased tariffs alone will solve the problem. But whatever is the shape of the policy prescription, financially strong State Electricity Boards will be the lynchpin of future power sector growth for both the conventional and renewable energy sources and on this, the renewable and conventional power generation sub sectors are riding the same boat.Yash Saxena is a sustainability consultant with Emergent Ventures, a climate change mitigating consultancy. He also works on innovation evangelism with Techpedia
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Starting this week we introduce a fortnightly feature on mutual fund perspectives. We will be speaking to a number of fund managers on their views on the market's direction and drivers, and the consequent impact on mutual fund investors. With uncertainty looming over financial markets sparked off by the European debt crisis and domestic concerns over rising inflation and interest rates, investors appear to be clueless. Sankaran Naren, CIO Equity at ICICI Prudential AMC, concurs with the view that overseas markets have a greater influence than domestic concerns on market movements. Talking to Businessworld's Mahesh Nayak, his advice for investors is to look at oil markets and food price inflation that have been worrying investors across markets - retail and institutional. Excerpts from the conversation:What do you make of the overall crisis in the global economy and financial market? What is your take on the Indian equity market?The European economy consists of countries that are strong, and countries where there are debt and growth concerns. We expect the periodic shocks to continue. The only potential sustainable solution seems to be the issue of a Euro Bond backed by all countries of the European Monetary Union to fund the problem of crisis countries.The Indian market correction has been primarily a result of these concerns, which have led to FII (foreign institutional investors) selling. However, the Indian market is well poised due to the benefits of good monsoons, moderating food inflation and marginal crude price reduction with the potential to mitigate fiscal burdens. It's an opportunity to invest as markets correct.As an investor what would be your strategy?We believe that in the current environment local factors have been positive coupled. We therefore recommend that rather than focusing on global concerns, focus should be on crude price direction, which if corrected significantly, provides the opportunity to further increase allocation to Indian equity. Also, we continue to believe that there exist pockets of value across sectors to be unlocked by investors through investing in funds with value strategies.Where are you investing?I am investing in short-term debt mutual funds. However with crude oil correcting I will consider investing in equities as well as hybrid funds.What call will you take on the overall portfolio of ICICI Prudential? What will be your short-term strategy?There are pockets of valuation attractiveness across sectors and market caps. For instance there are certain large cap stocks that are attractive viz a viz peers. We therefore believe that rather than pick a sector, a bottom up stock picking strategy is what will help generate alpha. Our focus therefore is on identifying good businesses at the right prices that will help add value to our portfolioIn the current market condition what is the fund house advising clients? (As what to buy or sell)We have been advising our investors to systematically increase exposure to Indian equities with due regards for overall asset allocation discipline. It is important for equity investors to maintain their absolute levels of exposure to equity throughout the correction. This implies buying more of equity as markets correct to reach back their predetermined allocation level. We have been recommending our investors value funds like ICICI Prudential Discovery given the scenario of valuation attractiveness across sectors and market caps that can be best leveraged through the value strategy.Where do you see inflation and interest rates over medium term, do you expect a further hike in interest rates in the current financial year?Inflation numbers have a base effect which was expected to be negative for August and September. The numbers that have come in are therefore in line with expectations. However, a good monsoon has resulted in the coming off of food inflation which is a positive factor. In view of the above, we believe that we are toward the peak of the tightening curve of RBI; however, it is too early to comment on when rates are expected to come down.We should also remember that administered price hikes like that has been done in petrol is clearly positive for the fiscal scenario since the under recoveries of the petroleum sector goes up. Hence while a hike in fuel prices can lead to a spike in inflation, the long term benefit to the fundamentals of the economy outweighs the problems of inflation.How do you see the flow of money in the AMC? How has it been since March 2011?We have been clearly seeing some positive trends like increase in number of SIPs and no significant redemptions during corrections. This clearly indicates that there is been some change in investor behavior whereby they rather than panicking in case of correction have been looking at it as an opportunity to invest.In your view what will be the next trigger for the Indian equity market?It is difficult to predict direction given that a lot of influencing factors are macro in nature and are beyond control. However, volatility is clearly expected to continue and should be looked at as an investment opportunity. The upside triggers for the market will be, a correction crude oil prices and inflation which will help reduce the fiscal burden. Also stability coming through on the global front will definitely help improve sentiment. However on the domestic front, a shift towards improving investment in infrastructure and focus on the investment theme will help improve sentiment as well.
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Corporate social responsibility (CSR) is one term that evokes decidedly mixed emotions in the corporate world. To some, it is something that the government is trying to foist on them — a sort of tax by other means, so to speak. To others, it is one of the integral goals of any corporation. And to still others, it is simply a way of doing business without getting into conflict with the people living around its surrounding areas. But almost everyone today agrees that no corporation can afford to ignore CSR. From a larger point of view, a corporation giving back to society does make sense. It is the evolution of the old time concept of haves giving to have-nots in the hope of bridging the gap. So, there is no surprise that both the government and the private sector are waking up to the cause. But long before CSR became a buzzword, the Ficci-Socio Economic Development Foundation (SEDF) and Businessworld had recognised that it would play an increasingly important role in the coming years. Which was why, almost a decade ago, the two joined hands to institute the Businessworld-Ficci SEDF CSR Awards. Held on 23 August, the awards are a celebration of exemplary work in this direction. "I really think now more companies are considering it as an integral part of their business than ever before. Of course, CSR has also changed into two distinct portions with some companies still considering it a philanthropic activity, but the better companies have started integrating it with their own operations which is more like what the Tatas did in Jamshedpur and I think that's the way forward," remarked Businessworld editor Prosenjit Datta at the event.CSR as a business practice is also a way of ensuring sustainability of your business — a fact highlighted by corporate affairs minister, Veerappa Moily, in his speech. He set up the Mahatma Gandhi Residential School with the aim of nurturing and providing education to drop-outs. As a result, even students with low marks could manage to get admission. Moily is obviously proud of his initiative, but the point he wanted to drive home was that every little step goes miles in transforming society. And this is the role corporate India — the privileged class — has to play. There is of course, a lot of progress still to be made. CSR needs to be made a part of the mainstream culture as opposed to the predominant view of treating it as an add-on activity, as Rajiv Kumar, secretary general of Ficci, pointed out in his address. "Making CSR mandatory may sometimes militate against it by creating inspectors," he added. The Businessworld-Ficci SEDF Awards stands as a testament to the efforts of creating awareness. This year saw about 80 applicants vying for the honour. In the end, after a stringent selection process, only the best were chosen. In the large enterprises category, it was Vikram Cement Works — a unit of Aditya Birla Group's Ultratech Cement — which was chosen as the winner. CSR and Aditya Birla have had a long history. "Mainstreaming CSR into our businesses and delivering societal value has given us tremendous profits, albeit of a different kind — the turnaround of human lives. There's a newfound dignity among them. What more can one ask for?" said the message of its director Rajashree Birla. Though not present at the event, she oversees the group's social activities across 30 companies. Vikram Cement has been involved in the all-round development of surrounding communities for a while now. But what really won the jury over was their ‘Health for All' programme.The unit is based in the remote district of Neemuch in Madhya Pradesh where even basic health facilities are lacking. Vikram Cements' ‘Health for All' project aims to provide quality health services to the local community as well as strengthen the government service delivery mechanism. Activities such as a Mega Eye Camp, an Orthopaedic Camp, immunisation of infants and pregnant mothers, and HIV/AIDS awareness have been initiated under the programme. The company-owned hospital extends round-the-clock service to the locals. It has even received appreciation letters from the gram panchayat for its CSR activities.Vikram Cements, however, was not the only large enterprise to win an award. MSPL, the flagship company of the Baldota Group, caught the jury's attention for its stellar work in Hospet. For all the beauty and history the South is famous for, in recent times areas like Hospet have garnered infamy in almost equal magnitude. Illegal mining has been tearing the region apart, but MSPL's story stands out like a silver lining among the dark clouds. The company has not only been doing business the right way, but they have also been involved in uplifting the local community from the start. Recognising this commitment, the jury — chaired by Abid Hussain and comprising of eminent personalities like Mohini Giri, Dipanker Gupta and Mark Runacres — presented MSPL with a special commendation. "We have worked on CSR by visiting the villages and finding the need of the people there," explained Rahul Baldota, executive director of MSPL. For example, the company found poor sanitation in the local area. Based on that, they decided to build about 1,600 individual facilities for households in the area. It worked in most cases though sanitation was so alien a concept that at least in some cases, toilets were turned into store rooms. Though the story did elicit hearty laughter, it also reflects on the sad state of affairs in rural India. By explaining the importance of good sanitation to the villagers, MSPL was able to convert them. Today, 98.98 per cent of the facilities are in use. While this may seem like a relatively small success story to some, there are quite a few other community development activities to judge MSPL by. Considering the shadow that has enveloped the mining industry, recognition of this sort is a big deal. This was amply evident in the somewhat emotional acceptance speech of MSPL's executive president Rahul Baldota. MSPL was not the only company from South that won the jury over. Coimbatore-based Ammarun foundry took home the award under the category of innovative approach to CSR. As the name suggests, the category's primary focus is to recognise new, advanced ways of delivering CSR. "Unless and until the innovative zeal gets cracking, nothing much can happen," remarked Dr Abid Hussain, former ambassador to USA and a current member of the International Panel on Democracy & Development of Unesco. Ammarun beat the second finalist in the category, Apollo Hospitals, for their unique technology of waste sand reclamation. The foundry sector generates copious amounts of waste sand during their operations. This is where Ammarun's technology comes in. The company uses waste foundry sand, and turns it into material suitable for construction. They have developed methods to use the waste to lay roads, to make flooring as well as pavement blocks inside the foundry. In essence, this translates to lesser landfills and thus, better environment protection. The company is also training other foundries to use the same technology. To top it off, they are even making the technology available free of cost. When it comes to short-listing finalists and selecting winners, there is a rigorous procedure that is followed. Step 1: Ficci SEDF selects potential candidates and sends them to Grant Thornton for assessment. Step 2: Assessment partner Grant Thornton judges candidates on the basis of criteria such as policy, action plan, drivers of CSR and disclosure. Step 3: Second assessment partner Partners in Change verifies the claims by carrying out field inspections and selects the finalists. Step 4: The jury deliberates over the finalists and selects the winners. In fact, so stringent is the screening process that despite having a category for SMEs, none of the applicants from this industry were found worthy. That is of course, attributable to certain inherent hurdles like lack of money and resources that put SMEs at a disadvantage. While no SME won the award, GNG and Vasu Healthcare were chosen as finalists.(This story was published in Businessworld Issue Dated 17-10-2011)
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If that reminds you of a certain silly movie called Dumb and Dumber, it's meant to. Exactly how big are smartphones planning to get anyway? And when is it they grow up to become tablets?At the moment, it seems like that cut-off is at 5 inches. The Dell Streak and now the Samsung Note are at inches, while several HTC phones are getting close at over 4.5 inches — and that's screen size. Their Titan is a huge 4.7 inches. Samsung Galaxy S II, which has just sold 10 million units, is 4.3 inches, incredibly light.The question is, with tablets being perfectly able to make phone calls, and phones getting as smart as tablets, how does one decide between the two?More to the point, if you have a biggish phone, is there any point getting a tablet that's only a bit bigger?I remember putting the Galaxy S I and the original 7-inch Galaxy Tab next to one another long ago and thinking the Tab looked a bigger brother of the Galaxy S phone. At the time the Tab was the only one around (an iPad couldn't be had for love or for money) and had I been considering buying a tablet, I'd have given up the idea.I thought much the same when I saw the HTC Windows phone and the Dell Streak together, making an awfully unlikely pair. And then again, when I saw a bulky BlackBerry phone with the 7-inch Playbook. The Playbook, in considerable doldrums at the moment, has to be tethered to a BlackBerry phone if you want other-than-Wi Fi connectivity, email, contacts, and calendars in any case. The need for a tablet, if you're using your BlackBerry for mail and messaging, was hardly overwhelming, in that case.If you can't put distance between your tablet and phone, put size. That is, make the tablet way bigger or keep the phone significantly smaller, otherwise not only are you going get confused about which device to use and when, but one of the two will be mostly superfluous.Samsung has, of course, carpeted the entire possible range of sizes in phones and tablets with products, so you have lots to choose from when you consider their range along with tablets from other companies. There are small variations in shape and somewhat greater ones in weight that could also make a difference to the owner's experience. Somewhat narrower tablets will have you two-thumb typing unless you switch to landscape mode.Thou is speculation that the new Amazon Kindle Fire, to be available from November 15th, could dramatically change the tablet market scenario — and it happens to be a small-sized tablet at around 7 inches. Expected to offer Apple's iPad some real competition at last because of the ecosystem of products and services (including some Android Market offerings) it will also change the dynamics of the small tabs market because of its $199 price. No one knows yet how the Fire works and feels, so it's too early to predict, but chances are the Amazon tablet certainly has potential strengths to disrupt the fledging small tabs market.Mala Bhargava is a personal technology writer and media professional.Contact her at mala at pobox dot com and @malabhargava on Twitter
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Remember the famous book by Lou Gerstner Who Says Elephants Can't Dance? that talked about how he turned around IBM? The book starts with IBM's Board Member and Executive Search Committee Chairman, Jim Burke, pursuing Gerstner, who happened to be his neighbour, to interview for the big job. Gerstner was initially reluctant because he perceived himself to be unqualified given his 100 per cent non-technology background. But, thankfully, Burke persisted and the rest is history. IBM came back from the brink (it was very close to running out of cash in '93 when Gerstner took over), to become what it is today – the second most valuable technology company, ahead of Microsoft. It seems the Board had considered John Sculley and many others before zeroing in on Gerstner. But IBM's stars were aligned and it got what it needed. What better time than now to reminisce, and marvel, at the sagacity of the IBM Board that moved boldly to make a very unconventional hire?! How did they get it right when we see so many technology companies struggling today, unable to fix their leadership issue? HP has tried Carly Fiorina, Mark Hurd , Leo Apothekar, and now, Meg Whitman – 4 CEOs in six years! Dell eased out Kevin Rollins,though he was groomed for the role by Michael Dell himself. Bringing back Michael Dell hasn't exactly put the company on the right track either. Yahoo, another icon of the internet world has had an infamously revolving door with Terry Semel, Jerry Yang and Carol Bartz, all failing so miserably that today there is talk of Alibaba acquiring Yahoo! Right here in India, we have seen Wipro struggle with its leadership question ever since Vivek Paul quit the company six years ago. And there's been the revolving door of founder CEOs at Infosys until the recent appointment of KV Kamath, even that only as its Chairman. The situation is grim, with even long lasting CEOs like Steve Ballmer at Microsoft and John chambers at CISCO feeling the heat. Something is definitely wrong with hiring when iconic, well-managed companies like HP are suffering from a leadership deficit. And it can surely be called a trend when we have not one but several of them going through similar woes. Is this a reflection of where the technology industry is today? Are we at yet another inflection point where the old companies are going to go the Digital, Compaq, Sun way?Or can they fight back to regain their place like IBM and Apple did with the right leader at the top? What are the big issues facing the HP's, Dells and Yahoos today?The last decade has been among the most exciting times in Silicon Valley and the global information world that it dominates. Several billion dollar enterprises like Google, Facebook, Zynga, Twitter, Amazon have sprung up even as the older companies like Microsoft, HP and Cisco are struggling to stay relevant. Apple has decisively changed the playing field by redefining the entire business model; it does not sell just devices, but the entire customer experience - whether it is listening to music,watching shows, or playing games. This has enabled Apple to take charge of the relationship with customers, and thereby reduced telecom companies like AT&T to mere bandwidth providers. Amazon is THE online mega super store. It has bankrupted electronic retailers like Circuit City, closed down Borders, and is marching forward to take on the likes of Walmart next. Electronic Arts, which looked unbeatable just a few years ago, has been blind-sided by tech upstarts like Zynga and Angry Birds. Looks like 2010 has finally delivered on the promise that we dreamt of in 2000 – the Internet has transformed technology companies to become mainstreambusinesses on their own. They are no longer just enablers. Skype and Vonage are the new telecom companies, Twitter is the new world's newspaper, and Square is all set to become the payment gateway of the future. The new leaders who are redefining the business world, like a Larry Page, a Mark Zuckerberg, or a Jack Dorsey, are all technology geeks who also seem to "get" consumers, very much a la Steve Jobs– figuring what consumers need even before they know it! Is this the kind of leadership that is missing in the companies that are getting knocked off their pedestals? iConic Leadership "You're missing it. This is not a one-man show. What's reinvigorating this company is two things: One, there's a lot of really talented people in this company who listened to the world tell them they were losers for a couple of years, and some of them were on the verge of starting to believe it themselves. But they're not losers. What they didn't have was a good set of coaches, a good plan. A good senior management team. But they have that now." — Steve Jobs (BusinessWeek, May 25, 1998) Consumerisation of IT, as this trend is called, is clearly one issue that technology companies are grappling with, but it's not the only one. Unfortunately, the enterprise market, that has been the gravy train for the older tech companies, has also been impacted by the economic downturn in the developed worldthat now seems to be worsening further. The emerging economies that are growing are highly price sensitive, and competitive, and in no way a ready substitute for the markets lost in US and Europe. The Banks and Financial Services companies, which form a large chunk of the enterprise market, are no longer willing to change hardware and software at the rate they did earlier. In fact, enterprises are widely expected to soon accelerate their move to the cloud, so that they can curtail their IT infrastructure investments and leverage the cloud's "pay as you use" model. So at the same time that the PC market is slipping away, the enterprise market is also churning. The old enterprise-centric CXO's are at a loss to deliver as they did before, by selling more of the same and slashing costs.No wonder Boards are struggling to figure out the right answer, as to who they should pick to lead their companies at this time. Some are getting back founders and failing, as visionary founders do not always transform into leaders (see Jerry Yang). Well-planned successions, like Dell's, have flopped because the environment turned hostile too fast. The net result is that several of these tech giants look so similar to what IBM was in the ‘90s - struggling to find their place in a changing world. Can they find their Lou Gerstner?In many ways what Lou Gerstner did, as a complete outsider at IBM, was to provide classical leadership. He went in and realised soon that IBM had great people and great products. However, the sum of the parts was not adding up to a great whole, as the culture had become very individualistic and each division was pushing its own agenda. He did not try to convert IBM into a Compaq (which had just beaten it in PC sales), or into an HP or a SUN, companies which were taking away its market in other product lines and markets). He refused to bow to the conventional wisdom of the time and break up IBM into several smaller units, or abandon its mainframe computer business. He famously stated, "The last thing IBM needs is Vision"! Instead, he focused inwards to identify the true DNA of IBM, its value and identity that was responsible for making it the great, mighty, behemoth that the corporate world had learned to rely upon for over half a century. Gerstner realized that he needed to clearly articulate and reinforce what IBM stood for - the greatest solution provider to enterprises across the world. He didn't import too many outside executives; instead he supported the people who were already there and keen to turn things around, to charge forward. He inspired his team by leading from the front. But as he himself asserts, the people themselves brought about the real change – they knew the answers and they had the passion to make it work. All he did was provide a clear direction and stand behind them. Today as we watch HP trying to become an IBM, Dell trying to become an HP and Microsoft trying to become a Google, perhaps their leaders would do well to take a look at Gerstner's legacy at IBM. Or what Steve Jobs did for Apple in the last ten years. It is easy to forget that often, the true genius of a company lies within it. It is that genius that helped a company fight mighty odds and succeed brilliantly in the past. The right leader is one who can appreciate this and knows how to find and re-ignite that inner genius of the company. He or She could be a rank outsider like Gerstner, an ousted founder like Jobs, or a passionate insider like Larry Page…there is clearly no one formula. Identifying such leaders from wherever they are, unfettered by conventional wisdom that ties them to a shortlist of usual suspects, and bringing them onboard, is among the most critical responsibilities that boards need to perform today.The writer is CEO, Global Executive Talent. She can be reached at anu at globalexecutivetalent dot com
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Bank of Baroda chairman and managing director MD Mallya talks about past performance, forecasts and plans with BW's Tanushree PillaiWhy do you think the Current Account, Savings account (CASA) growth for Bank of Baroda is showing a decline in 2010-11?Our CASA has grown by about 22 per cent in 2010-11. In the context of the overall pressures on CASA, which the industry has been facing for quite some time, our bank has done better than its peers. Although CASA growth has been strong, our other liabilities have grown correspondingly. So, yes, there has been a marginal reduction in CASA, as a percentage of the total deposits (at 34 per cent). CASA growth has been sustainable, which shows that the growth has been positive. A larger number of customers have been added with varied profiles, from different geographies, which shows that the bank has been able to do well in difficult conditions.Our new marketing initiatives include Business Process Re-engineering which deals with converting branches into sales outlets and removing back office functions out of the branches.We would be happy to maintain our CASA percentage at 34-35 per cent for FY 11-12.Advances' growth also slowed in 2011-11. Have there been some concerns?Advances as a whole for the industry would have grown about 22-23 per cent in FY10-11, while we grew by about 25 per cent (domestic). There have been lots of initiatives taken in credit origination, in terms of segmentation. We were one of the first ones to launch retail, SME, corporate and rural verticals. We have opened centralized hubs, branded as loan factories in our retail and SME areas. There is very strong and qualitative credit origination from these loan factories. This segmentation has been our strength as far as credit is concerned. Our asset quality continues to be strong despite challenging economic conditions and our non-performing assets are amongst the lowest in the industry.Are you facing any stress on asset quality?In a scenario where interest rates keep on increasing, there will be concerns over asset quality. So, yes, there are challenges to be faced as far as protection of asset quality goes and ensuring overall asset quality strength is maintained. Our delinquency numbers were 1 per cent in the first quarter of this fiscal. Our gross and net NPAs have been stagnant too.You seem to have a good set of credit-deposit ratio numbers too.Credit –Deposit ratio for our domestic business is about 74-75 per cent, which indicates proper utilization of the funds mobilized. We need to ensure that we have resources to lend, but we should over-mobilize resources that cannot be deployed or we cannot have a shortage of resources when a lending opportunity arises. Both our domestic and global businesses have shown good growth in deposits. Our central sales unit ensures we appropriately tap customers, not just for deposits, but for lending too. The bank has a large number of corporate relations and we tapped that to get into the corporate salary account area.We also focus on pensioners to get CASA as well as term deposits. We refrain from over relying on bulk funds, and do not offer abnormally high interest rates. We ensure that overall asset-liability is maintained and the cost of raising deposits is also moderated to the maximum extent. What's your FY11-12 forecast for credit demand?Overall credit demand in recent months has been subdued, but has been the intended outcome of the policy initiatives which the RBI has taken. The intention of the rate hikes is to restrict overall credit flow of the system. With a fall in the credit growth for the industry, our credit growth is also slightly less than last year's.We expect our domestic credit growth to be around 21-22 per cent in this fiscal, when the industry might see a 18-19 per cent growth.How has the balance sheet growth (29 per cent in FY 10-11) been for the bank?We expect a growth of 23-24 per cent in this fiscal, due to lower credit growth.Are you expecting any stress on your treasury income?Government securities have been facing interest rate pressure for some time now and we are seeing what we call an increased bias as far as interest rates are concerned. So, trading profit on sale of bonds has come down drastically. So, yes, there will be pressure on our treasury income. But, this needs to be off-set by improving other avenues of fee-based income. Profit through forex transactions has shown very good growth, fee-income related to credit related activities like processing charges, syndication charges etc. the sale of third-party products like insurance, mutual funds are also avenues that need to be explored. Our overall fee-based income is growing at 15-20 per cent per year, which is a good growth.Are you planning to raise any off-shore funds?Not at the moment. We raised one tranche of Medium Term Notes (MTN) in February 2011 when we raised $500 million. Our asset-liability situation in the overseas market has been strong, so there is no immediate need to raise resources abroad. The bank is quite liquid, and the maturity profile of resources being raised abroad are quite favorable.However, we will keep an eye on the market and if resources are available at reasonable rates, we could think of raising funds abroad. But because of the various developments in the recent past, money market situation abroad is not favorable to raise resources.How has the bank's Capital Adequacy ratio been for the bank in FY 10-11?Our CRAR as of March 2011 was around 14.4 per cent, of which Tier-I was 10 per cent, which suggests it is quite strong. Substantial headroom is available to raise Tier-II and II funds, in case of need. Last year, the government infused Rs 2,600 crore which raised its holding to 57 per cent from 53 per cent earlier.How many branches are you planning to add this fiscal?We are planning to add about 500 domestic branches this year. We had about 3400 branches at the beginning of this year, we would like to be at 3900-4000 at the end of the year. We already have RBI authorization. In the first half of the year – up to September – we have opened about 120 new branches. Overseas, we have 86 offices which include those of our subsidiaries. We plan it take it to 100 by March.Have you zeroed in on the locations?Yes. Many of these branches will be through the subsidiary route. We will have branches in Kenya (currently 11, planning to open 3 more), Botswana (currently 2, will open 1 more), Uganda (currently 12, planning to open 3 more), New Zealand (add 2 more to the current 1).We will be starting a joint-venture company in Malaysia (Kuala Lumpur), which may happen in November -December. It is a JV with the Indian Overseas Bank and the Andhra Bank, but 40 per cent will be held by us. There will be a couple of Electronic Banking Service Units (EBSU) in the gulf area.We expect the regulatory approval to come for Australia (Sydney) by the end of this year. What is your bank doing to keep a check on asset quality?Our credit origination is very strong to maintain the high quality of the assets acquired. Going forward, there could be cyclical upheavals hence it is important to continuously monitor one's portfolio, especially small ticket advances, including retail.Using technology, we reach out to retail customers in advance for their payments (like housing and vehicle loans). For mid-corporate and larger accounts, we have a credit monitoring cell which does a continuous follow-up.In case there is a need to restructure an account due to economic reasons, we do allow so. Is there any pressure on margins for you?The sector as a whole is facing a number of challenges given the current scenario - maintaining margins, asset quality and capital requirements. Our provisioning continues to be high at 83-84 per cent, and would like to maintain it above the regulatory requirement of 70 per cent.
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