Some News

Proposed changes in India’s company law caught my attention. It is almost half the size of current law and works on the principle of lesser regulations and severe punishment.

Governments worldwide focus on principle of “ Not to fail “ which is not an efficient option. This just puts in layers of mindless rules and regulations. Even the government learnings focuses predominantly on what went wrong and not what went right..

A far better approach is lesser controls and a threat of heavy penalties. Why should a majority pay for acts which are likely to be committed by a minority?

Australia India Cricket

I’m impressed by the Australian Cricket team’s recent performance against India in one day internationals. The team is mentally tough and very good at playing psychological games .The on field abuses seem to be a part of a well though out strategy as well. I especially remember the closely fought nagpur game. Indians were close to victory .But Australians had many surprises in store which unsettled the Indian batsmen and kept them guessing all the time . Adam Gilchrist especially would do keeping near the stumps once and then from a distance. Today’s cricket is a mind game and India team need to learn a lot about it.

Rising Rs and strategies for IT companies

The rising rupee indeed reminds me of the rise of yen against dollar in the 80’s. Yen appreciated almost 80% against dollar during the period .But the Japanese continued to dominate the car market in US . But How did they do that ? Well that’s an interesting story .Japanese simply moved low margin car manufacture to US and Mexico and kept the high margin ones in Japan. The strategy was successful and companies like Toyota actually increased the market share in US.

In long term the rupee is also all set to appreciate significantly against the dollar.

The Indian IT industry should also draw inspiration from Japan.

Here are some strategies:

Financial Strategies:

Hedging :

Taking a long term say yearly outlook for the rupee and hegding accordingly

Hedging can however never be a long term strategy.

Marketing Lever

Diversifying the market : move over to Europe, APAC

The long term outlook for Euro is stable .Indian IT firms anyways do not have a significant business with Europe .The best bet then seems to be taking over Eurpean IT companies and offshoring their operations.

Diversifying the skewed US centric business to APAC and South America , China RussiaAustralia and India is also a good hedge. Indian and Chinese markets are going to be huge opportunity for the IT companies pretty soon. ,

Operational Lever

Near Shoring :

Say Mexico for North America , Eastern Europe for Europe ,China for Japan , Indonesia and Thailand for Australia . This is quite a workable strategy if trained resources are available in large quantities in the near shore locations or they are sufficiently skilled enough to be trained.

Increasing on shore content and providing technology and methodology onsite:

This is quite an efficient option without much risk .The methodologies, processes, Technologies developed offshore can be brought onshore to achieve productivity gains and increasing margins.

Demand Supply Levers:

Cutting costs by:

Hiring science and commerce graduates.

Moving to tier 2 and 3 cities .

I do not think that there is much quality difference in metros and Tier 1-V cities . Apart from cost advantages I believe lower tier cities will witness lower attrition.

These moves will however necessitate more front end training.

Some Innovative ways:

Making client work at offshore: Reverse Onshoring

If a project requires continuous presence of client resources then rather than working onsite these resources can work offshore .This will be a win- win situation for the client was well as the IT vendor .All resources of the IT company will work from offshore and

client also need not created space for the IT company’s resources , co-location will also increase team cooperation and success of the projects.

Service Outsourcing- be a quality vendor

All project based organizations will inevitably have benched resources and this is not the most efficient way to provide services .At any time an Indian IT company will have 15 -20% benched resources on an average. There are well established industries that have taken care of this problem.

For example , auto industry sources most of the components from different vendors .A similar vendor structure can emerge in the IT world as well where there are coding companies, testing companies etc.

The IT service provider will merely be a system integrator who ensures that project and services are delivered as per client specifications .This kind of ecosystem will minimize benched resources.

How to operationalise these strategies ? Which strategy will be a good fit for a particular company? Well, keep million dollars ready for hiring my services…..

Quad vs. SCO

The battle lines seem to have been drawn in East Asia for hegemony as the military exercise last week in the Bay of Bengal suggest. On one side we have what is called as Quad or Democratic axis –India, US, Japan and Australia also Singapore and the other being Shanghai Cooperation Organisation ( SCO) which includes China, Russia and Central Asian republics.

This is just a reflection of the new strategic alignment in Asia which in turn reflect the realities after the end of cold war and the emergence of China as a economic power.

There is no better news for India than this . India should derive economic and military benefit of the new alliance . I would look at Indo –US nuclear deal and recent economic cooperation with Japan as steps in this direction.

Will the power game in Asia lead to a Europe style grouping of NATO vs. Warsaw pact countries and cold war or something similar only time will tell. However what differentiates the present situation is the economic dependence of the two groups on one another. All the counties of the two groupings would like to maintain economic cooperation on one hand and political posturing like the recent exercise on the other hand.

At present the Quad seem to have an upper hand given the fact that SCO countries and mainly China have an export led economies which is a huge risk .

All Eggs in one Basket

The recent appreciation of rupee has thrown some interesting facts about the Indian economy. For one rising rupee is a good news for the Indian consumers and the other that there is a whole industry(ies?) in India that is created on the basis of rupee – dollar purchase value differential – mainly IT and BPO services .

I just think for a moment if India’s whole IT industry stops growing then what?

Well there is an army of people that is employed in the sector - the best and the brightest. India now produces about half a million engineers per year and most of them are absorbed by the IT industry. Now there is a severe shortage of right trained manpower that has caused ballooning salaries that is eroding the profit margins of the IT companies which they try to compensate by productivity gains every year.

Now look at the collateral effect of the Industry on the Indian economy.

IT industry contributes significantly to the Forex earnings of the country .But this is not the end of the story. NRI’s who are deputed on projects by the Industry also remit forex inthan $ 20 billion last year.

Since IT professional have large surplus owing to their high salaries , they invest most of this surplus in stock markets an real estate.

Now think of the effects of the slump in IT industry. A meltdown in stock prices of IT stocks and the money invested in the market, slump in real estate market ( which is in some sense related to stock market) apart from a hit in country’s forex earnings and a slowdown in the job market.

Hmm…..

The slump in the job market will reduce salaries that’ll help the IT industry to become more competitive – a kind of corrective feedback loop.

I personally think that low cost is an advantage that somebody else can always emulate and that anything and everything can be emulated given sufficient time .What matters is the difficulty and time to emulate . You can then use the time and energy to move far ahead of competitors.

So what can be the eternal plus point for Indian IT indstry ?

Quality at the right price , Brand Image , Innovation and availability of skilled manpower in large numbers .I think these factors can keep Indian IT industry kicking for time to come .

What can immediately be done to mitigate the risk of a slowdown in IT industry worldwide?

A number of classical risk mitigation strategies:

• Increasing business in Europe , East Asia and India ( which is a second class citizen for IT companies) .High valuation of IT companies can be leveraged for takeover of large IT companies in Europe.
• Need to Build a strong Brand Image
• Hiring in the said markets. Local resources are highly essential for a client facing role
• Offshoring in other countries like China, Eastern Europe , South America
• Building Product portfolio
• Create Intellectual property rights which can be leveraged over a period of time

Ending the Never Ending Corruption in India

There has been a slow deterioration of processes and administration after the Britishers left India.

Now I do not want to harp on the 40 year old song sung by the Indian politicians. Every politician promises that and almost all fail to deliver. What is the issue? What can be done?

Given my experience in the industry ,I think corruption can be dealt with if some systemic measures are taken.

Here’s what I think can be done effectively to decisively curb corruption in India.

Citizen Identification Number :

India does not have any citizen identification system like US . This is a big problem as there is no way a person can be uniquely identified. This needs to be done , although government is making serious efforts in this direction . The gains are huge from such an exercise . Imagine every financial transaction that a person does can then be tracked so can be all the history of the person from certificates to criminal and land records. There is simply no way to escape!

Quality and standardization:

There is an urgent need to define the quality parameters and standardize all government related services like turn around time etc .This’ll reduce the scope for corruption.

One of the easiest way to achieve both the above objective is to have good IT systems in place.

Quality will also ensure that government focuses on exceptions rather than general day to day activities.

Training :

There is a huge need to train the staff at government and PSU's. A well trained staff is the only way to achieve sustainable processes.

Pragmatic Leadership :

Finally all the above just cannot be achieved without good leadership

Religious fanaticism and India

Some recent events in India made me think about this subject .

I do not want to brand the views of a few people as the view of a nation or a religion, but the fact remains that the perception about a group of people is created by a few egregious representatives of that group be it religion , company or even a school or a college . This may not be fair but never the less a reality.

Although there are many religions that co exist in India for centuries and there is no evidence to suggest that a religion was abolished by force. However there are abundant cases of forced conversions in too distant a past . The reality of modern India is that there are virtually no significant cases of conversions without a free will. Even if such cases are taken into account there has not been any change in the religious mix of the country.

Given these facts I do not think there is any room for religious intolerance and fanaticism by general populace. I therefore think such incidences can safely be ignored.

Depth of the Indian Markets

So as predicted in my previous article reality check did begin for the Indian market . It has somewhat recovered though and I expect further recovery. I am keenly watching the recovery. FII’s pulled out about INR 3500 Cr . once RBI raised interest rates .What is interesting is the total downfall tereafter.So if FII’s pull out less than a $ billion out of Indian markets , they fall by more than 10- 15% . This is bad performance as compared to other BRIC and developing markets .This certainly indicates one important factor which cannot be overlooked i.e. the depth of the Indian markets. Such a shallow depth will cause sharp ups and downs , some of which we have already seen.

Now how to deepen Indian market ?

This will eventually happen when lot of long term money flows in like life Insurance premium and Pensions money. This money typically stays in the market for good 15-20 years and provides stability to the market. Second is the participation by the Indian public in the market . In most developed countries investments in mutual funds roughly equal to bank deposits. In India we do have along way to go to achieve this although we are rapidly moving in that direction. Third and less significant is the participation by smaller but well informed investors. We either have traders type retail investors or a completely naïve kind .

I’m quite confident of long term prospects ( 5-10 years) of the Indian market.

Parkinson's Law

I'm always fascinated by this law.An amazing piece of work by Dr. Parkinson's almost half a century ago will remain relevent for good. Here's an abstract :

WORK EXPANDS SO AS TO FILL THE TIME AVAILABLE FOR ITS COMPLETION’

General recognition of this fact is shown in the proverbial phrase 'It is the busiest man who has time to spare.' Thus, an elderly lady of leisure can spend the entire day in writing and dispatching a postcard to her niece at Bognor Regis. An hour will be spent finding the postcard, another in hunting for spectacles, half an hour in a search for the address, an hour and a quarter in composition, and twenty minutes in deciding whether or not to take an umbrella when going to the pillar box in the next street. The total effort that would occupy a busy man for three minutes all told may in this fashion leave another person prostrate after a day of doubt, anxiety, and toil.

Granted that work (and especially paperwork) is thus elastic in its demands on time, it is manifest that there need be little or no relationship between the work to be done and the size of the staff to which it may be assigned. A lack of real activity does not, of necessity, result in leisure. A lack of occupation is not necessarily revealed by a manifest idleness. The thing to be done swells in importance and complexity in a direct ratio with the time to be spent. This fact is widely recognized, but less attention has been paid to its wider implications, more especially in the field of public administration. Politicians and taxpayers have assumed (with occasional phases of doubt) that a rising total in the number of civil servants must reflect a growing volume of work to be done. Cynics, in questioning this belief, have imagined that the multiplication of officials must have left some of them idle or all of them able to work for shorter hours. But this is a matter in which faith and doubt seem equally misplaced. The fact is that the number of the officials and the quantity of the work are not related to each other at all. The rise in the total of those employed is governed by Parkinson's Law and would be much the same whether the volume of the work were to increase, diminish, or even disappear. The importance of Parkinson's Law lies in the fact that it is a law of growth based upon an analysis of the factors by which that growth is controlled.

The validity of this recently discovered law must rest mainly on statistical proofs, which will follow. Of more interest to the general reader is the explanation of the factors underlying the general tendency to which this law gives definition. Omitting technicalities (which are numerous) we may distinguish at the outset two motive forces. They can be represented for the present purpose by two almost axiomatic statements, thus: (1) 'An official wants to multiply subordinates, not rivals' and (2) 'Officials make work for each other.'

To comprehend Factor One, we must picture a civil servant, called A, who finds himself overworked. Whether this overwork is real or imaginary is immaterial, but we should observe, in passing, that A's sensation (or illusion) might easily result from his own decreasing energy: a normal symptom of middle age. For this real or imagined overwork there are, broadly speaking, three possible remedies. He may resign; he may ask to halve the work with a colleague called B; he may demand the assistance of two subordinates, to be called C and D. There is probably no instance, however, in history of A choosing any but the third alternative. By resignation he would lose his pension rights. By having B appointed, on his own level in the hierarchy, he would merely bring in a rival for promotion to W's vacancy when W (at long last) retires. So A would rather have C and D, junior men, below him. They will add to his consequence and, by dividing the work into two categories, as between C and D, he will have the merit of being the only man who comprehends them both. It is essential to realize at this point that C and D are, as it were, inseparable. To appoint C alone would have been impossible. Why? Because C, if by himself, would divide the work with A and so assume almost the equal status that has been refused in the first instance to B; a status the more emphasized if C is A's only possible successor. Subordinates must thus number two or more, each being thus kept in order by fear of the other's promotion. When C complains in turn of being overworked (as he certainly will) A will, with the concurrence of C, advise the appointment of two assistants to help C. But he can then avert internal friction only by advising the appointment of two more assistants to help D, whose position is much the same. With this recruitment of E, F, G and H the promotion of A is now practically certain.

Seven officials are now doing what one did before. This is where Factor Two comes into operation. For these seven make so much work for each other that all are fully occupied and A is actually working harder than ever. An incoming document may well come before each of them in turn. Official E decides that it falls within the province of F, who places a draft reply before C, who amends it drastically before consulting D, who asks G to deal with it. But G goes on leave at this point, handing the file over to H, who drafts a minute that is signed by D and returned to C, who revises his draft accordingly and lays the new version before A.

What does A do? He would have every excuse for signing the thing unread, for he has many other matters on his mind. Knowing now that he is to succeed W next year, he has to decide whether C or D should succeed to his own office. He had to agree to G's going on leave even if not yet strictly entitled to it. He is worried whether H should not have gone instead, for reasons of health. He has looked pale recently – partly but not solely because of his domestic troubles. Then there is the business of F's special increment of salary for the period of the conference and E's application for transfer to the Ministry of Pensions. A has heard that D is in love with a married typist and that G and F are no longer on speaking terms – no-one seems to know why. So A might be tempted to sign C's draft and have done with it. But A is a conscientious man. Beset as he is with problems created by his colleagues for themselves and for him – created by the mere fact of these officials' existence – he is not the man to shirk his duty. He reads through the draft with care, deletes the fussy paragraphs added by C and H, and restores the thing to the form preferred in the first instance by the able (if quarrelsome) F. He corrects the English – none of these young men can write grammatically – and finally produces the same reply he would have written if officials C to H had never been born. Far more people have taken far longer to produce the same result. No-one has been idle. All have done their best. And it is late in the evening before A finally quits his office and begins the return journey to Ealing. The last of the office lights are being turned off in the gathering dusk that marks the end of another day's administrative toil. Among the last to leave, A reflects with bowed shoulders and a wry smile that late hours, like grey hairs, are among the penalties of success.

C. Northcote Parkinson, Parkinson's Law: The Pursuit of Progress, London, John Murray (1958)

Reality Check after Party Time

For last few years India has seen a rapid rise in real estate and stock prices .The prime driver of this rise has been soft interest regime. Lending by Banks for property purchases has been up by almost 50% year on year for last two years which fuelled property prices and let to property boom. The lower interest rate regime also ensured that liquidity was channeled into stock market .This along with FII inflow ensured a rising stock market with almost a secular rally. GDP growth has touched 9.2% highest in last two decades.

But now look at the other side. Inflation has touched almost a decade high of 6.8% . Such high inflation rate is sure to unsettle any government.Current account balance has turned negative and is widening indicating a demand pull .

RBI has done it’s bit by raising the interest rates and CRR .These measures will ensure that the system has right liquidity and the economy does not overheat.

The measures will soon have an impact . Property prices should now stabilize and reduce. The relentless lending by banks should now hopefully be reduced .

Stock markets have seen highs all over the world , not just in India. The fundamental drivers for rise in the stock market in India is the FII and domestic inflows . If one watches the stockmarket movement it is evident that excess liquidity has played a very crucial role in the rise .Now with the measures taken by RBI hopefully the stock market will see some stability with a downward bias .In fact the sentiments in the stock market have been quite negative ever since CRR rate hike was announced .I expect this to continue.

Property prices work the same way as stock prices .What has happened in last few years is the buildup in property prices due to anticipation of a further price rise and a huge demand. Many people have bought houses just for investments sake. This may not materialize now due to higher interest rate and reduction in lending by banks for property.

Orkutting , Blogging and New Technology

I created my profile on Orkut some 3-4 months ago and I have not looked back since then. I met many of my friends which I would not have met otherwise School friends , college friends, companions and collogues of ex- company. It really is a great tool to be in touch. It is rather an obsession and addiction.

This is something familiar to me ….

This reminds me of a similar situation some half a decade ago. Then chatting was in vogue and I had a lot of spare time after my MBA entrance exams. It quickly became a fad. I would chat from morning through to afternoon .So would many of my friends. There seemed to be no other better way of doing timepass and networking. Many people would just create some anonymous id’s and chat with their own friends just for fun.

All that soon reduced considerably once chat rooms services were stopped by yahoo. Now chatting is used more for business and keeping in touch.

This is in fact true for all new technologies. It is first misused as people grapple with it and then as it’s implication is fully known it is used for what it was meant for and for serious business !


Now coming back to Orkut.

One of my good friend told me that he looks at the number of profile visits and if they are less or none then he feels bad about it. For him morning first thing in the morning is logging to Orkut and evening first thing back home is also Orkut !!! Ha Ha !!!!!!!!!

Addictions are always bad ….

I have realized in this short period of time that keeping in touch with all possible friends is good , but an amazing amount of time is required for it. Secondly I feel that one must also forget something over a period of time. One cannot be in touch with all his friends all the time.

I guess Orkut will soon be used for scanning CV’s , authenticating profiles ,matchmaking and identification apart from just socializing .

On my part I am reducing time spend on orkutting substantially and increasing on blogging!!!!