Return of The King

By strongly backing Nawaz Sharif, Pakistan has chosen certainty, stability, giving him a definite edge over Imran Khan's Naya Pakistan
Standing at the front door of his house in Karachi on the eve of Pakistan's elections, Mohsin looked the typical south Asian who had just been informed that his daughter has eloped. Liberal, upwardly mobile and a scribe who champions the cause of minorities and women, Mohsin was positively shaken by the drubbing Pakistan Peoples' Party (PPP) got at the hustings. His shock is understandable. While for most Pakistanis, it was a historic chance to exercise their democratic franchise, for Mohsin it was the unravelling of five years of progressive policies. He makes light of the image of the PPP government tarnished by corruption and non-performance. “Jeene nahi dete the, magar peene to dete the,” he says about his favourite political party (they at least allowed us a drink). Although airy fairy, the remark sums up the response of those who got drubbed in the recently-concluded Pakistan elections.


Mohsin's cynicism notwithstanding, the general elections in Pakistan was something to remember. The fact that it was the first back-to-back elections in Pakistan that saw the completion of the term of a democratically elected government, made it a historic occasion.

But this was not all. Positive participation of youths, the escalation in voting percentages, the unprecedented security arrangements to take on unprecedented security threats, the decimation of political dynasties and the crack in the traditional “biradari (caste) system”, have all combined to make these elections memorable.

Let's look at the results first. As the story goes for print, the results of 267 National Assembly (NA) constituencies out of 272 that were up for grabs was announced. Repolling was ordered in one constituency in Karachi following complaints of massive rigging, where as elections in four constituencies were postponed due to the death of contestants and other reasons.

Of the announced results, Nawaz Sharif's Pakistan Muslim League-N (PML-N) emerged as the single largest party by winning as many as 126 seats. The figure is a little short of the simple majority mark but still formidable in a country where regional aspirations often lead to hung verdicts.

According to the provisions laid out by the Constitution of Pakistan, as many as 70 seats are awarded to women and minority candidates through a complex process. This process is similar to the winner-takes-all system which prevails in some states of the US. What it means is that Nawaz's PML (N) will take close to 25 women seats from Punjab and a couple of seats from elsewhere. Minority seats too are contested. PML (N) can expect to bag a couple here too. It will move the party closer to the halfway mark. It is certain to get the support of several independents who won the elections following denial of ticket by PML (N). In short, it will easily form the government.

Although the lion's share of PML (N) seats came from its stronghold and Pakistan's most populated province, Punjab, the party did register its presence in other provinces as well. Its ally PML (F) bagged five seats in Sindh and will help boost PML (N) numbers.

The party also won four National Assembly seats from Khyber Pakhtunkhwa (KPK), two from Federal Administered Tribal Agencies (FATA) and a lone seat from Islamabad region while scoring a zilch in Balochistan.

The ruling disposition, PPP, suffered one of the worst drubbings in its political history under the leadership of President Asif Ali Zardari. The party managed to hold on to its stronghold Sindh which contributes 30 out of the 31 seats it won nationally. The self claimed “only truly national party of Pakistan” managed to win just one seat in Punjab and was wiped out in Balochistan, KPK, FATA and the Islamabad region.

Imran Khan's Pakistan Tehreek-e-Insaaf (PTI) did post a remarkable figure, hypes around it apart. It won 29 National Assembly seats and will probably reach the figure of 30 when polls in the other four constituencies take place. PTI nearly swept the province of KPK by bagging 17 out of the 35 seats that went to polls. It also won eight seats in Punjab, two in FATA and lone seats from Sindh and Islamabad region respectively. If one goes strictly by the spread of seats, PTI's emergence as a truly national party remains the biggest story of these Pakistan elections.

Of the Provincial Assembly (PA) seats, PML (N) is set to win a majority in Punjab even after being provided solid competition by PTI in the urban seats. It is also set to form a coalition government in Balochistan, where it secured nine seats, by going into a coalition with Pakhtunkhwa Milli Awami Party (PkMAP) and the Baloch nationalist, National Party (NP), who have a combined figure of 26 of the 51 general seats in the PA.

The PkMAP that represent the interests of Pakhtuns in Balochistan, emerged as the largest party in the PA having clinched 10 seats, whereas NP bagged eight. After the allotment of the reserved seats for women and religious minorities, the combined strength of the three parties will increase to 36 in a house of 65 and they will be able to comfortably form a government. Some other independents are also ready to join PML (N)'s victory party. Four names circulating in the provincial capital for the post of chief minister include former Senate deputy chairman Mir Mohammad Jamali, Sardar Sanaullah Zehri, Nawabzada Jangez Khan Marri of the PML-N and Nawab Ayaz Khan Jogezai of the PkMAP.

Sindh is a different ball-game altogether where PPP is placed comfortably to form a government of its own and may decide to bring in Muttahida Qaumi Movement (MQM) to share power who, as expected, swept the city of Karachi where they bagged 18 NA and 36 PA seats amidst accusation of vote rigging.

In KPK, efforts are on by PTI who emerged as the single largest party with 35 out of 99 seats to form a coalition with Jamaat-e-Islami (JI), which won seven PA seats. There are reports that Maulana Fazlur Rehman was in contact with both JI and PML (N) leaders to form a government, following his rivalry with Imran Khan.

But JI sources told TSI that it is most likely to be part of PTI-formed government. “JI has nothing against Maulana Fazlur Rehman but it would be unfair on PTI if they are not allowed to form a government after winning majority of the seats in KPK,” said the source.

Although the verdict for PML (N) is thumping, there are some evident - and some not so evident - trends that this election has thrown up. The first is the clear mandate for stability and familiarity. Imran Khan's major election plank was “Naya Pakistan”, never mind what it meant. Their idea was to completely revolutionize the way people perceive and vote in elections in Pakistan. Imran did manage to strike a chord with the urban voter who has been at the receiving end of the ever-present and omnipresent security threats, economic stagnation, unemployment and chronic energy crisis.

The imagination of this generation-apathetic at best and apolitical at worst-was fired by Imran Khan who singularly energized them to claim their rights which they did in large numbers. And this hike in voting was evident all over Pakistan. The average voting percentage confined to their 30s and 40s in the last five elections, suddenly jumped to above 50 percent in all the provinces except Balochistan, because of obvious reasons.

Media and civil society also did their bit for democracy. Some TV channels, notably Geo, and almost all the major civil society groups ran a spirited campaign asking people to come out and vote. Street performances, TV ads, monikers, every weapon in the kitty was used to bring the voters out. But what sunk Imran Khan was the fact that not all youngsters who came out to vote, voted for him. In a democracy, it is an established fact.

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

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Albert Einstein to Eric Gutkind

In January of 1954, just a year before his death, Albert Einstein wrote the following letter to philosopher Eric Gutkind after reading his book, "Choose Life: The Biblical Call to Revolt," and made known his views on religion. Apparently Einstein had only read the book due to repeated recommendation by their mutual friend Luitzen Egbertus Jan Brouwer. The letter, as it is said, is full and frank.

Princeton, 3. 1. 1954

Dear Mr Gutkind,

Inspired by Brouwer's repeated suggestion, I read a great deal in your book, and thank you very much for lending it to me. What struck me was this: with regard to the factual attitude to life and to the human community we have a great deal in common. Your personal ideal with its striving for freedom from ego-oriented desires, for making life beautiful and noble, with an emphasis on the purely human element. This unites us as having an "unAmerican attitude."

Still, without Brouwer's suggestion I would never have gotten myself to engage intensively with your book because it is written in a language inaccessible to me. The word God is for me nothing more than the expression and product of human weakness, the Bible a collection of honorable, but still purely primitive, legends which are nevertheless pretty childish. No interpretation, no matter how subtle, can change this for me. For me the Jewish religion like all other religions is an incarnation of the most childish superstition. And the Jewish people to whom I gladly belong, and whose thinking I have a deep affinity for, have no different quality for me than all other people. As far as my experience goes, they are also no better than other human groups, although they are protected from the worst cancers by a lack of power. Otherwise I cannot see anything "chosen" about them.

In general I find it painful that you claim a privileged position and try to defend it by two walls of pride, an external one as a man and an internal one as a Jew. As a man you claim, so to speak, a dispensation from causality otherwise accepted, as a Jew the privilege of monotheism. But a limited causality is no longer a causality at all, as our wonderful Spinoza recognized with all incision, probably as the first one. And the animistic interpretations of the religions of nature are in principle not annulled by monopolization. With such walls we can only attain a certain self-deception, but our moral efforts are not furthered by them. On the contrary.

Now that I have quite openly stated our differences in intellectual convictions it is still clear to me that we are quite close to each other in essential things, i.e; in our evaluations of human behavior. What separates us are only intellectual "props" and "rationalization" in Freud's language. Therefore I think that we would understand each other quite well if we talked about concrete things.

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

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Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
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Rajita Chaudhuri-The New Age Woman

ExecutiveMBA

Raisina Hills to the rescue?

A besieged Congress-led UPA seeking to clear crucial pending bills may opt in for the ordinance route, reports Pramod Kumar

When in trouble, seek divine intervention. That is what UPA-2 appears to be doing. Besieged under a slew of scams that have stalled the Parliament in the last few sessions, the government is battling its ghosts and wondering how best to go about introducing various important bills that are pending because they cannot be introduced on the floor of the house.

In their endeavour, the Congress is tacitly dependent upon the man sitting on the Raisina Hills, the incumbent of the Rashtrapati Bhavan, Pranab Mukerjee, to bail them out with a series of ordinances which UPA is now set to introduce, having failed to win parliamentary approval.

The situation is on a razor’s edge. The BJP-led opposition parties are hell bent on blunting any move perceived to be electorally motivated in favour of the ruling party – and that includes a clutch of crucial bills which the government now plans to introduce as ordinances.

Leader of Opposition Sushma Swaraj told TSI, "Our party is keen to expose the Sonia-Manmohan government for what it is – a corruption-laden, incompetent  dispensation. Merely introducing bills and glossing over uncomfortable facts is not enough. We want a debate on floor of the House."

According to her, the litany of opposition grievances is pretty long and so far the government has not come up with any cogent answers. It is this stonewalling by the opposition parties which led to the logjam in the Parliament, as a result of which important bills have been put on the waiting list. The fact that all trade unions sinking their differences decided to protest against the government’s economic policies is a telling comment on the UPA government, she says.

But insiders in the Congress believe that if the Budget Session of the Parliament also goes the way of other sessions – adjourned more often than deliberated – it suits the government because a lot of things do not come on record. Statements issued out of the house or on TV channels may have entertainment value but not very much else.
 
Union Parliamentary Affairs Minister Kamal Nath agrees that the current monsoon session of Parliament is going to be crucial. (See interview) There are 55 bills, 13 non-legislative financial bills and 16 new legislation which are waiting to be introduced. Nath says he is hopeful of cooperation with the opposition parties, which is why important bills like Crime Against Women, Land Acquisition and Food Security are likely to be introduced within the first fortnight of the monsoon session.

Congress sources believe this session is going to be as stormy as the last, given the number of potentially ticklish subjects on the table: the Westland Helicopter scam, Afzal Guru’s hanging and rampant inflation, to name just three.

But the government is mentally prepared now: if critical bills like Food Security, Lokpal, Job Reservations etc are not passed in Parliament, they are quite prepared to to sent it to the Rashtrapati Bhavan for endorsement. Even if it is for the sake of tokenism or appearances, the UPA government would be seen to be making moves in that direction and go to elections in 2014 on those grounds seeking a mandate.

Says SP’s Ram Gopal Yadav: "The problems are a creation of the Congress itself. It is surprising that despite renowned economists at the helm, Manmohan Singh and Pranab Mukerjee, things have gone so wrong. Industrial production has come down, inflation is out of control, people are buying Chinese goods instead of Indian and the UPA government is shameless enough to say that economic reforms have been given a boost as compared to the NDA regime."

BJP’s maverick Ram Jethmalani credits the UPA government with one major gain during its two tenures: the untrammeled growth of black money in the economy. He says this is a government of multiple scams, often involving family members of VIPs. "It is no surprise that bills are pending. History will assess the Manmohan Singh government to be the most corrupt ever. Will people still vote for Sonia, that is a million-dollar question,’’ he says.

Some of these charges may well stick. Manmohan Singh, during Congress’s Chintin Shivir in Jaipur recently compared the progress of his government with the NDA’s and also added that the benefits provided by this government is not reaching the masses. That, some people in the party quipped, was the job assigned to Singh’s government in the first place.

Which is why Rahul Gandhi was given charge as Congress vice-president and his role confined to the party organisation. Party strategists believe that Rahul should be seen as being instrumental in introducing bills close to minority causes. The Congress scion has held three important meetings with Manmohan Singh and Finance Minister P Chidambaram  to hammer out these issues and has impressed upon the government to launch a full-fledged advertisement campaign highlighting the gains of the UPA government – cautioning at the same time against NDA’s Indian Shining type of campaign. Minister of State for Information and Broadcasting Manish Tiwari has been put in charge of this Congress blitzkrieg.

All this has put Kamal Nath in a jam. He has sounded the party high command on the most vexed of all his problems: if so many bills are already pending, how can the government introduce fresh bills on the floor of the house?

Congress leaders indicate that a special committee under the chairmanship of Congress think tank member Sam Pitroda will assess just how the party will proceed to change these bills into ordinances. This panel could also well decide the Congress agenda in the crucial months ahead leading upto General Elections 2014.

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman

ExecutiveMBA

Why have committees at all...

...if the government has no plans to follow their recommendations?

The 1992-93 Mumbai riots timeline is a good place to understand the government's attitude towards commissioned reports. Acting in uber haste, the government had then set up the Justice BN Srikrishna Commission. The objective? To show that the government really meant business. Cut to the ending months of the commission's enquiry, and Justice Srikrishna himself reportedly joked that his report could perchance be thrown into the sea during Ganesh Chaturthi, a key festival in Mumbai. Reports now confirm that his conjecture could have been close to the truth. The commission's recommendations were either rejected or accepted as per one's convenience. None of the governments since the Mumbai riots have had the gumption to implement the commission's recommendations, which have been considered to be some of the most insightful.

Putting on hold recommendation from various national committees is almost a norm in India. For instance, various administrative reform reports (presented by Administrative Reforms Commission) with respect to reforms are lying idle since the last 12 years. The reports suggest transformative reforms in Indian administration, taking a cue from the best practices around the world.

The 2009 Yashpal Committee report on Renovation and Rejuvenation of Higher Education gave brilliant suggestions to restructure the Indian education system. One of the critical suggestions applauded by both academia and industry was disbanding UGC and AICTE, who have a history of being corrupt and shamefully incompetent with respect to setting education standards. Till date, this has not been done, despite promises to the contrary.

In some cases, even accepted reports are not implemented due to plain financial reasons. For instance, recommendations of the 2001 Nanjundappa Committee (a high-powered committee on removal of regional imbalances in Karnataka), for example, could not be implemented in totality or even in a significant minority for many years because, as one Chief Minister put it, there were not enough finances to implement the recommendations.

Beside the political cat-fight with respect to implementing reports, especially those related to economic development or industrial reforms, there is one other reason why these suggestions are not being implemented – and that is the complexity of the reports and their presentation. Very few policy makers in India have formal academic backgrounds in economics or finance to have the capacity or competence to understand what the intellectuals authoring the reports are alluding to. In a related story, one of our sister magazines (Business & Economy) had documented that while administrations like those in the US have ministers and bureaucrats who are formally educated with advanced degrees for their jobs, Indian ministers were simply political appointees than chosen due to their competence. This needs to change immediately.

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
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From class banking to mass banking

On July 19, 1969, 14 private banks were nationalised in India. Over four decades later, the ruling Congress party continues to bask in the legacy of Indira Gandhi and her crucial decision that changed banking in India
The decision by the central government to nationalise 14 private sector banks in July 1969 is often cited as a defining moment for India. Arguably the most important economic decision taken by any Indian government since 1947, its impact – political, social and economic – is something that even the reforms of 1991 cannot compare to. In fact, it was because of this decision that Indian banks emerged relatively unharmed from the recent global financial crisis.

The road to this social control of banks, however, wasn’t constructed overnight. Although the idea of social control of banks emerged in 1967, the Economic Programme Committee of the All India Congress Committee (AICC) in its report in 1948 had already strongly recommended that banking and insurance should be nationalised as part of a total package for establishing “a just social order”. The matter, however, rested for a decade and a half until the political climate called for it.

The reasons behind this decision, by the then Prime Minister Indira Gandhi, were dictated both by economics and politics. In January 1966, when Indira Gandhi ascended to power with the help of the ‘Syndicate’ of older and more established Congress leaders (K. Kamaraj, S. Nijalingappa, Nilam Sanjiva Reddy, Atulya Ghosh, Srinivas Mallya, S. K. Patil among others), India was besieged by several problems.

Severe droughts had brought down the crop yield, prices had shot up by 16% and US food aid was heavily dictated by geopolitics. A foreign exchange crisis was brewing with the International Monetary Fund (IMF) demanding that India devalue its currency. On a separate front, the country flared up with identity politics in Punjab and Haryana, inter-state feuds between Karnataka and Maharashtra over the newly independent Goa, anti-Hindi agitation in Tamil Nadu and tribal troubles threatening peace in the north eastern states

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Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

IIPM Global Exposure
IIPM Best B School India
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Can Naresh Goyal turn around Jet Airways like he did a decade back?

The airline industry does attract colourful figures like the media-shy Naresh Goyal. It would seem that the smell of gasoline encourages more emotions than economic decisions. Bleeding bottomlines, a confused operational model, a mixed fleet and an unforgiving environment. How can Goyal rescue a company in such turbulence?

It’s impossible to capture Naresh Goyal’s style of running his airline in a simple phrase. Rather, if there’s any one who loves dirty little business secrets, this czar of Indian aviation is right up there. We are not referring to his ownership of 18 lesser-known companies, or even how he manages the cash flow at the Isle of Man-based Tail Winds Limited (which owns a 79.99% stake in Jet). It’s his decision-making style that keeps people guessing which foot he will put forward next. If there is a CEO in India Inc. who can fire 2,000 employees and recall them in a day by politely blaming his management in public for keeping him in the dark, it is the very diplomatic Goyal (in October 2008). If there is a businessman who can dare to risk souring a two decade-long relationship with a supplier as powerful as Boeing by placing a $3 billion-worth order for 15 Airbus A330s only because Boeing couldn’t assure ‘immediate’ delivery of the aircraft he’d wanted, it is the impatient Goyal. ‘Gut-feel’ is the word that explains how he takes decisions at Jet. Till date, his intuition has led him down the right lane in a market where the honours are unevenly divided. But the common sight of heavy losses at Jet in recent quarters, and the revelation that the airline had been trying to save Rs.350 million by delaying service tax payments (in March this year) makes many believers doubt this fact.

But he isn’t new to having his back to the wall. A decade back, Goyal had come to face with a similar situation. An airline bleeding for four consecutive years (losses totalling Rs.5.25 billion between FY1999-2000 and FY2002-03) in an industry that had only bad news (losses of airlines in India during the period amounted to Rs.25.51 billion) made critics question the longevity of Jet. But Goyal brought his airline back into the black (Jet made profits of Rs.10.35 billion in the four years leading to FY2006-07). He did well by paying attention to cost-cutting and better utilisation of Jet’s fleet – between FY2002-03 & FY2006-07, Jet’s annual expenditure per aircraft dropped 41.13% to Rs.971.41 million and its load factor increased 39.21% to 71%.

The present situation is in part a reflection of what occurred ten years back. During the past four years, Jet’s losses have risen to Rs.11.14 billion (with an accumulated loss of Rs.17.3 billion) and the industry is struggling for life (losses of Rs.244.68 billion). The challenge for Goyal is clear – save the airline. Problem is – this time, the numbers read worse. That the company has reported negative earnings of Rs.10.62 billion in just the past four quarters (leading to Q3, FY2011-12) is only a quick summary of the trouble tale. Over the years, competition has intensified implying a division of the revenue pie, Jet’s market share has plummeted (from 48.7% in 2002 to 28.8% today), swinging moods in EU and US markets haven’t helped Jet’s international operations (which contributes to 55% of its topline; during Q3, FY2011-12), ATF prices have skyrocketed (by 235.5% in the past eight years), a weakening rupee has made aircraft-leasing, en route navigation costs and fuel more expensive and recent actions by the fuel supplying companies and the IT department have only made living tougher for Jet. What should Goyal do?

Read more.....

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

 

IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman

ExecutiveMBA

Underestimating the Indian Voter Again and Again and...

The so called mainstream media is at it again – making a fool of itself and displaying unending contempt for the native intelligence of the Indian voter. Once again, we are being told by pundits and sycophantic and servile courtiers masquerading as columnists that the Congress and the UPA have got their mojo back and look set to win the Lok Sabha elections due in 2014. The reasons offered are many. For one, the BJP is in a mess and has failed to capitalize on the serial scams haunting the Congress since 2010. Then again, the voter is wary of a rag tag Third or Fourth Front government propped up by outside support and will reluctantly vote again for the Congress. The most servile are writing about how Rahul Gandhi and his computer baba log are drawing up a “fool” proof strategy to woo voters. The pink papers have been screaming hoarse about the return of P. Chidambaram as the Finance Minister and how he will get the economy back on a high growth path. A related part of this delusional narrative is hailing the decision to allow FDI in retail and capping the use of subsidized LPG cylinders at six a year as proof that the UPA government is determined to push for “reforms”. Of course, the game changer is supposed to be what Jairam Ramesh so cutely described as “Aapka paisa, Aapke Haath”. Yes, I am talking about the decision to resort to cash transfer of subsidies to beneficiaries using the Aadhar scheme. So powerful is the alleged impact of this game changing decision that even mainstream media professionals who are critical of the Congress and the Gandhi dynasty are complaining that the ruling party is resorting to bribing the voters to win another election. In all of this, there seems to be a near unanimity that the Congress will pull off yet another stunning victory. They draw parallels with 2009 when the NREGA scheme was used as a bribe to the Indian voters to win elections. Of course, there are many who are still saying that the Indian voter is still so angry, so outraged and so pissed off with the corruption, hubris and arrogance of this government that they are determined to vote against the Congress. But such voices have been drowned in the cacophony of predicting yet another Congress victory.

I can only marvel and laugh at such malarkey and nonsense. For ages, the New Delhi-based mainstream media has utterly failed to read the intentions of the Indian voter. It has a habit of getting it wrong almost every time. And yet, it persists in such hogwash. Allow me to quote columnist Tavleen Singh who was a young reporter in 1977 when Indira Gandhi lifted the Emergency and called for elections. She writes:

“It became clear that Mrs.Gandhi wanted to restore her image as a democratic leader and this could only happen if the coming elections were seen to be fair. Within days of the elections being announced, most of the opposition leaders who were still in jail were released. They were no longer worth keeping in jail since nobody, not even the opposition leaders themselves, thought in January 1977 that Mrs.Gandhi had the slightest chance of losing this election. Every report, even from her own intelligence agencies, indicated that she might lose a few seats; but that there was no chance of a total defeat.”

That was 35 years ago. Since then, in election after election, the mainstream media has almost always forecasted it wrong – the only notable exception being 1984, when Rajiv Gandhi won a historic mandate after the assassination of Indira Gandhi.

It would be easy to conclude that most of the mainstream media is blindly and abjectly supportive of the Congress and the Gandhi dynasty when it comes to forecasting election results. A hell of a lot of our mainstream media is guilty of that. But the bigger crime is its failure to read voter intentions. Just go back to the spring of 2004 and you will realize what I am talking about. Let me give you just one example. The much talked about research agency AC Nielsen was commissioned by NDTV and The Indian Express to conduct an opinion poll and make a forecast for the 2004 Lok Sabha elections. In a largest of its kind survey, around 40,000 respondents were asked about their voting intentions. The forecast was that the then ruling NDA would win between 287 to 307 seats and rule India for another five years. The BJP was projected to win around 200 seats while the Congress was projected to win around 100 seats. Let me give you one more example from the same year when assembly elections were held along with Lok Sabha elections in Andhra Pradesh. A prestigious survey that featured in the Outlook magazine had the following forecast for the state. The then ruling Telugu Desam was given around 165 seats while the Congress and its allies were given around 125 seats. So NDTV said in 2004 that the NDA would rule India for another five years and Outlook said in 2004 that Chandrababu Naidu and his party would rule Andhra Pradesh for another five years. We all know what the actual results were.

Read more...

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

 

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year

BBA Management Education

Fdi in aviation: new hope for the needy?

Allowing foreign carriers to pick up to 49% stake in India’s airlines looks good on paper. But one policy change, born out of financial desperation, won’t save the sector

Ten months back, when speculations were rife that foreign carriers would be given the nod to invest in the ailing Indian aviation sector, B&E had voiced its opinion through an article titled, ‘The agony & hope for India’s domestic airlines: call it FDI’. Our argument was: Little logic supported the cause of foreign carriers investing in India. In mid-September 2012, policymakers in India decided in favour of allowing foreign carriers to buy up to 49% stake in domestic carriers – precisely what the Department of Industrial Policy and Promotion (DIPP) had been recommending for over a year. The move won many-a-cheer from camps desperate for non-Rupee pay orders. Irrespective of whatever hopefuls imagine will be the outcome of this policy change, our argument stays. FDI rule change is necessary, but not sufficient to change to fate of airlines in the country.

Not to say a domestic industry that has lost $7.93 billion since FY2006-07 won’t see matters improve. But expecting foreign carriers to play good Samaritans to those wounded fatally would be a pipe dream.

who could benefit...

Imagine that foreign airlines can change the fate of Indian carriers in quick time. A year later, the loss-laden Kingfisher could see Rs.150 billion of debt and accumulated losses wiped off its books. Similarly, Jet Airways which still carries a red ink-laden earnings sheet (losses of Rs.23.50 billion in the past 5 years) could see Rs.155 billion being infused in it, making the airline healthy again. Air India (the biggest loss-making carrier in the world during the past decade, with losses amounting to Rs.2.24 trillion!) could seek God’s intervention, and have Rs.878.40 billion of debt and accumulated losses washed off its taxpayer-funded linen. At present, these three airlines – which control 46.6% of our domestic air traffic – are in the most urgent need for foreign support.

Others are capable of flying the distance on their own. IndiGo is debt-free and is profit-making (profits of Rs.12.83 billion in the past 3 years). SpiceJet is sitting on low debt (Rs.7 billion) and is back to its profit-making ways, having reported Rs.561.5 million in earnings in Q1, FY2012-13. Better still, analysts are forecasting a better than before FY2012-13 and FY2013-14 for the carrier. And GoAir, with zero debt, is today a tightly run airline, and growing fast, having learnt much from its experiments in 2006 & 2007.

... AND who will

In the case of Kingfisher, a 5.34% stake is already held by foreign institutions. This leaves Mallya with a chance to offload the remaining 43.66% to foreign airlines. Experts opine that this could be a good time to implement a big-stake-buy-for-cheap strategy. Going by its current market value, Rs.5.10 billion is all that a carrier would require to buy the maximum allowed stake in the airline. But two questions arise. Why would a foreign carrier want to invest in a carrier – with a skeletonic fleet of just 10 aircraft – losing Rs.38.84 million each day [it has lost Rs.74.50 billion since FY2007-08]? Second, would a little over Rs.5 billion suffice? The amount infused would mean little to an airline that (as per CAPA) requires an “immediate” infusion of Rs.32.09 billion to continue operations. Mathematically, selling a 43.66% stake would make just enough for Mallya to see his airline in the skies for another 131 days (without including current outstanding moneys that KFA owes to many-a-party, including the taxman). It is easy to reach answer the hows and whys in the case of two other “needy” carriers – Jet and Air India.

Read more....

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

 

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year

BBA Management Education

Unavoidable Curiosity

While the rover parties on in Mars, it’s quite clear none of the Presidential candidates makes sense

“Two years ago I set a goal of sending humans farther into space than we have ever been – to an asteroid by 2025 and to Mars in the 2030s,” Obama said in response to questions posed in September 2012 by ScienceDebate.org, a non profit that regularly questions Presidential candidates on their stands on issues related to science. “It’s important to remember that the $2.5 billion investment made in this project was not spent on Mars, but right here on Earth, supporting more than 7,000 jobs in at least 31 states,” Obama added. Romney’s response was, “The current purpose and goals of the American space program are difficult to determine... With clear, decisive, and steadfast leadership, space can once again be an engine of technology and commerce.” Without doubt, none of them makes sense, a fact seconded by the founder of ScienceDebate.org, Shawn Lawrence Otto, who said, “We noticed the candidates for president weren’t talking about any of the major science challenges facing the country and affecting voters’ lives.”

Really, 43 years after mankind’s first notable successful adventure en route to space, NASA’s Curiosity rover may have started its party on Mars, but could not the $2.5 billion price tag of this mission have been used somewhere more productive?

If a life saved is a life gained, then shouldn’t the US government have been saving lives in Africa than searching for life in Mars?

Read more....

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

 

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year

BBA Management Education

Crossing over to the consumer’s side

After emerging as a leading player in the telecom infrastructure space, Huawei now harbours ambitions of becoming a strong player in mobile handsets. It has developed some interesting products, but can it successfully position Huawei as a B2C brand?

The part that really hits you on a visit to Huawei’s India office at Unitech Cyber Park, besides the obvious traffic and parking problems synonymous with most of Gurgaon, is the kind of growth that the company has gone through in India, which obviously escapes popular notice since it is a B2B brand.

Huawei, which earned revenues of $32.4 billion globally in 2011, is now over 6200 employees strong in India, the country where it established its first overseas R&D centre in Bangalore. Globally, the company claims to have 44% of its people involved in R&D. By 2011, the company filed 36,344 patent applications in China. Out of these, 10,650 were filed under the Patent Cooperation Treaty (PCT), and 10,978 were filed abroad. In all, the company has won 23,522 patent licenses, with invention patents accounting for 90%. It also surpassed Ericsson in the first half of 2012 in terms of sales, posting $16.1 billion in revenue compared to the latter’s $15.25 billion. In India, the company posted revenues of $1.5 billion and is planning $2 billion in investments for expanding operations.

The most interesting aspect about Huawei, though, from a strategic perspective has been its growing focus towards mobile handsets in the recent past. With 2.6% share in Q1, 2012, Huawei has managed to surpass handset manufacturers including Motorola, Sony Mobiles, HTC and RIM as well globally (Gartner). Its consumer business has crossed $300 million in revenues in India; registering a growth of 30% yoy and the company has a market share of 2.4% (Voice & Data, July 2012) in India, with ambitions for 15% share in five years.

However, the very concept of a B2B brand like Huawei making it big in the B2C business is quite counter-intuitive. Also, Huawei plans to invest more heavily towards smartphones, where powerful B2C brands like Apple and Samsung rule the roost. Moreover, its global ad budget of $200 million pales in comparison to $2.6 billion for Samsung and around $1 billion for Apple. How will it fill the gap?

Victor Shan, President, Huawei Devices India, asserts, “We are always focused on serving the Indian market with premium technology handsets and launching cloud technology in India for handsets priced at less than Rs.8000 is one instance of the same (Ideos X3 and Sonic provide cloud storage free upto 16 GB).” Huawei has managed to sell nearly 1 lakh smartphones in 2011 and expects to surpass 0.5 million smartphone and 3 million feature phone sales mark by the end of next year. The company is playing across the price range from Rs.2700 to Rs.27200 as per reports.

Huawei has a very straightforward approach to the challenge of matching ad budgets with the likes of Nokia and Samsung. The company chooses not to match them at all for now! Victor Shan explains using the analogy of war, by saying that first the ground troops (sales & distribution network) must strengthen their positions and then the airforce (advertising) can attack from above. The company is therefore relying on strengthening its network. It already has over 350 service centres in India and has expanded its channel reach for handsets to 35 cities. Besides, it has leveraged its tie ups with GSM operators like Tata Indicom and launched co-branding initiatives with them.

Read more....

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

 

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face

When demand isn't part of the problem

A series of supply side issues have gripped Indian steel in recent times and can prove to be serious dampeners for growth. As they navigate through these challenges, Indian steel players must also invest in value addition

No one can doubt that the Indian demand story in terms of steel remains as compelling as ever, even if the economy faces rough weather. However, over the past year, it is clear that most leading Indian steel makers are facing problems in terms of profitability, even though the reasons may differ.

Tata Steel posted a net profit of Rs.53.9 billion, a drop of 39.97% yoy, and its rank dropped to 10 from 9 last year on the B&E Power 100 list. The company continues to be plagued by problems in Europe. As per estimates from the World Steel Association, steel demand is expected to drop by 1% yoy in 2012. SAIL saw a revenue growth by 12.6% to Rs.147.85 billion, but PAT fell by 27.8% to Rs.35.43 billion. The company attributes this to the input price increase of around Rs.40 billion (coking coal in particular) and the loss on forex fluctuations that swiped off around Rs.9 billion (its rank on the Power 100 went down to 24 from 16 last year). JSW Steel saw PAT drop by 19% yoy to Rs.16.26 billion for FY 2011-12; and its rank dropped to 48 from 41 the previous year. It faced the brunt of higher iron ore costs when its captive mine in Karnataka was shut down and it had to procure ore through an ill managed e-auction and also from other states. This led to an increase in cost of production by 8.6% yoy to Rs.34,168/tonne for the quarter ending March 2012 (Angel Broking). Jindal Steel & Power Ltd. (JSPL) fared somewhat better with a net profit of Rs.21.1 billion, a growth of 2.25% yoy; its rank improving to 38 in the B&E Power 100 from 40 last year. However, the company faces challenges in terms of approvals for projects, and is on the verge of scrapping its $2.1 billion project in Bolivia. The benchmark BSE Metal Index has lost about 30% value on a year-to-date basis compared to a 9.5% loss by the BSE Sensex.

The demand side remains promising, as pointed out earlier. The Ministry of Steel pegs the growth in the demand for Indian steel for FY 2012-13 at around 8% yoy as compared to 5.5% yoy in FY 2011-12. However, there are pressing supply issues. Due to lagging production and zooming domestic demand, India became a net importer of steel in FY 2007-08 and in FY 2011-12, our steel imports were pegged at around 6 million tonne. If industry estimates are to be believed, the production shortfall by 2020, if not addressed, will force India to import 50 million tonnes of steel every year.

The first and foremost challenge is raw materials. Navneet Agarwal, CEO, Action Ispat laments, “The last financial

year was very tough for us as far as the quality and quantity of raw material was concerned; as both are highly inconsistent.” While our coking coal imports for FY 2014-15 are pegged at 43 million tonne compared to 30 million tonne in 2011, we are currently exporting around 60 million tonne of iron ore due to insufficient production facilities within India and higher prices of iron ore in the international market. In the same vein, India has the world’s fifth largest coal reserves, but Coal India’s monopoly has been hugely detrimental to development of coal fields. Out of 216 coal blocks allocated by the government to private players (total potential of around 200 million tonnes per annum or mtpa), only 28 blocks have commenced production so far with total capacity of 30 mtpa. Meanwhile, coal imports touched a record $17.5 billion in the last fiscal, growing by 80.3% yoy.

Read more....

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

 

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face

“Propensity to consume is no longer restricted to Tier I cities”

Lutz Kothe, Head – Marketing, Volkswagen (I), talks about how why the automaker is serious the Indian market and how Tier II & III markets are key to its success

B&E: Till date, Volkswagen has been successful in establishing itself in the Indian market. According to you, what factors are responsible for this success?
Lutz Kothe (LK): A clear strategy, a relevant product line for the market, a consequent dealer, sales and after-sales ramp up and some clutter breaking communication has led to where the brand stands today in the Indian market.

B&E: VW has maintained a premium positioning in India so far. Any particular reason for it? It does appear to have worked out well for the company till date – but would you maintain this ‘premiumness’ with every new introduction in every new segment that you enter?
LK: VW in India is indeed a premium volume brand with a clear positioning. The brand delivers high quality, innovative yet affordable products in combination with a unique buying experience and a good after-sales service. Irrespective of what products we introduce in which new category, we will continue to maintain this positioning in every segment. And why not? It has worked for VW so far!

B&E: Products like the Polo and the Vento have been able to create credible space in their respective segments in India. But surely, VW has bigger plans for India than just making some mark in the hatchback and mid-sized sedan segments. Doesn’t it?
LK: We have already established a plant in Chakan, about 34 km from Pune. So we already manufacture locally while continuing to introduce some of our best models from the global line up in India. Also, we have expanded our customer touch points across 87 cities within 4 years of entering India. All these are some signs of how serious the VW group is about the Indian market. Our aim for the long term is to be amongst the largest players in the fast-growing Indian market. In terms of contributions to our global revenues, India definitely has the potential to become a top market. And the results when it comes to brand positioning, product, sales, dealers and after sales are already very promising for the future.

B&E: How different and similar is the Indian consumer as compared to consumers in the more mature markets?
LK: India is unique. The consumer is extremely value conscious, while at the same time he is very emotional. First the Indian customer wants to show what he has (Desire) and then he asks for the mileage (Ratio). The Indian customer is excited and reacts immediately to changes – this is not the case in mature markets.

B&E: With a huge price differential between petrol and diesel currently, the Indian market is moving fast towards ‘dieselisation’. Good news for VW or not?
LK: This trend is a perfect example of how consumers in India react immediately to changes which has currently changed the market dynamics to a great extent. For VW, ‘dieselisation’ is a very positive change as we invented the TDi Technology, which is outstanding when it comes to torque and performance that diesel cars deliver. The change is welcome as we have diesel variants across our basket.

Read more.....

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

 

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face

“There are sceptics who doubt hero’s future”

Everything about Hero Motocorp feels right. Except the fact that it will no longer enjoy the technological support of Honda starting mid-2014. Still, Pawan Munjal, MD & CEO of Hero Motocorp, seems to have his plans worked out to remain on top in the two-wheeler market. B&E’s Pawan Chabra learns more from the man himself

Some competitors in the automobile business call him dangerous. Others fear him nevertheless. Whatever be the verdict, there is no denying that Pawan Munjal has done his father proud by taking the family two-wheeler business to newer heights. And it’s not that he is still replying on the brand equity of Honda. That tale is long over. In fact, the manner in which the Hero MotoCorp ship has continued to sail smoothly despite the exit of Honda from the 26 year-old JV about a year back, interestingly proves how this CEO is one who has his strategies mapped out before events occur. When Honda decided to move out in December 2010, a handful of industry watchers had echoed that the exit would put an end to Hero’s dominance in the Indian two-wheeler market. In the April to December period of 2011, the company sold 4.24 million motorcycles – a y-o-y growth of 23.33%, and much higher than the industry average of 14.01%! Munjal prove critics wrong. And this is what he does best. In fact, over the past six months, each month, in the absence of Honda, the company has been registering sales volume of around half-a-million. So far therefore, the company has been doing business in just the manner in which an entity with close-to-50% market share would in the Indian market. But challenges there are for Hero MotoCorp, and the biggest of them is to be able to continue its track-burning run post-June 2014, when Honda will completely withdraw its technological support to the company. Can the company set up its R&D base in India and continue serving the varied demands of the Indian market? Whatever be the outcome, Munjal is aware of the odds of his chances in the arena and knows what the spectators expect. In an exclusive interaction with B&E, Munjal shares his expectations & strategies for the months to come.

B&E: Let’s start with the Honda breakaway from the JV. It has been more than a year since Honda sold its stake in the 26-year old JV. On a personal note, how do judge the performance of the company post that event, including its transformation from Hero Honda to Hero MotoCorp?
Pawan Munjal (PM): A lot has changed since then. To start with, we have launched our new brand identity, we have launched products under the Hero brand and we are looking at it as a time which offers huge opportunities for a company like us. There are people who believe that the company has been growing at a very fast pace after we decided to go alone but there are sceptics who doubt Hero’s future and believe that not much has been happening at the company. For the latter set of people, our monthly sales number and quarterly results do more of talking as we have been able to break all records achieved since the company began – I would say, new sales records have been set by us in the two wheeler industry in India! I have been asked many-a-time as to why we didn’t choose to book huge profits by selling our stake in the JV and moving out of this business. My answer has always been that we convinced of our vision and we have no doubts on the capability of either the company or the two wheeler industry in India.

B&E: So far, you have focussed mainly on the commuter [mass] segment within the Indian two-wheeler market. Are you thinking of becoming a full-fledged two-wheeler manufacturer in the domestic circuit in times to come, with added attention to premium biking segment?
PM: This is a natural step for a company like us. So far, we have been a dominant player in the 100-cc category. But going forward, we will not restrict ourselves to just that. Having said thus, we are not switching segments and will continue to work on those areas and upgrade technology in this segment of the market. But since we were completely absent from the premium end of the market, we are now beginning to focus on expanding our portfolio. We are also looking forward to increasing our presence in overseas markets, especially South East Asia, Africa and Latin America. We are therefore increasingly exploring the export market. And since we operate in a globalised market today, we are definitely looking beyond just the domestic market. So, whatever we design now, we will design keeping the global consumer in mind.

Read more....

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

 

2012 : DNA National B-School Survey 2012
Ranked 1st in International Exposure (ahead of all the IIMs)
Ranked 6th Overall
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face

A successful venture: The past, present, and future of Venture Capital

The Venture Capital model is not broken, nor does it need to radically change. In fact, its future looks quite bright, with demand for VC-backed companies likely to rise in future.
Venture capital (VC) has fueled many of the most successful start-ups of the last 30 years. Microsoft, Apple, and Google – three of the biggest companies in the United States – were once backed by VC firms. Many well-known and highly valuable companies such as eBay, Amazon, Yahoo, and Starbucks likewise started out with funding from venture capitalists. The VC model of financing young and untested companies with high growth potential has been so successful, it has been replicated all over the world.

However, a recent study me Steven N. Kaplan and Josh Lerner of Harvard Business School, shows that the U.S. VC industry is not broken; it is simply going through the expected ups and downs of a competitive market. In the study titled It Ain’t Broke: The Past, Present, and Future of Venture Capital, we show the amount of money committed by investors to this asset class as well as the amount invested by VC firms in the last 30 years has been remarkably constant. In addition, average returns to VC funds do not appear to be unusually low or high relative to stock market returns.

In fact, based on the historic relationship between commitments to VC funds and subsequent performance, the historically low level of funds committed in 2009 and 2010 suggest that the returns to investing in these funds will be relatively strong. Moreover, the declining importance of central corporate R&D facilities in favor of buying small firms to acquire the latest technologies is another reason to be optimistic about the future of the VC industry.

The efficient man in the middle
Entrepreneurs have good ideas but sometimes do not have the money to set them in motion. Investors, on the other hand, have the resources but may lack good ideas. In this case, VC firms step in to bring entrepreneurs and investors together. They do this in three ways.

First, VCs spend a lot of time and effort screening, evaluating, and selecting investment opportunities. It is an intensive and disciplined process that typically takes place over several months. VCs scrutinise the attractiveness and risks of the external environment – market size, competition, and potential for customer adoption; the feasibility of the strategy and technology; the quality of the management team et al.

Second, VCs efficiently design contracts in such a way that if the entrepreneur is performing well, he or she is well compensated. If the company is running smoothly, VCs do not have to get involved in the company. However, if the company performs poorly, the contracts stipulate that VCs can take full control. As performance improves, the entrepreneur obtains more control rights. It also is common for VCs to include provisions that would make it very costly for the entrepreneur to leave suddenly after investors have already made a significant investment in the company.

Read more....

Source : IIPM Editorial, 2013.
An Initiative of IIPM, Malay Chaudhuri

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

 

2013 : DNA National B-School Survey 2013Ranked 1st in International Exposure (ahead of all the IIMs)Ranked 6th Overall
Zee Business Best B-School Survey 2013
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face