Sunday, November 18, 2012

Replace CEO’s from Innovation….Let Lower Management Jump


Well in the past couple of weeks I have written and you have read a dozen of articles about Innovation. A question might come up in the mind about the about the reasons behind such a huge aggression behind innovation. The reason is simple and not a mathematical complex formula. I find innovation is drying up and even if it comes its being more rejected due to the aftershocks of 2008 post recessions. We must accept that in order to strive growth in the coming decade’s innovation is the only way to survive and develop new living means for the unemployed global mass.

We need innovation in every profession and in every business. Today I will present your certain facts where innovation and innovators are being killed without proper reasoning followed with the process of designing the innovation way. Well I am not an expert but its from my research finds I find the inputs to be valuable for my readers.

One of my recent finding was that innovators are being killed and were killed in the past decade. Results being expected from the innovators are mostly compared with magic. This is the beginning of the problem. Innovation investments are huge in the initial days and the successes from such innovation are usually low. The same has applied for iphone and also for Microsoft.

This risk can be eliminated if we design PainStorm session for our consumers. Well PainStorm is nothing but a session through which corporate collect information with direct interaction with the consumers about their pains in an particular product/segment/process or anything related to the objective of the company. One of the biggest features of this process will be that even after designing the innovation as per the PainStorm session the corporate will again get back to the consumer to let them know about the final innovation. This reduces the risk of failure and increases success in every probable steps.

Mobile Bazaar was an similar product which was designed after following the steps of PainStorm. The story is like this that the company went to the farmers and certain numbers of innovators were plugged with framers for a week. During this phase the company understood the entire process of farming and its various problems. Among the several hurdles the biggest was storage facility which was very less resulting loss. The innovators came back to the company and designed the process of Mobile Bazar through which buyers and sellers can text message each other demand and supply information. This improved the farmers prices by 20% where was losses got zero. Innovation works best through PainStorm.

More than Innovation we need innovators. Every company needs to leave space for it employees to come up with innovative minds where innovation can breed. Compliance and Risk management department needs to be educated and needs to honor the innovation and innovators. Since I find Risk management is more concerned about showing its own work rather than working in real terms for the companies’ benefits. Compliance needs to formulate flexible and not rigid regulations where innovation and innovators die within the womb of the mother. Innovators are not the outside people but the people within the organization who are in the process of business.

Another prime mistake which is being done from the companies’ heads is that they expect innovation to be new product or process. Well innovation cannot be every time be like an iphone product. Innovation may come from the ones which were rejected previously as it did not match with the goal of the company or ego of the senior management. The biggest truth behind failure of innovation is the hypocrite nature of the top management and the tussle behind the leader of innovation team and no leader’s team. I find that in innovation meetings where new process or products are being presented they are simply at first sight being sent to the elimination wardrobe. Yesterday’s rejection might be based upon the secondary demand of the same for the consumer but today the same might be primary for the consumer. Well when we say that everything changes consumer demand changes very fast that the consumer itself.

A brilliant product can lose its sheen since marketing and distribution process is not being informed in full extent neither they are into product design process. Neither the CEO nor the COO of the company will go for selling the product to the end user. The top management of the company should only come when the lower level management is confirmed about the strategies of innovation and its benefit to the end user. Well the greater throw may come from the weaker hand. Backward integration is the key to success of an innovation. If marketing and sales team are not included in the innovation process then despite of a best product the company will find death in its success. It being best taken that CEO and COO are the people who are appointed by the shareholders for the benefit of the company and they carry couple of decades of experience Well they have earned the experience prior to 2008 and not during the recession. The quick gainers of experience are the ones who are selling on the street. 2008 has changed very experience and its high time that we can’t afford to spend another decade to gain experience under the recession phase. CEO and other top level management need to know that quick learners are also beneficial for the long term perspective of the company.

Innovation in marketing process or anything in an existing product can produce spellbound results in an short time frame. But innovation fails since the initial baseline of expectation and marketing expectation fails to understand the strength of the innovation. I find innovation presentation and designing process team includes only the top management. This is one of the biggest mistakes of the companies. Innovation ideas and inputs should come first from the lower level of the management since they are the ones who will sell the product to the end user. If an existing product life cycle is dropping we find through our research that often out of 10 usp of a product 7 are being missed while selling the product.

A small innovative process can change the product positioning and marketing which increases the life cycle of the product. Hence when the same management was buys in drilling innovation of an new product a simple process innovation can change the current product life cycle. We simply ignore these innovation concepts. Since, as I said earlier that by innovation we mean magical returns. Limited vision is a big threat to the innovation process.

I find further in my research that product offering also plays a pivotal role in the process of innovation. Certain products can be offered in bundled format where as certain can be given separately. Reshuffling the two can be of great success of the innovation team.

Much of the thrust on innovation is being given to beat the competitors which often works in a haphazard way creating short term sparks only. This devil needs to be avoided. One needs to spend 80% of the time to understand the consumer and the reaming at the back of innovation and innovators.

Saturday, November 17, 2012

RURAL FIXED COST ...PATH TO MASS SELLING


Low cost of production, higher volumes, efficient raw material management and one costing model based on specific economic condition followed with an average percentage of growth clubbed very year; all these days are now over or on the path of extension.

These cost management techniques were feasible before 2008 global recession and before the Indian slow down economic phase of 2010.Mass volume based sales proposition hardly exist and even that happens like a magic to specific products. Variable cost is the prime are of focus for the cost accountants but I find that after 2008 recession and 2010 of Indian economic slowdown fixed cost has a huge area to be factored while designing cost structures for products. In this article I will be trying to derive the thought behind fixed cost component which is more important than managing the variable cost. After all the sucess of an enterprise depends upon the cost structures.

Doing business in India it is an cost escalation prospective followed with higher operational cost and volatile inflation affects on product pricing leaves negligible space for small and medium enterprise to design product costing. We cost accountants often ignore the part of distribution cost management while design the cost structure or pricing of a product. After the debacle of 2008 and slow down in India after 2012 customer retention and customer acquisition cost are never being taken into account while arriving at the cost structure. More emphasis is being deployed on raw material and direct cost married with variable cost. But when the product is being sold there is a cost associated with consumer which is hardly being taken into account. All we do is that simply club it with sales and marketing cost. Do we ever break the cost components of marketing cost and drive any new strategies for the efficient cost management linked with consumers. We find companies dropping up product very fast since they dont calculate the numbers matched with
Behavioral Finance.

For customer retention and acquisition are two different perspectives which can only be served in an economy like India through mass selling. Developed economies don’t believe in the theory of mass selling they believe in mass value creation. I India we sell to convert the product into cash but in developed economies selling mean value creation.

Selling products in rural India is a challenge. It’s easy to say that development and expansion and there is stupendous demand in rural India for consumption of products. But rural India is scattered. Hence to built the network over these scattered rural India we need high levels of cost for customer acquisition and retention. We hardly think about these when designing cost structures for products.

Fixed cost is a bigger component over here. Variable cost is left at the door of cost of production. Fixed cost has a greater role to play for rural consumer acquisition and retention.

If ones product does not needs much education to consume will leave negligible cost for use of the product for the end user. But if my product needs consumer education and also training to use the product then simply calculate the cost associated with such product distribution cost. It’s an high fixed cost associated with that product. Then what should be the pricing techniques and cost structure designing process for these products. Well this where we cost accountants needs to drill hard and raise ourselves above the traditional factors of cost designing. When we will design cost structures for product we need to factor in the rural distribution factors which will help to design the profit module for the product. In poor markets we have high level of fixed cost and we have to judge that beyond numbers. Well according to me price cannot be uniform for every market.

Infrastructure cost for distribution of the product in rural India needs to calculate. If the same urban infrastructure can be used for distribution for rural products then this will reduce the burden of higher cost levels for the product. If ones product needs less education in urban areas for consumption and higher for rural then that part needs to be well accounted while arriving at the price of a product.

Mass selling concept can work only best when proper pricing and cost estimation have been built for the products and markets. Otherwise after a certain period the product will collapse before it could enter into growth phase. This will damage the product life cycle and also the project cost.

In between I would like to accentuate the probable areas where cost structures fails while designing the product pricing.

• Higher investments in operational cost followed with wrong market cultural behavior analysis.

• Conventional product sales revenue calculation.

• Customer acquisition and retention cost not being accounted.

• Failed analysis of marketing and distribution cost.

Well the above list should have been big but I kept it short since I want my readers to fill up the gap. Transportation cost is also being calculated in an wrong way. Travel time cost should be accounted since that increases the selling time cost. The more time one spent on transportation the more the product loses its value and hence it pushes up the cost of selling in the long term. (When demand comes supply becomes lag and hence the product loses its market).

I have found that capital expenditure related to distribution of products and the business model itself are substantially higher the cost of the production. In rural India we need the following cost factors like warehouse space, office space, technical staff, office amenities and above all servicing centers. This is why I said in the above lines price cannot be uniform at every place. Now while designing cash flow for an product we need to take into factor all the above mentioned aspects so that we can take up an higher level of discounting rate so that to derive the correct NVP of an product or project. If we don’t take into account then cash flow will take a lengthy time than the projected which will damage the entire business operation.

Low cost of production and mass selling needs to be linked with pushing up the variable cost and leaving enough space for the fixed cost to accommodate followed with improving the gross margins above the average margins which finally makes it possible for selling the product in rural India. In countries like India we need cost structures to be designed in accordance to the culture of the buyers. If one does not push up the variable cost then fixed cost will create a long term sustainability problem.

CHINA DOMESTIC OPPORTUNITIES...ABOUT TO GROW


An Economy which has made a turnaround from the tyrant rules of Mao to an economic engine of the global economy after 2008 debacle. It needs no praise that due to its economic policies China pulled and save the collapse of the 2008 holocaust.2012 has been one of the biggest eventful month for the Chinese economy. The 12th Plan got introduced followed with new FDI policy and now the new President of China.

China has been always being trying to develop and design new vision for the global economy. On my recent study about the economy I find that Chinese private firms are doing huge investments across industries and countries. The proof of the pudding is that the 5 Chinese private firms went to be listed on the Fortune Global 500 ranking that was released in July 2012. Last year, about 45% of China's outbound direct investment in the non-financial sector came from non-State-owned enterprises in china which is a remarkable vision outlook by the private firms in china. One of the prime reasons for increasing the investment appetite is greater percentage of Return on Investments being envisaged and achieved by the Chinese private firms.

In the recent policy declaration china has widen up the gates of FDI inflow. This is well found from the attraction of the inflow in the first six months of the year. China attracted 59.1 billion U.S. dollars in FDI while the U.S. attracted 57.4 billion U.S. dollars, according to the latest Global Investment Trends Monitor. But what made china to be so bold into framing polices to attract the entire inflow of FDI capital into their own economy.

According to the statistics of news release of foreign investment, from January to September 2012, Newly Approved Foreign-invested Enterprises amounted to 18,025, down by 11.67% year on year; and the actual use of foreign investment reached US$83.423 billion, down by 3.76% year on year. Well the numbers can be improved in the next coming years but the prime reason is that china needs huge capital to reduce the gap and build the inbound economic infrastructures of china. At the same time despite of an slowdown in the global economy china’s inflow of FDI was not very dramatic fall, in other words it kept the momentum alive despite of the global turbulence.

China is more focused to improve its domestic trade business rather focusing more on export. It is now more inclined to draw a line of control between inbound growths of its economy along with the turbulent global economic conditions. If we make a quick glance at the achievement being made by the domestic trade policies under the 11th plan we find

• The total retail sales of social consumer goods rose from RMB6.8 trillion in 2005 to RMB15.7 trillion in 2010

• The total sales of means of production rose from RMB14.3 trillion in 2005 to RMB36.1 trillion in 2010

• Added value from wholesale, retail, hotel and catering industries rose from RMB1.8 trillion in 2005 to RMB4.4 trillion in 2010, with an annual average actual growth rate of 14.9%

• Tax revenue from domestic trade increased at an annual average growth rate of 24%, with 102.7 million employees hired in domestic trade in 2010.

The numbers and achievement are well reflected in the Chinese GDP number in the 11th plan. Under the 12th plan it has further extended and broadened the trade opportunities which includes.

• Total retail sales of social consumer goods to achiev a growth of 15% amounting to approximately RMB32 trillion.

• Added value from the wholesale, retail, hotel and catering industries shall exceed RMB7 trillion, with an average annual actual growth rate of 11%

• Employees engaged in domestic trade shall amount to 130 million, including about 100 million employed in urban areas, with an annual growth of more than 5 million employees

• Improving the cycle of commodity flow into the inbound system of china.

• Improving and modernizing the circulation process which invites infrastructure and IT investments.

• Boosting up domestic trade and improving the penetration level of such trade activities.

The above expectation is reasonable and may not sound to be very aggressive but the result being expected to achieve is strong enough for the various states of Chinese economy. The recent drop in FDI inflow in china is not an drop but its well above the level compared with the steep slow down in global economy married with several GDP cut down economy wise by World Bank, IMF, rating agencies etc.

If we make a reverse loom towards Chinese FDI investments in other economies then we will get further clear understanding about the long term visionary outlook by Chinese think tanks.

China's fast-growing direct investment in the United States has created jobs. The study, commissioned by U.S.-China Economic and Security Review Commission, found that Chinese-owned firms in the United States added between 10,000 and 20,000 workers in the past five years. In the first nine months, China's outbound investments jumped nearly 30 percent year-on-year, reaching $52.5 billion. They acquire businesses in the US, Europe, Africa, it's a good timing because prices are low, and they are selective in the ways they make acquisition. Hence china is now holding substantial assets in different economies which give immense power to china to increase its GDP growth in coming years. Since flow of income from these countries will get added up to the GDP of China which will give a balanced and a stable growth to Chinese economy even in times when Chinese economy will be in doldrums. Its nothing but risk mitigation by diversification of assets by china.

Wednesday, November 14, 2012

Race for Innovation Labs.

Innovation the mother of growth plays a pivotal role in the global economy since inception of the fire on this planet. Invention of wheel and fire were also innovation. The recent debacle of 2008 had changed the landscape of innovation across the globe. Policy makers across the globe have went through cut down on cost on various segments across every organization. Much of the effect has been on research and development segment which the house of the mother of innovation.

At the same innovators took a bold step and moved with their own enterprises. This resulted creation of copycats of large organizations since innovators can innovate techniques with modern minimum tools. This creates significant threats to the large organizations which spends billion dollars at the back of innovation. So where the threat lies and does the small innovators are threat to the giants.

Well the fact is completely different and large companies are unable to tap the resources of innovators who are striving for success. As corporate are unable to bear the cost of Research and Development I find Innovation labs needs to be created which will be an outsourced service for the big giants.

Companies are always on the toss about the end utility of various researches being carried internally. Say if an company whose R&D division does 5 innovation out of which only 2 can be utilized by the same company under the policies and business planning. Now the same company also bears the cost of the other 3 projects but it’s of no use. This rising cost of non income generating research has been ruling force behind shut down of R&D division by the companies.

Now if an Innovation Lab is being constructed by the innovators where they carry out various innovations for different companies then that should work wonders for many industries. Big corporate spends billions to attract the innovators. But innovators under the changing circumstances have shifted into their own world where they are looking for recognition. Hence companies should come up with maps to link up these Innovation labs where companies will pay only for the product which they find to be matching with their business model.

Well innovation labs might sound like an new concept and its highly required. As growing concerns about prolonged slow down in developed economies and volatile movements of the emerging economies the birth of Innovation Labs is highly required. In India we find one prominent and well investments driven Innovation Lab which can also be marked as the King of Innovation Bosch. Well the rest can be easily found from the website of the company. We needs Bosch type Innovation labs.

Today’s we find the biggest Innovation Labs are the NGO who are working on non profit targets. They have converted themselves into a perfect Innovation Lab. Innovation labs need not be an non-profit making organization they all needs to be an mission driven like the NGO’s.

Innovation labs needs the biggest attention of Investments banking segment since huge amount of capital will be required to invest in order to run the segment. Venture capital needs to flow into the Innovation Labs and at the same time the investors should be enough educated to understand the Innovation Labs business process and its risk.

Over the next decade we will need thousand of innovators and double the number of Innovation labs so that new industrial revolution can happen. Extensive capital needs to be deployed for keeping the industrial revolution alive matching with the speed of technological changes. Innovators play a pivotal role in the society in the coming decade. They are the ones who will bring the developed economies out from the dark nights of recession. For successful Innovation labs we should not direct them according to our thought line. Rather I would ask the innovators to dream the future and design accordingly since that’s the base line of the Innovation Lab. Corporate will not be able to dream like Innovators hence they should stay away from indulging into the minds of Innovators.

One more aspect I would like to accentuate is that providing additional financial support decreases the quality of innovation by corporate. The prime reason being the race of competition which forces innovation to catch up the wrong path which further finally leads loss for the organization in the long term.

Slowdown creates opportunities and Innovation lab is the future of the next generation. More Innovation labs gets into an economy the more revolution in various economies will happen in the coming decades. Well its up to India who will take the steps of numbers of Innovation labs.


Tuesday, November 13, 2012

EMERGING ECONOMIES CORRUPTION IS ABOUT TO INCREASE.

Often the debate about corruption is being heard in our day to day activities of life. Corruption is being blamed for the slow growth of the economy. But I would place it as the path of growth. Since corruption increases the speed of a process, saves time and final achieves the desired end results. With global slowdown I find that the emerging economies particularly India is going to face new heights and altitudes of corruption. Global slowdown has compelled to invest in emerging economies and within emerging economies India and China are the biggest absorbers of foreign capital.

To make my thoughts to be well read to all of you I will give an example from our day to day to life where one will get an idea about the level of corruption growth to be achieved in coming years in emerging economies.

I am Deputy General Manager of an overseas company dealing in cosmetics looking for penetration of my products in to India. Now if want to do the business directly in India I will not be able to do since according to the Indian guidelines I have to have an company registered in India under the companies act 1956.Now I hope everyone knows the cumbersome process of opening up an company in India. Now as I is employee of my company heading the Indian business I would not wait for the normal procedure of opening an company in India. I will place bribe on the table and get my work done easily without much fuss. For getting trade license I will bribe and get it without much fuss and in the same process I will clear the rest of the requirements for opening up my shop in India.

Now my readers will find that I am the culprit who is spreading the seeds of bribes into India. Well just try to look into the glass of water from the other way round. If my company is stuck with long and delayed and harassment full legal procedures then what should be the role of the company in that case. It very easy to be said than done, Indian governments declaration about various FDI policies and other policies which invites foreign capital itself is an open opportunity of the corruption to gain momentum. But are we prepared to handle such things is a question of endless debate.

We might write thousands of quality books and papers on integrity and corporate ethics and principles but if the government policies are against the economic growth of a country then what should be the step for that economy is a question of great thought. In US and Europe we find government agencies being formed to track the malpractices being adopted by corporate as well as by government agencies to promote capital profits. Well thankfully in India we don’t have such things and even if it comes its around beyond lacs of corer being stolen from the exchequers pockets. Well the point is not restricted to opening up new business but also related to export, import and even to small social factors too. To generate stupendous growth corporate coming into emerging economies bribery and corruption is going to the strongest tool to be utilized. Hence the first conclusion that can be drawn is that emerging economies are trapped under their own shield of corruption.

Indian needs a GDP growth of 8% above hence that can only be achieved if legal network is user friendly. Only pumping inflow of capital into the economy cannot be path to success of an economy.

The next part I will focus towards Capital Integrity. Well the word might sound new but it has old meaning and highly required at the corporate level. Capital Integrity needs to be planted at the higher levels of the management. Well this too might sound like an strange theory. Its very common that most of the targets and instruction of achieving deadlines comes from the higher level of management. They are the parents of the corruption which is being acted and implemented by the junior or lower level management.

It took lot of guts to write the above statements but the truth can be understood by the ones how the game under pressure plays. No one dreams to take the responsibility of slowdown but it’s high time that corporate who are coming into emerging economies needs to identify that legal bottlenecks are a part of the culture of the emerging economies and it will take a decade to replicate the process with the current developed economies.

Sunday, November 11, 2012

CAPITAL BUDGETING ….CMA needs a new look.


The financial market took a huge turnaround after the debacle of 2008 where demand and supply inequality were the main players. Industrial revolution took a halt across the world and financial market reflected more fearful days. Global GDP took one of the hardest turnaround followed with diverse policies towards growth and survival of recession.

In this article I would like to depict more about why the companies are not actively behind new projects and why there is an active change in capital budgeting and financial management aspect. I hope this article will provide a new thought for the Cost Accountants and Investment bankers. My main target is to develop the insight of Cost Accountants beyond calculations and to be an active player in the Indian economy as well as in the global economic platform.

The old books of financial management and capital budgeting techniques has changed after 2008 recession phase across the globe. Investment opportunity has all taken a dramatic change due to the changing factors of capital budgeting and financial management. Business schools have also failed in majority of the case to find out the difference in project slowdown after 2008 debacle.

We have found that in India and in U.S economy corporate are having pile of profits in their books in the form of cash. Currently US corporate are having around $2.5 triilion as cash in their books of accounts. But they are still reluctant to drive into the ocean of investments since capital budgeting techniques will fail to capture the recessionary factors. In order to validate my data according to the recent report from Moody's Investors Service non-financial corporate cash position rose to $1.24 trillion at the end of 2011. The report further states, that nearly $700 billion, 57% of the corporate cash total, is held overseas which includes emerging economies. The below image depicts the same story.

One will be shocked to find that according to the Federal Reserve that, at the end of March, U.S. corporations held $1.7 trillion in cash reserves, which they keep in treasuries, other bonds, and bank accounts. When I drilled further I find that the cash position of the US corporate increased from 12% from 2006 to 24% from the Great Recession in 2008.

Time frame of generating cash flow is the biggest factor which the capital budgeting process will fail after the recession slow down. With negative growth in consumer demand in US and Europe and significant slowdown in Asian economy has changed the demand of any product. Hence more time will be consumed in generating a positive cash flow or even break even for any product as compared to the post recessionary phase.

Another aspect that fails to capture is the low cost of debt and equity component mixture within financial management of a project. US have got an zero interest rate which might seem like an gives an thumbs up to an investment project. But with significant slowdown in the global economy the real benefit of zero interest rate has negligible effect. At the same time with poor performance of the equity market and negative show down of the IPO market which is a key exit route for any venture capital and corporate finance has also changed the rules of financial management. Debt to equity ratio across the globe has taken a huge toll and a significant part of it can be witnessed in Indian market in the last 2 financial years.

Disparity about assumptions while drawing conclusion for project viability through capital budgeting and financial management techniques needs a high level of economic factors which needs to be accounted. I find project risk management has got a huge significant role to play since through this we can resolve the economic factors by certain percentage.

• Communication about risk in cash flow projection

• Identification of early risk in projects,

•Diverse markets and economic conditions linked with product consumption need to be linked with cash flow projections,

• In depth focus of equity option more than debt consideration should be the key aspect since equity is the key exit option for financial investments,

• Life cycle costing of the product should be mapped with different geographies since after recession of 2008 there has been an significant change in demand culture.
Well the above list might be incomplete and needs some more inclusion but it’s up to you to add up taking the practical aspects in mind.

In order to have new projects Cost Accountants needs to keep in mind those only mathematical calculations are no longer enough. One needs to grill into the cash flow projection factors while deriving the end result of the investment project. Geographical factors and product life cycle costing, needs to have a high level of priority to decide the project viability. Unless we cost accountants move ahead with these factors new projects will find times to come and hence the economic slowdown will only keep on growing.

Tuesday, September 25, 2012

CHANGING BANKS....CHNAGES INDIA...

When I was about 6 years old I used to travel to the bank with my father. I use to be one of the events for my small life that point of time. Going to the bank and the ambience of the bank system was an of great experience to my life. Waiting at the counter for withdrawal of money use to help me skip hours from my study schedule since it use to take more time to withdraw money. The Pension day use to be hectic for the banks since they have to deal with so many papers of pension withdrawal forms.

Today the same banking system has changed more than any one dreamt about it. Technology has worked as an accelerator for turning around the entire banking system process. Now we get scared to hear that we will have to visit bank branches for any work. Passbook has been replaced with soft copy of statements. Free Services have now turned into paid services and moreover banks have become small in structure size.

Internet has replaced the business operation module of the banking system. The banking system adopted technology with the prime focus of reducing the crowd arriving at the banks door. With the growing new generation adoption of internet and other technology helped banking system to introduce internet banking which reduced their cost of operation as well as reduced their fixed cost of operating too. Earlier banks required huge space for running their operations and managing the crowd at their door step.

With internet banking physical office got replaced with virtual office which reduced the fixed cost part of the banking system. Introduction of internet banking further reduced the stationery cost of the banks primarily in the form of papers. But more than cost savings banks went ahead with expansion of their business models which has increased the banking network penetration. By saving cost on paper and rent banks invested heavily on product innovation married with marketing. Earlier banks never used to do extensive marketing of its products but with technology innovation they came up roaring up products marketing which mainly focused on 3rd party products. Today banks are offering services married with products. Technology has increased the efficiency levels of the banking system in terms of internal data management and better customer efficiency.

OPERATIONAL EFFICIENCY

• Straight-through processing.

• Transformation of service channels.

• Collaborative channel management strategy.

• Branchless banking for financial inclusion.

• Business correspondents.

GOVERNANCE & RISK MANAGEMENT

• Enterprise risk management.

• Real-time executive dashboards.

• Real-time security management.

• Risk-based authentication.

CUSTOMER CENTRICITY

• Customer analytics.

• Efficient customer data management.

Today banks are more able to design products according to the customer usage simply by grilling hard the data management system. The design the credit card limits according to the usage through efficient data management. ATM has becoming banking withdrawal centre for all of us. Today we have to wait for few minutes to get the money in hand. Mobile banking has also increased and reduced efficiency and cost respectively. Banks are now promoting mobile apps demonstrating their easy process of services.

Now I find the competition among various banks stands at efficient process of internet banking with less cumbersome process. Designing of easy process of apps is the new innovation being derived by the banks through which further business growth in acquisition of new clients. Indian banks are finding more business growth through innovation of apps and banking software even at the back end of the system which will help them to get on to the nerves of the consumers.

Trends in innovation in products and services offered:

• Savings Accounts with Auto Sweep Facility

• Smart Cards

• Virtual Bank

• Electronic Data Interchange (EDI)

• Image Processing

• Business intelligence and customer relationship management applications

• Optimizing Customer Reach

• Innovation in Delivery Channels

The recent foray of the Indian banking system towards mobile banking is the biggest proof of the growing hunger of increasing the banking network in India. India has 700 million+ mobile subscribers, but only 240 million individuals with bank accounts, 20 million credit cards, 88,000 bank branches and 70,000 ATMs. Of the households without a bank account, 42% have at least one mobile phone. This is just a snapshot into the penetration that mobile has achieved in a relatively small period of time.

Transferring of money has increased over the past couple of years which gives immense opportunity for Private Equity segment to do investments in Technology. Mobile banking in India is set to generate a fee-based income of INR202.5 billion (approx. US$4.5 billion) over the next five years, mainly driven by lower transaction costs, favorable regulatory environment and the UID project. By 2015, US$350 billion in payment and banking transactions could flow through mobile phones, compared with about US$235 billion of total credit-and debit-card transactions today. As mobile-money initiatives take shape, the projected fee income in India from mobile payment and banking transactions could exceed US$4.5 billion by 2015.

The above data is well clear to make one understand that Private Equity will find substantial growth in investments from the this gen next banking business models. The success of MPesa in Kenya has provided an appetite for a host of global players whose entry into the Indian market is only a matter of time. In other words it has opened up the gates for more investments to come and build the business growth opportunities.

NPCI, encouraged by the launch of IMPS for individual-to-individual money transfers, is all set to foray into the field of merchant payments. RBI has already permitted the payments institution to go ahead with merchant payments and NPCI is all set to start the operation with 7 banks. A question might come up that what type of revenue growth one Private Equity investor will get from this segment in coming days. Well electronic payments from below 5% of the total value in 2005 went up to 88% in FY10, largely due to the electronification of business-to-business payments. Now, one can easily make the calculation of ROI being generated through this industry. At the same time Indian banking space is yet to penetrate into India as compared to the developed nations. In simple words we are still far behind. More penetration will lead to more development and use of these services which results to stupendous growth for the investments.

Banks should come up with a model for educating the knowledge level of the consumers so that they could link the innovation at their level with the consumers. This will further translate to generate more consumers particularly those who never used Banking system. Technology alone has given growth mainly from Urban India but the rural India still remains to be untapped zone

BANKS ARE MISS SELLING…..BE CAREFUL FROM THEIR BETS


IT NEVER STOPPED
Miss selling the concept which cannot be eradicated form the financial market. Fulfillment of targets and stupendous pay packages married with death of ethics and business principles are the ways to grow the business and AUM of a financial market. When SEBI introduced the NIL Entry Load structure it was acclaimed that the step was taken to eliminate the miss selling concept and I remember very well that many financial papers were favoring the same implementation of the law. After 3 years we find that miss selling did not get stopped but got new modified miss sellers in the financial market who are one of the biggest resource holder as well as misuse.

Banks are the new leaders in miss selling of financial products. Even after IRDA reduced and capped the limits of commission for insurance products, volume based miss selling is being practiced judiciously. There are numerous cases where Banks are cheating the investors with an brave heart and even in majority of the cases we find that banks are exploiting the trust of the account holders. Miss- representation, powerful fake sales pitch and power packed ditching of trust of the bank account holders are being practiced by the banking staff. Well all are in the game of Targets which have been taken by the banks to earn some quick bucks followed with hefty perquisites from the various AMC and Insurance companies.

SELLING ULIP UNDER FIXED DEPOSIT

Banks are judiciously converting the funds from Fixed Deposit to ULIP, Traditional insurance product and Mutual Funds. Well one might deny all the above statement and only exclusively for them I have some facts to provide them from some genuine sources.

As per the data from AMFI as on July 2012 Commission income from sales of mutual funds have gone up considerably which comprised of top 10 players among which 8 Banks are the leaders. From the Insurance perspective Banc assurance model of the banks holds and average rate of contribution of 50% towards the insurance Industry. If one of my readers is bankers then they will feel proud about the stupendous growth being achieved by them in the financial market. But all these numbers are at the cost of the miss selling.RBI has been complaining that bank’s deposits are declining but we find they same decline is being pocketed into Mutual Fund and Insurance.

LOW PENETRATION ........JUST AN EXCUSE

Low penetration of Mutual Funds, insurance and financial inclusion are the few jargons well used by the Indian banking system to miss sell the products. Banks holds an very important role in the Indian economy and it has strong trust among the people. Banks are being taken as the safest option for parking hard earned money. Banks are now the leaders for breach of the trust built over the last 66 years of Indian independence. But why banks are converting the Fixed Deposits into Mutual Funds and Insurance. A Fixed Deposit gives earnings of 0.25% where as insurance gives 10%-15% where as mutual funds give 0.75 to even 4% (Hybrid Funds). Banks gives great illustrative presentation about the gains one can achieve through investments in ULIP compared to Fixed Deposit. RBI can easily crack the numbers of the banks to find the third party product sales volume corresponding to the growth in Fixed Deposit.

Banks are Not Financial Planners

Why the banks are being converted into a financial solution provider when they don’t know about the wealth management or financial planning. Banks cannot provide financial planning such type of solutions which an IFA or a financial planner can provide. Banks are just now turning to be street hawkers who simply dupe the consumer for their product sales. We knew that there were couples of banks who use to take advantage of the financial jargons and lack of proper disclosure to consumer earn quick money. Bankers are asking their sales force in many banks to forget financial planning and just focus on revenue planning. Individuals seeking financial advice about what to do when they get married, or how to plan for when they retire, or what to do if they want to start up a college fund for their children, will go to a financial advisor in order to get his/her assessment of their current financial position and recommendations for the best possible way to plan for the future.

Perhaps the most important thing a financial advisor can do - the thing that is hardest for an advisor to learn in any school - is condense and communicate their vast knowledge of finance and investment planning into layman's terms for the everyday fellow with a wife and kids. Since they do not work as often with cutthroat business types, it is important for financial advisors to be charming and eloquent so that everyday individuals trust them with their money. After all, many financial advisors are self-employed and make their connections by good word of mouth, so being well liked and well spoken is a must.

Banks have mostly targeted the ones within the age bracket of 45 to 60 since they have large corpus of savings and retirement benefits which is being used the bankers to dupe them and sale due investments. Children’s plans are the most lucrative product being used by the banks to sale to the consumers.

WHO DOES & HOW DOES?

I know that there are many new join’s into the banking space coming from closed distribution houses getting job into the banking space that are using various strategies well proven in their business practices into the banking practices. In West Bengal/Delhi/Bangalore/Hyderabad, one of the leading broking houses has winded up its various branches and many of the employees have taken job in various banks where duping of consumers is the main experience required for entry into the banking jobs. This is the story of every place in India. Distribution houses are closing up their business and the same man power is being absorbed into private banks.

Banks have wide resources in their hands through the KYC documents. KYC documents helps banks to crack on the investor wealth status which further helps them to decide category of product they will pitch. This categorization helps the banks to design the miss representation and lucrative sales pitch for miss selling products. Hence the strategy of banks to miss sell products is very much pre defined. Based upon the resources of the KYC, banks gives personal call to consumers to present the lucrative sales presentation. Well these are the common bets by banks to catch the clients under the trap of banks false presentation.

I welcome all my reader particularly the bankers who reading my article to express their severe strictures for this article.

Sunday, September 16, 2012

FDI IN RETAIL...DESTROY MIDDLEMAN

India is sold in the hands of US and European economy. This is the new slogan which might be used across the nation from Monday 17th September 2012 onwards. Every political party will come up with various types of activities like Traffic Jam, and Violence Activities in order to protest against the reform which has been declared on last Friday by the Indian Government.

Much of the debate is concentrated towards the FDI in retail business. The topic has been described as a most sensational topic from the time the concept was printed on an paper. Various states at the same time have welcomed this move like Assam.

But the most astonishing thing is these that will FDI eradicate the retail business or will eradicate the political based middle man engaged in the process of this business.

Farmers will be derived from their rights is the most common verdict being spread across the country right from the time the concept of FDI in retail came into papers. Well those who are saying that farmers suicide cases are increasing and government is not doing anything to save the lives of the farmers for them FDI in retail is the best policy action being provided. Moreover till date Indian farmers were struggling to make a living. Over the past year with 18 of the 28 states reported more suicides among the farmers. The farmer suicide graph has been steadily rising. According to the National Crime Records Bureau (NCRB) data from 2009, more than 216, 000 farmers have killed themselves since 1997. Add the figures for 1995, 1996 and 2010 and the total crosses 250,000. That is, two farmers a day for the past 15 years. Well where are those political parties who have been crying today protesting against the FDI in retail.

Now please don’t pass on the blame of the suicides on the UPA government. The state governments were the prime players behinds such activity. Farmers' demands were not taken into account while preparing the relief package. Neither were civil society organizations, local government bodies, panchayats etc. consulted. All these are being designed at state levels and then it’s being sent to the Central Ministry who governs at that point of time. Hence now one can understands why political parties are crying over the FDI in retails. The relief packages were mostly amalgamations of existing schemes. Apart from the farmer helpline and the direct financial assistance, there was scarcely anything new being offered. Pumping extra funds into additional schemes shows that no new idea was applied to solve a situation where existing measures had obviously failed. In total no one ever heard the voices of the farmers. All these political parties who are against of FDI in retail are due to loss in their business of being an middle man.

Manny of my friends will come up and say that Indian retail is an huge unorganized market. Did anyone tried to make the market organized so that middle man management got eradicated. Keeping an market unorganized gives immense opportunities to the middle man to make stupendous return at the cost of farmers and common people.

Inadequate storage facility is one of the biggest blessings for the farmers along with ruthless low prices being offered to a farmer for his productivity. For example we all know that a piece of a cauliflower cost an farmer Rs.2 whereas the same is being purchased by us at Rs.20 ten times of what the earnings being made by the farmers is being pocketed by the middle man. Those political parties who are saying that farmers will be deprived can any one of them explains till today how much they have already being deprived. When the farmers struggle with lack of irrigation facilities and when they are not getting justified money from their hard works how the political parties who are crying will justify the same. Veteran journalist and The Hindu Rural Affairs editor P. Sainath said that India have been undergoing the largest catastrophe of our independent history — the suicides of nearly a quarter of a million farmers since 1995. We are talking of the largest recorded rate of suicides in human history. In 2007, Agriculture Minister Sharad Pawar, in a written reply in the Rajya Sabha, had said that there were more than 149,000 farmer suicides between 1997 and 2005.

If the FDI comes at least to some extent this middle man management will get eradicated and some real benefits will pass on to the farmers. These political parties who are crying for the same has the biggest vote banks which comprises from these middle man management segment. The political parties made billions of money being a simple middle man management fellow. NREGS and such other type of job opportunities were created since farmers were unable to make proper living from farming. Did any single political party come against of NREGS and other schemes? No they never came since middle man was present their also to make their own livings from such government policies and schemes.. Then what happened with FDI in retail and why is this being objected so highly. The answer is simple middle man will be removed and direct contact will be established with the farmers. Loan waiver was executed by UPA1 to Rs.60000cr (defined in books) and also an equivalent number over the last decade. The government provides this waiver at the cost of tax payer’s money. Hence further waiver will increase the tax slab of the common people. Those political parties who are crying are the ones who live at the cost of common people.

Agriculture employs 60% of the Indian population today, yet it contributes only 20.6% to the GDP. (Isaac, 2005) Agricultural production fell by 12.6% in 2003, one of the sharpest drops in independent India's history. Agricultural growth slowed from 4.69% in 1991 to 2.6% in 1997-1998 and to 1.1% in 2002-2003. (Agricultural Statistics at a Glance, 2006). There is a significant drop in the agriculture productivity and gen-next is moving to other sectors and shifting to urban areas since farming and agriculture does not provide them living. An NSSO2 survey in 2005 found that 66% of all farm households own less than one hectare of land. It also found that 48.6% of all farmer households are in debt.
Where was these political parties at that point of time who are raising voices against FDI in retail. A food price has gone up and we have to cut down on other segments to manage with our daily expenses. As more famers move out from agriculture import bill of India will keep on increasing since we have no productivity at home. Indian political animals need to be educated so that new ideas and policies get understood by them.
Above all these the movies Called Peepli Live gives an better picture of the Indian farmer story. Well now we have to wait to see a movie opposite to Peepli Live.

Saturday, September 15, 2012

M-COMMERCE IS YET TO BEGIN.

Change in Process.
Sales process has changed over the years across the globe across the every market segment. In my recent study I find that not only banking sector which has lead to a strategic change in its business process through online transaction but the same theory has already spread across other industries. Sales and Brand use to move in parallel ways but now with the innovation of technology sales have found a new identity beyond brands. Technology has only accelerated the payment mechanism married with brilliant virtual presentation tactics. The changing digital age is well found within the retail segment of the market.

In the coming decade the more industries adds to the organized market segment we will find more virtual business modules coming up. Innovation is a never ending game hence more brilliant and quality virtual sales process is about to come in coming decades. More importantly the technology innovation in sales process has pushed up the number of unorganized players to shift towards organized market segments. Today the competition is not of getting more number of sales but to get the online segment of commercial business to grow parallel or beyond the traditional mode of sales.

Where we shop now?
Today we have Flipkarft, Yebhi.com, HomeShop18.com and many more has changed the culture of shopping as well as for the companies to have all their products under one platform without having a fixed cost component like a shop where one has to bear rents in all periods. Business process needs to identify the changes in the virtual consumer market and rightly align strategies accordingly. Reading and mapping data days are now about to get over. One needs to have a deep understanding of behaviors of the virtual consumers since consumer change brands according to their easiness. Days are gone when the brand change used to happen due to product prices, now consumers change products and brands which act as a small glitch to them in the process of buying the same.

According to ‘India Online Retail Market Forecast & Opportunities 2016’, India will witness changing shopping trends in the next few years. India is set to become the third largest nation of internet users in the next two years itself. The online retail market in India is expected to grow immensely, given the rising middle class in India, with growing disposable income in hands and lesser availability of time to spend the same. ‘India Online Retail Market Forecast & Opportunities 2016’ discusses the following aspects related to online retail market in India:

- Global Online Retail Market Size & Forecast

- India Online Retail Market Size & Forecast

- Online Retail Market: Segment Wise Forecast

- Distribution Structure & Sales Channel

- Market Trends & Developments

- Competitive Landscape.

Indian Financial markets are yet to explore the M-commerce. Mobile trading options have been opened up but for the payment segment we are still flocking around the internet system. M-commerce has not yet taken up the broking and financial business market. Recently Reliance Mutual fund came up with M-commerce platform for investments in mutual funds. Indian markets over the next 5 years will make a stupendous turn around.

M-Commerce the Game Changer

Innovation is now an integral part of M-commerce. Ecommerce has changed the virtual presentation style buy M-commerce will change the payment process. Smart phone is not a luxury for all of us hence we find consumers prefer easy ways or handy steps of payment. In most of the world particularly in the developed economies that are struggling to meet their inflation and GDP growth are shifting their business in virtual format since cross trade business models are on the verge of collapse since trade practices might be imposed in coming days. The days of PayPal through internet are about fade about since a smart phone has opened up the gates of Mobile payments. PayPal has also changed it business process with its introduction of Pay Pal mobile app which is being now replacing the internet age. Smart phones are coming up with PayPal software so that M-Commerce takes a new giant step towards the consumer market. Its similar like the E commerce, when it came into the system the market of retail took a giant step similarly M-commerce is all set to change the consumer payment system.

Invest in M-commerce
In European economy we find that businesses of leasing properties are being done exclusively through E-commerce and rents are being remitted primarily through M-commerce. Smart phone has changed the business process of M-commerce. Private equity finds the business to be very lucrative in coming decades which has resulted increased demand of M-commerce investments projects. Indian banks needs to spend more resources towards M-commerce. Internet has changed their business process now M-commerce is all set to change the payment process of the banking system. I find the risk management segment of the banking space needs to be stronger since any failure of the system will hit back the Indian banking and retail market. Big giants of the consumer market needs to understand in detail about the various grades of risk and threat which might later on kill their M-commerce business strategies linked with sales and revenues.

Well the market size of online retail industry in India is likely to touch Rs 7,000 crore by 2015 due to increasing internet penetration across the country, according to a survey. Currently, the online retail market stands at Rs 2,000 crore and is growing at an annual rate of 35 per cent according to industry chamber Assocham. Hence a long way is yet too travelled and the journey might just have started.

Sunday, August 26, 2012

LOW COST DAYS ARE OVER


The process of doing business has changed over the last 2 decades across the globe.  With the opening up of the gates of free trade and Liberization in the emerging economies married with technological advances in Developed nations the business has become more competitive rather than a challenge. Challenge used to be the era for 1980 and 90’s time when setting up business and eliminating the rivals was used to be the prime game plan. Now the business game runs on theory of competitive advantage rolling over the cycles of the business phase.

We often find that in the past decade and also recently business plans process fails to remain sustain in the present globalised world economy. Despite of free trade and prudent opportunities for investments ROI and ROE remains an albatross around the neck for the companies. Billions are being spent to touch the profit island but it always remains half short within the reach. Drilling hard I found that Developed nations went with their existing business models into the emerging economies and failed bitterly. The experience became so hard that next time the management took any decision for new investments they went for astrologers to predict the future. The developed nations companies just adopted a simple policy where they thought that by adopting the policy growth will be their slave. Cost Reduction and low cost of production are the policies which made them fail bitterly. Cost reduction and cost modeling will only work when your existing product is accepted by the consumers or rather it matches with the demand of the consumer.

The affect of cost reduction and low cost of production will only come into force when one has rightly assessed the market and its demands. This is the prime area where the competitive advantage of an business is developed. Many of my learned friends will come up with an argument that innovation is alive and kicking the business models. I agree but where do you want to apply the innovations is the first question which needs to be heard. Product innovation should always be matched requirements of the end users. Through this one will get the competitive advantage over the life cycle of the business. To make it more simple say your innovation is really worth but has less demand in the market in all times. That innovation itself comes at a huge cost of R&D added with production cost. Hence the expectation from the product innovation and its cost increases the albatross around the neck of the company in terms of higher profitability (above normal).
Companies that needs to survive in emerging economies needs to identify and access the requirements of their and then design products as well as business process.

Godrej Company came up with a refrigerator for the rural market designed exclusively for the rural people requirements. Godrej changed the structure of its refrigerator for the rural market completely opposite of what the urban market consumed. Before they came up with the product they went for an market survey where they found that the minimum requirements of the cooling system in rural place was only to have storage of foods items for an day or two and just to have cold waters. Not an inche more than this, was on the demand list for the rural market. Even Godrej found that power facility was a big problem for the rural market. Hence Godrej required keeping this aspect also while designing/innovating the new product into the market.

Godrej worked hard on its innovation and came up with an refrigerator designed exclusively for the rural market where they cut down on many areas which automatically reduced their cost in all aspects and boosted up profitability from minimum cost of production without an price hike but with an price cut down to 1/3 from the existing business models. The rural refrigerator did not required any compressor as required in an normal refrigerators moreover it consumes half the power consumed by regular refrigerators and uses high-end insulation to stay cool for hours without power. In the engineering process it’s required only 20 parts as compared to the ordinary models where it takes 200 parts. The name of the product is ChotuKool. Price is also within the reach of the rural people married with power saving cost at the end user. This is called innovation matched with cost modeling. Business growth will grow over the years as the innovation leads to a competitive advantage.

The survey of the Godrej followed with better understanding of the markets and its behaviors helped the company not only to innovate and generate high ROI but also to fill up the gap of products.

In the similar way when I drilled in other emerging nations I found some more strategic revolution in business models being developed and adopted within the process. In North and East Africa Vodafone became the leading support system through its telecom service. Vodafone hold certain percentage of in Safaricom which is Kenya's largest mobile network operator.

Vodafone through its business survey found that there has been tremendous problem regarding money transfer. North and East African nations already had a system of money transfer inherently linked to the religion of Islam, known as Hawala. This also increased the cost of lending for the lenders which created a ripple effect on the borrowers. Vodafone did not introduce its most famous download and other social business platforms over there since; consumption of the same is less as compared to India in all terms. Vodafone identified well that it has to dig deep into the system to find out the real growth based innovative product. Finally they came up with MPESA.MPESA simply rode on this behavior, without trying to introduce new ones and simply made it more efficient by leveraging the mobile network to track the movement of money. The user-agent relationship remained the same while the agent-agent relationship was improved drastically. Instead of logging in transactions on a book and settling them at a later date, the m-payments system allows the agents to settle money transfer instantly.

The result of the innovative product was that M-Pesa quickly captured a significant market share for cash transfers, and grew astoundingly quickly, capturing 17 million subscribers by December 2011 in Kenya alone. This is innovation based on competitive advantage.

Today business process needs to be more defined so that the most appropriate opportunities comes ahead for riding the cycle of growth. Gone are the days of low cost production and cost reduction methodologies. Low cost of production will not last for long and cost reduction is not the prudent tool for every business growth. Innovation too fails short if it don’t match with the competitive advantage. Why much business process failed is a matter of small concern since they simply replicated the nations not the process neither the products.

PRICE DEATH.


Price is a sensitive issue for any product life cycle. It destroys brand values and other core activities if price is being designed just to ride on growth numbers. Rising cost of production has forced companies to split prices into two aspects 1) Increasing the price and 2) Splitting the price and value.

Increasing the price was not taken as a prudent decision since that might reduce the sales number was hitting back on the management table. Hence the only option left was to split the value and drive prices accordingly. What failed among the management while adopting this universal policy was this principal was applicable for every product and secondly competition easily gobbled up the value proposition factors. To make my statement to be very clear to my readers I would like to give a live example. When we go to any shopping mall like Pantaloon or BigBazar we buy goods and at the time of getting the Carry Bag we are being asked to buy the same for Rs.5 irrespective of the value of the goods.

I remember that during 5 years back even the same shopping mall was giving us the Carry Bag free of cost. Now many will find reasons to justify among which the most common one will be price has increased. But even in 2004 and 2008 when inflation was high these shopping malls were giving the carry bags free of cost along with purchase. This is how value has been splitted and price has been introduced in a product sale.

But with changing times consumers are also changing fast along with markets. Consumers not only reject the products but also the brands also collapse with pricing inefficiencies. It is correct that through Carry bag sales at Rs.5 the company might have earned some more money but at last consumers might shift which will affect the company and its brands over the long term. Companies have taken brands for granted and also prices matched with the brand to be a fixed pie. Companies have identified that they are owners of the value creation but failed to understand that value is created and built by consumers. Consumer doesn’t take an minute to dump an product and replace it with some other one in these competitive market sphere.

Exploiting consumer disadvantage is the prime motive to earn money in today’s market. Banks are the prime teachers for the market of exploiting consumer disadvantages. Now I find the telecommunication companies re the new members of the same game.

Companies who built Brands and values have shared it equally with the consumer and company. Billions are being spent to build a value and Brand for a product. More is being spent during the life cycle of the product. A splitted pricing policy is enough to destroy and shift the consumer from the product for ever.

Focus on relationship is the most important thing for reduced cost of spending on Brand and Value creation and emphasizing more on pricing policy. Better pricing and value can be designed just from building healthy relationship with consumers. Just like if tomorrow LG comes with an policy of calling all the consumers to avail warranty service even after the period of warranty is over just by paying the money of Rs.2000 fro LED TV (currently provided by LG) will give an stupendous sales increase to the company. In other words many consumers don’t know about the current service of LG in terms of this product.

Financial companies particularly the ones engaged in B2C business can derive stupendous growth just by designing prices and not splitting the same. One might take the advantage of consumer for an short time but once the theory is being proved the company will find its products being dumped.

Prices should not be designed on competition based theory. Consumer centric prices are the ideal way to keep the competitive advantage of the business alive over the periods of the company. The business model of Amazon is being discussed a lot among the management schools but how many follows the same theory in real life.

Pricing of products, needs to be flexible over the period of the product. If raw material prices comes down how many companies passes the benefits to the consumer is hardly being remembered. Moreover companies try to fix up one unique price for a product which will alone make them a winning horse. But different consumers have different perception towards prices hence price flexibility needs to be on the top of the priority. Value needs to be rightly matched with prices like in case of an computer where even of the best price if after sales service remains an draw back profits are bound to live for an short term.

Pricing needs to be transparent so that consumer disadvantage is not being taken into the business process of making revenue. Banking is the biggest example which fits well into the picture. Companies should treat consumers as an part of their product then only revenues will grow despite of any economic down turn or any other economical factors damaging the price or product life cycle.

Companies should try themselves as benchmark of product value and price rather than becoming short term profit generators. Companies often find that their product are being dumped after an short time frame where the burden of the failure is being thrusted upon the product life cycle and another fresh millions are being spent for new product. Companies fail to identify that their price made their product replace from the market space. Despite of healthy branding and marketing the product dies before it could flourish. Pricing plays an very important role in deciding the fate of an product over the life cycle of the product itself. Companies need to understand that pricing needs to be a part of consumers and not for generating revenues. Revenue is the byproduct of consumption derived from consumers.

Moreover if your price and value are not matched efficiently then in today’s competitive market companies will find very difficult to survive.

Saturday, August 25, 2012

China Slow Down a Game Played by US and Europe.


Private equity position in India market is quite well known to everyone. In simple words they are struggling to get deals where they could find the horse of profitability doubles in every game. In an recent study in my research I find that the second largest economy in the world is too struggling with Private Equity. In India it is quite hard to find out the number of Private Equity players since every passing few takes birth and few dies. Prime reason is data bases management in which India ranks one of the lowest. China had more than 10,000 venture capital and private equity firms at the end of 2011, according National Development and Reform Commission (NDRC).Moreover those companies managed nearly 2 trillion yuan ($313.9 billion) in assets. The number of VC are on the increasing mode despite of the much acclaimed that Chinese economy is slowing down. Well when an economy slowdown how numbers of VC jumps by 34% in 2011 compared to 2010 leaves many of us to doubt about the real meaning of lows down.

If an economy slows down, then it is reflected in the investment numbers and also on the assets being managed by the VC segment. But unfortunately according to the NDRC reports that the value of assets managed by these 882 firms had increased by 41.5 percent to 220.7 billion yuan ($34.6 billion) at the end of last year(2011).
Local firms in china are actively scouting for good deals. Further in china most preference is being given to local based VC than foreign based VC. This is just the opposite in case of India. According to the Asian Venture Capital Journal, investment by Chinese firms rose to $7.8 billion in 2011, exceeding for the first time the $7.4 billion invested by U.S. and other foreign funds. Drilling further I found that according to Centre for Asia Private Equity Research Ltd From September to December of 2011, US$4.9 billion worth of deals were recorded, while in the same period of 2010 there were US$3.9 billion
Moreover, yuan-denominated private-equity funds have raised $41 billion in the past two years, which is more than double the U.S. dollar amount in China. This clearly shows the depth of local based VC funds preference. At the same time the shift of investors using Chinese currency has resulted in a 45 percent drop in investments by foreign funds in 2011, even though the value of private-equity deals has doubled since 2009.To put it in simple words Foreign capital hardly finds way into Chinese market since China itself is sufficient enough to open shops for VC.

The ongoing slow down in Europe and US has left few options for the global Private Equity to find profitable investments keeping in mind the exit option through IPO. Since exit through IPO in US and Europe is less profitable as compared to China, many foreign shops are opening their shops in JV with Local Chinese VC firms. In my research I found that A Capital a Beijing-based European private equity firm which did predominantly investments in Europe is now scouting for investments opportunities in China andtrying to rise up to 500 million euros ($613.6 million) from Chinese investors such as ChinaInvestment Corp, the country's sovereign wealth fund for doing investments.

Well apart from VC Chinese stock market is well attracting inflow of capital. Qualified Foreign Institutional Investors in china are buying China’s stocks at record low prices, increasing their portfolio with net capital inflow of 8.77 billion yuan (US$ 1.4 billion) within the past two months. In my research I found that QFIIs raised 8.77 billion yuan investment in China since June to July 27, equivalent 84 percent of accumulated net capital inflow QFII had in the first six months this year. RQFII, at the same time, enhanced 4 billion yuan (US$ 0.63 billion) in China’s A-share market. I still doubt about the slowdown of the Chinese economy.
I find the slow down story to be cooked in order to keep equal parlance with the US and European slow down. Moreover even if China slows down to 7% GDP it is still way above the US and Euro zone GDP growth. This simple revels that slowdown is buzz is more cooked by the Foreign countries of China just to attract the flow of capital into their own bond buying proposals declared by Euro and US. Well this is further proved by the Statistics from China’s stock regulator reveals that in the first half QFII only saw 225 million yuan capital outflow in January, while remaining five months QFII enjoyed a net capital inflow respectively and sustainably, with accumulated net capital inflow of 10.4 billion yuan. QFII’s net capital inflow, nevertheless, soared to close 8.77 billion yuan in June and July, or 84.18 percent of accumulated capital inflow QFII enjoyed in the first six months. Slow down is just a game for China and an strategy to degrade China by US and Euro zone. Both parts of world are well proven expert player of the global financial system.

In coming months Chinese markets will find further stupendous inflow of capital since there are 147 QFIIs to gain the approval from State Administration of Foreign Exchange (SAFE) along with the QFII investment quota grew by US$ 1.17 billion in June. One will argue that according to the recent data FDI inflow in china has dropped. If an economy is well sufficient for funding and where local players are big enough and preferred most for investments does FDI drop in china really affect? I doubt and I hope you doubt too.

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