Saturday, August 31, 2013

WHO DID IT AND WHEN

Even I know this that this article will never get Published but the truth remains the truth.



We are all busy to follow and hear the activities of Anna Hazare and Lokpal bill. He is only man fighting along with his supporters for bringing the Black Money back and eliminating the fraudulent practices of the Indian economy.
According to the data provided by the Swiss bank, India has more black money than rest of the world combined. India topping the list with almost $1500 Billion black money in Swiss banks. Converting this figure in Indian currency it stands out to be around Rs.20 lacs crore. Very hard number to guess and predicate and  are all blaming the industrialist, bureaucrats, cash rich people for hiding the amount from Indian government taxes and keeping it in Swiss bank accounts . But did we all ever spend time to think about how this money was kept aside. Who were responsible apart from the money owners to design the process of shifting the money from? Well it can never be blamed that a single person has executed the above mentioned activities deprived the citizens of India and Government of India. Tax evasion and malpractices in preparing accounts where profits and individual incomes are shown less are the prominent ways of reducing and evasion of taxable income.
Evasion Tax takes place when the people report dishonest tax that includes declaring less gains, profits, or income than what has been actually earned and they even go for overstating deductions. The Evasion of Tax level depends on certain factors such as fiscal equation which means that people's tendency to pay less tax declines when the payment due from taxes becomes obvious. The level of Tax Evasion is also dependent on the tax administration's efficiency and corruption levels. The level of Evasion Tax and window dressing' also depends on the chartered accountants who help companies, firms, and individuals evade paying taxes. Tax Evasion is a crime in all major countries and the guilty parties are subjected to imprisonment and fines.

The total membership of the Institute is about 115, 000 and over 250, 000 students are pursuing the Chartered Accountancy course. They are ruling the Indian economy and are the prime leaders of window dressing and the prime technical know how providers of transferring the money through various avenues to Swiss Bank Accounts.

In a very recent note G Ramaswamy the President of ICAI stated that strong growth in the Indian economy is unleashing a plethora of opportunities for chartered accounts. The new head of the Institute of Chartered Accountant of India (ICAI), G Ramaswamy has set in motion a host of initiatives so that CAs are better equipped to seize opportunities. My first and sole question to him how much more money will be transferred to Swiss bank taking the advantage of Indian economic growth. Does he wants to depict that another Rs.20lac or Rs.40 lac corer will be taken out from the country in the next 20 years of Indian economic growth. ICAI claims that ICAI occupy a stellar role in national economy, Being amongst the largest accounting bodies in the world; and represented at major international forums on accountancy, the ICAI is endeavoring to position brand Indian Chartered Accountancy globally.

The evolved role of the Chartered Accountants has seen him performing multi-tasking roles much beyond their core domain of accounting and auditing. And Chartered Accountants fraternity performing their roles professionally has acted a major feature in India’s progressive Economic Growth and its stability during recession period. Hence standing today it can be felt that all these performance and hard works of the Chartered Accountant community were for tax evasion and skipping the Indian government, fooling the Indian citizens, stock market investors and finally shifting the money to Swiss Bank.

A Chartered accountant is one who is specialized in accounting, auditing and taxation. He also serves as a management and corporate caretaker. At the same time they also took hefty fees for providing the various strategies and technical accounting opines for shifting the money to Swiss Bank.  In other words they are expertise in tax evasion and providing technical know how of money laundering.  We cannot blame the government officials, industrialist, bureaucrats and other cash rich people for tax evasion and transferring the money to Swiss Accounts.

As I told in the beginning no individual will be able to carry out the process of tax evasion and transferring the fund sin Swiss Accounts. We are giving the pressure on the government to crack down on black money, and the proposal is back on the table through Anna Hazare and Lokpal bill. But what is the use of all these when Institutes like ICAI who claims that they are the leaders of Indian Financial system provides technical expertise to the keep Indian more poor and remain poor. ICAI will dominate other Institutes and other fraternities who belongs to the profession of accounts ad finance so that they can keep enjoying the Interest earned from the Black money kept is Swiss Banks.

I know many of my riders who belongs to ICAI will curse me and blame me .But think for a moment cutting the Name of CA from YOUR TITLE and think as an individual Indian.

COST MANAGEMENT@R&D


Research and development is one of the key to future of any field. Discovery of the fire was also a part of research and development which started from the ancient times. When we raise the word  R&D, we often think and get the meaning that it relates to the field of science and doctors followed with pharmacy business. The only difference with the past and the present is that research and development have taken new modifications with the changing times.

 In today’s world innovation we all know that research and development plays a powerful potential to develop and grow the business. In the era of globalization research and development plays a momentous role even replacing the role played by top corporate honchos and management gurus. Since without research and development the future of business will come to any end resulting no place for the management honchos to enjoy the premium business growths.

Like wise each profession whether it belongs to the profession of doctors, lawyers, engineering, architecture or any profession research and development plays an invisible role of modification and growth for the future development of the profession.

Cost Accountants profession which deals with one of the most intricate field of cost management and cost control followed with strategic cost management needs a high volume of research and development  .Now before I proceed further I would like to bring forth few glimpses of the cost management applied during the 2nd greatest recession after 1930.Please don’t get board and stop reading this article and move to something else. The hidden treasure lies from here.

During recession times we witnessed that the whole world went for strategic cost management. Strategic cost management aims  to optimize costs rather than minimize them. Take a really important business activity for many manufacturers and service businesses – research & development. While R&D costs might seem like an easy target for cutting, the innovation that they might provide for the business could give it a long-term competitive advantage.  The best strategic response is to take care before blindly cutting an R&D programme. Another good place to look for examples of cost optimization rather than cost minimization is the IT function in businesses. This is what you mean by strategic cost management.

But how strategic cost management came into evolution after only cost management. That is the birth given by research and development. I hope now one is clear that if no research and development have been applied to cost management profession then strategic cost management techniques would not have evolved and resulting to blind cost control mechanism applied to fight out recession times.
We all know that research and development plays a crucial role in doctors and pharmaceuticals business. Since with the innovation of medicines today we are able to live long and get capsules to work longer and handle work load. Likewise cost management is the medicine for the today’s globalized competitive market particularly after recession.

As competition and global economy have become challenging the role of cost management becomes a complicated and mandatory part for the business process. Professional research development in the cost management profession have helped the hospital industry, clinical services, education sector, water irrigation facilities have now being developed in remote rural areas by private sector due to efficient cost management strategies. Now my readers my be bit frowned at me since I did not use any technical terms or gave elaborate description of the various technical aspects of the areas covered by me. I did  this only to make the lame man understand the simple things without getting it complicated. If I use management jargon then the article might get a very cool sophisticated cost management article but not an blind man’s language.We should all appreciate that making the lucid is the role of Cost Management. Cost Management simplifies things which are complicated.

Efficient cost management is now helping the Indian villages to develop and grow and become a part of every resources being developed and shared by the world. Today even a farmer from a small remote village uses a mobile and feels comfortable to pay bills due to efficient cost structure designed by the telecom industry. With the help of cost management distance is no longer a problem. Farmers and remote villages are now getting connected with the urban developments through efficient use of technology. That technology is designed in such a way that it becomes cheap for them to use. This cheap pricing is developed through cost management and that cost is developed through rigorous research and development.

Research and developments have made Indian pharmacy business to produce cheap and competitive life savings drugs. I remember many situations when many poor and middle class family people were unable to afford medicines which were costly. The prime reason was high price as most of the drugs were imported from overseas. Today India produces those drugs at home in cheap price regime with the judicious use of strategic cost management. If their have been no R&D in cost management profession then still today life’s should have been lost due to high prices of drugs. Thanks to cost management and its never ending  R&D.

Today India dreams to become a developed economy. It does not want to be recognized as third world country. We are proud to say that today is on the top of investments table of every nation across the world. We are recognized as a country which will save the other nations by doing investments in our country. Cost management plays the most important role. If a farmer feeds us, if a doctor saves our life, if a lawyer provided justice then cost accountants helps to develop cost management and helps the entire nations through its expertise knowhow of strategic cost management.  One of the finest examples where we can find the demand as well as the new cost management strategies is that today cost management is not centered to manufacturing/production house.



We have spread our knowledge to every corner which will bring new growth and opportunities to compete with the world. Inclusive growth will come only through efficient use of cost management techniques.What we need in future is to explore new concepts and themes where cost management will play a bigger for cost. 

VALUATION OF CAMPUS PLACEMENTS.


The final bell rang for the campus placements in all the top MBA institutes of India. Companies across the globe jumped off with their leather bags filled with lucrative offers. I remember in 2006 and 2007 (I read this in a newspaper) that many students in the top MBA institutes of India were offered and placed in positions which offered them a salary package of beyond 1cr.1005 placements were achieved and the MBA institutes premium valuation gets doubled this year too and this beyond merry making.

Each year when campus placements happens and gets over the newspaper and the print media followed with voice media goes for wild cry while sharing /disclosing the campus placements being offered to the top MBA institutes in India. I remember an instance when Lehman Brothers came in 2007 to acquire” Made In India Professionals” from the MBA institutes. We all know now that how Lehman brothers got bankrupt in the subprime cyclone and how the premium Company went into a wild destruction. We never thought beyond the package of 1cr which is being offered.

Offering salaries of beyond 1cr now raises a question within our minds that from where the package came and why such high packages were offered. The Management institutes will again come up with management styles replies of these questions but the questions are a matter of beyond normal replies filled with cunning excuses.

When a business fails we blame the system .But does we ever gave a thought that a system is not a human being operating of its own. It being managed by us .By us we mean  people like us who get the packages of beyond 1cr.Professionals puts life in to an system and runs the process, but the strange thing is that that when a system fails we blame the system failure but never those who rides them up.

We often raise voices of professional ethics and standards. We follow the saying blindly that ‘Follow the instruction of your boss”. We never gave a thought any one can be wrong and that wrong decision might damage the society at large. Corporate ethics have various meaning  and perceptions  but where its is mentioned to follow them ‘Blindly’. Blind by birth and blind  in term of pretending are two different ball games. We are all pretending to be blind.

When the offers are being poured by companies like Lehman, Merrill Lynch, Bank of America, AIG etc, the media adds glamour to the offers and each year the premium valuation of the Institutes gets doubled. Now I request my readers please tell me what is the valuation of those Institutes when recession came touched the shores.  We never thought why these offers are being so high and from where the valuation of this offer is being measured. We got offers and media added glamour and every one added their voice to the tunes.

Many of my readers might say that we are paid for our excellence. Excellence of making the Lehman Brothers  and Merrill Lynch going for Bankruptcy. Tell me one thing that when those toxic assets were being traded by the US financial companies who were doing that trading. Professionals like us who were offered packages of beyond 1cr. Now a question might come up that we cannot change the system, we cannot change the policies adopted by the company. I completely agree with this statement.

When the debacle of satyam happened investors lost Rs.13500cr in one day due to the drop in valuations .The Investors were non e other than people like us. The accountant professionals were payed huge money to manipulate the accounts. Great activity and still here we can say we are paid for our excellence of fooling the investors community. Getting the accounts and the valuation over valued was an excellence and that’s why the accountants were paid highly so everything goes for justification and justified finally. Does any one of you have any idea that how many families went in to non existence due to satyam scandal.

I directly raise the voice that when the top MBA institutes were offered salaries of 1cr what was the basis of paying those high valuations. I am not blaming the MBA institute but addressing the whole community who creates the legacy of professionals year after year. It’s not the case of MBA institutes but of all hubs of creating professionals.

 What we need is to access why they are offering and what basis of charging the valuations. Often we find that for malpractices offers are high. We need to understand and give a thought of what and why is being offered. It’s not difficult more than teaching  and creating thousands of professionals each year. I am not asking the MBA institutes to go for valuation measures and etc but should look in to the core areas. When campus placements takes place the Institutes needs to look in to the profile and the process of job to be executed. Otherwise we are creating values for destruction and not for growth. Otherwise one day the premiums enjoyed by the top MBA institutes might face ‘Professional Recession’. At least to protect themselves they need to look into these systems of offerings.
  

COST,VALUE CAPTURING & CREATION

Competition analysis and competitor analysis are the two different things which is extensively carried by an organization. Value creation and capturing are the two critical aspect of the competition cycle and cost management. Competition is being termed as a healthy prospect for the business and industry cycle but I find that pre 2008 competition was destroying values rather than creation. Post crisis has blessed us with value creation proposition particularly for the emerging and Asian economies. Value capturing is often being done by the big giant of the market where extensive merger and acquisition happens. We are taught in management school that merger and acquisition creates economies of scale but at the same time it creates value destruction.

A merger creates less value to be shared within the industry and creates monopolistic markets. One of the prime reasons for value destruction is the price of selling of products and services. Selling price creates values and also captures values. But, selling price would only able to create healthy value only when the cost bench-marking is efficient. Since if cost bench-marking is not effective then selling price competition could not sustain as a competitive advantage for an organization. Competitors would easily replace the product or service once the cost bench-marking is ineffective. If products are sold on the basis of quality then it would be quite difficult for the competitors to replace the same. Customer loyalty is another factor which helps to retain a competitive advantage for an organization but in emerging economies it is being found that customer loyalty moves simultaneously with the price sensitivity. Hence cost bench-marking is an prime aspect which needs to be kept in mind while designing the competitive advantage.

I find this is the place where efficient cost bench-marking is required so that an industry finds optimum level of value creation. Enhanced value creation would lead to increase of more players and healthy completion which would finally leads to creation of economic benefits for an organsaition. We must understand that competition is with customer alternative suppliers and not with the price. Once we realize this we will find innovation and new value creation activities in terms of products and services taking birth. Identification of future competitor is a key point to be kept in mind while designing the road map for the competitive advantage. Technological advancements needs to be considered while designing the pricing of products in emerging economies. It has been found that there is an extensive wide gap behind the measurement of future competition analysis. Big data analysis serves a key role to help out to develop the solution for the future competition analysis. In my previous articles I have depicted very clearly about how big data analysis would help companies to grow and develop the innovation culture within their existing culture. Understanding where competition are better and are worse and how the same would change in the near term are key focus areas of big data analysis. Big data analysis is not restricted to consumer data or behavior study but also with cost management.

Creating a efficient cost bench-marking with futuristic vision is an key aspect for creating an sustainable competitive advantage. The result of failure to do the above things is that extensive merger and acquisition happens which results to a significant monopolistic market control which further leads to stagnation on the industry growth and economy. Often it is being understood that low selling price is the key factor behind corporate success well efficient low cost model is the key. Sustainable competitive advantage is created based on low cost models since that gives a company a efficient pricing power. Hence efficient costing helps to create value and innovation which finally adds momentum to the economic growth. Cost Management helps to capture value and create value simultaneously.


Friday, August 30, 2013

4500-4200 nifty Next 9 Months

Global equity market and the Asian economy would be under severe threat from many angles. I have tried to keep the short and crispy so that with less time one can understand in details about the market outlook in the coming 9 months. The coming 9 months would be volatile since political betting would be at the highest level which would be reflected well on the market. In between currency and 2nd and 3rd quarter results are expected to be one of the worst in coming days and hence more down fall of the NIFTY levels is in the wings. Weak IIP numbers and delayed policy reforms are of no use to provide support to the market. A wild calculation can be made but it would be prudent to have extreme conservative expectation from the market. 4500 nifty or 4200 nifty might sound as lunatic number but capital withdrawals at any point of time is going to be killing instinct for the countries like India and China where hot money flooded the streets hence the numbers are realistic to be achieved. Asset behaviors would be volatile and much of the risk goes to the one who are currently employed in the financial market. Capital withdrawals from the central banks across the globe and particularly from US would cause currency weakness, which, in turn, will drive falls in asset prices, such as bonds, stocks and property. This we are witnessing and more volatility would be their where each day we will get around 700 point correction followed with another day of 300 points of up in Sensex levels.

Decreased availability of finance and higher funding costs will increase pressure on overextended borrowers, triggering banking problems which feed back into the real economy. Credit rating and investment downgrades will extend the cycle through repeated iterations. Hence Indian corporate is on the verge of negative ratings and re-ratings downward due to the ongoing problems. Central bank currency purchases, money market intervention or capital controls will reduce reserves or accelerate capital outflow. Quality of CD and CP would be under extensive threat in the coming decades and this will also lead to substantial correction in the markets. In between I would like to draw the attention of my readers that the GAP up open of UPA II election of 2000 pints in sensex is yet to be filled up which we all have forgotten. But the market has kept alive the same and now the next 9 months (till elections are over) are going to be the deadful market.

Higher interest rates to support the currency and counter imported inflation will reduce growth, exacerbating the problems of high debt. India, Indonesia, Thailand, Brazil, Peru and Turkey have implemented some of these measures. A weaker currency will affect prices of staples, food, cooking oil and gasoline. Subsidies to lower prices will weaken public finances. Support of the financial system and the broader economy will pressure government balance sheets. The “this time it’s different” crowd argue that critical vulnerabilities — fixed exchange rates, low foreign-exchange reserves, foreign currency debt — have been addressed, avoiding another emerging market “death spiral.

Well reading the content above many of my readers might get angry on me that I have been so much pessimistic but I never get scared from telling the truth of the market movements. In between during the next 3 months would find some consumption demand as monsoon and crop season has been excellent. This will provide some illusion for the market players to enter but that would not be able to change the 2nd and 3rd quarter results. It’s going to be a tough market in coming days. Saving jobs are the key outlook in these times.
But there is catch in between all these that those who are having the guts to invest in these dowanfall markets would be the real gainers in the long term. 2016-2017 rally of the Indian stock market based on valuation of sectors and stocks of today would lead to a stupendous growth of returns at that point of time. Valuation of large caps and mid caps would play the biggest role during 2016-17 when the Indian economy would be back on its foot with 8% GDP growth. Hence active portfolio management and buy and hold strategy is the best game to play for the next 9 months. I have been repeating 9 months since within the next 9 months elections would be over and who ever forms the central government economic investments would begin and that would spook the market momentum which would get reflected in EPS and PE form during 2016-17 period.

Sunday, August 25, 2013

BALANCED SCORE CARD....PATH TO INTERNAL CONTROL

Balanced score card is a tool through which intellectual capital can be created for an organization for a long time frame. Strategic competencies of an organization can be built through efficient internal control is being developed through learning and growth strategy of balanced score card. The most effective measure that we have found for strategic competencies, deceptive in its simplicity, is derived from the answers to three questions: (1) What are the required competencies?, (2) What currently exists?, and (3) What and how large is the gap?. Internal audit helps the origination to develop the gap analysis which would help the organization to develop a constructive long term strategic growth. Balanced score card should help the organization to create intellectual capital like human man power ,innovation, products and process which would create long term sustainable growth for the organization. The current position of the companies as on 24th of August 2013 in India needs high implementation of balanced score card strategies. I find that internal audit is useless unless the internal control process is designed to provide a fruitful result to the auditors. Balanced score card needs to be a part of the internal control process.

Balanced score card helps an organization to increase and develop the employee wise revenue and sales per personnel. It helps to redesign the staff development process of an organization. One of the key aspect of balanced score card designing is not to have more than 10 measures covering the 4 pillars of the balanced score card. One should create a diagnostics measure rather than creating optimization strategy. Balanced score card itself lays down the process of internal control and audit aspects of the organizations. The score card should be sufficient enough to create the growth strategy of an organization for a long term.

In my own experience and research I have found when discussing the measures of balanced score card the organization fails to implement the same the top executives of the organization discusses the measures and forms the direction or orders to adopt the same to the next level of executives. This is one of the prime wrong aspects which the internal auditor should try to avoid the same. They senior executive should let the flow of balance score card measures to the lower levels and without keeping it within closed doors. The measures of balanced score card and its results should be mixed within the corporate vision and mission of the organization. 

The best result of mixing it up with mission and vision of the organization would be that it would create a new culture for the organization. Internal audit would get new shape a direction and the internal control, process would get reframed. It has been found that balanced score card can help a unorganized industry to achieve mergers and acquisition through which it can become organized market of players. Balance score card works efficiently in this type of huge complex process.  

Cost Accountant linking Internal Audit through Balanced Scorecard

Four pillars of the balanced score card have been discussed many times through my pen. Balanced score card needs to be linked with the enterprise value of the organization. Enterprise valuation means in simple formula
Enterprise value = Equity value + market value of debt + minority interest + pension and other similar provisions+ other claims.

I have found that cost accountants being deployed as an internal auditor would create immense opportunity for growth of the EV and shareholders returns over the long term. Further in my research I have found that bookish knowledge is hardly being implemented in a correct format. Today I will focus on implementing balance scorecard into the internal audit process. The subject might turn out to be complicated but I have tried my best to depict a easy process for implementing the same.  I find that cost accountants being deployed as internal auditors could be game changers for the organization. Its not about cost management but it is about developing business models and strategies for the organizations through internal audit and control process.. Many managers fail to link programs, such as total quality management, cycle time reduction, re-engineering, and employee empowerment, to outcomes that directly influence customers and that deliver future financial performance.  But the failure is achieved due to only giving focus on statutory auditors and numbers. But focus on increasing the return on capital and EV is hardly being focused.  I will provide a case study of a bank which resembles with many companies in the financial sector of India.

I put the following case study to have a better understanding of developing the tools of achieving Enterprise value through Balanced Scorecard. Return on capital employment and generating growth for the EV is the key aspect of the balanced score card implementation and internal audit/control aspect.

A bank used to deal with one product for its customers (fixed deposits) and high cost of servicing clients but with little client satisfaction. The bank blamed the system and market for the falling margins and profitability. Employee’s wise profitability was also collapsing. Whereas the market was good and other competitors were very much productive.

The bank decided to recruit a Cost Accountant as an internal auditor since the statutory audit failed to provide business model for the plummeting business of the bank.  Upon inspection/internal audit it was found that the bank required introduction of more products like selling insurance, mutual funds and wealth management based products apart from the traditional products like fixed deposits). The bank also needed significant focus on human man power and internal process. Under the customer perspective of the balanced score Card the bank required cross selling products to its clients and enhance the customer perspective of the bank. The cost Accountant further drilled and found that the bank required expert knowledge about selling those products. Since, the bank never dealt with those products apart from the fixed deposits which it used to sell.

The cost Accountant advised the bank to develop programmes where the incentive structure and promotion of the banks were linked with some successful completion of some courses. The courses were linked with the products being sold by the bank. These lead to a significant growth in employee wise income retention and also well trained staff for the banks. This also lead to create a culture of education and professionalism for the staff. This lead to successful achievement of revenue for the banks and also the learning and growth objective of balanced score card.  Good advertising plus good location brought the customers to the banks. The branch personnel were reactive, helping customers open accounts and providing ongoing service. The bank did not have a selling culture.

The improvement in margins and profitability spooked up the confidence of the shareholders and also the return of capital employed. Efficiency of the employees leads to achievement of the internal process of the organization. Well appointment of the cost accountants as an internal auditor for the bank lead to an stupendous growth for the share holders return on capital. Now it’s well clear that how accountant and internal audit cost is linked together. Cost Management tools when implemented judiciously could create wonders for the organizations.  I find that cost accountants being deployed as an internal auditor is key driver for every organization.

Asia Growth Negative-Series 1


Decoding of facts and figures is the responsibility work of economist and projecting the economic growth and decline cycle is the duty. Well today I am here to present a some capsule of the same. It time for corporate Asia to take frame its growth strategies but I find that the western economies are going to turn the coin on their side. China is facing the problem of old age which will rule its economy over the next decade.

Hence china would focus more on the middle aged income segment to get the consumption growth to drive the economy. China would focus less on export due to global slowdown but more due to currency valuation tricks being caught by the western economies.  Per employee cost is set to increase in China over the coming years due to depreciating rupee and better working class of the economy. China was able to keep an active working class since after 1970 the next decade of manpower in china was active behind key developments. That same manpower is now old enough and one child policy of china has placed a brake on the young generation of china. I find that in coming days china would have higher prices for its end products and Business models are becoming more capital intensive, but improving productivity will be an ongoing challenge for china.

The same model is set for the rest of Asia which includes countries like India where employee cost is going to increase by many folds. The era of under valuation of the currency in the Asian economies is about to get closed in the coming decade. The phase of manufacturing would also change where robotic based manufacturing system would drive the manpower cost which would lead to an extensive unemployment in the Asian economies. The currency valuation would replace the cheap manpower offshore based business models to wind up. India would remain one of the most attractive spot for investments and all type of economic exploitation since young population, eradicating middle class and wide growth in consumption aspiration is the prime growth drivers for the economy. But the high level of scams and uncertain regulatory restriction US economy would find a substantial change over in its economy where the young generation would save more and spend reasonably. More over country like India have been in the radar of international political threat which is still ruling the current economic conditions. For india it would be more of political stability which would keep the investment climate to grow but that distant dreams remains to be quite uncertain in 2014.

 The recession of 2008 has made it well clear that if western economies have to grow then flow capital have to shift from emerging economies to developed economies. Moreover a country like India ruled by scams and red tape bindings makes it less viable for investments.  Countries which would have stringent and flexible political mechanism would be able to attract more capital. The picture of young generation and young earning class of people and increasing number of wealthy Indian’s are good to hear in good times but today as on 25th August 2013 its well clear that we are dependent on foreign capital. Western economies over the decade would come up with extensive resources which would drive their economy to grow. I find that globalization is going to come to an end since the same has affected the western economies. Developed economies would focus more on export and less on import and this is the key area where shift of the capital is going to happen. Productivity challenge would rule the Asian economies where as western economies would find expert level of productivity based game changers.

Saturday, August 24, 2013

INDIA RATING,JOB CUTS & DOCTORS

 The economic situation of India is at the end of an era of mistakes which one has made during the growth phase from 2004 to 2008.  Corporate India took up the 8% GDP growth of India as an constant number violating the rules of economic cycles and investment cycles.  Indian economy has been on a skeptical mood from the inflation number right from 2010 end onward. They failed to control the inflation despite of making 13th straight interest rates hike but were very much able to accelerate the declining phase of the GDP standing today 24th August 2013.(For Rupee new level of trading read at the end).

They hiked interest rates which compelled the Indian corporate to borrow from overseas markets where interest rates were running below or equivalent to zero levels. Today around 60% of the corporate India’s borrowing are based on foreign capital. Well the other name of the this form of capital is cheap money which was placed as an bet over the Indian corporate taking the 8% GDP growth mirror image in front. When the mirror became past history was never accounted. In between the current-account deficit soared to almost 7% of GDP at the end of 2012. Well how it will come down is not a task of us since we are common man and common man cannot rule the economic and capitalist game plans.

The risk of corporate failures and re rating of India is very much in the lines since external borrowing has not risen by much relative to GDP—the ratio stands at 21% today—but debt has become more short-term, and therefore riskier. Plummeting IIP numbers, deprecating to Rs 65 has all spooked up the failure risk of corporate India. I find a negative rating to soon hit Indian companies and GDP growth which would create the trouble more for all of us. Common man will suffer the pains of job cuts and  layoff which we might be tasting at our ends. I find that the whole system is being designed in such an way that UPA government gets a clear win position since whoever comes in 2014 would find it next to difficult to control the economic conditions of India.  Moreover I find that in the coming months once the elction dates are announced the Indian economy would be dead for couple of months and extensive betting business would find a significant growth.

The reasons I find India might get a very hard rating since total financing needs (defined as the current-account deficit plus debt that needs rolling over) are $250 billion over the next year. India’s reserves are $279 billion, giving a coverage ratio of 1.1 times. Well by the time I finish my writing I would be dumb founded since more research numbers I am getting the ink of pen is getting dried very fast. The government has pushed up the diesel and petrol prices just to maintain a favorable balance of ratings. But that’s too spooking up the inflation despite of a healthy monsoon.

Consumption theme has been ruling India but now it seems people are more concerned for savings rather than investments and borrowings. My friends are busy in cutting down the loans which they have taken for properties and cars etc since cost of lending is going up and majority of the loans are flexible ones. At the end I find doctors would be making more money since mental pressure from all angles of the life would force us to visit doctors. Today it has been proved that inflation control mechanism is very much useless and primitive method. It has damaged the Indian economy and now its damaging the individual life from job cuts and layoffs. Well where the sensex and nigty would touch can be predicted by an wild guess which is an correct guess. For rupee i find new fixed levels of trading which would be above the 58 level.Reasons simple once which goes up eating the common people never comes down.

gLOBALIZATION & eNTERPRENURS bUSINESS mODEL

Globalization has changed the landscape of employee recruitment and business operation. In my research I find that there is an extensive requirement of companies who can bridge the gap of cultural differences and brings uniformity within the organization despite of having diverse geographical presence. It has been found that companies with wide geographical presence face the heat of cross cultural issues. Human resource is another key area for success of an organization when it is having an globalized presence. Abiding the companies principles and regulation is an key aspect for the employees. Cultural differences are the first hurdles which comes as a barrier for the growth of an organization. A simple matter like payroll mechanism could become a significant challenge for an organization.

Different taxation, employee benefit schemes creates a ripple effect on the management. In my internal audit I have found that these issues are one of the prime bottle necks for the organization to grow and achieve the sustainable growth for the organization. Business polices are framed based upon the product team and sales team decisions. But the successful outcome from those strategies depends much upon the cultural aspect of the socio-economic factors. Business process principles varies from one country to another hence a common platform, based system is required for developing the barriers to entry. A particular model of company should be formed which will deal with these complexities. 

That company would bridge the communication and socio-economic factors and would take care about the employee aspect of the client company. This includes the payroll structure as well as training and grooming aspect of the employees.

In my research I find that entrepreneurs have a wide scope to develop this type of systems where they can help the companies to develop and bridge the gaps. The light of globalization is being thrown on new countries like Africa, Vietnam and many more where we need these types of companies to bridge the gap. Entrepreneurs need to come up with innovative business models where they excel to develop the globalization gaps and resolve the cross country business model process. Being in the financial industry while managing the sales team I find that even in India where there are so many states and places I find that there are differences between business operating and the process of getting the operation or sales to continue.

The differences are cultural primarily which creates differences in business operation. This is one of the key aspects behind success of business models in different part of India. The process of one’s business might be successful in West Bengal but may not be in Maharashtra.

 Hence we need companies which would help to bridge the gaps and helps the organization to grow in the long term with a consistency. Employees also need to be treated in the same way. Managing the human resources is a key responsibility for the organization since success of the business depends upon that key area.

Friday, August 23, 2013

AFRICAN ECONOMY....CHINA EXPLOITATION OR DEVELOPMENT

Whether it’s an economic development or a low cost productivity mechanism which is being exploited by China and Brazil in Africa only time will be to reveal the same. In my recent macroeconomic research I find that African countries are being the new targeted lands for agriculture productivity. China is pioneer in agriculture output infrastructure and brazil is pioneer in ethanol production. Both the countries have line up in Africa for the production of the same.My reason for exploitation takes birth from this that till date African economies are struggling to get a full day meal whereas the same country is being exploited by others

Brazil's More Food programme,is focusing on improving farmers' access to equipment, machinery and agricultural technologies, including tractors, through the provision of concessional credit. Ghana, Zimbabwe and Mozambique have been given credit and signed a technical co-operation agreement. At the other end we find that the involvement of agribusiness in Ghana, where for example, the Brazilian company Constran is building an ethanol plant, designated for export to Sweden, partly to get round European tariffs on Brazilian ethanol imports. So the $306m (£196m) project involves Brazilian technology and European investment in an African country.

On the other side the Gates foundation is spending $1bn on agriculture technology. Sino-African trade in agricultural products has grown quickly. From 2009 to 2012, China's agricultural exports to Africa grew from 1.58 billion U.S. dollars to 2.49 billion U.S. dollars, an increase of 57.6 percent. From 2009 to 2012, The benefit of these investments has lead to increase in grain supply to stupendous levels. For example Mozambique where 300 hectares of experimental paddy fields supported by Chinese investment yielded 9 tonnes to 10 tones per hectare for three successive years. Since 2006, China has helped set up 15 agricultural demonstration centers in Rwanda, the Republic of Congo, Mozambique and some other countries. Moreover the plans are much broader in these economies since china is taking the advantage of low manpower cost as well as developing the African societies. But the development is less and more of China.

Now Brazil gets into the same bandwagon to exploit the human resources and land cultivation levels of African economies. This is very clear from the raw data analysis which revel that From 2009 to 2012, China's agricultural exports to Africa grew from US$1.58 billion to US$2.49 billion, an increase of 57.6%. During the same period, China's agricultural imports from Africa grew from US$1.16 billion to US$2.86 billion, a 146% increase. China's direct investment in African agriculture grew from 30 million U.S. dollars to 82.47 million U.S. dollars, an increase of 175 percent. Well the prime reason is to take advantage of the cost benefit of the African economy. Resource exploitation is the traditional game of developed economies being deployed on emerging and poor nations. .

Saturday, August 17, 2013

ENTERPRENURSHIP-COMPLEX STRATEGIES

It is undeniable that Small and Medium size entrepreneurs (SME) make a significant contribution to the economic and social development, especially for a developing country. Entrepreneurship always focuses on balance sheet and quality of financial records being maintained. But in my research I came across that entrepreneurs needs to focus more on clients prospecting and delivery of service or product designing according to the clients requirements. The recession of 2008 has casted a strong barrier for the global banking segment which has resulted into stringent loan facilities for the entrepreneurships. In Indian economy the situation is tougher since risk measurement tools are inefficient while doing business with entrepreneurs.

Hence keeping the current global economic conditions in mind I find that entrepreneurs should strategies their business where they generate revenue from the sale of goods or services to the clients. In short clients are their hard cash or liquidity for running their business. Client prospecting have to be done is such way that referral business gives the incremental revenue replacing the advertisements cost. People trust referral opportunities more than advertisements, hence develop client prospecting accordingly.

Hence much of the focus should go at the back of designing product requirements as per the clients requirements. Negative working capital strategies needs to be developed where entrepreneurs would focus on clients and generate liquidity from the same. The best part of this strategy would be successful business growth followed with aggressive strategy based business model. But this strategy may not work in all types of business model of the entrepreneurship.

In my research I find that cost management is an integral part from the day the idea of entrepreneurship gets in real life mode. Why cost management knowledge? The cost management system provides information for three broad objectives: (1) costing of products, services and other objects of interest to management; (2) planning and control; and (3) decision making. It is common that the key to business firms’ survival and growth is profit and the methods to achieve maximum results. Basically, in any business, selling physical products, either manufactured or purchased for resale, or even providing a service, the basic purpose is of course to sell at a “price above cost”. But as the business progress incremental revenue earning is another prime objective of the business. Hence it would be better to strategies the business is such a way that one earns a incremental revenue along with a efficient cost management and working with negative capital. 

This may sound little difficult but the truth is that time is very tough currently and we need a broad strategy to grow our business. I find in my research that in the coming year’s complexity in business process for entrepreneurship to increase and get into new heights. Make a note of fact that days are gone of easy capital, hence strategies business accordingly.

Friday, August 16, 2013

GOVERNMENT-INDIA DOWNGRADED-SLOWDOWN CREATED

Whenever the Indian industry grows depending on couple of sectors immediately the government’s attention gets into the sector and slows down the growth. This practice has now lead Indian economy to grow below 5%.In between whatever steps or actions the government proposes to take all remains vain since government has already damaged the system beyond any means. When the telecom industry was growing the government placed a higher rate for the 3g auction price which resulted to drop in significant market for the 3g. Telecom was able to attract FDI investments and even domestic investments were sufficient enough to provide a back up to the current phase of the economy. But government was more inclined to reduce the CAD through higher auction prices. Government failed to recognize that when FDI investments and such a huge growth was coming from the telecom industry generating employment and other ancillary market growth was sufficient to reduce the CAD and increase the growth of the Indian economy.


They repeated the same story for the Indian oil and gas sector where huge investments and overseas capital was flowing into the sector the government banged the heads of the exploration companies with their complicated policy frame work and pricing strategies. India is the sixth largest consumer of oil in the world and the ninth largest crude oil importer. India’s oil and gas sector contributes over 15% to the Gross Domestic Product (GDP). According to Ministry of Petroleum and Natural Gas, India has a total reserve of 1201 million metric tonnes of crude oil and 1437 billion cubic metres of natural gas as on 01 April 2010. The total number of exploratory and development wells and metreage drilled in onshore and offshore areas during 2009-2010 time frame was 428 and 1019 thousand metres respectively. These data’s are old but I have provided them to make you understand about the growth the sector was getting and the projected growth it might have achieved. Our daily newspapers are sufficient enough to portray the growth of the industry we might have achieved.


For mining industry the government imposed a similar red tape policies which has damaged the thousand s of households income who use to earn from the segment of daily basis. It also lead to huge amount of import of raw materials for various industries who were dependent on the mining industry.  This also lead to a huge notional loss since giants like  Posco and Arcelor-Mittal went out of the indian markets before a single penny could get invested. When the Indian pharma industry started enjoying the flavors of huge growth then suddenly the government came up with new drug pricing policy.

In the automobile space we find that when SUV and other FDI companies opened up their shops and started doing huge investments suddenly the government came up with hike in duties on SUV and other segments. Now the same automobile industry is reeling under negative growth followed with job cuts and freeze of employment. In infrastructure segment particularly in the road project segment the government red tape policies and delayed project completion mixed with huge political exploitation the sector is now being avoided by the private investments.

When the SEZ segment across industry was finding its growth then suddenly the government came up with taxes and duties to impose over the sector. Ramification of the entire hike of duties is that SEZ licenses started getting surrendered by the Indian companies.

Its being found that where ever there is an growth for the industry the government comes up with its hard policies which affects the growth not only of the industry buy also employment generation and other ancillary industry. All the above information might be old but holds a significant aspect behind the slowdown of the Indian economy. My prime reason for writing the article was to highlight where the system is lagging and how the defects can be rectified. I did not mention any solution for the problems since I have kept the solution for you to provide. GDP growth slowdown is not for poor overseas market. Its mainly due to the domestic reasons and policy strategies for the current government.

INTERNAL AUDITORS-CORE BUSINESS VALUE PROTECTION

Slow down of the Indian economy has affected the growth prospects of the companies followed with higher risk towards financial as well as business risk. Both the risk are visible in the economy and in the coming years this current slowdown is going to affect severely the business strategies adopted by the companies based upon traditional or post crisis of 2008. The difference between post crisis 2008 and the current phase of the Indian economy is that today we are suffering the pains from all angles driven mainly internally. Further we are not knowledge enough to understand the risk categories. Hence business risk has taken a new shape and vulnerabilities of the same are optimized. Internal control and internal audit are the two aspects which need to be tightened across the board so that risk of the business gets mitigated. Innovative and complex business approach has increased the level of financial and business risk. We will discuss about the same later on.

Internal auditors are now more liable for any business risk or financial risk. But a prime question comes into the ladder that how one will measure the performances of the internal auditors since the end result only gets into lime light only when there is a crisis erupts in an organization. Audit committee forms the metrics through which one can get a clear idea about the how the internal auditors are performing. But in my research I find that audit committee needs the first hand of new strategies which would strengthen and look upon closely on the performance and risk mitigation aspect of the companies. Cost is a growing important part of the companies in today’s era. Hence cost accountants and internal audit should go simultaneously. Formulation of cost pricing as well as assessments of risk from strategy formulation should be an integral part of the internal auditors. Better understanding of the business and financial risk is more important rather risk mitigation.

For example in a globalised world when products are being introduced cost factors of producing the same in the exporting countries followed with financial risk and business risk from exporting countries risk needs to be calculated simultaneously. Many mid tier Indian companies are on the path of stepping into global markets. For them cross country business dealings are the highest level of risk. Internal auditors need to identify the risk from such cross country deals and block the loopholes accordingly. From financial perspective (NPV, IRR) might look attractive but from an internal control perspective it might be the reverse of all financial calculation.

Gone are the days when internal control internal audit used to be done behind the closed walls. Changing economic culture has increased the demand of internal auditors to be included into the policy frame work since they are having better knowledge about the risk aspects other than the CEO or COO of an organization.  The new role of the audit committee and internal auditors should be implemented Antifraud Programmes and Controls. The recent case of NSEL or the case of Satyam has increased the demand of implementation of Antifraud Programmes and Controls. Until internal auditors are included in the strategy frame work platform along with the other departments of the organization the risk mitigation would never materlised. The loopholes of every strategy need to be blocked by the internal auditors. Today’s antifraud environment is also characterized by a decided shift from compliance-driven identification and investigation of incidents to proactive prevention and detection embedded into an organization’s internal controls.

More over with the increasing technology based business process the internal auditor’s needs to have a better understanding of the loopholes of risk management. With the wheel innovation rolling at high speed the risk levels from any segment rises to a higher level. Complexity in business process and innovation in product segments leads to high levels of risk. This is the prime reasons behind internal auditors being included within the management team so that risk in mitigated. I find more than risk mitigation it is important to have a better understanding of the various business and financial risk. Since more the organization is well versed with the risk levels the more it will be able to mitigate the same. 

Thursday, August 15, 2013

CHINA AGGRESSIVE INVESTOR

China economy is always on the front seat of investments. China invested a total of $4.05 billion in the US, a 123.5 percent increase from the previous year. China's outbound direct investments totaled $87.8 billion in 2012, which is a record high for the country. According to a July report from Rhodium Group, which analyzes business and economic trends, Chinese investors showed a strong first half in 2013 for foreign investments. After a strong first quarter, Chinese investors spent another $2.5 billion on transactions in the US in [the second quarter].

Completed transactions in the first six months of 2013 total $4.7 billion Moreover around $10 billion worth of deals are currently pending. Further in my research I find that over the next decade china would be aggressive enough for investments. Malaysia wants to capture US$25 billion worth of investments from China over the next five years as it taps on the stronger bilateral economic partnership between the two countries. China is having clear plans of It is expected to spend US$500 billion for outward investments in the next five years at US$100 billion per annum. China is aggressively driving investment agreements and bilateral trade deals so that it can generate a long term capital appreciation from these businesses. Surging investment from China helped create or preserve about 100,000 jobs in Europe during 2011-12, when the continent's economy was hit by a downturn. As of January 2013, there were 7,148 companies in Europe with Chinese investment that employed 123,780 people. A year earlier, there were only 4,525 such companies with 27,381 staff. Hence it is well clear that china is saving the world economy in many ways.

More than half of the Chinese-owned companies in Europe are making a profit which reveals about the management mind set of Chinese people to make dead things to work again. Chinese companies have intensified their cross-border merger and acquisition activity in Europe, targeting knowledge-intensive and high-tech manufacturing and services companies in West and North Europe. On the other side the sovereign funds like office of China Investment Corp, the country's sovereign wealth und that has $575 billion in assets and invests predominantly in overseas markets. While most of the sovereign wealth funds such as Temasek of Singapore and the Government Pension Fund of Norway still prefer asset-backed investments. China's sovereign wealth fund is poised to put some of its nearly $600 billion in assets to work at European hedge funds. The growth of cross border business is stupendous. China is just looking aggressively for investment climates and this would provide the Asian giant a significant boost up in its long term returns from these projects.

US QE WILL NEVER UNWIND

US economy have been making a turn around, is what being heard on the streets of the global financial market. In order to prove the same employment numbers and seasonal consumer behavior patterns were tweaked diplomatically so that the present government position remains intact with steroids of conviction.$85 billion bond purchase mechanisms followed with zero interest rates and married with 2008 QE1 has tripled its balance sheet to about $3.3 trillion.

Now just imagine that with so much QE it has been able to reduce its unemployment from 9% to just 7.6% and that’s too with no fixed job pattern and with half pay cheques. Over the last six months, of the net job creation, 97 percent of that is part-time work,” said Keith Hall, a senior researcher at George Mason University’s Mercatus Center quoted by McClatchy Washington Bureau. Consumers over the last decade lived a life of borrow more and spend more theory suddenly cannot be turned towards live within one’s means. It’s a altogether 360 degree revolution which is being desired by the US Federal system which is hard to be achieved. Even if the entire QE is withdrawn then US economy would get into coma like phase of the Japanese economy. Hence rule out completely that QE will be withdrawn any time. Economies which lived with borrowed capital over a decade cannot be kept in rehabilitation centre for some time and ask the same to get back and live a normal life.

According to some research institutes there 11.2 million people are now considered officially unemployed, A more realistic number is around 18 million. According to a report from the University of Hew Hampshire’s Carsey Institute, the largest increase in involuntary part-time employment since the 1970s occurred between 2007 and 2012.  Involuntary part-time employment rate doubled between 2007 and 2012. For women it rose from 3.6 percent to 7.8 percent, and for men it increased from 2.4 percent to 5.9 percent. Further in my research I find that over the past four months, the US economy has added 791,000 new part-time jobs, but only 187,000 full-time jobs. 

Sixty-one percent of the jobs created so far this year have been in low-paying industries, even though employment in these sectors constitutes less than 40 percent of total jobs in the US, according to an analysis by Moody’s Analytics. The fastest job growth has been in retail sales, food preparation, freight and warehouse work, wait staff, and home health care—positions that pay less than $12 an hour. Moreover  average hourly earnings fell by two cents last month, to $23.98. This is on top of an enormous erosion of wages over the past five years. Between 2007 and 2011, the US median household income plunged by 11.6 percent, from $57,143 (in 2011 dollars) to $50,502, according to Census Bureau figures. A 2012 report by the National Employment Law Project found that low-wage jobs, paying between $7.69 and $13.83, constituted the majority of jobs created in the US since the 2008 Wall Street crash. The number of temporary jobs has increased by more than 50 percent since 2009, according to Labor Department figures.
Moreover I find more QE would come up since aging population of US is growing which is creating a huge burden for the US economy to grow. The report notes that the collective retirement savings gap among working households aged 25-64 is staggering, ranging from $6.8 trillion to $14 trillion depending on which measure is used. When all households are included, not just those with retirement accounts, the median retirement account balance are $3,000 for all working-age households and $12,000 for near-retirement households. Hence retirement benefits are now the biggest burden for the US economy. 

I find in my research that the problem is just broadening up in the coming years mainly due to tow factors 1)Lack of access to retirement plans in and out of the workplace particularly among low-income workers and families ­­and 2) low retirement savings. Hence in any way US cannot withdraw its QE. It has to replace the same with another form of mechanisms of injecting liquidity within the system.US manufacturing is also not performing consistently after 2008. Prime reason is that US has outsourced majority of its works to emerging economies at low cost wage facility.


On the other side I find that poor payouts and imbalance in job market has spooked up social distress segment of the society. Mental pressure of living life is just smell in the US citizen’s life now. Then why did QE withdrawn story was told and later on it came with a different verdict. Well the best reply for this lies with the hedge fund managers and top broking houses of US who got their fund stuck in emerging economies and needed a roll out from them and needed a pull out followed with a short sell in the same markets. 

Strategy Implementation…POLCIES & Resource allocation Series 2

Implementation of strategies for an organization requires s set up disciplines which needs to be engraved within the organizational culture. Broadly defined, policy refers to specific guidelines, methods, procedures, rules, forms, and administrative practices established to support and encourage work toward stated goals. Policies are instruments for strategy implementation. Policies set boundaries, constraints, and limits on the kinds of administrative actions that can be taken to reward and sanction behavior; they clarify what can and cannot be done in pursuit of an organization’s objectives. The work of policy framers is equally important since that is a part of strengthening the internal control aspect of an organization. Policies are designed to implement the strategies. There has to be a process of designing the policies which would lead to implementation of strategies. Polices should be designed to help the organization to achieve the goals with exercising control over the employees. 

But in my research I find that a policy tries to get people as a force full obligation of abiding the same. I find that polices should be framed where strategies decision of implementation are made free. Policies should promote delegation of decision making to appropriate managerial levels where various problems usually arise. Resource allocation is another key step for successful implementation of strategies.  In my research I find that In organizations that do not use a strategic-management approach to decision making, resource allocation is often based on political or personal factors.

Well the death of the strategy implementation begins from here since personal factors rules the strategy allocation. In my 10 years of my professional career I also my readers would find that resource allocation have been getting highest personal influence which is one of the key reason for the failure of strategy implementation which further grinds into poor outcome form employees. All organizations have at least four types of resources that can be used to achieve desired objectives: financial resources, physical resources, human resources, and technological resources. Out of the above resources the human resources are the main engines of executing and successful implementation drivers of strategies. Often it is being found that there are number of factors commonly prohibit effective resource allocation, including an over protection of resources, too great an emphasis on short-run financial criteria, organizational politics, vague strategy targets, a reluctance to take risks, and a lack of sufficient knowledge are slow killers of successful implementation of strategy.

In my research I have come across the following common mistakes in resource allocation and these are the places where we need to make clear choices linked with the strategy taken by an organization.

1.     To emphasize short-term profits or long-term growth
2.     To emphasize profit margin or market share
3.     To emphasize market development or market penetration
4.     To lay off or furlough
5.     To seek growth or stability
6.     To take high risk or low risk
7.     To be more socially responsible or more profitable
8.     To outsource jobs or pay more to keep jobs at home
9.     To acquire externally or to build internally
10.  To restructure or reengineer
11.  To use leverage or equity to raise funds
12.  To use part-time or full-time employees

To sum up I find that resource allocation and policy frame work should be free from personal bias but I fail to find few organizations only has the culture of unbiased approach. Well that might be reason why every organization is not an great organization. 

  © Blogger template 'Minimalist H' by Ourblogtemplates.com 2008

Back to TOP