Monday, November 16, 2015

WHAT STORED IN 2016 FOR GLOBAL EQUITY AND ECONOMY

 
 Another 48 days left for 2016 to begin and hence its an high time that we should prepare ourselves for couple of very strong ride to be witnessed in the equity and global macro.  2016 will be a power pact year where we will witness some very string economies going for elections. US will have its Presidential election followed with Taiwan going for the same. Europe will be knocking the doors for Referendum followed with Russian banks going for a wild toss. Among all these China will be coming up with its 5 years plan which will be decide the fate of the Emerging economies growth. US interest rate hike have been discounted now, provided it goes for some bold hike in rate percentage. Europe Referendum would be very crucial since the current case of Syria and its refugee policy might harm the Euro countries.  Further Mr. Alex will require vote support for cutting down spending and increasing taxes which will be another trauma for the global equity and economy. Europe will give lot of intense pressure on the nerves since we have seen the situation of Greece and hence the recent policy of Europe regarding Syrian refugees might create problem in getting majority support.

Russian banks will create panic since the country will enter into the 2nd year of its recession and Russia will try its best to have a war so that crude prices increase in the near term giving massive relief to its oil based economy. Crude  will be under pressure and the most interesting part will be to watch out how OPEC and Middle east will play its dice since the global economy is running short of storage and these fellows have no inclination to reduce production. China will design very aggressively its 5 years plans since it will try it’s hard to get the GDP back to 7% or 7.5% and hence its economic policies will also decide the fate for the flow of global currency. US Presidential election will decide the fate for the socio economic cots burdens and also this will be a key factor for Indian Pharma Industry who is heavily dependent on the same.


In between china’s currency might come up in the basket of IMF and also petro–yuan might come up as china is aggressively buying crude and creating huge storage reserves hence the dollar rule might get shock.  Brazil is under huge Debt to GDP ratio and hence little growth could be expected form the economy. Indian economy is based on reform policies and its GST rollout will decide the fate of the country followed with Land Acquisition bill. India might be sweet spot to invest but delay in reforms could be a huge set back. Low commodity prices and crude prices are a boon for the emerging economies but the recent slowdown of the Chinese economy has created massive hole within the profitability pocket of US companies followed with many other countries.  Declining US shipments is being ignored and all are focused towards rate hike. US is still a coming of the recession and its not in expansion phase.   US interest rate hike will lead more countries to go ahead for interest rate cut down so that inflow of capital and investments keeps its momentum. 

There is utter confusion regarding both the things. Among all these few industries will be making billions through the US and Taiwan election. The media and social media marketing companies’ share values are just going to jump by many folds.  Currency war has already began and we will witness few more currencies are made cheap for doing exports.  Syria war might be a big topic for the global economy and many countries will come together since war will be short term relief for the global commodity market. Business strategies will change based on the policy frame work and currency polices being adopted. Emerging economies asset bubbles are just bursting and we have witnessed the same in 2015 but a major part of it is left out since Banks are yet to take the hit in their books once the accounting year comes to an end.On an overall basis it could be said that all these events will keep the global equity markets under high volatility followed with high growth phases which will take time to take shape. Those who are investing should invest for long and should book profit periodically since too much long trade in equities can take you into massive losses.

Sunday, November 15, 2015

COST MANAGEMENT TURN AROUND A FORTUNE 500 COMPANY.

After a long time I am going to share another turnaround story of a Fortune 500 company which was taken over by an Indian company and through efficient cost management the company was turnaround from a loss making to strong profitable company. I couldn’t find any other topic to cover while writing my 392nd research article over the past 6 years. In the recent past the profession has beaten miserably from all angles it lost its sheen which it used to carry a decade ago. But it regained and kept its fight alive till date. One of the biggest boons this profession has passed to several industries is that it saved them from getting depleted from the global industrial landscape. Cost reduction is an unstoppable process of critical cost examination, analysis and challenge of standards. This case study is a very well known and it clearly reflects about the turn around it has witnessed currently. I am surprised that Indian industries are taking cost accountants and cost records as hindrance to the path of growth of their companies. I will not be getting into number games since the case study itself is open to anyone I just brought it in front of those who think that they are losing hope on the profession.

Coming back to the Fortune 500 Company, that company was making loss before going to be brought by an Indian giant.  The number of losses and the profit figures speaks a lot about the cost management tools being taken and adopted by the company to make the turn around. The company was draining around $12.6 billion a year before it went for sale. The company  focused on design, technology, innovation, efficient strategic cost management , improving the supply chain verticals and making them into profit centers using activity based costing and high quality standards where error were eliminated lead to the stupendous turnaround for the company. Through site by site measurement and reporting of performance the company .The growth of the company is supported by a disciplined financial plan involving tight cost controls and targeted investments. The cost savings aspect has been taken into every small inches of the organization. For example in order to reduce of electricity they have built solar energy based plants where electricity cost would be eliminated or rather reduced to negligible levels. The company changed its landscape of cost control and now its rolling very strongly towards its new innovative expansion and growth plans in its production facility.

 It improvised its Life cycle costing strategies and built a culture of data-sharing standard to improve car development within its product lifecycle management (PLM) system. Yes the industry to which the company belonged was Automobile Company. The growth of the company is supported by a disciplined financial plan involving tight cost controls and targeted investments. Efficient cost management has been the bible of the company. The common uses its cost management strategies efficiently and judiciously to drive long term profitability. Currently the company has taken The project, called Leap 4.5, will entail building more models on similar core skeletons, overhauling the carmaker's supply chains and slowing down or halting the recruitment process, although there are no plans for redundancies. Further through this innovative COST MANAGEMENT STRATEGY  the company plans for costs of meeting emissions standards, which will lead  to save cost to the tune  3 billion pound-a-year which will be used by the company for capital spending budget on research and development and building new plant. Hence its proves that efficient cost managements leads to efficient cost and investments allocation keeping the long term sustainability strategies of the company. Efficient sales strategies were mixed with investment strategies where cost management was strategically taken forward.

Well the company is Jaguar Land Rover (JLR) which have been taken over by the TATA in 2008 after suffering a decade of losses in 2008. Extensive analytics and market research have been adopted by the company to drive  target costing application in terms of its decision making. Data analytics helped the company to drive efficient pricing strategies for its methodologies for dynamically pricing its large range of parts and accessories in the face of growing competition from independent aftermarket suppliers. The company adopted life cycle costing and target costing as bible within its operational activities where it achieved  new generation of efficient vehicles, Efficient supply chain management and researching new types of natural fibers that could reduce the weight and life cycle impact of vehicle components compared to plastic.  Its cost management senses were so strong that it adopted the same theory in investment activities even for investing for raw material to new hybrid engines spare part purchase. Jaguar Land Rover’s recent product offensive is the result of significant investment by the manufacturer. In the last five years it has invested over £10 billion, while tripling its annual engineering spend in just six years. 

All these were implemented by TATA Motors. TATA motors need no introduction about its cost management strategies.  The most important part of Jagura land Rover is a key eye opener to the Indian industries that thinks and ignores that cost reports, rules and cost management audits of no use. If you don’t know how to use knowledge it doesn’t mean that it doesn’t have value. This sounds and fits well for Indian industrialist. 

The current competition increases the demand of better cost management strategies and adoption of cost accounting rules and regulations within the system. The cost audit reports were never focused towards government alone. Industries failed to adopt and read the report hence it became useless. We cost accounting and costing methods are going to be the key factors which will drive the investments and corporate profitability growth in the long term. Big data analytic helped Jagura to design its costing modules and derive stupendous growth. Then why the same cant be adopted by the Indian industries.


Thursday, November 12, 2015

YUAN VERY SOON IN IMF BASKET...WIN WIN FOR GLOBAL ECONOMY

We might be on the verge of witnessing another historic moment in our life when IMF would be adding up Yuan as the reserve currency.  It might happen now or may be later but there is no doubt about not being included in the IMF basket. In the recent past it have been witnessed that the usage of renminbi has expanded by 21-fold since 2010, and the currency has appreciated by 25 percent against the US dollar over the past 10 years. Further according to the international bankers its being expected that hat 28 percent of the international trade to be denominated in RMB by the year 2020. 

The renminbi recently made it to the list of top five most used currencies, leaving behind the Australian and Canadian dollars. Chine government has taken all steps to get their currency to be cleaned from all sort of dirt so that it becomes crystal clear to understand for the global economy. But why did China being such an conservative county came forward to clean the currency and make it in all term possible for the IMF to get suited according to its wishes. The Chinese spent almost $30 billion on U.S. homes in the year ending last March. They are shifting their asset base and also building assets in other countries getting stronger macroeconomic hold. Well that might look like a very positive approach for countries like Europe and US where inventories are getting sold and economic indicators are running smoothly. But over the long term China will get better hold of these economies in terms of macro as well as in terms of its macroeconomic assets. Well that’s long term threat which might not be visible now. Lets get back to the prime topic where we find that china has a cap on foreign currency transfers by individuals to only $50,000 a year. So how Chinese are buying properties in Europe and US?  Some 800 billion yuan ($125 billion) left China through underground banks in the April-October period, citing an estimate by the People’s Bank of China.

Hence its better to make Yuan the reserve currency and also IMF would be more inclined to include the same so that the $3.5 trillion of reserves the china has can be utilized. Further china also knows that historically the U.S. dollar has appreciated by more than 50 percent against the yen over the last three years, but the volume of Japanese exports has not changed significantly.  Hence the same could be true for china in the near term. Hence getting into IMF basket is going to be a win- win proposition for IMF as well as for China.  Overseas investments new product designing and a huge growth of financial inflow would increase in the coming days once Chinese currency is included in the IMF basket. Fund managers and CIO would come up with innovative products to lure the investment appetite and resulting more equity and debt participation and alternative investments opportunities

The initial journey would be slow but the long term history which is about to be created speaks a different language. One part of the global economy is thinking that Chinese reserves inflows are good where as the other one thinks that they are getting hold of the macro economic factors of the developed economies. The war is heading from domination of currency to domination of macroeconomic factors. Further IMF might consider it now or might take some more time to include Yuan as the reserve currency but it will happen with no doubt over it.

FDI APPROVALS ...OPPORTUNITY FOR COST ACCOUNTANTS BUT ARE WE?????

Wish you every one A HAPPY AND PROSPEROUS DIWALI. We and the profession have been demanding many things over the last decade particularly in the recent session we have demanding GST and Companies law etc. I am not here to give sermons neither I am training any cost accountants. I am provoking the thoughts within our fraternity and the line of the action we should adopt quickly to enhance our Abilities.  I know many of my friends might not like the article but truth is just like SUN. The biggest question that have been chasing simultaneously and invisibly is that how much the professional’s who are in the corporate sector are capable to move ahead with the new things which will come up in the economy. We are simply getting happy with couple of stock audit opportunities where as the profession has a bigger role to play within Indian economy.  In the similar ways today after the new central government have come up a host of new policy initiatives and the biggest question at the moment is that is the working professionals of Cost Accountants are prepared and did the Institute its veteran have taken adequate steps to train and bridge the gap of working in a competitive fashion in the new areas of changes.   Never otherwise the professional who have passed should not have been getting so low packages and we should not have been getting low recognition. The biggest growth opportunity which is going to come over the next few years will be the recent FDI gates which have been opened up for inflow of capital and technology to build Indian economy for the 10% GDP growth.  According to the recent policy initiatives taken by the Indian Government where Foreign Investment Promotion Board (FIPB) to clear proposals up to Rs 5,000 crore from Rs 3,000 crore earlier. This will open up the gates of inflow of capital within the economy. Hence efficient utilization of resources and strategic cost management and enterprise value creation would be the key factors behind the growth and establishment opportunities. Cost Accountants need to be well prepared for such things where they can compete with other professionals and not profession.

Real estate sector which is one of the biggest sectors of Indian construction industry accounting for 80% has got lot of relief for stupendous growth in the coming days. For instance, area restriction (20,000 sq m) and minimum capitalization requirement of $5 million to be brought in within six months of commencement of business have been removed. Further, foreign investors can exit and repatriate investments before a project is completed, but with a lock-in of three years. My point is that how many cost accountants are well trained to join the industry for efficient valuation management which will be the key factor behind the success of the industry.
Media and entertainment industry have been growing like anything over the last 5 years or 1o years. The foreign direct investment (FDI) inflows in the information and broadcasting (I&B) sector (including print media) in the period April 2000 – June 2015 stood at US$ 4,050.58 million, as per data released by Department of Industrial Policy and Promotion (DIPP).   Now FDI limits have been hiked in teleports (uplinking hubs), DTH (direct-to-home) and cable networks to 100 per cent with government approval required beyond 49 per cent. Further, news and current affairs TV channels and FM radio companies can now bring in up to 49 per cent FDI under the government route compared with 26 per cent earlier. For non-news and down-linking of TV channels, 100 per cent FDI has been permitted under the automatic route. Hence cost accountants and cost management demand will be high but the question is that how much the institute and its senior segment is ready to train and groom the working segments of the profession.

Banking industry is going to get huge inflow of capital particularly the private banks and hence asset quality management is going to be key factor where cost accountants would find demand. The government has allow full fungibility in foreign direct investment (FDI) and foreign institutional investment (FII) in Indian private banks will give these lenders good flexibility to raise capita Please don’t be happy with getting couple of stock audits of banking industry.From M&A ,target costing, efficient risk management  system, corporate value creation to quality production process all are the areas of cost accountants and we are just sleeping over them. We need to move and act fast to get the same applied within these opportunities to flourish the profession.

In the retail space the government has relaxed the business opportunities and inflow of capital into the system. The Indian retail industry in the single-brand segment has received Foreign Direct Investment (FDI) equity inflows totaling US$ 275.4 million during April 2000–May 2015, according to the Department of Industrial Policies and Promotion (DIPP).How many cost accountants are prepared to tap into the industry and create growth opportunities for the industry?  The industry will require better simulation better management strategies to optimize profitability so that foreign inflow of capital can come within the industry.  The point is very clear that before we keep on asking only one area of operation we should focus on the other areas which are being given as an opportunity. But why we are quite ignorant about the same. The reason behind that we cost accountants never bothered about the ample opportunities given at large. We want always special powers where as working professional development is a complete different aspect altogether.

What I am tarrying to say is that what the economy is giving as opportunity, how much we cost accountants and its veterans are prepared for the same and rather running at the back of GST and all those things how much value working professionals could add to the economy would indirectly lead to the growth of the profession.  Focus where the profession grows, don’t forget that even if GST and other bills we get position we will never get exclusivity since the economy is larger and practicing members are less. Hence work for the working professionals and develop their opportunities.Did you ever think that once make in India become active India will require huge amount of expertise in cost management and process for improving the profitability though efficient cost accounting techniques.
But we are having very low numbers of passing students compared to other professions.  Job market is internationally down but what we have has long term VISION to cater the Indian economic growth is more important. The time and long term demand is that we need more final qualified cost accountants.

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