Luxury goes for the premium plunge

After tasting initial success, the three top players in the luxury car market are getting even more aggressive on price. Is the effort really worth it? By Deepanshu Taumar

Things were quite straightforward way back in 1994, when German luxury car maker Mercedes entered India to enjoy the first mover advantage and tap the small, but growing, affluent class in the country. It enjoyed a decade of monopoly in the luxury car segment till the time Audi (the luxury arm of Volkswagen) decided to make an entry in 2004. In 2006, markets dynamics were shaken further when another German player BMW eyed the growing market. From thereon, the trio has been locked in an intense competition, which saw Mercedes lose its position to BMW in 2009. Subsequently, catching up has been rather hard for the pioneer.

On initial impressions, all the three players seem to have a very similar kind of positioning – they are high-end luxury car makers whose customers are driven by the aspirational values of their products as opposed to functional values. But a closer look reveals significant differences. First of all, BMW changed the game by addressing a younger population – in the 30-40 years age group – as opposed to Mercedes, which was targeting individuals above the age of 40. Secondly, the company introduced the concept of affordable luxury. It tapped commercial users of luxury cars such as premium hotels and cab owners by selling stripped down versions of traditional models to them. Later, BMW introduced these versions to retail customers, which led to an unprecedented momentum in sales figures. The BMW 3 series came first, and next year in 2010, the company launched the BMW X1, which was their lowest priced car. The 3 series, which was a runaway success, was redefined in July 2012. BMW is positioned as a youthful brand that symbolises aggression and speed. Audi, on the other hand, is positioned as a stylish car backed by a great passion for engineering with the tagline 'Vorsprung durch Technik' in German, which means 'Lead by Technology'.

How is the erstwhile leader looking at this transformation in fortunes? “In the traditional luxury market i. e. above the Rs.30 lakh bracket, Mercedes is way ahead of the competition. But there are no volumes or numbers that we can share,” proclaims Debashis Mitra, Director, Sales & Marketing, Mercedes India. But even Mercedes is changing its positioning after around 16 years from a chauffeur-driven car, which was favored mostly by senior executives; to a more youth oriented brand that is associated with the Formula One. Last year, Mercedes launched the AMG driving academy, which has top drivers from the world teaching those who enroll for its course. The experience is aimed at building a strong association for Mercedes with sportiness. Further, to counter the advances of these two players, Mercedes has launched its B-class at a competitive price of Rs.21.04 lakh as compared to BMW X1 (Rs.22.40 lakh) and Audi Q3 (Rs.26.71 lakh), which were launched this year in June.

The traditional luxury car market is defined as cars that are priced above Rs.30 lakh. Cars like the B-Class, BMW X1 and Audi Q3 have defined a completely new segment in the luxury car market (Rs.25-30 lakh), as they are closer to the premium segment in terms of pricing. Companies are deliberately pursuing a downmarket stretch to generate volumes. That was the reason why the BMW introduced its sub-brand Mini Cooper in this Auto Expo with three different models - Mini Cooper, Mini Cooper convertible and Countryman - priced aggressively between Rs.24.90 lakh & Rs.31.99 lakh.

In addition, the war for market share now will depend quite significantly on how these three players leverage markets beyond the metros. Recently, BMW took up the initiative of introducing mobile showrooms to tap its new target markets like Karnal, Agra, Dehradun, Jamshedpur, Patna, Bhopal and Nashik. BMW believes that a lot of potential lies in these places for their entry level vehicles. Presently, the company has 25 dealerships in 18 cities and aims to open 40 more by the end of 2012, with 80% of cars financed by its financing arm. Mercedes is not far behind when it comes to tapping the potential of Tier II cities and is expected to open more dealerships in Ranchi, Bhubaneswar, Patna, Karnal and Raipur. It already has 60 dealerships in 29 cities. Audi, which also enjoys economies of scale with parent brand Volkswagen and with sibling Skoda in terms of manufacturing, has only 15 dealers in 15 cities.

However, Audi now intends to take the volume game to a new level by 2015, when it will be launching the Audi A3, which is expected to be priced at Rs.20 lakh. On the other hand, BMW is increasing its capacity to 11,000 units per year by investing Rs.1.8 billion in India, which also includes the facility at Tamil Nadu. Currently, the BMW group also sells Mini and Rolls-Royce apart from the core brand. By 2020, Mercedes aims to regain its crown, which it had lost to BMW in 2009. The former will launch cars that would be priced at less than Rs.25 lakh, starting from the A-class next year. Mitra admits that the company is waiting for the market to get more mature before going for an aggressive spree of model launches.

And things are just getting started. More potential entrants are expected to put their cards on the table. Volvo is restructuring its plan to be number 3 in the Indian luxury car market by 2020 with competitive launches in the entry level premium segment.

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

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A man with two faces

Despite his liberal facade, Anwar Ibrahim’s connections suggest a hidden agenda

Malaysia, a  vital member of ASEAN, has been facing a huge turmoil in the last couple of years with hard-core Islamist fundamentalists hell bent on  turning the nation into an Islamist state based on the Shariat . There are many provinces in Malaysia which follow the Shariat like Selangor, Penang  and others. It is also an accepted reality that Malaysia turned Islamic way back in the 1960s, when Islam became the state religion with 60 per cent of the country’s population following one or the other form of Islam. However, the constitution of Malaysia guarantees equal freedom of religion to all.

But matters might not stay rosy for too long. Malaysia does have a brutal history of ethnic violence and witnessed severe riots against the Chinese minority in 1960’s and ‘70s and more recently against Indians two years ago. The dangers loom large with Anwar Ibrahim,  leader of the main Opposition People’s Alliance, a rainbow collation of many parties including the hard core Islamist Party, openly supporting it. Anwar tries to project a liberal democratic Western educated face for himself but the reality is totally different. The kind of connections he keeps portrays a different picture of Anwar, a potrait different from his public persona.

At first glance, people unfamilar with Anwar’s brand of politics would be seriously impressed with his political thoughts which he preaches openly and candidly in public, a staunch advocate of liberalism on many issues with freedom of expression and religion in Malaysian society as the centrepiece of his  pro-West approach.

At the same time, the kind of friendly equation which he maintains with powerful American Liberals like Paul Wolfowitz and other influential democrats as well as former US Vice President Al Gore, would make him the darling of the developed world. With elections looming large in Malaysia and the gap between the ruling party and the Opposition narrowing down with every passing day, the recent activities of Anwar Ibrahim have raised many eyebrows.

His recent travel in early 2012 to Arab countries like Turkey, Saudi Arabia and Qatar and meeting leading Muslim figures there like Sheikh Yusuf Qaradawi, a leading Islamic theologian, has raised eyebrows. Qaradawi is the unofficial leader of the Islamic world and he supports suicide bombings against Israel as well as female circumcisions. At Qaradawi’s house Anwar Ibrahim also met Khalid Mashaal, as per unofficial reports. Mashaal has claimed responsibility for numerous suicide bombings, killing and wounding innocent civilians, including helpless women and children. The trip, as many have claimed could be a part of damage control on part of Anwar Ibrahim after his open support to Israel’s defense of national security, a comment which did not go down too well in his own Malaysia.

Not just this. Many well placed sources believe that Anwar Ibrahim has close and personal contacts with key leaders of the Specially Designated Global Terrorists (SDGT). He is reported to have personal connections with  Youssef Al Nada until at least 2011. Reports claim Nada personally visited Anwar when the latter was on a visit to the USA in 2011.

Nada is an Egyptian banker who has been designated by the US, the UN and Switzerland as having financed terrorism through an extensive financial network and providing support for terrorist-related activities, including those undertaken by Osama bin Laden and Al-Qaida. Nada founded Bank Al Taqwa, a financial institution known to have provided cash transfers and investment advice to Al Qaida in preparation for 9/11.

Other close friends of Anwar include Hisham Al-Talib, former director of one of Al Nada’s companies and now with Ibrahim’s International Institute for Islamic Thought (IIIT) in the US as well as Dr Mohammed Manzoor Alam,  co-founder of the Al Taqwa Bank in union with Nada. Anwar has also served on the board of the Al-Baraka Bank which the US claims to be one of the main conduits for funding Al Qaida and other terror outfits. Anwar is also one of the founding members of  the IIIT which is currently under investigation by US Federal law enforcement agencies since the late 1990s, for the suspected financing of mega terror outfits like Al Qaida.

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

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Subhash Chandra Bose- Man, Myth & Mystery

He had the audacity to swim against the tide and the guts to chase impossible dreams. Over 67 years after his purported death in a plane crash, subhash chandra bose retains his unending enigma, writes Sutanu Guru with Dhrutikam Mohanty

Everything changes, and then it looks as if nothing has changed in an ancient land like India. Just a few kilometers away, people have been vehemently protesting the scheduled arrival of the Pakistani women cricket team to practice and play a World Cup match. Just about a month and a half ago, thousands gathered nearby in the shadows of a majestic fort to celebrate what is called the Bali Yatra. This festival goes back at least two thousand years when brave traders ventured into the Bay  of Bengal to travel to lands called Bali, Java and Sumatra (modern day Indonesia).


But for the motley crowd gathered in a neighborhood called Odia Bazaar in Cuttack (Odisha) on January 23, 2012 – the sense of history is neither as recent, nor as ancient. They have gathered to celebrate the birth anniversary of one of the most loved, most mysterious, most talked about and perhaps most tragically flawed heroes of 20th century India. Yes, we are talking about Netaji Subhash Chandra Bose, who was born in this very locality in 1897. Typical of how the state works in India, the government of Odisha has declared January 23 as a public holiday. And the sprawling L-shaped house in Odia Bazaar is now a museum that commemorates and celebrates Subhash Bose and his legacy. You can tread gently and gape at the bed in which he slept when he was a student of Stewart School. You can watch the uniform he wore as the Commander of the Indian National Army. You also look at sepia tinted impressions of women soldiers of the Rani of Jhansi Regiment of the INA. A self appointed guide points out how the swords carried by the women soldiers were smaller than those carried by the males. "You see, it was already difficult for the women to carry the heavy .303 Enfield rifles," he says. The people running the museum have identified five surviving soldiers of the INA belonging to Odisha who actually fought along with the likes of Subhash Bose and Captain Lakhsmi Sehgal in Burma, which is now Myanmar. All are in their nineties and all five will be felicitated during a special function that will be held some days after the birth anniversary.


These men have grown frail and their memories are failing. But some still have the fire smoldering in their eyes when they recall those 'heroic' days of battle against the British forces. Just a short distance away from the now sprawling capital city of Bhubaneswar, with its malls and Infosys offices is a village called Chimpello. This village is known in local folklore as the village of INA soldiers. Hear it from Bramhachari Uttaray, who says he is about 90 years old, "Due to poverty, a group of youths from our village had gone to Rangoon to work as labourers. At Rangoon, we came to know that Netaji had given a call to all Indians to join INA to fight against the British. Under the leadership of Biswanath Samant, 23 of us from the same village joined the INA at Rangoon. We all signed on a paper with our own blood in front of  Netaji in a meeting at Mangla in Rangoon to fight for the country. Netaji also put 'blood tilak' on our foreheads and told us that it is impossible to get freedom without blood. We all joined the war and fought against the British between 1943 and 1945... my memory fails me now but I can never forget the fiery speeches of Netaji till I die." These facts become folklore and then mythology with a hop, skip and jump of our collective imaginations!


If nostalgia were a currency, you could be running a mint near this museum. The men and the women appear suitably awestruck, and some men whisper about how Netaji has always been given a raw deal by the Congress. Some of the louder ones talk of Rahul Gandhi being anointed the heir apparent ready to rule India. They talk of how the Nehru-Gandhi dynasty has always been insecure about the power and influence of Subhash Bose and his so called ability to mesmerise people. Wild conspiracy theories, as is wont with anything to do with Subhash Bose, fly thick and fast as nods and murmurs of encouragement lead to further criticism of dynastic politics practiced by the Nehru- Gandhi family. Incidentally, but for a five year spell when the Congress had won a surprise victory, the father-son duo of the late Biju Patnaik and Naveen Patnaik have ruled Odisha as chief ministers since 1990.

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
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Rajita Chaudhuri-The New Age Woman

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Last throw of the dice?

The crisis-ridden Congress leadership expects the direct cash transfer scheme, launched on January 1, to be a game-changer come 2014. But the situation on the ground is no longer as simple as it might seem to the UPA's spin doctors, writes KS Narayanan

Battered by a spate of scams and hobbled by policy paralysis, the UPA government is in desperate need of a lifeline. Its already sullied image was further dented when India erupted against the December 16 gangrape of a 23-year-old paramedic in south Delhi and the subsequent slothful response of the authorities to the heinous crime.

The girl's tragic death could not be dismissed as a mere crime statistic as the protest turned into a widespread anti-government agitation in Delhi and across the country. This is a sign that the urban wave that brought UPA II back to power in 2009 may now be turning against it.

With the mother of all battles – the General Elections – slated for 2014, the Congress leadership and the government have turned their energies towards a slew of welfare measures for the rural masses in the hope of offsetting the impact of the growing urban disenchantment with UPA-II. One such scheme is the Direct Cash Transfer that was kicked off by Prime Minister Manmohan Singh, UPA chairperson Sonia Gandhi and several Union cabinet ministers and chief ministers to woo rural voters in the face of urban discontent.

In the 2009 Lok Sabha polls, the Congress won 115 seats in major metros and towns except in Bangalore. More than 377 million Indians live in cities and metros and the number of urban and semi urban seats has increased from 70 to 200 due to rapid urbanisation and a delimitation exercise.

With anti-corruption crusaders like Anna Hazare, Baba Ramdev and Arvind Kejriwal and his recently formed Aam Admi Party keeping up pressure on a defensive government, the Congress has embarked on an ambitious policy of Direct Cash Transfer (DCT). The party expects it to be a game-changer, a move that could help it reap electoral dividends the way farm loan waiver scheme and National Rural Employment Guarantee Act (NREGA) did in 2004 and 2009 respectively.

DCT, much implemented in Latin America, has now become possible in India through the innovative use of technology and the spread of modern banking systems across the country. On paper, it is aimed at eliminating waste, cutting down leakages and targeting the beneficiaries better.

Rolling out DCT, Prime Minister Manmohan Singh noted: “Apart from these direct benefits, the government also provides an amount of over Rs 300,000 crore in subsidies which too must reach the right people.” A World Bank study recently reported that there is a direct link between cash transfers and voting behaviour and beneficiaries express a stronger preference for the ruling party that implements and expands cash transfers.

No wonder it has caught the fancy of Rahul Gandhi, the AICC General Secretary who wants party workers to take the catchy slogan ‘Aapka paisa, aapke haath’ (Your money, directly into your hands) to the people.

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

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

ExecutiveMBA

Weathering heights

Has the concept of weather weapons evolved from being a matter of sci-fi fantasy to reality? Has US stolen the march over us through HAARP?

Conventionally, the concept of weather weapons look more like a plot of a Hollywood sci-fi movie or a hypothesis derived from some fictional tale of Michael Crichton. Clearly, the hypothesis seems to be finding growing empirical support.

Weather warfare technology is not a very recent technology. An American scientist John Von Neumann, (from the US Department of Defense) was found undertaking similar researches back in 1940s for the American military. Similarly, a report by a BBC investigation team (dated August 30, 2001) revealed that the destruction caused by 90 million tonnes of water that literally washed away Lynmouth in August, 1952, was a result of a military experiment.

Today, the concept of weather weapons apparently is a reality being tested and engineered in ultra-sophisticated military control rooms – but of course, in complete secrecy. You see, most nations have to still contend with a three-decade old United Nations treaty prohibiting weather weapons development, which came into force on October 5, 1978, after the Convention on the prohibition of military or any other hostile use of environmental modification techniques.

The convention perhaps got momentum due to the Vietnam War, during which the US used various hostile weather influencing methods, including cloud seeding – a method that hastens rainfall by seeding clouds with catalyzing agents – to block enemy’s reinforcement channels; a fact revealed by the Weather Modification Hearings before the Subcommittee on Oceans and International Environment of the Committee on Foreign Relations, held during 1973-74.

Despite the UN Convention treaty, weather modification weapons are becoming a reality. In a conference on ‘Terrorism, Weapons of Mass Destruction, and US Strategy’ (April 28, 1997, University of Georgia), the then US Secretary of Defence, William Cohen fantastically revealed, “Others are engaging even in an eco-type of terrorism whereby they can alter the climate, set off earthquakes, volcanoes remotely through the use of electromagnetic waves.” For decades, Russia and even China have reportedly used this technology to get rid of untimely and unwanted rainfall, or to hasten rainfall on parched regions. In 2011, Iran’s President Ahmadinejad was found asking the US and Europe “to stop causing droughts [in Iran]” by forcing the clouds to rain before they reach Iran. Back home, the 2010 cloudburst in Leh was alleged to have been engineered by China.

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

 

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

ExecutiveMBA

Obama administration on the domestic as well as the international stage

Not much changed for the US in 2012. Obama stays President, Republicans continue to control the House of Representatives and Democrats retain their hold on the Senate. While American citizens should continue to hope for a lot from the Obama administration on the domestic as well as the international stage, but what they will actually get in 2013 may be much less
A comprehensive program to increase economic opportunity and reduce inequality is also needed – its goal being to remove, within the next decade, America’s distinction as the advanced country with the highest inequality & least social mobility. This implies, among other things, a fair tax system that’s more progressive and eliminates distortions and loopholes that allow speculators to pay taxes at a lower effective rate than those who work for a living, and that enable the rich to use the Cayman Islands to avoid paying their fair share.

America – and the world – would also benefit from a US energy policy that reduces reliance on imports not just by increasing domestic production, but also by cutting consumption, and that recognizes the risks posed by global warming. Moreover, America’s science and technology policy must reflect an understanding that long-term increases in living standards depend upon productivity growth, which reflects technological progress that assumes a solid foundation of basic research.

Finally, the US needs a financial system that serves all of society, rather than operating as if it were an end in itself. That means that the system’s focus must shift from speculative and proprietary trading to lending and job creation, which implies reforms of financial-sector regulation, and of anti-trust and corporate-governance laws, together with adequate enforcement to be able to ensure that the markets do not become rigged casinos.

Globalization has made all countries more interdependent, in turn requiring greater global cooperation. We might hope that America will show more leadership in terms of reforming the global financial system by advocating for stronger international regulation, a global reserve system, and better ways to restructure sovereign debt; in addressing global warming; in democratizing the international economic institutions; and also in providing assistance to poorer countries.

Americans should hope for all of this, though I am not sanguine that they will get much of it. More likely, America will muddle through – here another little program for struggling students and homeowners, there the end of the Bush tax cuts for millionaires, but no wholesale tax reform, no serious cutbacks in defense spending, or significant progress on global warming.

With the euro crisis likely to continue unabated, America’s continuing malaise does not bode well for global growth. Even worse, in the absence of strong American leadership, longstanding global problems – from climate change to urgently needed reforms of the international monetary system – will continue to fester. Nonetheless, we should be grateful: it is better to be standing still than to be headed in the wrong direction.

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

 

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

ExecutiveMBA

Lack of connectivity and inadequate mechanization

A raft of infrastructure issues is affecting the growth and prospects of our ports. In the face of capacity constraints, lack of connectivity and inadequate mechanization, ports are burdened with excess traffic they can’t handle

The total available capacity at Indian ports during FY2012 was 1,172.93 MT while the total projected traffic for the same period is expected to reach 876.7 MT as per the National Maritime Development Programme. This translates into a Berth Occupancy Factor (BOF) of 74.7%. Going by the recommendations of the Major Port Development Plan prepared by the Port of Rotterdam, this is more than the acceptable berth congestion level. Against the ideal BOF of 60-70%, as recommended in the Plan, a majority of Indian ports operate with wavering BOFs. In 2010-11, while ports at Haldia, Vishakapattnam, Paradip and JNPT had an average BOF higher than the prescribed 70%, those at Cochin, Chennai, Goa, New Mangalore and Mumbai fell below the 60% threshold. Only Kandla port fell into the perfect mix of occupancy with an average BOF of 69.95%.

Non-adherence to the prescribed BOF levels directly impacts the efficiency of ports, something that Indian ports seem to be deeply plagued with. Another indicator of inefficiency is the cumulative average turnaround time for ships entering major ports of India, which aggregates 4.67 days. This is phenomenally high when compared to the turnaround time at the Singapore port, which is less than a day. While the delay in turnaround time can still be explained away as a result of large vessels needing more evacuation time, the tardiness in the matter of pre-berthing directly points to shoddy infrastructure and lack of ample berthing space at the ports. The fact that such pre-berthing delays were a regular feature throughout the year shows that there is an urgent need to undertake capacity expansion at the earliest. In order to quicken turnaround time as well, there is a need to have greater use of mechanization in the evacuation process rather than relying on conventional methods.

The practice and prevalence of conventional methods for port operations have been the bane at most Indian ports. In the case of Paradip port, it’s the inability to adopt modernisation that has bestowed on it the dubious distinction of having the longest turnaround time amongst Indian ports. Between FY2009-10 and FY2010-11, while the availability of modern wharf cranes at Paradip port increased from 75.3% to 95.23% during the period, its utilization rate increased by a meagre 0.3% from 20.85% to 21.15%. The situation was no different in the case of forklift trucks - while being available for use 97.21% of the time during the year, they were used only for 3.69% of the time that they were available. This sorry plight of low utilisation of modern machinery goes to show that Indian ports, instead of moving forward towards modernization, are still stuck on using tedious and slow conventional methods.

Even the Ministry of Shipping, which is the nodal agency for framing the policy agenda for port development, has not been able to spur port operators to adopt greater levels of efficiency and productivity. Its lackadaisical attitude towards port management is reflected in the fact that the MoS accepted less than appropriate target levels for performance improvement of ports. The only port to show some performance worth speaking of has been the Jawaharlal Nehru Port Trust (JNPT), which reported utilization rates above 60% and availability above 90% in 2009-10. No wonder that amongst all Indian ports, JNPT is India’s busiest container port, accounting for over 55% all Indian containerised cargo traffic.

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

 

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

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MERGERS & ACQUISITIONS

A host of companies have sold their stakes out in distressed situations in the recent past.

Another hallmark case is that of Xstrata. It took quite a while for the mining giant’s CEO Mick Davis to convince his shareholders of the value proposition in the company’s merger with Glencore. Shareholders felt that the Xstrata management had not sold the deal to them adequately. In fact, when they finally approved it after bitter negotiations, they voted for a deal that ensured that a planned retention payment of around $200 million to top Xstrata officials was not made! Finally, the $32 billion merger deal was approved by shareholders on November 20 this year after Glencore raised the ‘price’ to 3.05 Glencore shares as opposed to 2.8 – the transaction finally created the world’s fourth largest mining behemoth. The deal was done in the wake of declining commodity prices and falling demand from India and China. Financially, Glencore’s shareholders have less to complain. The combined entity will have a D/E ratio of 42% by the end of 2012, while Glencore would have the ratio at a huge 96% on a standalone basis as per BMO Capital Markets!

While many had applauded Google’s iconic $12.5 billion acquisition of the struggling Motorola Mobility – a deal that was completed in May 2012 – the financial results round the corner have been far from a scream. Mobile devices sales of Motorola crashed for the quarter ending September 2012. at $1.78 billion, 26% less compared to the same period last year. Moreover, the quarter’s losses have increased to $505 million, up from $41 million in the previous year – killing for Google by all standards.

And who can forget the United-Continental episode. United and Continental were America’s 4th and 5th largest airlines respectively. Stung by low cost airlines and struggling with their respective business models in the recessionary period, both decided to become one. Their $3 billion merger, which was initiated on October 1, 2010 (and which, officials mention, will be completed by end 2012)created the world’s largest airline by revenues and the 3rd largest by fleet count. It is well documented that aviation mergers, more often than not, tend to complicate things. Interestingly, the two had attempted to merge even in 2008, when Continental walked away owing to United’s poor financial health. United cut costs and improved its cash scenario over the next two years and the two entities got back to the negotiating table. In the interim, the United board led by Chairman Glenn F. Tilton even commenced talks with US Airways, in a move that is perceived to have been made to influence the Continental board to take the decision faster. Operationally, the merger had many disastrous consequences. Even a simple task of having a common online booking platform led to mass chaos. United is also facing trouble on the financial front with a combined loss of $103 million in the first three quarters of this year; ironically when most other large US airlines are showing profits.

The deals mentioned above were supposed to be the exemplar highlights for the M&A sycophants, peddling a straightforward ‘sellout or blowout’ punchline to companies gasping for breath. Clearly, the iconicity of these deals has had more spots than was boasted of by the brady bunch on the Street. Do such deals, then, really work?

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles

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

BBA Management Education

Force MPs to use government hospitals

Government hospitals are in a terrible state but forcing Indian MPs to get treated there could be the beginning of actual change

Union Minister Vilasrao Deshmukh died on 14 August 2012 after suffering from critical illness and kidney and liver failure at Global Hospital (a privately run multi-organ transplant centre), Chennai. God rest his soul, but one wonders why Mr. Deshmukh wasn’t admitted to a government hospital for recovery? Was it because of a ready acceptance that government hospitals in India are nothing but a pathetic and shameful set of institutions existing purely to add to the corruption quagmire in India than to provide world-class health care facilities to patients, especially poor?

Of course, Mrs. Sonia Gandhi’s medical treatment in US and her routine checkups there could be attributed to the fact that she might have an urgent need to keep her medical conditions private. It’s unfortunate that 700 million Indians living below or just around the poverty line cannot afford to entertain either such lavish ambitions or destinations.

Similar is the case with P. Chidambaram, evidently with quite a lesser need for privacy than Mrs. Gandhi, who was admitted to Apollo Hospital recently for a laparoscopy procedure. Sir, would not your surgery have been better at, say, Deen Dayal Upadhyay Hospital, a government hospital in Delhi, which now has even had to employ professional ‘bouncers’ to protect their clearly inefficient medical staff from the relatives of patients who’ve been shortchanged or even maimed. No, Mr. Chidambaram, the nation needs you. Please continue not using government hospitals.

The examples are unending, how leading politicians and MPs specifically avoid getting their requisite operations conducted in their own government hospitals. But what about those MPs brave enough to employ the famed services of these institutions? Well, the courageous Union Minister of State for External Affairs Preneet Kaur in July this year, after visiting Rajindra Hospital, a government hospital in Patiala, Punjab, was clearly shocked beyond expectations. She subsequently beseeched the Punjab Chief Minister Parkash Badal to improve the disturbing conditions existing in the hospital. Similar was the case with Minister for Water Supply and Sanitation Laxmanrao Dhoble, who valiantly went to a government civil hospital in Chandrapur.

The Wall Street Journal wrote last year about India’s utterly caustic government hospitals, “Overall, the nation’s vast, government-run health system can be a dangerous place. Hospitals are decades out of date, short-staffed and filthy. Patients frequently sleep two to a bed. The Indian government invests only 1% of gross domestic product in health care, according to the Organization for Economic Cooperation and Development. Only seven countries spend less.” A report conducted by WHO in 2008 on healthcare sorted countries by their total expenditure on health at Purchasing Power Parity (PPP) per capita, and as a percentage of Gross Domestic Product (GDP). The report ranks India at 145th position, which is behind countries like Sudan, Mongolia and Yemen to name a few.

As the government readies itself to introduce Universal Health Coverage (UHC) in the 12th Plan to drastically improve the lives of Indians, the goal can only be achieved when the political classes who brand themselves as representatives of the people get their treatments done in government hospitals. In fact, it could even be made mandatory!

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

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RIP: Fannie Mae, Freddie Mac, 2012

The recent changes in bailout agreements indicate that the Federal Government is now gearing up the process to end the era of mortgage giants Fannie Mae and Freddie Mac. But is it the right time? Is the US housing market ready to accept this and move on with the reform process to a new system? An analysis of why this is essential.

The United States government couldn’t have been clearer on this. The latest changes to the US Treasury bailout agreements with government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac clearly indicate that it’s just a matter of days when the official words will be out to wind them up; the process has started though. As per the changes made to the agreements, the mortgage finance giants have been asked to turn over all profits to the government and wind down their large investment portfolios at 15% per year rather than 10% as stated earlier. Result: The US government would soon take over all business controlled by the two GSEs for which it has been acting as the primary guarantor since both the institutions announced bankruptcy in 2008. The fact is that when the US government decided to continue the two agencies after bankruptcy, everyone knew that sooner or later they will be asked to shut their shops. They only existed because the government wanted them for reviving the distressed US housing market. Now, when the government looks decisive, the question remains, has the US housing market stabilised enough to say goodbye to Fannie and Freddie? It’s a point worth exploring besides understanding how the two mortgage giants have contributed to the overall US housing scenario.

The story of Fannie Mae is certainly interesting in this regard for the fact that it was commissioned in 1938 after the Great Depression provide the necessary impetus to the US housing market as a part of the New Deal (a series of economic programmes enacted in US between 1933 and 1936). Interestingly, it was this mortgage giant that ended up initiating the second biggest financial crisis ever. In fact, by the time Global Financial Crisis started (in the second quarter of 2008) Fannie Mae and Freddie Mac (the younger counter art of Fannie Mae was commissioned in 1970 to give competition to the former) had been exposed to subprime/Alt-A loans worth a mind-boggling $388 billion and $392 billion respectively. Certainly, considering that the annual Private-label Mortgage-backed Securities issuances remained at over $800 billion per year in 2005 and 2006, one cannot say that these GSEs caused the crisis, but they for sure were the biggest contributors. Perhaps this was what prompted Senator John McCain to say that “the catalyst for this housing crisis” was Fannie Mae and Freddie Mac. In one of the debates during the Presidential campaign in 2008, he had claimed that these two GSEs “caused the subprime lending situation that now caused the housing market in America to collapse.”

However, with the taxpayers owing close to 80% of the two GSEs post bankruptcy, the onus was on the government to use them to reorganise the US housing market. And as it can be seen, the job is done, at least to some extent. After long, the US housing market seems gaining legs. What is more interesting is the fact that now it’s in a situation where people have started looking forward to it as a growth driver. Agrees Celia Chen, West Chester based Senior Director at Moody’s Analytics, as she tells B&E, “Housing, once the Achilles’ heel of the US economy, is starting to look like a source of strength in a recovery that has lost its vigor and faces significant roadblocks. That housing is now a bright spot speaks more about the weakness of the recovery than absolute strength in housing.” This comes as a relief at a time when the other drivers of growth are faltering. Housing is about to turn from being a drag on the broader economy to being a driver. 

Read more.....

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

and Arindam Chaudhuri (Renowned Management Guru and Economist).

 

For More IIPM Info, Visit below mentioned IIPM articles

 

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