Will RBI Join The Give-Away Party?

With a fiscally expansionary budget, the RBI will once again have to keep a close watch on the monetary situation. So expecting interest rate cuts at this point seems counter-intuitive

It’s odd, but somehow the heart goes out to RBI governor Y V Reddy. Yet again, the bill for the party will end up on his desk. Given the pile-up of other issues that require the governor’s full-time attention, the additional cost of reining in the after-effects of finance minister P Chidambaram’s budget jamboree is sure to extract a heavy toll.

Sure, the FM has done what he had to, given the circumstances. Some may even argue that his hand was probably forced to a certain extent by a party diktat. The Rs 60,000-crore farm loan waiver and his petulant response to repeated questions about it betray some of the occupational hazards of framing a budget during election times. But, to his credit, he has still tried to focus on the larger issue at hand — keeping the economy humming and trying to insulate it, as far as possible, from the shock waves of an impending global slowdown. This he has tried to achieve through two measures — trying to ensure that consumption growth in the economy continues apace and that the engine of industrial production does not slow down. At this stage, he is keen to achieve these ends with the help of some fiscal stimulus.

Look at what the FM is up against — the average growth of industrial production has dropped from 11% at the end of the last fiscal year to a monthly average of 9% till November. In December, it was only 7.6% and, if the average industrial production growth rate tends to stay between 5-7% in the second half of the year, the average rate for the year is likely to be below even 9%. That’s a sharp drop from the previous year. The main items dragging the index down have been consumer durables and the auto sector.

The Economic Survey also forecasts that the year is likely to end with an overall real GDP growth of 8.7%, a full 100 basis point lower than the previous year’s 9.7%. Add to this the fear of the unknown — no fix on the extent of the sub-prime damage in the western economies and the resultant economic slowdown, or the degree to which this event will impact the Indian economy.

So, how will the finance minister achieve the twin objectives? For the consumer, he has done two things — made goods cheaper by cutting excise duty and providing them with more spending power by restructuring income tax slabs. With an eye to the industrial production index in particular, he has reduced excise duty on small cars and two-wheelers (sales of which had been hit the hardest). He has also cut the median excise duty rate to spur consumption of daily household items. Given that a large part of the growth impetus during past few months, in the face of slowing down consumption, has been predicated on investment, the FM has introduced some policy changes in the budget to keep the momentum going — removed some long-standing glitches to facilitate higher trading volumes in corporate bonds, promised to develop a bond and currency derivatives market, extended tax breaks for construction of hospitals and hotels.

It’s too early to figure out whether this combination will indeed work in spurring higher consumption levels and therefore keep the industrial shop floors buzzing. But one thing is certain: not addressing the real issues is unlikely to sort out the inflation issue or immediately bring people back into the consumption mode. Take the pressures on the food economy. Is it going to go away with the Rs 60,000-crore farm debt waiver?

Unlikely, since the farmer still has no solutions on sourcing improved inputs (such as seeds or fertilisers) or even an efficient and reliant system for selling his produce. There is also no appreciable investment in improving the infrastructure which delivers agricultural produce from the farm gate to our plates. Therefore, despite the FM’s pious statements about inflation in his budget speech — “Keeping inflation under check is one of the cornerstones of our policy” — food inflation (spurred on to some extent by global factors) is likely to continue to haunt the economy for some more time to come. The Economic Survey observes: “The behaviour of agricultural prices, including essential consumption items, will be critical, given falling poverty and rapidly rising per capita income…Domestic supply management is…critical to stabilising inflation expectations, moderating pressures for upward revision in wages and prices, and containing pressures for cost push inflation through monetary and fiscal accommodation.” 

Second, will lower car and two-wheeler prices (assuming all the auto producers do agree to pass on the duty cuts) really inspire consumers to be liberal with their wallets? Again, doubtful. A careful look at the auto industry sales figures reveals that it was actually lower interest rates that catalysed record sales of the past couple of years. Once rates hardened, sales also dropped. Therefore, to get those motorbikes and tiny cars rolling out of the shop once again, what’s needed is not only a firm control on current inflation, but on expectations of what it’ll be in the future. Since the fiscal design does not explicitly state how it will lower inflationary expectations — and hence interest rates — in the next few months, the efficacy of the entire package is on test.

But, beyond that, the RBI will have its own set of headaches arising out of the budget and other public policy. For one, its authority as an enforcer of credit discipline in the banking system seems to have been undermined once more by a trigger-happy government. Second, the pay commission’s award is surely going to add another little twist to the on-going inflation story.

In addition, the RBI has used monetary policy in the past few months to bludgeon runaway demand and bring inflationary pressures under control. With such a fiscally expansionary budget, the RBI will once again have to keep a close watch on the monetary situation. So expecting interest rate cuts at this point seems   counter-intuitive. Unless, of course, the RBI also decides to join in the pre-election giveaway party.

Published as an Op-Ed in The Economic Times (March 6, 2008)

India Fakes Its Way To The Top

When the Moon is in the seventh house, 
And Jupiter aligns with Mars 
Then peace will guide the planets and love will steer the stars 
This is the dawning of the age of Aquarius 
The age of Aquarius
    — From the musical Hair 

The past few months have been probably India's best time since Independence. Praise, hope, adulation, honorary designations (superpower, et al) and an invitation to sup at the global high table have all been heaped upon the country by a world that's watching the resurgence of an ancient civilisation. Probably, with a mix of grudging admiration and a dash of envy. So, has India's time finally come?

Before we get around to answering that question, here's the central point: India has been trailing China in almost every development parameter by about 10 years. The only exceptions are probably IT and foreign portfolio investments where India has the lead. But, in almost everything else, India is playing catch-up — reforms, infrastructure, trade and foreign direct investment. The betting is that it will take India another 10 years to reach China's current level of prosperity and state of infrastructure, unless, of course, India resolutely decides to crunch the gap.

The list also includes one rather unsavoury attribute: faking it! India trails China even in the counterfeit and fake products race, but looks set to draw level pretty soon. Sooner than even the 10-year standard in other areas. Take a look at the list of India's dubious distinctions in this field. The one example topping the list is counterfeit pharma products. Assuming that the Indian pharma market is worth Rs 50,000 crore, the private sector feels that the bogus segment is as large as Rs 15,000 crore, while the government feels it's only about Rs 250 crore! Only five years ago, the industry had estimated the fake pharma market to be around Rs 10,000 crore. According to a European Union study, based on customs data, 30% of all seized fake medicines in Europe during 2006 originated in India. According to another paper, India tops the world's counterfeit pharma production, with close to 35% of the world's supply originating here.

The counterfeit market does not exist in pharma products only. In 2004, Mattel Toys got the Mumbai police to raid various hole-in-thewall manufacturing units across the city and seized Barbie stickers, Tshirts, printing screens and swatches. These swatches would have been used to sell a wide variety of goods — such as, bags and stationery — bearing the Barbie logo and trade mark. Earlier in the same year, Gillette had got the Mumbai police to raid and flush out large quantities of shaving products bearing a counterfeit Gillette brand. The haul was said to be quite handsome and included not only fake Gillette products but smuggled ones as well. According to various surveys, over 35% of the automotive parts sold in India are fake. The value of counterfeit and pirated software is believed to be over $1.5 billion. In all, the total value of the sham market is believed to be around $5 billion.

This has a direct impact on not only government revenues but can have dire consequences for the consumer as well, especially in the case of pharma products. It also has a bearing on India's position in the global market and the trust that customers repose in products bearing the legend 'Made In India'. Already China has shown its resolve to the world: a bureaucrat was recently sentenced to death for his complicity in allowing shady units to manufacture sub-standard drugs.

Given the average Indian's incredible and indomitable entrepreneurial spirit, it was only natural that a section would seize on this opportunity - as long as the market perceives the premium on a product to be high, IPR or no IPR, there will be an incentive to create an assembly line of fake products. Walk down any street in a big Chinese city and you can buy cheap knock-off versions of Mont Blanc pens, Louis Vuitton bags and anything else that positions itself as a premium, luxury product. But, different entrepreneurs see different prospects differently, some of which does not necessarily mean walking on the dark side. Here's an example of that. A detective agency has been set up in Delhi to tackle the counterfeit problem. Its website reads: “XYZ is an exclusive agency which provides complete solutions relating to all the Intellectual Property Right matters. We have been working for many prominent manufacturers of different branded items and have organised successful raids across the country.”

Innovative ideas anybody?

You’ve Not Heard The Last Word Yet

SCOTSMAN James Murray, a member of the Philological Society and a teacher at London’s Mill Hill School, embarked on a fateful journey in 1879 that’s reaping dividends for all of us even today. No, he did not discover any new continent. He was the chief editor of the first edition of the Oxford English Dictionary, which could be completed only by 1920, five years after Murray had passed away, and was issued in 10 volumes. The dictionary today is available in 20 volumes, on CD-ROM and online as well. 


That’s part of the inimitable quality of the OED, as it is popularly known. Its ability to assimilate and grow, in step with the changing times and evolving linguistic trends, has become its distinguishing feature. The dictionary, which is updated every quarter, has been including many new words — from different languages and from street patois — over time. For instance, the June 2007 update includes the new words “mahurat” and “mahasabha”! It also includes the word “chill pill”, which is a derivative of another slang term “chill”. 


There’s another place where a thin line exists between slang and jargon. It’s called the modern-day workplace. Industries have routinely thrown up language and new words closely associated with their undertaking and peculiar to their occupation. The software professional, for instance, has the special ability to string technical terms into perfectly comprehensible sentences. In March 2007, OED included the word “virtualize”, it seems, as a passing nod to the growing tribe of software professionals. In the 1980s, the securities firms of Wall Street issued paper with funny “feline” names – LIONS, CATS, TIGRS. These were names of special kind of securities -- CATS stood for Certificates of Accrual on Treasury Securities (invented by Salomon Brothers), TIGRS was shorthand for Treasury Income Growth Receipts (introduced by Merrill Lynch) and LIONS meant Lehman Investment Opportunity Notes. 


Even on Dalal Street, there’s a new, exclusive kind of language being coined by business television channel anchors and equity research analysts employed by securities firms. Interestingly, this same language can now be found creeping into the usage of other professionals. In many ways, this is also how new words find their place in the OED. In any case, here’s a look at just a few words, selected randomly, that seem to have gained considerable currency and velocity: 


    * De-growth: This word does not exist in the dictionary. At least not in the OED, since that’s the point of reference for today’s column. In short, this word has been conjured up by analysts to convey a certain sense which, otherwise, would have used up more than one word. It typically means when growth rate is slowing down – for example, if a company’s sales grew 24% two years ago (over the previous year), 20% last year and 18% this year, then instead of saying decelerating growth (awkward actually), the market has found “degrowth” more convenient. 
    * Going Forward: Simply means ‘in the future’! The reason for the popularity of this phrase is unclear, though one can hazard a guess that ‘going forward’ probably sounds more energetic, summons up a sense of motion and generally sounds more officious. 
    * Space: Usually means ‘sector’ or ‘industry’. When a TV anchor usually asks an equity analyst, “How do you see the engineering space”, what he actually means is: “What are your views about the prospects of companies in the engineering industry? Will their share prices move up?” 
    * Underweight: No, this has nothing to do with the perils of investing in the Indian stock markets. It is an euphemism as well as a clever device employed by equity analysts for indicating that it’s time to sell a particular scrip. By indicating “underweight” in a research report of a company, the analyst is able to achieve two things simultaneously. One, he manages not to upset the company management by avoiding the word “sell”. Also, at the same time, he is able to indicate to his clients that the time to sell has indeed come. 


Verbal communication has evolved over time to include many new words and sounds. In many organisations, the vehicle for communication too has changed over time. Many offices took time to adjust from lengthy letters and inter-departmental memos to emails. Once that happened, instructions through cellphone messages are now slowly gaining acceptance. These new channels have now spawned their unique language. wot nxt?

Communication Is The Key To M&As

Do we have problems of communication? 
There's something I don't know and you can't explain it to me 
Let's talk the secret language of birds    --- The Secret Language of Birds, Jethro Tull

AS COMPANIES conduct cross-border courtships and inter-marry, the one glue needed to hold all the pieces together seems to be missing. Language and communication skills seem to be the one major casualty of the technical education pursued by most managers and coveted by most employers. However successful an organisation, the lack of proper language skills can derail the most audacious merger or turn the most breath-taking innovation into an ordinary process shift. 

That’s probably why Astra-Zeneca, Boeing and Citigroup have all hired well-known poet David Whyte to figure out how to conduct conversations within their organisations. A poet seems to be a strange choice for a corporate coach! The official website of Whyte - who is an associate fellow at Templeton College and Said Business School at University of Oxford - claims that he “.is one of the few poets to take his perspectives on creativity into the field of organisational development, where he works with many American and international companies.In organisational settings, using poetry and thoughtful commentary, he illustrates how we can foster qualities of courage and engagement; qualities needed if we are to respond to today’s call for increased creativity and adaptability in the workplace.” 

Even though judgements about the quality of Whyte’s poetry are best left to individual taste, corporates nevertheless see huge value in hiring him. Apart from the three names mentioned above, Unilever, Procter & Gamble, AT&T, Shell Oil, WPP Group, Merck, Lucent and Motorola are some of his regular clients. In a recent interview to Harvard Business Review (“A Larger Language for Business”, May 2007), poet Whyte is quoted as having said: “A real conversation.can tackle great universal questions, or it can be about your work group’s puzzling lack of respect for you or why a division of your company is refusing to go in a previously agreed-upon direction. At the executive and managerial levels, work is almost always conversation in one form or another, and yet we spend almost no time apprenticing ourselves to the disciplines necessary for holding real exchanges. That’s partly because they involve a great deal of selfknowledge and a willingness to study how human beings try to belong - skills we hope our strategic abilities will help us get by without.”
But why poetry? Says Whyte in the same interview: “Poetry is a way of getting at the phenomenology of conversation - that is, what happens along the way when you’re trying to have a real meeting with something other than yourself: a meeting with your customers, with your colleagues, or with a new field of endeavour.Good poets throughout history have looked at almost every stage of the process of creative confrontation.”

Many mergers in corporate history have come asunder because the partners, after exchanging their vows, did not know how to tackle “the process of creative confrontation”. Morgan Stanley chief, Philip Purcell’s dreams of building a financial supermarket after merging with Dean Witter came crashing down and forced him to leave. The Morgan Stanley board, which was initially backing Purcell to the hilt, finally showed him the door after the bank was convulsed by a series of high-profile exits. Take another example: Compaq buying out Digital Equipment Corporation (DEC), the world’s second largest mainframe/ mini-computer manufacturer at that time. This was clearly a marriage of unequals. DEC was a large and bureaucratic organisation while Compaq was exactly the opposite. In addition, the smaller company had acquired the larger company, leading to inevitable complications. In the end, indigestion from the DEC purchase pulled down Compaq as well. 

These, and many more such painful mergers, could have been turned around with proper communication. But even if we were to ignore mergers for a moment, the ability to use language has immense benefits for any company. For example, any organisation wanting to change its way of working has only one way of making sure that the message goes down the layers effectively: talk, talk and then some more talk! And, to ensure that the wires don’t get crossed and that employees get the right cues, language plays an important role. Many organisations have, therefore, started looking at creative writing workshops to help staff members acquire the correct language.

Interestingly, IIM (Ahmedabad) conducts a leadership course called “Leadership Vision, Meaning and Reality” with the help of classics, which is very popular. In fact, most B-schools do provide some stress on communication skills as part of their curriculum. But quite often it turns out to be limited in scope - either how to make powerpoint presentations or how to use words without meaning anything.

Are Celebrities Worth It?

CELEBRITIES too have timers attached to them. The catch is: it’s not so easily visible. Especially, when they become immensely indispensable to the advertising industry. It takes special skill to realise that every so often, there comes a time, when after a successful run, many celebrities run out of steam. It requires extra-sensory perception to realise that their presence alone is not enough to empty out shop 

Is superstar Amitabh Bachchan facing such a crisis? If you look at the iconic actor’s career graph outside Bollywood, using KBC-1 as the starting point, Mr Bachchan has put his considerable influence behind a number of products — colas, over-thecounter medical products, chocolates, pens, financial institutions, suitings, and so on. But, when he tried his hand at political advertising during the recently concluded UP elections, Mr Bachchan faced a barrage of derision. Besides, probably for the first time in his advertising career, Mr Bachchan’s appearance alone was not enough to ensure the success of an idea, service or a product (Mulayam Singh Yadav in this 

So, should we write off Mr Bachchan or treat this as a one-off debacle? Intuitively, it seems Mr Bachchan will continue to remain at the crease for some more time to come, but a host of lesser celebrities may have to bid farewell to the greasepaint. The current spree of celebrity advertising has refocused attention on an issue that keeps rearing its head time and again: is the advertising industry bereft of ideas and exhibiting over-reliance on the tried and tested? In fact, it is believed that the practice of using famous personalities in advertising started more than a century ago. But, the moot issue here is: has the industry been overdoing it? 


Some of the biggest brands in the world have never used a celebrity. Interestingly though, the models they used became celebrities overnight. For example, the Marlboro man has been subjected to several studies and newspapers have carried detailed stories about his personal life, including whether he is a smoker or not. In simple terms, a myth grew around an ordinary man only because smokers saw him as an aspirational character. Closer home, Surf was able to stave off competition from pesky neophyte Nirma with a little help from Lalitaji, a non-celebrity who came to epitomise the ideal housewife — truckloads of common sense, ability to bargain and, ultimately, an innate idea of how to wrest the best for home and family. The trick in this kind of non-celebrity advertising was selecting a proximate proxy for the demographic profile of the target consumer. 

But then non-celebrity advertising can be of many kinds. Many products, such as Chrysler, even used its chief executive Lee Iococca to endorse the high quality of its products. Interviewing consumers and getting them to endorse the product on screen (think Dove) is another commonly used device as well. 


There have been many other successful non-celebrity icons too, some created especially for a particular brand. For example, Joe Camel became a successful poster-dromedary for Camel brand of cigarettes, Ronald as a kid magnet for McDonald’s, the Dough Boy used by Pillsbury. Fido Dido worked wonders for Pepsico brand 7-Up. An illustration of a naughty boy — called Gattu — by famous cartoonist RK Laxman mysteriously powered the success of Indian paint MNC, Asian Paints, for over 40 years. The boy became an icon, a mnemonic reminder of whatever the brand Asian Paints (and its sub-brands) represented. Then came a time when Asian Paints had to reconfigure itself and its strategy. That entailed a tough decision - Gattu had to be retired. He went gracefully but left behind an interesting thought. 


Marketing strategists must know exactly when to reduce their reliance on superstars. These icons can be extremely helpful on occasions, especially when there seems to be some convergence between the brand values and those personified by the star himself. But, they can spell trouble for the brands as well — as Pepsi found to its chagrin with Madonna, Michael Jackson and Mike Tyson. Or, when a cola company found out that while Britney Spears was publicly endorsing their product, in personal life she was consuming the product of a rival company. Or, when the celebrity spreads himself thin over too many brands simultaneously. Those wanting to figure out the right timing could probably keep an eye on the Davie-Brown Index, created by Davie Brown Entertainment, a part of the Omnicom network. The index helps measure a celebrity’s sway over consumers’ buying intention as well as his influence over the brand. But whatever index you use, the message is simple: you must know when it’s time to let go. And, when that time comes, let go you must.

Ageism At The Workplace

JUST when Pierce Brosnan thought he had hit upon the perfect anti-ageing device, it got snatched away from him. As James Bond of the silver screen, he managed to defy all the usual signs that betray old age – wrinkles, thinning hair, sagging muscles and a flagging libido. But then what Hollywood giveth, it can also taketh away. The man with the licence to kill lost his privilege to a younger actor called Daniel Craig. Poor Brosnan, with no Moneypenny shoulders to cry on, opted for Playboy. He apparently told the magazine in an interview that age discrimination – popularly known as ‘ageism’ – had done him 

Here it is then, a new kind of discrimination. After gender, class and race discrimination, now comes prejudice against age. And it cuts both ways – whether the applicant is too young or too old. But then the most virulent form of this is the visible bias in the workplace against those who are perceived ‘old’. In fact, some studies show that intolerance against older men is far higher than gender or race discrimination. 

The term ‘ageism’ was coined by Robert N Butler, a physician who won a Pulitzer for his work on ageing. The International Longevity Center, in a brief biography of Dr Butler on its site, says this: “Dr Butler was a principal investigator of one of the first interdisciplinary, comprehensive, longitudinal studies of healthy community-residing older persons… It was found that much attributed to old age is in fact a function of disease, socialeconomic adversity and even personality. This resulted in a different vision of old age… This earlier research helped establish the fact that senility is not inevitable with aging, but is, instead, a consequence of disease.” 

All organisations probably have, at some point or the other, discriminated against candidates because of their age. It is natural, since without proper research on ageing or the effects of ageing, popular perceptions hold sway. This is a bit like notions in the past, when women were found unfit for a certain kind of job, or a man from a certain race untrustworthy for a certain profession, because of deep-rooted beliefs which had no basis in real life. In fact, ‘affirmative action’ is exactly what was supposed to remove such biases. 

This inequity manifests itself in many ways. There are some jobs which have a mandatory retirement age, where it is felt that the nature of the work – such as airline pilots — requires high level of mental and physical skill, which atrophies with age. There is nothing to prove that yet. Interestingly, it is felt that the concept of a fixed retirement age is an invention of the modern age, corresponding with the implementation of the pension system. In olden days, most people worked till they had a disability or till they died. To be fair to the employers and other job aspirants, with a growing number of younger people queuing outside the office doors for a job or for a promotion, most companies feel that older people should make way for the younger lot. 

In the US, at the federal level, there is legislation to ensure that those over 40 are not overlooked by employers or given a raw deal in the workplace – The Age Discrimination in Employment Act of 1967, under which it is “unlawful to discriminate against a person because of his/her age with respect to any term, condition, or privilege of employment — including, but not limited to, hiring, firing, promotion, layoff, compensation, benefits, job assignments, and training.” 

The US, and many other Western economies, probably has to enforce this law because retirement would mean pension and that spells a huge drain on the economy. Many old-time corporate icons have had to perish or sell parts of the organisation because of the mounting pension liabilities. It is well-known that the lumpiness of over-60 in the demographic profile of most Western economies is worrying the hell out of them. According to an UN study, over two billion people – or about 22% of the world’s population — in the world will be over 60 years of age by 2050. 

In India, while companies are waking up to the complexities of gender and race discrimination, there seems to be little awareness about ‘ageism’. One of the reasons could be the army of young people constantly knocking on the doors of companies. A substantial portion (around 50%) of India’s population will be below 35 in a few years. But then, all these guys will also be touching 60 some day. To avoid a crisis then, it might make sense to implement affirmative action against ‘ageism’ today.

Politicos, BCCI Need HR Touch

THERE are vacancies for HR heads in two of the largest organisations in the country. And even though the need for pros to step into these positions was felt acutely over the past couple of months, these two job openings went unadvertised.

The first organisation that could clearly do with a professional HR head is the Board for Control of Cricket in India. The prolonged comedy of errors that was played out in front of the nation clearly demonstrated that BCCI needed two professionals desperately — instead of politicians, it needed an HR head and a qualified spin doctor. The last category has many aspiring naturals already playing the game. But it’s difficult for everybody to fancy themselves in the role of a professional HR head. 

So, why does BCCI need an HR head? For one, because it is constantly recruiting — whether it’s coaches or consultants or players. Secondly, there seems to be some confusion within the board about the job profile — no one seems to be sure whether it needs a coach or a manager. Look at the chain of events leading up to the selection of Chandu Borde as the new coach/manager. They first had Greg Chappell, who had a public fall-out with the board. Then started the hunt for the immediate task at hand — the Bangladesh tour. After searching high and low, the board stumbled on to a talent residing in its backyard: Ravi Shastri. The new coach/manager agreed, but subject to the condition that he be relieved after the tour, presumably because his regular day job was more remunerative (another critical HR insight here, but more of it later). As promised, as soon as the tour was over, the hunt began all over again, with renewed vigour. A shortlist of two names was prepared, which was duly leaked to the media. Then they zeroed in on a name — Graham Ford, former South African manager, currently employed by the Kent county team in England. This name was also leaked to the media. In all the back-slapping and self-congratulatory messages that followed, the board forgot one crucial bit — to interview the candidate or to explain the process to him. So, when after the celebrations, they broke the news to him, he gently told them he was not available for the job! The second choice by then, miffed about the way the board had gone about the whole process, also declined the job. The last-minute solution: a 72-year-old former India cap. 

The other lesson is the way the Congress played out the selection of its Presidential candidate. Poor Shivraj Patil. Once his party first announced his name, he seemed self-assured about the whole election process. Then suddenly, as Patil prepared to move his wardrobe and office to the Rashtrapati Bhavan, the Left threw a monkey wrench into the works. The quest began all over again, till Pratibha Patil’s name was pulled out of a hat. In the meantime, President Kalam’s name also popped up, primarily put forward by the other parties to add to the Congress’ embarrassment. 

There are some elementary lessons on recruiting that both BCCI and Congress can learn from the corporate sector, especially since they also are visibly confronted with the predicament of having to deal with a shortage of talent. Here they are: 

• The first is a truism but bears repetition, especially in this case: know the kind of person you are looking for and whether he has the requisite skill-set and knowledge base. Both will be critical for them to perform their assigned tasks. 

• There should be clarity about the job and work profile (whether it’s a manager or a coach). 

• If the applicant already has another job, make him an offer which is substantially higher than his current packet. It rarely fails (Ravi Shastri must also surely be human!). 

• Please check with the JV partner before recruiting a top-level position. Poor chap should not throw celebratory parties only to realise that he has been left to freeze on an iceberg. 

• Transparency is good but you do not have to reveal all twists and turns in the recruitment process to everybody and his grandmother. Importantly, the candidate should not get to know about his appointment from the evening news. This brouhaha pisses off the rejected candidate, and the Number Two guy is lost to you as well. 

• Try to seek innovative solutions. If your shortlist fails, try to seek candidates from another field. Australia, after all, are the world champions because they decided to get a management teacher. You should not have to fall back on either “loyal” or the straight-and-narrow.

Competition & Good Biz

Every need got an ego to feed 
Every need got an ego to feed
 — Pimper’s Paradise/Bob Marley 

TIME was when dominant shareholders of large companies knew how to be economical with the truth. When faced with pesky reporters asking pointed questions about the next big M&A deal, they would look the journalist straight in the eye and lie unabashedly. Without blinking. These days they have a more sophisticated response — “The company does not wish to respond to market speculation,” or some such. On a more charitable note, they didn’t have a choice but prevaricate, since giving the news away could push up their cost of acquisition. Today, they also have to field some embarrassing questions from the securities market regulator.

They should get prepared for some more awkward questions, this time from a new regulator called the Competition Commission. According to recent reports, this newly minted commission is planning to draft rules that will require companies to inform the commission about its M&A plans. Failure to do so will invite penalties. But there is a crucial difference here: they can inform this new body after they’ve informed the stock exchange about their intentions. The commission will then take about a year to figure out whether the merger or acquisition is in the interest of competition in the system, as well as assess whether it compromises welfare of consumers.

Certain NGOs have been lobbying that companies should have to reveal their marriage intentions before the deed is done, as is mandatory in certain countries. That it’s the other way around is a big relief. Otherwise, it would have been an utter disaster. Here’s why. Some years ago, when private equity was still not a fashionable term, one of India’s oldest private equity players had major gripes about the FIPB rule. It required the private equity investor to seek FIPB clearance before investing in any company, listed or otherwise, since the fund was bringing in foreign investment. But the problem usually arose when the company was listed – if the PE wanted to invest in the company at Rs 100 per share, by the time the FIPB clearance would come, the price would jump to Rs 150. This would start a whole new round of negotiations and the transaction economics would have to be invariably reworked. The curious bit here was this: FIPB had wind of this investment deal even before the company’s shareholders. And, what’s even more curious, news of the impending deal would always leak out to the market.

The regulator’s hunger for price-sensitive information does not end here.

Another regulator was offended when a foreign player in its jurisdiction invested a large-ish chunk in a local player. Reason? The foreign player decided to inform the watchdog only after seeking the target’s board approval. In this case, the regulator’s ego was hurt since it was not informed of the transaction ex ante. Is it proper for a regulator to have prior knowledge of a price-sensitive information, before it is properly disclosed to all shareholders? This is a debate that pits the regulator’s ego against the private sector vulnerability.

The Competition Commission, however, might be justified in its role as a protector of competitive systems and consumer welfare. A long debate about how to avoid the pitfalls of the erstwhile Monopolies and Restrictive Trade Practices Act prefaced the founding of the commission. Also, about a year ago, Vinod Dhall (a member with the commission) wrote in a signed piece in this newspaper: “Experience shows that almost 90-95% of the mergers are not objected to by competition authorities. Only a small proportion of mergers face scrutiny and could be prohibited after due inquiry.” That should be of some respite to worried corporates. But a larger worry looms. Experience worldwide shows that most cases linger on for years.

Example: In 1984, Coca-Cola Bottling Company of the Southwest acquired the Dr Pepper and Canada Dry carbonated soft drink franchises for the San Antonio, Texas area, from the San Antonio Dr Pepper Bottling Company, a wholly-owned subsidiary of the parent Dr Pepper concentrate company. The Federal Trade Commission found the deal would impact competition in the soft drinks industry. The company duly challenged this in a court of law. It won the case and the commission finally dropped its proceedings against the company in 1996 – 12 years after the original deal! Sure this is an isolated case, but given the litigious nature of Indians, this pattern has a strong likelihood of repeating itself here. That will be unfortunate and has the potential to bog down the commission’s genuine intentions.

It leaves another large question unanswered: who is to monitor the uncompetitive and monopolistic ways of PSUs and government bureaucrats? Or, stop the administrative apparatus from misusing price-sensitive data?

Airlines Tying The Knot Shouldn’t Surprise You!

I heard them say that you can have your cake and eat it
But all I wanted was one free lunch 
How can I eat it when the man that’s next to me, he grabbed it 
Lord, he beat me to the punch
 —You Make Me Feel So Free, Van Morrison 
    
IN Bengal it is good form, indeed advisable, to carry antacids when attending a wedding feast. It’s like an insurance policy against the malevolent after-effects of genuine culinary appreciation. Unfortunately, the Indian aviation industry also should have remembered to carry its component of acidity busters. A prolonged indulgence has resulted in an inevitable consolidation among the no-frills airlines, or low-cost carriers (LCCs), though it may still be a bit too early to sing a dirge. The music’s stopped and the party was good till it lasted, but the bill has to be paid now. As a result, Air India’s merging with domestic PSU airline Indian, Jet’s taken over Sahara and, now, Kingfisher has wrapped its wings around Air Deccan. These are symptoms of a feast gone on for too long. Call it, if you will, “the alka-seltzering of the Indian aviation industry”!

The former chief executive of a large blue chip looked visibly traumatised after he once had to fly a low-cost carrier from Goa to catch an unscheduled meeting in Mumbai. Reason: there were only two passengers in the entire aircraft, apart from the full crew component! This, to an extent, shows the degree to which some of the low-cost carriers (LCCs) might have built in over-capacity without caring about yields. Over-capacity and a mad spree for market share resulted in cut-rate ticket prices, leading to negative yields.

But, that such a consolidation was overdue should not have come as a surprise. In January, industry magazine Flight International carried a story titled “Indian aerospace: Too much choice?” The question might have seemed rhetorical then, but subsequent events seem to be bearing out the story’s main contention: “Many see 2007 as the year in which consolidation may finally begin, and it could prove to be a pivotal one for the country’s airline sector.” Watch out for what now happens to the remaining LCCs — SpiceJet, IndiGo, and GoAir.

But, seen globally, India could be following only what’s been recognised world over. The outlook’s grim for most US airlines as domestic demand loses altitude. Even Britain’s LCCs are reporting lower passenger demand as airport taxes have soared. Questions have been raised time and again about the viability of the low-cost model, especially when the legacy carriers have themselves launched LCCs as a flanking strategy (though a majority of these had to be wound up later). With the exception of the first, true-blue LCC — Dallas-based Southwest Airlines — most other no-frills have struggled to maintain their yields or margins. Southwest is known for its ability to keep tweaking its model — within the overall LCC framework — as and when market dynamics change.

But, all this also raises another larger question: at which point does the consumer trade off between value and price? Nirmalya Kumar of London Business School wrote recently: “Most low-cost players alter customer behaviour permanently, getting people to accept fewer benefits at lower prices. Low-price warriors are aided by the fact that consumers are becoming cynical about brands, better informed because of the internet, and more open to value-for-money offers.” HBR, December 2006) The key term here is: ‘value-for-money’! Most LCCs in India felt that only low prices mattered to the consumer. In fact, they got the first part of the model right — a single passenger class, a single type of aircraft (to reduce training and maintenance costs), unreserved seating, reliance on electronic sale of tickets, no “free’ meals on flights and reduced in-flight crew component. But, they were also tripped by an exogenous factor — the miserable state of the country’s aviation infrastructure.

Most LCCs in the world rely on secondary airports, which are cheaper and relatively less crowded (UK-based LCC easyJet flies to Luton, Stansted and Gatwick in London instead of crowded Heathrow). In India, the concept of secondary airports does not exist. Plus, flying to the mainline airports adds to delays and longer turn-around cycles, all of which add to the overall cost. This then defeats the LCC model, especially if the airline is pricing its tickets substantially lower than legacy carriers. In desperation, LCCs then dilute value to keep margins afloat — deliberate mis-statements to passengers about delays, turning off the air-conditioning till the aircraft is airborne, faulty ticketing. All this infuriates passengers.

But it would be a mistake to write off LCCs altogether. Watch out for Chapter II of the Indian LCC story. Coming soon.

Customer Loyalty A Myth

COMPANIES that produce or market mass consumption items (including services, like airline flights) are constantly devising ways to retain their customers. This endeavour has spawned an entire new marketing idiom, which borrows heavily from the conjugal vocabulary. Terms such as infidelity, loyalty, fickleness are all used to describe the range of a consumer’s shopping behaviour. Companies also spend fortunes trying to map how consumers go about deciding what to buy. As part of this exercise, many companies – especially those with retail operations – have launched loyalty programmes as an attempt to retain customers.

Loyalty programmes are essentially sophisticated marketing devices that seek to reward a ‘loyal’ customer, thereby encouraging him with greater incentives to spend more on the same products in the future. It’s somewhat akin to buying fidelity through incentives. In today’s context, most loyalty programmes come in the form of points earned for every purchase, which can then be later redeemed against future purchases. Customers are issued cards or granted membership to a lumpy club of buyers.

These programmes have been around for many years (remember the stamps trading programme introduced many years ago?), but the modern form of loyalty programmes was probably born with the advent of the frequent flier programmes started by the US airline industry in the 1970s (American Airlines is probably credited with the first such plan). Interestingly, travel writer Pico Iyer mentioned in a book that most people now earned more frequent flyer miles on the ground (through hotel reservations, car hires) than in the air. 

But, if you look at it closely enough, most loyalty programmes are also attempts by companies to accumulate buyer data. Membership into most programmes requires the applicant to fill in a form that captures some essential demographic data. By collating data on the customer’s buying patterns, his income levels and his possessions, marketers hope to gain insights into what makes the buyer tick. Or, get a rough outline of his mental mapping. This rush for constructing a customer database is also known as the data-for-dollars madness – retailers willing to offer products at a discount in exchange for data on the consumer. 


But numerous surveys and studies have shown that most loyalty programmes are unable to achieve what they set out to do, that is retain ‘loyal’ customers. Mostly, these studies conclude, loyalty programmes do probably end up giving the customer satisfaction but are still miles away from ensuring loyalty. Take a prominent Indian private airline’s much-feted frequent flier programme, which recently won an international award. But, once low-cost carriers were introduced in the market, flyers deserted this airline (the high-flying airline’s eroding market share is well documented). If its programme was indeed robust (attempts to convert frequent flier miles on this airline is still an ordeal), would patrons walk out on it? As this example highlights, loyalty programmes cannot afford to give value the short shrift. Another example is credit cards. Try converting the points earned through purchases and the annual marathon looks like a stroll through the park. 

All this points to an insincerity among sellers. They seem to be only keen on either obtaining data or ensuring immediate sales, even if that means sacrificing long-term customer value. The customer ends up feeling having gained nothing. Cards issued by many retail outlets force customers to make purchases against their accumulated points within a stipulated time frame, giving rise to the creeping feeling among buyers that the retailer’s programme is only a subterfuge for short term expediency. Loyalty actually be damned. 


Many studies have also pointed out the ineffectiveness of a one-size-fits-all loyalty programme, since it targets everybody but appeals to nobody. According to a research paper written by two professors at Stanford Graduate School of Business (Wesley R Hartmann & V Brian Viard), programmes work only if a company’s heavy buyers are also its most price-sensitive customers. Segmenting heavy and light customers might make more sense for rewards programmes, suggest the two academics. Reason: the greatest beneficiaries of most programmes turn out to be those who do not need any persuading to part with their money in any case (example: business travellers whose airfare is paid by their companies). In such a case, is the company justified in investing money to reward this lot of buyers? Writing in a column recently in Business Week magazine, Steve McKee (president of McKee Wallwork Cleveland Advertising) posited that companies are better off investing their resources on gaining customer affection, rather than loyalty: “I think many companies have gone too far down the road of focusing on loyalty at the expense of equity… If you focus on share of heart, you will get share of wallet. The reverse may not always be true.” I’d drink to that!