Wednesday, August 08, 2012

Desperados... no more!

Year 2009: the year many textile majors would prefer to let go. Year 2010: the year many thought would never come... and it did! a future check of a sector that has started showing clear signs of a strong revival... by Angshuman Paul

Desperados – that’s what you’d call players in the Indian textile industry, whose lot has stood witnessed to an extremely disappointing three-year period leading to 2008-09, post a scintillating 10.9% growth in 2006-07. When asked about the reasons behind this sad tale, industry experts have one word on their lips – slowdown! With exports dwindling and consumer spending falling, the textile giants have indeed felt the poisonous sting of the global slowdown. To give you one particular example, on our visit to the Bangalore campus of the country’s largest wholesale supplier of garments, the Blackstone Group-controlled Gokaldas Exports Ltd (GEL), during a recession-struck July 2009, we could clearly see signs of slowdown painted across the lush green landscape spread across two acres. The stretch looked more like a sylvan oasis of tranquillity, with people moving about in a sloth-embarrasing & mystifyingly unhurried pace; a sight which stood in great contrast to the maddening mid-city rush in the metropolitan. And not to forget, three of their manufacturing plants were peacefully taking a nap... That was then.

Today, five months later, as 2010 kicks off with high expectations and great optimism prevails, with Indian exports hitting a 15-month high in December 2009, the still-sprawling location seems to have been caught in the throes of a ‘wake-up’ metamorphosis. As far as developments in the boardroom is concerned, today, the company is quickly ramping up its act and crafting bold strategies to meet the rising demand of the global apparel market, which seems to have retraced the right road to prosperity. In fact, this exporter is all set to increase its production capacity to three million garments per month with plans to invest more than Rs.1 billion by 2010.

“The global market for Indian textile has started changing and matters are definitely improving now. We anticipate a rise in orders by atleast 20% during the first quarter of 2010,” explains Rajendra J. Hinduja, MD, Gokaldas Exports Ltd. However, this export house is not the only one celebrating the homecoming of overseas demand, for there are many like the Ludhiana-based Nahar Group and other leading apparel exporters and manufacturers in the country, who are also gearing up for a busier tomorrow, with recovery and better opportunities blipping on their radar.

Some industry watchers may judge the situation sceptically, labelling all hopefuls as ‘over-optimistic’, but the truth remains – currently, with demand from key export markets like US & EU having fallen to alarming levels, there is only ‘rich’ growth likely to happen over the next 3-4 quarters! Talking about one such market, US, a hopeful D. K. Nair, Secretary General, Confederation of Indian Textile Industry (CITI) exclaims, “The rise in demand will mainly come from US (and it has already started), which is still the largest apparel market for India. And even over the coming few months, we will be controlling this market like we have been doing it in the pre-recession days...” About three years back, this industry, which had generated a mind-boggling $19 billion in revenues, had persuaded rating agencies like CRISIL to project a terrific $110 billion in revenues by 2012 – a dazzling absolute growth of 479% compared to the present figure. On the other hand, precisely a year back, CITI had estimated the exports to escalate to a breathtaking $50 billion by 2010. The question therefore is – will projections be met, considering that the wounds inflicted by the slowdown have still not healed completely? When asked, Nair shoots back: “We might not achieve this target as the slowdown affected exports in a big way. But going by the growth that we achieved by the end of 2009, we can surely achieve at least 60% of the export figures forecasted for 2010.” Sounds great, but it is also not to be forgotten that there are many in the name of global competition that will scramble to capture precious parts of this pie...

Then there is another part to the tale – the slowdown has also taken its toll on India’s arch rival in the trade, China, which also registered a dip of 20% in the annual growth rate of apparel export (as per CII). But that is where the similarity ends. Unlike China, which trade analysts feel has substiantial amount of funds in its kitty to increase production capacity to fill any form of backlog, India as per CITI, falls short by around Rs.15 billion to even meet the backlogs accumulated during July-December 2009 backlog. Worse, in order to be able to comfortably meet export requirements for 2010 , the country needs an additional Rs.30 billion – in all Rs.45 billion too short of being in the comfort zone...




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Monday, July 30, 2012

Pay for the crime; not literally!

Blood money is a common practice that is endorsed by a number of Nations as an alternative to the conventional judicial system. It’s time other countries too consider this alternative for the victim’s family

The debate around blood money is very much relevant to the legal process, as it diminishes the utmost objective of law that aims to protect society from crimes. However, the practice of blood money, where out of court monetary settlements are made by the accused with the kith and kin of the victim, is omnipresent.

In July 2011, the death penalty against 17 Indian youths for killing a Pakistani in a fight over alcohol bootlegging in 2009 was waived by the Sharjah Appeals court after an Indian businessman agreed to pay Rs.40 million as blood money on their behalf. American Central Investigation Agency contractor Raymond Davis was also pardoned from the charge of killing two Pakistanis in January 2011 after the families of the victims agreed to a whopping blood money deal of around Rs.60 million.

Several countries believe that blood money is more apt rather than ‘an eye for an eye’ perspective. Countries like Saudi Arabia, Iran and Pakistan have enacted laws for Qisas and Diyat a.k.a blood money. In Japan, it is very common to give money (read: blood money) or mimaikin to the sufferer’s family or next to kin. The Korean legal system also practises blood money (hapuigeum), even for serious crimes like rape, under certain conditions. Somali people follow a customary law, Xeer (a polycentric legal system developed indigenously), which waives punishment to the offender on issue of blood money to the family of the victim for crimes like theft, rape and murder.


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Saturday, July 28, 2012

India’s it Story so far was that of a few big players

India’s it Story so far was that of a few big players and a number of smaller ones. Now it’s time that some M&As Balance this Anomaly out

There is not much expectation of deals happening from the larger MNC players. The key rationale for these deals would be access to the Indian market. For instance, GroupOn acquired Sosasta.com for an undisclosed amount early this year. The leading deal in the first half of this year was Serco’s acquisition of BPO giant Intelenet Global Services for $634 million. The latter had access to clients in UK, US and India. Otherwise, in the software space, with global IT giants having set up shop in India, there is little they can gain in terms of price/portfolio/market advantage by acquiring smaller Indian software firms. Girish Vanvari, Executive Director, KPMG India, adds, “Many companies are sitting on idle cash. There are not too many targets to acquire, and at the same time the valuations are high.”

Globally, technology M&As are happening across the board as companies look a ways to ride the next wave in IT services, software and the internet. When it comes to outbound deals by Indian IT firms, a surprisingly large number of small deals have happened, and the focus in this case, apart from acquiring an attractive portfolio, has been easier entry to a newer geography. Wipro acquired the global oil and gas technology business of SAIC earlier this year for $150 million. Other deals in the first half of 2011 include GenPact’s acquisition of Headstrong Corporation for $550 million, Infosys’ acquisition of New Zealand-based Telecom Corporation’s Software Services Division for $3.9 million and Polaris Software Lab’s acquisition of IdenTrust Inc. for $20 million. In addition, there is plenty to gain for mid and small tier IT companies to merge since they do have complementary strengths to leverage. The first half of this year saw a major deal when iGate Corporation and Apex Partners completed their acquisition of 83% stake of Patni Computers for $1.21 billion. For iGate, this helps expand its reach beyond BFSI, which was Patni’s Achilles Heel to insurance, manufacturing, retail and distribution. HCL Technologies, which made the $658 million acquisition of Axon Group, has also looked bullish and is looking for similar deals that provide it growth opportunities. And other IT companies would find it inevitable too. M&As are going to be a key ingredient of Indian IT’s next leap forward, and there is no doubting that.


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Friday, July 27, 2012

Is Profit as a “Direct Goal” Overrated?

The Word Profit has Provoked a Wide Range of Issues and Emotions among Respondents & Businesses around The World. It also Launched Debates, and many readers Argued for Measures of Success other than Profit, writes Prof. Jim Heskett, Baker Foundation Professor, Emeritus, at Harvard Business School.

Why do managers choose to pursue profit so directly? The word “profit” has always provoked a wide range of issues and emotions among respondents. It sets-off several debates. They ranged from definitions of “acceptable” profit, to profit’s effect on decision-making and even to the future and viability of capitalism.

One debate concerned the primacy of profit as a goal. Deaver Brown (author of The Entreprenuer’s Guide) led this argument by saying, “Profit is the only legitimate goal of a corporation...,” pointing out that it serves many important functions for us as employees, citizens, and others. David Zemanek (Sales leader at Thomson Reuters) added, “Isn’t that why they call them ‘for profit’ companies?” Ann Brown (former Chairman of Consumer Product Safety Commission) said, “There’s nothing wrong with profit as a goal. What’s important is how you achieve it.” (Tony Hayward’s replacement at BP, announced on July 26, may be a timely illustration of that point; BP is very profitable, but there is official evidence that it continues to compromise safety.)

Gerald Nanninga (VP – Retail Ventures Inc.), on the other hand, argued that profit is a default measure, commenting that, “It is easier to measure and reward a goal of ‘producing a profit of x’ than it is to set goals around creating value faster than costs (his preferred goal).” Deepak Alse (a technology expert) reminded us that “the world of business... is an unbounded system! The ‘Corporation’ is in effect an acceptance of the idea that profit-seeking should happen through indirect approaches.” Mark Nadler (Partner at Oliver Wyman-Delta) commented, “Operationally, profit as a final goal is probably impossible because of principal/agent problems and lack of information and knowledge. This makes intermediate targets that affect profit important.” Steve Brogan (Managing Partner of Jones Day), meanwhile, offered an interesting analogy: “Anyone who has ever gotten involved in serious marksmanship understands that there is a difference... between the intended target and the aiming point.” In a pessimistic and somewhat lamenting tone, Tom Dolembo (Consultant, Disaster Planning Associates) ventured another reason: “I suspect profit, in the pure capitalist sense, is obsolete... we’re just not capitalists anymore. Profit is just another archival number to be doubted.”

One argument for measures other than profit as “direct” goals is the complexity of the corporation and the difficulty of drawing a direct line between any action and profit. Consultant Raymond Suarez said, “In a world characterised by increasing complexity... reconsidering profit as being the sole and superior criterion for business success, is the only rational approach to take.” On the other hand, Dan Wallace (co-founder of Hungry Fish Media) argued, “The presumption that problems are complex is a self-fulfilling prophecy... the most profitable and successful companies I know are rigorous... about driving simplicity and... driving out complexity...”


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